FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 28, 1997
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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)
781-272-9015
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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 No X
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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 - 3,150,073 shares (at October 31, 1997)
1
INDEX
FORM 10-Q
SEMICON, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Page
Consolidated Balance Sheet - September 28, 1997
and June 30, 1997. 3
Consolidated Statement of Operations - Quarters ended
September 28, 1997 and September 29, 1996 5
Consolidated Statement of Cash Flows - Quarters ended
September 28, 1997 and September 29, 1996 6
Notes to Consolidated Financial Statements -
September 28, 1997. 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 11
SIGNATURES 11
2
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
SEMICON, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<S> <C> <C>
September 28, June 30,
1997 1997
----------- -----------
Current assets:
Cash and cash equivalents $ 180,000 $ 227,000
Accounts receivable, less allowances
of $10,000 ($10,000 at June 30, 1997) 538,000 440,000
Inventories:
Work-in-process and finished products 446,000 507,000
Raw materials and supplies 202,000 242,000
----------- -----------
648,000 749,000
Other current assets 42,000 29,000
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Total current assets 1,408,000 1,445,000
Property, plant and equipment:
Machinery and equipment 3,994,000 3,994,000
Leasehold improvements 130,000 130,000
----------- -----------
4,124,000 4,124,000
Less accumulated depreciation
and amortization 4,048,000 4,038,000
----------- -----------
76,000 86,000
Other assets 0 1,000
----------- -----------
$ 1,484,000 $ 1,532,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
SEMICON, INC.
CONSOLIDATED BALANCE SHEET - Continued
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<S> <C> <C>
September 28, June 30,
1997 1997
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Current liabilities:
Accounts payable and other accrued liabilities $ 521,000 $ 495,000
Accrued compensation 116,000 119,000
Accrued interest 1,901,000 1,832,000
Federal and state income taxes 80,000 80,000
Indebtedness in default 2,669,000 2,668,000
Reserves for restructuring and environmental costs 1,294,000 1,295,000
----------- -----------
Total current liabilities 6,581,000 6,489,000
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 (5,969,000) (5,829,000)
----------- -----------
(5,097,000) (4,957,000)
Less cost of 153,800 shares of Common
Stock held in treasury (0 shares at
June 30, 1997) 0 0
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Total stockholders' deficit (5,097,000) (4,957,000)
----------- -----------
$ 1,484,000 $ 1,532,000
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</TABLE>
4
SEMICON, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
QUARTER ENDED
<S> <C> <C>
September 28,September 29
1997 1996
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Net Sales $ 1,300,000 $ 1,332,000
Costs and expenses:
Cost of products sold 1,185,000 1,280,000
Selling, general and adminstrative 184,000 236,000
Interest 69,000 71,000
Other (income) expense 0 0
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1,438,000 1,587,000
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Income (loss) before income taxes and
extraordinary item (138,000) (255,000)
Income taxes 0 0
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Income (loss) before extraordinary item (138,000) (255,000)
Extraordinary items:
Gain on purchase of debentures 0 9,000
Gain on debt settlement 0 0
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0 9,000
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Net income (loss) $ (138,000)$ (246,000)
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Income (loss) per share:
Before extraordinary items ($0.04) ($0.08)
Extraordinary items 0.00 0.01
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Net income (loss) per share ($0.04) ($0.07)
=========== ===========
Weighted average number of
shares outstanding 3,165,000 3,305,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
SEMICON, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
QUARTER ENDED
<S> <C> <C>
September 28,September 29
1997 1996
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Operating activities:
Net income (loss) $ (138,000)$ (246,000)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 10,000 11,000
Provision for bad debts 0 0
Gain on purchase of debentures 0 (9,000)
Gain on debt settlement 0 0
Changes in assets and liabilities:
Accounts receivable (98,000) 208,000
Inventory 101,000 64,000
Other current assets (13,000) (8,000)
Accounts payable and accrued expenses 91,000 (11,000)
Income taxes payable 0 (4,000)
Other 0 0
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Total adjustments 91,000 251,000
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Cash provided by (used in)
operating activities (47,000) 5,000
Investing activities:
Capital expenditures 0 0
Collection of investment income 0 0
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Cash provided by (used in)
investing actitivies 0 0
Financing activities:
Debenture purchases and debt settlement 0 (1,000)
Other 0 0
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Cash provided by (used in)
financing actitivies 0 (1,000)
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Increase (decrease) in cash
and cash equivalents (47,000) 4,000
Cash and cash equivalents
at beginning of period 227,000 240,000
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Cash and cash equivalents
at end of period $ 180,000 $ 244,000
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</TABLE>
See notes to consolidated financial statements.
6
SEMICON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 28, 1997
NOTE A -- UNAUDITED FINANCIAL STATEMENTS AND BASIS OF PRESENTATION
The Company has not had its financial statements audited in accordance with
Securities and Exchange Commission regulations and accordingly it has
indicated on the cover page of its Securities and Exchange Commission filings
that it has not filed all reports required. The Company cannot afford the
cost of an audit of its financial statements. In the opinion of management,
any available cash should be applied to debt settlement.
The financial statements of the Company have been presented on the basis of a
going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. However, the
Company may not be able to continue its operations because it is experiencing
losses, negative working capital, and a stockholders' deficit with various
debt defaults. The Company's plans at this time are focused on restructuring
its debt, stabilizing operating results and providing cash flow. Management
believes there is more potential value for creditors and stockholders in
continuing to operate the Company and attempting to restructure debt than
there is in bankruptcy and bankruptcy liquidation.
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 September 28, 1997, the Company had tax loss carryforwards of approximately
$7,800,000 and tax credit carryforwards of approximately $500,000 available to
offset future federal taxable income and operating loss carryforwards of
approximately $9,700,000 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
September 28, 1997
NOTE D -- RESERVES FOR RESTRUCTURING AND ENVIRONMENTAL COSTS
The balance sheet reserves for restructuring and environmental costs included
the following:
September 28, 1997 June 30, 1997
-------------------- ---------------
Environmental matters $ 848,000 $ 848,000
Debt restructuring
and related matters 446,000 447,000
-------------------- ----------------
$1,294,000 $1,295,000
========= =========
Reserves for environmental matters were originally established in 1990 to
cover (1) the estimated cost of remediation of an environmental matter at the
Company's Burlington, Massachusetts facility, (2) a $200,000 potentially
responsible party group settlement contingent liability associated with the
Company's Burlington, Massachusetts facility to be paid when the Company's net
worth exceeds $1,000,000 and (3) a potential liability associated with an
environmental matter at a former subsidiary operation. 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 Company 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 financial 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 superfund
landfill site in Lowell, Massachusetts. The settling PRP group has demanded
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.
Comprehensive remediation would exceed the Company's cash resources and force
liquidation of the Company under the United States Bankruptcy Code.
Reserves for debt restructuring and related matters were established in 1990
to cover the estimated cost of consensual non-bankruptcy restructuring and
bankruptcy restructuring.
NOTE E -- EXTRAORDINARY GAINS
During the quarter ended September 29, 1996, the Company purchased $5,000 face
amount of its 13% Convertible Subordinated Debentures. The purchases reduced
indebtedness and accrued interest by $9,000 and resulted in a $9,000
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 continues to operate because management believes an operating
company offers more potential value for creditors and stockholders than
bankruptcy and bankruptcy liquidation. Management's focus is on restructuring
debt, stabilizing operating results and providing positive cash flow.
Management's efforts to date have been unsuccessful as evidenced by the
continued deterioration of the Company's financial condition and liquidity.
The Company continues to generate operating losses and its cash flow is
negative. If this continues, the Company will seek protection from its
creditors under the United States Bankruptcy Code.
The Company faces various environmental issues as described in Note D to the
consolidated financial statements. Enforced remedial action on any of these
issues could force the Company to liquidate under Chapter 7 of the United
States Bankruptcy code .
The Company operates at the forbearance of its creditors. It continues to be
in default of debt obligations aggregating $4,570,000 for principal and
interest at September 28, 1997. The defaults exist because of non-payment of
principal and accrued interest for periods extending back to July 1990.
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 $2,669,000 at September 28,
1997. 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 September 28, 1997, $4,570,000.
September 28, 1997
----------------------------
June 30, 1990 Principal and
Principal Principal Accrued Interest
-------------- ----------- ----------------
BayBank $ 795,000 $ 696,000 $ 800,000
Deferred Compensation
and Other 820,000 180,000 180,000
NationsBank 430,000 0 0
13% Convertible
Subordinated Debentures 4,125,000 1,793,000 3,590,000
-------------- ----------- ----------------
$ 6,170,000 $ 2,669,000 $ 4,570,000
=========== =========== ===========
9
Settlements to September 28, 1997, have included: purchases of $2,332,000 face
amount of debentures for $158,000; 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 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 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 epoxy encapsulated semiconductor products are no longer able to
compete with foreign manufacturers, and, accordingly, the Company will phase
out its epoxy product lines during calendar year 1997. Epoxy sales amounted
to $22,000 in the quarter ended September 28, 1997 and $182,000 in the quarter
ended September 29, 1996. Epoxy line assets with an original book value of
approximately $350,000 and a net depreciated value of $0 are being liquidated
for $7,500 cash.
The Company's overall liquidity decreased during the quarter ended September
28, 1997. The cash generated from a net reduction of $129,000 in working
capital during the period was used to fund operating losses.
During the quarter ended September 28, 1997 the Company purchased 153,800
shares of its $.25 per value share Common Stock for $153.80 ($.001 per share).
At September 28, 1997, the Company had a deficit in stockholders' equity
aggregating $5,097,000 and its current liabilities exceeded its current assets
by $5,173,000.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 28, 1997
Net sales decreased 2% or $32,000 from $1,332,000 for the first quarter of
fiscal 1997 to $1,300,000 for the first quarter of fiscal 1998. Backlog at
September 28, 1997 was $1,449,000 as compared to $1,719,000 the prior year.
The book-to-bill ratio for the quarter ended September 28, 1997 was 107% as
compared to 85% a year ago.
Gross profit on sales increased from $52,000 for the first quarter of fiscal
1997 to $115,000 for the first quarter of fiscal 1998. Gross margin increased
primarily as a result of reductions in overhead costs.
Selling, general and administrative expenses decreased $52,000 to $184,000 for
the first quarter of fiscal 1998 from $236,000 for the first quarter of fiscal
1997. The decrease related to decreases in wages and commissions.
Interest expense decreased $2,000 to $69,000 for the first quarter of fiscal
1998 as a result of reductions in outstanding debt.
First quarter results for fiscal 1997 included extraordinary gains aggregating
$9,000 from purchases of the Company's 13% Convertible Subordinated Debentures
at discounted amounts.
10
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
11
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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.
<S> <C>
Period type 3 Mos
Fiscal year end Jun 30 1998
Period end Sep 28 1997
Cash $ 180,000
Securities 0
Receivables 538,000
Allowances 10,000
Inventory 648,000
Current assets 1,408,000
PP&E, gross 4,124,000
Depreciation 4,048,000
Total assets 1,484,000
Current liabilities 6,581,000
Bonds 1,793,000
Common 826,000
Preferred mandatory 0
Preferred 0
Other SE (5,923,000)
Total liability and equity 1,484,000
Sales 1,300,000
Total revenues 1,300,000
CGS 1,185,000
Total costs 1,438,000
Other expenses 0
Loss provision 0
Interest expense 69,000
Income, pretax (138,000)
Income tax 0
Income, continuing (138,000)
Discontinued 0
Extraordinary 0
Changes 0
Net income (138,000)
EPS, primary (0.04)
EPS, diluted (0.04)
</TABLE>
