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 October 4, 1998
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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 - 3,101,932 shares (at October 4, 1998)
1
INDEX
FORM 10-Q
SEMICON, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Page
Consolidated Balance Sheet - October 4, 1998
and June 30, 1998. 3
Consolidated Statement of Operations - Quarters ended
October 4, 1998 and September 29, 1997 5
Consolidated Statement of Cash Flows - Quarters ended
October 4, 1998 and September 29, 1997 6
Notes to Consolidated Financial Statements -
October 4, 1998. 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
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
SEMICON, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
October 4, June 30,
1998 1998
----------- -----------
Current assets:
Cash and cash equivalents $ 121,000 $ 161,000
Accounts receivable, less allowances
of $10,000 ($10,000 at June 30, 1998) 335,000 460,000
Inventories:
Work-in-process and finished products 375,000 469,000
Raw materials and supplies 139,000 190,000
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514,000 659,000
Other current assets 27,000 29,000
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Total current assets 997,000 1,309,000
Property, plant and equipment:
Machinery and equipment 3,507,000 3,507,000
Leasehold improvements 130,000 130,000
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3,637,000 3,637,000
Less accumulated depreciation
and amortization 3,596,000 3,590,000
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41,000 47,000
Other assets 0 0
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$ 1,038,000 $ 1,356,000
=========== ===========
See notes to consolidated financial statements.
3
SEMICON, INC.
CONSOLIDATED BALANCE SHEET - Continued
LIABILITIES AND STOCKHOLDERS' DEFICIT
October 4, June 30,
1998 1998
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Current liabilities:
Accounts payable and other accrued liabilities $ 370,000 $ 468,000
Accrued compensation 84,000 116,000
Accrued interest 2,057,000 1,991,000
Federal and state income taxes 75,000 75,000
Indebtedness in default 2,564,000 2,564,000
Reserves for restructuring and environmental costs 1,294,000 1,294,000
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Total current liabilities 6,444,000 6,508,000
Stockholders' deficit:
Preferred stock, $1.00 par value
1,000,000 shares authorized, none issued 0 0
Common stock, $.25 par value,
10,000,000 shares authorized, 3,304,873
shares issued 826,000 826,000
Additional paid-in-capital 46,000 46,000
Accumulated deficit (6,278,000) (6,024,000)
----------- -----------
(5,406,000) (5,152,000)
Less cost of 202,941 shares of Common
Stock held in treasury (165,175 shares
at June 30, 1998) 0 0
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Total stockholders' deficit (5,406,000) (5,152,000)
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$ 1,038,000 $ 1,356,000
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4
SEMICON, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
QUARTER ENDED
October 4, September 28
1998 1997
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Net Sales $ 868,000 $ 1,300,000
Costs and expenses:
Cost of products sold 940,000 1,185,000
Selling, general and adminstrative 116,000 184,000
Interest 66,000 69,000
Other (income) expense 0 0
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1,122,000 1,438,000
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Income (loss) before income taxes and
extraordinary item (254,000) (138,000)
Income taxes 0 0
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Income (loss) before extraordinary item (254,000) (138,000)
Extraordinary items:
Gain on purchase of debentures 0 0
Gain on debt settlement 0 0
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0 0
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Net income (loss) $ (254,000)$ (138,000)
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Income (loss) per share:
Before extraordinary items ($0.08) ($0.04)
Extraordinary items 0.00 0.00
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Net income (loss) per share ($0.08) ($0.04)
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Weighted average number of
shares outstanding 3,124,000 3,305,000
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See notes to consolidated financial statements.
5
SEMICON, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
QUARTER ENDED
October 4, September 28
1997 1997
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Operating activities:
Net income (loss) $ (254,000)$ (138,000)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 6,000 10,000
Provision for bad debts 0 0
Gain on purchase of debentures 0 0
Gain on debt settlement 0 0
Changes in assets and liabilities:
Accounts receivable 125,000 (98,000)
Inventory 145,000 101,000
Other current assets 2,000 (13,000)
Accounts payable and accrued expenses (64,000) 91,000
Income taxes payable 0 0
Other 0 0
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Total adjustments 214,000 91,000
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Cash provided by (used in)
operating activities (40,000) (47,000)
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 0
Other 0 0
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Cash provided by (used in)
financing actitivies 0 0
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Increase (decrease) in cash
and cash equivalents (40,000) (47,000)
Cash and cash equivalents
at beginning of period 161,000 227,000
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Cash and cash equivalents
at end of period $ 121,000 $ 180,000
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See notes to consolidated financial statements.
6
SEMICON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
October 4, 1998
NOTE A -- BASIS OF PRESENTATION, SUBSEQUENT EVENTS AND
UNAUDITED FINANCIAL STATEMENTS
The October 4, 1998 and prior 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. Subsequent to October 4, 1998 Semicon Components Inc.,
the Company's manufacturing subsidiary, sold substantially all of it's
inventory, sold most of it's manufacturing equipment, and ceased
manufacturing operations. The Company's efforts at this time are focused
on settlement of subsidiary accounts and asset sales and disposal.
Management believes greater value for creditors and stockholders will be
realized from continuous, orderly asset sales than from bankruptcy
liquidation. However, creditor claims and final and complete settlement
of subsidiary and parent company obligations may require C.11
reorganization or C.7 liquidation. The Company will not report results on
a going concern basis in the future.
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. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K.
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.
NOTE B -- INCOME (LOSS) PER SHARE
Net income (loss) per share ("Basic") is computed by dividing net income
(loss) by the weighted average number of common shares outstanding. Net
income per share with dilution results from dividing net income by the
weighted average number of common shares outstanding plus the dilutive shares
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% Converible
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.
NOTE C -- INCOME TAXES
At October 4, 1998, the Company had tax loss carryforwards of approximately
$8,150,000 and tax credit carryforwards of approximately $500,000 available to
offset future federal taxable income and operating loss carryforwards of
approximately $10,050,000 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.
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SEMICON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- Continued
October 4, 1998
NOTE D -- RESERVES FOR RESTRUCTURING AND ENVIRONMENTAL COSTS
The balance sheet reserves for restructuring and environmental costs included
the following:
October 4, 1998 June 30, 1998
-------------------- ---------------
Environmental matters $ 848,000 $ 848,000
Debt restructuring
and related matters 446,000 446,000
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$1,294,000 $1,294,000
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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. Seperately, NW Building 37 Company has initiated
investigations and other response actions at the site. 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.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
LIQUIDITY AND SOURCES OF CAPITAL
Subsequent to the end of this fiscal quarter, Semicon Components, Inc., the
Company's manufacturing subsidiary, sold substantially all of it's inventory,
sold most of it's manufacturing equipment, and ceased manufacturing operations.
The Company's efforts at this time are focused on settlement of subsidiary
accounts and asset sales and disposal. Management believes greater value for
creditors and stockholders will be realized from continuous, orderly asset
sales than from bankruptcy liquidation. However, creditor claims and final and
complete settlement of subsidiary and parent company obligations may require
C.11 reorganization or C.7 liquidation.
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 $4,621,000 for principal and
interest at October 4, 1998. 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.
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 $2,564,000 at October 4, 1998.
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 October 4, 1998, $4,621,000.
October 4, 1998
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June 30, 1990 Principal and
Principal Principal Accrued Interest
-------------- ----------- ----------------
BayBank $ 795,000 $ 696,000 $ 842,000
Deferred Compensation
and Other 820,000 180,000 180,000
NationsBank 430,000 0 0
13% Convertible
Subordinated Debentures 4,125,000 1,688,000 3,599,000
-------------- ----------- ----------------
$ 6,170,000 $ 2,564,000 $ 4,621,000
=========== =========== ===========
9
Settlements to October 4, 1998, have included: purchases of $2,437,000 face
amount of debentures for $165,000; 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.
Since July 1, 1997 the Company purchased 202,941 shares of it's $.25 per value
share Common Stock for $202.94($.001 per share).
At October 4, 1998, the Company had a deficit in stockholders' equity
aggregating $5,406,000 and its current liabilities exceeded its current assets
by $5,447,000.
RESULTS OF OPERATIONS
QUARTER ENDED OCTOBER 4, 1998
The Company continued to generate operating losses on continued decreasing
sales. Subsequent to the end of the fiscal quarter, the Company ceased it's
manufacturing operations and continued it's liquidation of subsidiary company
assets.
At November 2, 1998 the Company's manufacturing subsidiary employed 15 people.
Efforts are focused on settling accounts and selling and disposing of assets.
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:________________________
Harold W. Mahar, Jr.
President, Chief Executive Officer
and Director
(principal executive officer)
(principal financial and accounting officer)
11