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 October 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 December 6, 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--October 31, 1996 and April 30, 1996 3 Consolidated Statements of Income--Three and Six Months Ended October 31, 1996 and 1995 4 Consolidated Statements of Cash Flows--Six Months Ended October 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 7 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 9 Item 6. Exhibits
3 SIGMATRON INTERNATIONAL, INC. Consolidated Balance Sheets <TABLE> <CAPTION> OCTOBER 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 $671,126 at October 31, 1996 and $492,126 at April 30, 1996 20,539,735 11,080,485 Inventories 19,501,846 14,854,050 Equipment lease receivables from affiliate 764,015 655,913 Notes receivable from affiliate 420,000 300,000 Prepaid expenses 311,646 167,686 Other assets 1,542,093 744,164 Deferred incomes taxes 446,871 446,871 ----------- ----------- Total current assets 43,528,706 28,251,669 Machinery and equipment, net 8,897,475 7,230,393 Intangible assets, net of amortization of $166,276 and $154,341 at October 31, 1996 and April 30, 1996, respectively 25,979 37,914 Equipment lease receivables from affiliate, less current portion 1,696,547 1,920,876 Investment and advances with affiliate 176,310 202,524 Other assets 451,983 671,418 ----------- ----------- Total assets $54,777,000 $38,314,794 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable - Banks 166,668 166,668 Notes payable - Related parties 106,490 151,860 Trade accounts payable 13,736,876 6,062,695 Trade accounts payable - Related parties 1,178,597 794,310 Accrued expenses 1,485,623 1,443,034 Income tax payable 562,873 66,236 Capital lease obligations 1,038,452 913,566 ----------- ----------- Total current liabilities 18,275,579 9,598,369 Notes payable - Banks, less current portion 18,443,260 12,533,171 Notes payable - Related parties, less current portion - 42,596 Capital lease obligations, less current portion 2,555,463 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 outstanding at October 31, 1996 and April 30, 1996, respectively 27,823 27,375 Capital in excess of par value 8,512,016 8,384,089 Retained earnings 6,311,224 4,357,075 ----------- ----------- Total stockholders' equity 14,851,063 12,768,539 ----------- ----------- Total liabilities and stockholders' equity $54,777,000 $38,314,794 =========== =========== </TABLE> See accompanying notes. 3
4 SIGMATRON INTERNATIONAL, INC. Consolidated Statements of Income (Unaudited) <TABLE> <CAPTION> THREE MONTHS Three Months SIX MONTHS Six Months ENDED Ended ENDED Ended OCTOBER 31, 1996 October 31, 1995 OCTOBER 31, 1996 October 31, 1995 --------------- --------------- --------------- --------------- <S> <C> <C> <C> <C> Net sales $29,696,006 $16,957,907 $48,176,341 $28,106,953 Cost of products sold 25,185,242 14,374,176 40,810,153 23,837,838 ----------- ----------- ----------- ----------- 4,510,764 2,583,731 7,366,188 4,269,115 Selling and administrative expenses 1,910,613 1,216,960 3,360,578 1,831,893 ----------- ----------- ----------- ----------- Operating income 2,600,151 1,366,771 4,005,610 2,437,222 Equity in net loss of affiliate 22,681 79,860 25,964 212,491 Interest expense - banks and capital lease obligations 490,267 362,362 915,130 682,623 Interest expense - related party 2,873 8,340 6,694 19,993 Interest income - related party (97,110) (103,621) (199,092) (203,003) ----------- ----------- ----------- ----------- Income before income taxes 2,181,440 1,019,830 3,256,914 1,725,118 Income taxes 872,576 407,931 1,302,765 690,047 ----------- ----------- ----------- ----------- Net income $ 1,308,864 $611,899 $ 1,954,149 $ 1,035,071 =========== =========== =========== =========== Net income per common and common equivalent share $0.45 $0.22 $0.68 $0.38 =========== =========== =========== =========== Weighted average number of common and common equivalent shares outstanding 2,892,689 2,737,500 2,889,137 2,737,688 =========== =========== =========== =========== Net income per common share - assuming full dilution $0.45 $0.67 =========== =========== Weighted average number of common shares outstanding - assuming full dilution 2,903,391 2,903,391 =========== =========== </TABLE> See accompanying notes. 4
5 SIGMATRON INTERNATIONAL, INC. Consolidated Statements of Cash Flow (Unaudited) <TABLE> <CAPTION> SIX MONTHS ENDED OCTOBER 31, 1996 1995 ----------- ----------- <C> <C> <C> OPERATING ACTIVITIES Net income $ 1,954,149 $ 1,035,071 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 471,810 355,561 Equity in net loss of affiliate 25,964 212,491 Amortization 11,935 13,607 Compensation expense related to stock options 75,000 0 Changes in operating assets and liabilities: Accounts receivable (9,459,250) (4,062,768) Notes receivable from affiliates 0 (150,000) Inventories (4,647,796) (6,124,421) Prepaid expenses (143,960) (158,605) Refundable income taxes 0 134,773 Other assets (578,494) (47,835) Trade accounts payable 7,674,181 6,156,184 Trade accounts payable - related parties 384,287 (165,457) Accrued expenses 42,589 (297,248) Income tax payable 496,637 288,274 ----------- ----------- Net cash used in operating activities 1,098,808 (2,810,373) INVESTING ACTIVITIES: Purchases of machinery and equipment (1,790,179) (719,714) Proceeds from sale of investment in affiliate 250 0 Proceeds from sale of machinery and equipment 0 37,513 Advances to affiliate (120,000) (50,000) Proceeds from affiliate subleases 223,958 123,761 ----------- ----------- Net cash used in investing activities (1,685,971) (608,440) FINANCING ACTIVITIES: Repayment of term loan and other notes payable (87,966) (263,011) Net payments under capital lease obligations (496,579) (434,652) Issuance of common stock 53,375 0 Net proceeds under line of credit 5,910,089 4,116,476 ----------- ----------- Net cash provided by financing activities 5,378,919 3,418,813 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 $432,256 =========== =========== </TABLE> See accompanying notes. 5
6 SigmaTron International, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) October 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 six-month period ended October 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> October 31, April 30, 1996 1996 ----------- ----------- <S> <C> <C> Finished products $15,316,804 $ 556,157 Work-in-process 2,920,105 1,407,996 Raw materials 1,264,937 12,889,897 ----------- ------------ $19,501,846 $14,854,050 =========== ============ </TABLE> 6
7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 and Form 10-K for the fiscal year ended April 30, 1996. RESULTS OF OPERATIONS: Net sales increased 75% from $16,957,907 for the three month period ended October 31, 1995 to $29,696,006 for the three month period ended October 31, 1996. During the first six months of fiscal 1997 net sales increased 71% to $48,176,341 from $28,106,953 for the comparable period of the prior year. The increase in net sales was due primarily to sales to Nighthawk Systems, Inc. ("NSI"), which contributed approximately $16,794,081 in net sales for the six months ended October 31, 1996. 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. The volatility of NSI orders may cause the Company's revenues and earnings to fluctuate significantly. Also contributing to the increase were higher sales to existing customers in the gaming and telecommunication industries. Gross profit increased during the three month period ended October 31, 1996 to $4,510,764 or 15.2% of net sales from $2,583,731 or 15.2% for the same period of the prior fiscal year. Gross profit increased for the six month period ended October 31, 1996 to $7,366,188 or 15.3% of net sales from $4,269,115 or 15.2% of net sales for the same period in the prior year. The increase in gross profit is primarily due to the higher sales volume. Selling and administrative expenses increased from $1,216,960 or 7.2% of net sales during the three month period ending October 31, 1995 to $1,910,613 or 6.4% of net sales for the same period in the current year. The increase in selling and administrative expenses is due to an increase in commission expense related to the higher sales volume. Also contributing to the increase for the quarter was a bonus accrual for employees and management. For the six month period ended October 31, 1996 selling and administrative expense increased from $1,831,893 or 6.5% of net sales to $3,360,578 or 7.0% of net sales for the comparable period in the current fiscal year. The increase as a percentage of net sales in fiscal 1997 is primarily the result of reversing a $300,000 payables due to creditors of the predecessor Company in the second quarter of fiscal 1996. The accrual was reversed based on the expiration of the five-year statute of limitations. 7
8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - - cont'd Interest expense for bank debt and capital lease obligations for the three month period ended October 31, 1996 was $490,267 compared to $362,362 for the same period in the prior year. For the six months ended October 31, 1996 interest expense increased to $915,130 from $682,623 in the same period for the prior fiscal year. This increase was attributable to a higher outstanding balance on the line of credit and interest expense associated with increased capital lease obligations. As a result of the foregoing, income before taxes increased 114% from $1,019,830 in the three month period ended October 31, 1995 to $2,181,440 for the same period in the prior fiscal year. Net income increased 114% from $611,899 for the three month period ended October 31, 1995 to $1,308,864 for the three month period ended October 31, 1996. Earnings per share increased 105% to $ .45 for the three month period ended October 31, 1996 compared to $ .22 for the second quarter in fiscal 1996. LIQUIDITY AND CAPITAL RESOURCES: The Company's primary source of liquidity has been cash provided by borrowings from its secured lender. The Company had working capital of $25,253,127 at October 31, 1996 and $18,031,939 at October 31, 1995 resulting in a current ratio of 2.38 and 4.35 for these periods, respectively. For the six month period ended October 31, 1996, the primary use of cash from operations was for increases in accounts receivable and inventories, which was partially offset by the increase in accounts payable. The net cash used for operations equaled $3,692,948 compared to $2,810,373 for the six months ended October 31, 1995. The net cash used for investing activities for the same period was $1,685,971 and $608,440 respectively, which was attributable primarily to machinery and equipment purchases. Net cash provided by financing activities totaled $5,378,919 for the six months ended October 31, 1996 compared to $3,418,813 in the prior year. Net proceeds under the line of credit increased to $5,910,089 for the six months ended October 31, 1996 from $4,116,476 for the six months ended October 31, 1995. 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 $1,545,500 for the three month period ended October 31, 1996 and $2,738,000 for the six month period ended October 31, 1996. 8
9 SIGMATRON INTERNATIONAL, INC. PART II - OTHER INFORMATION October 31, 1996 ITEM 4: Submission of Matters to a Vote of Security Holders On September 20, 1996, the Company held its 1996 Annual Meeting of Stockholders. The following persons were elected as directors to hold office until the 1999 Annual Meeting of Stockholders: Gary R. Fairhead, Franklin D. Sove and Dilip S. Vyas. The number of shares cast for, withheld and abstained with respect to each of the nominees were as follows: <TABLE> <CAPTION> Nominee For Against Abstained ------- --------- ------- --------- <C> <C> <C> <C> Gary R. Fairhead 2,636,301 7,445 -- Franklin D. Sove 2,636,301 7,445 -- Dilip S. Vyas 2,636,301 7,445 -- </TABLE> The stockholders also voted to approve the ratification of the selection of Ernst & Young LLP as independent auditors for the Company for the fiscal year ending April 30, 1997. 2,633,451 shares were cast for such selection, 6,745 shares were cast against such selection, and 3,550 shares abstained. ITEM 6 (a) EXHIBITS 10.36 Lease Agreement between the Company and International Financial Services 96-049 dated April 18, 1996. The Company was granted a hardship exemption as provided in Rule 202 of Regulation S-T. The lease exhibit has been filed under the cover of Form SE. 10.37 Lease Agreement between the Company and International Financial Services 96-076 dated June 6, 1996. The Company was granted a hardship exemption as provided in Rule 202 of Regulation S-T. The lease exhibit has been filed under the cover of Form SE. 11.00 Statement RE: Computation of Earnings Per Share. Item 6 (a) Exhibits 27 - Financial Data Schedule (EDGAR version only) (b) No report on Form 8-K was filed for the quarter ended October 31, 1996. 9
10 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. /s/ Gary R. Fairhead 12/10/96 - -------------------------------------- -------------- Gary R. Fairhead Date President and CEO (Principal Executive Officer) /s/ Linda K. Blake 12/10/96 - -------------------------------------- -------------- Linda K. Blake Date Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer) 10
11 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. 12/10/96 - -------------------------------------- --------------- Gary R. Fairhead Date President and CEO (Principal Executive Officer) 12/10/96 - -------------------------------------- --------------- Linda K. Blake Date Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer) 10