10-Q 1 sgma-20200131x10q.htm 10-Q 20200131 Q3 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION



Washington, D.C. 20549



_________________





Form 10-Q



__________________



(Mark One)

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

      EXCHANGE ACT OF 1934



For the quarterly period ended January 31, 2020



OR



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

     EXCHANGE ACT OF 1934



For the transition period from    to



Commission File Number 0-23248



SIGMATRON INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

_________________





 

Delaware

36-3918470

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)



 

2201 Landmeier Road

 

Elk Grove Village,  Illinois

60007

(Address of principal executive offices)

(Zip Code)



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





 

 

Title of each class

Common Stock $0.01 par value per share

Trading Symbol

SGMA

Name of each exchange on which registered

The NASDAQ Capital Market



__________________



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


 

SigmaTron International, Inc.

January 31, 2020

 

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



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



Large Accelerated Filer     Accelerated Filer 



Non-accelerated Filer            Smaller Reporting Company 



Emerging Growth Company 



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



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



Indicate the number of shares outstanding of the registrant’s common stock, $0.01 par value, as of March 9,  20204,242,508







 

2

 


 

 



SigmaTron International, Inc.



Index





 

 

 

 



 

 

 

 

PART 1.

FINANCIAL INFORMATION:         

 

Page No.



Item 1.

Condensed Consolidated Financial Statements

 

 



 

Condensed Consolidated Balance Sheets – January 31, 2020 (Unaudited) and April 30, 2019

 



 

Condensed Consolidated Statements of Operations – (Unaudited)

 

 



 

Three and Nine Months Ended January 31, 2020 and 2019

 



 

Condensed Consolidated Statements of Changes in Stockholders’

 

 



 

Equity – (Unaudited) Three and Nine Months Ended January 31, 2020 and 2019

 



 

Condensed Consolidated Statements of Cash Flows – (Unaudited)

 

 



 

Nine Months Ended January 31, 2020 and 2019

 



 

Notes to Condensed Consolidated Financial Statements – (Unaudited)  

 

10 



Item 2.

Management’s Discussion and Analysis of Financial Condition and

 

 



 

Results of Operations

 

23 



Item 3.

Quantitative and Qualitative Disclosures About Market Risks

 

31 



Item 4.

Controls and Procedures

 

31 



 

 

 

 

PART II.

OTHER INFORMATION:

 

 



Item 1.

Legal Proceedings

 

31 



Item 1A.

Risk Factors

 

32 



Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

32 



Item 3.

Defaults Upon Senior Securities

 

32 



Item 4.

Mine Safety Disclosures

 

32 



Item 5.

Other Information

 

32 



Item 6.

Exhibits

 

33 



 

Signatures

 

34 



 

 

 

 

 



 

3

 


 

 



SigmaTron International, Inc.

Condensed Consolidated Balance Sheets





 

 

 

 

 



 

 

 

 

 



 

January 31,

 

 

 



 

2020

 

 

April 30,



 

(Unaudited)

 

 

2019



 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

945,146 

 

$

1,005,810 



 

 

 

 

 

Accounts receivable, less allowance for doubtful accounts of

 

 

 

 

 

$631,283 at January 31, 2020 and April 30, 2019

 

25,606,523 

 

 

31,441,381 

Inventories, net

 

73,881,813 

 

 

85,579,575 

Prepaid expenses and other assets

 

2,581,267 

 

 

2,436,894 

Refundable and prepaid income taxes

 

1,388,975 

 

 

1,339,739 

Other receivables

 

558,882 

 

 

1,741,890 



 

 

 

 

 

Total current assets

 

104,962,606 

 

 

123,545,289 



 

 

 

 

 

Property, machinery and equipment, net

 

32,333,369 

 

 

33,232,769 



 

 

 

 

 



 

 

 

 

 

Intangible assets, net

 

2,441,279 

 

 

2,713,360 

Deferred income taxes

 

384,022 

 

 

384,022 

Other assets

 

8,335,425 

 

 

1,589,325 

   

 

 

 

 

 

Total other long-term assets

 

11,160,726 

 

 

4,686,707 



 

 

 

 

 

Total assets

$

148,456,701 

 

$

161,464,765 



 

 

 

 

 

Liabilities and stockholders' equity:

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Trade accounts payable

$

37,638,624 

 

$

45,627,014 

Accrued wages

 

4,202,678 

 

 

4,680,399 

Accrued expenses

 

2,492,097 

 

 

2,410,311 

Income taxes payable

 

103,180 

 

 

60,921 

Current portion of long-term debt

 

691,701 

 

 

691,701 

Current portion of finance lease obligations

 

1,863,958 

 

 

1,939,374 

Current portion of operating lease obligations

 

2,239,899 

 

 

 -

Contingent consideration

 

 -

 

 

57,537 

Current portion of deferred rent

 

 -

 

 

139,509 



 

 

 

 

 

Total current liabilities

 

49,232,137 

 

 

55,606,766 



 

 

 

 

 

Long-term debt, less current portion

 

31,898,240 

 

 

42,710,954 

Income taxes payable

 

452,619 

 

 

500,263 

Finance lease obligations, less current portion

 

1,985,985 

 

 

2,862,784 

Operating lease obligations, less current portion

 

4,680,499 

 

 

 -

Deferred rent, less current portion

 

 -

 

 

179,059 

Other long-term liabilities

 

784,360 

 

 

1,155,907 

Deferred income taxes

 

219,258 

 

 

161,583 



 

 

 

 

 

Total long-term liabilities

 

40,020,961 

 

 

47,570,550 



 

 

 

 

 

Total liabilities

 

89,253,098 

 

 

103,177,316 



 

 

 

 

 

4

 


 

 

Commitments and contingencies

 

 

 

 

 



 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

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

 

 

 

 

 

authorized, none issued or outstanding

 

 -

 

 

 -

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

 

 

 

 

 

authorized, 4,242,508 and 4,240,008 shares issued and

 

 

 

 

 

outstanding at January 31, 2020 and April 30, 2019, respectively

 

42,190 

 

 

42,146 

Capital in excess of par value

 

23,585,325 

 

 

23,474,379 

Retained earnings

 

35,576,088 

 

 

34,770,924 



 

 

 

 

 

Total stockholders' equity

 

59,203,603 

 

 

58,287,449 



 

 

 

 

 

Total liabilities and stockholders' equity

$

148,456,701 

 

$

161,464,765 



 

 

 

 

 

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



























5

 


 

 

SigmaTron International, Inc.

Condensed Consolidated Statements of Operations









 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

Three Months

 

 

Three Months

 

 

Nine Months

 

 

Nine Months



 

Ended

 

 

Ended

 

 

Ended

 

 

Ended

 

 

January 31,

 

 

January 31,

 

 

January 31,

 

 

January 31,



 

2020

 

 

2019

 

 

2020

 

 

2019



 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)



 

 

 

 

 

 

 

 

 

 

 

Net sales

$

67,407,268 

 

$

68,852,050 

 

$

216,272,561 

 

$

217,267,198 

Cost of products sold

 

61,885,491 

 

 

63,322,930 

 

 

196,660,966 

 

 

199,254,937 



 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

5,521,777 

 

 

5,529,120 

 

 

19,611,595 

 

 

18,012,261 



 

 

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

5,469,654 

 

 

5,539,831 

 

 

16,997,268 

 

 

17,291,102 



 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

52,123 

 

 

(10,711)

 

 

2,614,327 

 

 

721,159 



 

 

 

 

 

 

 

 

 

 

 

Other income

 

(29,944)

 

 

(36,638)

 

 

(107,169)

 

 

(139,554)

Interest expense

 

401,837 

 

 

627,060 

 

 

1,455,837 

 

 

1,783,408 

(Loss) income before income tax expense

 

(319,770)

 

 

(601,133)

 

 

1,265,659 

 

 

(922,695)



 

 

 

 

 

 

 

 

 

 

 

Income tax (benefit) expense

 

(102,731)

 

 

(5,607)

 

 

460,490 

 

 

923,379 



 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

$

(217,039)

 

$

(595,526)

 

$

805,169 

 

$

(1,846,074)



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings per share – basic

$

(0.05)

 

$

(0.14)

 

$

0.19 

 

$

(0.44)



 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings per share – diluted

$

(0.05)

 

$

(0.14)

 

$

0.19 

 

$

(0.44)

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

 

 

 

 

 

 

 

 

 

 

Basic

 

4,242,508 

 

 

4,230,008 

 

 

4,242,300 

 

 

4,227,891 



 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

4,242,508 

 

 

4,230,008 

 

 

4,260,022 

 

 

4,227,891 



 

 

 

 

 

 

 

 

 

 

 

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













6

 


 

 

SigmaTron International, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity







 

 

 

 

 

 

 

 

 

 

 

 

 

 



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



 

 

 

 

 

 

 

Capital in

 

 

 

 

 

Total



 

Preferred

 

 

Common

 

 

excess of par

 

 

Retained

 

 

stockholders’



 

stock

 

 

stock

 

 

value

 

 

earnings

 

 

equity



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at May 1, 2019

$

 -

 

$

42,146 

 

$

23,474,379 

 

$

34,770,924 

 

$

58,287,449 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative-effect adjustment for the adoption of Topic 842

 

 -

 

 

 -

 

 

 -

 

 

(5)

 

 

(5)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 

 -

 

 

 -

 

 

361,025 

 

 

361,025 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 31, 2019

$

 -

 

$

42,146 

 

$

23,474,379 

 

$

35,131,944 

 

$

58,648,469 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 

 -

 

 

 -

 

 

661,183 

 

 

661,183 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at October 31, 2019

$

 -

 

$

42,146 

 

$

23,474,379 

 

$

35,793,127 

 

$

59,309,652 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of stock-based
compensation

 

 -

 

 

 -

 

 

90,432 

 

 

 -

 

 

90,432 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock awards

 

 -

 

 

44 

 

 

20,514 

 

 

 -

 

 

20,558 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 -

 

 

 -

 

 

 -

 

 

(217,039)

 

 

(217,039)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 31, 2020

$

 -

 

$

42,190 

 

$

23,585,325 

 

$

35,576,088 

 

$

59,203,603 









 

 

 

 

 

 

 

 

 

 

 

 

 

 



For the nine months ended January 31, 2019 (Unaudited)



 

 

 

 

 

 

 

Capital in

 

 

 

 

 

Total



 

Preferred

 

 

Common

 

 

excess of par

 

 

Retained

 

 

stockholders’



 

stock

 

 

stock

 

 

value

 

 

earnings

 

 

equity



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at May 1, 2018

$

 -

 

$

41,896 

 

$

23,132,017 

 

$

35,636,038 

 

$

58,809,951 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 -

 

 

 -

 

 

 -

 

 

(526,607)

 

 

(526,607)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 31, 2018

$

 -

 

$

41,896 

 

$

23,132,017 

 

$

35,109,431 

 

$

58,283,344 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock awards

 

 -

 

 

146 

 

 

116,154 

 

 

 -

 

 

116,300 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 -

 

 

 -

 

 

 -

 

 

(723,941)

 

 

(723,941)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at October 31, 2018

$

 -

 

$

42,042 

 

$

23,248,171 

 

$

34,385,490 

 

$

57,675,703 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of stock-based
compensation

 

 -

 

 

 -

 

 

166,612 

 

 

 -

 

 

166,612 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock awards

 

 -

 

 

63 

 

 

36,071 

 

 

 -

 

 

36,134 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 -

 

 

 -

 

 

 -

 

 

(595,526)

 

 

(595,526)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 31, 2019

$

 -

 

$

42,105 

 

$

23,450,854 

 

$

33,789,964 

 

$

57,282,923 











7

 


 

 

SigmaTron International, Inc.

Condensed Consolidated Statements of Cash Flows







 

 

 

 

 



 

 

 

 

 



 

Nine

 

 

Nine



 

Months Ended

 

 

Months Ended



 

January 31,

 

 

January 31,



 

2020

 

 

2019 (As Revised)



 

(Unaudited)

 

 

(Unaudited)



 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

Net income (loss)

$

805,169 

 

$

(1,846,074)



 

 

 

 

 

Adjustments to reconcile net income (loss)

 

 

 

 

 

to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

3,684,890 

 

 

3,760,611 

Amortization of right-of-use operating lease assets

 

1,650,057 

 

 

 -

Stock-based compensation

 

90,432 

 

 

166,612 

Restricted stock expense

 

20,558 

 

 

152,434 

Deferred income tax expense

 

 -

 

 

768,936 

Amortization of intangible assets

 

272,081 

 

 

281,185 

Amortization of financing fees

 

86,369 

 

 

65,419 

Fair value adjustment of contingent consideration

 

 -

 

 

17,104 

Loss from disposal or sale of machinery and equipment

 

19,782 

 

 

5,064 



 

 

 

 

 

Changes in operating assets and liabilities

 

 

 

 

 

Accounts receivable

 

5,834,858 

 

 

(2,918,694)

Inventories

 

11,697,762 

 

 

(8,487,234)

Prepaid expenses and other assets

 

(966,414)

 

 

(233,905)

Refundable and prepaid income taxes

 

(49,236)

 

 

(226,541)

Income taxes payable

 

52,290 

 

 

2,263 

Trade accounts payable

 

(7,988,390)

 

 

4,413,793 

Deferred rent

 

 -

 

 

(180,291)

Operating lease liabilities

 

592,062 

 

 

 -

Accrued expenses and wages

 

(1,148,827)

 

 

(619,335)



 

 

 

 

 

Net cash provided by (used in) operating activities

 

14,653,443 

 

 

(4,878,653)



 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Purchases of machinery and equipment

 

(2,133,826)

 

 

(1,605,256)



 

 

 

 

 

Net cash used in investing activities

 

(2,133,826)

 

 

(1,605,256)



 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds under equipment notes

 

 -

 

 

182,557 

Payments of contingent consideration

 

(57,537)

 

 

(156,881)

Payments under finance lease and sale leaseback agreements

 

(1,623,661)

 

 

(1,783,543)

Payments under equipment notes

 

(308,775)

 

 

(299,648)

Payments under building notes payable

 

(210,000)

 

 

(210,000)

Borrowings under revolving line of credit

 

254,679,833 

 

 

257,107,295 

Payments under revolving line of credit

 

(265,009,957)

 

 

(248,000,171)

Payments of debt financing costs

 

(50,184)

 

 

(51,198)



 

 

 

 

 

Net cash (used in) provided by financing activities

 

(12,580,281)

 

 

6,788,411 



 

 

 

 

 

8

 


 

 

Change in cash and cash equivalents

 

(60,664)

 

 

304,502 

Cash and cash equivalents at beginning of period

 

1,005,810 

 

 

1,721,599 



 

 

 

 

 

Cash and cash equivalents at end of period

$

945,146 

 

$

2,026,101 



 

 

 

 

 

Supplementary disclosures of cash flow information

 

 

 

 

 

Cash paid for interest

$

1,456,738 

 

$

1,666,246 

Cash paid for income taxes

 

588,915 

 

 

500,148 

Purchase of machinery and equipment financed

 

 

 

 

 

 under finance leases

 

671,446 

 

 

617,470 

Financing of insurance policy

 

381,345 

 

 

309,281 



 

 

 

 

 





 





 

9

 


 

SigmaTron International, Inc.

January 31, 2020

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note A - Description of the Business



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



Note B - Basis of Presentation



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



Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the three and nine month period ended January 31, 2020 is not necessarily indicative of the results that may be expected for the year ending April 30, 2020.  The condensed consolidated balance sheet at April 30, 2019, was derived from audited annual financial statements but does not contain all of the footnotes disclosures from the annual financial statements.  For further information, refer to the  consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2019

 

10

 


 

SigmaTron International, Inc.

January 31, 2020

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note C - Inventories, net



The components of inventory consist of the following:









 

 

 

 

 



 

 

 

 

 



January 31,

 

April 30,



2020

 

2019



 

 

 

 

 

Finished products

$

22,089,649 

 

$

20,682,669 

Work-in-process

 

4,917,927 

 

 

3,037,810 

Raw materials

 

48,003,099 

 

 

63,203,068 



 

75,010,675 

 

 

86,923,547 

Less excess and obsolescence reserve

 

(1,128,862)

 

 

(1,343,972)



$

73,881,813 

 

$

85,579,575 

 



Note D - Earnings Per Share and Stockholders’ Equity



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







 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Nine Months Ended



January 31,

 

January 31,



2020

 

2019

 

2020

 

2019



 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

$

(217,039)

 

$

(595,526)

 

$

805,169 

 

$

(1,846,074)

Weighted-average shares

 

 

 

 

 

 

 

 

 

 

 

Basic

 

4,242,508 

 

 

4,230,008 

 

 

4,242,300 

 

 

4,227,891 

Effect of dilutive stock options

 

 -

 

 

 -

 

 

17,722 

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

Diluted

 

4,242,508 

 

 

4,230,008 

 

 

4,260,022 

 

 

4,227,891 



 

 

 

 

 

 

 

 

 

 

 

Basic (loss) earnings per share

$

(0.05)

 

$

(0.14)

 

$

0.19 

 

$

(0.44)



 

 

 

 

 

 

 

 

 

 

 

Diluted (loss) earnings per share

$

(0.05)

 

$

(0.14)

 

$

0.19 

 

$

(0.44)



Options to purchase 513,232 and 465,232 shares of common stock were outstanding at January 31, 2020 and 2019, respectively.  There were 48,000 and 117,914 options granted during the nine month periods ended January 31, 2020 and 2019The Company recognized $90,432 and $116,612 in stock option expense for both the three and nine month periods ended January 31, 2020 and 2019, respectively.  There was no balance of unrecognized compensation expense related to the Company’s stock option plans at January 31, 2020 and 2019.  For the three month periods ended January 31, 2020 and 2019,  151,282 and 332,312 shares, respectively, were not included in the diluted weighted average common shares outstanding calculation as they were anti-dilutive.    For the nine month periods ended January 31, 2020 and 2019,  214,177 and 64,717 shares, respectively, were not included in the diluted weighted average common shares outstanding calculation as they were anti-dilutive. 

11

 


 

SigmaTron International, Inc.

January 31, 2020

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note D - Earnings Per Share and Stockholders’ Equity - Continued



On December 9, 2019, the Company issued 15,000 shares of restricted stock pursuant to the 2018 Non-Employee Director Restricted Stock Plan, which will fully vest on June 9, 2020.  The Company recognized $20,558 in compensation expense for the three and  nine month periods ended January 31, 2020.  The balance of unrecognized compensation expense related to the Company’s restricted stock award was $49,492 at January 31, 2020.



Note E - Long-term Debt



Debt and capital lease obligations consisted of the following at January 31, 2020 and April 30, 2019:







 

 

 

 

 



 

January 31,

 

 

April 30,



 

2020

 

 

2019



 

 

 

 

 

Debt:

 

 

 

 

 

Notes Payable - Banks

$

25,397,088 

 

$

35,727,212 

Notes Payable - Buildings

 

6,440,000 

 

 

6,650,000 

Notes Payable - Equipment

 

1,019,978 

 

 

1,328,753 

Unamortized deferred financing costs

 

(267,125)

 

 

(303,310)

Total debt

 

32,589,941 

 

 

43,402,655 

Less current maturities

 

691,701 

 

 

691,701 

Long-term debt

$

31,898,240 

 

$

42,710,954 



 

 

 

 

 

Finance lease and sale leaseback obligations

$

3,849,943 

 

$

4,802,158 

Less current maturities

 

1,863,958 

 

 

1,939,374 

Total finance lease obligations, less current portion

$

1,985,985 

 

$

2,862,784 



Notes Payable – Banks



On March 31, 2017, the Company entered into a $35,000,000 senior secured credit facility with U.S. Bank, which expires on March 31, 2022.  The credit facility is collateralized by substantially all of the Company’s domestically located assets. The facility allows the Company to choose among interest rates at which it may borrow funds:  the bank fixed rate of five percent or LIBOR plus one and one half percent (effectively 3.18% at January 31, 2020).  Interest is due monthly. 



On July 16, 2018, the Company and U.S. Bank entered into an amendment of the revolving line of credit under the senior secured credit facility.  The amended revolving credit facility allows 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 90% of the Company’s Revolving Line Cap, except that the 90% limitation will expire if (i) the Company’s actual revolving loans for 90 consecutive days after the amendment’s effective date are less than 80% of the Company’s Borrowing Base and (ii) the Company maintains a Fixed Charge Coverage Ratio of 1.2 to 1.0 for four consecutive quarters.  The



12

 


 

SigmaTron International, Inc.

January 31, 2020

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note E - Long-term Debt - Continued 



amendment also imposes sublimits on categories of inventory of $10,500,000 on raw materials, $10,000,000 on finished goods and $28,000,000 on all eligible inventory. 



On December 13, 2018, the Company and U.S. Bank entered into an amendment of the revolving credit facility.  The amendment provides an exception to otherwise ineligible foreign receivables for up to $3,000,000 of receivables paid by certain enumerated account debtors outside of the U.S. and Canada.



On August 26, 2019, the Company and U.S. Bank entered into an amendment of the revolving credit facility.  The amendment allows the Company to borrow up to the lesser of (i) the Revolving Line Cap less reserves or (ii) the Borrowing Base, but no more than 95% of the Company’s Revolving Line Cap until February 26, 2020 and 90% on and after February 26, 2020. 



As of January 31, 2020, there was $25,397,088 outstanding and $11,849,825 of unused availability under the U.S. Bank facility compared to an outstanding balance of $35,727,212 and $6,645,730 of unused availability at April 30, 2019.  Deferred financing costs of $3,317 and $50,184 were capitalized during the three and nine month periods ended January  31, 2020,  respectively, which are amortized over the term of the agreement.  As of January  31, 2020 and April 30, 2019, the unamortized amount offset against outstanding debt was $197,402 and $209,162, respectively.    



On July 16, 2018, the amended revolving credit facility allows 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 90% of the Company’s Revolving Line Cap, except that the 90% limitation will expire if (i) the Company’s actual revolving loans for 90 consecutive days after the amendment’s effective date are less than 80% of the Company’s Borrowing Base and (ii) the Company maintains a Fixed Charge Coverage Ratio of 1.2 to 1.0 for four consecutive quarters.  On February 27, 2020 the 90% limitation expired due to the Company loans being less than 80% of the Company’s Borrowing Base and maintaining a Fixed Charge Coverage Ratio of 1.2 to 1.0 for four consecutive quarters. 



On March 15, 2019, the Company’s wholly-owned subsidiary, SigmaTron Electronic Technology Co., Ltd., entered into a credit facility with China Construction Bank.  Under the agreement SigmaTron Electronic Technology Co., Ltd. can borrow up to 5,000,000 Renminbi, approximately $726,000 as of January  31, 2020, and the facility is collateralized by Wujiang SigmaTron Electronic Co., Ltd.’s manufacturing building.  Interest is payable monthly and the facility bears a fixed interest rate of 6.09%.  The term of the facility extends to March 14, 2024.  There was no outstanding balance under the facility at January  31, 2020 and April 30, 2019.



At January 31, 2020, the Company is in compliance with its financial covenant and other restrictive covenants and anticipates that its credit facilities, expected future cash flows from operations and leasing resources are adequate to meet its working capital requirements, and fund capital expenditures for the next 12 months.  In addition, if customers delay orders, future payments are not made timely, the Company desires to expand its operations, its business grows more rapidly than expected, or the current economic climate deteriorates, additional financing resources may be necessary. There is no assurance that the Company will be able to obtain equity or debt financing at acceptable terms, or at all, in the future.  There is no assurance that the Company will be able to retain or renew its credit agreements in the future, or that any retention or renewal will be on the same terms as currently exist.

13

 


 

SigmaTron International, Inc.

January 31, 2020

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note E - Long-term Debt - Continued 



Notes Payable – Buildings



The Company entered into a mortgage agreement on December 21, 2017, in the amount of $5,200,000, with U.S. Bank to refinance the property that serves as the Company’s corporate headquarters and its Illinois manufacturing facility in Elk Grove Village, Illinois.  The note requires the Company to pay monthly principal payments in the amount of $17,333, bears interest at a fixed rate of 4.0% per year and is payable over a fifty-one month period.  Deferred financing costs of $74,066 were capitalized in fiscal year 2018 which are amortized over the term of the agreement.  As of  January 31, 2020 and April 30, 2019, the unamortized amount included as a reduction to long-term debt was $37,033 and $50,142, respectivelyA final payment of approximately $4,347,778 is due on or before March 31, 2022The outstanding balance was $4,784,000 and $4,940,000 at January, 31 2020 and April 30, 2019, respectively.



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 requires the Company to pay monthly principal payments in the amount of $6,000, bears interest at a fixed rate of 4.0% per year and is payable over a  fifty-one month period.  Deferred financing costs of $65,381 were capitalized in the fiscal year 2018 which are amortized over the term of the agreement.  As of January 31, 2020 and April 30, 2019, the unamortized amount included as a reduction to long-term debt was $32,690 and $44,006, respectivelyA final payment of approximately $1,505,000 is due on or before March 31, 2022The outstanding balance was $1,656,000 and $1,710,000 at January, 31 2020 and April 30, 2019, respectively. 



Notes Payable – Equipment



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

14

 


 

SigmaTron International, Inc.

January 31, 2020

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note E - Long-term Debt - Continued 



Annual maturities of the Company’s debt, net of deferred financing fees for the remaining periods as of January  31, 2020, are as follows:







 

 

 

 

 

 

 

 

 

 

 

 



 

Bank

 

Building

 

Equipment

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

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

2020

$

 -

 

$

70,000 

 

$

102,926 

 

$

172,926 

For the fiscal years ending April 30:

2021

 

 -

 

 

280,000 

 

 

411,701 

 

 

691,701 



2022

 

25,129,963 

 

 

6,090,000 

 

 

381,852 

 

 

31,601,815 



2023

 

 -

 

 

 -

 

 

114,372 

 

 

114,372 



2024

 

 -

 

 

 -

 

 

9,127 

 

 

9,127 



 

$

25,129,963 

 

$

6,440,000 

 

$

1,019,978 

 

$

32,589,941 



 

 

 

 

 

 

 

 

 

 

 

 



Finance Lease and Sales Leaseback Obligations



The Company enters into various finance lease and sales leaseback agreements.  The terms of the lease agreements mature through May 2023, with monthly installment payments ranging from $1,455 to $40,173 and a fixed interest rate ranging from 3.75% to 9.40%.  





Note F - Income Tax



The income tax benefit was $102,731 for the three month period ended January 31, 2020 compared to an income tax benefit of $5,607 for the same period in the prior fiscal year.  The Company’s effective tax rate was 32.13% and 0.93% for the three month period ended January 31, 2020 and 2019, respectively.  The income tax expense was $460,490 for the nine month period ended January 31, 2020 compared to an income tax expense of $923,379 for the same period in the prior fiscal year.  The Company’s effective tax rate was 36.40% and (100.10)% for the nine month period ended January 31, 2020 and 2019, respectively.  The increase in income tax benefit and effective tax rate for the three month period ended January 31, 2020 compared to the same period in the previous year is due primarily to greater losses recognized in the current period that are expected to be benefitted as compared to the previous year.  The decrease in income tax expense and change in effective tax rate for the nine month period ended January 31, 2020 compared to the same period in the previous year is due primarily to the valuation allowance established on certain deferred tax assets related to foreign net operating loss carryforwards in the previous year. 



15

 


 

SigmaTron International, Inc.

January 31, 2020

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note G - Commitments and Contingencies



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



Note H - Critical Accounting Policies



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



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







 

 

 

 

 

 

 

 

 



 

 

Three Months Ended

 

Nine Months Ended



 

 

January 31,

 

January 31,



Net trade sales by
end-market

 

2020

 

2019

 

2020

 

2019



Industrial Electronics

 

38,609,780 

 

39,511,142 

 

122,856,692 

 

119,229,968 



Consumer Electronics

 

25,632,036 

 

25,997,004 

 

81,106,780 

 

86,688,800 



Medical / Life Sciences

 

3,165,452 

 

3,343,904 

 

12,309,089 

 

11,348,430 



Total Net Trade Sales

 

67,407,268 

 

68,852,050 

 

216,272,561 

 

217,267,198 



 

 

 

 

 

 

 

 

 



During the three and nine month periods ending January 31, 2020,  no revenues were recognized from performance obligations satisfied or partially satisfied in previous periods and no amounts were allocated to performance obligations that remain unsatisfied or partially unsatisfied at January 31, 2020.  The Company is electing not to disclose the value of the remaining unsatisfied performance obligation with a duration of one year or less as permitted by the practical expedient in ASU 2014-09, “Revenue from Contracts with Customers.”  The Company had no material remaining unsatisfied performance obligations as of January 31, 2020, with an expected duration of greater than one year.