UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10 - Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the period ended October 31, 1999.
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 0-15407
Circuit Systems, Inc.
(Exact name of registrant as specified in charter)
Illinois 36-2663010
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2400 East Lunt Avenue, Elk Grove Village, Illinois 60007
(Address of principal executive offices) (Zip Code)
(847) 439 - 1999 __________________
(Registrant's telephone number, (Former name, former address and
including area code) former fiscal year, if changed
since last report)
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 .
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15 (d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes No .
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the
latest practicable date: November 30, 1999: 4,591,020
<PAGE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
INDEX
Page
Number
PART 1. FINANCIAL INFORMATION ------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Operations 4
Consolidated Condensed Statements of Cash Flows 5
Notes to Consolidated Condensed 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
Market Risks 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8K 12
SIGNATURES 13
<PAGE>
<TABLE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
10/31/99 04/30/99
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 304,428 $ 1,463,336
ACCOUNTS RECEIVABLE, LESS ALLOWANCE
OF $175,000 16,450,374 13,048,378
INVENTORIES
RAW MATERIALS 3,953,490 4,007,914
WORK IN PROCESS 2,929,057 2,451,106
FINISHED GOODS 3,796,993 3,073,442
------------ ------------
10,679,540 9,532,462
REFUNDABLE INCOME TAXES 290,000 579,000
DEFERRED INCOME TAXES 309,000 309,000
PREPAID EXPENSES 126,443 103,707
------------ ------------
TOTAL CURRENT ASSETS 28,159,785 25,035,883
INVESTMENT IN AFFILIATE 3,377,403 3,211,083
PROPERTY, PLANT AND EQUIPMENT - AT COST
BUILDINGS AND IMPROVEMENTS 16,231,979 15,206,521
MACHINERY AND EQUIPMENT 57,957,813 53,454,625
AUTOMOTIVE EQUIPMENT 226,922 226,922
------------ ------------
74,416,714 68,888,068
LESS ACCUMULATED DEPRECIATION 31,544,917 28,082,923
------------ ------------
42,871,797 40,805,145
LAND 3,040,453 3,040,453
------------ ------------
45,912,250 43,845,598
OTHER ASSETS
GOODWILL, NET 10,741,435 6,487,447
DEPOSITS AND SUNDRY 1,894,581 1,335,757
------------ ------------
TOTAL OTHER ASSETS 12,636,016 7,823,204
------------ ------------
TOTAL ASSETS $ 90,085,454 $ 79,915,768
============ ============
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
CURRENT MATURITIES OF L/T OBLIGATIONS $ 8,591,259 $ 7,854,208
LONG-TERM OBLIGATIONS CLASSIFIED
AS CURRENT 22,699,000 -
ACCOUNTS PAYABLE 17,531,394 9,252,421
ACCRUED LIABILITIES 3,251,739 2,461,738
------------ ------------
TOTAL CURRENT LIABILITIES 52,073,392 19,568,367
LONG-TERM OBLIGATIONS 16,195,223 38,136,619
SUBORDINATED DEBT 4,173,762 3,375,985
DEFERRED INCOME TAXES 1,817,082 2,556,000
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
COMMON STOCK 3,678,055 2,191,168
RETAINED EARNINGS 12,147,940 14,087,629
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 15,825,995 16,278,797
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 90,085,454 $ 79,915,768
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
</TABLE>
<PAGE>
<TABLE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
10/31/99 10/31/98 10/31/99 10/31/98
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $24,920,533 $25,101,583 $48,279,589 $47,655,296
COST OF GOODS SOLD 22,847,468 21,021,036 44,800,111 40,522,254
---------- ---------- ---------- ----------
GROSS PROFIT 2,073,065 4,080,547 3,479,478 7,133,042
SALES AND MARKETING EXPENSES 1,100.439 843,767 2,239,568 1,637,932
ADMINISTRATIVE EXPENSES 1,330,373 741,038 2,523,546 1,654,089
RESTRUCTURING CHARGE - - - 1,520,000
---------- ---------- ---------- ----------
2,430,812 1,584,805 4,763,114 4,812,021
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) (357,747) 2,495,742 (1,283,636) 2,321,021
OTHER (INCOME) DEDUCTIONS
INTEREST EXPENSE 1,098,059 712,725 2,083,443 1,439,904
EQUITY IN EARNINGS OF
UNCONSOLIDATED AFFILIATE (124,628) (71,208) (166,320) (74,997)
MINORITY INTEREST IN
LOSS OF SUBSIDIARY - - - (31,782)
RENTAL INCOME (89,959) (100,460) (195,118) 204,520)
SUNDRY (27,526) (6,950) (27,552) 4,740
---------- ---------- ---------- ----------
855,946 534,107 1,694,453 1,133,345
---------- ---------- ---------- ----------
EARNINGS (LOSS) BEFORE
INCOME TAXES (1,213,693) 1,961,635 (2,978,089) 1,187,676
INCOME TAX EXPENSE (BENEFIT) (430,500) 722,000 (1,038,400) 447,000
---------- ---------- ---------- ----------
NET EARNINGS (LOSS) $ (783,193) $ 1,239,635 $(1,939,689) $ 740,676
========== ========== ========== ==========
PER SHARE DATA:
NET EARNINGS (LOSS) PER
COMMON SHARE-BASIC $ (.18) $ .29 $ (.47) $ .17
========== ========== ========== ==========
NET EARNINGS (LOSS) PER
COMMON SHARE-DILUTED $ (.18) $ .29 $ (.47) $ .17
========== ========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
</TABLE>
<PAGE>
<TABLE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
SIX MONTHS ENDED
10/31/99 10/31/98
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET EARNINGS (LOSS) $(1,939,689) $ 740,676
ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS)
TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 3,743,349 2,593,016
DEFERRED INCOME TAXES (738,918) 175,000
MINORITY INTEREST IN LOSS OF SUBSIDIARY - (31,782)
EQUITY IN EARNINGS OF UNCONSOLIDATED
AFFILIATE (166,320) (74,997)
CHANGES IN ASSETS AND LIABILITIES, NET OF
EFFECTS FROM ACQUISITION AND DIVESTITURE:
ACCOUNTS RECEIVABLE (2,081,118) (516,195)
INVENTORIES (1,147,078) (648,246)
PREPAID EXPENSES (22,736) (38,993)
OTHER ASSETS (557,541) 404,413
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 8,482,743 679,201
---------- ----------
TOTAL ADJUSTMENTS 7,512,381 2,541,417
---------- ----------
NET CASH PROVIDED BY OPERATIONS 5,572,692 3,282,093
CASH FLOWS FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (5,447,365) (3,439,458)
PAYMENT FOR PURCHASE OF INFOVISION, INC. (1,440,000) -
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (6,887,365) (3,439,458)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET BORROWINGS UNDER LINE OF CREDIT 2,000,000 2,543,240
PROCEEDS FROM LONG-TERM OBLIGATIONS 1,263,092 365,750
REPURCHASE OF COMMON STOCK - (872,832)
PAYMENTS ON LONG-TERM OBLIGATIONS (3,107,327) (3,049,452)
---------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 155,765 (1,013,294)
EFFECT OF FOREIGN EXCHANGE RATE CHANGES - 7,236
---------- ----------
DECREASE IN CASH (1,158,908) (1,163,333)
CASH AT THE BEGINNING OF THE PERIOD 1,463,336 1,531,526
---------- ----------
CASH AT THE END OF THE PERIOD $ 304,428 $ 368,193
========== ==========
<PAGE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID (RECEIVED) DURING THE PERIOD FOR:
INTEREST $ 2,074,879 $ 1,403,799
INCOME TAXES (289,000) (105,876)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
SUBORDINATED DEBT AND COMMON STOCK TO SELLER
IN CONJUNCTION WITH BUSINESS ACQUISITION $ 2,310,000 $ -
ISSUANCE OF COMMON STOCK IN SATISFACTION OF
LONG-TERM OBLIGATION AND ACCRUED INTEREST 961,887 -
DIVESTITURE OF NET INVESTMENT IN CIRCUIT
SYSTEMS (INDIA) LIMITED AND CIRCUIT SIGMA
LIMITED IN SATISFACTION OF CERTAIN ACCRUED
LIABILITIES AND REPURCHASE OF COMMON STOCK - 1,270,049
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
</TABLE>
<PAGE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. These interim Consolidated Condensed Financial Statements should be
read in conjunction with the consolidated Financial Statements and
notes included in the Company's April 30, 1999 Annual Report and Form
10-K.
2. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial information reflects all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation of
the statements contained herein.
2. These consolidated statements are presented in accordance with the
requirements of Form10-Q and consequently may not include all
disclosures normally required by generally accepted accounting
principles normally made in the Company's Annual Report and Form 10-K.
4. The following table illustrates a reconciliation of the basic and
diluted earnings per share calculations.
<TABLE>
Three Months Ended Six Months Ended
10/31/98 10/31/98
<S> <C> <C> <C> <C>
Net Earnings $1,239,635 $ 740,676
========= ========
Shares Per Share Shares Per Share
Amount Amount
--------- -------- --------- --------
Basic Earnings per Share 4,281,228 $ .29 4,425,262 $ .17
Effect of Dilutive Securities:
Stock Options - - - -
--------- -------- --------- --------
Diluted Earnings per Share 4,281,228 $ .29 4,425,262 $ .17
========= ======== ========= ========
Three Months Ended Six Months Ended
10/31/99 10/31/99
Net Loss $ 216,654 $(285,632)
======== ========
Shares Per Share Shares Per Share
Amount Amount
--------- -------- --------- --------
Basic Loss per Share 4,301,890 $ (.18) 4,113,955 $ (.47)
Effect of Dilutive Securities:
Stock Options NA NA NA NA
--------- -------- --------- --------
Diluted Loss per Share 4,301,890 $ (.18) 4,113,955 $ (.47)
========= ======== ========= ========
</TABLE>
<PAGE>
5. The provisions of Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" requires that an entity report, by
major components and as a single total, the change in its net assets
during the period from non-shareholder resources. Total comprehensive
income (loss) for the three months and six months ended October 31,
1999 was $(783,193) and $(1,939,689), respectively, and for the three
months and six months ended October 31, 1998 was $1,239,635 and
$821,662, respectively.
6. On September 10, 1999, the Company acquired all of the outstanding
shares of stock of Infovision, Inc. ("Infovision"). Infovision
specializes in two markets: 1) the rendering of consulting and
programming services and currently has approximately 55 full-time
consultants, and 2) the development and licensing of a certain software
product, which is being finalized for general release, which documents
a company's ISO procedures, with internet/intranet capabilities. The
purchase price of $3,750,000 (plus acquisition costs) consists of cash
of $1,440,000, subordinated term notes of $1,785,000 with installment
terms ranging from two to five years and $525,000 of the Company's
common stock. The cash portion of the purchase price was funded by a
$1,000,000 increase in the Company's installment note to its commercial
lender and the remainder from its line of credit. The Company's
president/CEO and his wife owned 14% of the Infovision common stock and
affiliates of the president/CEO owned 36%.
The acquisition will be accounted for under the purchase method. The
purchase price, including direct costs of acquisition, was allocated to
the assets acquired and liabilities assumed based upon their estimated
fair values. Results of operations for Infovision is included with
those of the Company since September 10, 1999. The excess of the
purchase price over the net assets acquired, which is approximately
$4,517,000, is being amortized to operations over 15 years.
<PAGE>
The fair value of assets acquired, net of liabilities assumed or
created is as follows:
Current assets $ (1,033,000)
Furniture and equipment (100,000)
Purchase price in excess of net
assets acquired (4,517,000)
Liabilities assumed and seller
subordinated debt 3,685,000
------------
Cash paid and Company common
stock issued $ (1,965,000)
============
As of the date of acquisition, in conjunction with the purchase
agreement, approximately $962,000 of pre-existing a note payable and
accrued interest due to the Company's President/CEO was converted into
455,000 shares of Company stock.
The prior operating results of Infovision were maintained on a cash
basis and it is therefore impracticable to provide interim proforma
results of operations from the beginning of the Company's fiscal year
on a combined basis.
7. At October 31, 1999, the Company was in violation of its tangible net
worth, debt to tangible net worth, minimum EBITDA, debt service ratio
and annualized capital expenditure covenants. Although the Company is
expecting its lender to waive these conenants as of October 31, 1999 it
is unlikely that the Company will return to compliance with all of
these covenants in the near future. Therefore, the long-term portion
of the line of credit and term note of $22,699,000 has been classified
as a current liability pending covenant amendments or a waiver which
would extend beyond one year.
<PAGE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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, including Year 2000 matters. 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 Annual Report on Form 10-K for the year ended April 30, 1999.
Reliance on these forward-looking statements 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. Although the Company believes the expectations
expressed in such forward-looking statements are based on reasonable
assumptions within the bounds of its knowledge of its business, a
number of factors could cause actual results to differ materially from
those expressed in any forward-looking statements, whether oral or
written, made by or on behalf of the Company. Many of these factors
have previously been identified in filings or statements made by or on
behalf of the Company. The Company does not intend to update these
forward-looking statements.
Reference to "IL" hereinafter refers to the Company's Illinois
operations only; reference to "CST" refers to Circuit Systems of
Tennessee; reference to "CSIL" refers to Circuit Systems (India)
Limited; reference to "SVPC" refers to SVPC Circuit Systems, Inc.;
reference to "Infovision" refers to Infovision, Inc. The results of
operations for Infovision is included with those of the Company since
September 10, 1999.
Net sales for the quarter ended October 31, 1999, were $24,921,000,
decreasing by 1% when compared to $25,102,000 for the same quarter last
year. The net sales of IL, CST, SVPC and Infovision for fiscal 2000
were $16,261,000, $4,610,000, $3,186,000 and $864,000, respectively, as
compared to $17,668,000, $7,434,000, $0 and $0, respectively, for
fiscal 1999. The net decrease in sales is comprised of additional
revenues resulting from the inclusion of SVPC and Infovision in fiscal
2000 which was offset by decreases in IL and CST sales of $1,407,000
and $2,824,000, respectively, compared to the prior year. The decrease
in IL and CST sales is due to pricing decreases and lower demand from
the current customer base. Net sales to four customers accounted
for approximately $13,081,000 or 53% of net sales for the quarter
ended October 31, 1999, compared to three customers representing
approximately $15,980,000 or 64% of net sales for the same quarter last
year.
<PAGE>
Gross profit for the quarter was $2,073,000 or 8.3% of net sales,
compared to $4,081,000 or 16.3% of net sales for the same quarter last
year. The gross profit of IL, CST, SVPC and Infovision for fiscal 2000
were $1,556,000, $(34,000), $341,000 and $210,000, respectively, as
compared to $2,477,000 and $1,604,000 for IL and CST, respectively, for
fiscal 1999. The gross margin for IL has been impacted by a slight
reduction in volume, continued pricing pressure and an overall increase
in occupancy costs with the addition of a new facility which began
limited production in the current quarter. CST's margin has been
negatively impacted this quarter due to a continuing combination of a
decrease in sales volume, pricing and product mix. Overall margins
have and will continue to be impacted as a result of continued pricing
pressures driven by Far East competitors. Realignment of certain
manufacturing processes within existing facilities and the installation
of machinery and building improvements in the new manufacturing
facility in IL continued during the second quarter and will continue
into the next quarter.
The net sales for the six months ended October 31, 1999 were
$48,280,000, increasing by 1% from $47,655,000 for the same period last
year. The net sales of IL, CST, SVPC and Infovision for fiscal 2000
were $32,248,000, $8,574,000, $6,594,000 and $864,000, respectively, as
compared to $34,405,000, $12,638,000, $0 and $0, respectively, for
fiscal 1999. The fiscal 1999 sales also included revenues of $612,000
from CSIL, which was divested as of July 27, 1998. Net sales to four
individual customers accounted for approximately 53% in the current
year compared to the same period last year in which three customers
accounted for approximately 58% of net sales. The gross profit for the
six months ended October 31, 1999 was $3,479,000 or 7.2% of net sales,
compared to $7,133,000 or 15.0% of net sales for the same period in the
prior year. The gross profit for the Company was affected by the same
factors as noted above.
Sales and marketing, and administrative expenses for the three and six
months ended October 31, 1999, were $2,431,000 or 9.8% of net sales and
$4,763,000 or 9.9% of net sales, respectively, compared to $1,585,000
or 6.3% of net sales and $3,292,000 or 6.9% of net sales, respectively,
for the same periods last year. The increase in operating expenses is
due primarily to the acquisition of SVPC and Infovision, which have
increased these expenses by $815,000 and $1,486,000 for the three and
six months ended October 31, 1999, respectively.
Operating expenses for the six months ended October 31, 1998 also
included a restructuring charge of $1,520,000 (which was recorded in
the first quarter of fiscal year 1999) relating to the reorganization
of the Company's management and plant operations. The majority of the
charge relates to severance and other termination benefits for an
executive vice president and five other managers and supervisors.
Excluding the restructuring charge, income from operations was
$3,841,000 or 8.1% of net sales for the six months ended October 31,
1998 compared to a loss from operations of $1,284,000 or 2.7% of net
sales for the six months ended October 31, 1999.
<PAGE>
Other deductions-net for the three and six months ended October 31,
1999, were $856,000 and $1,694,000, respectively, compared to $534,000
and $1,133,000, respectively, for the same periods in the prior year.
Interest expense increased to $1,098,000 and $2,083,000, respectively,
in 1999, compared to $713,000 and $1,440,000, respectively, for the
same periods last year. The increase is due to the SVPC acquisition in
December 1998, the Infovision acquisition in September 1999, increased
borrowings under the line of credit to fund additional working capital
needs and an increase in installment obligations to fund equipment
purchases and the new facility expansion. The equity in the earnings
of SigmaTron increased to $166,000 for the current six months compared
to $75,000 for the same period last year.
The effective income tax rate for the six months ended October 31, 1999
is (34.9)%, compared to the rate for the same period last year of
37.6%. The lower effective income tax rates are due to the inability
to recognize the tax benefits of certain state and foreign (in fiscal
1999) net operating losses.
The net loss and diluted loss per share for the three months and six
months ended October 31, 1999, were $783,000 or $.18, and $1,940,000 or
$.47, respectively, compared to net earnings and diluted earnings
per share for the three and six month periods in the prior year of
$1,240,000 or $.29 and $741,000 or $.17, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations, capital
expenditures, stock repurchases and debt payment requirements through
its line of credit, other collateralized borrowings and cash generated
from operations.
The Company's line of credit agreement (as amended) allows for maximum
borrowings of $16,000,000 and is limited to 85% of eligible accounts
receivable, 50% to 75% of eligible finished goods (not to exceed
$2,500,000), 50% of eligible raw material inventory (not to exceed
$2,000,000) and 60% of the fair market value of the Company's
investment in SigmaTron (not to exceed $2,000,000). At October 31,
1999, there was no unused credit available under the line of credit.
The agreement contains certain covenants, which restrict the amount of
dividends the Company could pay, capital stock redemptions, and capital
expenditures. Other financial covenants pertain to the maintenance of
specified debt to tangible net worth and debt service ratios and
minimum EBITDA and tangible net worth as defined. At October 31, 1999,
the Company was in violation of its tangible net worth, debt to
tangible net worth, minimum EBITDA, debt service ratio and annualized
capital expenditure covenants. Although the Company is expecting its
lender to waive these covenants as of October 31, 1999 it is unlikely
that the Company will return to compliance with all of these covenants
in the near future. Therefore, the long-term portion of the line of
credit and term note of $22,699,000 has been classified as a current
liability pending covenant amendments or a waiver which would extend
beyond one year.
<PAGE>
On September 10, 1999, the Company acquired all of the outstanding
shares of the stock of Infovision. Infovision specializes in two
markets: 1) the rendering of consulting and programming services
and currently has approximately 55 full-time consultants, and 2) the
development and licensing of a certain software product, which is
being finalized for general release, which documents a company's ISO
procedures, with internet/intranet capabilities. The purchase price of
$3,750,000 (plus acquisition costs) consists of cash of $1,440,000,
subordinated term notes of $1,785,000 with installment terms ranging
from two to five years and $525,000 of the Company's common stock. The
cash portion of the purchase price was funded by a $1,000,000 increase
in the Company's installment note to its commercial lender and the
remainder from its line of credit. The Company's president/CEO and
his wife owned 14% of the Infovision common stock and affiliates
of the president/CEO owned 36% of the Infovision common stock.
The acquisition will be accounted for under the purchase method. The
purchase price, including direct costs of acquisition, was allocated to
the assets acquired and liabilities assumed based upon their estimated
fair values. Results of operations for Infovision is included with
those of the Company since September 10, 1999. The excess of the
purchase price over the net assets acquired, which is approximately
$4,517,000, is being amortized to operations over 15 years. Subsequent
to the acquisition, in conjunction with the purchase agreement,
approximately $962,000 of a note payable and accrued interest due to
the Company's President/CEO was converted into approximately 455,000
shares of Company stock.
The Company has purchase commitments as of October 31, 1999 of
approximately $1,300,000 for future deliveries of machinery and
equipment and building improvements for the Antioch property. The
Company intends to finance such purchases through collateralized
borrowings and existing cash flow. The amount of anticipated capital
expenditures will frequently change based on future changes in business
plans.
The Company's backlog at October 31, 1999 is approximately $26,073,000,
compared to $16,419,000 at October 31, 1998. Backlog is comprised of
orders for which artwork has been received, a delivery date has been
scheduled and the Company reasonably anticipates it will manufacture
and deliver the order. The majority of the October 31, 1999 backlog is
scheduled to be shipped within approximately 4 months. The reliability
of backlog as an indicator of future sales varies substantially
with the make-up of customer's orders and the Company's scheduled
production and delivery dates. A significant portion of the Company's
backlog at any time may be subject to cancellation or postponement
without penalty.
<PAGE>
YEAR 2000 COMPLIANCE
During the first six months, the Company continued its Year 2000
compliance project as previously discussed in its 1999 Form 10-K.
The Company has substantially completed its internal assessments of
operations, equipment, etc. within each of its plants. The Company has
completed the implementation of its Enterprise Resource Planning
("ERP") II systems within the IL and CST operations. In addition, the
Company has selected, purchased and begun implementation of a human
resource/payroll software program. Management intends to run this
program simultaneous with its current software module within the IL
operations during December and intends to "go live" on January 1,
2000.
SVPC, and CST and Infovision currently outsource this function, but
will implement the same program in calendar 2000.
The Company's team of officers and managers has developed a detailed
contingency plan to address each of its facilities. The teams have met
on several occasions and have substantially completed their formal
plans.
The Company has expended approximately $700,000 in external costs and
it anticipates it will spend an additional $75,000 for hardware,
software and implementation costs prior to December 31. These
estimates are subject to change as additional information and
assessments become available.
The Company's assessments and plans to complete its Year 2000 project
are based upon management's best estimates, which were derived
utilizing presently available information and numerous assumptions
about future events such as availability of certain resources, ability
to identify and correct relevant codes and other uncertainties. The
Company believes that its compliance with Year 2000 issues will not
have a material adverse impact on its business, operations or financial
condition.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
Not Applicable.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits
(b)Reports on Form 8-K
None.
<PAGE>
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, registrant's principal financial officer, thereunto
duly authorized.
___________________________________________________________
Circuit Systems, Inc.
(registrant)
/s/ James E. Robbs
James E. Robbs
Chief Financial Officer
(Principal Financial Officer)
December 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY OF FINANCIAL
INFORMATION EXTRACTED FROM FORM 10 - Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-END> OCT-31-1999
<CASH> 304,428
<SECURITIES> 0
<RECEIVABLES> 16,625,374
<ALLOWANCES> 175,000
<INVENTORY> 10,679,540
<CURRENT-ASSETS> 28,159,785
<PP&E> 77,457,167
<DEPRECIATION> 31,544,917
<TOTAL-ASSETS> 90,085,454
<CURRENT-LIABILITIES> 52,073,392
<BONDS> 20,368,985
0
0
<COMMON> 3,678,055
<OTHER-SE> 12,147,940
<TOTAL-LIABILITY-AND-EQUITY> 90,085,454
<SALES> 48,279,589
<TOTAL-REVENUES> 48,279,589
<CGS> 44,800,111
<TOTAL-COSTS> 44,800,111
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,083,443
<INCOME-PRETAX> (2,978,089)
<INCOME-TAX> (1,038,400)
<INCOME-CONTINUING> (1,939,689)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,939,689)
<EPS-BASIC> (.47)
<EPS-DILUTED> (.47)
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