UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended
January 31,1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________ to __________
Commission file number 33-5820-LA
SEMICON TOOLS, INC.
(Name of small business issuer in its charter)
Nevada 77-00882545
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
554 North State Road
Briarcliff Manor, New York 10510
(Address of principal executive offices) Zip Code
Issuer's telephone number (914) 923-5000
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
N/A N/A
Securities registered under Section 12(g) of the Exchange Act:
N/A
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No ____
<PAGE>
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of Registrant's
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]
State issuer's revenues for its most recent fiscal year. $7.8
million
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. $4,224,840 as of March 25, 1998.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 20,167,501 shares of Common Stock,
$.001 par value, outstanding as
of March 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE - None
2
<PAGE>
PART I
Item 1. Description of Business.
General
The Company recycles in Malaysia plastics and non-ferrous
metals it recovers from electrical/telephone cable and precious metals it
recovers from electronic components, including circuit boards obtained from
obsolete computers. It also manufactures plastic rope and rubber bands in
Malaysia and Vietnam. The Company also sells to more than 400 customers
disposable tools, including (1) diamond dicing blades and scribes which are the
tooling components of precision electronic saws and scribers, (2) dressers for
the shaping and forming of grinding wheels in the machine tool industry and (3)
industrial ceramic products and clean room supplies. Approximately 71% of the
Company's revenues are generated in Malaysia.
Business Development over the Past Three Years
For more than the past three years, Semicon Tools, Inc. (the
"Company"), a Nevada corporation, has (a) sold small precision disposable
diamond cutting tools, which include dicing blades (which are components of
precision electronic saws) and scribes which are used to cut integrated
circuits, and dressers which are used to shape grinding wheels in machine shops,
in each case to the microelectronics and semiconductor industries primarily to
manufacture electronic components and devices, (b) distributed and fabricated on
a "value-added" basis industrial ceramic products, and (c) distributed "clean
room" materials and supplies (e.g., items used to preserve a contamination-free
environment) primarily used by the electronics and defense industries. Since
June 1996, when it purchased all of the assets of KBR (Malaysia) Sdn. Bhd.
("KBR"), a corporation organized under the laws of, and located in, Malaysia,
the hubbed and hubless diamond-coated nickel-dicing blades sold by the Company
have been manufactured in Malaysia; the other products described above have been
made or fabricated by the Company at its facility in New York. The Company sells
these products to hundreds of Fortune 1000 companies, including IBM, National
Semiconductor, Motorola and General Motors.
On November 26, 1997, the Company acquired all of the issued
and outstanding capital stock of Teik Tatt Holding Co. (1979) Sdn. Bhd. ("TTH"),
a Malaysian corporation formed in 1979, in exchange for 10,000,000 shares of
Common Stock, which resulted in a change-in-control of the Company. (As used
herein "TTH" refers to TTH and its direct and indirect subsidiaries.) See Item
11, Security Ownership of Certain Beneficial Owners and Management. TTH is (a)
the largest Malaysian manufacturer of plastic rope, yarn and twine products
which are commonly used in fishery, construction, agriculture, forestry,
shipping and transportation
3
<PAGE>
and for sporting and household uses, (b) the third largest Malaysian
manufacturer of rubber bands, which it sells in Malaysia, Singapore, Indonesia,
Taiwan and Hong Kong, and (c) a growing recycler of plastics and non-ferrous
metals it recovers from electrical/telephone cables and of precious metals it
recovers from electronic components, including circuit boards obtained from
obsolete computers (TTH consumes approximately 30% of the recycled materials and
resells the balance to other Malaysian companies). Unless the context otherwise
requires, the "Company" includes all the Company's direct and indirect
subsidiaries, including TTH.
The Company's current overall strategy is to position itself
to take advantage of opportunities in Malaysia and Asia as a whole. Although no
assurance can be given, the Company also expects that its principal growth will
be in its metal recycling business.
Forward-Looking Statements
THIS ANNUAL REPORT ON FORM 10-KSB, INCLUDING WITHOUT
LIMITATION ITEM 6, MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION,
CONTAINS STATEMENTS WHICH ARE NOT HISTORICAL FACTS AND ARE FORWARD-LOOKING
STATEMENTS WHICH REFLECT MANAGEMENT'S EXPECTATIONS, ESTIMATES AND ASSUMPTIONS.
SUCH STATEMENTS ARE BASED ON INFORMATION AVAILABLE AT THE TIME THIS FORM 10K-SB
WAS PREPARED AND INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE FUTURE
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO DIFFER SIGNIFICANTLY FROM
PROJECTED RESULTS. FACTORS THAT COULD CAUSE ACTUAL FUTURE RESULTS TO DIFFER
MATERIALLY INCLUDE, AMONG OTHERS, THE RISKS OF DOING BUSINESS IN MALAYSIA AND
SOUTHEAST ASIA, INCLUDING, WITHOUT LIMITATION, ECONOMIC AND POLITICAL
CONDITIONS, FOREIGN CURRENCY TRANSLATION RISKS, TARIFFS AND OTHER FOREIGN TRADE
POLICIES AND DEPENDENCE ON INEXPENSIVE LABOR IN SUCH COUNTRIES, PARTIAL
DEPENDENCE ON THE SEMICONDUCTOR MANUFACTURING INDUSTRY, AVAILABILITY OF RAW
MATERIALS, COMPETITION AND TECHNOLOGICAL OBSOLESCENCE.
Principal Products
Overview
The percentage contributions to the Company's sales by product
line for the fiscal year ended January 31, 1998, which includes the results of
TTH and its subsidiaries only from November 26, 1997, are as follows:
4
<PAGE>
Contribution to Total Sales
Product line Fiscal 1996 Fiscal 1997
------------ ----------- -----------
Industrial Ceramic Products 58% 16
Diamond Cutting Tools 33 7
Miscellaneous Products 9 1
Clean Room Materials and Supplies * *
Scrap Metal Recycling - 41%
Plastic Rope - 26
Rubber Bands - 6
Plastic Recycling - 2
*Less than 1%
Scrap Metal Recycling
In December 1996, the Company began recycling metal cable and
wire by stripping and separating the wire from its plastic insulator (which now
is used in the plastic recycling business described below). Scrap metal
recycling is done in the Company's own facilities, which currently recycle
approximately 800 tons per month and have the capacity to recycle an additional
700 tons per month. The scrap is sourced locally in Malaysia and overseas
through international networking, and the end products of the scrap metal
recycling are processed scrap copper, cast-iron and aluminum, and fully
processed plastic resins. The Company is currently studying the feasibility of
engaging in the value-added process of converting the crushed/granulated scrap
metals into ingot/block form, the prices for which are set daily in the
commodities markets and therefore fluctuate considerably depending on market
conditions.
Recycling of metals is very competitive. The Company competes
domestically for the scrap used in recycling with three other Malaysian
companies, Cop Chuan Bee, Lam Eng Trading (M) Sdn. Bhd. and Beloga Sdn. Bhd.,
and with other companies in Japan, Korea, China, Taiwan and Europe. The Company
has been able to maintain reliable and sufficient supplies of scrap raw
materials, principally because it is able to outbid its competitors for the
scrap because it recycles all of the materials, metal and plastic, whereas most
of its competitors recycle only certain types of metal.
Plastic Rope
The Company is the largest plastic rope manufacturer in
Malaysia, with a 40% market share. It manufactures the rope from plastic resins
(approximately 30% of which it obtains from its recycling operations), chemical
composition and color pigments. It currently manufactures 350 tons of rope per
month and has the
5
<PAGE>
capacity to produce an additional 150 tons per month. Rope sizes range from
2.5mm to 42mm for three or four-strand rope and from 3mm to 80mm for
eight-strand braided rope (cross rope), rope length varies from 200m to 220m in
coils and colors include white, black, green, yellow, blue and red.
New machinery along with an aggressive marketing strategy
enabled the Company to expand into Australia, New Zealand and Europe. Import
quotas have been a substantial obstacle preventing the Company from entering the
United States market. However, in September 1997 the Company relocated one
production line to Vietnam, whose goods may enter the United States without
quota. The Company intends to enter the United States market with its
Vietnamese-produced goods.
The Company has three major competitors in the manufacture of
plastic rope in Malaysia, one of which also manufactures fishing nets using such
rope. These competitors manufacture ropes in only a limited ropes in a full
range of sizes, whereas the Company produces ropes in a full range of sizes. The
Company believes it enjoys an additional competitive advantage as it produces
finished end products requiring no additional processing, whereas the products
of its domestic competitors require further processing prior to use. The Company
also has a competitive edge over foreign rope manufacturers because Malaysia
imposes a 25% duty on imported plastic rope to Malaysia.
Rubber Bands
The Company is the largest Malaysian rubber band manufacturer,
with a 90% share of the Malaysian market, in which rubber bands are widely used
in the stationery and packaging industries as well as in households. The Company
also exports rubber bands to the Far East, Europe and North America.
The Company's rubber bands are produced in the rubber band
district of Bedong, Kedah, allowing it to receive a constant supply of raw
materials including plastic resins, chemical composition and color pigments. It
produces an average of 250 tons of rubber bands per month and has the capacity
to manufacture a maximum of 300 tons per month. The rubber bands are available
in a wide variety of sizes, with diameters ranging from 11mm to 159mm, lengths
from 20mm to 250mm, widths from 1mm to 21mm and thicknesses from .9mm. to 3mm.
They are available in red, green, blue, yellow, white and black, and standard
packaging is 30kg per bag.
The Company's major Malaysian competitor is Central Elastic
Corporation Sdn. Bhd., which produces its rubber bands mainly for export.
However, Thailand currently is the largest exporter of rubber bands in the
world, in part because of the large number of rubber trees located in that
country. The Company plans to conduct a feasibility study on relocating its
rubber band
6
<PAGE>
manufacturing operations to Vietnam to lower production costs and expand its
markets by taking advantage of the relaxed trade agreements which Vietnam has
with many countries.
Plastic Recycling
In 1994, the Company began recycling used plastics. The
Company maintains its own Malaysian plastic recycling facilities in
which it recycles 200 tons of plastic each month and has the
capacity to recycle up to 400 tons per month. Currently, it has
two lines of recycling plastic machines producing off-grade resins
(which are approximately 90% virgin grade quality). The off-grade
resins are mixed with the virgin grade resins to improve margins.
Approximately 30% of these recycled resins are used by the Company
in the production of plastic rope. The balance is sold locally in
Malaysia or exported to Thailand.
The plastic recycling industry in Malaysia is intensely
competitive. Only those companies which have a constant supply of raw materials
and demand for their off-grade resins will be able to compete effectively. The
Company has not experienced difficulties in obtaining sufficient quantities of
raw materials, although there can be no assurance that shortages will not occur
in the future.
Industrial Ceramic Products
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.
The products, which are used principally by the aerospace,
electronic detection equipment and industrial heating industries,
are manufactured by third parties and warehoused and distributed by
the Company from its facilities in Briarcliff Manor, New York,
often after a value-added machining process (accomplished either by
the Company or third parties).
Diamond Cutting Tools
Dicing Blades. Dicing blades are made of diamonds bonded with
nickel alloy. They are used with the precision electronic dicing saws which the
microelectronics and semiconductor industries use to cut and separate integrated
circuits and discrete devices made from silicon and other wafers. The blade
market consists principally of hubbed blades, made of three types of materials,
diamond/metal (the most common), diamond/thermoset plastic (called resin blades,
which are the blades most widely used in precision electronic saws for cutting
ceramic substrates, even though they have a shorter useful life) and sintered
metal. Hubbed blades are competitively manufactured principally by Disco, Inc.,
Semitec Corporation and Dynatex Corporation. The Company, which manufactures
hubbed and hubless blades in its Malaysian facility,
7
<PAGE>
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.
Scribes. Scribes, which have tips made out of gem quality
diamonds, are used to cut silicon wafers and perform die and integrated circuit
separation. These products, which are assembled in the Company's facility in
Briarcliff Manor, New York, have 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
because they provide cleaner separation. They also are preferred for certain low
volume applications which do not justify the capital expense of using a dicing
saw. The Company occasionally uses third party contractors to set or "lap" the
diamonds into the tools.
Dressers. Dressers are diamond-tipped tools generally used to
"dress" or shape abrasive grinding wheels in machine shops. These products,
which are assembled in the Company's facility in Briarcliff Manor, New York, are
sold by the Company principally to companies which resell them to third parties.
The Company believes that there are multiple foreign suppliers of natural
diamond-tipped dressers.
Clean Room Materials and Supplies
These products include cleaning chemicals, latex gloves and
other items used to preserve a contamination free environment, and they are
primarily marketed to IBM and Lucent Technologies.
Miscellaneous Products
The Company distributes small precision tools such as
tweezers, pliers, vacuum pickups and scribes, core drills and sinter blades for
ceramic applications.
Customers
During the fiscal year ended January 31, 1998, none of the
Company's customers accounted for more than 10% of its consolidated net sales.
Raw Materials
The Company purchases its raw materials and supplies from
multiple sources. None of the raw materials and supplies it requires currently
are in short supply, although factors outside of the Company's control could
adversely impact their future availability. The principal suppliers of the
Company's plastic resin raw materials used in the manufacture of its plastic
rope and
8
<PAGE>
twine are Titan Polyethylene (M) Sdn. Bhd. and Titan PP Polymers
(M) Sdn. Bhd.
Backlog
As of January 31, 1998, the Company had a backlog of orders of
approximately $4,450,000, all of which are expected to be shipped by May 1998.
While such orders may be cancelled or postponed, the Company believes that they
are firm and the resulting revenues will be realized.
Competition
The Company's operating segments each are intensely
competitive. Many competitors have greater financial is personnel resources and
greater market recognition than the Company. Furthermore, the Company faces the
possibility of adverse market conditions arising from tariff revisions resulting
from changes in foreign trade policies, raw material shortages, technological
change, shifting product emphasis among competitors and the entry of new
competitors into its markets. The Company believes the principal competitive
factors effecting its products are quality and price.
Marketing
The Company has a world-wide network of independent trading
companies which provide scrap material supplies, and purchasers for the
reclaimed materials. Its rubber bands and plastic ropes are sold through a
world-wide network of distributors. The Company markets its
semiconductor/cutting tools/ceramics products directly through telephone
solicitation, participation in trade shows and advertisements in trade journals.
Manufacturing Facilities
The Company has two plastic rope manufacturing facilities
located in Butterworth, Penang, Malaysia, and one rubber band manufacturing
factory and one plastic and metal recycling facility in Bedong, Kedah, Malaysia.
In addition, the Company has a rope manufacturing facility in Vietnam. In
Briarcliff, New York, the Company operates a machine shop and a manufacturing
facility for resin/diamond dicing blades. The Company has a Malaysian facility
equipped to manufacture dicing blades and diamond dressing tools.
See Item 2 below, "Description of Property."
Government Regulation
The Company believes its operations and facilities are in
compliance with all federal, state and local environmental laws in the United
States, Malaysia and Vietnam. The Company has not
9
<PAGE>
incurred any special or unusual costs to comply with environmental laws or other
applicable governmental regulations.
Research and Development
In the fiscal years ended January 31, 1998 and 1997, the
Company spent approximately $40,000 and $50,000, respectively, on its research
and development activities.
Employees
The Company employs approximately 625 full-time employees, of
which 400 work in its rubber band and recycling facilities, 200 work in its
plastic rope manufacturing factories and 25 work in its diamond tools and
ceramics facilities. It also utilizes outside consultants and part-time workers
when required.
Item 2. Description of Property.
In Malaysia, the Company owns 104,450 square feet of
manufacturing space and 3,360 square feet of office space in Butterworth,
Penang, and it also occupies 1,230,434 square feet of manufacturing and
recycling facilities and 5,096 square feet of office space in Bedong, Kedah,
pursuant to a lease with a term of 25 years, commencing in June 1996, with
minimum annual lease payments as follows: year 1 - $24,030; year 2 - $96,199;
and each of years 3, 4 and 5 - $147,382. The rent will be revised every five (5)
years, but in no event will by more than 15% more than that of the preceding
year. In Vietnam, the Company occupies 436,500 square feet of land, including a
25,000 square foot building which consists of 1,500 square feet of office space
and 23,500 square feet of manufacturing space, pursuant to a 20-year lease at an
annual rental of $9,600. It also leases approximately 2,400 square feet of
manufacturing and warehouse space and 1,200 square feet of office space in
Briarcliff Manor, New York, pursuant to a five (5) lease which expires on
February 28, 2003, with base annual rents, excluding utilities, maintenance and
repairs, as follows: Years One and Two - $36,000; Year Three - $42,000; Year
Four - $43,200; Year Five - $44,400. In addition, the rent in Years Three, Four
and Five will be increased by 1/12 of any increase in real estate taxes over the
base period of 1998. The Company and its President, Eugene Pian, have an option
to purchase the leased property for $380,000 which expires on February 28, 2000.
The Company also leases approximately 4,000 square feet of
manufacturing and warehouse space and 2,000 square feet of office space in
Armonk, New York, at an annual rental of $38,564, including utilities, taxes and
other costs. The Company occupied this space before it leased the Briarcliff
Manor facility. This lease expires on May 31, 1998.
10
<PAGE>
Item 3. Legal Proceedings.
There are no pending legal proceedings to which the Company is
a party or to which any of its property is subject and no such proceedings are
known to the Company to be threatened or contemplated by or against it.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during
the fiscal year covered by this Report.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information
The Company's Common Stock, $.001 par value, is traded in the
over-the-counter market on the OTC Bulletin Board under the symbol "SETO". Such
Stock is not traded or quoted on any automated quotation system.
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).
Low High
1998
First quarter $.290 $.700
1997
First quarter .070 .200
Second quarter .050 .140
Third quarter .050 .155
Fourth quarter .075 .450
1996
First quarter .125 .625
Second quarter .406 .969
Third quarter .313 .688
Fourth quarter .125 .406
11
<PAGE>
Holders
As of March 31, 1998, there were 310 record holders of the
Company's Common Stock.
Recent Sales of Unregistered Securities
On November 26, 1997, the Company issued 10,000,000 shares of
its Common Stock pursuant to Section 4(2) of the Securities Act of 1933, as
amended, in exchange for all of the issued and outstanding capital stock of TTH.
The shares were issued to Tan Khay Swee, Chief Executive Officer of TTH. See
Item 1, Description of Business.
Voting and Other Rights
Holders of Common Stock are entitled to one vote for each
share held. There are no preemptive, subscription, conversion or redemption
rights pertaining to the Common Stock. Holders of Common Stock are entitled to
receive such dividends as may be declared by the Board of Directors out of
assets legally available therefor and to share ratably in the assets of the
Company available upon liquidation.
The holders of Common Stock do not have the right to cumulate
their votes in the election of directors and, accordingly, the holders of more
than 50% of all such shares outstanding can elect all of the directors of the
Company.
Dividends
The Company has not paid cash dividends to date and intends to
apply its earnings, if any, for use in its activities. Payment of cash dividends
in the future will be wholly dependent upon the Board of Directors and upon the
Company's earnings, financial condition, capital requirements and other factors
deemed relevant by them. It is not likely that cash dividends will be paid in
the foreseeable future.
In the event of the acquisition of or merger with a business
by the Company, control of the Company and its Board of Directors may pass to
others. In that event, the payment of dividends would be wholly dependent upon
such persons.
12
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of
Operation.
General
On November 26, 1997, the Company acquired all of the capital
stock of TTH. The transaction was accounted for as a purchase and therefore the
Company's financial statements include the operations of TTH only from the
acquisition date. At January 31, 1998, TTH generated approximately 75% of the
Company's net sales, principally from Malaysia, and in fiscal 1998 the Company
expects to transact substantially all its business in Malaysia and Vietnam.
Accordingly, economic and political conditions in Malaysia, and in Southeast
Asia as a whole, including without limitation, import and export limitations,
exchange controls and currency fluctuations, have become significant to the
Company.
In late 1997, currency devaluations, stock market downturns
and general financial uncertainties in Southeast Asia caused economic growth
forecasts for that region to be reduced significantly, and in the future there
could be a material decrease in the demand for the Company's products. Although
no assurance can be given, the Company believes such conditions will not have
any material adverse effect on its operations or financial condition. While
changes in the dollar value of foreign currencies will effect earnings from time
to time and in fiscal 1997 the Company experienced a loss of $37,719 on foreign
currency exchange,
Management believes that the longer term economic effect of these changes
should not be significant because over 60% of the Company's sales are in United
States Dollars and raw materials are purchased either in the United States in
United States Dollars or locally in Malaysian currency.
Fiscal 1997 Results of Operations
For the year ended January 31, 1998, the Company's net sales
increased to $7,808,380, a 487% increase over the $1,602,830 in fiscal 1996, and
net income was $629,586 or $.05 per share, a 250% increase over the $213,652 or
$.02 per share in fiscal 1996. The acquisition of TTH contributed $5,876,774 to
net sales and $378,580 to net income during the fourth quarter of fiscal 1997.
In fiscal 1997 gross profit was $2,586,816, or 33% of gross revenues, as
compared to $1,105,570, or 69% of gross revenues in fiscal 1996. In fiscal 1997,
gross profit increased due to higher sales, and gross profit as a percentage of
gross revenues decreased principally due to low profit margins on TTH's
operations, especially its recycling business.
In fiscal 1997, net sales of the Company's diamond cutting
tools increased approximately 4% to $554,695 but generated a loss of $279,395,
approximately 43% higher than the loss in fiscal 1996. Net sales of industrial
ceramics and clean room supplies increased by 26.5% to $1,226,136, and related
net income
13
<PAGE>
increased by $31.6% to $409,901. Net sales of TTH for the approximately
two-month period after its acquisition by the Company were $5,876,774 and
related net income was $378,580.
Liquidity and Capital Resources
As more fully described in Note 11 to the Company's January
31, 1998 financial statements set forth in Item 7 hereof, at January 31, 1998
substantially all of the Company's assets, liabilities and retained earnings
were attributable to TTH. Accordingly, at January 31, 1998 the Company's total
assets increased to $30,574,383 (from $1,228,937), its total current liabilities
and long term debt, net of current portion, increased to $19,318,885 (from
$373,020) and $3,840,851 (from $170,000), respectively, and it had a working
capital deficit of $1,349,938 (compared to working capital of $358,198 at
January 31, 1997).
At January 31, 1998 the Company had current assets of
$17,968,947, including $371,413 of unrestricted cash, and current liabilities of
$19,318,885. Accordingly, the Company had a working capital deficit of
$1,349,938. Although no assurances can be given, the Company expects that
internally generated funds together with its existing credit facilities will
enable it to meet it obligations as they come due and finance its operations. To
strengthen its liquidity the Company intends to seek additional capital, either
debt or equity. However, no potential funding source has been identified and no
assurance can be given that any such financing will be obtained on commercially
reasonable terms, or at all.
A small percentage of the profits of TTH may not be
distributable to the Company's other subsidiaries or as dividends.
Under Malaysian law TTH is required to maintain a statutory reserve of five
percent (5%) of profit after taxation in accordance with the Foreign Investment
Law until such reserve equals ten percent (10%) of legal capital. Such reserve
is non-distributable.
Effects of Foreign Currency Fluctuations
The Company's foreign operations are subject to certain risks
related to fluctuation in foreign currency exchange rates. In fiscal 1998, due
to a strengthening U.S. dollar and a weaker Malaysian ringgit, the Company
recognized $37,719 in foreign currency exchange losses, which did not have a
material adverse effect on net income. While future fluctuations in currency
exchange rates could impact results of operations or financial position, foreign
operations are expected to continue to provide strong financial results and
earnings growth.
14
<PAGE>
Disclosures about Market Risk
The Company is exposed to market risks primarily from changes
in interest rates and foreign currency exchange rates. To manage exposure to
these fluctuations, the Company occasionally enters into various hedging
transactions. The Company does not use derivatives for trading purposes, or to
generate income or to engage in speculative activity, and the Company never uses
leveraged derivatives. The Company does not use derivatives to hedge the value
of its net investments in these foreign operations.
The Company's exposure to foreign exchange rate fluctuations
results from investment in foreign ventures in Malaysia, and from the Company's
share of the earnings of these operations, which are denominated in the
Malaysian ringgit.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard (FAS 130), "Reporting
Comprehensive Income." This statement establishes standards for reporting and
display of comprehensive income and requires that all components of
comprehensive income be reported in financial statement having the same
prominence as other financial statements. For the Company, FAS 130 is effective
in 1998, and it requires reclassification of prior period financial statements
for comparative purposes. Adoption of this standard should have little effect on
the Company's financial statements as the new requirements primarily involve
modifications to the way that existing information is displayed.
Also in June 1997, the FASB issued FAS 131, "Disclosures about
Segments of an Enterprises and Related Information." This statement supersedes
FAS 14, "Financial Reporting of Segments of a Business Enterprise," by
establishing new standards for the way that a public business enterprise reports
operating segment information in its annual and interim financial statements. In
general, FAS 131 requires reporting of financial information as it
is used by senior company management for evaluating performance and deciding how
to allocate resources. The statement is effective for 1998, but need not be
applied to interim financial statements in that year. Comparative information
for earlier years must be restated.
Year 2000 Costs
The Company currently operates numerous date-sensitive
computer applications and network systems throughout its business.
As the century change approaches, it is essential for the Company
15
<PAGE>
to ensure that these systems properly recognize the year 2000 and continue to
process operational and financial information. The Company recently upgraded its
computer systems and does not expect complications related to year 2000 issues
to arise.
Impact of Inflation
Although it is difficult to predict the impact of inflation on
costs and revenues of the Company in connection with the Company's products, the
Company does not anticipate that inflation will materially impact its costs of
operation or the profitability of its products.
I. Financial Condition
Assets:
Total assets at the end of fiscal 1996 were $1,288,937, as compared with
$1,005,609 at the end of fiscal 1995. 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 1996 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 1995;
(iii) Inventory increased during fiscal 1996 to approximately $339,552,
or 30.3%, to meet the demands of increases in sales for 1996. See
"Results of Operations" below for a more complete discussion of the
factors which resulted in higher net sales for fiscal 1995;
(iv) Property and equipment for fiscal 1996 did not change
substantially when compared to fiscal 1995 and did not have a
significant effect on the Company's financial condition in 1995. There
were no substantial additions to property and equipment during the year
other than via investment in the new subsidiary.
16
<PAGE>
Liabilities:
Total liabilities at the end of fiscal 1996 were $543,020, as compared with
$855,594 at the end of fiscal 1995. 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 1995, accounts payable were higher than
usual because purchase of inventory increased in 1995 in line with the
increased dependency upon third party manufacturers by the Company;
(iii) Long term liabilities decreased in 1996 to $170,000, as compared
to $185,421 in 1995 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
1994. None of the long-term loans are considered by management to be on
demand;
(iv) Accrued interest increased substantially in 1996 to $188,309, as
compared to $155,177 in 1995 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 1995, to accrued
interest. This reclassification was made in order to correctly reflect
the nature of these obligations.
Financial condition in fiscal 1996 when compared to 1995 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 1996) were $1,602,830
compared to $1,248,668 for the year ended January 31, 1996 (fiscal 1995), 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 1994
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
1996, 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 1997 and beyond.
17
<PAGE>
Gross profit from operations during fiscal 1996 reached $1,105,570, or 70.0% of
gross revenues, as compared to $727,304 in fiscal 1995, or 58.2% of gross
revenues. This increase of more than 52.0% over fiscal 1995 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
1995 and continued during fiscal 1996 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 1995.
Management anticipates that this trend will continue, that the cost of sales
will remain at the new favorable levels experienced in fiscal 1996 and that
gross margins will continue at fiscal 1996 levels.
Operating expenses decreased dramatically from $1,109,735 in fiscal 1995 to
$950,013 in 1996, 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 1995 to $1,781,396 at the
end of fiscal 1996.
However, to properly evaluate the Company's operating results, it must be noted
that during fiscal 1995, 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 1995, 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 1995 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 1996, 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.
18
<PAGE>
Item 7. Financial Statements.
The following are filed as part of this Report:
Consolidated Financial Statements:
Independent Accountants' Report F-1
Consolidated Balance Sheet as at January 31, 1998 F-2
Consolidated Statement of Income for the Years ended
January 31, 1998 and 1997 F-3
Consolidated Statement of Cash Flows for the Years ended
January 31, 1998 and 1997 F-4
Consolidated Statement of Changes in Stockholders' Equity for
the Years ended January 31, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-6-F-20
<PAGE>
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, 1998 and the related consolidated statements of
income, retained earnings, and cash flows for the years ended January 31, 1998
and 1997. 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 and Teik Tatt SDN BHD, wholly owned subsidiaries, which
statements reflect total assets of $30,598,896 and $24,859,788 as of January 31,
1998 and 1997, respectively, and total revenues of $7,808,380 and $14,135,386
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, 1998 and 1997 and the results of their operations
and their cash flows for the years ended January 31, 1998 and 1997, in
conformity with generally accepted accounting principles.
ZELLER WEISS & KAHN
April 27, 1998
F-1
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - JANUARY 31, 1998
ASSETS
Current assets:
Cash $ 371,413
Cash, fixed deposits with bank 921,053
Accounts receivable, less allowance
for doubtful accounts of $259,361 9,238,476
Inventory 6,742,706
Prepaid expenses and other current assets 623,883
Deferred tax asset, current portion 71,416
-----------
Total current assets 17,968,947
----------
Property and Equipment 12,344,764
----------
Other assets:
Goodwill, net of amortization 98,881
Security deposits 18,957
Deferred tax asset, net of current portion 142,834
-----------
260,672
------------
$30,574,383
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,616,151
Notes payable, bank 4,978,287
Notes payable, other 9,240,907
Accounts payable 1,948,872
Accrued expenses 1,308,865
Income taxes payable 225,803
-----------
Total current liabilities 19,318,885
----------
Long-term debt, net of current portion 3,840,851
-----------
Commitments and contingencies
Shareholders' equity (deficiency):
Common stock par value $.001; 100,000,000
shares authorized 19,867,500 shares issued and
outstanding 19,868
Additional paid in capital 9,132,089
Currency translation adjustment ( 585,500)
Retained earnings (deficit) ( 1,151,810)
-----------
7,414,647
---------
$30,574,383
===========
See notes to consolidated financial statements.
F-2
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED JANUARY 31, 1998 AND 1997
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
---- ----
Net sales $7,808,380 $1,602,830
Cost of sales 5,221,564 497,260
---------- ----------
Gross profit 2,586,816 1,105,570
Selling, general and administrative
expenses 1,551,376 950,013
---------- ----------
Income from operations 1,035,440 155,557
---------- ----------
Other income (expenses):
Interest expense ( 488,635) ( 35,655)
Loss on foreign currency exchange ( 37,719)
----------
( 526,354) ( 35,655)
---------- ----------
Income before income taxes 509,086 119,902
Provision for income taxes (benefit) ( 120,500) ( 93,750)
---------- ----------
Net income $ 629,586 $ 213,652
========== ==========
Earnings per common share:
Primary $ .05 $ .02
========== ==========
Fully diluted $ .05 $ .02
========== ==========
Weighted average common shares outstanding
Primary 12,858,936 8,970,445
========== ==========
Fully diluted 12,858,936 8,970,445
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED JANUARY 31, 1998 AND 1997
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
---- ----
Operating activities:
Net income $ 629,586 $213,652
Adjustments to reconcile net income to
cash provided from operating activities:
Depreciation and amortization 207,474 23,317
Compensatory stock issued 54,125
Currency translation adjustment ( 585,501)
Changes in other operating assets and liabilities:
Accounts receivable ( 1,154,537) ( 3,808)
Inventories 858,692 ( 79,059)
Prepaid expenses and other current assets 82,781 ( 21,697)
Deferred tax assets ( 120,500) ( 93,750)
Other assets ( 4,526) ( 5,244)
Accounts payable ( 140,501) ( 234,761)
Accrued expenses ( 49,989) 33,132
Income taxes payable 102,895 ( 41,415)
---------- --------
Net cash used in operating expenses ( 174,126) ( 155,508)
---------- --------
Investing activities:
Purchase of property and equipment ( 283,996) ( 25,549)
Decrease in investment in foreign subsidiary ( 3,776)
---------- --------
Net cash used in investing activities ( 283,996) ( 29,325)
---------- --------
Financing activities:
Proceeds from sale of stock 500 328,125
Increase in long-term debt 27,985
Increase in notes payable, bank 266,824
Increase in notes payable, other 309,664
Increase (decrease) in notes payable, shareholder 61,996 ( 23,338)
Payment of long term debt ( 268,612) ( 46,262)
---------- --------
Net cash provided from financing activities 398,357 258,525
---------- --------
Net increase (decrease) in cash ( 59,765) 73,692
Cash beginning of year 1,352,231 42,642
---------- --------
Cash end of year $1,292,466 $116,334
========== ========
Supplemental disclosures:
Interest paid during the year $ 470,422 $ 2,533
========== ========
Income taxes paid during the year -0- -0-
========== ======
Supplemental schedule of non-cash investing and financing activities:
Issuance of common stock for purchase of subsidiary $6,624,143 $125,048
========== ========
Reconciliation of increase in cash and short-term investments:
Cash at February 1, 1997 as originally reported $ 116,334
Increase in cash resulting in acquisition of
foreign subsidiary at November 27, 1997 1,235,897
----------
Cash at beginning of year $1,352,231
==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1998 AND 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Equity
adjustment
Additional from foreign Retained Total
Common paid in currency earnings Shareholders'
Shares stock capital translation (deficit) equity
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 of 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
January 31, 1997 213,652 213,652
---------- ------- ---------- -------- ---------- ----------
Balance, January 31, 1997 9,367,500 9,368 2,517,945 1,781,396) 745,917
Shares issued for services 500,000 500 500
Issuance of stock regarding
acquisition of subsidiary,
Teik Tatt, SDN BHD 10,000,000 10,000 6,614,144 6,624,143
Foreign currency translation
adjustment for the year
ended January 31, 1998 ($585,500) ( 585,500)
Net income for the year ended
January 31, 1998 629,586 629,586
---------- ------- ---------- -------- ---------- ----------
19,867,500 $19,868 $9,132,089 ($585,500) ($1,151,810) $7,414,646
========== ======= ========== ======== ========== ==========
See notes to consolidated financial statements.
F-5
</TABLE>
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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.
The Company's other wholly-owned subsidiary, Teik Tatt Holding Company, SDN
BHD is located in Penang, Malaysia. The Company manufactures rubber
bands, plastic ropes and recycles plastic and metal from wire cable,
electronic devices and circuit broads.
In November 1997, Semicon Tools, Inc. issued 10,000,000 shares of
unregistered common shares in exchange for 100% of the outstanding
shares of Teik Tatt Holding Company, SDN BHD and Teik Siang Industries
SDN BHD, a subsidiary of Teik Tatt, the value of the shares being the
net book value of the acquired Company of $6,560,040 or approximately
$.66 per share. The acquisition is being accounted for as a purchase.
2. Summary of significant accounting policies:
Principles of consolidation:
The consolidated financial statements of Semicon Tools, Inc. and
subsidiaries include all the accounts of Semicon Tools, Inc., East
Coast Sales Company, DTI Technology, SDN BHD and Teik Tatt, 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.
F-6
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies (continued):
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 calculated by dividing net earnings by the
weighted average shares of common stock of the Company and weighted
average of common stock equivalents outstanding for the period. Common
stock equivalents represent the dilutive effect of the assumed exercise
of certain outstanding stock options. The Company uses the treasury
stock method in its treatment of stock options.
Foreign currency translation policy:
For foreign subsidiaries whose functional currency is the local foreign
currency, balance sheet accounts are translated at exchange rates in
effect at the end of the year and income statement accounts are
translated at average exchange rates for the year . Translation gains
or losses are included as a separate component of stockholders' equity.
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 5-20
Furniture and fixtures 7-20
Other equipment 5-14
Buildings and improvements 10-50
Automotive equipment 5
Leasehold land 37-99
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.
Deferred taxation:
Provision is made by the liability method for taxation deferred in
respect of all timing differences. Deferred tax benefit is recognized
only when there is reasonable assurance of realization.
F-7
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies (continued):
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.
Accounting convention:
For the purpose of preparation of consolidated accounts of Teik Tatt
Holding Co., SDN BHD, into United States accounting, the accounts are
stated in U.S. dollars instead of Ringgit, Malaysian. The accounts have
been translated using the following rates:
Common stock 3.0
Retained earnings 3.0
Assets and liabilities 3.8
Income and expenses 3.5
Foreign currency translation:
Assets and liabilities in foreign currencies at balance sheet date are
translated into U.S. dollars at approximately the rates of exchange
prevailing on that date.
Transactions in foreign currencies during the year are converted into
U.S. dollars at approximately the rates of exchange prevailing on the
dates of the transactions.
Exchange differences arising from foreign currency translation are
included in the profit and loss account.
F-8
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies (continued):
The accounts of the foreign subsidiaries are translated into U.S.
dollars at rates approximating those prevailing at balance sheet date.
Exchange differences on translation of the net assets of foreign
subsidiaries are accounted for through the exchange.
Hire purchase obligations:
Assets acquired under an installment plan are capitalized as fixed
assets and the corresponding obligations are treated as a long-term
liability. Financing charges are allocated to the profit and loss
account over the purchase periods using the "sum of the years digits"
method to give a constant periodical rate of interest on the remaining
liabilities.
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:
Land $ 348,606
Buildings and improvements 2,015,431
Manufacturing equipment 12,220,043
Office equipment 557,469
Automotive equipment 177,662
-----------
15,319,211
Less accumulated depreciation 2,974,447
---------
$12,344,764
===========
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
$35,400 as of January 31, 1998.
F-9
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Commitments and contingencies:
In November 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, 1999 $14,172
-------
$14,172
=======
Rental expense for the year ended January 31, 1997 amounted to $39,047 and
$38,564 for the year ended January 31, 1998.
The Company also leases three vehicles under operating leases with terms
expiring through 1998. Total lease expense was $33,597 and $25,307 for
the years ended January 31, 1998 and 1997, respectively.
Future minimum rentals are as follows:
January 31, 1999 $25,088
January 31, 2000 20,298
January 31, 2001 5,474
-------
$50,860
=======
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.
On April 8, 1996, the Company reached a settlement with their prior
accountants of fees due from the Company. The agreement calls for
monthly installments of $4,000 commencing April 1, 1996 and ending on
September 1, 1996 for a total 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.
The foreign subsidiaries have been granted rights to use its land and
plant for a period of 25 years commencing June 1996. The land rental
rate will be revised every 5 years but the increment to the rate should
not exceed 15% of the preceding rate. The minimum lease payments are as
follows:
Within 1 year $ 24,030
From 1-2 years 96,119
From 2-5 years 442,146
--------
$562,295
========
F-10
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Common stock and stock split:
On March 6, 1996 the Company entered into an investment agreement for a
three year term. The consultant agreed to 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 was to 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 unexercised options had been cancelled.
The Company entered into a consulting agreement on August 29, 1996 with
the consultant 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 optioned 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 unexercised stock
options cancelled.
During the year ended January 31, 1998, the Company issued shares of its
common shares in non-cash transactions as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Number
of Total
Date shares Value Reason for issuance
03/05/96 100,000 $ 5,000 Consulting services
03/05/96 50,000 2,500 Consulting services
06/22/96 100,000 33,921 Acquisition of DTI Technology
06/22/96 50,000 16,961 Acquisition of DTI Technology
06/22/96 150,000 74,166 Acquisition of DTI Technology
08/31/96 50,000 25,250 Legal services
08/31/96 25,000 3,500 Consulting services
01/31/97 500,000 13,750 Bonus
01/31/97 150,000 4,125 Bonus
--------- --------
1,175,000 $179,173
========= ========
</TABLE>
Of the above 1,175,000 shares issued, 800,000 were issued to officers of
the Company.
The Company sold 3,025,000 common shares during the year ended January
1997 for $328,125.
F-11
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Common stock and stock split (continued):
During the year ended January 31, 1998, the Company issued the following
shares:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Number
of Total
Date shares Value Reason for issuance
05/07/97 500,000 $ 500 Consulting services
11/27/97 10,000,000 5,416,151 Acquisition of subsidiary
Teik Tatt
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
8. Long-term debt:
Long-term Current
Rate Portion Portion Maturity
Note payable,Marine Midland (a) Prime $ 59,839 $ 32,638 2001
Note payable, shareholders (b) 15% 100,000 2000
Note payable, shareholder (c) 10% 184,434 36,849 2002
Notes payable, bank (foreign) (d) 1.75% to 2%
above bankers
base lender's
rates 1,720,895 126,806 undetermined
Notes payable, capital leases,
bank, (foreign) (e) Approx 8% 1,770,868 1,419,858 1999
---------- ----------
$3,840,851 $1,616,151
========== ==========
</TABLE>
(a) Note payable, Marine Midland, represents the drawdown of a $200,000
revolving line of credit as of January 31, 1998. The principal
payment per month is 1/36 of the outstanding balance plus
interest at prime. The note is secured by accounts
receivable, inventory and equipment currently owned by the
Company as well as a guarentee of one of its principal
shareholders.
(b) Note payable, shareholder, became due when the note to Citibank was
paid in full. The sharehoder has wavied his demand right and the
Company is currently negotiating terms for payment of the note.
(c) On April 23, 1997, the Company renegotiated an existing loan with
a certain shareholder resulting in a new obligation payable in
monthly installments of $4,053 including interest at 10%.
(d) The term loans are secured by a mortgage on the leasehold land
and factory building of Teik Tatt Holding Co., SDN BHD, machinery
of one of its subsidiaries and its property owned by a third
party.
(e) Certain fixed assets are pledged as collateral for the capital
leases to the banks by both foreign subsidiaries.
F-12
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Long-term debt (continued):
The maturities of these loans are as follows:
January 31, 1999 $1,616,151
January 31, 2000 651,162
January 31, 2001 208,978
January 31, 2002 145,942
January 31, 2003 2,834,769
----------
$5,457,002
==========
9. Notes payable, banks:
Bank overdrafts and borrowings for the foreign subsidiary, Teik Tatt
Holding Co., in the amount of $4,219,194 are secured in the amount of
$4,978,287 by leasehold land and factory building of the Company,
freehold land and buildings of one of its subsidiaries and a property
owned by a third party and the guarantee of all the directors. Interest
is payable at 1% to 2% above banks base lending rates.
10. Acquisition of subsidiary, DTI Technology, SND BHD:
On June 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 major 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 $.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
========
F-13
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Acquisition of subsidiary, DTI Technology, SDN BHD (continued):
The results of operations for DTI for the period June 22, 1996 to January
31, 1997 resulted in a net profit of $2,314. For the year ended January
31, 1998, DTI had a net loss of $41,486.
11. Acquisition of subsidiary, Teik Tatt Holding Company, SDN BHD:
On November 27, 1997, the Company purchased 100% of the outstanding
common shares of Teik Tatt Holding Co., SDN BHD as a transaction to be
accounted for as a purchase. The Company issued 10,000,000 shares of
its common shares pursuant to the acquisition. The stock will be valued
at the net book value of assets acquired at historical cost.
Teik Tatt Holding Co., SDN BHD, founded in 1979, is a manufacturer of
rope, yarn, twine and high quality rubber bands. Teik Tatt Holding Co.,
SDN BHD recycles plastics and non ferrous metals from cable and
precious metals from electronic components and circuit boards obtained
from obsolete computers.
As a result of this acquisition, the shareholder of Teik Tatt Holding
Co., SDN BHD owns approximately 50% of the outstanding shares of the
Company.
The assets acquired and the liabilities assumed (unaudited) as of
November 27, 1997, the date of the financial statements, are as
follows:
Current assets $16,998,597
Noncurrent assets 11,954,944
----------
$28,953,541
===========
Current liabilities $17,086,081
Long-term debt 5,243,317
---------
22,329,398
----------
Common stock 2,597,456
Retained earnings 4,026,687
---------
6,624,143
---------
$28,953,541
===========
12. Income taxes:
Asof 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
F-14
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Income taxes (continued):
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):
1998 1997
---- ----
Current $ 58,718 $ 31,250
Deferred ( 179,218) ( 125,000)
-------- --------
Total benefit ($120,500) ($ 93,750)
======== ========
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
1998 1997
---- ----
Income tax computed at the
federal statutory rates $ 44,968 $ 24,128
State tax (net of federal benefit) 13,750 7,122
Net operating loss carryforward ( 179,218) ( 125,000)
-------- --------
Provision (credit) for income taxes ($120,500) ($ 93,750)
======== ========
The components of deferred tax assets and liabilities consist of the
following:
Deferred tax asset:
Net operating loss carryforward $480,000 $538,750
-------- --------
Total deferred tax asset 480,000 538,750
Valuation allowance 265,750 ( 445,000)
-------- --------
$214,250 $ 93,750
======== ========
The foreign subsidiary, Teik Tatt Holding Co., SDN BHD, is required to
maintain a statutory reserve of 5% of the profit after taxation in
accordance with the Foreign Investment Law until such reserve equals 10%
of the legal capital. The reserve is non-distributable under Malaysian
law.
F-15
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Income taxes (continued):
The Company has made adjustments to eliminate the tax provisions for
foreign earnings since said earnings are undistributed and will be
permanently invested. The cumulative amounts of foreign undistributed
earnings are $378,580 at January 31, 1998
13. Principal 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 products.
Financial information relating to industry segments and classes of
products:
<TABLE>
<CAPTION>
<S> <C> <C>
January 31, January 31,
1998 1997
Sales to customers:
Industry A: Semicon Tools, Inc. and
DTI Technologies, SDN BHD
Diamond tools $ 554,695 $ 531,039
Miscellaneous hardware and
other products 82,737 56,200
Industry B: East Coast Sales, Inc.
Ceramics 1,225,248 924,733
Clean room supplies 40,888 5,582
Other products 28,038 85,276
Industry C: Teik Tatt, SDN BHD
Metal 3,231,766
Rubber bands 505,205
Resins 137,574
Ropes 2,002,229
-----------
$ 7,808,380 $1,602,830
=========== ==========
Operating profit or loss:
Industry A: Semicon Tools, Inc. and
DTI Technologies, SDN BHD ($ 279,395) ($ 160,458)
Industry B: East Coast Sales, Inc. 409,901 280,360
Industry C: Teik Tatt, SDN BHD 378,580
-----------
$ 509,086 $ 119,902
=========== ==========
Identifiable assets:
Industry A: Semicon Tools, Inc. and
DTI Technologies, SDN BHD $ 719,554 $ 683,878
Industry B: East Coast Sales, Inc. 397,069 511,309
Industry C: Teik Tatt, SDN BHD 29,243,510
-----------
$30,360,133 $1,195,187
=========== ==========
</TABLE>
F-16
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Principal products and segmentation of sales (continued):
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.
For the year ended January 31, 1998, there were no customers whose sales
amounted to 10% of the gross consolidated sales.
Foreign and domestic operations and export sales:
<TABLE>
<CAPTION>
<S> <C> <C>
January 31, January 31,
1998 1997
Sales to customers:
United States $ 1,178,588 $1,100,133
Far East 5,105,570 162,045
Europe 271,928 63,607
Canada 541,079 277,045
Other 711,215
-----------
$ 7,808,380 $1,602,830
=========== ==========
Operating profit:
United States $ 95,623 $ 77,625
Far East 224,632 ( 17,867)
Europe 14,248 ( 16,729)
Canada 129,465 76,873
Other 45,118
-----------
$ 509,086 $ 119,902
=========== ==========
Identifiable assets:
United States $ 671,459 $ 590,057
Far East 24,647,849 432,763
Europe 1,320,995 36,786
Canada 186,268 135,581
Other 3,533,562
-----------
$30,360,133 $1,195,187
=========== ==========
</TABLE>
14. Prior period adjustment:
Until July 31, 1996, the Company had recorded an investment in a foreign
affiliate at cost with the intention of accounting for this investment
using the equity method. The Company had a 9 1/4% interest and because
the books and records of the affiliate were not readily available, the
losses of the affiliate were never recorded by the Company. This
investment has been written down to zero, the correct value according
to the information that has now become available.
F-17
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Employment agreements:
On May 1, 1996, the Company entered into employment agreements with its
President and Vice President. The term of the agreements covers a five
year period expiring January 31, 2001. 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 net
income over the consolidated net income from the previous years. Each
employee also received 1,000,000 stock options at $.25 and 1,000,000
stock options at $.10. The options were not part of the 1997
Non-statutory Stock Option Plan effectuated March 25, 1997. As of
January 31, 1998, none of these options had been exercised.
16. Subsequent events:
On February 9, 1998, the Company entered into a consulting agreement for
the period February 9, 1998 to December 31, 1999. The consultant will
assist Semicon Tools, Inc. in strategic planning, corporate planning,
merger and acquisition and divestitive advice. In consideration for the
consulting services Semicon will grant an option to purchase 1,200,000
shares of the common stock of Semicon Tools, Inc. at a price of $.50
per share for a period of two years commencing four months from the
date of the signing. The shares underlying these options will be
registered under the Securities Act of 1933. The consultant is also
entitled to a finders fee in the event the consultant first introduces
a potential acquisition to the Company and such acquisition is
ultimately consummated. The agreement calls for a payout based on the
amounts expended for such acquisition.
Also on February 9, 1998, the Company entered into a consulting
agreement for the period February 9, 1998 to December 31, 1998. The
consultant will assist Semicon Tools, Inc. in strategic planning,
corporate planning, merger and acquisition and divestiture advice. In
consideration for the consulting agreement Semicon will grant an option
to purchase 100,000 shares of common stock of Semicon Tools, Inc. at a
price of $.50 per share for a period of two years commencing four
months from the date of the signing of this agreement. The shares
underlying these options will be registered under the Securities Act of
1933. The consultant is also entitled to a finders fee in the event the
consultant first introduces a potential acquisition to the Company and
such acquisition is ultimately consummated. The agreement calls for a
payout based on the amounts expended for such acquisition.
On February 18, 1998, the Company entered into a agreement with a
consultant to provide the Company with a public relations program. The
term of the agreement is from February 19, 1998 to August 18, 1998, a
six month period. The agreement can be cancelled anytime after the
first 90 days and calls for a monthly fee of $2,500 plus out of pocket
costs not to exceed $2,000.
F-18
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Subsequent events (continued):
On February 2, 1998, the Company issued 150,000 shares of common stock
to three different parties pursuant to the Company's 1997 Non-statuary
Stock Option Plan. The Company received a total of $7,500 from this
transaction. On April 7, 1998, the Company issued an additional 25,000
shares under the same plan for proceeds of $1,250.
17. Computation of earnings per share:
1998 1997
---- ----
Weighted average number of
common shares outstanding $11,523,321 $7,458,116
Assumed conversion of
stock options 1,335,615 1,512,329
----------- ----------
Weighted average number of
common shares outstanding $12,858,936 $8,970,445
=========== ==========
18. Common stock options outstanding:
Summary of options outstanding are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Exercise Expiration
Date Amount Price Date
Eugene Pian, Officer 05/01/96 $1,000,000 $.25 05/01/01
Craig Pian, Officer 05/01/96 1,000,000 .25 05/01/01
Eugene Pian, Officer 02/13/97 1,000,000 .10 05/01/01
Craig Pian, Officer 02/13/97 1,000,000 .10 05/01/01
Consultant 11/10/97 50,000 .05 11/10/99
Consultant 11/27/97 500,000 .10 11/27/98
Consultant 01/01/98 100,000 .50 01/01/00
Employee 11/05/97 25,000 .05 11/05/99
Employee 11/05/97 25,000 .05 11/05/99
Professional services 11/06/97 35,000 .05 11/06/99
Professional services 11/06/97 15,000 .05 11/06/99
</TABLE>
On March 25, 1997, the Company effectuated a Non-statutory Stock Option
Plan for the purpose of advancing the interests of the Company and its
stockholders by helping the Company obtain and retain the services of
key management employees, officers, directors and consultants. The Plan
will be administered by the Non-statutory Stock Option Committee of the
F-19
<PAGE>
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Common stock options outstanding (continued):
Board of Directors of the Company. The committee has full authority and
discretion to determine the eligible participants to be granted the
options, the date of issuance, exercise price and expiration date. The
total number of shares set aside for the Plan is 6,500,000. As of
January 31, 1998, 750,000 options had been issued under the Plan, of
which 75,000 had been exercised by April 1998.
The Company has elected to continue use of the methods of accounting
described by APB-25 "Accounting for Stock Issued to Employees" which is
based on the intrinsic value of equity instruments and has not adopted
the principles of SFAS-123 "Accounting for Stock Based Compensation"
effective for fiscal year beginning after December 15, 1995, which is
based on fair value. There is no significant difference between
compensation cost recognized by APB-25 and the fair value method of
SFAS-123. The Company has not recognized compensation on the granting
of options or warrants to employees and consultants since the fair
value of warrants or options is the same as or less than the exercise
price.
F-20
<PAGE>
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act.
The following table sets forth certain information concerning
the current directors and executive officers of the Company, who will serve for
one year or until their respective successors are elected and have qualified:
NAME AGE POSITION
Eugene J. Pian 58 President, Chief
Executive Officer
& Director
Craig Pian 36 Executive Vice
President, Treasurer
& Director
Francine Pian 38 Secretary & Director
Craig and Francine Pian are the children of Eugene Pian.
Eugene J. Pian. Mr. Pian has been President of the
Company since April 1987. He was President of East Cost Sales since its
inception in 1975 until its acquisition by 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. Mr. Pian has been Executive Vice President
and Treasurer of the Company since February 1, 1995. He has been
employed by the Company since April 1987. Mr. Pian has been
involved with all aspects of the Company's diamond cutting tool and
ceramic operations as well as general the Company's United States
manufacturing, sales and administrative operations. Mr. Pian
graduated Manhattan College with a Bachelor of Science Degree in
Business.
19
<PAGE>
Francine Pian. Ms. Pian has been Secretary of the
Company since 1996. She has been employed by the Company since
1987.
Significant Employees
Tan Khay Swee. Mr. Swee, age 36, has been Chief
Executive Officer of TTH since 1992 and is responsible for
overseeing all operations of TTH. He received a Business
Management certificate from Stamford College, Malaysia in 1986.
Tan Khay Hock. Mr. Hock, age 31, is the Sales Director
of TTH and is responsible for the marketing and sales activities of
all products manufactured by TTH. He received a Diploma in
Business Administration from Stanford College in 1990, and has more
than ten years' experience in the manufacturing of plastic ropes.
Tan Loo Hung. Ms. Hung, age 33, is the Finance Director
of TTH responsible for its Administration and Finance Departments.
She has more than eight years' experience in the manufacturing of
plastic rope.
Ooi Choon Huat. Mr. Huat, age 58, is the Sales Manager
of TTH and is responsible for the overall sales and marketing
activities of all products manufactured by TTH. He has worked for
TTH for more than 20 years and has vast experience and contacts in
the Malaysian market.
Chin Choon Fah. Mr. Fah, age 27, is TTH's Technical
Manager, in charge of the trade operations of its plastic and metal
recycling business. From 1994 to 1996, he worked as a technical
service engineer for the Titan Group. He received a Diploma in
Science from Linton Institute of Technology in 1990.
Dr. Loo Seow Pin. Dr. Pin, age 51, has been General
Manager (Manufacturing) of Teik Siang since 1997. He obtained his
Bachelors and Masters Degrees in engineering from Canterbury
University, New Zealand and his Doctor of Science from Pacific
Western University, United States. Over the last 20 years, he
worked for Rheem Hyme (M) Bhd. as a production manager, for Leader
Cable Sdn. Bhd. as a project manager, for Malaysia Aica (M) Bhd. as
a group production manager and for Wellington Polytechnic, New
Zealand as a senior lecturer.
Loh Mooi Kooi. Ms. Kooi, age 29, Group Accounts Manager,
joined the Company in 1994 and is responsible for overseeing the accounting and
costing departments of TTH and its subsidiaries. She passed the Chartered
Institute of Management Accountants Examination (CIMA) in 1994 and in 1997 she
attained CIMA Associate Accountant Membership. She is currently pursuing a
Masters in Business Administration from Strathlyde University, Scotland by
distance learning.
20
<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.
Employment Agreements.
Mr. Eugene Pian, the Company's President, serves under a five
(5) year employment agreement dated May 1, 1996 providing for (a) a base annual
salary of $100,000 plus annual increases as determined by the Board of
Directors, but in no event less than the increase in the Consumer Price Index
over the preceding calendar year, (b) a bonus equal to five percent (5%) of any
increase in the Company's consolidated net income and (c) an automobile
allowance of $500 per month or use of a Company car. Under the Agreement, Mr.
Pian was granted five (5) year options to purchase 1,000,000 shares of the
Company's Common stock at $.25 per share and 1,000,000 shares at $.10 per share.
He may demand registration by the Company under the Securities Act of all or any
part of the option shares as to which stock options have been exercised and may
piggyback any other shares which he owns.
Mr. Craig Pian, the Company's Executive Vice President and
Treasurer, serves under a five (5) year employment agreement dated May 1, 1996
providing for (a) a base annual salary of $75,000 plus annual increases as
determined by the Board of Directors, but in no event less than the increase in
the Consumer Price Index over the preceding calendar year, (b) a bonus equal to
five percent (5%) of any increase in the Company's consolidated net income, (c)
an automobile allowance of $500 per month or use of a Company car and (d) a
one-time signing bonus of $25,000. Under the Agreement, Mr. Pian was granted
five (5) year options to purchase 1,000,000 shares of the Company's Common stock
at $.25 per share and 1,000,000 shares at $.10 per share. He may demand
registration by the Company under the Securities Act of all or any part of the
option shares as to which stock options have been exercised and may piggyback
any other shares which he owns.
Director Compensation
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.
21
<PAGE>
Summary Compensation
The following Summary Compensation Table reflects certain
information for the Company's Chief Executive Officer and the Company's
executive officers who had total annual salary and bonus for any of the last
three fiscal years exceeding $100,000.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Summary Compensation Table
Long Term
Annual Compensation Compensation
Other Securities
Name and Annual Underlying
Principal Salary Bonus Comp. (1) Options/
Position Year ($) ($) ($) SARs (#)
--------- ---- ------ ----- --------- --------
Eugene Pian, Chief 1997 101,662 51,868 - 1,000,000
Executive 1996 92,784 - - 1,000,000
Officer 1995 82,659 - - -
Craig Pian, 1997 73,648 26,868 28,317 1,000,000
Executive Vice -
President and
Treasurer
</TABLE>
(1) Excludes perquisites and other benefits, unless the aggregate amount of
such compensation is at least the lesser of either $50,000 or 10% of
the total annual salary and bonus reported for the named executive
officer.
Options/SAR Grant Table: The following information is
provided for the Company's executive officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARs Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
Eugene Pian, 1,000,000 48.5% $.10 1/31/01
Chief
Executive
Officer
Craig Pian 1,000,000 48.5% $.10 1/31/01
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth certain information as to the
number of shares of the Company's Common Stock deemed to be
22
<PAGE>
owned beneficially by each person known by the Registrant to be deemed to be the
beneficial owner of more than 5% of the outstanding Common Stock, each of its
executive officers and directors, and all of its executive officers and
directors as a group, at March 31, 1998. Except as indicated in the footnotes to
this table, the Company believes that the named persons have sole voting power
with respect to the shares indicated:
Name and Address of Position Number Percentage
Beneficial Owner with Company of Shares of Class
Eugene J. Pian President and 5,126,113(1) 22%
c/o Semicon Tools, Inc. Director
554 North State Road
Briarcliff Manor, NY 10510
Craig Pian Executive Vice 2,550,333(2) 12
c/o Semicon Tools, Inc. President,
554 North State Road Treasurer and
Briarcliff Manor, NY 10510 Director
Francine Pian Secretary 323,500 2
c/o Semicon Tools, Inc. and Director
554 North State Road
Briarcliff Manor, NY 10510
All Directors and Executive 7,999,946(3) 31
Officers as a Group
(3 Persons)
Tan Khay Swee 10,000,000 50
c/o Teik Tatt Holding Co.
(1979) Sdn. Bhd.
Lot 1774, Lorong Mak Mandin 6
Mak Mandin Industrial Estate
13400 Butterworth, Penang
Malaysia
(1) Includes currently exercisable options to purchase 2,000,000 shares of
Common Stock, and 1,552,613 shares of Common Stock held under voting
trusts. Each Voting Trust terminates when the shareholder sells his
stock.
(2) Includes currently exercisable options to purchase 2,000,000 shares of
Common Stock.
(3) Includes currently exercisable options to purchase 4,000,000 shares of
Common Stock.
Item 12. Certain Relationships and Related Transactions.
N/A
23
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) Index of Exhibits.
Exhibit Page
3(a) Articles of Incorporation1
3(b) By-Laws1
3(c) Amendment to Articles of
Incorporation2
10(a) Agreement of Merger with
Semicon Tools, Inc., a
New York Corporation2
10(b) Articles of Merger2
10(c) Certificate of Merger2
10(d) Patent License1
10(e) Patent No. 4,219.0041
10(f) License Agreement with Bookuk
Industry Company, Ltd.1
10(i) Thermode/Synthrode Supplier
Agreement1
10(j) East Coast Sales Acquisition
Agreement3
10(k) $300,000 Promissory Note3
10(l) Amendment to East Coast Sales
Acquisition Agreement4
10(m) Teik Tatt Holding Co. (1979)
Sdn. Bhd. Acquisition Agreement5
16 The required letter from the
former accountants6
21 List of Subsidiaries
27 Financial Data Schedule
1. Incorporated by Reference from Registrant's
Registration Statement on Form S-18 declared
effective on June 8, 1988.
2. Incorporated by Reference from Registrant's
Form 8-K Report dated May 19, 1987.
3. Incorporated by Reference from Registrant's
Form 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 December 9, 1997.
6. Incorporated by Reference from Registrant's
Form 8-K Report dated January 29, 1993.
24
<PAGE>
(b) Reports on Form 8-K.
A Report on Form 8-K was filed on December 9, 1997,
reporting the acquisition of all of the issued and
outstanding capital stock of Teik Tatt Holding Co.
(1979) Sdn. Bhd. and the related change in control of
the Company.
25
<PAGE>
Supplemental Information to be Furnished With
Reports Filed Pursuant to Section 15(d)
of the Exchange Act By Non-reporting Issuers
(1) No annual report to security holders covering the
registrant's last fiscal year was sent to security holders; and
(2) No proxy statement, form of proxy or other proxy
soliciting, material has been sent to more than ten of the registrant's security
holders with respect to any annual or other meeting of security holders.
26
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SEMICON TOOLS, INC.
(Registrant)
By /s/ Eugene J. Pian
Eugene J. Pian, President
Date: April 30, 1998
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
/s/ Eugene J. Pian
Eugene J. Pian
Director
Date: April 30, 1998
/s/ Craig A. Pian
Craig A. Pian
Director
Date: April 30, 1998
/s/ Francine Pian
Francine Pian
Director
Date: April 30, 1998
27
<PAGE>
EXHIBIT 21
Subsidiaries of
Semicon Tools, Inc.
Name of State/Jurisdiction
Subsidiary of Incorporation
East Coast Sales Company, Inc. Connecticut
DTI Technology, Sdn. Bhd. Malaysia
Teik Tatt Holding Company, Sdn. Bhd. Malaysia
Teik Siang Industries Sdn. Bhd.* Malaysia
Teik Tatt Industries (Vietnam) Co., Ltd.* Vietnam
*Subsidiaries of Teik Tatt Holding Company, Sdn. Bhd.
A:\MTP3322
28
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,292,466
<SECURITIES> 0
<RECEIVABLES> 9,238,476
<ALLOWANCES> 259,361
<INVENTORY> 6,742,706
<CURRENT-ASSETS> 17,968,947
<PP&E> 15,319,211
<DEPRECIATION> 2,974,447
<TOTAL-ASSETS> 30,574,383
<CURRENT-LIABILITIES> 19,318,885
<BONDS> 0
0
0
<COMMON> 19,868
<OTHER-SE> 9,132,089
<TOTAL-LIABILITY-AND-EQUITY> 30,574,383
<SALES> 7,808,380
<TOTAL-REVENUES> 7,808,380
<CGS> 5,221,564
<TOTAL-COSTS> 1,551,376
<OTHER-EXPENSES> 37,719
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 488,635
<INCOME-PRETAX> 509,086
<INCOME-TAX> (120,500)
<INCOME-CONTINUING> 629,586
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 629,586
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
