SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2020 and 2019
NOTE A - DESCRIPTION OF THE BUSINESS
SigmaTron International, Inc., its subsidiaries, foreign enterprises and international procurement office (collectively, the “Company”) operates in one business segment as an independent provider of electronic manufacturing services (“EMS”), which includes printed circuit board assemblies and completely assembled (box-build) electronic products. In connection with the production of assembled products, the Company also provides services to its customers, including (1) automatic and manual assembly and testing of products; (2) material sourcing and procurement; (3) manufacturing and test engineering support; (4) design services; (5) warehousing and distribution services; and (6) assistance in obtaining product approval from governmental and other regulatory bodies. As of April 30, 2020, the Company provided these manufacturing services through an international network of facilities located in the United States, Mexico, China, Vietnam and Taiwan. Approximately 16% of the total assets of the Company are located in foreign jurisdictions outside the United States as of April 30, 2020, of which 10% and 4% of the assets were located in China and Mexico, respectively, and 2% in other foreign locations. As of April 30, 2019, approximately 13% of the total assets were located in foreign jurisdictions, of which 8% and 4% were located in China and Mexico, respectively, and 1% in other foreign locations.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy
The consolidated financial statements include the accounts and transactions of SigmaTron International, Inc. (“SigmaTron”), its wholly-owned subsidiaries, Standard Components de Mexico, S.A., AbleMex S.A. de C.V., Digital Appliance Controls de Mexico, S.A. de C.V., Spitfire Controls (Vietnam) Co. Ltd., Spitfire Controls (Cayman) Co. Ltd. and SigmaTron International Trading Co., wholly-owned foreign enterprises Suzhou SigmaTron Electronics Co. Ltd., and SigmaTron Electronic Technology Co., Ltd. (collectively, “SigmaTron China”), and its international procurement office, SigmaTron Taiwan. The functional currency of the Mexican, Vietnamese and Chinese subsidiaries and procurement branch is the U.S. Dollar. Intercompany transactions are eliminated in the consolidated financial statements. The impact of currency fluctuations for the fiscal year ended April 30, 2020, resulted in net foreign currency transaction losses of approximately $285,654 compared to net foreign currency losses of $433,742 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, deferred income, deferred taxes, uncertain tax positions, valuation allowance for deferred taxes and valuation of long-lived assets. Actual results could materially differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash and all highly liquid short-term investments with original maturities within three months of the purchase date.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Accounts Receivable
The majority of the Company’s accounts receivable are due from companies in the industrial electronics, consumer electronics and medical/life sciences industries. Credit is extended based on evaluation of a customer’s financial condition, and, generally, collateral is not required. Accounts receivable are due in accordance with agreed upon terms, and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payments terms are considered past due. The Company writes off accounts receivable when they are determined to be uncollectible.
The Company has arrangements with various financial institutions to sell certain eligible accounts receivable balances from specific customers without recourse. The accounts receivable balances sold are at the election of the Company. The Company incurred fees for such sales, which are reflected as selling and administrative expenses on the Company’s income statement and were not material for the fiscal year ended April 30, 2020 or April 30, 2019. 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, 2020 and April 30, 2019, the Company sold without recourse trade receivables of approximately $85,000,000 and $77,000,000, respectively. Cash proceeds from these agreements are reflected as operating activities included in the change in accounts receivable in the Company's consolidated statements of cash flows.
Allowance for Doubtful Accounts
The Company’s allowance for doubtful accounts relates to receivables not expected to be collected from its customers. This allowance is based on management’s assessment of specific customer balances, considering the age of receivables and financial stability of the customer and a five year average of prior uncollectible amounts. If there is an adverse change in the financial condition of the Company’s customers, or if actual defaults are higher than provided for, an addition to the allowance may be necessary.
Inventories
Inventories are valued at cost. Cost is determined by an average cost method and the Company allocates labor and overhead to work-in-process and finished goods. In the event of an inventory write-down, the Company records expense to state the inventory at lower of cost or net realizable value. The Company establishes inventory reserves for shrinkage and excess and obsolete inventory. The Company records provisions for inventory shrinkage based on historical experience to account for unmeasured usage or loss. Of the Company’s raw materials inventory, a substantial portion has been purchased to fulfill committed future orders or for which the Company is contractually entitled to recover its costs from its customers. For the remaining raw materials inventory, a provision for excess and obsolete inventories is recorded for the difference between the cost of inventory and its estimated realizable value based on assumptions about future product demand and market conditions. 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, 2020 and 2019
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:
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Buildings
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20 years
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Machinery and equipment
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5-12 years
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Office equipment and software
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3-5 years
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Tools and dies
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12 months
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Leasehold improvements
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lesser of lease term or useful life
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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 $279,740 and $303,310 net of accumulated amortization of $277,518 and $166,689, respectively, as of April 30, 2020 and April 30, 2019, respectively, are deducted from long term debt on the Company’s balance sheet.
COVID-19 and CARES Act
A pandemic of respiratory disease (abbreviated "COVID-19") began to spread globally, including to the United States, in early 2020. On March 11, 2020, the World Health Organization (WHO) declared COVID-19 to be a public health emergency of international concern. The full impact of the COVID-19 outbreak is inherently uncertain at the time of this report. The COVID-19 outbreak has resulted in travel restrictions and in some cases, prohibitions of non-essential activities, disruption and shutdown of certain businesses and greater uncertainty in global financial markets. The full extent to which COVID-19 impacts the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak within the U.S., China, Mexico, Vietnam and Taiwan, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.
Even after COVID-19 has subsided, the Company may continue to experience materially adverse impacts to its business as a result of its global economic impact, including any recession that has occurred or may occur in the future. There are no comparable recent events which may provide guidance as to the effect of the spread of COVID-19, and, as a result, the ultimate impact of COVID-19, or a similar health epidemic or pandemic, is highly uncertain and subject to change. The Company has adopted several measures in response to the COVID-19 outbreak. To date, the Company has been able to continue to meet the needs of its customers. Although the Company cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it will have a material adverse effect on the Company’s results of future operations, financial position, and liquidity in fiscal year 2021.
On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. It also appropriated funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
COVID-19 and CARES Act - Continued
As further described in Note H, the Company has applied for, and has received, funds under the Paycheck Protection in the amount of $6,282,973. The application for these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further requires the Company to take into account its current business activity and its ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on its future adherence to the forgiveness criteria.
Due to the size of the PPP Loan, it is subject to review, which introduces a layer of uncertainty. If, despite the Company’s actions and certification that it satisfied all eligibility requirements for the PPP, it is later determined that it violated applicable laws or was otherwise ineligible to receive the PPP, the Company may be required to repay the PPP in its entirety in a lump sum or be subject to additional penalties, which could also result in adverse publicity and damage to the Company’s reputation. If these events were to transpire, they could have a material adverse effect on the Company’s business, results of operations and financial condition.
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.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Income Taxes - Continued
The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across its global operations. Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Except as noted below, management is not aware of any such changes that would have a material effect on the Company’s results of operations, cash flows or financial position.
The Company adjusts its tax liabilities when its judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from its current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined.
Earnings per Share
Basic earnings per share are computed by dividing net income (loss) (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. The computation of diluted earnings per share is similar to the computation of basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common stock equivalents such as stock options and restricted stock, had been exercised or vested. There were 232,821 and 53,309 anti-dilutive common stock equivalents at April 30, 2020 and April 30, 2019, respectively, which have been excluded from the calculation of diluted earnings per share.
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Fiscal Years Ended
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April 30,
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2020
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2019
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Net income (loss)
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$
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443,102
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$
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(865,114)
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Weighted-average shares
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Basic
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4,242,351
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4,228,592
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Effect of dilutive stock options
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27,699
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-
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Diluted
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4,270,050
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4,228,592
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Basic earnings (loss) per share
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$
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0.10
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$
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(0.20)
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Diluted earnings (loss) per share
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$
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0.10
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$
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(0.20)
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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
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Revenue Recognition - Continued
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, which accounted for less than 1% of the Company’s revenue. For engineering, design, and testing services, the Company’s performance obligations are satisfied over time as the respective services are rendered as its customers simultaneously derive value from the Company’s performance.
From the time that a customer purchase order is received and contract is established, the Company’s performance obligations are typically fulfilled within a few weeks. 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 fiscal year 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 April 30, 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 April 30, 2020, with an expected duration of greater than one year.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Revenue Recognition - Continued
The majority of sales are made to U.S. based customers. The following table presents the Company’s revenue disaggregated by the principal end-user markets it serves:
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Year Ended April 30,
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Year Ended April 30,
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Net sales by end-market
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2020
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2019
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Industrial Electronics
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$
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158,972,238
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$
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160,435,562
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Consumer Electronics
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105,903,419
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115,099,199
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Medical / Life Sciences
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16,166,825
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15,019,190
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Total Net Sales
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$
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281,042,482
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$
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290,553,951
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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 2020 or 2019.
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, 2020 and April 30, 2019, due to their short-term nature. The carrying amounts of the Company’s debt obligations approximate fair value based on future payments discounted at current interest rates for similar obligations or interest rates which fluctuate with the market.
On April 30, 2018, the Company entered into an Asset Purchase Agreement with Wagz, Inc. (“Wagz”), whereby the Company sold certain assets to Wagz for $350,000 cash, in exchange for 600,000 shares of Wagz common stock and an earn-out based on sales by Wagz generated from use of the assets through July 31, 2022. The earn-out is $6.00 per unit of a product specified in the asset purchase agreement and any upgrade to such product.
The fair value of the non-cash consideration consisted of $600,000 for the 600,000 shares of Wagz common stock which is recorded within other assets. The Company determined the fair value of the equity using the price per common share received by Wagz in the most recent financing transaction, a level 3 input. As of April 30, 2020, and April 30, 2019 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.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Fair Value of Financial Instruments - Continued
On June 4, 2020, SigmaTron and Wagz, Inc. (“Wagz”), a privately held company in the pet technology (“Pet Tech”) market, announced that they have executed a Letter of Intent (“LOI”) relating to a proposed business combination. Subject to the terms and conditions set forth in the LOI, SigmaTron expects to issue approximately 2,270,000 shares of SigmaTron common stock that would result in the stockholders of Wagz owning in the aggregate approximately one-third of the combined company. The potential benefits to the Company from that transaction were summarized in the June 4, 2020 announcement. The parties expect the transaction to close by the end of October 2020 and it remains subject to achievement of certain milestones and satisfaction of conditions by both parties prior to closing including finalizing a material definitive agreement and the Company raising additional capital that it projects will be needed for the expanded operations in the amount of approximately or not less than $7,500,000.
Intangible Assets
Intangible assets are comprised of finite life intangible assets including non-compete agreements and customer relationships. Finite life intangible assets are amortized on a straight line basis over their estimated useful lives of 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.
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 of its long-lived asset groups for possible impairment. The Company’s analysis for fiscal year 2020 and 2019 did not indicate that any of its other long-lived assets were impaired. The Company has yet to experience significant supply chain interruptions or material cancellations of orders; however, the potential impact of future disruptions, continued economic uncertainty over COVID-19 may have a significant adverse impact on the timing of delivery of customer orders and the levels of future customer orders. It is reasonably possible that these potential adverse impacts may result in the recognition of material impairments or other related charges in future periods.
Investment in Wagz
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. 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. At April 30, 2020, the Company continued to recognize the fair value of the Wagz common stock at $600,000; the reduction in the fair market of the Wagz inventory by $109,046 and the reserve as bad debt for the Wagz total account receivable of $331,283.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Investment in Wagz - Continued
On May 29, 2020, Wagz entered into a Convertible Secured Promissory Note with the Company in the principal sum of up to $4,052,478. The outstanding principal amount of the Note shall be due and payable on the earliest to occur of (1) August 31, 2021; (2) upon the closing of a sale of all or substantially all of the assets or common stock of Wagz, or (3) an event of default, (the Maturity Date). Interest is payable at the rate of four percent (4%) per annum and is payable on the Maturity Date. At April 30, 2020, $768,500 was outstanding under other receivables.
On June 4, 2020, the Company and Wagz announced that they have executed a LOI relating to a proposed business combination. Subject to the terms and conditions set forth in the LOI, the Company expects to issue approximately 2,270,000 shares of its common stock that would result in the stockholders of Wagz owning in the aggregate approximately one-third of the combined company. The parties expect the transaction to close by the end of October 2020 and the acquisition remains subject to achievement of certain milestones and satisfaction of conditions by both parties prior to closing such as finalizing a material definitive agreement and the Company raising of additional capital that it projects will be needed for the expanded operations in the amount of at least $7,500,000.
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.
New Accounting Standards
In February 2016, the FASB issued ASU 2016-02, as amended, Leases (Topic 842), which requires a lessee to record a right-of-use asset and a lease liability for all leases with a term greater than twelve months regardless of whether the lease is classified as an operating lease or a financing lease.
Effective May 1, 2019, the Company adopted the new standard under the modified retrospective approach, applying the current-period adjustment method. Under the transition guidance of the modified retrospective approach there are a number of optional practical expedients made available to simplify the transition of the new standard. The Company has elected the following:
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·
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The condensed consolidated balance sheets for reporting periods beginning on or after May 1, 2019 are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with ASC Topic 840, Leases. The Company recognized a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption of $5.
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·
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The Company has elected to utilize the package of practical expedients permitted under the transition guidance in the standard, which allowed the Company to not reassess (i) whether any expired or existing contracts contain leases, (ii) historical lease classification, and (iii) initial direct costs.
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·
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The Company has elected to combine lease and non-lease components as a single component for all asset classes.
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·
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The Company has elected to not assess whether existing or expired land easements that were not previously accounted for as leases under Topic 840 are or contain a lease under this Topic.
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·
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The Company has elected to keep leases with an initial term of 12 months or less off of the balance sheet.
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SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
New Accounting Standards - Continued
Upon adoption, the Company recorded Right-of-use ("ROU") assets and lease liabilities relating to operating leases of $6,017,771 and $6,290,289, respectively. The changes did not have a material impact on our results of operations
or cash flows. The discount rates used to calculate the ROU assets and lease liabilities as of the effective date were based on the remaining lease terms as of the effective date. See Note M - Leases, for the impact on the financial statements and related disclosures from the adoption of this standard.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13, as amended by ASU 2019-04 and ASU 2019-05, introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. For small reporting companies, ASU 2016-13 is effective for annual and interim reporting periods beginning after December 15, 2022, and the guidance is to be applied using the modified-retrospective approach. Earlier adoption is permitted 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.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which simplifies accounting for income taxes by removing certain exceptions to intra-period allocations, investments, calculations in interim periods and to improve consistent application. ASU 2019-12 is effective for annual and interim reporting periods beginning after December 15, 2020. The Company is currently evaluating the new guidance and has not determined the impact this ASU may have on its consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides optional guidance for a period of time to ease the potential burden in accounting for the transition from reference rates that are expected to be discontinued. Regulators and market participants in various jurisdictions have undertaken efforts to eliminate certain reference rates and introduce new reference rates that are based on a larger and more liquid population of observable transactions. The changes provide optional expedients and exceptions for applying US GAAP to contract, hedging relationships and other transactions affected by reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020 and can be adopted no later than December 31, 2022. The Company is currently evaluating the new guidance and has not determined the impact this ASU may have on its consolidated financial statements.
NOTE C - ALLOWANCE FOR DOUBTFUL ACCOUNTS
Changes in the Company’s allowance for doubtful accounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Beginning Balance
|
|
$
|
631,283
|
|
$
|
300,000
|
|
|
Bad debt expense
|
|
|
95,969
|
|
|
331,283
|
|
|
Write-offs
|
|
|
-
|
|
|
-
|
|
|
|
|
$
|
727,252
|
|
$
|
631,283
|
|
|
|
|
|
|
|
|
|
|
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE D - INVENTORIES
Inventories consist of the following at April 30:
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
Finished products
|
$
|
20,998,329
|
|
$
|
20,682,669
|
Work-in-process
|
|
5,215,280
|
|
|
3,037,810
|
Raw materials
|
|
62,316,122
|
|
|
63,203,068
|
|
|
88,529,731
|
|
|
86,923,547
|
Less obsolescence reserve
|
|
1,350,362
|
|
|
1,343,972
|
|
$
|
87,179,369
|
|
$
|
85,579,575
|
Changes in the Company’s inventory obsolescence reserve are as follows:
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
Beginning balance
|
$
|
1,343,972
|
|
$
|
1,202,932
|
Provision for obsolescence
|
|
221,499
|
|
|
268,234
|
Write-offs
|
|
(215,109)
|
|
|
(127,194)
|
|
$
|
1,350,362
|
|
$
|
1,343,972
|
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 the most 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.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE F - PROPERTY, MACHINERY AND EQUIPMENT, NET
Property, machinery and equipment consist of the following at April 30:
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
Land and buildings
|
$
|
18,297,353
|
|
$
|
17,158,071
|
Machinery and equipment
|
|
71,490,678
|
|
|
66,390,457
|
Office equipment and software
|
|
11,574,938
|
|
|
11,008,826
|
Leasehold improvements
|
|
2,818,161
|
|
|
2,733,372
|
Equipment under finance leases
|
|
8,739,177
|
|
|
10,164,067
|
|
|
|
|
|
|
|
|
112,920,307
|
|
|
107,454,793
|
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
|
|
|
and amortization, including accumulated
|
|
|
|
|
|
amortization of assets under
|
|
|
|
|
|
finance leases of $2,295,223
|
|
|
|
|
|
and $2,644,661 at April 30,
|
|
|
|
|
|
2020 and 2019, respectively
|
|
78,984,547
|
|
|
74,222,024
|
|
|
|
|
|
|
Property, machinery and
|
|
|
|
|
|
equipment, net
|
|
|
|
|
|
|
$
|
33,935,760
|
|
$
|
33,232,769
|
Depreciation and amortization expense of property, machinery and equipment was $4,947,200 and $5,007,440 for the fiscal years ended April 30, 2020 and April 30, 2019, respectively.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE G - INTANGIBLE ASSETS
Intangible Assets
Intangible assets subject to amortization are summarized as of April 30, 2020 and April 30, 2019, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2020
|
|
April 30, 2019
|
|
|
Gross
|
|
|
|
|
Gross
|
|
|
|
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
Accumulated
|
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spitfire:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-contractual customer relationship
|
|
|
4,690,000
|
|
|
2,339,051
|
|
|
4,690,000
|
|
|
1,977,255
|
Non-compete agreements
|
|
|
50,000
|
|
|
50,000
|
|
|
50,000
|
|
|
49,385
|
Total
|
|
$
|
4,740,000
|
|
$
|
2,389,051
|
|
$
|
4,740,000
|
|
$
|
2,026,640
|
Estimated aggregate amortization expense for the Company’s intangible assets, which become fully amortized in 2027, for the remaining fiscal years is as follows:
|
|
|
|
|
For the fiscal years ending April 30:
|
|
|
|
|
|
2021
|
|
$
|
354,203
|
|
2022
|
|
|
346,582
|
|
2023
|
|
|
339,128
|
|
2024
|
|
|
331,842
|
|
2025
|
|
|
324,702
|
|
Thereafter
|
|
|
654,492
|
|
|
|
$
|
2,350,949
|
Amortization expense was $362,411 and $374,725 for the years ended April 30, 2020 and April 30, 2019, respectively.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE H - LONG-TERM DEBT
Debt and finance lease obligations consisted of the following at April 30, 2020 and April 30, 2019:
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
Notes Payable - Banks
|
$
|
33,472,125
|
|
$
|
35,727,212
|
Notes Payable - Buildings
|
|
6,922,561
|
|
|
6,650,000
|
Notes Payable - Equipment
|
|
1,300,278
|
|
|
1,328,753
|
Unamortized deferred financing costs
|
|
(279,740)
|
|
|
(303,310)
|
Total debt
|
|
41,415,224
|
|
|
43,402,655
|
Less current maturities
|
|
2,878,160
|
|
|
691,701
|
Long-term debt
|
$
|
38,537,064
|
|
$
|
42,710,954
|
|
|
|
|
|
|
Finance lease obligations
|
$
|
3,787,017
|
|
$
|
4,802,158
|
Less current maturities
|
|
1,902,295
|
|
|
1,939,374
|
Total finance lease obligations, less current portion
|
$
|
1,884,722
|
|
$
|
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 2.33% at April 30, 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 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 April 23, 2020, the Company entered into a loan with U.S. Bank, as lender, pursuant to the Paycheck Protection Program of the CARES Act as administered by the SBA in the amount of $6,282,973. The loan, in the form of a promissory note, matures on April 23, 2022. No additional collateral or guarantees were provided by the Company for the loan. The PPP loan provides for customary events of default. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, rent payments, mortgage interest and covered utilities during the 24-week period beginning on the date of loan disbursement. The Company may be required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest, and it cannot provide any assurance that it will be eligible for loan forgiveness, or that any amount of the PPP Loan will ultimately be forgiven by the SBA. All aspects of the PPP loan are subject to review by the SBA, including without limitation, the Company’s eligibility for
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE H - LONG-TERM DEBT - Continued
Notes Payable – Banks - Continued
and the size of the loan. The review procedures have not been made public. The Company cannot predict the outcome of that review nor be assured that all or any part of the loan will be forgiven. To the extent that all or part of the PPP loan is not forgiven, the Company will be required to make payments, including interest accruing at an annual interest rate of 1.0% beginning on the date of disbursement.
On July 15, 2020 and August 7, 2020, the Company and U.S. Bank entered into amendments of the revolving credit facility. The amendments revise the Fixed Charge Coverage Ratio.
As of April 30, 2020, there was $26,884,494 outstanding and $13,850,575 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 $97,611 were capitalized during the fiscal year ended April 30, 2020, which are amortized over the term of the agreement. As of April 30, 2020 and April 30, 2019, the unamortized amount offset against outstanding debt was $218,062 and $209,162, 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 $709,000 as of April 30, 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. As of April 30, 2020, the outstanding balance under the facility was $304,658. 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 as of April 30, 2020.
Notes Payable – Buildings
The Company entered into a mortgage agreement on December 21, 2017, in the amount of $5,200,000, with U.S. Bank to refinance the property that serves as the Company’s corporate headquarters and its Illinois manufacturing facility in Elk Grove Village, Illinois. The note 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, 2020, the unamortized amount included as a reduction to long-term debt was $32,760. A final payment of approximately $4,347,778 is due on or before March 31, 2022. The outstanding balance was $4,732,000 and $4,940,000 at April 30, 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 April 30, 2020 the unamortized amount included as a reduction to long-term debt was $28,918. A final payment of approximately $1,505,000 is due on or before March 31, 2022. The outstanding balance was $1,638,000 and $1,710,000 at April 30, 2020 and April 30, 2019, respectively.
The Company entered into a mortgage agreement on March 3, 2020, in the amount of $556,000, with The Bank and Trust SSB to purchase the property that serves as the Company’s warehousing and distribution center in Del Rio, Texas. The note requires the Company to pay monthly installment payments in the amount of $6,103, bears interest
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE H - LONG-TERM DEBT - Continued
Notes Payable – Buildings - Continued
at a fixed rate of 5.75% per year and is payable over a 120 month period. The outstanding balance was $552,561 at April 30, 2020.
Notes Payable - Equipment
The Company routinely enters into secured note agreements with Engencap Fin S.A. DE C.V. to finance the purchase of equipment. The terms of these secured note agreements mature from November 2021 through May 2023, with quarterly installment payments ranging from $11,045 to $37,941 and a fixed interest rate ranging from 6.65% to 8.00%.
The Company routinely enters into secured note agreements with FGI Equipment Finance LLC to finance the purchase of equipment. The terms of these secured note agreements mature from March 2025 through April 2025, with quarterly installment payments ranging from $10,723 to $12,856 and a fixed interest rate of 8.25%.
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, 2020, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
Bank
|
|
Building
|
|
Equipment
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
$
|
2,079,218
|
|
$
|
322,576
|
|
$
|
476,366
|
|
$
|
2,878,160
|
2022
|
|
4,203,755
|
|
|
6,135,090
|
|
|
452,018
|
|
|
10,790,863
|
2023
|
|
26,604,754
|
|
|
47,752
|
|
|
190,508
|
|
|
26,843,014
|
2024
|
|
304,658
|
|
|
50,571
|
|
|
91,742
|
|
|
446,971
|
2025
|
|
|
|
|
53,557
|
|
|
89,644
|
|
|
143,201
|
Thereafter
|
|
-
|
|
|
313,015
|
|
|
-
|
|
|
313,015
|
|
$
|
33,192,385
|
|
$
|
6,922,561
|
|
$
|
1,300,278
|
|
$
|
41,415,224
|
|
|
|
|
|
|
|
|
|
|
|
|
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE H - LONG-TERM DEBT - Continued
Finance Lease Obligations
The Company enters into various finance lease and sales leaseback agreements. The terms of the lease agreements mature through November 2023, with monthly installment payments ranging from $1,455 to $40,173 and a fixed interest rate ranging from 3.75% to 12.73%.
Annual future minimum obligations under finance leases and sale leaseback agreements for each of the next five fiscal years and thereafter, as of April 30, 2020, are as follows:
|
|
|
|
|
Fiscal Year
|
Total
|
|
|
|
|
|
|
|
2021
|
$
|
2,118,178
|
|
|
2022
|
|
1,374,628
|
|
|
2023
|
|
498,307
|
|
|
2024
|
|
167,721
|
|
|
2025
|
|
-
|
|
|
Total minimum lease payments
|
|
4,158,834
|
|
|
Less: Amounts representing interest
|
|
371,817
|
|
|
Present value of net minimum lease payments
|
$
|
3,787,017
|
|
|
Other Long-Term Liabilities
As of April 30, 2020 and April 30, 2019 the Company had recorded $810,769 and $1,155,907, respectively, for seniority premiums of which $717,528 and $1,067,686, respectively, were for retirement accounts related to benefits for employees of the Company’s foreign subsidiaries.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE I - ACCRUED EXPENSES AND WAGES
Accrued expenses consist of the following at April 30:
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
77,750
|
|
$
|
171,551
|
|
Commissions
|
|
|
115,385
|
|
|
176,135
|
|
Professional fees
|
|
|
730,146
|
|
|
351,575
|
|
Other - Purchases
|
|
|
450,000
|
|
|
183,148
|
|
Other
|
|
|
1,297,223
|
|
|
1,527,902
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,670,504
|
|
$
|
2,410,311
|
|
Accrued wages consist of the following at April 30:
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
Domestic wages
|
|
$
|
1,809,572
|
|
$
|
2,030,155
|
|
Bonuses
|
|
|
241,480
|
|
|
194,354
|
|
Foreign wages
|
|
|
2,155,773
|
|
|
2,455,890
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,206,825
|
|
$
|
4,680,399
|
|
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE J - INCOME TAX
U.S. and foreign income before income tax expense (benefit) for the fiscal years ended April 30 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
(131,058)
|
|
$
|
2,400,998
|
|
Foreign
|
|
|
1,224,192
|
|
|
(1,534,697)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,093,134
|
|
$
|
866,301
|
|
Income Tax Provision
The income tax expense for the fiscal years ended April 30 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(160,490)
|
|
$
|
285,351
|
|
State
|
|
|
(311)
|
|
|
27,577
|
|
Foreign
|
|
|
684,623
|
|
|
531,245
|
|
Total Current
|
|
|
523,822
|
|
|
844,173
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
Federal
|
|
|
23,565
|
|
|
458,572
|
|
State
|
|
|
3,058
|
|
|
134,287
|
|
Foreign
|
|
|
99,587
|
|
|
294,383
|
|
Total Deferred
|
|
|
126,210
|
|
|
887,242
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
$
|
650,032
|
|
$
|
1,731,415
|
|
|
|
|
|
|
|
|
|
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE J - INCOME TAX - Continued
Income Tax Provision - Continued
The difference between the income tax expense and the amounts computed by applying the statutory Federal income tax rates to income before tax expense for the fiscal years ended April 30 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
U.S Federal Provision:
|
|
|
|
|
|
|
|
At statutory rate
|
|
$
|
229,558
|
|
$
|
181,922
|
|
State taxes
|
|
|
30
|
|
|
127,245
|
|
Foreign tax differential
|
|
|
216,033
|
|
|
75,990
|
|
Impact of state tax rate change
|
|
|
2,139
|
|
|
626
|
|
Foreign valuation allowance
|
|
|
(305,411)
|
|
|
1,216,504
|
|
Impact of foreign permanent items
|
|
|
400,179
|
|
|
62,544
|
|
Foreign currency exchange gain/loss
|
|
|
183,177
|
|
|
156,119
|
|
Foreign inflation adjustment
|
|
|
(75,673)
|
|
|
(96,749)
|
|
Stock based compensation
|
|
|
-
|
|
|
7,214
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
650,032
|
|
$
|
1,731,415
|
|
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
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:
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
|
Federal, foreign & state NOL carryforwards
|
|
$
|
904,074
|
|
$
|
1,196,341
|
|
Foreign tax credit
|
|
|
78,100
|
|
|
78,100
|
|
Reserves and accruals
|
|
|
748,977
|
|
|
657,471
|
|
Stock based compensation
|
|
|
402,394
|
|
|
360,065
|
|
Inventory
|
|
|
948,029
|
|
|
962,525
|
|
Other intangibles
|
|
|
722,192
|
|
|
778,744
|
|
Lease liabilities
|
|
|
1,936,772
|
|
|
83,233
|
|
Allowance for doubtful accounts
|
|
|
189,522
|
|
|
162,492
|
|
Other DTA
|
|
|
13,043
|
|
|
12,717
|
|
Federal benefit of state
|
|
|
6,464
|
|
|
5,822
|
|
Total gross deferred tax assets
|
|
|
5,949,567
|
|
|
4,297,510
|
|
Less: valuation allowance
|
|
|
(989,194)
|
|
|
(1,294,605)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
4,960,373
|
|
$
|
3,002,905
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
|
Property, machinery & equipment
|
|
$
|
(2,780,770)
|
|
$
|
(2,615,868)
|
|
Prepaids
|
|
|
(197,890)
|
|
|
(164,598)
|
|
Lease right-of-use assets
|
|
|
(1,885,484)
|
|
|
-
|
|
Total deferred tax liabilities
|
|
$
|
(4,864,144)
|
|
$
|
(2,780,466)
|
|
|
|
|
|
|
|
|
|
Deferred tax asset
|
|
$
|
284,435
|
|
$
|
384,022
|
|
Deferred tax liability
|
|
|
(188,206)
|
|
|
(161,583)
|
|
Net deferred tax (liability) asset
|
|
$
|
96,229
|
|
$
|
222,439
|
|
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE J - INCOME TAX - Continued
Deferred Tax Assets and Liabilities - Continued
The CARES Act was signed into law by the President of the U.S. on March 27, 2020. This legislation is aimed at providing relief for individuals and businesses impacted by the Coronavirus outbreak. The CARES Act includes several significant business tax provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (NOL), allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years, accelerate refunds of corporate Alternative Minimum Tax credits, temporarily increase the business interest limitation under section 163(j), and allow for deferral of payroll taxes.
The CARES Act also established the Paycheck Protection Program (“PPP”), to be administered by the SBA, whereby certain businesses are eligible for a loan to fund payroll expenses, rent, and related costs. The PPP loan may be forgiven if the funds are used for payroll and other qualified expenses within certain limits. As described in Note H, the Company received a PPP Loan under the CARES Act of $6,282,963. For federal income tax purposes, the CARES Act expressly provides that any forgiveness or cancellation of all or part of such loans will not be treated as income for tax purposes. It is expected, however, that if the loan is deemed forgiven any deductions for the covered expenses that gave rise to the loan forgiveness will be disallowed to prevent a double tax benefit. As of April 30, 2020 the loan has not been forgiven and thus the expenses have not been disallowed for federal income tax purposes.
Pursuant to the CARES Act, the Company will carry back its fiscal year 2018 NOL to prior tax years when it was subject to a 34.00% U.S. statutory income tax rate. It previously used this NOL to offset income generated in fiscal year 2019, at which time it was subject to a 21.00% U.S. statutory income tax rate. The Company’s fiscal year 2020 income tax provision includes an estimated $95,000 tax benefit and income tax receivable amount related to the NOL carryback. The Company continues to evaluate the impact of the CARES Act and subsequent guidance on its overall tax position.
As of April 30, 2019, the Company does not have a NOL carryforward for federal income tax purposes. The Company has state NOL carry-forwards totaling approximately $104,000 at April 30, 2020, that will begin to expire in fiscal year April 30, 2025. The Company has foreign NOL carryforwards of $3,839,611 as of April 30, 2020, which will begin to expire in 2023. The Company recognizes a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. With the exception of its foreign tax credits and foreign NOL described below, the Company determined it is more likely than not that it will realize its deferred tax assets due to the reversal of deferred tax liabilities and forecast of future earnings. The Company has established a valuation allowance of $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 $911,094 on its NOL 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.
Cash and cash equivalents held internationally may be subject to foreign withholding taxes if repatriated to the U.S. Absent meeting an exception, unrepatriated foreign earnings generally remain subject to local country withholding taxes upon repatriation. The Company continues to apply its permanent reinvestment assertion on the cumulative amount of unremitted earnings of $3,307,000 as of April 30, 2020, from its foreign subsidiaries.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE J - INCOME TAX - Continued
Unrecognized Tax Benefits
The Company has not identified any uncertain tax positions or expects any to be taken in the Company’s tax returns. For the fiscal years ended April 30, 2020 and April 30, 2019, the amount of consolidated worldwide liability for uncertain tax positions that impacted the Company’s effective tax rate was $0.
Other
Interest and penalties related to tax positions taken in the Company’s tax returns are recorded in income tax expense and miscellaneous selling, general and administrative expense, respectively, in the consolidated statements of operations. For the fiscal years ended April 30, 2020 and April 30, 2019, the amount included in the Company’s balance sheet for such liabilities was $0.
The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to state, local or foreign examinations by tax authorities for tax years before fiscal year 2015. Vietnam tax authorities recently concluded an examination of years 2009-2018 years and assessed an additional amount due totaling $153,000.
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 25.0% of the first 5.0% participant contributions up to $2,000.00 per participant annually. The Company contributed $201,819 and $96,086 to the plans during the fiscal years ended April 30, 2020 and April 30, 2019, respectively. The Company incurred total expenses of $8,250 and $11,750 for the fiscal years ended April 30, 2020 and April 30, 2019, 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, 2020, two customers accounted for 16.7% and 14.1% of net sales of the Company, and 3.6% and 5.0%, respectively, of accounts receivable at April 30, 2020. 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. Further, the Company has $355,324 in cash in China as of April 30, 2020. Effective May 1, 2015, China implemented a deposit insurance program to insure up to approximately $81,000 in deposits under certain circumstances. Funds above this amount are not insured by a guaranteed deposit insurance system. Under the Federal Deposit Insurance Corporation (“FDIC”) program deposit insurance insures up to $250,000.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE M - LEASES
The Company leases office and storage space, vehicles and other equipment under non-cancellable operating leases with initial terms typically ranging from 1 to 5 years. At contract inception, the Company reviews the facts and circumstances of the arrangement to determine if the contract is or contains a lease. The Company follows the guidance in Topic 842 to evaluate whether the contract has an identified asset; if the Company has the right to obtain substantially all economic benefits from the asset; and if the Company has the right to direct the use of the underlying asset. When determining if a contract has an identified asset, the Company considers both explicit and implicit assets, and whether the supplier has the right to substitute the asset. When determining if the Company has the right to direct the use of an underlying asset, the Company considers if they have the right to direct how and for what purpose the asset is used throughout the period of use and if they control the decision-making rights over the asset.
The Company’s lease terms may include options to extend or terminate the lease. The Company exercises judgment to determine the term of those leases when extension or termination options are present and include such options in the calculation of the lease term when it is reasonably certain that it will exercise those options.
The Company has elected to include both lease and non-lease components in the determination of lease payments. Payments made to a lessor for items such as taxes, insurance, common area maintenance, or other costs commonly referred to as executory costs, are also included in lease payments if they are fixed. The fixed portion of these payments are included in the calculation of the lease liability, while any variable portion would be recognized as variable lease expenses, when incurred. Variable payments made to third parties for these, or similar costs, such as utilities, are not included in the calculation of lease payments.
At commencement, lease-related assets and liabilities are measured at the present value of future lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company exercises judgment in determining the incremental borrowing rate based on the information available at when the lease commences to measure the present value of future payments.
Operating lease expense is recognized on a straight-line basis over the lease term. Finance lease cost includes amortization, which is recognized on a straight-line basis over the expected life of the leased asset, and interest expense, which is recognized following an effective interest rate method.
Operating leases are included in other assets, current operating lease obligations, and operating lease obligations (less current portion) on the Company’s consolidated balance sheet. Finance leases are included in property, plant and equipment and current and long-term portion of finance lease obligations on the Company’s consolidated balance sheet. Short term leases with an initial term of 12 months or less are not presented on the balance sheet with expense recognized as incurred.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE M - LEASES – Continued
The following table presents lease assets and liabilities and their balance sheet classification:
|
|
|
|
|
|
|
April 30,
|
|
Classification
|
|
2020
|
Operating Leases:
|
|
|
|
Right-of-use Assets
|
Other assets
|
$
|
7,235,166
|
Operating lease current liabilities
|
Current portion of operating lease obligations
|
|
2,150,161
|
Operating lease noncurrent liabilities
|
Operating lease obligations, less current portion
|
|
5,281,811
|
Finance Leases:
|
|
|
|
Right-of-use Assets
|
Property, plant and equipment
|
|
6,443,954
|
Finance lease current liabilities
|
Current portion of finance lease obligations
|
|
1,902,295
|
Finance lease noncurrent liabilities
|
Finance lease obligations, less current portion
|
|
1,884,722
|
The components of lease expense for the fiscal year ended April 30, 2020, are as follows:
|
|
|
|
|
|
|
April 30,
|
|
Classification
|
|
2020
|
Operating Leases:
|
|
|
|
Operating lease cost
|
Operating expenses
|
|
2,483,385
|
Variable lease cost
|
Operating expenses
|
|
300,274
|
Short term lease cost
|
Operating expenses
|
|
5,400
|
Finance Leases:
|
|
|
|
Amortization of right-of-use assets
|
Operating expenses
|
|
451,870
|
Interest expense
|
Interest expense
|
|
275,217
|
Total
|
|
|
3,516,146
|
The weighted average lease term and discount rates are as follows:
|
|
|
|
|
April 30,
|
|
|
2020
|
Operating Leases:
|
|
|
Weighted average remaining lease term (months)
|
|
52.7
|
Weighted average discount rate
|
|
3.8%
|
Finance Leases:
|
|
|
Weighted average remaining lease term (months)
|
|
26.27
|
Weighted average discount rate
|
|
7.4%
|
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE M - LEASES – Continued
Future payments due under leases reconciled to lease liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
Finance Leases
|
For the fiscal years ending April 30:
|
|
|
|
|
|
|
2021
|
|
|
2,295,166
|
|
|
2,118,178
|
2022
|
|
|
1,652,790
|
|
|
1,374,628
|
2023
|
|
|
1,669,822
|
|
|
498,307
|
2024
|
|
|
1,161,702
|
|
|
167,721
|
2025
|
|
|
506,151
|
|
|
-
|
Thereafter
|
|
|
487,123
|
|
|
-
|
Total undiscounted lease payments
|
|
|
7,772,754
|
|
|
4,158,834
|
Present value discount, less interest
|
|
|
340,782
|
|
|
371,817
|
Lease liability
|
|
$
|
7,431,972
|
|
$
|
3,787,017
|
Supplemental disclosures of cash flow information related to leases as of fiscal year ended April 30, 2020 are as follows:
|
|
|
April 30,
|
Other Information
|
2020
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
Operating cash flows from finance leases
|
275,217
|
Operating cash flows from operating leases
|
275,654
|
Financing cash flows from finance leases
|
2,099,685
|
Supplemental non-cash information on lease labilities arising from obtaining
right-of-use assets:
|
|
Right-of-use assets obtained in exchange for new finance lease liabilities
|
1,084,543
|
Right-of-use assets obtained in exchange for operating lease liabilities
|
3,305,503
|
The future minimum lease payments due under operating and capital leases and sale leaseback arrangements under the previous leases standard as of April 30, 2019, were as follows:
|
|
|
|
|
|
Fiscal Year
|
Operating leases
|
|
Capital leases and sale leaseback
|
Years Ending April 30,
|
|
|
|
|
|
2020
|
$
|
1,808,984
|
|
$
|
2,215,849
|
2021
|
|
1,387,697
|
|
|
1,792,747
|
2022
|
|
757,738
|
|
|
1,049,198
|
2023
|
|
736,385
|
|
|
133,819
|
2024
|
|
42,000
|
|
|
-
|
Total
|
$
|
4,732,804
|
|
$
|
5,191,613
|
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
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, 2020, the Company has 102,000 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 using the Black-Scholes option pricing model.
The Company granted 48,000 options to employees in fiscal year 2020, which vested immediately. The Company recognized approximately $90,432 in compensation expense in fiscal year 2020. The balance of unrecognized compensation expense was $0 at April 30, 2020.
The Company granted 117,914 options to employees in fiscal year 2019. The Company recognized approximately $166,612 in compensation expense in fiscal year 2019. The balance of unrecognized compensation expense was $0 at April 30, 2019.
In December 2019, the Company issued 15,000 shares of restricted stock pursuant to the 2018 Non-Employee Director Restricted Stock Plan, which fully vests on June 1, 2020. The Company recognized $54,821 in compensation expense in fiscal year 2020. The balance of unrecognized compensation expense related to the Company’s restricted stock award was $15,229 at April 30, 2020. In October 2018, the Company issued 12,500 shares of restricted stock pursuant to the 2018 Non-Employee Director Restricted Stock Plan, which fully vested 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, 2020:
|
|
|
|
|
|
|
|
|
|
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, 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
|
Options granted during 2020
|
|
48,000
|
|
|
4.28
|
|
|
Outstanding at April 30, 2020
|
|
513,232
|
|
$
|
5.13
|
|
513,232
|
Intrinsic value is calculated as the positive difference between the market price of the Company’s common stock and the exercise price of the underlying options. As of April 30, 2020 and April 30, 2019, there was no aggregate intrinsic value of the options outstanding.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE N - STOCK COMPENSATION AND EQUITY TRANSACTIONS – Continued
Information with respect to stock options outstanding and exercisable at April 30, 2020 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding and exercisable
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
Weighted-average
|
|
|
Weighted-
|
|
|
outstanding at
|
|
remaining
|
|
|
average
|
|
|
April 30, 2020
|
|
contract life
|
|
|
exercise price
|
Range of exercise prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 3.20-6.45
|
|
513,232
|
|
6.04 years
|
|
$
|
5.13
|
|
|
|
|
|
|
|
|
|
|
513,232
|
|
|
|
$
|
5.13
|
As of April 30, 2020, there were no non-vested stock options.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE O - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial data for fiscal year 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
2020
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
74,009,981
|
|
$
|
74,855,312
|
|
$
|
67,407,268
|
|
$
|
64,769,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
6,960,332
|
|
|
7,129,486
|
|
|
5,521,777
|
|
|
5,493,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
|
|
|
608,140
|
|
|
977,289
|
|
|
(319,770)
|
|
|
(172,525)
|
taxes (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
361,025
|
|
|
661,183
|
|
|
(217,039)
|
|
|
(362,067)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
$
|
0.09
|
|
$
|
0.15
|
|
$
|
(0.05)
|
|
$
|
(0.09)
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
$
|
0.09
|
|
$
|
0.15
|
|
$
|
(0.05)
|
|
$
|
(0.09)
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares- Basic
|
|
|
4,241,883
|
|
|
4,242,508
|
|
|
4,242,508
|
|
|
4,242,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares- Diluted
|
|
|
4,241,883
|
|
|
4,278,901
|
|
|
4,242,508
|
|
|
4,242,508
|
|
1.)
|
|
The Company records inventory reserves for valuation and shrinkage throughout the year based on historical data. In the fourth quarter of fiscal year 2020 physical inventory results were completed resulting in an increase in income before income taxes of approximately $530,000.
|
The aggregate after-tax effect for the above adjustments in the fourth quarter of fiscal year 2020 was an increase to basic earnings per share of $0.05.
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019
NOTE O - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued
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.
|
|
2.)
|
|
The Company recorded a discrete expense of approximately $457,000 during the second quarter related to a valuation allowance recorded on NOL carryforwards at two of its foreign subsidiaries.
|
The aggregate after-tax effect for the above adjustment 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, 2020 and 2019
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.