U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/Amended
[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 46 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: May 1, 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 May 1,
1996
Robert M. Terry Officer and Director
/s/ Jules Pier Director May 1, 1996
Jules Pier
/s/ Jerome Saver Director May 1, 1996
Jerome Saver
/s/ Toni J. Gales Secretary May 1, 1996
Toni J. Gales
INTERNATIONAL SEMICONDUCTORS CORPORATION
(Formerly Israel Semiconductors Corp.)
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
AS AT DECEMBER 31, 1995
INTERNATIONAL SEMICONDUCTORS CORP.
CONTENTS
Independent Auditors' Report to the Shareholders 2
Balance Sheet 3
Statement of Operations 4
Statement of Changes in Shareholders' Equity 5
Statement of Cash Flows 6 - 7
Notes to the Financial Statements 8 - 22
Schedules of Form 10KSB 23 - 27
[BRAUDE BAVLY LETTERHEAD]
Independent Auditor's Report to the Shareholders of
INTERNATIONAL SEMICONDUCTOR CORPORATION
We have audited the accompanying consolidated balance sheet of
International Semiconductors Corp. (formerly Israel
Semiconductors Corp.) ("the Company") as of December 31, 1995 and
1994, and the related financial statements of income, changes in
shareholders' equity and cash flows for each of the three years
of 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 standards prescribed by the
Israeli Auditors (Modes 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 error int eh
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 the accounting principles used and
significant estimates made by the board of directors and the
management, 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.
Regarding the Company's ability to continue as a going concern:
- -- As of the date of approval of the financial statements, the
subsidiary of the Company, which constitutes 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.
- -- The success of management's plans to raise additional capital
required by the Company and its development stage subsidiary, to
enable them to implement further essential investments and carry
on their operations 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.
Due to the material effects of adjustments, if any, that might
result from the outcome of these uncertainties, the scope of our
work was not sufficient to enable us to express an opinion and
therefore we do not express an opinion on these financial
statements.
/s/ Udi Erez
BRAUDE BAVLY
CONSOLIDATED BALANCE SHEET
December 31 December 31,
1995 1994
Note US Dollars
ASSETS
Current assets
Cash and cash equivalents 3 0 85035
Short-term bank deposits 4 0 10477
Related parties 0 101592
Other accounts receivable 5 28023 142922
Inventories 15000 29358
43023 369384
----- --------
Fixed assets 6 1396499 5716714
======= ========
1439522 6086098
======= ========
LIABILITIES AND SHAREHOLDER S
EQUITY
Current liabilities
Short-term credit from
banks 7 318068 1134336
Short-term loans from
related parties 8 0 291205
Suppliers 9 749205 497386
Other accounts payable 10 389044 449170
1465317 2372097
------- --------
Long-term Liabilities
Long-term loans 11 1176029 3733267
Accrued expenses 0 4500
Liability for severance pay 12 55385 39243
1231414 3777010
------- --------
Commitments and contingencies 1,15,17,19
Shareholder's Equity
Ordinary shares - $0.001 par value;
authorized - 26,000,000 shares and
26,000,000 shares; issued and
outstanding - 8,464,267 shares
and 5,574,000 shares 13 8464 5574
Premium on shares 4451142 2915907
Accumulated loss during
development stage (5716815) (2984490)
------- -------
(1257209) ( 63009)
------- -------
1439522 6086098
======= =======
The accompanying notes are an integral part of the financial
statements.
/s/ Robert M. Terry /s/ Jerome Saver
Robert Terry Jerome Saver
Director and President Director
INTERNATIONAL SEMICONDUCTOR CORP
CONSOLIDATED STATEMENT OF OPERATIONS
Year ended December 31,
1995 1994 1993
Cumulative
Note US Dollars Amounts
Start Up Expenses 14a 0 355768 45152 400920
Marketing expenses 130863 188177 78299 397339
Research and development
expenses 14b 159037 188076 25855 372867
Administrative and
general expenses 14c 917702 840908 607760 2481682
Financing expenses,
net 14d 208432 462470 67597 747615
Net loss before loss
from sale of subsidiary 1415933 2035399 824663 4400423
Loss from sale of
subsidiary 1316392 0 0 1316392
Net loss for the
period 2732325 2035399 824663 5716815
======= ======= ====== =======
Net loss per share .322 .417 .200
======= ======= ======
Weighted average number
of shares 8464247 4880947 4120213
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
ASCII NOTE***change left margin to 2***
Total
Share-
Ordinary shares Premium Accumulated Holders
Number Amount on shares Loss Equity
US Dollars
Balance as of December
31, 1993 4682143 4682 2056239 ( 949091) 1111830
Issue of shares on
July 21, 1994 116601 117 116484 0 116601
Issue of shares on
September 30, 1994 475167 475 593484 0 593959
Issue of shares on
November 30, 1994 300000 300 149700 0 150000
Net loss for the year
ended December 31,
1994 0 0 0 (2035399) (2035399)
Balance as of
December 31, 1994 5573911 5574 2915907 (2984490) (63009)
Issue of shares in
1995 2890000 2890 1535235 0 1538125
Net loss for the year
ended Dec 31, 1995 0 0 0 (2732325) (2732325)
Balance as of
December 31, 1995 8463911 8464 4451142 (5716815) (1257209)
====== ==== ======= ======= =======
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31,
1995 1994 1993 Cumulative
US Dollars amounts
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss (2732325) (2035399) ( 824663) (5592387)
Reconciliation of net loss
to net cash used by
operating activities
(Appendix) 2009473 611013 132799 2753285
Net cash used by
operating activities ( 722852) 1424386) ( 691864) (2839102)
------- ------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES
Investment in fixed
assets ( 404350) (2899526) (2571177) (5875053)
Proceeds from sale of
fixed assets 0 8186 0 8186
Investment grants 78921 1544255 1249254 2872430
received
Decrease (increase) in
short-term deposit 0 665312 ( 675789) ( 10477)
Cash of sold company 0 0 4706 4706
Loans to related
parties ( 170) ( 98243) 0 98413)
Net cash used by investing
activities ( 325599) ( 780016) (1993006) (3098621)
------- ------ ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES
Issuance of shares 827266 860560 79706 1767532
Receipt of long-term
loans 137879 1548986 1497533 3184398
repayment of long-term
loans ( 174917) ( 11626) 0 ( 186543)
Receipt of loans from
related parties 158396 215827 42898 417121
Increase (decrease) in
short-term credit from
banks 14792 ( 349350) 936736 602178
Net cash provided by
financing activities 963416 2264397 2556873 5784686
====== ======= ======== ========
Net increase (decrease)
in cash and cash
equivalents ( 85035) 59995 ( 127997) ( 153037)
Cash and cash equivalents
at beginning of period 85035 25040 153037 153037
Cash and cash equivalents
at end of period 0 85035 25040 0
======= ====== ======== ========
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31,
1995 1994 1993 Cumulative
US Dollars amounts
Income and expenses not
constituting cash flows
Depreciation 190250 130828 9780 339858
Increase in liability
for severance pay 22041 34220 4523 60784
Linkage differences on
long-term loans 40105 26444 0 66549
Loss from sale of
subsidiary 1316392 0 0 1316392
_______ ______ ____ _______
Changes in assets and
liabilities 1577788 191492 14303 1783583
======= ====== ===== =======
Increase in other
accounts receivable (163319) (50631) (60820) (274770)
Decrease (increase) in
inventories 0 12817 (42175) ( 29358)
Increase in suppliers 502318 247688 56736 806722
Increase in other
accounts payable 92686 211167 158755 462608
Increase (decrease)
in non-current accrued
expenses payable 0 ( 1500) 6000 4500
_______ ______ ______ _______
431685 419521 118496 969702
======= ====== ====== =======
2009473 611013 132799 2753285
======= ====== ====== =======
Supplemental disclosures
of cash flow information:
Interest payments
(including interest
capitalized) 0 353254 131108 484362
======= ====== ====== =======
Income tax payments 0 7021 0 7021
======= ====== ====== =======
Non-cash funding activity
Issuance of ordinary
shares in connection
with an acquisition
Ordinary Shares 0 0 300 300
Premium on shares 710859 0 4406 715265
_______ ______ _____ _______
710859 0 4706 715565
======= ====== ===== =======
INTERNATIONAL SEMICONDUCTORS CORP.
(Formerly Israel Semiconductors Corp.)
A DEVELOPMENT STAGE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS AT DECEMBER 31, 1995
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 on
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 on reversed stock spit 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. Accordingly, the accompanying financial statements reflect
until 31 December 1994 the operations of Gallium since its inception and
its assets and liabilities are reflected on a historical cost basis.
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 (hereinafter - "GaAs").
Gallium commenced initial limited production activities in 1994.
On June l, 1995 the Company sold all its shares in Gallium in return
for a commitment from the purchaser to pay $ 2,234 thousand. This
liability bears an interest at an annual rate of 8%. The payment day is
1 July 2005. This liability is not secured. Due to the distinct
possibility that this debt not be collected, it was not included in the
financial statements.
Since there was no significant business activity in Gallium after 1
January 1995, the results of operations of Gallium subsequent to 31
December 1995 are not included in the 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
(hereinafter - "GAD"), an amount of up to $1 million, as part of its
undertaking to raise GAD some $3 million, the additional $2 million 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 normal (par) value $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 $1,190,000 had been invested by ISC in
GAD. On 31 December the Company was issued another 10% (3,370 shares) of
the outstanding shares of GAD.
In the period from January 1, 1996 to April 17, 1996 the Company
invested an additional US$ 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 a purpose to further develop a certain patentable process related to
production of certain GaAs products. the basic know how for the
development of the above process was transferred to GAD by its
incorporator company, without 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 the Israeli Investment Center, under the Law for the
Encouragement of Capital Investments - 1959 (see also Notes 14b and 15
regarding benefits to "Approved Enterprises", under the above law). Most
of the construction was implements in 1994 and the production facility
was completed in the second quarter of 1995.
On February 1, 1994 a research program for the year 1994 in the
amount of US$217 thousand 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% of its
investment as the Chief Scientist's participation.
d. During 1995 the Company raised US$1,538,125 through private
placements, mainly against debts conversion. The Company intents 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 issued
US$2,080,000 through private placements.
e. As of the date of approval of the financial statements, GAD
Company, which her assets and operations constitutes 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 it capability for commercial production. GAD
is in a negotiating process regarding a three-year contract with a
leading company in the field of diode distribution and manufacturing, to
package and sell GAD's diodes through its distribution network.
NOTE 2 - SIGNIFICANT ACCOUNTING PRINCIPLES
a. Principles of Consolidation
The consolidated financial statements include financial
statements of ISC and its subsidiary, GAD ("the Group").
Last year the financial statements included financial
statements of two subsidiaries: Gallium and GAD. Inter-
company balances and transactions were eliminated in
consolidation. As to reverse acquisition see Note 1(a).
b. Financial Statements in United States dollars
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
("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 material to be used in the production of
the GaAs wafers and other products as well as some other elements of cost
and expenses are also expected to 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.
Transactions and balances originally denominated in dollars are
presented at their original amounts. Transactions and balances in other
currencies are remeasured 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
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
g. 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 carryforwards and other temporary differences, as
there is uncertainty regarding its ability to recover such deferred
taxes.
h. 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
December 31 December 31
1 9 9 5 1 9 9 4
U.S. dollars
Cash - 85,035
_______ _______
- 85,035
======= =======
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
December 31, December 31,
1 9 9 5 1 9 9 4
U.S. dollars
Grants receivable 66,105
Taxes receivable 18,245 61,010
Other accounts receivable 9,779 15,807
28,023 142,922
======= =======
NOTE 6 - FIXED ASSETS
Machinery
And Motor Office Leasehold Total
Equipment Vehicles furniture improvements
Cost
As at Jan 1,
1995 5070763 94299 69678 622582 5857322
Additions 292875 0 7592 24962 325429
Disposals (4289062) (50351) (30752) (198708) (4568873)
As at
Dec 31, 1995 1074576 43948 46518 448836 1613878
------- ----- ----- ------ -------
Accumulated
Depreciation 76107 22024 7477 35000 140608
Provision 141469 8979 6626 42176 199250
Disposals ( 76107) (15020) ( 6140) (25212) ( 122479)
As at
Dec 31, 1995 141469 15983 7963 51964 217379
====== ===== ===== ====== =======
Balance
As at
Dec 31, 1995 933107 27965 38555 396872 1396499
====== ===== ===== ====== =======
As at
Dec 31, 1994 4994656 72275 62201 587582 5716714
======= ===== ===== ====== =======
a. The cost of machinery and equipment as at December 31,
1994 includes capitalized costs in the cumulative amount
of $225,280 from inception of Gallium. The amounts of
$25,590, $197,318 and $2,366 were capitalized in 1994,
1993 and 1992, respectively.
b. 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 their companies, one being the
developer and one being the manufacturer of the furnaces,
at a price which also included specialized know how 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.
c. For pledges on the fixed assets, see Note 19.
d. Investment grants in the amounts of $324,802 and $1,544,255 as
at December 31, 1995 and 1994, respectively, were deducted from the
cost of the fixed assets.
NOTE 7 - SHORT-TERM CREDIT FROM BANKS
Annual Rate December 31, December 31
Of Interest 1995 1994
% US Dollars
Revolving bank credit 17.8-18.5 (1) 53889 340159
Revolving bank credit 25.1 (2) 0 92799
Short-term bank loans 2320
Short-term bank loans 7.3- 7.8 (3) 0 197000
Current Securities 6-10.0 (4) 264179 502058
318068 1134336
====== =======
(1) Linked to the prime interest rate which was
approximately 15.2% as at December 31, 1995.
(2) This credit is in unlinked shekels and was granted
by the bank to cover unpaid interest on long-term
loans.
(3) These loans, in shekels are linked to the dollar are
due at various dates and are guaranteed by a letter
of credit provided by a related party. The company
may at its sole discretion, prior to the due date,
activate the guarantee, in this case, the amounts
covered to repay the current portion of the loan.
(4) These loans are mainly the current maturities of
government guaranteed long-term loans. The loans are
linked to the dollar and due a various dates.
NOTE 8 - SHORT TERM LOANS FROM RELATED PARTIES
December 31 December 31
1995 1994
US Dollars
Demand Loans 0 3313
Other loans 0 287892
291205
=========
The demand loans are payable 30 days after demand. All the loans are
denominated in Israeli currency, are unlinked and interest-free. The
loans are not secured and repayment dates have not been fixed. The
highest balances of the loans during the period ended December 31, 1994
was $647,785.
NOTE 9 - SUPPLIERS
These are amounts due to suppliers mainly in connection with the
acquisition of fixed assets and leasehold improvements.
NOTE 10 - OTHER ACCOUNTS PAYABLE
December 31, December 31,
1 9 9 5 1 9 9 4
U.S. Dollars
Taxes Payable 2,370 155,453
Employees and provisions
for salary-related expenses 75,849 158,822
Related parties --- 19,624
Other accounts payable 319,825 115,271
398,044 449,170
======= =======
NOTE 11 - LONG TERM LOANS
Interest December 31, December 31,
% 1995 1994
US Dollars
a. Israeli currency loans
linked to the dollar 6.875 1046873 2791159
linked to the index 3.7-4.2 0 238339
Dollar loans 7-9 0 910183
Other loans 8 306636 295644
1353509 4235325
Less current maturities 177480 502058
1176029 3733267
======= =======
b. The loans are repayable, as follows:
Second Year 271699 690370
Third year 271699 797683
Fourth year 271699 797683
Fifth year 266714 797683
Subsequent years 94218 649848
1176029 3733267
======= =======
c. All the loans are Guaranteed by the state of Israel in accordance
with the Law for the Encouragement of Capital Investments - 1959 (see
also Note 15).
NOTE 12 - 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 13 - ORDINARY SHARES
a. As to a reverse stock split of 6:1, see Note 1a.
b. The Company has signed individual employment agreements
with two key employees, under which they receive options
to acquire ordinary shares of the Company at an exercise
price of US$0.50 per share. One employee receives options
for 4.666 shares each month over a three year employment period, for
a total of 168,000 shares; other individual will be entitled to
acquire 1% of the Company's common stock after a three year
employment period, earning the rights a 1/36 of the total option
for each month of employment, also with a exercise price
of US$0.50 per share. Each block of options will be
exercisable only after termination of employment or the
passage of three years, whichever occurs first, and will
remain available for five years thereafter, beyond which
time, if unexercised, the options lapse.
NOTE 14 - SELECTED STATEMENTS OF OPERATIONS DATA
Year ended December 31, Cumulative
1995 1994 1993 Amounts
US Dollars
a. Start up expenses
Purchase of raw materials 0 27047 4902 31949
Salaries and related
expenses 0 64362 29733 94095
Depreciation 0 93440 0 93440
Rent 0 40253 0 40253
Consulting 0 82682 0 82682
Other 0 47984 10517 58501
0 355768 45152 400920
====== ====== ====== ======
b. Research and Development
expenses
Professional services 16425 0 24987 41412
Salaries and related
expenses 147832 159269 17515 324616
Others 2863 156278 98 159239
167120 315547 42600 525267
Less government grants 8184 127471 16743 152400
158936 188076 25855 372867
====== ====== ====== ======
c. Administrative and General
expenses
Salaries and related
expenses 295714 519821 198615 1038267
Professional services 306827 103775 252610 716406
Travel, vehicle maintenance
and travel abroad 19399 77138 26874 154617
Rent, maintenance and
insurance 44777 99816 87875 234509
Depreciation 199250 22505 2279 224034
Office expenses and
others 52735 17853 39507 110849
917702 840908 607760 2481682
====== ====== ====== =======
d. Financing Expenses, Net
Banking commissions 9291 77382 53458 163455
Interest expenses 193350 331531 28288 553260
Foreign exchange losses
(gains) from remeasurement 5791 16075 (14149) ( 6582)
Other 0 37482 0 37482
208432 462470 67597 747615
====== ====== ====== ======
NOTE 15 - APPROVED ENTERPRISE
The production facilities of GAD have been granted, by
the "Investment Center" in Israel, the status of
"Approved Enterprise", in accordance with the
Encouragement of Capital Investments Law - 1959.
GAD elected the combined course of benefits which
provide them with investment grants, Guaranteed by the
state of Israel loans and certain tax benefits (see also
Note 16).
The implementation of the investments, under GAD's
approved investment program, was to have been completed
under the terms of the approval, not later than February
1995.
Due to liquidity difficulties of GAD, the implementation
of the investment program was delayed. This may result
in the cancellation of the program's approved status by
the authorities.
GAD has not yet completed its program. GAD is in the
process of negotiation with the Investment Center to
delay the implementation of the investments. No
provisions were included in the financial statements
regarding the delay of the implementation due to the
managements' assertion that the delay will be approved by
the investment center.
NOTE 16 - TAXES ON INCOME
a. GAD has not yet begun commercial activity, and accordingly,
has no taxable income.
b. Benefits under the Encouragement of Industry (Taxes)
Law - 1969.
GAD 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 know how.
c. Benefits under the Encouragement of Capital Investments
Law - 1959.
GAD is entitled, under the above law, to tax reliefs,
mainly reduced tax rates. Such reduced rates may vary
between 10%-25%, depending on the percentage of non-
Israeli shareholdings in the company during each year of
the benefit period. The benefit period is ten years,
commencing the first year of having 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 the earlier. Distribution of
dividends, out of profits accumulated during the benefit
period, will result in additional tax of 15% on the
distributed amounts.
Based on the percentage of non-Israeli shareholding in
GAD as at December 31, 1995, the effective Israeli tax
rate on undistributed profits will be 25% for GAD.
NOTE 17 - CONTINGENCIES AND COMMITMENTS
(A) GAD leased an industrial premises, located in the industrial zone of
Migdal Haemek, which serves as its industrial plant and offices. The
current monthly rental, 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 company received an option to extend the period of the lease
for 4 years and 11 months, with rental increments 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 premises
carried out renovations and leasehold improvements at the company s
specifications. The Company paid 30% of the cost immediately and
undertook to pay 70% of the cost 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.
(B) As to investment grants, see Note 15.
As to possible rights of certain key employees to receive or acquire
shares in the Company, see Note 13b.
(C) As to possible rights of certain key employees to receive or acquire
shares in the Company, see Note 13b.
NOTE 18 - RELATED PARTIES
a. Following are transactions and balances with related parties:
Year ended December 31, Cumulative
1995 1994 1993 Amounts
US Dollars
Statement of Operation Data:
Salaries, management and
professional fees to
related parties 184668 295673 75404 560693
====== ====== ====== ======
Interest expenses 0 15261 0 15261
====== ====== ====== ======
Interest income 0 5980 0 5980
====== ====== ====== ======
Participation in expenses 1802 7039 0 8841
====== ====== ====== ======
Patent expenses 930 7219 0 8149
====== ====== ====== ======
December 31, December 31,
1995 1994
US Dollars
Balance Sheet Data
Assets:
Loans to related parties 0 101592
====== ======
Liabilities:
Other accounts payable 160538 19426
====== ======
Loans from related parties 0 291205
====== ======
b. In addition to the above-mentioned guarantee in Note 17h., other
related parties have guaranteed loans to the company in the amount of
approximately $83,000. The guarantee was scheduled to expire on December
31, 1993, but, was extended for a further unlimited period.
NOTE 19 - PLEDGED ASSETS
GAD has given a fixed charge on its equipment and a floating charge on
its assets to a commercial bank in Israel. Most of the charges have been
given as security for State guaranteed loans received and for short term
credit.
NOTE 20 - SUBSEQUENT EVENTS
All events subsequent to the date of the financial statements are
described in Note 1.
NOTE 21 - SUPPLEMENTARY INFORMATION - BALANCES EXPOSED TO THE EFFECT OF
CHANGES IN THE EXCHANGE RATE OF THE US DOLLAR TO THE ISRAELI CURRENCY
December 31, 1995 December 31, 1994
Linked Linked to
Unlinked to the Unlinked the index
(1) index(2) (1) (2)
US Dollars
CURRENT ASSETS
Cash and cash
equivalents 0 0 95512 0
Accounts receivable 28023 0 142922 0
Due to related
parties 0 0 101592 0
28023 0 340026 0
------ ----- ------ -----
CURRENT LIABILITIES
Short-term bank
credit 318068 0 1134336 0
Suppliers 749205 0 497386 0
Account payable(3) 398044 0 449170 0
Short-term credit
from related
parties 0 0 3319 0
______ ______ ______ ______
1465317 0 2084211 0
------ ------ ------ ------
LONG-TERM LIABILITIES
Liabilities to banks 0 0 0 238339
====== ====== ====== ======
1437294 0 (1744185) (238339)
====== ====== ====== ======
(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 index are exposed to the effect of the
differences between the rate of inflation in Israel and the changes in
the exchange rate of the dollar to the Israeli currency.
(3) Certain payables are partly linked and/or maintain interest rates
higher than inflation.
(B) following is the index on various relevant dates:
In Points:
December 31, 1995 129.4
December 31, 1994 119.7
December 31, 1993 104.6
SCHEDULE III: PARENT COMPANY CONDENSED FINANCIAL INFORMATION OF
REGISTRANT
A. CONDENSED BALANCE SHEET
December 31,
1995
US Dollars
ASSETS
Investment in GAD, net of provision for losses ( 472039)
Loans from subsidiaries 2154
Accounts receivable 7475
------
( 462410)
=======
LIABILITIES AND SHAREHOLDER S EQUITY
Current Liabilities
Credit from bank institutions 86698
Suppliers 547563
Other accounts payable 160538
Loans to related parties 0
794799
------
Shareholder s Equity
Common stock 8464
Premium on share capital 4451142
Accumulated Loss (5716815)
(1257209)
=======
B. CONDENSED STATEMENT OF OPERATIONS
Year ended
December 31
1995
Administrative and general expenses 255802
Financing expenses, net 51533
Net loss of subsidiary 1108599
Loss from sale of subsidiary 1316391
Net loss for the year 2732325
Accumulated loss at beginning of year 2984490
Accumulated loss at end of year 5716815
=======
The Israel Semiconductors Corp. Condensed Financial Information should be
read in conjunction with the Consolidated Financial Statements and Notes
to consolidated financial statement included elsewhere herein.
C. CONDENSED STATEMENT OF CASH FLOWS
Cash flows from operating activities
Loss for the year (2732325)
Reconciliation of net loss to net cash
from operating activities (appendix) 3082988
Net cash used by operating activities 350663
-------
Cash flows from investing activities
Investment in GAD ( 895138)
Net cash used by investing activity 895138
-------
Cash flows from financing activities
Issue of shares 827266
Loans remittance from related parties (112352)
Short-term bank credit ( 170439)
Net cash provided by financing activities 544475
------
Net decrease in cash and cash equivalents 0
Cash at beginning of year 0
Cash at end of year 0
=======
APPENDIX - Adjustment to reconcile loss to net cash used
In operating activities.
Expenses not constituting flow of cash
Loss from sale of subsidiary 1316391
Provision for GAD s losses 1108599
2424990
-------
Changes in assets and liabilities
Increase in accounts payable 91885
Increase in suppliers and other payables 566113
657998
-------
3082933
=======
Supplemental disclosures of cash flow information
Interest payments 48667
Income tax payments 0
=======
The Israel Semiconductors Corp. Condensed Financial Information should be
read in conjunction with the Consolidated Financial Statements and Notes
to Consolidated Financial Statements included elsewhere herein.
SCHEDULE V PROPERTY, PLANT AND EQUIPMENT
_________________________________________________________________
Column A Column B Column C Column D Column E Column F
Other
Balance at Changes
Classifi beginning Additions Retire- add (deduct) Balance
cation Of year at cost ments describe at end yr
_________________________________________________________________
Machinery
and
Equipment 5070763 292875 0 (4289062) 1074576
Motor
vehicles 94299 0 0 ( 50351) 43948
Office
furniture 69678 7592 0 ( 30752) 46518
Leasehold
improve-
ments 622582 24962 0 ( 198708) 448836
------ ------ ------ ------- -------
5857322 325429 0 (4568873) 1613878
======= ====== ====== ======= =======
Investment
grants which
were deducted
from the cost
of assets
1544255 99522 0 (1318975) 324802
======= ====== ====== ======= =======
SCHEDULE VI ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
_________________________________________________________________
Column A Column B Column C Column D Column E Column F
Other
Balance at Changes
Classifi beginning Additions Retire- add (deduct) Balance
cation Of year at cost ments describe at end yr
_________________________________________________________________
Machinery
and
equipment 76107 141469 0 ( 76107) 141469
Motor
vehicles 22024 8979 0 ( 15020) 15983
Office
furniture 7477 6626 0 ( 6140) 7963
Leasehold
improvement 35000 42176 0 ( 25212) 51964
140608 199250 0 (122479) 217379
====== ======= ====== ====== =======
SCHEDULE IX SHORT-TERM LOANS
_________________________________________________________________
Column A Column B Column C Column D Column E Column F
Maximum Average Weighted
Category of Weighted Amount amount average
aggregate Balance at average outstand outstand interest
short-term beginning Interest ing ing rate
loans Of year rate during during during
Year year year
_________________________________________________________________
US dollars
Revolving
credit 340159 *18.15% 60000 55000 *18.15%
Revolving
credit 92799 *25.10% 0 0
Short-term
loans 199320 **5-7% 0 0
------ ------- ----- -----
632278 60000 55000
====== ===== =====
* The interest rate is on unlinked NIS balances
** The interest rate is on linked NIS balances
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 28023
<ALLOWANCES> 0
<INVENTORY> 15000
<CURRENT-ASSETS> 43023
<PP&E> 1613878
<DEPRECIATION> 214379
<TOTAL-ASSETS> 1439522
<CURRENT-LIABILITIES> 1465317
<BONDS> 1231414
<COMMON> 4459606
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1439522
<SALES> 69617
<TOTAL-REVENUES> 69617
<CGS> 130863
<TOTAL-COSTS> 289799
<OTHER-EXPENSES> 917702
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 208432
<INCOME-PRETAX> (1415933)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> (1316392)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2732325)
<EPS-PRIMARY> (.322)
<EPS-DILUTED> (.322)
</TABLE>
