FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-3286
SEMICON, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2242662
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10 North Avenue, Burlington, MA 01803
(address of principal executive offices)
(Zip Code)
617-272-9015
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.25 Par Value - 3,304,873 shares (at April 30, 1995)
1
INDEX
FORM 10-Q
SEMICON, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
Consolidated Balance Sheet - April 2, 1995
and June 30, 1994. 3
Consolidated Statement of Operations - Quarters ended
April 2, 1995 and April 3, 1994 and nine months ended
April 2, 1995 and April 3, 1994. 5
Consolidated Statement of Cash Flows - Quarters ended
April 2, 1995 and April 3, 1994 and nine months ended
April 2, 1995 and April 3, 1994. 6
Notes to Consolidated Financial Statements -
April 2, 1995. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
SEMICON, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
April 2, June 30,
1995 1994
----------- -----------
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 498,000 $ 452,000
Accounts receivable, less allowances
of $10,000 ($10,000 at June 30, 1994) 891,000 909,000
Inventories:
Work-in-process and finished products 424,000 595,000
Raw materials and supplies 166,000 258,000
----------- -----------
590,000 853,000
Other current assets 60,000 59,000
----------- -----------
Total current assets 2,039,000 2,273,000
Property, plant and equipment
Machinery and equipment 3,965,000 3,965,000
Leasehold improvements 84,000 75,000
----------- -----------
4,049,000 4,040,000
Less accumulated depreciation
and amortization 4,019,000 4,010,000
----------- -----------
30,000 30,000
Other assets 1,000 1,000
----------- -----------
$ 2,070,000 $ 2,304,000
=========== ===========
See notes to consolidated financial statements.
3
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SEMICON, INC.
CONSOLIDATED BALANCE SHEET - Continued
LIABILITIES AND STOCKHOLDERS' DEFICIT
April 2, June 30,
1995 1994
----------- -----------
Current liabilities:
<S> <C> <C> <C> <C>
Accounts payable and other accrued liabilities $ 267,000 $ 311,000
Accrued compensation 206,000 189,000
Accrued interest 1,501,000 1,677,000
Federal and state income taxes 100,000 104,000
Indebtedness in default 2,202,000 3,213,000
Reserves for restructuring and environmental costs 1,100,000 1,104,000
Liabilities relating to discontinued operations 896,000 896,000
----------- -----------
Total current liabilities 6,272,000 7,494,000
Retiree deferred compensation 439,000 423,000
Stockholders' deficit:
Preferred stock, $1.00 par value
1,000,000 shares authorized, none issued 0 0
Common stock, $.25 par value,
10,000,000 shares authorized, 3,304,873
shares issued 826,000 826,000
Additional paid-in-capital 46,000 46,000
Accumulated deficit (5,513,000) (6,485,000)
----------- -----------
Total stockholders' deficit (4,641,000) (5,613,000)
----------- -----------
$ 2,070,000 $ 2,304,000
=========== ===========
See notes to consolidated financial statements.
4
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SEMICON, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
QUARTER ENDED NINE MONTHS ENDED
April 2, April 3, April 2, April 3,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 1,563,000 $ 1,554,000 $ 4,463,000 $ 5,010,000
Costs and expenses:
Cost of products sold 1,245,000 1,248,000 3,668,000 3,944,000
Selling, general and administrative 252,000 283,000 803,000 784,000
Interest 90,000 98,000 283,000 345,000
Other (income) expense 0 (67,000) 0 (67,000)
----------- ----------- ----------- -----------
1,587,000 1,562,000 4,754,000 5,006,000
----------- ----------- ----------- -----------
Income (loss) before income taxes and
extraordinary item (24,000) (8,000) (291,000) 4,000
Income taxes 0 0 0 0
----------- ----------- ----------- -----------
Income (loss) before extraordinary item (24,000) (8,000) (291,000) 4,000
Extraordinary items:
Gain on purchase of debentures 316,000 3,000 895,000 151,000
Gain on debt settlement 0 0 368,000 0
----------- ----------- ----------- -----------
316,000 3,000 1,263,000 151,000
----------- ----------- ----------- -----------
Net income (loss) $ 292,000 $ (5,000)$ 972,000 $ 155,000
=========== =========== =========== ===========
Income (loss) per share:
Before extraordinary items ($0.01) $0.00 ($0.09) $0.00
Extraordinary items 0.10 0.00 0.38 0.05
----------- ----------- ----------- -----------
Net income (loss) per share $0.09 $0.00 $0.29 $0.05
=========== =========== =========== ===========
Weighted average number of
shares outstanding 3,305,000 3,305,000 3,305,000 3,305,000
=========== =========== =========== ===========
See notes to consolidated financial statements.
5
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SEMICON, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
QUARTER ENDED NINE MONTHS ENDED
April 2, April 3, April 2, April 3,
1995 1994 1995 1994
----------- ----------- ----------- -----------
Operating activities:
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 292,000 $ (5,000)$ 972,000 $ 155,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 3,000 13,000 9,000 39,000
Provision for bad debts 0 0 0 (40,000)
Gain on purchase of debentures (316,000) (3,000) (895,000) (151,000)
Gain on debt settlement 0 0 (368,000) 0
Changes in assets and liabilities:
Accounts receivable (130,000) 117,000 18,000 (91,000)
Inventory 107,000 (132,000) 263,000 75,000
Other current assets 10,000 (11,000) (1,000) (19,000)
Accounts payable and accrued expenses 127,000 82,000 195,000 332,000
Income taxes payable 0 (2,000) (4,000) (4,000)
Other non-current obligations 6,000 (122,000) 16,000 (107,000)
----------- ----------- ----------- -----------
Total adjustments (193,000) (58,000) (767,000) 34,000
----------- ----------- ----------- -----------
Cash provided by (used in)
operating activities 99,000 (63,000) 205,000 189,000
Investing activities:
Capital expenditures (9,000) 0 (9,000) 0
Collection of investment income 0 5,000 0 11,000
Discontinued operations 0 0 0 0
----------- ----------- ----------- -----------
Cash provided by (used in)
investing activities (9,000) 5,000 (9,000) 11,000
Financing activities:
Debenture purchases and debt settlement (13,000) 0 (148,000) 0
Other 1,000 (1,000) (2,000) (1,000)
----------- ----------- ----------- -----------
Cash provided by (used in)
financing activities (12,000) (1,000) (150,000) (1,000)
----------- ----------- ----------- -----------
Increase (decrease) in cash
and cash equivalents 78,000 (59,000) 46,000 199,000
Cash and cash equivalents
at beginning of period 420,000 548,000 452,000 290,000
----------- ----------- ----------- -----------
Cash and cash equivalents
at end of period $ 498,000 $ 489,000 $ 498,000 $ 489,000
=========== =========== =========== ===========
See notes to consolidated financial statements.
6
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SEMICON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
April 2, 1995
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the financial position
and results of operations have been included. Operating results for
interim periods are not necessarily indicative of the results that may be
expected for the full year. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K.
NOTE B -- INCOME (LOSS) PER SHARE
Net income per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding.
Common equivalent shares result from the assumed exercise of outstanding
stock options and the assumed conversion of 13% Convertible Subordinated
Debentures when their effect is dilutive. If the effect of the assumed
conversion of 13% Convertible Subordinated Debentures is dilutive, net
income used to calculate earnings per share is increased to include the
after tax effect of debenture interest assumed to be forgone.
Net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding, excluding common equivalent
shares which would be antidilutive.
NOTE C -- INCOME TAXES
At April 2, 1995, the Company had tax loss carryforwards of approximately
$7,000,000 and tax credit carryforwards of approximately $500,000
available to offset future federal taxable income and operating loss
carryforwards of approximately $8,900,000 and credit carryforwards of
approximately $500,000 to offset future book income. These carryforwards
expire principally in the years 2001-2007. These carryforwards may be
subject to limitations on annual utilization under current Internal
Revenue Service regulations. Book loss carryforwards exceed those
available for income tax purposes due primarily to various accruals and
reserves not currently deductible.
7
SEMICON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- Continued
April 2, 1995
NOTE D -- EXTRAORDINARY GAINS
During the quarter ended October 2, 1994, the Company settled its debt
obligations with NationsBank. The settlement reduced indebtedness and
accrued interest by $468,000 and resulted in a $368,000 extraordinary
gain.
During the quarter ended April 2, 1995, the Company purchased $202,000
($2,000 in the fiscal 1994 quarter) face amount of its 13% Convertible
Subordinated Debentures. The purchases reduced indebtedness and accrued
interest by $337,000 ($3,000 in the fiscal 1994 quarter) and resulted in
a $316,000 ($3,000 in the fiscal 1994 quarter) extraordinary gain.
During the first nine months of fiscal 1995, the Company purchased
$581,000 ($104,000 in the fiscal 1994 period) face amount of its 13%
Convertible Subordinated Debentures. The purchases reduced indebtedness
and accrued interest by $951,000 ($157,000 in the fiscal 1994 period) and
resulted in a $895,000 ($151,000 in the fiscal 1994 period) extraordinary
gain.
8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
LIQUIDITY AND SOURCES OF CAPITAL
The Company operates at the forbearance of its creditors. It
continued to be in default of debt obligations aggregating $4,839,000 for
principal and interest at April 2, 1995. The defaults exist
because of non-payment of principal and interest for periods extending
back to July 1990.
The Company faces various environmental issues. The Company has a
compliance deadline of August 2, 1995, to remediate environmental
problems at its Burlington, Massachusetts operating site, currently
estimated to cost $350,000 to $600,000. The Company will file a
"Financial Inability" notice as required by the code of Massachusetts
Regulations before the August 1995 compliance deadline. The Company was
designated a potentially responsible party ("PRP") by the United States
Environmental Protection agency at a superfund landfill site in Lowell,
Massachusetts. The settling PRP group has demanded that the Company pay
10.8% of the $20,000,000 to $25,000,000 estimated cost of landfill
cleanup. The Company intends to defend itself against this claim. In
November 1989, the Commonwealth of Massachusetts notified the Company
that the Massachusetts Department of Environmental Protection believes
that the Company is liable for hazardous material cleanup at the former
Microfab, Inc. site in Amesbury, Massachusetts. The Company denies
responsibility and liability in the matter.
Further, the Company has no outside source of financing and does not
expect to be able to obtain any such financing.
Customer insecurity about the Company's financial condition
continues. The foregoing factors and the Company's operating losses make
the Company's financial condition precarious.
The Company continues to attempt to settle debt obligations at less
than face amount and has succeeded in reducing the principal amount of
its debt in default from $6,170,000 at June 30, 1990, to $3,337,000 at
April 2, 1995. However, during that period of time, interest has
9
accrued on the unsettled portion of debt obligations in default to make
the aggregate amount in default at April 2, 1995, $4,839,000.
June 30, April 2, 1995
1990
Principal
and Accrued
Principal Principal Interest
BayBank $ 795,000 $ 696,000 $ 707,000
Deferred Compensation and
Other 820,000 439,000 439,000
NationsBank 430,000 0 0
13% Convertible
Subordinated Debentures 4,125,000 2,202,000 3,693,000
---------- ---------- ----------
$6,170,000 $3,337,000 $4,839,000
========== ========== ==========
Settlements to January 1, 1995, have included: purchases of
$1,923,000 face amount of debentures for $133,000; settlement of
$468,000 of NationsBank debt obligations for $100,000 and settlement of
$438,000 of deferred compensation and other obligations for $74,000.
Despite fiscal 1995 year to date retirements of $1,419,000 of debt
obligations for $148,000 cash and extraordinary gains of $1,263,000, the
Company's overall efforts since June 30, 1990, to complete a consensual
non-bankruptcy debt restructuring have been unsuccessful.
The Company has recorded an operating loss in every quarter except
one since June 30, 1989. If the Company is unable to return to
continuously profitable operations, to make satisfactory arrangements
with its creditors and to satisfy its environmental obligations, the
Company might be required to seek protection from its creditors under the
United States Bankruptcy Code.
The Company continues to suffer from the effects of a decrease in
the demand for discrete semiconductor products used in military
applications. The decrease in demand has resulted in fierce price
competition and a shift in sales mix to commercial products where the
Company must compete with large, highly automated domestic and foreign
manufacturers.
The decrease in inventories at April 2, 1995, as compared to
June 30, 1994, reflected the Company's efforts to reduce inventory
investment and improve inventory turnover. The decrease in accrued
interest and indebtedness in default reflected the settlement of
$1,419,000 of debt obligations during the period.
10
At April 2, 1995, the Company had a deficit in stockholders' equity
aggregating $4,641,000 and its current liabilities exceeded its current
assets by $4,233,000.
The Company did not retain independent accountants to audit its 1993
and 1994 financial statements and it does not plan to retain independent
accountants for 1995 because management does not believe the Company can
afford the cost of an audit.
RESULTS OF OPERATIONS
Quarter Ended April 2, 1995
Net sales increased 1% or $9,000 from $1,554,000 for the third
quarter of fiscal 1994 to $1,563,000 for the third quarter of fiscal
1995. Backlog at April 2, 1995 was $1,887,000 as compared to $1,576,000
the prior year and $1,733,000 at the end of the second quarter of fiscal
1995. The book-to-bill ratio for the quarter ended April 2, 1995 was
112% as compared to 99% a year ago. Price competition remained fierce.
Gross profit on sales increased from $306,000 (20% of sales) for the
third quarter of fiscal 1994 to $318,000 (20% of sales) for the third
quarter of fiscal 1995.
Selling, general and administrative expenses decreased $31,000 to
$252,000 for the third quarter of fiscal 1995 from $283,000 for the third
quarter of fiscal 1994. The decrease included an $18,000 decrease in
administrative salaries as a result of a layoff and an $11,000 decrease
in sales commissions paid to outside sales representatives.
Interest expense decreased $8,000 to $90,000 for the third quarter
of fiscal 1995 as a result of reductions in outstanding debt.
Third quarter results for fiscal 1995 included extraordinary gains
aggregating $316,000 ($3,000 in fiscal 1994) from purchases of the
Company's 13% convertible subordinated debentures at discounted amounts.
Nine Months Ended April 2, 1995
Net sales decreased 11% or $547,000 from $5,010,000 for the first
nine months of fiscal 1994 to $4,463,000 for the first nine months of
fiscal 1995. A drop in selling prices from a year ago and a change in
sales mix to lower price products have caused average selling prices to
decrease. Sales of high reliability military specification devices
decreased $675,000 to 69% of total sales from $3,776,000 (75% of total
sales) a year ago. Price competition remained fierce.
Gross profit on sales decreased from $1,066,000 (21% of sales) for
the first nine months of fiscal 1994 to $795,000 (18% of sales) for the
first nine months of fiscal 1995. The decrease resulted from decreases
in sales and selling prices which were not offset by corresponding
decreases in fixed and other manufacturing costs.
11
Selling, general and administrative expenses increased $19,000 to
$803,000 for the first nine months of fiscal 1995 from $784,000 for the
first nine months of fiscal 1994. The increase related to a $45,000 bad
debt expense credit in the first quarter of fiscal 1994 when the
reserve for bad debts was reduced because of improved collection
experience.
Interest expense decreased $62,000 to $283,000 for the first nine
months of fiscal 1995 as a result of reductions in outstanding debt.
First nine months results for fiscal 1995 included extraordinary
gains aggregating $972,000 ($155,000 in fiscal 1994) from purchases of
the Company's 13% Convertible Subordinated Debentures and from settlement
of the NationsBank debt at discounted amounts.
12
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
13
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.
SEMICON, INC.
Date: By:
Richard C. Allard
Executive Vice President and
Chief Financial Officer
14
