UNITED STATES

SECURITIES AND EXCHANGE COMM ISSION



Washington, D.C. 20549



_________________





Form 10-Q



__________________



(Mark One)

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

      EXCHANGE ACT OF 1934



For the quarterly period ended J ul y 31, 201 7



OR



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

     EXCHANGE ACT OF 1934



For the transition period from    to



Commission File Number 0-23248



SIGMATRON INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

_________________





 

Delaware

36-3918470

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)



 

2201 Landmeier Road

 

Elk Grove Village, Illinois

60007

(Address of principal executive offices)

(Zip Code)



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

__________________



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


 

SigmaTron International, Inc.

July 31, 2017

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such fi les .     Yes    No 



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



Large accelerated filer        Accelerated filer  



Non-accelerated filer       (Do not check if a smaller reporting company)    Smaller reporting company    



Emerging growth company    



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



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



Indicate the number of shares outstanding of the registrant’s common stock, $0.01 par value, as of September   1 1 ,   201 7 4 , 200 , 773







 

2

 


 

 



SigmaTron International, Inc.



Index





 

 

 

 



 

 

 

 

PART 1.

FINANCIAL INFORMATION:         

 

Page No.



Item 1.

Condensed Consolidated Financial Statements

 

 



 

Condensed Co nso lidated Balance Sheets – J ul y 31, 201 7   (Unaudited ) and April 30, 2017

 



 

Condensed Consolidated Statements of Income – (Unaudited)

 

 



 

Three Months Ended J ul y 31, 201 7   and 20 16

 



 

Condensed Consolidated Statements of Cash Flows – (Unaudited)

 

 



 

Three   Months Ended J ul y 31, 201 7 and 20 16

 



 

Notes to Condensed Consolidated Financial Statements – (Unaudited)  

 



Item 2.

Management’s Discussion and Analysis of Financial Condition and

 

23 

 

Results of Operations



Item 3.

Quantitative and Qualitative Disclosures About Market Risks

 

31 



Item 4.

Controls and Procedures

 

31 



 

 

 

 

PART II

OTHER INFORMATION:

 

 



Item 1.

Legal Proceedings

 

32 



Item 1A.

Risk Factors

 

32 



Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

32 



Item 3.

Defaults Upon Senior Securities

 

32 



Item 4.

Mine Safety Disclosures

 

32 



Item 5.

Other Information

 

32 



Item 6.

Exhibits

 

33 



 

Signatures

 

34 



 

 

 

 

 



 

3

 


 

 



SigmaTron International, Inc.

Condensed Consolidated Balance Sheets





 

 

 

 

 



 

 

 

 

 



 

July 31,

 

 

 



 

2017

 

 

April 30,



 

(Unaudited)

 

 

2017



 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

1,957,292 

 

$

3,493,324 

Accounts receivable, less allowance for doubtful

 

 

 

 

 

accounts of $100,000 at July 31, 2017 and April 30, 2017,

 

 

 

 

 

respectively

 

26,039,115 

 

 

26,656,871 

Inventories, net

 

81,294,687 

 

 

73,571,238 

Prepaid expenses and other assets

 

2,053,540 

 

 

2,971,087 

Refundable income taxes

 

533,024 

 

 

339,791 

Note receivable

 

887,531 

 

 

887,531 

Other receivables

 

1,180,292 

 

 

1,112,071 



 

 

 

 

 

Total current assets

 

113,945,481 

 

 

109,031,913 



 

 

 

 

 

Property, machinery and equipment, net

 

36,210,595 

 

 

33,008,714 



 

 

 

 

 

Intangible assets, net of amortization of $4,811,356 and

 

 

 

 

 

$4,698,765 at July 31, 2017 and April 30, 2017, respectively

 

4,100,644 

 

 

4,213,235 

Goodwill

 

3,222,899 

 

 

3,222,899 

Deferred income taxes

 

236,087 

 

 

236,087 

Other assets

 

1,094,283 

 

 

1,472,816 

   

 

 

 

 

 

Total other long-term assets

 

8,653,913 

 

 

9,145,037 



 

 

 

 

 

Total assets

$

158,809,989 

 

$

151,185,664 



 

 

 

 

 

Liabilities and stockholders' equity:

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Trade accounts payable

$

50,615,009 

 

$

44,859,344 

Accrued wages

 

4,482,277 

 

 

4,489,602 

Accrued expenses

 

2,270,129 

 

 

3,623,106 

Income taxes payable

 

268,617 

 

 

69,868 

Current portion of long-term debt

 

478,782 

 

 

351,562 

Current portion of capital lease obligations

 

1,849,234 

 

 

1,711,204 

Current portion of contingent consideration

 

256,858 

 

 

286,240 

Current portion of deferred rent

 

229,571 

 

 

220,288 



 

 

 

 

 

Total current liabilities

 

60,450,477 

 

 

55,611,214 



 

 

 

 

 

Long-term debt, less current portion

 

29,428,485 

 

 

27,192,246 

Capital lease obligations, less current portion

 

3,437,357 

 

 

3,364,825 

Contingent consideration, less current portion

 

237,578 

 

 

237,578 

Deferred rent, less current portion

 

487,106 

 

 

555,348 

Other long-term liabilities

 

1,040,916 

 

 

991,017 

Deferred income taxes

 

1,363,842 

 

 

1,361,291 



 

 

 

 

 

Total long-term liabilities

 

35,995,284 

 

 

33,702,305 



 

 

 

 

 

Total liabilities

 

96,445,761 

 

 

89,313,519 



 

 

 

 

 



 

 

 

 

 

4

 


 

 

Commitments and contingencies

 

 

 

 

 



 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

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

 

 

 

 

 

authorized, none issued or outstanding

 

 -

 

 

 -

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

 

 

 

 

 

authorized, 4,199,773 and 4,195,813 shares issued and

 

 

 

 

 

outstanding at July 31, 2017 and April 30, 2017, respectively

 

41,741 

 

 

41,702 

Capital in excess of par value

 

23,061,697 

 

 

22,952,535 

Retained earnings

 

39,260,790 

 

 

38,877,908 



 

 

 

 

 

Total stockholders' equity

 

62,364,228 

 

 

61,872,145 



 

 

 

 

 

Total liabilities and stockholders' equity

$

158,809,989 

 

$

151,185,664 



 

 

 

 

 

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



























5

 


 

 

SigmaTron International, Inc.

Condensed Consolidated Statements o f   Income









 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months

 

 

Three Months

 



 

Ended

 

 

Ended

 

 

 

July 31,

 

 

July 31,

 



 

2017

 

 

2016

 



 

(Unaudited)

 

 

(Unaudited)

 



 

 

 

 

 

 

Net sales

$

71,224,293 

 

$

59,184,975 

 

Cost of products sold

 

64,467,239 

 

 

53,414,741 

 



 

 

 

 

 

 

Gross profit

 

6,757,054 

 

 

5,770,234 

 



 

 

 

 

 

 

Selling and administrative expenses

 

5,912,146 

 

 

5,359,535 

 



 

 

 

 

 

 

Operating income

 

844,908 

 

 

410,699 

 



 

 

 

 

 

 

Other income

 

(44,351)

 

 

(59,402)

 

Interest expense

 

308,414 

 

 

243,243 

 

Income from operations before income tax expense

 

580,845 

 

 

226,858 

 



 

 

 

 

 

 

Income tax expense

 

197,963 

 

 

80,261 

 



 

 

 

 

 

 

Net income

$

382,882 

 

$

146,597 

 



 

 

 

 

 

 



 

 

 

 

 

 

Earnings per share - basic

$

0.09 

 

$

0.04 

 



 

 

 

 

 

 

Earnings per share - diluted

$

0.09 

 

$

0.03 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

 

 

 

 

 

Basic

 

4,195,985 

 

 

4,183,955 

 



 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

 

 

 

 

 

Diluted

 

4,269,501 

 

 

4,214,535 

 



 

 

 

 

 

 

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











6

 


 

 







SigmaTron International, Inc.

Condensed Consolidated Statements of Cash Flows







 

 

 

 

 



 

 

 

 

 



 

Three

 

 

Three



 

Months Ended

 

 

Months Ended



 

July 31,

 

 

July 31,



 

2017

 

 

2016



 

(Unaudited)

 

 

(Unaudited)



 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

Net income

$

382,882 

 

$

146,597 



 

 

 

 

 

Adjustments to reconcile net income

 

 

 

 

 

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

 

 

 

 

 

Depreciation and amortization

 

1,275,044 

 

 

1,269,941 

Stock-based compensation

 

83,659 

 

 

85,555 

Deferred income tax expense (benefit)

 

2,551 

 

 

(65,184)

Amortization of intangible assets

 

112,591 

 

 

121,415 

Amortizaton of financing fees

 

12,000 

 

 

11,237 

Fair value adjustment of contingent consideration

 

16,493 

 

 

 -

Loss from disposal or sale of machinery and equipment

 

64 

 

 

29,429 



 

 

 

 

 

Changes in assets and liabilities

 

 

 

 

 

Accounts receivable

 

617,756 

 

 

(1,518,722)

Inventories

 

(7,723,449)

 

 

(4,763,160)

Prepaid expenses and other assets

 

1,309,174 

 

 

786,280 

Refundable income taxes

 

(193,233)

 

 

31,063 

Income taxes payable

 

198,749 

 

 

43,908 

Trade accounts payable

 

5,755,665 

 

 

3,052,317 

Deferred rent

 

(58,959)

 

 

(50,255)

Accrued expenses and wages

 

(1,391,718)

 

 

(1,044,064)



 

 

 

 

 

Net cash provided by (used in) operating activities

 

399,269 

 

 

(1,863,643)



 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Purchases of machinery and equipment

 

(3,823,955)

 

 

(1,244,331)



 

 

 

 

 

Net cash used in investing activities

 

(3,823,955)

 

 

(1,244,331)



 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds from the exercise of common stock options

 

25,542 

 

 

 -

Proceeds from Employee stock purchases

 

 -

 

 

6,875 

Proceeds under equipment note

 

636,100 

 

 

 -

Payments of contingent consideration

 

(45,875)

 

 

(81,842)

Payments under capital lease and sale leaseback agreements

 

(442,472)

 

 

(403,687)

Payments under equipment note

 

(46,640)

 

 

 -

Payments under building notes payable

 

(41,250)

 

 

(41,250)

Borrowings under lines of credit

 

2,676,851 

 

 

22,052,033 

Payments under lines of credit

 

(858,971)

 

 

(18,608,823)

Payments of financing fees

 

(14,631)

 

 

 -



 

 

 

 

 

Net cash provided by financing activities

 

1,888,654 

 

 

2,923,306 



 

 

 

 

 

Change in cash and cash equivalents

 

(1,536,032)

 

 

(184,668)

7

 


 

 

Cash and cash equivalents at beginning of period

 

3,493,324 

 

 

4,325,268 



 

 

 

 

 

Cash and cash equivalents at end of period

$

1,957,292 

 

$

4,140,600 



 

 

 

 

 

Supplementary disclosures of cash flow information

 

 

 

 

 

Cash paid for interest

$

285,391 

 

$

243,180 

Cash paid for income taxes

 

166,810 

 

 

112,517 

Purchase of machinery and equipment financed

 

 

 

 

 

 under capital leases

 

653,034 

 

 

825,025 

Financing of insurance policy

 

81,315 

 

 

75,011 

 





 

8

 


 

SigmaTron International, Inc.

July 31, 201 7

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note A - Basis of Presentation



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



Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the three   month period ended J ul y 31, 201 7   is not necessarily indicative of the results that may be expected f or the year ending April 30, 201 8 .  For further information, refer to the condensed consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended April 30, 201 7 .

 

Note B - Inventories , net



The components of inventory consist of the following:









 

 

 

 

 



 

 

 

 

 



July 31,

 

April 30,



2017

 

2017



 

 

 

 

 

Finished products

$

22,006,677 

 

$

20,291,768 

Work-in-process

 

2,087,011 

 

 

1,795,852 

Raw materials

 

58,453,987 

 

 

52,748,542 



 

82,547,675 

 

 

74,836,162 

Less excess and obsolescence reserve

 

(1,252,988)

 

 

(1,264,924)



$

81,294,687 

 

$

73,571,238 

 



9

 


 

SigmaTron International, Inc.

July 31, 201 7

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note C - Earnings Per Share and Stockholders’ Equity



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







 

 

 

 

 

 



Three Months Ended

 



July 31,

 



2017

 

2016

 



 

 

 

 

 

 

Net income

$

382,882 

 

$

146,597 

 

Weighted-average shares

 

 

 

 

 

 

Basic

 

4,195,985 

 

 

4,183,955 

 

Effect of dilutive stock options

 

73,516 

 

 

30,580 

 



 

 

 

 

 

 

Diluted

 

4,269,501 

 

 

4,214,535 

 



 

 

 

 

 

 

Basic earnings per share

$

0.09 

 

$

0.04 

 



 

 

 

 

 

 

Diluted earnings per share

$

0.09 

 

$

0.03 

 



Options to purchase 36 2 , 803 and 367 , 963 shares of common stock were outstanding at J ul y 31, 201 7 and 201 6 , respectively.  There were no options granted during the three month period ended J ul y 31, 201 7 and 2016, respectively.  The Company recognized $ 8 3 , 6 59 and $ 8 3 , 6 73   in stock option expense for the three month period ended J ul y 31, 201 7 and 201 6 , respectively.  The balance of unrecognized compensation expense related to the Company’s stock option plans was $ 0 and $ 329 , 210   at J ul y 31, 201 7 and 201 6 , respectively.  There were no anti-dilutive common stock equivalents during the three month period ended J ul y 31, 2017 .  There were 24,123 anti-dilutive common stock equivalents during the three month period ended July 31, 2016 which were excluded from the calculation of diluted earnings per share.

 

On October 1, 2016 , the Company issued 11,250 shares of restricted stock pursuant to the 2013 Non-Employee Director Restricted Stock Plan, which fully vest ed on April 1, 2017 .  The Company recognized no compensation expense with respect to such shares for the three month period ended July 31, 2017.



The Company implemented an employee stock purchase plan (“ESPP”) for all eligible employees on February 1, 2014. The ESPP reserved 500,000 shares of common stock for issuance to employees.  In addition, the number of shares of common stock reserved for issuance under the plan automatically increases on the first day of the Company’s fiscal years by 25,000 shares.  The ESPP was terminated effective August 15, 2016.  Final purchases under the ESPP were completed on August 31, 2016.  The Company recorded $0 and $1,882 in compensation expense for the three months ended July 31, 2017 and 2016 respectively.     The Company recorded $ 6 , 875   to stockholders’ equity relating to purchases under the ESPP for the three months ended J ul y 31, 2016. 



 

10

 


 

SigmaTron International, Inc.

July 31, 201 7

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note D - Long-term Debt



Notes Payable – Banks



On March 31, 2017, the Company entered into a $35,000,000 senior secured credit facility with U.S. Bank, N.A., 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 fixed rate of four percent or LIBOR plus one and one half percent (effectively 2.75% at July 31, 2017).  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 receivable borrowing base plus a percentage of the inventory borrowing base.  Deferred financing costs of $207,647 were capitalized in the fourth quarter of fiscal 2017 and will be amortized over the term of the agreement.  As of July 31, 2017, there was $24,996,309 outstanding and $10,003,691 of unused availability under the credit facility agreement compared to an outstanding balance of $23,178,429 and $11,821,571 of unused availability at April 30, 2017.  At July 31, 2017, the Company was in compliance with its financial covenant and other restricted covenants under the credit facility.



On August 4, 2015, the Company’s wholly-owned subsidiary, Wujiang SigmaTron Electronics Co., Ltd., entered into a credit facility with China Construction Bank.  Under the agreement Wujiang SigmaTron Electronics Co., Ltd. c ould borrow up to 5,000,000 Renminbi and the facility wa s collateralized by Wujiang SigmaTron Electronics Co., Ltd.’s manufacturing building.  Interest wa s payable monthly and the facility had a fixed interest rate of 6.67%.  The facility was due to expire on August 3, 2017.  The credit facility was closed as of March 1, 2017. There was no outstanding balance under the facility at July 31, 2017 or April 30, 2017.



On March 24, 2017, 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 9,000,000 Renminbi 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 February 7, 2018.  There was no outstanding balance under the facility at July 31, 2017 or April 30, 2017.



Notes Payable – Buildings



The Company entered into a mortgage agreement on January 8, 2010, in the amount of $2,500,000, with Wells Fargo, N.A. to refinance the property that serves as the Company’s corporate headquarters and its Illinois manufacturing facility.  On November 24, 2014, the Company refinanced the mortgage agreement with Wells Fargo, N.A.  The note requires the Company to pay monthly principal payments in the amount of $9,500, bears an interest rate of LIBOR plus two and one-quarter percent (effectively 3.50% at July 31, 2017) and is payable over a sixty month period.  A final payment of

11

 


 

SigmaTron International, Inc.

July 31, 201 7

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note D - Long-term Debt - Continued



approximately $2,289,500 is due on or before November 8, 2019.  The outstanding balance was $2,546,000 and $2,574,500 at July 31, 2017 and April 30, 2017, respectively.



The Company entered into a mortgage agreement on October 24, 2013, in the amount of $1,275,000, with Wells Fargo, N.A. to finance the property that serves as the Company’s engineering and design center in Elgin, Illinois.  The Wells Fargo, N.A. note requires the Company to pay monthly principal payments in the amount of $4,250, bears interest at a fixed rate of 4.5% per year and is payable over a sixty month period.  A final payment of approximately $1,030,000 is due on or before October 2018.  The outstanding balance was $1,083,750 and $1,096,500 at July 31, 2017 and April 30, 2017, respectively.



Note Payable – Equipment



On November 1, 2016, the Company entered into a secured note agreement with Engencap Fin S.A. DE C.V. to finance the purchase of equipment in the amount of $596,987. The term of the agreement extends to November 1, 2021 with average quarterly payments of $35,060 beginning on February 1, 2017 and a fixed interest rate of 6.65%.  The balance outstanding under this note agreement was $537,288 and $567,138 at July 31, 2017 and April 30, 2017, respectively. 



On February 1, 2017, the Company entered into a secured note agreement with Engencap Fin S.A. DE C.V. to finance the purchase of equipment in the amount of $335,825. The term of the agreement extends to February 1, 2022 with average quarterly payments of $20,031 beginning on May 1, 2017 and a fixed interest rate of 7.35%.  The balance outstanding under this note agreement was $319,034 and $335,825 at July 31, 2017 and April 30, 2017, respectively. 



On June 1, 2017, the Company entered into a secured note agreement with Engencap Fin S.A. DE C.V. to finance the purchase of equipment in the amount of $636,100. The term of the agreement extends to June 1, 2022 with average quarterly payments of $37,941 beginning on September 1, 2017 and a fixed interest rate of 7.35%.  The balance outstanding under this note agreement was $636,100 at July 31, 2017.



Capital Lease and Sales Leaseback Obligations



From October 2013 through June 2017, the Company entered into various capital lease and sales leaseback agreements with Associated Bank, National Association to purchase equipment totaling $6,893,596.  The terms of the lease agreements extend to September 2018 through May 2022 with monthly installment payments ranging from $1,455 to $40,173 and a fixed interest rate ranging from 3.75% to 4.90%.  The balance outstanding under these capital lease agreements was $3,951,842 and $3,627,760 at July 31, 2017 and April 30, 2017, respectively.  The net book value of the equipment under these leases was $5,225,480 and $4,713,044 at July 31, 2017 and April 30, 2017, respectively. 



From April 2014 through July 2015, the Company entered into various capital lease agreements with CIT Finance LLC to purchase equipment totaling $2,512,051.  The terms of the lease agreements extend to March 2019 through July 2020 with monthly installment payments ranging from $1,931 to $12,764 and a fixed interest rate ranging from 5.65% through 6.50%.  The balance outstanding under these capital lease agreements was $1,334,749 and $1,448,269 at July 31, 2017 and April 30, 2017,

12

 


 

SigmaTron International, Inc.

July 31, 201 7

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note D - Long-term Debt - Continued



respectively.  The net book value of the equipment under these leases was $1,893,691 and $1,946,026 at July 31, 2017 and April 30, 2017, respectively.

 

Note E - Goodwill and Other Intangible Assets



Goodwill



There were no changes in the carrying amount of tax-deductible goodwill in the amount of $3,222,899 for the three months ended July 31, 2017 and 2016, respectively.



Other Intangible Assets



Intangible assets subject to amortization are summarized as of July 31, 2017 as follows:





 

 

 

 

 

 

 



 

 

 

 

 

 

 



Weighted Average

 

 

 

 

 

 



Remaining

 

Gross

 

 

 



Amortization

 

Carrying

 

Accumulated



Period (Years)

 

Amount

 

Amortization



 

 

 

 

 

 

 

Other intangible assets – Able

-

 

$

375,000 

 

$

375,000 

Customer relationships – Able

-

 

 

2,395,000 

 

 

2,395,000 

Spitfire:

 

 

 

 

 

 

 

Non-contractual customer relationships

9.83

 

 

4,690,000 

 

 

1,329,320 

Backlog

-

 

 

22,000 

 

 

22,000 

Trade names

14.83

 

 

980,000 

 

 

253,146 

Non-compete agreements

1.83

 

 

50,000 

 

 

36,890 

Patents

-

 

 

400,000 

 

 

400,000 

Total

 

 

$

8,912,000 

 

$

4,811,356 





13

 


 

SigmaTron International, Inc.

July 31, 201 7

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note E - Goodwill and Other Intangible Assets - Continued



Intangible assets subject to amortization are summarized as of April 30, 2017, as follows:







 

 

 

 

 

 

 



 

 

 

 

 

 

 



Weighted Average

 

 

 

 

 

 



Remaining

 

Gross

 

 

 



Amortization

 

Carrying

 

Accumulated



Period (Years)

 

Amount

 

Amortization



 

 

 

 

 

 

 

Other intangible assets – Able

-

 

$

375,000 

 

$

375,000 

Customer relationships – Able

-

 

 

2,395,000 

 

 

2,395,000 

Spitfire:

 

 

 

 

 

 

 

Non-contractual customer relationships

10.08

 

 

4,690,000 

 

 

1,237,410 

Backlog

-

 

 

22,000 

 

 

22,000 

Trade names

15.08

 

 

980,000 

 

 

240,897 

Non-compete agreements

2.08

 

 

50,000 

 

 

35,105 

Patents

0.08

 

 

400,000 

 

 

393,353 

Total

 

 

$

8,912,000 

 

$

4,698,765 





Estimated aggregate amortization expense for intangible assets, which becomes fully amortized in 2032, for the remaining periods is as follows:





 

 

 

 



 

 

 

 

For the remaining 9 months of the fiscal year ending April 30:

2018

 

$

322,452 

For the fiscal year ending April 30:

2019

 

 

423,721 



2020

 

 

411,406 



2021

 

 

403,199 



2022

 

 

395,578 



Thereafter

 

 

2,144,288 



 

 

$

4,100,644 



Amortization expense was $112,591   and $121,415   for the three months ended July 31, 2017 and 2016, respectively. 



14

 


 

SigmaTron International, Inc.

July 31, 201 7

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note E - Goodwill and Other Intangible Assets - Continued



In conjunction with the May 2012 acquisition of Spitfire, an estimate of the fair value of the contingent consideration, $2,320,000, was recorded based on expected operating results through fiscal 2019 and the specific terms of when such consideration would be earned.  Those terms provide 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 are made quarterly each year and adjusted after each year-end audit.  The Company made payments totaling $342,162 during fiscal year 2016.  The Company made payments totaling $273,672 during fiscal year 2017.  During fiscal year 2017 the Company decreased the estimated remaining payments expected to be paid under the agreement, which resulted in a decrease of $353,591 to the contingent consideration liability.  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.  The Company made one payment in the quarter ended July 31, 2017 in the amount of $45,875.  As of July 31, 2017, the contingent consideration liability was $494,436 compared to $523,818 at April 30, 2017.

 

Note F - Commitments and Contingencies



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

 

15

 


 

SigmaTron International, Inc.

July 31, 201 7

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note G - Critical Accounting Policies



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



Revenue Recognition - Revenues from sales of the Company's electronic manufacturing services business are recognized when the finished good product is shipped to the customer.  In general, and except for consignment inventory, it is the Company's policy to recognize revenue and related costs when the finished goods have been shipped from its facilities, which is also the same point in time that title passes under the terms of the purchase order and control passes to the customer.  Finished goods inventory for certain customers is shipped from the Company to an independent warehouse for storage or shipped directly to the customer and stored in a segregated part of the customer’s own facility.  Upon the customer’s request for finished goods inventory, the inventory is shipped to the customer if the inventory was stored off-site, or transferred from the segregated part of the customer’s facility for consumption or use by the customer.  The Company recognizes revenue upon such shipment or transfer.  The Company does not earn a fee for such arrangements.  The Company from time to time may ship finished goods from its facilities, which is also the same point in time that title passes under the terms of the purchase order, and invoice the customer at the end of the calendar month.  This is done only in special circumstances to accommodate a specific customer.  Further, from time to time customers request the Company hold finished goods after they have been invoiced to consolidate finished goods for shipping purposes.  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 does not have any installation, acceptance or sales incentives (although the Company has negotiated longer warranty terms in certain instances).  The Company assembles and tests assemblies based on customers’ specifications.  Historically, the amount of returns for workmanship issues has been de minimis under the Company’s standard or extended warranties.



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 market.  The Company establishes inventory reserves for valuation, 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.



16

 


 

SigmaTron International, Inc.

July 31, 201 7

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note G - Critical 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.  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.  The Company performed its annual goodwill impairment test as of February 1, 2017 and determined no impairment existed as of that date.  The step one analysis was performed using a combination of a market approach and an income approach based on a discounted cash flow approach.  The Company did not note any triggering events that might indicate an impairment during the three month period ended July 31, 2017. 



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.



Impairment of Long-Lived Assets - The Company reviews long-lived assets, including amortizable intangible assets, for impairment.  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.  As of July 31, 2017, there were no indicators of possible impairment of long-lived assets.



Income Tax - 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



17

 


 

SigmaTron International, Inc.

July 31, 201 7

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note G - Critical Accounting Policies - Continued



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.  The Company established a valuation allowance of $78,100 related to its foreign tax credit carry-forward at April 30, 2017.  The Company did not change the previous valuation allowance or establish any new valuation allowances at July 31, 2017. 



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.  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.



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 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.



Reclassifications - Certain reclassifications have been made to the previously reported 2017 financial statements to conform to the 2018 presentation.  There was no change to net income.





18

 


 

SigmaTron International, Inc.

July 31, 201 7

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note G - Critical Accounting Policies - Continued



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” . This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue. In August 2015, the FASB amended the effective date to be annual reporting periods beginning after December 15, 2017, including interim periods within that year (effective the first quarter of the Company’s fiscal year ending April 30, 2019), with early adoption permitted for annual reporting periods beginning after December 15, 2016 including the interim period within that year. The FASB issued several amendments clarifying various aspects of the ASU, including revenue transactions that involve a third party, goods or services that are immaterial in the context of the contract and licensing arrangements. ASC 606 may be adopted on either a full retrospective or modified retrospective basis. The Company plans to adopt the ASU effective the first quarter of fiscal year ending April 30, 2019.  As the new standard will supersede all existing revenue guidance affecting the Company, it could impact the timing and amounts of revenue and costs recognized from customer contracts.  The Company continues to evaluate the impact that adoption of the standard will have on its consolidated financial statements including the preparation of expanded disclosures.  The Company plans to select a transition method as part of its implementation plan by the end of the current fiscal year.  



In July 2015, the FASB issued ASU No. 2015-11, “ Inventory (Topic 330): Simplifying the Measurement of Inventory” .  ASU No. 2015-11 requires an entity that determines the cost of inventory by methods other than last-in, first-out (LIFO) and the retail inventory method (RIM) to measure inventory at the lower of cost and net realizable value.  Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This amendment applies to all inventory that is measured using the average cost or first-in first-out (FIFO) methods. This supersedes prior guidance which allowed entities to measure inventory at the lower of cost or market, where market could be replacement cost, net realizable value or net realizable value less an approximately normal profit margin.  ASU No. 2015-11 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2016 and prospective application is required.  The Company adopted the ASU on May 1, 2017 and the adoption did not have an impact on our consolidated financial position or results of operations.



In February 2016, the FASB issued ASU No. 2016-02, “ Leases” . The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.  The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for capital leases and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.  While the Company is still evaluating the impact of its pending adoption of the new

19

 


 

SigmaTron International, Inc.

July 31, 201 7

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note G - Critical Accounting Policies - Continued



standard on its consolidated financial statements, the Company expects that upon adoption in the fiscal year ending April 30, 2020, it will recognize ROU assets and lease liabilities and that the amounts could be material.



In March 2016, the FASB issued ASU No. 2016-09, “ Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”, a new accounting standard update intended to simplify several aspects of the accounting for share-based payment transactions including: income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Specifically, the update requires that excess tax benefits and tax deficiencies (the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes) be recognized as income tax expense or benefit in the Consolidated Statements of Income, introducing a new element of volatility to the provision for income taxes. This update is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company adopted the ASU on May 1, 2017.  Effective with the adoption of the ASU all share-based awards continue to be accounted for as equity awards, excess tax benefits recognized on stock-based compensation expense are reflected in the consolidated statements of income as a component of the provision for income taxes on a prospective basis, excess tax benefits recognized on stock-based compensation expense are classified as an operating activity in the consolidated statements of cash flows on a prospective basis and the Company has elected to continue to estimate expected forfeitures over the course of a vesting period.  The adoption of the ASU had no impact on the retained earnings, other components of equity or net assets as of the beginning of the period of adoption. 



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.



In August 2016, the FASB issued ASU Update No. 2016-15, “Statement of Cash Flows- Classification of Certain Cash Receipts and Cash Payments, ” which is intended to reduce diversity in practice in how certain transactions are classified in the statements of cash flows. This update will be effective for fiscal years beginning after December 15, 2017 (the Company’s fiscal year ending April 30, 2019), and interim periods within those fiscal years. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method.  The Company plans to adopt the ASU in its fiscal year ending April 30, 2019 using the retrospective transition method.  The Company does not expect the impact of the adoption of this ASU to have a material impact on the Company’s Consolidated Statements of Cash Flows.

20

 


 

SigmaTron International, Inc.

July 31, 201 7

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note G - Critical Accounting Policies - Continued



In January 2017, the FASB issued 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. Goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the recorded amount of goodwill. This guidance is effective for public companies for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and early adoption is permitted. The Company does not expect this guidance to have a significant impact on its financial statements and plans to adopt ASU No. 2017-04 in its fiscal year ending April 30, 2018.



In January 2017, the FASB issued ASU No. 2017-01, “ Business Combinations (Topic 805): Clarifying the Definition of a Business ,” which clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.  For public companies, this ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those periods.  The Company plans to adopt this ASU in the first quarter of its fiscal year ending April 30, 2019.  The Company will apply the clarified definition of a business, as applicable, from the period of adoption.

 

Note H - Related Parties



In March, 2015, two of the Company’s executive officers invested in a start-up customer.  The executive officers’ investments constitute less than 2% (individually and in aggregate) of the outstanding beneficial ownership of the customer, according to information provided by the customer to the executive officers.  As of July 31, 2017, the Company had an outstanding note receivable and account receivable from that customer of approximately $888,000 and $1,429,000, respectively, compared to an outstanding note receivable and account receivable of approximately $888,000 and $1,271,000, respectively, at April 30, 2017.  As of July 31, 2017, inventory on hand related to this customer approximated $220,000 compared to $310,000 at April 30, 2017.  Sales to this customer have not been material for the three months ended July 31, 2017 or during fiscal year 2017.



On January 29, 2016, the Company entered into a memorandum of understanding with this customer.  Under the subsequent agreement, effective January 29, 2016, the then account receivable of approximately $888,000 was converted into a short-term promissory note.  The promissory note bears interest at the rate of 8% per annum, payable at the maturity of the promissory note.  The promissory note was scheduled to mature at the earlier of October 31, 2016, or within 10 days after the customer obtains certain equity financing, or at the closing of a sale of substantially all of the customer’s stock or assets.  As additional consideration, the Company received warrants under the agreement.  The warrants are ten years in duration and may be exercised at an exercise price of $0.01 per share and for a number of shares determined pursuant to the warrant, expected to be, at a minimum, approximately 1% of the customer’s then – outstanding equity securities.  The Company believes the warrants have nil value.  Further, the Company has been granted a security interest in the customer’s accounts receivable and authority to access and be a signatory on the customer’s deposit accounts.



On December 6, 2016 , the Company extended the maturity of the promissory note to July 31, 2017.  The promissory note continues to bear interest at the rate of 8% per annum, payable

21

 


 

SigmaTron International, Inc.

July 31, 201 7

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note H - Related Parties - Continued



monthly.  As consideration, the Company received additional warrants under the agreement, which the Company currently believes have nil value. 



On August 25, 2017, effective as of July 31, 2017, the Company and the customer entered into a new forbearance agreement.  The Company agreed to extend the maturity of the promissory note and forbear exercising its remedies until the earliest of a capital raise , the sale of the customer, or October 31, 2017, and to fund the customer’s operations while the customer explores its options by advancing a maximum of $315,000 through October 31, 2017, pursuant to a new promissory note that bears interest at 8% per annum.  Additionally, should the customer’s business be sold at a price exceeding the amount necessary to pay its creditors, the Company would receive a fee in addition to the debt owed to the Company.  The customer is obligated to pay proceeds of an account receivable to the Company on receipt, expected in October.  The forbearance period and maturity date of the notes expire on the earlie st of a capital raise, the sale of the customer or October 31, 2017, but the Company has a unilateral right to extend the forbearance period and maturity of the notes and to make additional advances.



Management continues to assess whether the recorded accounts receivable, notes receivable and inventory are recoverable and whether reserves are necessary.  This assessment includes (1) the customer’s successful efforts to raise capital in the past; (2) orders that continue to come in from large big-box and online customers; and (3) an assessment of the value of the customer by an investment banker with significant experience in the customer’s industry.  The Company retains its priority position as a secured creditor in a potential sale, liquidation or bankruptcy filing by or against the customer.  Based on these factors, the Company believes the accounts receivable, notes receivable and inventory are recoverable.  However, in the event that the customer fails to sell its business or raise additional capital in the short term, the Company may not receive payment in full of the obligations owed by the customer or payments by the customer to the Company may be further delayed.  The Company will continue to monitor and assess any need to record a reserve against this obligation. 





 

22

 


 

SigmaTron International, Inc.

July 31, 201 7

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.



In addition to historical financial information, this discussion of the business 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., wholly-owned foreign enterprises Wujiang SigmaTron Electronics Co., Ltd. and SigmaTron Electronic Technology Co., Ltd. (collectively, “SigmaTron China”) and international procurement office SigmaTron Taiwan branch (collectively, the “Company”) and other Items in this Quarterly Report on Form 10- Q contain forward-looking statements concerning the Company’s business or results of operations.  Words such as “continue,” “anticipate,” “will,” “expect,” “believe,” “plan,” and similar expressions identify forward-looking statements.  These forward-looking statements are based on the current expectations of the Company.  Because these forward-looking statements involve risks and uncertainties, the Company’s plans, actions and actual results could differ materially.  Such statements should be evaluated in the context of the risks and uncertainties inherent in the Company’s business including, but not necessarily limited to, the Company’s continued dependence on certain significant customers; the continued market acceptance of products and services offered by the Company and its customers; pricing pressures from the Company’s customers, suppliers and the market; the activities of competitors, some of which may have greater financial or other resources than the Company; the variability of the Company’s operating results; the results of long-lived assets and goodwill impairment testing; the variability of the Company’s customers’ requirements; the availability and cost of necessary components and materials; the ability of the Company and its customers to keep current with technological changes within its industries; regulatory compliance, including conflict minerals; the continued availability and sufficiency of the Company’s credit arrangements; changes in U.S., Mexican, Chinese, Vietnamese or Taiwanese regulations affecting the Company’s business; the turmoil in the global economy and financial markets; the stability of the U.S., Mexican, Chinese, Vietnamese and Taiwanese economic, labor and political systems and conditions; currency exchange fluctuations; and the ability of the Company to manage its growth.  These and other factors which may affect the Company’s future business and results of operations are identified throughout the Company’s Annual Report on Form 10-K, and as risk factors, may be detailed from time to time in the Company’s filings with the Securities and Exchange Commission.  These statements speak as of the date of such filings, and the Company undertakes no obligation to update such statements in light of future events or otherwise unless otherwise required by law.

23

 


 

SigmaTron International, Inc.

July 31, 201 7

 

 

Overview:



The Company operates in one business segment as an independent provider of 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.  The Company provides these manufacturing services through an international network of facilities located in the United States, Mexico, China, Vietnam and Taiwan.



The Company relies on numerous third-party suppliers for components used in the Company’s production process.  Certain of these components are available only from single-sources or a limited number of suppliers.  In addition, a customer’s specifications may require the Company to obtain components from a single-source or a small number of suppliers.  The loss of any such suppliers could have a material impact on the Company’s results of operations.  Further, the Company could operate at a cost disadvantage compared to competitors who have greater direct buying power from suppliers.  The Company does not enter into long-term purchase agreements with major or single-source suppliers.  The Company believes that short-term purchase orders with its suppliers provides flexibility, given that the Company’s orders are based on the changing needs of its customers.



Sales can be a misleading indicator of the Company’s financial performance.  Sales levels can vary considerably among customers and products depending on the type of services (turnkey versus consignment) rendered by the Company and the demand by customers.  Consignment orders require the Company to perform manufacturing services on components and other materials supplied by a customer, and the Company charges only for its labor, overhead and manufacturing costs, plus a profit.  In the case of turnkey orders, the Company provides, in addition to manufacturing services, the components and other materials used in assembly.  Turnkey contracts, in general, have a higher dollar volume of sales for each given assembly, owing to inclusion of the cost of components and other materials in net sales and cost of goods sold.  Variations in the number of turnkey orders compared to consignment orders can lead to significant fluctuations in the Company’s revenue and gross margin levels.  Consignment orders accounted for less than 1% of the Company’s revenues for the three months ended July 31, 2017 and 2016, respectively. 



The Company’s international footprint provides our customers with flexibility within the Company to manufacture in China, Mexico, Vietnam or the U.S.  We believe this strategy will continue to serve the Company well as its customers continuously evaluate their supply chain strategies.



The first quarter of fiscal year 2018 exhibited short term volatility, which was not anticipated by the Company.  In fact, as late as the end of June, the Company expected July revenue levels to mirror the higher revenue levels experienced in May and June.    Several customers shut down in July for a week or more and others push ed orders out several weeks.  The Company believes customers were adjusting inventory levels after a strong first half of the calendar year.  July results were disappointing ; however, the strong revenue trend resurfaced in August. The Company anticipates it will have better results for the second quarter of fiscal 2018.



The Company has been encountering shortages in the component marketplace.  During the first quarter of fiscal year 2018 those shortages increased and they have affected the Company’s ability to meet some customer requirements. Customers continue to work with the Company on these situations. The Company is unsure as to when this will end and, in fact, the situation could continue to

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July 31, 201 7

 

 

deteriorate.  The shortages that impacted the Company the most are in the semiconductor marketplace.  Most of those suppliers have indicated they will have additional capacity online by early next calendar year .



While the Company continues to experience margin pressures, it also continues to see more new opportunities than in the past.  Many of the opportunities are attractive and the Company will continue to work towards diversifying its customer base and the markets it serves.  If the general economy stays on its current path, the Company anticipates it   will have the opportunity to continue to add new customers and business during fiscal year 2018. 

 

Results of Operations:







 

 

 

 



Three Months

 

Three Months

 



Ended

 

Ended

 



July 31,

 

July 31,

 



2017

 

2016

 



(Unaudited)

 

(Unaudited)

 



 

 

 

 

Net sales

100.0%

 

100.0%

 

Operating expenses:

 

 

 

 

Cost of products sold

90.5

 

90.3

 

Selling and administrative expenses

8.3

 

9.1

 

Total operating expenses

98.8

 

99.4

 

Operating income

1.2%

 

0.6%

 





Net Sales



Net sales in creased for the three month period ended J ul y 31, 201 7 to $ 71,224,293   from $59,184,975   for the three month period ended J ul y 31, 201 6.     Sales volume in creased for the three month period ended J ul y 31, 201 7 as compared to the prior year in the industrial electronics, gaming, fitness, medical/life science, semiconductor equipment and auto marketplaces.  During the three month period ended July 31, 2017, sales in the appliance, consumer electronics and telecommunications marketplaces decreased compared to the same period in the prior year. 



Gross Profit



Gross profit dollars   in creased during the three month period ended J ul y 31, 201 7   to $ 6,757,054   or   9.5% of net sales compared to $ 5,770,234 or 9.7% of net sales for the same pe riod in the prior fiscal year.  The in crease in gross profit dollars for the three month period ended J ul y 31, 201 7 was primarily the result of increased sales in the majority of marketplaces the Company serves   compared to the same period in the prior year.



Selling and Administrative Expenses



Selling and administrative expenses in creased to $ 5,912,146 or 8.3% of net sales for t he three month period ended J ul y 31, 20 1 7 compared to $ 5,359,535 or 9.1% of net sales for the same period in the prior fiscal year.  The net in crease in selling and administrative expenses for the three m onth period

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SigmaTron International, Inc.

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ended J ul y 31, 201 7   was driven by in creases in accounting ,   general office salaries and other general administrative expenses .   The increase in the foregoing selling and administrative expenses was partiall y offset by a decrease in computer maintenance expense and property tax expense .    



Interest Expense



Interest expense in creased to $ 308,414 for the three month period ended J ul y 31, 201 7 compared to $ 243,243 for the same pe riod in the prior fiscal year.     The in crease in int erest expense for the three   month period ended J ul y 31, 201 7 was due to increase d loan obligations and higher interest rates compared to the same period in the prior year.     Interest expense for future quarters may fluctuate depending on interest rates and borrowings levels.



Income Tax Expense  



The income tax expense was $197,963 for the three month period ended J ul y 31, 2017 compared to an income tax expense of $80,261 for the same period in the prior fiscal year.  The in crease in income tax expense for the three month period ended J ul y 31, 2017 compared to the same period in the previous year is the result of higher pretax income recognized in the U.S. and foreign jurisdictions.  The Company’s effective tax rate was 34 . 08 % and 35 . 40 % for the quarters ended J ul y 31, 2017 and 2016, respectively.  The effective tax rate is lowe r for the quarter ended J ul y 31, 2017 than the quarter ended J ul y 31, 2016 due to the impact of lower tax rates in foreign jurisdictions and the blend of income by jurisdiction for the period ended  J ul y 31, 2017. 



The Company has not recorded U.S. income taxes on the undistributed earnings of the Company’s foreign subsidiaries.  The earnings of the foreign subsidiaries have been, and under fiscal April 30, 201 8 plans will continue to be , indefinitely reinvested, and as a result, no deferred tax liability was recorded at J ul y 31, 2017.  The cumulative amount of unremitted earnings for which U.S. income taxes have not been recorded is $1 0 , 672 ,000 as of J ul y 31, 2017.  The amount of U.S. income taxes on these earnings is impractical to compute due to the complexities of the hypothetical calculation. 



Net Income  



Net income in creased to $382,882   for the three month period ended J ul y 31, 201 7 compared to net income of $ 146,597 for the same period in the prior fiscal year.     Basic and diluted earnings per share for the first quarter of 201 8   wer e   $0.0 9 each ,   compared to basic and diluted earnings per share of $0.04   and $0.03 , respectively,   for the same pe riod in the prior fiscal year. 



Liquidity and Capital Resources:



Operating Activities.



Cash flow provided by operating activities was $ 399,269 for the three months ended Jul y 31, 201 7 During the first three months of fiscal year 201 8 , cash flow provided by   operating activities was primarily the result of an increase in accounts payable, net income, t he non-cash effects of depreciation and amortization and a reduction in prepaid expenses and other expenses and accounts receivable .  The in crease in accounts payable   and reduction in accounts receivable was the result of timing of payments to vendors and collection of cash receipts from customers in the ordinary course of business .  Cash flow provided by operating activities was partially offset by a n   in crease in inventory of $7,723,449 .  The increase in inventory is the result of increasing customer orders.

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SigmaTron International, Inc.

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Cash flow used in operating activities was $1,8 63 , 643 for the three months ended July 31, 2016.  During the first three months of fiscal year 2017, cash flow used in operating activities was primarily the result of an increase in inventory of $4,763,160 and accounts receivable of $1,518,722.  Cash flow used in operating activities was partially offset by net income, an increase in accounts payable of $3,052,317 and the non-cash effects of depreciation and amortization.  The increase in inventory was the result of slow er than expected demand for customer orders based on forecast.



Investing Activities .



During the first three months of fiscal year 201 8 ,   the Company purchased $3,823,955   in machinery and equipment to be used in the ordinary course of business.  The Company has received forecasts from current customers for increased business that would require additional investment in capital equipment and facilities.  To the extent that these forecasts come to fruition, the Company anticipates that it will make additional machinery and equipment purchases in fiscal year 201 8 .     The Company anticipates purchases will be funded by lease transactions and its senior secured credit facility .



During th e   three months of fiscal year 201 7 ,   the Company purchased $1,244,331 in machinery and equipment used in the ordinary course of business.  The Company made additional machinery and equipment purchases of $ 2 , 261 , 155 during the balance of fiscal year 201 7 .



Financing Activities.



Cash provided by   financing activities was $1,888,654   for the three months ended J ul y   31, 201 7 Cash provided by   financing activities was primarily the result of net borrowings under the line of credit .



Cash provided by   f inancing activities was $2,923,306 for the three months ended J ul y 31, 201 6 .  Cash provided by financing activities was primarily the result of net borrowings under the line of credit.



Financing Summary .



Notes Payable – Banks



On March 31, 2017, the Company entered into a $35,000,000 senior secured credit facility with U.S. Bank, N.A., 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 fixed rate of four percent or LIBOR plus one and one half percent (effectively 2. 7 5% at July  3 1 , 2017).  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 receivable borrowing base plus a percentage of the inventory borrowing base.  Deferred financing costs of $207,647 were capitalized in the fourth quarter of fiscal 2017 and will be amortized over the term of the agreement.  As of July  3 1 , 2017, there was $2 4 , 996 , 309 outstanding and $1 0 , 003 , 691 of unused availability under the credit facility agreement compared to an outstanding balance of $2 3 , 178 , 429 and $ 11 , 821 , 571 of unused availability at April 30, 201 7 .  At July  3 1 , 2017, the Company was in compliance with its financial covenant and other restricted covenants under the credit facility.



On August 4, 2015, the Company’s wholly-owned subsidiary, Wujiang SigmaTron Electronics Co., Ltd ., entered into a credit facility with China Construction Bank.  Under the agreement Wujiang SigmaTron Electronics Co., Ltd .  c ould borrow up to 5,000,000 Renminbi and the facility wa s  

27

 


 

SigmaTron International, Inc.

July 31, 201 7

 

 

collateralized by Wujiang SigmaTron Electronics Co., Ltd.’s manufacturing building.  Interest wa s payable monthly and the facility had a fixed interest rate of 6.67% .  The facility was due to expire on August 3, 2017 .  The credit facility was closed as of March 1, 2017 . There was no outstanding balance under the facility at July  3 1 , 2017 or April 30, 201 7 .



On March 24, 2017, 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 9,000,000 Renminbi 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 February 7, 2018 .  There was no outstanding balance under the facility at Ju l y  3 1 , 2017 or April 30, 2017 .



Notes Payable – Buildings



The Company entered into a mortgage agreement on January 8, 2010, in the amount of $2,500,000 , with Wells Fargo, N.A. to refinance the property that serves as the Company’s corporate headquarters and its Illinois manufacturing facility.     On November 24, 2014, the Company refinanced the mortgage agreement with Wells Fargo, N.A.  The note requires the Company to pay monthly principal   payments in the amount of $9,500 , bears an interest rate of LIBOR plus two and one-quarter percent (effectively 3.5 0 % at July 31, 201 7 ) and is payable over a sixty month period.  A final payment of approximately $2,289,500 is due on or before November 8, 2019 .  The outstanding balance was $2, 546 ,000 and $2, 574 ,500 at July 31, 201 7 and April 30, 201 7 , respectively.



The Company entered into a mortgage agreement on October 24, 2013, in the amount of $1,275,000 , with Wells Fargo, N.A. to finance the property that serves as the Company’s engineering and design center in Elgin, Illinois.  The Wells Fargo, N.A. note requires the Company to pay monthly principal payments in the amount of $4,250, bears interest at a fixed rate of 4.5% per year and is payable over a sixty month period.  A final payment of approximately $1,030,000 is due on or before October 2018 The outstanding balance was $1, 083 , 7 50 and $1, 096 ,500 at J ul y 31, 2017 and April 30, 201 7 , respectively.  



Note Payable – Equipment



On November 1, 2016 , the Company entered into a secured note agreement with Engencap Fin S.A. DE C.V. to finance the purchase of equipment in the amount of $596,987 . The term of the agreement extends to November 1, 2021 with average quarterly payments of $35,060 beginning on February 1, 2017 and a fixed interest rate of 6.65% The balance outstanding under th i s note agreement was $5 37 , 288 and $567,138 at July 31, 201 7 and April 30, 2017, respectively



On February 1, 2017, the Company entered into a secured note agreement with Engencap Fin S.A. DE C.V. to finance the purchase of equipment in the amount of $335,825. The term of the agreement extends to February 1, 2022 with average quarterly payments of $20,031 beginning on May 1, 2017 and a fixed interest rate of 7.35%.  The balance outstanding under this note agreement was $ 319 , 034 and $335,825 at Ju l y  3 1 , 2017 and April 30, 2017, respectively



On June 1, 2017, the Company entered into a secured note agreement with Engencap Fin S.A. DE C.V. to finance the purchase of equipment in the amount of $ 636 , 100 . The term of the agreement extends to June 1, 2022 with average quarterly payments of $ 37 , 941 beginning on September 1, 2017

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SigmaTron International, Inc.

July 31, 201 7

 

 

and a fixed interest rate of 7.35%.  The balance outstanding under this note agreement was $ 636 , 100 at Ju l y  3 1 , 2017 .



Capital Lease and Sales Leaseback Obligations



From October 2013 through June 201 7 , the Company entered into various capital lease and sales leaseback agreements with Associated Bank, National Association to purchase equipment totaling $ 6 , 893 ,5 9 6 .  The terms of the lease agreements extend to September 2018 through May 202 2 with monthly installment payments ranging from $1,455 to $40,173 and a fixed interest rate ranging from 3.75% to 4. 90 % .  The balance outstanding under these capital lease agreements was $3, 951 , 842 and $ 3 , 627 , 76 0 at July 31, 201 7 and April 30, 201 7 , respectively.  The net book value of the equipment under these leases was $ 5 , 225 , 480 and $ 4 , 713 , 044 at July 31, 201 7 and April 30, 201 7 , respectively. 



From April 2014 through July 2015, the Company entered into various capital lease agreements with CIT Finance LLC to purchase equipment totaling $2,512,051 .  The terms of the lease agreements extend to March 2019 through July 2020 with monthly installment payments ranging from $1,931 to $12,764 and a fixed interest rate ranging from 5.65% through 6.50% .  The balance outstanding under these capital lease agreements was $1, 334 , 749 and $1, 448 , 269 at July 31, 201 7 and April 30, 201 7 , respectively.  The net book value of the equipment under these leases was $1, 893 , 691 and $ 1 , 946 , 026 at July 31, 201 7 and April 30, 201 7 , respectively.



Operating Leases



In September 2010, the Company entered into a real estate lease agreement in Union City, CA, to rent approximately 11 7 , 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 the three month period ended J ul y 31, 201 7   and 2016 was $ 25 , 383 and $19,395, 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 July 31, 2017 was $525,29 0 compared to $550,672 at April 30, 2017. 



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SigmaTron International, Inc.

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O n May 31, 2012, the Company entered into a lease agreement in Tijuana, MX, 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 extends through November 2018.  The amount of the deferred rent income for the three   month period ended J ul y 31, 201 7   and 2016 was $ 33 , 577 and $30,860, respectively .  The balance of deferred rent at J ul y 31, 201 7 was $191,387 compared to  $ 224 ,9 64 at April 30, 2017. 



Other



The Company provides funds for salaries, wages, overhead and capital expenditure items as necessary to operate its wholly-owned Mexican, Vietnam and Chinese subsidiaries and the Taiwan international procurement office.  The Company provides funding, as needed, in U.S. dollars, which are exchanged for Pesos, Dong, Renminbi, and New Taiwan dollars The fluctuation of currencies from time to time, without an equal or greater increase in inflation, could have a material impact on the financial results of the Company.     The impact of currency fluctuation for the three month period ended J ul y 31 , 201 7   resulted in a foreign currenc y   transaction loss of $ 19 , 623 com pared to a foreign currency transaction loss of approximately $ 106 , 862 for the same period in the prior year Foreign currency gains or losses are recorded in the cost of products sold.  During the first three months of fiscal year 201 8 , the Company’s U.S. operations paid approximately $ 13 , 55 0 , 000   to its foreign subsidiaries for services provided.



The Company has not recorded U.S. income taxes on the undistributed earnings of the Company’s foreign subsidiaries.  The earnings of the foreign subsidiaries have been, and under fiscal April 30, 201 8 plans, will continue to be indefinitely reinvested, and as a result, no deferred tax liability was recorded at J ul y  3 1 , 201 7 .  The cumulative amount of unremitted earnings for which U.S. income taxes h ave not been recorded is $ 1 0 , 672 , 000   as of   J ul y 31, 201 7 .  The amount of U.S. income taxes on these earnings is impractical to compute due to the complexities of the hypothetical calculation .    



The Company anticipates that its credit facilities, cash flow from operations and leasing resources are adequate to meet its working capital requirements and capital expenditures for fiscal year 2018. In addition, in the event the Company desires to expand its operations, its business grows more rapidly than expected, the current economic climate deteriorates, customers delay payments, or the Company desires to consummate an acquisition, additional financing resources may be necessary in the current or future fiscal years.  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.



The impact of inflation on the Company’s net sales, revenues and income   from operations for the past two fiscal years has been minimal.



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July 31, 201 7

 

 

Off-balance Sheet Transactions:



The Company has no off-balance sheet transactions.



Tabular Disclosure of Contractual Obligations :



As a smaller reporting company, as defined in Item 10(f)(1) of Regulation S-K under the Exchange Act, the Company is not required to provide the information required by this item.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risks .



As a smaller reporting company, as defined in Item 10(f)(1) of Regulation S-K under the Exchange Act, the Company is not required to provide the information required by this item.



Item 4. Controls and Procedures.



Disclosure Controls:



The Company’s management, including its President and Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rules 13a-15(e) and 15(d)-15(e)) as of July  3 1 , 2017.  The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and its President and Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of Ju l y  3 1 , 2017.



Internal Controls:



There has been no change in the Company’s internal control over financial reporting du ring the three months ended J ul y 31, 201 7 , that has materially affected or is reasonably likely to materially affect, its internal control over financial reporting.  The Company’s internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with U.S. GAAP.



On May 14, 2013, the Committee of Sponsoring Organizations of the Treasury Commission (“ COSO ”) issued an updated version of its Internal Control - Integrated Framework (the “2013 Framework”) which officially superseded COSO’s earlier Internal Control-Integrated Framework (1992) (the “1992 Framework”) on December 15, 2014. Originally issued in 1992, the framework helps organizations design, implement and evaluate the effectiveness of internal control concepts and simplify the ir use and application. None of COSO, the Securities and Exchange Commission or any other regulatory body has mandated adoption of the 2013 Framework by a specified date. We are currently performing an analysis to evaluate what changes to our control environment, if any, would be needed to successfully implement the 2013 Framework. Until such time as such analysis and any related transition to the 2013 Framework is complete, we will continue to use the 1992 Framework in connection with our assessment of internal control.  The Company anticipates the transition will be completed in fiscal year 2018.

 

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PART II – OTHER INFORMATION



Item 1.              Legal Proceedings.  



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.



Item 1A.            Risk Factors.



As a smaller reporting company, as defined in Item 10(f)(1) of Regulation S-K under the Exchange Act, the Company is not required to provide the information required by this item. 



Item   2.              Unregistered Sales of Equity Securities and Use of Proceeds.  



None.



Item 3.              Defaults Upon Senior Securities.



None.



Item 4.              Mine Safety Disclosures.



Not applicable.



Item 5 .              Other Information.



None.

 

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Item 6. Exhibits.





 

 10.1

Promissory Note, entered into June 1, 2017, by and between ENGENCAP FIN, S.A. DE C.V., SOFOM,  E.N.R. “HOLDER”) and SigmaTron International, Inc. (“The Maker”).



 

 10.2

Lease No. 013, entered into July 6, 2017, is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between Associated Bank, National Association and SigmaTron International, Inc.



 

 31.1

Certification of Principal Executive Officer of the Company Pursuant to Rule 13a-14(a) under the Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).



 

 31.2

Certification of Principal Financial Officer of the Company Pursuant to Rule 13a-14(a) under the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).



 

 32.1

Certification by the Principal Executive Officer of SigmaTron International, Inc. Pursuant to Rule 13a-14(b) under the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).



 

 32.2

Certification by the Principal Financial Officer of SigmaTron International, Inc. Pursuant to Rule 13a-14(b) under the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).



 

101.INS

XBRL Instance Document



 

101.SCH

XBRL Taxonomy Extension Scheme Document



 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document



 

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document



 

101.LAB

XBRL Taxonomy Extension Label Linkbase Document



 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document



 

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SigmaTron International, Inc.

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SIGNATURES :



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behal f by the undersigned thereunto duly authorized.



SIGMATRON INTERNATIONAL, INC.





 

 

/s/ Gary R. Fairhead

 

September   1 3 , 201 7



 

 

Gary R. Fairhead

 

Date

President and CEO (Principal Executive Officer)

 

 



 

 



 

 

/s/ Linda K. Frauendorfer

 

September   1 3 , 201 7

 

 

 

Linda K. Frauendorfer

 

Date

Chief Financial Officer, Secretary and Treasurer

 

 

(Principal Financial Officer and Principal

 

 

Accounting Officer)

 

 





 



34

 


 

Exhibit 10 . 1

 



 

 



 

 

PAGARÉ

E.U.A. $636,100.00 Dólares

 

PROMISSORY NOTE

U.S.A. $636,100.00 Dollars



 

 

El suscrito, SIGMATRON   INTERNATIONAL, INC., en nombre y   representación de SIGMATRON INTERNATIONAL, INC. (la   SUSCRIPTORA ”), por este PAGARÉ promete incondicionalmente pagar a la orden de ENGENCAP FIN, S.A. DE C.V., SOFOM, E.N.R. (el “ TENEDOR ”), la suma principal de EUA$636,100.00 Dólares (Seiscientos treinta y seis mil cien 00/100 Dólares, moneda de  curso legal de los Estados Unidos de América (“ Dólares ”), de conformidad con los términos que se establecen a continuación.

 

The undersigned, SIGMATRON INTERNATIONAL, INC., by and on behalf of SIGMATRON INTERNATIONAL, INC (the “ MAKER ”), hereby unconditionally promises to pay to the order of ENGENCAP FIN, S.A. DE C.V., SOFOM, E.N.R. (“ HOLDER ”), the principal sum of US$ 636,100.00 Dollars (Six hundred thirty six thousand one  hundred 00/100 Dollars,  lawful currency of  the United States of America (“ Dollars ”) , in accordance with  the terms hereinafter set forth.

 

 

 

Sujeto a las demás disposiciones del presente, la suma principal de este PAGARÉ será pagadera en 20 (Veinte) amortizaciones trimestrales consecutivas, en las cantidades y fechas que se establecen a continuación (cada una en lo sucesivo una “ Fecha de Pago de Principal ”).

 

Subject to the other provisions hereof, the principal amount of this PROMISSORY NOTE shall be payable in 20 (Twenty) consecutive quarterly instalments, in the amounts and on the dates specified herein below (each referred hereinafter as a “ Principal Payment Date ”):

 

 

 







 

 

 

 

 

 

Número de
Pago

Fecha de Pago
(mm/d/aaaa)

Monto de
Principal

 

Payment
Number

Principal
Payment Date
(mm/d/yyyy)

Principal Amount
Payable

1

9/1/2017

$31,805.00

 

1

9/1/2017

$31,805.00

2

12/1/2017

$31,805.00

 

2

12/1/2017

$31,805.00

3

3/1/2018

$31,805.00

 

3

3/1/2018

$31,805.00

4

6/1/2018

$31,805.00

 

4

6/1/2018

$31,805.00

5

9/1/2018

$31,805.00

 

5

9/1/2018

$31,805.00

6

12/1/2018

$31,805.00

 

6

12/1/2018

$31,805.00

7

3/1/2019

$31,805.00

 

7

3/1/2019

$31,805.00

8

6/1/2019

$31,805.00

 

8

6/1/2019

$31,805.00

9

9/1/2019

$31,805.00

 

9

9/1/2019

$31,805.00

10

12/1/2019

$31,805.00

 

10

12/1/2019

$31,805.00

11

3/1/2020

$31,805.00

 

11

3/1/2020

$31,805.00

12

6/1/2020

$31,805.00

 

12

6/1/2020

$31,805.00

13

9/1/2020

$31,805.00

 

13

9/1/2020

$31,805.00

14

12/1/2020

$31,805.00

 

14

12/1/2020

$31,805.00

15

3/1/2021

$31,805.00

 

15

3/1/2021

$31,805.00

16

6/1/2021

$31,805.00

 

16

6/1/2021

$31,805.00

17

9/1/2021

$31,805.00

 

17

9/1/2021

$31,805.00

18

12/1/2021

$31,805.00

 

18

12/1/2021

$31,805.00

19

3/1/2022

$31,805.00

 

19

3/1/2022

$31,805.00

20

6/1/2022

$31,805.00

 

20

6/1/2022

$31,805.00



1 /4


 

 

Exhibit 10 . 1

 



 

 

Adicionalmente, la SUSCRIPTORA promete pagar incondicionalmente el primer Día Hábil (según dicho término se define más adelante) de cada Periodo de Intereses (según dicho término se define más adelante) y hasta la fecha en que el saldo insoluto de este PAGARÉ sea pagado al TENEDOR a su satisfacción, intereses ordinarios sobre el saldo principal insoluto de este PAGARÉ por cada Periodo de Interés, a una tasa de interés anual (la “ Tasa Efectiva ”) equivalente a   7.35% (Siete punto tres cinco puntos porcentuales), más los   impuestos que, en su caso, se generen. Los intereses ordinarios pagaderos bajo este Pagaré serán calculados con base en un año de 360 (trescientos sesenta) días y por meses de 30 (treinta) días, independientemente del número de días efectivamente transcurridos.

 

Additionally, MAKER unconditionally promises to pay interest on the first Business Day (as defined below) of each Interest Period (as defined below) and until the full payment of the principal amount thereof is made at HOLDER’s complete satisfaction, at the per annum interest rate (the “ Effective Rate ”) equal to 7.35% (seven point three  five index points), plus any applicable tax. Ordinary interest shall be computed on the basis of a year of 360 (three hundred and sixty) days and months of 30 (thirty) days, regardless of the number of calendar days effectively elapsed.

 

 

 

Para los efectos del presente PAGARÉ, el término “ Periodo de Interés ” significa: (a) inicialmente el periodo que comience en la fecha de suscripción del presente PAGARÉ y termine el 1 de Septiembre de 2017; y (b) posteriormente, cada periodo que inicie el día siguiente al último día del Período de Interés inmediato anterior y que termine 3 (tres) meses calendario después de dicha fecha; en el entendido que siempre que el último día de cualquier Período de Interés ocurra en un día distinto a un Día Hábil, el último día de dicho Período de Interés se extenderá al Día Hábil inmediato siguiente y ningún Periodo de Interés vencerá después de la última Fecha de Pago de Principal.

 

For purposes of this PROMISSORY NOTE, the term “ Interest Period ” shall mean: (a) initially, the period commencing on the date of subscription of this PROMISSORY NOTE and ending on September 1st, 2017; and (b) subsequently, each period commencing on the next day of the preceding Interest Period and shall end 3 (three) calendar months thereafter; provided, further, that, whenever the last day of any Interest Period would occur on a day other than a Business Day, the last day of such Interest Period shall occur on the next Business Day and no Interest Period shall end after the last Principal Payment Date.

 

 

 

En el caso de que la SUSCRIPTORA no pagase el principal y/o intereses sobre este PAGARÉ a su vencimiento, la SUSCRIPTORA pagará, a la vista, adicionalmente al interés ordinario pagadero a la Tasa Efectiva, intereses moratorios sobre el monto del principal insoluto, desde el día siguiente a la fecha de vencimiento del pago no cubierto y hasta el día del pago de éste en su totalidad, a una tasa de interés equivalente al resultado de sumar la Tasa Efectiva más 4% (cuatro puntos porcentuales) anual.

 

In the event MAKER should fail to pay any amount of principal and/or interest hereof when due, MAKER shall pay, on demand, in addition to the ordinary interest at the Effective Rate, overdue interest on the outstanding principal amount from the day following the maturity date of the unpaid amortization thereof until payment thereof in full, equal to the sum of the Effective Rate plus 4% (four percent) yearly.

 

 

 

Los intereses moratorios a que se refiere este PAGARÉ se computarán sobre la base de un año de 360 (trescientos sesenta) días por el número de días calendario efectivamente transcurridos.

 

Overdue interest hereunder shall be computed on the basis of a year of 360 (three hundred and sixty) days for the number of calendar days effectively elapsed.

 

 

 

La suma principal de este PAGARÉ y los intereses correspondientes al mismo se pagarán al TENEDOR antes de las 11:00 a.m. (hora de la Ciudad de México) mediante depósito en la cuenta número 36358055 ABA 021000089, SWIFT CITIUS33 mantenida en Citibank NY, en Dólares, moneda de los Estados Unidos de América, en fondos disponibles el mismo día, libres de y sin deducción alguna por cualesquiera cargas y retenciones y accesorios con respecto a las mismas o en cualquier otra cuenta o lugar que el TENEDOR del PAGARÉ indiquen por escrito con cuando menos cinco (5) Días Hábiles de anticipación.

 

The principal amount hereof and interest thereon shall be payable to HOLDER than 11:00 a.m. (Mexico City time) through deposit to account number 36358055 ABA 021000089, SWIFT CITIUS33 maintained in Citibank NY, in Dollars lawful currency of the United States of America and in same day funds, free and clear of and without deduction for any and all charges and withholdings and all liabilities with respect thereto or in the location or bank account that HOLDER may notifiy in writing at least with 5 (five) Business Days in advance.

 

 

 

Según se utiliza en este PAGARÉ, el término “ Día Hábil ” significa el día del año en que los bancos en el Estado de Nueva York, Estados Unidos de América, o en la Ciudad de México, no sean requeridos o estén autorizados a cerrar.

 

As used in this PROMISSORY NOTE, the term “ Business Day ” means a day of the year on which the banks in the State of New York, United States of America and in Mexico City, Mexico, are not required or authorized to close.

 

 

 

Para los efectos del artículo 128 de la Ley General de Títulos y Operaciones de Crédito de los Estados Unidos Mexicanos, la SUSCRIPTORA irrevocablemente extiende el plazo para presentación de este PAGARÉ hasta 2 (dos) años después de la última Fecha de Pago de Principal, en el entendido que, dicha extensión no impedirá la presentación de este PAGARÉ con anterioridad a dicha fecha.

 

For purposes of Article 128 of the General Law on Negotiable Instruments and Credit Transactions of the United Mexican States, MAKER hereby irrevocably extends the presentment date of this PROMISSORY NOTE until 2 (two) years after the last Payment Date, provided that such extension shall not limit HOLDER’s right to present this PROMISSORY NOTE prior to such date.

 

 

 

El presente PAGARÉ se considerará emitido conforme a las leyes de los Estados Unidos Mexicanos y para todos los fines se interpretará de acuerdo con las leyes de los Estados Unidos Mexicanos salvo que se inicie una acción en los Estados   Unidos de América, en cuyo caso serán aplicables las leyes del Estado de Nueva York, Estados Unidos de América.

 

 

This PROMISSORY NOTE shall be deemed to be made under the laws of the United Mexican States and for all purposes shall be construed in accordance with the laws of the United Mexican States, unless an action is brought   in the United States of America, and in such event, the applicable law shall be that of New York, New York, United States.

2 /4


 

 

Exhibit 10 . 1

 





 

 

Para cualquier acción o procedimiento derivado de o relativo al presente PAGARÉ, la SUSCRIPTORA y el TENEDOR, se someten expresamente a la jurisdicción de los tribunales competentes de la Ciudad de México o a los tribunales competentes de la Ciudad de Nueva York, Estado de Nueva York, Estados Unidos de América, y renuncian, de manera expresa e irrevocable, a cualquier otra jurisdicción que pudiere corresponderles en virtud de sus domicilios presentes o futuros, la ubicación de sus bienes o por cualquier otra razón. La SUSCRIPTORA y el TENEDOR renuncian de manera expresa e irrevocable a cualquier objeción actual o futura que pudieran tener respecto de las leyes y los tribunales antes mencionados, siendo estas leyes las únicas aplicables y estos tribunales los foros únicos y exclusivos para oír y desahogar cualquier procedimiento judicial.

 

In any action or proceeding arising out of or relating to this PROMISSORY NOTE, the MAKER and the HOLDER, hereby explicitly submit themselves to the jurisdiction of the competent courts of Mexico City, or to the competent courts sitting in New York City, State of New York, United States, waving, expressly and irrevocably, to any other jurisdiction that may correspond to them by virtue of their present or future domiciles, the location of their property or by any other reason. The MAKER and the HOLDER hereto irrevocably waive any objection which such parties might now or hereafter have to the above-named courts being nominated as the exclusive forum to hear and determine any such proceedings.

 

 

 

La SUSCRIPTORA por el presente irrevocablemente designa a i) Ablemex, S.A. de C.V.; ii) Digital Appliance Controls de México, S.A. de C.V. y iii) Standard Components de México, S.A. (conjuntamente denominados el “ Agente de Proceso ”), con domicilios en i) Hacienda del Colorado, No. 21603 T-1 Oficina 1211 Col. Parque Industrial Presidentes, Tijuana, B.C. México, 22215; ii) Miguel de Cervantes No. 151, Complejo Industrial Chihuahua, Chihuahua, México, 31136, y iii)Carretera Presa la Amistad Km. 605 y Camino a Santa Eulalia, Parque Industrial Amistad, Cd. Acuña, Coahuila, C.P. 26248, respectivamente, como sus agentes para servicio de proceso, para que indistintamente cualquiera de ellos a través de sus apoderados y en forma individual, reciban en nombre y representación de la SUSCRIPTORA, la entrega de notificaciones, presentaciones para pago, requerimientos de pago, citatorios, actuaciones judiciales y extrajudiciales, así como también emplazamientos en los Estados Unidos Mexicanos, siempre en relación con el presente PAGARÉ. La SUSCRIPTORA irrevocablemente designa a cada Agente de Proceso como su verdadero y legítimo representante legal con poderes generales para pleitos y cobranzas en términos del primer párrafo del artículo 2554 (dos mil quinientos cincuenta y cuatro) del Código Civil Federal. El emplazamiento o cualquier notificación que se requiera realizar a la SUSCRIPTORA, para efectos de preservar los derechos del TENEDOR de ejercitar una acción o iniciar un procedimiento u obtener la ejecución de una sentencia en relación con el presente PAGARÉ en cualquier tribunal en los Estados Unidos Mexicanos, se considerará completado una vez entregado personalmente a la SUSCRIPTORA o al Agente de Proceso. La SUSCRIPTORA mantendrá el nombramiento de Agente de Proceso en vigor y efecto o nombrará cualquier otro representante con el fin que la SUSCRIPTORA tenga en todo momento un agente procesal para la entrega de emplazamientos y notificaciones en los Estados Unidos Mexicanos, para los fines arriba estipulados.

 

The MAKER hereby irrevocably appoints and designates i) Ablemex, S.A. de C.V.; ii) Digital Appliance Controls de México, S.A. de C.V. and iii) Standard Components de México, S.A., (collectively hereinafter referred to as the “ Process Agent ”) with registered domiciles at en i) Hacienda del Colorado, No. 21603 T-1 Oficina 1211 Col. Parque Industrial Presidentes, Tijuana, B.C. México, 22215; ii) Miguel de Cervantes No. 151, Complejo Industrial Chihuahua, Chihuahua, México, 31136, and iii)Carretera Presa la Amistad Km. 605 y Camino a Santa Eulalia, Parque Industrial Amistad, Cd. Acuña, Coahuila, C.P. 26248, respectively, as agent for service of process, in order for any of such entities individually and through its representatives, to receive on behalf of the MAKER, delivery of notices, presentment for payment, payment requirements, summons, judicial and non-judicial actions, as well as service of process in the United Mexican States, always in connection with this PROMISSORY NOTE. MAKER irrevocably appoints the Process Agent as its true and lawful attorney-in-fact with general powers of attorney for lawsuit and collections, in terms of article 2554 (two thousand five hundred and fifty four) of the Federal Civil Code. Service of process or any other notice that HOLDER requires to perform for purposes of preserving HOLDER’S right to bring an action or proceeding or enforcing a judgment in connection with this PROMISSORY NOTE in any court within the United Mexican States, shall be deemed completed upon personal delivery to MAKER or to Process Agent. MAKER shall continue said appointment of Process Agent in full force and effect or appoint another agent so that the MAKER shall have at all times an agent for service of process for the above purposes in the United Mexican States.

 

 

 

La SUSCRIPTORA irrevocablemente se obliga, en la medida que sea permitido por la ley aplicable, a aceptar como efectivo el emplazamiento de cualquiera de los tribunales anteriormente mencionados en relación con cualquier acción o procedimiento, mediante la recepción de correo certificado. Nada en el presente afectará el derecho del TENEDOR para emplazar de cualquier otra manera permitida por las leyes aplicables o de iniciar procesos legales o de cualquier otra manera proceder contra la SUSCRIPTORA en el Estado de Nueva York de los Estados Unidos de América o en los tribunales competentes de los Estados Unidos Mexicanos. En caso de que se inicie cualquier acción o procedimiento relacionado con este PAGARÉ ante los tribunales de los Estados Unidos de América, la SUSCRIPTORA en este acto señala el siguiente como su   domicilio para oír y recibir notificaciones en dicha jurisdicción:

 

MAKER further irrevocably consents, to the extent permitted by law, to the service of process out of any of the aforementioned courts in any such action or proceeding by any service of process to be effective upon receipt of registered mail. Nothing herein shall affect the right of HOLDER to serve process in any other manner permitted by applicable law or to commence legal proceedings or otherwise proceed against MAKER in the State of New York, United States of America or in competent courts of the United Mexican States. In the event any action or proceeding in connection with this Promissory Note is brought in the courts of the United States of America, the MAKER hereby designates the following as its domicile to receive any and all notices   within such jurisdiction in connection herewith:

 

 

 

2201 Landmeier Road, Elk Grove Village, IL 60018;

 

2201 Landmeier Road, Elk Grove Village, IL 60018;

 

 

 

3 /4


 

 

Exhibit 10 . 1

 

El presente PAGARÉ se suscribe en inglés y en español, siendo ambas versiones obligatorias para la SUSCRIPTORA y para cualquier otro firmante del mismo, y constituyen uno y el mismo PAGARÉ; en el entendido, sin embargo, que en caso de duda respecto de la correcta interpretación y entendimiento de este PAGARÉ, el texto en español prevalecerá en todos los casos.

 

This PROMISSORY NOTE is executed in English and in Spanish both of which shall bind the MAKER and any other signatories thereof, and constitute one and the same PROMISSORY NOTE; provided, however, that in case of doubt as to the proper interpretation and construction of this PROMISSORY NOTE, the Spanish text shall be controlling in all cases.

 

 

 

Este PAGARÉ se suscrib e en Elk Grove Village, IL, el 24 de Mayo de 2017 .

 

 

This PROMISSORY NOTE is executed in Elk Grove Village, IL, on May 24 , 2017 .











/s/ Linda K. Frauendorfer

SIGMATRON INTERNATIONAL, INC.

Por/By: Linda K. Frauendorf er

Cargo/Title: Apoderado/Attorney in fact.





4 /4


 

Exhibit   10.2

LEASE SCHEDULE NO. 0 1 3



Associated Bank

    Leasing Division



This Lease Schedule No. 0 1 3 ("Lease Schedule") is an attachment to Master Lease Agreement No. 2170 dated 10/17/13 by and between the undersigned (The Master Lease is defined as the "Lease;" the Master Lease Agreement, together with the Lease Schedule and any other lease schedule by and between the undersigned is referred to as the "Lease"). All capitalized terms used in this Lease Schedule shall have the meaning set forth in the Lease.



,

 

 

 

 

 

 

 

 

 

 

LESSOR :

Associated Bank, National Association,

a federally charted banking association

2870 Holmgren Way, PO Box 11361

Green Bay, WI  54307

 

 

LESSEE :

SigmaTron International, Inc.

2201 Landmeier Road

Elk Grove Village, IL  60007

 

Equipment Leased: See Attached Exhibit A



 

 

 

 

Initial Lease Term

Advance Rental s

Rental Payment Due Date

    60  Months

1  Advance Rentals

 

$ 12,243.70     .

The 10 th day of each month

    60  Payments

Down Payment

 

$0.00     .

 



Taxes 0.0000%  

 

$0.00     .

 

Rental Payment

Documentation Fee

 

$300.00     .

End-of-Lease Options

        $ 12,243.70 per month,

Lease Deposit

 

$0.00     .

$1.00 Buyout

plus applicable taxes

Amount Due

 

    $ 12,543.70     .

 



ADDITIONAL PROVISIONS:



LEASE DEPOSIT . The Lease Deposit referenced above may be returned to Lessee at the end of the Term of this Lease so long as no Event of Default has occurred under the terms of the Lease. ln the case of an Event of Default under the Lease, the Lease Deposit may be applied by Lessor to satisfy any outstanding monetary obligation of Lessee to Lessor under this Lease or under any other agreement between Lessor and Lessee. The Lease Deposit shall be held by Lessor and shall not accrue interest.



ADDITIONAL FINANCIAL STATEMENT MONITORING REQUIREMENTS :



Lessee shall provide to Lessor the following documents, in a form acceptable to Lessor:



1.

Interim Statements. As soon as available, but in no event later than 50 days after the end of each fiscal quarter, SigmaTron International Inc.   balance sheet and profit and loss statement for the period ended , including all schedule 1 0-Q's, prepared by Lessee satisfactory to Lessor.

2.

Annual Statement . As soon as available, but in no event later than 120 days after the end of each fiscal year, SigmaTron International, Inc.   balance sheet and income statement for the year ended ,   I ncluding , all schedule 10-K's, audited by certified public accountant satisfactory to Lessor.



Lessor hereby agrees to lease to the Lessee named below, and Lessee hereby agrees to lease and rent from Lessor the Equipment listed above or on any exhibit attached hereto, for the term and at the rental payments specified, all subject to the terms and conditions set forth in such Lease. Lessee further agrees that, at the option of Lessor, this Schedule shall be a separately enforceable Lease, the terms and conditions of which shall be those set forth in the Equipment Lease. The residual value of the Equipment subject to the lease is $0.00.





 

 

 

 

Accepted By:

 

Accepted By:



Associated Bank, National Association

 

 

SigmaTron International, Inc.



“LESSOR”

 

 

“LESSEE”



 

 

 

 

By:

/s/ Jody Tilkens

 

By:

/s/ Linda K. Frauendorfer



(Signature)

 

 

(Signature)

Name:

Jody Tilkens

 

Name:

Linda K. Frauendorfer



 

 

 

 

Title:

Assistant Vice President

 

Title:

Chief Financial Officer



 

 

 

 

Date:

07/06/17

 

Date:

06/29/17




SigmaTron International, Inc.

July 31, 2017

 

EXHIBIT 31.1



Certification of Principal Executive Officer of

SigmaTron International, Inc.

Pursuant to Rule 13a-14(a) under the Exchange Act,

as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002



I, Gary R. Fairhead , President and Chief Executive Officer of SigmaTron International, Inc., certify that:



1. I have reviewed this Quarterly Report on Form 10-Q of SigmaTron International, Inc.;



2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and




 

SigmaTron International, Inc.

July 31, 2017

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):



a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and



b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.







 

 

Date:  September 13, 2017

 

 



 

 



 

 



 

/s/ Gary R. Fairhead



 

Gary R. Fairhead



 

President and Chief Executive Officer of



 

SigmaTron International, Inc.




SigmaTron International, Inc.

July 31, 2017

 

EXHIBIT 31.2



Certification of Principal Financial Officer of

SigmaTron International, Inc.

Pursuant to Rule 13a-14(a) under the Exchange Act,

as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002



I, Linda K. Frauendorfer , Chief Financial Officer, Secretary and Treasurer of SigmaTron International, Inc., certify that:



1. I have reviewed this Quarterly Report on Form 10-Q of SigmaTron International, Inc.;



2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and




 

SigmaTron International, Inc.

July 31, 2017

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):



a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and



b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.







 

 

Date:  September 13, 2017

 

 



 

 



 

 



 

/s/ Linda K. Frauendorfer



 

Linda K. Frauendorfer



 

Chief Financial Officer, Secretary and



 

Treasurer of SigmaTron International, Inc.








SigmaTron International, Inc.

July 31, 2017

 

EXHIBIT 32.1



Certification by the Principal Executive Officer of

SigmaTron International, Inc.

Pursuant to Rule 13a-14(b) under the Exchange Act and

Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)



I, Gary R. Fairhead , am President and Chief Executive Officer of SigmaTron International, Inc. (the “Company”).

 

This certification is being furnished pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2017   (the “Report”).

 

I hereby certify that to the best of my knowledge:

 

(a) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act (15 U.S.C. 78 m(a) or 78o(d)); and



(b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.







 

 

Date:  September 13, 2017

 

 



 

 



 

 



 

/s/ Gary R. Fairhead



 

Gary R. Fairhead



 

President and Chief Executive Officer of



 

SigmaTron International, Inc.




SigmaTron International, Inc.

July 31, 2017



EXHIBIT 32.2



Certification by the Principal Financial Officer of

SigmaTron International, Inc.

Pursuant to Rule 13a-14(b) under the Exchange Act and

Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)



I, Linda K. Frauendorfer , am Chief Financial Officer, Secretary and Treasurer of SigmaTron International, Inc. (the “Company”).

 

This certification is being furnished pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2017   (the “Report”).

 

I hereby certify that to the best of my knowledge:

 

(a) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act (15 U.S.C. 78 m(a) or 78o(d)); and



(b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.







 

 

Date:  September 13, 2017

 

 



 

 



 

 



 

/s/ Linda K. Frauendorfer



 

Linda K. Frauendorfer



 

Chief Financial Officer, Secretary and



 

Treasurer of SigmaTron International, Inc.