Docoh
Loading...

SGMA Sigmatron International

Filed: 23 Jul 21, 10:21am

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

X  Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 For the fiscal year ended April 30, 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

(State or other jurisdiction

of incorporation or organization)

2201 Landmeier Rd., Elk Grove Village, IL

(Address of principal executive offices)

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

Securities registered pursuant to Section 12(b) of the Act:

36-3918470

(I.R.S. Employer

Identification Number)

60007

(Zip Code)

ASDAQ Capital Market

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. oYes ý No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. oYes ý No

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.

ý Yes o No

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). ý Yes o 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 “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o Accelerated Filer o Non-accelerated Filer ý Smaller Reporting Company ý

Emerging Growth Company o

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. o

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act.) oYes ý No

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of October 31, 2020, the last business day of the registrant’s most recently completed second fiscal quarter was $11,921,231 based on the closing sale price of $3.21 per share as reported by NASDAQ Capital Market as of such date.

The number of outstanding shares of the registrant’s Common Stock, $0.01 par value, as of July 20, 2021 was 4,284,508.

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections or portions of the definitive proxy statement of SigmaTron International, Inc., for use in connection with its 2021 annual meeting of stockholders, which the Company intends to file within 120 days of the fiscal year ended April 30, 2021, are incorporated by reference into Part III of this Form 10-K.

2


TABLE OF CONTENTS


3


PART I

ITEM 1. BUSINESS

CAUTIONARY NOTE:

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 Annual Report on Form 10-K 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, acquisition or 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 as well as the expenses of acquisitions; the collection of aged account receivables; the variability of the Company’s customers’ requirements; the impact of inflation on the Company’s operating results; 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 and restrictive covenants under its loan agreements; 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 and variants (commonly known as “COVID-19”) 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.

Overview

SigmaTron is a Delaware corporation, which was organized on November 16, 1993, and commenced operations when it became the successor to all of the assets and liabilities of SigmaTron L.P., an Illinois limited partnership, through a reorganization on February 8, 1994.

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

4


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 provides manufacturing and assembly services ranging from the assembly of individual components to the assembly and testing of box-build electronic products. The Company has the ability to produce assemblies requiring mechanical as well as electronic capabilities. The products assembled by the Company are then incorporated into finished products sold in various industries, particularly industrial electronics, consumer electronics and medical/life sciences. In some instances, the Company manufactures and assembles the completed finished product for its customers.

The Company operates manufacturing facilities in Elk Grove Village, Illinois United States of America (“U.S.”); Union City, California, U.S.; Acuna, Coahuila, Mexico (“MX”); Chihuahua, Chihuahua, MX; and Tijuana, Baja California, MX; Suzhou, Jiangsu Province, China; and Ho Chi Minh City, Dong Nai Province, Vietnam. In addition, the Company maintains an International Procurement Office and Compliance and Sustainability Center (“IPO”) in Taipei, Taiwan. The Company also provides design services in Elgin, Illinois and warehousing services in Del Rio, Texas; El Paso, Texas; Elk Grove Village, IL; and San Diego, California. The Company has an information technology office in Taichung, Taiwan.

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.

For the fiscal year ended 2021 the Company reported pre-tax profit of approximately $2,100,000 and sales of approximately $278,000,000. The Company reported strong results for the fourth quarter of fiscal year 2021, including pre-tax profit of approximately $1,900,000 and sales of approximately $76,000,000. The year end results were strong despite the first fiscal quarter, which was the height of the COVID-19 pandemic for the Company. These results were obtained after incurring significant non-reoccurring expenses during the year related to changing the Company’ primary bank, COVID-19 related expenses, including reconfiguring operations to provide a safe environment and expenses related to a proposed acquisition of Wagz, Inc.  Furthermore, the continuing electronic component shortages in the marketplace have led to lower productivity on occasion, as the marketplace has remained volatile. 

Going forward, the Company’s backlog remains at an all-time high with demand staying strong across the vast majority of markets and customers the Company serves. The Company has several new customers of significance that the Company expects to begin shipping to in the first half of fiscal year 2022. However, the electronic component marketplace remains volatile in terms of both supply and price. It could well negatively impact the Company’s ability to ship the backlog on time.  This is a problem faced by almost every customer and competitor in the EMS industry, and the Company does not see the situation improving soon.  The Company’s supply chain and operations teams have challenges which continue for the foreseeable future and it would seem they will remain for fiscal year 2022.  The Company does not see any signs of weakening in the semiconductor demand across all markets, nor does the Company see any additional capacity coming online anytime soon. 

Recent Developments

On May 29, 2020, SigmaTron and Wagz, Inc. (“Wagz”), a privately held company in the pet technology market, entered into a Convertible Secured Promissory Note in the principal sum of up to $4,052,478.  On January 27, 2021, Wagz issued an additional Convertible Secured Promissory Note to the Company in the principal sum of up to $1,588,328. On April 30, 2021, Wagz issued an additional Convertible Secured Promissory Note to the Company in the principal amount of $1,249,966. On April 30, 2021, Wagz issued a Secured Promissory Note to the Company in the principal amount of $308,329 (collectively, the “Notes”). At April 30, 2021, $7,014,594 and $184,507 was outstanding under Note receivable and Other receivables, respectively, in the consolidated balance sheet. The Notes are due (the “Maturity Date”) on the earliest to occur of (a) December 31, 2021 or, if the closing of the Company’s proposed acquisition of Wagz (the “Closing”) does not occur due to the Company’s termination, that date which is twelve (12) months after the date of such termination, (b) upon the closing of a sale of all or substantially all of the assets or common stock of Wagz

5


(other than the Closing), or (c) an Event of Default (as defined in the Notes). Interest is payable at the rate of four percent (4%) per annum and is payable on the Maturity Date. The Notes are collateralized by substantially all assets of Wagz.

 

On June 4, 2020, SigmaTron and Wagz, announced that they executed a Letter of Intent (“LOI”) relating to a proposed acquisition. Subject to the terms and conditions set forth in the LOI, SigmaTron expects to issue approximately 2,443,870 shares of SigmaTron common stock that would result in the stockholders of Wagz owning in the aggregate approximately one-third of the combined company. The potential benefits to the Company from that transaction were summarized in the June 4, 2020 announcement. On July 19, 2021 the definitive agreement was signed. The parties expect the transaction to close by September 30, 2021 and it remains subject to achievement of certain milestones and satisfaction of conditions by both parties prior to Closing including the Company having determined that the Wagz Freedom Smart Collar™ meets certain criteria, and the approval by the stockholders of both SigmaTron and Wagz.

A pandemic of respiratory diseases, including variants (commonly known as "COVID-19") began to spread globally, including to the United States, in early 2020. 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 Company cannot predict the extent to which the COVID-19 outbreak will continue to impact its business or operating results, which is highly dependent on inherently uncertain future developments, including the severity and duration of the COVID-19 outbreak and the actions taken by governments and businesses in relation to COVID-19 containment. The Company has adopted several measures in response to the COVID-19 outbreak. For more information on the potential impact of the COVID-19 pandemic on the Company, see “Item 1A. Risk Factors – The ongoing COVID-19 global pandemic and measures taken in response thereto have adversely affected the Company’s results of operations and its financial condition, and the full impact of the pandemic will depend on future developments, which are highly uncertain and cannot be predicted.”

Products and Services

The Company provides a broad range of electronic and electromechanical manufacturing related outsourcing solutions for its customers. These solutions incorporate the Company’s knowledge and expertise in the EMS industry to provide its customers with an international network of manufacturing facilities, advanced manufacturing technologies, complete supply chain management, responsive and flexible customer service, as well as product design, test and engineering support. The Company’s EMS solutions are available from inception of product concept through the ultimate delivery of a finished product. Such technologies and services include the following:

Manufacturing and Testing Services: The Company’s core business is the assembly and testing of all types of electronic printed circuit board assemblies (“PCBA”) and often incorporating these PCBAs into electronic modules used in all types of devices and products that depend on electronics for their operation. This assembly work utilizes state of the art manufacturing and test equipment to deliver highly reliable products to the Company’s customers. The Company supports new product introduction (“NPI”), low volume / high mix as well as high volume/ low mix assembly work at all levels of assembly and text complexity. From simple component assembly through the most complicated industry testing, the Company offers most of the services required to build electronic devices commercially available in the market today.

Design Services: To complement the manufacturing services it offers its customers, the Company also offers design for manufacturing (“DFM”), and design for test (“DFT”) review services to help customers ensure that the products they have designed are optimized for production and testing. The Company also offers complete product design services.

Supply Chain Management: The Company provides complete supply chain management for the procurement of components needed to build customers’ products. This includes the procurement and management of all types of electronic components and related mechanical parts such as plastics and metals. The Company’s resources supporting this activity are provided both on a plant specific basis as well as globally

6


through its IPO in Taipei, Taiwan. Each of its sites is linked together using the same Enterprise Resource Planning (“ERP”) system and custom IScore software tools with real-time on-line visibility for customer access. The Company procures material from major manufacturers and distributors of electronic parts all over the world.

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 orders material from its suppliers consistent with the purchase orders and forecasts it receives from its customers. See “Item 1A. Risk Factors – The availability of raw components or an increase in their price may affect the Company’s operations and profits”.

Warehousing and Distribution: The Company provides both in-house and third-party warehousing, shipping, and customs brokerage for border crossings as part of its service offering. This includes international shipping, drop shipments to the end customer as well as support of inventory optimization activities such as kanban and consignment.

Government Compliance, Green, Sustainability, and Social Responsible Initiatives: The Company supports initiatives that promote sustainability, green environment and social responsibility. The Company helps its customers in achieving effective compliance. Those include, but are not limited to, Restrictions of Hazardous Substances (“RoHS”), Restriction of Chemicals (“REACH”) and Conflict Minerals regulations.

Manufacturing Locations and Certifications: The Company’s manufacturing locations are strategically located to support our customers with locations in Elk Grove Village, Illinois U.S.; Union City, California U.S.; Acuna, Chihuahua and Tijuana, Mexico; Suzhou, China and Ho Chi Minh City, Vietnam. The Company’s ability to transition manufacturing to lower cost regions without jeopardizing flexibility and service differentiates it from many competitors. Manufacturing certifications and registrations are location specific, and include ISO 9001:2015, ISO 14001:2004, ISO 14001:2015, IATF 16949:2016, Medical ISO 13485:2016 and FDB Certification, Aerospace AS9100D and International Traffic in Arms Regulations (“ITAR”) certifications.

Markets and Customers

The Company’s customers are in the industrial electronics, consumer electronics and medical/life sciences industries. As of April 30, 2021, the Company had approximately 225 active customers ranging from Fortune 500 companies to small, privately held enterprises.

The following table shows, for the periods indicated, the percentage of net sales to the principal end-user markets it serves.

Percent of Net Sales

Markets

Typical OEM Application

Fiscal 2021
%

Fiscal 2020 %

Industrial Electronics

Smart grid, IoT connectivity, welding equipment, food processing equipment, solar energy devices, gaming equipment, health club equipment

54.0

56.5

Consumer Electronics

Appliances, marine equipment, pool and spa controls

40.8

37.7

Medical/Life Sciences

Surgical tables, dialysis machines

5.2

5.8

Total

100%

100%

7


For the fiscal year ended April 30, 2021, the Company’s largest two customers, Whirlpool Inc. and Electrolux accounted for 17.9% and 16.2%, respectively, of the Company’s net sales. For the fiscal year ended April 30, 2020, Whirlpool Inc. and Electrolux accounted for 16.7% and 14.1%, respectively, of the Company’s net sales. The Company believes that Whirlpool Inc. and Electrolux will continue to account for a significant percentage of the Company’s net sales, although the percentage of net sales may vary from period to period.

The majority of sales are made to U.S. based customers and denominated in USD. The following geographic data includes net sales based on the country location of the Company’s operation providing the electronic manufacturing service for the year ended April 30, 2021 and 2020:

Location

Net Sales Fiscal 2021

Net Sales Fiscal 2020

United States

$

69,125,385

$

75,443,339

Mexico

158,779,275

146,922,207

China

36,030,112

45,198,018

Vietnam

13,783,899

13,478,918

Total

$

277,718,672

$

281,042,482

Approximately 39% of the total assets of the Company are located in foreign jurisdictions outside the United States as of April 30, 2021, 21% and 15% of the total assets were located in Mexico and China, respectively, and 3% in other foreign locations. As of April 30, 2020, approximately 37% of the total assets were located in foreign jurisdictions, 17% were located in each of China and Mexico, and 3% in other foreign locations.

Sales and Marketing

Many of the members of the Company’s senior management are actively involved in sales and marketing efforts, and the Company has four direct sales employees. The Company markets its services through six independent manufacturers’ representative organizations that together currently employ 14 sales personnel in the United States and Canada. Independent manufacturers’ representatives’ organizations receive variable commissions based on orders received by the Company and are assigned specific accounts, not territories. In addition, the Company markets itself through its website and tradeshows.

Mexico, China, Vietnam and Taiwan Operations

The Company’s wholly-owned subsidiary, Standard Components de Mexico, S.A, a Mexican corporation, is located in Acuna, Coahuila Mexico, a border town across the Rio Grande River from Del Rio, Texas, and is 155 miles west of San Antonio. Standard Components de Mexico, S.A. was incorporated and commenced operations in 1968 and had 939 employees at April 30, 2021. The Company’s wholly-owned subsidiary, AbleMex S.A. de C.V., a Mexican corporation, is located in Tijuana, Baja California Mexico, a border town south of San Diego, California. AbleMex S.A. de C.V. was incorporated and commenced operations in 2000. The operation had 408 employees at April 30, 2021. The Company’s wholly-owned subsidiary, Digital Appliance Controls de Mexico S.A., a Mexican corporation, operates in Chihuahua, Mexico, located approximately 235 miles from El Paso, Texas. Digital Appliance Controls de Mexico S.A. was incorporated and commenced operations in 1997. The operation had 594 employees at April 30, 2021. The Company believes that one of the key benefits to having operations in Mexico is its access to cost-effective labor resources while having geographic proximity to the United States.

The Company’s wholly-owned foreign enterprises, Wujiang SigmaTron Electronics Co., Ltd. and SigmaTron Electronic Technology Co., Ltd., are located in Suzhou, China. The Company has entered into an agreement with governmental authorities in the economic development zone of Wujiang, Jiangsu Province, Peoples Republic of China, pursuant to which the Company became the lessee of a parcel of land of approximately 100 Chinese acres. The term of the land lease is 50 years. The Company built a manufacturing plant, office space and dormitories on this site during 2004. In fiscal year 2015, the China facility expanded and added 40,000 square feet in warehouse and manufacturing. The total square footage of the facility is 216,950 and the operation had 417 employees as of April 30, 2021. Both SigmaTron China entities operate at this site.

8


The Company’s wholly-owned subsidiary, Spitfire Controls (Vietnam) Co. Ltd. is located in Amata Industrial Park, Bien Hoa City, Dong Nai Province, Vietnam, and is 18 miles east of Ho Chi Minh City. Spitfire Controls (Vietnam) Co. Ltd. was incorporated and commenced operation in 2005 and had 334 employees as of April 30, 2021.

The Company maintains an IPO in Taipei, Taiwan which was incorporated in 1991. The total square footage of the office is 4,685 square feet. The Company has an information technology office in Taichung, Taiwan. The total square footage of the office is 1,650 square feet. The Company had 34 employees located in the Taiwan offices as of April 30, 2021.

The Company provides funds for manufacturing services such as salaries, wages, overhead and capital expenditure items as necessary to operate its wholly-owned Mexican, Vietnamese and Chinese subsidiaries and foreign enterprises and the IPO in Taiwan. 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 fiscal year ended April 30, 2021, resulted in net foreign currency transaction losses of approximately $285,389 compared to net foreign currency losses of $285,654 in the prior year. In fiscal year 2021, the Company paid approximately $59,020,000 to its foreign subsidiaries for manufacturing services. All intercompany balances have been eliminated upon consolidation.

The consolidated financial statements as of April 30, 2021, include the accounts and transactions of 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., and international procurement office, SigmaTron Taiwan Branch. The functional currency of the Company’s foreign subsidiaries operations is the U.S. Dollar. Intercompany transactions are eliminated in the consolidated financial statements.

Competition

The EMS industry is highly competitive and subject to rapid change. Furthermore, both large and small companies compete in the industry, and many have significantly greater financial resources, more extensive business experience and greater marketing and production capabilities than the Company. The significant competitive factors in this industry include price, quality, service, timeliness, reliability, the ability to source raw components, and manufacturing and technological capabilities. The Company believes it can compete on all of these factors.

Consolidation

As a result of consolidation and other transactions involving competitors and other companies in the Company’s markets, the Company occasionally reviews potential transactions relating to its business, products and technologies. Such transactions could include mergers, acquisitions, strategic alliances, joint ventures, licensing agreements, co-promotion agreements, financing arrangements or other types of transactions. In the future, the Company may choose to enter into these types of or other transactions at any time depending on available sources of financing, and such transactions could have a material impact on the Company’s business, financial condition or operations.

Governmental Regulations

The Company’s operations are subject to certain foreign government, U.S. federal, state and local regulatory requirements relating to, among others, environmental, waste management, labor and health and safety matters.  Management believes that the Company’s business is operated in compliance with all such regulations, which include European regulations known as Restriction of Hazardous Substances (“RoHS”) and Registration, Evaluation, Authorization and Restriction of Chemicals (“REACH”).  From time-to-time the Company's customers request REACH required information and certifications on the assemblies the Company manufactures for them.  These requests require the Company to gather information from component suppliers to verify the presence and level of mass of any substances of very high concerns (“SVHCs”) greater than 0.1% in

9


the assemblies the Company manufactures based on customer specifications.  If any SVHCs are present at more than 0.1% of the mass of the item, the specific concentration and mass of the SVHC must be reported to proper authorities by the Company's customer.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) introduced reporting requirements for verification of whether the Company directly (or indirectly through suppliers of components) is purchasing the minerals or metals gold, columbite-tantalite, cassiterite, wolframite and their derivatives (tin, tungsten, and tantalum), that are being provided by sources in the conflict region of the Democratic Republic of Congo (“DRC”) and contributing conflict.  Consistent with recent prior years, in May 2021, the Company filed Form SD with the Securities and Exchange Commission stating the Company’s supply chain remains DRC conflict undeterminable.

The Company’s costs of compliance with environmental laws, including conflict mineral reporting, is estimated to be a total of approximately $1,800,000 for the three most recently completed fiscal years ending April 30, 2021.  Additional or modified requirements may be imposed in the future.  If such additional or modified requirements are imposed, or if conditions requiring remediation are found to exist, the Company may be required to incur additional expenditures.

Backlog

The Company relies on forecasted orders and purchase orders (firm orders) from its customers to estimate backlog. The Company’s backlog of firm orders as of April 30, 2021, and April 30, 2020, was approximately $307,130,000 and $272,550,000, respectively. The Company believes a significant portion of the backlog at April 30, 2021, will ship in fiscal year 2022. Because customers may cancel or reschedule deliveries, backlog may not be a meaningful indicator of future revenue. Variations in the magnitude and duration of contracts, forecasts and purchase orders received by the Company and delivery requirements generally may result in substantial fluctuations in backlog from period to period.

Employees

The Company employed approximately 3,200 full-time employees of which approximately 500 were located in the U.S. as of April 30, 2021. There were 224 engaged in engineering or engineering-related services, 2,633 in manufacturing and 339 in administrative and marketing functions.

The Company makes a considerable effort to maintain a qualified and engaged work force. The Company makes a concerted effort to engage its employees and provide opportunities for growth and the Company believes that its employee relations are good. The Company considers the health and safety of its employees a key priority, and even more so since the COVID-19 pandemic started. The Company has adopted various safety, cleaning and social distancing protocols. The Company is committed to removing conditions that may cause personal injury or occupational illness.

SigmaTron has a labor contract with Chemical & Production Workers Union Local No. 30, AFL-CIO, covering the Company’s workers in Elk Grove Village, Illinois which expires on November 30, 2021. The Company’s Mexican subsidiary, Standard Components de Mexico S.A., has a labor contract with Sindicato De Trabajadores de la Industra Electronica, Similares y Conexos del Estado de Coahuila, C.T.M. covering the Company’s workers in Acuna, Mexico which expires on February 7, 2022. The Company’s subsidiary located in Tijuana, Mexico has a labor contract with Sindicato Mexico Moderno De Trabajadores De La, Baja California, C.R.O.C. The contract does not have an expiration date. The Company’s subsidiary located in Ho Chi Minh City, Vietnam, has a labor contract with CONG DOAN CO SO CONG TY TNHH Spitfire Controls Vietnam. The contract expires on April 30, 2022.

Since the time the Company commenced operations, it has not experienced any union-related work stoppages.

Available Information

The Company’s website address is www.sigmatronintl.com. The Company announces material information, including press releases and financial information regarding the Company, through a variety of means,

10


including the Company’s website, the Investors subpage of its website (www.sigmatronintl.com/investors/), press releases, filings with the SEC and social media, in order to achieve broad, non-exclusionary distribution of information to the public. The Investors subpage is accessible by clicking on the tab labeled “Investors” on the Company’s website home page. The Company also uses these channels to expedite public access to time-critical information regarding the Company in advance of or in lieu of distributing a press release or a filing with the SEC disclosing the same information. Therefore, investors should look to these channels for important and time-critical information. In addition, the Company is subject to the informational requirements of the Exchange Act and files or furnishes reports, proxy statements, and other information with the SEC. Such reports and other information filed by the Company with the SEC are available free of charge on its website when such reports are simultaneously available on the SEC’s website at http://www.sec.gov. The Company encourages investors, the media and others interested in the Company to review the information it posts on these various channels, as such information could be deemed to be material information.

The contents of the websites referred to above are not incorporated into this filing. Further, the Company’s references to the URLs for these websites are intended to be inactive textual references only.

11


Information about our Executive Officers

Name

Age

Position

Gary R. Fairhead

69

President, Chief Executive Officer and Chairman of the Board of Directors. Gary R. Fairhead has been the President of the Company and a director since January 1990 and Chairman of the Board of Directors of the Company since August 2011. Gary R. Fairhead is the brother of Gregory A. Fairhead.

Linda K. Frauendorfer

60

Chief Financial Officer, Vice President of Finance, Treasurer and Secretary since February 1994. Director of the Company since August 2011.

Gregory A. Fairhead

65

Executive Vice President and Assistant Secretary. Gregory A. Fairhead has been the Executive Vice President since February 2000 and Assistant Secretary since 1994. Mr. Fairhead was Vice President - Acuna Operations for the Company from February 1990 to February 2000. Gregory A. Fairhead is the brother of Gary R. Fairhead.

John P. Sheehan

60

Vice President, Director of Supply Chain and Assistant Secretary since February 1994.

Daniel P. Camp

72

Vice President, Acuna Operations since 2007. Vice President - China Operations from 2003 to 2007. General Manager / Vice President of Acuna Operations from 1994 to 2003.

Rajesh B. Upadhyaya

66

Executive Vice President, West Coast Operations since 2005. Mr. Upadhyaya was the Vice President of the Fremont Operations from 2001 until 2005.

Hom-Ming Chang

61

Vice President, China Operations since 2007. Vice President - Hayward Materials / Test / IT from 2005 - 2007. Vice President of Engineering Fremont Operation from 2001 to 2005.

James E. Barnes

39

Executive Vice President, Operations and Global Accounts since 2018. Vice President of Operations from 2014 to 2018. Director of Operations from 2011 to 2014. Senior Program Manager from 2010 to 2011. Program Manager from 2005 to 2010. Inventory Analyst from 2004 to 2005.

12


ITEM 1A. RISK FACTORS

The following risk factors should be read carefully in connection with evaluating our business and the forward-looking information contained in this Annual Report on Form 10-K. Any of the following risks could materially adversely affect our business, operations, industry or financial position or our future financial performance. While the Company believes it has identified and discussed below the key risk factors affecting its business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect its business, operations, industry, financial position and financial performance in the future.

The ongoing COVID-19 global pandemic and measures taken in response thereto have adversely affected the Company’s results of operations and its financial condition, and the full impact of the pandemic will depend on future developments, which are highly uncertain and cannot be predicted.

The Company’s business, results of operations, and financial condition were adversely affected by the COVID-19 pandemic in the fourth quarter of fiscal year 2020, especially beginning in mid-March, and such impact continued in fiscal year 2021. The COVID-19 pandemic and both public and private measures taken to contain it have negatively affected the Company’s business, results of operations, financial condition, and liquidity, all of which may continue or worsen.

The Company’s financial condition and results of operations have been and may be further impacted by the COVID-19 pandemic in several ways, including, the following:

-          interruptions, availability or delays in global shipping to transport our products

-          further slowdown or stoppage in the supply chain

-          further disruptions to our operations, including additional facility closures and restrictions

           on our operations

-          limitations on employee resources and availability, including sickness and government

           restrictions

-          greater difficulty in generating sales or collecting customer receivables

-          an increase in the cost of or obtaining debt or equity financing or the Company’s ability to fund

           operations or investment opportunities

-          changes to the carrying value of our intangible assets and

-          an increase in regulatory restrictions or continued market volatility that could negatively impact

           the Company’s stock price

The Company has and will continue to take actions to manage its expenses and to conserve its financial resources. The Company’s future strategies, prospects, and plans for growth may also be negatively impacted by the COVID-19 pandemic.

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. Even after COVID-19 has subsided, the Company may continue to experience materially adverse impacts to its business as a result of the pandemic’s 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 does not yet know the full extent of the impacts on its business, its operations or the global economy as a whole. However, the effects could have a material impact on the Company’s results of operations. While it continues to monitor the business metrics that it has historically used to predict its financial performance, it is uncertain as to whether these metrics will continue to function as they have in the past.

13


The availability of raw components or an increase in their price may affect the Company’s operations and profits.

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 buying power from suppliers. The Company does not enter into long-term purchase agreements with major or single-source suppliers, but the Company frequently places cancellable scheduled purchase orders with suppliers that extend out as far as one year. The current component market place remains volatile. The Company’s orders for components are always based on the changing needs of its customers. Many components are on allocation. Currently there is not enough manufacturing capacity to meet demand for raw components. In some cases shipment to the Company’s customers have been delayed. Component shortages are expected to continue during fiscal year 2022.

Wagz’s repayment of the Convertible Debt and Secured Promissory Note issued to the Company is not certain.

As of April 30, 2021, Wagz is indebted to SigmaTron under the terms of a Convertible Secured Promissory Note in the maximum principal amount of $4,052,478 dated May 29, 2020; a Convertible Secured Promissory Note, in the maximum principal amount of $1,588,328 dated January 27, 2021; and a Convertible Secured Promissory Note in the maximum principal amount of $1,249,966 (together with any additional convertible debt issued by Wagz to the Company, the “Convertible Debt”); and a Secured Promissory Note in the maximum principal amount of $308,329 dated April 30, 2021.  It is anticipated that the Company will convert the Convertible Debt into Wagz common stock in the Company’s anticipated acquisition of Wagz.  However, the consummation of the acquisition is subject to numerous conditions (see Item 1. CAUTIONARY NOTE; Recent Developments), which, if not satisfied, could prevent the acquisition. The Notes are due on the earliest to occur of (a) December 31, 2021 or, if the Closing does not occur due to the Company’s termination of the Agreement, that date which is twelve (12) months after the date of such SigmaTron Termination, (b) upon the closing of a sale of all or substantially all of the assets or common stock of Wagz (other than the Closing), or (c) an Event of Default.  If Wagz is unable to pay the Convertible Debt or Secured Promissory Note, and the Company forecloses its security interest in the Wagz collateral, there is no assurance that the Company will recover sufficient value from the Wagz collateral to pay the Convertible Debt in full. On July 19, 2021 the definitive agreement was signed.

The Company may not be able to provide the working capital that Wagz will need to fund operations until its cashflow is sufficient.

The Company is Wagz’s primary source of working capital to finance its operations.  As of April 30, 2021, Wagz is already indebted to the Company a total of $6,890,772 in Convertible Debt and $308,329 in a Secured Promissory Note and it is expected that Wagz will need additional working capital before its cashflow will sustain its operations.  It is not certain how much more working capital that Wagz will need.  It is also not certain that the Company will be able to provide all of the working capital that Wagz will need.  Among other conditions, the Company’s primary secured lender has limited the Company’s advances to Wagz to $5,000,000 made after January 29, 2021, of which $1,475,000 has been made from February 1, 2021 through April 30, 2021.  As of May 1, 2021 through July 20, 2021 an additional $1,537,000 was advanced to Wagz. If Wagz does not have sufficient working capital, it may not be able to bring its products to market and may be forced to liquidate, without paying the Convertible Debt or the Secured Promissory Note in full.   If Wagz is unable to pay the Convertible Debt and the Secured Promissory Note in full, and the Company forecloses its security interest in the Wagz collateral, there is no assurance that the Company will recover sufficient value from the Wagz collateral to pay the Convertible Debt and the Secured Promissory Note in full.

The Company experiences variable operating results.

The Company’s results of operations have varied and may continue to fluctuate significantly from period to period, including on a quarterly basis. Consequently, results of operations in any period should not be

14


considered indicative of the results for any future period, and fluctuations in operating results may also result in fluctuations in the price of the Company’s common stock.

The Company’s quarterly and annual results may vary significantly depending on numerous factors, many of which are beyond the Company’s control. Some of these factors include:

-          changes in sales mix to customers

-          changes in availability and rising component costs

-          volume of customer orders relative to capacity

-          market demand and acceptance of our customers’ products

-          price erosion within the EMS marketplace

-          capital equipment requirements needed to remain technologically competitive

-          volatility in the U.S. and international economic and financial markets

The price of the Company’s stock is volatile.

The price of the Company’s common stock historically has experienced significant volatility due to fluctuations in the Company’s revenue and earnings, other factors relating to the Company’s operations, the market’s changing expectations for the Company’s growth, overall equity market conditions and other factors unrelated to the Company’s operations. In addition, the limited float of the Company’s common stock and the limited number of market makers also affect the volatility of the Company’s common stock. Such fluctuations are expected to continue in the future.

Our customers have competitive challenges, including rapid technological changes, pricing pressure and decreasing demand from their customers, which could adversely affect their business and the Company’s business.

Factors affecting the industries that utilize our customers’ products could negatively impact our customers and the Company. These factors include:

-          increased competition among our customers and their competitors

-          the inability of our customers to develop and market their products

-          recessionary periods in our customers’ markets

-          the potential that our customers’ products become obsolete

-          our customers’ inability to react to rapidly changing technology

Any such factor or a combination of factors could negatively impact our customers’ need for or ability to pay for our products, which could, in turn, affect the Company’s results of operations.

If any of the Company’s customers have financial difficulties, the Company could encounter delays or defaults in the payment of amounts owed for accounts receivable and inventory obligations. This could have a significant adverse impact on the Company’s results of operations and financial condition.

The Company’s customer base is concentrated.

Sales to the Company’s five largest customers accounted for 57.8% and 51.4% of net sales for the fiscal years ended April 30, 2021, and April 30, 2020, respectively. For the fiscal year ended April 30, 2021, two customers accounted for 17.9% and 16.2% of net sales of the Company, and 3.8% and 5.6%, respectively, of accounts receivable. For the fiscal year ended April 30, 2020, two customers accounted for 16.7% and 14.1% of net sales of the Company, and 3.6% and 5.0%, respectively, of accounts receivable. Significant reductions in sales to any of the Company’s major customers or the loss of a major customer could have a material impact on the Company’s operations. If the Company cannot replace cancelled or reduced orders, sales will decline, which could have a material adverse impact on the results of operations. There can be no assurance that the Company will retain any or all of its largest customers. This risk may be further complicated by pricing pressures and intense competition prevalent in our industry.

15


The Company faces intense industry competition and downward pricing pressures.

The EMS industry is highly fragmented and characterized by intense competition. Many of the Company’s competitors have greater experience, as well as greater manufacturing, purchasing, marketing and financial resources than the Company. Competition from existing or potential new competitors may have a material adverse impact on the Company’s business, financial condition or results of operations. The introduction of lower priced competitive products, significant price reductions by the Company’s competitors or significant pricing pressures from its customers could adversely affect the Company’s business, financial condition, and results of operations.

The Company’s ability to secure and maintain sufficient credit arrangements is key to its continued operations.

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 credit facility maturing on January 29,2026, of which (a) up to $50,000,000 is available on a revolving loan basis, and (b) an aggregate of $6,500,000 was borrowed pursuant to two term loans (the “Facility”). The Facility is secured by substantially all of SigmaTron’ assets including mortgages on its two Illinois properties.

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% per annum at April 30, 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 revolving portion of 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 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 (a) 10% of the revolving commitment and (b) the outstanding principal amount of the term loans.

On April 23, 2020, the Company received a PPP Loan from U.S. Bank, as lender, pursuant to the Paycheck Protection Program of the CARES Act, as administered by the U.S. Small Business Administration (the “SBA”) in the amount of $6,282,973 (the “PPP Loan”). The PPP Loan matures on April 23, 2022. The Company was notified of the forgiveness of the PPP Loan by the SBA on July 9, 2021 and it covers all principal and accrued interest. The accounting for the forgiveness will be reflected in the Company’s first quarter financial statements for fiscal year 2022.

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 $1,380,000 as of April 30, 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% per annum. The term of the facility extends to January 6, 2022. There was $824,159 outstanding under the facility at April 30, 2021 compared to an outstanding balance of $304,658 at April 30, 2020.

16


The Company may not be entitled to forgiveness of its recently received Paycheck Protection Program Loan (“PPP Loan”), and its application for the PPP Loan could in the future be determined to have been impermissible.

On April 23, 2020 the Company received proceeds of $6,282,973 from a loan under the PPP of the CARES Act, which it has used to retain current employees, maintain payroll and make lease and utility payments. The PPP Loan matures on April 23, 2022 if not forgiven and bears annual interest at a rate of 1.0%. Due to the size of the PPP Loan, it is subject to review by the lender and the SBA, which introduces an additional layer of uncertainty.

Under the CARES Act, small businesses may apply for a PPP Loan if they employ no more than 500 employees, or are a business in an industry that has an employee-based size standard established by the SBA that is greater than 500 employees. The Company operates under NAICS Code 334418 where the maximum employee headcount for a small business is 750. In establishing eligibility for a PPP Loan, the Company has considered its U.S. resident headcount based on the SBA rules in place at the time of its application, which the Company believes places the Company within the eligibility parameters.

Under the CARES Act, forgiveness of a PPP Loan is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the 24-week period beginning on the date of loan approval. The Company may be required to repay any portion of the outstanding principal of its PPP Loan 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. If the PPP Loan is not forgiven, the Company will be required to pay the lender equal monthly payments of principal and interest as required to fully amortize by April 23, 2022 any principal amount outstanding on the PPP Loan. The Company was notified of the forgiveness of the PPP Loan by the SBA on July 9, 2021 and it covers all principal and accrued interest. The accounting for the forgiveness will be reflected in the Company’s first quarter financial statements for fiscal year 2022.

Even though the PPP Loan has been forgiven, it remains subject to audit by the SBA. In order to apply for the PPP Loan, the Company was required to certify, that the current economic uncertainty, including, among other factors, the short term customer demand reduction, made the PPP Loan request necessary to support its ongoing operations. The Company made this certification in good faith after analyzing, among other things, the continued employment of its entire U.S. workforce, certain obvious “work-from-home” limitations associated with the nature of its business, and its ability to meet fixed cost obligations, in light of customer concerns. Furthermore, the Company considered its classification as a “smaller reporting company” under SEC rules and its need for additional funding to continue operations, and its lack of ability to currently access alternative forms of capital in the current market environment to fund working capital requirements. Based on this analysis, the Company believes that it satisfied all eligibility criteria for the PPP Loan, and that the receipt of the PPP Loan is consistent with the broad objectives of the CARES Act. 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, it may be required to repay the PPP Loan in its entirety in a lump sum or be subject to additional penalties and interest, 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 and financial condition.

Adverse market conditions could reduce our future sales and earnings per share.

Uncertainty over the erosion of global consumer confidence amidst concerns about volatile energy costs, geopolitical issues, the availability and cost of credit, declining asset values, inflation, rising unemployment, and the stability and solvency of financial institutions, financial markets, businesses, and sovereign nations has slowed global economic growth and resulted in recessions in many countries, including in the United States, Europe and certain countries in Asia over the past several years. The economic recovery of recent years is fragile and recessionary conditions have returned. Any of these potential negative economic conditions may reduce demand for the Company’s customers’ products and adversely affect the Company’s sales. Consequently, the Company’s past operating results, earnings and cash flows may not be indicative of the Company’s future operating results, earnings and cash flows.

17


Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse impact on our business and results of operations.

The U.S. government has indicated its intent to adopt a new approach to trade policy and in some cases to renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements.  It has also initiated tariffs on certain foreign goods, including steel and aluminum and other raw materials utilized by the Company.  Changes in U.S. trade policy could result in one or more of the U.S.’ trading partners adopting responsive trade policy making it more difficult or costly for the Company to import our products from those countries.  This in turn could require us to increase prices to our customers which may reduce demand, or, if we are unable to increase prices, result in a lower margin on products sold.

China and the European Union have imposed tariffs on U.S. products in retaliation for new U.S. tariffs. Additional tariffs could be imposed by China and the European Union in response to proposed increased tariffs on products imported from China and the European Union.  There is also a concern that the imposition of additional tariffs by the United States could result in the adoption of additional tariffs by other countries.  The resulting trade war could have a significant adverse effect on world trade and the world economy.  To the extent that trade tariffs and other restrictions imposed by the United States increase the price of, or limit the amount of steel, aluminum and other raw materials utilized by the Company imported into the United States, the costs of our raw materials may be adversely affected and the demand from our customers for products and services may be diminished, which could adversely affect our revenues and profitability.

We cannot predict future trade policy or the terms of any renegotiated trade agreements and their impact on our business.  The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could adversely impact our business, financial condition and results of operations.

The Company may not be able to achieve the expected benefits of the proposed business combination between SigmaTron and Wagz (the “Wagz acquisition”), including anticipated revenue and cost synergies; costs associated with achieving synergies or integrating Wagz may exceed its expectations; and there is no assurance that the acquisition will close.

The Company may not be able to achieve the expected benefits of the Wagz acquisition, including anticipated revenue and cost synergies. There can be no assurance that the Wagz acquisition will be beneficial to the Company. Moreover, the Company may not be able to integrate the assets acquired in the Wagz acquisition or achieve our expected cost synergies without increases in costs or as a result of other difficulties. Although Wagz will be a stand-alone operation of SigmaTron, the integration process may be complex, costly and time-consuming. While it is anticipated that certain expenses will be incurred to achieve operational synergies, such expenses are difficult to estimate accurately, and may exceed current estimates. Accordingly, the benefits from the Wagz acquisition may be offset by costs incurred or delays in integrating the businesses. Any unexpected costs or delays incurred in connection with the integration of Wagz could have an adverse effect on the Company’s business, results of operations, financial condition and prospects, as well as the market price of its common stock.

The overall integration of the businesses may result in material unanticipated problems, expenses, liabilities, competitive responses, loss of customer relationships, and diversion of management’s attention. In addition, even if the operations of the Company’s business and Wagz’s business are integrated successfully, the Company may not realize the full benefits of the Wagz acquisition, including the synergies, cost savings or sales or growth opportunities that it expects. These benefits may not be achieved within the anticipated time frame, or at all.

There is no assurance that the acquisition of Wagz will be consummated, and in addition to related risks disclosed above relating to Wagz’s repayment of certain Convertible Debt and Secured Promissory Note, failure to close the transaction may create other expenses and other detrimental business consequences to the Company.

18


An adverse change in the interest rates for our borrowings could adversely affect our results of operations.

The Company pays interest on outstanding borrowings under its senior secured credit facility and certain other long-term debt obligations at interest rates that fluctuate. An adverse change in the Company’s interest rates could have a material adverse effect on its financial condition and results of operations.

The phase-out of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a different reference rate or modification of the method used to calculate LIBOR, may adversely affect interest rates which may have an adverse impact on the Company.

In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop compelling banks to submit LIBOR rates after 2021. It is unclear whether LIBOR will cease to exist at that time or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. The Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight Financing Rate (“SOFR”) as the rate that represents best practice as the alternative to LIBOR for use in financial and other derivatives contracts that are currently indexed to United States dollar LIBOR. ARRC has proposed a paced market transition plan to SOFR from LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to financial and other derivative contracts exposed to LIBOR. Uncertainty exists as to the transition process and broad acceptance of SOFR as the primary alternative to LIBOR. The interest rate for the Company’s secured credit facility is calculated using LIBOR. At this time, due to a lack of consensus existing as to what rate or rates may become accepted alternatives to LIBOR, it is impossible to predict the effect of any such alternatives on the Company’s liquidity. However, if LIBOR ceases to exist or a new method of calculating LIBOR is adopted, the Company’s lender may, on notice to the Company, select an interest rate to replace LIBOR in accordance with the Agreement, and there is a risk that the replacement rate will be less favorable to the Company than the rates based on LIBOR. In addition, these changes may have an adverse impact on the value of or interest earned on any LIBOR-based marketable securities, loans and derivatives that are included in the Company’s financial assets and liabilities, which may have a material adverse effect on its financial condition and results of operations.

If the security of the Company’s Information Technology systems is breached or otherwise subjected to unauthorized access, the Company’s reputation may be severely harmed and it may be exposed to liability.

The Company’s system stores confidential information which includes its financial information, its customers’ proprietary email distribution lists, product information, supplier information, and other critical data.  Any accidental or willful security breach or other unauthorized access could expose the Company to liability for the loss of such information, adverse regulatory action by federal and state governments, time-consuming and expensive litigation and other possible liabilities as well as negative publicity, which could severely damage the Company’s reputation.  If security measures are breached because of third-party action, employee action or error, malfeasance or otherwise, or if design flaws in its software are exposed and exploited, and, as a result, a third party obtains unauthorized access to any of the Company’s customer data, its relationships with its customers may be severely damaged, and the Company could incur significant liability.  Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, the Company and its third-party hosting facilities may be unable to anticipate these techniques or to implement adequate preventive measures.  In addition, many states have enacted laws requiring companies to notify customers of data security breaches involving their data.  These mandatory disclosures regarding a security breach often lead to widespread negative publicity, which may cause the Company’s customers to lose confidence in the effectiveness of its data security measures.  Any security breach whether actual or perceived, could harm the Company’s reputation, could cause it to lose customers and may negatively impact its ability to acquire new customers.

With the increased use of technologies such as the Internet to conduct business, a company is susceptible to operational, information security and related risks. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyberattacks include, but are not limited to, gaining unauthorized access to digital systems (e.g., through “hacking” or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption (e.g., ransomware attacks). Cyberattacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites (i.e., efforts to make network services unavailable to intended

19


users). Cyber incidents affecting the Company or its service providers have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Company’s ability to conduct business in the ordinary course, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, additional compliance costs and, in extreme cases, have caused companies to cease doing business. Cyber events also can affect counterparties or entities with which the Company does business, governmental and other regulatory authorities, banks, insurance companies and other financial institutions, among others. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. While the Company has established risk management systems to prevent such cyber incidents, there are inherent limitations in such systems including the possibility that the Company has not prepared for certain risks that have not been or are not possible to have been identified. Further, the Company may be able to influence, but cannot control, the cyber security plans and systems put in place by its service providers or any other third parties whose operations may affect the Company. The Company could be negatively impacted as a result.

Most of the Company’s customers’ production schedules are volatile, which makes it difficult to schedule production and achieve maximum efficiency at the Company’s manufacturing facilities and manage inventory levels.

The volume and timing of sales to the Company’s customers may vary due to:

-          component availability

-          customers’ attempts to manage their inventory

-          variation in demand for the Company’s customers’ products

-          design changes, or

-          acquisitions of or consolidation among customers

Many of the Company’s customers production schedules are volatile. The Company’s inability to forecast the level of customer orders with certainty can make it difficult to schedule production and maximize utilization of manufacturing capacity and manage inventory levels. The Company could be required to increase or decrease staffing and more closely manage other expenses in order to meet the anticipated demand of its customers. Orders from the Company’s customers could be cancelled or delivery schedules could be deferred as a result of changes in our customers’ demand, thereby adversely affecting the Company’s results of operations in any given period.

Adverse changes in the economy or political conditions could negatively impact the Company’s business, results of operations and financial condition.

The Company’s sales and gross margins depend significantly on market demand for its customers’ products. The uncertainty in the U.S. and international economic and political environments could result in a decline in demand for our customers’ products in any industry. Further, any adverse changes in tax rates and laws or trade policies affecting our customers could result in decreasing gross margins. Any of these factors could negatively impact the Company’s business, results of operations and financial condition.

The Company and its customers may be unable to keep current with the industry’s technological changes.

The market for the Company’s manufacturing services is characterized by rapidly changing technology and continuing product development. The future success of the Company’s business will depend in large part upon our customers’ ability to maintain and enhance their technological capabilities, develop and market manufacturing services which meet changing customer needs and successfully anticipate or respond to technological changes in manufacturing processes on a cost-effective and timely basis.

There is a risk of fluctuation of various currencies integral to the Company’s operations.

The Company purchases some of its material components and funds some of its operations in foreign currencies. From time to time the currencies fluctuate against the U.S. Dollar. Such fluctuations could have a material impact on the Company’s results of operations and performance. The impact of currency fluctuations for the fiscal year ended April 30, 2021, resulted in net foreign currency transaction losses of $285,389

20


compared to net foreign currency losses of approximately $286,000 in the prior year. These fluctuations are expected to continue and could have a negative impact on the Company’s results of operations. The Company did not, and is not expected to, utilize derivatives or hedge foreign currencies to reduce the risk of such fluctuations.

The Company has foreign operations that may pose additional risks.

The Company has substantial manufacturing operations in multiple countries. Therefore, the Company’s foreign businesses and results of operations are dependent upon numerous related factors, including the stability of the foreign economies, the political climate, relations with the United States, prevailing worker wages, the legal authority of the Company to operate and expand its business in a foreign country, the ability to identify, hire, train and retain qualified personnel and operating management in Mexico, China and Vietnam, and the Company’s ability to manage disruptions resulting from foreign government lockdowns and other actions taken in response to the COVID-19 pandemic.

The Company obtains many of its materials and components through its IPO in Taipei, Taiwan. The Company’s access to these materials and components is dependent on the continued viability of its Asian suppliers.

Approximately 39% of the total assets of the Company are located in foreign jurisdictions outside the United States as of April 30, 2021, 21% and 15% of the total assets were located in Mexico and China, respectively, and 3% in other foreign locations. As of April 30, 2020, approximately 37% of the total assets were located in foreign jurisdictions, 17% were located in each of China and Mexico, and 3% in other foreign locations.

The Company depends on management and skilled personnel.

The Company depends significantly on its President/CEO/Chairman of the Board and other executive officers. The Company’s employees generally are not bound by employment agreements and the Company cannot assure that it will retain its executive officers or skilled personnel. The loss of the services of any of these key employees could have a material impact on the Company’s business and results of operations. In addition, despite significant competition, continued growth and expansion of the Company’s EMS business will require that the Company attract, motivate and retain additional skilled and experienced personnel. The Company’s future growth depends on the contributions and abilities of key executives and skilled, experienced employees. The Company’s future growth also depends on its ability to recruit and retain high-quality employees. A failure to obtain or retain the number of skilled employees necessary to support the Company’s efforts, a loss of key employees or a significant shortage of skilled, experienced employees could jeopardize its ability to meet its growth targets.

Favorable labor relations are important to the Company.

The Company currently has labor union contracts with its employees constituting approximately 49% and 46% of its workforce for fiscal years 2021 and 2020, respectively. Although the Company believes its labor relations are good, any labor disruptions, whether union-related or otherwise, could significantly impair the Company’s business, substantially increase the Company’s costs or otherwise have a material impact on the Company’s results of operations.

Failure to comply with environmental regulations could subject the Company to liability.

The Company is subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous chemicals used during its manufacturing process. To date, the cost to the Company of such compliance has not had a material impact on the Company’s business, financial condition or results of operations. However, there can be no assurance that violations will not occur in the future as a result of human error, equipment failure or other causes. Further, the Company cannot predict the nature, scope or effect of environmental legislation or regulatory requirements that could be imposed or how existing or future laws or regulations will be administered or interpreted. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of regulatory agencies, could require substantial expenditures by the

21


Company and could have a material impact on the Company’s business, financial condition and results of operations. Any failure by the Company to comply with present or future regulations could subject it to future liabilities or the suspension of production which could have a material negative impact on the Company’s results of operations.

Conflict minerals regulations may cause the Company to incur additional expenses and could increase the cost of components contained in its products and adversely affect its inventory supply chain.

The Dodd-Frank Act, and the rules promulgated by the Securities and Exchange Commission (“SEC”) thereunder, require the Company to determine and report annually whether any conflict minerals contained in our products originated from the DRC or an adjoining country. The Dodd-Frank Act and these rules could affect our ability to source components that contain conflict minerals at acceptable prices and could impact the availability of conflict minerals, since there may be only a limited number of suppliers of conflict-free conflict minerals. Our customers may require that our products contain only conflict-free conflict minerals, and our revenues and margins may be negatively impacted if we are unable to meet this requirement at a reasonable price or are unable to pass through any increased costs associated with meeting this requirement. Additionally, the Company may suffer reputational harm with our customers and other stakeholders if our products are not conflict-free. The Company could incur significant costs in the event we are unable to manufacture products that contain only conflict-free conflict minerals or to the extent that we are required to make changes to products, processes, or sources of supply due to the foregoing requirements or pressures.

Customer relationships with start-up companies present more risk.

A small portion of the Company’s current customer base is comprised of start-up companies. Customer relationships with start-up companies may present heightened risk due to the lack of product history. Slow market acceptance of their products could result in demand fluctuations causing inventory levels to rise. Further, the current economic environment could make it difficult for such emerging companies to obtain additional funding. This may result in additional credit risk including, but not limited to, the collection of trade account receivables and payment for their inventory. If the Company does not have adequate allowances recorded, the results of operations may be negatively affected.

Changes in securities laws and regulations may increase costs.

The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and listing requirements subsequently adopted by NASDAQ in response to Sarbanes-Oxley, have required changes in corporate governance practices, internal control policies and securities disclosure and compliance practices of public companies. More recently the Dodd-Frank Act requires changes to our corporate governance, compliance practices and securities disclosures. Compliance following the implementation of these rules has increased our legal, financial and accounting costs. The Company expects increased costs related to these new regulations to continue, including, but not limited to, legal, financial and accounting costs. These developments may result in the Company having difficulty in attracting and retaining qualified members of the board or qualified officers. Further, the costs associated with the compliance with and implementation of procedures under these laws and related rules could have a material impact on the Company’s results of operations.

Inadequate internal control over financial reporting could result in a reduction in the value of our common stock.

If the Company identifies and reports a material weakness in its internal control over financial reporting, stockholders and the Company’s lenders could lose confidence in the reliability of the Company’s financial statements. This could have a material adverse impact on the value of the Company’s stock and the Company’s liquidity.

Disclosure and internal controls may not detect all errors or fraud.

The Company’s disclosure controls and internal controls can provide only reasonable assurance that the procedures will meet the control objectives. Controls are limited in their effectiveness by human error, including faulty judgments in decision-making. Further, controls can be circumvented by collusion of two or

22


more people or by management override of controls. Therefore, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, cannot conclude with certainty that the Company’s disclosure controls and internal controls will prevent all errors and all fraud.

Any litigation, even where a claim is without merit, could result in substantial costs and diversion of resources.

In the past, the Company has been notified of claims relating to various matters including contractual matters, product liability, labor issues or other matters arising in the ordinary course of business. In the event of any such claim, the Company may be required to spend a significant amount of money and resources, even where the claim is without merit or covered by insurance. Accordingly, the resolution of such disputes, even those encountered in the ordinary course of business, could have a material adverse effect on the Company’s business, consolidated financial conditions and results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

23


ITEM 2. PROPERTIES

At April 30, 2021, the Company, operating in one business segment as an independent EMS provider, had manufacturing facilities located in Elk Grove Village, Illinois U.S., Union City, California U.S., Acuna, Chihuahua and Tijuana, Mexico, Ho Chi Minh City, Vietnam and Suzhou, China. In addition, the Company provides material procurement services through all its locations. The Company provides design services in Elgin, Illinois U.S. The Company has an information technology office in Taichung, Taiwan.

Certain information about the Company’s manufacturing, warehouse, purchasing and design facilities is set forth below:

Location

Square Feet

Services Offered

Owned/Leased

Suzhou, China

216,950

Electronic and electromechanical manufacturing solutions

*
***

Elk Grove Village, IL

124,300

Corporate headquarters, electronic and electromechanical manufacturing solutions and warehousing

Owned

Union City, CA

117,000

Electronic and electromechanical manufacturing solutions

Leased

Acuna, Mexico

115,000

Electronic and electromechanical manufacturing solutions

Owned
**

Chihuahua, Mexico

121,000

Electronic and electromechanical manufacturing solutions

Leased

Tijuana, Mexico

112,100

Electronic and electromechanical manufacturing solutions

Leased

El Paso, TX

18,200

Warehousing and distribution

Leased

Elgin, IL

45,000

Design services

Owned

Del Rio, TX

28,000

Warehousing and distribution

Owned

Del Rio, TX

16,000

Warehousing and distribution

Leased

San Diego, CA

30,240

Warehousing and distribution

Leased

Ho Chi Minh City, Vietnam

24,475

Electronic and electromechanical manufacturing solutions

Leased

Taipei, Taiwan

4,685

International procurement office

Leased

Taichung, Taiwan

1,650

Information technology office

Leased

24


*The Company’s Suzhou, China buildings are owned by the Company and the land is leased from the Chinese government for a 50 year term ending on July 15, 2053.

**A portion of the facility is leased and the Company has an option to purchase it.

***Total square footage includes 70,000 square feet of dormitories.

The Union City and San Diego, California, Tijuana and Chihuahua, Mexico, Ho Chi Minh City, Vietnam and El Paso, Texas properties are occupied pursuant to leases of the premises. The lease agreement for the El Paso, Texas property expires January 2030. The lease agreement for the San Diego, California property expires August 2024. The lease agreement for the Union City, California property expires June 2026. The Chihuahua, Mexico lease expires July 2021. The Tijuana, Mexico lease expires November 2023. The lease agreement for the Ho Chi Minh City, Vietnam property expires June 2025. The Company’s manufacturing facilities located in Acuna, Mexico, Del Rio, Texas, Elgin, Illinois and Elk Grove Village, Illinois are owned by the Company, except for a portion of each facility in Acuna, Mexico and Del Rio, Texas, which are leased. The Company has an option to buy the leased portion of the facility in Acuna, Mexico. The properties in Del Rio, Texas, Elk Grove Village, Illinois and Elgin, Illinois are financed under separate mortgage loan agreements. The Company leases the IPO office in Taipei, Taiwan to coordinate Far East purchasing activities. The Company leases the information technology office in Taichung, Taiwan. The Company believes its current facilities are adequate to meet its current needs. In addition, the Company believes it can find alternative facilities to meet its needs in the future, if required.

ITEM 3. LEGAL PROCEEDINGS

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 or results of operations.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The Company’s common stock is traded on the NASDAQ Capital Market System under the symbol SGMA.

As of July 20, 2021, there were approximately 30 holders of record of the Company’s common stock, which does not include stockholders whose stock is held through securities position listings. The Company estimates there to be approximately 1,400 beneficial owners of the Company’s common stock.

25


Equity Compensation Plan Information

For information concerning securities authorized for issuance under our equity compensation plans, see Part III, Item 12 of this Annual Report, under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters” as well as the Company’s audited financial statements and notes thereto, including Note M, filed herewith and all such information is incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

As a smaller reporting company, as defined in Rule 10(f)(1) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is not required to provide the information required by this item.

ITEM 7. 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 Annual Report on Form 10-K 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, acquisition or 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 as well as the expenses of acquisitions; the collection of aged account receivables; the variability of the Company’s customers’ requirements; the impact of inflation on the Company’s operating results; 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 and restrictive covenants under its loan agreements; 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 and variants (commonly known as “COVID-19”) 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.

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

26


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 can be a misleading indicator of the Company’s financial performance. 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 each of the fiscal years ended April 30, 2021 and April 30, 2020.

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.

Factors Affecting Results

COVID-19. The Company’s business, results of operations, and financial condition were adversely affected by the COVID-19 pandemic in the fourth quarter of fiscal year 2020, especially beginning in mid-March, and such impact continued through fiscal year 2021. The COVID-19 pandemic and both public and private measures taken to contain it have negatively affected the Company’s business, results of operations, financial condition, and liquidity, all of which may continue or worsen.

PPP Loan and CARES Act. During the fourth fiscal quarter of 2020 the Company received a $6,282,973 PPP Loan. The Company received the PPP Loan under the CARES Act. The Company believes it met the requirements for eligibility. To the extent that part or all of the loan is forgiven under the program, that benefit will be recorded in the quarter in which the forgiveness occurs. During the fourth fiscal quarter of 2020 and continuing in fiscal year 2021, the Company had operational interruptions and incurred significant expenses related to the COVID-19 pandemic at all of its operations.  In some locations the interruptions and expenses were worse than others.

 

For more information on the potential impact of the COVID-19 pandemic on the Company, see “Item 1A. Risk Factors – The ongoing COVID-19 global pandemic and measures taken in response thereto have adversely affected the Company’s results of operations and its financial condition, and the full impact of the pandemic will depend on future developments, which are highly uncertain and cannot be predicted.” The Company was notified of the forgiveness of the PPP Loan by the SBA on July 9, 2021 and it covers all principal and accrued interest. The accounting for the forgiveness will be reflected in the Company’s first quarter financial statements for fiscal year 2022.

27


Recent Developments

On May 29, 2020, SigmaTron and Wagz, Inc. (“Wagz”), a privately held company in the pet technology market, entered into a Convertible Secured Promissory Note in the principal sum of up to $4,052,478.  On January 27, 2021, Wagz issued an additional Convertible Secured Promissory Note to the Company in the principal sum of up to $1,588,328. On April 30, 2021, Wagz issued an additional Convertible Secured Promissory Note to the Company in the principal amount of $1,249,966. On April 30, 2021, Wagz issued a Secured Promissory Note to the Company in the principal amount of $308,329 (collectively, the “Notes”). At April 30, 2021, $7,014,594 and $184,207 was outstanding under Note receivable and Other receivables, respectively, in the consolidated balance sheet. The Notes are due (the “Maturity Date”) on the earliest to occur of (a) December 31, 2021 or, if the closing of the Company’s proposed acquisition of Wagz (the “Closing”) does not occur due to the Company’s termination, that date which is twelve (12) months after the date of such termination, (b) upon the closing of a sale of all or substantially all of the assets or common stock of Wagz (other than the Closing), or (c) an Event of Default (as defined in the Notes). Interest is payable at the rate of four percent (4%) per annum and is payable on the Maturity Date. The Notes are collateralized by substantially all assets of Wagz.

 

On June 4, 2020, SigmaTron and Wagz, announced that they executed a Letter of Intent (“LOI”) relating to a proposed acquisition. Subject to the terms and conditions set forth in the LOI, SigmaTron expects to issue approximately 2,443,870 shares of SigmaTron common stock that would result in the stockholders of Wagz owning in the aggregate approximately one-third of the combined company. The potential benefits to the Company from that transaction were summarized in the June 4, 2020 announcement. On July 19, 2021 the definitive agreement was signed. The parties expect the transaction to close by September 30, 2021 and it remains subject to achievement of certain milestones and satisfaction of conditions by both parties prior to closing including the Company having determined that the Wagz Freedom Smart Collar™ meets certain criteria, and the approval by the stockholders of both SigmaTron and Wagz.

Critical 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, deferred income, deferred taxes, uncertain tax positions, valuation 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 Company recognizes revenue when control of the promised goods or services are transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company’s primary performance obligation to its customers is the production of finished goods electronic assembly products pursuant to purchase orders. The Company has concluded that control of the products it sells and transfers to its customers and an enforceable right to receive payment is customarily established at the point in time when the finished goods are shipped to its customers, or in some cases delivered pursuant to the specified shipping terms of each customer arrangement. With respect to consignment arrangements, control transfers and revenue is recognized at the point in time when the goods are shipped to the customer from the consignment location or when delivered to the customer (pursuant to agreed upon shipping terms). In those limited instances where finished goods delivered to the customer location are stored in a segregated area which are not controlled by the customer (title transfer, etc.) until they are pulled from the segregated area and consumed by the Company’s customer, revenue is recognized upon consumption. For tooling services, the Company’s performance obligation is satisfied at the

28


point in time when the customer takes possession of dies or molds. For engineering, design, and testing services, the Company’s performance obligations are satisfied over time as the respective services are rendered as its customers simultaneously derive value from the Company’s performance. From the time that a customer purchase order is received and contract is established, the Company’s performance obligations are typically fulfilled within a few weeks. The Company does not have any performance obligations that require more than one year to fulfill.

Each customer purchase order sets forth the transaction price for the products and services purchased under that arrangement. The Company evaluates the credit worthiness of its customers and exercises judgment to recognize revenue based upon the amount the Company expects to be paid for each sales transaction it enters into with its customers. Some customer arrangements include variable consideration, such as volume rebates, some of which depend upon the Company’s customers meeting specified performance criteria, such as a purchasing level over a period of time. The Company exercises judgment to estimate the most likely amount of variable consideration at each reporting date.

Inventories – Inventories are valued at cost. Cost is determined by an average cost method and the Company allocates labor and overhead to work-in-process and finished goods. In the event of an inventory write-down, the Company records expense to state the inventory at lower of cost or net realizable value. The Company establishes inventory reserves for valuation, shrinkage, and excess and obsolete inventory. The Company records provisions for inventory shrinkage based on historical experience to account for unmeasured usage or loss. Of the Company’s raw materials inventory, a substantial portion has been purchased to fulfill committed future orders or for which the Company is contractually entitled to recover its costs from its customers. For the remaining raw materials inventory, a provision for excess and obsolete inventories is recorded for the difference between the cost of inventory and its estimated realizable value based on assumptions about future product demand and market conditions. Upon a subsequent sale or disposal of the impaired inventory, the corresponding reserve is relieved to ensure the cost basis of the inventory reflects any reductions. Actual results differing from these estimates could significantly affect the Company’s inventories and cost of products sold as the inventory is sold or otherwise relieved.

Intangible Assets – Intangible assets are comprised of finite life intangible assets including customer relationships. Finite life intangible assets are amortized on a straight line basis over their estimated useful lives of 7 years except for customer relationships which are amortized on an accelerated basis over their estimated useful life of 15 years.

Impairment of Long-Lived Assets – The Company reviews long-lived assets, including amortizable intangible assets, for impairment. Property, machinery and equipment and finite life intangible assets are reviewed whenever events or changes in circumstances occur that indicate possible impairment. If events or changes in circumstances occur that indicate possible impairment, the Company first performs an impairment review based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely independent of other groups of its assets and liabilities. This analysis requires management judgment with respect to changes in technology, the continued success of product lines, and future volume, revenue and expense growth rates. If the carrying value exceeds the undiscounted cash flows, the Company records an impairment, if any, for the difference between the estimated fair value of the asset group and its carrying value. The Company further conducts annual reviews for idle and underutilized equipment, and reviews business plans for possible impairment. The Company’s analysis for fiscal years 2021 and 2020 did not indicate that any of its other long-lived assets were impaired.

Income TaxThe 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

29


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 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 $1,138,736 and $989,194 as of April 30, 2021 and April 30, 2020, respectively. The increase in valuation allowance is attributable to an increase in underlying NOL carryforwards in China and Vietnam.

The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across its global operations. Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Except as noted below, management is not aware of any such changes that would have a material effect on the Company’s results of operations, cash flows or financial position.

A tax benefit from an uncertain tax position may only be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.

The Company adjusts its tax liabilities when its judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from its current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined.

New Accounting Standards:

See Note B – Summary of Significant Accounting Policies in the consolidated financial statements.

Results of Operations:

FISCAL YEAR ENDED APRIL 30, 2021 COMPARED

TO FISCAL YEAR ENDED APRIL 30, 2020

The following table sets forth the percentage relationships of expense items to net sales for the years indicated:

 

Fiscal Years

2021

2020

Net sales

100.0%

100.0%

Operating expenses:

Cost of products sold

91.1

91.1

Selling and administrative expenses

7.8

7.9

Total operating expenses

98.9

99.0

Operating income

1.1%

1.0%

Net sales decreased 1.2% to $277,718,672 in fiscal year 2021 from $281,042,482 in the prior year. The Company’s sales decreased in fiscal year 2021 in industrial electronics and medical/life science compared to the

30


prior year. The decrease in sales dollars for these marketplaces was partially offset by an increase in sales dollars in the consumer electronics marketplace. The overall decrease in net sales was primarily due to the impact of COVID-19 during the first quarter in fiscal year 2021.

Gross profit decreased to $24,952,197, or 9.0% of net sales, in fiscal year 2021 compared to $25,104,890 or 8.9% of net sales, in the prior fiscal year. The decrease in gross profit dollars for fiscal year 2021 was primarily the result of decreased sales.

Selling and administrative expenses decreased in fiscal year 2021 to $21,562,413, or 7.8% of net sales compared to $22,292,309, or 7.9% of net sales, in fiscal year 2020. The decrease in selling and administrative dollars was attributable to sales salaries, bad debt recoveries, travel expense and financing fees. The decrease in the foregoing selling and administrative expenses were partially offset by an increase in legal fees, bonus expense and other general and administrative expenses. Selling and administrative expenses decreased as a percent of net sales due to a decrease in total selling and administrative dollars in fiscal year 2021 compared to the prior year.

Interest expense, net, decreased to $1,210,024 in fiscal year 2021 compared to $1,839,060 in fiscal year 2020. Interest expense decreased primarily due to the decreased borrowings and interest rates under the Company’s banking arrangements and mortgage obligations.

In fiscal year 2021, the Company reported income tax expense of $557,741 compared to an income tax expense of $650,032 in fiscal year 2020. The effective rate for the fiscal years ended April 30, 2021 and April 30, 2020 was 26.58% and 59.47%, respectively. The decrease in income tax expense and effective tax rate is due primarily to overall foreign currency gains recognized in the foreign jurisdictions in the prior year.

The Company reported net income of $1,541,019 in fiscal year 2021 compared to net income of $443,102 for fiscal year 2020. Basic and diluted earnings per share for fiscal year 2021 were $0.36 each compared to basic and diluted earnings per share of $0.10 each for the fiscal year ended April 30, 2020.

Liquidity and Capital Resources:

Operating Activities.

Cash flow provided by operating activities was $8,098,946 for the fiscal year ended April 30, 2021, compared to cash flow provided by operating activities of $15,454,294 for the prior fiscal year. Cash flow provided by operating activities was primarily the result of net income, and an increase in both accounts payable and accrued expenses and wages in the amount of $6,885,498 and $2,436,532, respectively. Cash flow from operating activities was offset by an increase in both inventory and prepaid expenses and other assets in the amount of $12,072,227 and $9,101,731, respectively. The increase in accounts payable is the result of more favorable payment terms with vendors. The increase in inventory is the result of an increase in purchases to satisfy customer orders. Further, capacity issues in the component industry made it difficult to obtain some components to complete assemblies for shipping.

Cash flow provided by operating activities was $15,454,294 for the fiscal year ended April 30, 2020. Cash flow provided by operating activities was primarily the result of net income and an increase in accounts payable in the amount of $10,143,939. The increase in accounts payable is the result of more favorable payment terms with vendors. Cash flow provided by operating activities was partially offset by an increase in prepaid expenses and other assets.

Investing Activities.

In fiscal year 2021, cash used in investing activities was $10,228,816. During fiscal year 2021 the Company purchased $4,747,316 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 up to $6,500,000 in fiscal year 2022. The Company anticipates purchases will be funded by lease transactions. However, there is no assurance that such

31


increased business will be obtained or that the Company will be able to obtain funding or leases at acceptable terms, if at all, in the future. In fiscal year 2021, the Company made advances of $5,481,500 to Wagz. As more fully described in Note B – Summary of 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.

In fiscal year 2020, the Company purchased in cash $4,646,325 in machinery and equipment to be used in the ordinary course of business. The Company purchases were funded by the bank line of credit and lease transactions.

Financing Activities.

Cash used in financing activities was $1,140,346 for the fiscal year ended April 30, 2021. Cash used in financing activities was primarily the result of net payments under finance leases and sale leaseback agreements.

Cash used in financing activities was $4,265,834 for the fiscal year ended April 30, 2020. Cash used in financing activities was primarily the result of net payments under the line of credit offset by the proceeds from the PPP Loan of $6,282,973.

Financing Summary.

Debt and finance lease obligations consisted of the following at April 30, 2021 and April 30, 2020:

2021

2020

Debt:

Notes Payable – Banks

$

32,137,919

$

33,472,125

Notes Payable – Buildings

6,937,763

6,922,561

Notes Payable – Equipment

3,923,639

1,300,278

Unamortized deferred financing costs

(353,438)

(279,740)

Total debt

42,645,883

41,415,224

Less current maturities

7,862,058

2,878,160

Long-term debt

$

34,783,825

$

38,537,064

Finance lease obligations

$

2,636,134

$

3,787,017

Less current maturities

1,455,638

1,902,295

Total finance lease obligations, less current portion

$

1,180,496

$

1,884,722

Notes Payable – Banks

Prior to January 29, 2021, the Company had a senior secured credit facility with U.S. Bank National Association (“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 fiscal year 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 credit facility maturing on January 29,2026, of which (a) up to $50,000,000 is available on a revolving loan basis, and

32


(b) an aggregate of $6,500,000 was borrowed pursuant to two term loans (the “Facility”). The Facility is secured by substantially all of SigmaTron’ assets including mortgages on its two Illinois properties.

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% per annum at April 30, 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 revolving portion of 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 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 (a) 10% of the revolving commitment and (b) the outstanding principal amount of the term loans. The Company was not in a FCCR trigger period as of April 30, 2021. Deferred financing costs of $361,734 were capitalized during the fiscal year ended April 30, 2021 and will be amortized over the term of the Agreement. As of April 30, 2021, there was $24,967,668 outstanding and $15,947,990 of unused availability under the revolving 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 April 30, 2021 and April 30, 2020, the unamortized amount offset against outstanding debt was $343,890 and $218,062, respectively.

On April 23, 2020, the Company received a PPP loan from U.S. Bank, as lender, pursuant to the Paycheck Protection Program of the CARES Act, as administered by the U.S. Small Business Administration (the “SBA”) in the amount of $6,282,973 (the “PPP Loan”). The PPP Loan, 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 Covered Period, as defined by the SBA. The amount of loan forgiveness will be reduced if recipients terminate employees or reduce salaries during the covered period. The Company submitted its loan forgiveness application on March 26, 2021. The Company was notified of the forgiveness of the PPP Loan by the SBA on July 9, 2021 and it covers all principal and accrued interest. The accounting for the forgiveness will be reflected in the Company’s first quarter financial statements for fiscal year 2022. 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. 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, it may be required to repay the PPP Loan in its entirety in a lump sum or be subject to additional penalties and interest. 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 $1,380,000 as of April 30, 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% per annum. The term of the facility extends to January 6, 2022. There was $824,159 outstanding under the facility at April 30, 2021 compared to an outstanding balance of $304,658 at April 30, 2020.

33


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 in the amount outstanding of $4,576,000, using proceeds from the Facility extended by Lender. The Company recorded a prepayment penalty of $120,842 in fiscal year 2021. The remaining deferred financing costs of $21,365 were expensed in fiscal year 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 in the amount outstanding of $1,584,000, using proceeds from the Facility extended by Lender. The Company recorded a prepayment penalty of $41,830 in fiscal year 2021. The remaining deferred financing costs of $18,859 were expensed in fiscal year 2021.

The Company’s Facility with Lender, entered into on January 29, 2021, also included two term loans, in the aggregate principal amount of $6,500,000. The loans require the Company to pay aggregate principal payments in the amount of $36,111 per month for 60 months, plus monthly payments of interest thereon 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 2.5%; (effectively 2.75% per annum at April 30, 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 2.5%. Deferred financing costs of $10,050 were capitalized during fiscal year 2021 which are amortized over the term of the agreement. As of April 30, 2021, the unamortized amount included as a reduction to long-term debt was $9,548. A final aggregate payment of approximately $4,368,444 is due on or before January 29, 2026. The outstanding balance was $6,427,778 at April 30, 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 finance the purchase of 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. Interest accrues at a fixed rate of 5.75% per year until March 3, 2025, and adjusts thereafter, on an annual basis, equal to 1.0% over the Prime Rate as published by The Wall Street Journal. The note is payable over a 120 month period. The outstanding balance was $509,985 and $552,561 at April 30, 2021 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 the outstanding 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% per annum.

The Company routinely enters into secured note agreements with FGI Equipment Finance LLC to finance the purchase of equipment. The terms of the outstanding secured note agreements mature from March 2025 through April 2026, with quarterly installment payments ranging from $10,723 to $69,439 and a fixed interest rate of 8.25% per annum.

34


Finance Lease Obligations

The Company enters into various finance lease agreements. The terms of the outstanding lease agreements mature through October 2024, with monthly installment payments ranging from $2,874 to $20,093 and a fixed interest rate ranging from 3.94% to 12.73% per annum.

Other

The Company provides funds for manufacturing services such as salaries, wages, overhead and capital expenditure items as necessary to operate its wholly-owned Mexican, Vietnamese and Chinese subsidiaries and the IPO in Taiwan. 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 fiscal year ended April 30, 2021, resulted in net foreign currency transaction losses of $285,389 compared to net foreign currency losses of approximately $286,000 in the prior year. In fiscal year 2021, the Company paid approximately $59,020,000 to its foreign subsidiaries for manufacturing services. All intercompany balances have been eliminated upon consolidation.

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 “Item 1A. Risk Factors – The ongoing COVID-19 global pandemic and measures taken in response thereto have adversely affected the Company’s results of operations and its financial condition, and the full impact of the pandemic will depend on future developments, which are highly uncertain and cannot be predicted.”

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 Rule 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

As a smaller reporting company, as defined in Rule 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is included in Item 15(a) of this Report.

ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL DISCLOSURE

None.

35


ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures:

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 April 30, 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 April 30, 2021.

Management, including our Chief Executive Officer and Chief Financial Officer, believes the consolidated financial statements included in this Annual Report on Form 10-K fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with GAAP.

Management’s Report on Internal Control Over Financial Reporting:

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). 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. Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, management believes that, as of April 30, 2021, our internal control over financial reporting was effective.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

There has been no change in the Company’s internal control over financial reporting during the quarter ended April 30, 2021, that has materially affected or is reasonably likely to materially affect its internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

Not Applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended April 30, 2021.

36


ITEM 11. EXECUTIVE COMPENSATION

The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended April 30, 2021.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS

The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended April 30, 2021.

ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR

INDEPENDENCE

The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended April 30, 2021.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended April 30, 2021.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) 

The financial statements are listed in the Index to Financial Statements filed as part of this Annual Report on Form 10-K beginning on Page F-1.

(a)(2)

Financial statement schedules are omitted because they are not applicable or required.

(a)(3) and (b)

The exhibits required by Item 601 of Regulations S-K are listed in the Index to Exhibits filed as part of this Annual Report on Form 10-K beginning on Page 38.

ITEM 16. FORM 10-K SUMMARY

None.


37


Index to Exhibits

3.1 

Certificate of Incorporation of the Company, incorporated herein by reference to Exhibit 3.1 to Registration Statement on Form S-1, File No. 33-72100, dated February 9, 1994. (P)(Rule 311)

3.2 

Amended and Restated By-laws of the Company, adopted on September 24, 1999, incorporated herein by reference to Exhibit 3.2 to the Company’s Form 10-K for the fiscal year ended April 30, 2000.

10.1 

Form of 1993 Stock Option Plan, incorporated herein by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1, File No. 33-72100.* (P)(Rule 311)

10.2 

Form of Incentive Stock Option Agreement for the Company’s 1993 Stock Option Plan , incorporated herein by reference to Exhibit 10.5 to the Company’s Registration Statement on Form S-1, File No. 33-72100.* (P)(Rule 311)

10.3 

Form of Non-Statutory Stock Option Agreement for the Company’s 1993 Stock Option Plan, incorporated herein by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-1, File No. 33-72100.* (P)(Rule 311)

10.4 

2004 Employee Stock Option Plan, incorporated herein by reference to Appendix B to the Company’s 2004 Proxy Statement filed on August 16, 2004. *

10.5 

SigmaTron International, Inc. 2011 Employee Stock Option Plan dated September 16, 2011, incorporated herein by reference to Exhibit 10.14 to the Company’s Registration Statement on Form S-8 filed on December 14, 2011.*

10.6 

Purchase Agreement between SigmaTron International, Inc., and its nominees and Spitfire Control, Inc., dated as of May 31, 2012, incorporated herein by reference to Exhibit 2.1 to the Company’s Form 8-K filed on June 4, 2012.

10.7

SigmaTron International, Inc. 2013 Employee Stock Purchase Plan dated September 20, 2013, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on September 25, 2013.*

10.8

SigmaTron International, Inc. 2013 Non-Employee Director Restricted Stock Plan dated September 20, 2013, incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K filed on September 25, 2013.*

10.9

Mortgage and Assignment of Rents and Leases executed as of October 24, 2013, by SigmaTron International, Inc., to Wells Fargo Bank, National Association, incorporated herein by reference to Exhibit 10.18 to the Company’s Form 10-Q filed on December 13, 2013.

10.10

Master Lease Agreement # 2170 entered into between Associated Bank, National Association, a national banking association and SigmaTron International, Inc., dated October 3, 2013, incorporated herein by reference to Exhibit 10.20 to the Company’s Form 10-Q filed on December 13, 2013.

10.11

SigmaTron International, Inc. Amended and Restated Change in Control Severance Payment Plan dated March 11, 2014, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K/A filed on March 14, 2014.*

38


10.12

Master Lease Number 81344 entered into between CIT Finance LLC and SigmaTron International, Inc., dated March 6, 2014, incorporated herein by reference to Exhibit 10.17 to the Company’s Form 10-K filed on July 24, 2014.

10.13

Schedule # 1217927 to Master Lease Agreement Number 81344 entered into between CIT Finance LLC and SigmaTron International, Inc. dated May 7, 2014, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on September 11, 2014.

10.14

Schedule # 1223197 to Master Lease Agreement Number 81344 entered into by and between CIT Finance LLC and SigmaTron International, Inc. dated August 1, 2014, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on December 12, 2014.

10.15

Lease No. 003 is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between Associated Bank, National Association and SigmaTron International, Inc. dated September 22, 2014, incorporated herein by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on December 12, 2014.

10.16

Lease No. 004 is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between Associated Bank, National Association and SigmaTron International, Inc. dated September 22, 2014, incorporated herein by reference to Exhibit 10.3 to the Company’s Form 10-Q filed on December 12, 2014.

10.17

Lease No. 005 is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between Associated Bank, National Association and SigmaTron International, Inc. dated September 22, 2014, incorporated herein by reference to Exhibit 10.4 to the Company’s Form 10-Q filed on December 12, 2014.

10.18

Schedule # 1246045 to Master Lease Agreement Number 81344 entered into by and between CIT Finance LLC and SigmaTron International, Inc. dated October 27, 2014, incorporated herein by reference to Exhibit 10.5 to the Company’s Form 10-Q filed on December 12, 2014.

10.19

First Amendment to Third Amended and Restated Credit Agreement entered into as of March 7, 2015, by and between SigmaTron International, Inc. and Wells Fargo Bank, National Association, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on March 12, 2015.

10.20

Lease No. 006 is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between Associated Bank, National Association and SigmaTron International, Inc. dated January 16, 2015, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on March 16, 2015.

10.21

Schedule # 1284094 to Master Lease Agreement Number 81344 entered into by and between CIT Finance LLC and SigmaTron International, Inc. dated June 2, 2015, incorporated herein by reference to Exhibit 10.29 to the Company’s Form 10-K filed on July 24, 2015.

10.22

Lease No. 007 is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between Association Bank, National Association and SigmaTron International, Inc. dated December 22, 2015, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on March 15, 2016.

10.23

SigmaTron International, Inc. Employee Bonus Plan for Fiscal Year 2017 dated June 2, 2016, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 6, 2016.*

10.24

SigmaTron International, Inc. 2013 Employee Stock Purchase Plan disclosed on Form 8-K dated September 20, 2013, has been terminated effective as of August 15, 2016, incorporated herein by reference to the Company’s Form 8-K filed on August 15, 2016.*

39


10.25

Lease No. 009, entered into July 15, 2016, is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between Associated Bank, National Association and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on September 13, 2016.

10.26

Lease No. 010, entered into August 8, 2016, is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between Associated Bank, National Association and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on December 12, 2016.

10.27

Promissory Note, entered into November 1, 2016, by and between ENGENCAP FIN, S.A. DE C.V., SOFOM, E.N.R. and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on March 14, 2017.

10.28

SigmaTron International, Inc. Employee Bonus Plan for Fiscal Year 2018 dated April 21, 2017, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on April 25, 2017*

10.29

Promissory Note, entered into January 5, 2017, by and between ENGENCAP FIN, S.A. DE C.V., SOFOM, E.N.R. and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.29 to the Company’s Form 10-K filed on July 24, 2017.

10.30

Lease No. 011, entered into May 8, 2017, is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between Associated Bank, National Association and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.30 to the Company’s Form 10-K filed on July 24, 2017.

10.31

Lease No. 012, entered into May 8, 2017, is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between Associated Bank, National Association and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.31 to the Company’s Form 10-K filed on July 24, 2017.

10.32

Loan and Security Agreement between SigmaTron International, Inc. and U.S. Bank National Association dated March 31, 2017, incorporated herein by reference to Exhibit 10.32 to the Company’ Form 10-K filed on July 24, 2017.

10.33

Promissory Note, entered into June 1, 2017, by and between ENGENCAP FIN, S.A. DE C.V., SOFOM, E.N.R. AND SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on September 13, 2017.

10.34

Lease No. 013, entered into July 6, 2017, is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between Associated Bank, National Association and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on September 13, 2017.

10.35

Lease No. 1, entered into September 13, 2017, is an attachment to Master Lease No. 2017389 dated August 15, 2017 by and between First American Commercial Bancorp, Inc. and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on December 12, 2017.

10.36

Lease No. 2, entered into October 9, 2017, is an attachment to Master Lease No. 2017389 dated August 15, 2017 by and between First American Commercial Bancorp, Inc. and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on December 12, 2017.

40


10.37

Promissory Note, entered into October 12, 2017, by and between ENGENCAP FIN, S.A. DE C.V., SOFOM, E.N.R. and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.3 to the Company’s Form 10-Q filed on December 12, 2017.

10.38

Real Property mortgage (Cook County, Illinois) made as of the 21st day of December, 2017, is made and executed by SigmaTron International, Inc. (“Mortgagor”) and U.S. Bank National Association (“Lender”), incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on March 14, 2018.

10.39

Real Property mortgage (Kane County, Illinois) made as of the 21st day of December, 2017, is made and executed by SigmaTron International, Inc. (“Mortgagor”) and U.S. Bank National Association (“Lender”), incorporated herein by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on March 14, 2018.

10.40

Lease No. 3, entered into December 20, 2017, is an attachment to Master Lease No. 2017389 dated August 15, 2017 by and between First American Commercial Bancorp, Inc. and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.3 to the Company’s Form 10-Q filed on March 14, 2018.

10.41

Lease No. 4, entered into January 9, 2018, is an attachment to Master Lease No. 2017389 dated August 15, 2017 by and between First American Commercial Bancorp, Inc. and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.4 to the Company’s Form 10-Q filed on March 14, 2018.

10.42

Asset Purchase Agreement effective April 30, 2018 between SigmaTron International, Inc. and Wagz, Inc., incorporated herein by reference to Exhibit 99.1 to the Company’s Form 8-K/A filed on May 4, 2018.

10.43

SigmaTron International, Inc. Employee Bonus Plan for Fiscal Year 2019 dated July 12, 2018, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on July 16, 2018.*

10.44

Amendment No.1 to Amended and Restated Loan and Security Agreement entered into as of July 16, 2018, by and between SigmaTron International, Inc., and U.S. Bank National Association incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on July 17, 2018.

10.45

Lease No. 5, entered into March 15, 2018, is an attachment to Master Lease No. 2017389 dated August 15, 2017 by and between First American Commercial Bancorp, Inc. and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.45 to the Company’s Form 10-K filed on July 24, 2018.

10.46

Lease No. 6, entered into April 20, 2018, is an attachment to Master Lease No. 2017389 dated August 15, 2017 by and between First American Commercial Bancorp, Inc. and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.46 to the Company’s Form 10-K filed on July 24, 2018.

10.47

Promissory Note, entered into May 1, 2018, by and between ENGENCAP FIN, S.A. DE C.V., SOFOM, E.N.R. and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on September 13, 2018.

10.48

SigmaTron International, Inc. 2018 Non-Employee Director Restricted Stock Plan dated September 21, 2018, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on September 24, 2018.*

41


10.49

Lease No. 7, entered into October 17, 2018, is an attachment to Master Lease No. 2017389 dated August 15, 2017 by and between First American Commercial Bancorp, Inc. and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on December 12, 2018.

10.50

Lease No. 8, entered into January 25, 2019, is an attachment to Master Lease No. 2017389 dated August 15, 2017 by and between First American Commercial Bancorp, Inc. and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on March 15, 2019.

10.51

Lease No. 9, entered into January 25, 2019, is an attachment to Master Lease No. 2017389 dated August 15, 2017 by and between First American Commercial Bancorp, Inc. and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on March 15, 2019.

10.52

SigmaTron International, Inc. Employee Bonus Plan for Fiscal Year 2020 dated July 12, 2019, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on July 15, 2019.*

10.53

Lease No. 10, entered into August 20,2019, in an attachment to Maser Lease No. 2017389 dated August 15, 2017 by and between First American Commercial Bancorp, Inc. and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on December 11, 2019.

10.54

Lease No. 11 entered into October 10, 2019, in an attachment to Master Lease No. 2017389 dated August 15, 2017 by and between First American Commercial Bancorp, Inc. and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.2 to the Company’ Form 10-Q filed on December 11, 2019.

10.55

Sigmatron International, Inc. 2019 Employee Stock Option Plan dated September 13, 2019, incorporated herein by reference to Exhibit 10.1 to the Company’ Form 8-K filed on September 17, 2019.*

10.56

Promissory Note , entered into February 18, 2020, by and between FGI Equipment Finance LLC and SigmaTron International, Inc.,incorporated herein by reference to Exhibit 10.56 to the Company’s Form 10-K filed on August 12, 2020.

10.57

Promissory Note , entered into March 16, 2020, by and between FGI Equipment Finance LLC and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.57 to the Company’s Form 10-K filed on August 12, 2020.

10.58

Lease No. 12 entered into April 15, 2020, in an attachment to Master Lease No. 2017389 dated August 15, 2017 by and between First American Commercial Bancorp, Inc. and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.58 to the Company’s Form 10-K filed on August 12, 2020.

10.59

SigmaTron International, Inc., Employee Bonus Plan for Fiscal Year 2021 dated April 17, 2020, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on April 20, 2020.*

10.60

U.S. Bank SBA Payroll Loan Agreement dated April 23, 2020 by and between SigmaTron International, Incorporation, incorporated here by reference to Exhibit 10.1 to the Company’s Form 8-K filed on April 24, 2020.

42


10.61

Amendment No. 6 to Amended and Restated Loan and Security Agreement entered into as of July 15, 2020, by and between SigmaTron International, Inc., and U.S. Bank National Association incorporated herein by reference to Exhibit 10.l to the Company’s Form 8-K filed on September 9, 2020.

10.62

Amendment No. 7 to Amended and Restated Loan and Security Agreement entered into as of August 7, 2020, by and between SigmaTron International, Inc., and U.S. Bank National Association incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K filed on September 9, 2020.

10.63

Amendment No. 8 to Amended and Restated Loan and Security Agreement entered into as of September 8, 2020, by and between SigmaTron International, Inc., and U.S. Bank National Association incorporated herein by reference to Exhibit 10.3 to the Company’s Form 8-K filed on September, 9, 2020.

10.64

Promissory Note, entered into May 26, 2020, by and between FGI Equipment Finance LLC and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on September 11, 2020.

10.65

Promissory Note, entered into September 4, 2020 by and between FGI Equipment Finance LLC and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on December 11, 2020.

10.66

Promissory Note, entered into September 23, 2020, by and between FGI Equipment Finance LLC and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on December 11, 2020.

10.67

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.

10.68

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., incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on March 11, 2021.

10.69

Promissory Note, entered into February 26, 2021. by and between FGI Equipment Finance LLC and SigmaTron International, Inc.**

10.70

Lease No. 14, entered into March 19, 2021, is an attachment to Master Lease No. 2017389 dated August 15, 2017 by and between First American Commercial Bancorp, Inc. and SigmaTron International, Inc.**

10.71

Promissory Note, entered into March 26, 2021 by and between FGI Equipment Finance LLC and SigmaTron International, Inc.**

10.72

First Amendment to Credit Agreement entered into as of April 20, 2021, by and between SigmaTron International, Inc., and JPMorgan Chase Bank, N.A.**

10.73

Second Amendment to Credit Agreement entered into as of June 21, 2021, by and between SigmaTron International, Inc., and JPMorgan Chase Bank, N.A.**

10.74

SigmaTron International, Inc., Employee Bonus Plan for Fiscal Year 2022 dated May 25, 2021, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on July 9, 2021.*

21.0 

Subsidiaries of the Registrant, incorporated herein by reference to Exhibit 21 to the Company’s Form 10-K for the fiscal year ended April 30, 2014, filed on July 24, 2014.

43


101.INS 

Inline XBRL Instance Document (the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document)

101.SCH

Inline XBRL Taxonomy Extension Schema Document **

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document **

101.DEF 

Inline XBRL Taxonomy Extension Definition Linkbase Document **

101.LAB 

Inline XBRL Taxonomy Extension Label Linkbase Document **

101.PRE 

Inline XBRL Taxonomy Extension Presentation Linkbase Document **

104

Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)

* Indicates management contract or compensatory plan.

** Filed herewith

(c) Exhibits

The Company hereby files as exhibits to this Report the exhibits listed in Item 15(a)(3) above, which are

attached hereto or incorporated herein.

44


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGMATRON INTERNATIONAL, INC.

By: /s/ Gary R. Fairhead

Gary R. Fairhead, President and Chief Executive Officer,

Principal Executive Officer and Director

Dated: July 23, 2021

 KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned directors and officers of SigmaTron International, Inc., a Delaware corporation, which is filing an Annual Report on Form 10-K with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934 as amended, hereby constitute and appoint Gary R. Fairhead and Linda K. Frauendorfer, and each of them, each of their true and lawful attorneys-in fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in all capacities, to sign any or all amendments to the report to be filed with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as each of them might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities, and on the dates indicated.

Signature

Title

Date

/s/ Gary R. Fairhead

Chairman of the Board of Directors,

July 23, 2021

Gary R. Fairhead

President and Chief Executive Officer,

(Principal Executive Officer) and Director

/s/ Linda K. Frauendorfer

Chief Financial Officer, Secretary and Treasurer

July 23, 2021

Linda K. Frauendorfer

(Principal Financial Officer and Principal

Accounting Officer) and Director

/s/ Thomas W. Rieck

Director

July 23, 2021

Thomas W. Rieck

/s/ Dilip S. Vyas

Director

July 23, 2021

Dilip S. Vyas

/s/ Paul J. Plante

Director

July 23, 2021

Paul J. Plante

/s/ Barry R. Horek

Director

July 23, 2021

Barry R. Horek

/s/ Bruce J. Mantia

Director

July 23, 2021

Bruce J. Mantia

45


SigmaTron International, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2021 and 2020

F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors

SigmaTron International, Inc.

Elk Grove Village, Illinois

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of SigmaTron International, Inc. (the “Company”) as of April 30, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended April 30, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 30, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended April 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Inventory Obsolescence Reserve

As described in Note D to the consolidated financial statements, as of April 30, 2021, the Company recorded an inventory obsolescence reserve of $2,414,310 on raw materials inventory of $72,033,278. A substantial portion of the Company’s raw materials inventory has been purchased to fulfill committed future orders or relates to raw materials inventory for which the Company is contractually entitled to recover its costs from its customers. For the remaining raw materials inventory (“value over stock raw material inventory”), the Company records provisions for

F-2


excess and obsolete inventories for the difference between the cost of inventory and its estimated realizable value based on assumptions about future product demand and market conditions.

We identified the valuation of the value over stock raw material inventory as a critical audit matter. In determining the obsolescence reserve for value over stock raw material inventory, critical inputs are used over the rates applied to historical usage and future forecasts by inventory item to identify items for specific management review. The evaluation over the need for a reserve requires assumptions over the expected future ability to use the raw material inventory items, based on an assessment of current market conditions, future industry trends, and customer demand. Auditing the assumptions used by management in determining the inventory obsolescence reserve involved especially challenging auditor judgment due to the nature and extent of audit effort needed to evaluate the reasonableness of the assumptions and judgments made by management.

The primary procedures we performed to address this critical audit matter included:

Testing the completeness and accuracy of the underlying historical usage and forecast reports used as inputs through the examination of relevant source documents.

Testing the existence of raw material inventory items through the attendance of physical inventory observations at selected locations.

Evaluating management's conclusion by testing selected value over stock raw material inventory items, examining relevant sources of information, both internal and external, to corroborate the expected future use of the identified raw material and the extent of any reserve required.

Evaluating the reasonableness of management’s prior period estimates and current period forecasts for specific inventory reserves by performing a retrospective comparison of prior estimates to current period sales, write-offs, and inventory consumptions as well as evaluating the current period reserve estimate for items that were slow moving in the current period.

/s/ BDO USA, LLP

We have served as the Company’s auditor since 2006.

Chicago, Illinois

July 23, 2021


F-3


SigmaTron International, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

APRIL 30, 2021 and 2020

C

ASSETS

2021

2020

CURRENT ASSETS

Cash and cash equivalents

$

3,509,229 

$

6,779,445 

Accounts receivable, less allowance for doubtful accounts of

$100,000 and $727,252 at April 30, 2021 and April 30, 2020,

respectively

28,783,161 

30,804,976 

Inventories, net

98,078,601 

87,179,369 

Prepaid expenses and other assets

1,314,834 

1,510,943 

Refundable and prepaid income taxes

388,766 

1,699,970 

Note receivable

7,014,594 

768,500 

Other receivables

2,464,678 

1,873,594 

Total current assets

141,553,863 

130,616,797 

PROPERTY, MACHINERY AND EQUIPMENT, NET

34,186,918 

33,935,760 

OTHER LONG-TERM ASSETS

Intangible assets, net

1,996,749 

2,350,949 

Deferred income taxes

1,647,143 

284,435 

Right-of-use assets

13,015,986 

7,235,166 

Other assets

1,772,748 

1,655,924 

Total other long-term assets

18,432,626 

11,526,474 

TOTAL ASSETS

$

194,173,407 

$

176,079,031 

The accompanying notes are an integral part of these statements.


F-4


SigmaTron International, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS CONTINUED

APRIL 30, 2021 and 2020

LIABILITIES AND STOCKHOLDERS’ EQUITY

2021

2020

CURRENT LIABILITIES

Trade accounts payable

$

62,656,451

$

55,770,953

Accrued expenses

2,457,882

2,670,504

Accrued wages

6,283,987

4,206,825

Income taxes payable

1,331,504

469,143

Deferred revenue

423,971

-

Current portion of long-term debt

7,862,058

2,878,160

Current portion of finance lease obligations

1,455,638

1,902,295

Current portion of operating lease obligations

2,843,758

2,150,161

Total current liabilities

85,315,249

70,048,041

Long-term debt,

less current portion

34,783,825

38,537,064

Finance lease obligations,

less current portion

1,180,496

1,884,722

Operating lease obligations,

less current portion

10,474,601

5,281,811

Income taxes payable

404,975

452,619

Other long-term liabilities

1,465,200

810,769

Deferred income taxes

-

188,206

Total long-term liabilities

48,309,097

47,155,191

Total liabilities

133,624,346

117,203,232

STOCKHOLDERS’ EQUITY

Preferred stock, $0.01 par value; 500,000 shares

authorized, NaN issued or outstanding

-

-

Common stock, $0.01 par value; 12,000,000 shares

authorized, 4,269,508 and 4,242,508 shares issued and

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

42,560

42,265

Capital in excess of par value

23,751,461

23,619,513

Retained earnings

36,755,040

35,214,021

Total stockholders’ equity

60,549,061

58,875,799

TOTAL LIABILITIES AND

STOCKHOLDERS’ EQUITY

$

194,173,407

$

176,079,031

The accompanying notes are an integral part of these statements.

F-5


SigmaTron International, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended April 30, 2021 and 2020

2021

2020

Net sales

$

277,718,672 

$

281,042,482 

Cost of products sold

252,766,475 

255,937,592 

Gross profit

24,952,197 

25,104,890 

Selling and administrative expenses

21,562,413 

22,292,309 

Operating income

3,389,784 

2,812,581 

Other expense (income)

81,000 

(119,613)

Interest expense, net

1,210,024 

1,839,060 

Income before income taxes

2,098,760 

1,093,134 

Income tax expense

557,741 

650,032 

NET INCOME

$

1,541,019 

$

443,102 

Earnings per common share

Basic

$

0.36 

$

0.10 

Diluted

$

0.36 

$

0.10 

Weighted-average shares of common

stock outstanding

Basic

4,256,094

4,242,351

Diluted

4,301,981

4,270,050

The accompanying notes are an integral part of these statements.

F-6


SigmaTron International, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Years ended April 30, 2021 and 2020

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)

Recognition of stock-based
compensation

-

-

90,432

-

90,432

Restricted stock awards

-

119

54,702

-

54,821

Net income

-

-

-

443,102

443,102

Balance at April 30, 2020

-

42,265

23,619,513

35,214,021

58,875,799

Common stock awards

-

120

74,160

-

74,280

Restricted stock awards

-

175

57,788

-

57,963

Net income

-

-

-

1,541,019

1,541,019

Balance at April 30, 2021

$

-

$

42,560

$

23,751,461

$

36,755,040

$

60,549,061

The accompanying notes are an integral part of these statements.

F-7


SigmaTron International, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended April 30, 2021 and 2020

2021

2020

Cash flows from operating activities

Net income

$

1,541,019 

$

443,102 

Adjustments to reconcile net income to net

cash provided by operating activities

Depreciation and amortization of property, machinery and equipment

5,124,121 

4,947,200 

Amortization of right-of-use operating lease assets

2,190,076 

2,088,108 

Stock-based compensation

-

90,432 

Restricted stock expense

57,963 

54,821 

Common stock expense

74,280 

-

Provision for doubtful accounts

-

95,969 

Provision for inventory obsolescence

1,172,995 

221,499 

Deferred income tax (benefit) expense

(1,550,914)

126,210 

Amortization of intangible assets

354,200 

362,411 

Amortization of financing fees

319,780 

121,181 

Loss from disposal or sale of machinery and equipment

209,260 

80,678 

Changes in operating assets and liabilities

Accounts receivable

2,021,815 

540,436 

Inventories

(12,072,227)

(1,821,293)

Prepaid expenses and other assets

(9,101,731)

(2,366,279)

Refundable and prepaid income taxes

1,311,204 

(360,231)

Income taxes payable

814,717 

360,578 

Trade accounts payable

6,885,498 

10,143,939 

Deferred revenue

423,971 

-

Operating lease liabilities

5,886,387 

1,103,636 

Accrued expenses and wages

2,436,532 

(778,103)

Net cash provided by operating activities

8,098,946 

15,454,294 

Cash flows from investing activities

Purchases of machinery and equipment

(4,747,316)

(4,646,325)

Advances on note receivable

(5,481,500)

(768,500)

Net cash used in investing activities

(10,228,816)

(5,414,825)

Cash flows from financing activities

Proceeds under equipment note

3,345,915 

383,226 

Payments of contingent consideration

-

(57,537)

Payments under finance lease and sale leaseback agreements

(1,988,106)

(2,099,685)

Payments under equipment note

(722,554)

(411,701)

Proceeds under building notes payable

6,500,000 

556,000 

Payments under building notes payable

(6,484,798)

(283,439)

Borrowings under revolving line of credit

367,450,952 

323,132,190

Payments under revolving line of credit

(369,127,270)

(331,670,250)

Proceeds under PPP loan note payable

-

6,282,973 

Payments of debt financing costs

(114,485)

(97,611)

Net cash used in financing activities

(1,140,346)

(4,265,834)

Change in cash and cash equivalents

(3,270,216)

5,773,635 

F-8


SigmaTron International, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED

Years ended April 30, 2021 and 2020

Cash and cash equivalents at beginning of year

6,779,445

1,005,810

Cash and cash equivalents at end of year

$

3,509,229 

$

6,779,445 

2021

2020

Supplementary disclosures of cash flow information

Cash paid for interest

$

1,179,064 

$

1,841,381 

Cash paid for income taxes

474,931 

827,630 

Purchase of machinery and equipment financed

under finance leases

837,224 

1,084,543 

Financing of insurance policy

145,558 

219,584 

The accompanying notes are an integral part of these statements.

F-9


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2021 and 2020

NOTE A - DESCRIPTION OF THE BUSINESS

SigmaTron International, Inc., its subsidiaries, foreign enterprises and international procurement office (collectively, the “Company”) operates in 1 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. As of April 30, 2021, the Company provided these manufacturing services through an international network of facilities located in the United States, Mexico, China, Vietnam and Taiwan. Approximately 39% of the total assets of the Company are located in foreign jurisdictions outside the United States as of April 30, 2021, 21% and 15% of the total assets were located in Mexico and China, respectively, and 3% in other foreign locations. As of April 30, 2020, approximately 37% of the total assets were located in foreign jurisdictions, 17% were located in each of China and Mexico, and 3% in other foreign locations.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation Policy

The consolidated financial statements include the accounts and transactions 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. and SigmaTron International Trading Co., wholly-owned foreign enterprises Suzhou SigmaTron Electronics Co. Ltd., and SigmaTron Electronic Technology Co., Ltd. (collectively, “SigmaTron China”), and its international procurement office, SigmaTron Taiwan. The functional currency of the Mexican, Vietnamese and Chinese subsidiaries and procurement branch is the U.S. Dollar. Intercompany transactions are eliminated in the consolidated financial statements. The impact of currency fluctuations for the fiscal year ended April 30, 2021, resulted in net foreign currency transaction losses of $285,389 compared to net foreign currency losses of $285,654 in the prior year.

Use of Estimates

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, excess and obsolete reserves for inventory, deferred income, deferred taxes, uncertain tax positions, valuation allowance for deferred taxes and valuation of long-lived assets. Actual results could materially differ from these estimates.

Cash and Cash Equivalents

Cash and cash equivalents include cash and all highly liquid short-term investments with original maturities within three months of the purchase date.

F-10


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Accounts Receivable

The majority of the Company’s accounts receivable are due from companies in the industrial electronics, consumer electronics and medical/life sciences industries. Credit is extended based on evaluation of a customer’s financial condition, and, generally, collateral is not required. Accounts receivable are due in accordance with agreed upon terms, and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payments terms are considered past due. The Company writes off accounts receivable when they are determined to be uncollectible.

The Company has arrangements with various financial institutions to sell certain eligible accounts receivable balances from specific customers without recourse. The accounts receivable balances sold are at the election of the Company. The Company incurred fees for such sales, which are reflected as selling and administrative expenses on the Company’s income statement and were not material for the fiscal years ended April 30, 2021 and 2020.  The accounts receivable balances are derecognized at the time of sale, as the Company does not have continuing involvement after the point of sale. During the years ended April 30, 2021 and April 30, 2020, the Company sold without recourse trade receivables of approximately $78,000,000 and $85,000,000, respectively. Cash proceeds from these agreements are reflected as operating activities included in the change in accounts receivable in the Company's consolidated statements of cash flows.

Allowance for Doubtful Accounts

The Company’s allowance for doubtful accounts relates to receivables not expected to be collected from its customers. This allowance is based on management’s assessment of specific customer balances, considering the age of receivables and financial stability of the customer and a five year average of prior uncollectible amounts. If there is an adverse change in the financial condition of the Company’s customers, or if actual defaults are higher than provided for, an addition to the allowance may be necessary.

Inventories

Inventories are valued at cost. Cost is determined by an average cost method and the Company allocates labor and overhead to work-in-process and finished goods. In the event of an inventory write-down, the Company records expense to state the inventory at lower of cost or net realizable value. The Company establishes inventory reserves for shrinkage and excess and obsolete inventory. The Company records provisions for inventory shrinkage based on historical experience to account for unmeasured usage or loss. Of the Company’s raw materials inventory, a substantial portion has been purchased to fulfill committed future orders or for which the Company is contractually entitled to recover its costs from its customers. For the remaining raw materials inventory, a provision for excess and obsolete inventories is recorded for the difference between the cost of inventory and its estimated realizable value based on assumptions about future product demand and market conditions. Upon a subsequent sale or disposal of the impaired inventory, the corresponding reserve is relieved to ensure the cost basis of the inventory reflects any reductions. Actual results differing from these estimates could significantly affect the Company’s inventories and cost of products sold as the inventory is sold or otherwise relieved.

F-11


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Property, Machinery and Equipment

Property, machinery and equipment are valued at cost. The Company provides for depreciation and amortization using the straight-line method over the estimated useful life of the assets:

Buildings 

20 years

Machinery and equipment 

5-12 years

Office equipment and software

3-5 years

Tools and dies

12 months

Leasehold improvements

lesser of lease term or useful life

Expenses for repairs and maintenance are charged to selling and administrative expenses as incurred.

Deferred Financing Costs

Deferred financing costs consist of costs incurred to obtain the Company’s long-term debt and are amortized using the straight line method over the term of the related debt. Deferred financing fees of $353,438 and $279,740 net of accumulated amortization of $18,347 and $277,518, respectively, as of April 30, 2021 and 2020, respectively, are deducted from long term debt on the Company’s consolidated balance sheet.

COVID-19 and CARES Act

A pandemic of respiratory diseases, including variants (commonly known as "COVID-19") began to spread globally, including to the United States, in early 2020. 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.

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 will have a material adverse effect on the Company’s results of future operations, financial position, and liquidity in fiscal year 2022.

F-12


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

COVID-19 and CARES Act - Continued

As further described in Note G, the Company has applied for, and has received, funds under the Paycheck Protection Program (“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 then 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 by the U.S. Small Business Administration (“SBA”), 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 may be required to repay the PPP Loan in its entirety in a lump sum or be subject to additional penalties and interest, 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 and financial condition. The Company submitted its loan forgiveness application on March 26, 2021. The Company was notified of the forgiveness of the PPP Loan by the SBA on July 9, 2021 and it covers all principal and accrued interest. The accounting for the forgiveness will be reflected in the Company’s first quarter financial statements for fiscal year 2022.

Income Taxes

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 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.

A tax benefit from an uncertain tax position may only be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.

F-13


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Income Taxes - Continued

The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across its global operations. Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Except as noted below, management is not aware of any such changes that would have a material effect on the Company’s results of operations, cash flows or financial position.

The Company adjusts its tax liabilities when its judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from its current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined.

Earnings per Share

Basic earnings per share are computed by dividing net income (loss) (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. The computation of diluted earnings per share is similar to the computation of basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common stock equivalents such as stock options and restricted stock, had been exercised or vested. There were 167,910 and 232,821 anti-dilutive common stock equivalents at April 30, 2021 and April 30, 2020, respectively, which have been excluded from the calculation of diluted earnings per share.

Fiscal Years Ended

April 30,

2021

2020

Net income

$

1,541,019 

$

443,102 

Weighted-average shares

Basic

4,256,094

4,242,351

Effect of dilutive stock options

45,887 

27,699 

Diluted

4,301,981 

4,270,050 

Basic earnings per share

$

0.36 

$

0.10 

Diluted earnings per share

$

0.36 

$

0.10 

Revenue Recognition

The Company recognizes revenue when control of the promised goods or services are transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company’s primary performance obligation to its customers is the production of finished goods electronic assembly products pursuant to purchase orders. The Company has concluded that control of the products it sells and transfers to its customers and an enforceable right to receive payment is customarily established at the point in time when the finished goods are shipped to its customers, or in some cases delivered pursuant to the specified shipping terms of each customer arrangement. With respect to consignment arrangements, control transfers and revenue is

F-14


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Revenue Recognition - Continued

recognized at the point in time when the goods are shipped to the customer from the consignment location or when delivered to the customer (pursuant to agreed upon shipping terms). In those limited instances where finished goods delivered to the customer location are stored in a segregated area which are not controlled by the customer (title transfer) until they are pulled from the segregated area and consumed by the Company’s customer, revenue is recognized upon consumption. For tooling services, the Company’s performance obligation is satisfied at the point in time when the customer takes legal possession of dies or molds, which accounted for less than 1% of the Company’s revenue. For engineering, design, and testing services, the Company’s performance obligations are satisfied over time as the respective services are rendered as its customers simultaneously derive value from the Company’s performance.

From the time that a customer purchase order is received and contract is established, the Company’s performance obligations are typically fulfilled within a few weeks after receipt of all material. The Company does not have any performance obligations that require more than 12 months to fulfill.

Each customer purchase order sets forth the transaction price for the products and services purchased under that arrangement. The Company evaluates the credit worthiness of its customers and exercises judgment to recognize revenue based upon the amount the Company expects to be paid for each sales transaction it enters into with its customers. Some customer arrangements include variable consideration, such as volume rebates, some of which depend upon the Company’s customers meeting specified performance criteria, such as a purchasing level over a period of time. The Company exercises judgment to estimate the most likely amount of variable consideration at each reporting date.

The Company’s typical payment terms are 30 days and its sales arrangements do not contain any significant financing component for its customers. The Company’s customer arrangements do not generate contract assets or liabilities that are material to the consolidated financial statements. The Company generally provides a warranty for workmanship, unless the assembly was designed by the Company, in which case it warrants assembly/design. The Company assembles and tests assemblies based on customers’ specifications prior to shipment. Historically, the amount of returns for workmanship issues has been de minimis under the Company’s standard or extended warranties. The Company does not provide its customers the option to purchase additional warranties and, therefore, the Company’s warranties are not considered a separate service or performance obligation.

The Company utilizes the practical expedient to treat shipping and handling activities after the customer obtains control as fulfillment activities. The Company records shipping and handling costs as selling and administrative expenses and costs are accrued when revenue is recognized.

The Company pays sales commissions to its sales representatives which may be considered as incremental costs to obtain a contract. However, since the recoverability period is less than one year, the Company utilizes the practical expedient provided by the new revenue recognition accounting standard that allows an entity to expense the costs of obtaining a contract as incurred.

During fiscal year 2021, 0 revenues were recognized from performance obligations satisfied or partially satisfied in previous periods and 0 amounts were allocated to performance obligations that remain unsatisfied or partially unsatisfied at April 30, 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 April 30, 2021, with an expected duration of greater than one year.

F-15


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Revenue Recognition - Continued

The majority of sales are made to U.S. based customers. The following table presents the Company’s revenue disaggregated by the principal end-user markets it serves:

Year Ended April 30,

Year Ended April 30,

Net sales by end-market

2021

2020

Industrial Electronics

$

149,861,832

$

158,972,238

Consumer Electronics

113,374,065

105,903,419

Medical / Life Sciences

14,482,775

16,166,825

Total Net Sales

$

277,718,672

$

281,042,482

Shipping and Handling Costs

The Company records shipping and handling costs for goods shipped to customers as selling and administrative expenses. Customers are typically invoiced for shipping costs and such amounts are included in net sales. Shipping and handling costs were not material to the financial statements for fiscal years 2021 or 2020.

Fair Value Measurements

Fair value measurements are determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs. The Company utilizes a fair value hierarchy based upon the observability of inputs used in valuation techniques as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, accounts receivable, note receivable, other receivables, accounts payable and accrued expenses which approximate fair value at April 30, 2021 and April 30, 2020, due to their short-term nature.  The carrying amounts of the Company’s debt obligations approximate fair value based on future payments discounted at current interest rates for similar obligations or interest rates which fluctuate with the market.

On April 30, 2018, the Company entered into an Asset Purchase Agreement with Wagz, Inc. (“Wagz”), whereby the Company sold certain assets to Wagz for $350,000 cash, in exchange for 600,000 shares of Wagz common stock and an earn-out based on sales by Wagz generated from use of the assets through July 31, 2022.  The earn-out is $6.00 per unit of a product specified in the asset purchase agreement and any upgrade to such product. As of April 30, 2021 no earn out has been realized.

The fair value of the non-cash consideration consisted of $600,000 for the 600,000 shares of Wagz common stock which is recorded within other assets.  The Company determined the fair value of the equity using the price per common share received by Wagz in the most recent financing transaction, a level 3 input.  As of April 30, 2021, and April 30, 2020 the Company did not assign any value to the earn-out because any receipts from the earn-out are highly

F-16


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Fair Value of Financial Instruments - Continued

uncertain and contingent upon Wagz selling the product specified in the asset purchase agreement between the Company and Wagz. 

Intangible Assets

Intangible assets are comprised of finite life intangible assets including customer relationships. Finite life intangible assets are amortized on a straight line basis over their estimated useful lives of 7 years except for customer relationships which are amortized on an accelerated basis over their estimated useful life of 15 years.

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including amortizable intangible assets, for impairment in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360: Property, Plant and Equipment. Property, machinery and equipment and finite life intangible assets are reviewed whenever events or changes in circumstances occur that indicate possible impairment. If events or changes in circumstances occur that indicate possible impairment, the Company first performs an impairment review based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely independent of other groups of its assets and liabilities. This analysis requires management judgment with respect to changes in technology, the continued success of product lines, and future volume, revenue and expense growth rates. If the carrying value exceeds the undiscounted cash flows, the Company records an impairment, if any, for the difference between the estimated fair value of the asset group and its carrying value. The Company further conducts annual reviews of its long-lived asset groups for possible impairment. The Company’s analysis for fiscal year 2021 and 2020 did not indicate that any of its other long-lived assets were impaired. The Company has yet to experience material cancellations of orders; however, the potential impact of future disruptions, 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 or other related charges in future periods.

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 April 30, 2021 and April 30, 2020, the Company continued to recognize the fair value of the Wagz common stock at $600,000, which is recorded within other assets.

On May 29, 2020, SigmaTron and Wagz, Inc. (“Wagz”), a privately held company in the pet technology market, entered into a Convertible Secured Promissory Note in the principal sum of up to $4,052,478.  On January 27, 2021, Wagz issued an additional Convertible Secured Promissory Note to the Company in the principal sum of up to $1,588,328. On April 30, 2021, Wagz issued an additional Convertible Secured Promissory Note to the Company in the principal amount of $1,249,966. On April 30, 2021, Wagz issued a Secured Promissory Note to the Company in the principal amount of $308,329 (collectively, the “Notes”). At April 30, 2021, $7,014,594 and $184,507 was outstanding under Note receivable and Other receivables, respectively, in the consolidated balance sheet. The Notes are due (the “Maturity Date”) on the earliest to occur of (a) December 31, 2021 or, if the closing of the Company’s proposed acquisition of Wagz (the “Closing”) does not occur due to the Company’s termination, that date which is twelve (12) months after the date of such termination, (b) upon the closing of a sale of all or substantially all of the assets or common stock of Wagz (other than the Closing), or (c) an Event of Default (as defined in the Notes). Interest

F-17


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Investment in Wagz – Continued

is payable at the rate of four percent (4%) per annum and is payable on the Maturity Date. The Notes are collateralized by substantially all assets of Wagz.

On June 4, 2020, SigmaTron and Wagz, announced that they executed a Letter of Intent (“LOI”) relating to a proposed acquisition. Subject to the terms and conditions set forth in the LOI, SigmaTron expects to issue approximately 2,443,870 shares of SigmaTron common stock that would result in the stockholders of Wagz owning in the aggregate approximately one-third of the combined company. On July 19, 2021 the definitive agreement was signed. The parties expect the transaction to close by September 30, 2021 and it remains subject to achievement of certain milestones and satisfaction of conditions by both parties prior to Closing including the Company having determined that the Wagz Freedom Smart Collar™ meets certain criteria, and the approval by the stockholders of both SigmaTron 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.

Stock Incentive Plans

Under the Company’s stock option plans, options to acquire shares of common stock have been made available for grant to certain employees. Each option granted has an exercise price of not less than 100% of the market value of the common stock on the date of grant. The contractual life of each option is generally 10 years. The vesting of the grants varies according to the individual options granted. The Company measures the cost of employee services received in exchange for an equity award based on the grant date fair value and records that cost over the respective vesting period of the award.

The Company has a restricted stock plan under which non-employee directors may acquire shares of common stock.  The restricted stock plan has been approved by the Company’s stockholders.  The restricted stock plan is interpreted and administered by the Compensation Committee of the Board of Directors. All awarded stock under the plan vests in six months from the date of grant. Awarded stock under this plan is granted at the closing price of the Company’s common stock on the date of grant.

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. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

F-18


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

New Accounting Standards - Continued

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 expedients and exceptions 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 amendments in this update apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. In January 2021, the FASB issued clarification on the scope of relief related to the reference rate reform.  The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

NOTE C - ALLOWANCE FOR DOUBTFUL ACCOUNTS

Changes in the Company’s allowance for doubtful accounts are as follows:

2021

2020

Beginning Balance

$

727,252

$

631,283

Bad debt expense

-

95,969

Bad debt recovery

(331,283)

-

Write-offs

(295,969)

-

$

100,000

$

727,252

F-19


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE D - INVENTORIES

Inventories consist of the following at April 30:

2021

2020

Finished products

$

22,858,073

$

20,998,329

Work-in-process

5,601,560

5,215,280

Raw materials

72,033,278

62,316,122

100,492,911

88,529,731

Less obsolescence reserve

2,414,310

1,350,362

$

98,078,601

$

87,179,369

Changes in the Company’s inventory obsolescence reserve are as follows:

2021

2020

Beginning balance

$

1,350,362

$

1,343,972

Provision for obsolescence

1,172,995

221,499

Write-offs

(109,047)

(215,109)

$

2,414,310

$

1,350,362

F-20


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE E - PROPERTY, MACHINERY AND EQUIPMENT, NET

Property, machinery and equipment consist of the following at April 30:

2021

2020

Land and buildings

$

18,633,408

$

18,297,353

Machinery and equipment

73,922,923

71,490,678

Office equipment and software

11,943,605

11,574,938

Leasehold improvements

2,907,362

2,818,161

Equipment under finance leases

8,282,487

8,739,177

115,689,785

112,920,307

Less accumulated depreciation

and amortization, including accumulated

amortization of assets under

finance leases of $2,439,419

and $2,295,223 at April 30,

2021 and 2020, respectively

81,502,867

78,984,547

Property, machinery and

equipment, net

$

34,186,918

$

33,935,760

Depreciation and amortization expense of property, machinery and equipment was $5,124,121 and $4,947,200 for the fiscal years ended April 30, 2021 and April 30, 2020, respectively.

F-21


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE F - INTANGIBLE ASSETS

Intangible Assets

Intangible assets subject to amortization are summarized as of April 30, 2021 and April 30, 2020, as follows:

April 30, 2021

April 30, 2020

Gross

Gross

Carrying

Accumulated

Carrying

Accumulated

Amount

Amortization

Amount

Amortization

Spitfire:

Non-contractual customer relationship

4,690,000 

2,693,251 

4,690,000 

2,339,051 

Non-compete agreements

-

-

50,000 

50,000 

Total

$

4,690,000 

$

2,693,251 

$

4,740,000 

$

2,389,051 

Estimated aggregate amortization expense for the Company’s intangible assets, which become fully amortized in 2027, for the remaining fiscal years is as follows:

For the fiscal years ending April 30:

2022

$

346,582 

2023

339,128 

2024

331,842 

2025

324,702 

2026

317,728 

Thereafter

336,767 

$

1,996,749 

Amortization expense was $354,200 and $362,411 for the years ended April 30, 2021 and April 30, 2020, respectively.

F-22


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE G - LONG-TERM DEBT

Debt and finance lease obligations consisted of the following at April 30, 2021 and April 30, 2020:

2021

2020

Debt:

Notes Payable - Banks

$

32,137,919

$

33,472,125

Notes Payable - Buildings

6,937,763

6,922,561

Notes Payable - Equipment

3,923,639

1,300,278

Unamortized deferred financing costs

(353,438)

(279,740)

Total debt

42,645,883

41,415,224

Less current maturities

7,862,058

2,878,160

Long-term debt

$

34,783,825

$

38,537,064

Finance lease obligations

$

2,636,134

$

3,787,017

Less current maturities

1,455,638

1,902,295

Total finance lease obligations, less current portion

$

1,180,496

$

1,884,722

Notes Payable - Banks

Prior to January 29, 2021, the Company had a senior secured credit facility with U.S. Bank National Association (“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 fiscal year 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 credit facility maturing on January 29, 2026, of which (a) up to $50,000,000 is available on a revolving loan basis, and (b) an aggregate of $6,500,000 was borrowed pursuant to two term loans (the “Facility”). The Facility is secured by substantially all of SigmaTron’ assets including mortgages on its two Illinois properties.

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% per annum at April 30, 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 revolving portion of 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 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 (a) 10% of the revolving commitment and (b) the outstanding principal amount of the term

F-23


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE G - LONG-TERM DEBT - Continued

Notes Payable – Banks - Continued

loans. The Company was not in a FCCR trigger period as of April 30, 2021. Deferred financing costs of $361,734 were capitalized during the fiscal year ended April 30, 2021 and will be amortized over the term of the Agreement. As of April 30, 2021, there was $24,967,668 outstanding and $15,947,990 of unused availability under the revolving 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 April 30, 2021 and April 30, 2020, the unamortized amount offset against outstanding debt was $343,890 and $218,062, respectively.

On April 23, 2020, the Company received a PPP loan from U.S. Bank, as lender, pursuant to the Paycheck Protection Program of the CARES Act, as administered by the U.S. Small Business Administration (the “SBA”) in the amount of $6,282,973 (the “PPP Loan”). The PPP Loan, 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 Covered Period, as defined by the SBA. The amount of loan forgiveness will be reduced if recipients terminate employees or reduce salaries during the covered period. The Company submitted its loan forgiveness application on March 26, 2021. The Company was notified of the forgiveness of the PPP Loan by the SBA on July 9, 2021 and it covers all principal and accrued interest. The accounting for the forgiveness will be reflected in the Company’s first quarter financial statements for fiscal year 2022. 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. 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, it may be required to repay the PPP Loan in its entirety in a lump sum or be subject to additional penalties and interest. 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 $1,380,000 as of April 30, 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% per annum. The term of the facility extends to January 6, 2022. There was $824,159 outstanding under the facility at April 30, 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 in the amount outstanding of $4,576,000, using proceeds from the Facility extended by Lender. The Company recorded a prepayment penalty of $120,842 in fiscal year 2021. The remaining deferred financing costs of $21,365 were expensed in fiscal year 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%

F-24


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE G - LONG-TERM DEBT - Continued

Notes Payable – Buildings - Continued

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 in the amount outstanding of $1,584,000, using proceeds from the Facility extended by Lender. The Company recorded a prepayment penalty of $41,830 in fiscal year 2021. The remaining deferred financing costs of $18,859 were expensed in fiscal year 2021.

The Company’s Facility with Lender, entered into on January 29, 2021, also included two term loans, in the aggregate principal amount of $6,500,000. The loans require the Company to pay aggregate principal payments in the amount of $36,111 per month for 60 months, plus monthly payments of interest thereon 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 2.5%; (effectively 2.75% per annum at April 30, 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 2.5%. Deferred financing costs of $10,050 were capitalized during fiscal year 2021 which are amortized over the term of the agreement. As of April 30, 2021, the unamortized amount included as a reduction to long-term debt was $9,548. A final aggregate payment of approximately $4,368,444 is due on or before January 29, 2026. The outstanding balance was $6,427,778 at April 30, 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 finance the purchase of 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. Interest accrues at a fixed rate of 5.75% per year until March 3, 2025, and adjusts thereafter, on an annual basis, equal to 1.0% over the Prime Rate as published by The Wall Street Journal. The note is payable over a 120 month period. The outstanding balance was $509,985 and $552,561 at April 30, 2021 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 the outstanding 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% per annum.

The Company routinely enters into secured note agreements with FGI Equipment Finance LLC to finance the purchase of equipment. The terms of the outstanding secured note agreements mature from March 2025 through April 2026, with quarterly installment payments ranging from $10,723 to $69,439 and a fixed interest rate of 8.25% per annum.

F-25


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE G - LONG-TERM DEBT - Continued

Annual maturities of the Company’s debt, net of deferred financing fees for each of the next five years and thereafter, as of April 30, 2021, are as follows:

Fiscal Year

Bank

Building

Equipment

Total

2022

$

6,346,092 

$

478,423 

$

1,037,543 

$

7,862,058 

2023

-

481,085 

825,854 

1,306,939 

2024

-

483,904 

781,148 

1,265,052 

2025

-

486,890 

837,710 

1,324,600 

2026

25,438,389 

4,751,165 

441,384 

30,630,938 

Thereafter

-

256,296 

-

256,296 

$

31,784,481 

$

6,937,763 

$

3,923,639 

$

42,645,883 

Finance Lease Obligations

The Company enters into various finance lease agreements. The terms of the outstanding lease agreements mature through October 1, 2024, with monthly installment payments ranging from $2,874 to $20,093 and a fixed interest rate ranging from 3.94% to 12.73% per annum.

Annual future minimum obligations under outstanding finance leases and sale leaseback agreements for each of the next five fiscal years and thereafter, as of April 30, 2021, are as follows:

Fiscal Year

Total

2022

$

1,610,947 

2023

734,626 

2024

404,042 

2025

148,908 

2026

-

Total minimum lease payments

2,898,523 

Less: Amounts representing interest

262,389 

Present value of net minimum lease payments

$

2,636,134 

Other Long-Term Liabilities

As of April 30, 2021 and April 30, 2020 the Company had recorded $926,546 and $810,769, respectively, for seniority premiums of which $837,528 and $717,528, respectively, were for retirement accounts related to benefits for employees of the Company’s foreign subsidiaries.

F-26


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE H - ACCRUED EXPENSES AND WAGES

Accrued expenses consist of the following at April 30:

2021

2020

Interest

$

102,906

$

77,750

Commissions

99,283

115,385

Professional fees

503,998

730,146

Other - Purchases

218,647

450,000

Other

1,533,048

1,297,223

$

2,457,882

$

2,670,504

Accrued wages consist of the following at April 30:

2021

2020

Domestic wages

$

2,706,677

$

1,809,572

Bonuses

830,246

241,480

Foreign wages

2,747,064

2,155,773

$

6,283,987

$

4,206,825

F-27


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE I - INCOME TAX

U.S. and foreign income before income tax expense (benefit) for the fiscal years ended April 30 are as follows:

2021

2020

Domestic

$

(440,472)

$

(131,058)

Foreign

2,539,232

1,224,192

$

2,098,760

$

1,093,134

Income Tax Provision

The income tax expense for the fiscal years ended April 30 consists of the following:

2021

2020

Current

Federal

$

1,131,710

$

(160,490)

State

334,781

(311)

Foreign

642,164

684,623

Total Current

2,108,655

523,822

Deferred

Federal

(1,188,728)

23,565

State

(276,999)

3,058

Foreign

(85,187)

99,587

Total Deferred

(1,550,914)

126,210

Income tax

$

557,741

$

650,032

F-28


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE I - INCOME TAX - Continued

Income Tax Provision - Continued

The difference between the income tax expense and the amounts computed by applying the statutory Federal income tax rates to income before tax expense for the fiscal years ended April 30 are as follows:

2021

2020

U.S Federal Provision:

At statutory rate

$

440,738

$

229,558

State taxes

47,251

30

Foreign tax differential

189,241

216,033

Impact of state tax rate change

(1,602)

2,139

Foreign valuation allowance

149,542

(305,411)

Impact of foreign permanent items

73,540

400,179

Foreign currency exchange gain/loss
in local jurisdiction

(311,236)

183,177

Foreign inflation adjustment

(33,576)

(75,673)

Stock based compensation

3,843 

-

Provision for income taxes

$

557,741

$

650,032

F-29


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE I - INCOME TAX - Continued

Deferred Tax Assets and Liabilities

Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the deferred tax assets and liabilities for federal, state and foreign income taxes are as follows:

2021

2020

Deferred Tax Assets

Federal, foreign & state NOL carryforwards

$

1,034,428

$

904,074

Foreign tax credit

78,100

78,100

Reserves and accruals

1,147,851

748,977

Stock based compensation

388,647

402,394

Inventory

2,627,419

948,029

Other intangibles

829,559

722,192

Lease liabilities

2,881,193

1,936,772

Allowance for doubtful accounts

25,890

189,522

Other

22,213 

13,043 

Federal benefit of state

-

6,464 

Total gross deferred tax assets

9,035,300

5,949,567

Less: valuation allowance

(1,138,736)

(989,194)

Net deferred tax assets

$

7,896,564

$

4,960,373

Deferred Tax Liabilities

Property, machinery & equipment

$

(2,934,496)

$

(2,780,770)

Prepaids

(454,648)

(197,890)

Operating Lease right-of-use assets

(2,808,571)

(1,885,484)

Federal benefit of state

(51,706)

-

Total deferred tax liabilities

$

(6,249,421)

$

(4,864,144)

Deferred tax asset

$

1,647,143

$

284,435

Deferred tax liability

-

(188,206)

Net deferred tax asset

$

1,647,143

$

96,229

F-30


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE I - INCOME TAX - Continued

Deferred Tax Assets and Liabilities - Continued

The CARES Act was signed into law by the President of the U.S. on March 27, 2020. This legislation is aimed at providing relief for individuals and businesses impacted by the COVID-19 outbreak. The CARES Act includes several significant business tax provisions that, among other things, would temporarily eliminate the taxable income limit for certain net operating losses (NOL), allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years, accelerate refunds of corporate Alternative Minimum Tax credits, temporarily increase the business interest limitation under section 163(j), and allow for deferral of payroll taxes.

The CARES Act also established the Paycheck Protection Program (“PPP”), to be administered by the SBA, whereby certain businesses are eligible for a loan to fund payroll expenses, rent, and related costs. The PPP Loan may be forgiven if the funds are used for payroll and other qualified expenses within certain limits. As described in Note G, the Company received a PPP Loan under the CARES Act of $6,282,973. 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. IRS Revenue Ruling 2021-2 also clarified that deductions attributable to a PPP Loan that is later forgiven shall be disallowed. As of April 30, 2021 the PPP Loan has not been forgiven and thus the expenses have not been disallowed for federal income tax purposes.

As of April 30, 2021, the Company does 0t have a NOL carryforward for federal income tax purposes. The Company has state NOL carry-forwards totaling approximately $20,000 at April 30, 2021, that will begin to expire in fiscal year April 30, 2035. The Company has foreign NOL carryforwards of $4,414,687 as of April 30, 2021, which will begin to expire in 2023. The Company recognizes a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. With the exception of its foreign tax credits and foreign NOL described below, the Company determined it is more likely than not that it will realize its deferred tax assets due to the reversal of deferred tax liabilities and forecast of future earnings. The Company has established a valuation allowance of $1,060,636 on its NOL carryforwards and other deferred tax assets at one of its Chinese subsidiaries and its Vietnam subsidiary. Based on historical losses and forecasted future earnings the Company has determined that the tax benefit from such assets are not more likely than not to be realized.

Cash and cash equivalents held internationally may be subject to foreign withholding taxes if repatriated to the U.S. Absent meeting an exception, unrepatriated foreign earnings generally remain subject to local country withholding taxes upon repatriation. The Company continues to apply its permanent reinvestment assertion on the cumulative amount of unremitted earnings of $4,779,000 as of April 30, 2021, from its foreign subsidiaries.

F-31


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE I - INCOME TAX - Continued

Unrecognized Tax Benefits

The Company has not identified any uncertain tax positions or expects any to be taken in the Company’s tax returns. For the fiscal years ended April 30, 2021 and April 30, 2020, the amount of consolidated worldwide liability for uncertain tax positions that impacted the Company’s effective tax rate was $0.

Other

Interest and penalties related to tax positions taken in the Company’s tax returns are recorded in income tax expense and miscellaneous selling, general and administrative expense, respectively, in the consolidated statements of operations. For the fiscal years ended April 30, 2021 and April 30, 2020, the amount included in the Company’s balance sheet for such liabilities was $0.

The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to state, local or foreign examinations by tax authorities for tax years before fiscal year 2015.

NOTE J - 401(k) RETIREMENT SAVINGS PLAN

The Company sponsors 401(k) retirement savings plans, which are available to all non-union U.S. employees. The Company may elect to match 25.0% of the first 5.0% participant contributions up to $2,000 per participant annually. The Company contributed $186,870 and $201,819 to the plans during the fiscal years ended April 30, 2021 and April 30, 2020, respectively. The Company incurred total expenses of $20,569 and $8,250 for the fiscal years ended April 30, 2021 and April 30, 2020, respectively, relating to costs associated with the administration of the plans.

NOTE K - MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of uncollateralized accounts receivable. For the fiscal year ended April 30, 2021, 2 customers accounted for 17.9% and 16.2% of net sales of the Company, and 3.8% and 5.6%, respectively, of accounts receivable at April 30, 2021. For the fiscal year ended April 30, 2020, 2 customers accounted for 16.7% and 14.1% of net sales of the Company, and 3.6% and 5.0%, respectively, of accounts receivable at April 30, 2020. Further, the Company has $2,823,407 in cash in China as of April 30, 2021. Effective May 1, 2015, China implemented a deposit insurance program to insure up to approximately $81,000 in deposits under certain circumstances. Funds above this amount are not insured by a guaranteed deposit insurance system. Under the Federal Deposit Insurance Corporation (“FDIC”) program deposit insurance insures up to $250,000.

F-32


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE L - 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 at 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.

F-33


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE L - LEASES – Continued

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

April 30,

April 30,

Classification

2021

2020

Operating Leases:

Right-of-use Assets

Other assets

$

13,015,986 

$

7,235,166 

Operating lease current
liabilities

Current portion of operating lease obligations

2,843,758 

2,150,161 

Operating lease noncurrent
liabilities

Operating lease obligations, less current portion

10,474,601 

5,281,811 

Finance Leases:

Right-of-use Assets

Property, plant and equipment

5,843,068 

6,443,954 

Finance lease current liabilities

Current portion of finance lease
obligations

1,455,638 

1,902,295 

Finance lease noncurrent liabilities

Finance lease obligations, less current
portion

1,180,496 

1,884,722 

The components of lease expense for the fiscal years ended April 30, 2021 and 2020 are as follows:

April 30,

April 30,

Classification

2021

2020

Operating Leases:

Operating lease cost

Operating expenses

1,595,651 

2,483,385 

Variable lease cost

Operating expenses

324,833 

300,274 

Short term lease cost

Operating expenses

6,600 

5,400 

Finance Leases:

Amortization of right-of-use assets

Operating expenses

1,868,592 

451,870 

Interest expense

Interest expense

252,208 

275,217 

Total

4,047,884 

3,516,146 

The weighted average lease term and discount rates for the fiscal years ended April 30, 2021 and 2020 are as follows:

April 30,

April 30,

2021

2020

Operating Leases:

Weighted average remaining lease term (months)

55.4

52.7

Weighted average discount rate

3.1%

3.8%

Finance Leases:

Weighted average remaining lease term (months)

18.73

26.27

Weighted average discount rate

7.5%

7.4%

F-34


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE L - LEASES – Continued

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

Operating Leases

Finance Leases

For the fiscal years ending April 30:

2022

3,200,860 

1,610,947 

2023

3,450,514 

734,626 

2024

2,973,305 

404,042 

2025

2,352,505 

148,908 

2026

1,734,251 

-

Thereafter

417,388 

-

Total undiscounted lease payments

14,128,823 

2,898,523 

Present value discount, less interest

810,464 

262,389 

Lease liability

$

13,318,359 

$

2,636,134 

Supplemental disclosures of cash flow information related to leases as of fiscal year ended April 30, 2021 and 2020 are as follows:

April 30,

April 30,

Other Information

2021

2020

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from finance leases

252,208 

275,217 

Operating cash flows from operating leases

208,639 

275,654 

Financing cash flows from finance leases

1,988,106 

2,099,685 

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

837,224 

1,084,543 

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

7,970,896 

3,305,503 

F-35


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE M - STOCK COMPENSATION AND EQUITY TRANSACTIONS

The Company has stock option plans (“Option Plans”) under which certain employees may acquire shares of common stock. All Option Plans have been approved by the Company’s stockholders. At April 30, 2021, the Company has 102,000 shares available for future issuance to employees under the employee plans. The Option Plans are interpreted and administered by the Compensation Committee of the Board of Directors. The maximum term of options granted under the Option Plans is generally 10 years. Options granted under the Option Plans are either incentive stock options or nonqualified options. Each option under the Option Plans is exercisable for one share of stock. Options forfeited under the Option Plans are available for reissuance. Options granted under these plans are granted at an exercise price equal to the fair market value of a share of the Company’s common stock on the date of grant using the Black-Scholes option pricing model.

The Company did 0t grant options to employees in fiscal year 2021.

The Company granted 48,000 options to employees in fiscal year 2020, which vested immediately. The Company recognized approximately $90,432 in compensation expense in fiscal year 2020. There was 0 unrecognized compensation expense as of April 30, 2021 and 2020.

The Company has a restricted stock plan under which non-employee directors may acquire shares of common stock.  The restricted stock plan has been approved by the Company’s stockholders.  At April 30, 2021, the Company has 7,500 shares available for future issuance under the non-employee director plan.  The restricted stock plan is interpreted and administered by the Compensation Committee of the Board of Directors. All awarded stock under the plan vests in six months from the date of grant. Awarded stock under this plan is granted at the closing price of the Company’s common stock on the date of grant.

In November 2020, the Company issued 15,000 shares of restricted stock pursuant to the 2018 Non-Employee Director Restricted Stock Plan, which fully vested on May 31, 2021. The Company recognized $57,963 in compensation expense in fiscal year 2021. The balance of unrecognized compensation expense related to the Company’s restricted stock award was $8,716 at April 30, 2021.

In July 2021, the Company issued 7,500 shares of restricted stock pursuant to the 2018 Non-Employee Director Restricted Stock Plan, which fully vests on January 8, 2022. The Company will recognize $37,125 in compensation expense in fiscal year 2022.

The aggregate grant date fair value of stock awards granted in July 2021 was computed in accordance with FASB ASC Topic 718.  The aggregate number of shares of common stock of the Company granted pursuant to the Director Plan for each non-employee Director was as follows: Mr. Horek, 1,500 shares; Mr. Mantia, 1,500 shares; Mr. Plante, 1,500 shares; Mr. Rieck, 1,500 shares; Mr. Vyas, 1,500 shares.

In December 2019, the Company issued 15,000 shares of restricted stock pursuant to the 2018 Non-Employee Director Restricted Stock Plan, which fully vested on June 1, 2020. The Company recognized $54,821 in compensation expense in fiscal year 2020. The balance of unrecognized compensation expense related to the Company’s restricted stock awards was $15,229 at April 30, 2020.

F-36


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE M - STOCK COMPENSATION AND EQUITY TRANSACTIONS – Continued

The table below summarizes option activity through April 30, 2021:

Number of

Number of

securities to be

Weighted-

options

issued upon

average

exercisable

exercise of

exercise

at end

outstanding options

price

of year

Outstanding at April 30, 2019

465,232 

5.22

465,232 

Options granted during 2020

48,000 

4.28

Outstanding at April 30, 2020

513,232 

5.13

513,232 

Options granted during 2021

-

 

Outstanding at April 30, 2021

513,232

$

5.13

513,232 

Intrinsic value is calculated as the positive difference between the market price of the Company’s common stock and the exercise price of the underlying options. As of April 30, 2021 and April 30, 2020, the aggregate intrinsic value of the options outstanding was $362,281 and $0, respectively.

Information with respect to stock options outstanding and exercisable at April 30, 2021 is as follows:

Options outstanding and exercisable

Number

Weighted-average

Weighted-

outstanding at

remaining

average

April 30, 2021

contract life

exercise price

Range of exercise prices

$ 3.20-6.45

513,232

5.04 years

$

5.13

513,232

$

5.13

As of April 30, 2021, there were 0 non-vested stock options.

F-37


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE N - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of unaudited quarterly financial data for fiscal year 2021:

First

Second

Third

Fourth

2021

Quarter

Quarter

Quarter

Quarter

Net sales

$

60,524,956

$

69,618,424

$

71,531,348

$

76,043,944

Gross profit

4,272,191

6,759,542

5,912,699

8,007,765

(Loss) income before income

(1,121,500)

1,069,801

223,358

1,927,101

taxes (1)

Net (loss) income

(900,666)

626,858

249,268

1,565,559

(Loss) earnings per share

$

(0.21)

$

0.14

$

0.06

$

0.37

Basic

(Loss) earnings per share

$

(0.21)

$

0.15

$

0.06

$

0.36

Diluted

Weighted average shares- Basic

4,250,986

4,257,508

4,257,508

4,258,452

Weighted average shares- Diluted

4,250,986

4,257,508

4,310,290

4,357,478

1.)The Company records inventory reserves for valuation and shrinkage throughout the year based on historical data. In the fourth quarter of fiscal year 2021 physical inventory results were completed resulting in an increase in income before income taxes of approximately $276,000 net of a provision for inventory reserves of approximately $1,173,000.

The aggregate after-tax effect for the above adjustments in the fourth quarter of fiscal year 2021 was an increase to basic earnings per share of $0.05.

F-38


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE N - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued

The following is a summary of unaudited quarterly financial data for fiscal year 2020:

First

Second

Third

Fourth

2020

Quarter

Quarter

Quarter

Quarter

Net sales

$

74,009,981

$

74,855,312

$

67,407,268

$

64,769,921

Gross profit

6,960,332

7,129,486

5,521,777

5,493,295

Income (loss) before income

608,140

977,289

(319,770)

(172,525)

taxes (1)

Net income (loss)

361,025

661,183

(217,039)

(362,067)

Earnings (loss) per share

$

0.09

$

0.15

$

(0.05)

$

(0.09)

Basic

Earnings (loss) per share

$

0.09

$

0.15

$

(0.05)

$

(0.09)

Diluted

Weighted average shares- Basic

4,241,883

4,242,508

4,242,508

4,242,508

Weighted average shares- Diluted

4,241,883

4,278,901

4,242,508

4,242,508

1.)The Company records inventory reserves for valuation and shrinkage throughout the year based on historical data. In the fourth quarter of fiscal year 2020 physical inventory results were completed resulting in an increase in income before income taxes of approximately $530,000 net of a provision for inventory reserves of approximately $222,000.

The aggregate after-tax effect for the above adjustments in the fourth quarter of fiscal year 2020 was an increase to basic earnings per share of $0.05.

F-39


SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 2021 and 2020

NOTE O - LITIGATION

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 or results of operations.

NOTE P – SUBSEQUENT EVENT PPP LOAN FORGIVENESS AND WAGZ DEFINITIVE AGREEMENT

On April 23, 2020 the Company received a $6,282,973 PPP Loan. Under the CARES Act, forgiveness of a PPP Loan is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the 24-week period beginning on the date of loan approval. The Company could be required to repay any portion of the outstanding principal of its PPP Loan that is not forgiven, along with accrued interest. If the PPP Loan is not forgiven, the Company would be required to pay the lender equal monthly payments of principal and interest as required to fully amortize by April 23, 2022 and any principal amount outstanding on the PPP Loan. The Company was notified of the forgiveness of the PPP Loan by the SBA on July 9, 2021 and it covers all principal and accrued interest. The accounting for the forgiveness will be reflected in the Company’s first quarter financial statements for fiscal year 2022.

On May 29, 2020, SigmaTron and Wagz, Inc. (“Wagz”), a privately held company in the pet technology market, entered into a Convertible Secured Promissory Note in the principal sum of up to $4,052,478.  On January 27, 2021, Wagz issued an additional Convertible Secured Promissory Note to the Company in the principal sum of up to $1,588,328. On April 30, 2021, Wagz issued an additional Convertible Secured Promissory Note to the Company in the principal amount of $1,249,966. On April 30, 2021, Wagz issued a Secured Promissory Note to the Company in the principal amount of $308,329 (collectively, the “Notes”). At April 30, 2021, $7,014,594 and $184,507 was outstanding under Note receivable and Other receivables, respectively, in the consolidated balance sheet. The Notes are due (the “Maturity Date”) on the earliest to occur of (a) December 31, 2021 or, if the closing of the Company’s proposed acquisition of Wagz (the “Closing”) does not occur due to the Company’s termination, that date which is twelve (12) months after the date of such termination, (b) upon the closing of a sale of all or substantially all of the assets or common stock of Wagz (other than the Closing), or (c) an Event of Default (as defined in the Notes). Interest is payable at the rate of four percent (4%) per annum and is payable on the Maturity Date. The Notes are collateralized by substantially all assets of Wagz.

 

On June 4, 2020, SigmaTron and Wagz, announced that they executed a Letter of Intent (“LOI”) relating to a proposed acquisition. Subject to the terms and conditions set forth in the LOI, SigmaTron expects to issue approximately 2,443,870 shares of SigmaTron common stock that would result in the stockholders of Wagz owning in the aggregate approximately one-third of the combined company. On July 19, 2021 the definitive agreement was signed. The parties expect the transaction to close by September 30, 2021 and it remains subject to achievement of certain milestones and satisfaction of conditions by both parties prior to Closing including the Company having determined that the Wagz Freedom Smart Collar™ meets certain criteria, and the approval by the stockholders of both SigmaTron and Wagz.

F-40