1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended July 31, 1996 Commission File Number 0-23248 SigmaTron International, Inc. - -------------------------------------------------------------------------------- (Exact Name of Registrant, as Specified in its Charter) Delaware 36-3918470 - -------------------------------------------------------------------------------- (State or other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 2201 Landmeier Road, Elk Grove Village, Illinois 60007 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) Registrant's Telephone Number, Including Area Code: (847) 956-8000 No Change - -------------------------------------------------------------------------------- (Former Name, Address, or Fiscal Year, if Changed Since Last Reports) 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, and Yes XX No -- -- (2) has been subject to such filing requirements for the past 90 days. Yes XX No -- -- On August 30, 1996, there were 2,782,289 shares of the Registrant's Common Stock outstanding.
2 SigmaTron International, Inc. Index PART 1. FINANCIAL INFORMATION: Page No. -------- Item 1. Financial Statements Consolidated Balance Sheets--July 31, 1996 and April 30, 1996 3 Consolidated Statements of Income--Three Months Ended July 31, 1996 and 1995 4 Consolidated Statements of Cash Flows--Three Months Ended July 31, 1996 and 1995 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 10
3 SigmaTron International, Inc. Consolidated Balance Sheets <TABLE> <CAPTION> JULY 31, April 30, 1996 1996 (UNAUDITED) (Audited) -------------- -------------- <S> <C> <C> Assets Current assets: Cash $ 2,500 $ 2,500 Accounts receivable, less allowance for doubtful accounts of $492,126 at July 31, 1996 and April 30, 1996 12,674,087 11,080,485 Inventories 13,325,276 14,854,050 Equipment lease receivables from affiliate 761,394 655,913 Note receivables from affiliate 300,000 300,000 Prepaid expenses 362,113 167,686 Other assets 1,138,267 744,164 Deferred incomes taxes 446,871 446,871 ------------ ------------ Total current assets 29,010,508 28,251,669 Machinery and equipment, net 8,032,996 7,230,393 Intangible assets, net of amortization of $160,318 and $154,341 at July 31, 1996 and April 30, 1996, respectively 31,937 37,914 Equipment lease receivables from affiliate, less current portion 1,858,480 1,920,876 Investment and advances with affiliate 199,241 202,524 Other assets 451,983 671,418 ----------- ----------- Total assets $39,585,145 $38,314,794 =========== =========== Liabilities and stockholders' equity Current liabilities: Notes payable - Banks 166,668 166,668 Notes payable - Related parties 133,806 151,860 Trade accounts payable 4,895,885 6,062,695 Trade accounts payable - Related parties 235,071 794,310 Accrued expenses 1,064,757 1,443,034 Income tax payable 482,425 66,236 Capital lease obligations 1,012,449 913,566 ----------- ----------- Total current liabilities 7,991,061 9,598,369 Notes payable - Banks, less current portion 14,638,611 12,533,171 Notes payable - Related parties, less current portion 10,649 42,596 Capital lease obligations, less current portion 2,825,991 2,720,484 Deferred income taxes 651,635 651,635 Stockholders' equity: Preferred stock, $.01 par value; 500,000 shares authorized, none issued and outstanding - - Common stock, $.01 par value; 6,000,000 shares authorized, 2,782,289 and 2,737,500 shares issued and 27,823 27,375 outstanding at July 31, 1996 and April 30, 1996, respectively Capital in excess of par value 8,437,016 8,384,089 Retained earnings 5,002,359 4,357,075 ----------- ----------- Total stockholders' equity 13,467,198 12,768,539 Total liabilities and stockholders' equity $39,585,145 $38,314,794 =========== =========== </TABLE> See accompanying notes. 3
4 SigmaTron International, Inc. Consolidated Statements Of Income ( Unaudited) <TABLE> <CAPTION> THREE MONTHS Three Months ENDED Ended JULY 31, 1996 July 31, 1995 ---------------- ---------------- <S> <C> <C> Net sales $18,480,335 $11,149,046 Cost of products sold 15,624,911 9,463,662 ----------- ----------- 2,855,424 1,685,384 Selling and administrative expenses 1,449,965 614,933 Operating income 1,405,459 1,070,451 Equity in net loss of affiliate 3,283 132,631 Interest expense: Banks and capital lease obligations 424,863 338,549 Related parties 3,820 11,653 Interest income (101,982) (117,670) ----------- ----------- 326,701 232,532 ----------- ----------- Income before income taxes 1,075,475 705,288 Income taxes 430,191 282,116 ----------- ----------- Net income $ 645,284 $ 423,172 ----------- ----------- Net income per common and common equivalent share $0.22 $0.15 =========== =========== Weighted average number of common and common share equivalent shares outstanding 2,885,585 2,737,500 =========== =========== Net income per common share - assuming full dilution $0.22 =========== Weighted average number of common shares outstanding - assuming full dilution 2,889,120 =========== </TABLE> See accompanying notes. 4
5 SIGMATRON INTERNATIONAL, INC. Consolidated Statements of Cash Flow (Unaudited) <TABLE> <CAPTION> THREE MONTHS ENDED JULY 31, 1996 1995 Operating activities: ------------- ------------- <S> <C> <C> Net income $ 645,284 $ 423,172 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 226,530 170,327 Equity in net loss of affiliate 3,283 132,631 Amortization 5,977 6,964 Changes in operating assets and liabilities: Accounts receivable (1,593,602) (80,977) Inventories 1,528,774 (1,823,347) Prepaid expenses (194,427) 35,730 Refundable income taxes 0 134,773 Other assets (174,668) (153,854) Deferred income taxes 0 0 Trade accounts payable (1,166,810) 1,850,552 Trade accounts payable - related parties (559,239) (380,639) Accrued expenses (378,277) (476,159) Income tax payable 416,189 147,343 ---------- ---------- Net cash used in operating activities (1,240,986) (13,484) Investing activities: Purchases of machinery and equipment (680,420) (298,898) Proceeds from sale of machinery and equipment 0 19,000 Advances to affiliate 0 (50,000) Proceeds from affiliate subleases 64,645 1,982 ---------- ---------- Net cash used in investing activities (615,775) (327,916) Financing activities: Repayment of term loan and other notes payable (50,001) (139,999) Net payments under capital lease obligations (252,053) (240,483) Issuance of common stock 53,375 0 Net proceeds under line of credit 2,105,440 721,882 ---------- ---------- Net cash provided by financing activities 1,856,761 341,400 Change in cash 0 0 Cash at beginning of period 2,500 2,500 ---------- ---------- Cash at end of period $ 2,500 $ 2,500 ---------- ---------- Supplementary disclosure of cash flow information: Acquisition of machinery and equipment financed under capital leases $ 348,713 $ 0 ---------- ---------- </TABLE> See accompanying notes. 5
6 SigmaTron International, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) July 31, 1996 NOTE A -- BASIS OF PRESENTATION 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 Article 10 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 have been included. Operating results for the three-month period ended July 31, 1996 are not necessarily indicative of the results that may be expected for the year ending April 30, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report for the year ended April 30, 1996. NOTE B -- INVENTORIES The components of inventory consist of the following: <TABLE> <CAPTION> July 31, April 30, 1996 1996 ----------- ----------- <S> <C> <C> Finished products $ 1,022,045 $ 556,157 Work-in-process 1,010,164 1,407,996 Raw materials 11,293,067 12,889,897 ----------- ----------- $13,325,276 $14,854,050 =========== =========== </TABLE> 6
7 NOTE C -- 401(k) PLAN Effective May 1, 1996 the Company changed 401(k) providers. Under the new agreement eligible participants are allowed to contribute up to 15% of their annual compensation. For each eligible participant the Company will contribute a matching contribution of 50% of employee deferrals up to $600 of employee deferrals. The Company contributed $8,100 in the first quarter of fiscal 1997. The Company anticipates administration costs associated with the plan will be approximately $9,000 for fiscal 1997. 7
8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: Net sales increased 65.8% from $11,149,046 for the three month period ended July 31, 1995 to $18,480,335 for the three month period ended July 31, 1996. The increase in net sales was due to increased sales to existing and new customers. Nighthawk Systems Incorporated ("NSI") and the Company entered into an agreement whereby the Company is the exclusive manufacturer of carbon monoxide detectors for NSI. NSI accounted for approximately $3,650,000 of net sales for the quarter ended July 31, 1996 compared to $3,650 for the same period in the prior year. The Company began manufacturing for NSI in August 1995 and NSI's market is an emerging market which could lead to volatility in the forecast. The Company anticipates NSI will account for a significant percentage of the Company's net sales in fiscal 1997. Sales to NSI are expected to be seasonal due to the nature of the product and the Company anticipates strong sales to NSI in the fall and winter months. The volatility of NSI orders may cause the Company's revenues and earnings to fluctuate significantly. Gross profit increased during the three month period ended July 31, 1996 to $2,855,424 or 15.5% of net sales from $1,685,384 or 15.1% of net sales for the same period of the prior fiscal year. The increase in gross profit of $1,170,040 in the first quarter of fiscal 1997 compared to the same period in the prior year is primarily due to a higher sales volume. Selling and administrative expenses increased from $614,933 or 5.5% of net sales during the three month period ended July 31, 1995 to $1,449,965 or 7.8% of net sales. This increase is due to increased commission, insurance and material procurement expenses, which were incurred to support the additional revenue volume. Also contributing to the increase in selling and administrative expenses as a percent of net sales was an accrual reversal in July 1995, which eliminated a $300,000 accrual for payables to creditors of a predecessor company. Interest expense for bank debt and capital lease obligations for the three month period ended July 31, 1996 was $424,863 compared to $338,549 for the same period in the prior year. This increase was attributable to a higher outstanding balance on the line of credit and interest expense associated with capital lease obligations. As a result of the foregoing, net income increased from $423,172 or 52.5% for the three month period ended July 31, 1995 to $645,284. Net earnings per share for the quarter ended July 31, 1996 were $.22 compared to $.15 for the same period in the prior year. 8
9 LIQUIDITY AND CAPITAL RESOURCES: During the first quarter of fiscal 1997 the Company financed its growth through net income and borrowings from its secured lender. The Company's primary source of liquidity has been cash provided by borrowings from its secured lender. The Company had working capital of $21,019,447 at July 31, 1996 and $14,003,312 at July 31, 1995, representing a current ratio of 3.6 and 3.0 for these periods, respectively. For the three month period ended July 31, 1996, the primary use of cash from operations was accounts receivable and accounts payable. The net cash used for investing activity, for the period ended July 31, 1996 and 1995 was $723,505 and $327,916, respectively, which was attributable primarily to machinery and equipment purchases. To the extent that the Company provides the funds necessary to operate its Mexican operations, the amount of funds available for use in the Company's domestic operations may be depleted. The funds, which ordinarily derive from the Company's cash from operations and borrowings under its revolving credit facility, equal approximately $1,192,445 for the quarter ended July 31, 1996. The Company provides funding in U.S. dollars, which are exchanged for pesos as needed. NOTE: To the extent any statements in this Form 10-Q may be deemed to be forward-looking, such statements should be evaluated in the context of the risks and uncertainties inherent in the Company's business, including those risks and uncertainties set forth in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1996. 9
10 SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY PART II - OTHER INFORMATION July 31, 1996 ITEM 6(A) EXHIBITS Exhibit 10.35 Amended 401 (k) plan agreement between SigmaTron and Putnam Investments dated May 1, 1996. Item 6 (a): Exhibits 27 - Financial Data Schedule (EDGAR version only). (b): No report on Form 8-K was filed for the quarter ended July 31, 1996. 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. SIGMATRON INTERNATIONAL, INC. Gary R. Fairhead 9/9/96 - ------------------------------------------------ ------------------------------ Gary R. Fairhead Date President and CEO (Principal Executive Officer) Linda K. Blake 9/9/96 - ------------------------------------------------ ------------------------------ Linda K. Blake Date Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer) 10