-----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, WUeIcW9bxtJjKI5+r0nOZGqffbMA53nq2QnOrLlBPupze8pqblf7f80kpk72gvty NXLCxXhCvw/ZdKwk8c9dyQ== 0000950146-99-001144.txt : 19990517 0000950146-99-001144.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950146-99-001144 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: SEC FILE NUMBER: 001-10938 FILM NUMBER: 99624386 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 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 March 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-10938 SEMX CORPORATION (Name of Business Issuer in its charter) Delaware 13-3584740 (State of other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1 LABRIOLA COURT, ARMONK, NY 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 April 30, 1999 was 6,041,016 shares. TABLE OF CONTENTS Page No ------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Consolidated Balance Sheet at March 31, 1999 and December 31, 1998. 3 Consolidated Statement of Operations and Comprehensive Income (Loss) for the three months ended March 31, 1999 and 1998. 4 Consolidated Statement of Cash Flows for the three months ended March 31, 1999 and 1998. 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K 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 availability of continuing credit from the Company's banks, the general economic or business climate, business conditions of the microelectronic and semiconductor markets and the automotive and communications industry which the Company serves and the economic volatility in geographic markets, such as Asia. 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SEMX CORPORATION AND SUBSIDIARIES Consolidated Balance Sheet (Dollars in thousands)
March 31, December 31, ASSETS 1999 1998 (Unaudited) ----------- ------------- Current Assets: Cash and cash equivalents $ 936 $ 1,141 Accounts receivable, less allowance for doubtful accounts of $320 and $245, respectively 6,638 8,007 Inventories 4,919 10,447 Prepaid expenses and other current assets 1,131 948 Deferred income tax assets 395 5,643 ------- ------- Total current assets 14,019 26,186 ------- ------- Property, Plant and Equipment-at cost, net of accumulated depreciation and amortization of $14,525 and $13,974, respectively 35,983 38,352 ------- ------- Other Assets-net of accumulated amortization Technology rights and intellectual property 944 963 Goodwill 8,677 15,938 Other 962 885 ------- ------- Total other assets 10,583 17,786 ------- ------- Total Assets $60,585 $82,324 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Revolving credit facility $ 5,659 $11,800 Current portion of long-term debt 1,176 17,593 Accounts payable 4,356 5,262 Current portion of obligations under capital leases 2,473 2,648 Accrued expenses 2,767 2,947 ------- ------- Total current liabilities 16,431 40,250 ------- ------- Deferred income taxes 1,970 2,329 Long-term debt 5,993 6,657 Obligations under capital leases 5,596 6,398 ------- ------- Total Liabilities 29,990 55,634 ------- ------- Minority Interest in Subsidiary 1,155 1,319 ------- ------- Shareholders' Equity: Preferred stock-$.10 par value;authorized 1,000,000 shares, none issued - - Common stock-$.10 par value; authorized 20,000,000 shares, issued 6,375,616 shares 638 638 Additional paid-in-capital 28,199 28,199 Accumulated other comphrehensive income (406) (322) Retained earnings (accumulated deficit) 1,221 (2,932) ------- ------- 29,652 25,583 Less: Treasury stock: 334,600 shares at cost 212 212 ------- ------- Shareholders' Equity 29,440 25,371 ------- ------- Total Liabilities And Shareholders' Equity $60,585 $82,324 ======= =======
See Notes to Consolidated Financial Statements page 3 SEMX CORPORATION AND SUBSIDIARIES Consolidated Statement of Operations (Unaudited) (Dollar amounts in thousands, except per share amounts)
For The Three Months Ended March 31, 1999 1998 Net Sales $ 10,925 $ 14,453 Service Revenue 3,968 5,438 --------- --------- Total Revenue 14,893 19,891 --------- --------- Cost of Goods Sold 7,351 9,793 Cost of Services Performed 3,171 4,642 --------- --------- Total 10,522 14,435 --------- --------- Gross Profit 4,371 5,456 Selling, General and Administrative Expense 3,299 3,932 Restructuring Charge - 1,950 --------- --------- Operating Income (Loss) 1,072 (426) Gain on Sale of Connector Business 8,430 - Interest Expense (Net) 700 818 --------- --------- Income (Loss) Before Provision for Income Taxes and Minority Interest in Loss of Consolidated Subsidiary 8,802 (1,244) Provision (Credit) for Income Taxes 4,657 (452) --------- --------- Income (Loss) Before Minority Interest in Loss of Consolidated Subsidiary 4,145 (792) Minority Interest in Loss of Consolidated Subsidiary 8 133 --------- --------- Net Income (Loss) $ 4,153 $ (659) ========= ========= Other Comprehensive Income: Foreign currency translation net of tax benefit of $44 and $14; respectively (84) (26) --------- --------- Comprehensive Income (Loss) $ 4,069 $ (685) ========= ========= Basic Income (Loss) per Common Share $ .69 $ (.11) Diluted Income (Loss) per Common Share $ .69 $ (.11) Weighted Average Number of Common Shares Outstanding - Basic 6,041,016 6,075,616 Weighted Average Number of Common Shares Outstanding - Diluted 6,042,178 6,075,616
See Notes To Consolidated Financial Statements page 4 SEMX CORPORATION AND SUBSIDIARIES Consolidated Statement of Cash Flows (Unaudited) (Dollars in thousands)
For The Three Months Ended March 31, 1999 1998 ---- ---- Cash Flows From Operating Activities: Net Income (Loss) $ 4,153 $ (659) Adjustments To Reconcile Net Income To Net Cash Used In Operating Activities: Gain on Sale of Connector Business (8,430) - Depreciation And Amortization of Property And Equipment 1,272 1,295 Other Amortization 189 261 Deferred Income Taxes 4,933 (138) Minority Interest in Subsidiary Loss (9) (133) Changes In Operating Assets And Liabilities: (Increase) Decrease In Accounts Receivable (873) (604) Increase In Inventory (534) (1,234) (Increase) Decrease In Prepaid Expenses And Other Current Assets 60 (101) Increase (Decrease) In Accounts Payable (17) (1,200) Increase (Decrease) In Accrued Expenses (424) 1,911 Increase (Decrease) In Income Taxes Payable - (489) ------- ------- Net Cash Provided By (Used In) Operating Activities 320 (1,091) ------- ------- Cash Flows From Investing Activities: Purchase Of Property And Equipment (345) (1,110) Net Proceeds From Sale of Connector Business 22,191 - (Increase) Decrease In Other Assets (84) 48 ------- ------- Net Cash Provided (Used) In Investing Activities 21,762 (1,062) ------- ------- Cash Flows From Financing Activities: Purchase of Treasury Stock - (32) Proceeds From Long-Term Debt - 666 Repayment Borrowing Under Revolving Credit (6,141) 3,050 Payment Under Capital Leases (814) (508) Payment Under Term Loan Agreements (15,284) (1,211) Borrowing under Term Loan Agreements - - ------- ------- Net Cash Provided (Used) By Financing Activities (22,239) 1,965 ------- ------- Effect of Exchange Rate Change on Cash (48) (10) Net Increase (Decrease) In Cash (205) (198) Cash At Beginning Of Period 1,141 2,260 ------- ------- Cash At End Of Period $ 936 $ 2,062 ======= ======= Supplemental schedule of noncash investing and financing activity: Machinery and equipment acquired under capital leases $ 658 $ 552
See Notes to Consolidated Financial Statements page 5 SEMX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Amounts 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 March 31, 1999, and the Consolidated Statement of Operations and Cash Flows for the three - -months ended March 31, 1999 and 1998, 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, 1998 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, 1998. The comparative financial statements for 1998 have been reclassified to conform to the current period's presentation. Note 2. Earnings Per Share Basic earnings 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. Note 3. Dispositions In February 1999, the Company sold its connector businesses, Retconn Incorporated ("Retconn") and ST Electronics, Inc. ("ST") to Litton Corporation ("Litton"). Litton acquired the specified assets and assumed certain liabilities of Retconn and ST, as defined in the purchase agreement, in consideration for a cash payment to the Company of $23,871. The liabilities assumed by Litton amounted to approximately $3,500. The purchase price is subject to adjustment for changes in Retconn's closing date balance sheet. In addition, the Company is prevented from directly competing in the connector business for a period of three years. The Company recorded a net gain of $3,903 on the transaction, net of applicable income taxes of $4,527. Note 4. Inventory Inventories consisted of the following: March 31, December 31, 1999 1998 --------- ------------ Precious Metals $1,186 $1,245 Non Precious Metals 3,733 9,202 ------ ------- $4,919 $10,447 ====== ======= 6 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. Note 5. Debt On February 19, 1999, the Company entered into an agreement with First Union and Fleet (the "Bank") concerning the distribution of $23,871 in proceeds from the sale of Retconn and ST. Pursuant to the agreement, the Company repaid $15,050 of term indebtedness and $7,141 of revolving credit borrowings. In addition, the Company paid approximately $1,680 of transaction-related fees and severance payments. The agreement also provided for the bank's forbearance of noncompliance with certain existing covenants and an extension of its revolving credit and interim term loan facilities through June 30, 1999. As of December 31, 1998 and January 31, 1999, the Company was in default of certain financial ratio covenants with the Bank. The Bank has granted a waiver for these periods. The Company continues to make monthly interest payments and is currently pursuing a number of courses of action to restructure or refinance its debt with the Bank and its Gold Consignment Agreement. These include continuing negotiations with the Bank, discussions with other prospective lenders and investigating the sale of an additional subsidiary as a means of paying its debt obligations. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (for the three month period ended March 31, 1999 compared to the three month period ended March 31, 1998) Revenue: Total revenue for the three-month period ended March 31, 1999 of $14,893,000, decreased $4,998,000 or 25% as compared to the comparable 1998 period. On February 19, 1999, the Company sold its connector business, ("Retconn") as described herein. Retconn had sales through the February 1999 disposition date of $2,122,000 compared to sales of $5,006,000 for the three months ended March 31, 1998. On a proforma basis, excluding sales from the Company's Retconn business unit, total revenue for the three months ended March 31, 1999 decreased $2,114,000 or 14% from prior year period. The Materials Group sales, excluding Retconn for the first quarter of 1999 of $8,803,000 decreased $644,000 or 7% from the comparable 1998 period. Sales for the first quarter of 1999 decreased by $572,000 or 16% at SPM and decreased by $72,000 or 1% at Polese Company. The decrease in SPM was caused by lower sales to a customer serving the cellular market, partially offset by increased sales of gold wire. Polese sales for the first quarter of 1999 were slightly below the first quarter of 1998, however, they increased 54% over the fourth quarter of 1998. Polese sales have improved due to improved sales of microprocessor lids, cellular base station heat dissipation products and the introduction of new products. The Company's Service Group revenues in the three month period ended March 31, 1999 decreased $1,470,000 to $3,968,000 as compared to the comparable 1998 period. The Services Group revenue decrease was the result of a slowdown in the demand for reclaimed wafers and pricing pressures caused by a downturn in the semiconductor industry. Further, in July of 1998 the Company closed its Texas operations and consolidated all of ASP's domestic business into its Rhode Island facility. The three month period ended March 31, 1998 included $1,537,000 in revenue from the Texas operation. The Service Group's revenue from ASP's U.S. and European operations for the three month period ended March 31, 1999 decreased a total of $1,850,000 or 36% as compared to the comparable 1998 periods. Revenue from International Semiconductor Products Pte. Ltd ("ISP") of $617,000 for the first quarter of 1999 increased by $380,000 or 160% over the first quarter of 1998. Direct sales of the Company's products into foreign markets accounted for 18% and 13%, respectively, of consolidated revenue for the three months ended March 31, 1999 and 1998. The Company currently maintains foreign manufacturing operations in the Netherlands ("ASP B.V."), in Morocco, Semiconductor Materials S.A. R. L. ("S.A.R.L."), and in Singapore, ISP. In the three month period ended March 31, 1999, the Company derived revenue from ASP B.V. of $829,000, from S.A.R.L. of $59,000 and revenue from ISP of $617,000 respectively. Foreign sales made through the Company's domestic operations are made through foreign manufacturer's representatives and are priced and paid for in U.S. dollars. Sales for ASP B.V., S.A.R.L. and ISP are conducted in the local currencies of Dutch Guilders, Dirhams, and Singapore Dollars respectively and account for 10% of the consolidated revenue for the three months ended March 31, 1999. 8 The Company's consolidated backlog as of March 31, 1999 was $19,654,000 excludes backlog from the Retconn business which was sold February 19, 1999. On a proforma basis, excluding Retconn, the Company's backlog was $14,235,000 at March 31, 1998 and $15,161,000 at December 31, 1998. The Polese backlog at the end of 1998 was $5,003,000 which has improved to $11,808,000 as of March 31, 1999 due to the aforementioned increase in microprocessor, cellular base station and new product orders. The backlog for ASP has declined steadily since 1998 due to the softness in demand for reclaimed wafers due to a continuing slowdown in the semiconductor industry. The SPM backlog has declined due to lower sales to customers serving the cellular markets. The Company expects the backlog to remain strong for the remainder of 1999. Gross Profit: Gross profit of $4,371,000 for the three month period ended March 31, 1999 decreased $1,085,000 or 20% from the comparable 1998 period. Excluding Retconn, gross profit of $3,663,000 for the first quarter of 1999 decreased by $152,000 or 4% from the first quarter of 1998. The Materials Group's gross profit of $3,574,000 for the three month period ended March 31, 1999 decreased by $1,086,000 or 23% from the comparable 1998 periods primarily due to decreased Retconn gross profit and the sale of the Retconn business on February 19, 1999. The Service Group's gross profit of $797,000 for the three month period ended March 31, 1999 was comparable to the prior years period. Decreases in first quarter 1999 Services Group sales levels were offset by lower manufacturing costs due to the consolidation of domestic operations, thereby resulting in a gross profit comparable to the 1998 quarter. Gross Margins: Notwithstanding the decreased sales, the Company's gross margins increased from 27% to 29% for the three month period ended March 31, 1999 over the comparable prior years period. On a proforma basis, excluding Retconn, the Company's gross margin increased from 26% to 29 % for the comparable 1998 and 1999 periods, respectively. The Materials Group gross margin increased from 32% to 33% for the three month period ended March 31, 1999 from the comparable 1998 periods. The Service Group's gross margins increased from 15% in the first quarter of 1998 to 20% for the first quarter of 1999, reflecting the consolidation of domestic operations and improved manufacturing performance at ISP. Selling, General and Administrative: Selling, general and administrative ("SG&A") expenses in the three month period ended March 31, 1999 decreased $633,000 or 16% from the comparable 1998 period. The decrease in SG&A reflects savings realized by the closing of the Services Group Texas Plant during the second quarter of 1998 as well as the sale of the Retconn Business on February 19, 1999. Excluding Retconn, SG&A for the first quarter of 1999 decreased by $287,000 or 9% from the first quarter of 1998. SG&A expenses as a percentage of revenue increased from 20% to 22% for the quarter ended March 31, 1999 from the comparable 1998 period. Restructuring Charge: The three month period ended March 31, 1998 includes a restructuring charge of $1,950,000 associated with the closing of ASP's Texas operation and the relocation of the equipment and other assets. To date the company has paid all of the costs associated with this charge. 9 Gain on Sale of Connector Business The results for the three months ended March 31, 1999 include a $8,430,000 gain on the sale of the Company's Connector Business to Litton Corporation on February 19, 1999 as described below in Liquidity and Capital Resources. Interest Expense (Net): Net interest expense for the three-month period ended March 31, 1999 decreased $118,000, from the comparable 1998 period. The decrease in net interest expense is due to reduced debt levels from February 19, 1999 forward due to the debt principal repayments from proceeds from the sale of the Retconn business. Provision (Credit) for Income Taxes: A provision of $4,657,000 for income taxes has been made for the three-month period ended March 31, 1999 as compared to a credit of $452,000 for the comparable 1998 period. The provision for the three month period ended March 31, 1999 includes a provision of $4,527,000 associated with the gain on the sale of the Connector business. The Company has Federal Net Operating Loss carryforwards available to offset a substantial portion of the income tax return liability associated with the gain. The credit for the three-month period ended March 31, 1998 includes a $759 income tax credit associated with the restructuring charge. Minority Interest: In the three-month periods ended March 31, 1999 and 1998, the Company has included a loss of $17,000 and 266,000, respectively, associated with ISP in its income (loss) before minority interest in loss of consolidated subsidiary, net of tax. The Company has a 50.1% interest in the joint venture and has accordingly, excluded 49.9% of such loss from its consolidated net income. See the section ISP Joint Venture for further details herein. Net Income: As a result of the above, Net income of $4,153,000 for the quarter ended March 31, 1999 increased by $4,812,000 from the comparable 1998 period. Year 2000 The year 2000 problem arises since many computer programs and some pieces of computer hardware manipulate and store dates as a two-digit field and are unable to recognize dates past December 31, 1999. The Company has completed its initial assessment of the systems and software at all of its operations, including external interfaces with critical suppliers and customers. The Company is in the process of replacing non-compliant hardware, installing new manufacturing enterprise computer software systems at SPM and installing software upgrades that are year 2000 compliant at its other locations. The Company expects to complete the installation and testing of these new systems and upgrades by the end of 1999. Outside suppliers, and customers have been contacted and requested to complete the Company's assessment questionnaire. The Company has completed its review of all of the assessment questionnaires received and is re-contacting third parties who have not responded to date. The Company has expended approximately $300,000 to date and estimates that the remaining incremental cost of addressing the potential Year 2000 problem beyond those expenditures already incurred will be less than $250,000 based upon the information assembled to date. In the event that the Company's internal software project is not completed, the Company anticipates that the existing systems could continue functioning without undue business interruption while the new 10 software installation and testing is completed. Failure of the Company to achieve year 2000 compliance is not anticipated to have a material adverse impact on the operations of the Company. The Company can not predict the potential effect of third parties "Year 2000" issues on its business for those third parties that either do not complete their own Year 2000 compliance or do not respond to the Company's assessment questionnaire in a timely manner. LIQUIDITY AND CAPITAL RESOURCES General To support the Company's growth the Company 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, its line of credit facility, term loans from the Bank, other bank financing including gold consignment supply agreements, and capital leases. The Company has Bank short term debt maturities, standby letter of credit maturities, gold consignment agreements and debt service requirements which are presently deferred until June 30, 1999 under a limited forbearance agreement with its banks. The Company completed the sale of its Retconn business on February 19, 1999 and repaid $22,191,000 of existing Bank debt. The Company is pursuing several additional courses of action to address its remaining Bank debt service, gold consignment supply needs and refinancing needs. Summary of 1999 Activity At March 31, 1999, the Company had cash and cash equivalents of $936,000 and an available balance on its revolving credit facility of $1,000,000 as compared to $1,141,000 and $200,000 respectively at December 31, 1998. Net cash provided by operating activities in the three months ended March 31, 1999 amounted to $320,000 as compared to a use of $1,091,000 in the comparable 1998 period. Cash provided by operations increased compared to the first three months of 1998 principally as a result of 1999 income and working capital changes. The change in the deferred tax assets is due to utilization of net operating loss carryforwards to offset the gain on sale of the Connector business. Cash provided by investing activities amounted to $21,762,000 in the period ended March 31, 1999. On February 19, 1999 the Company completed the sale of its Connector business and realized net cash proceeds of $22,191,000. During the three months ended March 31, 1999 and 1998, the Company invested $345,000 and $1,110,000, respectively, in property and equipment. This investment excludes $658,000 and $552,000, respectively, in the 1999 and 1998 periods for equipment acquired under capital leases. At March 31, 1999, the Company had capital expenditure commitments of approximately $326,000. Net Cash used by financing activities amounted to $22,239,000 in the period ended March 31,1999 as compared to cash provided of $1,965,000 during the 1998 period. During the three months ended March 31, 1999 the Company's repaid $15,050,000 under a Bank term loan facility and $7,141,000 under its Bank revolving line of credit. Other Debt repayments during the three months ended March 31, 1999 of $234,000 include notes payable and 11 mortgages. In addition, the Company made payments of $814,000 under capital leases obligations. Factors Affecting Future Liquidity In January 1997, the Company entered into a $21,000,000 five-year term loan ("Term Loan") with First Union Bank and Fleet National Bank (collectively the "Bank"). Under a limited forbearance agreement, as amended, the Bank extended a previous waiver of the Term Loan's financial ratio covenants, agreed to waive principal payments of $350,000 per month from August 1, 1998 forward and set the maturity of the Term Loan at June 30, 1999. On February 19, 1999 the Company repaid the remaining $15,050,000 principal balance outstanding under this Term Loan. In January 1997, the Company entered into a $15,000,000 line of credit with the Bank that originally expired in February 1999. As part of the limited Forbearance Agreement, as amended, the Bank extended the maturity to June 30, 1999. This credit line includes a standby letter of credit for ISP in the amount of approximately $3,000,000. Interest is payable monthly at the lower of the Bank's loan pricing rate or a Eurodollar rate plus 2.25%. The line of credit is collateralized by substantially all of the Company's assets and provides for limited availability based upon the eligible percentages of the Company's receivables and inventory. The line of credit, as amended, is subject to various restrictions and financial covenants.. As of December 31, 1998 and January 30, 1999 the Company was in technical default of certain financial ratio covenants which the Bank agreed to waive in May 1999. On February 19, 1999 the Company repaid $7,141,000 of the outstanding borrowings under this facility. 12 On June 19, 1998 the Company entered into a 90-day note for $1,000,000 ("Interim Term Loan") with the Bank to supplement the Company's working capital requirements. The Interim Term Loan note provided for the payment of interest monthly and for the repayment of principal on October 1, 1998. As part of the limited Forbearance Agreement, as amended, the Bank extended the maturity to June 30, 1999. As of December 31, 1998 and January 30, 1999 the Company was in technical default of certain financial ratio covenants which the Bank agreed to waive in May 1999. The Company was in compliance with its financial ratio covenants in February and March 1999 and continues to make monthly interest payments. In December 1996, the Company entered into a consignment agreement (the "Gold Consignment Agreement") with Fleet Precious Metals ("FPM") which expired December 23, 1998. As part of the limited Forbearance Agreement, as amended, the Bank extended the maturity to June 30, 1999. Under the Gold Consignment Agreement, the Company purchases gold used in its manufacturing of materials. The Gold Consignment Agreement provides for gold on consignment not to exceed the lesser of 5,000 troy ounces of gold or gold having a market value of $1,870,000. The Gold Consignment Agreement requires the Company to pay a consignment fee of 5.0 % per annum based upon the value of all gold consigned to the Company. The Company is currently in discussions with FPM and other lenders to extend and/or negotiate a new agreement. The limited Forbearance Agreement discussed, herein, was originally signed in August 1998 and later amended in 1998 and early 1999. The Forbearance Agreement, as amended, waived Term Loan principal payments of $350,000 per month from August 1 forward, extended a previous waiver of financial ratio covenants, set the Term Loan maturity date to June 30, 1999 and also extended the maturity of the Interim Term Loan, the Revolving Credit Agreement, the standby letter of credit and the Gold Consignment agreement to June 30, 1999. The Company is pursuing a number of courses of action to restructure or refinance its existing debt and Gold Consignment agreement. These include continuing negotiations with the current lenders, discussions with other prospective lenders and investigation of the sale of one or more of its subsidiaries as a means of paying its debt obligations. On February 19, 1999, the Company sold its Retconn business and used $22,191,000 of the cash proceeds to repay $15,050,000 of bank term debt and $7,141,000 of line of credit borrowings. Although the Company believes that it is presently meeting all of the Bank's covenants, as amended, and is paying interest as due on its obligations, there is no assurance that the Company will be able to successfully renegotiate the terms of its existing credit/consignment agreements and/or negotiate new financing arrangements and/or realize cash through the sale of one or more of its subsidiaries. Failure to achieve the necessary financing could have a material adverse effect on the Company. The Company's 50.1% owned Singapore operation ("ISP") is currently in discussions with its bank and may not be able to meet its financing obligations through cash flow from operations without a change in its existing arrangements. The Company and ISP are pursuing a number of courses of action designed to provide future capital resources including discussions with its ISP's lenders to obtain principal repayment forbearance as well as discussions with other investors who would provide a new source of equity capital. There is no assurance that ISP will be able to successfully renegotiate the terms of its existing credit agreements and/or realize cash through an equity investor. Failure to achieve the necessary financing would have a material adverse effect on ISP. In addition, ISP's bank could draw down the S$5,000,000 (approximately $3,000,000 at March 31, 1999) standby letter of credit provided by the Company's Bank. There is no assurance that the Company would have the resources available to repay the Bank immediately as required by the Company's Bank agreement in which case an event of default would exist. Failure to repay the drawn Letter of Credit would have a material adverse effect on the Company. 13 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 of ten years, Mr. Polese has the right to receive 10% of (i) the 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. On December 18, 1997, the Board of Directors authorized the Company to repurchase up to $2,000,000 of SEMX common stock on the open market. Repurchased shares will be held as Treasury shares and may be reissued in the future or may be reissued pursuant to the Company's stock option programs. During 1998 the Company had repurchased 34,600 shares at a cost of $212,000. The Company has suspended the repurchase of any further stock at this time. 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. The Company is uncertain that without a restructuring or refinancing of Bank Debt, its working capital and internally generated funds and other sources of financing will be sufficient to satisfy the Company's currently anticipated cash requirements on both a short-term and long-term basis. 14 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (27) Financial Data Schedule (Edgar filing copy only) (b) Current Reports on Form 8-K Form 8-K, Item 2, Acquisition or Disposition of Assets, filed on March 5, 1999, concerning the sale of the Company's connector business to Litton Systems, Inc which closed on February 19, 1999. 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: May 14, 1999 By: /s/ Gilbert D. Raker ------------------------ Name: Gilbert D. Raker Title: Chairman of the Board and Chief Executive Officer Date: May 14, 1999 By: /s/ Mark A. Koch ------------------------ Name: Mark A. Koch Title: Controller and Secretary (Principal Financial and Accounting Officer) 15 EX-27 2 ARTICLE 5 FDS FOR 1ST QTR 10Q
5 1,000 3-MOS DEC-31-1999 MAR-31-1999 936 0 6,958 320 4,919 14,019 50,508 14,525 60,585 16,431 11,589 0 0 638 28,758 60,585 10,925 14,893 7,351 10,522 3,299 0 700 8,802 4,657 4,153 0 0 0 4,153 0.69 0.69
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