UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
Form 10-Q
__________________
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2016
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, 2016
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 files. Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting 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 ☒
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of the registrant’s common stock, $0.01 par value, as of September 9, 2016: 4,185,613
2
SigmaTron International, Inc.
|
|||||
PART 1. |
FINANCIAL INFORMATION: |
Page No. |
|||
|
Item 1. |
||||
|
Condensed Consolidated Balance Sheets – July 31, 2016 (Unaudited) and April 30, 2016 |
4 | |||
|
Condensed Consolidated Statements of Operations – (Unaudited) |
||||
|
6 |
||||
|
Condensed Consolidated Statements of Cash Flows – (Unaudited) |
||||
|
7 |
||||
|
Notes to Condensed Consolidated Financial Statements – (Unaudited) |
9 |
|||
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and |
21 |
||
|
Item 3. |
28 |
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|
Item 4. |
28 |
|||
|
|||||
PART II |
OTHER INFORMATION: |
||||
|
Item 1. |
29 |
|||
|
Item 1A. |
29 |
|||
|
Item 2. |
29 |
|||
|
Item 3. |
29 |
|||
|
Item 4. |
29 |
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Item 5. |
29 |
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Item 6. |
29 |
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31 |
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|
3
SigmaTron International, Inc.
Condensed Consolidated Balance Sheets
|
|||||
|
July 31, |
||||
|
2016 |
April 30, |
|||
|
(Unaudited) |
2016 |
|||
|
|||||
Current assets: |
|||||
Cash |
$ |
4,140,600 |
$ |
4,325,268 | |
Accounts receivable, less allowance for doubtful |
|||||
accounts of $100,000 at July 31, 2016 and April 30, 2016, |
|||||
respectively |
19,362,950 | 17,844,228 | |||
Inventories, net |
72,412,182 | 67,649,022 | |||
Prepaid expenses and other assets |
1,882,357 | 2,128,128 | |||
Refundable income taxes |
743,784 | 774,847 | |||
Note receivable |
887,531 | 887,531 | |||
Other receivables |
455,917 | 481,860 | |||
|
|||||
Total current assets |
99,885,321 | 94,090,884 | |||
|
|||||
Property, machinery and equipment, net |
33,850,844 | 33,080,858 | |||
|
|||||
Intangible assets, net of amortization of $4,330,170 and |
|||||
$4,208,755 at July 31, 2016 and April 30, 2016, respectively |
4,581,830 | 4,703,245 | |||
Goodwill |
3,222,899 | 3,222,899 | |||
Deferred income taxes |
261,613 | 233,057 | |||
Other assets |
978,843 | 1,418,398 | |||
Total other long-term assets |
9,045,185 | 9,577,599 | |||
|
|||||
Total assets |
$ |
142,781,350 |
$ |
136,749,341 | |
|
|||||
Liabilities and stockholders' equity: |
|||||
Current liabilities: |
|||||
Trade accounts payable |
$ |
40,064,103 |
$ |
37,011,786 | |
Accrued wages |
3,729,206 | 4,199,147 | |||
Accrued expenses |
2,304,222 | 2,772,301 | |||
Income taxes payable |
43,908 |
- |
|||
Current portion of long-term debt |
165,000 | 165,000 | |||
Current portion of capital lease obligations |
1,477,710 | 1,374,898 | |||
Current portion of contingent consideration |
403,813 | 275,288 | |||
Current portion of deferred rent |
196,594 | 187,889 | |||
|
|||||
Total current liabilities |
48,384,556 | 45,986,309 | |||
|
|||||
Long-term debt, less current portion |
26,985,349 | 23,572,152 | |||
Capital lease obligations, less current portion |
3,536,284 | 3,217,758 | |||
Contingent consideration, less current portion |
665,426 | 875,793 | |||
Deferred rent, less current portion |
736,329 | 795,289 | |||
Other long-term liabilities |
839,509 | 870,542 | |||
Deferred income taxes |
1,318,992 | 1,355,620 | |||
|
|||||
Total long-term liabilities |
34,081,889 | 30,687,154 | |||
|
|||||
Total liabilities |
82,466,445 | 76,673,463 | |||
|
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, 4,185,330 and 4,183,955 shares issued and |
|||||
outstanding at July 31, 2016 and April 30, 2016, respectively |
41,574 | 41,560 | |||
Capital in excess of par value |
22,639,032 | 22,546,616 | |||
Retained earnings |
37,634,299 | 37,487,702 | |||
|
|||||
Total stockholders' equity |
60,314,905 | 60,075,878 | |||
|
|||||
Total liabilities and stockholders' equity |
$ |
142,781,350 |
$ |
136,749,341 | |
|
|||||
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements. |
5
SigmaTron International, Inc.
Condensed Consolidated Statements of Operations
|
||||||
|
Three Months |
Three Months |
||||
|
Ended |
Ended |
||||
July 31, |
July 31, |
|||||
|
2016 |
2015 |
||||
|
(Unaudited) |
(Unaudited) |
||||
|
||||||
Net sales |
$ |
58,919,398 |
$ |
64,220,946 | ||
Cost of products sold |
53,414,741 | 57,990,672 | ||||
|
||||||
Gross profit |
5,504,657 | 6,230,274 | ||||
|
||||||
Selling and administrative expenses |
5,093,958 | 5,045,353 | ||||
|
||||||
Operating income |
410,699 | 1,184,921 | ||||
|
||||||
Other income |
(59,402) | (40,581) | ||||
Interest expense |
243,243 | 263,179 | ||||
Income from operations before income tax expense |
226,858 | 962,323 | ||||
|
||||||
Income tax expense |
80,261 | 303,517 | ||||
|
||||||
Net income |
$ |
146,597 |
$ |
658,806 | ||
|
||||||
|
||||||
Earnings per share - basic |
$ |
0.04 |
$ |
0.16 | ||
|
||||||
Earnings per share - diluted |
$ |
0.03 |
$ |
0.16 | ||
|
||||||
Weighted average shares of common stock outstanding |
||||||
Basic |
4,183,955 | 4,148,285 | ||||
|
||||||
Weighted average shares of common stock outstanding |
||||||
Diluted |
4,214,535 | 4,193,657 | ||||
|
||||||
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, |
|||
|
2016 |
2015 |
|||
|
(Unaudited) |
(Unaudited) |
|||
|
|||||
Cash flows from operating activities |
|||||
Net income |
$ |
146,597 |
$ |
658,806 | |
|
|||||
Adjustments to reconcile net income |
|||||
to net cash (used in) provided by operating activities: |
|||||
Depreciation |
1,269,941 | 1,290,963 | |||
Stock-based compensation |
85,555 | 10,149 | |||
Benefit from doubtful accounts |
- |
(86,844) | |||
Benefit from inventory obsolescence |
- |
(49,866) | |||
Deferred income tax (benefit) expense |
(65,184) | 28,226 | |||
Amortization of intangible assets |
121,415 | 115,354 | |||
Loss from disposal or sale of machinery and equipment |
29,429 | 8,405 | |||
|
|||||
Changes in assets and liabilities |
|||||
Accounts receivable |
(1,518,722) | (429,989) | |||
Inventories |
(4,763,160) | 1,299,099 | |||
Prepaid expenses and other assets |
786,280 | (79,457) | |||
Income taxes receivable |
31,063 |
- |
|||
Income taxes payable |
43,908 | 7,284 | |||
Trade accounts payable |
3,052,317 | 2,374,386 | |||
Deferred rent |
(50,255) | (39,886) | |||
Accrued expenses and wages |
(1,044,064) | 402,902 | |||
|
|||||
Net cash (used in) provided by operating activities |
(1,874,880) | 5,509,532 | |||
|
|||||
Cash flows from investing activities |
|||||
Purchases of machinery and equipment |
(1,554,408) | (222,941) | |||
Disposals of machinery and equipment |
310,077 | 77,748 | |||
|
|||||
Net cash used in investing activities |
(1,244,331) | (145,193) | |||
|
|||||
|
|||||
Cash flows from financing activities |
|||||
Proceeds from the sale of restricted stock |
- |
518,000 | |||
Proceeds from Employee stock purchases |
6,875 | 22,736 | |||
Payments of contingent consideration |
(81,842) | (38,914) | |||
Payments under capital lease and sale leaseback agreements |
(403,687) | (315,254) | |||
Payments under building notes payable |
(41,250) | (41,250) | |||
Borrowings under lines of credit |
22,063,270 | 15,506,571 | |||
Payments under lines of credit |
(18,608,823) | (20,963,421) | |||
|
7
Net cash provided by (used in) financing activities |
2,934,543 | (5,311,532) | |||
|
|||||
Change in cash |
(184,668) | 52,807 | |||
Cash at beginning of period |
4,325,268 | 2,868,217 | |||
|
|||||
Cash at end of period |
$ |
4,140,600 |
$ |
2,921,024 | |
|
|||||
Supplementary disclosures of cash flow information |
|||||
Cash paid for interest |
$ |
243,180 |
$ |
260,454 | |
Cash paid for income taxes |
112,517 | 208,737 | |||
Purchase of machinery and equipment financed |
|||||
under capital leases |
825,025 | 703,229 | |||
Financing of insurance policy |
75,011 | 53,043 | |||
|
|||||
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements. |
8
SigmaTron International, Inc.
July 31, 2016
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 Standard Components de Mexico S.A., AbleMex, S.A. de C.V., Digital Appliance Controls de Mexico, S.A. de C.V., Spitfire Controls (Vietnam) Co. Ltd., Spitfire Controls (Cayman) Co. Ltd. and wholly-owned foreign enterprises Wujiang SigmaTron Electronics Co., Ltd. and SigmaTron Electronic Technology Co., Ltd. (“SigmaTron China”) and international procurement office SigmaTron Taiwan branch (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month period ended July 31, 2016 is not necessarily indicative of the results that may be expected for the year ending April 30, 2017. 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, 2016.
Note B - Inventories, net
The components of inventory consist of the following:
|
|||||
|
July 31, |
April 30, |
|||
|
2016 |
2016 |
|||
|
|||||
Finished products |
$ |
26,602,462 |
$ |
23,295,138 | |
Work-in-process |
2,987,621 | 3,035,459 | |||
Raw materials |
44,034,631 | 42,530,957 | |||
|
73,624,714 | 68,861,554 | |||
Less obsolescence reserve |
1,212,532 | 1,212,532 | |||
|
$ |
72,412,182 |
$ |
67,649,022 |
9
SigmaTron International, Inc.
July 31, 2016
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note C - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
|
Three Months Ended |
|||||
|
July 31, |
|||||
|
2016 |
2015 |
||||
|
||||||
Net income |
$ |
146,597 |
$ |
658,806 | ||
Weighted-average shares |
||||||
Basic |
4,183,955 | 4,148,285 | ||||
Effect of dilutive stock options |
30,580 | 45,372 | ||||
|
||||||
Diluted |
4,214,535 | 4,193,657 | ||||
|
||||||
Basic earnings per share |
$ |
0.04 |
$ |
0.16 | ||
|
||||||
Diluted earnings per share |
$ |
0.03 |
$ |
0.16 |
Options to purchase 367,963 and 85,954 shares of common stock were outstanding at July 31, 2016 and 2015, respectively. There were no options granted during the three month period ended July 31, 2016 and 2015, respectively. The Company recognized $83,673 and $4,559 in stock option expense for the three month period ended July 31, 2016 and 2015, respectively. The balance of unrecognized compensation expense related to the Company’s stock option plans was $329,210 and $17,148 at July 31, 2016 and 2015, respectively.
On October 1, 2015, the Company issued 10,000 shares of restricted stock pursuant to the 2013 Non-Employee Director Restricted Stock Plan, which were fully vested on April 1, 2016. The Company recognized no compensation expense with respect to such shares for the three months ended July 31, 2016.
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. For the three months ended July 31, 2016 and 2015, 1,375 and 4,147 shares, respectively, were issued under the ESPP. The Company recorded $1,882 and $5,590 in compensation expense for the three months ended July 31, 2016 and 2015, respectively. During the three months ended July 31, 2016 and 2015, the Company recorded $6,875 and $22,736, respectively, to stockholders’ equity relating to purchases under the ESPP. The ESPP was terminated effective August 15, 2016. Final purchases under the ESPP were completed on August 31, 2016.
10
SigmaTron International, Inc.
July 31, 2016
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note D - Long-term Debt
The Company has a senior secured credit facility with Wells Fargo, N.A. with a credit limit up to $30,000,000. The credit facility is collateralized by substantially all of the domestically located assets of the Company and the Company has pledged 65% of its equity ownership interest in some of its foreign entities. The facility allows the Company to choose among interest rates at which it may borrow funds: the bank fixed rate of two and one quarter percent plus one percent (effectively 3.25% at July 31, 2016) or LIBOR plus two and one quarter percent (effectively 2.875% at July 31, 2016). Interest is paid monthly. Under the senior secured credit facility, the Company may borrow up to the lesser of (i) $30,000,000 or (ii) an amount equal to a percentage of the eligible receivable borrowing base plus a percentage of the inventory borrowing base (collectively, “Borrowing Base”), which cannot exceed 50% of combined eligible receivables and inventory. In January 2016, the existing senior credit facility was modified, including increasing the amount available under the Borrowing Base calculation and extending the term of the facility through October 31, 2018. The bank fee for the modification was $23,333 and is amortized over the term of the credit facility agreement. As of July 31, 2016, there was a $23,457,279 outstanding balance and $3,703,942 of unused availability under the credit facility agreement compared to a $20,014,069 outstanding balance and $3,630,035 of unused availability at April 30, 2016. The Company is required to be in compliance with several financial covenants. At July 31, 2016, the Company was in compliance with its financial covenants.
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 can borrow up to 5,000,000 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 6.67%. The term on the facility extends to August 3, 2017. There was no outstanding balance under the facility at July 31, 2016 and April 30, 2016, respectively.
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. The Wells Fargo, N.A. note historically bore interest at a fixed rate of 6.42% per year and was amortized over a sixty month period. A final payment of approximately $2,000,000 was due on or before January 8, 2015. 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 3.00% at July 31, 2016) 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 $2,660,000 and $2,688,500 at July 31, 2016 and April 30, 2016, 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 $1,134,750 and $1,147,500 at July 31, 2016 and April 30, 2016, respectively.
11
SigmaTron International, Inc.
July 31, 2016
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note D - Long-term Debt - Continued
During 2010, the Company entered into various capital lease agreements with Wells Fargo Equipment Finance to purchase equipment totaling $1,376,799. The terms of the lease agreements extend to July 2016 through October 2016 with monthly installment payments ranging from $3,627 to $13,207 and a fixed interest rate ranging from 4.41% to 4.99%. The balance outstanding under these capital lease agreements was $42,326 and $106,767 at July 31, 2016 and April 30, 2016, respectively. The net book value of the equipment under these leases was $674,949 and $703,424 at July 31, 2016 and April 30, 2016, respectively.
From October 2013 through July 2016, the Company entered into various capital lease agreements with Associated Bank, National Association to purchase equipment totaling $5,001,709. The terms of the lease agreements extend to September 2018 through May 2021 with monthly installment payments ranging from $1,455 to $40,173 and a fixed interest rate ranging from 3.75% to 4.14%. The balance outstanding under these capital lease agreements was $3,192,654 and $2,599,820 at July 31, 2016 and April 30, 2016, respectively. The net book value of the equipment under these leases was $3,951,195 and $3,224,661 at July 31, 2016 and April 30, 2016, respectively. On August 4, 2016 the company entered into a capital lease agreement with Associated Bank, National Association to purchase equipment totaling $334,826. The term of the lease agreement extends to July 2021 with monthly installment payments of $6,144.
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 $1,779,014 and $1,886,069 at July 31, 2016 and April 30, 2016, respectively. The net book value of the equipment under these leases was $2,103,029 and $2,155,363 at July 31, 2016 and April 30, 2016, respectively.
12
SigmaTron International, Inc.
July 31, 2016
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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, 2016 and 2015, respectively.
Other Intangible Assets
Intangible assets subject to amortization are summarized as of July 31, 2016 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 |
10.8 |
4,690,000 | 970,920 | ||||
Backlog |
- |
22,000 | 22,000 | ||||
Trade names |
15.8 |
980,000 | 204,150 | ||||
Non-compete agreements |
2.8 |
50,000 | 29,750 | ||||
Patents |
0.8 |
400,000 | 333,350 | ||||
Total |
$ |
8,912,000 |
$ |
4,330,170 |
13
SigmaTron International, Inc.
July 31, 2016
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, 2016, 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 |
11.08 |
4,690,000 | 883,540 | ||||
Backlog |
- |
22,000 | 22,000 | ||||
Trade names |
16.08 |
980,000 | 191,901 | ||||
Non-compete agreements |
3.08 |
50,000 | 27,965 | ||||
Patents |
1.08 |
400,000 | 313,349 | ||||
Total |
$ |
8,912,000 |
$ |
4,208,755 |
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: |
2017 |
$ |
368,595 | |
For the fiscal year ending April 30: |
2018 |
435,043 | ||
|
2019 |
423,721 | ||
|
2020 |
411,406 | ||
|
2021 |
403,199 | ||
|
Thereafter |
2,539,866 | ||
|
$ |
4,581,830 |
Amortization expense was $121,415 and $115,354 for the three months ended July 31, 2016 and 2015, respectively.
14
SigmaTron International, Inc.
July 31, 2016
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 one payment in the quarter ended July 31, 2016 in the amount of $81,842. As of July 31, 2016, the Company had not materially changed its estimated aggregate consideration expected to be earned under this arrangement. 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. As of July 31, 2016, the contingent consideration liability was $1,069,239.
Note F - Commitments and Contingencies
As previously disclosed in detail in the Company’s Form 10-K filed for the fiscal year ended April 30, 2016, on October 25, 2011, Maria Gracia filed suit against the Company in the U.S. District Court for the Northern District of Illinois under Title VII of the Civil Rights Act.
During the Company’s first quarter ended July 31, 2016, there were no material developments.
From time to time the Company is involved in legal proceedings, claims, or investigations that are incidental to the Company’s business. In future periods, the Company could be subjected to cash cost or non-cash charges to earnings if any of these matters are resolved on unfavorable terms. However, although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including management’s assessment of the merits of any particular claim, the Company does not expect these legal proceedings or claims will have any material adverse impact on its future consolidated financial position or results of operations.
Note 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. Actual results could materially differ from these estimates.
15
SigmaTron International, Inc.
July 31, 2016
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note G - Critical Accounting Policies - Continued
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 that title passes under the terms of the purchase order. 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 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 the lower of cost or market. 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. Actual results differing from these estimates could significantly affect the Company’s inventories and cost of products sold. 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 reduces 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 product demand or market conditions could be different than that projected by management.
16
SigmaTron International, Inc.
July 31, 2016
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, “Goodwill and other Intangible Assets,” 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, 2016 and determined no impairment existed as of that date.
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’s impairment review is 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. The Company conducts annual reviews for idle and underutilized equipment, and reviews business plans for possible impairment. Impairment occurs when the carrying value of the assets exceeds the future undiscounted cash flows expected to be earned by the use of the asset group. When impairment is indicated, the estimated future cash flows are then discounted to determine the estimated fair value of the asset or asset group and an impairment charge is recorded for the difference between the carrying value and the estimated fair value. As of July 31, 2016, 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 judgments and estimates by management are required in determining the consolidated income tax expense assessment.
17
SigmaTron International, Inc.
July 31, 2016
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note G - Critical Accounting Policies - Continued
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 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 2016 financial statements to conform to the 2017 presentation.
18
SigmaTron International, Inc.
July 31, 2016
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." ASU No. 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In August 2015, the FASB deferred the effective date of ASU No. 2014-09 by issuing ASU 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date.” ASU No. 2015-14 defers the effective date of ASU No. 2014-09 to annual reporting periods beginning after December 15, 2017 , with early adoption permitted but not earlier than the original effective date. In March 2016, the FASB issued ASU 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (ASU 2016-08), which clarifies the implementation guidance of principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, “Identifying Performance Obligations and Licensing” (ASU 2016-10), which clarifies the identification of performance obligations and licensing implementation guidance. In May 2016, the FASB issued ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients” (ASU 2016-12), to improve guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The effective date and transition requirements in ASU 2016-08, ASU 2016-10, and ASU 2016-12 are the same as the effective date and transition requirements of ASU 2015-14. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40)”. The amendments in this ASU provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. An entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or are available to be issued, when applicable). ASU 2014-15 is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company elected early adoption in the third quarter of fiscal 2016 of this ASU and it did not have a material impact on its consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015- 03, “Interest — Imputation of Interest (Subtopic 835-30) — Simplifying the Presentation of Debt Issuance Costs.” ASU No. 2015-03 simplifies the presentation of debt issuance costs by requiring that these costs related to a recognized debt liability be presented in the statement of financial condition as a direct reduction from the carrying amount of that liability. ASU No. 2015-03 is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. ASU No. 2015-03 is required to be applied retrospectively to all periods presented beginning in the year of adoption. The Company adopted ASU 2015-03 during the first fiscal quarter of 2017 and it did not have a material impact on its consolidated financial statements.
19
SigmaTron International, Inc.
July 31, 2016
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note G - Critical Accounting Policies - Continued
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. Prospective application is required. Early application is permitted as of the beginning of the interim or annual reporting period. The Company does not expect the impact of the adoption of this ASU to have a material impact on the Company’s consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”. ASU No. 2015-17 requires entities to classify deferred tax liabilities and assets as noncurrent in a classified statement of financial position. ASU No. 2015-17 is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. This update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. Early application is permitted as of the beginning of the interim or annual reporting period. The Company elected to early adopt ASU 2015-17 during its third quarter of fiscal year 2016 on a retrospective basis.
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 standard on its consolidated financial statements, the Company expects that upon adoption 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 is currently evaluating the impact this standard will have on its consolidated financial statements and related disclosures.
20
SigmaTron International, Inc.
July 31, 2016
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note G - Critical Accounting Policies - Continued
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.
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, 2016, the Company had an outstanding note receivable and account receivable from that customer of approximately $888,000 and $321,000, respectively, compared to an outstanding note receivable and account receivable of approximately $888,000 and $233,000, respectively, at April 30, 2016. As of July 31, 2016, inventory on hand related to this customer approximated $1,500,000 compared to $1,600,000 at April 30, 2016. Sales to this customer have not been material for the three months ended July 31, 2016.
On January 29, 2016, the Company entered into a memorandum of understanding with this customer. Under the subsequent agreement, effective January 29, 2016, the 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 matures 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.
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SigmaTron International, Inc.
July 31, 2016
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 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, and 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 required by law.
Overview:
The Company operates in one business segment as an independent provider of electronic manufacturing services, 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
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SigmaTron International, Inc.
July 31, 2016
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 with 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 (consignment versus turnkey) 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 fluctuations in the Company’s revenue and gross margin levels. Consignment orders accounted for less than 5% of the Company’s revenues for the three months ended July 31, 2016 and 2015, respectively.
Sales for the quarter ended July 31, 2016 were $58,919,398, down approximately, 3% from the fourth quarter of fiscal year 2016. This is the third quarter in a row where the Company has seen a slowing of demand. The Company believes this is the result of a sluggish domestic economy and a stagnant global economy. The Company will manage this slowdown and continue to position itself for future growth. As the Company entered the second fiscal quarter of 2017 it has seen revenue rebound somewhat and short term demand strengthen. Historically, the Company has experienced a small amount of seasonality in its second fiscal quarter. Further, the Company is seeing new customers and programs with existing customers launch. The Company is cautiously optimistic for the short term.
Results of Operations:
Net Sales
Net sales decreased for the three month period ended July 31, 2016 to $58,919,398 from $64,220,946 for the three month period ended July 31, 2015. Sales volume decreased for the three month period ended July 31, 2016 as compared to the prior year in the industrial electronics, fitness, appliance, telecommunications and semiconductor equipment marketplaces. During the three month period ended July 31, 2016, sales in the consumer electronics, gaming and medical/life sciences marketplaces increased compared to the same period in the prior year.
Gross Profit
Gross profit dollars decreased during the three month period ended July 31, 2016 to $5,504,657 or 9.3% of net sales compared to $6,230,274 or 9.7% of net sales for the same period in the prior fiscal year. Gross profit as a percent of sales for the three month period ended July 31, 2016 decreased due to decreased sales volume and less favorable mix compared to the same period in the prior year.
Selling and Administrative Expenses
Selling and administrative expenses increased to $5,093,958 or 8.6% of net sales for the three month period ended July 31, 2016 compared to $5,045,353 or 7.9% of net sales for the same period in the prior fiscal year. The net increase in selling and administrative expenses for the three month period
23
SigmaTron International, Inc.
July 31, 2016
ended July 31, 2016 was approximately $50,000 which was driven by increases in legal fees, accounting salaries and general office salaries. The increase in the foregoing selling and administrative expenses was partially offset by a decrease in bonus expense, professional fees and sales salaries.
Interest Expense
Interest expense decreased to $243,243 for the three month period ended July 31, 2016 compared to $263,179 for the same period in the prior fiscal year. The decrease in interest expense for the three month period ended July 31, 2016 was due to a decrease in the interest rate for the three month period ended July 31, 2016 compared to the same period in the prior year. For the quarter ended July 31, 2015, $5,000,000 of the outstanding loan balance bore an interest rate of 3.25% compared to 2.875% for the quarter ended July 31, 2016. Interest expense for future quarters may fluctuate depending on interest rates and borrowings levels.
Income Tax Expense
The income tax expense was $80,261 for the three months period ended July 31, 2016 compared to an income tax expense of $303,517 for the same period in the prior fiscal year. The decrease in income tax expense for the three month period ended July 31, 2016 compared to the same period in the previous year is the result of lower pretax income recognized in the U.S. and foreign jurisdictions. The Company’s effective tax rate was 35.4% and 31.5% for the quarters ended July 31, 2016 and 2015, respectively. The effective tax rate is higher for the quarter ended July 31, 2016 than the quarter ended July 31, 2015 because more taxable income was recognized in foreign jurisdictions with higher tax rates for the period ended July 31, 2016.
Net Income
Net income decreased to $146,597 for the three month period ended July 31, 2016 compared to net income of $658,806 for the same period in the prior fiscal year. Basic and diluted earnings per share for the first quarter of 2017 were $0.04 and $0.03, respectively, compared to basic and diluted earnings per share of $0.16 for the same period in the prior fiscal year.
Liquidity and Capital Resources:
Operating Activities.
Cash flow used in operating activities was $1,874,880 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 demand for customer demand based on forecast.
Cash flow provided by operating activities was $5,509,532 for the three months ended July 31, 2015. During the first three months of fiscal year 2016, cash flow provided by operating activities was primarily the result of a decrease in inventories of $1,299,099, an increase in accounts payable of $2,374,386, the result of net income and the non-cash effects of depreciation and amortization. The decrease in inventory was the result of inventory usage for new programs.
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SigmaTron International, Inc.
July 31, 2016
Investing Activities.
During the first three months of fiscal year 2017, the Company purchased $1,554,408 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 2017 in the amount of $1,500,000. The Company anticipates purchases will be funded by lease transactions, its senior secured credit facility or raising capital from other sources.
During the first three months of fiscal year 2016, the Company purchased $222,941 in machinery and equipment used in the ordinary course of business. The Company made additional machinery and equipment purchases of $2,942,142 during the balance of fiscal year 2016.
Financing Activities.
Cash provided by financing activities was $2,934,543 for the three months ended July 31, 2016. Cash provided by financing activities was primarily the result of borrowings under the line of credit.
Cash used in financing activities was $5,311,532 for the three months ended July 31, 2015. Cash used in financing activities was primarily the result of payments under the line of credit in excess of borrowings.
Financing Summary.
The Company has a senior secured credit facility with Wells Fargo, N.A. with a credit limit up to $30,000,000. The credit facility is collateralized by substantially all of the domestically located assets of the Company and the Company has pledged 65% of its equity ownership interest in some of its foreign entities. The facility allows the Company to choose among interest rates at which it may borrow funds: the bank fixed rate of two and one quarter percent plus one percent (effectively 3.25% at July 31, 2016) or LIBOR plus two and one quarter percent (effectively 2.875% at July 31, 2016). Interest is paid monthly. Under the senior secured credit facility, the Company may borrow up to the lesser of (i) $30,000,000 or (ii) an amount equal to a percentage of the eligible receivable borrowing base plus a percentage of the inventory borrowing base (collectively, “Borrowing Base”), which cannot exceed 50% of combined eligible receivables and inventory. In January 2016, the existing senior credit facility was modified, including increasing the amount available under the Borrowing Base calculation and extending the term of the facility through October 31, 2018. The bank fee for the modification was $23,333 and is amortized over the term of the credit facility agreement. As of July 31, 2016, there was a $23,457,279 outstanding balance and $3,703,942 of unused availability under the credit facility agreement compared to a $20,014,069 outstanding balance and $3,630,035 of unused availability at April 30, 2016. The Company is required to be in compliance with several financial covenants. At July 31, 2016, the Company was in compliance with its financial covenants.
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 can borrow up to 5,000,000 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 6.67%. The term on the facility extends to August 3, 2017. There was no outstanding balance under the facility at July 31, 2016 and April 30, 2016, respectively.
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SigmaTron International, Inc.
July 31, 2016
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. The Wells Fargo, N.A. note historically bore interest at a fixed rate of 6.42% per year and was amortized over a sixty month period. A final payment of approximately $2,000,000 was due on or before January 8, 2015. 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 3.00% at July 31, 2016) 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 $2,660,000 and $2,688,500 at July 31, 2016 and April 30, 2016, 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 $1,134,750 and $1,147,500 at July 31, 2016 and April 30, 2016, respectively.
During 2010, the Company entered into various capital lease agreements with Wells Fargo Equipment Finance to purchase equipment totaling $1,376,799. The terms of the lease agreements extend to July 2016 through October 2016 with monthly installment payments ranging from $3,627 to $13,207 and a fixed interest rate ranging from 4.41% to 4.99%. The balance outstanding under these capital lease agreements was $42,326 and $106,767 at July 31, 2016 and April 30, 2016, respectively. The net book value of the equipment under these leases was $674,949 and $703,424 at July 31, 2016 and April 30, 2016, respectively.
From October 2013 through July 2016, the Company entered into various capital lease agreements with Associated Bank, National Association to purchase equipment totaling $5,001,709. The terms of the lease agreements extend to September 2018 through May 2021 with monthly installment payments ranging from $1,455 to $40,173 and a fixed interest rate ranging from 3.75% to 4.14%. The balance outstanding under these capital lease agreements was $3,192,654 and $2,599,820 at July 31, 2016 and April 30, 2016, respectively. The net book value of the equipment under these leases was $3,951,195 and $3,224,661 at July 31, 2016 and April 30, 2016, respectively. On August 4, 2016 the company entered into a capital lease agreement with Associated Bank, National Association to purchase equipment totaling $334,826. The term of the lease agreement extends to July 2021 with monthly installment payments of $6,144.
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 $1,779,014 and $1,886,069 at July 31, 2016 and April 30, 2016, respectively. The net book value of the equipment under these leases was $2,103,029 and $2,155,363 at July 31, 2016 and April 30, 2016, respectively.
In September 2010, the Company entered into a real estate lease agreement in Union City, CA, to rent 116,993 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 July 31, 2016 was
26
SigmaTron International, Inc.
July 31, 2016
$19,395. In addition, the landlord provided the Company tenant incentives of $418,000, which are being amortized over the life of the lease.
On May 31, 2012, the Company entered into a lease agreement in Tijuana, MX, to rent 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 period ended July 31, 2016 was $30,860.
In September 2015, the Company entered into a real estate lease agreement in San Diego, CA, to rent 30,240 square feet of manufacturing space. The term of lease extends to August 2016 with monthly payments of $17,539. On March 10, 2016 the term of the lease was extended to August 2019.
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 July 31, 2016 resulted in a foreign currency loss of $106,862 compared to a foreign currency gain of approximately $284 for the same period in the prior year. During the first three months of fiscal year 2017, the Company’s U.S. operations paid approximately $12,250,000 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, 2017 plans, will continue to be indefinitely reinvested, and as a result, no deferred tax liability was recorded at April 30, 2016. The cumulative amount of unremitted earnings for which U.S. income taxes have not been recorded is $13,192,000 as of July 31, 2016. 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 2017 at the Company’s current level of business. The Company has received forecasts from current customers for increased business that would require additional investments in inventory. To the extent that these forecasts come to fruition, the Company may need to raise capital from other sources of debt or equity. The Company engaged an investment banker for the purpose of completing a capital raise during fiscal year 2016 and subsequently terminated that agreement. The Company continues to evaluate alternatives for raising capital in fiscal year 2017.
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 incomes from continuing operations for the past fiscal years has been minimal.
27
SigmaTron International, Inc.
July 31, 2016
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, we are 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, we are not required to provide the information required by this item.
Item 4.Controls and Procedures.
Disclosure Controls:
Our management, including our President and Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our 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 31, 2016. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and our 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 the end of the period covered by this report.
Internal Controls:
There has been no change in our internal control over financial reporting during the three months ended July 31, 2016, that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting. Our 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 their 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 intend to perform 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.
28
SigmaTron International, Inc.
July 31, 2016
PART II – OTHER INFORMATION
As previously disclosed in detail in the Company’s Form 10-K filed for the fiscal year ended April 30, 2016, on October 25, 2011, Maria Gracia filed suit against the Company in the U.S. District Court for the Northern District of Illinois under Title VII of the Civil Rights Act.
During the Company’s first quarter ended July 31, 2016, there were no material developments.
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.
There have been no material changes to the description of the risk factors affecting our business as previously disclosed in Item 1A. to Part 1 of our Annual Report on Form 10-K for the fiscal year ended April 30, 2016.
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.
None.
10.1Lease No. 009, entered into July 15, 2016, is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between Associated Bank, National Association and SigmaTron International, Inc.
31.1Certification 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).
29
SigmaTron International, Inc.
July 31, 2016
31.2Certification 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).
32.1Certification 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).
32.2Certification 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.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Scheme Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
30
SigmaTron International, Inc.
July 31, 2016
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SIGMATRON INTERNATIONAL, INC.
/s/ Gary R. Fairhead |
September 13, 2016 |
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Gary R. Fairhead |
Date |
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President and CEO (Principal Executive Officer) |
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||
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/s/ Linda K. Frauendorfer |
September 13, 2016 |
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Linda K. Frauendorfer |
Date |
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Chief Financial Officer, Secretary and Treasurer |
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(Principal Financial Officer and Principal |
||
Accounting Officer) |
31
EXHIBIT 10.1
LEASE SCHEDULE NO. 009
Associated Bank
Leasing Division
This Lease Schedule No. 009 ("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 Rentals |
Rental Payment Due Date |
||
60 Months |
1 Advance Rentals |
|
$15,122.12 |
The 10th day of each month |
60 Payments |
Down Payment |
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$0.00 |
|
|
Taxes 0.0000% |
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$0.00 |
|
Rental Payment |
Documentation Fee |
|
$250.00 |
End-of-Lease Options |
$15,122.12 per month, |
Lease Deposit |
|
$0.00 |
$1.00 Buyout |
plus applicable taxes |
Amount Due |
|
$15,372.12 |
|
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 schedule10-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, Including, 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: |
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Accepted By: |
||
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Associated Bank, National Association |
|
|
SigmaTron International, Inc. |
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“LESSOR” |
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|
“LESSEE” |
|
|
|
|
|
By: |
/s/ Jody Tilkens |
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By: |
/s/ Linda K. Frauendorfer |
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(Signature) |
|
|
(Signature) |
Name: |
Jody Tilkens |
|
Name: |
Linda K. Frauendorfer |
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|
|
|
|
Title: |
Assistant Vice President |
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Title: |
Chief Financial Officer |
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|
|
|
Date: |
7/15/16 |
|
Date: |
6/30/16 |
SigmaTron International, Inc.
July 31, 2016
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, 2016
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, 2016
/s/ Gary R. Fairhead
Gary R. Fairhead
President and Chief Executive Officer
of SigmaTron International, Inc.
SigmaTron International, Inc.
July 31, 2016
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, 2016
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, 2016
/s/ Linda K. Frauendorfer
Linda K. Frauendorfer
Chief Financial Officer, Secretary and
Treasurer of SigmaTron International, Inc.
SigmaTron International, Inc.
July 31, 2016
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, 2016 (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, 2016
/s/ Gary R. Fairhead
Gary R. Fairhead
President and Chief Executive Officer of
SigmaTron International, Inc.
SigmaTron International, Inc.
July 31, 2016
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, 2016 (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, 2016
/s/ Linda K. Frauendorfer
Linda K. Frauendorfer
Chief Financial Officer, Secretary and
Treasurer of SigmaTron International, Inc.
Document And Entity Information - shares |
3 Months Ended | |
---|---|---|
Jul. 31, 2016 |
Sep. 09, 2016 |
|
Document And Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Jul. 31, 2016 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q1 | |
Trading Symbol | sgma | |
Entity Registrant Name | SIGMATRON INTERNATIONAL INC | |
Entity Central Index Key | 0000915358 | |
Current Fiscal Year End Date | --04-30 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 4,185,613 |
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) |
Jul. 31, 2016 |
Apr. 30, 2016 |
---|---|---|
Condensed Consolidated Balance Sheets [Abstract] | ||
Accounts receivable, allowance for doubtful accounts | $ 100,000 | $ 100,000 |
Intangible assets, amortization | $ 4,330,170 | $ 4,208,755 |
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 500,000 | 500,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 12,000,000 | 12,000,000 |
Common stock, shares issued | 4,185,330 | 4,183,955 |
Common stock, shares outstanding | 4,185,330 | 4,183,955 |
Condensed Consolidated Statements Of Operations - USD ($) |
3 Months Ended | |
---|---|---|
Jul. 31, 2016 |
Jul. 31, 2015 |
|
Condensed Consolidated Statements Of Operations [Abstract] | ||
Net sales | $ 58,919,398 | $ 64,220,946 |
Cost of products sold | 53,414,741 | 57,990,672 |
Gross profit | 5,504,657 | 6,230,274 |
Selling and administrative expenses | 5,093,958 | 5,045,353 |
Operating income | 410,699 | 1,184,921 |
Other income | (59,402) | (40,581) |
Interest expense | 243,243 | 263,179 |
Income from operation before income tax expense | 226,858 | 962,323 |
Income tax expense | 80,261 | 303,517 |
Net income | $ 146,597 | $ 658,806 |
Earnings per share - basic | $ 0.04 | $ 0.16 |
Earnings per share - diluted | $ 0.03 | $ 0.16 |
Weighted average shares of common stock outstanding, Basic | 4,183,955 | 4,148,285 |
Weighted average shares of common stock outstanding, Diluted | 4,214,535 | 4,193,657 |
Basis Of Presentation |
3 Months Ended |
---|---|
Jul. 31, 2016 | |
Basis Of Presentation [Abstract] | |
Basis Of Presentation | Note A - Basis of Presentation The accompanying unaudited condensed consolidated financial statements of SigmaTron International, Inc. (“SigmaTron”), SigmaTron’s wholly-owned subsidiaries Standard Components de Mexico S.A., AbleMex, S.A. de C.V., Digital Appliance Controls de Mexico, S.A. de C.V., Spitfire Controls (Vietnam) Co. Ltd., Spitfire Controls (Cayman) Co. Ltd. and wholly-owned foreign enterprises Wujiang SigmaTron Electronics Co., Ltd. and SigmaTron Electronic Technology Co., Ltd. (“SigmaTron China”) and international procurement office SigmaTron Taiwan branch (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month period ended July 31, 2016 is not necessarily indicative of the results that may be expected for the year ending April 30, 2017. 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, 2016.
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Inventories, Net |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories, Net [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories, Net | Note B - Inventories, net The components of inventory consist of the following:
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Earnings Per Share |
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Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | Note C - Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share:
Options to purchase 367,963 and 85,954 shares of common stock were outstanding at July 31, 2016 and 2015, respectively. There were no options granted during the three month period ended July 31, 2016 and 2015, respectively. The Company recognized $83,673 and $4,559 in stock option expense for the three month period ended July 31, 2016 and 2015, respectively. The balance of unrecognized compensation expense related to the Company’s stock option plans was $329,210 and $17,148 at July 31, 2016 and 2015, respectively. On October 1, 2015, the Company issued 10,000 shares of restricted stock pursuant to the 2013 Non-Employee Director Restricted Stock Plan, which were fully vested on April 1, 2016. The Company recognized no compensation expense with respect to such shares for the three months ended July 31, 2016. 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. For the three months ended July 31, 2016 and 2015, 1,375 and 4,147 shares, respectively, were issued under the ESPP. The Company recorded $1,882 and $5,590 in compensation expense for the three months ended July 31, 2016 and 2015, respectively. During the three months ended July 31, 2016 and 2015, the Company recorded $6,875 and $22,736, respectively, to stockholders’ equity relating to purchases under the ESPP. The ESPP was terminated effective August 15, 2016. Final purchases under the ESPP were completed on August 31, 2016.
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Long-Term Debt |
3 Months Ended |
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Jul. 31, 2016 | |
Long-Term Debt [Abstract] | |
Long-Term Debt | Note D - Long-term Debt The Company has a senior secured credit facility with Wells Fargo, N.A. with a credit limit up to $30,000,000. The credit facility is collateralized by substantially all of the domestically located assets of the Company and the Company has pledged 65% of its equity ownership interest in some of its foreign entities. The facility allows the Company to choose among interest rates at which it may borrow funds: the bank fixed rate of two and one quarter percent plus one percent (effectively 3.25% at July 31, 2016) or LIBOR plus two and one quarter percent (effectively 2.875% at July 31, 2016). Interest is paid monthly. Under the senior secured credit facility, the Company may borrow up to the lesser of (i) $30,000,000 or (ii) an amount equal to a percentage of the eligible receivable borrowing base plus a percentage of the inventory borrowing base (collectively, “Borrowing Base”), which cannot exceed 50% of combined eligible receivables and inventory. In January 2016, the existing senior credit facility was modified, including increasing the amount available under the Borrowing Base calculation and extending the term of the facility through October 31, 2018. The bank fee for the modification was $23,333 and is amortized over the term of the credit facility agreement. As of July 31, 2016, there was a $23,457,279 outstanding balance and $3,703,942 of unused availability under the credit facility agreement compared to a $20,014,069 outstanding balance and $3,630,035 of unused availability at April 30, 2016. The Company is required to be in compliance with several financial covenants. At July 31, 2016, the Company was in compliance with its financial covenants. 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 can borrow up to 5,000,000 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 6.67%. The term on the facility extends to August 3, 2017. There was no outstanding balance under the facility at July 31, 2016 and April 30, 2016, respectively. 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. The Wells Fargo, N.A. note historically bore interest at a fixed rate of 6.42% per year and was amortized over a sixty month period. A final payment of approximately $2,000,000 was due on or before January 8, 2015. 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 3.00% at July 31, 2016) 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 $2,660,000 and $2,688,500 at July 31, 2016 and April 30, 2016, 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 $1,134,750 and $1,147,500 at July 31, 2016 and April 30, 2016, respectively. Note D - Long-term Debt - Continued During 2010, the Company entered into various capital lease agreements with Wells Fargo Equipment Finance to purchase equipment totaling $1,376,799. The terms of the lease agreements extend to July 2016 through October 2016 with monthly installment payments ranging from $3,627 to $13,207 and a fixed interest rate ranging from 4.41% to 4.99%. The balance outstanding under these capital lease agreements was $42,326 and $106,767 at July 31, 2016 and April 30, 2016, respectively. The net book value of the equipment under these leases was $674,949 and $703,424 at July 31, 2016 and April 30, 2016, respectively. From October 2013 through July 2016, the Company entered into various capital lease agreements with Associated Bank, National Association to purchase equipment totaling $5,001,709. The terms of the lease agreements extend to September 2018 through May 2021 with monthly installment payments ranging from $1,455 to $40,173 and a fixed interest rate ranging from 3.75% to 4.14%. The balance outstanding under these capital lease agreements was $3,192,654 and $2,599,820 at July 31, 2016 and April 30, 2016, respectively. The net book value of the equipment under these leases was $3,951,195 and $3,224,661 at July 31, 2016 and April 30, 2016, respectively. On August 4, 2016 the company entered into a capital lease agreement with Associated Bank, National Association to purchase equipment totaling $334,826. The term of the lease agreement extends to July 2021 with monthly installment payments of $6,144. 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 $1,779,014 and $1,886,069 at July 31, 2016 and April 30, 2016, respectively. The net book value of the equipment under these leases was $2,103,029 and $2,155,363 at July 31, 2016 and April 30, 2016, respectively.
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Goodwill And Other Intangible Assets |
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Goodwill And Other Intangible Assets | 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, 2016 and 2015, respectively. Other Intangible Assets Intangible assets subject to amortization are summarized as of July 31, 2016 as follows:
Note E - Goodwill and Other Intangible Assets - Continued Intangible assets subject to amortization are summarized as of April 30, 2016, as follows:
Estimated aggregate amortization expense for intangible assets, which becomes fully amortized in 2032, for the remaining periods is as follows:
Amortization expense was $121,415 and $115,354 for the three months ended July 31, 2016 and 2015, respectively.
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 one payment in the quarter ended July 31, 2016 in the amount of $81,842. As of July 31, 2016, the Company had not materially changed its estimated aggregate consideration expected to be earned under this arrangement. 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. As of July 31, 2016, the contingent consideration liability was $1,069,239.
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Commitments and Contingencies |
3 Months Ended |
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Jul. 31, 2016 | |
Commitments and Contingencies [Abstract] | |
Commitments and Contingencies | Note F - Commitments and Contingencies As previously disclosed in detail in the Company’s Form 10-K filed for the fiscal year ended April 30, 2016, on October 25, 2011, Maria Gracia filed suit against the Company in the U.S. District Court for the Northern District of Illinois under Title VII of the Civil Rights Act. During the Company’s first quarter ended July 31, 2016, there were no material developments. 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.
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Critical Accounting Policies |
3 Months Ended |
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Jul. 31, 2016 | |
Critical Accounting Policies [Abstract] | |
Critical Accounting Policies | 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. Actual results could materially differ from these estimates.
Note G - Critical Accounting Policies - Continued 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 that title passes under the terms of the purchase order. 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 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 the lower of cost or market. 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. Actual results differing from these estimates could significantly affect the Company’s inventories and cost of products sold. 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 reduces 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 product demand or market conditions could be different than that projected by management.
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, “Goodwill and other Intangible Assets,” 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, 2016 and determined no impairment existed as of that date. 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’s impairment review is 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. The Company conducts annual reviews for idle and underutilized equipment, and reviews business plans for possible impairment. Impairment occurs when the carrying value of the assets exceeds the future undiscounted cash flows expected to be earned by the use of the asset group. When impairment is indicated, the estimated future cash flows are then discounted to determine the estimated fair value of the asset or asset group and an impairment charge is recorded for the difference between the carrying value and the estimated fair value. As of July 31, 2016, 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 judgments and estimates by management are required in determining the consolidated income tax expense assessment.
Note G - Critical Accounting Policies - Continued 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 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 2016 financial statements to conform to the 2017 presentation.
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." ASU No. 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In August 2015, the FASB deferred the effective date of ASU No. 2014-09 by issuing ASU 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date.” ASU No. 2015-14 defers the effective date of ASU No. 2014-09 to annual reporting periods beginning after December 15, 2017 , with early adoption permitted but not earlier than the original effective date. In March 2016, the FASB issued ASU 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (ASU 2016-08), which clarifies the implementation guidance of principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, “Identifying Performance Obligations and Licensing” (ASU 2016-10), which clarifies the identification of performance obligations and licensing implementation guidance. In May 2016, the FASB issued ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients” (ASU 2016-12), to improve guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The effective date and transition requirements in ASU 2016-08, ASU 2016-10, and ASU 2016-12 are the same as the effective date and transition requirements of ASU 2015-14. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures. In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40)”. The amendments in this ASU provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. An entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or are available to be issued, when applicable). ASU 2014-15 is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company elected early adoption in the third quarter of fiscal 2016 of this ASU and it did not have a material impact on its consolidated financial statements. In April 2015, the FASB issued ASU No. 2015- 03, “Interest — Imputation of Interest (Subtopic 835-30) — Simplifying the Presentation of Debt Issuance Costs.” ASU No. 2015-03 simplifies the presentation of debt issuance costs by requiring that these costs related to a recognized debt liability be presented in the statement of financial condition as a direct reduction from the carrying amount of that liability. ASU No. 2015-03 is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. ASU No. 2015-03 is required to be applied retrospectively to all periods presented beginning in the year of adoption. The Company adopted ASU 2015-03 during the first fiscal quarter of 2017 and it did not have a material impact on its consolidated financial statements.
Note G - Critical Accounting Policies - Continued 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. Prospective application is required. Early application is permitted as of the beginning of the interim or annual reporting period. The Company does not expect the impact of the adoption of this ASU to have a material impact on the Company’s consolidated financial statements. In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”. ASU No. 2015-17 requires entities to classify deferred tax liabilities and assets as noncurrent in a classified statement of financial position. ASU No. 2015-17 is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. This update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. Early application is permitted as of the beginning of the interim or annual reporting period. The Company elected to early adopt ASU 2015-17 during its third quarter of fiscal year 2016 on a retrospective basis. 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 standard on its consolidated financial statements, the Company expects that upon adoption 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 is currently evaluating the impact this standard will have on its consolidated financial statements and related disclosures.
Note G - Critical Accounting Policies - Continued 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.
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Related Parties |
3 Months Ended |
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Jul. 31, 2016 | |
Related Parties [Abstract] | |
Related Parties | 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, 2016, the Company had an outstanding note receivable and account receivable from that customer of approximately $888,000 and $321,000, respectively, compared to an outstanding note receivable and account receivable of approximately $888,000 and $233,000, respectively, at April 30, 2016. As of July 31, 2016, inventory on hand related to this customer approximated $1,500,000 compared to $1,600,000 at April 30, 2016. Sales to this customer have not been material for the three months ended July 31, 2016. On January 29, 2016, the Company entered into a memorandum of understanding with this customer. Under the subsequent agreement, effective January 29, 2016, the 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 matures 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.
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Critical Accounting Policies (Policy) |
3 Months Ended |
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Jul. 31, 2016 | |
Critical Accounting Policies [Abstract] | |
Management Estimates And Uncertainties | 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. Actual results could materially differ from these estimates.
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Revenue Recognition | 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 that title passes under the terms of the purchase order. 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 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.
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Inventories | Inventories - Inventories are valued at the lower of cost or market. 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. Actual results differing from these estimates could significantly affect the Company’s inventories and cost of products sold. 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 reduces 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 product demand or market conditions could be different than that projected by management.
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Goodwill | 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, “Goodwill and other Intangible Assets,” 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, 2016 and determined no impairment existed as of that date.
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Intangible Assets | 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.
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Impairment Of Long-Lived Assets | 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’s impairment review is 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. The Company conducts annual reviews for idle and underutilized equipment, and reviews business plans for possible impairment. Impairment occurs when the carrying value of the assets exceeds the future undiscounted cash flows expected to be earned by the use of the asset group. When impairment is indicated, the estimated future cash flows are then discounted to determine the estimated fair value of the asset or asset group and an impairment charge is recorded for the difference between the carrying value and the estimated fair value. As of July 31, 2016, there were no indicators of possible impairment of long-lived assets.
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Income Tax | 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 judgments and estimates by management are required in determining the consolidated income tax expense assessment.
Note G - Critical Accounting Policies - Continued 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 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.
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Reclassifications | Reclassifications - Certain reclassifications have been made to the previously reported 2016 financial statements to conform to the 2017 presentation.
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New Accounting Standards | In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers." ASU No. 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In August 2015, the FASB deferred the effective date of ASU No. 2014-09 by issuing ASU 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date.” ASU No. 2015-14 defers the effective date of ASU No. 2014-09 to annual reporting periods beginning after December 15, 2017 , with early adoption permitted but not earlier than the original effective date. In March 2016, the FASB issued ASU 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (ASU 2016-08), which clarifies the implementation guidance of principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, “Identifying Performance Obligations and Licensing” (ASU 2016-10), which clarifies the identification of performance obligations and licensing implementation guidance. In May 2016, the FASB issued ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients” (ASU 2016-12), to improve guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The effective date and transition requirements in ASU 2016-08, ASU 2016-10, and ASU 2016-12 are the same as the effective date and transition requirements of ASU 2015-14. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures. In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40)”. The amendments in this ASU provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. An entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or are available to be issued, when applicable). ASU 2014-15 is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company elected early adoption in the third quarter of fiscal 2016 of this ASU and it did not have a material impact on its consolidated financial statements. In April 2015, the FASB issued ASU No. 2015- 03, “Interest — Imputation of Interest (Subtopic 835-30) — Simplifying the Presentation of Debt Issuance Costs.” ASU No. 2015-03 simplifies the presentation of debt issuance costs by requiring that these costs related to a recognized debt liability be presented in the statement of financial condition as a direct reduction from the carrying amount of that liability. ASU No. 2015-03 is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. ASU No. 2015-03 is required to be applied retrospectively to all periods presented beginning in the year of adoption. The Company adopted ASU 2015-03 during the first fiscal quarter of 2017 and it did not have a material impact on its consolidated financial statements.
Note G - Critical Accounting Policies - Continued 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. Prospective application is required. Early application is permitted as of the beginning of the interim or annual reporting period. The Company does not expect the impact of the adoption of this ASU to have a material impact on the Company’s consolidated financial statements. In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”. ASU No. 2015-17 requires entities to classify deferred tax liabilities and assets as noncurrent in a classified statement of financial position. ASU No. 2015-17 is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. This update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. Early application is permitted as of the beginning of the interim or annual reporting period. The Company elected to early adopt ASU 2015-17 during its third quarter of fiscal year 2016 on a retrospective basis. 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 standard on its consolidated financial statements, the Company expects that upon adoption 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 is currently evaluating the impact this standard will have on its consolidated financial statements and related disclosures.
Note G - Critical Accounting Policies - Continued 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.
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Inventories, Net (Tables) |
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Components Of Inventory |
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Earnings Per Share (Tables) |
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Computation Of Basic And Diluted Earnings Per Share |
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Goodwill And Other Intangible Assets (Tables) |
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Summary Of Intangible Assets Subject To Amortization | Intangible assets subject to amortization are summarized as of July 31, 2016 as follows:
Note E - Goodwill and Other Intangible Assets - Continued Intangible assets subject to amortization are summarized as of April 30, 2016, as follows:
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Estimated Aggregate Amortization Expense |
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Inventories, Net (Components Of Inventory) (Details) - USD ($) |
Jul. 31, 2016 |
Apr. 30, 2016 |
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Inventories, Net [Abstract] | ||
Finished products | $ 26,602,462 | $ 23,295,138 |
Work-in-process | 2,987,621 | 3,035,459 |
Raw materials | 44,034,631 | 42,530,957 |
Total inventory, gross | 73,624,714 | 68,861,554 |
Less obsolescence reserve | 1,212,532 | 1,212,532 |
Total inventory, net | $ 72,412,182 | $ 67,649,022 |
Earnings Per Share (Narrative) (Details) - USD ($) |
3 Months Ended | ||
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Oct. 01, 2015 |
Jul. 31, 2016 |
Jul. 31, 2015 |
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Earnings Per Share [Line Items] | |||
Common stock shares were outstanding | 367,963 | 85,954 | |
Options granted | 0 | 0 | |
Stock option expense | $ 83,673 | $ 4,559 | |
Balance of unrecognized compensation expense related to stock options plans | $ 329,210 | $ 17,148 | |
Employee Stock Purchase Plan [Member] | |||
Earnings Per Share [Line Items] | |||
Shares of common stock for issuance | 500,000 | ||
Additional shares of common stock for issuance each fiscal year | 25,000 | ||
Shares issued | 1,375 | 4,147 | |
ESPP compensation expense | $ 1,882 | $ 5,590 | |
Stockholders' equity relating to purchases under the ESPP | $ 6,875 | $ 22,736 | |
ESPP terminated effective | Aug. 15, 2016 | ||
Restricted Stock [Member] | 2013 Non-Employee Director Restricted Stock Plan [Member] | |||
Earnings Per Share [Line Items] | |||
Shares of restricted stock granted | 10,000 | ||
Restricted stock, fully vest date | Apr. 01, 2016 | ||
Restricted stock expense | $ 0 |
Earnings Per Share (Computation Of Basic And Diluted Earnings Per Share) (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Jul. 31, 2016 |
Jul. 31, 2015 |
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Earnings Per Share [Abstract] | ||
Net income | $ 146,597 | $ 658,806 |
Weighted-average shares, Basic | 4,183,955 | 4,148,285 |
Weighted-average shares, Effect of dilutive stock options | 30,580 | 45,372 |
Weighted-average shares, Diluted | 4,214,535 | 4,193,657 |
Basic earnings per share | $ 0.04 | $ 0.16 |
Diluted earnings per share | $ 0.03 | $ 0.16 |
Goodwill And Other Intangible Assets (Narrative) (Details) |
3 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Jul. 31, 2016
USD ($)
item
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Jul. 31, 2015
USD ($)
|
Apr. 30, 2016
USD ($)
|
May 31, 2012
USD ($)
|
|
Goodwill [Line Items] | ||||
Changes in goodwill carrying amount | $ 0 | $ 0 | ||
Goodwill | 3,222,899 | 3,222,899 | $ 3,222,899 | |
Amortization expense | $ 121,415 | $ 115,354 | ||
Spitfire [Member] | ||||
Goodwill [Line Items] | ||||
Estimated fair value of contingent consideration | $ 2,320,000 | |||
Total payment for business acquisition | $ 342,162 | |||
Number of quarterly payments for consideration with the Spitfire aquisition | item | 1 | |||
Quarterly payment for business acquisition | $ 81,842 | |||
Contingent consideration liability | $ 1,069,239 |
Goodwill And Other Intangible Assets (Estimated Aggregate Amortization Expense) (Details) - USD ($) |
Jul. 31, 2016 |
Apr. 30, 2016 |
---|---|---|
Goodwill And Other Intangible Assets [Abstract] | ||
For the remaining 9 months of the fiscal year ending April 30, 2017 | $ 368,595 | |
For the fiscal year ending April 30, 2018 | 435,043 | |
For the fiscal year ending April 30, 2019 | 423,721 | |
For the fiscal year ending April 30, 2020 | 411,406 | |
For the fiscal year ending April 30, 2021 | 403,199 | |
Thereafter | 2,539,866 | |
Total | $ 4,581,830 | $ 4,703,245 |
Critical Accounting Policies (Narrative) (Details) |
3 Months Ended |
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Jul. 31, 2016
USD ($)
| |
Summary Of Critical Accounting Policies [Line Items] | |
Long-lived assets impairment | $ 0 |
Patents [Member] | |
Summary Of Critical Accounting Policies [Line Items] | |
Estimated useful life | 5 years |
Trade Names [Member] | |
Summary Of Critical Accounting Policies [Line Items] | |
Estimated useful life | 20 years |
Backlog [Member] | |
Summary Of Critical Accounting Policies [Line Items] | |
Estimated useful life | 1 year |
Non-Compete Agreements [Member] | |
Summary Of Critical Accounting Policies [Line Items] | |
Estimated useful life | 7 years |
Customer Relationships [Member] | |
Summary Of Critical Accounting Policies [Line Items] | |
Estimated useful life | 15 years |
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