SIGMATRON INTERNATIONAL INC

The income tax expense was $442,943 for the three month period ended October 31, 2020 compared to an income tax expense of $316,106 for the same period in the prior fiscal year.  The Company’s effective tax rate was 41.40% and 32.35% for the quarters ended October 31, 2020 and 2019, respectively.  The income tax expense was $222,109 for the six month period ended October 31, 2020 compared to an income tax expense of $563,221 for the same period in the prior fiscal year.  The Company’s effective tax rate was (429.63)% and 35.52% for the six month period ended October 31, 2020 and 2019, respectively.  The increase in income tax expense and effective tax rate for the three month period ended October 31, 2020 compared to the same period in the previous year is due to an increase in income and variations in income earned by jurisdiction in the current period compared to the same period in the previous year. The decrease in income tax expense and effective tax rate for the six month period ended October 31, 2020 compared to the same period in the previous year is due to a decrease in income in the current six month period compared to the same period in the previous year.  The negative effective tax rate in the current six month period is due to an overall pre-tax loss recognized in the current period but recognition of tax expense due to the mix of income by jurisdiction.     

In November 2020, Wagz sought short-term financing for its operations and secured a commitment from Angel Business Credit, LLC (“ABC”) for a loan of $250,000 conditioned on Wagz granting ABC a security interest in its assets and Gary R. Fairhead executing a personal guaranty.  Mr. Fairhead is the Company’s President and CEO; his personal guaranty requires the approval of the Audit Committee of the Company’s Board of Directors.  After consideration, the Audit Committee determined that 

The Company’s recovery continued from the downturn experienced in April and May of this year and the Company had a solid second quarter for this fiscal year.  In the fiscal quarter ended October 31, 2020 the Company recorded pre-tax profit of $1,069,801 on revenue of $69,618,424.  While the revenue was down, the mix was favorable for the quarter.  In addition, these results were achieved after expenses directly related to COVID-19 of $661,000 for the first six months of this fiscal year.  These expenditures include wages paid to employees in Mexico who are required to be paid, but are not working based on government regulations in Mexico, COVID supply expenses and infrastructure expenses for social distancing. COVID-19 related expenses will continue in all likelihood for the balance of this fiscal year.  

At this time, the backlog continues to be strong for our third quarter of fiscal 2021.  Some of the Company’s customers have unexpectedly benefited from the pandemic and having people spend more

time at home, while others continue to be depressed in terms of demand.  In addition, several of the Company’s customers apparently took their inventory lower than demand and they are now expediting orders for delivery as soon as possible.  How long this will last is hard to determine.  If indeed, the economy continues to grow as it has recently, the Company believes it is well positioned for the second half of fiscal 2021. The Company has recently landed several new opportunities that bode well for fiscal 2022.  However, as positive as things are now, the situation remains fluid and volatile and could change for our customers quickly.  The unexpected increase in demand created challenges on the supply side regarding components and lead-times. 

Selling and administrative expenses decreased to $5,421,739 or 7.8% of net sales for the three month period ended October 31, 2020, compared to $5,700,288 or 7.6% of net sales for the same period in the prior fiscal year.  The net decrease in selling and administrative expenses for the three month period ended October 31, 2020, was attributable to a decrease in sales salaries, financing fees and accounting professional fees.  The decrease in the foregoing selling and administrative expenses was partially offset by an increase in general insurance and legal professional fees.  Selling and administrative expenses decreased to $10,481,264 or 8.1% of net sales for the six month period ended October 31, 2020, compared to $11,527,614 or 7.7% of net sales for the same period in the prior fiscal year.  The net decrease in selling and administrative expenses for the six month period ended October 31, 2020, was attributable to a decrease in sales salaries, financing fees and bonus expense.  The decrease in the foregoing selling and administrative expenses was partially offset by an increase in general insurance and legal professional fees.