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 September 29, 1996
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-3286
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SEMICON, INC.
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2242662
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(State or other jurisdiction of (I.R.S. Employer
of incorporation or organization) Identification No.)
10 North Avenue, Burlington, MA 01803
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(address of principal executive offices)
(Zip Code)
617-272-9015
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(Registrant's telephone number, including area code)
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(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 October 31, 1996)
1
INDEX
FORM 10-Q
SEMICON, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Page
Consolidated Balance Sheet - September 29, 1996
and June 30, 1996.
3
Consolidated Statement of Operations - Quarters ended
September 29, 1996 and October 1, 1995.
5
Consolidated Statement of Cash Flows - Quarters ended
September 29, 1996 and October 1, 1995.
6
Notes to Consolidated Financial Statements -
September 29, 1996.
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
12
SIGNATURES
12
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
SEMICON, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
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September 29, June 30,
1996 1996
----------- -----------
Current assets:
Cash and cash equivalents $ 244,000 $ 240,000
Accounts receivable, less allowances
of $10,000 ($10,000 at June 30, 1996) 573,000 781,000
Inventories:
Work-in-process and finished products 625,000 655,000
Raw materials and supplies 240,000 274,000
----------- -----------
865,000 929,000
Other current assets 64,000 56,000
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Total current assets 1,746,000 2,006,000
Property, plant and equipment
Machinery and equipment 4,051,000 4,051,000
Leasehold improvements 130,000 130,000
----------- -----------
4,181,000 4,181,000
Less accumulated depreciation
and amortization 4,059,000 4,048,000
----------- -----------
122,000 133,000
Other assets 1,000 1,000
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$ 1,869,000 $ 2,140,000
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</TABLE>
See notes to consolidated financial statements.
3
SEMICON, INC.
CONSOLIDATED BALANCE SHEET - Continued
LIABILITIES AND STOCKHOLDERS' DEFICIT
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September 29, June 30,
1996 1996
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Current liabilities:
Accounts payable and other accrued liabilities $ 374,000 $ 423,000
Accrued compensation 153,000 185,000
Accrued interest 1,676,000 1,610,000
Federal and state income taxes 84,000 88,000
Indebtedness in default 2,726,000 2,731,000
Reserves for restructuring and environmental costs 1,299,000 1,300,000
----------- -----------
Total current liabilities 6,312,000 6,337,000
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 (5,315,000) (5,069,000)
----------- -----------
Total stockholders' deficit (4,443,000) (4,197,000)
----------- -----------
$ 1,869,000 $ 2,140,000
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</TABLE>
See notes to consolidated financial statements.
4
SEMICON, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
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QUARTER ENDED
September 29, October 1,
1996 1995
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Net Sales $ 1,332,000 $ 1,522,000
Costs and expenses:
Cost of products sold 1,280,000 1,382,000
Selling, general and adminstrative 236,000 250,000
Interest 71,000 78,000
Other (income) expense 0 0
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1,587,000 1,710,000
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Income (loss) before income taxes and
extraordinary item (255,000) (188,000)
Income taxes 0 0
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Income (loss) before extraordinary item (255,000) (188,000)
Extraordinary items:
Gain on purchase of debentures 9,000 63,000
Gain on debt settlement 0 0
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9,000 63,000
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Net income (loss) $ (246,000) $ (125,000)
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Income (loss) per share:
Before extraordinary items ($0.08) ($0.06)
Extraordinary items 0.01 0.02
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Net income (loss) per share ($0.07) ($0.04)
=========== ===========
Weighted average number of
shares outstanding 3,305,000 3,305,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
SEMICON, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
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QUARTER ENDED
September 29, October 1,
1996 1995
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Operating activities:
Net income (loss) $ (246,000) $ (125,000)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 11,000 5,000
Provision for bad debts 0 0
Gain on purchase of debentures (9,000) (63,000)
Gain on debt settlement 0 0
Changes in assets and liabilities:
Accounts receivable 208,000 202,000
Inventory 64,000 (2,000)
Other current assets (8,000) (13,000)
Accounts payable and accrued expenses (11,000) 77,000
Income taxes payable (4,000) (7,000)
Other 0 4,000
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Total adjustments 251,000 203,000
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Cash provided by (used in)
operating activities 5,000 78,000
Investing activities:
Capital expenditures 0 (37,000)
Collection of investment income 0 0
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Cash provided by (used in)
investing actitivies 0 (37,000)
Financing activities:
Debenture purchases and debt settlement (1,000) (2,000)
Other 0 0
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Cash provided by (used in)
financing actitivies (1,000) (2,000)
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Increase (decrease) in cash
and cash equivalents 4,000 39,000
Cash and cash equivalents
at beginning of period 240,000 552,000
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Cash and cash equivalents
at end of period $ 244,000 $ 591,000
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</TABLE>
See notes to consolidated financial statements.
6
SEMICON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 29, 1996
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. Ac cordingly, 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) consi dered 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 convers ion 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 September 29, 1996, the Company had tax loss carryforwards of approximately
$6,500,000 and tax credit carryforwards of approximately $500,000 available to
offset future federal taxable income and operating loss carryforwards of
approximately $8,30 0,000 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 Rev enue 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
September 29, 1996
NOTE D -- EXTRAORDINARY GAINS
During the quarter ended September 29, 1996, the Company purchased $5,000
($38,000 in the fiscal 1996 quarter) face amount of its 13% Convertible
Subordinated Debentures. The purchases reduced indebtedness and accrued
interest by $9,000 ($66,000 in the fiscal 1996 quarter) and resulted in a
$9,000 ($63,000 in the fiscal 1996 quarter) 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 forebearance of its creditors. It continues to be
in default of debt obligations aggregating $4,402,000 for principal and
interest at September 29, 1996. The defaults exist because of non-payment of
principal and accrued interest for periods extending back to July 1990.
The Company faces various environmental issues. The Company has agreed to
remediate environmental problems at its Burlington, Massachusetts operating
site, currently estimated to cost $350,000 to $600,000, by November 1999. In
September 1996 the Com pany filed its most recent "financial inability" notice
with the Commonwealth of Massachusetts indicating that it cannot afford to pay
the cost of remediation. If the Commonwealth of Massachusetts requires
remediation in spite of the Company's finan cial inability to comply, the
Company will be forced to liquidate under Chapter 7 of the United States
Bankruptcy Code. The Company was designated a potentially responsible party
("PRP") by the United States Environmental Protection Agency at a supe rfund
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 believed that the Company
has liability for hazardous material cleanup at the former subsidiary,
Microfab, Inc. site in Amesbu ry, Massachusetts. The Company denies
responsibility and liability in the matter.
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 $2,726,000 at September 29, 1996.
However, during th at period of time, interest has accrued on the unsettled
portion of debt obligations in default to make the aggregate amount in default
at September 29, 1996, $4,402,000.
June 30, September 29, 1996
1990 Principal and
Principal Principal Accrued Interest
BayBank $ 795,000 $ 696,000 $ 759,000
Deferred Compensation
and Other 820,000 180,000 180,000
NationsBank 430,000 0 0
13% Convertible
Subordinated Debentures 4,125,000 1,850,000 3,463,000
----------- ----------- -----------
$ 6,170,000 $ 2,726,000 $ 4,402,000
=========== =========== ============
9
Settlements to September 29, 1996, have included: purchases of $2,275,000 face
amount of debentures for $155,000; settlement of $468,000 of NationsBank debt
obligations for $100,000 and settlement of $716,000 of deferred compensation
and other obli gations for $186,000. Despite these settlements, the Company's
overall efforts since June 30, 1990, to complete a consensual non-bankruptcy
debt restructuring have been unsuccessful.
The Company has recorded operating losses in all but three quarters since June
30, 1989. If the Company is unable to return to consistently 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 has suffered from the effects of a post cold war 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 commer cial products where the Company must compete with large,
highly automated domestic and foreign manufacturers.
The Company's overall liquidity decreased significantly during the quarter
ended September 29, 1996. The decrease in accounts receivable and inventories
at September 29, 1996, as compared to June 30, 1996, reflected the Company's
collection of accou nts receivable at a rate faster than product was shipped
and the use of inventories to generate shipments. The cash generated from
these activities was used to fund operating losses.
At September 29, 1996, the Company had a deficit in stockholders' equity
aggregating $4,443,000 and its current liabilities exceeded its current assets
by $4,566,000.
The Company did not retain independent accountants to audit its fiscal 1994,
1995 and 1996 financial statements because management did not believe the
Company could afford the cost of an audit.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 29, 1996
Net sales decreased 12% or $190,000 from $1,522,000 for the first quarter of
fiscal 1996 to $1,332,000 for the first quarter of fiscal 1997. Backlog at
September 29, 1996 was $1,719,000 as compared to $2,429,000 the prior year and
$1,885,000 at the end of the fourth quarter of fiscal 1996 The book-to-bill
ratio for the quarter ended September 29, 1996 was 85% as compared to 138% a
year ago.
Gross profit on sales decreased from $140,000 for the first quarter of fiscal
1996 to $52,000 for the first quarter of fiscal 1997. Gross margin decreased
as a result of increases in silicon costs.
Selling, general and administrative expenses decreased $14,000 to $236,000 for
the first quarter of fiscal 1997 from $250,000 for the first quarter of fiscal
1996. The decrease related to decreases in sales wages and commissions.
Interest expense decreased $7,000 to $71,000 for the first quarter of fiscal
1997 as a result of reductions in outstanding debt.
10
First quarter results for fiscal 1997 included extraordinary gains aggregating
$9,000 ($63,000 in the fiscal 1996 quarter) from purchases of the Company's 13%
Convertible Subordinated Debentures at discounted amounts.
11
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. 27.1 - Financial Data Schedule
(b) Reports on Form 8-K - None
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
12
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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EXHIBIT 27.1
This schedule contains summary financial information extracted from the
Company's consolidated statements of operations and balance sheets and is
qualified in it's entirety by reference to such financial statements.
SEMICON, INC.
Period type 3 Mos
Fiscal year end Jun 30 1997
Period end Sep 29 1996
<S> <C>
Cash $ 244,000
Securities 0
Receivables 583,000
Allowances 10,000
Inventory 865,000
Current assets 1,746,000
PP&E, gross 4,181,000
Depreciation 4,059,000
Total assets 1,869,000
Current liabilities 6,312,000
Bonds 1,850,000
Common 826,000
Preferred mandatory 0
Preferred 0
Other SE (5,269,000)
Total liability and equity 1,869,000
Sales 1,332,000
Total revenues 1,332,000
CGS 1,280,000
Total costs 1,587,000
Other expenses 0
Loss provision 0
Interest expense 71,000
Income, pretax (255,000)
Income tax 0
Income, continuing (255,000)
Discontinued 0
Extraordinary 9,000
Changes 0
Net income (246,000)
EPS, primary (0.07)
EPS, diluted (0.07)
</TABLE>
