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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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Commission file number 0-23562
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MICROELECTRONIC PACKAGING, INC.
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(Exact name of registrant as specified in its charter)
California 94-3142624
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9577 Chesapeake Drive, San Diego, California 92123
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (858) 292-7000
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Indicate by check 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 [_]
At May 10, 1999, there were outstanding 10,856,890 shares of the
Registrant's Common Stock, no par value per share.
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Index Page No.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets......................... 3
Condensed Consolidated Statements of Operations............... 4
Condensed Consolidated Statements of Cash Flows............... 5
Condensed Consolidated Statement of
Changes in Shareholders' Deficit............................ 6
Notes to Condensed Consolidated Financial Statements.......... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 18
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................. 19
Item 2. Changes in Securities and Use of Proceeds..................... 19
Item 3. Defaults upon Senior Securities............................... 19
Item 4. Submission of Matters to a Vote of Security Holders........... 19
Item 5. Other Information............................................. 19
Item 6. Exhibits and Reports on Form 8-K.............................. 19
SIGNATURES.............................................................. 20
EXHIBIT INDEX........................................................... 21
2
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MICROELECTRONIC PACKAGING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
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<S> <C> <C>
ASSETS (unaudited)
Current assets:
Cash $ 129,000 $ 469,000
Accounts receivable, net 1,130,000 1,306,000
Inventories 2,742,000 3,073,000
Other current assets 166,000 60,000
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Total current assets 4,167,000 4,908,000
Property, plant and equipment, net 1,654,000 1,806,000
Other non-current assets 144,000 171,000
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$ 5,965,000 $ 6,885,000
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LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 19,000 $ 20,000
Accounts payable 3,932,000 4,045,000
Accrued liabilities 669,000 908,000
Debt and accrued interest of discontinued
operations, in default, due on demand 27,557,000 27,055,000
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Total current liabilities 32,177,000 32,028,000
Long-term debt, less current portion 45,000 49,000
Commitments and Contingencies
Shareholders' Deficit
Common stock, no par value 40,162,000 40,143,000
Accumulated deficit (66,419,000) (65,335,000)
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Total shareholders' deficit (26,257,000) (25,192,000)
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$ 5,965,000 $ 6,885,000
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</TABLE>
3
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MICROELECTRONIC PACKAGING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
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1999 1998
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Restated
<S> <C> <C>
Net sales $ 1,743,000 $ 7,334,000
Cost of goods sold 1,584,000 5,381,000
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Gross profit 159,000 1,953,000
Selling, general and administrative 546,000 776,000
Engineering and product development 191,000 272,000
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Income (loss) from operations (578,000) 905,000
Other income (expense):
Interest (expense), net (506,000) (579,000)
Other income, net -- 48,000
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Income (loss) from continuing operations
Before provision for income taxes (1,084,000) 374,000
Provision for income taxes -- (18,000)
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Income (loss) from continuing operations (1,084,000) 356,000
Discontinued operations:
Estimated gain on disposal -- 23,000
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Net income (loss) $ (1,084,000) $ 379,000
====================================================================================================================
Earnings (loss) per common share-basic:
Continuing operations $ (0.10) $ 0.03
Discontinued operations -- --
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Net income (loss) per common share $ (0.10) $ 0.03
====================================================================================================================
Earnings (loss) per common share-assuming dilution:
Continuing operations $ (0.10) $ 0.03
Discontinued operations -- --
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Net income (loss) per common share - assuming dilution $ (0.10) $ 0.03
====================================================================================================================
</TABLE>
4
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MICROELECTRONIC PACKAGING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
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1999 1998
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Restated
<S> <C> <C>
Net cash provided (used) by operating activities:
$ (331,000) $ 172,000
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Cash flows from investing activities:
Acquisition of fixed assets (4,000) (546,000)
Proceeds from the sale of fixed assets -- 13,000
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Net cash provided (used) by investing activities (4,000) (533,000)
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Cash flows from financing activities:
Principal payments on long-term debt
and promissory notes (5,000) (3,000)
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Net cash provided (used) by financing activities (5,000) (3,000)
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Net increase (decrease) in cash (340,000) (364,000)
Cash at beginning of period 469,000 1,296,000
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Cash at end of period $ 129,000 $ 932,000
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</TABLE>
5
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MICROELECTRONIC PACKAGING, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' DEFICIT
(unaudited)
<TABLE>
<CAPTION>
Common Stock Accumulated
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Shares Amount Deficit Total
-------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Balance at January 1, 1999 10,856,890 $40,143,000 $(65,335,000) $(25,192,000)
Non-employee stock-based
compensation -- 19,000 -- 19,000
Net (loss) -- -- (1,084,000) (1,084,000)
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Balance at March 31, 1999 10,856,890 $40,162,000 $(66,419,000) $(26,257,000)
=========================================================================================================
</TABLE>
6
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Microelectronic Packaging, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Quarterly Financial Statements
The accompanying condensed consolidated financial statements and related
notes as of March 31, 1999 and for the three month period ended March 31,
1999 and 1998 are unaudited but include all adjustments (consisting of
normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of financial position and results of
operations of the Company for the interim period. Certain prior year
amounts have been reclassified to conform to the current year presentation.
The results of operations for the three month period ended March 31, 1999
is not necessarily indicative of the operating results to be expected for
the full fiscal year. The information included in this report should be
read in conjunction with the Company's audited consolidated financial
statements and notes thereto and the other information, including risk
factors, set forth for the year ended December 31, 1998 in the Company's
Annual Report on Form 10-K. Readers of this Quarterly Report on Form 10-Q
are strongly encouraged to review the Company's Annual Report on Form 10-K.
Copies are available from the Chief Financial Officer of the Company at
9577 Chesapeake Drive, San Diego, California 92123.
2. Restatement of Activities of Discontinued Operations
In August 1999, it was determined that the 1997 provision for interest of
$3,500,000 on the Company's discontinued Singapore subsidiaries' debt,
guaranteed by MPI, should be accrued over the period of the debt as
interest expense. Such interest is now reflected as a component of income
(loss) from continuing operations. It was also determined that the
recording of an item as other income at interim periods in 1998 should be
accounted for as gain (loss) on disposal of discontinued operations.
Accordingly, the accompanying condensed consolidated statement of
operations for the three months ended March 31, 1998 has been restated to
reflect interest on the Company's discontinued Singapore subsidiaries'
debt, guaranteed by MPI, as $575,000 of interest expense; and to reflect
amortization of deferred revenue of $23,000 as gain on disposal of
discontinued operations. The effect of these changes was to decrease income
from continuing operations by $598,000 for the three months ended March 31,
1998. Net income (loss), which includes discontinued operations, decreased
by $575,000 for the three months ended March 31, 1998. The restatement had
no impact on the reported income (loss) from operations.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
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(Unaudited)
<S> <C> <C>
Raw materials................. $ 2,276,000 $ 2,203,000
Work-in-progress.............. 1,194,000 1,531,000
Finished goods................ 1,000 38,000
Obsolescence reserve.......... (729,000) (699,000)
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$ 2,742,000 $ 3,073,000
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</TABLE>
7
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Microelectronic Packaging, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
4. Effects of Income Taxes
The Company has not recorded provisions for any income taxes for the three
months ended March 31, 1999, since the Company's operations have generated
operating losses for both financial reporting and income tax purposes. A
100% valuation allowance has been provided on the total deferred income tax
assets as they are not more likely than not to be realized.
The Company believes that it has incurred an ownership change pursuant to
Section 382 of the Internal Revenue Code and, as a result, the Company
believes that its ability to utilize its current net operating loss and
credit carryforwards in subsequent periods will be subject to annual
limitations.
8
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Notes to Condensed Consolidated Financial Statements (unaudited)
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5. Net Income (Loss) Per Share
<TABLE>
<CAPTION>
For the three months ended March 31, 1999
--------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------- --------------- -------------
<S> <C> <C> <C>
Loss from continuing operations $ (1,084,000) --
Basic EPS
Loss available to common shareholders $ (1,084,000) 10,856,890 $ (0.10)
============ ========== ========
</TABLE>
The computation of diluted loss per share excludes the effect of
incremental common shares attributable to the exercise of outstanding
common stock options and warrants because their effect was antidilutive due
to losses incurred by the Company.
<TABLE>
<CAPTION>
For the three months ended March 31, 1999
--------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------- --------------- -------------
<S> <C> <C> <C>
Income from continuing operations $ 356,000 --
Basic EPS
Income available to common shareholders 356,000 10,793,279 $ 0.03
========
Effect of dilutive securities:
Stock options -- 1,740,282
Warrants -- --
---------- ----------
Diluted EPS
Income available to common
shareholders + assumed conversions $ 356,000 12,533,561 $ 0.03
========== ========== ========
</TABLE>
Options to purchase 275,800 shares and warrants to purchase 1,227,693
shares of common stock at prices ranging from $0.63 to $6.50 were
outstanding during the first quarter of 1998, but were not included in the
computation of diluted EPS because the options' and warrants' exercise
prices were greater than the average market price of the common shares for
the quarter then ended.
6. Commitments and Contingencies
The Company entered into a lease for new manufacturing facilities and
corporate offices. Commencing September 1, 1997, and extends to October 31,
2002. Minimum monthly rental payments of $16,000 began on November 1, 1997,
with scheduled annual increases of 6% to 7% per year beginning November 1,
1998. The Company also entered into an agreement in 1998 whereby the
Company obtained the use of a piece of test equipment and technical support
for such equipment from a supplier. The agreement calls for minimum annual
payments of $360,000 through 2007, plus the possible acceleration of
payments if the Company obtains new customers with projects that require
the use of the equipment and technical support of the equipment supplier.
9
<PAGE>
Notes to Condensed Consolidated Financial Statements (unaudited)
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7. Asian Creditor Loan Agreements Guaranteed by MPI
With respect to the Company's subsidiaries in Singapore, all of which
ceased operations in 1997 ("Singapore Subsidiaries"), the Company
guaranteed certain debt obligations of the Singapore Subsidiaries
("Guaranty Obligations"). During 1998, the Company entered into settlement
agreements ("Settlement Agreements") with each of the eight creditors of
the Singapore Subsidiaries to whom the Company had a liability under the
Guaranty Obligations ("Singapore Subsidiary Creditors"), pursuant to which
the Company and the Singapore Subsidiary Creditors agreed that the Company
would be released from all of its liabilities under the Guaranty
Obligations in exchange for cash settlement payments in the aggregate
amount of approximately $9.3 million ("Settlement Payments"). The Company
was obligated to pay the entire amount of the Settlement Payments on or
about May 1, 1999 ("Settlement Due Date").
After entering into the Settlement Agreements, the Company determined that
it would not have the ability to pay any portion of the Settlement Payments
by the Settlement Due Date. Therefore, the Company and the Singapore
Subsidiary Creditors negotiated new terms for the settlement of the
Guaranty Obligations, which new settlement terms are set forth in non-
binding letter agreements entered into between the Company and each of the
eight Singapore Subsidiary Creditors during the first quarter of 1999
("Letter Agreements"). The Letter Agreements provide that the entire amount
of the Guaranty Obligations would be converted into shares of the Company's
Series A Preferred Stock ("Debt to Equity Conversion"). Each share of
Series A Preferred Stock would be convertible into two shares of the
Company's Common Stock, have a 3.5% per annum cumulative dividend,
liquidation preferences, registration rights, and certain other rights,
preferences and privileges senior to the Company's Common Stock. Upon the
effective date of the Debt to Equity Conversion, the entire amount that
would be shown on the Company's accompanying financial statements as "Debt
and accrued interest of discontinued operations, in default, due on demand
("Discontinued Operations Debt"), the aggregate amount of which is
$27,557,000 as of March 31, 1999, would be converted into shares of the
Company's Series A Preferred Stock. Upon such conversion, the Discontinued
Operations Debt would be reduced to zero.
The Letter Agreements call for the Company and the Singapore Subsidiary
Creditors to enter into definitive agreements with respect to the Debt to
Equity Conversion ("Conversion Agreements"). The Company has entered into
Conversion Agreements with three of the eight Singapore Subsidiary
Creditors. In addition, the Company has entered into an agreement with an
additional Singapore Subsidiary Creditor, pursuant to which all of the
rights of such creditor under the Guaranty Obligations will be assigned to
one or more third parties (some of whom are employees of the Company). All
of such third parties have agreed, upon such assignment, to enter into
Conversion Agreements and participate in the Debt to Equity Conversion on
the same terms and conditions as the other Singapore Subsidiary Creditors
("Creditor Assignment"). The Creditor Assignment will become effective upon
the approval of the Debt to Equity Conversion by the Company's
shareholders. Thus, after taking into account the three Conversion
Agreements and the Assignment Agreement that have already been entered
into, the Company only needs to enter into Conversion Agreements, which may
not be more
10
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Notes to Condensed Consolidated Financial Statements (unaudited)
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favorable to any one creditor than the other creditors, with all of the
remaining four of the Singapore Subsidiary Creditors and obtain shareholder
approval and a fairness opinion. As soon as that has been accomplished,
which the Company believes should be accomplished during the second quarter
of 1999, the Company will take steps to obtain shareholder approval of the
Debt to Equity Conversion. In the event the Company is successful in
obtaining shareholder approval of the Debt to Equity Conversion, the
Discontinued Operations Debt will be eliminated in its entirety and the
Company will no longer have any liabilities under the Guaranty Obligations.
In addition, if the Company is successful in completing the Debt to Equity
Conversion, the equity interests of the Company's existing shareholders
will be substantially diluted and the Singapore Subsidiary Creditors,
assuming conversion of all their Series A Preferred Stock on the closing of
the Debt to Equity Conversion, would own a majority of the outstanding
Common Stock of the Company.
8. Going Concern
The Company's accompanying financial statements have been prepared assuming
the Company (along with its only operating subsidiary, CTM) will continue
as a going concern. A number of factors, including the Company's history of
significant losses, the debt service costs associated with the Guaranty
Obligations and the Company's other debt obligations, and the current
uncertainty regarding whether the Company will successfully complete the
Debt to Equity Conversion, raise substantial doubts about the Company's
ability to continue as a going concern. As of March 31, 1999, the Company
has an accumulated deficit of $66.4 million and a working capital
deficiency of $28.0 million, which includes $27.6 million of liabilities
under the Guaranty Obligations. In the event the Company is not successful
in completing the Debt to Equity Conversion, and any of the Singapore
Subsidiary Creditors demand that the Company pay any portion of the
Settlement Payments or any of the Company's liabilities under the Guaranty
Obligations, the Company would be unable to do so. If the Company fails to
complete the Debt to Equity Conversion, material adverse impacts will occur
with respect to the Company's financial condition and ability to continue
as a going concern. Furthermore, such failure is likely to require the
Company and its U.S. subsidiaries to seek bankruptcy protection under
Chapter 11 or Chapter 7 of Title 11 of the United States Code.
9. Forward Looking Statements
These Condensed Consolidated Financial Statements contain forward-looking
statements which involve substantial risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including the
effects of debt restructuring.
10. Subsequent Events
In August and September of 1999, the Company obtained amendments to the
agreements with secured creditors which call for the conversion of all
amounts due under the Guaranty Obligations into shares of Series A
Preferred Stock. Such amendments now grant the Company until October 31,
1999 to fulfill all of its obligations under the agreements, including
obtaining approval by a majority of the Company's shareholders. Further,
the Investor which had agreed to purchase the creditor position from the
holder of one of the Guaranty Obligations completed the purchase of such
creditor position on
11
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Notes to Condensed Consolidated Financial Statements (unaudited)
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August 31, 1999, thereby replacing STMicroelectronics as one of the group
of secured creditors of the Company.
For one of MPS' secured creditors, the Company has granted a security
interest in all of the issued and outstanding capital stock of MPS, CTM and
MPA. While in default, the creditor may have the right to vote and give
consents with respect to all of the issued and outstanding capital of MPS,
CTM and MPA. As a result, during an event of default, the Company may be
unable to control at the shareholder level the direction of the subsidiary
(CTM) that generates substantially all of the Company's revenues and holds
substantially all of the Company's assets. The Company has not been
informed of any such intention by the secured creditor, nor has that
creditor ever taken any such action under its security interest.
Currently, under the terms of the conversion agreement and subsequent
extensions with this creditor, the Company is not in technical default of
the borrowing arrangement presently, and has until October 31, 1999 to
complete the debt to equity conversion. Therefore, this creditor cannot
exercise its rights it may have under its security agreement with the
Company, covering the capital stock of CTM, until after October 31, 1999.
Since this creditor does not presently have the right to control voting of
the capital stock of CTM, Company management continues to make all
operating decisions relative to MPS, CTM and MPA. However, if the Company
was not able to complete the debt to equity conversion by October 31, 1999
and if the creditor were to exercise its rights under its security
agreement and if the Company were to lose control at the shareholder level
of its operating subsidiary, then the Company could be forced to seek
protection under Chapter 7 or Chapter 11 of Title 11 of the United States
Code.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements which involve substantial risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth in this section and elsewhere in this
Quarterly Report on Form 10-Q.
RESULTS OF OPERATIONS
NET SALES
For the three months ended March 31, 1999, net sales were $1,743,000 as compared
to net sales of $7,334,000 for the first quarter of 1998, resulting in decreased
sales of $5,591,000 or 76%. The decrease in net sales is primarily the result of
decreased shipments to the Company's largest customer, Schlumberger. Sales to
this one customer comprised 85% and 77% of total net sales for the first
quarters of 1999 and 1998, respectively. Sales to this customer declined from
$6,465,000 for the first quarter of 1998 to $1,490,000 for the first quarter of
1999, a decrease of $4,975,000 or 77%. Units shipped to this customer declined
by 35%, reflecting lower demand from the customer in the first quarter of 1999
as compared to the first quarter of 1998. Revenue in terms of dollars declined
by greater than revenue in terms of units because of a significant shift in
product mix in the first quarter of 1999. Approximately one-half of sales to the
Company's principal customer in 1999 were comprised of the repair and upgrade of
multi-chip modules (MCMs). This repair activity generates only one-fourth of the
dollar revenue as compared to the dollar revenue of newly-built MCMs, thereby
causing a decline in revenue dollars greater than the decline in revenue units.
Such repair activities comprised only 5% of sales for the first quarter of 1998.
COST OF GOODS SOLD
For the three months ended March 31, 1999, the cost of goods sold was $1,584,000
as compared to $5,381,000 for the first quarter of 1998, a decrease of 3,797,000
or 71%. The decrease in cost of goods sold is partially due to a 32% decline in
MCM units shipped from 1998 to 1999. The decrease in units shipped was
exacerbated by a 63% decrease in the average selling price of a unit shipped in
1999 as compared to the corresponding quarter of 1998. The primary reason for
the decrease in average cost per unit sold results from the change in product
mix described above.
GROSS PROFIT
Gross profit was $159,000 (9% of net sales) for the first quarter of 1999 as
compared to $1,953,000 (27% of net sales) for the first quarter of 1998. The
decrease in gross profit is attributable to the decrease in sales and the result
of the change in product mix, as discussed above.
13
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SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $546,000 for the first quarter
of 1999, representing a decrease of $230,000 or 30% from the first quarter of
1998. The decrease is primarily the result of a reduction of additional
consulting fees which had been incurred by the Company.
ENGINEERING AND PRODUCT DEVELOPMENT
Engineering and product development expenses were $191,000 for the first quarter
of 1999, representing a decrease of $81,000 or 30% from the corresponding
quarter of 1998. The decrease is primarily comprised of decreased use of outside
consultants in 1999 as compared to 1998.
INTEREST EXPENSE
Interest expense was $506,000 for the first quarter of 1999, representing a
decrease of $73,000 from the corresponding quarter of 1998. The majority of the
interest expense recorded for both comparative periods presented is interest
accrued on the guaranteed debt of the Company's discontinued operations
("Guaranty Obligations"). While the Company has accrued interest on the Guaranty
Obligations, the Company does not anticipate that it will pay such interest to
the holders of these obligations. See Note 6 to the accompanying Condensed
Consolidated Financial Statements for an explanation of how the Company intends
to eliminate the Guaranty Obligations and the associated interest expense. The
amount of interest recorded on the Guaranty Obligations declined from the 1998
period to the corresponding 1999 period. One portion of the Guaranty
Obligations, due to Development Bank of Singapore (DBS), declined in 1998 due to
the sale of property held as security by DBS and the corresponding reduction in
the amount of debt due to DBS. This debt reduction resulted in a lesser amount
of interest accrued in 1999 as compared to 1998.
OTHER INCOME
Other income was nil for the first quarter of 1999, as compared to $48,000 for
the first quarter of 1998. Other income for 1998 was comprised of the collection
of a previous year tax item, which did not occur in 1999.
EFFECTS OF INCOME TAXES
The Company has not recorded provisions for any income taxes for the three
months ended March 31, 1999, since the Company's operations have generated
operating losses for both financial reporting and income tax purposes. A 100%
valuation allowance has been provided on the total deferred income tax assets as
they are not more likely than not to be realized.
The Company believes that it has incurred an ownership change pursuant to
Section 382 of the Internal Revenue Code, and, as a result, the Company believes
that its ability to utilize its current
14
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net operating loss and credit carryforwards in subsequent periods will be
subject to annual limitations.
DISCONTINUED OPERATIONS
The three month period ended March 31, 1998 included results from the Company's
discontinued Singapore operations, which activities did not occur in 1999. The
1998 amount of $23,000 relates to the amortization of deferred revenue from the
Company's MPS operation in Singapore.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1999, the Company financed its
operations from operating cash flow. During this period, operating activities of
continuing operations used $331,000. Investing activities, consisting
principally of the acquisition of fixed assets of continuing operations, used
$4,000. At March 31, 1999, the Company had a working capital deficiency of
$28,011,000 and an accumulated deficit of $66,419,000. At March 31, 1999, the
Company had outstanding approximately $27,557,000 of principal and accrued
interest under the Guaranty Obligations.
The Company's sources of liquidity at March 31, 1999 consisted of inventories of
$2,742,000, trade accounts receivable of $1,130,000 and its cash balance of
$129,000. The Company has no borrowing arrangements available to it.
As indicated in Note 6 to the Condensed Consolidated Financial Statements, the
Company has renegotiated its settlement of the Guaranty Obligations, pursuant to
which settlement all liabilities and accrued interest under the Guaranty
Obligations would be converted into 9,362,777 shares of the Company's Series A
Preferred Stock. If the Conversion Agreements are not all finalized, or if the
Company's shareholders do not approve the Debt to Equity Conversion, the entire
liability of $27,557,000 under the Guaranty Obligations, which is currently in
default, will be immediately due and payable.
FUTURE OPERATING RESULTS
Status as a Going Concern. The Company's independent certified public
accountants have included an explanatory paragraph in their audit report with
respect to the Company's 1998, 1997, 1996 and 1995 consolidated financial
statements related to a substantial doubt with respect to the Company's ability
to continue as a going concern. Absent outside debt or equity financing, and
excluding significant expenditures required for the Company's major projects and
assuming the Company is successful in restructuring its liability under the
Guaranty Obligations, the Company currently anticipates that cash on hand and
anticipated cash flow from operations may be adequate to fund its operations in
the ordinary course throughout 1999 and 2000. Any significant increase in
planned capital expenditures or other costs or any decrease in or elimination of
anticipated sources of revenue or the inability of the Company to restructure
its liability under the Guaranty Obligations could cause the Company to restrict
its business and product development efforts. There can be no assurance that the
Company will be successful in restructuring its liability under the Guaranty
Obligations. If adequate revenues are not available,
15
<PAGE>
the Company will be unable to execute its business development efforts and may
be unable to continue as a going concern. There can be no assurance that the
Company's future consolidated financial statements will not include another
going concern explanatory paragraph if the Company is unable to restructure its
liability under the Guaranty Obligations and become profitable. The factors
leading to and the existence of the explanatory paragraph will have a material
adverse effect on the Company's ability to obtain additional financing.
Risk of Bankruptcy. If the Company is not able to restructure its liabilities
under the Guaranty Obligations, the Company will need to be reorganized under
Chapter 11 of Title 11 of the United States Code or liquidated under Chapter 7
of Title 11 of the United States Code. There can be no assurance that if the
Company decides to reorganize under the applicable laws of the United States
that such reorganizational efforts would be successful or that shareholders
would receive any distribution on account of their ownership of shares of the
Company's stock. Similarly, there can be no assurances that if the Company
decides to liquidate under the applicable laws of the United States that such
liquidation would result in the shareholders receiving any distribution on
account of their ownership of shares of the Company's stock. In fact, if the
Company were to be reorganized or liquidated under the applicable laws of the
United States, the bankruptcy laws would require (with limited exceptions) that
the creditors of the Company be paid before any distribution is made to the
shareholders.
Certain Obligations of MPS. In connection with Microelectronic Packaging (S)
Pte. Ltd. ("MPS") borrowing from Citibank N.A., Motorola guaranteed (and
subsequently satisfied MPS' obligation) of $2.2 million in borrowings from
Citibank N.A. Under the terms of the agreement relating to Motorola's guarantee,
MPI granted Motorola a security interest in all of the issued and outstanding
capital stock of MPS, CTM Electronics, Inc. ("CTM") and Microelectronic
Packaging America ("MPA"). While in default, Motorola may have the right to vote
and give consents with respect to all of the issued and outstanding capital of
MPS, CTM and MPA . As a result, during the continuation of any such event of
default, MPI may be unable to control at the shareholder level the direction of
the subsidiaries that generate substantially all of the Company's revenues and
hold substantially all of the Company's assets. However, the Company has not
been informed by Motorola of any intention to exercise its rights under the
security interest. Any such loss of control would have a material adverse effect
on the Company's business, prospects, financial condition, results of operations
and status as an ongoing concern and could force the Company to seek protection
under Chapter 7 or Chapter 11 of Title 11 of the United States Code or similar
bankruptcy laws of Singapore. The other Asian debt agreements contain numerous
restrictions and events of default that have been triggered by the
aforementioned actions and would, if they became effective and operative,
materially adversely affect the Company's business, prospects, results of
operations, condition and status as an ongoing concern and could force the
Company to seek protection under Chapter 7 or Chapter 11 of Title 11 of the
United States Code or similar bankruptcy laws of Singapore.
In January 1999, the Company and Motorola signed a non-binding letter agreement
which calls for the conversion of all the Company's liabilities to Motorola
under the Guaranty Obligations into shares of the Company's Series A Preferred
Stock as explained in Note 7 to the accompanying Condensed Consolidated
Financial Statements. There can be no assurance that
16
<PAGE>
the Company will be successful in its efforts to reduce this non-binding letter
agreement with Motorola to a binding Conversion Agreement.
As of the date of filing this amended document, the Company is not in technical
default of the borrowing arrangement presently, and has until October 31, 1999
to complete the debt to equity conversion. Therefore, Motorola cannot exercise
its rights it may have under its security agreement with the Company, covering
the capital stock of CTM, until after October 31, 1999. Since Motorola does not
presently have the right to control voting of the capital stock of CTM, Company
management continues to make all operating decisions relative to CTM and MPA.
However, if the Company is not able to complete the debt to equity conversion by
October 31, 1999 and if Motorola were to exercise its rights under its security
agreement and if the Company were to lose control at the shareholder level of
its operating subsidiary, then, as previously indicated, the Company could be
forced to seek protection under Chapter 7 or Chapter 11 of Title 11 of the
United States Code.
Reliance on Schlumberger. Sales to one customer, Schlumberger, accounted for 85%
of the Company's net sales in the first quarter of 1999 and is expected to
continue to account for most of the Company's net sales. Under the agreement
between Schlumberger and the Company entered into in January 1998, the Company
is obligated to provide Schlumberger with its requirements for MCM product.
Given the Company's anticipated continued reliance on its MCM business as a
large percentage of overall net sales, the failure to meet Schlumberger's
requirements will materially adversely affect the Company's ability to continue
as a going concern. In addition, under the terms of the agreement, Schlumberer
is entitled to request repricing of the Company's products. Schlumberger has
requested repricing on several occasions in the past. Such repricing in the
future may result in the Company being unable to produce the products made for
Schlumberger with an adequate operating profit, and the Company may be unable to
compete with the prices of other vendors who supply the same or similar products
to Schlumberger. The failure to satisfy the terms of the agreement, or the
failure of the Company to achieve an operating profit under the contract, would
have a material adverse impact on the Company's business, financial condition,
and results of operation.
Year 2000 Compliance. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field.
These date code fields will need to accept four digit entries to distinguish
21/st/ century dates from 20/th/ century dates. As a result, in less than one
year, computer systems and/or software used by many companies may need to be
upgraded to comply with such "Year 2000" requirements. Significant uncertainty
exists in the software industry and in other industries concerning the potential
effects associated with such compliance. Although the Company currently offers
products that are designed to be Year 2000 compliant, there can be no assurance
that the Company's products and the software products used by the Company
contain all necessary date code changes. As of March 31, 1999, the Company has
partially completed an analysis of its readiness for compliance with the Year
2000 change. Its assessment of its manufacturing systems and company products
reveals that no known Year 2000 issues currently exist either in the products,
their raw materials, or their relationship as components to larger systems
produced by its customers; its financial systems software is currently being
upgraded to a newer replacement system which will be complete in 1999, and which
system is Year 2000 compliant;
17
<PAGE>
documentation systems that currently use fixed dating are Year 2000 compliant,
while those that require revision dating are currently under review; and
approximately 50% of the Company's computing hardware systems have been upgraded
to be Year 2000 compliant. The Company's costs to become Year 2000 compliant as
of March 31, 1999 have been $235,000 for computer software and $48,000 for
computer hardware.
The Company has not yet completed its analysis of its readiness for compliance
with the Year 2000 change. Based upon the partial analysis described above, the
Company believes its exposure to Year 2000 risks is limited because the majority
of the Company's recordkeeping systems are new and compliant and have been
installed within the last eighteen months. The Company utilizes no
custom-programmed "legacy" software or hardware systems known to need Year 2000
upgrading or conversion. The Company believes it should be fully compliant with
its Year 2000 issues by the end of the second quarter of 1999 when it believes
it will have completed due diligence of its internal systems and supplier
compliance requirements, as well as completed the remaining 50% of its computing
hardware upgrades needed. However, there can be no assurance that conditions or
events may occur during the course of the completion of this analysis which will
have an adverse impact on the Company's readiness for compliance with the Year
2000 change. In addition, the Company cannot be certain that its suppliers,
service providers and customers will be Year 2000 compliant. The failure of
these companies to be fully compliant could create critical cash shortages to
the Company due to the inability of customers to send payments to the Company.
In addition, any product shortages from suppliers, or service shutdowns from the
Company's utility or communications providers could potentially shut down the
Company's manufacturing operations, thereby causing a material adverse impact on
the Company's operations and liquidity.
The Company believes that the purchasing patterns of customers and potential
customers and the performance of vendors may be affected by Year 2000 issues in
a variety of ways. Many companies are expending significant resources to correct
or patch their current software systems for Year 2000 compliance. These
expenditures may result in reduced funds available to purchase products such as
those offered by the Company or the inability to render services or provide
supplies to the Company. Year 2000 issues may cause other companies to
accelerate purchases, thereby causing an increase in short-term demand and a
consequent decrease in long-term demand for software products, and disruption of
supply patterns. Additionally, Year 2000 issues could cause a significant number
of companies, including current Company customers and vendors, to spend
significant resources upgrading their internal systems, and as a result consider
switching to other systems or suppliers. Any of the foregoing could result in a
material adverse effect on the Company's business, operating results and
financial condition.
ITEM 3 - QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The Company has no derivative financial instruments.
The Company has outstanding indebtedness at March 31, 1999 to DBS denominated in
Singapore dollars of approximately Singapore $737,000 (U.S. equivalent
$445,000). All of the Company's other indebtedness is denominated in U.S.
dollars, and all other Singapore-based assets have been liquidated
18
<PAGE>
by the receiver of MPM or MPS and used to retire outstanding indebtedness.
Accordingly, the Company believes its exposure to foreign currency rate
movements is limited.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K.
None.
The Exhibits filed as part of this report are listed below.
Exhibit No. Description
----------- -----------
10.75 Debt Conversion and Mutual Settlement and Release
Agreement between Texas Instruments Incorporated and
the Company dated April 27, 1999.
10.76 Debt Conversion and Mutual Settlement and Release
Agreement between ORIX Leasing and the Company dated
April 16, 1999.
10.77 Debt Conversion and Mutual Settlement and Release
Agreement between Transpac Capital and the Company
dated April 29, 1999.
19
<PAGE>
10.78 Form of Assignment of Interest Under Letter Agreement
With STMicroelectronics, Inc. between FI Financial, LLC
and various parties dated April 21, 1999.
10.79 Letter Agreement between STMicroelectronics, Inc., FI
Financial LLC and the Company dated April 14, 1999.
10.80 Letter of Intent Agreement between FI Financial LLC and
the Company dated April 15, 1999.
27.1 Financial Data Schedule
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.
MICROELECTRONIC PACKAGING, INC.
-------------------------------
(Registrant)
Date: September 17, 1999 By: /s/ Denis J. Trafecanty
---------------------- ----------------------------
Denis J. Trafecanty
Senior Vice President,
Chief Financial Officer
and Secretary
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AS OF MARCH 31, 1999 AND THE STATEMENTS OF OPERATIONS, CASH FLOWS AND
SHAREHOLDERS EQUITY FOR THE PERIOD ENDED MARCH 31, 1999 IS QUALIFIED IN ITS
ENTIRETY BY REFERENCES TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 129
<SECURITIES> 0
<RECEIVABLES> 1,130
<ALLOWANCES> 0
<INVENTORY> 2,742
<CURRENT-ASSETS> 4,167
<PP&E> 1,654
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,965
<CURRENT-LIABILITIES> 32,177
<BONDS> 45
0
0
<COMMON> 40,162
<OTHER-SE> (66,419)
<TOTAL-LIABILITY-AND-EQUITY> 5,965
<SALES> 1,743
<TOTAL-REVENUES> 1,743
<CGS> 1,584
<TOTAL-COSTS> 1,584
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 506
<INCOME-PRETAX> (1,084)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,084)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,084)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
