<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
FORM 10-Q
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended March 31, 1997
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from _______ to ______
Commission file number: 0-24170
SIGMA CIRCUITS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0107167
(State or other jurisdiction (I.R.S.
of Employer
incorporation or Identification
organization) Number)
393 Mathew Street
Santa Clara, California 95050
(408) 727-9169
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
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
The number of shares outstanding of the Registrant's common stock,
$.001 par value, was 4,086,959 at May 8, 1997.
</PAGE>
<PAGE> 2
<TABLE>
Sigma Circuits, Inc.
INDEX
<S> <C>
Description Page Number
Cover Page 1
Index 2
Part I: Financial Information
Item 1: Condensed Financial Statements
Condensed Balance Sheets as of
March 31, 1997 and June 30, 1996 3
Condensed Statements of
Operations for the Three and
Nine Month Periods Ended March
31, 1997 and 1996 4
Condensed Statements of Cash
Flows for the Nine Month
Period Ended March 31, 1997
and 1996 5
Notes to Condensed Financial
Statements 7
Item 2: Management's Discussion and
Analysis of Financial
Condition and Results of
Operations 9
Part II: Other Information
Item 1: Legal Proceedings 18
Item 4 Submission of Matters to a
Vote of Security Holders 19
Item 6: Exhibits and Reports on Form 8-K 19
Signatures 20
</TABLE>
</PAGE>
<PAGE> 3
Part I: Financial Information
Item 1: Condensed Financial Statements
<TABLE>
SIGMA CIRCUITS, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands)
March 31, June 30,
1997 1996
ASSETS
<S> <C> <C>
Current Assets:
Cash and Equivalents $ 569 $ --
Accounts Receivable (Net of Allowances of
$700 and $598, Respectively) 11,417 11,987
Income Taxes Receivable 382 1,393
Other Receivables 73 46
Inventories 2,786 4,753
Prepaid Expenses 414 268
Deferred Income Taxes 3,228 2,660
Total Current Assets 18,869 21,107
Property and Equipment, Net 16,877 18,899
Goodwill (Net of Accumulated Amortization of
$2,698 and $2,322, Respectively) 6,239 6,615
Deposits and Other Assets 207 339
Total $42,192 $46,960
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Cash Overdraft $ -- $ 297
Current Portion of Long-Term Debt 6,429 7,681
Accounts Payable 5,072 4,418
Accrued Liabilities 4,050 5,947
Total Current Liabilities 15,551 18,343
Long-Term Debt 13,576 14,345
Deferred Income Taxes 1,405 1,354
Stockholders' Equity:
Preferred Stock, $0.001 Par Value:
Shares Authorized: 5,000
Shares Outstanding: None -- --
Common Stock, $0.001 Par Value:
Shares Authorized: 20,000
Shares Outstanding: 4,086 and 3,998, Respectively 10,939 10,604
Deferred Stock Compensation (128) (180)
Retained Earnings 849 2,494
Total Stockholders' Equity 11,660 12,918
Total $42,192 $46,960
</TABLE>
See notes to condensed financial statements.
</PAGE>
<PAGE> 4
Item 1: Condensed Financial Statements (continued)
<TABLE>
SIGMA CIRCUITS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Sales $20,425 $24,330 $59,143 $67,117
Cost Of Sales 17,911 19,394 50,775 52,736
Gross Profit 2,514 4,936 8,368 14,381
Selling, General and
Administrative Expenses 4,186 2,616 8,795 8,275
Amortization of Goodwill 125 157 376 364
Facility Closing Costs -- -- (250) --
Operating Income (Loss) (1,797) 2,163 (553) 5,742
Interest Expense, Net 479 497 1,531 1,171
Income (Loss) Before Income
Taxes (2,276) 1,666 (2,084) 4,571
Provision (Benefit) For
Income Taxes (541) 546 (439) 1,736
Net Income (Loss) $(1,735) $ 1,120 $(1,645) $ 2,835
Net Income (Loss) Per Share $ (.43) $ .23 $ (.41) $ .62
Number of Shares Used in
Computing Per Share
Information 4,074 4,845 4,030 4,587
</TABLE>
See notes to condensed financial statements.
</PAGE>
<PAGE> 5
Item 1: Condensed Financial Statements (continued)
<TABLE>
SIGMA CIRCUITS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
March 31,
<C> <C>
<S> 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(1,645) $ 2,835
Reconciliation to Cash Provided by Operating
Activities:
Depreciation and Amortization of Property and
Equipment 3,551 3,146
Amortization of Goodwill 376 364
Amortization of Deferred Stock Compensation 52 81
Amortization of Non-Compete Agreement 113 --
(Gain) Loss on Disposal of Assets (108) 217
Deferred Income Taxes (517) (1,072)
Facility Closing Costs (250) --
Changes in Assets and Liabilities:
Accounts Receivable 570 128
Other Receivables (27) 349
Inventories 1,967 (1,536)
Prepaid Expenses (146) (154)
Accounts Payable 654 1,443
Accrued Liabilities (1,186) (467)
Income Taxes Payable/Receivable 1,011 (552)
Cash Provided by Operating Activities 4,415 4,782
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Property and Equipment (2,202) (4,426)
Proceeds from Sales of Property and Equipment 320 42
Deposits and Other Assets 19 (144)
Purchase of Citation Companies, Net of Cash
Acquired -- (9,092)
Cash Used for Investing Activities (1,863) (13,620)
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of Credit, Net 1,016 1,098
Proceeds from Long-Term Borrowings -- 11,066
Repayment of Long-Term Borrowings (3,037) (1,996)
Proceeds from Issuance of Common Stock 335 131
Cash Overdraft (297) --
Cash Provided by (Used For) Financing
Activities (1,983) 10,299
INCREASE IN CASH AND EQUIVALENTS: 569 1,461
CASH AND EQUIVALENTS:
Beginning of Period -- 106
End of Period $ 569 $ 1,567
</TABLE>
See notes to condensed financial statements.
</PAGE>
<PAGE> 6
Item 1: Condensed Financial Statements (continued)
<TABLE>
SIGMA CIRCUITS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
March 31,
1997 1996
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest $ 1,194 $ 835
Cash (Received) Paid for Income Taxes $(1,005) $ 3,046
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Tax Benefit from Employee Stock Transactions $ 71 $ --
Equipment Acquired Under Capital Lease
Obligations $ -- $ 459
PURCHASE OF THE CITATION COMPANIES:
Cash Paid, Net of Cash Acquired $ 9,092
Stock Issued to Seller 2,500
Debt Issued to Seller 4,092
Liabilities Assumed 5,278
Assets Acquired (including Goodwill of $6,133) $20,962
</TABLE>
See notes to condensed financial statements.
</PAGE>
<PAGE> 7
Item 1: Condensed Financial Statements (continued)
SIGMA CIRCUITS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Basis of Presentation
While the quarterly financial information contained in this
filing is unaudited, the financial statements presented reflect
all adjustments (consisting only of normal recurring adjustments)
which the Company considers necessary for a fair presentation of
the results of operations for the interim periods covered and of
the financial condition of the Company at the dates of the
interim balance sheets. The results for interim periods are not
necessarily indicative of the results of the entire year. The
information included in this report should be read in conjunction
with the Company's audited financial statements and notes thereto
included in the Company's fiscal year 1996 Annual Report on Form
10-K.
Per Share Information
Net income per share is based on the weighted average number of
common and common equivalent shares outstanding during the
period. Common equivalent shares include common stock options
and warrants (using the treasury stock method) and are excluded
in loss periods as they are anti-dilutive.
Inventories
<TABLE>
Inventories consist of (in thousands):
March 31, June 30,
1997 1996
<S> <C> <C>
Raw Materials $1,051 $2,641
Work in Process 1,394 1,880
Finished Goods 341 232
Inventories $2,786 $4,753
</TABLE>
Long-Term Debt and Capital Lease Obligations
As of June 30, 1996, the Company was in non-compliance with the
profitability and working capital convenants of its revolving
line of credit agreement with Comerica Bank (the "Bank"). The
Company obtained a waiver with respect to such convenants from
the Bank as of that date, and an amendment of its working capital
limits for the remaining term of the agreement. As of December
31, 1996, the Company was in non-compliance with the total
liabilities to tangible effective net worth ratio covenant of its
revolving line of credit agreement with the Bank. The Company
obtained a waiver with respect to such covenants from the Bank as
of that date. As of March 31 and April 30, 1997, the Company was
in non-compliance with the tangible effective net worth and
liabilities to tangible effective net worth ratios and the
profitability covenants of its revolving line of credit with the
Bank. The Company obtained a waiver with respect to such
covenants from the Bank as of each date. The Company believes it
will remain in compliance with the agreement's terms during the
remainder of fiscal year 1997; however, in the event that a
covenant is violated and not cured to the Bank's satisfaction,
the Bank would be entitled to accelerate the indebtedness owed by
the Company.
The provisions of the subordinated notes between the Company and
the seller of the Citation Companies required payment of accrued
interest through September 30, 1996 as of that date. The Company
elected to defer any payment of interest as of that date. Any
unpaid interest is due in June 1997 along with the related
subordinated notes.
</PAGE>
<PAGE> 8
Item 1: Condensed Financial Statements (continued)
Provision (Benefit) for Income Taxes
The Company incurred a combined federal and state effective
benefit tax rate of 23.8% and 21.1% for the three and nine month
periods ended March 31, 1997, respectively, compared to an
effective income tax rate of 32.8% and 38.0%, respectively, for
the same periods of fiscal year 1996.
Business Developments
On September 27, 1996, the Company signed a Letter of Intent
whereby Continental Circuits Corp. would acquire all of the
outstanding shares of the Company's common stock in exchange for
Continental Circuits' common stock. On December 19, 1996, the
Company announced that its letter of intent to merge with
Continental Circuits Corp. had expired and the two companies had
mutually agreed to discontinue merger discussions.
Recently Issued Accounting Standard
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share". The Company is required to adopt this
standard in the second quarter of fiscal year 1998 and will
restate at that time earnings per share ("EPS") data for prior
periods to conform with the standard. Earlier application is not
permitted.
This new standard replaces current EPS reporting requirements and
requires a dual presentation of basic and diluted EPS. Basic
EPS excludes dilution and is computed by dividing net income by
the weighted average amount of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock. As with current EPS
reporting requirements, the standard requires common equivalent
shares to be excluded in loss periods as they are anti-dilutive.
If SFAS No. 128 had been in effect during the prior fiscal year,
basic EPS would have been $.29 and $.76 for the three and nine
month periods ended March 31, 1996, respectively. Basic EPS for
the three and nine month periods ended March 31, 1997 and diluted
EPS for all periods presented under SFAS No. 128 would not have
been significantly different than the EPS currently reported for
the periods.
</PAGE>
<PAGE> 9
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
This discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could
differ materially from those discussed herein. Factors that
could cause or contribute to such differences, include, but are
not limited to, those discussed herein, as well as those
discussed in the Company's fiscal year 1996 Annual Report on Form
10-K. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis
only as of the date hereof. The Company undertakes no obligation
to publicly release the results of any revision to these forward-
looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence
of unanticipated events.
Overview
Beginning in fiscal year 1994, the Company adopted a strategy to
service more of the electronic interconnect needs of its
strategic customers by broadening its product offerings and
increasing its capacity. The Company believed that its
reputation as a high quality, reliable quick-turn supplier of
PCBs would generate demand among its customers for additional
product offerings. The Company also believed that the customer
relationships established by providing quick-turn services during
the prototype stage of the product life cycle would give it an
advantage in securing the larger volume pre-production and
production orders of such products. Assisted by the proceeds of
a private equity financing and its initial public offering, the
Company established its Systems Integration and Flexible Circuits
divisions during the latter part of fiscal year 1994 in order to
broaden its product offerings. The Company completed the
acquisition of Stockton, California-based Citation Circuits, Inc.
and its related companies (the "Citation Acquisition") during the
first quarter of fiscal year 1996 in order to obtain the
manufacturing capacity required to service its customers' higher
volume production jobs in a lower cost operating environment.
During the first half of fiscal year 1996, net sales and gross
profit increased significantly as a result of the additional
capacity obtained in the Citation Acquisition and the products
offered by its two new divisions. During the second half of
fiscal year 1996, the electronic interconnect industry
experienced a softening period which adversely impacted the
Company, along with many of its competitors, as evidenced by a
decline in the demand for its products and services. As a
result, the Company announced the closure of its Costa Mesa PCB
division and the redeployment of certain assets and personnel
into its existing Northern California PCB operations and recorded
a one-time charge of approximately $3.8 million for facility
closing costs during the fourth quarter of fiscal year 1996.
During the quarter ended March 31, 1997, the Company filed a
lawsuit against one of its customers. The suit asserts a breach
of contract by the customer relating to custom-made assembled
circuit boards and other services provided by the Company under
purchase orders received by the Company from the customer. As
the extent of recovery is unknown at this time, the Company wrote
off the customer's receivable amount, as well as excess and
obsolete inventory relating to the manufacture of this customer's
product. Additionally, the Company accrued other costs
associated with the suit. During the quarter ended March 31,
1997, the Company recorded a charge of approximately $1,500,000
to its operations related to this lawsuit.
The Company's operating results have been and are expected to
continue to be affected by a number of factors, including the
timing and volume of orders from, and shipments to, customers
relative to the Company's manufacturing capacity, level of
product and price competition, product mix, the number of working
days in a particular quarter, economic conditions in the
electronic interconnect industry and general economic factors.
The lead times, volume levels and complexity of customer orders
have also affected overall gross margin.
</PAGE>
<PAGE> 10
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Results of Operations
The following table sets forth, for the periods indicated,
certain statement of operations data expressed as a percentage of
net sales. The table and the discussion below should be read in
conjunction with the condensed financial statements and the notes
thereto appearing elsewhere in this report.
<TABLE>
Three Months Nine Months
Ended Ended
March 31, March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 87.7 79.7 85.8 78.6
Gross Margin 12.3 20.3 14.2 21.4
Selling, General and 20.5 10.7 14.9 12.3
Administrative Expenses
Amortization of Goodwill 0.6 0.7 0.6 0.5
Facility Closing Costs -- -- (0.4) --
Operating Income (Loss) (8.8) 8.9 (0.9) 8.6
Interest Expense, Net 2.3 2.0 2.6 1.8
Income (Loss) Before (11.1) 6.9 (3.5) 6.8
Income Taxes
Provision (Benefit) for (2.6) 2.3 (0.7) 2.6
Income Taxes
Net Income (Loss) (8.5)% 4.6% (2.8)% 4.2%
</TABLE>
Net Sales
Net sales for the quarter ended March 31, 1997 were approximately
$20.4 million, a decrease of $3.9 million or 16.1% from the same
quarter in the prior fiscal year. The decrease was primarily
attributable to a slowdown in the PCB industry in calendar year
1996 and the Company's subsequent consolidation of its PCB
operations in June 1996. Although the Company has experienced
recent quarter to quarter net sales growth, it has still not
achieved pre-consolidation net sales levels through the current
quarter.
Net sales for the nine months ended March 31, 1997 were
approximately $59.1 million, a decrease of $8.0 million or 11.9%
from the same period in the prior fiscal year. The decrease is
primarily attributable to the aforementioned slowdown in the PCB
industry.
Gross Profit
Gross profit for the quarter ended March 31, 1997 was
approximately $2.5 million, a decrease of $2.4 million or 49.1%
from the same quarter in the prior fiscal year. Gross margin for
the quarter ended March 31, 1997 and 1996 were 12.3% and 20.3%,
respectively. The decrease is primarily attributable to a charge
of $1.2 million relating to excess and obsolete inventory and
equipment, an unfavorable sales tax ruling, as well as lower PCB
net sales and associated under-utilization of capacity.
Gross profit for the nine months ended March 31, 1997 was
approximately $8.4 million, a decrease of $6.0 million or 41.8%
from the same period in the prior fiscal year. Gross margin for
the nine months ended March 31, 1997 and 1996 were 14.2% and
21.4%, respectively. The decrease is primarily attributable to a
charge of $1.9 million relating to excess and obsolete inventory
and equipment, as well as an unfavorable sales tax ruling.
Additionally, under-utilization of capacity negatively impacted
gross margin.
</PAGE>
<PAGE> 11
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the quarter
ended March 31, 1997 were approximately $4.2 million, an increase
of $1.6 million or 60.0% from the same quarter in the prior
fiscal year. Selling, general and administrative expenses
increased from 10.7% to 20.5%, as a percentage of net sales. The
increase is primarily attributable to a charge of $1.2 million
pertaining to bad debt and related expenses pertaining to the
lawsuit filed during the quarter. This charge represents 5.9% of
the 20.5% amount of selling, general and administrative expenses
as a percentage of net sales.
Selling, general and administrative expenses for the nine months
ended March 31, 1997 were approximately $8.8 million, an increase
of $520,000 or 6.3% from the same period in the prior fiscal
year. Selling, general and administrative expenses increased
from 12.3% to 14.9%, as a percentage of net sales. The increase
is primarily attributable to a charge of $1.2 million pertaining
to bad debt and related expenses associated with the
aforementioned lawsuit. This charge represents 2.0% of the 14.9%
amount of selling, general and administrative expenses as a
percentage of net sales.
Facility Closing Costs
Facility closing costs credited for the nine months ended March
31, 1997 were approximately $250,000 and are attributable to a
reduction of the associated reserve recorded in the fourth
quarter of fiscal year 1996 pertaining to the closure of the
Company's Costa Mesa PCB division.
Interest Expense, Net
Net interest expense for the quarter ended March 31, 1997 was
approximately $479,000, a decrease of $18,000 or 3.6% from the
same quarter in the prior fiscal year. The overall decrease is
primarily attributable to repayment of the Company's various debt
and capital lease obligations.
Net interest expense for the nine months ended March 31, 1997 was
approximately $1.5 million, an increase of $360,000 or 30.7% from
the same period in the prior fiscal year. The overall increase
is attributable to the debt incurred in connection with the
Citation Acquisition completed at the end of the first quarter of
fiscal year 1996.
Provision (Benefit) for Income Taxes
The Company incurred a combined federal and state effective
benefit tax rate of 23.8% and 21.1% for the three and nine month
periods ended March 31, 1997, respectively, compared to an
effective income tax rate of 32.8% and 38.0%, respectively, for
the same periods of fiscal year 1996. These rates differ from
statutory rates primarily due to state taxes, net of federal
benefit, amortization of goodwill and deferred stock
compensation, as well as other amounts which are not deductible
in determining taxable income or loss. Additionally, the amount
of pre-tax income or loss can have a material effect on the
Company's effective income tax rate.
Financial Condition
The Company has historically financed its operations primarily
through bank borrowings, issuances of debt and equity securities
and cash generated from operations.
</PAGE>
<PAGE> 12
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Liquidity
The Company generated cash from operating activities of
approximately $4.4 million and $4.8 million in the nine months
ended March 31, 1997 and 1996, respectively. Cash generated in
the nine months ended March 31, 1997 was primarily attributable
to net loss of $1.6 million adjusted for non-cash depreciation
and amortization charges of approximately $4.1 million, as well
as other working capital changes. Cash generated in the nine
months ended March 31, 1996 was primarily attributable to net
income of approximately $2.8 million adjusted for non-cash
depreciation and amortization charges of approximately $3.6
million, as well as other working capital changes. During the
nine months ended March 31, 1997, the Company has paid
approximately $564,000, $326,000, $227,000, and $118,000 for
severance and termination benefits, operating leases,
environmental clean up and remediation, and other payments,
respectively, in connection with the closure of the Costa Mesa
PCB division.
The Company used cash in investing activities of approximately
$1.9 million and $13.6 million in the nine months ended March 31,
1997 and 1996, respectively. Cash used in the nine months ended
March 31, 1997 was primarily attributable to approximately $2.2
million used for the purchase of property and equipment. Cash
used in the nine months ended March 31, 1996 was primarily
attributable to approximately $9.1 million in expenditures in
connection with the Citation Acquisition and approximately $4.4
million used for the purchase of property and equipment.
The Company used cash for and generated cash from financing
activities of approximately $2.0 million and $10.3 million in the
nine months ended March 31, 1997 and 1996, respectively. Cash
used in the nine months ended March 31, 1997 was primarily
attributable to approximately $2.0 million in repayments of debt
and capital lease obligations, net of borrowings under the long-
term revolving line of credit. Cash generated in the nine months
ended March 31, 1996 was primarily attributable to $10.2 million
in net long-term borrowings of which $10.0 million was used to
finance the Citation Acquisition.
As of March 31, 1997 the Company had total debt outstanding of
approximately $20.0 million, consisting primarily of $6.7 million
outstanding under the Company's long-term revolving line of
credit, $10.1 million of debt issued in connection with the
Citation Acquisition and $3.2 million of real estate and other
equipment obligations. The Company has an $8.0 million long-term
revolving line of credit with Comerica Bank (the "Bank"). The
Company's credit agreement limits borrowings under the line of
credit to the maximum of $8.0 million or 75% of the Company's
eligible trade accounts receivable as contractually defined. On
October 14, 1996, the current line of credit was amended to
expire on October 2, 1998 and bears interest at the Bank's base
rate plus 0.25%. Additionally, the Company was granted a
temporary increase in the amount of $1.2 million, thus making
$9.2 million the total maximum line of credit. The additional
borrowings are limited to the maximum of $1.2 million or 29% of
the Company's combined raw materials and finished goods valued at
the lower of cost or market. This temporary increase expires on
April 2, 1997, at which time the maximum borrowing amount returns
to $8.0 million.
In connection with the Citation Acquisition, the Company borrowed
$8.5 million and $1.5 million from the Bank under two variable
rate installment notes, which have terms of five and two years,
respectively, and bear interest at the Bank's base rate plus
1.0%. Under both notes, principal and interest payments are due
monthly. Additionally, in connection with the Citation
Acquisition, the Company issued two 12.0% subordinated notes to
the seller of the Citation Companies in the amounts of
approximately $2.6
million and $1.5 million. These notes and related accrued
interest are payable in June 1997. The
</PAGE>
<PAGE> 13
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
provisions of the subordinated notes between the Company and the
seller of the Citation Companies required payment of accrued
interest through September 30, 1996 as of that date. The Company
elected to defer any payment of interest on that date. Any
unpaid interest is due in June 1997 along with the related
subordinated notes.
As of June 30, 1996, the Company was in non-compliance with the
profitability and working capital convenants of its revolving
line of credit agreement with the Bank. The Company obtained a
waiver with respect to such convenants from the Bank as of that
date, and an amendment of its working capital limits for the
remaining term of the agreement. As of December 31, 1996, the
Company was in non-compliance with the total liabilities to
tangible effective net worth ratio covenant of its revolving line
of credit agreement with the Bank. The Company obtained a waiver
with respect to such covenants from the Bank as of that date. As
of March 31 and April 30, 1997, the Company was in non-compliance
with the tangible effective net worth and liabilities to tangible
effective net worth ratios and the profitability covenants of its
revolving line of credit with the Bank. The Company obtained a
waiver with respect to such covenants from the Bank as of each
date. The Company believes it will remain in compliance with the
agreements terms during the remainder of fiscal year 1997;
however, in the event that a covenant is violated and not cured
to the Bank's satisfaction, the Bank would be entitled to
accelerate the indebtedness owed by the Company.
The ability of the Company to meet its debt service requirements
will depend upon achieving significant and sustained growth in
the Company's profitability and cash flow, which will be affected
by its success in implementing its business strategy, prevailing
economic and industry conditions and financial, business and
other factors, certain of which are beyond the Company's control.
Accordingly, there can be no assurance as to whether or when the
Company's operations will generate sufficient cash flow or
whether the Company will at any time have sufficient resources to
meet its debt service or debt repayment obligations. If the
Company is unable to generate sufficient cash flow to service or
repay its indebtedness, it will have to reduce or delay planned
capital expenditures, sell assets, restructure or refinance its
indebtedness or seek additional equity capital.
A substantial portion of the Company's debt obligations and
accrued interest is due in June 1997. The Company is currently
negotiating with lenders to restructure all or a portion of its
debt obligations. There can be no assurance that such
negotiations will be successful or that the Company will be able
to restructure its debt obligation on terms satisfactory to the
Company, or at all. To the extent the Company is unable to
restructure its indebtedness, its business, financial condition
and results of operations could be materially adversely affected.
Capital Resources
During the nine months ended March 31, 1997, the Company
purchased approximately $2.2 million of property and equipment
which was funded through cash generated from operations.
Management expects the Company's level of future capital
expenditures to remain at levels consistent with the Company's
operational projections mitigated by the redeployment of selected
capital equipment from the closed Costa Mesa PCB division.
Excluding the financial impact of any acquisition or
establishment of new facilities, the Company expects to incur
capital expenditures of approximately $500,000 in the remaining
three months of fiscal year 1997.
</PAGE>
<PAGE> 14
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Inflation
The Company recognizes that inflationary pressures may have an
adverse effect on its operations through increased production
costs. The Company attempts to minimize the effect of inflation
through productivity improvements, as well as price increases
that assist in maintaining reasonable profit margins. Although
the Company believes that the impact of inflation on its
operating results has been moderate in recent years, there can be
no assurance that, in the future, it could not have a material
adverse effect on the Company's business, financial condition and
results of operations.
Seasonality
The Company believes that its net sales have not historically
been subject to significant seasonal fluctuations.
Factors That May Affect Future Results
Dependence on Electronics Industry
The Company's principal customers are original equipment
manufacturers (OEM) and contract manufacturers in the data
communications, telecommunications, computer and computer
peripherals, industrial and medical industries. These industry
segments, and the electronics industry as a whole, are
characterized by intense competition, relatively short product-
life cycles and significant fluctuations in product demand. In
addition, the electronics industry is generally subject to rapid
technological change and product obsolescence. Discontinuance or
modifications of products containing components manufactured by
the Company could adversely affect the Company's business,
financial condition and results of operations. In addition, the
electronics industry has in the past experienced, and is likely
in the future to experience, recessionary periods. A recession
or any other event leading to excess capacity in the electronics
industry would likely result in intensified price competition and
a decrease in unit volume, both of which would have a material
adverse effect on the Company's business, financial condition and
results of operations.
Fluctuations in Quarterly Operating Results
The Company's quarterly operating results have varied and may
continue to fluctuate significantly. At times in the past, the
Company's net sales and net income have decreased from the prior
quarter. Operating results are affected by a number of factors,
including timing and volume of orders from and shipments to
customers relative to the Company's manufacturing capacity, level
of product and price competition, product mix, the number of
working days in a particular quarter and general economic
factors. In recent years, the Company's gross margins have
varied primarily as a result of capacity utilization, product
mix, start-up costs in its two new divisions, lead times, volume
levels, complexity of customer orders, and the costs associated
with non-recurring charges. There can be no assurance that the
Company will be able to manage the utilization of manufacturing
capacity or product mix in a manner that would maintain or
improve gross margins or the Company's business, financial
condition and results of operations. The timing and volume of
orders placed by the Company's OEM customers vary due to customer
attempts to manage inventory, changes in the OEM's manufacturing
strategy and variation in demand for customer products. An
interruption in manufacturing resulting from shortages of parts
or equipment, fire, natural disaster, equipment failure or
otherwise would have a material adverse effect on the Company's
business, financial condition and results of operations. Due to
all of the foregoing factors, it is likely that in some future
quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such
event, the price of the Company's common stock would likely be
materially adversely affected.
</PAGE>
<PAGE> 15
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Customer Concentration
The Company's growth has resulted, in part, from its ability to
identify and attract customers in rapidly growing segments of the
electronics industry. The Company has manufactured products for
some of these customers for a relatively short period of time.
There can be no assurance that the Company will continue to be
able to identify, attract and retain customers with high growth
rates or that the customers that they do attract and retain will
continue to grow at their historical rates or at all. Although
there can be no assurance that the Company's principal customers
will continue to purchase products and services from the Company
at current levels, if at all, the Company expects to continue to
depend upon its principal customers for a significant portion of
its net sales. The decrease in or loss of orders from one or
more major customers could have a material adverse effect on the
Company's business, financial condition and results of
operations.
Variability of Orders
The Company does not obtain long term purchase commitments from
its customers and a substantial portion of net sales in a given
quarter depends on obtaining orders for products to be
manufactured and shipped in the same quarter in which those
orders are received. Customers may cancel orders and change or
delay delivery schedules at any time. The timely replacement of
canceled, delayed or reduced orders with new orders cannot be
assured. Significant or numerous cancellations, reduction or
delays in orders by a customer or group of customers could have a
material adverse effect on the Company's business, financial
condition and results of operations. Because the Company
operates with virtually no backlog, net sales for any quarter are
substantially dependent on orders booked in that quarter and net
sales for any future quarter are not predictable with any
significant degree of certainty. The Company's expense levels
are relatively fixed and are based, in part, on expectations of
future net sales. Consequently, if net sales levels are below
expectations, the Company's business, financial condition and
results of operations are likely to be adversely affected.
Competition
The electronic interconnect industry is characterized by intense
competition. The Company faces significant competition in its
quick-turn, PCB and flexible circuits product lines primarily
from a number of regional privately-held manufacturers. As the
Company increasingly expands its volume production of PCBs,
backplane assemblies and flexible circuits, it will continue to
face much larger competitors. Many of these competitors have
significantly greater financial, technical and marketing
resources, greater name recognition and a larger installed
customer base than the Company. In addition, these competitors
may have the ability to respond more quickly to new or emerging
technologies and may adapt more quickly to changes in customer
requirements and may devote greater resources to the development,
promotion and sale of their products than the Company.
The Company believes that when it competes in the standard lead-
time volume production of its PCB, backplane and flexible
circuits products, it encounters greater price sensitivity from
current and potential customers. From time to time the Company
operates in the lower technology, higher volume segments of the
PCB market, where the Company may be at a competitive
disadvantage when competing with manufacturers with lower cost
structures, particularly those with offshore facilities where
labor and other costs are generally lower. During periods of
recession or economic slowdown in the electronics industry, the
Company's competitive advantages in the areas of quick-turn
manufacturing and responsive customer service may be of reduced
importance to the Company's customers, who may become more price
sensitive. Although capital barriers to entry are relatively
high for manufacturing technologically complex electronic
</PAGE>
<PAGE> 16
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
interconnect products, the basic interconnect technology is
generally not protected by patents or copyrights, and companies
with significant resources or international operations may enter
the market. Consolidation of smaller competitors may also result
in increased competition. Increased competition could result in
price reductions, reduced margins or loss of market share, any
of which could materially and adversely affect the Company's
business, financial condition and results of operations.
Management of Growth
The Company has in the past experienced periods of rapid growth
that have placed a significant strain on the Company's
management, operational and financial resources. The Company's
ability to manage growth effectively, particularly given the
increasing scope of its operations, will require it to continue
to implement and improve its management, operational, and
financial information systems,as well as to develop the management
skills of its managers and supervisors and to train, motivate and
manage its employees.The Company's failure to effectively manage
growth could have a material adverse effect on the Company's
business, financial condition and results of operations.
Competition for personnel is intense and there can be no
assurance that the Company will be able to attract, assimilate
or retain additional highly qualified employees in the future.
The failure to hire and retain such personnel could have a
material adverse effect on the Company's business, financial
condition and results of operations.
Substantial Leverage and Ability to Service Debt
The Company had outstanding indebtedness as of March 31, 1997, of
approximately $20.0 million, consisting primarily of $6.7 million
outstanding under the Company's long-term revolving line of
credit, $10.1 million of debt issued in connection with the
Citation Acquisition and $3.2 million of real estate and other
equipment obligations. The Company has an $8.0 million long-term
revolving line of credit with Comerica Bank (the "Bank"). The
Company's credit agreement limits borrowings under the line of
credit to the maximum of $8.0 million or 75% of the Company's
eligible trade accounts receivable as contractually defined. On
October 14, 1996, the current line of credit was amended to
expire on October 2, 1998 and bears interest at the Bank's base
rate plus 0.25%. In connection with the Citation Acquisition, the
Company borrowed $8.5 million and $1.5 million from the Bank
under two variable rate installment notes, which have terms of
five and two years, respectively, and bear interest at the Bank's
base rate plus 1.0%. Under both notes, principal and interest
payments are due monthly. Additionally, in connection with the
Citation Acquisition, the Company issued two 12.0% subordinated
notes to the seller of the Citation Companies in the amounts of
approximately $2.6 million and $1.5 million. These notes and
related accrued interest are payable in June 1997. The provisions
of the subordinated notes between the Company and the seller of
the Citation Companies required payment of accrued interest
through September 30, 1996 as of that date. The Company elected
to defer any payment of interest as of that date. Any unpaid
interest is due in June 1997 along with the related subordinated
notes.
As a result, the Company has substantial debt service
obligations. The ability of the Company to meet its debt service
requirements will depend upon achieving significant and sustained
growth in the Company's profitability and cash flow, which will
be affected by its success in implementing its business strategy,
prevailing economic and industry conditions and financial,
business and other factors, certain of which are beyond the
Company's control. Accordingly, there can be no assurance as to
whether or when the Company's operations will generate sufficient
cash flow or whether the Company will at any time have sufficient
resources to meet its debt service or debt repayment obligations.
If the Company is unable to generate sufficient cash flow to
service or repay its indebtedness, it will have to reduce or
delay planned capital expenditures, sell assets, restructure or
refinance its indebtedness or seek additional equity
</PAGE>
<PAGE> 17
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
capital. There can be no assurance that any of these strategies
could be effected on satisfactory terms, if at all, particularly
in light of the Company's high levels of indebtedness. In
addition, the degree to which the Company is leveraged could have
significant consequences, including, but not limited to, the
following: (i) the Company's ability to obtain additional
financing in the future for working capital, capital
expenditures, and other general corporate purposes may be
materially limited or impaired, (ii) a substantial portion of the
Company's cash flow from operations may need to be dedicated to
the payment of principal and interest on its indebtedness and
therefore, not available to finance the Company's business and
(iii) the Company's high degree of leverage may make it more
vulnerable to economic downturns, may limit its ability to
withstand competitive pressures and may reduce its flexibility in
responding to changing business and economic conditions.
</PAGE>
<PAGE> 18
PART II: Other Information
Item 1. Legal Proceedings
In connection with the Citation Acquisition on September 30,
1995, the Company assumed certain environmental contingent
liabilities pertaining to operations prior to that date. As of
the acquisition date, Citation had accrued $303,000 for the two
known claims.
The first contingent liability relates to allegations by the City
of Stockton of violations of its City Code regarding discharge of
waste water into the City's sewer system in excess of allowed
limits during several months in 1992. As of March 31, 1997, no
further action has taken place between the City of Stockton and
the Company. The Company has established a reserve for this
contingency and in the opinion of its management, any settlement
would not likely result in a loss that would have a material
adverse effect on the Company's business, financial condition and
results of operations.
The second contingent liability relates to the United States
Environmental Protection Agency ("EPA") issuance of an
administrative civil complaint regarding the timely submission of
required federal forms under the Emergency Planning and Community
Right-to-Know Act of 1986 ("EPCRA"). On April 15, 1996, the
Company entered into a tentative "Consent Agreement and Consent
Order" ("CACO") with the EPA pertaining to its complaint. In the
CACO, the Company has certified that it has completed and
submitted all required federal forms to the EPA under the EPCRA,
and that it has complied with all other EPCRA requirements at all
of its facilities. In addition, the Company will also purchase
and test certain equipment to aid in its environmental regulatory
requirements within twelve months of the effective date of the
CACO. The minimum aggregate cost associated with the purchase,
installation and testing of this equipment is $220,250 and if the
actual aggregate cost is lower, the difference between the actual
cost and such minimum threshold, will be remitted to the EPA. As
of March 31, 1997, the Company had incurred approximately
$146,000 of costs associated with the minimum threshold. In
relation to the testing of the equipment, the Company is subject
to additional filing requirements with the EPA pertaining to the
functionality of the equipment. Further, the Company paid a
civil penalty of $65,000 upon execution of and as required by the
CACO in July 1996. Terms of the CACO constitute a full and final
settlement of the complaint.
During the quarter ended March 31, 1997, the Company filed a
lawsuit against one of its customers. The suit asserts a breach
of contract by the customer relating to custom-made assembled
circuit boards and other services provided by the Company under
purchase orders received by the Company from the customer. The
suit was filed on March 13, 1997 in the Superior Court of the
State of California, Santa Clara County, with the Company seeking
damages in excess of approximately $992,000, the customer's
outstanding accounts receivable balance, plus additional damages,
late charges and related interest. Additionally, the Company is
seeking payment or reimbursement of costs of the suit, as well as
attorneys' fees, and any other appropriate relief. The customer
filed a cross complaint, on April 10, 1997, relating to breach of
contract, intentional and negligent misrepresentation,
intentional and negligent interference with contractual
relationships, and intentional and negligent interference with
prospective economic advantage. The customer is seeking damages
in excess of $10,000,000, an unspecified amount of punitive
damages, as well as payment or reimbursement of costs of the
suit, attorneys' fees, and any other appropriate relief. The
Company filed an application for a writ of attachment on March
13, 1997, which was subsequently denied. Although no assurances
can be given, the Company believes the customer's claims are
without merit and will defend itself vigorously, therefore, no
provision for any liability has been made in the financial
statements. As the extent of recovery is unknown at this time,
the Company wrote off the customer's receivable amount, as well
as purchased inventory in support of this customer relating to
the manufacture of its product and accrued other costs associated
with the suit. During the quarter ended March 31, 1997, the
Company recorded a charge of approximately $1,500,000 to its
operations related to this lawsuit.
</PAGE>
<PAGE> 19
Item 4: Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Sigma Circuits, Inc. was
held on February 13, 1997.
The matters voted upon at the meeting and the voting of
stockholders with respect thereto are as follows:
1. The election of Thomas J. Bernard and William J. Boyle to the
Board of Directors to hold office until the 1999 Annual
Meeting of Stockholders and until his successor is elected
and has qualified, or until such director's earlier death,
resignation or removal:
For Withheld
Thomas J. Bernard 3,483,590 59,614
William J. Boyle 3,484,822 58,383
2. The ratification of Deloitte & Touche LLP as the independent
auditors of the Company for its fiscal year ending June 30,
1997:
For: 3,530,852 Against: 8,882 Abstain: 3,470
Item 6: Exhibits and Reports on Form 8-K
A. Exhibits
See Index to Exhibits at page 21 of this filing and is
incorporated by reference herein.
B. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 1997.
</PAGE>
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in
the City of Santa Clara, County of Santa Clara, State of California,
on the 13th day of May, 1997.
Sigma Circuits, Inc.
(Registrant)
By /s/ B. Kevin Kelly
B. Kevin Kelly
President, Chief Executive
Officer and Director
By /s/ Philip S. Bushnell
Philip S. Bushnell
Senior Vice President, Finance
and Administration, Chief
Financial Officer, Secretary and
Director
</PAGE>
<PAGE> 21
INDEX OF EXHIBITS
<TABLE>
Exhibit
Number Description
<S> <C>
3.1 Restated Certificate of Incorporation of the Registrant.(1)
3.2 Bylaws of the Registrant.(1)
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Registration Agreement among the Registrant and certain other
parties named therein, dated April 15, 1986.(1)
4.3 Series C Registration Rights Agreement among the Registrant and
certain other parties named therein, dated September 30, 1993.(1)
4.5 Specimen stock certificate.(1)
10.1 Form of Indemnity Agreement entered into between the Registrant
and its directors and officers, with related schedule.(1)
10.2 Registrant's 1988 Stock Option Plan, as amended to date.(1)
10.3 Form of Incentive Stock Option under the 1988 Stock Option Plan.(1)
10.4 Form of Nonstatutory Stock Option under the 1988 Stock Option Plan.(1)
10.5 Form of Notice of Exercise under the 1988 Stock Option Plan.(1)
10.6 Registrant's 1994 Non-Employee Directors' Stock Option Plan, as
amended to date.(1)
10.7 Registrant's 1994 Employee Stock Purchase Plan, as amended to date.(1)
10.9 Form of Stock Warrant granted to Cruttenden & Company.(1)
10.10 Note Secured by Deed of Trust granted to Plaza Bank of Commerce,
dated March 29, 1990.(1)
10.11 Promissory Notes granted Comerica Bank-California, dated June 1,
1993 and November 12, 1993.(1)
10.13 Master Lease between the Registrant and CIT Group/Equipment
Financing, Inc., dated October 6, 1993, and Schedule 1 thereto.(1)
10.15 Lease Agreement between the Registrant and Anthony and Cydelle Drago,
dated December 30, 1986, as amended to date.(1)
10.17 Equipment Lease between the Registrant and Copelco Leasing
Corporation, dated January 9, 1993.(1)
10.19 Lease Agreement between the Registrant and Retail Control Systems,
Inc., dated December 15, 1984, as amended to date.(1)
10.21 Lease Agreement between the Registrant and The Kontrabecki Group,
dated May 3, 1994, and attachments thereto.(1)
10.22 Lease Agreement between the Registrant and The Kontrabecki Group,
dated June 9, 1995, and attachments thereto.(2)
</TABLE>
</PAGE>
<PAGE> 22
INDEX OF EXHIBITS (Continued)
<TABLE>
Exhibit
Number Description
<S> <C>
10.24 Lease Agreement Extension and Modification dated September 30, 1995,
between the Registrant and Anthony and Cydelle Drago to Lease
Agreement dated December 30, 1986, as amended.(2)
10.25 Consulting Agreement between the Registrant and Robert P. Cummins
dated March 1, 1997.
10.26 Change-in-Control Severance Agreement between the Registrant and
B. Kevin Kelly, dated October 26, 1995.(4)
10.27 Change-in-Control Severance Agreement between the Registrant and
Philip S. Bushnell, dated October 26, 1995.(4)
10.28 Revolving Credit Loan & Security Agreement between the Registrant and
Comerica Bank - California, with exhibits, dated September 29, 1995.(4)
10.29 Variable Rate Installment Notes granted to Comerica Bank-California,
dated September 29, 1995.(4)
10.30 Subordinated Promissory Note granted to Citation Circuits, Inc.,
dated September 30, 1995.(4)
10.31 Convertible Subordinated Promissory Note granted to Citation Circuits,
Inc., dated September 30, 1995.(4)
10.32 Lease Agreement between Registrant and Dockside, dated June 23, 1989.(4)
10.33 Asset Purchase Agreement between the Registrant, Citation Circuits,
Inc., Citation Enterprises, Inc., Citron Inc. and Carl Brockl, dated
September 8, 1995.(3)
11.1 Statements Regarding Calculation of Net Income (Loss) Per Share.
</TABLE>
____________________________________
(1) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to the Company's Registration Statement on Form S-1, as amended,
filed May 26, 1994 (File No. 33-76606).
(2) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to the Company's Form 10-K,as amended, filed September 28, 1995
(File No. 0-24170).
(3) Incorporated by reference to the corresponding Exhibit previously filed
as an Exhibit to the Company's Form 8-K, as amended, filed October 11, 1995
(File No. 0-24170).
(4) Incorporated by reference to the corresponding exhibit previously filed as
an exhibit to the Company's Registration Statement on Form S-1, as amended,
filed February 16, 1996 (File No. 333-1262).
</PAGE>
<PAGE> 23
<TABLE>
EXHIBIT 11.1
SIGMA CIRCUITS, INC.
STATEMENTS REGARDING CALCULATION
OF NET INCOME (LOSS) PER SHARE
(in thousands, except per share amounts)
Three Months Nine Months
Ended Ended
March 31, March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Income (Loss) $(1,735) $1,120 $(1,645) $2,835
Weighted Average Common Stock
Outstanding 4,074 3,904 4,030 3,751
Common Stock Equivalents:
Dilutive Effect of Stock Options --(1) 799 --(1) 713
Dilutive Effect of Underwriter's
Warrant --(1) 142 --(1) 123
Number Of Shares Used in Computing
Per Share Information 4,074 4,845 4,030 4,587
Net Income (Loss) Per Share $ (.43) $ .23 $ (.41) $ .62
</TABLE>
(1) Excludes common stock equivalents as they are anti-dilutive for
computing net loss per share.
</PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 569
<SECURITIES> 0
<RECEIVABLES> 12,117
<ALLOWANCES> 700
<INVENTORY> 2,786
<CURRENT-ASSETS> 18,869
<PP&E> 31,885
<DEPRECIATION> (15,008)
<TOTAL-ASSETS> 42,192
<CURRENT-LIABILITIES> 15,551
<BONDS> 0
0
0
<COMMON> 10,939
<OTHER-SE> 721
<TOTAL-LIABILITY-AND-EQUITY> 42,192
<SALES> 59,143
<TOTAL-REVENUES> 59,143
<CGS> 50,775
<TOTAL-COSTS> 50,775
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,531
<INCOME-PRETAX> (2,084)
<INCOME-TAX> (439)
<INCOME-CONTINUING> (1,645)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,645)
<EPS-PRIMARY> (.43)
<EPS-DILUTED> (.43)
</TABLE>
Sigma Circuits, Inc.
CONSULTING AGREEMENT
THIS AGREEMENT ("Agreement") is by and between ROBERT P. CUMMINS, an
independent contractor and consultant ("Consultant") and SIGMA CIRCUITS, INC.
("Company") and is effective as of March 1, 1997 ("Effective Date").
In consideration of the mutual promises stated in the paragraphs that
follow, the Company and Consultant agree as follows:
1. Engagement of Services. Consultant is hereby retained by the Company to
complete the services described in Exhibit A (the "Services"). The manner and
means by which Consultant chooses to complete the Projects are in Consultant's
sole discretion and control. Consultant agrees to exercise the highest degree of
professionalism, and utilize its expertise and creative talents in performing
such Services. In performing the Services, Consultant agrees to provide his own
equipment, tools and other materials at his own expense. The Company will make
its facilities and equipment available to Consultant when necessary. Consultant
shall be responsible for all expenses incurred in performing services under this
Agreement, except for reasonable preapproved travel expenses, which shall be
reimbursed by the Company. Consultant shall perform the services necessary to
satisfy his obligations under this Agreement in a timely and professional manner
consistent with industry standards at a location, place and time which the
Consultant deems appropriate. Nothing in this Agreement shall restrict the
ability of Consultant to serve as a member of the Company's Board of Directors
and to receive such compensation and benefits as the Company determines to
provide to the members of its Board of Directors who are not employees of the
Company.
2. Fees and Taxes. On the Effective Date, the Company shall pay Consultant
twenty thousand dollars ($20,000) for work performed to date. Thereafter,
Consultant shall be paid fees for work performed for Services at the rate of
$2500 dollars per month. Consultant shall be entitled to no additional
compensation, except for the reimbursement of expenses described above, for
services performed under the terms of this Agreement. Consultant agrees to
submit invoices to the Company on a monthly basis. The Company accepts no
responsibilities for the expenditure by Consultant of more dollars than this
Agreement authorizes. As an independent contractor, the Company will not
withhold or make payments for state or federal income tax or social security;
make unemployment insurance or disability insurance contributions; or obtain
workers' compensation insurance on Consultant's behalf. The Company will issue
Consultant a 1099 form with respect to Consultant's fees. Consultant agrees to
accept exclusive liability for complying with all applicable state and federal
laws governing self-employed individuals, including obligations such as payment
of quarterly taxes, social security, disability and other contributions based on
the fees paid to Consultant, its agents or employees under this Agreement.
Consultant hereby indemnifies and defends the Company against any and all such
taxes or contributions.
3. Consultant not an Employee. Consultant agrees that it is the express
intention of both Consultant and the Company that Consultant is an independent
contractor and not an employee, agent, joint venturer or partner of the Company.
Consultant agrees not to hold itself out as, or give any person or entity any
reason to believe, that Consultant is an employee, agent, joint venturer or
partner of the Company. Consultant agrees not to bind the Company, unless
expressly authorized by the Company in writing. Consultant will not receive any
employee benefits such as paid holidays, vacations, sick leave or other such
paid time off, or participate in Company-sponsored health insurance or
other employee benefit plans.
4. Proprietary Information and Noncompetition. As a condition of this
Agreement, Consultant hereby agrees to sign and abide by the Company's
Proprietary Information and Inventions Agreement, attached hereto as Exhibit B.
Consultant retains the right to engage in work activities for entities other
than the Company. However, Consultant agrees that, throughout the independent
contractor relationship, Consultant will not, without obtaining the Company's
prior written approval, directly or indirectly engage or prepare to engage in
any activity in competition with the Company, accept employment or provide
services to, or establish a business relationship with a business or individual
engaged in or preparing to engage in competition with the Company.
5. Workforce. Consultant may maintain a qualified workforce which may
perform services under this Agreement. The Company will not control, direct or
supervise Consultant's workforce. Consultant agrees that all of its employees
or agents who perform any work for the Company under this Agreement will sign
the Company's Proprietary Information and Inventions Agreement. Consultant
further agrees that it will provide the Company with the original signed copy of
such agreements prior to such individuals' commencement of work for the Company.
Consultant assumes full and sole responsibility for the payment of all
compensation, tax withholding, social security contributions, workers'
compensation payments, disability insurance contributions, unemployment
insurance contributions and expenses of its workforce. Consultant hereby
indemnifies the Company from any and all claims or liabilities arising out of
any of Consultant's obligations to its workforce, including but not limited to
injury, disability or death of Consultant's employees or agents.
6. Termination. This Agreement shall be effective on the Effective Date and
shall continue in effect until June 30, 1997, unless terminated earlier as set
forth in this paragraph. Either the Company or Consultant may terminate this
Agreement at any time by giving the other party fifteen (15) days written
notice. In the event Consultant materially breaches any of the covenants in
this Agreement, the Company may terminate this Agreement immediately upon
written notice, provided that if the reason for termination is failure to timely
perform the Services set forth in Exhibit A, the Company shall provide
Consultant with fifteen (15) days advance written notice and an opportunity to
cure the breach during the notice period.
7. General. This Agreement shall bind the heirs, personal representatives,
successors, assigns, executors and administrators of both Consultant and the
Company, and inure to the benefit of both Consultant and the Company, their
heirs, successors and assigns. This Agreement, including Exhibits A and B,
constitutes the complete, final and exclusive embodiment of the entire agreement
between Consultant and the Company with respect to the terms and conditions of
the subject matter hereof. This Agreement is entered into without relying upon
any promise, warranty or representation, written or oral, other than those
expressly contained in this Agreement, and it supersedes any other such
promises, warranties, representations or agreements. This Agreement may not be
amended or modified except by a written instrument signed by both Consultant and
a duly authorized officer of the Company. This Agreement shall be construed and
interpreted in accordance with the laws of the State of California. If any
provision of this Agreement is determined to be invalid or unenforceable, in
whole or in part, this determination will not affect any other provision of this
Agreement. A failure of either Consultant or the Company to enforce at any time
or for any period of time the provisions of this Agreement shall not be
construed to be a waiver of such provisions or of the right of Consultant or the
Company to enforce each and every such provision.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
SIGMA CIRCUITS, INC. CONSULTANT
By:
Date: Date:
Taxpayer I.D. #:
