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SGMA Sigmatron International

Filed: 11 Mar 21, 12:49pm

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 January 31, 2021



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 0-23248



SIGMATRON INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

_________________





 

Delaware 

36-3918470 

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)



 

2201 Landmeier Road 

 

Elk Grove Village,  Illinois 

60007 

(Address of principal executive offices)

(Zip Code)



Registrant’s telephone number, including area code:  (847)  956-8000





 

 

Title of each class

Common Stock $0.01 par value per share

Trading Symbol

SGMA

Name of each exchange on which registered

The NASDAQ Capital Market



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  ☒   No  ☐


 

SigmaTron International, Inc.

January 31, 2021

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.  Yes  ☒   No  ☐



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of a “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer  ☐    Accelerated Filer  ☐



Non-accelerated Filer    ☒        Smaller Reporting Company  ☒



Emerging Growth Company  ☐



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐



Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes  ☐   No  ☒



Indicate the number of shares outstanding of the registrant’s common stock, $0.01 par value, as of March 8,  2021:  4,257,508







 

3

 


 

 



SigmaTron International, Inc.

Condensed Consolidated Balance Sheets





 

 

 

 

 



 

 

 

 

 



 

January 31,

 

 

 



 

2021

 

 

April 30,



 

(Unaudited)

 

 

2020



 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

2,744,679 

 

$

6,779,445 



 

 

 

 

 

Accounts receivable, less allowance for doubtful accounts of

 

 

 

 

 

$395,969 and $727,252 at January 31, 2021 and April 30, 2020,
respectively

 

26,289,585 

 

 

30,804,976 

Inventories, net

 

86,050,438 

 

 

87,179,369 

Prepaid expenses and other assets

 

1,107,079 

 

 

1,510,943 

Refundable and prepaid income taxes

 

947,830 

 

 

1,699,970 

Other receivables

 

8,724,894 

 

 

2,642,094 



 

 

 

 

 

Total current assets

 

125,864,505 

 

 

130,616,797 



 

 

 

 

 

Property, machinery and equipment, net

 

33,312,831 

 

 

33,935,760 



 

 

 

 

 



 

 

 

 

 

Intangible assets, net

 

2,085,137 

 

 

2,350,949 

Deferred income taxes

 

284,434 

 

 

284,435 

Other assets

 

8,387,575 

 

 

8,891,090 

   

 

 

 

 

 

Total other long-term assets

 

10,757,146 

 

 

11,526,474 



 

 

 

 

 

Total assets

$

169,934,482 

 

$

176,079,031 



 

 

 

 

 

Liabilities and stockholders' equity:

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Trade accounts payable

$

48,645,860 

 

$

55,770,953 

Accrued wages

 

5,321,315 

 

 

4,206,825 

Accrued expenses

 

2,867,481 

 

 

2,670,504 

Income taxes payable

 

453,558 

 

 

469,143 

Current portion of long-term debt

 

6,596,970 

 

 

2,878,160 

Current portion of finance lease obligations

 

1,651,807 

 

 

1,902,295 

Current portion of operating lease obligations

 

1,944,321 

 

 

2,150,161 



 

 

 

 

 

Total current liabilities

 

67,481,312 

 

 

70,048,041 



 

 

 

 

 

Long-term debt, less current portion

 

35,169,381 

 

 

38,537,064 

Income taxes payable

 

404,975 

 

 

452,619 

Finance lease obligations, less current portion

 

1,353,434 

 

 

1,884,722 

Operating lease obligations, less current portion

 

5,065,611 

 

 

5,281,811 

Other long-term liabilities

 

1,434,054 

 

 

810,769 

Deferred income taxes

 

141,515 

 

 

188,206 



 

 

 

 

 

Total long-term liabilities

 

43,568,970 

 

 

47,155,191 



 

 

 

 

 

Total liabilities

 

111,050,282 

 

 

117,203,232 



 

 

 

 

 

4

 


 

 

Commitments and contingencies

 

 

 

 

 



 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

Preferred stock, $.01 par value; 500,000 shares

 

 

 

 

 

authorized, none issued or outstanding

 

 -

 

 

 -

Common stock, $.01 par value; 12,000,000 shares

 

 

 

 

 

authorized, 4,257,508 and 4,242,508 shares issued and

 

 

 

 

 

outstanding at January 31, 2021 and April 30, 2020, respectively

 

42,365 

 

 

42,265 

Capital in excess of par value

 

23,652,354 

 

 

23,619,513 

Retained earnings

 

35,189,481 

 

 

35,214,021 



 

 

 

 

 

Total stockholders' equity

 

58,884,200 

 

 

58,875,799 



 

 

 

 

 

Total liabilities and stockholders' equity

$

169,934,482 

 

$

176,079,031 



 

 

 

 

 

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.



























5

 


 

 

SigmaTron International, Inc.

Condensed Consolidated Statements of Operations









 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

Three Months

 

 

Three Months

 

 

Nine Months

 

 

Nine Months



 

Ended

 

 

Ended

 

 

Ended

 

 

Ended

 

 

January 31,

 

 

January 31,

 

 

January 31,

 

 

January 31,



 

2021

 

 

2020

 

 

2021

 

 

2020



 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)



 

 

 

 

 

 

 

 

 

 

 

Net sales

$

71,531,348 

 

$

67,407,268 

 

$

201,674,728 

 

$

216,272,561 

Cost of products sold

 

65,618,649 

 

 

61,885,491 

 

 

184,730,296 

 

 

196,660,966 



 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

5,912,699 

 

 

5,521,777 

 

 

16,944,432 

 

 

19,611,595 



 

 

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

5,212,629 

 

 

5,469,654 

 

 

15,693,893 

 

 

16,997,268 



 

 

 

 

 

 

 

 

 

 

 

Operating income

 

700,070 

 

 

52,123 

 

 

1,250,539 

 

 

2,614,327 



 

 

 

 

 

 

 

 

 

 

 

Other expense (income)

 

189,341 

 

 

(29,944)

 

 

144,632 

 

 

(107,169)

Interest expense

 

287,371 

 

 

401,837 

 

 

934,248 

 

 

1,455,837 

Income (loss) before income tax expense

 

223,358 

 

 

(319,770)

 

 

171,659 

 

 

1,265,659 



 

 

 

 

 

 

 

 

 

 

 

Income tax (benefit) expense

 

(25,910)

 

 

(102,731)

 

 

196,199 

 

 

460,490 



 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

249,268 

 

$

(217,039)

 

$

(24,540)

 

$

805,169 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share – basic

$

0.06 

 

$

(0.05)

 

$

(0.01)

 

$

0.19 



 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share – diluted

$

0.06 

 

$

(0.05)

 

$

(0.01)

 

$

0.19 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

 

 

 

 

 

 

 

 

 

 

Basic

 

4,257,508 

 

 

4,242,508 

 

 

4,255,334 

 

 

4,242,300 



 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

4,310,290 

 

 

4,242,508 

 

 

4,255,334 

 

 

4,260,022 



 

 

 

 

 

 

 

 

 

 

 

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.













6

 


 

 

SigmaTron International, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity







 

 

 

 

 

 

 

 

 

 

 

 

 

 



For the nine months ended January 31, 2021 (Unaudited)



 

 

 

 

 

 

 

Capital in

 

 

 

 

 

Total



 

Preferred

 

 

Common

 

 

excess of par

 

 

Retained

 

 

stockholders’



 

stock

 

 

stock

 

 

value

 

 

earnings

 

 

equity



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at May 1, 2020

$

 -

 

$

42,265 

 

$

23,619,513 

 

$

35,214,021 

 

$

58,875,799 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock awards

 

 -

 

 

31 

 

 

15,198 

 

 

 -

 

 

15,229 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 -

 

 

 -

 

 

 -

 

 

(900,666)

 

 

(900,666)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 31, 2020

$

 -

 

$

42,296 

 

$

23,634,711 

 

$

34,313,355 

 

$

57,990,362 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 

 -

 

 

 -

 

 

626,858 

 

 

626,858 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at October 31, 2020

$

 -

 

$

42,296 

 

$

23,634,711 

 

$

34,940,213 

 

$

58,617,220 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock awards

 

 -

 

 

69 

 

 

17,643 

 

 

 -

 

 

17,712 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 

 -

 

 

 -

 

 

249,268 

 

 

249,268 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 31, 2021

$

 -

 

$

42,365 

 

$

23,652,354 

 

$

35,189,481 

 

$

58,884,200 









 

 

 

 

 

 

 

 

 

 

 

 

 

 



For the nine months ended January 31, 2020 (unaudited)



 

 

 

 

 

 

 

Capital in

 

 

 

 

 

Total



 

Preferred

 

 

Common

 

 

excess of par

 

 

Retained

 

 

stockholders’



 

stock

 

 

stock

 

 

value

 

 

earnings

 

 

equity



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at May 1, 2019

$

 -

 

$

42,146 

 

$

23,474,379 

 

$

34,770,924 

 

$

58,287,449 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative-effect adjustment for the adoption of Topic 842

 

 -

 

 

 -

 

 

 -

 

 

(5)

 

 

(5)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 

 -

 

 

 -

 

 

361,025 

 

 

361,025 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 31, 2019

$

 -

 

$

42,146 

 

$

23,474,379 

 

$

35,131,944 

 

$

58,648,469 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 

 -

 

 

 -

 

 

661,183 

 

 

661,183 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at October 31, 2019

$

 -

 

$

42,146 

 

$

23,474,379 

 

$

35,793,127 

 

$

59,309,652 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of stock-based
compensation

 

 -

 

 

 -

 

 

90,432 

 

 

 -

 

 

90,432 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock awards

 

 -

 

 

44 

 

 

20,514 

 

 

 -

 

 

20,558 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 -

 

 

 -

 

 

 -

 

 

(217,039)

 

 

(217,039)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 31, 2020

$

 -

 

$

42,190 

 

$

23,585,325 

 

$

35,576,088 

 

$

59,203,603 











7

 


 

 

SigmaTron International, Inc.

Condensed Consolidated Statements of Cash Flows





 

 

 

 

 



 

 

 

 

 



 

Nine

 

 

Nine



 

Months Ended

 

 

Months Ended



 

January 31,

 

 

January 31,



 

2021

 

 

2020



 

(Unaudited)

 

 

(Unaudited)



 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

Net (loss) income

$

(24,540)

 

$

805,169 



 

 

 

 

 

Adjustments to reconcile net (loss) income

 

 

 

 

 

to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization of property, machinery and equipment

 

3,807,281 

 

 

3,684,890 

Amortization of right-of-use operating lease assets

 

1,643,659 

 

 

1,650,057 

Stock-based compensation

 

 -

 

 

90,432 

Restricted stock expense

 

32,941 

 

 

20,558 

Deferred income tax (benefit) expense

 

(46,690)

 

 

 -

Amortization of intangible assets

 

265,812 

 

 

272,081 

Amortization of financing fees

 

115,987 

 

 

86,369 

Loss from disposal or sale of machinery and equipment

 

171,698 

 

 

19,782 

Changes in operating assets and liabilities

 

 

 

 

 

Accounts receivable

 

4,515,391 

 

 

5,834,858 

Inventories

 

1,128,931 

 

 

11,697,762 

Prepaid expenses and other assets

 

(2,570,066)

 

 

(966,414)

Refundable and prepaid income taxes

 

752,140 

 

 

(49,236)

Income taxes payable

 

(63,229)

 

 

52,290 

Trade accounts payable

 

(7,125,093)

 

 

(7,988,390)

Operating lease liabilities

 

(422,040)

 

 

592,062 

Accrued expenses and wages

 

1,739,518 

 

 

(1,148,827)



 

 

 

 

 

Net cash provided by operating activities

 

3,921,700 

 

 

14,653,443 



 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Purchases of machinery and equipment

 

(2,636,505)

 

 

(2,133,826)

Advances on other receivables

 

(4,006,500)

 

 

 -



 

 

 

 

 

Net cash used in investing activities

 

(6,643,005)

 

 

(2,133,826)



 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds under equipment notes

 

2,397,015 

 

 

 -

Payments of contingent consideration

 

 -

 

 

(57,537)

Payments under finance lease and sale leaseback agreements

 

(1,501,321)

 

 

(1,623,661)

Payments under equipment notes

 

(501,930)

 

 

(308,775)

Proceeds under building notes payable

 

6,500,000 

 

 

 -

Payments under building notes payable

 

(6,401,702)

 

 

(210,000)

Borrowings under revolving line of credit

 

300,857,651 

 

 

254,679,833 

Payments under revolving line of credit

 

(302,157,766)

 

 

(265,009,957)

Payments of debt financing costs

 

(505,408)

 

 

(50,184)



 

 

 

 

 

Net cash used in financing activities

 

(1,313,461)

 

 

(12,580,281)



 

 

 

 

 

8

 


 

 

Change in cash and cash equivalents

 

(4,034,766)

 

 

(60,664)

Cash and cash equivalents at beginning of period

 

6,779,445 

 

 

1,005,810 



 

 

 

 

 

Cash and cash equivalents at end of period

$

2,744,679 

 

$

945,146 



 

 

 

 

 

Supplementary disclosures of cash flow information

 

 

 

 

 

Cash paid for interest

$

910,598 

 

$

1,456,738 

Cash paid for income taxes

 

367,061 

 

 

588,915 

Purchase of machinery and equipment financed

 

 

 

 

 

 under finance leases

 

719,545 

 

 

671,446 

Financing of insurance policy

 

242,514 

 

 

381,345 



 

 

 

 

 



 





 

9

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note A - Description of the Business



SigmaTron International, Inc., its subsidiaries, foreign enterprises and international procurement office (collectively, the “Company”) operates in one business segment as an independent provider of electronic manufacturing services (“EMS”), which includes printed circuit board assemblies and completely assembled (box-build) electronic products.  In connection with the production of assembled products, the Company also provides services to its customers, including (1) automatic and manual assembly and testing of products; (2) material sourcing and procurement; (3) manufacturing and test engineering support; (4) design services; (5) warehousing and distribution services; and (6) assistance in obtaining product approval from governmental and other regulatory bodies. 



Note B - Basis of Presentation



The accompanying unaudited condensed consolidated financial statements of SigmaTron International, Inc. (“SigmaTron”), SigmaTron’s wholly-owned subsidiaries Standard Components de Mexico S.A., AbleMex, S.A. de C.V., Digital Appliance Controls de Mexico, S.A. de C.V., Spitfire Controls (Vietnam) Co. Ltd., Spitfire Controls (Cayman) Co. Ltd. and wholly-owned foreign enterprises Wujiang SigmaTron Electronics Co., Ltd. and SigmaTron Electronic Technology Co., Ltd. (“SigmaTron China”) and international procurement office SigmaTron Taiwan branch (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.



Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the three and nine month period ended January 31, 2021 is not necessarily indicative of the results that may be expected for the year ending April 30, 2021.  The condensed consolidated balance sheet at April 30, 2020, was derived from audited annual financial statements but does not contain all of the footnotes disclosures from the annual financial statements.  For further information, refer to the condensed consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2020. 



COVID-19 and CARES Act



A pandemic of respiratory disease (abbreviated "COVID-19") began to spread globally, including to the United States, in early 2020. On March 11, 2020, the World Health Organization (WHO) declared COVID-19 to be a public health emergency of international concern. The full impact of the COVID-19 outbreak is inherently uncertain at the time of this report. The COVID-19 outbreak has resulted in travel restrictions and in some cases, prohibitions of non-essential activities, disruption and shutdown of certain businesses and greater uncertainty in global financial markets. The full extent to which COVID-19 impacts the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak within the U.S., China, Mexico, Vietnam and Taiwan, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.

10

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note B - Basis of Presentation - Continued



Even after COVID-19 has subsided, the Company may continue to experience materially adverse impacts to its business as a result of its global economic impact, including any recession that has occurred or may occur in the future. There are no comparable recent events which may provide guidance as to the effect of the spread of COVID-19, and, as a result, the ultimate impact of COVID-19, or a similar health epidemic or pandemic, is highly uncertain and subject to change. The Company has adopted several measures in response to the COVID-19 outbreak.  To date, the Company has been able to continue to meet the needs of its customers.  Although the Company cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it may have a material adverse effect on the Company’s results of future operations, financial position, and liquidity for the remainder of fiscal year 2021 and beyond.



On March 27, 2020, former President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. It also appropriated funds for the U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP Loan”) loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19.



As further described in Note E, the Company received funds under the PPP Loan in the amount of $6,282,973. The application for these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to take into account its current business activity and its ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on its adherence to the forgiveness criteria.



Due to the size of the PPP Loan, it is subject to review, which introduces a layer of uncertainty. If, despite the Company’s actions and certification that it satisfied all eligibility requirements for the PPP Loan, it is later determined that it violated applicable laws or was otherwise ineligible to receive the PPP Loan, the Company will be required to repay the PPP Loan in its entirety in a lump sum and may be subject to additional penalties, which could also result in adverse publicity and damage to the Company’s reputation. If these events were to transpire, they could have a material adverse effect on the Company’s business, results of operations, financial condition and liquidity for the remainder of fiscal year 2021 and beyond.





 

11

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note C - Inventories, net



The components of inventory consist of the following:









 

 

 

 

 



 

 

 

 

 



January 31,

 

April 30,



2021

 

2020



 

 

 

 

 

Finished products

$

20,427,311 

 

$

20,998,329 

Work-in-process

 

5,446,277 

 

 

5,215,280 

Raw materials

 

61,418,165 

 

 

62,316,122 



 

87,291,753 

 

 

88,529,731 

Less excess and obsolescence reserve

 

(1,241,315)

 

 

(1,350,362)



$

86,050,438 

 

$

87,179,369 

 



Note D - Earnings Per Share and Stockholders’ Equity



The following table sets forth the computation of basic and diluted earnings (loss) per share:







 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Nine Months Ended



January 31,

 

January 31,



2021

 

2020

 

2021

 

2020



 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

249,268 

 

$

(217,039)

 

$

(24,540)

 

$

805,169 

Weighted-average shares

 

 

 

 

 

 

 

 

 

 

 

Basic

 

4,257,508 

 

 

4,242,508 

 

 

4,255,334 

 

 

4,242,300 

Effect of dilutive stock options

 

52,782 

 

 

 -

 

 

 -

 

 

17,722 



 

 

 

 

 

 

 

 

 

 

 

Diluted

 

4,310,290 

 

 

4,242,508 

 

 

4,255,334 

 

 

4,260,022 



 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

$

0.06 

 

$

(0.05)

 

$

(0.01)

 

$

0.19 



 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share

$

0.06 

 

$

(0.05)

 

$

(0.01)

 

$

0.19 



Options to purchase 513,232 shares of common stock were outstanding at January 31, 2021 and 2020.  There were no options granted during the nine month periods ended January 31, 2021 and 2020.  There was no stock option expense recognized for the three and nine month periods ended January 31, 2021 and 2020.  There was no balance of unrecognized compensation expense related to the Company’s stock option plans at January 31, 2021 and 2020.  For the three month period ended January 31, 2021 and 2020,  143,781 and 151,282 shares, respectively, were not included in the diluted weighted average common shares outstanding calculation as they were anti-dilutive.  For the nine month periods ended January 31, 2021 and 2020,  240,160 and 214,177 shares, respectively, were not included in the diluted weighted average common shares outstanding calculation as they were anti-dilutive.

12

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note E - Long-term Debt



Debt and capital lease obligations consisted of the following at January 31, 2021 and April 30, 2020:







 

 

 

 

 



 

January 31,

 

 

April 30,



 

2021

 

 

2020



 

 

 

 

 

Debt:

 

 

 

 

 

Notes Payable - Banks

$

31,914,633 

 

$

33,472,125 

Notes Payable - Buildings

 

7,020,859 

 

 

6,922,561 

Notes Payable - Equipment

 

3,195,363 

 

 

1,300,278 

Unamortized deferred financing costs

 

(364,504)

 

 

(279,740)

Total debt

 

41,766,351 

 

 

41,415,224 

Less current maturities

 

6,596,970 

 

 

2,878,160 

Long-term debt

$

35,169,381 

 

$

38,537,064 



 

 

 

 

 

Finance lease obligations

$

3,005,241 

 

$

3,787,017 

Less current maturities

 

1,651,807 

 

 

1,902,295 

Total finance lease obligations, less current portion

$

1,353,434 

 

$

1,884,722 



Notes Payable – Banks



Prior to January 29, 2021, the Company had a senior secured credit facility with U.S. Bank.  The  revolving credit facility allowed the Company to borrow up to the lesser of (i) $45,000,000 (the “Revolving Line Cap”) less reserves or (ii) the Borrowing Base, but no more than 80% of the Company’s Revolving Line Cap.  Prior to its payoff and termination, the U.S. Bank senior secured credit facility was due to expire on March 31, 2022.  On January 29, 2021, the Company paid the balance outstanding under the senior secured credit facility in the amount of $25,574,733.  The unamortized deferred financing costs of $158,476 were expensed in the third quarter of fiscal 2021 upon extinguishment of the debt.



On January 29, 2021, the Company entered into a Credit Agreement (the “Agreement”) with JPMorgan Chase Bank, N.A. (“Lender”), pursuant to which Lender has agreed to provide the Company with a secured revolving credit facility of up to $50,000,000 (the “Facility”) maturing on January 29, 2026.    



The Facility allows the Company to choose among interest rates at which it may borrow funds for revolving loans:  “CBFR Loans,” the interest on which is based on (A) the REVLIBOR30 Rate unless the “REVLIBOR30 Rate” (as defined in the agreement) is not available, in which case the interest is generally the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S., plus (B) an applicable margin of 2.0% (effectively 2.25% at January 31, 2021),; or “Eurodollar Loans,” the interest on which is based on (X) an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the LIBO Rate (as defined in the Agreement) for any



13

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note E - Long-term Debt - Continued 



interest period multiplied by the Standard Reserve Rate (as defined in the Agreement) plus (Y) an applicable margin of 2.0%.  Under the  Facility, the Company may borrow up to the lesser of (i) $50,000,000 or (ii) an amount equal to a percentage of the eligible receivable borrowing base plus a percentage of the inventory borrowing base.  The Facility is collateralized by a lien on substantially all of the domestic assets of the Company.  Under the Agreement, a  minimum Fixed Charge Coverage Ratio (“FCCR”) financial covenant of 1.10x is applicable only during an FCCR trigger period which occurs when (i) an event of default (as defined in the Agreement) has occurred and is continuing, and Lender has elected to impose a FCCR trigger period upon notice to the Company or (ii) availability falls below the greater of (i) 10% of the revolving commitment and (ii) the outstanding principal amount of the term loans.  Deferred financing costs of $354,454 were capitalized in the third quarter of fiscal 2021 and will be amortized over the term of the agreement.  As of January  31, 2021, there was $25,584,380 outstanding and $10,390,073 of unused availability under the JPMorgan Chase Bank, N.A. facility compared to an outstanding balance of $26,884,494 and $13,850,575 of unused availability under the U.S. Bank senior secured credit facility at April 30, 2020.  As of January 31, 2021 and April 30, 2020, the unamortized amount offset against outstanding debt was $351,204 and $218,062, respectively. 



On April 23, 2020, the Company received a PPP Loan from U.S. Bank, as lender, pursuant to the CARES Act, as administered by the SBA in the amount of $6,282,973. The PPP Loan, in the form of a promissory note, matures on April 23, 2022.  No additional collateral or guarantees were provided by the Company for the PPP Loan. The PPP Loan provides for customary events of default.  Under the CARES Act, loan forgiveness may be available for the sum of documented payroll costs, rent payments, mortgage interest and covered utilities during the 24-week period beginning on the date of loan disbursement.  The amount of loan forgiveness will be reduced if recipients terminate employees or reduce salaries during the covered period.  The Company will be required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest, and it cannot provide any assurance that it will be eligible for loan forgiveness, or that any amount of the PPP Loan will ultimately be forgiven by the SBA.  All aspects of the PPP Loan are subject to review by the SBA, including without limitation, the Company’s eligibility for and the size of the loan.  The review procedures have not been made public.  The Company cannot predict the outcome of that review nor be assured that all or any part of the PPP Loan will be forgiven.  To the extent that all or part of the PPP Loan is not forgiven, the Company will be required to make payments, including interest accruing at an annual interest rate of 1.0%, beginning on the date of disbursement.



On March 15, 2019, the Company’s wholly-owned subsidiary, SigmaTron Electronic Technology Co., Ltd., entered into a credit facility with China Construction Bank.  On January 26, 2021, the agreement was amended.  Under the agreement SigmaTron Electronic Technology Co., Ltd. can borrow up to 9,000,000 Renminbi, approximately $1,391,000 as of January 31, 2021, and the facility is collateralized by Wujiang SigmaTron Electronics Co., Ltd.’s manufacturing building.  Interest is payable monthly and the facility bears a fixed interest rate of 3.85%.  The term of the facility extends to January 6, 2022.  There was no outstanding balance under the facility at January 31, 2021 compared to an outstanding balance of $304,658 at April 30, 2020.

14

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note E - Long-term Debt - Continued 



Notes Payable – Buildings



The Company entered into a mortgage agreement on December 21, 2017, in the amount of $5,200,000, with U.S. Bank to refinance the property that serves as the Company’s corporate headquarters and its Illinois manufacturing facility in Elk Grove Village, Illinois.  The note required the Company to pay monthly principal payments in the amount of $17,333, bore interest at a fixed rate of 4.0% per year and was payable over a fifty-one month period.  Deferred financing costs of $74,066 were capitalized in fiscal year 2018 which were amortized over the term of the agreement.  On January 29, 2021, the Company repaid its U.S. Bank mortgage agreement for the remaining amount outstanding of $4,576,000, using proceeds from the JPMorgan Chase Bank, N.A. mortgage agreement.  The Company recorded a prepayment penalty of $120,842 in the third quarter of fiscal 2021.  The remaining deferred financing costs of $21,365 were expensed in the third quarter of fiscal 2021.



The Company entered into a mortgage agreement on December 21, 2017, in the amount of $1,800,000, with U.S. Bank to refinance the property that serves as the Company’s engineering and design center in Elgin, Illinois.  The note required the Company to pay monthly principal payments in the amount of $6,000, bore interest at a fixed rate of 4.0% per year and was payable over a fifty-one month period.  Deferred financing costs of $65,381 were capitalized in the fiscal year 2018 which were amortized over the term of the agreement.  On January 29, 2021, the Company repaid its U.S. Bank mortgage agreement for the remaining amount outstanding of $1,584,000, using proceeds from the JPMorgan Chase Bank, N.A. mortgage agreement.  The Company recorded a prepayment penalty of $41,830 in the third quarter of fiscal 2021.    The remaining deferred financing costs of $18,859 were expensed in the third quarter of fiscal 2021.



The Company entered into two term notes on January 29, 2021, in the aggregate amount of $6,500,0000, with JPMorgan Chase Bank, N.A. secured against certain properties owned by the Company.  The notes require the Company to pay monthly aggregate principal payments in the amount of $36,111 and bears interest at (A) the REVLIBOR30 Rate, unless the REVLIBOR30 Rate is not available, in which case the interest is generally the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S., plus (B) an applicable margin of 2.0%; (effectively 2.75% at January 31, 2021) and is payable over a sixty month period.  Deferred financing costs of $10,050 were capitalized in the third quarter of fiscal 2021 which are amortized over the term of the agreement.  As of January 31, 2021, the unamortized amount included as a reduction to long-term debt was $10,050.  Final payments of approximately $4,368,444 is due on or before January 31, 2026.  The outstanding balance was $6,500,000 at January 31, 2021.



The Company entered into a mortgage agreement on March 3, 2020, in the amount of $556,000, with The Bank and Trust SSB to purchase the property that serves as the Company’s warehousing and distribution center in Del Rio, Texas.  The note requires the Company to pay monthly installment payments in the amount of $6,103, bears interest at a fixed rate of 5.75% per year and is payable over a 120 month period.  The outstanding balance was $520,859 and $552,561 at January 31, 2021 and April 30, 2020, respectively. 



15

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note E - Long-term Debt - Continued



Notes Payable – Equipment



The Company routinely enters into secured note agreements with Engencap Fin S.A. DE C.V. to finance the purchase of equipment. The terms of these secured note agreements mature from November 2021 through May 2023, with quarterly installment payments ranging from $11,045 to $37,941 and a fixed interest rate ranging from 6.65% to 8.00%.



The Company routinely enters into secured note agreements with FGI Equipment Finance LLC to finance the purchase of equipment. The terms of these secured note agreements mature from March 2025 through October 2025, with quarterly installment payments ranging from $10,723 to $69,439 and a fixed interest rate of 8.25%.



Annual maturities of the Company’s debt, net of deferred financing fees for the remaining periods as of January 31, 2021, are as follows:







 

 

 

 

 

 

 

 

 

 

 

 



 

Bank

 

Building

 

Equipment

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

For the remaining 3 months of the fiscal year ending April 30:

2021

$

5,221,926 

 

$

83,096 

 

$

220,624 

 

$

5,525,646 

For the fiscal years ending April 30:

2022

 

1,108,327 

 

 

478,423 

 

 

877,428 

 

 

2,464,178 



2023

 

 -

 

 

481,085 

 

 

652,117 

 

 

1,133,202 



2024

 

 -

 

 

483,904 

 

 

592,628 

 

 

1,076,532 



2025

 

 -

 

 

486,890 

 

 

633,149 

 

 

1,120,039 



2026

 

25,219,876 

 

 

4,751,165 

 

 

219,417 

 

 

30,190,458 



Thereafter

 

 -

 

 

256,296 

 

 

 -

 

 

256,296 



 

$

31,550,129 

 

$

7,020,859 

 

$

3,195,363 

 

$

41,766,351 



 

 

 

 

 

 

 

 

 

 

 

 



Finance Lease and Sales Leaseback Obligations



The Company enters into various finance lease and sales leaseback agreements.  The terms of the lease agreements mature through June 2024, with monthly installment payments ranging from $1,455 to $40,173 and a fixed interest rate ranging from 3.75% to 12.73%.  





Note F - Income Tax



The income tax benefit was $25,910 for the three month period ended January 31, 2021 compared to an income tax benefit of $102,731 for the same period in the prior fiscal year.  The Company’s effective tax rate was (11.60)% and 32.13% for the quarters ended January 31, 2021 and 2020, respectively.  The income tax expense was $196,199 for the nine month period ended January 31, 2021 compared to an income tax expense of $460,490 for the same period in the prior fiscal year.  The Company’s effective tax rate was 114.29% and 36.40% for the nine month period ended January 31, 2021 and 2020, respectively.  The decrease in income tax benefit and effective tax rate for the three

16

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note F - Income Tax - Continued



month period ended January 31, 2021 compared to the same period in the previous year is due to income recognized in the current quarter compared to a loss in the previous year, and variations in income earned by jurisdiction. The decrease in income tax expense and increase in effective tax rate for the nine month period ended January 31, 2021 compared to the same period in the previous year is due to a decrease in income in the current nine month period compared to the same period in the previous year and variations in income earned by jurisdiction.            



As described in Note E, the Company received a PPP Loan under the CARES Act of $6,282,963. For federal income tax purposes, the CARES Act expressly provides that any forgiveness or cancellation of all or part of such loans will not be treated as income for tax purposes. On January 6, 2021 the IRS issued Revenue Ruling 2021-02 allowing deductions for the payments of eligible expenses when such payments would result in the forgiveness of a loan under the PPP. The ruling supersedes previous IRS guidance stating that such deductions would be disallowed. 



The Company has not changed its plans to indefinitely reinvest the earnings of the Company’s foreign subsidiaries.  The cumulative amount of unremitted earnings for which U.S. income taxes have not been recorded is $4,705,000 as of January 31, 2021. 



Note G - Commitments and Contingencies



From time to time the Company is involved in legal proceedings, claims or investigations that are incidental to the conduct of the Company’s business. In future periods, the Company could be subjected to cash cost or non-cash charges to earnings if any of these matters are resolved on unfavorable terms. However, although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including management’s assessment of the merits of any particular claim, the Company does not expect that these legal proceedings or claims will have any material adverse impact on its future consolidated financial position, results of operations or cash flows.



Note H - Significant Accounting Policies



Management Estimates and Uncertainties -  The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Significant estimates made in preparing the consolidated financial statements include depreciation and amortization periods, the allowance for doubtful accounts, reserves for inventory, lower of cost or net realizable value for inventory, deferred income, deferred taxes, uncertain tax positions, valuation

17

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note H - Significant Accounting Policies - Continued



allowance for deferred taxes and valuation of long-lived assets.  Actual results could materially differ from these estimates.



The potential impact of future disruptions and continued economic uncertainty over COVID-19 may have a significant adverse impact on the timing of delivery of customer orders and the levels of future customer orders.  It is reasonably possible that these potential adverse impacts may result in the recognition of material impairments of the Company’s long-lived assets or other related charges in future periods.



Revenue Recognition - The following table presents the Company’s revenue disaggregated by the principal end-user markets it serves:





 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

Three Months Ended

 

 

Nine Months Ended



 

 

 

January 31,

 

 

January 31,



Net trade sales by
end-market

 

 

2021

 

 

2020

 

 

2021

 

 

2020



Industrial Electronics

 

$

36,433,938 

 

$

38,609,780 

 

$

108,705,275 

 

$

122,856,692 



Consumer Electronics

 

 

30,680,777 

 

 

25,632,036 

 

 

82,520,093 

 

 

81,106,780 



Medical / Life Sciences

 

 

4,416,633 

 

 

3,165,452 

 

 

10,449,360 

 

 

12,309,089 



Total Net Trade Sales

 

$

71,531,348 

 

$

67,407,268 

 

$

201,674,728 

 

$

216,272,561 



 

 

 

 

 

 

 

 

 

 

 

 

 



During the three and nine month periods ending January 31, 2021,  no revenues were recognized from performance obligations satisfied or partially satisfied in previous periods and no amounts were allocated to performance obligations that remain unsatisfied or partially unsatisfied at January 31, 2021.  The Company is electing not to disclose the value of the remaining unsatisfied performance obligation with a duration of one year or less as permitted by the practical expedient in ASU 2014-09, “Revenue from Contracts with Customers.”  The Company had no material remaining unsatisfied performance obligations as of January 31, 2021, with an expected duration of greater than one year.



Income Tax - The Company’s income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management’s best assessment of estimated future taxes to be paid.  The Company is subject to income taxes in both the U.S. and several foreign jurisdictions.  Significant judgments and estimates by management are required in determining the consolidated income tax expense assessment.



Deferred income tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.  In evaluating the Company’s ability to recover its deferred tax assets within the jurisdiction from which they arise, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations.  In projecting future taxable income, the Company begins with historical results and changes in accounting policies, and incorporates assumptions including the amount of future state, federal and foreign pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies.  These assumptions require significant

18

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note H - Significant Accounting Policies - Continued



judgment and estimates by management about the forecasts of future taxable income and are consistent with the plans and estimates the Company uses to manage the underlying businesses.  In evaluating the objective evidence that historical results provide, the Company considers three years of cumulative operating income and/or loss.  Valuation allowances are established when necessary to reduce deferred income tax assets to an amount more likely than not to be realized.    The Company’s valuation allowance was $969,149 and $989,194 as of January 31, 2021 and April 30, 2020, respectively.



Investment in Wagz - The Company has recorded an investment in Wagz Inc. (“Wagz”), a privately held company whose equity does not have a readily determinable fair value.  As permitted by ASC 321, Investments - Equity Securities, paragraph 321-35-2, the Company has elected to carry its investment in Wagz equity at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or a similar investment of the same issuer until the investment no longer qualifies to be measured under paragraph 321-35-2.  At January 31, 2021 and April 30, 2020, the Company continued to recognize the fair value of the Wagz common stock at $600,000.    



On May 29, 2020, Wagz entered into a Convertible Secured Promissory Note with the Company in the principal sum of up to $4,052,478.  On January 27, 2021, Wagz entered into an additional Convertible Secured Promissory Note with the Company in the principal sum of up to $1,588,328.    The outstanding principal amount of the Notes are due and payable on the earliest to occur of (1) August 31, 2021; (2) upon the closing of a sale of all or substantially all of the assets or common stock of  Wagz; or (3) an event of default (the Maturity Date). Interest is payable at the rate of four percent (4%) per annum and is payable on the Maturity Date. The notes are collateralized against substantially all assets of Wagz.  At January 31, 2021,  $5,539,594 was outstanding under other receivables.



On June 4, 2020, the Company and Wagz announced that they had executed a letter of intent (“LOI”) relating to a proposed business combination.  Subject to the terms and conditions set forth in the LOI, the Company expects to issue approximately 2,443,870 shares of its common stock that would result in the stockholders of Wagz owning in the aggregate approximately one-third of the combined company.  The parties expect the transaction to close by the end of the fourth quarter of fiscal year 2021 and the acquisition remains subject to achievement of certain milestones and satisfaction of conditions by both parties prior to closing such as finalizing a material definitive agreement,  the Company potentially raising additional capital that it projects will be needed for the expanded operations, and the approval by the stockholders of both the Company and Wagz. 



In November 2020, Wagz sought short-term financing for its operations and secured a commitment from Angel Business Credit, LLC (“ABC”) for a loan of $250,000 conditioned on Wagz granting ABC a security interest in its assets and Gary R. Fairhead executing a personal guaranty.  Mr. Fairhead is the Company’s President and CEO; his personal guaranty requires the approval of the Audit Committee of the Company’s Board of Directors.  After consideration, the Audit Committee determined that Mr. Fairhead’s guaranty was in the best interests of the Company and approved the guaranty.  The loan closed on November 12, 2020, and its principal, plus interest equal to $5,000,  were due on the maturity date, December 10, 2020.  The loan was paid in full on December 8, 2020.  As a result, Mr. Fairhead’s guaranty was cancelled and ABC’s security interest was terminated.



19

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note H - Significant Accounting Policies – Continued



New Accounting Standards:



In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13, as amended by ASU 2019-04 and ASU 2019-05, introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts.  This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. For small reporting companies, ASU 2016-



13 is effective for annual and interim reporting periods beginning after December 15, 2022, and the guidance is to be applied using the modified-retrospective approach. Earlier adoption is permitted for annual and interim reporting periods beginning after December 15, 2018. The Company is currently evaluating the new guidance and has not determined the impact this ASU may have on its consolidated financial statements.



In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740. This guidance is effective for fiscal years beginning after December 15, 2020, including interim periods therein, and early adoption is permitted. Adoption of Topic 740 is not expected to have a material effect on the Company’s consolidated financial statements.    If in a future interim reporting period the Company recognizes a year-to-date loss in excess of its forecasted full-year loss in a certain jurisdiction, the adoption of this ASU could affect how much tax benefit is recorded in an interim period related to that loss.  



In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides optional guidance for a period of time to ease the potential burden in accounting for the transition from reference rates that are expected to be discontinued. Regulators and market participants in various jurisdictions have undertaken efforts to eliminate certain reference rates and introduce new reference rates that are based on a larger and more liquid population of observable transactions. The changes provide optional expedients and exceptions for applying US GAAP to contract, hedging relationships and other transactions affected by reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020 and can be adopted no later than December 31, 2022. The Company is currently evaluating the new guidance and has not determined the impact this ASU may have on its consolidated financial statements.







20

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note I – Leases



The Company leases office and storage space, vehicles and other equipment under non-cancellable operating leases with initial terms typically ranging from 1 to 5 years.  At contract inception, the Company reviews the facts and circumstances of the arrangement to determine if the contract is or contains a lease.  The Company follows the guidance in Topic 842 to evaluate whether the contract has an identified asset; if the Company has the right to obtain substantially all economic benefits from the asset; and if the Company has the right to direct the use of the underlying asset.  When determining if a contract has an identified asset, the Company considers both explicit and implicit assets, and whether the supplier has the right to substitute the asset.  When determining if the Company has the right to direct the use of an underlying asset, the Company considers if they have the right to direct how and for what purpose the asset is used throughout the period of use and if they control the decision-making rights over the asset.



The Company’s lease terms may include options to extend or terminate the lease.  The Company exercises judgment to determine the term of those leases when extension or termination options are present and include such options in the calculation of the lease term when it is reasonably certain that it will exercise those options.



The Company has elected to include both lease and non-lease components in the determination of lease payments. Payments made to a lessor for items such as taxes, insurance, common area maintenance, or other costs commonly referred to as executory costs, are also included in lease payments if they are fixed. The fixed portion of these payments are included in the calculation of the lease liability, while any variable portion would be recognized as variable lease expenses, when incurred. Variable payments made to third parties for these, or similar costs, such as utilities, are not included in the calculation of lease payments.



At commencement, lease-related assets and liabilities are measured at the present value of future lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company exercises judgment in determining the incremental borrowing rate based on the information available when the lease commences to measure the present value of future payments.



Operating lease expense is recognized on a straight-line basis over the lease term. Finance lease cost includes amortization, which is recognized on a straight-line basis over the expected life of the leased asset, and interest expense, which is recognized following an effective interest rate method.



Operating leases are included in other assets, current operating lease obligations, and operating lease obligations (less current portion) on the Company’s consolidated balance sheet. Finance leases are included in property, plant and equipment and current and long-term portion of finance lease obligations on the Company’s consolidated balance sheet. Short term leases with an initial term of 12 months or less are not presented on the balance sheet with expense recognized as incurred.

21

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note I – Leases Continued



The following table presents lease assets and liabilities and their balance sheet classification:



 

 

 

 

 

 

 



 

 

 

January 31,

 

 

April 30,



Classification

 

 

2021

 

 

2020

Operating Leases:

 

 

 

 

 

 

 

Right-of-use Assets

Other assets

 

$

6,784,197 

 

$

7,235,166 

Operating lease current
liabilities

Current portion of operating lease
obligations

 

 

1,944,321 

 

 

2,150,161 

Operating lease noncurrent
liabilities

Operating lease obligations, less
current portion

 

 

5,065,611 

 

 

5,281,811 

Finance Leases:

 

 

 

 

 

 

 

Right-of-use Assets

Property, plant and equipment

 

 

5,881,027 

 

 

6,443,954 

Finance lease current
liabilities

Current portion of finance lease
obligations

 

 

1,651,807 

 

 

1,902,295 

Finance lease noncurrent
liabilities

Finance lease obligations, less
current portion

 

 

1,353,434 

 

 

1,884,722 



22

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note I – Leases Continued



The components of lease expense for the three and nine month periods ended January 31, 2021 and 2020, are as follows:







 

 

 

 

 

 

 

 

 



 

 

Three Months

 

Three Months

 

Nine Months

 

Nine Months



 

 

Ended

 

Ended

 

Ended

 

Ended



 

 

January 31,

 

January 31,

 

January 31,

 

January 31,



Classification

 

2021

 

2020

 

2021

 

2020

Operating Leases:

 

 

 

 

 

 

 

 

 

Operating lease cost

Operating expenses

 

351,751 

 

635,692 

 

1,078,763 

 

1,855,525 

Variable lease cost

Operating expenses

 

80,109 

 

74,133 

 

236,803 

 

221,927 

Short term lease cost

Operating expenses

 

1,350 

 

1,350 

 

4,050 

 

4,050 

Finance Leases:

 

 

 

 

 

 

 

 

 

Amortization of
right-of-use assets

Operating expenses

 

457,359 

 

361,363 

 

1,370,094 

 

1,092,931 

Interest expense

Interest expense

 

70,698 

 

67,377 

 

193,099 

 

209,503 

Total

 

 

961,267 

 

1,139,915 

 

2,882,809 

 

3,383,936 



The weighted average lease term and discount rates for the quarter ended January 31, 2021 and 2020, are as follows:





 

 

 

 



 

January 31,

 

January 31,



 

2021

 

2020

Operating Leases:

 

 

 

 

Weighted average remaining lease term (months)

 

57.80

 

44.20

Weighted average discount rate

 

3.0%

 

3.8%

Finance Leases:

 

 

 

 

Weighted average remaining lease term (months)

 

32.75

 

26.42

Weighted average discount rate

 

7.7%

 

6.6%



23

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note I – Leases Continued



Future payments due under leases reconciled to lease liabilities are as follows:







 

 

 

 

 

 



 

 

Operating Leases

 

 

Finance Leases

For the remaining 3 months of the fiscal year ending April 30:

 

 

 

 

 

 

2021 

 

$

626,171 

 

$

569,072 

For the fiscal years ending April 30:

 

 

 

 

 

 

2022 

 

 

1,995,402 

 

 

1,576,456 
2023 

 

 

2,002,572 

 

 

700,135 
2024 

 

 

1,483,139 

 

 

369,550 
2025 

 

 

818,840 

 

 

117,355 
2026 

 

 

289,041 

 

 

 -

Thereafter

 

 

208,099 

 

 

 -

Total undiscounted lease payments

 

 

7,423,264 

 

 

3,332,568 

Present value discount, less interest

 

 

413,332 

 

 

327,327 

Lease liability

 

$

7,009,932 

 

$

3,005,241 



Supplemental disclosures of cash flow information related to leases for the nine months ended January 31, 2021 and 2020 are as follows:







 

 



Nine Months

Nine Months



Ended

Ended



January 31,

January 31,

Other Information

2021

2020

Cash paid for amounts included in the measurement of lease liabilities

 

 

Operating cash flows from finance leases

193,099 209,503 

Operating cash flows from operating leases

162,220 197,970 

Financing cash flows from finance leases

1,501,321 1,623,661 

Supplemental non-cash information on lease labilities arising from
obtaining right-of-use assets:

 

 

Right-of-use assets obtained in exchange for
new finance lease liabilities

719,545 671,446 

Right-of-use assets obtained in exchange for
operating lease liabilities

1,192,690 2,348,231 







 

24

 


 

SigmaTron International, Inc.

January 31, 2021

 

 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.



In addition to historical financial information, this discussion of the business of SigmaTron International, Inc. (“SigmaTron”), its wholly-owned subsidiaries Standard Components de Mexico S.A., AbleMex, S.A. de C.V., Digital Appliance Controls de Mexico, S.A. de C.V., Spitfire Controls (Vietnam) Co. Ltd., Spitfire Controls (Cayman) Co. Ltd., wholly-owned foreign enterprises Wujiang SigmaTron Electronics Co., Ltd. and SigmaTron Electronic Technology Co., Ltd. (collectively, “SigmaTron China”) and international procurement office SigmaTron Taiwan branch (collectively, the “Company”) and other Items in this Quarterly Report on Form 10-Q contain forward-looking statements concerning the Company’s business or results of operations.  Words such as “continue,” “anticipate,” “will,” “expect,” “believe,” “plan,” and similar expressions identify forward-looking statements.  These forward-looking statements are based on the current expectations of the Company.  Because these forward-looking statements involve risks and uncertainties, the Company’s plans, actions and actual results could differ materially.  Such statements should be evaluated in the context of the direct and indirect risks and uncertainties inherent in the Company’s business including, but not necessarily limited to, the risks inherent in any merger and business combination, the Company’s continued dependence on certain significant customers; the continued market acceptance of products and services offered by the Company and its customers; pricing pressures from the Company’s customers, suppliers and the market; the activities of competitors, some of which may have greater financial or other resources than the Company; the variability of the Company’s operating results; the results of long-lived assets impairment testing; the ability to achieve the expected benefits of acquisitions; the collection of aged account receivables; the variability of the Company’s customers’ requirements; the availability and cost of necessary components and materials; the ability of the Company and its customers to keep current with technological changes within its industries; regulatory compliance, including conflict minerals; the continued availability and sufficiency of the Company’s credit arrangements, including the phase-out of LIBOR; the ability to meet the Company’s financial covenant; changes in U.S., Mexican, Chinese, Vietnamese or Taiwanese regulations affecting the Company’s business; the turmoil in the global economy and financial markets; the spread of COVID-19 (commonly known as “Coronavirus”) which has threatened the Company’s financial stability by causing a decrease in consumer revenues, caused a disruption to the Company’s global supply chain, caused plant closings or reduced operations thus reducing output at those facilities; the stability of the U.S., Mexican, Chinese, Vietnamese and Taiwanese economic, labor and political systems and conditions; currency exchange fluctuations; and the ability of the Company to manage its growth.  These and other factors which may affect the Company’s future business and results of operations are identified throughout the Company’s Annual Report on Form 10-K, and as risk factors, may be detailed from time to time in the Company’s filings with the Securities and Exchange Commission.  These statements speak as of the date of such filings, and the Company undertakes no obligation to update such statements in light of future events or otherwise unless otherwise required by law.

25

 


 

SigmaTron International, Inc.

January 31, 2021

 

 

Overview:



The Company operates in one business segment as an independent provider of EMS, which includes printed circuit board assemblies and completely assembled (box-build) electronic products.  In connection with the production of assembled products, the Company also provides services to its customers, including (1) automatic and manual assembly and testing of products; (2) material sourcing and procurement; (3) manufacturing and test engineering support; (4) design services; (5) warehousing and distribution services; and (6) assistance in obtaining product approval from governmental and other regulatory bodies.  The Company provides these manufacturing services through an international network of facilities located in the United States, Mexico, China, Vietnam and Taiwan.



The Company relies on numerous third-party suppliers for components used in the Company’s production process.  Certain of these components are available only from single-sources or a limited number of suppliers.  In addition, a customer’s specifications may require the Company to obtain components from a single-source or a small number of suppliers.  The loss of any such suppliers could have a material impact on the Company’s results of operations.  Further, the Company could operate at a cost disadvantage compared to competitors who have greater direct buying power from suppliers.  The Company does not enter into long-term purchase agreements with major or single-source suppliers.  The Company believes that short-term purchase orders with its suppliers provides flexibility, given that the Company’s orders are based on the changing needs of its customers.



Sales levels can vary considerably among customers and products depending on the type of services (turnkey versus consignment) rendered by the Company and the demand by customers.  Consignment orders require the Company to perform manufacturing services on components and other materials supplied by a customer, and the Company charges only for its labor, overhead and manufacturing costs, plus a profit.  In the case of turnkey orders, the Company provides, in addition to manufacturing services, the components and other materials used in assembly.  Turnkey contracts, in general, have a higher dollar volume of sales for each given assembly, owing to inclusion of the cost of components and other materials in net sales and cost of goods sold.  Variations in the number of turnkey orders compared to consignment orders can lead to significant fluctuations in the Company’s revenue and gross margin levels.  Consignment orders accounted for less than 1% of the Company’s revenues for the three and nine month periods ended January  31, 2021 and 2020, respectively.



The Company’s international footprint provides our customers with flexibility within the Company to manufacture in China, Mexico, Vietnam or the U.S.  We believe this strategy will continue to serve the Company well as its customers continuously evaluate their supply chain strategies.



The Company changed its primary lender to J.P. Morgan Chase on January 29, 2021. The change of banks resulted in debt extinguishment expenses of approximately $360,000 associated with the old debt being incurred in January 2021.  However, even with the expense, the Company reported a pre-tax profit for the third quarter of fiscal 2021 and for the first nine months of fiscal 2021.  During the first fiscal quarter the Company was impacted by COVID-19 and its revenue was significantly reduced. In addition, heading into the fourth quarter of fiscal 2021 the Company has a record backlog.



With that record backlog, the Company finds itself facing a new set of challenges. Tremendous demand for electronic components and, in particular, semiconductor products has continued to accelerate and the Company’s supply chain is volatile.  Some parts are on allocation. Price increases have impacted many parts. In some cases suppliers missed their shipping commitments.  The Company is working closely with its supply chain and customers. At this time there is every indication

26

 


 

SigmaTron International, Inc.

January 31, 2021

 

 

that this will continue through the balance of calendar 2021. Also, the Company was negatively affected in February 2021 by the winter storms that paralyzed Texas and parts of Mexico. The Company’s largest operation in Acuna/Del Rio was shut down for a week and the operation in Chihuahua for two days. Both operations returned to normal during the month. 



In addition to the record backlog, the Company has several new customers it is engaging with and has a record number of new opportunities going forward.  The Company has continued to make progress on its proposed acquisition of Wagz, Inc. and is even more excited about the opportunities it believes it will bring to both companies.  Hopefully the Company will be in a position to issue a separate press release on that situation soon. 



While the Company still has many challenges in its industry, in general, it sees several strong quarters ahead and should have good momentum closing out fiscal 2021 and heading into fiscal 2022.



Results of Operations: 



The following table sets forth selective financial data as a percentage of net sales for the periods indicated.





 

 

 

 

 

 

 



Three Months

 

Three Months

 

Nine Months

 

Nine Months



Ended

 

Ended

 

Ended

 

Ended



January 31,

 

January 31,

 

January 31,

 

January 31,



2021

 

2020

 

2021

 

2020



(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)



 

 

 

 

 

 

 

Net sales

100.0%

 

100.0%

 

100.0%

 

100.0%

Operating expenses:

 

 

 

 

 

 

 

Cost of products sold

91.7

 

91.8

 

91.6

 

90.9

Selling and administrative expenses

7.3

 

8.1

 

7.8

 

7.9

Total operating expenses

99.0

 

99.9

 

99.4

 

98.8

Operating income

1.0%

 

0.1%

 

0.6%

 

1.2%



Net Sales



Net sales increased for the three month period ended January 31, 2021, to $71,531,348 from $67,407,268 for the three month period ended January 31, 2020.  Net sales decreased for the nine month period ended January 31, 2021 to $201,674,728 from $216,272,561 for the nine month period ended January 31, 2020.  The Company’s sales increased for the three month period ended January 31, 2021, as compared to the prior year in the consumer electronics and medical/life science marketplaces.  The increase in sales dollars for these marketplaces was partially offset by a decrease in sales dollars in the industrial electronics marketplace.  The Company’s sales decreased for the nine month period ended January 31, 2021, as compared to the prior year in the industrial electronics and medical/life science marketplaces.  The decrease in sales dollars for these marketplaces was partially offset by an increase in sales dollars in the consumer electronics marketplace.  Sales decreased by approximately 7% for the nine month period ended January 31, 2021, as compared to the same periods in the prior year due to the COVID-19 pandemic that significantly impacted sales in the first quarter of fiscal 2021.  The COVID-19 situation remains volatile and customer demand could change quickly. 



27

 


 

SigmaTron International, Inc.

January 31, 2021

 

 

Gross Profit



Gross profit dollars increased during the three month period ended January 31, 2021, to $5,912,699 or 8.3% of net sales compared to $5,521,777 or 8.2% of net sales for the same period in the prior fiscal year.    Gross profit dollars decreased during the nine month period ended January 31, 2021, to $16,944,432 or 8.4% of net sales compared to $19,611,595 or 9.1% of net sales for the same period in the prior fiscal year.    The decrease in gross profit for the nine month period ended January 31, 2021, was primarily the result of decreased sales in the first quarter of fiscal 2021 due to the COVID-19 pandemic and approximately $800,000 of COVID-19 related expenses.  It is likely the COVID-19 related expenses will continue for the balance of this fiscal year. 



Selling and Administrative Expenses



Selling and administrative expenses decreased to $5,212,629 or 7.3% of net sales for the three month period ended January 31, 2021, compared to $5,469,654 or 8.1% of net sales for the same period in the prior fiscal year.  The net decrease in selling and administrative expenses for the three month period ended January 31, 2021, was attributable to a decrease in sales salaries, financing fees and travel and lodging.  The decrease in the foregoing selling and administrative expenses was partially offset by an increase in bonus expense, bank closing costs and miscellaneous general and administrative expense.  Selling and administrative expenses decreased to $15,693,893 or 7.8% of net sales for the nine month period ended January 31, 2021, compared to $16,997,268 or 7.9% of net sales for the same period in the prior fiscal year.  The net decrease in selling and administrative expenses for the nine month period ended January 31, 2021, was attributable to a decrease in sales salaries, financing fees,  accounting professional fees and travel and lodging.  The decrease in the foregoing selling and administrative expenses was partially offset by an increase in legal professional fees and miscellaneous general and administrative expense.    



Interest Expense



Interest expense decreased to $287,371 for the three month period ended January 31, 2021, compared to $401,837 for the same period in the prior fiscal year.  Interest expense decreased to $934,248 for the nine month period ended January 31, 2021, compared to $1,455,837 for the same period in the prior fiscal year.  The decrease in interest expense for the three and nine month periods ended January 31, 2021, was due to the decreased borrowings under the Company’s banking arrangements and mortgage obligations.



Income Tax Expense



The income tax benefit was $25,910 for the three month period ended January 31, 2021, compared to an income tax benefit of $102,731 for the same period in the prior fiscal year.  The Company’s effective tax rate was (11.60)% and 32.13% for the quarters ended January 31, 2021 and 2020, respectively.  The income tax expense was $196,199 for the nine month period ended January 31, 2021, compared to an income tax expense of $460,490 for the same period in the prior fiscal year.  The Company’s effective tax rate was 114.29% and 36.40% for the nine month period ended January 31, 2021 and 2020, respectively.  The decrease in income tax benefit and effective tax rate for the three month period ended January 31, 2021 compared to the same period in the previous year is due to income recognized in the current quarter compared to a loss in the previous year, and variations in income earned by jurisdiction. The decrease in income tax expense and increase in effective tax rate for the nine month period ended January 31, 2021 compared to the same period in the previous year is

28

 


 

SigmaTron International, Inc.

January 31, 2021

 

 

due to a decrease in income in the current nine month period compared to the same period in the previous year and variations in income earned by jurisdiction.     



Net Income



Net income increased to $249,268 for the three month period ended January 31, 2021, compared to a  net loss of $217,039 for the same period in the prior fiscal year.  Net income decreased to a net loss of $24,540 for the nine month period ended January 31, 2021, compared to net income of $805,169 for the same period in the prior fiscal year.  Basic and diluted earnings per share for the third quarter of fiscal year 2021 were $0.06, compared to basic and diluted loss per share of $0.05 for the same period in the prior fiscal year.  Basic and diluted loss per share for the nine month period ended were $0.01, compared to basic and diluted earnings per share of $0.19 for the same period in the prior fiscal year. 

 

Liquidity and Capital Resources: 



Operating Activities.



Cash flow provided by operating activities was $3,921,700 for the nine months ended January 31, 2021.   During the nine months of fiscal year 2021, cash flow provided by operating activities was primarily the result of a decrease in both accounts receivable and inventory of $4,515,391 and $1,128,931, respectively,  offset by a decrease in accounts payable of $7,125,093 and an increase in prepaid expenses and other assets of $2,570,066.  The decrease in accounts payable was primarily the result of the timing of payments in the ordinary course of business. 



Cash flow provided by operating activities was $14,653,443 for the nine months ended January 31, 2020.  During the first nine months of fiscal year 2020, cash flow provided by operating activities was primarily the result of net income, a decrease in inventory of $11,697,762  and a decrease in accounts receivable of $5,834,858.  The decrease in inventory was primarily the result of the implementation of an inventory reduction program.  Cash flow provided by operating activities was partially offset by the result of a decrease in accounts payable of $7,988,390 and a decrease in accrued expenses and wages.



Investing Activities.



Cash used in investing activities was $6,643,005 for the nine months ended January 31, 2021.  During the nine months of fiscal year 2021 the Company purchased $2,636,505 in machinery and equipment to be used in the ordinary course of business.  The Company has received forecasts from current customers for increased business that would require additional investment in capital equipment and facilities.  To the extent that these forecasts come to fruition, the Company anticipates that it will make additional machinery and equipment purchases in fiscal year 2021.  The Company anticipates future purchases will be funded by lease transactions.    During the nine months of fiscal year 2021 the Company made advances of $4,006,500 to Wagz.   As more fully described in Note H – Significant Accounting Policies, in June 2020, the Company announced a proposed business combination with Wagz.  The advances were made in conjunction with the proposed business combination. 



During the first nine months of fiscal year 2020, the Company purchased $2,133,826 in machinery and equipment used in the ordinary course of business.  The Company made additional machinery and equipment purchases of $2,512,499 during the balance of fiscal year 2020.





29

 


 

SigmaTron International, Inc.

January 31, 2021

 

 

Financing Activities.



Cash used in financing activities of $1,313,461 for the nine months ended January 31, 2021, was primarily the result of net payments under the line of credit.



Cash used in financing activities of $12,580,281 for the nine months ended January 31, 2020, was primarily the result of net payments under the line of credit.



Financing Summary.



Notes Payable – Banks



Prior to January 29, 2021, the Company had a senior secured credit facility with U.S. Bank.  The  revolving credit facility allowed the Company to borrow up to the lesser of (i) $45,000,000 (the “Revolving Line Cap”) less reserves or (ii) the Borrowing Base, but no more than 80% of the Company’s Revolving Line Cap.  Prior to its payoff and termination, the U.S. Bank senior secured credit facility was due to expire on March 31, 2022.  On January 29, 2021, the Company paid the balance outstanding under the senior secured credit facility in the amount of $25,574,733.  The unamortized deferred financing costs of $158,476 were expensed in the third quarter of fiscal 2021 upon extinguishment of the debt.



On January 29, 2021, the Company entered into a Credit Agreement (the “Agreement”) with JPMorgan Chase Bank, N.A. (“Lender”), pursuant to which Lender has agreed to provide the Company with a secured revolving credit facility of up to $50,000,000 (the “Facility”) maturing on January 29, 2026



The Facility allows the Company to choose among interest rates at which it may borrow funds for revolving loans:  “CBFR Loans,” the interest on which is based on (A) the “REVLIBOR30 Rate” (as defined in the agreement) unless the REVLIBOR30 Rate is not available, in which case the interest is generally the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S., plus (B) an applicable margin of 2.0% (effectively 2.25% at January 31, 2021),; or “Eurodollar Loans,” the interest on which is based on (X) an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the LIBO Rate (as defined in the Agreement) for any interest period multiplied by the Standard Reserve Rate (as defined in the Agreement) plus (Y) an applicable margin of 2.0%.  Under the Facility, the Company may borrow up to the lesser of (i) $50,000,000 or (ii) an amount equal to a percentage of the eligible receivable borrowing base plus a percentage of the inventory borrowing base.  The Facility is collateralized by a lien on substantially all of the domestic assets of the Company.  Under the Agreement, a  minimum Fixed Charge Coverage Ratio (“FCCR”) financial covenant of 1.10x is applicable only during an FCCR trigger period which occurs when (i) an event of default (as defined in the Agreement) has occurred and is continuing, and Lender has elected to impose a FCCR trigger period upon notice to the Company or (ii) availability falls below the greater of (i) 10% of the revolving commitment and (ii) the outstanding principal amount of the term loans.  Deferred financing costs of $354,454 were capitalized in the third quarter of fiscal 2021 and will be amortized over the term of the agreement.  As of January 31, 2021, there was $25,584,380 outstanding and $10,390,073 of unused availability under the JPMorgan Chase Bank, N.A. facility compared to an outstanding balance of $26,884,494 and $13,850,575 of unused availability under the U.S. Bank senior secured credit facility at April 30, 2020.  As of January 31, 2021 and April 30, 2020, the unamortized amount offset against outstanding debt was $351,204 and $218,062, respectively. 



30

 


 

SigmaTron International, Inc.

January 31, 2021

 

 

On April 23, 2020, the Company received a PPP Loan from U.S. Bank, as lender, pursuant to the CARES Act, as administered by the SBA in the amount of $6,282,973. The PPP Loan, in the form of a promissory note, matures on April 23, 2022.  No additional collateral or guarantees were provided by the Company for the PPP Loan. The PPP Loan provides for customary events of default.  Under the CARES Act, loan forgiveness may be available for the sum of documented payroll costs, rent payments, mortgage interest and covered utilities during the 24-week period beginning on the date of loan disbursement.  The amount of loan forgiveness will be reduced if recipients terminate employees or reduce salaries during the covered period.  The Company will be required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest, and it cannot provide any assurance that it will be eligible for loan forgiveness, or that any amount of the PPP Loan will ultimately be forgiven by the SBA.  All aspects of the PPP Loan are subject to review by the SBA, including without limitation, the Company’s eligibility for and the size of the loan.  The review procedures have not been made public.  The Company cannot predict the outcome of that review nor be assured that all or any part of the PPP Loan will be forgiven.  To the extent that all or part of the PPP Loan is not forgiven, the Company will be required to make payments, including interest accruing at an annual interest rate of 1.0%, beginning on the date of disbursement.



On March 15, 2019, the Company’s wholly-owned subsidiary, SigmaTron Electronic Technology Co., Ltd., entered into a credit facility with China Construction Bank.  On January 26, 2021, the agreement was amended.  Under the agreement SigmaTron Electronic Technology Co., Ltd. can borrow up to 9,000,000 Renminbi, approximately $1,391,000 as of January 31, 2021, and the facility is collateralized by Wujiang SigmaTron Electronics Co., Ltd.’s manufacturing building.  Interest is payable monthly and the facility bears a fixed interest rate of 3.85%.  The term of the facility extends to January 6, 2022.  There was no outstanding balance under the facility at January 31, 2021 compared to an outstanding balance of $304,658 at April 30, 2020.



Notes Payable – Buildings



The Company entered into a mortgage agreement on December 21, 2017, in the amount of $5,200,000, with U.S. Bank to refinance the property that serves as the Company’s corporate headquarters and its Illinois manufacturing facility in Elk Grove Village, Illinois.  The note required the Company to pay monthly principal payments in the amount of $17,333, bore interest at a fixed rate of 4.0% per year and was payable over a fifty-one month period.  Deferred financing costs of $74,066 were capitalized in fiscal year 2018 which were amortized over the term of the agreement.  On January 29, 2021, the Company repaid its U.S. Bank mortgage agreement for the remaining amount outstanding of $4,576,000, using proceeds from the JPMorgan Chase Bank, N.A. mortgage agreement.  The Company recorded a prepayment penalty of $120,842 in the third quarter of fiscal 2021.  The remaining deferred financing costs of $21,365 were expensed in the third quarter of fiscal 2021. 



The Company entered into a mortgage agreement on December 21, 2017, in the amount of $1,800,000, with U.S. Bank to refinance the property that serves as the Company’s engineering and design center in Elgin, Illinois.  The note required the Company to pay monthly principal payments in the amount of $6,000, bore interest at a fixed rate of 4.0% per year and was payable over a fifty-one month period.  Deferred financing costs of $65,381 were capitalized in the fiscal year 2018 which were amortized over the term of the agreement.  On January 29, 2021, the Company repaid its U.S. Bank mortgage agreement for the remaining amount outstanding of $1,584,000, using proceeds from the JPMorgan Chase Bank, N.A. mortgage agreement.  The Company recorded a prepayment penalty of $41,830 in the third quarter of fiscal 2021.    The remaining deferred financing costs of $18,859 were expensed in the third quarter of fiscal 2021.

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SigmaTron International, Inc.

January 31, 2021

 

 



The Company entered into two term notes on January 29, 2021, in the aggregate amount of $6,500,0000, with JPMorgan Chase Bank, N.A. secured against certain properties owned by the Company.  The notes require the Company to pay monthly aggregate principal payments in the amount of $36,111 and bears interest at (A) the REVLIBOR30 Rate, unless the REVLIBOR30 Rate is not available, in which case the interest is generally the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S., plus (B) an applicable margin of 2.0%; (effectively 2.75% at January 31, 2021) and is payable over a sixty month period.  Deferred financing costs of $10,050 were capitalized in the third quarter of fiscal 2021 which are amortized over the term of the agreement.  As of January 31, 2021, the unamortized amount included as a reduction to long-term debt was $10,050.  Final payments of approximately $4,368,444 is due on or before January 31, 2026.  The outstanding balance was $6,500,000 at January 31, 2021.



The Company entered into a mortgage agreement on March 3, 2020, in the amount of $556,000, with The Bank and Trust SSB to purchase the property that serves as the Company’s warehousing and distribution center in Del Rio, Texas.  The note requires the Company to pay monthly installment payments in the amount of $6,103, bears interest at a fixed rate of 5.75% per year and is payable over a 120 month period.  The outstanding balance was $531,578 and $552,561 at October 31, 2020 and April, 30 2020, respectively. 



Notes Payable – Equipment



The Company routinely enters into secured note agreements with Engencap Fin S.A. DE C.V. to finance the purchase of equipment. The terms of these secured note agreements mature from November 2021 through May 2023, with quarterly installment payments ranging from $11,045 to $37,941 and a fixed interest rate ranging from 6.65% to 8.00%.



The Company routinely enters into secured note agreements with FGI Equipment Finance LLC to finance the purchase of equipment. The terms of these secured note agreements mature from March 2025 through October 2025, with quarterly installment payments ranging from $10,723 to $69,439 and a fixed interest rate of 8.25%.



Finance Lease and Sales Leaseback Obligations



The Company enters into various finance lease and sales leaseback agreements.  The terms of the lease agreements mature through June 2024, with monthly installment payments ranging from $1,455 to $40,173 and a fixed interest rate ranging from 3.75% to 12.73%.



Other



The Company provides funds for salaries, wages, overhead and capital expenditure items as necessary to operate its wholly-owned Mexican, Vietnamese and Chinese subsidiaries and the Taiwan IPO.  The Company provides funding in U.S. Dollars, which are exchanged for Pesos, Dong, Renminbi, and New Taiwan dollars.  The fluctuation of currencies from time to time, without an equal or greater increase in inflation, could have a material impact on the financial results of the Company.  The impact of currency fluctuations for the nine month period ended January  31, 2021, resulted in net foreign currency transaction losses of $168,539 compared to net foreign currency losses of approximately $268,400 for the same period in the prior year.  During the nine months of fiscal year 2021, the Company paid approximately $43,690,000 to its foreign subsidiaries for manufacturing services.  All intercompany balances have been eliminated upon consolidation. 

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SigmaTron International, Inc.

January 31, 2021

 

 

The Company has not changed its plans to indefinitely reinvest the earnings of the Company’s foreign subsidiaries.  The cumulative amount of unremitted earnings for which U.S. income taxes have not been recorded is $4,705,000 as of January 31, 2021. 



The Company expects that the significant disruption in business activity and the financial markets created by the COVID-19 global pandemic will impact several sources of its liquidity, and is therefore continuously and critically reviewing its liquidity and anticipated capital requirements.  For more information on the potential impact of the COVID-19 pandemic on the Company, see Note B - Basis of Presentation.



The impact of inflation on the Company’s net sales, revenues and income from operations for the past two fiscal years has been minimal.



Off-balance Sheet Transactions:



The Company has no off-balance sheet transactions.



Tabular Disclosure of Contractual Obligations:



As a smaller reporting company, as defined in Item 10(f)(1) of Regulation S-K under the Exchange Act, the Company is not required to provide the information required by this item.

 

Item 3.Quantitative and Qualitative Disclosures About Market Risks.



As a smaller reporting company, as defined in Item 10(f)(1) of Regulation S-K under the Exchange Act, the Company is not required to provide the information required by this item.



Item 4.Controls and Procedures.



Disclosure Controls:



The Company’s management, including its President and Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rules 13a-15(e) and 15(d)-15(e) thereunder) as of January  31, 2021.  The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and its President and Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of January  31, 2021.





Internal Controls:



There has been no change in the Company’s internal control over financial reporting during the nine months ended January 31, 2021, that has materially affected or is reasonably likely to materially affect, its internal control over financial reporting.  The Company’s internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with U.S. GAAP.

 



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SigmaTron International, Inc.

January 31, 2021

 

 

PART II – OTHER INFORMATION



Item 1.              Legal Proceedings. 



From time to time the Company is involved in legal proceedings, claims, or investigations that are incidental to the Company’s business. In future periods, the Company could be subjected to cash cost or non-cash charges to earnings if any of these matters are resolved on unfavorable terms. However, although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including management’s assessment of the merits of any particular claim, the Company does not expect these legal proceedings or claims will have any material adverse impact on its future consolidated financial position, results of operations or cash flows.



Item 1A.            Risk Factors.



As a smaller reporting company, as defined in Item 10(f)(1) of Regulation S-K under the Exchange Act, the Company is not required to provide the information required by this item. 



Item 2.              Unregistered Sales of Equity Securities and Use of Proceeds.



None.



Item 3.              Defaults Upon Senior Securities.



None.



Item 4.              Mine Safety Disclosures.



Not applicable.



Item 5.              Other Information.



None.

 

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SigmaTron International, Inc.

January 31, 2021

 

 

Item 6.Exhibits.





 

10.1

Lease No. 13, entered into November 18, 2020, is an attachment to Master Lease No. 2017389 dated August 15, 2017 by and between First American Commercial Bancorp, Inc. and SigmaTron International, Inc.



 

10.2

Credit Agreement dated as of January 29, 2021 between SigmaTron International, Inc. and JPMorgan Chase Bank, N.A. incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on February 4, 2021.



 

31.1

Certification of Principal Executive Officer of the Company Pursuant to Rule 13a-14(a) under the Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).



 

31.2

Certification of Principal Financial Officer of the Company Pursuant to Rule 13a-14(a) under the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).



 

32.1

Certification by the Principal Executive Officer of SigmaTron International, Inc. Pursuant to Rule 13a-14(b) under the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).



 

32.2

Certification by the Principal Financial Officer of SigmaTron International, Inc. Pursuant to Rule 13a-14(b) under the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).



 

101.INS

XBRL Instance Document



 

101.SCH

XBRL Taxonomy Extension Scheme Document



 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document



 

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document



 

101.LAB

XBRL Taxonomy Extension Label Linkbase Document



 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document



 

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SigmaTron International, Inc.

January 31, 2021

 

 

SIGNATURES:



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



SIGMATRON INTERNATIONAL, INC.





 

 

/s/ Gary R. Fairhead

 

March  11, 2021



 

 

Gary R. Fairhead

 

Date

President and CEO (Principal Executive Officer)

 

 



 

 



 

 

/s/ Linda K. Frauendorfer

 

March  11, 2021

 

 

 

Linda K. Frauendorfer

 

Date

Chief Financial Officer, Secretary and Treasurer

 

 

(Principal Financial Officer and Principal

 

 

Accounting Officer)

 

 





 



36