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 September 30, 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) 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 7,938,028 as of
September 30, 1995.
This report consists of 13 pages.
Part 1
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
Background Israel Semiconductor Corporation, is 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. 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"), then 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). Since the shares issued represented approximately 93% of
the then-outstanding shares of the Company, the transaction has
been accounted for as a reverse merger. In accordance with that
treatment, Gallium Industries was considered to be the acquiring
company. In connection with the acquisition, the board of
directors of the Company increased the number of authorized
common shares to 26,000,000.
On November 11, 1993, the board authorized a reverse stock
split, whereby every 6 outstanding common shares were combined
into one share of common stock, with no change in the par value
of $.001 per share. The reverse stock split was effective for
shareholders of record as of November 30, 1993.
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 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 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 when GAD issued an additional 1000 shares (approximately
10% of the common stock then outstanding) to the Company in
September, 1995. Arbitration has commenced to acquire an
additional percentage of the minority shareholders' equity in
exchange for the over-investment the Company has made in GAD to
this date, and will make in the future. During the fourth
quarter, ISC has already advanced an additional $365,000 to GAD.
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 September 30, 1995,
the Company had completed its $900,000 commitment (including an
agreed upon $100,000 loan) in April, 1995. Under the approved
capital investment program, GAD received, during the first and
second quarters of 1995, State guaranteed loans in the
amount of $56,339 and $48,000, respectively, plus an additional
$39,000 grant. No government funds were received during the
third quarter.
Capital Resources and Liquidity The Company has sustained a
negative cash flow since the beginning of 1994. The Company
raised $288,125 in a private placement with Austin Friars
Securities, Ltd, placing the shares at $1.25 per share
(restricted stock), concluding in March. The company also placed
71,429 with Melco Development, at $1.40 per share, and borrowed
an additional $150,000 from Melco, which was convertible into
common stock at 60% of the market price during the next
two years, at the election of Melco. During the third quarter,
Melco converted the entirety of its debt then outstanding for the
issuance of 250,000 shares of the Company's common stock. On
April 21, 1995, the Company borrowed $130,000 from Taivos Hashem
Canada, Inc., repayable out of the proceeds of the private
placement then in negotiation, with interest payable in the form
of the issuance of 10,000 shares of the Company's restricted
common stock. During the month of September, Taivos converted
$40,000 of this debt into 53,333 shares, and on November 10,
1995, during the fourth quarter, converted the remainder of its
debt into 116,130 shares. On April 30, 1995, the Company
borrowed $100,000 from Carangela Holdings, which was repayable
within 2 years. Pursuant to ongoing negotiations during the
third quarter, Carangela converted the entire debt into 150,000
shares of common stock, which was concluded on November 15, 1995.
A simple interest note for an additional $40,000 was entered into
with Carangela during the third quarter and remains outstanding.
The Company is currently negotiating for $500,000 in a private
placement, targeted to close during the month of December, 1995,
with formal documentation executed, but no cash received as of
this date. The company has received two loans from Tweed
Investments, aggregating $100,000, which Tweed cancelled in
exchange for conversion of its loan under the original terms of
the loan agreement, and a subsequent loan of $130,000,
convertible at Tweed's election, during the fourth quarter only,
at $0.50 per share. The Company lowered its outstanding
indebtedness to non-institutional lenders by $225,000 during the
third quarter (with additional conversions for $190,000 actually
concluding in the fourth quarter), and anticipates further
reduction or elimination of all non-bank debt by the end of the
fiscal year. The Company has projected the need for an
additional $1,000,000 prior to the end of 1996, assuming no
further funding in 1995, and has been approached by several
investors interested in representing the Company on this raise,
but no contracts exist and no firm underwriting commitments are
anticipated until completion of the interim private placement.
Employee Stock Transactions The Company has two personal
employment agreements with key personnel, Dr. Ami Appelbaum, the
company's Vice President who, on February 23, 1995, became the
Company's Chief Operating Officer, and currently serving as CEO
of GAD, and with Robert M. Terry, currently serving as the
Chairman of the Board of Directors, and becoming, in addition, on
February 23, 1995, the President and CEO of the Company. Each of
these individuals has been granted options to acquire Company
common stock at an exercise price of $1.50 per share.
Dr. Appelbaum has accepted employment with a new company,
commencing November 1, 1995, and will be replaced by Alex Lahav.
Dr. Appelbaum is entitled to exercise options on 82,000 shares at
$1.50 per share for the next 5 years, and on 168,000 shares
previously granted and under option at $0.50 per share for his
three-year employment period. Mr. Terry is 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. 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,
which commenced 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 prepared and will file an S-8 registration for purposes of
incentivizing the Company's employees, consultants and directors
with more immediately saleable stock and stock options. Two new
directors have joined the board of the Company, Jules Pier, a
marketing expert, and Jerome Saver, a finance specialist expert
at leasing and lease-based transactions. Both directors accepted
their appointments on November 1, 1995. Their compensation will
be in the form of options to be granted in the future, and they
are currently serving without pay and without promise of further
consideration at this time. During the fourth quarter, David
Kremmerman will be replacing Arik Makleff as the Chairman of the
Board of GAD.
Manufacturing GAD commenced, during the first quarter of 1995,
limited production activities designed to test the production
line, adjust the manufacturing equipment and train the production
staff, and satisfied the first customer order by June 30, 1995.
That customer, Omnirel Corp., executed a contract with GAD for
purchase of a series of GAD's diodes, for resale to their
existing customers, at prices sufficiently worthwhile to the
Company to allow for a profit, and for the satisfaction of future
orders with an anticipated profit. The first order of Omnirel
has been filled. No problems have arisen with respect to the
initial order or with respect to a serious order for samples from
a large American semiconductor company, which order has been
recently shipped. Continuous and qualified production is
scheduled to commence in December, 1995. 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.
GAI, which was sustaining an ongoing monthly loss of over
$100,000, was temporarily closed effective April, 1995, and then
sold, in its entirety, on June 30, 1995. This resulted in a large
reduction in monthly negative cash flow and a recognition of a
loss of $865,022 in the investment. A note was retained for
$2,100,000, but payable only out of earnings, which are not
projected to be paid in the foreseeable future. The monthly loss
at GAD, the remaining subsidiary, is approximately $80,000.
Shipments of existing orders should commence shortly, which will
ultimately minimize or eliminate the monthly loss.
Selling and Marketing GAD has now supplied sample product to
numerous interested customers, to include Rectronix, Mitsubishi,
Polovodice, Systel (received samples); IBM, Braun, Sanyo, Lambda
(expecting packaged samples); EKM, Usha (expecting chips), and
Delphi/GM and Hughes (discussions of development programs). GAD
is starting to receive orders for small samples to undergo
individual customer and end-user testing. One very large
American semiconductor company, which demands anonymity until
completion of contract negotiations for a partial, exclusive
arrangement, has already received a large batch (1,200) of diodes
in July, and requested an additional 5,000 diodes for delivery in
September and October of this year. Based upon the Request for
Quotation, further orders from this company are anticipated, and
can reach 1,000,000 or more diodes per month. A second
international company 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
November.
INTERNATIONAL SEMICONDUCTOR CORP
(formerly Israel Semiconductor Corp.)
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
AS AT SEPTEMBER 30, 1995
CONTENTS
Balance Sheet Page 1
Statement of Operations Page 2
Statement of Changes in Shareholder's Equity Page 3
Statement of Cash Flows Page 4
INTERNATIONAL SEMICONDUCTOR CORP
CONSOLIDATED BALANCE SHEET
Sept 30 Dec 31
1995 1994 1994
Unaudited Audited
US Dollars
ASSETS
Current Assets
Cash and cash equivalents 165979 1629 85935
Short-term bank deposits 0 859957 10477
Other accounts receivable 87596 527482 244514
Inventories 15000 33784 29358
Letters of credit receivables 0 270000 0
268575 1692852 369384
Fixed Assets 1551200 5307065 5716714
Totals 1819775 6999917 6086098
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Short-term credit from banks 284374 750494 1134336
Short-term loans from related parties 187352 453262 291205
Suppliers 325074 473560 497386
Other accounts payable 458914 571499 449170
Totals 1255714 2248815 2372097
Long Term Liabilities
Long-term loans 1205661 3506797 3733267
Accrued expenses 0 122924 4500
Liability for severance pay 15112 28087 39243
Commitments and contingencies 1220773 3657808 3777010
Quasi capital resources 0 850000 0
Shareholders' equity
Ordinary shares - $0.001 par
value; authorized 26,000,000
and 25,000,000; issued and
outstanding - 7,938,028 shares
and 5,574,000 shares
7938 5274 5574
Premium on shares 4131718 2766207 2915907
Accumulated loss during development
stage -4796368 -2528187-2984490
- 656712 243294- 63009
1819775 6999917 6086098
CONSOLIDATED STATEMENT OF OPERATIONS
Nine months ended Year ended Cumulative
September 30 December 31 amounts re
1995 1994 1994 inception
US Dollars Gallium
Start-up expenses 0 74930 355768 400920
Marketing expenses 130362 416618 188177 396838
Research and
development 86350 93205 188076 300281
Administrative and
general expenses 666305 591605 840908 2230285
Financing expenses,
net 63839 328565 462470 603022
Loss from sale of
subsidiary 865022 0 0 865022
Net loss for period 1811878 1504923 2035399 4796368
Net loss per share 0.276 0.34 0.417
Weighted average
number of shares 6568671 4718449 4880947
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Ordinary shares Premium Accumulated Total
Number Amount on shares loss shareh
US Dollars equity
Balance as at
Jan 1, 1995 5573911 5574 2915907 -984490 -63009
Issue of
shares 2364117 2364 1215811 0 1218175
Net loss for
nine months
ended 30Sep95 0 0 0 -1811878 -1811878
Balance as at
30 Sep 95 7938028 7938 4131718 -4796368 -656712
Balance as at
1 Jan 94 4682143 4682 2056239 -949091 1111830
Issue of
shares 591768 592 709968 0 710560
Net loss for
nine months
ended 30 Sep 94 0 0 0 -1579096 -1579096
Balance as at
30 Sep 94 5273911 5274 2766207 -2528187 243294
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine months ended Year ended Cumulative
September 30 December 31 amounts re
1995 1994 1994 inception
US Dollars Gallium
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss -1811878 -1579096 -2035399 -4796368
Reconciliation of
net loss to net
cash used by oper
ating activities 919439 740031 611013 1736191
Net cash used by
operating
activities - 892439 - 839065 -1424386 -3060177
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in fixed
assets - 446851 -1165064 -2899526 -8945604
Proceeds from sale
of fixed assets 0 0 8186 8186
Investment grants
received 113262 203229 1544255 2906771
Decrease in short-
term bank deposits 0 -184168 655312 -10477
Cash of acquired
parties 0 0 0 4706
Loans to related
parties 0 0 -98243 -98243
Letters of credit
receivable 0 -270000 0 0
Net cash used by
investing acts -333589 -1416003 -780016 -6134661
CASH FLOWS FROM FINANCING ACTIVITIES
Issue of shares 1218175 710560 860560 4139656
Quasi capital
resources 0 850000 0 0
Receipt of long-
term loans 32699 835275 1548986 4253206
Repayment of long-
term loans 0 0 -11626 -11626
Receipt of loans
from related
parties 75000 66956 215827 366205
Decrease in short-
term credit from
banks -18902 -231134 -349350 613376
Net cash provided
by financing
activities 1306972 2231657 2264397 9360817
Net increase
in cash and cash
equivalents 80944 -23411 59995 165979
Cash and cash
equivalents at
beginning of
period 85035 25040 25040 0
Cash and cash
equivalents at
end of period 165979 1629 85035 165979
CONSOLIDATED STATEMENT OF CASH FLOWS
Appendix: Reconciliation of net loss to net
cash used by operating activities
Nine months ended Year ended Cumulative
September 30 December 31 amounts re
1995 1994 1994 inception
US Dollars Gallium
Income and expenses
not constituting
cash flows
Depreciation 52709 155227 130828 193317
Increase (decrease)
in liability for
severance pay -13232 23064 34220 21011
Linkage difference
on long-term loan 0 0 26444 26444
Loss from sale of
subsidiary 865022 0 0 865022
Sub-totals 899499 178291 191492 1105794
Changes in assets
and liabilities
Increase in other
account receiv-
able 47856 -120913 -50631 -68613
Increase in
inventories 0 8391 12817 -29358
Increase in
suppliers -104614 246077 247668 202508
Increase in other
accounts payable 76868 311261 211167 521530
Increase in non-
current accrued
expense payable 0 116924 -1500 4500
Sub-totals 20110 561740 419521 630567
Proceeds from
realization of
investment in pre-
viously consoli-
dated subsidiary
Working capital
except cash -1010838 0 0 -1010838
Fixed assets 4446394 0 0 4446394
Long-term
liabilities -2570704 0 0 -2570704
Loss from sale
of investment in
subsidiary -865022 0 0 -865022
Sub-totals -170 -170
Totals 919439 740031 611013 1736191
Supplemental
disclosures of cash
flow information
Interest payments,
including interest
capitalized 68155 243858 353254 503456
Income tax payments 0 0 7021 7021
Non-cash financing
activity
Issuance of ordinary
in connection with
an acquisition
Ordinary shares 300
Premium on shares 4406
Total 4706
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: November 28, 1995
