SigmaTron International, Inc. Announces Agreement with Its Secured Lenders and Sale of a Majority Position of Wagz, Inc.
04 Mayo 2023 - 12:00PM
SigmaTron International, Inc. (NASDAQ: SGMA), an electronic
manufacturing services provider (“EMS”) (“Company”), today
announced that on April 28, 2023, it reached an agreement with its
secured lenders going forward and sold a majority position of its
wholly owned subsidiary, Wagz, Inc. (“Wagz”). As previously
reported on March 20, 2023, via Form 8-K, during the preparation of
the Company’s third quarter financial statements, it was determined
that updated projections resulted in a triggering event for the
Company’s goodwill and long-lived asset groups. Under GAAP, the
review resulted in the Company concluding that the carrying amounts
for the goodwill and long-lived asset groups were impaired, and the
Company would incur non-cash impairment charges of approximately
$23.1 million. These impairment charges coupled with Wagz’
operating losses resulted in the Company’s failure to maintain
certain financial covenants and ratios imposed by, and as a result
triggered events of default under, the Company’s credit agreements
with J.P. Morgan Chase Bank, N.A. and TCW Asset Management Company,
as Administrative Agent (“Secured Lenders”). Subsequent to that
report on Form 8-K, on March 27, 2023, the Company reported
receiving a delinquency notification letter from Nasdaq indicating
that the Company was not in compliance with the continued listing
requirements of Nasdaq for failing to timely file the Company’s
Form 10-Q for the fiscal quarter ended January 31, 2023. This
notification also constituted a default under our credit agreements
with our Secured Lenders.
During fiscal year 2023 Wagz was in the process of developing
three new products that were scheduled to be released during the
middle of calendar year 2023. Sales of existing products during
this development period did not materialize to expectations and
resulted in a significantly higher level of losses and cash
consumption than anticipated. Sales were negatively impacted by a
shortage of parts for production for several months, resulting in
missing the holiday season for sales, a slowing economy relating to
inflation and a slower than anticipated acceptance of the product
by the market. Thus, when projections were updated, it was
determined that there was an impairment, as discussed above.
Since determining the default, the Company negotiated with its
Secured Lenders to reach an agreement to settle the events of
default. As a result of negotiations with the Secured Lenders,
while the core EMS business remained strong, it was decided that
the Company would need to exit the Pet Tech business that was
conducted through Wagz. The solution that was reached was the sale
of 81% of Wagz to Vynetic, LLC, which would become the majority
shareholder of Wagz. The Company would retain a 19% ownership
position in Wagz as a passive investor at closing. The Company
would provide a $900,000 working capital loan to Wagz during the
month of April and during which time Vynetic, LLC would raise
capital to support Wagz going forward. That transaction closed on
April 28, 2023, and is effective as of April 1, 2023. Under the
transaction, the Company has no further financial obligations or
requirements to Wagz going forward beyond the initial working
capital loan. The Company agreed to work with Wagz as an EMS
provider pursuant to a manufacturing agreement but did not commit
to extending any further financial support. The Company expects
that the transaction will allow it to potentially recover some of
the assets that it will write off as of April 30, 2023 (Fiscal Year
End).
In conjunction with the transaction, the Secured Lenders have
agreed to waive all covenant violations and events of default under
our credit agreements through March 31, 2023. In addition, the
agreements have been amended going forward under terms that the
Company believes will support its EMS business. With all such
covenant violations and events of default being waived and with
amended agreements in place, the Company believes it is now in a
position to complete its third quarter financial statements and
file its Form 10-Q prior to the Nasdaq compliance deadline of May
22, 2023. Once that report is filed, the Company will work on its
fourth quarter and fiscal year financial statements and currently
expects that those will be timely filed.
Gary R. Fairhead, Chairman and Chief Executive Officer, said,
“During this period, the Company’s EMS business has remained
robust. We have seen some modest signs of a slowing economy and
continue to experience supply chain shortages. However, at this
time, we are cautiously optimistic that the revenue volume will
continue, and we expect to add additional business based on the
opportunities we are working on at this time. Regarding Wagz, we
believe that the opportunities they are pursuing in the Pet Tech
market remain attractive and we are hopeful that our continuing
minority ownership interest in the company will yield benefits to
the Company in the future. The Company is thankful for the support
of its Secured Lenders and for working with the Company as it
worked through this transition.”
About SigmaTron International, Inc.
Headquartered in Elk Grove Village, Illinois, SigmaTron
International, Inc. now operates in one reportable segment as an
independent provider of electronic manufacturing services (“EMS”).
The Company includes printed circuit board assemblies,
electro-mechanical subassemblies and completely assembled
(box-build) electronic products. SigmaTron International, Inc. and
its wholly-owned subsidiaries operate manufacturing facilities in
Elk Grove Village, Illinois; Acuna, Chihuahua, and Tijuana Mexico;
Union City, California; Suzhou, China, and Biên Hòa City, Vietnam.
In addition, the Company maintains an International Procurement
Office and Compliance and Sustainability Center (“IPO”) in Taipei,
Taiwan. The Company also provides design services in Elgin,
Illinois, U.S.
Forward-Looking Statements
Note: This press release contains forward-looking statements.
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 direct and indirect risks
and uncertainties inherent in the Company’s business including, but
not necessarily limited to, the risks inherent in any merger; 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 ability to achieve the expected benefits of acquisitions as
well as the expenses of acquisitions; the collection of aged
account receivables; the variability of the Company’s customers’
requirements; the impact of inflation on the Company’s operating
results; the availability and cost of necessary components and
materials; the impact acts of war may have to the supply chain; 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; the costs of
borrowing under the Company’s senior and subordinated credit
facilities, including under the rate indices that replaced LIBOR;
the ability to meet the Company’s financial and restrictive
covenants under its loan agreements; 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 spread of COVID-19 and variants which has threatened
the Company’s financial stability by causing a decrease in consumer
revenues, caused a disruption to the Company’s global supply chain,
and caused plant closings or reduced operations thus reducing
output at those facilities; the continued availability of scarce
raw materials, exacerbated by global supply chain disruptions,
necessary for the manufacture of products by the Company; the
stability of the U.S., Mexican, Chinese, Vietnamese and Taiwanese
economic, labor and political systems and conditions; global
business disruption caused by the Russian invasion in Ukraine and
related sanctions; currency exchange fluctuations; and the ability
of the Company to manage its growth. These and other factors which
may affect the Company’s future business and results of operations
are identified throughout the Company’s Annual Report on Form 10-K,
and as risk factors, may be detailed from time to time in the
Company’s filings with the Securities and Exchange Commission.
These statements speak as of the date of such filings, and the
Company undertakes no obligation to update such statements in light
of future events or otherwise unless otherwise required by law.
For Further Information Contact:SigmaTron International,
Inc.Gary R. Fairhead1-800-700-9095
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