U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 01-8929
INTERNATIONAL SEMICONDUCTOR CORP.
_________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Nevada 13-3432594
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2950 31st Street, Suite 240, Santa Monica, California 90405
(Address of principal executive offices) (Zip Code)
(310) 450-3214
(Issuer's telephone number, including area code)
5374 Village Road, Long Beach, California 90808
(Former name, former address and former fiscal year, if changed
since last report)
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 ____
The issuer's revenues for its most recent fiscal year were
$69,617. The aggregate market value of the voting stock held by
non-affiliates of the issuer was $8,694,833 as of March 31, 1996.
The aggregate number of shares outstanding of the Issuer's Common
Stock, its sole class of common equity, was 9,012,452 as of March
31, 1996
This report consists of 40 pages.
PART I
Item 1. Description of Business
(a) Business Development
International Semiconductor Corporation (formerly Israel
Semiconductor Corp.), is a development stage corporation (the
"Company"). The Company was incorporated on March 13, 1987,
under the name "Lewis Resources, Inc." On September 28, 1993, the
Company acquired from Lema Investments, Ltd. all of the issued
and outstanding shares of Gallium Arsenide Industries, Ltd.
("Gallium Industries" or "GAI"), a development stage Israeli
company, by issuing 3,982,190 shares of its common stock (after
giving effect to the one-to-six reverse split described below) to
Lema Investments, Ltd. in exchange for the stock of GAI. After
sustaining large losses, GAI was subsequently sold back to its
former shareholders on July 1, 1995, primarily for assumption of
existing debt. In connection with the GAI and GAD acquisitions,
the board of directors of the Company increased the number of
authorized common shares to 26,000,000, and changed the Company's
name from Lewis Resources to Israel Semiconductor Corp.
(effective December 21, 1993), and later to International
Semiconductor Corporation (effective July, 1994). A reverse
stock split (6 for 1) was effective for shareholders of record as
of November 30, 1993.
Also in September, 1993, the Company committed to invest in
shares of a newly- founded Israeli development stage company, GAD
Semiconductors, Ltd. ("GAD"). The commitment was in an amount of
up to $1,000,000 and the Company undertook to raise additional
funds by means of commercial banking loans, grants and special
loans which GAD is qualified to receive as a recognized Approved
Enterprise under the Israeli Encouragement of Capital
Investment-1959 Law. See Item 6, Management's Discussion and
Analysis or Plan of Operation. Together with the initial
investment, the total investment would aggregate approximately
$3,100,000. In return, GAD issued to the Company 60% of its
common stock, par value $2,033. The major part of the
investment, up to the amount which the Company undertakes to
invest in GAD's shares, is considered as premium on the shares.
In January, 1994, GAD was granted the status of "Approved
Enterprise" by the Israeli Investment Center in accordance with
the Law for the Encouragement of Capital Investments - 1959.
Under the approved capital investment program, GAD received,
during 1994, State guaranteed loans in the amount of $1,172,962.
During, 1995, the Company invested approximately $860,000 in
GAD, primarily in the form of share capital, with an additional
$182,000 tendered during the first quarter of 1996. The total
cumulative Company investment in GAD is over $1,675,000. Based
upon a failure of the minority shareholders of GAD to meet their
investment commitments, the Company now controls 80% of the
shareholdings of GAD. Because of its Approved Enterprise status,
GAD is entitled to reduced tax rates, varying between 10 to 25%,
depending upon the respective percentage of non-Israeli
shareholdings, for 10 to 14 years, and to apply for Israeli
Government investment grants and guaranteed loans and certain tax
benefits. See Notes 15 and 16 to the Financial Statements set
forth in Item 7.
1. GAD Semiconductors, Ltd ("GAD") is an Israeli
corporation, a 60% interest in which the Company acquired in
September 1993 from Semtech, Ltd., an Israeli corporation formed
by a scientist (who is now employed by GAD) and 4 potential
investors. ISC obtained its interest in consideration for its
undertaking to raise for GAD approximately $3,000,000, of which
the Company would provide equity of up to $1,000,000 and not less
than $2,000,000 would come from other sources of funds, including
Israeli Government grants and Israeli Government guaranteed loans
that GAD would be entitled to receive if it qualified as an
Approved Enterprise. Since that time, ISC has invested an
additional $676,000 and increased its holdings to 80%. GAD was
organized in August 1993 to exploit a method for forming gallium
arsenide positive-intrinsic-negative ("P-i-N") structures used to
manufacture gallium arsenide ultra-fast-switching power diodes,
which technology was transferred to GAD by Semtech, Ltd., its
incorporator, as part of the ISC acquisition and investment. GAD
has also entered into an agreement with the founding scientist,
Professor German Ashkenazi, who will provide GAD further required
scientific consulting services for development of the above
process and for other development work which GAD may undertake in
the future. As of December 31, 1995, the Company had invested
approximately US $1,678,000 in GAD.
Technology Concept
The vast majority of semiconductor devices are made of
silicon, whose physical properties limit high temperature and
high frequency operations at elevated temperatures. Although
gallium arsenide semiconductor devices offer significantly better
operating parameters, past attempts to form an actual
high-voltage gallium arsenide positive-intrinsic- negative
("P-i-N") structure, which would have properties superior to a
silicon structure, have failed due to complications in
technology, irreproducibility of results and defects that led to
low breakdown voltages. GAD acquired, from the Ramot University
Authority for Applied Research and Industrial Development, Ltd.,
of Tel Aviv, a royalty-free exclusive license to exploit certain
technology relating to a method of forming a gallium arsenide PiN
structure for use in diodes and thyristors. Patents have been
filed under the Patent Cooperation Treaty, which will allow
protection in up to 56 countries which belong to the world patent
treaty.
GAD succeeded, during 1995, in producing a diode which
operates at high temperatures, is stable and highly efficient.
This diode does not therefore require cooling, thereby reducing
the cost of the packaged product significantly, and making it
price- competitive with silicon. GAD's product keeps its
electrical charge throughout the entire temperature spectrum.
The processing speed of silicon is also reduced at high voltage
and high power whereas GaAs can combine high voltage and high
speed. During late 1995, GAD developed a new series of diodes
with record fast switching times approaching 14 nanoseconds.
This product was designed especially for Power Factor Correction
Applications, a market segment which is expected to grow very
fast in the next few years. In April, 1996, GAD is introducing a
high-current, 20 ampere diode, as an addition to currently
produced 10 ampere diodes. Several new devices will be
introduced in the remainder of 1996. GAD's range of diodes will
be sold as components to a large number of industries. These
include automotive, aerospace, radar and communications, X-Ray
equipment, defense (command and control systems), night vision
and other areas where an uninterrupted power supply is required.
Existing Product
GAD's gallium arsenide-based power switching diodes offer
the following significant advantages over available silicon-based
diodes:
Higher operating temperature (260 C vs. 150 C for
silicon diodes)
High breakdown voltage (as high or higher than
silicon diodes)
Ultra-fast switching frequency (comparable to silicon
diodes at room
temperature, and at
higher frequency at
elevated temperatures)
Temperature independent (temperature dependent in
silicon diodes)
switching frequency
Lower reverse leakage (2 orders of magnitude lower
than silicon diodes)
current at both room
and high operating temperature
Low capacitance and low dependance
on reverse bias
High forward current
Forward current "derating" (starts at 100 C for
silicon diodes)
starts at 160 C
GAD's products now offer users the following principal
benefits:
Combination of high voltage, high forward current and
very small switching time (a combination which is basically
unavailable in silicon diodes);
Reliable operation at high temperatures;
Smaller cooling systems required (typically 5 times
smaller in volume and weight than for silicon diodes); and
Higher efficiency/smaller power losses than in silicon
diodes at high frequencies (because of lower leakage current,
lower capacitance and lower dependency of maximum voltage,
current and switching frequency on temperature).
Manufacturing
During 1994, the company completed construction and run-in
of its state-of-the-art manufacturing facility in Migdal Haemek
(near Nazareth), in Ramot Gabriel, the largest high-tech
industrial park in Israel. The plant, occupying 8,000 square
feet, is capable of producing between 8,000,000 to 10,000,000
diodes per year, and can be expanded in a relatively short period
with the addition of more processing equipment. Throughout 1995,
GAD produced several runs of its diodes for distribution to
potential customers, delivered the diodes for testing, and has
been receiving commercial orders from several of the testing
sources. See Marketing, Sales and Distribution below.
GAD does not perform the packaging assembly of the diodes,
but has this done by sub-contractors in Israel and abroad, and by
actual customers, depending on contracting and marketing
agreements it reaches with foreign vendors of diodes and
rectifier power diodes.
Marketing, Sales and Distribution
The Company believes that the electrical characteristics of
GAD's gallium arsenide based PiN diode for high frequency
rectification and power conversion systems, including very fast
switching at high voltage and currents, stable recovery times,
low leakage current, ultra-low capacitance and very high peak
operating temperature, provide a "performance envelope" of
combined characteristics superior to silicon-based diodes. The
parameters of GAD's gallium arsenide power diodes allow the
engineering community to make more cost- effective and more
reliable circuitry designs, providing superior solutions to the
ones previously available through silicon semiconductor diodes.
These diodes should have market applications in power supplies,
welding machines, motor drives, radar and fiber optic
communications. For example, since the operating temperature for
GAD gallium arsenide diodes is superior to silicon (260 C v. 150
C), engineers can design cooling systems (heat sinks) which, for
a typical high power application, will be much smaller in volume
and in weight.
GAD's diodes will not compete in the highly volatile
semiconductor integrated circuit business, but rather in the
specialty, discrete electronic components markets. GAD entered a
one early-phase contract for packaging and distribution with
OMNIREL CORP., an American company supplying diodes to the U.S.
military. A large American semiconductor company is in its final
stages of testing (over 1 year already invested) GAD's products
in anticipation of a long-term, high volume contract with GAD. A
team from a different customer is currently investigating the
Migdal Ha'mek facilities to confirm the company's capability of
delivering sizable volumes with sustained quality control, also
incipient to a long-term, medium volume contract, and two
Japanese customers are well along in their time-vs-performance
testing of the products.
Patent Applications
GAD acquired from Semtech, which itself on June 2, 1993,
acquired from the Ramot University Authority for Applied Research
and Industrial Development, Ltd, of Tel Aviv, a royalty-free
exclusive license to exploit certain technology relating to a
method of forming a gallium arsenide PIN structure for use in
diodes and thyristors. The subject technology has been included
in Ramot's patent application filed on May 22, 1992 in Israel and
on May 24, 1992 under the Patent Cooperation Treaty. Pursuant to
that treaty, applications have been further filed in 35 other
foreign countries, although there can be no assurance that any
patent applied for will be issued, or, if issued, that it will
provide GAD with any competitive advantage. Although GAD will
rely on proprietary trade secrets and on know-how in connection
with its use of the technology to produce its products, GAD
nonetheless may be vulnerable to competitors who attempt to copy
the technology used in GAD's products.
Litigation, which could result in substantial cost to, and
diversion of, effort by the Company, may be necessary to enforce
any patent issued or licensed to the Company to protect trade
secrets or know-how owned or licensed by the Company or to
determine the scope and validity of the proprietary rights of
others. Adverse findings in any such proceeding could subject
the Company to significant liabilities to third parties, require
the Company to seek licenses from third parties and adversely
affect the Company's ability to sell its proposed products.
Employees
GAD currently employs 11 people on a full-time basis.
Competition
GAD's success will be determined principally by its ability
to convince users of silicon-based power diodes of the
comparative advantages of its products, and that its products
will be available in commercial quantities and will conform to
their specifications and operate reliably. GAD may compete with
substantially larger, better-financed businesses, such as
Motorola, Fuji, MicroSemi, IXYS/ABB and SGS-Thompson. As a
smaller company, with lesser financial and other resources, GAD
likely will be at a substantial competitive disadvantage.
However, GAD's smaller size allows it to be significantly more
flexible in dealing with the requirements of its clients.
Research and Development
The Company believes that the technical specifications of
the gallium arsenide P-i-N diode structure make it suitable for
additional applications beyond power rectifier diodes. Some of
the future product lines which GAD hopes to develop include
switching transistors, TGBT, thermosensors, x-ray detectors,
neutron detectors, ultra-low capacitance capacitors, and novel
controlled semiconductor capacitors (varactors).
During 1994 GAD spent approximately $250,000 on research and
development activities, including 50% spent by the Israeli Chief
Scientist's office. During 1995, an additional $430,000 was
spent on research and develpment.
Item 2. Description of Properties
GAD leases an industrial hall, located in Migdal Haemek,
Israel, which serves as its industrial plant and offices. The
current monthly rental is approximately $6,500 and is also linked
to the Israeli Consumer Price Index. The lease term is for a
period of five years from the date of taking possession of the
building, which occurred in February 1, 1994. GAD received an
option to extend the period of the lease for 4 years and 11
months, with a rental increment increase of 5% in real terms or,
alternatively, for one or two periods of two years and five
months each, with a rental increment of 5% in real terms for each
period. All construction has been completed and GAD is in full
occupancy of the premises.
Item 3. Legal Proceedings
As of March 1, 1996, neither the Company nor its property
was a party to or subject to any pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Market Information
Since trading was activated in September, 1993, the
Company's common shares have been traded in the over-the-counter
market and have been quoted in the NASDAQ OTC Bulletin Board
under the symbol "ISSM", commencing October 13, 1993. The
Company's securities are not publicly traded on any other market.
Set forth below are the high and low bid prices for the
Common Stock of the Company for each quarterly period commencing
September 14, 1994:
Fiscal 1994: Low High
Third Quarter ended 30 Sep 94 $1.25 $2.56
Fourth Quarter ended 31 Dec 94 $2.00 $2.75
Fiscal 1995:
First Quarter $1.25 $2.875
Second Quarter $0.625 $2.12
Third Quarter $0.563 $1.625
Fourth Quarter $0.563 $1.312
Such quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
(b) Holders
As of March 23, 1996 there were 524 holders of record and an
estimated 700 persons who were beneficial shareholders of the
Company's Common Stock.
(c) Dividends
The Company has not paid any dividends since its inception
and presently anticipates that no dividends will be declared in
the foreseeable future.
Item 6. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company
The Company has primarily operated through its two
subsidiaries, GAI and GAD, one of which was sold this fiscal
year.
Gallium Arsenide Industries, Ltd. ("GAI"):
The Company formerly owned Gallium Arsenide Industries, Inc.
("GAI"). GAI was incorporated in Israel on May 25, 1992. In
July 1992, GAI began the establishment of an industrial plaint in
Ramot, Jerusalem, for the production of high-quality Gallium
Arsenide ("GaAs") ingots. GAI's principal product was a
single-crystal GaAs ingot to be sold in its final form as a
wafer. GaAs wafers are used as a substrate for producing
semiconductors. These products are used in light-emitting or
light-detecting devices, such as LED, laser diodes, night vision
devices, photo-voltaic cells and others. GAI's technology for
growing GaAs ingots is the result of in-field research and
development carried out by American experts over the past six
years, and is based on thirty years of experience in crystal
growth in the U.S.A. In September, 1992, GAI was granted the
status of an Approved Enterprise in a Class A development zone,
in the combined capital investment encouragement program
("Approved Enterprise"), of grants and government guaranteed
loans, by the Israeli Investment Center of the Ministry of
Commerce and Industry ("MCI").
GAI commenced production at the beginning of 1994, in a
start-up phase for running, calibrating and adjusting the
manufacturing equipment and training the production staff, and
commenced initial limited production in 1994. It encountered
certain problems in developing a GaAs single crystal. From the
middle of 1994 GAI made efforts to overcome these problems, and
in the last quarter of 1994, GAI negotiated a contract with a
Russian export company to purchase additional technology
necessary to complete the crystal growing process. That contract
was concluded on March 1, 1995. At this juncture, GAI was
operating at a net loss of over $100,000 per month, with no early
resolution in sight, and the Company elected to dispose of this
subsidiary. GAI was sold to its original owners on June 30,
1995, for assumption of most of GAI's debts (over $2,600,000),
and a long-term materials note of $2,234,000, payable to ISC only
in delivered materials. ISC agreed to pay an indebtedness of
$80,000 to Bank Hapoalim.
GAD Semiconductors, Ltd.:
The Company's remaining subsidiary is GAD Semiconductors,
Ltd. ("GAD"), which was incorporated in August, 1993, by a
scientist and his associates who had developed a proprietary
technology for a GaAs diode manufacturing process. Under the
agreement with ISC, this process was transferred to GAD for
certain financial assurances. Semtech, Ltd., initially retained
ownership of 40% (now 10%) of GAD as a result of this
transaction.
GAD was qualified for the Approved Enterprise program by the
Israeli Investment Center, in early 1994. An investment program
in the amount of $2.45 million was approved in favor of GAD by
the Israeli Investment Center in the combined grant and loan
program. GAD applied to the Chief Scientist's office of the MCI
for the qualification of its research and development program for
which the Company shall be entitled to up to 60% in grants.
GAD began construction of its manufacturing plant in Migdal
Haemek in mid-1994, completing the facilities construction in
November, and the machinery installation and testing in late
December.
APPROVED ENTERPRISE PROGRAM
Under the Approved Enterprise program of the combined course of
grants and Israeli government guaranteed loans, which are granted
by the Israeli Investment Center of the MCI under the Capital
Investment Law, a Company is entitled to the following benefits
for the financing of the approved capital investment program:
25.00% Grants from the Israeli Investment Center
41.67% Long-term loans guaranteed by the State of
Israel
Total: 66.67%
For other approved non-capital investment expense within the
investment program (start-up, marketing, construction stage
expenses, working capital), the Company is entitled to receive an
amount equal to 66.67% of the approved expenses.
The grants and loans shall be granted provided that the Company's
owners have invested equity in the Company in an amount equal to
33.33% of the approved budget, during the investment period, by
purchasing newly-issued shares. If a Company does not comply
with the conditions under which the grants are given, it may be
required to refund the grants, in whole or in part, with
interest, from the date of receipt.
CAPITAL INVESTMENT
GAD's approved investment program amounted to $2.45 million as of
the end of 1995 with $247,000 in grants and $444,000 in loans yet
to be received by the Company under this program.
During 1996, GAD anticipates an investment of approximately
$450,000 in equipment, and $350,000 in research and development.
RESULTS OF OPERATIONS
ISC has been a development stage Company since its inception and
has incurred general and administrative, financing, marketing and
start-up expenses in increasing amounts as GAI was attempting to
enter its production and selling phase prior to its sale in 1995,
and GAD competed construction of its production facility,
completed test runs and is now delivering product. Through
December of 1995 GAD had gross sales of $69,617.
During 1995, the Company incurred a loss of $2,203,878 ($0.26 per
share), compared to $2,035,399 ($0.417 per share), during the
operating period of 1994. From the date of its inception to the
end of 1995, the Company has an accumulated loss of $5,188,368 ,
causing a capital deficit of the same amount, which reduced the
shareholders' invested equity to $(686,650).
In early 1994, GAD's $2.45 million budget for capital investment
was approved and it was certified as an "Approved Enterprise".
GAD then completed establishment of its plant for $3.1 million,
comprised of $1.8 million of machinery, equipment and leasehold
improvements and $1.3 million for construction, start-up, selling
and marketing activities in addition to maintaining a minimum
level of working capital. At the beginning of 1995, an
additional budget of $645,000 was approved for GAD by the
Investment Center of the Ministry.
CAPITAL RESOURCES AND LIQUIDITY
The funds invested in GAD for building its plant in Migdal Haemek
and installing the production line, through December, 1995, were
obtained entirely from equity investment by shareholders in the
amount of $553,000.
ISC will require additional funding infusions in order to
complete its investment programs in GAD, and allow continued
production through working capital draw downs. The Company has
prepared a consolidated cash flow program for the period from
January 1, 1996 through December 31, 1996, whereby it has
projected a need of no less than $500,000 in additional capital
infusion, in addition to any funds received from the Israeli
Investment Center grants and Israeli government guaranteed loans,
during 1996.
ISC plans to raise, during 1996, a minimum of $500,000, primarily
by private placement and loans.
CONTINGENCIES AND COMMITMENTS
GAD has several other testing programs underway with
potential customers, and, should several of these customers
tender orders of the sizes for which they are requesting
quotations, the facilities at Migdal Haemek will be insufficient
to satisfy the throughput required and will have to be expanded.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
There are no current disagreements with the accountants
concerning the presentation of the financial information required
under U.S. financial reporting standards. The board of directors
selected the firm of BDO Bavly Milner & Co. to be its auditing
firm, to accomplish the availability of a United States'
chartered accounting firm for future activities, which selection
was formalized on March 23, 1995. There were no disagreements
with the previous firm of Braude & Co., which has merged into
Bavly Milner, the resulting firm now known as Braude Bavly, and
there are no restatements or alterations of any of the
information presented during the last years in which the Company
has been audited and reporting.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
(a) Directors and Executive Officers of the Company
The following table provides information concerning each
executive officer and director of the Company:
Name Age Title
Robert M. Terry 65 Chairman of the Board
Jules Pier 53 Director
Jerome Saver 48 Director
Toni Gales 50 Secretary
All directors hold office until their successors have been
elected.
Set forth below is certain information about the named
individuals.
Robert M. Terry has been Chairman of the Board of the
Company since January 1994, and Chief Executive Officer of the
Company since February 24, 1995. He has over 35 years of
finance, engineering-development and construction experience. He
also is Chairman of the Board and CEO of Intercontinental
Technologies Group, Inc, a public company whose subsidiary, Aero
Industries, specializes in airplane conversions and rebuilding
and operates facilities in Fort Lauderdale, Florida. He founded
that company in 1978 to be the exclusive U.S. distributor for the
Brazilian "Bandeirante" commuter aircraft. Since 1980 he has
been the CEO of Consolidated Aircraft Corporation, a private
company he founded as the exclusive U.S. Distributor of Israeli
Aircraft Industry's "Cargo/Commuter Line" aircraft. He owns the
Century 21 Consolidated Real Estate Corporation in Las Vegas,
Nevada. Mr. Terry received his engineering degree from New York
University, School of Engineering, with graduate studies at
Columbia University.
Jules Pier is the son of Henry Pier, a renowned European
hand book binder and a cantor at Eastside Temple, one of the
founders of Temple Beth Em in Margate, Florida, a survivor of
Buchenwald and Auschwitz, whose accomplishments include a gold
medal in the 1936 Olympics for water polo, which was personally
presented by Adolf Hitler, whose regime, just 3 years later,
condemned Henry to the concentration camps. Jules Pier is
currently President and Chief Executive Officer of Petro-Chem
Distributors, Inc., an authorized British Petroleum Co.
distributor in South Florida. Mr. Pier is a marketing specialist
with broad based experience in sales and marketing development
and turn-around situations. He began his career with the Woolco
Department Store chain, becoming Vice President of Marketing
during his 13 year employment with that company. He left to
become a founder of Pier One Clothing, producing fine mens wear
and helped to build the company to a major industry position. In
1983, Mr. Pier formed an investment group to purchase the
financially troubled Whiteworth, Towne, Paulson Pharmaceutical
company, a producer of generic drugs. Mr. Pier was responsible
for the business turn-around to profitability and the eventual
sale of the company to Smith, Kline, Beckman at a substantial
profit for his group. He has for the past few years been
actively engaged as a business marketing consultant for several
financially troubled companies, making a major contribution
towards the successful turn-around of each of these businesses.
Mr. Pier attended the University of Michigan.
Jerome Saver has been Chief Executive Officer of J.R. Saver
since 1992 and he is Vice President/Secretary of Petro-Chem
Distributors, Inc. He has over 26 years of experience in the
areas of finance, marketing, communications and electric energy
related fields. Since 1970, he has successfully provided
financial assistance for aircraft, heavy construction equipment
and high-tech industry. In the early part of his career, he
developed and patented a circular fluorescent light bulb base to
convert incandescent light sockets to energy efficient
fluorescent lighting. Mr. Saver also developed an interconnect
telephone company specializing in INTERTEL telephone equipment
and converted many office and city buildings to modern telephone
technology. J.R. Saver, Inc. was founded to raise awareness in
the protection of public and private real estate. A special
window film and attachment system are being used to insure
people's safety against violent weather and vandalism. Mr. Saver
attended Philadelphia College and the University of Pennsylvania,
receiving his degree in Business.
Toni Gales has been office manager for law firms for the
past 10 years, and prior to that was the operations manager for
King Aviation Services, a 70-plane flight school located on the
Van Nuys, California airport. Ms. Gales has also managed
cellular phone and paging services and is currently responsible
for ITG Energy, an oil production company, and performs routine
analysis of daily operations for Skysite Satellite
Communications, Inc., a satellite phone company.
(b) Significant Employees
Set forth below is certain information for certain
individuals expected to make a significant contribution to the
Company's business.
(1) GAD Semiconductors, Ltd. ("GAD")
David Kremmerman, age 55, is Chairman of the Board of GAD.
Mr. Kremmerman is also currently the Managing Director of Cyclone
Aviation, an American stock Exchange listed company operating in
helicopter and fixed-wing design, manufacture and repair, based
in Israel; and is President of Etz-Lavud, an American Stock
Exchange listed company which manufactures plywood, formica and
other laminated construction materials. It is the largest
manufacturer in its field in Israel. Mr. Kremmerman is a member
of the Presidium of the Israeli Industrial Association and
Chairman of the Israel Russia CIS Chamber of Commerce. He is a
graduate of Georgetown University, Washington, D.C., and began
his career as a marketing executive and manager of several U.S.
and Israeli corporations. He served as president of Ashkelon
Plywood, and Tadir Beton, a ready mix concrete supplier, and then
became Chairman of Leizer Industries, an Israeli company traded
on the AMEX, prior to 1983.
Dr. German Ashkenazi, age 54, has been a co-founder and a
Director of Research and Development for GAD since September
1993. Dr. Ashkenazi has spent over 30 years in research of
semiconductors, and the last 230 years in the research of gallium
arsenide semiconductors. He is responsible for the invention of
the wafer growth technology of gallium arsenide power diodes,
which he discovered in the U.S.S.R. before emigrating to Israel
in 1989. For 9 years the was head of the Department of Physics
of Semiconductors, n charge of 60 scientists, at Electrotechnical
Research Institute, Tallinn, Estonia, U.S.S.R., the leading
research institute for semiconductors in the U.S.S.R. He has
published 175 research papers and holds 23 patents.
Dr. Alex Lahav, age 43, has been GAD's Director for
Engineering and Manufacturing since January, 1994. From 1989 to
1991, Mr. Lahav was manager of the Thin Films group at LUZ
Industries, which produced large-scale solar system power
stations. From 1985 to 1989 he was a member of the technical
staff of AT&T Bell Laboratories, where he worked on development
and manufacturing of integrated circuits based on gallium
arsenide. From 1979 to 1981 he was an engineer with the Crystal
Growth Laboratory, Solid State Institute, Technion, Haifa, where
he received his Ph.D. in Materials Engineering. He has published
20 papers.
(c) Family Relationships
There are no family relationships among the Company's
directors, executive officers or any of the named significant
persons.
(d) Involvement in Certain Legal Proceedings. None of the
Company's directors, executive officers or named significant
persons, and none of its promoter or control persons, during he
past five years:
(1) has had any bankruptcy petition filed by or
against any business of which such person was a general partner
or executive officer either at the time of the bankruptcy or
within two years prior to that time;
(2) has had any conviction in a criminal proceeding or
was subject to a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) has been subject to any order, judgment or decree
of any court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting
such person's involvement in any type of business, securities or
banking activities; nor
(4) has been found by a court of competent
jurisdiction (in a civil action), the Securities and Exchange
Commission or the Commodities Futures Trading Commission to have
violated a federal or state securities or commodities law, and
the judgment has not been reversed, suspended or vacated.
Compliance with Section 16(a) of the Securities Exchange Act of
1934
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's
equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers,
directors and greater than ten-percent shareholders are required
by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished
to the Company, or written representations that no Form 5 filings
were required, the Company believes that during the year ended
December 31, 1995, all Section 16(a) filing requirements
applicable to its officers, directors and
greater-than-ten-percent beneficial owners were complied with.
Item 10. Executive Compensation
In respect of services rendered to the Company in 1994 and
in 1995, the Company did not pay to any executive officer of the
Company, GAD or GAI total annual salary and bonus aggregating in
excess of $100,000. Set forth below is information regarding the
compensation of Ami Appelbaum, the Company's former Chief
Operating Officer for the past two years, and Robert M. Terry,
Chairman and current Chief Executive Officer.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Name and Principal Position Year Salary Bonus
Ami Appelbaum, President & COO 1994 $60,000 $ 0
1995 $20,000
Robert M. Terry, Chairman 1994 $60,000 $ 0
1995 $60,000 $ 0
Options: The Company had an employment agreement with Dr. Ami
Appelbaum, the company's former President and COO. Dr. Appelbaum
was granted options to acquire Company 168,000 shares of common
stock at an exercise price of $0.50 per share for a three-year
employment period: 4,666 shares per month for each month of
employment. The options will be exercisable only after
termination of employment or the passage of three years,
whichever occurs first, and will remain available for 5 years
thereafter, beyond which time, if unexercised, the options lapse.
Mr. Terry has fully vested options to acquire 250,000 shares of
the Company's stock at an exercise price of $1.50 per share. The
salary compensation due Mr. Terry has been deferred until
suitable financial resources allow for its payment.
Compensation of Directors
Non-employee directors of the Company do not receive any
compensation for attending meetings of the Board of Directors.
In 1995, none of the Company's directors received any
compensation for services provided as a director, whether
pursuant to any consulting contracts, business agreements or
otherwise.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth certain information regarding
the number and percentage of shares of Common Stock beneficially
owned by each named executive officer and director, any person
(including any "group" as that term is used in Section 13(d)(3)
of the Securities Exchange Act of 1934) known by the Company to
own 5% or more of the Common Stock of the Company, and all
officers and directors as a group, as of the date of this Form
10-KSB:
Name and Address Amount and Nature of
of Beneficial Owners Beneficial Owners1 Percent of
Class
Robert M. Terry 50,000 0.6
Dr. Ami Appelbaum 0* 0.0
All Executive Officers and
Directors as a group
(4 persons) 50,000 0.6
Lema Investments, Ltd. 2,857,357 31.7
11 St. Georges Street, Douglas
Isle of Man, British Isles
Intercontinental Technologies Group, Inc.
5374 Village Road, Long Beach, CA
1,600,000 17.8
_____________________________
Unless otherwise indicated, the Company has been advised
that all holders listed have the sole power to vote and dispose
of the number of shares set forth opposite their names.
* Appelbaum has exercisable options ranging from $0.50 per
share to $1.50 per share, in an aggregate amount of 250,000
shares. None of these have been exercised, and Mr. Appelbaum is
no longer working for the Company.
Item 12. Certain Relationships and Related Transactions
In January 1994, the Company agreed to issue 50,000 shares
of its Common Stock to Robert M. Terry in consideration of Mr.
Terry agreeing to serve as the Company's Chairman of the Board.
Neither the Company, nor GAD, has directly or indirectly
acquired any assets from any of its directors, or the executive
officers, significant employees or security holders named in
Items 9 or 11 above.
In October, 1994, the Company entered into a share exchange
proposal with Intercontinental Technologies Group, Inc. ("ITG"),
intending to exchange Company equity for equity in ITG. The
valuation of ITG equity was not provable by the deadline date
established (December 31, 1994), and the transaction has been
rescinded as to the Company. Lema Investments, the majority
shareholder, did enter into the arrangement,utilizing its own
assets, exchanging 1,600,000 shares of its ISC common for
1,000,000 shares of ITG common.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description Page
2 Agreement, dated September 28, 1993, with Lema
Investments Ltd.(1)
3.1 Certificate of Incorporation, as amended(2)
3.2 By-Laws(2)
3.3 Amendment to Articles of Incorporation (Change of
Name), July 5, 1994(3)
10.1 Agreement, dated July 5, 1992, with Electroterm
Electric & Metal Industries Ltd. and Mesana SA(2)
10.2 Memorandum of Understanding, dated December 23, 1993,
with Jaber Corporation and Spanish Dagger, Inc.(2)
10.3 Guarantee Agreement, dated November 17, 1993, with
Messrs. Younisian and Korman(2)
10.4 Loan Agreement, dated November 23, 1993, with Kaner
Sherotei Geviya, Ltd.(2)
10.5 Loan Agreement, dated November 10, 1993, with GAD
Semiconductors, Ltd.(2)
10.6 Agreement between GAD, Semtech Ltd. and Messers,
Aschkenazi, Gerschfeld, Nathan and Slonim(2)
10.7 Stock Sale and Purchase Agreement with Tweed
International, dated October 3, 1994(3)
21 Subsidiaries of the Registrant(2)
_____________
(1) Incorporated by Reference to Registrant's Form
8-KSB dated October 5, 1993.
(2) Incorporated by Reference to Registrant's Form
10-KSB dated May 3, 1994.
(3) Incorporated by Reference to Registrant's Form
10-KSB dated March 31, 1995.
(b) Reports on Form 8-K
None
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.
INTERNATIONAL SEMICONDUCTOR CORP.
By: /s/ Robert Terry
Robert M. Terry, Chairman
Date: March 31, 1996
IN ACCORDANCE WITH THE EXCHANGE ACT, THIS REPORT HAS BEEN
SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
/s/ Robert Terry Principal Executive March 31,
1996
Robert M. Terry Officer and Director
/s/ Jules Pier Director March 31, 1996
Jules Pier
/s/ Jerome Saver Director March 31, 1996
Jerome Saver
/s/ Toni J. Gales Secretary March 31, 1996
Toni J. Gales
GAD SEMICONDUCTORS LIMITED
A DEVELOPMENT STAGE COMPANY
FINANCIAL STATEMENTS
AS AT DECEMBER 31, 1995
Page
CONTENTS
Auditor's Report 1 - 2
Balance Sheet 3
Statement of Operations 4
Statements of Changes in Shareholders' Equity 5
Statement of Cash Flows 6 - 7
Notes to the Financial Statements 8 - 17
BRAUDE BAVLY Letterhead
AUDITORS' REPORT TO THE SHAREHOLDERS OF
G.A.D. SEMICONDUCTORS, LIMITED
We have audited the accompanying balance sheet of GAD
Semiconductors Limited - a development stage company (hereinafter
"the Company") as at December 31, 1995 and December 31, 1994 and
the statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the
responsibility of the Company's board of directors and
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards, including those prescribed by the Auditors
(Mode of Operation) Regulations, 1973. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement, whether due to an error in the financial statements
or to anything misleading therein. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing e
accounting principles used and significant estimates made by the
board of directors as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
fair basis for our opinion.;
The above Financial Statements were prepared on the historical
cost basis in U.S. dollars.
In our opinion, the financial statements referred to above
present fairly, in conformity with generally accepted accounting
principles, in all material respects, the financial position f
the company as of December 3,1 995 and 1994 and the results of
operations, changes in shareholders' equity and cash flows for
each of the three years in the period ended December 31, 995.
Without qualifying our opinion we draw attention to uncertainties
described more fully in Note 1 to the financial statements
regarding the Company's ability to continue as a going concern:
- -- as at the date of approval of the financial statements the
Company had encountered liquidity problems which raise
significant doubts regarding eh Company's continuance as a going
concern.
- -- Management's plans, the success of which is not assured, to
raise additional capital required by the Company to enable it to
implement further essential investments and to carry on its
operations.
- -- The Company had completed its production facilities in 1995
and as yet has not commenced sales. The attainment of dull
commercial production and sales is not assured.
The above financial statements have been prepared assuming the
Company will continue as a going concern as discussed in Note 1
to the financial statements. Management's plans regarding these
matters are also described in Note 1. The financial statements
do not include adjustments that might result from the outcome of
these uncertainties.
Pursuant to Section 211 of the Companies Ordinance (new Version),
1983, we state that we have obtained all the information and
explanations we required and our opinion n the above financial
statements is given according to the best of our knowledge and
the explanations received by us and as shown by the books of the
Company.
/s/Braude Bavly
BRAUDE BAVLY
Tel Aviv, April 11, 1996
GAD SEMICONDUCTORS LIMITED
BALANCE SHEET
December 31
Note 1995 1994 US $$
ASSETS
Current Assets
Cash and cash equivalents 3 0 84865
Accounts receivable 18393 127977
Inventories 15000 15000
33393 227842
Fixed Assets 4 1396499 1270320
_______ _______
1429892 1498162
======= =======
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Credit from banking
institutions 5 231369 46141
Suppliers 201642 265437
Other accounts payable 6 578776 238856
______ _______
1011787 550434
Long-term Liabilities
Long-term loans 7 1176029 1172962
Liability for severance pay 8 55385 33344
______ _______
1231414 1206306
====== =======
Contingent Liabilities and
Contingencies 9
Shareholder's equity
Share capital 10 4513 3390
Premium on share capital 1190700 637069
Accumulated loss during
development stage (2008522) ( 899037)
_______ _______
(813309) ( 258578)
====== =======
1429892 1498162
The accompanying notes are an integral part of the financial
statements.
/s/ David Kremmerman /s/ Alex Lahav /s/ German
Ashkenazy
David Kremmerman Alex Lahav German Ashkenazy
Chairman of the Board General Manager Director of
Research
STATEMENT OF OPERATIONS
Year ended:
December 31 Cumulative
1995 1994 amounts
US Dollars
Note ______________________________
Research and Development
expenses 12 158936 148897 307833
Marketing Expenses 130863 89944 273900
General and Administrative
expenses 13 661900 463912 1180656
Operating Loss 951699 702753 1762389
Financing expenses 14 157786 79585 246133
_______ ______ _______
Net Loss 1109485 782338 2008522
======= ====== =======
Net loss per share 15 104 77
======= ======
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Share Capital Premium on Accumulated
Number Amount shares deficit Total
US Dollars
__________________________________________________
Balance as at
Jan 1, 1994 10100 3390 98506 ( 116699) (
14803)
===== ===== ====== ======= ======
Balance as at
Dec 31, 1994 10100 3390 637069 ( 899037) ( 258578)
Premium on
shares 0 0 254354 0 254754
Issue of shares
Oct 30, 1995 3370 1123 298877 0 300000
Net Loss for the
year ended
Dec 31, 1995 0 0 0 (1109485) (1109485)
_____ ____ ______ _______ _______
Balance as at
Dec 31, 1995 13470 4513 1190700 (2008522) ( 813309)
===== ==== ====== ======= ======
STATEMENT OF CASH FLOWS
Year Ended:
December 31: Cumulative
1995 1994 amounts
US Dollars
Cash Flows from operating
activities
Net Loss for the year (1109485) (782338) (1891823)
Adjustments to
reconcile net loss to
net cash used in
operating activities
(Appendix) 647105 329403 976508
Net cash used in
operating activities ( 462380) (452935) ( 915315)
-------- ------- --------
Cash Flows from Investing
activities
Investments in fixed
assets ( 404350)(1532602) (1936952)
Proceeds from investment
grants 78921 245880 324801
Repayment of Loans to
related parties 0 91407 91407
Short term bank deposit 0 0 0
______ _______ _______
Net Cash used in
investing activities ( 325429)(1195315) (1520744)
======= ======= =======
Cash flows from
financing activities
Premium on shares 553631 538563 1092194
Receipt (repayment) of
short-term bank credit 40613 ( 654199) ( 613586)
Proceeds from receipt of
long-term loans 137879 1184588 1322467
Repayment of long-
term loans ( 30302)( 11626) ( 41928)
Receipt from share
issuance 1123 0 1123
Net cash provided by
financing activities 702944 1057326 1760270
======= ======= =======
Increase (decrease) in cash
and cash equivalents ( 84865)( 590924) ( 675789)
Cash and cash equivalents
at beginning of year 84865 675789 675789
Cash and cash equivalents
at end of year 0 84865 0
======= ======= ========
Supplemental disclosures
of cash flow
information:
Interest payments, net 157786 105669 263455
======== ======= ========
APPENDIX TO STATEMENT OF CASH FLOWS
Adjustment to reconcile net loss to
net cash used in operating activities:
Year Ended:
December 31 of Cumulative
1995 1994 amounts
US Dollars
Expenses not involving
cash flows:
Depreciation 199250 18095 217345
Increase in liability
for severance pay 22041 33344 55385
Revaluation of long-
term loans 40105 0 40105
261396 51439 312835
====== ======= =======
Changes in assets and liabilities
Decrease (increase) in
accounts receivable 109584 (127458) ( 17874)
Increase in inventory 0 ( 15000) ( 15000)
(Decrease) increase in
suppliers (63795) 257890 194095
Increase in other
accounts payable 339920 162532 502452
385709 277964 663673
------- ------- -------
647105 329403 976508
======= ======= =======
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - General
GAD Semiconductors Limited ("the Company") is a development stage
company, incorporated in Israel on August 15, 1993, by another
Israeli company, with a purpose to further develop a certain
patentable process related to production of certain GaAs
products, based on proprietary technology, developed by
scientists who own, at present, directly and indirectly, 30% of
the controlling shares of the Company, and transferred to the
Company, without consideration.
In September 1993 International Semiconductors Corp (formerly
Israel Semiconductors Corp.)(hereinafter "ISC"), a US
corporation, acquired 60% of the controlling shares in the
Company and undertook to invest an amount up to US$1 million as
part of its undertaking to raise some US$3 million, the
additional US$2 million by way of government grants and
government guaranteed loans. On October 1995 ISC acquired
additional 10% of the controlling shares. (A total of 70% of the
controlling shares.).
As at the date of approval of the financial statements the
Company had encountered liquidity problems which raise
significant doubts regarding the Company's continuance as a going
concern.
The company requires additional funds in order to implement its
full plan and carry on its operations at the originally projected
scale. The Company's ability to raise these funds is dependent
on the ability of its parent company to implement its own plans
for raising capital, mostly by way of private placements.
Subsequent to the date of the financial statements the parent
company invested the amount of US$1,500,000 in the Company.
As previously stated, the Company during 1994 constructed
production facilities. The construction was completed during the
first quarter of 1995. The Company does not have a proven
history of commercial production and sale of products. The
Company's ability to implement commercial production and generate
sales is uncertain.
These financial statements, prepared on the basis of a going
concern, do not include any adjustments which may have been
necessary had the outcome of the above uncertainties been known.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
a) Financial Statements in United States Dollars
Based upon the Company's plans, it is expected that once the
Company's plant begins production (also see Note 1) most of its
sales will be made outside of Israel, in various currencies -
principally US dollars ("Dollars"). Additionally, prices of the
products expected to be produced and sold by the Company are
quoted and denominated in the world markets in Dollars. The cost
of materials to be used in the production, as well as some other
elements of cost and expense will also be incurred in Dollars.
The Company's management believes, that the Dollar is the
currency of the primary economic environment in which it
operates. Therefore, the functional currency of the Company is
the Dollar.
(a) Transactions and balances originally denominated in Dollars
are presented at their original amounts. Transactions and
balances in other currencies are translated into Dollars in
accordance with the principles set forth in Statement No. 52 of
the Financial Accounting Standards Board of the United States
(the "FASB").
Not all Dollar amounts should be construed as representing
Dollars or as being exchangeable for Dollars.
Rate of exchange and linkage basis:
The amounts stated for assets and liabilities in, or linked to,
non-Dollar currencies are included on the basis of the
representative exchange rates prevailing at the balance sheet
date. the exchange rates of the dollar in relation to the New
Israeli Shekel (the "NIS") and the changes in the consumer price
index ("the CPI") were as follows:
US Dollar CPI
Exchange Rates in points
December 31, 1993 NIS. 2.986 104.6
December 31, 1994 NIS. 3.018 119.7
December 31, 1995 NIS. 3.135 129.4
(b) Cash and Cash Equivalents
Cash and cash equivalents include demand deposits with banks and
deposits in banks with original maturities of three months or
less.
(c) Fixed Assets
Fixed assets are included at cost, net of investment grants
received from the Government of Israel, Cost includes interest
capitalized on loans used to acquire fixed assets. The assets
are depreciated according to the straight line method, over the
estimated useful life of the assets, at the following annual
rates:
%
Machinery and Equipment -
Leasehold improvements 11
Furniture and fixtures 6-20
Vehicles 15
(d) Research and Development Expenses
Research and development expenses are included at cost, net of
investment grants received from the Government of Israel.
(e) Income Taxes
The Company provides for income taxes in accordance with the
provisions prescribed by statement no. 109, "Accounting for
Income Taxes" (SFAS 109) of the FASB.
(f) Loss per Share
Loss per share is calculated based on the weighted average number
of shares issued and outstanding during each reporting period.
NOTE 3 - ACCOUNTS RECEIVABLE December 31
1995 1994
US Dollars
Tax authorities 18245 53989
Other debtors and prepaid
expenses 148 7883
Grants Receivable 0 66105
Total 18393 127977
NOTE 4 - FIXED ASSETS
Machinery (2) Vehicles Furniture Lease(3) Total
(a) and and improve-
Equipment Fixtures ments
U.S. Dollars
Cost:(1)
At January 1,
1995 781701 43948 38926 423874 1288449
Additions
during the
year ended
31 Dec 95 292875 7592 24962 325429
Balance at
Dec 31,1995 1074576 43948 46518 448836 1613878
Depreciation
As at January
1, 1995 0 7004 1337 9788 18129
Provision for
year ended
Dec 31,1995 141469 8979 6626 42176 199250
Balance as at
Dec 31,1995 141469 15983 7963 51964 217379
______ _____ ____ ______ ______
Totals 933107 27965 38555 396872 1396499
(1) Net of investment grants of US$ 324,802 as at December 31,
1995 received from the Government of Israel pursuant to the
Encouragement of Capital Investments Law 1959. If the Company
does not meet the conditions stipulated by this Law, it may be
required to refund grants received with the addition of interest
and linkage to the CPI. In management's opinion, the Company has
met all such conditions as at balance sheet date.
(2) Including capitalized interest in the amount of US$25,596 as
at December 31, 1994.
(3) The owner of the building carried out leasehold improvements
in the amount of $377,107. The Company undertook to pay a one-
time payment of 30% of the cost of the leasehold improvements. An
amount equal to 70% of the cost of the renovations was
capitalized and will be paid monthly as part of the rent payment
over the period of the lease (approximately $3,000 per month).
Accordingly, an amount of $295,644 was recorded as Leasehold
Improvement and Long-term Liabilities.
The renovations are depreciated over the period of the lease
including the option, e.g. 10% per annum.
(b) See Note 11 regarding liens on fixed assets.
NOTE 5 - CREDIT FROM BANKING INSTITUTIONS 1995 1994
Interest Rates US Dollars
Short term credit 21 53889 10956
Short-term loan - 0 2320
Current maturities of
long term loan 6-10 177480 32865
====== ======
231369 46141
*unlinked carrying interest at Prime plus 2.5%
NOTE 6 - OTHER ACCOUNTS PAYABLE
Tax Authorities 2370 55919
Employees and institutions 75849 75092
Due to related parties 341270 14132
Other 159287 93713
====== ======
578776 238856
NOTE 7 - LONG-TERM LOANS
(A) Composition:
Loans from banking
institutions 6-10 1046873 910183
Other Loans 8 306636 295644
Less: Current maturities (177480) ( 32865)
======= ======
1176029 1172962
The loans from banking institutions are denominated in US $, the
loans are not repayable before the year 1996.
(b) Repayment dates after one year from balance sheet date:
Second Year 271699 122768
Third Year 271699 221595
Fourth Year 271699 221595
Fifth Year 266714 221595
Subsequent Years 94218 385409
Totals 1176029 1172962
======= =======
(c) See Note 11 regarding security.
NOTE 8 - LIABILITY FOR SEVERANCE PAY
The Company's liability for severance pay to its employees,
pursuant to Israeli laws, is covered partly by purchase of
insurance policies. The amounts paid for insurance policies are
not reflected in the balance sheet since they are not under the
control and management of the Company. The amount of liability
for severance pay presented in the balance sheet reflects that
part of the liability not covered by the insurance policies
mentioned above.
NOTE 9 - CONTINGENT LIABILITIES AND COMMITMENTS
On February 21, 1994, the Company leased an industrial hall,
located in Migdal Haemek, which serves as the Company's
industrial plant and offices. The current monthly rent, in the
amount of approximately US $6,600, is linked to the index. The
lease is for a period of 5 years from March, 1994, the date
possession of the building was taken. The Company received an
option to extend the period of the lease for 4 years and 11
months, with a rental increment of 5% in real terms or,
alternatively, for one or two periods of two years and 5 months
each, with a rental increment of 5% in real terms for each
period.
Under the terms of the rental contract, the owner of the building
undertook to carry out renovations and leasehold improvements at
the Company's specifications. The Company undertook to pay the
cost as follows:
(1) 30% of the cost of the renovations due immediately.
(2) 70% of the cost of the leasehold improvements,
capitalized and paid over the period of the lease, including the
option to extend the lease. The payments will be made monthly,
carry interest and are linked to the CPI.
NOTE 10 - SHARE CAPITAL
(a) Composition: December 31, 1995 and 1994
Authorized Issued and
Outstanding
Management shares of NIS 1 each 400 100
Ordinary shares of NIS 1 each 21000 13370
Total: 21400 13470
===== =====
(b) Subsequent to balance sheet date an additional amount of
approximately $300,000 was paid by the parent company for an
issue of another 10% of the controlling shares. ISC, which held
60% of the outstanding shares, was issued another 10% by
converting $300,000 of debt to shares on October, 1995.
NOTE 11 - LIENS AND GUARANTEES
In order to secure its liabilities, the Company has liens on all
assets, share capital, goodwill, rights and insurance on the
Company. All long-term liabilities of the Company as at December
31, 1995 are secured by liens.
Year ended:
December 31 Cumulative
1995 1994 amounts
US Dollars
NOTE 12 - RESEARCH AND DEVELOPMENT EXPENSES
Salaries and related
expenses 147832 100771 248603
Materials 2863 10028 12891
Consulting 16425 146250 162675
subtotals 167120 257049 424169
Less: Grants received: ( 8184) (108152) (116336)
158936 148897 307833
====== ====== ======
NOTE 13 - GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and related
expenses 294714 292173 624679
Rent and Insurance 44777 43783 88560
Professional services 51025 51114 117077
Car Expense 19399 30401 49800
Maintenance expense 34434 19786 54220
Other office expense 18301 15559 35943
Depreciation 199250 11091 210375
661900 463912 1180656
====== ====== =======
NOTE 14 - FINANCING EXPENSES
Bank fees and commissions 7553 24675 38072
Interest expense, net 145559 69941 217734
Foreign exchange
differences 4674 10565 15923
157786 105181 271729
Less financing expense
capitalized to cost of
fixed assets 0 25596 25596
157786 79585 246133
NOTE 15 - NET LOSS PER SHARE
Net loss for the period used
in the computation 1109485 782338
Weighted average of paid up
capital stock used in the
computation 10662 10100
======= ======
NOTE 16 - APPROVED ENTERPRISE
Production facilities of the Company have been granted, by the
Investment Center in Israel, the status of "Approved Enterprise",
in accordance with the Encouragement of Capital Investments Law -
1959.
The Company elected the combined course of benefits which
provides it with investment grants, state guaranteed loans and
certain tax benefits (see also Note 18).
If the Company does not comply with the conditions under which
the grants are given, it may be required to refund the amount of
the grant, in whole or in part, with interest, from date of
receipt.
NOTE 17 - TAXES ON INCOME
(a) The Company has not yet begun its commercial activity, and
accordingly, has not had taxable income.
(b) Benefits Under the Encouragement of Industry (Taxes) Law -
1969. The Company is an "industrial company", as defined by the
Israeli Encouragement of Industry (Taxes) Law -1969, and, as
such, is entitled to certain tax benefits, including accelerated
depreciation, deduction of public offering expenses and
amortization of knowhow.
(c) Benefits under the Encouragement of Capital Investments Law
- -1959. The Company is entitled, under the above law, to tax
benefits mainly reduced tax rates. Such reduced rates may vary
between 10% and 25% depending upon the percentage of non-Israeli
share holdings in the company during each year of the benefit
period. The benefit period is ten years, commencing the first
year the Company has taxable income, and, in any case, will
terminate 12 years from completion of the Investment program, or
14 years from date of its approval, whichever is earlier.
Distribution of dividends, out of profits accumulated during the
benefit period, will result in additional tax on 15% of the
distributed amounts.
The Company is entitled to claim accelerated depreciation in
respect of fixed assets used by the approved enterprise. The
rates are for a period of five years from the date the assets are
placed in service.
NOTE 18 - RELATED PARTIES
Following are transactions and balances with related parties:
December 31
1995 1994
US Dollars
Balance Sheet Data:
Assets:
Loans to related parties 0 0
Liabilities:
Other accounts payable 887 14132
===== ======
Statement of Operational data
Salaries 57744 104836
Professional Services 11858 4400
Patent Expenses 930 7219
70532 116455
===== ======
NOTE 19 - SUBSEQUENT EVENTS
The Company is currently negotiating a three-year contract with a
leading company in the field of diodes to purchase GAD diodes,
packaging them and distributing them in the United States.
NOTE 20 - SUPPLEMENTARY INFORMATION - BALANCES EXPOSED TO THE
EFFECT OF CHANGES IN THE EXCHANGE RATE OF THE U.S. DOLLAR TO THE
ISRAELI CURRENCY.
Dec 31, 1995 Dec 31, 1994
Linked Linked
Unlinked to the Unlinked to the
CPI CPI
Current Assets
Cash and cash
equivalents 0 0 84856 0
Accounts Receivable 18393 0 127977 0
Loans to related
parties 0 0 0 0
_____ _______ ______ _______
18393 0 212842 0
===== ======= ====== =======
Current Liabilities
Credit from banking
institutions 231369 0 46141 0
Suppliers 201642 0 233720 0
Other accounts payable 568776 0 238856 0
______ _______ ______ _______
1011787 0 518717 0
======= ======= ====== =======
(1) Unlinked balances are exposed to the effect of changes
in the exchange rate of the Dollar to the Israeli currency.
(2) Balances linked to the CPI are exposed to the effect of
the differences between the rate of inflation in Israel and the
change in the exchange rate of the Dollar to the Israeli
currency.
