SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2019 and 2018
NOTE A - DESCRIP
TION 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, 2019, the Company provided these manufacturing services through an international network of facilities located in the United States, Mexico, China, Vietnam and Taiwan. Approximately 13.0% and 14.0% of the total non-current consolidated assets of the Company are located in foreign jurisdictions outside the United States as of April 30, 2019 and 2018, respectively.
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, 2019, resulted in net foreign currency transaction losses of approximately
$433,742
compared to net foreign currency gains of
$125,000
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, reserves for inventory, lower of cost or net realizable value 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.
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.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
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
expense
s
on the Company’s income statement and were not material for the fiscal year ended April 30, 2019 or April 30, 2018. 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, 2019 and April 30, 2018, the Company sold without recourse trade receivables of approximately
$77,000,000
and
$78,000,000
, 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. 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. For convenience, the Company records these inventory reserves against the inventory cost through a contra asset rather than through a new cost basis. 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.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
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 effective interest method over the term of the related debt. Deferred financing fees of
$303,310
and
$319,332
net of accumulated amortization of
$166,689
and
$75,585
, respectively, as of April 30, 2019 and April 30, 2018, respectively, are deducted from long term debt on the Company’s balance sheet.
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.
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.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Income Taxes - Continued
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
53,309
and
109,402
anti-dilutive common stock equivalents at April 30, 2019 and April 30, 2018, respectively, which have been excluded from the calculation of diluted earnings per share.
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
April 30,
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Net loss
|
$
|
(865,114)
|
|
$
|
(3,241,870)
|
Weighted-average shares
|
|
|
|
|
|
Basic
|
|
4,228,592
|
|
|
4,205,483
|
Effect of dilutive stock options
|
|
-
|
|
|
-
|
|
|
|
|
|
|
Diluted
|
|
4,228,592
|
|
|
4,205,483
|
|
|
|
|
|
|
Basic loss per share
|
$
|
(0.20)
|
|
$
|
(0.77)
|
|
|
|
|
|
|
Diluted loss per share
|
$
|
(0.20)
|
|
$
|
(0.77)
|
Revenue Recognition
The Company recognizes revenue when control of the promised goods or services are transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company’s primary performance obligation to its customers is the production of finished goods electronic assembly products pursuant to purchase orders. The Company has concluded that control of the products it sells and transfers to its customers and an enforceable right to receive payment is customarily established at the point in time when the finished goods are shipped to its customers, or in some cases delivered pursuant to the specified shipping terms of each customer arrangement. With respect to consignment arrangements, control transfers and revenue is recognized at the point in time when the goods are shipped to the customer from the consignment location or when delivered to the customer (pursuant to agreed upon shipping terms). In those limited instances where finished goods delivered to the customer location are stored in a segregated area which are not controlled by the customer (title transfer, etc.) until they are pulled from the segregated area and consumed by the Company’s customer,
revenue is recognized upon consumption. For tooling services, the Company’s performance obligation is satisfied at the point in time when the customer takes possession of dies or molds. For engineering, design, and testing services, the Company’s performance obligations are satisfied over time as the respective services are rendered as its customers
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Revenue Recognition - Continued
simultaneously derive value from the Company’s performance. From the time that a customer purchase order is received and contract is established, the Company’s performance obligations are typically fulfilled within a few weeks. The Company does not have any performance obligations that require more than one year to fulfill.
Each customer purchase order sets forth the transaction price for the products and services purchased under that arrangement. The Company evaluates the credit worthiness of its customers and exercises judgment to recognize revenue based upon the amount the Company expects to be paid for each sales transaction it enters into with its customers. Some customer arrangements include variable consideration, such as volume rebates, some of which depend upon the Company’s customers meeting specified performance criteria, such as a purchasing level over a period of time. The Company exercises judgment to estimate the most likely amount of variable consideration at each reporting date.
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 the twelve months of fiscal year 2019, 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, 2019. 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, 2019, with an expected duration of greater than one year.
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 trade sales by end-market
|
|
2019
|
|
|
2018
|
|
|
Industrial Electronics
|
$
|
160,435,562
|
|
$
|
152,166,932
|
|
|
Consumer Electronics
|
|
115,099,199
|
|
|
112,480,023
|
|
|
Medical / Life Sciences
|
|
15,019,190
|
|
|
13,484,754
|
|
|
Total Net Trade Sales
|
$
|
290,553,951
|
|
$
|
278,131,709
|
|
|
|
|
|
|
|
|
|
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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 2019 or 2018.
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, 2019 and April 30, 2018, 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.
The Company measured the contingent consideration included in the fiscal 2013 Spitfire Control, Inc. acquisition under the fair value standard (primarily using level 3 measurement inputs). The contingent consideration was measured and reported at fair value at each period end. The Company currently does not have any other non-financial assets and non-financial liabilities that are required to be measured at fair value on a recurring basis.
The Company entered into an Asset Purchase Agreement with Wagz, Inc. (“Wagz”) whereby the Company sold assets to Wagz for $350,000 cash, 600,000 shares of Wagz Class C 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. The fair value of the non-cash consideration at April 30, 2019, is $600,000 for the 600,000 shares of Wagz common stock.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Goodwill
Goodwill represents the purchase price in excess of the fair value of assets acquired in business combinations. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, “Intangibles – Goodwill and Other,” requires the Company to assess goodwill and other indefinite-lived intangible assets for impairment at least annually in the absence of an indicator of possible impairment and immediately upon an indicator of possible impairment. The Company is permitted the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the fair value of any reporting unit is less than its corresponding carrying value. If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that the fair value of any reporting unit is less than its corresponding carrying value, then the Company is not required to take further action. However, if the Company concludes otherwise, then it is required to perform a quantitative impairment test, including computing the fair value of the reporting unit and comparing that value to its carrying value (the “step 2” requirement). If the fair value is less than its carrying value, a second step of the test is required to determine if recorded goodwill is impaired. The Company also has the option to bypass the qualitative assessment for goodwill in any period and proceed directly to performing the
quantitative impairment test. The Company will be able to resume performing the qualitative assessment in any subsequent period.
For fiscal year 2018, the Company early adopted the guidance contained in Accounting Standards Update (ASU) No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which removes the step 2 requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. Beginning with the Company’s February 1, 2018 goodwill impairment testing, goodwill impairment is the amount by which the Company’s single reporting unit carrying value exceeds its fair value, not to exceed the recorded amount of goodwill. To estimate the fair value of the Company’s equity, the Company used both a market approach based on the guideline companies’ method, and an income approach based on a discounted cash flow analysis. The value indicated by both methods was weighted to arrive at a concluded value. The Company’s fiscal year 2018 assessment concluded that the carrying value of the Company’s equity was greater than the fair value of the Company by an amount greater than the recorded amount of the goodwill and the Company recognized a full goodwill impairment charge of $3,222,899.
Intangible Assets
Intangible assets are comprised of finite life intangible assets including patents, trade names, backlog, non-compete agreements, and customer relationships. Finite life intangible assets are amortized on a straight line basis over their estimated useful lives of
5
years for patents,
20
years for trade names,
1
year for backlog and
7
years for non-compete agreements except for customer relationships which are amortized on an accelerated basis over their estimated useful life of
15
years.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including amortizable intangible assets, for impairment in accordance with FASB AC 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 for idle and underutilized equipment, and reviews business plans for possible impairment. In the fourth quarter of fiscal year 2018, the Company determined that the carrying value of the trade name intangible asset was not recoverable and recorded a fourth quarter charge of
$690,107
for the entire carrying amount. The Company’s analysis for fiscal year 2019 did not indicate that any of its other long-lived assets were impaired.
Settlement of Receivable, Related Sale of Assets and Investments
As more fully described in Note E – Related Parties, the Company has recorded an investment in 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. The balance at fiscal year ended April 30, 2018 was
$600,000
which is recorded under other assets. At April 30, 2019, the Company continued to recognize the fair value of the Wagz common stock at $600,000; it reduced the fair market of the Wagz inventory by
$109,046
and it reserved as bad debt the Wagz total account receivable of
$331,283
.
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 and directors. 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.
Reclassifications
Certain reclassifications have been made to the previously reported 2018 financial statements to conform to the 2019 presentation. There was no change to net income.
Revision of Previously Issued Financial Statements
During the quarter ended April 30, 2019, the Company identified mechanical errors in its calculation of borrowings and payments under its revolving line of credit presented in the consolidated statement of cash flows. The Company assessed the materiality of these errors considering both qualitative and quantitative factors and determined that for the year ended April 30, 2018, the
three month periods
ended July 31, 2018
and July 31, 2017
,
the six month periods ended
October 31, 2018
and October 31, 2017,
and
the nine month periods ended
January 31, 2019
and January 31, 2018
, the errors were immaterial. The Company decided to correct these immaterial errors as revisions to previously issued financial statements and will revise the Form
s
10-Q when filed in succeeding periods of the next
fiscal year.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Revision of Previously Issued Financial Statements - Continued
The
errors had no impact to total cash flows from financing activities, net loss or net loss per share, or the consolidated balance sheets or statements of operations or stockholders’ equity.
The effect of the revisions on the Company’s previously issued consolidated statements of cash flows for the year ended April 30, 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30, 2018
|
|
|
|
As Previously Reported
|
|
|
Adjustments
|
|
|
As Revised
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Advances on notes receivable
|
|
$
|
(880,000)
|
|
$
|
-
|
|
$
|
(880,000)
|
Proceeds from the exercise of common stock options
|
|
|
96,017
|
|
|
-
|
|
|
96,017
|
Proceeds under equipment note
|
|
|
943,136
|
|
|
-
|
|
|
943,136
|
Payments of contingent consideration
|
|
|
(226,014)
|
|
|
-
|
|
|
(226,014)
|
Payments under capital lease and sale leaseback agreements
|
|
|
(2,144,866)
|
|
|
-
|
|
|
(2,144,866)
|
Payments under equipment note
|
|
|
(297,328)
|
|
|
-
|
|
|
(297,328)
|
Proceeds under building notes payable
|
|
|
7,000,000
|
|
|
-
|
|
|
7,000,000
|
Payments under building notes payable
|
|
|
(3,741,000)
|
|
|
-
|
|
|
(3,741,000)
|
Borrowings under revolving line of credit
|
|
|
15,912,446
|
|
|
319,032,107
|
|
|
334,944,553
|
Payments under revolving line of credit
|
|
|
(9,811,244)
|
|
|
(319,032,107)
|
|
|
(328,843,351)
|
Payments of financing fees
|
|
|
(174,418)
|
|
|
-
|
|
|
(174,418)
|
Net cash provided by financing activities
|
|
$
|
6,676,729
|
|
$
|
-
|
|
$
|
6,676,729
|
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Revision of Previously Issued Financial Statements - Continued
The effects of the revisions on the line items within the Company’s unaudited condensed consolidated statements of cash flows for the three month periods ended July 31, 2018 and 2017, six month periods ended October 31, 2018 and 2017, and nine month periods ended January 31, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months Ended July 31, 2018
|
|
|
Three months Ended July 31, 2017
|
|
|
|
As Previously Reported
|
|
|
Adjustments
|
|
|
As Revised
|
|
|
As Previously Reported
|
|
|
Adjustments
|
|
|
As Revised
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the exercise of common stock options
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
25,542
|
|
$
|
-
|
|
$
|
25,542
|
Proceeds under equipment note
|
|
|
182,557
|
|
|
-
|
|
|
182,557
|
|
|
636,100
|
|
|
-
|
|
|
636,100
|
Payments of contingent consideration
|
|
|
(55,075)
|
|
|
-
|
|
|
(55,075)
|
|
|
(45,875)
|
|
|
-
|
|
|
(45,875)
|
Payments under capital lease and sale leaseback agreements
|
|
|
(643,290)
|
|
|
-
|
|
|
(643,290)
|
|
|
(442,472)
|
|
|
-
|
|
|
(442,472)
|
Payments under equipment note
|
|
|
(93,798)
|
|
|
-
|
|
|
(93,798)
|
|
|
(46,640)
|
|
|
-
|
|
|
(46,640)
|
Proceeds under building notes payable
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Payments under building notes payable
|
|
|
(70,000)
|
|
|
-
|
|
|
(70,000)
|
|
|
(41,250)
|
|
|
-
|
|
|
(41,250)
|
Borrowings under revolving line of credit
|
|
|
5,100,005
|
|
|
77,379,006
|
|
|
82,479,011
|
|
|
2,676,851
|
|
|
85,564,315
|
|
|
88,241,166
|
Payments under revolving line of credit
|
|
|
(177,896)
|
|
|
(77,379,006)
|
|
|
(77,556,902)
|
|
|
(858,971)
|
|
|
(85,564,315)
|
|
|
(86,423,286)
|
Payments of financing fees
|
|
|
(11,100)
|
|
|
-
|
|
|
(11,100)
|
|
|
(14,631)
|
|
|
-
|
|
|
(14,631)
|
Net cash provided by financing activities
|
|
$
|
4,231,403
|
|
$
|
-
|
|
$
|
4,231,403
|
|
$
|
1,888,654
|
|
$
|
-
|
|
$
|
1,888,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months Ended October 31, 2018
|
|
|
Six months Ended October 31, 2017
|
|
|
|
As Previously Reported
|
|
|
Adjustments
|
|
|
As Revised
|
|
|
As Previously Reported
|
|
|
Adjustments
|
|
|
As Revised
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances on notes receivable
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(315,000)
|
|
$
|
-
|
|
$
|
(315,000)
|
Proceeds from the exercise of common stock options
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
42,940
|
|
|
-
|
|
|
42,940
|
Proceeds under equipment note
|
|
|
182,557
|
|
|
-
|
|
|
182,557
|
|
|
943,136
|
|
|
-
|
|
|
943,136
|
Payments of contingent consideration
|
|
|
(55,075)
|
|
|
-
|
|
|
(55,075)
|
|
|
(112,151)
|
|
|
-
|
|
|
(112,151)
|
Payments under capital lease and sale
leaseback agreements
|
|
|
(1,246,334)
|
|
|
-
|
|
|
(1,246,334)
|
|
|
(966,579)
|
|
|
-
|
|
|
(966,579)
|
Payments under equipment note
|
|
|
(196,723)
|
|
|
-
|
|
|
(196,723)
|
|
|
(125,085)
|
|
|
-
|
|
|
(125,085)
|
Proceeds under building notes payable
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Payments under building notes payable
|
|
|
(140,000)
|
|
|
-
|
|
|
(140,000)
|
|
|
(82,500)
|
|
|
-
|
|
|
(82,500)
|
Borrowings under revolving line of credit
|
|
|
10,690,386
|
|
|
161,469,547
|
|
|
172,159,933
|
|
|
9,298,262
|
|
|
166,947,747
|
|
|
176,246,009
|
Payments under revolving line of credit
|
|
|
(3,785,780)
|
|
|
(161,469,547)
|
|
|
(165,255,327)
|
|
|
(3,675,691)
|
|
|
(166,947,747)
|
|
|
(170,623,438)
|
Payments of financing fees
|
|
|
(24,197)
|
|
|
-
|
|
|
(24,197)
|
|
|
(14,632)
|
|
|
-
|
|
|
(14,632)
|
Net cash provided by financing activities
|
|
$
|
5,424,834
|
|
$
|
-
|
|
$
|
5,424,834
|
|
$
|
4,992,700
|
|
$
|
-
|
|
$
|
4,992,700
|
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Revision of Previously Issued Financial Statements - Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months Ended January 31, 2019
|
|
|
Nine months Ended January 31, 2018
|
|
|
|
As Previously Reported
|
|
|
Adjustments
|
|
|
As Revised
|
|
|
As Previously Reported
|
|
|
Adjustments
|
|
|
As Revised
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances on notes receivable
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(630,000)
|
|
$
|
-
|
|
$
|
(630,000)
|
Proceeds from the exercise of common stock options
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
96,017
|
|
|
-
|
|
|
96,017
|
Proceeds under equipment note
|
|
|
182,557
|
|
|
-
|
|
|
182,557
|
|
|
943,136
|
|
|
-
|
|
|
943,136
|
Payments of contingent consideration
|
|
|
(156,881)
|
|
|
-
|
|
|
(156,881)
|
|
|
(175,269)
|
|
|
-
|
|
|
(175,269)
|
Payments under capital lease and sale leaseback agreements
|
|
|
(1,783,543)
|
|
|
-
|
|
|
(1,783,543)
|
|
|
(1,536,508)
|
|
|
-
|
|
|
(1,536,508)
|
Payments under equipment note
|
|
|
(299,648)
|
|
|
-
|
|
|
(299,648)
|
|
|
(203,531)
|
|
|
-
|
|
|
(203,531)
|
Proceeds under building notes payable
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,000,000
|
|
|
-
|
|
|
7,000,000
|
Payments under building notes payable
|
|
|
(210,000)
|
|
|
-
|
|
|
(210,000)
|
|
|
(3,671,000)
|
|
|
-
|
|
|
(3,671,000)
|
Borrowings under revolving line of credit
|
|
|
14,963,270
|
|
|
242,144,025
|
|
|
257,107,295
|
|
|
15,613,799
|
|
|
245,691,562
|
|
|
261,305,361
|
Payments under revolving line of credit
|
|
|
(5,856,146)
|
|
|
(242,144,025)
|
|
|
(248,000,171)
|
|
|
(7,345,462)
|
|
|
(245,691,562)
|
|
|
(253,037,024)
|
Payments of financing fees
|
|
|
(51,198)
|
|
|
-
|
|
|
(51,198)
|
|
|
(151,926)
|
|
|
-
|
|
|
(151,926)
|
Net cash provided by financing activities
|
|
$
|
6,788,411
|
|
$
|
-
|
|
$
|
6,788,411
|
|
$
|
9,939,256
|
|
$
|
-
|
|
$
|
9,939,256
|
New Accounting Standards
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09,
"Revenue from Contracts with Customers
(Topic 606)”
which supersedes the revenue recognition requirements in ASC 605, “
Revenue Recognition.”
The guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to a customer, and replaces most existing revenue recognition guidance in U.S. GAAP. The Company adopted the ASU on May 1, 2018 using the modified retrospective transition method. Under the modified retrospective transition method, the cumulative effect of applying ASC 606 to all contracts that are not completed as of the date of adoption is recorded as an adjustment to the opening balance of retained earnings (if applicable) while the comparative periods are not restated and continue to be reported under the accounting standards in effect for those periods. The Company has determined that the amount of revenue from contracts with customers under the new revenue recognition standard is the same as under prior accounting standards. Accordingly, the Company did not record an adjustment to the beginning balance of retained earnings as a result of adopting ASC 606.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
New Accounting Standards - Continued
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). This update requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. This update is effective for annual periods beginning after December 15, 2018, using a modified retrospective approach, with early adoption permitted.
ASC 842 will be effective for the Company on May 1, 2019. There are a number of optional practical expedients made available to simplify the transition of the new standard. The Company has made the following elections:
|
·
|
|
to adopt the optional transition method defined within ASU 2018-11 and not restate comparative prior periods but instead recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption;
|
|
·
|
|
to elect the package of three practical expedients addressing whether a contract contains a lease, lease classification and initial direct costs;
|
|
·
|
|
to combine lease and non-lease components as a single component for all asset classes;
|
|
·
|
|
to use a portfolio approach to determine the incremental borrowing rate; and
|
|
·
|
|
to apply the short-term lease exception to leases that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
|
During fiscal year 2019, the Company made progress on implementing the new standard which included surveying the Company’s businesses, assessing the Company’s portfolio of leases and compiling a central repository of active leases. The Company evaluated key policy elections and considerations under the standard which the Company will utilize to develop an internal policy to address the new standard requirements. The Company continues to assess the impact on its accounting policies, internal control processes and related disclosures required under the new guidance, as well as its process to determine the actual amount of the required transition adjustment to reflect the balance of the right of use asset and lease liability. These conclusions may change as the Company continues to evaluate the new standard or if there are any changes in the Company’s lease portfolio. The Company does not currently believe that the standard will have a material impact on its results of operations or cash flows.
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 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 public business entities, ASU 2016-13 is effective for annual and interim reporting periods beginning after December 15, 2019, and the guidance is to be applied using the modified-retrospective approach. Earlier adoption is permitted for annual and interim reporting periods beginning after December 15, 2018. The Company is currently evaluating the new guidance and has not determined the impact this ASU may have on its consolidated financial statements.
On May 1, 2018, the Company adopted the guidance contained in ASU 2016 -15, “
Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments.”
The amendments in ASU 2016-15 are applied using a retrospective transition method to each period presented. The Company has evaluated each of the eight specific issues addressed by ASU 2016-15. During the fiscal year ended April 30, 2018, the Company received cash
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
New Accounting Standards - Continued
settlement of insurance claims related to equipment damaged by a fire and including replacement of inventory and clean-up costs at one of its subsidiaries. The Company has classified these receipts as cash flows from operating activities for the fiscal year ended April 30, 2018. As a result of the adoption of this guidance in fiscal year 2019, the Company reclassified $251,395 of cash receipts related to this insurance settlement from cash flows from operations to cash flows from investing activities in its statements of cash flows for the fiscal year ended April 30, 2018.
In February 2018, the FASB issued ASU No. 2018-02,
“Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”
The guidance permits entities to reclassify tax effects stranded in Accumulated Other Comprehensive Income as a result of tax reform to retained earnings. This new guidance is effective for annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted in annual and interim periods and can be applied retrospectively or in the period of adoption. The Company adopted this ASU in the first quarter of its fiscal year ending April 30, 2019 and it had no impact on its consolidated financial statements.
NOTE C - ALLOWANCE FOR DOUBTFUL ACCOUNTS
Changes in the Company’s allowance for doubtful accounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Beginning Balance
|
|
$
|
300,000
|
|
$
|
100,000
|
|
|
Bad debt expense
|
|
|
331,283
|
|
|
200,000
|
|
|
Write-offs
|
|
|
-
|
|
|
-
|
|
|
|
|
$
|
631,283
|
|
$
|
300,000
|
|
|
|
|
|
|
|
|
|
|
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE D - INVENTORIES
Inventories consist of the following at April 30:
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Finished products
|
$
|
20,682,669
|
|
$
|
20,404,849
|
Work-in-process
|
|
3,037,810
|
|
|
2,075,465
|
Raw materials
|
|
63,203,068
|
|
|
65,652,411
|
|
|
86,923,547
|
|
|
88,132,725
|
Less obsolescence reserve
|
|
1,343,972
|
|
|
1,202,932
|
|
$
|
85,579,575
|
|
$
|
86,929,793
|
Changes in the Company’s inventory obsolescence reserve are as follows:
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Beginning balance
|
$
|
1,202,932
|
|
$
|
1,264,924
|
Provision for obsolescence
|
|
268,234
|
|
|
-
|
Write-offs
|
|
(127,194)
|
|
|
(61,992)
|
|
$
|
1,343,972
|
|
$
|
1,202,932
|
NOTE E - RELATED PARTIES
In March, 2015, two of the Company’s executive officers invested in a start-up customer, Petzila, Inc. (“Petzila”). The executive officers’ investments constituted less than
2%
(individually and in aggregate) of the outstanding beneficial ownership of Petzila, according to information provided by Petzila to the executive officers.
On April 30, 2018, the Company foreclosed on its security interest and held a public sale of the assets in accordance with the requirements of Article 9 of the California Uniform Commercial Code. The Company acquired all of the assets of Petzila as the winning bidder at the public sale by a credit bid of $3,500,000, the aggregate amount of Petzila’s liability to the company.
Concurrent with the foreclosure sale, the Company entered into an Asset Purchase Agreement with Wagz, Inc. (Wagz) whereby the Company sold the assets to Wagz for
$350,000
cash, 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.
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 a recent financing transaction, a level 3 input. The Company did not assign any value to the earn-out because any receipts from the earn-out are highly uncertain and contingent upon Wagz selling the product specified in the asset purchase agreement between the Company and Wagz. Accordingly, the Company recognized the fair value of the assets received from Wagz and derecognized the receivables from Petzila. The fair value of the assets received from Wagz was approximately $950,000; therefore, the Company recognized a loss of approximately $2,509,423 in its consolidated statement of operations for the fiscal year ended April 30, 2018.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE F - PROPERTY, MACHINERY AND EQUIPMENT, NET
Property, machinery and equipment consist of the following at April 30:
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
Land and buildings
|
$
|
17,158,071
|
|
$
|
17,072,098
|
Machinery and equipment
|
|
66,390,457
|
|
|
61,746,650
|
Office equipment and software
|
|
11,008,826
|
|
|
10,670,918
|
Leasehold improvements
|
|
2,733,372
|
|
|
2,673,100
|
Equipment under capital leases
|
|
10,164,067
|
|
|
12,417,034
|
|
|
|
|
|
|
|
|
107,454,793
|
|
|
104,579,800
|
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
|
|
|
and amortization, including
|
|
|
|
|
|
amortization of assets under
|
|
|
|
|
|
capital leases of $2,644,661
|
|
|
|
|
|
and $3,072,310 at April 30,
|
|
|
|
|
|
2019 and 2018, respectively
|
|
74,222,024
|
|
|
69,290,803
|
|
|
|
|
|
|
Property, machinery and
|
|
|
|
|
|
equipment, net
|
|
|
|
|
|
|
$
|
33,232,769
|
|
$
|
35,288,997
|
Depreciation and amortization expense of property, machinery and equipment was
$5,007,440
and
$5,118,297
f
or the fiscal years ended April 30, 2019 and April 30, 2018, respectively.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE G - INTANGIBLE ASSETS
Intangible Assets
Intangible assets subject to amortization are summarized as of April 30, 2019 and April 30, 2018, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2019
|
|
April 30, 2018
|
|
|
Gross
|
|
|
|
|
Gross
|
|
|
|
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
Accumulated
|
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spitfire:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-contractual customer relationship
|
|
|
4,690,000
|
|
|
1,977,255
|
|
|
4,690,000
|
|
|
1,609,670
|
Non-compete agreements
|
|
|
50,000
|
|
|
49,385
|
|
|
50,000
|
|
|
42,245
|
Total
|
|
$
|
4,740,000
|
|
$
|
2,026,640
|
|
$
|
4,740,000
|
|
$
|
1,651,915
|
Estimated aggregate amortization expense for the Company’s intangible assets, which become fully amortized in 2032, for the remaining fiscal years is as follows:
|
|
|
|
|
For the fiscal years ending April 30:
|
|
|
|
|
|
2020
|
|
$
|
362,410
|
|
2021
|
|
|
354,203
|
|
2022
|
|
|
346,582
|
|
2023
|
|
|
339,128
|
|
2024
|
|
|
331,842
|
|
Thereafter
|
|
|
979,195
|
|
|
|
$
|
2,713,360
|
Amortization expense was
$374,725
and
$435,043
for the years ended April 30, 2019 and April 30, 2018, respectively.
In conjunction with the May 2012 acquisition of Spitfire Control, Inc., an estimate of the fair value of the contingent consideration,
$2,320,000
, was recorded based on expected operating results through fiscal year 2019 and the specific terms of when such consideration would be earned. Those terms provided for additional consideration to be paid based on a percentage of sales and pre-tax profits over those years in excess of certain minimums. Payments were made quarterly each year and adjusted after each year-end audit. The Company adjusted the estimated remaining payments expected to be paid under the agreement, which resulted in an increase of
$40,324
for the fiscal year ended April 30, 2019. Any change in the Company’s estimate is reflected as a change in the contingent consideration liability and as additional charges or credits to selling and administrative expenses. This was measured and reported as a level 3 fair value at each period end. The Company made payments totaling
$196,247
and
$226,014
for the fiscal years ended April 30, 2019 and April 30, 2018, respectively. As of April 30, 2019, the contingent consideration liability was
$57,537
compared to
$213,460
at April 30, 2018.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE H - LONG-TERM DEBT
Debt and capital lease obligations consisted of the following at April 30, 2019 and April 30, 2018:
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
Notes Payable - Banks
|
$
|
35,727,212
|
|
$
|
29,279,631
|
Notes Payable - Buildings
|
|
6,650,000
|
|
|
6,930,000
|
Notes Payable - Equipment
|
|
1,328,753
|
|
|
1,548,770
|
Unamortized deferred financing costs
|
|
(303,310)
|
|
|
(319,332)
|
Total debt
|
|
43,402,655
|
|
|
37,439,069
|
Less current maturities
|
|
691,701
|
|
|
655,190
|
Long-term debt
|
$
|
42,710,954
|
|
$
|
36,783,879
|
|
|
|
|
|
|
Capital lease and sale leaseback obligations
|
$
|
4,802,158
|
|
$
|
6,618,384
|
Less current maturities
|
|
1,939,374
|
|
|
2,320,538
|
Total capital lease obligations, less current portion
|
$
|
2,862,784
|
|
$
|
4,297,846
|
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
4.09%
at April 30, 2019). Interest is due monthly. Under the senior secured credit facility, the Company may borrow up to the lesser of (i) $35,000,000 or (ii) an amount equal to a percentage of the eligible accounts receivable plus a percentage of the eligible inventory (the “Borrowing Base”).
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 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 the Company maintains a Fixed Charge Coverage Ratio of
1.2
to 1.0 for four consecutive quarters. The amendment also imposes sublimits on categories of inventory equal to
$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 March 22, 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 August 1, 2019 and
90%
on and after August 1, 2019. As of April 30, 2019, there was
$35,727,212
outstanding and
$6,645,730
of unused availability under the U.S. Bank facility compared to an outstanding balance of
$29,279,631
and
$5,720,369
of unused availability at April 30, 2018. At April 30, 2019, the Company was in compliance with its financial covenant and other restrictive
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE H - LONG-TERM DEBT - Continued
Notes Payable – Banks - Continued
covenants under the credit facility. Deferred financing costs of
$75,083
were capitalized during the fiscal year ended April 30, 2019, which are amortized over the term of the agreement. As of April 30, 2019 and April 30, 2018, the unamortized amount offset against outstanding debt was
$209,162
and
$192,502
, respectively.
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
$743,000
as of April 30, 2019, 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
6.09%
. The term of the facility extends to
March 14, 2024
. There was
no
outstanding balance under the facility at April 30, 2019.
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
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 April 30, 2019, the unamortized amount included as a reduction to long-term debt was
$49,852
.
A final payment of approximately
$4,347,778
is due on or before
March 31, 2022
.
The outstanding balance was
$4,940,000
and
$5,148,000
at April, 30 2019 and April 30, 2018, 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 April 30, 2019 the unamortized amount included as a reduction to long-term debt was
$44,006
.
A final payment of approximately
$1,505,000
is due on or before
March 31, 2022
.
The outstanding balance was
$1,710,000
and
$1,782,000
at April, 30 2019 and April 30, 2018, respectively.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE H - LONG-TERM DEBT - Continued
Notes Payable - Equipment
The Company routinely enters into secured note agreements with Engencap Fin S.A. DE C.V. to finance the purchase of equipment. The terms of these secured note agreements extend to
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%
.
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, 2019, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
Bank
|
|
Building
|
|
Equipment
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
$
|
-
|
|
$
|
280,000
|
|
$
|
411,701
|
|
$
|
691,701
|
2021
|
|
-
|
|
|
280,000
|
|
|
411,701
|
|
|
691,701
|
2022
|
|
35,727,212
|
|
|
5,786,689
|
|
|
381,852
|
|
|
41,895,753
|
2023
|
|
-
|
|
|
-
|
|
|
114,372
|
|
|
114,372
|
2024
|
|
-
|
|
|
-
|
|
|
9,128
|
|
|
9,128
|
|
$
|
35,727,212
|
|
$
|
6,346,689
|
|
$
|
1,328,754
|
|
$
|
43,402,655
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Lease and Sale Leaseback Obligations
The Company enters into various capital lease and sales leaseback agreements. The terms of the lease agreements mature through
January 2023
, with monthly installment payments ranging from
$1,455
to
$40,173
and a fixed interest rate ranging from
3.75%
to
8.00%
.
Annual future minimum obligations under capital leases and sale leaseback agreements for each of the next five fiscal years and thereafter, as of April 30, 2019, are as follows:
|
|
|
|
|
Fiscal Year
|
Total
|
|
|
|
|
|
|
|
2020
|
$
|
2,215,849
|
|
|
2021
|
|
1,792,747
|
|
|
2022
|
|
1,049,198
|
|
|
2023
|
|
133,819
|
|
|
2024
|
|
-
|
|
|
Total minimum lease payments
|
|
5,191,613
|
|
|
Less: Amounts representing interest
|
|
389,455
|
|
|
Present value of net minimum lease payments
|
$
|
4,802,158
|
|
|
|
|
|
|
|
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE H - LONG-TERM DEBT - Continued
Other Long-Term Liabilities
As of April 30, 2019 and April 30, 2018, the Company had recorded
$1,155,907
and
$1,130,557
, respectively, for seniority premiums and
$1,067,686
and
$1,052,082
, respectively, for retirement accounts related to benefits for employees of the
Company’s foreign subsidiaries.
NOTE I - ACCRUED EXPENSES AND WAGES
Accrued expenses consist of the following at April 30:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
171,551
|
|
$
|
121,845
|
|
Commissions
|
|
|
176,135
|
|
|
187,936
|
|
Professional fees
|
|
|
351,575
|
|
|
322,377
|
|
Other - Purchases
|
|
|
183,148
|
|
|
156,634
|
|
Other
|
|
|
1,527,902
|
|
|
2,142,000
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,410,311
|
|
$
|
2,930,792
|
|
Accrued wages consist of the following at April 30:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
Domestic wages
|
|
$
|
2,030,155
|
|
$
|
1,945,142
|
|
Bonuses
|
|
|
194,354
|
|
|
467,306
|
|
Foreign wages
|
|
|
2,455,890
|
|
|
1,318,307
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,680,399
|
|
$
|
3,730,755
|
|
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE J - INCOME TAX
U.S. and foreign income (loss) before income tax expense (benefit) for the fiscal years ended April 30 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
2,400,998
|
|
$
|
(5,906,596)
|
|
Foreign
|
|
|
(1,534,697)
|
|
|
1,604,274
|
|
|
|
|
|
|
|
|
|
|
|
$
|
866,301
|
|
$
|
(4,302,322)
|
|
Income Tax Provision
The income tax expense (benefit) for the fiscal years ended April 30 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
Federal
|
|
$
|
285,351
|
|
$
|
433,291
|
|
State
|
|
|
27,577
|
|
|
28,296
|
|
Foreign
|
|
|
531,245
|
|
|
712,846
|
|
Total Current
|
|
|
844,173
|
|
|
1,174,433
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
Federal
|
|
|
458,572
|
|
|
(1,551,921)
|
|
State
|
|
|
134,287
|
|
|
(240,647)
|
|
Foreign
|
|
|
294,383
|
|
|
(442,317)
|
|
Total Deferred
|
|
|
887,242
|
|
|
(2,234,885)
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
$
|
1,731,415
|
|
$
|
(1,060,452)
|
|
|
|
|
|
|
|
|
|
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE J - INCOME TAX - Continued
Income Tax Provision - Continued
The difference between the income tax expense (benefit) 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:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
U.S Federal Provision:
|
|
|
|
|
|
|
|
At statutory rate
|
|
$
|
181,922
|
|
$
|
(1,325,872)
|
|
State taxes
|
|
|
127,245
|
|
|
(151,508)
|
|
Foreign tax differential
|
|
|
75,990
|
|
|
60,302
|
|
Impact of state tax rate change
|
|
|
626
|
|
|
3,670
|
|
Foreign valuation allowance
|
|
|
1,216,504
|
|
|
-
|
|
Impact of foreign permanent items
|
|
|
62,544
|
|
|
23,106
|
|
Tax law changes
|
|
|
-
|
|
|
581,222
|
|
Foreign currency exchange gain/loss
|
|
|
156,119
|
|
|
(172,062)
|
|
Foreign inflation adjustment
|
|
|
(96,749)
|
|
|
(129,227)
|
|
Stock based compensation
|
|
|
7,214
|
|
|
49,917
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
1,731,415
|
|
$
|
(1,060,452)
|
|
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE J - 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:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
|
Federal, foreign & state NOL carryforwards
|
|
$
|
1,196,341
|
|
$
|
730,561
|
|
Foreign tax credit
|
|
|
78,100
|
|
|
78,100
|
|
Reserves and accruals
|
|
|
657,471
|
|
|
598,364
|
|
Stock based compensation
|
|
|
360,065
|
|
|
314,221
|
|
Inventory
|
|
|
962,525
|
|
|
869,471
|
|
Other intangibles
|
|
|
778,744
|
|
|
834,512
|
|
Deferred rent
|
|
|
83,233
|
|
|
114,171
|
|
Allowance for doubtful accounts
|
|
|
162,492
|
|
|
76,500
|
|
Other DTA
|
|
|
12,717
|
|
|
-
|
|
Federal benefit of state
|
|
|
5,822
|
|
|
-
|
|
Total Gross Deferred Tax Assets
|
|
|
4,297,510
|
|
|
3,615,900
|
|
Less: Valuation allowance
|
|
|
(1,294,605)
|
|
|
(78,100)
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Assets
|
|
$
|
3,002,905
|
|
$
|
3,537,800
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
|
Other assets
|
|
$
|
-
|
|
$
|
(3,485)
|
|
Property, machinery & equipment
|
|
|
(2,615,868)
|
|
|
(2,198,332)
|
|
Prepaids
|
|
|
(164,598)
|
|
|
(203,924)
|
|
Federal benefit of state
|
|
|
-
|
|
|
(22,378)
|
|
Total Deferred Tax Liabilities
|
|
$
|
(2,780,466)
|
|
$
|
(2,428,119)
|
|
|
|
|
|
|
|
|
|
Deferred Tax Asset
|
|
$
|
384,022
|
|
$
|
1,109,681
|
|
Deferred Tax Liability
|
|
|
(161,583)
|
|
|
-
|
|
Net Deferred Tax Asset (Liability)
|
|
$
|
222,439
|
|
$
|
1,109,681
|
|
On December 22, 2017, the U.S. Government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to: (1) reducing the U.S. federal corporate tax rate from
35%
to
21%
; (2) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; (3) bonus depreciation that will allow for full expensing of qualified property; (4) creating a new limitation on deductible interest expense; (5) eliminating the corporate alternative minimum tax; and (6) new tax rules related to foreign operations.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE J - INCOME TAX - Continued
Deferred Tax Assets and Liabilities - Continued
Due to the Tax Act, the SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.
Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company made reasonable estimates for certain effects of the Tax Act and recorded provisional amounts in its financial statements as of April 30, 2018. The Company completed its accounting for the tax effects of the Tax Act in fiscal year 2019 with no material changes to the provisional estimates recorded in prior periods.
As of April 30, 2019, the Company does
no
t have a net operating loss carryforward for federal income tax purposes. The Company has state net operating loss carry-forwards totaling approximately
$51,000
at April 30, 2019, that will begin to expire in fiscal year
April 30, 2025
. The Company has foreign net operating loss carryforwards of
$5,149,000
as of April 30, 2019, 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 net operating losses 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
$78,100
related to its foreign tax credit carry-forward. The Company’s estimate of cumulative taxable income during the foreign tax credit carryforward period is insufficient to support that the tax benefit from the foreign tax credit is more likely than not to be realized. The Company has also established a valuation allowance of
$1,216,505
on its net operating loss carryforwards and other deferred tax assets at one of its Chinese subsidiaries and its Vietnam subsidiaries. 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.
As a result of the Tax Act, the historic undistributed earnings of the Company’s foreign subsidiaries will be taxed in the U.S. via the one-time repatriation tax in fiscal year 2018. As a result of this transition tax, the Company may repatriate its cash and cash equivalents held by its foreign subsidiaries without such funds being subject to further U.S. income tax liability. Certain unrepatriated foreign earnings 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
$9,141,000
as of April 30, 2019, from its foreign subsidiaries.
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, 2019 and April 30, 2018, the amount of consolidated worldwide liability for uncertain tax positions that impacted the Company’s effective tax rate was
$0
for each year.
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, 2019 and April 30, 2018, the amount included in the Company’s balance sheet for such liabilities was
$0
for each year.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE J - INCOME TAX - Continued
Other - Continued
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. The Internal Revenue Service previously concluded an audit of the Company’s fiscal year 2013 tax return, and a no change letter was issued.
NOTE K - 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 participant contributions up to
$300
per participant annually. The Company contributed $96,086 and $90,744 to the plans during the fiscal years ended April
30, 2019
and April 30, 2018
,
respectively. The Company incurred total expenses of $11,750 and $12,700 for the fiscal years ended April 30, 2019 and April 30, 2018, respectively, relating to costs associated with the administration of the plans.
NOTE L - 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, 2019,
two
customers accounted for
15.9%
and
15.8%
of net sales of the Company, and
3.9%
and
11.5%
, respectively, of accounts receivable at April 30, 2019. For the fiscal year ended April 30, 2018,
two
customers accounted for
20.2%
and
13.3%
of net sales of the Company and
6.0%
and
2.9%
, respectively, of accounts receivable at April 30, 2018. Further, the Company has
$661,115
in cash in China as of April 30, 2019. 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.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE M
-
OPERATING LEASE COMMITMENTS
The Company leases certain facilities and office space under various operating leases expiring at various dates through April 2024.
Future minimum lease payments under leases with terms of one year or more are as follows:
|
|
|
|
|
|
|
|
Operating
|
|
Years ending April 30,
|
|
|
Leases
|
|
|
|
|
|
|
2020
|
|
$
|
1,808,984
|
|
2021
|
|
|
1,387,697
|
|
2022
|
|
|
757,738
|
|
2023
|
|
|
736,385
|
|
2024
|
|
|
42,000
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
$
|
4,732,804
|
|
|
|
|
|
|
Rent expense incurred under operating leases was $2,427,658 and $2,391,328 for the fiscal years ended April 30, 2019 and April 30, 2018, respectively.
In September 2010, the Company entered into a real estate lease agreement in Union City, California, to rent approximately 117,000 square feet of manufacturing and office space. Under the terms of the lease agreement, the Company receives incentives over the life of the lease, which extends through March 2021. The amount of the deferred rent income recorded for fiscal years ended April 30, 2019 and April 30, 2018 was $128,505 and $103,599, respectively. In addition, the landlord provided the Company tenant incentives of $418,000, which are being amortized over the life of the lease. The balance of deferred rent at April 30, 2019, was $318,568 compared to $447,073 at April 30, 2018.
On May 31, 2012, the Company entered into a lease agreement in Tijuana, Mexico, to rent approximately 112,000 square feet of manufacturing and office space. Under the terms of the lease agreement, the Company receives incentives over the life of the lease, which expired in November 2018. The amount of the deferred rent income for the fiscal year
s
ended April 30, 2019 and April 30, 2018 was $85,527 and $139,437, respectively. The balance of deferred rent at April 30, 2019, was $0 compared to $85,527 at April 30, 2018.
NOTE N - STOCK COMPENSATION AND EQUITY TRANSACTIONS
The Company has stock option plans (“Option Plans”) under which certain employees and non-employee directors may acquire shares of common stock. All Option Plans have been approved by the Company’s shareholders. At April 30, 2019
, the Company does
no
t have
shares available for future issuance to employees under the employee plans and
none
are available under the non-employee director 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.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE N - STOCK COMPENSATION AND EQUITY TRANSACTIONS - Continued
The Company granted
117,914
options to employees in fiscal year 2019. The Company recognized approximately
$166,612
i
n compensation expense in fiscal year 2019. The balance of unrecognized compensation expense was
$0
at
April 30, 2019.
In
October 2017, the Company issued
12,500
shares of restricted stock pursuant to the 2013 Non-Employee Director Restricted Stock Plan, which fully vested on April 1, 2018.
I
n October 2018, the Company issued
12,500
shares of restricted stock pursuant to the 2018 Non-Employee Director Restricted Stock Plan, which fully vest
ed
on April 1, 2019
.
The Company
recognized
$176,000
in compensation expense in fiscal year
2019. The balance of unrecognized compensation expense related to the Company’s restricted stock award was
$0
at April 30, 2019.
The table below summarizes option activity through April 30, 2019:
|
|
|
|
|
|
|
|
|
|
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, 2017
|
|
366,763
|
|
|
5.85
|
|
269,863
|
Options exercised during 2018
|
|
(19,445)
|
|
|
4.94
|
|
|
Outstanding at April 30, 2018
|
|
347,318
|
|
|
5.90
|
|
347,318
|
Options granted during 2019
|
|
117,914
|
|
|
3.20
|
|
|
Outstanding at April 30, 2019
|
|
465,232
|
|
$
|
5.22
|
|
465,232
|
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. During the fiscal years ended April 30, 2019 and April 30, 2018, the aggregate intrinsic value of options exercised was
$0
and
$35,820,
respectively. As of April 30, 2019 and April 30, 2018, the aggregate intrinsic value of the options outstanding was
$0
and
$305,396
, respectively.
Information with respect to stock options outstanding and exercisable at April 30, 2019 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding and exercisable
|
|
|
|
|
|
|
|
|
|
Number
|
|
Weighted-average
|
|
Weighted-
|
|
|
outstanding at
|
|
remaining
|
|
average
|
|
|
April 30, 2019
|
|
contract life
|
|
exercise price
|
Range of exercise prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 3.20-6.45
|
|
465,232
|
|
6.68 years
|
$
|
5.22
|
|
|
|
|
|
|
|
|
|
465,232
|
|
|
$
|
5.22
|
As of April 30, 2019, there were
no
non-vested stock options.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE O - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial data for fiscal year 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
2019
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
71,414,057
|
|
$
|
77,001,091
|
|
$
|
68,852,050
|
|
$
|
73,286,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
5,789,056
|
|
|
6,694,085
|
|
|
5,529,120
|
|
|
8,329,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income
|
|
|
(723,613)
|
|
|
402,051
|
|
|
(601,133)
|
|
|
1,788,996
|
taxes (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
(2)
|
|
|
(526,607)
|
|
|
(723,941)
|
|
|
(595,526)
|
|
|
980,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share
|
|
$
|
(0.12)
|
|
$
|
(0.18)
|
|
$
|
(0.14)
|
|
$
|
0.23
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share
|
|
$
|
(0.12)
|
|
$
|
(0.17)
|
|
$
|
(0.14)
|
|
$
|
0.23
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares- Basic
|
|
|
4,223,657
|
|
|
4,230,008
|
|
|
4,230,008
|
|
|
4,230,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares- Diluted
|
|
|
4,223,657
|
|
|
4,230,008
|
|
|
4,230,008
|
|
|
4,233,266
|
|
1.)
|
|
The Company records inventory reserves for valuation and shrinkage throughout the year based on historical data. In the fourth quarter of fiscal year 2019 physical inventory results were completed resulting in an increase in income before income taxes of approximately $1,900,000.
|
The aggregate after-tax effect for the above adjustments in the fourth quarter of fiscal year 2019 was an increase to basic earnings per share of $0.25.
|
2.)
|
|
The Company recorded a discrete expense of approximately $457,000 during the second quarter related to a valuation allowance recorded on Net Operating Loss carryforwards at two of its foreign subsidiaries.
|
The aggregate after-tax effect for the above adjustments in the second quarter of fiscal year 2019 was an increase to basic earnings per share of $0.
19
.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE O - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued
The following is a summary of unaudited quarterly financial data for fiscal year 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
2018
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
71,224,293
|
|
$
|
72,959,074
|
|
$
|
65,733,723
|
|
$
|
68,214,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
6,757,054
|
|
|
7,103,568
|
|
|
5,897,340
|
|
|
6,844,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
|
|
|
580,845
|
|
|
1,151,454
|
|
|
(115,872)
|
|
|
(5,918,749)
|
taxes (1), (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
382,882
|
|
|
736,115
|
|
|
31,338
|
|
|
(4,392,205)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
$
|
0.09
|
|
$
|
0.17
|
|
$
|
0.01
|
|
$
|
(1.04)
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
$
|
0.09
|
|
$
|
0.17
|
|
$
|
0.01
|
|
$
|
(1.04)
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares- Basic
|
|
|
4,195,985
|
|
|
4,201,442
|
|
|
4,209,566
|
|
|
4,215,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares- Diluted
|
|
|
4,269,501
|
|
|
4,326,854
|
|
|
4,356,509
|
|
|
4,215,258
|
|
1.)
|
|
The Company records inventory reserves for valuation and shrinkage throughout the year based on historical data. In the fourth quarter of fiscal year 2018 physical inventory results were completed resulting in an increase in income before income taxes of approximately $1,500,000.
|
|
2.)
|
|
The Company recognized a full goodwill impairment charge of $3,222,899, an impairment of intangible assets in the amount of $690,107 and the write off of the account receivable and note receivable related to Petzila in the amount of $2,509,423.
|
The aggregate after-tax effect for the above adjustments in the fourth quarter of fiscal year 2018 was a decrease to basic earnings (loss) per share of
$0.55
.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018
NOTE P - 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.