U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996.
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) 425-2376
(Issuer's telephone number, including area code)
N/A
(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 aggregate number of shares outstanding of the Issuer's Common
Stock, its sole class of common equity, was 9,042,452 as of March
31, 1996.
This report consists of __ pages.
Part 1
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
Background Israel Semiconductor Corporation, continues to be
a development-stage corporation (the "Company"). The Company was
incorporated on March 13, 1987, initially as an inactive publicly
held corporation pursuing a business acquisition.
Business Development In September 1993, the Company committed to
invest in shares of a newly founded Israeli development stage
company, GAD Semiconductors, Ltd. ("GAD"), specializing in
gallium arsenide applications, initially in the form of diodes,
an amount up to $1,000,000 ($900,000 in cash and $100,000 in
loans) and undertook to raise additional funds by means of
commercial banking loans, grants and government loans which GAD
is qualified to receive as a recognized Approved Enterprise under
the Israeli Encouragement of Capital Investment-1959 Law.
Together with the initial investment, this has aggregated to
approximately $3,400,000, which is $400,000 in excess of the
originally agreed upon amount. In return for the initial
commitment, GAD issued to the Company 60% of its common stock,
par value $2,033. The subsequent investment of $400,000 was
converted into additional common stock of GAD for which GAD
issued 1000 shares (approximately 10% of the common stock then
outstanding) to the Company in September, 1995. The major part
of the investment, up to the amount which the Company has
undertaken to invest in GAD's shares, has been considered as
premium on the shares. As of March 31, 1996, the Company was
well past its initial commitment for investment, and has exceeded
the original program by approximately $500,000, most of which has
been converted to additional equity in GAD. Under the approved
capital investment program, GAD received, during the first
quarter of 1996, no State guaranteed loans, although amounts are
accruing which should be realized during the second quarter of
this year.
Capital Resources and Liquidity The Company has sustained a
negative cash flow since the beginning of 1994. The Company
raised $1,538,125 during 1995 in various private placements, and
has, thus far in 1996, raised an additional $214,382 by the sale
of 548,627 shares in private placements. The Company has
satisfied a debt with Bank Hapoalim, Israel, of $114, 382.00 by
the issuance of 80,000 shares in late January, and a debt of
$50,000 due Michael Harrison, by issuance of 133,333 shares in
February. Further, the Company sold 100,000 shares to Eli Ahron
for $50,000 on February 5, 1996, and 235,294 shares to Caymus
Capital Limited, for $100,000, on February 10, 1996.
During the fourth quarter of 1995, and the first quarter, 1996,
the Company borrowed $208,000 from Tweed Investments, Ltd., which
is in the form of a convertible note, with a conversion rate of
$0.60 per share during the succeeding 6 months for the initial
$158,000 and $1.05 per share for the final $50,000. Tweed has
inicated that it will loan additional amounts, if necessary.
Employee Stock Transactions The Company has personal employment
agreements with key personnel, Robert M. Terry, the Company's
President, and Dr. Alex Lahav, President of the GAD subsidiary.
Mr. Terry receives $7,500 per month, in the form of stock of the
Company, for his services. He is also entitled to acquire 10,000
shares of stock for each month in service of the Company,
commencing with his original service period as Chairman, January
1, 1994, and extending through February, 1996, at an exercise
price of $1.50 per share. Two outside consultants, Arik Makleff,
Chairman of the Board of Directors of GAD, and Christopher
Dieterich, the Company's general counsel, were also tentatively
granted options, exercisable at the rate of $1.50 per share, in a
total amount of 250,000 each, with Mr. Makleff's vesting period
beginning on May 1, 1994, and maturing at the rate of 10,000
shares per month, and Mr. Dieterich's commencing on his first
full month of service to the Company, beginning on July 1, 1995,
and not vesting until a complete period of 2 full years has
elapsed, unless his service contract is prematurely terminated at
the Company's request. The Company has filed an S-8 registration
statement, effective April 9, 1996, for purposes of incentivizing
the Company's employees, consultants and directors with more
immediately saleable stock and stock options. Mr. Dieterich and
Mr. Makleff are payable from the sales of shares registered in
the S-8 filing for their services as rendered on a monthly basis.
During the fourth quarter, 1995, David Kremmerman replaced Arik
Makleff as the Chairman of the Board of GAD and will be entitled
to stock options on a basis that has yet to be determined.
Manufacturing GAD commenced, during the first quarter of 1996,
limited production activities to fill orders currently existing
from outside third-party purchasers. GAD has subcontracted
packaging jobs to contractors, which have been successful in the
areas of axial, plastic and metal glass packages. GAD
demonstrated that its unique product can be packaged and adapted
to fit any existing design. During the first quarter, GAD
received purchase orders in excess of $200,000 in value and is
currently operating to fill those orders. GAD was also able to
satisfy the preliminary testing requirements of Motorola for
purposes of future purchases of diodes, and Motorola subsequently
initiated 3 purchase orders.
Selling and Marketing GAD has now supplied sample product to
numerous interested customers, to include Rectronix, Mitsubishi,
Polovodice, Systel, IBM, Braun, Sanyo, Lambda, EKM, Usha, and
Delphi/GM and Hughes. GAD is starting to receive orders for
small samples to undergo individual customer and end-user
testing. The first major buyer has now commenced purshases of
chips for actual applications (Motorola), and a second
international company, based in Japan, has approached GAD,
through agents, for samples, which upon successful testing, can
lead to an additional volume of over 1,000,000 diodes per month
from this single customer. No definitive contract was expected
to be signed in the second quarter, but testing orders are
underway.
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security
Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports of Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INTERNATIONAL SEMICONDUCTOR CORP.
(Registrant)
By: /s/ Robert M. Terry
Robert M. Terry, Chairman
Dated: May 14, 1996
INTERNATIONAL SEMICONDUCTOR CORP.
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED BALANCE SHEET
March 31, 1996
ASSETS
Current Assets
Cash and Cash Equivalent $19,794
Accounts Receivable 19,294
Accounts Receivable Other 9,630
Inventories 15,000
Total Current Assets $ 63,718
Fixed Assets, Net of Accumulated
Depreciation of $269,853 1,344,025
Total Assets $1,407,743
LIABILITIES AND STOCKHOLDER'S (DEFICIT)
Current Liabilities
Current Portion of Bank Loans $ 195,298
Accounts Payable and Accrued Expenses 521,688
Total Current Liabilities $ 716,986
Long Term Liabilities
Long Term Notes-Individuals 757,779
Long Term Notes Payable-Bank 1,234,299
Liability for Severance Pay 68,740
Total Long-Term Liabilities 2,060,818
Total Liabilities 2,777,804
Stockholder's (Deficit)
Ordinary Shares-$0.001 Par Value;
Authorized-26,000,000 Shares;
Issued and Outstanding 9,012,538 11,834
Premium on Shares 4,729,772
Accumulated Loss During Development Stage(6,111,667)
Total Stockholder's (Deficit) (1,370,061)
Total Liabilities and Stockholder's
Deficit $1,407,743
INTERNATIONAL SEMICONDUCTORS CORP.
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
Income
Sales $14,511
Gross Income $ 14,511
Operating Expenses
Research and Development 42,560
Marketing Expenses 28,196
General and Administrative 273,693
Total Operating Expenses 344,449
Net Operating (Loss) Before
Financing Expenses (329,938)
Financing Expenses, Net 64,914
Net Loss (394,852)
Accumulated (Loss) December 31, 1995 (5,716,815)
Accumulated (Loss) March 31, 1996 $(6,111,667)
INTERNATIONAL SEMICONDUCTORS CORP.
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
MARCH 31, 1996
Cash Flow from Operations
Net (Loss) from Statement of Operations $(394,852)
Adjustments to Reconcile Net Loss to Net
Cash Provided by Operating Activities:
Depreciation 52,474
Increase In Accounts Receivable ( 19,294)
Decrease in Accounts Receivable-Other 18,393
Decrease in Accounts Payable
and Accrued Expenses (625,561)
Increase in Liability for
Severance Pay 13,355
(560,633)
Net Cash Used in Operations (955,485)
Cash Flow from Financing Activities
Net Increase in Notes Payable 693,279
Net Cash Provided by Financing
Activities 693,279
Cash Flow from Investing Activities
Purchase by Stock 282,000
Net Cash Provided by Investing
Activities 282,000
Net Increase in Cash and Cash Equivalent 19,794
Cash and Cash Equivalents Beginning of Period 0
Cash and Cash Equivalents End of Period $ 19,794
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S (DEFICIT)
MARCH 31, 1996
Total
Ordinary Shares Premium Accumu- Stockholders
Number Amount Shares lated (Deficit)
Balance
12/31/95 8463911 $ 8464 $4451142 $(5716815) $(1257209)
Issuance
as of
3/31/96 548627 3370 278630 0 282000
Net (loss)
as of
3/31/96 0 0 0 ( 394852) ( 394852)
Balance
as of
3/31/96 9012538 11834 $4729772 $(6111667) $(1370061)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996
NOTE 1 - ACQUISITION, GENERAL AND LIQUIDITY ISSUES
Acquisition and General
(a) International Semiconductors Corp. (formerly Israel
Semiconductors Corp.), hereinafter "ISC" or the "Company", was
organized in 1987, initially as an inactive publicly held
corporation pursuing a business acquisition. On September 29,
1993, ISC acquired from Lema Investments Ltd. all of the
outstanding shares (including one share held in trust) of Gallium
Arsenide Industries, Ltd. (hereinafter "Gallium"), a development
stage Israeli company, by issuing the 3,982,189 (after giving
effect to a six-for-one reverse stock split described below) of
its previously unissued ordinary shares. Since the shares issued
represent approximately 92.5% of the then-outstanding shares of
ISC the transaction has been accounted for as a reverse
acquisition. In accordance with such treatment, Gallium is
considered to be the acquiring company.
(b) Gallium was incorporated in Israel on May 25, 1992. In July
1992 (hereinafter inception of Gallium"), Gallium began the
establishment of an industrial plant in Ramot - Jerusalem, for
the production of high quality Gallium Arsenide("GaAs"). Gallium
commenced initial limited production activities in 1994.
On June 1, 1995, the Company sold all of its shares in Gallium in
return for a commitment from the purchaser to pay $2,234,000.
This liability bears interest at an annual rate of 8%. The
payment date is July 1, 2005. This liability is not secured.
Due to the distinct possibility that this debt will not be
collected, it was not included in the financial statements.
Since there was no significant business activity in Gallium after
January 1, 1995, the results of operations of Gallium subsequent
to December 3,1 995 are not included int eh consolidated
statement of income.
(c) In September 1993, the Company undertook to invest, upon the
fulfillment of certain conditions, in the capital of a newly
founded Israeli development stage company, GAD Semiconductors
Limited ("GAD"), an amount of up to $1,000,000, as part of its
undertaking to raise for GAD some $3,000,000, the additional
$2,000,000 by way of Government guaranteed loans. In return for
the above undertaking, the Company was initially issued 60%
(6,060 shares) of the outstanding shares of GAD against their
nominal (par) value of $2,033, with further amounts of
investment, up to the above amount of its undertaking, to be
considered as premium on the shares (contributed capital). As of
December 31, 1995, approximately $1,190,000 had been invested by
ISC in GAD. On October 31, 1995 the Company was issued another
10% (3,370 shares) of the outstanding shares of GAD.
In the period from January 1, 1996 to April 17, 1996, the Company
invested an additional US $282,000 in GAD and was issued another
6% (3,370 shares) of the outstanding shares of GAD.
GAD was incorporated in August 1993, by another Israeli company
with the purpose of further developing a patentable process
related to the production of certain GaAs products. The basic
knowledge for the development of the above process was
transferred to GAD by its incorporating company, without
additional consideration.
\gad was granted "Approved Enterprise" status for an investment
program to construct a production facility in the amount of US
$2.45 million, by Capital Investments - 1959 (see also Notes 14b
and 15 regarding benefits to "Approved Enterprises", under the
above law). Most of the construction was implemented in 1994 and
the production facility was completed in the second quarter of
1959.
On February 1, 1994 a research program for the year 1994 in the
amount of US $217,000 was approved by the Chief Scientist at the
Ministry of Trade and Industry. GAD invested this amount in
research and development activities and received grants in the
amount of 50% if its investments as the Chief Scientist's
participation.
(d) During 1995, the Company raised US $1,538,125 through
private placements, mainly against debt conversion. The Company
intends to raise additional capital in 1996 by private placements
and by a public offering near the end of the year. There are no
assurances that either the private placements or the public
offering will be successful. As of the date of the approval of
the financial statements, the Company has raised approximately
$2,080,000 through private placements.
(e) As of the date of approval of the financial statements, GAD,
whose assets and operations constitute most of the consolidated
assets and operations, had encountered liquidity problems which
raise significant doubts regarding the ability of the Company or
its subsidiary to continue as going concerns.
(f) GAD completed construction of its production facilities in
June 1995 but has not yet proved its capability for commercial
production.
NOTE 2 - SIGNIFICANT ACCOUNTING PRINCIPLES
principles of Consolidation
(a) The consolidated financial statements include financial
statements of ISC and its subsidiary, GAD ("the Group").
Intercompany balances and transactions were eliminated in
consolidation. As to reverse acquisition, see Note 1(a).
(b) Based upon the Company's plans, it is expected that once
full commercial production commences, most revenues will be
received from outside of Israel, in foreign currencies - mostly
in U.S. dollars. Additionally, prices of the products expected
to be produced and sold by the Company are quoted and
denominated in the world market in dollars. The cost of
materials to be used in the production of the GaAs wafers and
other products as well as some other elements of costs and
expenses are also expected to be incurred in dollars. The
Company' 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 U.S.
Dollar.
Transactions and balances originally denominated in U.S. dollars
are presented at their original amounts. Transactions and
balances in other currencies are remeasured into U.S. 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 U.S.
dollars or as being exchangeable for U.S. dollars.
Rate of exchange and linkage basis:
The amounts stated for assets and liabilities in
currencies other than the dollar are included on the
basis of the representative exchange rates prevailing
at balance sheet dates.
The exchange rates of the dollar in relation to the New
Israeli Shekel ("the shekel") were as follows:
December 31, 1993 - US$1 = NIS 2.986
December 31, 1994 - US$1 = NIS 3.018
December 31, 1995 - US$1 = NIS 3.135
(c) Cash and Cash Equivalents
Cash and cash equivalents comprise case and bank
deposits with original maturities not exceeding three
months.
(d) Inventories
Raw material inventories are included at the lower of
cost or market value, Cost is calculated by the "first-
in, first-out" method.
(e) Fixed Assets
1. Fixed assets are stated at cost, less Government
investment grants, which were granted to finance
fixed assets acquisition. Interest costs incurred
on debts used to acquire fixed assets and other
costs relating directly to the acquisition and
construction of assets - in the period required to
get the assets ready for their intended use - are
included in the cost of fixed assets.
2. Depreciation of plant and equipment began again in
1995 because production activities were resumed
during 1995. The assets were depreciated according
to the straight-line method over the estimated
useful lives of the assets, at the following annual
rates:
%
Machinery and equipment 10
Leasehold improvements 10 - 25
3. Motor vehicles and office furniture are
depreciated by the straight-line method at the
following annual rates:
%
Motor vehicles 15
Office furniture 7 - 20
(f) Income Taxes
The Company provides for income taxes in accordance with
the provisions of FASB 109 - Accounting for Income Taxes.
The Company has not provided for deferred taxes on income,
related to tax loss carry forwards and other temporary
differences, as there is uncertainty regarding its ability to
recover such deferred taxes.
(g) Liabilities Linked to the Israeli Consumer Price Index
Liabilities, which are linked to the Israeli consumer price
index (hereinafter - "CPI"), are included in the financial
statements according to the latest CPI published before the dated
of the financial statements.
NOTE 3 - CASH AND CASH EQUIVALENTS
Use of this deposit is restricted, as it is pledged to a bank as
collateral for the repayment of a loan received (see also Note
7).
March 31, 1996
US Dollars
Cash $19,794
Total Cash and Cash
Equivalents $19,794
======
NOTE 4 - SHORT-TERM BANK DEPOSITS
Use of this deposit is restricted, as it is pledged to a bank as
collateral for the repayment of a loan received (see also Note
7).
NOTE 5 - OTHER ACCOUNTS RECEIVABLE
March 31, 1996
US Dollars
Other accounts receivable $9,630
Total other receivables $9,630
=====
NOTE - FIXED ASSETS
Machinery
And Motor Office Leasehold Total
Equipment Vehicles furniture improvements
US Dollars
Cost
As of January
1, 1996 $1074576 43948 46518 448836 1613878
As at March
31, 1996 1074576 43948 46518 448836 1613878
======= ===== ===== ====== =======
Accumulated Depreciation
Balance as
of January
31, 1996 141469 15983 7963 51964 217379
Provision 37620 2244 1708 10902 52474
As of March
31, 1996 179089 18227 9671 62866 269853
====== ===== ===== ====== =========
Balance
As of March
31, 1996 895487 25721 36847 385970 1344025
====== ===== ===== ====== =========
(a) The main components of machinery and equipment are special-
purpose furnaces and auxiliary equipment, including environmental
protection systems, and a stock of replacement components, parts
and tools.
The furnaces were acquired in a transaction between the Company
and between two other companies, one being the developer and one
being the manufacturer of the furnaces, at a price which also
included specialized knowledge for the building of the furnaces
and for their operation in the production of GaAs crystals, as
well as a stock of components and parts to be utilized as spare
parts and as a basis for the construction, if required, of
replacement furnaces.
NOTE 7 - SHORT-TERM CREDIT FROM BANKS
Annual Rate March 31, 1996
% US Dollars
Revolving bank credits 17.8 - 18.5 (1) $ 53,889
Current maturities 6 - 10.0 (2) 141,409
$195,298
=======
(1) Linked to the prime interest rate which was
approximately 15.2% as at March 31, 1996
(2) These loans are mainly the current maturities of
government guaranteed long-term loans. The loans are linked to
the US dollar and due at various dates.
NOTE 8 - SUPPLIERS
These are amounts due to suppliers mainly in connection with the
acquisition of fixed assets and leasehold improvements.
NOTE 9 - OTHER ACCOUNTS PAYABLE
March 31, 1996
Taxes payable $ 2,885
Employees and provisions for salary-
related expenses 120,212
Other accounts payable 398,591
Total Other Accounts Payable $521,688
========
NOTE 10 - LONG-TERM LOANS
Interest March 31, 1996
%
US Dollars
(a) Israeli currency loans
Linked to Dollar 6.875 1,429,597
Other loans 8.000 757,779
2,187,376
Less current maturities 195,298
Net Long Term Loans 1,992,078
=========
(b) The loans are repayable, as follows:
March 31, 1995
US Dollars
Second year $ 271,699
Third year 271,699
Fourth year 271,699
Fifth year 271,699
Subsequent years 905,282
Total: 1,992,078
=========
(c) All the loans are guaranteed by the State of Israel in
accordance with the Law for the Encouragement of Capital
Investments - 1959.
NOTE 11 - LIABILITY FOR SEVERANCE PAY
The liability of the Company and its subsidiaries for
severance pay to their employees, calculated at one
month salary per year of service, pursuant to Israeli
laws, is covered partly by premiums paid to an
insurance company and partly by accrual. The amounts
maintained with the insurance company are not under the
control of the Company and, accordingly, such amounts,
and the liability they cover, are not reflected in the
financial statements.
NOTE 12 - ORDINARY SHARES
As to a reverse stock split of 6 to 1, see Note 1(a).
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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