SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITY EXCHANGE ACT OF 1934 [FEE REQUIRED]
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended January 31, 1997 Commission file No. 33-5820-LA
NEVADA 77-00882545
State or other jurisdiction (IRS Employer ID#)
of incorporation or organization
SEMICON TOOLS, INC.
Exact name of Registrant as specified in its charter
111 Business Park Drive, Armonk, New York 10504
(Address of principle executive offices) (Zip code)
Registrant's telephone number, including area code (914) 273-1400
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Act of 1934, during the
preceding 12 months (or for such 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained to the
best of the Registrant' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-KSB or any
amendment to this form 10-KSB. [X]
Issuers revenue for its most recent fiscal year $1,602,830
The aggregate market value of the voting common stock held by
non-affiliates (1) of the Registrant based on the average of the high
($0.15) and ($0.13) low bid prices of the Company's Common Stock, for the
week ended March 14, 1997, is approximately $966,224 based upon the
6,830,174 shares of Registrant's Common Stock held by non-affiliates.
The number of shares outstanding of each of the Registrant's classes of
Common Stock, as of April 17, 1997 is 9,367,500 shares all of one class of
$.001 par value Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Transition Small Business Disclosure Format Yes No X
SEMICON TOOLS, INC.
FORM 10-KSB
FISCAL YEAR ENDED JANUARY 31, 1997
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal proceedings
Item 4. Submission of matters to a vote of security holders
PART II
Item 5. Market for Company's common equity and related
stockholder matters
Item 6. Management's discussion and analysis of financial
condition and results of operation
Item 7. Financial statements
Item 8. Changes in and disagreement with accountants
on accounting and financial disclosure
PART III
Item 9. Directors, executive officers, promoters and
control persons; compliance with Section 16(a)
of the Exchange Act
Item 10. Executive compensation
Item 11. Security ownership of certain beneficial owners
and managements
Item 12. Exhibits and reports on Form 8-K
Signatures
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PART I
Item 1. Business
General Development and Plan Operation:
Semicon Tools, Inc. (the "Company") principally sells small precision disposable
diamond tools used to manufacture electronic components and devices which it
either manufactures or purchases from exclusive suppliers. Through East Coast
Sales Company, Inc. ("ECS"), a wholly-owned subsidiary, the Company also serves
as a distributor and fabricator of industrial ceramic products and a distributor
of "clean room" materials and supplies primarily used by the electronics and
defense industries (e.g., items used to preserve a contamination-free
environment).
In August 1989, the Company purchased for $15,000 an interest in KBR (Malaysia)
SDN BHD ("KBR"), a new corporation organized under the laws of, and located in,
Malaysia. Subsequently, the Company increased its ownership in KBR to 9.25% for
which it paid, in the aggregate, a total of $232,000 in cash and technology
rights. On January 1, 1993, L.S. Technology of Penang, a Malaysian manufacturer
("LS") acquired 50% of, and assumed the management responsibilities of KBR, LS,
through KBR, assumed the overall manufacturing responsibility for the Company's
hubbed and hubless diamond-coated nickel-dicing blades. During the year ended
January 31, 1996, KBR relocated its manufacturing facilities. Operations during
this period were minimal.
On June 22, 1996, the Company purchased all the assets of KBR/LS Technology
Joint Venture and placed them in a new Malaysian company division, DTI
Technology SDN BHD ("DTI"). This wholly-owned subsidiary manufactures products
sold by the other two subsidiaries inclusive of hubbed and hubless
diamond-coated nickel-dicing blades. In effect a start-up operation, it will
also sell to an Asian base of semiconductor manufacturers.
Patent License:
Mr. Pian and his wife granted the Company an exclusive royalty-free license to
U.S. Patent No. 4,219,004 (relating to the Company's hubless dicing blades,
issued August 26, 1980), and corresponding French and British patents, to
manufacture, use and sell the invention. The license expires in August 1997 and
is terminable by the licensors, among other things, if the Company files a
petition in bankruptcy or insolvency or is declared bankrupt or insolvent. The
Company is obligated under the license to defend, at its sole expense, all suits
alleging that the patented inventions infringe third party claims or are
invalid. In January 1993, the Company granted KBR non-exclusive rights to the
use the patent, technology and process for the manufacture of hub diamond dicing
blades and hubless diamond dicing blades, which rights were subsequently
purchased by STI.
Mr. Pian and the Company no longer consider the patent to have material value
or usefulness. Management believes that the market is driven now by
production know-how and marketing capability.
Principal Products:
The disposable tools sold by the Company to more than 400 customers include:
dicing blades and scribes which are the tooling components of precision
electronic saws and scribers, respectively, used for cutting circuit chips from
silicon wafers and ceramic substrates, for cutting shapes and forms principally
out of porcelain and ceramic molds in the manufacture of false teeth, and for
cutting ferrite materials for the computer industry; and dressers for the
shaping and forming of grinding wheels in the machine tool industry. Industrial
ceramic products and clean room supplies round out the Company's major product
lines as of the fiscal year-end.
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The percentage contributions to the Company's sales by product line are as
follows for the periods indicated.
Fiscal Year Ended January 31:
Product line 1993 1994 1995 1996 1997
- ------------ ---- ---- ---- ---- ----
Blades 29.6% 27.2% 29.3% 28.0% 24.7%
Scribes 4.9% 4.3% 3.9% 4.0% 7.1%
Dressers 2.3% 2.7% 2.0% 1.8% 1.4%
Miscellaneous* 18.8% 10.3% 4.2% 5.9% 3.5%
Ceramic products 26.8% 45.8% 47.2% 47.6% 57.6%
Clean room supplies 17.6% 9.7% 13.4% 12.7% 5.7%
* Includes flanges, flange lapping rings, dismounting tools, special bonding
tools, wax holding media, dressing plates and thermodes/synthrodes.
The Company principally sells the products and provides the services described
below:
1. Scribes:
Scribes were the original way of cutting silicon wafers and performing die and
integrated circuit separation. These tools, which have tips made out of gem
quality diamonds, are used to make a scratch or channel on the wafer so that
separation occurs when pressure is applied. Presently, this product group has
limited growth potential in this application since the electronics and
semiconductor industries have in large part switched from scribing machines to
dicing saws for the wafer cutting process. However, diamond scribes are
preferred over sawing for cutting certain wafer materials, such as gallium
arsenide, because they provide cleaner separation, and for certain low volume
applications which do not justify the capital expense of converting to a dicing
saw operation. The Company currently uses third party contractors to set or
"lap" the diamonds into the tools. In addition, a new application associated
with products with special surfaces has been required of the Company.
2. Dicing blades:
Dicing blades are made of diamonds bonded with nickel alloy. They are used with
the precision electronic dicing saws which the electronics and semiconductor
industries use to cut and separate integrated circuits and discrete devises from
silicon and other type wafers. Like scribes, dicing blades are manufactured in a
variety of exposures, thicknesses and micron sizes to best match the material
being cut. The blade market consists of two types of blades (hubbed and hubless)
and three types of materials; diamond/metal, (the most common),
diamond/thermoset plastic (called resin blades) and sintered metal.
The hubbed blade, which has been used since the introduction of die sawing, is
permanently affixed to the outer edge of an aluminum hub, and when the blade
loses its cutting edge, generally after about eight hours of use, or is broken,
the unit, i.e. both the hub and blade, must be discarded. The Company's hubbed
blades are manufactured by DTI under the Company's label. Hubbed blades are
competitively manufactured principally by Disco, Inc., Semitec Corporation and
Dynatex Corporation.
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The Company also manufactures and sells a hubless blade made from a
diamond/nickel alloy in such a way as to produce a very fine edge which is
extremely hard and durable. The blade can be easily reduced in size if it breaks
or loses its sharpness, enabling it to perform in progressively smaller flanges.
In this manner, a hubless blade can be used up to four times longer than a
hubbed blade. In addition, because the blade has no hub it can be replaced
without discarding any flanges. However, despite these benefits, hubless blades
have not been widely accepted in the United States. However hubless blades have
gained wide-spread acceptance in the Far East where management believes the
Company has gained approximately 20% of the dicing blade market. Management
attributes this dichotomy to a general resistance in the United States to
implement new production approaches and train saw operators in different methods
of operation. For example, to replace both a hubbed and hubless blade, the
operator must remove the old unit and install a workable one. However, with a
hubless blade, before such installation, the operator must perform the
additional steps of reducing the size of the blade and mounting it on a smaller
flange. This requires some special training which presently is only provided by
the Company or other hubless blade manufacturers. Furthermore, the potential
cost savings associated with the use of hubless blades constitutes a relatively
small percentage of total manufacturing costs. Hubless blades also are sold by
Disco Abrasive Systems, Inc., Norton Company, Kulicke & Soffa Industries, Inc.
Resin Blades are primarily used to cut hard abrasive materials used in the
Hybrid Industry of Microelectronics such as ceramic and glass. Resin Blades are
manufactured in the Company's New York facility at the present time. Sales and
marketing are presently done through the Company's network of distributors and
representatives, and direct sales. The Company believes that its blades have
superior features which distinguish them from the blades of other manufacturers,
due to a process developed and refined by the Company.
At present, the Company has an insignificant share of the world-wide dicing
blade market. There can be no assurance that the Company will be able to
increase its market share or that the market for hubless blades will increase in
the future.
3. Dressers:
Dressers are diamond-tipped tools generally used to "dress" or shape abrasive
grinding wheels in machine shops. These products are sold by the Company
principally to Black & Decker Company and Snap on Tools, which resell the
products to third parties. The Company believes that there are multiple foreign
suppliers of natural diamond-tipped dressers.
4. Industrial Ceramic Products:
This group of products are manufactured by third parties, warehoused by the
Company and distributed by it, often after a value-added machining process
(accomplished either internally or by third parties). These products fall into
two principal categories (1) insulators, tubes, rods and crucibles and other
labware, all of which are standard catalogue items; and (2) machinable ceramics,
which are produced by a Japanese firm and others.
5. Clean Room Materials and Supplies:
This group of products include cleaning chemicals, mats, flooring, wipes, swabs,
gloves, vinyl curtains, finger cots and desiccators. The Company also
distributes small tools such as tweezers, pliers, vacuum pickups and scribes,
core drills and sinter blades for ceramic applications.
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6. Custom Room Materials and Supplies:
Because of the wide variety of dicing blades and the dicing saws needed to test
the blades already in place at the Company's facility, a contract cutting
service was started a few years ago. Since fiscal 1994, this service has become
a significant product line in terms of the Company's overall revenues. The
timely purchase of a new saw increased the quality, capability and output of the
custom cutting service offered by the Company. Future growth is expected as
additional equipment is purchased.
Competition:
The Company competes with many companies which participate in one or more
segments of the Company's business operations. Virtually all of these
competitors have greater financial and personnel resources and greater market
recognition than the Company. The Company also competes with firms manufacturing
different products performing similar functions, particularly diamond/thermoset
plastics or resin blades, which are the blades most widely used in precision
electronic saws for cutting ceramics substrates even though they have a shorter
useful life. Furthermore, the Company faces the possibility of adverse market
conditions arising from technological changes, shifting product emphasis among
competitors and the entry of new competitors into its markets. Management
believes that the Company will be able to successfully compete in these markets
due to superior pricing and specialized services provided to its customers.
Customer and Backlog:
During the fiscal year ended January 31, 1997, two customers accounted for
approximately 34% of the Company's net sales. All other individual customers
each accounted for less than 10% of net sales of the Company.
As of January 31, 1997, the Company had a backlog of orders of approximately
$440,000, of which approximately 90% are expected to be shipped between June 1
and August 31, 1997. While such orders may be cancelled or postponed, the
Company believes that they are firm and the resulting revenues will be realized.
Manufacturing Facilities:
The Company's Armonk plant, a modern one-story building, includes both
administrative offices and a complete machine shop of lathes, electronic saws, a
surface grinder, a milling machine, a 15 ton power punch press, a drill press,
injection molds, lapping machine tools, dies and molds; inspection equipment,
including hand measuring instruments, profile projector microscope and
electronic testers for equipment service; and a complete manufacturing facility
for resin/diamond dicing blades.
The Company's Malaysian facility is equipped to manufacture both the hubbed and
hubless dicing blades.
Marketing:
The Company markets its products directly through telephone solicitation,
participation in trade shows and advertisements in trade journals. By these
latter means and coincident with an upsurge in general in market demand, the
internal sales personnel saw a substantial buying increase.
In 1997, the Company will also anticipate results from the additional outside
representatives which it has put in place.
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Employees:
The Company employs a total of six full-time employees and one part-time
employee. This employee count includes Mr. Pian who serves as President and
Chief Executive Officer, and Francine Pian and Craig Pian, Mr. Pian's children,
both of whom are also Directors of the Company and who continue to serve in
fabrication and clerical/administrative capacities with the Company. In
addition, the Company also utilizes outside consultants and part-time workers
when required. The Company anticipates that, if needed, it could hire
fabrication and administrative personnel, encountering no problems in
identifying suitable candidates.
In Malaysia, the Company employs five full-time employees. Mr. Pian makes
regular trips to the Country to oversee the manufacturing operation.
Research and Development:
The Company's research and development activities are limited to the testing and
evaluation of manufacturing processing and procedures. Such activities are
accomplished routinely without any special or unusual expenditures. All of the
Company's nickel/diamond hub and hubless dicing blade research and development
is now being conducted at the University of Sains (science) Malaysia pursuant to
a joint venture agreement between the Company and the University for which the
Company, in its opinion, pays a nominal price in accordance with the agreement.
Potential Acquisitions:
The Company believes that a substantial part of its growth will come from
acquisitions made both in the United States and overseas. It has instituted an
aggressive program in Malaysia which is tied into the operation of DTI. Locally,
the Company is seeking opportunities less strenuously, but nevertheless,
seriously. In both instances, both funding and the acceptance of its common
stock by sellers are not certain and could be mitigating factors.
Item 2. Properties
The Company rents approximately 4,000 square feet of manufacturing and
warehousing space and 2,000 square feet of office space in Armonk, New York. The
lease, which runs through May 31, 1998 calls for an annual rental of $39,047
including utilities, taxes and other costs. As compared to the Company's
previous location in New Rochelle, New York, the reduced area presently leased
by the Company for manufacturing and warehousing, is consistent with the
Company's recently adopted reliance upon third parties for manufacturing and is
in keeping with management's cost-savings program.
The Company leases three automobiles with terms expiring through December 2000
at an aggregate annual rental plus insurance of $25,307.
Item 3. Legal proceedings
The Company is not presently a party to any material litigation.
Item 4. Submission of Matters to a Vote of Security Holders
For the fiscal year ended January 31, 1997, no matters were submitted to a vote
of security holders through the solicitation of proxies or otherwise.
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PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters
(a) The principal U.S. market in which the Company's Common Shares (all of which
are of one class, $.001 par value Common Stock) are tradable is in the
over-the-counter market on the "Bulletin Board". The aforesaid securities are
not traded or quoted on any automated quotation system. The OTC Bulletin Board
symbol for the Company's Common Stock is "SETO". The following table sets forth
the range of high and low bid quotes of the Company's Common Stock per calendar
quarter as provided by the National Quotation Bureau, Inc. (which reflect
inter-dealer prices without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions). The information provided below
reflects the one-for-150 reverse split of the Company's Common Stock effected on
February 3, 1993.
Period Low High
1997
First quarter $0.070 $0.200
1996
First quarter 0.125 0.625
Second quarter 0.406 0.969
Third quarter 0.313 0.688
Fourth quarter 0.125 0.406
1995
First quarter 0.25 1.50
Second quarter 0.25 0.625
Third quarter 0.25 1.00
Fourth quarter 0.0625 0.375
1994
First quarter 0.25 1.50
Second quarter 0.50 5.25
Third quarter 0.25 3.00
Fourth quarter 0.25 2.125
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(b) As of January 31, 1997, the approximate number of the Company's issued and
outstanding shares of Common Stock was 9,367,500, which shares are held by
approximately 308 owners of record, inclusive of those brokerage firms and/or
clearing houses holding the Company's common shares for their clients (with each
such brokerage house and/or clearing house being considered as one holder).
(c) The Company has not paid or declared any dividends upon its Common Stock
since its inception and, by reason of its present financial status and its
contemplated financial requirements, does not contemplate or anticipate paying
any dividends upon its Common Stock in the foreseeable future.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
I. Financial Condition
Assets:
Total assets at the end of fiscal 1997 were $1,288,937, as compared with
$1,005,609 at the end of fiscal 1996. Generally, the increase results from the
higher, more profitable sales volume.
The notable differences in these years is reflected in the components of total
assets as follows:
(i) At January 31, 1997 cash increased to $116,334, as compared to
$42,642 at January 31, 1996. This increase was largely due to the
higher overall revenues experienced during fiscal 1997 coupled with
sales of stock and exercise of options;
(ii) For the same reason, accounts receivables at January 31, 1997
reached $162,439, up from $158,631 at January 31, 1996. This
represented an increase of 2.4% from the end of fiscal 1996;
(iii) Inventory increased during fiscal 1997 to approximately $339,552,
or 30.3%, to meet the demands of increases in sales for 1997. See
"Results of Operations" below for a more complete discussion of the
factors which resulted in higher net sales for fiscal 1996;
(iv) Property and equipment for fiscal 1997 did not change
substantially when compared to fiscal 1996 and did not have a
significant effect on the Company's financial condition in 1996. There
were no substantial additions to property and equipment during the year
other than via investment in the new subsidiary.
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Liabilities:
Total liabilities at the end of fiscal 1997 were $543,020, as compared with
$855,594 at the end of fiscal 1996. The changes in this comparison are reflected
in the components of total liabilities as follows:
(i) Significant reductions in liabilities for notes payable and notes
payable shareholders are evident this year as the Company made
substantial repayment of these items through the issuance of shares of
its common stock. This also contributed to a significant improvement in
the Company's retained earnings deficit at January 31, 1997 as compared
to January 31, 1996. See discussion in "Results of Operations" below;
(ii) Accounts payable at January 31, 1997 were also substantially lower
than at January 31, 1996, also due to the Company settling certain
accounts payable through the issuance of shares of common stock.
Additionally, during fiscal 1996, accounts payable were higher than
usual because purchase of inventory increased in 1996 in line with the
increased dependency upon third party manufacturers by the Company;
(iii) Long term liabilities decreased in 1997 to $170,000, as compared
to $185,421 in 1996 due to the reclassification of the old shareholder
loans from current to long-term loans. This reclassification resulted
from the subordination of the shareholder debt to certain bank loans in
1995. None of the long-term loans are considered by management to be on
demand;
(iv) Accrued interest increased substantially in 1997 to $188,309, as
compared to $155,177 in 1996 due principally to the reclassification of
certain payments due with respect to shareholder loans from accounts
payable, as carried on the Company's books during 1996, to accrued
interest. This reclassification was made in order to correctly reflect
the nature of these obligations.
Financial condition in fiscal 1997 when compared to 1996 is stronger and more
stable.
See "Results of Operations" for additional information.
II. Results of Operations
Net sales for the year ended January 31, 1997 (fiscal 1997) were $1,602,830
compared to $1,248,668 for the year ended January 31, 1996 (fiscal 1996), an
increase of over 28.3%. This increase in sales revenues has, in management's
opinion, continues the reversal of the decline experienced during fiscal 1995
and was the result of management's efforts to expand the Company's ability to
fabricate value-added ceramic and resin blade manufacture and an increase in the
sale of scribes mostly due to a new application from one customer. During fiscal
1997, this effort resulted in a 69.4% increase in ceramic sales, an 8.9%
increase in all blade sales including the resin based blades and a 142% increase
in the sale of scribes. Management believes, although no assurances can be
given, that these increased product lines, coupled with management's ongoing
efforts to further expand its supplier network, will continue to be reflected in
higher revenues during fiscal 1998 and beyond.
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Gross profit from operations during fiscal 1997 reached $1,105,570, or 70.0% of
gross revenues, as compared to $727,304 in fiscal 1996, or 58.2% of gross
revenues. This increase of more than 52.0% over fiscal 1996 is attributable to
two primary factors. First, the Company's continued change in product sales mix
to greater profit margin items such as resin blades and ceramic products has
enhanced overall gross profit margins. Second, the full realization of the
benefits derived from management's competitive pricing steps taken during fiscal
1996 and continued during fiscal 1997 for certain products. In combination,
these measures have resulted in a dramatic increase in gross profit margins well
beyond that projected by management in its annual report for fiscal 1996.
Management anticipates that this trend will continue, that the cost of sales
will remain at the new favorable levels experienced in fiscal 1997 and that
gross margins will continue at fiscal 1997 levels.
Operating expenses decreased dramatically from $1,109,735 in fiscal 1996 to
$950,013 in 1997, a decrease of over $159,722 or 14.3%. The increased
profitability of the Company had the effect of decreasing the Company's retained
earnings deficit from $2,009,971 at the end of fiscal 1996 to $1,781,396 at the
end of fiscal 1997.
However, to properly evaluate the Company's operating results, it must be noted
that during fiscal 1996, the Company effected a series of transactions utilizing
its authorized but unissued shares of common stock (the "Shares"), and issued an
aggregate of 1,270,000 Shares to officers, directors and various creditors for
settlement of accounts payable and various loans owing by the Company, in a
total aggregate value of $113,650. In addition, during fiscal 1996, the Company
also issued an additional 910,000 Shares to several consultants as part of their
compensation for consulting services (see "Financial Statements - Note 8"). In
keeping with the prescribed accounting procedures of the Securities and Exchange
Commission, these Shares were valued at an aggregate of $346,442. Consequently,
Selling, General and Administrative Expenses for fiscal 1996 were increased by
this amount. These are, however, non-recurring events. Had these transactions
not been present during fiscal 1996, Selling, General and Administrative
Expenses would have been $719,555 and income from operations would have been
$53,802, as compared to a loss of $292,640, as reflected on the Company's
financial statements.
See "Financial Statements - Note 7".
The Company's net income for the year ended January 31, 1997 was $213,652 ($.02
per share) compared to a loss of $419,630 for the prior year. It should be
noted, however, that if the effects of the Company's stock activity, as
discussed above, were eliminated from consideration, the Company's operations
would have resulted in a net pre-tax profit of $16,603 rather than the stated
loss in 1966. Management believes that this is significant since it demonstrates
that the Company's operations have finally turned the corner and are profitable,
a situation which management believes will continue throughout fiscal 1997, as
confirmed by the increase in order back-logs at fiscal year-end (up to 10.5% to
$442,000 at January 31, 1997). This also confirms management's prior estimate
that operating revenues had to reach the $1.25 million level to achieve a "break
even" from operations. Management continues to take steps to reduce expenses,
identify new, more economical product sources and to generally expand sales.
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III. Liquidity and Capital Resources:
At January 31, 1997, the Company's current ratio (i.e., current assets divided
by current liabilities) stood at 1.96:1, as compared to .78:1 at January 31,
1996. Management believes that the Company's substantially improved position at
January 31, 1997 gives further credence to management's position that the
Company's operations did in fact make substantial progress during fiscal 1997, a
situation expected to continue throughout fiscal 1998 and beyond.
The Company believes that a substantial part of its growth will come from
acquisitions made both in the United States and overseas. It has instituted an
aggressive program in Malaysia which is tied into the operation of DTI. Locally,
the Company is also seeking opportunities. In the two instances, both funding
and the acceptance of its common stock by sellers are not certain and could be
mitigating factors.
Otherwise, management believes that the Company will have adequate working
capital and sufficient credit alternatives to fund the Company's current
operations during the next fiscal year, including support for its planned
expansion of sales. Contributing to this factor is that the $170,000 of
long-term debt, principal and interest, is considered by management not to be of
a demand type.
The principal source of funds for the Company's operations during fiscal 1997
has been from operating revenues and proceeds from the sale of securities and
the exercise of options, as reflected in the Company's financial statements.
Property and equipment remained essentially the same in fiscal 1997 when
compared with fiscal 1996. There were no material commitments for capital
expenditures at the end of fiscal 1997, except in connection with any
acquisitions.
The Company also does not presently anticipate the allocation of significant
resources for machinery and equipment purchases. Any such commitments will be
dependent on demand for the delivery of products under new or increased orders
and are expected to be purchased pursuant to available financial programs,
leasing programs or bank financing without committing substantial cash assets on
the part of the Company. Future conditions, such as successful equity financing
efforts, may change this position.
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 in the economy in general and therefore could not
affect the operating results of the Company in the future.
Item 7. Financial Statements
The following financial statements have been prepared in accordance with the
requirements of Item 310(a) of Regulation S-B:
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INDEPENDENT AUDITORS' REPORT
Board of Directors
Semicon Tools, Inc. and Subsidiaries
New Rochelle, New York
We have audited the consolidated balance sheets of Semicon Tools, Inc. and
Subsidiaries as of January 31, 1997 and the related consolidated statements of
income, retained earnings, and cash flows for the years ended January 31, 1997
and 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of DTI
Technology, SDN BHD, a wholly owned subsidiary, which statements reflect total
assets of $419,897 and $401,371 as of January 31, 1997 and 1996, respectively,
and total revenues of $118,611 and $80,463 for the years then ended. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for DTI
Technology, SDN BHD, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Semicon Tools, Inc. and
Subsidiaries as of January 31, 1997 and 1996 and the results of their operations
and their cash flows for the years ended January 31, 1997 and 1996, in
conformity with generally accepted accounting principles.
April 17, 1997
F-1
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
YEAR ENDED JANUARY 31, 1997
ASSETS
Current assets:
Cash $ 116,334
Accounts receivable, less allowance
for doubtful accounts of $6,500 162,439
Inventory 339,552
Prepaid expenses and other current assets 81,643
Deferred tax asset, current portion 31,250
Total current assets 731,218
-------
Property and Equipment 378,096
-------
Other assets:
Goodwill, net of amortization 102,238
Security deposits 14,885
Deferred tax asset, net of current portion 62,500
------
179,623
-------
$1,288,937
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 15,420
Notes payable, shareholders 84,462
Accounts payable 83,231
Accrued interest 188,309
Payroll taxes payable 1,598
-----
Total current liabilities 373,020
-------
Long-term debt, net of current portion 170,000
-------
Commitments and contingencies
Shareholders' equity:
Common stock par value $.001; 100,000,000
shares authorized 9,367,500 shares issued and
outstanding 9,368
Additional paid in capital 2,517,945
Retained earnings (deficit) ( 1,781,396)
-----------
745,917
-----------
$1,288,937
==========
See notes to consolidated financial statements.
F-2
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (LOSS)
YEARS ENDED JANUARY 31, 1997 AND 1996
1997 1996
---- ----
Net sales $1,602,830 $1,248,668
Cost of sales 497,260 521,364
------- -------
Gross profit 1,105,570 727,304
Selling, general and administrative
expenses 950,013 1,109,735
------- ---------
Income (loss) from operations 155,557 ( 382,431)
------- - -------
Other income (expenses):
Rental income 8,050
Interest expense ( 35,655) ( 45,249)
----------- -----------
( 35,655) ( 37,199)
----------- -----------
Income (loss) before income taxes 119,902 ( 419,630)
Provision for income taxes (benefit) ( 93,750)
----------- -----------
Net income (loss) $ 213,652 ($ 419,630)
========== ===========
Income (loss) per common share $ 0.024 ($ 0.103)
========== ===========
Weighted average number of common
shares outstanding 8,970,445 4,090,589
========= =========
See notes to consolidated financial statements
F-3
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED JANUARY 31, 1997 AND 1996
1997 1996
Operating activities:
Net income (loss) $213,652 ($419,630)
Adjustments to reconcile net income to
cash provided from operating activities:
Depreciation and amortization 23,317 62,542
Compensatory stock issued 54,125 10,050
Prior period adjustment ( 74,196)
Loss on foreign investment 89,119
Changes in other operating asset and liabilities:
Accounts receivable ( 3,808) ( 56,595)
Inventories ( 79,059) ( 48,786)
Prepaid expenses and other current assets ( 21,697) 343,482
Deferred tax asset ( 93,750)
Other assets ( 5,244) 1,341
Accounts payable ( 234,761) 160,424
Accrued expenses 33,132 77,848
Payroll taxes payable ( 41,415) ( 15,220)
--------- ---------
Net cash provided from (used in)
operating expenses ( 155,508) 130,379
--------- -------
Investing activities:
Purchase of property and equipment ( 25,549) ( 357,471)
(Increase) decrease in investment
in foreign subsidiary ( 3,776) 255,797
--------- ----------
Net cash used in investing activities ( 29,325) ( 101,674)
--------- ---------
Financing activities:
Proceeds from sale of stock 328,125 23,438
Increase in long-term debt 178,542
Decrease in notes payable ( 10,186)
Decrease in notes payable, shareholders' ( 23,338) ( 132,937)
Payment of long term debt ( 46,262) ( 45,811)
--------- ---------
Net cash provided from financing activities 258,525 13,046
------- ------
Net increase in cash 73,692 41,751
Cash beginning of year 42,642 891
------ ---
Cash end of year $116,334 $ 42,642
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 2,533 $ 17,422
======== ========
Income taxes -0- -0-
======== ========
Supplemental schedule of non-cash investing and financing activities:
Issuance of common stock for conversion
of debt, agreements, services and payment
of interest $ 0 $113,650
Issuance of common stock for purchase of
subsidiary 125,048 0
------- ---------
$125,048 $113,650
======== ========
See notes to consolidated financial statements.
F-4
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31, 1997 AND 1996
Additional Retained Total
Common paid in earnings Shareholders'
Shares stock capital (deficit) equity
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1995 3,685,000 $3,685 $1,869,192 ($1,501,222) $371,655
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
Stock issued for exchange of loans 670,000 670 39,330 40,000
Sale of stock 62,500 63 23,375 23,438
Prior period adjustment, loss in
equity of unconsolidated subsidiary ( 74,196) ( 74,196)
Net loss for the year ended January
31, 1996 ( 419,630) ( 419,630)
Balance at January 31, 1996 5,167,500 5,168 2,014,847 ( 1,995,048) 24,967
Issuance of stock on exercise
of stock options 2,550,000 2,550 237,450 240,000
Sale of stock 75,000 75 28,050 28,125
Issuance of stock for consulting
services 150,000 150 7,350 7,500
Issuance if stock regarding
acquisition of subsidiary, DTI
Technologies, SDN BHD 300,000 300 124,748 125,048
Issuance of stock for services 75,000 75 28,675 28,750
Sale of stock 400,000 400 59,600 60,000
Issuance of stock in lieu of payment
of officers salaries 650,000 650 17,225 17,875
Net income for the year ended January
31, 1997 213,652 213,652
--- ---- ----------- -------- ---------- ------- -------
9,367,500 $9,368 $2,517,94 ($1,781,396) $745,917
========= ====== ========= =========== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
1. Organization of the Company:
Semicon Tools, Inc. (the "Company"), a Nevada corporation, is primarily in
the business of selling small precision disposable diamond and other
base material tools used to cut and separate electronic components and
devices. In addition, it has two subsidiaries with their own product
lines.
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 (60,000 shares, as restated
- see Note 7) of the Company's $.001 par value common stock (see also
Note 5).
The Company's other wholly-owned subsidiary, DTI Technology, SDN BHD is a
Malaysian company which manufactures a product line similar to that of
Semicon Tools, Inc. Semicon Tools, Inc. acquired the assets of DTI
Technology, SDN BHD on June 22, 1996. 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.
2. Summary of significant accounting policies:
Principles of consolidation:
The consolidated financial statements of Semicon Tools, Inc. and
Subsidiary include all the accounts of Semicon Tools, Inc. East Coast
Sales Company and DTI Technology, SDN BHD after elimination of all
significant intercompany transactions and accounts. The financial
statements give retroactive effect to the acquisition of DTI
Technology, SDN BHD which has been accounted for as an acquisition as
if in a pooling of interest method at historical cost of the assets
acquired.
Cash and cash equivalents:
Cash and cash equivalents include all highly liquid investments with an
original maturity of three months or less.
Inventories:
Inventories, which consist solely of finished goods, are stated at the
lower of cost or market. Market is considered at net realizable value.
Per share amounts:
Net earnings per share are computed by dividing net earnings by the
weighted average number of shares of common stock outstanding during
the period. Fully diluted and primary earnings per common share are the
same amounts for the period presented.
F-6
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
2. Summary of significant accounting policies (continued):
Property and equipment:
Property and equipment are stated at cost. Depreciation of property and
equipment is provided using the straight-line method over the following
useful lives:
Years
Manufacturing 5-10
Furniture and fixtures 7
Other equipment 5-7
Leasehold improvements Length of lease
Expenditures for major renewals and betterment that extend the useful lives
of property and equipment are capitalized. Expenditures for maintenance
and repairs are charged to expense as incurred.
Income taxes:
The Company has elected to file a consolidated corporate income tax
return with its subsidiaries. For tax reporting purposes, the Company
uses certain accelerated depreciation methods which may create timing
differences between book and tax income. Deferred income taxes will be
reflected for these timing differences.
Post retirement benefits:
On December 31, 1990, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Post Retirement Benefits Other Than
Pensions." SFAS No. 106 requires that companies recognize the cost of
providing post retirement health care and other non-pension benefits
over the employees' service periods, rather than as the benefits are
paid. The Company does not provide any non-pension post retirement
benefits at the present time.
Allowance for doubtful accounts:
An allowance for doubtful accounts has been established based on
management's review of the outstanding accounts receivable balance and
their determination of possible uncollectible accounts.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-7
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
2. Summary of significant accounting policies (continued):
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impaired of
Long-Lived Assets to Be Disposed Of." "SFAS" No. 121 requires that
Long-Lived Assets and certain identifiable intangibles to be held and
used by the Company be reviewed for impairment whenever events indicated
that the carrying amount of an asset may not be recoverable.
Additionally, The Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based
Compensation". The effective date of "SFAS" No. 123 is for fiscal years
beginning after December 15, 1995, and established a method of accounting
for stock based compensation plans based on fair value. The Company does
not believe that "SFAS" No. 121 and No. 123 will have an impact on its
financial statements.
3. Nature of operation, risks and uncertainties:
The Company currently has a minuscule share of the dicing blade and
ceramics market. There can be no assurance that the Company will be able
to increase its market share or that the market will increase.
Furthermore, the Company faces the possibility of adverse market
conditions from technological changes, shifting product emphasis among
competitors and the entry of new competitions into its market.
4. Property and equipment:
Major classifications of property and equipment are as follows:
Manufacturing equipment $574,982
Other equipment 270,894
Office equipment 20,535
------
866,411
Less accumulated depreciation 488,315
-------
$378,096
========
5. Goodwill:
On January 26, 1990, the Company acquired East Coast Sales Company (its
wholly-owned subsidiary) for a cost of $309,000. The purchase price
exceeded the fair value of the assets by $134,281 which amount was
assigned to goodwill, and is being amortized on a straight-line basis
over forty years. Accumulated amortization of goodwill aggregated
$32,043 as of January 31, 1997.
F-8
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
6. Commitments and contingencies:
The Company was obligated under an operating lease agreement for the rental
of office and warehouse space in New Rochelle, New York. This lease
expired on September 30, 1995 and required minimum monthly payments of
$3,125. The Company subleased a portion of this space with a tenant
paying a monthly rent of $700.
Rental expense for the year ended January 31, 1996, including real estate
taxes amounted to $28,125.
InNovember 1995 the Company moved to new premises and 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:
January 31, 1998 $40,999
January 31, 1999 14,172
--- ---- ------
$55,171
=======
Rental expense for the year ended January 31, 1997 amounted to $39,047.
The Company also leases three vehicles under operating leases with terms
expiring through 1998. Total lease expense was $25,307 and $15,065 for
the years ended January 31, 1997 and 1996, respectively.
Future minimum rentals are as follows:
1998 $24,425
1999 13,696
2000 6,163
---- -----
$44,284
=======
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.
OnApril 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 of $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.
As of January 31, 1997 the balance had been paid in full.
7. Common stock and stock split:
OnFebruary 8, 1993, the Company effected a reverse split of its common
stock outstanding on a 1-for-150 basis. As a result of the split the
72,601,100 shares then outstanding became 484,007 shares while the
stated par value per share of common stock was not changed from $.001.
Fractional shares were rounded up to the nearest whole share. All
references to the number of shares and per share amounts included in the
financial statements have been restated to retroactively reflect the
aforementioned stock split.
F-9
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
7. Common stock and stock split (continued):
OnJanuary 25, 1995, the Company issued 760,000 shares of common stock as
per the terms of the consulting agreement described in Note 12. The
stock was valued at $380,000 or $.50 per share and is part of a one year
agreement beginning February 27, 1995.
During the year ended January 31, 1996, the Company issued shares of its
common stock for the following reasons:
Number
of Total
Date Issuee shares Value Reason for issuance
04/24/95 LS Technology 150,000 $ 43,650 Settlement of accounts payable
10/16/95 Eugene Pian 370,000 25,000 Exchange for loans
10/16/95 Silver Vaults 450,000 30,000 Settlement of accounts payable
10/17/95 Tan Oan Khoon 50,000 3,350 Consulting services
10/17/95 Raffic Mahamed 100,000 6,700 Consulting service
01/31/96 Eugene Pian 300,000 15,000 Exchange for loans
-- -- -- ------- ------
1,420,000 $123,700
========= ========
The Company also sold 62,500 common shares in the fiscal year January 31,
1996 for $23,438.
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.
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.
F-10
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
7. Common stock and stock split (continued):
During the year ended January 31, 1997, 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 25,250 Legal services
08/31/96 Paul Alper 25,000 3,500 Consulting services
01/31/97 Eugene Pian 500,000 13,750 Bonus
01/31/97 Craig Pian 150,000 4,125 Bonus
-- -- -- ------- -----
1,175,000 $179,173
========= ========
The Company sold 3,025,000 common shares during the year ended January
1997 for $328,125.
8. Long-term debt:
Long-term Current
Rate Portion Portion Maturity
Note payable, Citibank (a) 10% $15,420 1998
Note payable, shareholders (b) 13.5%-15% $170,000 1998
---- -- -------- ----
$170,000 $15,420
======== =======
(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:
January 31, 1998 $ 15,420
January 31, 1999 170,000
--- ---- -------
$185,420
========
F-11
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
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 notes matured in July 1994 and
amounted to $81,462. In April of 1997, these notes were renegotiated,
along with any accrued interest to be paid in monthly installments of
$4,053 including interest at 10%. The notes mature in April, 2001.
Demand note payable to shareholder carries interest at 10% and amounted to
$3,000.
Shareholders have not demanded payment in the current year.
10. Acquisition of subsidiary:
OnJune 22, 1996, the Company acquired 100% of the assets of DTI
Technology, SDN BHD, a Malaysian company formed on May 17, 1995, for a
total cost of $125,048. The contributing shareholder of Semicon Tool
Co., Inc. and Subsidiaries was also a major stockholder in DTI
Technology, SDN BHD. Accordingly the accounts are recorded at their
historical basis and their operations and cash flows have been included
as if the acquisition had occurred on May 17, 1995. The Company issued
300,000 of its common shares to the shareholders of DTI Technology. The
fair value being determined at 4.42 per share was equal to the net asset
value of the assets acquired. 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 January 31, 1997 resulted in a
net profit of $2,314.
F-12
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
11. Income taxes:
As of January 31, 1997 the Company had net operating loss carryovers of
approximately $1,780,000 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 year ended January 31, 1997
and 1996. The deferred tax asset less the deferred tax liabilities has
been reduced by a valuation allowance equal to the net tax benefit in
excess of the estimated taxable profits over the next three years.
Provision for income taxes (benefit):
1997 1996
---- ----
Current $ 31,250 $ 0
Deferred ( 125,000)
--------- ----------
Total benefit ($ 93,750) $ 0
========= ===========
A reconciliation of the income tax provision at the federal statutory rate
to the income tax provision at the effective tax rate is as follows
1997 1996
---- ----
Income tax computed at the
federal statutory rates 24,128 0
State tax (net of federal benefit) 7,122 0
Net operating loss carryforward ( 125,000)
--------- -------
Provision (credit) for income taxes ($ 93,750) 0
========= =======
The components of deferred tax assets and liabilities consist of the
following:
Deferred tax asset:
Net operating loss carryforward $538,750 $570,000
-------- --------
Total deferred tax asset 538,750 570,000
Valuation allowance ( 445,000) ( 570,000)
--------- ---------
$ 93,750 $ 0
======== ========
F-13
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
12. Principle products and segmentation of sales:
The disposable tools sold by the Company include dicing blades and
scribes, which are components of precision electronic saws and scribes
used to cut silicon wafers, porcelain and ceramic molds and dressers
used for the shaping and forming of grinding wheels in the machine tool
industry. Industrial ceramic products and clean room supplies are among
the Company's major products.
Financial information relating to industry segments and classes of
products:
January 31, January 31,
1997 1996
---- ----
Sales to customers:
Industry A: Semicon Tools, Inc. and
DTI Technologies, SDN BHD
Dicing blades $ 396,420 $ 326,072
Scribes 112,846 46,586
Dressers 21,773 21,532
Miscellaneous hardware 11,272 25,769
Other products 44,928 45,530
Industry B: East Coast Sales, Inc.
Ceramics 924,733 540,092
Clean room supplies 5,582 8,891
Other products 85,276 153,733
------ -------
$1,602,830 $1,168,205
========== ==========
Operating profit or loss:
Industry A: Semicon Tools, Inc. and
DTI Technologies, SDN BHD ($ 160,458) ($ 387,082)
Industry B: East Coast Sales, Inc. 280,360 57,243
------- ------
$ 119,902 $ 329,839
========== ==========
Identifiable assets:
Industry A: Semicon Tools, Inc. and
DTI Technologies, SDN BHD $ 683,878 $ 560,539
Industry B: East Coast Sales, Inc. 511,309 262,895
------- -------
$1,195,187 $ 823,434
========== ==========
F-14
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
12. Principle products and segmentation of sales (continued):
Foreign and domestic operations and export sales:
January 31, January 31,
1997 1996
---- ----
Sales to customers:
United States $1,100,133 $ 862,190
Far East 162,045 163,166
Europe 63,607 19,034
Canada 277,045 123,815
------- -------
$1,602,830 $1,168,205
========== ==========
Operating profit (loss):
United States $ 77,625 ($ 233,196)
Far East ( 17,867) ( 45,848)
Europe ( 16,729) ( 5,376)
Canada 76,873 ( 45,419)
------------- -------------
$ 119,902 ($ 329,839)
========== ===========
Identifiable assets:
United States $ 590,057 $ 582,167
Far East 432,763 114,457
Europe 36,786 13,422
Canada 135,581 113,388
------- -------
$1,195,187 $ 823,434
========== ==========
Six customers accounted for approximately 49% or $772,995 and of which
two customers accounted for 34% or $542,722 of consolidated revenues in
1997. Six customers accounted for 45% of consolidated revenues in 1996
or $526,362.
13. 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-15
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
14. Employment agreements:
On May 1, 1996, the Company entered into employment agreements with its
President and Vice President. The term of the agreements covers two one
year periods expiring on January 31, 1998. Compensation is set at a base
of $100,000 and $75,000 for the President and Vice President,
respectively, with each getting a bonus of 5% of consolidated gross
sales. Each employee also received 1,000,000 stock options at $.10. None
of these options had been exercised as of January 31, 1997.
15. Subsequent events:
On February 27, 1997, the Company entered into an investment banking with
Russo Securities for a three year period. The consultant shall assist
management in broadening the Company's exposure to the financial
community and in 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 shares of the Company's
common shares at prices varying from $.075 to $.10 during the period
commencing of February 27, 1997 and ending July 30, 1997. After July 30,
1997 the option price will be $.10 until the agreement expires. Upon the
signing of the agreement, the Company issued another 200,000 shares of
its common stock to other consultants related to Russo, with a possible
additional 400,000 shares being issued to these consultants if the
entire 6,000,000 options are exercised. The agreement can be terminated
by either party upon sixty days notice.
16. Computation of earnings per share:
1997 1996
---- ----
Weighted average number of
common shares outstanding $7,458,116 $4,090,589
Assumed conversion of
stock options 1,512,329
----------- ------------
Weighted average number of
common shares outstanding $8,970,445 $4,090,589
========== ==========
F-16
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
There have been no changes in or disagreements with accountants with respect to
accounting and/or financial disclosure.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
The following table provides information concerning each executive officer and
directors of the Company:
Name Title
Eugene J. Pian President and Director
Craig Pian Treasurer and Director
Francine Pian Secretary and Director
Directors are elected to serve until the next annual meeting of stockholders and
until their successors have been elected and have qualified. Officers are
appointed to serve until the meeting of the Board of Directors following the
next annual meeting of stockholders and until their successors have been elected
and have qualified. Craig and Francine Pian are the children of Eugene Pian.
A summary of the business experience of each officer and director of the Company
is as follows:
EUGENE J. PIAN has been President of the Company since April 1987. He had been
President of East Coast Sales since its inception in 1975 until its merger into
the Company in January 1990. From 1969 to 1975, he was Division Manager of
Consolidated Refining Company, where he was responsible for organizing a
division manufacturing the materials necessary to plate and stamp semiconductor
materials and supervising all sales and manufacturing. From 1960 to 1969, he was
Vice President of Semi Alloys, Inc., where he was responsible for the
manufacture and sale of fabricated metal products to the semiconductor industry.
CRAIG PIAN was appointed Director and Treasurer of the Company in 1996 having
been employed by the Company since its inception and previously by East Coast
Sales Co., now a subsidiary of the Company. Mr. Pian has been involved with all
aspects of the Company's manufacturing, sales and administrative operations for
the past 13 years and brings a great deal of stability and customer acceptance
to his new expanded role with the Company. Mr. Pian graduated Manhattan College
having received his Bachelor of Science Degree in Business, with a strong
emphasis on engineering.
FRANCINE PIAN was appointed Secretary and a Director of the Company in 1996
having been employed by the Company since 1983. Prior to joining the Company on
a full-time basis, Ms. Pian was employed in retail sales for some of the major
retail chain stores in the New York metropolitan are. She is a graduate of the
Laboratory Institute of Merchandising ("LIM") in New York bringing a well
rounded background suited for her responsibilities with the Company.
11
<PAGE>
Compliance With Section 16(a) of the Securities Exchange Act of 1934:
The Company does not have any securities registered under Section 12 of the
Securities Exchange Act of 1934 Commission and, accordingly, compliance with
Section 16(a) thereof is not required or applicable.
Item 10. Executive Compensation
During the fiscal year ended January 31, 1997, the Company paid Mr. Pian, its
President, the sum of $91,000, plus it paid for $1,000,000 of life insurance,
under which his wife is the beneficiary, and automobile leases and associated
insurance which may be deemed for the personal benefit of Mr. Pian (Mr. Pian
serves with an employment agreement).
Directors do not receive compensation for their services as directors, but may
be reimbursed for expenses incurred for attendance at meetings of the Board of
Directors.
Craig Pian, Treasurer, earns $66,000 per year, has an employment agreement and
life insurance coverage; Francine Pian earns $40,000 per year.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners - The persons set forth on
the chart below are known to the Company to be beneficial owners of more than 5%
of the Company's Common Stock, being the only class of its voting securities, as
of January 31, 1997.
(b) Security Ownership of Management - Information concerning the number and
percentage of shares of Common Stock of the Company owned of record and
beneficially by management, is set forth on the chart below:
Amount and Nature of
Name and Address of Beneficial Ownership
Beneficial Owner Shares Percentage (1)
Eugene J. Pian 1,768,150 18.6%
c/o Semicon Tools, Inc.
111 Business Park Drive
Armonk, New York 10504
Craig Pian 550,333 5.8%
c/o Semicon Tools, Inc.
111 Business Park Drive
Armonk, New York 10504
All Officers and Officers
as a Group (3 Persons) 2,687,327 (2) 28.2%
(1) Except as otherwise indicated in Note 2 below, the Company has been advised
that all individuals listed have the sole power to vote and dispose of the
number of shares set forth opposite their names.
12
<PAGE>
(2) Includes an aggregate of 45,284 shares owned by members of the immediate
family of Mr. Pian as to which he disclaims beneficial ownership. Excludes the
shares over which Mr. Pian has voting control pursuant to voting trusts
amounting to 1,542,500 shares. As a result of the foregoing voting trusts, Mr.
Pian has voting power over approximately 44.4% of the issued and outstanding
shares.
Item 13. Exhibits and Reports on Form 8-R
Exhibits
3.a Articles of Incorporation (1)
3.b By-Laws (1)
3.c Amendment to Articles of Incorporation (2)
10.a Agreement of Merger with Semicon Tools, Inc., a New York Corporation
(2) 10.b Articles of Merger (2) 10.c Certificate of Merger (2) 10.d
Patent License (1)
10.e Patent No. 4,219,004 (1)
10.f License Agreement with Bookuk Industry Company, Ltd. (1)
10.i Thermode/Synthrode Supplier Agreement (1)
10.j East Coast Sales Acquisition Agreement (3)
10.k $300,000 Promissory Note (3)
10.l Amendment to East Coast Sales Acquisition Agreement (4)
16. The required letter from the former accountants (5)
(1) Incorporated by Reference from Registrant's Registration Statement on
Form S-18 declared effective on June 8, 1998.
(2) Incorporated by Reference from Registrant's Form 8-K Report dated May
19, 1987.
(3) Incorporated by Reference from Registrant's From 8-K Report dated
February 19, 1990.
(4) Incorporated by Reference from Registrant's Form 10-K Report for the
year ended January 31, 1991.
(5) Incorporated by Reference from Registrant's Form 8-K Report dated
January 29, 1993.
Report of Form 8-K
None during fiscal 1996.
Statements contained in this Form 10-KSB as to the contents of any agreement or
other document referred to are not complete, and where such agreement or other
document is an exhibit to the Company's Registrant Statement or is included in
the forms indicated above, each such statement is deemed to be qualified and
amplified in all respects by such provisions.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SEMICON TOOLS, INC.
Dated: By:_/s/Eugene J. Pian
Eugene J. Pian, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dated indicated.
SIGNATURES TITLE DATE
Director and Principal
Executive Officer,
Principal Financial and
Accounting Officer
Eugene J. Pian
/s/ Craig A. Pian Treasurer and Director
Craig A. Pian
/s/Francine Pian Secretary and Director
Francine Pian
14
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