10-Q 1 sgma-20210131x10q.htm 10-Q 20210131 Q3 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION



Washington, D.C. 20549



_________________





Form 10-Q



__________________



(Mark One)

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES

      EXCHANGE ACT OF 1934



For the quarterly period ended January 31, 2021



OR



 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES

     EXCHANGE ACT OF 1934



For the transition period from    to



Commission File Number 0-23248



SIGMATRON INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

_________________





 

Delaware 

36-3918470 

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)



 

2201 Landmeier Road 

 

Elk Grove Village,  Illinois 

60007 

(Address of principal executive offices)

(Zip Code)



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





 

 

Title of each class

Common Stock $0.01 par value per share

Trading Symbol

SGMA

Name of each exchange on which registered

The NASDAQ Capital Market



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    No 


 

SigmaTron International, Inc.

January 31, 2021

 

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



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



Large Accelerated Filer     Accelerated Filer 



Non-accelerated Filer            Smaller Reporting Company 



Emerging Growth Company 



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



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



Indicate the number of shares outstanding of the registrant’s common stock, $0.01 par value, as of March 8,  20214,257,508







 

2

 


 

 



SigmaTron International, Inc.



Index





 

 

 

 



 

 

 

 

PART 1.

FINANCIAL INFORMATION:         

 

Page No.



Item 1.

Condensed Consolidated Financial Statements

 

 



 

Condensed Consolidated Balance Sheets – January 31, 2021 (Unaudited) and April 30, 2020

 



 

Condensed Consolidated Statements of Operations – (Unaudited)

 

 



 

Three and Nine Months Ended January 31, 2021 and 2020

 



 

Condensed Consolidated Statements of Changes in Stockholders’

 

 



 

Equity – (Unaudited) Three and Nine Months Ended January 31, 2021 and 2020

 



 

Condensed Consolidated Statements of Cash Flows – (Unaudited)

 

 



 

Nine Months Ended January 31, 2021 and 2020

 



 

Notes to Condensed Consolidated Financial Statements – (Unaudited)  

 

10 



Item 2.

Management’s Discussion and Analysis of Financial Condition and

 

 



 

Results of Operations

 

25 



Item 3.

Quantitative and Qualitative Disclosures About Market Risks

 

33 



Item 4.

Controls and Procedures

 

33 



 

 

 

 

PART II

OTHER INFORMATION:

 

 



Item 1.

Legal Proceedings

 

34 



Item 1A.

Risk Factors

 

34 



Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

34 



Item 3.

Defaults Upon Senior Securities

 

34 



Item 4.

Mine Safety Disclosures

 

34 



Item 5.

Other Information

 

34 



Item 6.

Exhibits

 

35 



 

Signatures

 

36 



 

 

 

 

 



 

3

 


 

 



SigmaTron International, Inc.

Condensed Consolidated Balance Sheets





 

 

 

 

 



 

 

 

 

 



 

January 31,

 

 

 



 

2021

 

 

April 30,



 

(Unaudited)

 

 

2020



 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

2,744,679 

 

$

6,779,445 



 

 

 

 

 

Accounts receivable, less allowance for doubtful accounts of

 

 

 

 

 

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

 

26,289,585 

 

 

30,804,976 

Inventories, net

 

86,050,438 

 

 

87,179,369 

Prepaid expenses and other assets

 

1,107,079 

 

 

1,510,943 

Refundable and prepaid income taxes

 

947,830 

 

 

1,699,970 

Other receivables

 

8,724,894 

 

 

2,642,094 



 

 

 

 

 

Total current assets

 

125,864,505 

 

 

130,616,797 



 

 

 

 

 

Property, machinery and equipment, net

 

33,312,831 

 

 

33,935,760 



 

 

 

 

 



 

 

 

 

 

Intangible assets, net

 

2,085,137 

 

 

2,350,949 

Deferred income taxes

 

284,434 

 

 

284,435 

Other assets

 

8,387,575 

 

 

8,891,090 

   

 

 

 

 

 

Total other long-term assets

 

10,757,146 

 

 

11,526,474 



 

 

 

 

 

Total assets

$

169,934,482 

 

$

176,079,031 



 

 

 

 

 

Liabilities and stockholders' equity:

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Trade accounts payable

$

48,645,860 

 

$

55,770,953 

Accrued wages

 

5,321,315 

 

 

4,206,825 

Accrued expenses

 

2,867,481 

 

 

2,670,504 

Income taxes payable

 

453,558 

 

 

469,143 

Current portion of long-term debt

 

6,596,970 

 

 

2,878,160 

Current portion of finance lease obligations

 

1,651,807 

 

 

1,902,295 

Current portion of operating lease obligations

 

1,944,321 

 

 

2,150,161 



 

 

 

 

 

Total current liabilities

 

67,481,312 

 

 

70,048,041 



 

 

 

 

 

Long-term debt, less current portion

 

35,169,381 

 

 

38,537,064 

Income taxes payable

 

404,975 

 

 

452,619 

Finance lease obligations, less current portion

 

1,353,434 

 

 

1,884,722 

Operating lease obligations, less current portion

 

5,065,611 

 

 

5,281,811 

Other long-term liabilities

 

1,434,054 

 

 

810,769 

Deferred income taxes

 

141,515 

 

 

188,206 



 

 

 

 

 

Total long-term liabilities

 

43,568,970 

 

 

47,155,191 



 

 

 

 

 

Total liabilities

 

111,050,282 

 

 

117,203,232 



 

 

 

 

 

4

 


 

 

Commitments and contingencies

 

 

 

 

 



 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

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

 

 

 

 

 

authorized, none issued or outstanding

 

 -

 

 

 -

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

 

 

 

 

 

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

 

 

 

 

 

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

 

42,365 

 

 

42,265 

Capital in excess of par value

 

23,652,354 

 

 

23,619,513 

Retained earnings

 

35,189,481 

 

 

35,214,021 



 

 

 

 

 

Total stockholders' equity

 

58,884,200 

 

 

58,875,799 



 

 

 

 

 

Total liabilities and stockholders' equity

$

169,934,482 

 

$

176,079,031 



 

 

 

 

 

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



























5

 


 

 

SigmaTron International, Inc.

Condensed Consolidated Statements of Operations









 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

Three Months

 

 

Three Months

 

 

Nine Months

 

 

Nine Months



 

Ended

 

 

Ended

 

 

Ended

 

 

Ended

 

 

January 31,

 

 

January 31,

 

 

January 31,

 

 

January 31,



 

2021

 

 

2020

 

 

2021

 

 

2020



 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)



 

 

 

 

 

 

 

 

 

 

 

Net sales

$

71,531,348 

 

$

67,407,268 

 

$

201,674,728 

 

$

216,272,561 

Cost of products sold

 

65,618,649 

 

 

61,885,491 

 

 

184,730,296 

 

 

196,660,966 



 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

5,912,699 

 

 

5,521,777 

 

 

16,944,432 

 

 

19,611,595 



 

 

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

5,212,629 

 

 

5,469,654 

 

 

15,693,893 

 

 

16,997,268 



 

 

 

 

 

 

 

 

 

 

 

Operating income

 

700,070 

 

 

52,123 

 

 

1,250,539 

 

 

2,614,327 



 

 

 

 

 

 

 

 

 

 

 

Other expense (income)

 

189,341 

 

 

(29,944)

 

 

144,632 

 

 

(107,169)

Interest expense

 

287,371 

 

 

401,837 

 

 

934,248 

 

 

1,455,837 

Income (loss) before income tax expense

 

223,358 

 

 

(319,770)

 

 

171,659 

 

 

1,265,659 



 

 

 

 

 

 

 

 

 

 

 

Income tax (benefit) expense

 

(25,910)

 

 

(102,731)

 

 

196,199 

 

 

460,490 



 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

249,268 

 

$

(217,039)

 

$

(24,540)

 

$

805,169 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share – basic

$

0.06 

 

$

(0.05)

 

$

(0.01)

 

$

0.19 



 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share – diluted

$

0.06 

 

$

(0.05)

 

$

(0.01)

 

$

0.19 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

 

 

 

 

 

 

 

 

 

 

Basic

 

4,257,508 

 

 

4,242,508 

 

 

4,255,334 

 

 

4,242,300 



 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

4,310,290 

 

 

4,242,508 

 

 

4,255,334 

 

 

4,260,022 



 

 

 

 

 

 

 

 

 

 

 

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













6

 


 

 

SigmaTron International, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity







 

 

 

 

 

 

 

 

 

 

 

 

 

 



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



 

 

 

 

 

 

 

Capital in

 

 

 

 

 

Total



 

Preferred

 

 

Common

 

 

excess of par

 

 

Retained

 

 

stockholders’



 

stock

 

 

stock

 

 

value

 

 

earnings

 

 

equity



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at May 1, 2020

$

 -

 

$

42,265 

 

$

23,619,513 

 

$

35,214,021 

 

$

58,875,799 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock awards

 

 -

 

 

31 

 

 

15,198 

 

 

 -

 

 

15,229 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 -

 

 

 -

 

 

 -

 

 

(900,666)

 

 

(900,666)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 31, 2020

$

 -

 

$

42,296 

 

$

23,634,711 

 

$

34,313,355 

 

$

57,990,362 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 

 -

 

 

 -

 

 

626,858 

 

 

626,858 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at October 31, 2020

$

 -

 

$

42,296 

 

$

23,634,711 

 

$

34,940,213 

 

$

58,617,220 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock awards

 

 -

 

 

69 

 

 

17,643 

 

 

 -

 

 

17,712 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 

 -

 

 

 -

 

 

249,268 

 

 

249,268 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 31, 2021

$

 -

 

$

42,365 

 

$

23,652,354 

 

$

35,189,481 

 

$

58,884,200 









 

 

 

 

 

 

 

 

 

 

 

 

 

 



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



 

 

 

 

 

 

 

Capital in

 

 

 

 

 

Total



 

Preferred

 

 

Common

 

 

excess of par

 

 

Retained

 

 

stockholders’



 

stock

 

 

stock

 

 

value

 

 

earnings

 

 

equity



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at May 1, 2019

$

 -

 

$

42,146 

 

$

23,474,379 

 

$

34,770,924 

 

$

58,287,449 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative-effect adjustment for the adoption of Topic 842

 

 -

 

 

 -

 

 

 -

 

 

(5)

 

 

(5)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 

 -

 

 

 -

 

 

361,025 

 

 

361,025 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 31, 2019

$

 -

 

$

42,146 

 

$

23,474,379 

 

$

35,131,944 

 

$

58,648,469 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 

 -

 

 

 -

 

 

661,183 

 

 

661,183 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at October 31, 2019

$

 -

 

$

42,146 

 

$

23,474,379 

 

$

35,793,127 

 

$

59,309,652 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of stock-based
compensation

 

 -

 

 

 -

 

 

90,432 

 

 

 -

 

 

90,432 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock awards

 

 -

 

 

44 

 

 

20,514 

 

 

 -

 

 

20,558 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 -

 

 

 -

 

 

 -

 

 

(217,039)

 

 

(217,039)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 31, 2020

$

 -

 

$

42,190 

 

$

23,585,325 

 

$

35,576,088 

 

$

59,203,603 











7

 


 

 

SigmaTron International, Inc.

Condensed Consolidated Statements of Cash Flows





 

 

 

 

 



 

 

 

 

 



 

Nine

 

 

Nine



 

Months Ended

 

 

Months Ended



 

January 31,

 

 

January 31,



 

2021

 

 

2020



 

(Unaudited)

 

 

(Unaudited)



 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

Net (loss) income

$

(24,540)

 

$

805,169 



 

 

 

 

 

Adjustments to reconcile net (loss) income

 

 

 

 

 

to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization of property, machinery and equipment

 

3,807,281 

 

 

3,684,890 

Amortization of right-of-use operating lease assets

 

1,643,659 

 

 

1,650,057 

Stock-based compensation

 

 -

 

 

90,432 

Restricted stock expense

 

32,941 

 

 

20,558 

Deferred income tax (benefit) expense

 

(46,690)

 

 

 -

Amortization of intangible assets

 

265,812 

 

 

272,081 

Amortization of financing fees

 

115,987 

 

 

86,369 

Loss from disposal or sale of machinery and equipment

 

171,698 

 

 

19,782 

Changes in operating assets and liabilities

 

 

 

 

 

Accounts receivable

 

4,515,391 

 

 

5,834,858 

Inventories

 

1,128,931 

 

 

11,697,762 

Prepaid expenses and other assets

 

(2,570,066)

 

 

(966,414)

Refundable and prepaid income taxes

 

752,140 

 

 

(49,236)

Income taxes payable

 

(63,229)

 

 

52,290 

Trade accounts payable

 

(7,125,093)

 

 

(7,988,390)

Operating lease liabilities

 

(422,040)

 

 

592,062 

Accrued expenses and wages

 

1,739,518 

 

 

(1,148,827)



 

 

 

 

 

Net cash provided by operating activities

 

3,921,700 

 

 

14,653,443 



 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Purchases of machinery and equipment

 

(2,636,505)

 

 

(2,133,826)

Advances on other receivables

 

(4,006,500)

 

 

 -



 

 

 

 

 

Net cash used in investing activities

 

(6,643,005)

 

 

(2,133,826)



 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds under equipment notes

 

2,397,015 

 

 

 -

Payments of contingent consideration

 

 -

 

 

(57,537)

Payments under finance lease and sale leaseback agreements

 

(1,501,321)

 

 

(1,623,661)

Payments under equipment notes

 

(501,930)

 

 

(308,775)

Proceeds under building notes payable

 

6,500,000 

 

 

 -

Payments under building notes payable

 

(6,401,702)

 

 

(210,000)

Borrowings under revolving line of credit

 

300,857,651 

 

 

254,679,833 

Payments under revolving line of credit

 

(302,157,766)

 

 

(265,009,957)

Payments of debt financing costs

 

(505,408)

 

 

(50,184)



 

 

 

 

 

Net cash used in financing activities

 

(1,313,461)

 

 

(12,580,281)



 

 

 

 

 

8

 


 

 

Change in cash and cash equivalents

 

(4,034,766)

 

 

(60,664)

Cash and cash equivalents at beginning of period

 

6,779,445 

 

 

1,005,810 



 

 

 

 

 

Cash and cash equivalents at end of period

$

2,744,679 

 

$

945,146 



 

 

 

 

 

Supplementary disclosures of cash flow information

 

 

 

 

 

Cash paid for interest

$

910,598 

 

$

1,456,738 

Cash paid for income taxes

 

367,061 

 

 

588,915 

Purchase of machinery and equipment financed

 

 

 

 

 

 under finance leases

 

719,545 

 

 

671,446 

Financing of insurance policy

 

242,514 

 

 

381,345 



 

 

 

 

 



 





 

9

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note A - Description of the Business



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



Note B - Basis of Presentation



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



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



COVID-19 and CARES Act



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

10

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note B - Basis of Presentation - Continued



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



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



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



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





 

11

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note C - Inventories, net



The components of inventory consist of the following:









 

 

 

 

 



 

 

 

 

 



January 31,

 

April 30,



2021

 

2020



 

 

 

 

 

Finished products

$

20,427,311 

 

$

20,998,329 

Work-in-process

 

5,446,277 

 

 

5,215,280 

Raw materials

 

61,418,165 

 

 

62,316,122 



 

87,291,753 

 

 

88,529,731 

Less excess and obsolescence reserve

 

(1,241,315)

 

 

(1,350,362)



$

86,050,438 

 

$

87,179,369 

 



Note D - Earnings Per Share and Stockholders’ Equity



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







 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Nine Months Ended



January 31,

 

January 31,



2021

 

2020

 

2021

 

2020



 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

249,268 

 

$

(217,039)

 

$

(24,540)

 

$

805,169 

Weighted-average shares

 

 

 

 

 

 

 

 

 

 

 

Basic

 

4,257,508 

 

 

4,242,508 

 

 

4,255,334 

 

 

4,242,300 

Effect of dilutive stock options

 

52,782 

 

 

 -

 

 

 -

 

 

17,722 



 

 

 

 

 

 

 

 

 

 

 

Diluted

 

4,310,290 

 

 

4,242,508 

 

 

4,255,334 

 

 

4,260,022 



 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

$

0.06 

 

$

(0.05)

 

$

(0.01)

 

$

0.19 



 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share

$

0.06 

 

$

(0.05)

 

$

(0.01)

 

$

0.19 



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

12

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note E - Long-term Debt



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







 

 

 

 

 



 

January 31,

 

 

April 30,



 

2021

 

 

2020



 

 

 

 

 

Debt:

 

 

 

 

 

Notes Payable - Banks

$

31,914,633 

 

$

33,472,125 

Notes Payable - Buildings

 

7,020,859 

 

 

6,922,561 

Notes Payable - Equipment

 

3,195,363 

 

 

1,300,278 

Unamortized deferred financing costs

 

(364,504)

 

 

(279,740)

Total debt

 

41,766,351 

 

 

41,415,224 

Less current maturities

 

6,596,970 

 

 

2,878,160 

Long-term debt

$

35,169,381 

 

$

38,537,064 



 

 

 

 

 

Finance lease obligations

$

3,005,241 

 

$

3,787,017 

Less current maturities

 

1,651,807 

 

 

1,902,295 

Total finance lease obligations, less current portion

$

1,353,434 

 

$

1,884,722 



Notes Payable – Banks



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



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



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



13

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note E - Long-term Debt - Continued 



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



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



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

14

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note E - Long-term Debt - Continued 



Notes Payable – Buildings



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



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



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



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



15

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note E - Long-term Debt - Continued



Notes Payable – Equipment



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



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



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







 

 

 

 

 

 

 

 

 

 

 

 



 

Bank

 

Building

 

Equipment

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

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

2021

$

5,221,926 

 

$

83,096 

 

$

220,624 

 

$

5,525,646 

For the fiscal years ending April 30:

2022

 

1,108,327 

 

 

478,423 

 

 

877,428 

 

 

2,464,178 



2023

 

 -

 

 

481,085 

 

 

652,117 

 

 

1,133,202 



2024

 

 -

 

 

483,904 

 

 

592,628 

 

 

1,076,532 



2025

 

 -

 

 

486,890 

 

 

633,149 

 

 

1,120,039 



2026

 

25,219,876 

 

 

4,751,165 

 

 

219,417 

 

 

30,190,458 



Thereafter

 

 -

 

 

256,296 

 

 

 -

 

 

256,296 



 

$

31,550,129 

 

$

7,020,859 

 

$

3,195,363 

 

$

41,766,351 



 

 

 

 

 

 

 

 

 

 

 

 



Finance Lease and Sales Leaseback Obligations



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





Note F - Income Tax



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

16

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note F - Income Tax - Continued



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



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



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



Note G - Commitments and Contingencies



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



Note H - Significant Accounting Policies



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

17

 


 

SigmaTron International, Inc.

January 31, 2021

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note H - Significant Accounting Policies - Continued



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



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



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





 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

Three Months Ended

 

 

Nine Months Ended



 

 

 

January 31,

 

 

January 31,



Net trade sales by
end-market

 

 

2021

 

 

2020