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, 1997 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- On September 5, 1997, there were 2,881,227 shares of the Registrant's Common Stock outstanding.
2 SigmaTron International, Inc. Index <TABLE> <CAPTION> PART I. FINANCIAL INFORMATION: Page No. -------- <S> <C> <C> Item 1. Financial Statements Consolidated Balance Sheets--July 31, 1997 and April 30, 1997 3 Consolidated Statements of Income--Three Months Ended July 31, 1997 and 1996 4 Consolidated Statements of Cash Flows--Three Months Ended July 31, 1997 and 1996 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About 9 Market Risks PART II. OTHER INFORMATION Item 6. Exhibits 10 </TABLE>
3 SIGMATRON INTERNATIONAL, INC. Condensed Consolidated Balance Sheets <TABLE> <CAPTION> JULY 31, April 30, 1997 1997 (UNAUDITED) (Audited) ----------- --------- <S> <C> <C> ASSETS Current assets: Cash $97,171 $323,223 Accounts receivable, less allowance for doubtful accounts of $ 125,000 at July 31, 1997 and $80,000 at April 30, 1997 10,888,096 8,770,457 Inventories 19,035,354 17,665,600 Equipment lease receivables from affiliate 1,109,988 892,435 Prepaid expenses 246,126 225,780 Refundable income taxes - 98,666 Deferred incomes taxes 231,245 231,245 Other assets 786,473 512,206 ----------- ----------- Total current assets 32,394,453 28,719,612 Machinery and equipment, net 10,257,659 10,343,060 Intangible assets, net of amortization of $183,140 and $178,119 at July 31, 1997 and April 30, 1997, respectively 9,115 14,136 Equipment lease receivables from affiliate, less current portion 2,007,722 1,467,336 Investment and advances with affiliate 531,720 527,238 Other assets 1,425,967 1,017,057 ----------- ----------- Total assets $46,626,636 $42,088,439 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable - Bank 166,668 166,668 Notes payable - Related parties 10,649 42,596 Trade accounts payable 7,569,617 3,244,537 Trade accounts payable - Related parties 677,815 736,893 Accrued expenses 1,251,199 1,680,721 Income taxes payable 25,603 - Capital lease obligations 1,677,103 1,199,212 ----------- ----------- Total current liabilities 11,378,654 7,070,627 Notes payable - Banks, less current portion 13,244,918 14,714,943 Capital lease obligations, less current portion 3,936,225 2,469,372 Deferred income taxes 818,853 818,853 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, 2,881,227 and 2,875,227 shares issued and outstanding at July 31, 1997 and April 30, 1997, respectively 28,812 28,752 Capital in excess of par value 9,415,699 9,373,759 Retained earnings 7,803,475 7,612,133 ----------- ----------- Total stockholders' equity 17,247,986 17,014,644 ----------- ----------- Total liabilities and stockholders' equity $46,626,636 $42,088,439 =========== =========== See accompanying notes. </TABLE> 3
4 SigmaTron International, Inc. Condensed Consolidated Statements of Income ( Unaudited) <TABLE> <CAPTION> THREE MONTHS Three Months ENDED Ended JULY 31, 1997 July 31, 1996 ------------- ------------- <S> <C> <C> Net sales $17,155,318 $18,480,335 Cost of products sold 15,271,015 15,624,911 ----------- ----------- 1,884,303 2,855,424 Selling and administrative expenses 1,255,187 1,449,965 ----------- ----------- Operating income 629,116 1,405,459 Equity in net (income) loss of affiliate (4,482) 3,283 Interest expense - banks and capital lease obligations 408,791 424,863 Interest expense - related party 523 3,820 Interest income - related party (96,328) (101,982) ----------- ----------- 312,986 326,701 ----------- ----------- Income before income taxes 320,612 1,075,475 Income taxes 129,270 430,191 ----------- ----------- Net income $191,342 $645,284 =========== =========== Net income per common and common equivalent share $0.06 $0.22 =========== =========== Weighted average number of common and common equivalent shares outstanding 2,984,601 2,885,585 =========== =========== Net income per common share - assuming full dilution $0.06 $0.22 =========== =========== Weighted average number of common shares outstanding - assuming full dilution 2,984,601 2,889,120 =========== =========== See accompanying notes. </TABLE> 4
5 SIGMATRON INTERNATIONAL, INC. Condensed Consolidated Statements of Cash Flow (Unaudited) <TABLE> <CAPTION> THREE MONTHS ENDED JULY 31, 1997 1996 ---------- ---------- <S> <C> <C> OPERATING ACTIVITIES: Net income $191,342 $645,284 Adjustments to reconcile net income to net cash provided by (used in)operating activities: Depreciation 286,323 226,530 Equity in net loss of affiliate (4,482) 3,283 Amortization 5,021 5,977 Changes in operating assets and liabilities: Provision for doubtful accounts 45,000 0 Accounts receivable (2,162,639) (1,593,602) Inventories (1,369,754) 1,528,774 Prepaid expenses (20,345) (194,427) Other assets (584,512) (174,668) Deferred income taxes 0 0 Trade accounts payable 4,325,080 (1,166,810) Trade accounts payable - related parties (59,078) (559,239) Accrued expenses (429,522) (378,277) Income tax payable 25,603 416,189 ---------- ---------- Net cash provided by (used in) operating activities 248,037 (1,240,986) INVESTING ACTIVITIES: Purchases of machinery and equipment (200,922) (680,420) Proceeds from sale and leaseback of machinery 1,429,899 and equipment 0 0 Advances to affiliate 0 0 Proceeds from affiliate subleases 104,049 64,645 ---------- ---------- Net cash provided by (used in) investing activities 1,333,026 (615,775) FINANCING ACTIVITIES: Repayment of term loan and other notes payable (31,947) (50,001) Net payments under capital lease obligations (347,142) (252,053) Issuance of common stock 42,000 53,375 Net (payments) proceeds under line of credit (1,470,025) 2,105,440 ---------- ---------- Net cash provided by (used in) financing activities (1,807,114) 1,856,761 Change in cash (226,051) 0 Cash at beginning of period 2,500 2,500 ---------- ---------- Cash at end of period $2,500 $2,500 ========== ========== See accompanying notes. </TABLE> 5
6 SigmaTron International, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) July 31, 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited condensed 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, 1997 are not necessarily indicative of the results that may be expected for the year ending April 30, 1998. 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, 1997. NOTE B -- INVENTORIES The components of inventory consist of the following: <TABLE> <CAPTION> July 31, April 30, 1997 1997 ----------- ----------- <S> <C> <C> Finished products $ 2,259,241 $ 2,966,415 Work-in-process 1,797,713 1,079,985 Raw materials 14,978,400 13,619,200 ----------- ----------- $19,035,354 $17,665,600 =========== =========== </TABLE> 6
7 NOTE C -- SALE/LEASEBACK In July 1997, the Company refinanced some machinery and equipment under a sale/leaseback arrangement. The equipment was sold for approximately $1.4 million in cash which was equal to the net book value of the equipment. The transaction has been accounted for as a financing, wherein the property remains on the books and will continue to be depreciated. A financing obligation representing the proceeds has been recorded, to be reduced based on payments under the lease. The lease has a term of 4 years and requires monthly payments of $35,324 through July 2001. The Company has the option to purchase the property at the end of the lease for $1. 7
8 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 the Company's continuing dependence on certain major customers, the anticipated seasonality of its business, the timing of or rescheduling of customer orders and other risks and uncertainties set forth in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1997. RESULTS OF OPERATIONS: Net sales decreased from $18,480,335 for the three month period ended July 31, 1996 to $17,155,318 for the three month period ended July 31, 1997. The decrease in net sales was a function of softer demand from SigmaTron's customer base. This is the result of timing of orders from SigmaTron's customers. The Company has not lost any significant customers. Historically, the Company's highest levels of revenues are achieved in its second and third quarter. This seasonality trend has caused the Company to experience quarterly fluctuations in its revenues and earnings. Gross profit decreased during the three month period ended July 31, 1997 to $1,884,303 from $2,855,424 for the same period of the prior fiscal year. The decrease in gross profit in the first quarter of fiscal 1998 compared to the same period in the prior year is primarily due to a lower sales volume. In addition, overhead increased as a result of the Company's plan to increase capacity, which will allow growth with new and existing customers. The expansion has caused the Company to incur higher levels of expenses, which will continue for the next several quarters. Selling and administrative expenses decreased from $1,449,965 or 7.8% of net sales during the three month period ended July 31, 1996 to $1,255,187 or 7.3% of net sales. This decrease is due to a decrease in commission expense related to the lower revenue volume and a reduction in bonus accruals. Interest expense for bank debt and capital lease obligations for the three month period ended July 31, 1997 was $408,791 compared to $424,863 for the same period in the prior year. This decrease was attributable to a lower interest rate on the line of credit obligation. As a result of the foregoing, net income decreased from $645,284 for the three month period ended July 31, 1996 to $191,342. Net earnings per share for the quarter ended July 31, 1997 were $ .06 compared to $ .22 for the same period in the prior year. 8
9 LIQUIDITY AND CAPITAL RESOURCES: During the first quarter of fiscal 1998 the Company financed its growth through net income and a sale leaseback agreement. The Company's primary source of liquidity has been cash provided by borrowings from its secured lender. The Company had working capital of $21,015,799 at July 31, 1997 and $21,019,447 at July 31, 1996, representing a current ratio of 2.8 and 3.6 for these periods, respectively. For the three month period ended July 31, 1997, the cash provided from operations was due to an increase in accounts payable. The net cash provided from investing activities for the period ended July 31, 1997 was attributable primarily to proceeds received in connection with a machinery and equipment sale/leaseback. 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. For the quarter ended July 31, 1997 the funds used for the Company's Mexican operation were $1,175,000, which were derived from borrowing under its revolving credit facility. The Company provides funding in U.S. dollars, which are exchanged for pesos as needed. ITEM 3. Not applicable 9
10 SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY PART II - OTHER INFORMATION July 31, 1997 ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 10.34 Lease agreement between SigmaTron International, Inc. and GE Capital dated July 14, 1997. Exhibit 27 Financial Data Schedule (EDGAR version only) (b) No report on Form 8-K was filed during the quarter ended July 31, 1997. 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. <TABLE> <CAPTION> <S> <C> Gary R. Fairhead 9/11/97 - -------------------------------------------- --------------------- Gary R. Fairhead Date President and CEO (Principal Executive Officer) Linda K. Blake 9/11/97 - -------------------------------------------- --------------------- Linda K. Blake Date Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer) </TABLE> 10