ELK GROVE VILLAGE, IL – SigmaTron has announced that it reached an agreement in late April to sell a majority position of its wholly owned subsidiary, Wagz, to Vynetic.

During SigmaTron's preparations for its 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, which would incur non-cash impairment charges of approximately $23.1 million. These impairment charges coupled with Wagz’ operating losses triggered a default with SigmaTron's credit agreements with J.P. Morgan Chase Bank and TCW Asset Management Company. The company also received a delinquency notification letter from Nasdaq indicating that it 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. That notification also constituted a default.

SigmaTron said 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. When projections were updated, the company determined that there was an impairment.

After negotiating the default with lenders, SigmaTron agreed to the sale of 81% of Wagz to Vynetic, which will become the majority shareholder of Wagz. Sigmatron will retain a 19% ownership position in Wagz as a passive investor at closing, and will provide a $900,000 working capital loan to Wagz during the month of April, during which time Vynetic would raise capital to support Wagz going forward. 

SigmaTron has 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 said it expects that the transaction will allow it to potentially recover some of the assets that it will write off as of April 30, 2023.

“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," said Gary R. Fairhead, chairman and CEO. "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."