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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10938
SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
(Name of Small Business Issuer in its charter)
Delaware 13-3584740
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
431 FAYETTE AVENUE, MAMARONECK, NEW YORK 10543
(Address of principal executive offices, including zip code)
(914) 698-5353
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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.
(1) Yes [X] No [ ]
(2) Yes [X] No [ ]
The number of shares outstanding of the Registrant's sole class of
common stock, as of June 30, 1996 was 5,976,266 shares.
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS PAGE
----------------------------- ----
<S> <C>
Consolidated Balance Sheet at
June 30, 1996 and December 31, 1995. 3
Consolidated Statement of Income
for the three and six months ended
June 30, 1996 and 1995. 4
Consolidated Statement of Cash Flows
for the three and six months ended
June 30, 1996 and 1995. 5
Consolidated Statement of Shareholders' Equity
for the six months ended June 30, 1996 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
ITEM 2. PRO FORMA INFORMATION 13
Pro Forma Consolidated Statement of
Income for the three months ended
June 30, 1995 (Unaudited) 14
Notes to Unaudited Pro Forma Consolidated
Statement of Income for the three months
ended June 30, 1995 15
Pro Forma Consolidated Statement of
Income for the six months ended
June 30, 1995 (Unaudited) 16
Notes to Unaudited Pro Forma Consolidated
Statement of Income for the six months
ended June 30, 1995 17
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 18
SIGNATURE PAGE 19
EXHIBITS 20
</TABLE>
2
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SEMICONDUCTOR PACKAGING MATERIALS CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1996 1995
(UNAUDITED)
----------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,251,406 $ 4,244,075
Accounts receivable, less allowance for doubtful
accounts of $116,000 and $86,000, respectively 5,970,330 3,580,791
Inventories 7,480,277 4,735,967
Prepaid expenses and other current assets 621,691 561,395
----------- -----------
Total current assets 16,323,704 13,122,228
----------- -----------
Property and Equipment-at cost, net of accumulated
depreciation and amortization of $5,277,889
and $4,204,498 respectively 13,507,194 11,042,546
----------- -----------
Other Assets-net of accumulated amortization
Deferred financing costs 15,006 30,007
Technology rights and intellectual property 777,453 805,401
Goodwill 14,785,791 10,724,346
Other 1,030,924 346,253
----------- -----------
Total other assets 16,609,174 11,906,007
----------- -----------
Total Assets $46,440,072 $36,070,781
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,047,526 $ 1,478,946
Accrued expenses 2,128,496 911,269
Current portion of obligations under capital leases 818,759 588,351
Current portion of long -term debt 990,000 343,333
Amounts due to related parties 0 625,000
----------- -----------
Total current liabilities 5,984,781 3,946,899
----------- -----------
Deferred income taxes 676,760 563,460
Long -term debt 5,520,000 600,833
Obligations under capital leases 2,400,936 1,698,328
----------- -----------
Total Liabilities 14,582,477 6,809,520
----------- -----------
Shareholders' Equity:
Preferred stock-$.10 par value; authorized 1,000,000
shares, none issued Common stock-$.10 par value;
authorized 10,000,000 shares, issued 6,276,266
and 6,190,066 shares, respectively 627,627 619,007
Additional paid-in-capital 27,539,658 27,214,097
Retained Earnings 3,690,310 1,428,157
----------- -----------
31,857,595 29,261,261
Less: Treasury stock: 300,000 shares, at cost 0 0
----------- -----------
Shareholders' Equity 31,857,595 29,261,261
----------- -----------
Total Liabilities And Shareholders' Equity $46,440,072 $36,070,781
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
3
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SEMICONDUCTOR PACKAGING MATERIALS CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1996 1995 1996 1995
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 8,274,276 $ 4,817,115 $16,196,283 $ 9,511,423
Service Revenue 3,967,525 1,831,577 7,293,781 3,607,995
----------- ----------- ----------- -----------
Total Revenue 12,241,801 6,648,692 23,490,064 13,119,418
Cost of Goods Sold 6,030,354 3,229,056 11,856,323 6,321,486
Cost of Services Performed 1,922,835 827,065 3,615,736 1,589,278
----------- ----------- ----------- -----------
Total Cost of Goods Sold and Services Performed 7,953,189 4,056,121 15,472,059 7,910,764
----------- ----------- ----------- -----------
Gross Profit 4,288,612 2,592,571 8,018,005 5,208,654
Selling, General and Administrative Expenses 1,944,506 1,590,262 3,820,716 3,195,157
----------- ----------- ----------- -----------
Operating Income 2,344,106 1,002,309 4,197,289 2,013,497
Interest Expense (Net) 216,105 391,498 419,205 770,455
----------- ----------- ----------- -----------
Income Before Provision for Income Taxes 2,128,001 610,811 3,778,084 1,243,042
Provision for Income Taxes 855,450 127,158 1,515,931 249,851
----------- ----------- ----------- -----------
Net Income $ 1,272,551 $ 483,653 $ 2,262,153 $ 993,191
=========== =========== =========== ===========
Income per Common Share $ 0.21 $ 0.11 $ 0.37 $ 0.23
=========== =========== =========== ===========
Weighted Average Number of Common
Shares Outstanding 6,172,232 4,386,169 6,157,442 4,362,265
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
4
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SEMICONDUCTOR PACKAGING MATERIALS CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $1,272,551 $ 483,653 $2,262,153 $ 993,191
Adjustments To Reconcile Net Income To Net
Cash Used In Operating Activities:
Depreciation And Amortization Of Property And Equipment 561,315 357,962 1,073,921 707,018
Other Amortization 169,746 115,602 339,492 234,024
Deferred Income Taxes 63,300 0 113,300 0
Changes In Operating Assets And Liabilities:
Increase In Accounts Receivable (109,060) (65,724) (1,283,735) (435,872)
Increase In Inventories (322,690) (251,970) (985,998) (716,451)
(Increase) Decrease In Prepaid Expenses And
Other Current Assets 96,711 (99,679) (57,531) (289,153)
Increase (Decrease) In Accounts Payable (362,137) 696,720 (205,350) 781,350
Increase (Decrease) In Accrued Expenses 903,584 115,123 1,175,491 (82,631)
----------- ----------- ----------- -----------
Net Cash Provided By Operating Activities 2,273,320 1,351,687 2,431,743 1,191,476
----------- ----------- ----------- -----------
Cash Flows From Investing Activities:
Purchase Of Property And Equipment (1,426,250) (1,833,033) (1,795,487) (2,436,557)
Increase In Other Assets (317,909) (74,689) (670,396) (136,382)
Acquisition of Subsidiary (342,534) 0 (6,556,440) 0
----------- ----------- ----------- -----------
Net Cash Used In Investing Activities (2,086,693) (1,907,722) (9,022,323) (2,572,939)
----------- ----------- ----------- -----------
Cash Flows From Financing Activities:
Proceeds From Redemption Of Warrants 0 3,767 0 1,133,884
Proceeds From Exercise Of Stock Options 3,776 23,125 187,931 74,330
Proceeds From Long -Term Debt 0 0 6,000,000 0
Borrowing Under Revolving Credit 0 1,005,000 0 435,000
Payments Under Capital Leases (201,804) (90,238) (378,854) (175,399)
Payment Under Term Loan Agreements (90,000) (210,833) (586,166) (421,667)
Borrowing Under Equipment Line Of Credit 0 94,184 0 277,784
Decrease In Amounts Due Related Parties 0 (193,965) (625,000) (312,555)
----------- ----------- ----------- -----------
Net Cash Provided By (Used In) Financing Activities (288,028) 631,040 4,597,911 1,011,377
----------- ----------- ----------- -----------
Net Increase (Decrease) In Cash (101,401) 75,005 (1,992,669) (370,086)
Cash At Beginning Of Period 2,352,807 122,623 4,244,075 567,714
----------- ----------- ----------- -----------
Cash At End Of Period $2,251,406 $ 197,628 $2,251,406 $ 197,628
=========== =========== =========== ===========
Supplemental schedule of noncash investing
and financing activity:
Machinery and equipment acquired under capital leases $ 557,358 $1,309,728 $ 18,849
</TABLE>
See Notes To Consolidated Financial Statements
5
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SEMICONDUCTOR PACKAGING MATERIALS CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
------------------- ------------------ PAID-IN RETAINED ----------------- SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
------ ------ ------ ------ ---------- -------- ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1996 0 $0 6,190,066 $619,007 $27,214,097 $1,428,157 300,000 $0 $29,261,261
Issuance Of
Common Stock
Through The
Exercise Of Stock
Options 71,200 7,120 180,811 187,931
Issuance Of
Common Stock In
Connection With
The Acquisition Of
A Subsidiary 15,000 1,500 144,750 146,250
Net Income 2,262,153 2,262,153
--------- ---------- --------- -------- ----------- ---------- ------- -- -----------
Balance at
June 30, 1996 0 $0 6,276,266 $627,627 $27,539,658 $3,690,310 300,000 $0 $31,857,595
========= ========== ========= ======== =========== ========== ======= == ===========
</TABLE>
See Notes To Consolidated Financial Statements
6
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SEMICONDUCTOR PACKAGING MATERIALS CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The consolidated balance sheet as of June 30, 1996, the consolidated
statement of income for the three and six months ended June 30, 1996 and
1995, the consolidated statement of cash flows for the three and six
months ended June 30, 1996 and 1995 and the consolidated statement of
shareholders' equity for six months ended June 30, 1996, have been
prepared by the Company and are unaudited. In the opinion of management,
all adjustments necessary to present fairly the financial position,
results of operations and cash flows at June 30, 1996 and for all
periods presented have been made.
2. Earnings per share - Earnings per share are computed using the weighted
average number of common shares actually outstanding plus the shares
that would be outstanding assuming the exercise of employee stock
options and stock warrants during the periods presented.
3. See the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1995 for additional disclosures relating to the Company's
financial statements.
4. A provision for income taxes of $855,000 and $1,516,000 has been made
for the three and six month periods ended June 30, 1996, respectively,
as compared to a $127,000 and $250,000 provision in the three and six
month periods ended June 30, 1995, respectively. In the three month and
six month periods ended June 30, 1996, the Company's earnings were taxed
at an effective tax rate of 40.2% and 40.1%, respectively, as compared
to an effective tax rate of 20.8% and 20.1% in the comparable three and
six month 1995 periods, respectively. The effective tax rates in the
1995 periods were lower than the effective tax rates in the 1996 periods
due to the utilization of consolidated net operating loss carry forwards
in the 1995 periods.
5. Effective January 2, 1996, the Company acquired all of the common stock
of Retconn Incorporated ("Retconn"), a manufacturer of coaxial contacts
and connectors for $5,750,000 in cash, subject to an adjustment of
$192,000, based on the closing net worth as defined in the stock
purchase agreement. This business combination was accounted for as a
purchase. The Company also issued 15,000 of its common shares, valued at
$146,250, in conjunction with the acquisition. In addition, the Company
incurred approximately $618,000 in costs associated with the Retconn
acquisition. The fair value of the assets acquired, including
approximately $4,336,000 allocated to goodwill, which is being amortized
over 25 years, amounted to $7,674,000 and liabilities assumed amounted
to $968,000.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1996
COMPARED TO THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1995)
Total revenues for the three month period ended June 30, 1996 increased
$5,593,000, or 84%, over the comparable 1995 period. The increase was primarily
due to the inclusion of $2,584,000 of revenues from Retconn, Incorporated
("Retconn"), which was acquired by the Company as of January 2, 1996, a 117%
increase in revenues at American Silicon Products ("ASP"), primarily as a result
of increased capacity; and a 66% increase in revenues at Polese Company, due to
increased sales of its copper/tungsten heat dissipation products. Revenues at
the parent company decreased 7% from prior year levels due to decreased orders
from certain microelectronic customers. Total revenues for the six month period
ended June 30, 1996 increased $10,371,000, or 79%, over the comparable 1995
period. The increase was primarily due to the inclusion of $5,271,000 of
revenues from Retconn; a 102% increase in revenues at ASP, a 28% increase in
revenues at Polese Company and a 7% increase in revenues at the parent company
primarily as a result of increased sales of precision metal stampings and tape
and reel packaged products. For the six month period ended June 30, 1996 and
1995, direct sales of the Company's products into foreign markets accounted for
approximately 9.4% and 5.6%, respectively, of consolidated revenues. The Company
does not maintain any foreign manufacturing operations. Foreign sales are made
through seventeen foreign manufacturer's representatives and are priced and paid
for in U.S. dollars.
Gross profit for the three month period ended June 30, 1996 increased
$1,696,000, or 65%, from the comparable 1995 period. Approximately $855,000 of
this increase was attributable to the inclusion of Retconn's gross profit. ASP's
gross profit increased 105%, the parent company's gross profit decreased 15% and
Polese Company's gross profit decreased 9% from the comparable 1995 period. The
decrease in gross profit at the parent company was attributable to lower sales
volumes and the decrease in gross profit at Polese Company was primarily related
to changes in product mix. As a result of lower margins at the parent company
and Polese Company, and the inclusion of Retconn's operations in the 1996
period, (gross margins of Retconn are lower than historical margins of the
Company) gross margin decreased to 35% in the three month period ended June 30,
1996 from 39% in the comparable 1995 period. Gross profit for the six month
period ended June 30, 1996 increased $2,809,000, or 54%, from the comparable
1995 period. Approximately $1,732,000 of this increase was attributable to the
inclusion of Retconn's gross profit. ASP's gross profit increased 82%, the
parent company's gross profit decreased 6% and Polese Company's gross profit
decreased 44% from the comparable 1995 period. Gross profit at Polese Company
decreased primarily due to the temporary curtailment of operations at its
plating facility in February caused by production difficulties, which
difficulties have since been resolved. As a result of lower margins at the
parent company and Polese Company, and the inclusion of Retconn's operations,
gross margin decreased to 34% in the six month period ended June 30, 1996 from
40% in the comparable 1995 period.
Selling, general and administrative ("SG&A") expenses in the three and six month
periods ended June 30, 1996 increased $354,000, or 22%, and $626,000, or 20%,
respectively, over the comparable 1995 periods. The increase was due to the
inclusion of Retconn's SG&A costs with the Company's in the 1996 periods. SG&A
expenses as a percentage of sales decreased from 24% and in the three and six
month periods ended June 30, 1995 to 16% in the comparable 1996 periods.
Net interest expense for the three and six month periods ended June 30, 1996
decreased $175,000 and $351,000, respectively, from the comparable 1995 periods.
The decrease was primarily related to a decrease in interest expense at ASP in
the 1996 periods. Debt incurred in the ASP acquisition was retired using a
8
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portion of the proceeds from the Company's July 1995 public offering.
A provision of $855,000 and $1,516,000 for income taxes has been made for the
three and six month periods ended June 30, 1996, respectively, as compared to a
$127,000 and $250,000 provision in the three and six month periods ended June
30, 1995, respectively. In the three month and six month periods ended June 30,
1996, the Company's earnings were taxed at an effective tax rate of 40.2% and
40.1%, respectively, as compared to an effective tax rate of 20.8% and 20.1% in
the comparable three and six month 1995 periods, respectively. The effective tax
rates in the 1995 periods were lower than the effective tax rates in the 1996
periods due to the utilization of consolidated net operating loss carry forwards
in the 1995 periods.
As a result of the foregoing, net income increased by $789,000, or 163% , and
$1,269,000, or 128%, respectively, in the three and six month periods ended June
30, 1996 over the comparable 1995 periods. In the three and six month periods
ended June 30, 1996, the parent company, Retconn and ASP were profitable, while
Polese Company experienced approximately $14,000 and $241,000 in after tax
losses, respectively. It is expected that Polese Company's profitability will
continue to improve as it increases sales of its copper tungsten heat
dissipation products and improves its productivity.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its capital needs through the proceeds of its public
offerings, its revolving credit facility and term loans from First Union Bank
(the "Bank") and cash flow from operations.
At June 30, 1996, the Company had cash and cash equivalents of $2,251,000 and an
available balance on its revolving credit facility of $5,000,000.
Net cash provided by operating activities in the three and six month periods
ended June 30, 1996 amounted to $2,273,000 and $2,432,000, respectively, as
compared to $1,352,000 and $1,191,000, respectively, in the comparable 1995
periods. Cash provided by operating activities in the 1996 periods increased
over the 1995 periods primarily as the result of a $789,000 and $1,269,000
increase in net income in the three and six month periods ended June 30, 1996,
respectively. In the three and six month periods ended June 30, 1996 ,
depreciation and amortization of property and equipment and other amortization
in total increased $257,000 and $472,000, respectively, over the comparable 1995
periods. These increases were due to increased depreciation and amortization
associated with investments made by the Company in property and equipment in
1995 and 1996 and from amortization of goodwill associated with the Retconn
acquisition. In the three and six month periods ended June 30, 1996, the Company
recorded a net deferred tax liability of $63,000 and $113,000, respectively,
representing the tax effects of temporary differences between the Company's book
and tax bases. In the three and six month periods ended June 30, 1996, the
Company used a total of $432,000 and $2,270,000, respectively, of cash derived
from operations to fund increases in accounts receivable and inventories as
compared to using a total of $318,000 and $1,152,000 to fund such increases in
the comparable 1995 periods. The increases in the Company's accounts receivable
and inventories were made to support increased revenues. Prepaid expenses and
other current assets in the three and six month periods ended June 30, 1996
decreased $97,000 and increased $58,000, respectively, and increased $100,000
and $289,000, respectively, in the comparable 1995 periods, primarily due to
periodic fluctuations in refundable deposits for fixed asset additions. Accounts
payable decreased $362,000 and $205,000 in the three and six month period ended
June 30, 1996, respectively, as compared to increasing $697,000 and $781,000,
respectively, in the comparable 1995 periods. In 1996, the Company has reduced
its accounts payable as cash generated from operations has increased. Accrued
expenses increased $904,000 and $1,175,000, respectively, in the three and six
month periods ended June 30, 1996, primarily due to increased provisions for
income taxes.
9
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To support the Company's growth and enhance its profitability, in the three and
six month periods ended June 30, 1996, the Company invested $1,426,000 and
$1,795,000, respectively, in property, machinery, equipment, tooling and
leasehold improvements, compared to an investment of $1,833,000 and $2,437,000,
respectively, in the comparable 1995 periods. This investment excludes $557,000
and $1,310,000 invested in the three and six month periods ended June 30, 1996,
respectively, and excludes $19,000 invested the six month period ended June 30,
1995, for equipment purchased under capital leases. The majority of the capital
lease arrangements which the Company and its subsidiaries have entered into have
lease terms of five years and provide for a bargain purchase when the lease term
expires. At June 30, 1996, the Company had capital commitments in the
approximate amount of $1,926,000 for the acquisition of certain equipment to
upgrade and enhance the Company's manufacturing capabilities. The Company
believes that the lease financing available to it for certain equipment together
with cash flow from operations will be sufficient to fund its capital needs.
Other assets increased $318,000 and $670,000, respectively, in the three and six
month periods ended June 30, 1996 as compared to increasing $75,000 and
$136,000, respectively, in the comparable 1995 periods. These increases were
primarily due to increases in deposits on equipment to be purchased by the
Company.
Effective January 2, 1996, the Company acquired all of the common stock of
Retconn, a manufacturer of coaxial contacts and connectors, for $5,750,000 in
cash, subject to an adjustment of $192,000, based on the closing net worth as
defined in the stock purchase agreement. This business combination was accounted
for as a purchase. The Company also issued 15,000 of its common shares, valued
at $146,250, in conjunction with the acquisition. In addition, to date, the
Company has paid approximately $614,000 in costs associated with the Retconn
acquisition. The fair value of the assets acquired, including approximately
$4,336,000 allocated to goodwill, which is being amortized over 25 years,
amounted to $7,674,000 and liabilities assumed amounted to approximately
$968,000.
As a result of the foregoing, the Company used $2,087,000 and $9,022,000 in its
investing activities in the three and six month periods ended June 30, 1996,
respectively, as compared to using $1,908,000 and $2,573,000, respectively, in
the comparable 1995 periods.
On February 8, 1994, the Company registered 698,625 shares of common stock
purchasable pursuant to the exercise of redeemable warrants. The redeemable
warrants were distributed without cost as a distribution to the Company's
stockholders of record as of February 8, 1994. Stockholders received one
redeemable warrant for each share of common stock held by the stockholder. Each
redeemable warrant was exercisable to purchase one-half (1/2) share of common
stock at an exercise price of $2.00 per share. Certain stockholders of the
Company, including, but not limited to, the Company's Chairman and three of its
directors, agreed to contribute the redeemable warrants issued to them back to
the Company. Consequently, the additional 831,000 shares which would have been
issuable upon the exercise of such redeemable warrants were not issued or sold.
The registration statement also related to shares of the Company's common stock
issuable upon the exercise of warrants to purchase 170,250 shares held by the
warrant solicitation agent and certain of its affiliates. On January 24, 1995,
the Company called its Common Stock Purchase Warrants for redemption. As of the
redemption date, February 23, 1995, all but 98,918 purchase warrants were
exercised. In the three and six month periods ended June 30, 1995, the Company
received net proceeds of $4,000 and $1,134,000, respectively, from the
redemption of common stock purchase warrants and solicitation agent warrants.
In the three and six month periods ended June 30, 1996, the Company received
$4,000 and $188,000, respectively, as compared to receiving $23,000 and $74,000,
respectively, in the comparable 1995 periods, from the exercise of stock
options.
10
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In connection with the Retconn acquisition, on January 4, 1996, the Company
entered into a term loan with the Bank in the principal amount of $6,000,000.
The loan bears interest at the Bank's loan pricing rate (8.25% at June 30, 1996)
and the principal is payable in 48 consecutive monthly installments of $125,000
commencing on February 1, 1997. Interest on the loan is payable monthly and
commenced on February 1, 1996.
On December 20, 1995, the Company entered into a $7,500,000 revolving credit
facility, a $2,000,000 capital lease facility and a $10,000,000 uncommitted line
of credit with the Bank. $5,000,000 of the revolving credit facility is
available to the Company for working capital purposes and $2,500,000 is used for
a standby letter of credit to support the Company's gold consignment arrangement
with a financial institution. The revolving credit facility bears interest at
.25% under the Bank's loan pricing rate and is unsecured with the exception of a
first priority security interest in the Company's gold inventory in the event of
a drawing under the letter of credit. The facility is also guaranteed by each of
the Company's subsidiaries. A fee equal to one half percent of the $7,500,000
line was paid. The maturity date of the facility is June 30, 1997. The
$2,000,000 capital lease facility is being used for equipment lease transactions
which bear interest at prevailing rates at lease inception dates and provide for
a bargain purchase at the end of such leases. The Bank has a first priority
security interest in the equipment which is leased under the facility. The
Company did not pay any fee for the $10,000,000 uncommitted line and therefor
the availability of the line is at the discretion of the Bank. The Company has
utilized $6,000,000 of the $10,000,000 uncommitted line for the Retconn
acquisition, and paid a fee for the use of the loan facility. The loan agreement
provides, among other things, that the Company maintain certain financial
ratios. The Company is also subject to restrictions relating to incurring
additional indebtedness, additional liens and security interests, capital
expenditures and the payment of dividends. In the three and six month periods
ended June 30, 1996, the Company had not borrowed under its revolving credit
facility. In the three and six month periods ended June 30, 1995, the Company
borrowed $1,005,000 and $435,000, respectively, under its revolving credit
facility.
In conjunction with the Company's acquisition of Polese Company on May 27,
1993, the Company acquired from Frank J. Polese, the former sole shareholder of
Polese Company, all of the rights, including a subsequently issued patent, for
certain powdered metal technology and its application to the electronics
industry for $250,000 in cash and $750,000 in notes, as modified, including
interest at 7% per annum. The note was paid in full and as a result, in 1995 Mr.
Polese received the balance of principal payments due under the note totaling
$424,000. For a period of ten years, Mr. Polese has the right to receive 10% of
(i) the pre-tax profit from the copper tungsten product line, after allocating
operating costs and (ii) the proceeds of the sale, if any, by the Company of the
powdered metal technology. To date, no payments have been made pursuant to this
agreement.
To facilitate the acquisition by the Company of Polese Company on May 27, 1993,
the Company entered into a $1,200,000 five year term loan agreement with the
Bank. The term loan agreement calls for the repayment of the loan in twenty
equal installments which commenced on October 1, 1993. Further, on December 16,
1993, the Company entered into a $465,000 five year term loan agreement with the
Bank. The term loan agreement called for the repayment of such loan in eighteen
equal installments which commenced on April 1, 1994. The term loans bore
interest at the Bank's loan pricing rate plus 1.5%. The term loans are
collateralized with a blanket lien on substantially all of the parent company's
assets, excluding the common stock and assets of its subsidiaries. As of June
30, 1996, the Company had repaid all amounts due under the $465,000 term loan
and had an outstanding balance of $510,000 due on the $1,200,000 term loan.
The Company has, and expects to be able to continue to, meet its obligations to
the Bank from cash generated from operations. As at June 30, 1996, the Company
was in compliance with all of the covenants contained in its loan agreements.
11
<PAGE>
<PAGE>
In conjunction with the ASP acquisition, certain of the former stockholders of
ASP were to receive one-third of ASP's adjusted earnings before interest and
taxes in excess of $650,000 per fiscal quarter, (the "Consulting Agreements"),
through December 31, 1999. Payments and accruals for amounts due under the
Consulting Agreements have been recorded on the Company's books as additional
purchase price. In the fourth quarter of 1995, the Company bought out the
remaining four years of payments due under the Consulting Agreements for
$725,000 in cash and notes (of which $625,000 was outstanding at December 31,
1995) and 52,500 shares of the Company's common stock. In January 1996, the
Company paid the $625,000 note in full.
As a result of the above, in the three period ended June 30, 1996, the Company
used $288,000 of cash in its financing activities. In the six month period ended
June 30, 1996, $4,598,000 of cash was provided by financing activities. This
compares to net cash provided by financing activities of $631,000 and
$1,011,000, respectively, in the three and six month periods ended June 30,
1995. As a result of the Company's operations and equity financing activities,
shareholders' equity increased $2,596,000 in the six month period ended June 30,
1996.
The Company continually seeks to broaden its product lines by various means,
including through possible acquisitions. The Company intends to pursue only
those acquisitions for which it will be able to arrange the necessary financing
by means of the issuance of additional equity, the use of its cash or, through
bank or other debt financing.
The Company believes that it has the capacity for growth and that its working
capital and internally generated funds combined with its bank line of credit,
the proceeds it has received from its public offerings, and from other sources
of financing, will be sufficient to satisfy the Company's currently anticipated
cash requirements on both a short-term and long-term basis.
12
<PAGE>
<PAGE>
PRO FORMA INFORMATION
The following unaudited pro forma combined financial statements and explanatory
notes are presented to reflect the acquisition of the business of Retconn
Incorporated ("Retconn ") by Semiconductor Packaging Materials Co., Inc. (the
"Company") effective as of January 2, 1996.
The pro forma statements of income for the three and six month periods ended
June 30, 1995, give effect to these transactions as if they had occurred at the
beginning of the periods presented.
The pro forma information should be read in conjunction with (1) the historical
financial statements for the Company, including the related notes thereto,
included in the Company's Form 10-KSB for the fiscal year ended December 31,
1995, and included in the Company's Form 10-QSB for the three month period ended
March 31, 1996 (2) the historical financial statements of Retconn, including the
related notes thereto and (3) the Company's Form 8-K and 8-K/A filed on January
5, 1996 and March 15, 1996, respectively.
The pro forma information is not necessarily indicative of the combined results
of operations or combined financial position that would have resulted had the
acquisition been consummated as of the date noted above, nor is it necessarily
indicative of the combined results of operations in any future period or of the
future combined financial position.
13
<PAGE>
<PAGE>
SEMICONDUCTOR PACKAGING MATERIALS CO., INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 1995
--------------------------------------------------------------------
HISTORICAL
SEMICONDUCTOR
PACKAGING MATERIALS
CO., INC. AND RETCONN PRO FORMA
SUBSIDIARIES INCORPORATED ADJUSTMENTS AS ADJUSTED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $4,817,115 $2,325,417 $7,142,532
Service revenue 1,831,577 1,831,577
---------- ----------- ----------- ----------
Total revenue 6,648,692 2,325,417 8,974,109
Cost of goods Sold 3,229,056 1,742,749 (245)(1) 4,971,560
Cost of services performed 827,065 827,065
---------- ----------- ----------- ----------
Total cost of goods sold and services performed 4,056,121 1,742,749 (245) 5,798,625
Gross profit 2,592,571 582,668 245 3,175,484
Selling, general and administrative expenses 1,590,262 234,762 44,054(4) 1,869,078
---------- ----------- ----------- ----------
Operating income 1,002,309 347,906 (43,809) 1,306,406
Interest expense (net) 391,498 4,925 135,000 (2) 526,498
(4,925)(3)
---------- ----------- ----------- ----------
Income before provision for income taxes 610,811 342,981 (173,884) 779,908
Provision for income taxes 127,158 2,825 126,344 (5) 256,327
---------- ----------- ----------- ----------
Net income $483,653 $340,156 $(300,228) $523,581
========== =========== =========== ==========
Net income per common share $0.11 $34,015.60 $0.12
========== =========== =========== ==========
Weighted average number of common (10)(6)
shares outstanding 4,386,169 10 15,000 (6) 4,401,169
========== =========== =========== ==========
</TABLE>
14
<PAGE>
<PAGE>
SEMICONDUCTOR PACKAGING MATERIALS CO., INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1995
(1) Adjustment which reflects three months of depreciation expense on Retconn
Incorporated machinery and equipment and furniture and fixtures at
appraised values amounting to $431,204, assuming an estimated useful life
of seven years on a straight line basis adjusted by actual depreciation
expense on machinery and equipment and furniture and fixtures recorded by
Retconn Incorporated for the three months ended June 30, 1995, amounting
to $15,645.
(2) Adjustment which records interest expense on a $6,000,000 term note with a
floating rate yielding an effective interest rate of approximately 9.0%.
(3) Adjustment which records reduction in interest expense on $200,000 term
note repaid concurrent with the acquisition.
(4) Adjustment which records the amortization of the excess of the purchase
price paid for the fair market value of all tangible and identifiable
intangible assets acquired less liabilities assumed, totaling $4,405,430,
amortized over an estimated useful life of twenty-five years.
(5) Federal income taxes have been provided for the three month period ended
June 30, 1995 primarily because Retconn Incorporated prior to its
acquisition by the Company, was treated as an S corporation for federal
income tax purposes. The income tax provision of $126,344 represents
Retconn's pre-tax income of $342,981 less total pre-tax pro forma
adjustments of $173,884 adjusted for Connecticut income taxes of 11.25%
and federal income taxes of 34%, less $2,825 of taxes recorded by Retconn
Incorporated in the three month period ended June 30, 1995 .
(6) Adjustment which reflects the issuance of 15,000 shares of the Company's
common stock commensurate with the acquisition and the retirement of (10)
S corporation shares.
15
<PAGE>
<PAGE>
SEMICONDUCTOR PACKAGING MATERIALS CO., INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1995
------------------------------------------------------------------------
HISTORICAL
SEMICONDUCTOR
PACKAGING MATERIALS
CO., INC. AND RETCONN PRO FORMA
SUBSIDIARIES INCORPORATED ADJUSTMENTS AS ADJUSTED
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Net sales $9,511,423 $4,290,215 $13,801,638
Service revenue 3,607,995 3,607,995
---------- ---------- ------------- -----------
Total revenue 13,119,418 4,290,215 17,409,633
Cost of goods Sold 6,321,486 3,027,980 (490)(1) 9,348,976
Cost of services performed 1,589,278 1,589,278
---------- ---------- ------------- -----------
Total cost of goods sold and services performed 7,910,764 3,027,980 (490) 10,938,254
Gross profit 5,208,654 1,262,235 490 6,471,379
Selling, general and administrative expenses 3,195,157 432,778 88,109(4) 3,716,044
---------- ---------- ------------- -----------
Operating income 2,013,497 829,457 (87,619) 2,755,335
Interest expense (net) 770,455 11,749 270,000 (2) 1,040,455
(11,749)(3)
---------- ---------- ------------- -----------
Income before provision for income taxes 1,243,042 817,708 (345,870) 1,714,880
Provision for income taxes 249,851 2,825 192,634 (5) 445,310
---------- ---------- ------------- -----------
Net income $993,191 $ 814,883 $ (538,504) $1,269,570
========== ========== ============= ===========
Net income per common share $0.23 $81,488.30 $0.29
========== ========== ============= ===========
Weighted average number of common (10)(6)
shares outstanding 4,362,265 10 15,000 (6) 4,377,265
========== ========== ============= ===========
</TABLE>
16
<PAGE>
<PAGE>
SEMICONDUCTOR PACKAGING MATERIALS CO., INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(1) Adjustment which reflects six months of depreciation expense on Retconn
Incorporated machinery and equipment and furniture and fixtures at
appraised values amounting to $431,204, assuming an estimated useful life
of seven years on a straight line basis adjusted by actual depreciation
expense on machinery and equipment and furniture and fixtures recorded by
Retconn Incorporated for the six months ended June 30, 1995, amounting to
$31,290.
(2) Adjustment which records interest expense on a $6,000,000 term note with a
floating rate yielding an effective interest rate of approximately 9.0%.
(3) Adjustment which records reduction in interest expense on $200,000 term
note repaid concurrent with the acquisition.
(4) Adjustment which records the amortization of the excess of the purchase
price paid for the fair market value of all tangible and identifiable
intangible assets acquired less liabilities assumed, totaling $4,405,430,
amortized over an estimated useful life of twenty-five years.
(5) Federal income taxes have been provided for in the six month period ended
June 30, 1995 primarily because Retconn Incorporated prior to its
acquisition by the Company, was treated as an S corporation for federal
income tax purposes. The income tax provision of $192,634 represents
Retconn's pre-tax income of $817,708 less total pre-tax pro forma
adjustments of $345,870 adjusted for Connecticut income taxes of 11.25%
and federal income taxes of 34%, less $2,825 of taxes recorded by Retconn
Incorporated in the six month period ended June 30, 1995.
(6) Adjustment which reflects the issuance of 15,000 shares of the Company's
common stock commensurate with the acquisition and the retirement of (10)
S corporation shares.
17
<PAGE>
<PAGE>
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 30, 1996, the registrant conducted its annual meeting. At such
meeting stockholders of record as of at the close of business on March
18, 1996 were entitled to notice of and to vote at the meeting. A total
of 5,959,066 shares were entitled to vote at the meeting. A total of
5,739,733 shares, or 96.1% of those shares entitled to vote, were
present in person or by proxy at said meeting. The matters voted on at
the meeting was limited to: the election of seven directors to serve for
one year and until their successors are elected and qualify; the
ratification of Goldstein Golub Kessler & Company, P.C. as the Company's
auditors for the year ending December 31, 1996; the amendment of the
Company's Non-Qualified Stock Option Plan to provide that non-employee
Directors receive 2,500 options as of the date of the Annual Meeting of
Stockholders, commencing with the Annual Meeting of 1997; and the
amendment of the Company's Amended Employees' Incentive Stock Option
Plan to increase the authorized option shares from 400,000 to 600,000
shares.
The following directors where elected at such meeting:
Mark Pinto John U. Moorhead, II
Richard D. Fain Steven B. Sands
Gilbert D. Raker Frank J. Polese
Peter J. Hurley
The following votes were cast in the election of Goldstein Golub Kessler
& Company, P.C.
<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
- ----------- ------- --------
<S> <C> <S>
5,696,648 Shares 28,935 Shares 14,150 Shares
</TABLE>
Appointment of Goldstein Golub Kessler, P.C. as auditors for the Company
was approved.
The following votes were cast to amend the non-qualified stock option plan
to provide for non-employee directors to receive 2,500 options as of the
date of the Annual Meeting, commencing with the Annual Meeting of 1997.
<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN NOT VOTED
- ----------- ------- ------- ---------
<S> <C> <C> <C>
3,040,544 Shares 208,161 Shares 32,600 Shares 2,458,428 Shares
</TABLE>
Adoption to amend the non-qualified stock option plan for the Company was
approved.
The following votes were cast to amend the Company's Amended Employee's
stock option plan to increase the authorized option shares from 400,000 to
600,000.
<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN NOT VOTED
- ----------- ------- ------- ---------
<S> <C> <C> <C>
3,116,494 Shares 135,996 Shares 28,815 Shares 2,458,428 Shares
</TABLE>
Adoption to amend the Amended Employee's Incentive Stock Option Plan of
the Company was approved.
18
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
DATE: AUGUST 14, 1996 By: /S/ GILBERT D. RAKER
-------------------------------
Name: Gilbert D. Raker
Title: Chairman of the Board
and Chief Executive Officer
DATE: AUGUST 14, 1996 By: /S/ ANDREW A. LOZYNIAK
-------------------------------
Name: Andrew A. Lozyniak
Title: Treasurer and Secretary
(Chief Accounting Officer)
19
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,251
<SECURITIES> 0
<RECEIVABLES> 6,086
<ALLOWANCES> 116
<INVENTORY> 7,480
<CURRENT-ASSETS> 16,324
<PP&E> 18,785
<DEPRECIATION> 5,278
<TOTAL-ASSETS> 46,440
<CURRENT-LIABILITIES> 5,985
<BONDS> 7,921
0
0
<COMMON> 628
<OTHER-SE> 31,230
<TOTAL-LIABILITY-AND-EQUITY> 46,440
<SALES> 16,196
<TOTAL-REVENUES> 23,490
<CGS> 11,856
<TOTAL-COSTS> 15,472
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 419
<INCOME-PRETAX> 3,778
<INCOME-TAX> 1,516
<INCOME-CONTINUING> 2,262
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,262
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
