-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BGUFWqDc2eX/Qk3EC8QYya5GrKg/iAj04U8w0YJXxMnx7zb5/TvczcRrsAVtb5wo jI4q4GJxalaIWUjlb3aubA== 0000950136-01-501156.txt : 20010815 0000950136-01-501156.hdr.sgml : 20010815 ACCESSION NUMBER: 0000950136-01-501156 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEMX CORP CENTRAL INDEX KEY: 0000880858 STANDARD INDUSTRIAL CLASSIFICATION: METAL FORGING & STAMPINGS [3460] IRS NUMBER: 133584740 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10938 FILM NUMBER: 1710704 BUSINESS ADDRESS: STREET 1: 1 LABRIOLA COURT CITY: ARMONK STATE: NY ZIP: 10504 BUSINESS PHONE: 9146985353 MAIL ADDRESS: STREET 1: 431 FAYETTE AVE CITY: MAMARONECK STATE: NY ZIP: 10543 FORMER COMPANY: FORMER CONFORMED NAME: SEMICONDUCTOR PACKAGING MATERIALS CO INC DATE OF NAME CHANGE: 19930328 10-Q 1 file001.txt QUARTERLY REPORT U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 1-10938 SEMX CORPORATION ---------------- (Exact Name of Registrant as specified in its charter) Delaware 13-3584740 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 1 Labriola Court, Armonk, New York 10504 (Address of principal executive offices, including zip code) (914) 273-5500 (Registrant's telephone number, including area code) 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. (1) Yes [X] No [ ] (2) Yes [X] No [ ] The number of shares outstanding of the Registrant's sole class of common stock, as of August 7, 2001 was 6,326,403 shares. -1- TABLE OF CONTENTS Page No ------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Independent Accountant's Report 3 Consolidated Balance Sheets at June 30, 2001 and December 31, 2000 4 Consolidated Statements of Operations for the three and six months ended June 30, 2001 and 2000 5 Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000 6 Notes to Consolidated Financial Statements 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-14 PART II OTHER INFORMATION Item 4. Submission of matters to a vote of security holders 15 Item 6. Not Applicable 15 Signatures 15 FORWARD LOOKING INFORMATION Portions of the narrative set forth in this document that are not historical in nature are forward-looking statements. These forward-looking statements speak only as of the date of this document, and the Company expressly disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statements contained herein. The Company's actual performance may differ materially from that contemplated by the forward-looking statements as a result of a variety of factors that include, but are not limited to, the general economic or business climate, business conditions of the microelectronic and semiconductor markets and the communications, internet and automotive industries which the Company serves and the economic volatility in geographic markets, such as Asia. -2- INDEPENDENT ACCOUNTANT'S REPORT To the Board of Directors SEMX Corporation We have reviewed the accompanying consolidated balance sheet of SEMX Corporation and Subsidiaries as of June 30, 2001, and the related consolidated statements of operations for the three-month periods and the six-month periods ended June 30, 2001 and 2000 and cash flows for the six-month periods ended June 30, 2001 and 2000. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles. GOLDSTEIN GOLUB KESSLER LLP New York, New York July 20, 2001 -3- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SEMX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
June 30, 2001 December 31, Unaudited 2000 ------------------ ---------------- ASSETS Current Assets: Cash and cash equivalents $ 802 $ 1,300 Accounts receivable, less allowance for doubtful accounts of $492 and $354, respectively 8,760 11,524 Inventories 8,723 8,074 Prepaid expenses and other current assets 2,212 1,802 Deferred income tax assets 165 165 ------------------ ---------------- TOTAL CURRENT ASSETS 20,662 22,865 ------------------ ---------------- Property, Plant and Equipment-at cost, net of accumulated depreciation and amortization of $26,453, and $23,263 respectively 43,463 44,009 ------------------ ---------------- Other Assets-net of accumulated amortization Goodwill 9,131 9,350 Technology rights and intellectual property 1,664 1,754 Other 2,184 2,111 ------------------ ---------------- TOTAL OTHER ASSETS 12,979 13,215 ------------------ ---------------- TOTAL ASSETS $ 77,104 $ 80,089 ================== ================ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 6,502 $ 6,368 Accrued expenses 2,113 2,955 Income taxes payable 4 131 Current portion of long-term debt and short term obligations 2,556 2,556 Current portion of obligations under capital leases 2,387 2,443 ------------------ ---------------- TOTAL CURRENT LIABILITIES 13,562 14,453 ------------------ ---------------- Deferred income tax liabilities 2,387 2,610 Long-term debt 13,380 12,862 Obligations under capital leases 2,140 2,983 ------------------ ---------------- TOTAL LIABILITIES 31,469 32,908 ------------------ ---------------- Commitments and Contingencies Minority Interest in Subsidiary 1,498 1,564 Redeemable Preferred Stock: Preferred stock - $.10 par value; authorized 1,000,000 shares; designated as Series B Preferred Stock: $100 stated value, 100,000 shares issued and outstanding 9,178 9,073 Common Shareholders' Equity: Common stock-$.10 par value; authorized 20,000,000 shares, issued 6,661,003 and 6,645,128 shares, respectively 666 665 Additional paid-in-capital 30,026 30,098 Accumulated other comprehensive loss (1,110) (722) Retained earnings 5,589 6,715 ------------------ ---------------- TOTAL 35,171 36,756 Less: Treasury stock: 334,600 shares at cost (212) (212) ------------------ ---------------- TOTAL COMMON SHAREHOLDERS' EQUITY 34,959 36,544 ------------------ ---------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 77,104 $ 80,089 ================== ================
See Notes to Consolidated Financial Statements -4- SEMX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For The Three Months Ended For The Six Months Ended June 30, June 30 2001 2000 2001 2000 ---- ---- ---- ---- REVENUE: Net Sales $ 11,219 $ 12,657 $ 25,374 $ 24,673 Service Revenue 4,044 4,974 9,312 9,401 ------------- ------------- ------------- ------------- TOTAL REVENUE 15,263 17,631 34,686 34,074 ------------- ------------- ------------- ------------- Cost of Goods Sold 8,090 8,612 18,947 16,306 Cost of Services Performed 4,035 3,612 8,158 7,130 ------------- ------------- ------------- ------------- TOTAL 12,125 12,224 27,105 23,436 ------------- ------------- ------------- ------------- Gross Profit 3,138 5,407 7,581 10,638 Selling, General and Administrative Expenses (4,168) (3,776) (8,308) (7,319) Other Operating Income 335 - 335 - ------------- ------------- ------------- ------------- OPERATING INCOME (LOSS) (695) 1,631 (392) 3,319 Interest Expense 486 495 977 876 ------------- ------------- ------------- ------------- INCOME (LOSS) BEFORE PROVISION (CREDIT) FOR INCOME TAXES AND MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY (1,181) 1,136 (1,369) 2,443 Provision (Credit) for Income Taxes (419) 429 (493) 871 ------------- ------------- ------------- ------------- Income (Loss) Before Minority Interest in Consolidated Subsidiary (762) 707 (876) 1,572 Minority Interest in Income (Loss) of Consolidated Subsidiary (78) 98 (49) 120 ------------- ------------- ------------- ------------- NET INCOME (LOSS) (684) 609 (827) 1,452 Preferred Stock Dividends and Accretion (201) (54) (402) (54) ------------- ------------- ------------- ------------- Net Income (Loss) Available to Common Shareholders $ (885) $ 555 $ (1,229) $ 1,398 ============= ============= ============= ============= Basic Income (Loss) per Common Share $ (0.14) $ 0.09 $ (0.19) $ 0.23 Diluted Income (Loss) per Common Share $ (0.14) $ 0.08 $ (0.19) $ 0.21 Weighted Average Number of Common Shares Outstanding Basic 6,324 6,208 6,321 6,144 Diluted 6,324 6,676 6,321 6,627
See Notes to Consolidated Financial Statements -5- SEMX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
For The Six Months Ended June 30, 2001 2000 ---- ---- Cash flows from operating activities: Net income (Loss) $ (827) $ 1,452 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization of property and equipment 3,419 2,686 Other amortization 493 292 Deferred income taxes (51) (122) Minority interest (49) 122 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable 2,726 (2,636) Increase in inventories (674) (2,181) Increase in prepaid expenses and other current assets (416) (176) Increase in accounts payable 162 2,729 Decrease in accrued expenses (511) (388) Decrease in income taxes payable (127) (395) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 4,145 1,383 Cash flows from investing activities: Purchase of property and equipment (3,273) (3,888) (Increase) decrease in other assets (354) 704 Acquisitions, cash portion - (1,737) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (3,627) (4,921) Cash flows from financing activities: Proceeds from exercise of stock options 36 258 Net proceeds under revolving credit facility 141 - Proceeds from long-term debt 1,447 3,222 Net proceeds from issuance of Preferred Stock - 9,100 Payments under capital leases (1,266) (1,130) Payments of long-term debt (916) (4,342) Payments of Series B Preferred Stock Dividends (299) - ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (857) 7,108 Effect of exchange rate change on cash (159) (105) ----------- ----------- Net decrease (increase) in cash (498) 3,465 Cash at beginning of period 1,300 416 =========== =========== Cash at end of period $ 802 $ 3,881 =========== =========== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITY: Machinery and equipment, net of trade-in, acquired under capital leases $ 376 $ 956 Intellectual property rights acquired with restricted common stock $ - $ 1,000 Acquisition finders fee paid with non qualified stock options $ - $ 426
See Notes to Consolidated Financial Statements -6- SEMX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The consolidated financial statements include the accounts of SEMX Corporation ("SEMX") and its wholly and majority owned subsidiaries. As used herein, the term "Company" refers to SEMX, its predecessors and its subsidiaries unless the context indicates otherwise. The Consolidated Balance Sheet at June 30, 2001 and the Consolidated Statements of Operations for the three and six months ended June 30, 2001 and 2000 and Cash Flows for the six months ended June 30, 2001 and 2000, have been prepared by the Company and are unaudited. In the opinion of management, the financial statements reflect all adjustments necessary to present fairly the results for the interim periods. Such results are not necessarily indicative of results to be expected for the year. The Consolidated Balance Sheet at December 31, 2000 has been derived from the audited financial statements at that date. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2000. The financial statements included herein for the three and six month periods ended June 30, 2001 and 2000 have been reviewed in accordance with Statement on Auditing Standards No. 71 "Interim Financial Information" by the Company's independent accountants. NOTE 2. EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share are computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per share gives effect to all dilutive potential common shares outstanding during the period. Potential dilutive common shares include shares issuable upon exercise of the Company's stock options and warrants. Net income (loss) available to common shareholders reflects preferred stock dividends and the accretion of related costs on the Company's Redeemable Preferred Stock issued on June 1, 2000. NOTE 3. ACQUISITIONS On May 1, 2000, SEMX's Polese Company subsidiary purchased the technology and assets of Engelhard Corporation's ("Engelhard") electroless gold plating business in Anaheim, CA for total cash consideration of $317. In addition, a finders' fee consisting of Non Qualified Stock options to purchase 40,000 shares of SEMX Common stock, valued at $426 was recorded. The fair value of assets acquired, including $426 allocated to Goodwill, amounted to $743. Polese Company vacated the Anaheim premises and completed the integration of the electroless gold plating operations into Polese Company's existing facilities during 2000. On April 10, 2000, SEMX's Polese Company subsidiary acquired the assets of Advanced Packaging Concepts ("APC"), a Vista, CA based manufacturer of ceramic packages for the wireless markets, in a business combination accounted for as a purchase. Polese Company acquired the assets of APC for $300 in cash and assumed selected liabilities amounting to approximately $1,000. In addition, Polese Company paid approximately $241 in costs associated with the acquisition of APC. The fair value of assets acquired, including approximately $817 allocated to Goodwill, amounted to approximately $1,541. In a companion transaction, associated intellectual property rights were acquired for approximately 95,000 shares of restricted SEMX common stock, valued at $1,000. The Company vacated the Vista premises and completed the integration of APC's operations into Polese Company's existing facilities during 2000. The results of operations of APC are included in the Company's consolidated financial statements from the date of acquisition. The proforma effect of the operations of APC from January 1, 1999 to the date of the acquisition on the Company's results of operations was immaterial. -7- NOTE 4. INVENTORY Inventories, owned by the Company, consisted of the following:
June 30, 2001 (Unaudited) December 31, 2000 ------------------- ------------------- Precious metals $ 1,228 $ 1,498 Nonprecious metals 7,495 6,576 =================== =================== $ 8,723 $ 8,074 =================== ===================
Inventories, which consist principally of work-in-process inventory, include raw materials, labor and manufacturing expenses and are stated at the lower of cost, determined by the first-in, first-out method, or market. These amounts do not include any gold consigned to the Company by Fleet Precious Metals as described more fully in Management's Discussion and Analysis, herein. NOTE 5. COMPREHENSIVE INCOME (LOSS) The components of the Company's total comprehensive income (loss) were:
Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 ---- ---- ---- ---- Net Income (Loss): $ (684) $ 609 $ (827) $ 1,452 Foreign currency translation adjustment, net of taxes (163) 106 (388) 31 -------------- ----------------- -------------- -------------- Total Comprehensive Income (loss) $ (847) $ 715 $ (1,215) $ 1,483
NOTE 6. SEGMENT INFORMATION The Company operates primarily in two industry segments, the Microelectronic Packaging Group and the Wafer Reclaim Services Group. The tables below present information about reported segments:
Microelectronic Corporate and Six Months Ended Packaging Wafer Reclaim Reconciling Consolidated June 30, 2001 Group Services Group Items Totals - --------------------------------------------- ------------------ ---------------- ---------------- ---------------- Revenue $ 25,374 $ 9,312 $ 34,686 Cost of goods sold and services performed 18,947 8,158 27,105 ------------------ ---------------- ---------------- Gross profit 6,427 1,154 7,581 Operating expenses and other income 5,763 2,041 $ 169 7,973 ------------------ ---------------- ---------------- ---------------- Operating Income (loss) $ 664 $ (887) $ (169) $ (392) ------------------ ---------------- ---------------- ---------------- Segment assets $ 45,053 $ 38,154 $ (6,103) $ 77,104 ------------------ ---------------- ---------------- ---------------- Capital expenditures $ 1,760 $ 1,513 $ 3,273 ------------------ ---------------- ---------------- Depreciation expense $ 1,830 $ 1,589 $ 3,419 ------------------ ---------------- ----------------
-8-
Microelectronic Corporate and Six Months Ended Packaging Wafer Reclaim Reconciling Consolidated June 30, 2000 Group Services Group Items Totals - --------------------------------------------- ------------------ ---------------- ---------------- ---------------- Revenue $ 24,673 $ 9,401 $ 34,074 Cost of goods sold and services performed 16,306 7,130 23,436 ------------------ ---------------- ---------------- Gross profit 8,367 2,271 10,638 Operating expenses and other income 5,402 1,917 7,319 ------------------ ---------------- ---------------- Operating Income $ 2,965 $ 354 $ 3,319 ------------------ ---------------- ---------------- Segment assets $ 82,873 $ 37,383 $ (45,877) $ 74,379 ------------------ ---------------- ---------------- ---------------- Capital expenditures $ 2,552 $ 1,336 $ 3,888 ------------------ ---------------- ---------------- Depreciation expense $ 1,550 $ 1,136 $ 2,686 ------------------ ---------------- ----------------
Microelectronic Corporate and Three Months Ended Packaging Wafer Reclaim Reconciling Consolidated June 30, 2001 Group Services Group Items Totals - --------------------------------------------- ------------------ ---------------- ---------------- ---------------- Revenue $ 11,219 $ 4,044 $ 15,263 Cost of goods sold and services performed 8,090 4,035 12,125 ------------------ ---------------- ---------------- Gross profit 3,129 9 3,138 Operating expenses and other income 2,803 971 59 3,833 ------------------ ---------------- ---------------- ---------------- Operating Income (loss) $ 326 $ (962) (59) $ (695) ------------------ ---------------- ---------------- ---------------- Segment assets $ 45,053 $ 38,154 $ (6,103) $ 77,104 ------------------ ---------------- ---------------- ---------------- Capital expenditures $ 668 $ 1,467 $ 2,135 ------------------ ---------------- ---------------- Depreciation expense $ 932 $ 803 $ 1,735 ------------------ ---------------- ----------------
Microelectronic Corporate and Three Months Ended Packaging Wafer Reclaim Reconciling Consolidated June 30, 2000 Group Services Group Items Totals - --------------------------------------------- ------------------ ---------------- ---------------- ---------------- Revenue $ 12,657 $ 4,974 $ 17,631 Cost of goods sold and services performed 8,612 3,612 12,224 ------------------ ---------------- ---------------- Gross profit 4,045 1,362 5,407 Operating expenses 2,812 964 3,776 ------------------ ---------------- ---------------- Operating Income $ 1,233 $ 398 $ 1,631 ------------------ ---------------- ---------------- Segment assets $ 82,873 $ 37,383 $ (45,877) $ 74,379 ------------------ ---------------- ---------------- ---------------- Capital expenditures $ 1,742 $ 449 $ 2,191 ------------------ ---------------- ---------------- Depreciation expense $ 747 $ 487 $ 1,234 ------------------ ---------------- ----------------
NOTE 7. RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the FASB issued SFAS No. 141 "Business Combinations". SFAS No. 141 is effective for business combinations initiated after June 30, 2001 and purchase business combinations for which the date of acquisition is July 1, 2001 or later. The Company is in the process of analyzing SFAS No. 141 but at this time does not believe that it will have a material effect on its financial position or results of operations. Also in June 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible Assets". SFAS No. 142 is required to be applied for fiscal years beginning after December 15, 2001. The Company will adopt SFAS No. 142 on January 1, 2002. SFAS No. 142 eliminates the amortization of goodwill and certain other intangible assets. It also requires a test for impairment of these assets at least annually. The Company is in the process of analyzing SFAS No. 142 but is unable to report the effect the adoption will have on its financial position or results of operations. -9- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - Second quarter and first six months 2001 compared to second quarter and first six months 2000. DISRUPTION OF BUSINESS AT POLESE COMPANY - On March 21, 2001, SEMX's Polese Company subsidiary experienced an ammonia gas discharge at its principal manufacturing facility. As a result during March and extending through the second quarter, production and scheduled shipments were disrupted, furnaces and inventory were damaged and additional operating expenses were incurred as a result of the discharge. The Company carries property and casualty as well as business interruption insurance which covers damaged equipment, inventory, increased operating expenses and lost profits stemming from the ammonia release. The insurance claim relating to the ammonia discharge is being compiled and in accordance with generally accepted accounting principles an expected reimbursement from insurance is not included in the financial results for the first six months of 2001. However, the extra business costs, damaged inventory and decrease in revenues as a result of the disruption are reflected in the results presented herein. REVENUE: Total revenue for the second quarter 2001 of $15,263,000 decreased by $2,368,000 or 13.4% as compared to the second quarter 2000. Total revenue for the first six months of 2001 of $34,686,000, increased by $612,000 or 1.8% as compared to the similar 2000 period. The Company's Microelectronic Packaging Group's second quarter 2001 sales of $11,219,000 decreased by $1,438,000, or 11.4%, from the second quarter 2000, reflecting difficult market conditions in the technology sectors that the group serves. SPM's second quarter 2001 sales decreased by $707,000 or 16.3% as compared to the comparable 2000 period reflecting difficult market conditions and decreased gold wire sales. Polese Company's second quarter 2001 sales decreased by $731,000, or 8.8% as compared to the prior year's period reflecting a market slowdown and continuing disruptions caused by the ammonia release, as discussed above. The first six months 2001 sales of the Microelectronic Packaging Group increased by $701,000 or 2.8% over the similar prior year's period. Polese's six months sales have increased by $1,660,000 or 10.3% over the prior year's period, due to improved sales of microprocessor lids, cellular base station heat dissipation products and the introduction of new products in the first quarter of 2001, offset by the ammonia release, and market slowdown developing in the second quarter. The decrease in SPM's first six months 2001 sales of $959,000 or 11% from the prior year's was primarily attributable to decreased sales of gold wire and difficult market conditions; although sales are stronger in the overseas locations. The Company estimates that disruptions caused by the ammonia release described above resulted in a reduction of approximately $700,000 in shipments scheduled for the month of March 2001. The Company continues to work with its insurance carriers to estimate the extent of the lost sales and resulting impacts for the months of April, May and June 2001. The Company's Wafer Reclaim Services Group's second quarter 2001 revenues decreased by $930,000 or 18.7% as compared to the second quarter 2000. The group's ASP operations revenue of $2,832,000 during the second quarter of 2001, decreased by $868,000 or 23.5% from last year's quarter, reflecting softness in the U.S. and European markets, which continued from the beginning of the year. The group's Singapore based operation ("ISP") second quarter 2001 revenues of $1,212,000 decreased by $62,000 from the prior year's quarter with Asian markets experiencing softening during the second quarter of 2001. First six months 2001 sales of the Wafer Reclaim Services Group decreased by $89,000 or 0.9 % over the comparable period of 2000. The Wafer Reclaim Services Group's revenue decrease for the six-month period, was the result of a slowdown in the semiconductor industry in the U.S and Europe, partially offset by an increase in the demand for reclaimed wafers at ISP during the first quarter. The Company does a significant amount of international business, both from its domestic locations as well as through overseas manufacturing locations. Domestic and international sourced sales of the Company's products into foreign markets, as a percentage of consolidated revenue during the first half of 2001 was 27.3%, as compared to 29.9% for the first half of 2000. This compares to a domestic and international sourced sales percentages of 32.0% for the second quarter 2001 and 27.3% for the second quarter 2000. -10- Domestically sourced sales of the Company's products into foreign markets, as a percentage of consolidated revenue during the first half of 2001 was 14.4%, as compared to 18.6% for the first half of 2000. This compares to domestically sourced sales percentages of 19.2 % for the second quarter 2001 and 20.8% for the second quarter 2000. The majority of domestically sourced foreign sales contracts are written in US Dollars with payment remitted directly in US dollars. Therefore, there is low risk of currency exposure involved. The Company has foreign manufacturing operations in the Netherlands ("ASP B.V."), in Morocco, Semiconductor Materials S.A.R.L. ("S.A.R.L."), in Malaysia, SPM(M) SDN.BHD ("SPM(M)") and in Singapore, ISP. During the second quarter 2001, the Company derived revenue from ASP B.V. of $591,000, from S.A.R.L. of $176,000, from SPM(M) of $360,000, and from ISP of $1,212,000. During the first half of 2001, the Company derived revenue from ASP B.V. of $1,336,000, from S.A.R.L. of $404,000 from SPM(M) of $524,000, and from ISP of $2,792,000. Sales for ASP B.V., S.A.R.L., SPM(M) and ISP are conducted in the local currencies of Dutch Guilders, Dirhams, Ringits and Singapore Dollars, respectively, and constitute a foreign sales percentage of 15.3% in the second quarter and 14.6% in the first half of 2001. These sales are subject to currency fluctuations, although exchange rate fluctuations have not historically been large during the periods the Company has operated in these jurisdictions. The Company's consolidated backlog as of June 30, 2001 was approximately $25,085,000 compared to a backlog of approximately $32,280,000 at June 30, 2000 and $35,833,000 at December 31, 2000. The Company is uncertain as to whether softening of the backlog will continue in the third quarter. The Company believes the majority of the consolidated backlog at June 30, 2001 includes orders that are expected to be shipped within one year. GROSS PROFIT: Gross profit of $3,138,000 for the second quarter 2001 decreased by $2,269,000 or 42.0%, from the second quarter 2000. For the first six months of 2001, gross profit decreased by $3,057,000, or 28.7% from the comparable 2000 period. The Microelectronic Packaging Group's second quarter 2001 gross profit of $3,129,000 decreased by $916,000 or 22.6% compared to the second quarter 2000. The group's first six months 2001 gross profit of $6,427,000 decreased by $1,940,000 or 23.2% from the prior year's period. The Microelectronic Packaging Group's gross profit decrease primarily reflects operating its manufacturing facilities at a level, which exceeded that necessary to generate the revenue earned in the period. In addition the group incurred expenses related to the ammonia incident without the corresponding revenue, as described above. As a result of the above, the Microelectronic Packaging Group's gross margin decreased from 32.0% in last year's second quarter to 27.9% in the second quarter 2001. The gross margin also decreased from 33.9% in the first six months of 2000 to 25.3% in this year's period. The Microelectronic Packaging Group's 2001 gross profit reflects the write off during the first quarter of approximately $326,000 of inventory damaged as a result of the ammonia release and accompanying disruptions in production. In response to the decreases in sales, and softness in the microelectronic industries, during May and June 2001, the Microelectronic Packaging Group reduced its headcount by approximately 17% from the beginning of the year levels. The Wafer Reclaim Services Group's second quarter 2001 gross profit of $9,000 decreased by $1,353,000 or 99.3% from the second quarter of 2000. The group's first six months 2001 gross profit of $1,154,000 decreased $1,117,000 or 49.2% from the prior year's period. The decline in gross profit for both the three and six month periods were primarily due to decreases in sales, as the group's facilities struggled to adjust their breakeven level of operations. As a result of the above, gross margins for the Wafer Reclaim Services Group decreased from 27.4% in the second quarter of 2000 to 0.2% in the second quarter of 2001. First six months 2001 gross margin decreased to 12.4% from 24.2% in the comparable prior year period. In response to the above, during May and June 2001, the group's ASP operation reduced headcount by approximately 18% from beginning of year levels. In addition, the Wafer Reclaim Services Group is exploring additional products and alternative uses for silicon to augment the declining demand for reclaimed wafers. -11- OTHER OPERATING INCOME: During the second quarter of 2001, SEMX's Polese Company subsidiary reached an agreement with a principal supplier which included retroactive price adjustments for raw materials purchased during 2001 and 2000. As a result of this agreement, Polese Company was able to lower its material costs during the second quarter and will realize a future benefit as well. $335,000 of the total $550,000 settlement reached related to prior periods and accordingly was recorded as Other Operating Income in order to segregate this amount from current period Cost of Goods sold. SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative ("SG&A") expenses in the second quarter 2001 increased by $392,000, or 10.4% from the comparable 2000 period. SG&A expenses in the first six months of 2001 increased by $989,000, or 13.5% from the comparable 2000 period. The increase in SG&A during the second quarter and first six months 2001 was due to increased sales and engineering personnel, increased travel and increased research and development costs. SG&A expenses as a percentage of revenue increased from 21.4% in the second quarter 2000 to 27.3% for the second quarter 2001 reflecting the factors above and the decrease in revenue for the 2001 second quarter. SG&A expenses as a percentage of revenue for the first six months of 2001 was 24% compared to 21.5% in the comparable prior year's period. INTEREST EXPENSE (NET): Net interest expense for the second quarter 2001 decreased by $9,000 from the second quarter 2000. Interest expense for the first six months of 2001 increased by $101,000. The decrease in net interest expense for the second quarter is due to lower interest rates on bank term and revolver borrowings which are indexed to the prime rate, as well as reductions in capital lease borrowings in the Wafer Reclaim Services Group as several five year leases matured. Included in interest expense for all periods presented are fees paid under the Company's gold consignment arrangement with Fleet Precious metals as described below. Consignment fees included in interest expense, amounted to $14,000 and $27,000 for the second quarter and the first six months of 2001, respectively and $16,000 and $31,000 for the comparable second quarter and six month periods of last year, respectively. PROVISION (CREDIT) FOR INCOME TAXES: A credit of $419,000 for income tax benefit has been recorded for the second quarter of 2001 at an effective rate of 35.5% as compared a to provision of $429,000 at an effective rate of 37.8% for the second quarter of 2000. A credit of $493,000 for income tax benefit has been recorded for the first six months of 2001 at an effective rate of 36.0% as compared to a provision of $871,000 at an effective rate of 35.7% for the first six months of 2000. MINORITY INTEREST: The Company has a 50.1% interest in the Wafer Reclaim Services Group's Singapore based ISP operation. In accordance with generally accepted accounting principles the Company fully consolidates the operating results of ISP and then, excludes 49.9% of ISP's net income or loss from its consolidated net income or loss, reflecting the minority owners' share in ISP's results. In the second quarter and the first six months of 2001, the Company has excluded from net loss, $78,000 and $49,000 respectively, reflecting the minority owners' share of ISP's loss, net of tax benefits. In the second quarter and the first six months of 2000, the Company has excluded from net income, $98,000 and $120,000 respectively, reflecting the minority owners' share of ISP's income, net of tax. NET INCOME (LOSS): As a result of the above, the Company had a net loss of $684,000 for the second quarter 2001 as compared to net income of $609,000 for the second quarter 2000. The Company's results for the first six months of 2001 were a loss of $827,000 compared to income of $1,452,000 in the prior year's period. -12- NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS: Net income (loss) available to common shareholders is the numerator in the Company's calculation of Basic and Diluted Income per common share and it is equal to Net Income for a given period less the dividends and the accretion of related costs of the Series B Preferred Stock issued on June 1, 2000. The Company accrues approximately $67,000 per month representing dividends payable and the accretion related to the Series B Preferred Stock. LIQUIDITY AND CAPITAL RESOURCES: General To enable the Company's growth SEMX has historically made significant capital expenditures to support its facilities and manufacturing processes as well as working capital needs. The Company has financed its capital needs through cash flow from operations, the issuance of Common and Preferred Stock, credit facilities from banks, gold consignment supply agreements, and capital leases. Summary of 2001 Activity At June 30, 2001, the Company had cash and cash equivalents of $802,000 and had an available balance on its revolving credit facility of $1,503,000 as compared to $3,881,000 and $4,131,000 respectively at June 30, 2000. The cash and availability position at June 30, 2000 were considerably higher than June 30, 2001 levels, as a result of the closing on the Company's Series B Preferred Stock in June 2000. Net cash provided by operating activities in the first six months of 2001 amounted to $4,145,000 as compared to $1,383,000 in the first six months of 2000. Cash provided by operations increased compared to the prior year's period, principally as a result of the first six months working capital changes. Cash used by investing activities amounted to $3,627,000 in the first six months of 2001 compared to $4,921,000, in the prior year period. During the six months ended June 30, 2001 and 2000, the Company invested $3,273,000 and $3,888,000, respectively, in property and equipment. This investment excludes $376,000 in the 2001 period and $956,000 in the 2000 period for equipment acquired under capital leases. Net Cash used in financing activities amounted to $857,000 in the first six months of 2001 as compared to cash provided of $7,108,000 during the 2000 period. During the first six months of 2001 the Company repaid $1,070,000 under term loans and borrowed a net, $141,000 under its Bank revolving line of credit. During the first six months of 2001, the Company borrowed an additional $1,447,000 under its existing term loan facility, and paid down its Bank revolving line of credit. In addition, the Company made payments of $1,266,000 under capital lease obligations. On March 31, 2001 the Company paid a semi-annual cash dividend to the holders of the Company's Series B Preferred in the amount of $299,000. Factors Affecting Future Liquidity On June 1, 2000, the Company received $10,000,000 in gross proceeds from the issuance of Series B Redeemable Preferred Stock to a group led by ACI Capital Company ("ACI"). Attached to the instrument were warrants to purchase one million shares of SEMX Common Stock with an exercise price initially valued at $10.00 per share, which were subsequently adjusted to a value of $7.00 per share pursuant to a reset provision in the underlying warrant agreement. The Series B Preferred Stock is subject to mandatory redemption in 5 years and cash dividends are payable semiannually at a rate of 6%, subject to successive rate increases in the event of uncured late payments or events of default. On November 1, 1999 the Company entered into a Revolving Credit, Term Loan and Security Agreement with PNC Bank. The Credit Facility replaced the existing revolving credit and interim term loan facilities, which the Company had with First Union and Fleet Banks. The Credit Facility, as amended, which has a three- year term, consists of a formula based $10,000,000 revolving credit facility and an original $6,234,000 term loan, both of which are secured by substantially all of the Company's domestic assets. Revolving credit -13- facility availability of up to S$4,000,000 Singapore dollars (approximately $2,200,000 US) is reserved for issuance of a standby letter of credit in support of the Company's guarantee of ISP's debt. The interest rate on revolving credit borrowings are, at the Company's option, based on either the prime rate or a floating Eurodollar rate plus a margin of 2.75%. At the Company's option, the term loan interest rate is based on either prime plus 0.5% or a floating Eurodollar rate plus a margin of 3.0%. Principal payments under the $6,234,000 term loan are due in equal monthly installments of $74,214 over the three-year term. Full payment of any outstanding debt on the term loan is due on October 31, 2002. In April 2001, the Company entered into an additional $1,447,000 term borrowing under the PNC facility, subject to the same terms and amortization as the original term loan. The proceeds from the term loan were used to pay down an equivalent amount of revolving credit borrowings. In August 2000 the Company's 50.1% owned ISP subsidiary refinanced its existing debt and entered into a credit facility with Keppel Tatlee Bank. The facility provides for a total of S$11,950,000 Singapore dollars (approximately $6,600,000 US) in term and overdraft borrowings secured by ISP's property and equipment and partially guaranteed by the Company. In conjunction with the refinancing, the Company was able to reduce its guarantee of ISP's debt from S$5,000,000 Singapore dollars (approximately $2,800,000 US) to S$4,000,000 Singapore dollars (approximately $2,200,000 US). The reduced guarantee is secured by a standby letter of credit of up to S$4,000,000 Singapore dollars issued by PNC Bank in favor of ISP's lenders. In the event of default, as defined by ISP's lending agreements, Keppel Tatlee Bank could draw down the S$4,000,000 Singapore dollars standby letter of credit provided by the Company's Bank. In December 1996, the Company entered into a consignment agreement (the "Gold Consignment Agreement") with Fleet Precious Metals ("FPM") which, as amended, expires June 30, 2002. Under the Gold Consignment Agreement, the Company utilizes gold in its manufacturing process. This consigned gold is not owned by the Company and accordingly is not included in inventory on the accompanying financial statements. As the Company ships finished goods manufactured with the consigned gold from FPM, it purchases gold in the open market to replenish the consignment. The Gold Consignment Agreement provides for gold on consignment not to exceed the lesser of 6,500 troy ounces of gold or gold having a market value of $2,400,000. The Gold Consignment Agreement requires the Company to pay a consignment fee, presently at a rate of 5.6% per annum, based upon the value of all gold consigned to the Company. This consignment fee is included in interest expense. In conjunction with the Company's acquisition of Polese Company, on May 27, 1993, the Company acquired from Frank J. Polese, the former sole shareholder of Polese Company, all of the rights, including a subsequently issued patent, for certain powdered metal technology and its application to the electronics industry. For a period from May 1993 through December 2002, Mr. Polese has the right to receive a portion of (i) the annual pre-tax profit from the copper tungsten product line, after allocating operating costs and (ii) the proceeds of the sale, if any, by the Company of the powdered metal technology. During the first quarter of 2001, the Company charged a total of $13,000 against operations under this agreement. The Company continually seeks to broaden its product lines by various means, including through acquisitions. The Company intends to pursue only those acquisitions for which it will be able to arrange the necessary financing by means of the issuance of additional equity, the use of its cash or, through bank or other debt financing. -14- PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders On May 8, 2001, the registrant conducted its annual meeting. At such meeting, stockholders of record as of the close of business on March 20, 2001 were entitled to notice of and to vote at the meeting. Out of a total of 6,322,278 shares entitled to vote at the meeting, 6,020,611 shares, or 95% were present in person or by proxy at said meeting. The matters voted on at the meeting were limited to: the election of seven directors to serve for one year and until their successors are elected and qualify and the ratification of the appointment of Goldstein Golub Kessler LLP as the Company's auditors for the year ending December 31, 2001. The following Directors were elected at such meeting: Douglas S. Holladay, Jr. Mark A. Pinto Andrew Lozyniak Frank J. Polese John U. Moorhead II Gilbert D. Raker Kevin S. Penn In additions, the shareholders ratified the election of Goldstein Golub Kessler LLP as the Company's auditors. Items 1. - 6. Exhibits and Reports on Form 8-K Not Applicable 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. SEMX CORPORATION Date: August 13, 2001 By: /s/ Gilbert D. Raker ------------------------ Name: Gilbert D. Raker Title: Chairman of the Board and acting Chief Financial Officer Date: August 13, 2001 By: /s/ Frank J. Polese ----------------------- Name: Frank J. Polese Title: President and Chief Executive Officer -15- -----END PRIVACY-ENHANCED MESSAGE-----