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 December 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 No X
------ ------
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 January 31, 1997)
1
INDEX
FORM 10-Q
SEMICON, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Page
Consolidated Balance Sheet - December 29, 1996
and June 30, 1996. 3
Consolidated Statement of Operations - Quarters ended
December 29, 1996 and December 31, 1995 and six
months ended December 29, 1996 and
December 31, 1995. 5
Consolidated Statement of Cash Flows - Quarters ended
December 29, 1996 and December 31, 1995 and six
months ended December 29, 1996 and
December 31, 1995. 6
Notes to Consolidated Financial Statements -
December 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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<S> <C> <C>
December 29, June 30,
1996 1996
-------------------------
Current assets:
Cash and cash equivalents $ 202,000 $ 240,000
Accounts receivable, less allowances
of $10,000 ($10,000 at June 30, 1996) 435,000 781,000
Inventories:
Work-in-process and finished products 633,000 655,000
Raw materials and supplies 227,000 274,000
-------------------------
860,000 929,000
Other current assets 48,000 56,000
-------------------------
Total current assets 1,545,000 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 4,070,000 4,048,000
-------------------------
111,000 133,000
Other assets 1,000 1,000
-------------------------
$ 1,657,000 $ 2,140,000
=========================
</TABLE>
See notes to consolidated financial statements.
3
SEMICON, INC.
CONSOLIDATED BALANCE SHEET - Continued
LIABILITIES AND STOCKHOLDERS' DEFICIT
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<S> <C> <C>
December 29, June 30,
1996 1996
-------------------------
Current liabilities:
Accounts payable and other accrued liabilities $ 335,000 $ 423,000
Accrued compensation 161,000 185,000
Accrued interest 1,710,000 1,610,000
Federal and state income taxes 83,000 88,000
Indebtedness in default 2,686,000 2,731,000
Reserves for restructuring and environmental costs 1,299,000 1,300,000
-------------------------
Total current liabilities 6,274,000 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 (5,489,000) (5,069,000)
-------------------------
Total stockholders' deficit (4,617,000) (4,197,000)
-------------------------
$ 1,657,000 $ 2,140,000
=========================
</TABLE>
See notes to consolidated financial statements.
4
SEMICON, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
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<S> <C> <C> <C> <C>
QUARTER ENDED SIX MONTHS ENDED
December 29, December 31, December 29, December 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
Net Sales $ 1,123,000 $ 1,746,000 $ 2,455,000 $ 3,268,000
Costs and expenses:
Cost of products sold 1,092,000 1,391,000 2,372,000 2,773,000
Selling, general and adminstrative 209,000 248,000 445,000 498,000
Interest 70,000 77,000 141,000 155,000
Other (income) expense 0 0 0 0
------------ ------------ ------------ ------------
1,371,000 1,716,000 2,958,000 3,426,000
------------ ------------ ------------ ------------
Income (loss) before income taxes and
extraordinary item (248,000) 30,000 (503,000) (158,000)
Income taxes 0 0 0 0
------------ ------------ ------------ ------------
Income (loss) before extraordinary item (248,000) 30,000 (503,000) (158,000)
Extraordinary items:
Gain on purchase of debentures 74,000 132,000 83,000 195,000
Gain on debt settlement 0 158,000 0 158,000
------------ ------------ ------------ ------------
74,000 290,000 83,000 353,000
------------ ------------ ------------ ------------
Net income (loss) $ (174,000)$ 320,000 $ (420,000)$ 195,000
============ ============ ============ ============
Income (loss) per share:
Before extraordinary items ($0.07) $0.01 ($0.16) ($0.05)
Extraordinary items 0.02 0.09 0.03 0.11
------------ ------------ ------------ ------------
Net income (loss) per share ($0.05) $0.10 ($0.13) $0.06
============ ============ ============ ============
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
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<S> <C> <C> <C> <C>
QUARTER ENDED SIX MONTHS ENDED
December 29, December 31, December 29, December 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
Operating activities:
Net income (loss) $ (174,000)$ 320,000 $ (420,000)$ 195,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 11,000 5,000 22,000 10,000
Provision for bad debts 0 0 0 0
Gain on purchase of debentures (74,000) (132,000) (83,000) (195,000)
Gain on debt settlement 0 (158,000) 0 (158,000)
Changes in assets and liabilities:
Accounts receivable 138,000 (186,000) 346,000 16,000
Inventory 5,000 (191,000) 69,000 (193,000)
Other current assets 16,000 35,000 8,000 22,000
Accounts payable and accrued expenses 39,000 21,000 28,000 98,000
Income taxes payable (1,000) (2,000) (5,000) (9,000)
Other 0 3,000 0 7,000
------------ ------------ ------------ ------------
Total adjustments 134,000 (605,000) 385,000 (402,000)
------------ ------------ ------------ ------------
Cash provided by (used in)
operating activities (40,000) (285,000) (35,000) (207,000)
Investing activities:
Capital expenditures 0 (39,000) 0 (76,000)
Collection of investment income 0 0 0 0
------------ ------------ ------------ ------------
Cash provided by (used in)
investing actitivies 0 (39,000) 0 (76,000)
Financing activities:
Debenture purchases and debt settlement (2,000) (3,000) (3,000) (5,000)
Other 0 (2,000) 0 (2,000)
------------ ------------ ------------ ------------
Cash provided by (used in)
financing actitivies (2,000) (5,000) (3,000) (7,000)
------------ ------------ ------------ ------------
Increase (decrease) in cash
and cash equivalents (42,000) (329,000) (38,000) (290,000)
Cash and cash equivalents
at beginning of period 244,000 591,000 240,000 552,000
------------ ------------ ------------ ------------
Cash and cash equivalents
at end of period $ 202,000 $ 262,000 $ 202,000 $ 262,000
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
6
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 6 MOS
Fiscal year end Jun 30 1997
Period end Dec 29 1996
Cash $ 202,000
Securities 0
Receivables 445,000
Allowances 10,000
Inventory 860,000
Current assets 1,545,000
PP&E, gross 4,181,000
Depreciation 4,070,000
Total assets 1,657,000
Current liabilities 6,274,000
Bonds 1,810,000
Common 826,000
Preferred mandatory 0
Preferred 0
Other SE (5,443,000)
Total liability and equity 1,657,000
Sales 1,123,000
Total revenues 1,123,000
CGS 1,092,000
Total costs 1,371,000
Other expenses 0
Loss provision 0
Interest expense 70,000
Income, pretax (248,000)
Income tax 0
Income, continuing (248,000)
Discontinued 0
Extraordinary 74,000
Changes 0
Net income (174,000)
EPS, primary (0.05)
EPS, diluted (0.05)
SEMICON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 29, 1996
NOTE A -- UNAUDITED FINACIAL 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 December 29, 1996, the Company had tax loss carryforwards of approximately
$7,100,000 and tax credit carryforwards of approximately $500,000 available to
offset future federal taxable income and operating loss carryforwards of
approximately $9,200,000 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
December 29, 1996
NOTE D -- RESERVES FOR RESTRUCTURING AND ENVIRONMENTAL COSTS
The balance sheet reserves for restructuring and environmental costs included
the following:
December 29, 1996 June 30, 1996
------------------------ ------------------
Environmental matters $ 848,000 $ 848,000
Debt restructuring
and related matters 451,000 452,000
--------------- ----------------
$ 1,299,000 $ 1,300,000
========= =========
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 could exceed the
Company's cash resources and force reorganization or 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 December 29, 1996, the Company purchased $40,000
($77,000 in the fiscal 1996 quarter) face amount of its 13% Convertible
Subordinated Debentures. The purchases reduced indebtedness and accrued
interest by $76,000 ($137,000 in the fiscal 1996 quarter) and resulted in a
$74,000 ($132,000 in the fiscal 1996 quarter) extraordinary gain.
During the first six months of fiscal 1997, the Company purchased $45,000
($115,000 in the fiscal 1996 period) face amount of its 13% Convertible
Subordinated Debentures. The purchases reduced indebtedness and accrued
interest by $86,000 ($202,000 in the fiscal 1996 period) and resulted in a
$83,000 ($195,000 in the fiscal 1996 period) extraordinary gain.
During the quarter ended December 31, 1995, the Company settled deferred
compensation obligations aggregating $270,000. The settlement resulted in a
$158,000 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.
The Company faces various environmental issues as described in Note C 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 forebearance of its creditors. It continues to
be in default of debt obligations aggregating $4,396,000 for principal and
interest at December 29, 1996. 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 $2,686,000 at December 29, 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 December 29, 1996, $4,396,000.
June 30, December 29, 1996
1990 Principal and
Principal Principal Accrued Interest
BayBank $ 795,000 $ 696,000 $ 769,000
Deferred Compensation
and Other 820,000 180,000 180,000
NationsBank 430,000 0 0
13% Convertible
Subordinated Debentures 4,125,000 1,810,000 3,447,000
------------ ----------- -------------
$ 6,170,000 $ 2,686,000 $ 4,396,000
========= ========= =========
Settlements to December 29, 1996, have included: purchases of $2,315,000 face
amount of debentures for $157,000; 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.
9
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 maintain positive cash flow, 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 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, and the Company will phase out its epoxy product lines during
calendar year 1997. Epoxy sales amounted to $890,000 in fiscal year 1996.
The physical assets will be sold, salvaged and scrapped. Any cash realized
from epoxy asset disposition will be applied first to debt settlement and
thereafter to manufacturing the remaining product lines.
The Company's overall liquidity decreased significantly during the quarter
ended December 29, 1996. The decrease in accounts receivable and inventories
at December 29, 1996, as compared to June 30, 1996, reflected the Company's
collection of accounts 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 December 29, 1996, the Company had a deficit in stockholders' equity
aggregating $4,617,000 and its current liabilities exceeded its current
assets by $4,729,000.
RESULTS OF OPERATIONS
QUARTER ENDED DECEMBER 29, 1996
Net sales decreased 36% or $623,000 from $1,746,000 for the second quarter of
fiscal 1996 to $1,123,000 for the second quarter of fiscal 1997. The decrease
reflected a decrease in the demand for certain commercial semiconductor
products shipped in fiscal 1996. Backlog at December 29, 1996 was $2,049,000
as compared to $2,049,000 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
December 29, 1996 was 98% as compared to 80% a year ago.
Gross profit on sales decreased from $355,000 for the second quarter of
fiscal 1996 to $31,000 for the second quarter of fiscal 1997. Gross margin
decreased as a result of lower sales and poorer fixed costs coverage and as a
result of increases in silicon costs.
Selling, general and administrative expenses decreased $39,000 to $209,000
for the second quarter of fiscal 1997 from $248,000 for the second quarter of
fiscal 1996. The decrease related to decreases in sales wages and commissions.
Interest expense decreased $7,000 to $70,000 for the second quarter of fiscal
1997 as a result of reductions in outstanding debt.
Second quarter results for fiscal 1997 included extraordinary gains
aggregating $74,000 ($290,000 in the fiscal 1996 quarter) from purchases of
the Company's 13% Convertible Subordinated Debentures and from settlement of
deferred compensation obligations at discounted amounts.
10
SIX MONTHS ENDED DECEMBER 29, 1996
Net sales decreased 25% or $813,000 from $3,268,000 for the first six months
of fiscal 1996 to $2,455,000 for the first six months of fiscal 1997. The
decrease reflected a decrease in the demand for certain commercial
semiconductor products shipped in fiscal 1996.
Gross profit on sales decreased from $495,000 (15% of sales) for the first
six months of fiscal 1996 to $83,000 (3% of sales) for the first six months
of fiscal 1997. Gross margin decreased as a result of lower sales and poorer
fixed costs coverage and as a result of increased silicon costs.
Selling, general and administrative expenses decreased $53,000 to $445,000
for the first six months of fiscal 1997 from $498,000 for the first six
months of fiscal 1996. The decrease related to a decrease in sales wages and
commissions.
Interest expense decreased $14,000 to $141,000 for the first six months of
fiscal 1997 as a result of reductions in outstanding debt.
First six months results for fiscal 1997 included extraordinary gains
aggregating $83,000 ($353,000 in the fiscal 1996 first six months) from
purchases of the Company's 13% Convertible Subordinated Debentures and from
settlement of deferred compensation obligations 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
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