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
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
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.
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, none 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.
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.
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.
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
|
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.
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. 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.
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.
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.
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.
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
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, no revenues were recognized from performance obligations satisfied or partially satisfied in previous periods and no amounts were allocated to performance obligations that remain unsatisfied or partially unsatisfied at 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.
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
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
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.
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
|
|
|
|
|
|
|
|
|
|
|
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
|
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.
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.
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
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%
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.
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.
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
|
|
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
|
|
|
|
|
|
|
|
|
|
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
|
|
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
|
|
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 not 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.
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, 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 at April 30, 2021. 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 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.
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.
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%
|
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
|
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 not 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 no 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.
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 no non-vested stock options.
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.
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.
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.
Sigmatron (NASDAQ:SGMA)
Historical Stock Chart
From Apr 2024 to May 2024
Sigmatron (NASDAQ:SGMA)
Historical Stock Chart
From May 2023 to May 2024