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 March 31, 1996
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 of (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, 1996)
1
INDEX
FORM 10-Q
SEMICON, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
Consolidated Balance Sheet - March 31, 1996
and June 30, 1995. 3
Consolidated Statement of Operations - Quarters ended
March 31, 1996 and April 2, 1995 and nine months ended
March 31, 1996 and April 2, 1995. 5
Consolidated Statement of Cash Flows - Quarters ended
March 31, 1996 and April 2, 1995 and nine months ended
March 31, 1996 and April 2, 1995. 6
Notes to Consolidated Financial Statements -
March 31, 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
<TABLE>
<S> <C> <C>
March 31, June 30,
1996 1995
----------- -----------
Current assets:
Cash and cash equivalents $ 296,000 $ 552,000
Accounts receivable, less allowances
of $10,000 ($10,000 at June 30, 1995) 782,000 966,000
Inventories:
Work-in-process and finished products 710,000 506,000
Raw materials and supplies 284,000 186,000
----------- -----------
994,000 692,000
Other current assets 57,000 54,000
----------- -----------
Total current assets 2,129,000 2,264,000
Property, plant and equipment
Machinery and equipment 3,966,000 3,965,000
Leasehold improvements 197,000 123,000
----------- -----------
4,163,000 4,088,000
Less accumulated depreciation
and amortization 4,037,000 4,023,000
----------- -----------
126,000 65,000
Other assets 1,000 1,000
----------- -----------
$ 2,256,000 $ 2,330,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
SEMICON, INC.
CONSOLIDATED BALANCE SHEET - Continued
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<S> <C> <C>
March 31, June 30,
1996 1995
----------- -----------
Current liabilities:
Accounts payable and other accrued liabilities $ 287,000 $ 360,000
Accrued compensation 268,000 197,000
Accrued interest 1,553,000 1,427,000
Federal and state income taxes 88,000 100,000
Indebtedness in default 1,872,000 1,997,000
Reserves for restructuring and environmental costs 1,100,000 1,100,000
Liabilities relating to discontinued operations 896,000 896,000
----------- -----------
Total current liabilities 6,064,000 6,077,000
Retiree deferred compensation 179,000 441,000
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 (4,859,000) (5,060,000)
----------- -----------
Total stockholders' deficit (3,987,000) (4,188,000)
----------- -----------
$ 2,256,000 $ 2,330,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
4
SEMICON, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<S> <C> <C> <C> <C>
QUARTER ENDED NINE MONTHS ENDED
March 31, April 2, March 31, April 2,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Net Sales $ 1,823,000 $ 1,563,000 $ 5,091,000 $ 4,463,000
Costs and expenses:
Cost of products sold 1,498,000 1,245,000 4,271,000 3,668,000
Selling, general and adminstrative 264,000 252,000 762,000 803,000
Interest 72,000 90,000 227,000 283,000
Other (income) expense 0 0 0 0
----------- ----------- ----------- -----------
1,834,000 1,587,000 5,260,000 4,754,000
----------- ----------- ----------- -----------
Income (loss) before income taxes and
extraordinary item (11,000) (24,000) (169,000) (291,000)
Income taxes 0 0 0 0
----------- ----------- ----------- -----------
Income (loss) before extraordinary item (11,000) (24,000) (169,000) (291,000)
Extraordinary items:
Gain on purchase of debentures 17,000 316,000 212,000 895,000
Gain on debt settlement 0 0 158,000 368,000
----------- ----------- ----------- -----------
17,000 316,000 370,000 1,263,000
----------- ----------- ----------- -----------
Net income (loss) $ 6,000 $ 292,000 $ 201,000 $ 972,000
=========== =========== =========== ===========
Income (loss) per share:
Before extraordinary items $0.00 ($0.01) ($0.05) ($0.09)
Extraordinary items 0.00 0.10 0.11 0.38
----------- ----------- ----------- -----------
Net income (loss) per share $0.00 $0.09 $0.06 $0.29
=========== =========== =========== ===========
Weighted average number of
shares outstanding 3,305,000 3,305,000 3,305,000 3,305,000
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
5
SEMICON, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
QUARTER ENDED NINE MONTHS ENDED
March 31, April 2, March 31, April 2,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Operating activities:
<S> <C> <C> <C> <C>
Net income (loss) $ 6,000 $ 292,000 $ 201,000 $ 972,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 5,000 3,000 15,000 9,000
Provision for bad debts 0 0 0 0
Gain on purchase of debentures (17,000) (316,000) (212,000) (895,000)
Gain on debt settlement 0 0 (158,000) (368,000)
Changes in assets and liabilities:
Accounts receivable 168,000 (130,000) 184,000 18,000
Inventory (109,000) 107,000 (302,000) 263,000
Other current assets (25,000) 10,000 (3,000) (1,000)
Accounts payable and accrued expenses 9,000 127,000 107,000 195,000
Income taxes payable (3,000) 0 (12,000) (4,000)
Other noncurrent obligations 1,000 6,000 8,000 16,000
----------- ----------- ----------- -----------
Total adjustments 29,000 (193,000) (373,000) (767,000)
----------- ----------- ----------- -----------
Cash provided by (used in)
operating activities 35,000 99,000 (172,000) 205,000
Investing activities:
Capital expenditures 0 (9,000) (76,000) (9,000)
Collection of investment income 0 0 0 0
Discontinued operations 0 0 0 0
---------- ----------- ----------- -----------
Cash provided by (used in)
investing actitivies 0 (9,000) (76,000) (9,000)
Financing activities:
Debenture purchases and debt settlement (3,000) (13,000) (8,000) (148,000)
Other 2,000 1,000 0 (2,000)
----------- ----------- ----------- -----------
Cash provided by (used in)
financing actitivies (1,000) (12,000) (8,000) (150,000)
----------- ----------- ----------- -----------
Increase (decrease) in cash
and cash equivalents 34,000 78,000 (256,000) 46,000
Cash and cash equivalents
at beginning of period 262,000 420,000 552,000 452,000
----------- ----------- ----------- -----------
Cash and cash equivalents
at end of period $ 296,000 $ 498,000 $ 296,000 $ 498,000
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
6
SEMICON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 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. 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 March 31, 1996, the Company had tax loss carryforwards of approximately
$6,300,000 and tax credit carryforwards of approximately $500,000 available to
offset future federal taxable income and operating loss carryforwards of
approximately $8,100,000 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
March 31, 1996
NOTE D -- EXTRAORDINARY GAINS
During the quarter ended March 31, 1996, the Company purchased $10,000 ($202,000
in the fiscal 1995 quarter) face amount of its 13% Convertible Subordinated
Debentures. The purchases reduced indebtedness and accrued interest by $18,000
($337,000 in the fiscal 1995 quarter) and resulted in a $17,000 ($316,000 in the
fiscal 1995 quarter) extraordinary gain.
During the first nine months of fiscal 1996, the Company purchased $125,000
($581,000 in the fiscal 1995 period) face amount of its 13% Convertible
Subordinated Debentures. The purchases reduced indebtedness and accrued
interest by $220,000 ($951,000 in the fiscal 1995 period) and resulted in a
$212,000 ($895,000 in the fiscal 1995 period) extraordinary gain.
During the nine months ended March 31, 1996, the Company settled deferred
compensation obligations aggregating $270,000. The settlement resulted in a
$158,000 extraordinary gain. The settlement requires the Company to make
payments through October 1997. At March 31, 1996, the settlement payments were
secured by a $65,000 security interest in accounts receivable.
During the nine months ended April 2, 1995, 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.
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 $4,300,000 for principal and interest
at March 31, 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 had 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 filed 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 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
Amesbury, Massachusetts. The Company denies responsibility and liability in the
matter. The Company is financially unable to pay these claims or effect
remediations of these issues. If pursued by others, the company could be forced
to seek protection from its creditors under the United States Bankruptcy Code.
The Company has no outside source of financing and does not expect to be able to
obtain any such financing unless and until it eliminates its insolvency and
achieves profitability.
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 $2,747,000 at March 31, 1996. However,
during that period of time, interest has accrued on the unsettled portion of
debt obligations in default to make the aggregate amount in default at March 31,
1996, $4,300,000.
June 30, March 31, 1996
1990 --------------------------------
Principle and
Principal Principal Accured Interest
--------- --------- ----------------
<TABLE>
<S> <C> <C> <C>
BayBank $ 795,000 $ 696,000 $ 738.000
Deferred Compensation
and Other 820,000 179,000 179,000
NationsBank 430,000 0 0
13% Convertible
Subordinated Debentures 4,125,000 1,872,000 3,383,000
------------- ------------- -------------
$ 6,170,000 $ 2,747,000 $ 4,300,000
============= ============= =============
</TABLE>
9
Settlements to March 31, 1996, have included: purchases of $2,253,000 face
amount of debentures for $153,000; settlement of $468,000 of NationsBank debt
obligations for $100,000 and settlement of $716,000 of deferred compensation and
other obligations 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 commercial products where the Company must compete with large, highly
automated domestic and foreign manufacturers.
The Company's overall liquidity decreased significantly during the first nine
month of fiscal 1996. The decrease in cash at March 31, 1996, as compared to
June 30, 1995, reflected the Company's investment in inventory, plant and
equipment during the period. The decrease in accounts receivable at March 31,
1996, as compared to June 30, 1995, reflected the increased cash collection rate
during the month ended March 31, 1996.
At March 31, 1996, the Company had a deficit in stockholders' equity aggregating
$3,987,000 and its current liabilities exceeded its current assets by
$3,935,000.
The Company did not retain independent accountants to audit its fiscal 1993,
1994 and 1995 financial statements because management did not believe the
Company could afford the cost of an audit.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1996
Net sales increased 16% or $260,000 from $1,563,000 for the third quarter of
fiscal 1995 to $1,823,000 for the third quarter of fiscal 1996. Backlog at
March 31, 1996 was $1,815,000 as compared to $1,887,000 the prior year and
$1,868,000 at the end of the fourth quarter of fiscal 1995. The book-to-bill
ratio for the quarter ended March 31, 1996 was 88% as compared to 112% a year
ago.
Gross profit on sales increased slightly from $318,000 for the third quarter of
fiscal 1995 to $325,000 for the third quarter of fiscal 1996. Gross margin
decreased from 20% of sales for the third quarter of fiscal 1996 as a result of
increases in silicon costs.
Selling, general and administrative expenses increased $12,000 to $264,000 for
the third quarter of fiscal 1996 from $252,000 for the third quarter of fiscal
1995. The increase related to increases in sales wages and fringes.
Interest expense decreased $18,000 to $72,000 for the third quarter of fiscal
1996 as a result of reductions in outstanding debt.
10
Third quarter results for fiscal 1996 included extraordinary gains aggregating
$17,000 ($316,000 in the fiscal 1995 quarter) from purchases of the Company's
13% Convertible Subordinated Debentures.
NINE MONTHS ENDED MARCH 31, 1996
Net sales increased 14% or $628,000 from $4,463,000 for the first nine months of
fiscal 1995 to $5,091,000 for the first nine months of fiscal 1996. The
increase reflected a recent industry wide increase in the demand for commercial
semiconductor products.
Gross profit on sales increased slightly from $795,000 for the first nine months
of fiscal 1995 to $820,000 for the first nine months of fiscal 1996. Gross
margin decreased from 18% of sales for the first nine months of fiscal 1995 to
16% of sales for the first nine months of fiscal 1996 as a result of increases
in silicon costs.
Selling, general and administrative expenses decreased $41,000 to $762,000 for
the first nine months of fiscal 1996 from $803,000 for the first nine months of
fiscal 1995. The decrease related to a decrease in administrative wages and
fringes that resulted from a reduction in personnel.
Interest expense decreased $56,000 to $227,000 for the first nine months of
fiscal 1996 as a result of reductions in outstanding debt.
First nine months results for fiscal 1996 included extraordinary gains
aggregating $370,000 from purchases of the Company's 13% Convertible
Subordinated Debentures and from settlement of deferred compensation obligations
at discounted amounts.
First nine months results for fiscal 1995 included extraordinary gains
aggregating $1,263,000 from purchases of the Company's 13% Convertible
Subordinated Debentures and from settlements of the NationsBank debt 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.
<TABLE> <S> <C>
This schedule contains summary financial information extracted from the
Company's consolidated statements of operations and balance sheets and is
qualified in its entirety by reference to such financial statements.
SEMICON, INC.
Period type 9 Mos
Fiscal year end Jun 30 1996
Period end Mar 31 1996
<S> <C>
Cash $ 296,000
Securities 0
Receivables 792,000
Allowances 10,000
Inventory 994,000
Current assets 2,129,000
PP&E, gross 4,163,000
Depreciation 4,037,000
Total assets 2,256,000
Current liabilities 6,064,000
Bonds 1,872,000
Common 826,000
Preferred mandatory 0
Preferred 0
Other SE (4,813,000)
Total liability and equity 2,256,000
Sales 5,091,000
Total revenues 5,091,000
CGS 4,271,000
Total costs 5,260,000
Other expenses 0
Loss provision 0
Interest expense 227,000
Income, pretax (169,000)
Income tax 0
Income, continuing (169,000)
Discontinued 0
Extraordinary 370,000
Changes 0
Net income 201,000
EPS, primary 0.06
EPS, diluted 0.06
13
</TABLE>
