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, 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 December 31, 1999, 5,780,263 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
Consolidated Financial Statements of
V3 SEMICONDUCTOR, INC.
Periods ended December 31, 1999 and 1998 - Unaudited
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet as of December 31, 1999 and September 30, 1999 3
Consolidated Statement of Operations for the three months ended December 31, 1999 4
Consolidated Statement of Stockholders' Equity for the period ended December 31, 1999 5
Consolidated Statement of Cash Flows for the period ended December 31, 1999 6
Notes to Consolidated Financial Statements 7 - 8
</TABLE>
<PAGE>
V3 SEMICONDUCTOR, INC.
Consolidated Balance Sheets
(Stated in United States dollars)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, September 30,
1999 1999
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 4,708,203 $ 4,474,174
Accounts receivable, net of allowance for doubtful
accounts of $19,248; $16,352 at September 30, 1999 1,535,742 1,447,455
Inventories 360,022 53,873
Prepaid expenses 102,855 163,908
- ------------------------------------------------------------------------------------------------------------------------------------
6,706,822 6,139,410
Capital assets 1,156,042 1,099,606
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$ 7,862,864 $ 7,239,016
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,094,910 $ 801,685
Accrued liabilities 158,419 145,532
Capital taxes payable 12,943 12,806
- ------------------------------------------------------------------------------------------------------------------------------------
1,266,273 960,023
Shareholders' equity:
Capital stock:
Preferred shares:
Authorized 10,000,000; no shares issued
and outstanding - -
Special shares:
Authorized 3,400,000; no shares issued and
outstanding - -
Common shares:
Authorized 50,000,000; 5,780,263 shares issued and
outstanding at December 31, 1999; 5,743,664
issued and outstanding at September 30, 1999 5,780 5,743
Additional paid-in capital 6,816,845 6,675,572
- ------------------------------------------------------------------------------------------------------------------------------------
6,822,625 6,681,315
Cumulative translation adjustment (4,676) (14,465)
Deficit (221,358) (387,857)
- ------------------------------------------------------------------------------------------------------------------------------------
6,596,591 6,278,993
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$ 7,862,864 $ 7,239,016
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</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
V3 SEMICONDUCTOR, INC.
Consolidated Statements of Operations - Unaudited
(Stated in United States dollars)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three months ended
December 31,
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1999 1998
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<S> <C> <C>
Sales $ 2,007,434 $ 1,379,237
Cost of goods sold 526,935 385,648
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1,480,499 993,589
Other income 49,011 65,749
Expenses:
Selling, general and administrative 661,383 650,285
Research and development 375,959 257,351
Depreciation and amortization 85,273 27,632
Rent and utilities 35,852 33,870
Bank charges and interest 335 951
- ------------------------------------------------------------------------------------------------------------------------------------
1,158,802 970,089
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Income (loss) before income taxes 370,708 89,249
Income taxes:
Current 204,209 27,000
Deferred - -
- ------------------------------------------------------------------------------------------------------------------------------------
204,209 27,000
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Net income (loss) $ 166,499 $ 62,249
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Net income (loss) per share:
Basic $ 0.03 $ 0.01
Diluted 0.03 0.01
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</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 value Shares Par value common shares capital deficit) adjustment (deficit)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1999 - $ - 5,743,664 $5,743 $6,675,572 $6,681,315 $(387,857) $(14,465) $6,278,993
Changes during the period:
Issuance of common shares - - 36,599 37 141,273 141,310 - - 141,310
Net income - - - - - - 166,499 - 166,499
Translation adjustment - - - - - - - 9,789 9,789
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 - $ - 5,780,263 $5,780 $6,816,845 $6,822,625 $(221,358) $ (4,676) $6,596,591
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
V3 SEMICONDUCTOR, INC.
Consolidated Statements of Cash Flows - Unaudited
(Stated in United States dollars)
<TABLE>
<CAPTION>
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Three months ended
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
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Operating activities:
<S> <C> <C>
Net income (loss) $ 166,499 $ 62,249
Add items not involving cash:
Depreciation and amortization 85,273 27,632
Deferred revenue - (145)
Changes in working capital balances
Accounts receivable (88,287) (37,705)
Income taxes 137 (918)
Inventories (306,149) 15,451
Prepaid expenses 61,053 16,714
Accounts payable 293,226 (214,243)
Accrued liabilities 12,887 (39,172)
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Total cash provided by (used by) operating activities 224,639 (170,137)
Investing activities:
Additions to capital assets (141,709) (60,706)
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Total cash used by investing activities (141,709) (60,706)
Financing activities:
Issuance of common shares 141,310 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total cash provided by (used by) financing activities 141,310 -
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 224,240 (230,843)
Effect of currency translation adjustments on cash 9,789 (4,008)
Cash and cash equivalents, beginning of period 4,474,174 4,821,556
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 4,708,203 $ 4,586,705
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Cash paid for:
Interest $ - $ 270
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</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
V3 SEMICONDUCTOR, INC.
Notes to Consolidated Financial Statements - unaudited (continued)
(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, 1999 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, 1999 audited
consolidated financial statements and notes thereto. The Company's
results of operations for the first fiscal quarter of 2000 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>
V3 SEMICONDUCTOR, INC.
Notes to Consolidated Financial Statements - unaudited (continued)
(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>
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Three months ended
December 31,
1999 1998
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<S> <C> <C>
Net income $ 166,499 $ 62,249
Shares used in basic earnings per share computations
Weighted average common and special shares outstanding 5,752,714 5,517,996
Effect of dilutive securities:
Dilutive shares contingently
issuable upon the exercise
of stock options and warrants 1,073,208 548,483
Shares assumed to have been purchased for
treasury with assumed proceeds
from the exercise of stock options and
warrants (408,018) (442,062)
- ------------------------------------------------------------------------------------------------------------------------------------
Average shares outstanding
- assuming dilution 6,417,904 5,624,417
- ------------------------------------------------------------------------------------------------------------------------------------
</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 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.
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:
<PAGE>
<TABLE>
<CAPTION>
Three months ended
December 31,
2000 1999
<S> <C> <C>
Sales 100.0% 100.0%
Gross Profit 73.8 72.0
Other Income 2.4 4.8
R&D Expenditures 27.5 20.6
Selling, General & Administrative 39.0 51.6
Net Income 8.3 4.6
</TABLE>
(1) The R&D expenditures are expressed before applying R&D tax credits of
$177,011 in the first three months of fiscal 2000 and $27,000 in the first three
months of fiscal 1999.
Three month periods ended December 31, 1999 and December 31, 1998.
Sales
Sales for the three month period ended December 31, 1999 increased
$628,197 to $2,007,434, a 45.5% increase over sales of $1,379,237 during the
three month period ended December 31, 1998. The sales increase was attributable
to an increase in the number of design wins in general, an increase in the
number of design wins shipping in production volumes and the continuous increase
in the number of manufacturing sales representatives promoting the Company's
products and internal sales force. Sales of the core BMC, EPC and SSC devices
increased by 68.7%, 214.2% and 104.1% respectively. The sales for evaluation
boards increased by 49.3%. The Company expect the sales trend to continue as
Company unveil its latest product, the "PDC".
Gross Profit
Gross profit was $1,480,499 for the three month period ended December
31, 1999, an $486,910 or 49.0% increase over gross profit of $993,589 during the
three month period ended December 31, 1998. The increase was predominantly due
to increased sales and reduced product costs. During the first three months of
fiscal 2000, gross profit margins, as a percentage of sales, were 73.8%,
compared to 72.0% in the first three months of fiscal 1999. The increase in
gross margin is a reflection of the reduced product costs negotiated with the
manufacturing subcontractors. As the number of volume transaction increase,
gross margin is expected to level off and decline slightly.
Other Income
Included in other income are royalty income and interest income
totaling $49,011 in the first three months of fiscal 2000, a decrease of $16,738
or 25.5% compared to $65,749 in the first three months of fiscal 1999.
In the three month period ended December 31, 1999, royalty income
decreased by $8,977 or 66.7% to $4,477 compared to $13,454 in the three months
ended December 31, 1998. This decrease was a direct result of reduction in
royalty payments from National Semiconductor Corporation. In the first three
months of fiscal 2000 interest income decreased by $10,309 or 19.7% to $41,985
compared to $52,294 the first three months of fiscal 1999. 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.
<PAGE>
During the three month period ended December 31, 1999, other income, as
a percentage of sales, were 2.4% compared to 4.8% during the three month period
ended December 31, 1998.
Research & Development ("R&D") Expenditures
R&D expenditures increased by 94.50% to $552,970 in the first three
months of fiscal 2000, from $284,351 in the first three months of fiscal 1998,
before applying R&D investment tax credits of $177,011 in the first three months
of fiscal 1999 and $27,000 in the first three months of fiscal 1999. 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 59.3%.
Investment Tax Credits ("ITC") and Research and Development Expenditures
The Company's Canadian subsidiary incurs current and capital
expenditures, which are eligible as a scientific research and experimental
development ("SR&ED") expenditures. The Company earns ITCs at a rate of 20% on
"SR&ED" expenditures each year. These ITCs are available for application against
the Canadian subsidiary's federal income taxes payable. Unclaimed ITCs can be
carried forward for a period of 10 years. In addition to this benefit, SR&ED
expenditures incurred by the Company's Canadian subsidiary are deductible
against taxable income. The undeducted SR&ED expenditures can be carried forward
indefinitely. A significant amount of the research and development expenses
reported on the income statement qualify as a SR&ED expenditures. The Company
has elected to utilize its ITCs to reduce taxable payable to Nil instead of
utilizing SR&ED expenditures to reduce taxable income to Nil due to the
carryforward period limits on the ITCs. As a result, the ITCs in the amount of
$204,209 were utilized in first three months of fiscal year 2000 to reduce taxes
payable to Nil and netted against the related capital assets and research and
development expense in the amount of $27,198 and $177,011 respectively. In the
first three months of fiscal year 1999, ITCs claimed in the amount of $27,000
was netted against research and development expenses.
Net Income for the period
Net income for the three months ended December 31, 1999 was $166,499,
an increase of $104,249 or 167.5%, compared to net income of $62,250 for the
three months ended December 31, 1998. This increase in net income was due
primarily to an increase in product sales and gross margin.
Liquidity and Capital Resources
The Company's cash and cash equivalents increased from $4,474,174 on
September 30, 1999 to $4,708,203 on December 31, 1999. During the first quarter
of 2000 cash provided by operating activities was $224,639. The principle use of
cash was to increase accounts receivable by $88,287, increase in inventories by
$306,149. The principle source of cash was from net income of $166,499, increase
in accounts payable and prepaid expenses by $293,226 and $61,053 respectively.
Cash used by investing activities was $141,709 as a result of the purchase of
computer equipment and software used to run the business and develop products.
Net cash flows provided after all activities were $224,240.
<PAGE>
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.
PART II
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 three month
period ended December 31, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the project to be signed on its behalf by the
undersigned thereto duly authorized.
V3 SEMICONDUCTOR INC.
February 3, 2000 By: /s/ Carl O. Mitchell
--------------------
Carl O. Mitchell
Chief Operating Officer,
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> sep-30-2000
<PERIOD-END> dec-31-1999
<CASH> 4,708,203
<SECURITIES> 0
<RECEIVABLES> 1,535,742
<ALLOWANCES> 19,248
<INVENTORY> 360,022
<CURRENT-ASSETS> 6,706,822
<PP&E> 1,156,042
<DEPRECIATION> 85,273
<TOTAL-ASSETS> 7,862,864
<CURRENT-LIABILITIES> 1,266,273
<BONDS> 0
0
0
<COMMON> 5,780
<OTHER-SE> 6,590,811
<TOTAL-LIABILITY-AND-EQUITY> 6,596,591
<SALES> 2,007,434
<TOTAL-REVENUES> 2,056,445
<CGS> 526,935
<TOTAL-COSTS> 526,935
<OTHER-EXPENSES> 1,158,802
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 335
<INCOME-PRETAX> 370,708
<INCOME-TAX> 204,209
<INCOME-CONTINUING> (1,705)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 166,499
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
