SigmaTron International Inc.
Annual Report 2015

Plain-text annual report

SIGMATRON INTERNATIONAL, INC. 2015 ANNUAL REPORT TARGETING CUSTOMER VALUE GLOBAL VERSATILIT Y + PERSONALIZED SUPPORT = CUSTOMER-CENTERED SOLUTIONS SigmaTron is an electronic manufacturing services (EMS) company that provides printed circuit board assemblies and completely assembled electronic products to eight end-user markets through a global network of seven facilities located in four countries. Focused on service excellence, our scale allows us to embrace the most complex projects, yet our flexibility ensures we partner closely with customers to tailor and guide their projects from beginning to end. Wherever we are around the globe, we offer design and engineering, integrated real-time information and process systems, manufacturing and test. Our high value supply chain team provides component sourcing at internationally-competitive prices with expertise in green, regulatory compliance and documentation services. CUSTOMER-CENTERED SOLUTIONS For fiscal 2015, SigmaTron is on target to deliver superior EMS value to our customers and prospects through an integrated array of system-level technologies, scale and range of cost structures and personalized support. This winning formula helps animate our “One Source. Global Options.®”positioning both in the present EMS marketplace and in the foreseeable future. SIGMATRON INTERNATIONAL, INC. (NASDAQ: SGMA) TO OUR STOCKHOLDERS, In fiscal 2015, we continued our year-to-year commitment to the growth and success of our customers with the goal to make SigmaTron’s solutions for electronic manufacturing services (EMS) the clear choice for customers and prospects in North America and in expanding markets worldwide. Our strong culture, dedicated employees and investment in technology for key areas of the business remain integral to our progress and forward momentum. While a tough industry environment and world economy continues to drive up margin pressures, we took steps to address this from a manufacturing and supply chain perspective. For a second consecutive year, revenues exceeded that of the prior year. In fiscal 2015, we reported revenues of $230 million, a modest increase over 2014 revenues of $222 million. Despite disappointing profitability in the fourth quarter of fiscal 2015 and overall, we believe that we continue to do an excellent job navigating a choppy U.S. and global economy and positioning SigmaTron for future financial success. The global EMS industry in which we compete was sized at just $35 billion as SigmaTron began trading as a public company over 20 years ago. Today, we see outstanding opportunities as the EMS market is reported to be growing at a compound annual growth rate of 6.2 percent, surpassing a historic high of $620 billion in 2014. Net-net, both the EMS and the eight markets we currently target are growing, fueling optimism in both the industry environment and the customer base we serve. The SigmaTron of today is well positioned to remain in stride with the demands of a fast-growing EMS industry and on course to compete now and well into the 21st century. We anticipate improved revenues and profitability in fiscal 2016, based on existing customer programs that began to emerge from their pipelines in the fourth quarter, plus several new customer programs that are just beginning to launch. Once these new and existing programs ramp up, we expect SigmaTron’s “One Source. Global Options.®” positioning and “customer at the center” service commitment to take hold at new levels, benefiting our customers, employees and investors alike. GROWTH IN INVESTMENT IN MANUFACTURING FACILITIES OUR TOTAL EXPANSION BY SQUARE FOOTAGE 72% INCREASE SINCE 2005 SIGMATRON INTERNATIONAL 2015 1 2 SIGMATRON INTERNATIONAL 20 15 CUSTOMER-CENTERED EMS SOLUTIONS COMPANIES THAT PERSEVERE amidst year-to-year economic challenges and deliver leadership levels of growth are those with strong productivity cultures. Innovation begins with and is advanced by people. During the recent past and the current fiscal year, our global teams served the EMS needs of eight, diverse end-user markets: appliances, industrial electronics, fitness, consumer electronics, medical/life sciences, semiconductor, telecommunications and gaming. Moving forward, we will further advance our commitment to quality by serving customer programs that demand the very best of SigmaTron. The enhanced technologies and processes required by our customers, especially in the medical and industrial markets, are driving execution efficiencies at every level of our company and in each market served. We invite you to read more about how our talented and growing workforce further refined SigmaTron’s business strategy to execute on opportunities identified in fiscal 2014 and to add value for customers throughout fiscal 2015. Among the many steps taken during the year to help position the company for future growth, the following stand out: CUSTOMIZED, SCALABLE MANUFACTURING SOLUTIONS. Our program teams offer customers the flexibility to optimize performance for each project. We customize what we view as an optimum mix of services and locations for manufacturing through each step of the program lifecycle – from new product introduction through testing and fulfillment. Our versatility allows customers to scale-up manufactured volumes to meet rapid changes in market demand. “ONE SOURCE. GLOBAL OPTIONS.®” Our global teams led by management offer depth of experience, broad capabilities and multi-facility account options within a single network. SigmaTron’s global presence provides seven manufacturing facilities in four countries in North America, Mexico and Asia. We add value for customers who seek highly customized global options yet are not a service fit with larger EMS providers. COMMUNICATIONS, INFORMATION TECHNOLOGY AND PROCESSES . Our robust information technology (IT) and production systems tie together SigmaTron’s global locations so they function as an interconnected network, with full intra-facility communications and reporting. Our operations teams efficiently and comprehensively connect customers to their programs, a key point of differentiation from other EMS providers. CUSTOMER-CENTERED VALUE ADDED SERVICES. Established nearly two decades ago, our customized Supply Chain Solutions are driving superior value for customers who seek reliable, internationally competitive pricing for materials and component sourcing. Our International Procurement Office (IPO) in Taipei, Taiwan reached a pinnacle in value this fiscal year as it supported sourcing and the quoting process for all SigmaTron facilities. For the foreseeable future, our highly experienced IPO team will continue to leverage strategic relationships and manage the best sourcing channels based on geography, price and quality available. GROWTH IN EMS MARKET SIZE WORLDWIDE* $35B 1994: $35 BILLION $460B 2014: $460 BILLION $621B 2019: $621 BILLION** In fiscal 2015, we relocated our Green Compliance Service Center (GCSC) from Suzhou, China to our International Procurement Office (IPO) in Taiwan. Our customers increasingly draw upon the center’s depth of expertise in meeting a growing range of federally and internationally mandated regulatory and green compliance requirements for disclosure and documentation in manufacturing. THE GLOBAL EMS MARKET IS EXPAND- ING AT APPROXIMATELY 6.2% A YEAR, A PROJECTED FIVE-YEAR COMPOUND ANNUAL GROWTH RATE (CAGR). *Source: New Venture Research Corp. ** Projected SIGMATRON INTERNATIONAL 2015 3 4 SIGMATRON INTERNATIONAL 20 15 TARGETING CUSTOMER VALUE WELL POSITIONED FOR GROWTH; OUR OPERATING RESULTS In recent years our extended global footprint combined with our operating flexibility and experience positioned us to compete successfully in the fast-growing EMS industry. To keep pace with or ahead of our customer demands, the growth statistics in this report point to a sustained investment in our facilities, technology and workforce, with added emphasis to serve programs in key markets such as in the medical, life sciences and industrial market sectors. SigmaTron continued to execute on our decades-long strategy to build on key operating strengths – a global footprint and manufacturing infrastructure often associated with much larger organizations. In fiscal 2015, our positioning “One Source. Global Options.®” was not only a factor in business expansion, but netted an end product (design) that is increasingly more manufacturable, testable and efficient. Our manufacturing sites in the United States, Mexico, China and Vietnam enable us to provide an attractive range of near shore and offshore program options. We invite you to take a closer look at strides we achieved in our global network of manufacturing sites. SIGMATRON UNITED STATES Elk Grove Village, Illinois. Our Company headquarters in Elk Grove Village, Illinois continued to upgrade its capabilities in fiscal 2015 and expanded its customer base to include the Mid- Atlantic States. Leveraging its ISO 13485 medical certification since fiscal 2013, the facility saw a modest increase in customers and programs in medical equipment and diagnostics. In fiscal 2016, Elk Grove will also focus on expanding its stable base of customers in the industrial, telecommunications, consumer electronics, and medical markets, including dental and veterinary equipment. The facility also extended its box-build, next-generation printed circuit board assemblies and value-added services to a wider customer base. As Elk Grove looks to build momentum in the year ahead, we expect to leverage the operation’s growing box-build capabilities. The operation plans to advance its Design for Manufacturability (DFM) capabilities through close collaboration with Spitfire Control’s Design and Engineering Center in nearby Elgin, Illinois. INNOVATION BEGINS WITH PEOPLE Our Growing Work Force: A 56% INCREASE IN THE PAST 10 YEARS 1994 EMPLOYEES 705 1,740 2,710 2005 EMPLOYEES 2015 EMPLOYEES SIGMATRON INTERNATIONAL 2015 5 Spitfire Controls Design and Engineering Center, Elgin, Illinois. In fiscal 2015, Spitfire Controls’ value-added Design and Engineering Center in Elgin, Illinois achieved new strides to fully integrate and leverage synergies with our seven manufacturing facilities. Building on its upgraded, computer-aided design (CAD) capability in fiscal 2014, the division progressed in its plan to begin offering 3-D imaging to New Product Introduction (NPI) services as a cost-effective alternative before launch of the hard tooling stage. The Center’s advanced turnkey product designs are showing signs of being of increased value across the organization, by addressing key goals that optimize program commercialization, drive innovation and reduce costs. Union City, California. During fiscal 2015 our Union City, California facility once again served as our high technology hub. For our customers who require it, we expect that Union City, often joined by our facility in Tijuana, Mexico, will seamlessly deliver value to the company’s most sophisticated EMS programs. Beginning in Union City, but extending to other facilities, our manufacturing engineering team develops innovative approaches that reduce or eliminate production inefficiencies. We also supported Union City technology advancements with capital investments made in manufacturing equipment. The facility also drove new levels of quality and efficiency in NPI and leveraged ISO 13485 certification and ITAR, acquired in 2008 and 2011 respectively. Union City gained new medical equipment accounts during the fiscal year, earning a Platinum Supplier Award for service excellence from a world leader in mechanical circulatory support systems. Yet, the long lead times that hallmark these industries are expected to present challenge and opportunity both now, and into the future. SIGMATRON MEXICO GROWTH IN INVESTMENT IN SMT LINES Surface Mount Technology (SMT) Manufacturing Lines OUR 10-YEAR GROWTH IN ADVANCED CIRCUIT ASSEMBLY CAPABILITIES 1 2005 49 2015 Acuña, Chihuahua and Tijuana, Mexico. In fiscal 2015, we offered U.S. and global customers the option to manufacture complex system-level projects in our three plants in Mexico. These plants provide an ideal mix of near-shoring services, including depth of experience in sourcing materials, configuration management and traceability. As in prior fiscal year 2014, SigmaTron’s plants in Acuña, Chihuahua and Tijuana each experienced growth tied to the merits of current and past investments in technology and efficiency. We expect this market environment will bode well as the facilities target an increasingly diverse mix of customers and industries in the future. Our Acuña operation continues to be one of the largest, most cost-competitive and experienced plants in SigmaTron’s global network. This year, Acuña added a number of technology upgrades that allow the plant to offer customized test solutions to a wider customer base. SigmaTron’s recently expanded Tijuana facility often works with a second SigmaTron location, Union City, California, to enhance programs in need of lower-cost production, especially as manufacturing volumes scale-up. In fiscal 2015 the Tijuana facility took further steps to advance as one of the company’s high-tech manufacturing regions of choice for EMS customers based in North America. We plan to continue to leverage Tijuana’s strengths including optimal labor costs, manufacturing efficiency and customizable test solutions. 6 SIGMATRON INTERNATIONAL 20 15 SIGMATRON ASIA Suzhou, China. Our Suzhou, China facility continued driving important differentiation in SigmaTron’s global footprint in fiscal 2015. With a workforce of over 500 employees and growing, we hired a dedicated sales manager to help develop domestic business in China, augmenting our pipeline of EMS business for export. Our broad focus in Suzhou remains select customers who value both quality and service, whether they are growing their businesses domestically or globally. During the past year, we expanded the facility, namely its warehouse and manufacturing space, by 40,000 square feet in direct response to our customers’ needs. Our Suzhou team also progressed in its pursuit of ISO 13485 medical certification. If confirmation remains on target, we plan to begin medical equipment manufacturing here for U.S. and domestic China customers in fiscal 2016. In addition, the Suzhou facility invested in other specialized, high technology, driving next levels of quality and efficiency for a growing customer base in the consumer, fitness, appliance and industrial markets. New technologies include two new Surface Mount Technology (SMT) manufacturing lines for a total of nine SMT lines, the second highest number in the company after our Acuña, Mexico facility. Ho Chi Minh City, Vietnam. Our strategically situated plant in Ho Chi Minh City, Vietnam promotes easy access from the Company’s substantive regional supply base in China, while capitalizing on the low cost structure of Southeast Asia. As a continuation of its progress from the prior fiscal year, the Vietnam facility remains focused on contributing quality, cost-effective manufacturing services, deepening SigmaTron’s global reach. Taipei, Taiwan, International Procurement Office. Our International Procurement Office (IPO) in Taipei is crucial to each of our operations by sourcing raw materials at internationally competitive pricing from channels around the world. Our Taiwan team does a particularly good job representing SigmaTron to our vendors throughout Southeast Asia, which facilitates communication and enhances our response time for the benefit of our customers. During fiscal 2015, we relocated our Green Compliance Service Center from our manufacturing site in China to our IPO in Taiwan, consolidating these services. As was the case in fiscal 2015, we believe our Taiwan IPO will be one of our keys to success in fiscal 2016. GROWTH IN PROCUREMENT DOLLARS* Increase in Corporate Purchases Since 2005: Our International Procurement Office (IPO) in Taipei, Taiwan. $3.3M 1997: $3.3 MILLION $66.5M 2014: $66.5 MILLION *FIGURES SHOWN ARE PRESENTED IN U.S. DOLLARS (USD) AND REPORTED BY CALENDAR YEAR. SIGMATRON INTERNATIONAL 2015 7 SIGMATRON INTERNATIONAL, INC. (NASDAQ: SGMA) SIGMATRON DELIVERS ON MOMENTUM, A LOOK TO THE FUTURE We are SigmaTron, centered on the customer, delivering excellence in EMS for more than 20 years. Looking ahead with measured optimism, we expect as of fourth quarter of fiscal 2015 to deliver even higher revenues in fiscal 2016 based on the impact of new EMS programs already emerging from the pipeline. We plan to target gross margin improvement and higher earnings from a combination of revenue growth and strong leadership by our well-seasoned management team and employees at every level. Today SigmaTron is a strong, focused and global EMS provider with the comprehensive resources and technical versatility to handle any project. Evidences of SigmaTron’s operational strategy, depth and agility — manifested in our “One Source. Global Options.®” positioning — is now an even greater reality than in any time in the company’s history. We anticipate that each of our key audiences will recognize our operational strengths in the form of new business at every facility in our Company. Valuing our current customers, we also plan to grow revenues and profits by way of a long-term, gradual shift of business mix to higher-technology, higher-margin markets including industrial, medical/life sciences and military/aerospace. We expect SigmaTron’s global footprint and technical capabilities, unique for an EMS provider of our size, will continue to fuel growth in our share of the EMS market space. While the outlook for growth in each of the markets we serve is at a historic high, EMS remains a challenging industry with intensified competition amidst a slow-growing, world economy. Yet we are highly confident SigmaTron will remain well positioned globally and well aligned technologically to respond to new opportunities that enhance growth of our bottom line. As we further commit to and refine our strategy in the year ahead, I express my thanks to our dedicated and talented global employees and others who are steadfast in their commitment to our success — SigmaTron customers and stockholders, strategic supply chain partners, professional firms, Wells Fargo Bank, N.A. and our Board of Directors. Sincerely, Gary R. Fairhead President and Chief Executive Officer SigmaTron International, Inc. August 14, 2015 8 SIGMATRON INTERNATIONAL 20 15 CORPORATE INFORMATION OFFICERS Gary R. Fairhead* Chairman of the Board, President and Chief Executive Officer Linda K. Frauendorfer* Chief Financial Officer, Vice President, Finance, Treasurer and Secretary Gregory A. Fairhead* Executive Vice President and Assistant Secretary John P. Sheehan* Vice President, Director of Supply Chain and Assistant Secretary Daniel P. Camp* Vice President, Acuña Operations Rajesh B. Upadhyaya* Executive Vice President, West Coast Operations Hom-Ming Chang* Vice President, China Operations Curtis W. Campbell Vice President of Sales, West Coast Operations James E. Barnes Vice President of Operations, Elk Grove Village Yousef M. Heidari Vice President, Engineering Donald G. Madsen Vice President, Customer Service Union City Operations Dennis P. McNamara Vice President, Engineering Thomas F. Rovtar Vice President, Information Technology Keith D. Wheaton Vice President, Business Development West Coast Operations *Executive Officers BOARD OF DIRECTORS Gary R. Fairhead Chairman of the Board, President and Chief Executive Officer, SigmaTron International, Inc. Linda K. Frauendorfer Chief Financial Officer, Vice President, Finance, Treasurer and Secretary SigmaTron International, Inc. Thomas W. Rieck 1,3 Partner, Rieck and Crotty, P.C. Dilip S. Vyas 2,3,4 Independent Consultant Paul J. Plante 1,2 President and Owner Florida Fresh Vending, LLC Bruce J. Mantia2 Retired Partner Ernst & Young LLP Barry R. Horek1,3 Retired Partner Ernst & Young LLP 1 Member of the Audit Committee 2 Member of the Compensation Committee 3 Member of the Nominating Committee 4 Lead Director CORPORATE INFORMATION SEC Counsel Greenberg Traurig, LLP 77 West Wacker Drive Chicago, Illinois 60601 Corporate Counsel Howard & Howard Attorneys PLLC 200 South Michigan Avenue Chicago, Illinois 60604 Independent Public Accountants BDO USA, LLP 330 North Wabash Avenue Chicago, Illinois 60611 Form 10-K If you would like a free copy of the Form 10-K report filed with the Securities and Exchange Commission, please call Linda K. Frauendorfer at the SigmaTron corporate office, 1.800.700.9095. Stock Transfer Agent and Registrar American Stock Transfer & Trust Company, LLC 6201 15th Avenue Brooklyn, New York 11219 Stock Information The Company’s common stock has been trading on the Nasdaq System under the symbol SGMA since the Company’s initial public offering in February 1994. The Company has 4 million shares of common stock outstanding. The Company has not paid cash dividends on its common stock since completing its February 1994 initial public offering and does not intend to pay any dividends in the foreseeable future. C L L i i , s n o i t a c n u m m o C c h p a r G s k r o w m a e r D : r e t n i r P i k s w o n a m o R a s i L : n g i s e D e n o t s g n i v i L h a r o b e D : g n i d a e r f o o r P y l r e k c A y r a M : n o i t c e r i D t r A / g n i t i r w y p o C C L L i , s n o i t a c n u m m o C y l r e k c A y r a M : m r i F CORPORATE OFFICES SigmaTron International, Inc. 2201 Landmeier Road, Elk Grove Village, IL 60007 Tel 847.956.8000 Fax 847.956.9801 INVESTOR RELATIONS 800.700.9095 www.sigmatronintl.com UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the fiscal year ended April 30, 2015. 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 (State or other jurisdiction of incorporation or organization) 2201 Landmeier Rd., Elk Grove Village, IL (Address of principal executive offices) Registrant’s telephone number, including area code: 847-956-8000 Securities registered pursuant to Section 12(b) of the Act: 36-3918470 (I.R.S. Employer Identification Number) 60007 (Zip Code) Title of each class Common Stock $0.01 par value per share ASDAQ Capital Market Name of each exchange on which registered The NASDAQ Capital Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  No 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 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  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 “accelerated filer” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer  Accelerated filer  Non-accelerated  Smaller reporting company  Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes  No The aggregate market value of the voting common equity held by non-affiliates of the registrant as of October 31, 2014 (the last business day of the registrant’s most recently completed second fiscal quarter) was $25,246,669 based on the closing sale price of $7.00 per share as reported by Nasdaq Capital Market as of such date. The number of outstanding shares of the registrant’s Common Stock, $0.01 par value, as of July 22, 2015 was 4,162,285. DOCUMENTS INCORPORATED BY REFERENCE Certain sections or portions of the definitive proxy statement of SigmaTron International, Inc., for use in connection with its 2015 annual meeting of stockholders, which the Company intends to file within 120 days of the fiscal year ended April 30, 2015, are incorporated by reference into Part III of this Form 10-K. 2 TABLE OF CONTENTS BUSINESS ITEM 1. ITEM 1A. RISK FACTORS ITEM IB. UNRESOLVED STAFF COMMENTS ITEM 2. ITEM 3. ITEM 4. PROPERTIES LEGAL PROCEEDINGS MINE SAFETY DISCLOSURES ITEM 5. ITEM 6. ITEM 7. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES SELECTED FINANCIAL DATA MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT ITEM 8. ITEM 9. MARKET RISKS FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ITEM 9A. CONTROLS AND PROCEDURES ITEM 9B. OTHER INFORMATION 4 11 17 17 18 19 19 20 20 29 29 30 30 30 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE ITEM 11. ITEM 12. GOVERNANCE EXECUTIVE COMPENSATION SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 31 31 31 ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND ITEM 14. DIRECTOR INDEPENDENCE PRINCIPAL ACCOUNTANT FEES AND SERVICES PART I PART II PART III PART IV 31 31 31 35 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES SIGNATURES 3 PART I ITEM 1. BUSINESS CAUTIONARY NOTE: 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 Annual Report on Form 10-K 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 our operating results; the results of long-lived assets and goodwill impairment testing; the variability of our customers’ requirements; the availability and cost of necessary components and materials; the ability of the Company and our customers to keep current with technological changes within our industries; regulatory compliance, including conflict minerals; the continued availability and sufficiency of our credit arrangements; changes in U.S., Mexican, Chinese, Vietnamese or Taiwanese regulations affecting the Company’s business; the turmoil in the global economy and financial markets; the stability of the U.S., Mexican, Chinese, Vietnamese and Taiwanese economic, labor and political systems and conditions; currency exchange fluctuations; and the ability of the Company to manage its growth. These and other factors which may affect the Company’s future business and results of operations are identified throughout the Company’s Annual Report on Form 10-K, and as risk factors, 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 otherwise required by law. Overview SigmaTron is a Delaware corporation, which was organized on November 16, 1993, and commenced operations when it became the successor to all of the assets and liabilities of SigmaTron L.P., an Illinois limited partnership, through a reorganization on February 8, 1994. The Company operates in one business segment as an independent provider of electronic manufacturing services (“EMS”), which includes printed circuit board assemblies and completely assembled (box-build) electronic products. In connection with the production of assembled products, the Company also provides services to its customers, including (1) automatic and manual assembly and testing of products; (2) material sourcing and procurement; (3) manufacturing and test engineering support; (4) design services; (5) warehousing and distribution services; and (6) assistance in obtaining product approval from governmental and other regulatory bodies. The Company provides these manufacturing services through an international network of facilities located in the United States, Mexico, China, Vietnam and Taiwan. The Company provides manufacturing and assembly services ranging from the assembly of individual components to the assembly and testing of box-build electronic products. The Company has the ability to produce assemblies requiring mechanical as well as electronic capabilities. The products assembled by the 4 Company are then incorporated into finished products sold in various industries, particularly appliance, consumer electronics, gaming, fitness, industrial electronics, medical/life sciences, semiconductor and telecommunications. The Company operates manufacturing facilities in Elk Grove Village, Illinois United States of America (“U.S.”); Union City, California U.S.; Acuna, Chihuahua and Tijuana, Mexico; Suzhou, China; and Ho Chi Minh City, Vietnam. In addition, the Company maintains materials sourcing offices in Elk Grove Village, Illinois U.S.; Union City, California U.S.; and Taipei, Taiwan. The Company also provides design services in Elgin, Illinois. In an effort to facilitate the growth of our China operation, the Company established a new Chinese entity in October 2011 that allows the Company to provide services competitively to the domestic market in China and in fiscal year 2015 expanded the Company’s manufacturing facility. The Company expects the China operation to continue to grow despite increasing costs of operation. The Company’s international footprint provides our customers with flexibility within the Company to manufacture in China, Mexico, Vietnam or the U.S. We believe this strategy has continued to serve the Company well during these difficult economic times as its customers continuously evaluate their supply chain strategies. The Company's overall results reflect the choppy economy in both the United States and globally. In the first quarter of 2015, the gross domestic product (GDP) for the United States actually contracted and the Company believes the contraction caused the Company’s customers to adjust their orders and requirements, which had a negative impact on the Company's results. The rescheduling of orders negatively impacted what the Company thought would be a much stronger fourth quarter of fiscal year 2015. The Company did however launch new programs in the fourth quarter of fiscal year 2015. The new orders came from both existing and new customers. The Company has seen gains in markets that it has been actively pursuing during the past two fiscal years and believes both revenues and pre-tax income will increase in fiscal year 2016. However, margin pressures continue from both customers and vendors and will likely continue in fiscal year 2016. Products and Services The Company provides a broad range of electronic and electromechanical manufacturing related outsourcing solutions for its customers. These solutions incorporate the Company’s knowledge and expertise in the EMS industry to provide its customers with the most advanced manufacturing technologies, complete supply chain management, responsive and flexible customer service, as well as product design, test and engineering support. The Company’s EMS solutions are available from inception of product concept through the ultimate delivery of a finished product. Such technologies and services include the following: 5 Manufacturing and Testing Services: The Company’s core business is the assembly and testing of all types of electronic printed circuit board assemblies (“PCBA”) and often incorporating these PCBAs into electronic modules used in all types of devices and products that depend on electronics for their operation. This assembly work utilizes state of the art manufacturing and test equipment to deliver highly reliable products to the Company’s customers. The Company supports new product introduction (“NPI”), low volume / high mix as well as high volume/ low mix assembly work at all levels of complexity. Assembly services include pin- through-hole (“PTH”) components, surface mount (“SMT”) components, including ball grid array (“BGA”), part-on-part components, conformal coating, parylene coating and others. Test services include and are not limited to, in-circuit, automated optical inspection (“AOI”), functional, burn-in, hi-pot and boundary scan. From simple component assembly through the most complicated industry testing, the Company offers virtually every service required to build electronic devices commercially available in the market today. Design Services: To compliment the manufacturing services it offers its customers, the Company also offers DFM, design for manufacturing and DFT, design for test review services to help customers ensure that the products they have designed are optimized for production and testing. In addition, through its Spitfire Control division, the Company offers complete product design services for a variety of industries and applications, including appliance controls. Supply Chain Management: The Company provides complete supply chain management for the procurement of components needed to build customers’ products. This includes the procurement and management of all types of electronic components and related mechanical parts such as plastics and metals. The Company’s resources supporting this activity are provided both on a plant specific basis as well as globally through its international procurement office (“IPO”) in Taipei, Taiwan. Each of its sites is linked together using the same Enterprise Resource Planning (“ERP”) system and custom IScore software tools with real-time on-line visibility for customer access. The Company generally procures material from major manufacturers and distributors of electronic parts. Warehousing and Distribution: The Company provides in-house and third party warehousing, shipping, and customs brokerage for border crossings as part of its service offering. This includes international shipping, drop shipments to the end customer, as well as, support of inventory optimization activities such as kanban and consignment. Green, Sustainability, and Social Responsible Initiatives: The Company supports initiatives that promote sustainability, green environment and social responsibility. The Company requires its supply chain to meet all government imposed requirements in these areas and helps its customers in achieving effective compliance. This includes, but is not limited to, Restrictions of Hazardous Substances (“RoHS”), Restriction of Chemicals (“Reach”) and Conflict Minerals regulations. Manufacturing Location and Certifications: The Company’s manufacturing and warehousing locations are strategically located to support our customers with locations in Elk Grove Village, Illinois U.S.; Union City, California U.S.; Acuna, Chihuahua and Tijuana, Mexico; Suzhou, China and Ho Chi Minh City, Vietnam. The Company’s ability to transition manufacturing to lower cost regions without jeopardizing flexibility and service, differentiates it from many competitors. Manufacturing certifications and registrations are location specific, and include ISO 9001:2008, ISO 14001:2004, Medical ISO 13485:2003, Aerospace AS9100C and International Traffic in Arms Regulations (“ITAR”) certifications. Markets and Customers The Company’s customers are in the appliance, gaming, industrial electronics, fitness, medical/life sciences, semiconductor, telecommunications and consumer electronics industries. As of April 30, 2015, the Company had approximately 115 active customers ranging from Fortune 500 companies to small, privately held enterprises. 6 The following table shows, for the periods indicated, the percentage of net sales to the principal end-user markets it serves. Percent of Net Sales Markets Typical OEM Application Appliances Industrial Electronics Fitness Consumer Electronics Semiconductor Equipment Medical/Life Sciences Telecommunications Gaming Total Household appliance controls Motor controls, power supplies, lighting products, scales, joysticks Treadmills, exercise bikes, cross trainers Personal grooming, computers Process control and yield management equipment for semiconductor productions Clinical diagnostic systems and instruments Routers, communication Slot machines, lighting displays Fiscal 2015 % Fiscal 2014 % 49.9 48.6 31.2 31.2 6.7 4.7 2.9 2.6 1.7 0.3 7.0 5.5 2.4 3.0 1.4 0.9 100% 100% For the fiscal year ended April 30, 2015, the Company’s largest two customers, Electrolux and Whirlpool Inc., accounted for 36.8% and 9.9%, respectively, of the Company’s net sales. For the fiscal year ended April 30, 2014, Electrolux and Whirlpool Inc., accounted for 31.6% and 12.0%, respectively, of the Company’s net sales. Although the Company does not have a long term contract with Electrolux or Whirlpool, the Company expects that Electrolux and Whirlpool will continue to account for a significant percentage of the Company’s net sales, although the percentage of net sales may vary from period to period. Sales and Marketing The Company markets its services through 9 independent manufacturers’ representative organizations that together currently employ 18 sales personnel in the United States and Canada. Independent manufacturers’ representatives organizations receive variable commissions based on orders received by the Company and are assigned specific accounts, not territories. Many of the members of the Company’s senior management are actively involved in sales and marketing efforts, and the Company has 3 direct sales employees. In addition, the Company markets itself through its website and tradeshows. Mexico, Vietnam and China Operations The Company’s wholly-owned subsidiary, Standard Components de Mexico, S.A, a Mexican corporation, is located in Acuna, Coahuila Mexico, a border town across the Rio Grande River from Del Rio, Texas, and is 155 miles west of San Antonio. Standard Components de Mexico, S.A. was incorporated and commenced operation in 1968 and had 825 employees at April 30, 2015. The Company’s wholly-owned subsidiary, AbleMex S.A. de C.V., a Mexican corporation, is located in Tijuana, Baja California Mexico, a border town south of San Diego, California. AbleMex S.A. de C.V. was incorporated and commenced operations in 2000. The operation had 194 employees at April 30, 2015. The Company’s wholly-owned subsidiary, Digital Appliance Controls de Mexico S.A., a Mexican corporation, operates in Chihuahua, Mexico, located approximately 235 miles from El Paso, Texas. Digital Appliance Controls de Mexico S.A. was incorporated and commenced operations in 1997. The operation had 375 employees at April 30, 2015. The Company believes that one of the key benefits to having operations in Mexico is its access to cost-effective labor resources while having geographic proximity to the United States. 7 The Company’s wholly-owned foreign enterprises, Wujiang SigmaTron Electronics Co., Ltd. and SigmaTron Electronic Technology Co., Ltd., are located in Suzhou, China. The Company has entered into an agreement with governmental authorities in the economic development zone of Wujiang, Jiangsu Province, Peoples Republic of China, pursuant to which the Company became the lessee of a parcel of land of approximately 100 Chinese acres. The term of the land lease is 50 years. The Company built a manufacturing plant, office space and dormitories on this site during 2004. In fiscal 2015, the China facility expanded and added 40,000 square feet in warehouse and manufacturing. The total square footage of the facility is 202,000 and has 537 employees as of April 30, 2015. Both SigmaTron China entities operate at this site. The Company’s wholly-owned subsidiary, Spitfire Controls (Vietnam) Co. Ltd. is located in Amata Industrial Park, Bien Hoa City, Dong Nai Province, Vietnam, and is 18 miles east of Ho Chi Minh City. Spitfire Controls (Vietnam) Co. Ltd. was incorporated and commenced operation in 2005 and had 310 employees as of April 30, 2015. 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 IPO. The Company provides funding in U.S. dollars, which are exchanged for Pesos, Dong, Renminbi, and New Taiwan dollars, except for the Acuna Mexico operation, which is funded in Pesos. 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 fiscal year ended April 30, 2015 resulted in a net foreign currency gain of $40,000 compared to a net foreign currency loss of $128,000 in the prior year. In fiscal year 2015, the Company paid approximately $52,220,000 to its foreign subsidiaries. During fiscal year 2014, the Company realized a distribution of approximately $3,006,825 from foreign subsidiaries based in Mexico. The U.S. income tax on the distribution was $333,128 which was reflected in the Company’s tax provision for the fiscal year ended April 30, 2014. The Company has not recorded U.S. income taxes on the undistributed earnings of the Company’s foreign subsidiaries. Since the earnings of the foreign subsidiaries have been, and under fiscal April 30, 2015 plans, will continue to be indefinitely reinvested, no deferred tax liability has been recorded. With respect to fiscal April 30, 2016, as a result of the uncertainty of the Company’s financing arrangements and its domestic liquidity profile, the Company has determined that it might be required to repatriate from offshore cash, fiscal 2016 foreign earnings, to meet certain domestic funding needs but will not need to repatriate prior earnings based on current forecasts. The cumulative amount of unremitted earnings for which U.S. income taxes have not been recorded is $12,163,000 as of April 30, 2015. The amount of U.S. income taxes on these earnings is impractical to compute due to the complexities of the hypothetical calculation. During fiscal year 2015, the Company reflected tax expense of $643,708 related to the inability to realize the tax benefit recorded in fiscal year 2014 for potential foreign tax credits related to the above distribution from Mexico. The Company’s current estimate of cumulative taxable income during the foreign tax credit carryforward period is insufficient to support that the tax benefit from the foreign tax credit is more likely than not to be realized. The consolidated financial statements as of April 30, 2015 include the accounts and transactions of 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., and international procurement office, SigmaTron Taiwan Branch. The functional currency of the Mexican and Vietnam subsidiaries, Chinese foreign enterprise and Taiwanese procurement branch is the U.S. dollar. Intercompany transactions are eliminated in the consolidated financial statements. 8 Competition The EMS industry is highly competitive and subject to rapid change. Furthermore, both large and small companies compete in the industry, and many have significantly greater financial resources, more extensive business experience and greater marketing and production capabilities than the Company. The significant competitive factors in this industry include price, quality, service, timeliness, reliability, the ability to source raw components, and manufacturing and technological capabilities. The Company believes it can competitively address all of these factors. Consolidation As a result of consolidation and other transactions involving competitors and other companies in the Company’s markets, the Company occasionally reviews potential transactions relating to its business, products and technologies. Such transactions could include mergers, acquisitions, strategic alliances, joint ventures, licensing agreements, co-promotion agreements, financing arrangements or other types of transactions. In the future, the Company may choose to enter into these types of or other transactions at any time depending on available sources of financing, and such transactions could have a material impact on the Company’s business, financial condition or operations. Governmental Regulations The Company’s operations are subject to certain foreign, federal, state and local regulatory requirements relating to, among others, environmental, waste management, labor and health and safety matters. Management believes that the Company’s business is operated in material compliance with all such regulations, including Restriction of Hazardous Substances (“RoHS”) and Registration, Evaluation, Authorization and Restriction of Chemicals (“REACH"). RoHS prohibits the use of lead, mercury and certain other specified substances in electronics products. The Company has RoHS-dedicated manufacturing capabilities at all of its manufacturing operations. REACH is a European Union Regulation enacted as of December 2006. The regulation imposes information reporting requirements on 163 listed SVHCs (substances of very high concern) as of June 2015. From time-to-time the Company's customers request REACH required information and certifications on the assemblies the Company manufactures for them. These requests require the Company to gather information from component suppliers to verify the presence and level of mass of any SVHCs greater than 0.1% in the assemblies the Company manufactures based on customer specifications. If any SVHCs are present at more than 0.1% of the mass of the item, the specific concentration and mass of the SVHC must be reported to proper authorities by the Company's customer. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) introduced reporting requirements for verification of whether the Company directly (or indirectly through suppliers of components) is purchasing the minerals or metals gold, columbite-tantalite, cassiterite, wolframite and their derivatives (tin, tungsten, and tantalum), that are being provided by sources in the conflict region of the Democratic Republic of Congo (“DRC”). On June 1, 2015, the Company filed Form SD with the Securities and Exchange Commission stating the Company’s supply chain remains DRC conflict undeterminable. To date, the Company’s costs of compliance for conflict minerals reporting is estimated to be $550,000. Additional or modified requirements may be imposed in the future. If such additional or modified requirements are imposed, or if conditions requiring remediation are found to exist, the Company may be required to incur additional expenditures. 9 Backlog The Company relies on customers’ forecasted orders and purchase orders (firm orders) from its customers to estimate backlog. The Company’s backlog of firm orders as of April 30, 2015 and 2014 was approximately $142,520,000 and $114,420,000, respectively. The Company anticipates a significant portion of the backlog at April 30, 2015 will ship in fiscal year 2016. Because customers may cancel or reschedule deliveries, backlog may not be a meaningful indicator of future revenue. Variations in the magnitude and duration of contracts, forecasts and purchase orders received by the Company and delivery requirements generally may result in substantial fluctuations in backlog from period to period. Employees The Company employed approximately 2,710 people as of April 30, 2015, including 181 engaged in engineering or engineering-related services, 2,154 in manufacturing and 375 in administrative and marketing functions. The Company has a labor contract with Chemical & Production Workers Union Local No. 30, AFL-CIO, covering the Company’s workers in Elk Grove Village, Illinois which expires on November 30, 2015. The Company’s Mexican subsidiary, Standard Components de Mexico S.A., has a labor contract with Sindicato De Trabajadores de la Industra Electronica, Similares y Conexos del Estado de Coahuila, C.T.M. covering the Company’s workers in Acuna, Mexico which expires on February 1, 2016. The Company’s subsidiary located in Tijuana Mexico has a labor contract with Sindicato Mexico Moderno De Trabajadores De La, Baja California, C.R.O.C. The contract does not have an expiration date. The Company’s subsidiary located in Ho Chi Minh City, Vietnam, has a labor contract with CONG DOAN CO SO CONG TY TNHH Spitfire Controls Vietnam. The contract expires December 31, 2015. Since the time the Company commenced operations, it has not experienced any union-related work stoppages. The Company believes its relations with both unions and its other employees are good. 10 Executive Officers of the Registrant Name Age Position Gary R. Fairhead 63 President and Chief Executive Officer. Gary R. Fairhead has been the President of the Company since January 1990 and Chairman of the Board of Directors of the Company since August 2011. Gary R. Fairhead is the brother of Gregory A. Fairhead. Linda K. Frauendorfer 54 Chief Financial Officer, Vice President of Finance, Treasurer and Secretary since February 1994. Director of the Company since August 2011. Gregory A. Fairhead 59 Executive Vice President and Assistant Secretary. Gregory A. Fairhead has been the Executive Vice President since February 2000 and Assistant Secretary since 1994. Mr. Fairhead was Vice President - Acuna Operations for the Company from February 1990 to February 2000. Gregory A. Fairhead is the brother of Gary R. Fairhead. John P. Sheehan 54 Vice President, Director of Supply Chain and Assistant Secretary since February 1994. Daniel P. Camp 66 Vice President, Acuna Operations since 2007. Vice President - China Operations from 2003 to 2007. General Manager / Vice President of Acuna Operations from 1994 to 2003. Rajesh B. Upadhyaya 60 Executive Vice President, West Coast Operations since 2005. Mr. Upadhyaya was the Vice President of the West Coast Operations from 2001 until 2005. Hom-Ming Chang 55 Vice President, China Operations since 2007. Vice President – West Coast Materials / Test / IT from 2001 - 2006. ITEM 1A. RISK FACTORS The following risk factors should be read carefully in connection with evaluating our business and the forward- looking information contained in this Annual Report on Form 10-K. Any of the following risks could materially adversely affect our business, operations, industry or financial position or our future financial performance. While the Company believes it has identified and discussed below the key risk factors affecting its business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect its business, operations, industry, financial position and financial performance in the future. The Company’s ability to secure and maintain sufficient credit arrangements is key to its continued operations. There is no assurance that the Company will be able to retain or renew its credit agreements and other finance agreements in the future. In the event the business grows rapidly, the uncertain economic climate continues or the Company considers another acquisition, additional financing resources could 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. The Company has a senior secured credit facility with Wells Fargo, N.A. with a credit limit up to $30,000,000 and current term through October 31, 2017. The facility allows the Company to choose among interest rates at which it may borrow funds. The credit facility is collateralized by substantially all of the domestically located 11 assets of the Company and the Company has pledged 65% of its equity ownership interest in some of its foreign entities. The Company is required to be in compliance with several financial covenants. Pursuant to the agreement, financial covenants were amended, an unused line fee was added, and the borrowing interest rate was changed. The facility allows the Company to choose among interest rates at which it may borrow funds. The interest rate is the bank fixed rate of two and one quarter percent plus one percent (effectively 3.25% at April 30, 2015) or LIBOR plus two and one quarter percent (effectively 2.625% at April 30, 2015). 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 the sum of 85% of the receivable borrowing base plus a percentage of the inventory borrowing base (collectively, “Borrowing Base”, which cannot exceed 50% of combined eligible receivables and inventory). Further, in specific circumstances, the Company is entitled to an over advance of up to $5,000,000 through October 31, 2015; however, at no time can the borrowings under the credit facility exceed $30,000,000. The effective interest rate for the over advance facility was LIBOR plus two and three quarter percent. Effective December 31, 2014, the Company amended its senior secured credit facility agreement to temporarily increase the total Borrowing Base limit to 60% through June 30, 2015 and reverting to 50% of total Borrowing Base after June 30, 2015. Further, the senior secured credit facility agreement was modified to allow specific foreign receivables to become eligible collateral. The receivable modification is effective until June 30, 2015. The Company agreed to an increase in the effective interest rate for the over advance facility and a $5,000 amendment fee. The interest rate for the over advance facility increased from LIBOR plus two and three quarter percent (effectively 3.125% at April 30, 2015) or the bank fixed rate of two and one quarter percent plus one percent (effectively 3.25% at April 30, 2015) to LIBOR plus three and one half percent (effectively 3.875% at April 30, 2015) or the bank fixed rate of two and one quarter percent plus one percent (effectively 3.25% at April 30, 2015). As of April 30, 2015, there was a $27,416,793 outstanding balance and $2,583,207 of unused availability under the credit facility agreement. At April 30, 2015, the Company was in compliance with its financial covenants. 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 2016 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 intends to meet any increased capital requirements by raising capital from other sources of debt or equity. The Company has selected an investment banker for the purpose of completing a capital raise in the third fiscal quarter of 2016. The capital raise, if successful, may consist of debt, equity or a combination of debt and equity. If the capital raise is not completed, the Company has determined that it might be required to repatriate from offshore cash, fiscal 2016 foreign earnings, to meet certain domestic funding needs but will not need to repatriate prior earnings based on current forecasts. The cumulative amount of unremitted earnings for which U.S. income taxes have not been recorded is $12,163,000 as of April 30, 2015. The amount of U.S. income taxes on these earnings is impractical to compute due to the complexities of the hypothetical calculation. 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. Adverse changes in the economy or political conditions could negatively impact the Company’s business, results of operations and financial condition. The Company’s sales and gross margins depend significantly on market demand for its customers’ products. The uncertainty in the U.S. and international economic and political environment could result in a decline in demand for our customers’ products in any industry. Further, any adverse changes in tax rates and laws affecting our customers could result in decreasing gross margins. Any of these factors could negatively impact the Company’s business, results of operations and financial condition. 12 The Company experiences variable operating results. The Company’s results of operations have varied and may continue to fluctuate significantly from period to period, including on a quarterly basis. Consequently, results of operations in any period should not be considered indicative of the results for any future period, and fluctuations in operating results may also result in fluctuations in the price of the Company’s common stock. The Company’s quarterly and annual results may vary significantly depending on numerous factors, many of which are beyond the Company’s control. Some of these factors include: - changes in sales mix to customers - changes in availability and rising component costs - volume of customer orders relative to capacity - market demand and acceptance of our customers’ products - price erosion within the EMS marketplace - capital equipment requirements needed to remain technologically competitive - volatility in the U.S. and international economic and financial markets The Company’s customer base is concentrated. Sales to the Company’s five largest customers accounted for 62.5% and 60.0% of net sales for the fiscal years ended April 30, 2015 and 2014, respectively. For the year ended April 30, 2015, two customers respectively accounted for 36.8% and 9.9% of net sales of the Company, and 9.6% and 5.5% of accounts receivable at April 30, 2015. For the year ended April 30, 2014, two customers respectively accounted for 31.6% and 12.0% of net sales of the Company and 11.2% and 4.5%, respectively, of accounts receivable at April 30, 2014. Significant reductions in sales to any of the Company’s major customers or the loss of a major customer could have a material impact on the Company’s operations. If the Company cannot replace canceled or reduced orders, sales will decline, which could have a material impact on the results of operations. There can be no assurance that the Company will retain any or all of its largest customers. This risk may be further complicated by pricing pressures and intense competition prevalent in our industry. The Company has a significant amount of trade accounts receivable from some of its customers due to customer concentration. If any of the Company’s customers have financial difficulties, the Company could encounter delays or defaults in the payment of amounts owed for accounts receivable and inventory obligations. This could have a significant adverse impact on the Company’s results of operations and financial condition. Most of the Company’s customers do not commit to long-term production schedules, which makes it difficult to schedule production and achieve maximum efficiency at the Company’s manufacturing facilities and to manage inventory levels. The volume and timing of sales to the Company’s customers may vary due to: - customers’ attempts to manage their inventory - variation in demand for the Company’s customers’ products - design changes, or - acquisitions of or consolidation among customers Many of the Company’s customers do not commit to firm production schedules. The Company’s inability to forecast the level of customer orders with certainty can make it difficult to schedule production and maximize utilization of manufacturing capacity and manage inventory levels. The Company could be required to increase or decrease staffing and more closely manage other expenses in order to meet the anticipated demand of its customers. Orders from the Company’s customers could be cancelled or delivery schedules could be deferred as a result of changes in our customers’ demand, thereby adversely affecting the Company’s results of operations in any given quarter. 13 The Company and its customers may be unable to keep current with the industry’s technological changes. The market for the Company’s manufacturing services is characterized by rapidly changing technology and continuing product development. The future success of the Company’s business will depend in large part upon our customers’ ability to maintain and enhance their technological capabilities, develop and market manufacturing services which meet changing customer needs and successfully anticipate or respond to technological changes in manufacturing processes on a cost-effective and timely basis. Our customers have competitive challenges, including rapid technological changes, pricing pressure and decreasing demand from their customers, which could adversely affect their business and the Company’s. Factors affecting the industries that utilize our customers’ products could negatively impact our customers and the Company. These factors include: - increased competition among our customers and their competitors - the inability of our customers to develop and market their products - recessionary periods in our customers’ markets - the potential that our customers’ products become obsolete - our customers’ inability to react to rapidly changing technology Any such factor or a combination of factors could negatively impact our customers’ need for or ability to pay for our products, which could, in turn, affect the Company’s results of operations. Customer relationships with start-up companies present more risk. A small portion of the Company’s current customer base is comprised of start-up companies. Customer relationships with start-up companies may present heightened risk due to the lack of product history. Slow market acceptance of their products could result in demand fluctuations causing inventory levels to rise. Further, the current economic environment could make it difficult for such emerging companies to obtain additional funding. This may result in additional credit risk including, but not limited to, the collection of trade account receivables and payment for their inventory. If the Company does not have adequate allowances recorded, the results of operations may be negatively affected. The Company faces intense industry competition and downward pricing pressures. The EMS industry is highly fragmented and characterized by intense competition. Many of the Company’s competitors have greater experience, as well as greater manufacturing, purchasing, marketing and financial resources than the Company. Competition from existing or potential new competitors may have a material adverse impact on the Company’s business, financial condition or results of operations. The introduction of lower priced competitive products, significant price reductions by the Company’s competitors or significant pricing pressures from its customers could adversely affect the Company’s business, financial condition, and results of operations. The Company has foreign operations that may pose additional risks. The Company has substantial manufacturing operations in multiple countries. Therefore, the Company’s foreign businesses and results of operations are dependent upon numerous related factors, including the stability of the foreign economies, the political climate, relations with the United States, prevailing worker wages, the legal authority of the Company to own and operate its business in a foreign country, and the ability to identify, hire, train and retain qualified personnel and operating management in Mexico, China and Vietnam. The Company obtains many of its materials and components through its IPO in Taipei, Taiwan. The Company’s access to these materials and components is dependent on the continued viability of its Asian suppliers. 14 Approximately 15.1% and 15.7% of the total non-current consolidated assets of the Company are located in foreign jurisdictions outside the United States as of April 30, 2015 and 2014, respectively. Disclosure and internal controls may not detect all errors or fraud. The Company’s management, including the Chief Executive Officer and Chief Financial Officer, believe that the Company’s disclosure controls and internal controls may not prevent all errors and all fraud. The Company’s disclosure controls and internal controls can provide only reasonable assurance that the procedures will meet the control objectives. Controls are limited in their effectiveness by human error, including faulty judgments in decision-making. Further, controls can be circumvented by collusion of two or more people or by management override of controls. Inadequate internal control over financial reporting could result in a reduction in the value of our common stock. If the Company identifies and reports a material weakness in its internal control over financial reporting, shareholders and the Company’s lenders could lose confidence in the reliability of the Company’s financial statements. This could have a material adverse impact on the value of the Company’s stock and the Company’s liquidity. There is a risk of fluctuation of various currencies integral to the Company’s operations. The Company purchases some of its material components and funds some of its operations in foreign currencies. From time to time the currencies fluctuate against the U.S. dollar. Such fluctuations could have a material impact on the Company’s results of operations and performance. The impact of currency fluctuation for the year ended April 30, 2015 resulted in a net foreign currency gain of approximately $40,000 compared to a net foreign currency loss of $128,000 in the prior year. These fluctuations are expected to continue and could have a negative impact on the Company’s results of operations. The Company did not, and is not expected to, utilize derivatives or hedge foreign currencies to reduce the risk of such fluctuations. The availability of raw components or an increase in their price may affect the Company’s operations and profits. The Company relies on numerous third-party suppliers for components used in the Company’s production process. Certain of these components are available only from single-sources or a limited number of suppliers. In addition, a customer’s specifications may require the Company to obtain components from a single-source or a small number of suppliers. The loss of any such suppliers could have a material impact on the Company’s results of operations. Further, the Company could operate at a cost disadvantage compared to competitors who have greater direct buying power from suppliers. The Company does not enter into long-term purchase agreements with major or single-source suppliers. The Company believes that short-term purchase orders with its suppliers provides flexibility, given that the Company’s orders are based on the changing needs of its customers. The Company depends on management and skilled personnel. The Company depends significantly on its President/CEO and other executive officers. The Company’s employees generally are not bound by employment agreements and the Company cannot assure that it will retain its executive officers or skilled personnel. The loss of the services of any of these key employees could have a material impact on the Company’s business and results of operations. In addition, despite significant competition, continued growth and expansion of the Company’s EMS business will require that the Company attract, motivate and retain additional skilled and experienced personnel. The inability to satisfy such requirements could have a negative impact on the Company’s ability to remain competitive in the future. Favorable labor relations are important to the Company. The Company currently has labor union contracts with its employees constituting approximately 45% and 48% of its workforce for fiscal years 2015 and 2014, respectively. Although the Company believes its labor relations 15 are good, any labor disruptions, whether union-related or otherwise, could significantly impair the Company’s business, substantially increase the Company’s costs or otherwise have a material impact on the Company’s results of operations. Failure to comply with environmental regulations could subject the Company to liability. The Company is subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous chemicals used during its manufacturing process. To date, the cost to the Company of such compliance has not had a material impact on the Company’s business, financial condition or results of operations. However, there can be no assurance that violations will not occur in the future as a result of human error, equipment failure or other causes. Further, the Company cannot predict the nature, scope or effect of environmental legislation or regulatory requirements that could be imposed or how existing or future laws or regulations will be administered or interpreted. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of regulatory agencies, could require substantial expenditures by the Company and could have a material impact on the Company’s business, financial condition and results of operations. Any failure by the Company to comply with present or future regulations could subject it to future liabilities or the suspension of production which could have a material negative impact on the Company’s results of operations. Conflict minerals regulations may cause the Company to incur additional expenses and could increase the cost of components contained in its products and adversely affect its inventory supply chain. The Dodd-Frank Act, and the rules promulgated by the Securities and Exchange Commission (“SEC”) thereunder, requires the Company to determine and report annually whether any conflict minerals contained in our products originated from the DRC or an adjoining country. The Dodd-Frank Act and these rules could affect our ability to source components that contain conflict minerals at acceptable prices and could impact the availability of conflict minerals, since there may be only a limited number of suppliers of conflict-free conflict minerals. Our customers may require that our products contain only conflict-free conflict minerals, and our revenues and margins may be negatively impacted if we are unable to meet this requirement at a reasonable price or are unable to pass through any increased costs associated with meeting this requirement. Additionally, the Company may suffer reputational harm with our customers and other stakeholders if our products are not conflict-free. The Company could incur significant costs in the event we are unable to manufacture products that contain only conflict-free conflict minerals or to the extent that we are required to make changes to products, processes, or sources of supply due to the foregoing requirements or pressures. The price of the Company’s stock is volatile. The price of the Company’s common stock historically has experienced significant volatility due to fluctuations in the Company’s revenue and earnings, other factors relating to the Company’s operations, the market’s changing expectations for the Company’s growth, overall equity market conditions and other factors unrelated to the Company’s operations. In addition, the limited float of the Company’s common stock and the limited number of market makers also affect the volatility of the Company’s common stock. Such fluctuations are expected to continue in the future. An adverse change in the interest rates for our borrowings could adversely affect our results of operations. The Company pays interest on outstanding borrowings under its senior secured credit facility and certain other long-term debt obligations at interest rates that fluctuate. An adverse change in the Company’s interest rates could have a material adverse effect on its results of operations. Changes in securities laws and regulations may increase costs. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and listing requirements subsequently adopted by Nasdaq in response to Sarbanes-Oxley, have required changes in corporate governance practices, internal control policies and securities disclosure and compliance practices of public companies. More recently the Dodd-Frank Act requires changes to our corporate governance, compliance practices and securities disclosures. Compliance following the implementation of these rules has 16 increased our legal, financial and accounting costs. The Company expects increased costs related to these new regulations to continue, including, but not limited to, legal, financial and accounting costs. These developments may result in the Company having difficulty in attracting and retaining qualified members of the board or qualified officers. Further, the costs associated with the compliance with and implementation of procedures under these laws and related rules could have a material impact on the Company’s results of operations. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES At April 30, 2015, the Company, operating in one business segment as an independent EMS provider, had manufacturing facilities located in Elk Grove Village, Illinois U.S., Union City, California U.S., Acuna, Chihuahua and Tijuana, Mexico, Ho Chi Minh City, Vietnam and Suzhou, China. In addition, the Company provides materials procurement services through its Elk Grove Village, Illinois U.S., Union City, California U.S, and Taipei, Taiwan offices. The Company provides design services in Elgin, Illinois U.S. Certain information about the Company’s manufacturing, warehouse, purchasing and design facilities is set forth below: Location Square Feet Services Offered Owned/Leased Suzhou, China 202,000 Electronic and electromechanical manufacturing solutions * Elk Grove Village, IL 124,300 Corporate headquarters and electronic and electromechanical manufacturing solutions *** Owned Union City, CA 117,000 Electronic and electromechanical manufacturing solutions Leased Acuna, Mexico 115,000 Electronic and electromechanical manufacturing solutions Owned ** Chihuahua, Mexico 113,000 Electronic and electromechanical manufacturing solutions Leased Tijuana, Mexico 112,100 Electronic and electromechanical manufacturing solutions Leased Ho Chi Minh City, Vietnam 24,475 Electronic and electromechanical manufacturing solutions Leased Del Rio, TX 44,000 Warehousing and distribution Taipei, Taiwan 4,685 International procurement office Elgin, IL 45,000 Design services Leased Leased Owned *The Company’s Suzhou, China building is owned by the Company and the land is leased from the Chinese government for a 50 year term. **A portion of the facility is leased and the Company has an option to purchase it. ***Total square footage includes 70,000 square feet of dormitories. The Union City, California, Tijuana and Chihuahua, Mexico, Ho Chi Minh City, Vietnam and Del Rio, Texas properties are occupied pursuant to leases of the premises. The lease agreements for the Del Rio, Texas properties expire December 2016. The lease agreement for the California property expires March 2021. The 17 Chihuahua, Mexico lease expires July 2017. The Tijuana, Mexico lease expires November 2018. The lease agreement for the Ho Chi Minh City, Vietnam property expires July 2020. The Company’s manufacturing facilities located in Acuna, Mexico, Elgin, Illinois and Elk Grove Village, Illinois are owned by the Company, except for a portion of the facility in Acuna, Mexico, which is leased. The Company has an option to buy the leased portion of the facility in Acuna, Mexico. The properties in Elk Grove Village, Illinois and Elgin, Illinois are financed under separate mortgage loan agreements. The Company leases the IPO office in Taipei, Taiwan to coordinate Far East purchasing activities. The Company believes its current facilities are adequate to meet its current needs. In addition, the Company believes it can find alternative facilities to meet its needs in the future, if required. ITEM 3. LEGAL PROCEEDINGS In November 2008, the Company received notice of an Equal Employment Opportunity Commission (“EEOC”) claim based on allegations of discrimination, sexual harassment, and retaliation filed by Maria Gracia, a former employee. On December 5, 2008, Ms. Gracia’s employment as an assembly supervisor was terminated after she knowingly permitted an assembly line to run leaded boards in a lead-free room with lead-free solder, contrary to the customer’s specifications and prohibited by Company policy. The use of lead-free solder for leaded components can lead to devices that fail and significant penalties to the Company and its customers from regulatory bodies. The parts were quarantined and were not shipped. Ms. Gracia openly admitted to permitting this to take place. The EEOC declined to pursue Ms. Gracia’s charges against the Company, but on July 26, 2011, Ms. Gracia received a right to sue letter from the EEOC. On October 25, 2011, Ms. 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. The Complaint alleged claims that Ms. Gracia was subject to discrimination, harassment, and hostile work environment based on sex and national origin. In the Complaint, Ms. Gracia alleged that her supervisor engaged in a pattern of unwanted sexual advances and that he sent her emails that were offensive to her gender and national origin. Further, the Complaint also alleged that the Company retaliated by terminating Ms. Gracia’s employment after she filed her initial charge of discrimination with the EEOC. Ms. Gracia sought relief in the form of (a) damages sufficient to compensate her injuries; (b) attorney’s fees; (c) costs of the action; (d) and equitable remedies. In the court’s October 25, 2013 ruling on the Company’s Motion for Summary Judgment, the court limited plaintiff’s claims to two: (1) hostile work environment caused by gender (sexual harassment), and (2) retaliation. In December 2014, a jury trial found in favor of the Company with respect to the first claim and for the plaintiff with respect to the second claim, awarding plaintiff damages totaling $307,000. In post-trial motions, the judge reduced the verdict to $300,000. The judge will now consider plaintiff’s claim for equitable remedies and attorneys’ fees and costs, along with the Company’s motion for sanctions, as the plaintiff introduced knowingly altered documents as evidence during the trial which had not been previously disclosed. It is uncertain when these claims will be ruled upon by the court. 18 ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The Company’s common stock is traded on the NASDAQ Capital Market System under the symbol SGMA. The following table sets forth the range of quarterly high and low sales price information for the common stock for the periods ended April 30, 2015 and 2014. Common Stock as Reported by NASDAQ Period High Low Fiscal 2015 Fourth Quarter Third Quarter Second Quarter First Quarter Fiscal 2014 Fourth Quarter Third Quarter Second Quarter First Quarter $ 8.08 8.24 11.49 12.44 $ 12.92 9.54 6.00 4.49 $ 5.84 5.55 6.29 8.12 $ 7.53 5.03 4.18 3.86 As of July 22, 2015, there were approximately 47 holders of record of the Company’s common stock, which does not include shareholders whose stock is held through securities position listings. The Company estimates there to be approximately 3,312 beneficial owners of the Company’s common stock. The Company has not paid cash dividends on its common stock since completing its February 1994 initial public offering and does not intend to pay any dividends in the foreseeable future. So long as any indebtedness remains unpaid under the Company’s revolving loan facility, the Company is prohibited from paying or declaring any dividends on any of its capital stock, except stock dividends, without the written consent of the lender under the facility. Equity Compensation Plan Information For information concerning securities authorized for issuance under our equity compensation plans, see Part III, Item 12 of this Annual Report, under the caption “Security Ownership of Certain Beneficial Owners and 19 Management and Related Stockholders Matters” as well as the Company’s audited financial statements and notes thereto, including Note M, filed herewith and all such information is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA As a smaller reporting company, as defined in Rule 10(f)(1) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is not required to provide the information required by this item. ITEM 7. 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 Annual Report on Form 10-K 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 our operating results; the results of long-lived assets and goodwill impairment testing; the variability of our customers’ requirements; the availability and cost of necessary components and materials; the ability of the Company and our customers to keep current with technological changes within our industries; regulatory compliance, including conflict minerals; the continued availability and sufficiency of our credit arrangements; changes in U.S., Mexican, Chinese, Vietnamese or Taiwanese regulations affecting the Company’s business; the turmoil in the global economy and financial markets; the stability of the U.S., Mexican, Chinese, Vietnamese and Taiwanese economic, labor and political systems and conditions; currency exchange fluctuations; and the ability of the Company to manage its growth. These and other factors which may affect the Company’s future business and results of operations are identified throughout the Company’s Annual Report on Form 10-K, and as risk factors, 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 otherwise required by law. Overview The Company operates in one business segment as an independent provider of EMS, which includes printed circuit board assemblies and completely assembled (box-build) electronic products. In connection with the production of assembled products, the Company also provides services to its customers, including (1) automatic and manual assembly and testing of products; (2) material sourcing and procurement; (3) manufacturing and test engineering support; (4) design services; (5) warehousing and distribution services; and (6) assistance in obtaining product approval from governmental and other regulatory bodies. The Company provides these manufacturing services through an international network of facilities located in the United States, Mexico, China, Vietnam and Taiwan. The Company relies on numerous third-party suppliers for components used in the Company’s production process. Certain of these components are available only from single-sources or a limited number of suppliers. In addition, a customer’s specifications may require the Company to obtain components from a single-source or 20 a small number of suppliers. The loss of any such suppliers could have a material impact on the Company’s results of operations. Further, the Company could operate at a cost disadvantage compared to competitors who have greater direct buying power from suppliers. The Company does not enter into long-term purchase agreements with major or single-source suppliers. The Company believes that short-term purchase orders with its suppliers provides flexibility, given that the Company’s orders are based on the changing needs of its customers. Sales can be a misleading indicator of the Company’s financial performance. Sales levels can vary considerably among customers and products depending on the type of services (turnkey versus consignment) rendered by the Company and the demand by customers. Consignment orders require the Company to perform manufacturing services on components and other materials supplied by a customer, and the Company charges only for its labor, overhead and manufacturing costs, plus a profit. In the case of turnkey orders, the Company provides, in addition to manufacturing services, the components and other materials used in assembly. Turnkey contracts, in general, have a higher dollar volume of sales for each given assembly, owing to inclusion of the cost of components and other materials in net sales and cost of goods sold. Variations in the number of turnkey orders compared to consignment orders can lead to significant fluctuations in the Company’s revenue and gross margin levels. Consignment orders accounted for less than 5% of the Company’s revenues for each of the fiscal years ended April 30, 2015 and 2014. In an effort to facilitate the growth of our China operation, the Company established a new Chinese entity in October 2011 that allows the Company to provide services competitively to the domestic market in China and in fiscal year 2015 expanded the Company’s manufacturing facility. The Company expects the China operation to continue to grow despite increasing costs of operation. The Company’s international footprint provides our customers with flexibility within the Company to manufacture in China, Mexico, Vietnam or the U.S. We believe this strategy has continued to serve the Company well during these difficult economic times as its customers continuously evaluate their supply chain strategies. The Company's overall results reflect the choppy economy in both the United States and globally. In the first quarter of 2015, the gross domestic product (GDP) for the United States actually contracted and the Company believes the contraction caused the Company’s customers to adjust their orders and requirements, which had a negative impact on the Company's results. The rescheduling of orders negatively impacted what the Company thought would be a much stronger fourth quarter of fiscal year 2015. The Company did however launch new programs in the fourth quarter of fiscal year 2015. The new orders came from both existing and new customers. The Company has seen gains in markets that it has been actively pursuing during the past two fiscal years and believes both revenues and pre-tax income will increase in fiscal year 2016. However, margin pressures continue from both customers and vendors and will likely continue in fiscal year 2016. 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 (“U.S. 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. 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 21 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 90 day warranty for workmanship only, except for products with proprietary design and 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. Actual product demand or market conditions could be different than that projected by management. 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, 2015 and determined no impairment existed as of that date. 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 April 30, 2015, there was no impairment of long-lived assets. 22 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. The Company has a foreign tax credit carry-forward of $78,100 and $112,327 at April 30, 2015 and 2014, respectively, that will begin to expire in fiscal year April 30, 2024. The Company determined it is more likely than not that it will realize the foreign tax credit due to the reversal of federal deferred tax liabilities. Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense and tax credit carry forwards. In evaluating our ability to recover our 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 pretax 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. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our 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 our 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. New Accounting Standards: In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers." This ASU 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. This ASU is effective for annual reporting periods beginning after December 15, 2017 and early adoption is not permitted. Accordingly, the Company will adopt this ASU on May 1, 2018. Companies may use either a full retrospective or modified retrospective approach to adopt this ASU and the Company is currently evaluating which transition approach to use and the full impact this ASU will have on the Company’s future consolidated financial statements. 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 the Company beginning with the annual reporting for fiscal 2016, and reports for interim and annual periods thereafter. Early adoption is permitted. The Company does not expect the impact of adoption of this ASU to have a material impact on its consolidated financial statements. 23 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. Adoption will not materially affect the firm’s financial condition, results of operations, or cash flows. The Company does not expect the impact of adoption of this ASU to have a material impact on its consolidated financial statements. Results of Operations: FISCAL YEAR ENDED APRIL 30, 2015 COMPARED TO FISCAL YEAR ENDED APRIL 30, 2014 The following table sets forth the percentage relationships of expense items to net sales for the years indicated: Net sales Operating expenses: Cost of products sold Selling and administrative expenses Total operating expenses Operating income Fiscal Years 2015 2014 100.0% 100.0% 90.4 8.5 98.9 1.1% 89.7 8.7 98.4 1.6% Net sales increased 3.5% to $230,237,161 in fiscal year 2015 from $222,485,940 in the prior year. The Company’s sales increased in fiscal year 2015 in appliance, telecommunication and semiconductor marketplaces as compared to the prior year. The increase in sales dollars for these marketplaces was partially offset by a decrease in sales dollars in the fitness, medical/life sciences and gaming marketplaces. The modest increase in revenues is from sales to existing customers and new customers and from new programs with various customers that were launched in the fourth quarter of fiscal year 2015. The Company has also seen gains in markets that it has been pursuing during the past two fiscal years and is optimistic revenues in fiscal year 2016 will increase. The Company’s sales in a particular industry are driven by the fluctuating forecasts and end-market demand of the customers within that industry. Sales to customers are subject to variations from period to period depending on customer order cancellations, the life cycle of customer products and product transition. Sales to the Company’s five largest customers accounted for 62.5% and 60.0% of net sales for fiscal years 2015 and 2014, respectively. Gross profit decreased to $22,068,838, or 9.6% of net sales, in fiscal year 2015 compared to $22,826,998, or 10.3% of net sales, in the prior fiscal year. The decrease in gross profit dollars for fiscal year 2015 was the result of product mix and margin pressures. Margin pressures continue from both customers and vendors and will likely continue in fiscal year 2016. Selling and administrative expenses increased in fiscal year 2015 to $19,431,637, or 8.5% of net sales compared to $19,200,514, or 8.7% of net sales, in fiscal year 2014. The increase was attributable to salaries and other administrative expenses for the Elgin division, increased IT salaries, and increased other general and administration expenses, including an accrual for the aforementioned lawsuit. The increase in the foregoing 24 selling and administrative expenses were partially offset by a decrease in general office salaries and bonus expense. Interest expense, net, increased to $1,081,323 in fiscal year 2015 compared to $966,038 in fiscal year 2014. Interest expense increased primarily due to the increased borrowings under the Company’s banking arrangements, capital lease and mortgage obligations. Interest expense for fiscal year 2016 may increase if interest rates or borrowings, or both, increase during fiscal year 2016. In fiscal year 2015, the income tax expense was $801,049 compared to an income tax benefit of $133,867 in fiscal year 2014. The effective rate for the years ended April 30, 2015 and 2014 was 47.0% and (4.8%), respectively. The increase in the effective rate for the year ended April 30, 2015 is due to the impact of foreign tax rates, unrealized foreign currency losses and the impact of the Company’s inability to utilize a foreign tax credit resulting from a foreign dividend repatriation. Additionally, for the year ended April 30, 2014, the Company realized a tax benefit of $828,175 related to the impact of a change in Mexican Tax Law which became effective on January 1, 2014. The Company reported net income of $903,412 in fiscal year 2015 compared to $2,918,691 for fiscal year 2014. Basic and diluted earnings per share for fiscal year 2015 were $0.22 each compared to basic and diluted earnings per share of $0.74 and $0.72, respectively, for the year ended April 30, 2014. Liquidity and Capital Resources: Operating Activities. Cash flow used in operating activities was $2,781,680 for the fiscal year ended April 30, 2015 compared to cash flow provided by operating activities of $1,956,831 for the prior fiscal year. Cash flow used in operating activities was primarily the result of increased inventories and accounts receivable and a decrease in accrued expenses and wages. Net cash used in operating activities was partially offset by the result of net income adjusted by the non-cash effects of depreciation and amortization and an increase in accounts payable. The increase in inventory of $14,412,734 and increase in accounts receivable of $913,776 is primarily due to additional customer orders and the startup of new programs. The increase in accounts payable is due to renegotiated vendor terms with several of the Company’s largest vendors. Cash flow provided by operating activities was $1,956,831 for the fiscal year ended April 30, 2014. Cash flow provided by operating activities was primarily the result of net income, adjusted by the non-cash effects of depreciation and amortization. Net cash provided by operations in fiscal year 2014 was partially offset by an increase of inventories of $3,118,520, and a $4,206,275 decrease in accounts payable. The increase in inventory is primarily due to additional customer orders and the reduction of trade accounts payable is due to payments in the ordinary course of business. Investing Activities. In fiscal year 2015, the Company purchased approximately $4,800,000 in machinery and equipment to be used in the ordinary course of business. The Company anticipates it may purchase in fiscal year 2016 up to $6,000,000 in machinery and equipment, which will be funded by lease transactions or raising capital from other sources. 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. With respect to fiscal 2016, and the uncertainty of the Company’s financing arrangements and its domestic liquidity profile, the Company has determined that it might be required to repatriate from offshore cash, fiscal 2016 foreign earnings, to meet certain domestic funding needs but will not need to repatriate prior earnings based on current forecasts. In fiscal year 2014, the Company purchased approximately $8,400,000 in machinery and equipment to be used in the ordinary course of business. The Company purchases were funded by lease transactions and its bank line of credit. 25 Financing Activities. Cash provided by financing activities was $5,011,967 for the fiscal year ended April 30, 2015 compared to cash provided by financing activities of $7,241,796 in fiscal year 2014. Cash provided by financing activities in fiscal year 2015 was primarily the result of increased net borrowings of approximately $4,400,000 under the credit facility, proceeds received from a sale leaseback transaction for machinery and equipment and refinancing the mortgage for the Company’s facility in Elk Grove Village, Illinois. The additional borrowings were required to support the increase in inventory. Cash provided by financing activities was $7,241,796 for the fiscal year ended April 30, 2014. Cash provided by financing activities in fiscal year 2014 was primarily the result of increased net borrowings of $4,500,000 under the credit facility; proceeds received from a sale leaseback transaction for machinery and equipment and proceeds from a mortgage for the Company’s facility in Elgin, Illinois. The additional borrowings were required to support the purchases of machinery and equipment, and the increase in inventory. Financing Summary. The Company has a senior secured credit facility with Wells Fargo, N.A. with a credit limit up to $30,000,000 and current term through October 31, 2017. The facility allows the Company to choose among interest rates at which it may borrow funds. 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 Company is required to be in compliance with several financial covenants. Pursuant to the agreement, financial covenants were amended, an unused line fee was added, and the borrowing interest rate was changed. The facility allows the Company to choose among interest rates at which it may borrow funds. The interest rate is the bank fixed rate of two and one quarter percent plus one percent (effectively 3.25% at April 30, 2015) or LIBOR plus two and one quarter percent (effectively 2.625% at April 30, 2015). 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 the sum of 85% of the receivable borrowing base plus a percentage of the inventory borrowing base (collectively, “Borrowing Base”, which cannot exceed 50% of combined eligible receivables and inventory). Further, in specific circumstances, the Company is entitled to an over advance of up to $5,000,000 through October 31, 2015; however, at no time can the borrowings under the credit facility exceed $30,000,000. The effective interest rate for the over advance facility was LIBOR plus two and three quarter percent. Effective December 31, 2014, the Company amended its senior secured credit facility agreement to temporarily increase the total Borrowing Base limit to 60% through June 30, 2015 and reverting to 50% of total Borrowing Base after June 30, 2015. Further, the senior secured credit facility agreement was modified to allow specific foreign receivables to become eligible collateral. The receivable modification is effective until June 30, 2015. The Company agreed to an increase in the effective interest rate for the over advance facility and a $5,000 amendment fee. The interest rate for the over advance facility increased from LIBOR plus two and three quarter percent (effectively 3.125% at April 30, 2015) or the bank fixed rate of two and one quarter percent plus one percent (effectively 3.25% at April 30, 2015) to LIBOR plus three and one half percent (effectively 3.875% at April 30, 2015) or the bank fixed rate of two and one quarter percent plus one percent (effectively 3.25% at April 30, 2015). As of April 30, 2015, there was a $27,416,793 outstanding balance and $2,583,207 of unused availability under the credit facility agreement. At April 30, 2015, the Company was in compliance with its financial covenants. 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 boar 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 2.625% at April 30, 2015) and is payable over a sixty month period. Final payment of approximately $2,289,500 is due on or before November 8, 2019. The outstanding balance as of April 30, 2014 was $2,075,017. The outstanding balance as of April 30, 2015 was $2,802,500. 26 On August 20, 2010 and October 26, 2010, the Company entered into two capital leasing transactions (a lease finance agreement and a sale leaseback agreement) with Wells Fargo Equipment Finance, Inc., to purchase equipment totaling $1,150,582. The term of the lease finance agreement, with an initial principal amount of $315,252, extends to September 2016 with monthly payments of $4,973 and a fixed interest rate of 4.28%. The term of the sale leaseback agreement, with an initial principal payment amount of $825,330, extends to August 2016 with monthly payments of $13,207 and a fixed interest rate of 4.36%. At April 30, 2015, $81,809 and $192,296 was outstanding under the lease finance and sale leaseback agreements, respectively. The net book value at April 30, 2015 of the equipment under the lease finance agreement and sale leaseback agreement was $194,843 and $481,805, 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 fiscal year ended April 30, 2015 was $33,950. In addition, the landlord provided the Company tenant incentives of $418,000, which are being amortized over the life of the lease. In November 2010, the Company entered into a capital lease with Wells Fargo Equipment Finance, Inc., to purchase equipment totaling $226,216. The term of the lease agreement extends to October 2016 with monthly payments of $3,627 and a fixed interest rate of 4.99%. At April 30, 2015, the balance outstanding under the capital lease agreement was $62,778. The net book value of the equipment under this lease at April 30, 2015 was $140,676. 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 fiscal year ended April 30, 2015 was $8,353. On October 3, 2013, the Company entered into two sale leaseback agreements with Associated Bank, National Association in the amount of $2,281,355 to finance equipment purchased in June 2012. The term of the first agreement, with an initial principal amount of $2,201,638, extends to September 2018 with monthly payments of $40,173 and a fixed interest rate of 3.75%. The term of the second agreement, with an initial principal payment amount of $79,717, extends to September 2018 with monthly payments of $1,455 and a fixed interest rate of 3.75%. At April 30, 2015, $1,543,684 and $55,894 was outstanding under the first and second agreements, respectively. The net book value at April 30, 2015 of the equipment under each of the two agreements was $1,736,474 and $61,448, 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 4.51% per year and is payable over a sixty month period. A final payment of approximately $1,030,000 is due on or before October 24, 2018. The outstanding balance as of April 30, 2014 was $1,249,500. The outstanding balance as of April 30, 2015 was $1,198,500. On March 6, 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase equipment in the amount of $589,083. The term of the lease extends to March 2019 with monthly payments of $10,441 and a fixed interest rate of 5.65%. At April 30, 2015, the balance outstanding under the capital lease agreement was $486,541. The net book value of the equipment under the lease as of April 30, 2015 was $524,248. On May 7, 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase equipment in the amount of $108,971. The term of the lease extends to May 2019 with monthly payments of $1,931 and a fixed interest rate of 5.65%. At April 30, 2015, the balance outstanding under the capital lease was $92,996. The net book value of the equipment under the lease as of April 30, 2015 was $99,890. On August 1, 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase equipment in the amount of $609,179. The term of the lease extends to July 2019 with monthly payments of 27 $10,797 and a fixed interest rate of 5.65%. At April 30, 2015, the balance outstanding under the capital lease was $536,459. The net book value of the equipment under the lease as of April 30, 2015 was $566,875. On September 22, 2014, the Company entered into a sale leaseback agreement with Associated Bank, National Association in the amount of $664,676 to finance equipment purchases. The term of lease extends to August 2019 with monthly payments of $12,163 and a fixed interest rate of 3.87%. At April 30, 2015, the balance outstanding under the lease was $581,419. The net book value of the equipment under the lease as of April 30, 2015 was $567,067. On September 22, 2014, the Company entered into a sale leaseback agreement with Associated Bank, National Association in the amount of $437,641 to finance equipment purchases. The term of lease extends to August 2019 with monthly payments of $8,008 and a fixed interest rate of 3.87%. At April 30, 2015, the balance outstanding under the lease was $382,822. The net book value of the equipment under the lease as of April 30, 2015 was $395,868. On September 22, 2014, the Company entered into a capital lease agreement with Associated Bank, National Association in the amount of $106,346 to finance equipment purchases. The term of lease extends to August 2019 with monthly payments of $1,947 and a fixed interest rate of 3.89%. At April 30, 2015, the balance outstanding under the lease was $93,030. The net book value of the equipment under the lease as of April 30, 2015 was $99,700. On October 27, 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase equipment in the amount of $501,590. The term of lease extends to October 2019 with monthly payments of $8,890 and a fixed interest rate of 5.65%. At April 30, 2015, the balance outstanding under the lease was $461,954. The net book value of the equipment under the lease as of April 30, 2015 was $470,460. On January 16, 2015, the Company entered into a capital lease agreement with Associated Bank, National Association in the amount of $81,030 to finance equipment purchases. The term of lease extends to December 2019 with monthly payments of $1,487 and a fixed interest rate of 4.01%. At April 30, 2015, the balance outstanding under the lease was $75,864. The net book value of the equipment under the lease as of April 30, 2015 was $77,654. 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, except for the Acuna Mexico operation, which is funded in Pesos. 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 fiscal year ended April 30, 2015 resulted in a net foreign currency gain of $40,000 compared to a net foreign currency loss of approximately $128,000 for the same period in the prior year. During fiscal year 2015, the Company’s U.S. operations paid approximately $52,220,000 to its foreign subsidiaries for services provided. During fiscal year 2014, the Company realized a distribution of approximately $3,006,825 from foreign subsidiaries based in Mexico. The U.S. income tax on the distribution was $333,128 which is reflected in the Company’s tax provision for the fiscal year ended April 30, 2014. The Company has not recorded U.S. income taxes on the undistributed earnings of the Company’s foreign subsidiaries. Since the earnings of the foreign subsidiaries have been, and under fiscal April 30, 2015 plans, will continue to be indefinitely reinvested, no deferred tax liability has been recorded. With respect to fiscal April 30, 2016, as a result of the uncertainty of the Company’s financing arrangements and its domestic liquidity profile, the Company has determined that it might be required to repatriate from offshore cash, fiscal 2016 foreign earnings, to meet certain domestic funding needs but will not need to repatriate prior earnings based on current forecasts. The cumulative amount of unremitted earnings for which U.S. income taxes have not been recorded is $12,163,000 as of April 30, 2015. The amount of U.S. income taxes on these earnings is impractical to compute due to the complexities of the hypothetical calculation. During fiscal year 2015, the Company reflected tax expense of $643,708 related to the inability to realize the tax benefit of a foreign tax credit related to this distribution. The Company’s estimate of cumulative taxable 28 income during the foreign tax credit carryforward period is insufficient to support that the tax benefit from the foreign tax credit is more likely than not to be realized. 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 2016 at the Company’s current level of business. The Company has received forecasts from current customers for increased business that would require additional investment in inventory. To the extent that these forecasts come to fruition, the Company intends to meet any increased capital requirements by raising capital from other sources of debt or equity. The Company has selected an investment banker for the purpose of completing a capital raise in the third fiscal quarter of 2016. The capital raise, if successful, may consist of debt, equity or a combination of debt and equity. If the capital raise is not completed, the Company has determined that it might be required to repatriate from offshore cash, fiscal 2016 foreign earnings, to meet certain domestic funding needs but will not need to repatriate prior earnings based on current forecasts. The cumulative amount of unremitted earnings for which U.S. income taxes have not been recorded is $12,163,000 as of April 30, 2015. The amount of U.S. income taxes on these earnings is impractical to compute due to the complexities of the hypothetical calculation. 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 two fiscal years has been minimal. 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 Rule 10(f)(1) of Regulation S-K under the Exchange Act, the Company is not required to provide the information required by this item. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS As a smaller reporting company, as defined in Rule 10(f)(1) of Regulation S-K under the Exchange Act, the Company is not required to provide the information required by this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this item is included in Item 15(a) of this Report. 29 ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls: The Company’s management, including its President and Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rules 13a-15(e) and 15(d)- 15(e)) as of April 30, 2015. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and its President and Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of April 30, 2015. Internal Controls: The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with U.S. GAAP. Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the Company’s evaluation, management concluded that its internal controls over financial reporting were effective at the reasonable assurance level as of April 30, 2015. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report. There has been no change in the Company’s internal control over financial reporting during the quarter ended April 30, 2015, that has materially affected or is reasonably likely to materially affect, its internal control over financial reporting. On May 14, 2013, COSO issued an updated version of its Internal Control - Integrated Framework (the “2013 Framework”) which officially superseded 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. Neither 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. ITEM 9B. OTHER INFORMATION Not Applicable. 30 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended April 30, 2015. ITEM 11. EXECUTIVE COMPENSATION The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended April 30, 2015. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended April 30, 2015. ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended April 30, 2015. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended April 30, 2015. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)(1) The financial statements are listed in the Index to Financial Statements filed as part of this Annual Report on Form 10-K beginning on Page F-1. 31 (a)(2) (a)(3) and (b) Index to Exhibits 3.1 3.2 Certificate of Incorporation of the Company, incorporated herein by reference to Exhibit 3.1 to Registration Statement on Form S-1, File No. 33-72100, dated February 9, 1994. Amended and Restated By-laws of the Company, adopted on September 24, 1999, incorporated herein by reference to Exhibit 3.2 to the Company’s Form 10-K for the fiscal year ended April 30, 2000. 10.1 Form of 1993 Stock Option Plan, incorporated herein by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1, File No. 33-72100.* 10.2 Form of Incentive Stock Option Agreement for the Company’s 1993 Stock Option Plan , incorporated herein by reference to Exhibit 10.5 to the Company’s Registration Statement on Form S-1, File No. 33- 72100.* 10.3 Form of Non-Statutory Stock Option Agreement for the Company’s 1993 Stock Option Plan, incorporated herein by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-1, File No. 33-72100.* 10.4 2004 Directors’ Stock Option Plan, incorporated herein by reference to Appendix C to the Company’s 2004 Proxy Statement filed on August 16, 2004.* 10.5 2004 Employee Stock Option Plan, incorporated herein by reference to Appendix B to the Company’s 2004 Proxy Statement filed on August 16, 2004. * 10.6 Revolving Line of Credit Note issued by SigmaTron International, Inc. to Wells Fargo International Banking and Trade Solutions (IBTS), dated January 8, 2010 incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K filed on January 14, 2010. 10.7 Promissory Note issued by SigmaTron International, Inc. to Wells Fargo International Banking and Trade Solutions (IBTS), dated January 8, 2010, incorporated herein by reference to Exhibit 10.3 to the Company’s Form 8-K filed on January 14, 2010. 10.8 SigmaTron International, Inc. 2011 Employee Stock Option Plan dated September 16, 2011, incorporated herein by reference to Exhibit 10.14 to the Company’s Registration Statement on Form S- 8 filed on December 14, 2011.* 10.9 Purchase Agreement between SigmaTron International, Inc., and its nominees and Spitfire Control, Inc., dated as of May 31, 2012, incorporated herein by reference to Exhibit 2.1 to the Company’s Form 8-K filed on June 4, 2012. 10.10 SigmaTron International, Inc. 2014 Employee Bonus Plan dated May 21, 2013, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on May 23, 2013.* 10.11 SigmaTron International, Inc. 2013 Employee Stock Purchase Plan dated September 20, 2013, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on September 25, 2013.* 10.12 SigmaTron International, Inc. 2013 Non-Employee Director Restricted Stock Plan dated September 20, 2013, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on September 25, 2013.* 32 10.13 Mortgage and Assignment of Rents and Leases executed as of October 24, 2013, by SigmaTron International, Inc., to Wells Fargo Bank, National Association, incorporated herein by reference to Exhibit 10.18 to the Company’s Form 10-Q filed on December 13, 2013. 10.14 Second Amended and Restated Credit Agreement entered into as of October 24, 2013, by and between SigmaTron International, Inc., and Wells Fargo Bank, National Association, incorporated herein by reference to Exhibit 10.19 to the Company’s Form 10-Q filed on December 13, 2013. 10.15 Master Lease Agreement # 2170 entered into between Associated Bank, National Association, a national banking association and SigmaTron International, Inc., dated October 3, 2013, incorporated herein by reference to Exhibit 10.20 to the Company’s Form 10-Q filed on December 13, 2013. 10.16 SigmaTron International, Inc. Amended and Restated Change in Control Severance Payment Plan dated March 11, 2014, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K/A filed on March 14, 2014.* 10.17 Master Lease Number 81344 entered into between CIT Finance LLC and SigmaTron International, Inc., dated March 6, 2014, incorporated herein by reference to Exhibit 10.17 to the Company’s Form 10-K filed on July 24, 2014. 10.18 Schedule # 1217927 to Master Lease Agreement Number 81344 entered into between CIT Finance LLC and SigmaTron International, Inc. dated May 7, 2014, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on September 11, 2014. 10.19 Third Amended and Restated Credit Agreement entered into as of October 31, 2014, by and between SigmaTron International, Inc., and Wells Fargo Bank, National Association, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on December 10, 2014. 10.20 Second Amended and Restated Promissory Note dated November 24, 2014 issued by the Company to Wells Fargo Bank, National Association, incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K filed on December 10, 2014. 10.21 Schedule # 1223197 to Master Lease Agreement Number 81344 entered into by and between CIT Finance LLC and SigmaTron International, Inc. dated August 1, 2014, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on December 12, 2014. 10.22 Lease No. 003 is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between Associated Bank, National Association and SigmaTron International, Inc. dated September 22, 2014, incorporated herein by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on December 12, 2014. 10.23 Lease No. 004 is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between Associated Bank, National Association and SigmaTron International, Inc. dated September 22, 2014, incorporated herein by reference to Exhibit 10.3 to the Company’s Form 10-Q filed on December 12, 2014. 10.24 Lease No. 005 is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between Associated Bank, National Association and SigmaTron International, Inc. dated September 22, 2014, incorporated herein by reference to Exhibit 10.4 to the Company’s Form 10-Q filed on December 12, 2014. 10.25 Schedule # 1246045 to Master Lease Agreement Number 81344 entered into by and between CIT Finance LLC and SigmaTron International, Inc. dated October 27, 2014, incorporated herein by reference to Exhibit 10.5 to the Company’s Form 10-Q filed on December 12, 2014. 10.26 First Amendment to Third Amended and Restated Credit Agreement entered into as of March 7, 2015, 33 by and between SigmaTron International, Inc. and Wells Fargo Bank, National Association, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on March 12, 2015. 10.27 Lease No. 006 is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between Associated Bank, National Association and SigmaTron International, Inc. dated January 16, 2015, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on March 16, 2015. 10.28 SigmaTron International, Inc. Employee Bonus Plan for Fiscal Year 2016 dated July 9, 2015, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on July 10, 2015.* 10.29 Schedule # 1284094 to Master Lease Agreement Number 81344 entered into by and between CIT Finance LLC and SigmaTron International, Inc. dated June 2, 2015.** 21.0 Subsidiaries of the Registrant, incorporated herein by reference to Exhibit 21 to the Company’s Form 10-K for the fiscal year ended April 30, 2014, filed on July 24, 2014. 23.1 Consent of BDO USA, LLP.** 24.0 Power of Attorney of Directors and Executive Officers (included on the signature page of this Form 10- K for the fiscal year ended April 30, 2015).** 31.1 Certification of Principal Executive Officer of the Company Pursuant to Rule 13a-14(a) under the Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.** 31.2 Certification of Principal Financial Officer of the Company Pursuant to Rule 13a-14(a) under the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.** 32.1 Certification by the Principal Executive Officer of SigmaTron International, Inc. Pursuant to Rule 13a- 14(b) under the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).** 32.2 Certification by the Principal Financial Officer of SigmaTron International, Inc. Pursuant to Rule 13a- 14(b) under the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).** 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Scheme Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document * Indicates management contract or compensatory plan. ** Filed herewith (c) Exhibits The Company hereby files as exhibits to this Report the exhibits listed in Item 15(a)(3) above, which are attached hereto or incorporated herein. 34 Pursuant to the requirements of Section 13 or 15(d) 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. SIGNATURES SIGMATRON INTERNATIONAL, INC. By: /s/ Gary R. Fairhead Gary R. Fairhead, President and Chief Executive Officer, Principal Executive Officer and Director Dated: July 24, 2015 KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned directors and officers of SigmaTron International, Inc., a Delaware corporation, which is filing an Annual Report on Form 10-K with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934 as amended, hereby constitute and appoint Gary R. Fairhead and Linda K. Frauendorfer, and each of them, each of their true and lawful attorneys-in fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in all capacities, to sign any or all amendments to the report to be filed with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as each of them might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities, and on the dates indicated. Signature /s/ Gary R. Fairhead Gary R. Fairhead Title Chairman of the Board of Directors, President and Chief Executive Officer, (Principal Executive Officer) and Director /s/ Linda K. Frauendorfer Linda K. Frauendorfer Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer) and Director /s/ Thomas W. Rieck Thomas W. Rieck /s/ Dilip S. Vyas Dilip S. Vyas /s/ Paul J. Plante Paul J. Plante /s/ Barry R. Horek Barry R. Horek /s/ Bruce J. Mantia Bruce J. Mantia Director Director Director Director Director 35 Date July 24, 2015 July 24 2015 July 24, 2015 July 24, 2015 July 24, 2015 July 24, 2015 July 24, 2015 INDEX TO FINANCIAL STATEMENTS SigmaTron International, Inc. and Subsidiaries REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2 Page CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF INCOME CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY CONSOLIDATED STATEMENTS OF CASH FLOWS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-3 F-5 F-6 F-7 F-9 Financial statement schedules are omitted because they are not applicable or required. F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders SigmaTron International, Inc. Elk Grove Village, Illinois We have audited the accompanying consolidated balance sheets of SigmaTron International, Inc. as of April 30, 2015 and 2014 and the related consolidated statements of income, changes in stockholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SigmaTron International, Inc. at April 30, 2015 and 2014 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. BDO USA, LLP Chicago, Illinois July 24, 2015 F-2 SigmaTron International, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS APRIL 30, 2015 and 2014 ASSETS 2015 2014 CURRENT ASSETS Cash and cash equivalents Accounts receivable, less allowance for doubtful accounts of $186,844 and $150,000 at April 30, 2015 and 2014, respectively Inventories, net Prepaid expenses and other assets Deferred income taxes Other receivables $ 2,868,217 $ 5,440,319 20,170,723 68,669,709 2,103,367 2,179,178 486,085 19,293,791 53,728,377 1,826,254 2,524,993 356,746 Total current assets 96,477,279 83,170,480 PROPERTY, MACHINERY AND EQUIPMENT, NET 33,864,527 32,692,908 OTHER LONG-TERM ASSETS Intangible assets, net of amortization of $3,737,856 and $3,309,246 at April 30, 2015 and 2014, respectively Goodwill Other assets 5,174,144 3,222,899 1,319,901 5,602,754 3,222,899 790,390 Total other long-term assets 9,716,944 9,616,043 TOTAL ASSETS $ 140,058,750 $ 125,479,431 The accompanying notes are an integral part of these statements. F-3 SigmaTron International, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS - CONTINUED APRIL 30, 2015 and 2014 LIABILITIES AND STOCKHOLDERS’ EQUITY 2015 2014 CURRENT LIABILITIES Trade accounts payable Accrued expenses Accrued wages Income taxes payable Current portion of long-term debt Current portion of capital lease obligations Current portion of contingent consideration Current portion of deferred rent Total current liabilities Long-term debt, less current portion Capital lease obligations, less current portion Contingent consideration, less current portion Other long-term liabilities Deferred rent, less current portion Deferred income taxes Total long-term liabilities Total liabilities 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, 4,075,785 and 4,012,319 shares issued and outstanding at April 30, 2015 and 2014, respectively Capital in excess of par value Retained earnings Total stockholders’ equity TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY The accompanying notes are an integral part of these statements. F-4 $ $ 35,838,275 592,644 5,140,851 302 165,000 1,245,632 275,288 150,594 27,141,079 584,050 5,969,024 80,936 2,126,017 765,961 331,429 12,302 43,408,586 37,010,798 31,252,793 24,198,500 3,401,913 2,423,001 1,223,697 536,209 999,929 2,550,236 1,533,571 525,739 1,163,819 3,217,660 39,964,777 33,062,290 83,373,363 70,073,088 - - 40,703 21,239,641 35,405,043 40,215 20,864,497 34,501,631 56,685,387 55,406,343 $ 140,058,750 $ 125,479,431 SigmaTron International, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME Years ended April 30, 2015 and 2014 Net sales Cost of products sold Gross profit 2015 2014 $ 230,237,161 $ 222,485,940 208,168,323 199,658,942 22,068,838 22,826,998 Selling and administrative expenses 19,431,637 19,200,514 Operating income 2,637,201 3,626,484 Other income Interest expense (148,583) 1,081,323 (124,378) 966,038 Income before income tax expense 1,704,461 2,784,824 Income tax expense (benefit) 801,049 (133,867) NET INCOME Earnings per common share Basic Diluted Weighted-average shares of common stock outstanding Basic Diluted $ $ $ 903,412 0.22 0.22 $ $ $ 2,918,691 0.74 0.72 4,046,988 3,969,391 4,116,424 4,074,487 The accompanying notes are an integral part of these statements. F-5 SigmaTron International, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Years ended April 30, 2015 and 2014 Capital in Total Preferred Common excess of par Retained stockholders’ stock stock value earnings equity Balance at May 1, 2013 $ - $ 39,779 $ 20,361,012 $ 31,582,940 $ 51,983,731 - 2,918,691 2,918,691 40,215 20,864,497 34,501,631 55,406,343 Recognition of stock-based compensation - - 89,219 Exercise of stock options - 436 158,357 Issuance and vesting of restricted stock Tax benefit from exercise of options Net income Balance at April 30, 2014 Recognition of stock-based compensation Exercise of stock options Issuance and vesting of restricted stock Employee stock purchases Tax benefit from contingent consideration Net income - - - - - - - - - - 54,997 200,912 - 59,648 136 57,825 150 61,796 202 126,612 69,263 - - - - - - - - - 89,219 158,793 54,997 200,912 - - - - - 59,648 57,961 61,946 126,814 69,263 - 903,412 903,412 Balance at April 30, 2015 $ - $ 40,703 $ 21,239,641 $ 35,405,043 $ 56,685,387 The accompanying notes are an integral part of these statements. F-6 SigmaTron International, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended April 30, 2015 and 2014 Cash flows from operating activities Net income Adjustments to reconcile net income to net cash (used in) provided by operating activities Depreciation Stock-based compensation Restricted stock expense Employee stock purchases Provision for doubtful accounts (Write-off) provision for inventory obsolescence Tax benefit from option exercises Tax benefit from contingent consideration Deferred income tax benefit Amortization of intangible assets Fair value adjustment of contingent consideration Loss from disposal or sale of machinery and equipment Stock option repurchase expense Changes in assets and liabilities Accounts receivable Inventories Prepaid expenses and other assets Income taxes payable/refundable Trade accounts payable Deferred rent Accrued expenses and wages Net cash (used in) provided by operating activities Cash flows from investing activities Purchases of machinery and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from exercise of common stock options Repurchase of stock options Proceeds under sale leaseback agreements Payments of contingent consideration Payments under capital lease and sale leaseback agreements Proceeds under building notes payable Payments under building notes payable Borrowings under lines of credit Payments under lines of credit Tax benefit from option exercises Tax benefit from contingent consideration Net cash provided by financing activities Change in cash Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year The accompanying notes are an integral part of these statements. F-7 2015 2014 $ 903,412 $ 2,918,691 4,985,272 59,648 61,946 126,814 36,844 (528,598) - (69,263) (252,347) 428,610 (106,015) 52,615 - (913,776) (14,412,734) (935,963) (80,634) 8,697,196 (25,598) (809,109) (2,781,680) (4,802,389) (4,802,389) 57,961 - 1,102,317 (260,000) (1,050,850) 834,481 (157,998) 165,496,222 (161,079,429) - 69,263 5,011,967 (2,572,102) 5,440,319 4,791,663 89,219 54,997 - - 34,884 (200,912) - (623,233) 346,680 - 37,603 300,410 127,461 (3,118,520) 343,580 509,874 (4,206,275) 79,849 470,860 1,956,831 (8,366,039) (8,366,039) 158,793 (300,410) 2,281,354 (260,000) (488,357) 1,275,000 (125,496) 121,696,357 (117,196,357) 200,912 - 7,241,796 832,588 4,607,731 $ 2,868,217 $ 5,440,319 SigmaTron International, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued Years ended April 30, 2015 and 2014 Supplementary disclosures of cash flow information Cash paid for interest Cash paid for income taxes Cash refunded for income taxes Purchase of machinery and equipment financed under capital leases Puchase of machinery and equipment financed under sale leaseback agreements The accompanying notes are an integral part of these statements. 2015 2014 $ $ 1,018,419 915,115 - 893,967 271,502 (689,298) 1,407,116 2,870,437 1,102,317 - F-8 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2015 and 2014 NOTE A - DESCRIPTION OF THE BUSINESS SigmaTron International, Inc., its subsidiaries, foreign enterprises and international procurement office (collectively, the “Company”) operates in one business segment as an independent provider of electronic manufacturing services (“EMS”), which includes printed circuit board assemblies and completely assembled (box-build) electronic products. In connection with the production of assembled products, the Company also provides services to its customers, including (1) automatic and manual assembly and testing of products; (2) material sourcing and procurement; (3) manufacturing and test engineering support; (4) design services; (5) warehousing and distribution services; and (6) assistance in obtaining product approval from governmental and other regulatory bodies. As of April 30, 2015, the Company provided these manufacturing services through an international network of facilities located in the United States, Mexico, China, Vietnam and Taiwan. Approximately 15.1% and 15.7% of the total non-current consolidated assets of the Company are located outside of the United States as of April 30, 2015 and 2014, respectively. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation Policy The consolidated financial statements include the accounts and transactions 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. and SigmaTron International Trading Co., wholly-owned foreign enterprises Suzhou SigmaTron Electronics Co. Ltd., and SigmaTron Electronic Technology Co., Ltd. (collectively, “SigmaTron China”), and its international procurement office, SigmaTron Taiwan. The functional currency of the Mexican, Vietnamese and Chinese subsidiaries and procurement branch is the U.S. dollar. Intercompany transactions are eliminated in the consolidated financial statements. The impact of foreign currency fluctuation for the fiscal year ended April 30, 2015 resulted in a net gain of approximately $40,000 compared to a net foreign currency loss of $128,000 in the prior year. Use of Estimates 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. Cash and Cash Equivalents Cash and cash equivalents include cash and all highly liquid short-term investments maturing within three months of the purchase date. F-9 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Accounts Receivable The majority of the Company’s accounts receivable are due from companies in the consumer electronics, gaming, fitness, industrial electronics, medical/life sciences, semiconductor, telecommunications and appliance industries. Credit is extended based on evaluation of a customer’s financial condition, and, generally, collateral is not required. Accounts receivable are due in accordance with agreed upon terms, and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payments terms are considered past due. The Company writes off accounts receivable when they are determined to be uncollectible. Allowance for Doubtful Accounts The Company’s allowance for doubtful accounts relates to receivables not expected to be collected from its customers. This allowance is based on management’s assessment of specific customer balances, considering the age of receivables and financial stability of the customer and a five year average of prior uncollectible amounts. If there is an adverse change in the financial condition of the Company’s customers, or if actual defaults are higher than provided for, an addition to the allowance may be necessary. 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. Actual product demand or market conditions could be different than that projected by management. Property, Machinery and Equipment Property, machinery and equipment are valued at cost. The Company provides for depreciation and amortization using the straight-line method over the estimated useful life of the assets: Buildings Machinery and equipment Office equipment and software Tools and dies Leasehold improvements 20 years 5-12 years 3-5 years 12 months lesser of lease term or useful life Expenses for repairs and maintenance are charged to selling and administrative expenses as incurred. Deferred Financing Costs Deferred financing costs consist of costs incurred to obtain the Company’s long-term debt and are amortized using the straight-line method over the term of the related debt. Deferred financing fees of $147,537 and $52,484 net of accumulated amortization of $390,266 and $332,352, respectively, as of April 30, 2015 and 2014, respectively, are classified in other long-term assets on the Company’s balance sheet. F-10 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Income Taxes Deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and for tax credit carryforwards, and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred income tax assets to an amount more likely than not to be realized. 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. Earnings per Share Basic earnings per share are computed by dividing net income (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. The computation of diluted earnings per share is similar to the computation of basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common stock equivalents such as stock options and restricted stock, had been exercised or vested. There were 991, anti-dilutive common stock equivalents, at both April 30, 2015 and 2014, which have been excluded from the calculation of diluted earnings per share. 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 Companys’ policy to recognize revenue and related costs when the finished goods have been shipped from our 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 90 day warranty for workmanship only, except for products with proprietary designs and 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. F-11 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Shipping and Handling Costs The Company records shipping and handling costs as selling and administrative expenses. Customers are typically invoiced for shipping costs. Shipping and handling costs were not material to the financial statements for fiscal years 2015 or 2014. Fair Value Measurements Fair value measurements are determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs. The Company utilizes a fair value hierarchy based upon the observability of inputs used in valuation techniques as follows: Level 1: Observable inputs such as quoted prices in active markets; Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. Fair Value of Financial Instruments The Company’s financial instruments include cash and cash equivalents, accounts receivable, other receivables, accounts payable and accrued expenses which approximate fair value at April 30, 2015 and 2014, due to their short- term nature. The carrying amounts of the Company’s debt obligations approximate fair value based on future payments discounted at current interest rates for similar obligations or interest rates which fluctuate with the market. The Company measured the net assets included in the fiscal 2013 Spitfire acquisition under the fair value standard (primarily using level 3 measurement inputs) including the contingent consideration which continues to be measured and reported at fair value at each period end. The Company currently does not have any other non-financial assets and non-financial liabilities that are required to be measured at fair value on a recurring basis. Goodwill Goodwill represents the purchase price in excess of the fair value of assets acquired in business combinations. The Company assesses goodwill 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, 2015 and determined that no impairment existed as of that date. F-12 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 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 or accelerated basis over their estimated useful lives of five years for patents, 20 years for trade names, 1 year for backlog, 7 years for non-compete agreements and 15 years for customer relationships. 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 April 30, 2015, there was no impairment of long-lived assets. Stock Incentive Plans Under the Company’s stock option plans, options to acquire shares of common stock have been made available for grant to certain employees and directors. Each option granted has an exercise price of not less than 100% of the market value of the common stock on the date of grant. The contractual life of each option is generally 10 years. The vesting of the grants varies according to the individual options granted. The Company measures the cost of employee services received in exchange for an equity award based on the grant date fair value and records that cost over the respective vesting period of the award. Reclassifications Certain reclassifications have been made to the previously reported 2014 financial statements to conform to the 2015 presentation. New Accounting Standards In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers." This ASU 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. This ASU is effective for annual reporting periods beginning after December 15, 2017 and early adoption is not permitted. Accordingly, the Company will adopt this ASU on May 1, 2018. Companies may use either a full retrospective or modified retrospective approach to adopt this ASU and the Company is currently evaluating which transition approach to use and the full impact this ASU will have on the Company’s future consolidated financial statements. F-13 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued New Accounting Standards - Continued 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 the Company beginning with the annual reporting for fiscal 2016, and reports for interim and annual periods thereafter. Early adoption is permitted. The Company does not expect the impact of adoption of this ASU will 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. Adoption will not materially affect the firm’s financial condition, results of operations, or cash flows. The Company does not expect the impact of adoption of this ASU to have a material impact on its consolidated financial statements. NOTE C - ALLOWANCE FOR DOUBTFUL ACCOUNTS Changes in the Company’s allowance for doubtful accounts are as follows: Beginning Balance Bad debt expense Write-offs $ 2015 150,000 36,844 - 2014 150,000 $ - - $ 186,844 $ 150,000 F-14 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE D - INVENTORIES Inventories consist of the following at April 30: 2015 2014 Finished products Work-in-process Raw materials Less obsolescence reserve $ $ 24,316,404 2,966,846 42,662,845 69,946,095 1,276,386 68,669,709 Changes in the Company’s inventory obsolescence reserve are as follows: Beginning balance Provision for obsolescence Write-offs 2015 1,804,984 - (528,598) 1,276,386 $ $ $ $ $ $ 18,553,112 3,126,596 33,853,653 55,533,361 1,804,984 53,728,377 2014 1,770,100 34,884 - 1,804,984 F-15 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE E - PROPERTY, MACHINERY AND EQUIPMENT, NET Property, machinery and equipment consist of the following at April 30: Land and buildings Machinery and equipment Office equipment and software Leasehold improvements Equipment under capital leases Less accumulated depreciation and amortization, including amortization of assets under capital leases of $1,329,661 and $729,723 at April 30, 2015 and 2014, respectively Property, machinery and equipment, net $ 2015 2014 15,265,758 $ 14,707,780 56,142,919 54,933,857 8,640,964 7,413,077 2,540,693 2,539,193 6,746,668 4,237,235 89,337,002 83,831,142 55,472,475 51,138,234 $ 33,864,527 $ 32,692,908 Depreciation and amortization expense was $4,985,272 and $4,791,663 for the years ended April 30, 2015 and 2014, respectively. F-16 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE F - GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill There were no changes in carrying amount of tax deductible goodwill in the amount of $3,222,899 for the fiscal years ended April 30, 2015 and 2014, respectively. Other Intangible Assets Intangible assets subject to amortization are summarized as of April 30, 2015 as follows: Weighted Average Remaining Amortization Period (Years) Gross Carrying Amount Accumulated Amortization Other intangible assets – Able Customer relationships – Able Spitfire: Non-contractual customer relationships Backlog Trade names Non-compete agreements Patents Total - - 12.08 - 17.08 4.08 2.08 $ 375,000 $ 2,395,000 4,690,000 22,000 980,000 50,000 400,000 8,912,000 $ $ 375,000 2,395,000 548,781 22,000 142,905 20,825 233,345 3,737,856 Intangible assets subject to amortization are summarized as of April 30, 2014 as follows: Weighted Average Remaining Amortization Period (Years) Gross Carrying Amount Accumulated Amortization Other intangible assets – Able Customer relationships – Able Spitfire: Non-contractual customer relationships Backlog Trade names Non-compete agreements Patents Total - - 13.08 - 18.08 5.08 3.08 $ 375,000 $ 2,395,000 4,690,000 22,000 980,000 50,000 400,000 8,912,000 $ $ 375,000 2,395,000 256,311 22,000 93,909 13,685 153,341 3,309,246 F-17 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE F - GOODWILL AND OTHER INTANGIBLE ASSETS - Continued Estimated aggregate amortization expense for the Company’s intangible assets, which become fully amortized in 2032, for the remaining fiscal years is as follows: For the fiscal year ending April 30: 2016 2017 2018 2019 2020 Thereafter $ $ 470,899 490,010 435,043 423,721 411,406 2,943,065 5,174,144 Amortization expense was $428,610 and $346,680 for the years ended April 30, 2015 and 2014, respectively. In conjunction with the May 2012 acquisition of Spitfire, the estimate of the fair value of the contingent consideration ($2,320,000) was 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 four quarterly payments of $65,000 each in fiscal 2015 and 2014 and made three quarterly payments of $65,000 each in fiscal 2013. As of April 30, 2015, the Company had not materially changed its estimated aggregate consideration expected to be earned under this arrangement. Any changes in the Company’s estimate is reflected as a change in the contingent consideration liability and as additional or credits to selling and administrative expenses. As of April 30, 2015, the contingent consideration liability was $1,498,985. F-18 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE G - LONG-TERM DEBT Note Payable - Bank The Company has a senior secured credit facility with Wells Fargo, N.A. with a credit limit up to $30,000,000 and current term through October 31, 2017. The facility allows the Company to choose among interest rates at which it may borrow funds. 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 Company is required to be in compliance with several financial covenants. Pursuant to the agreement, financial covenants were amended, an unused line fee was added, and the borrowing interest rate was changed. The facility allows the Company to choose among interest rates at which it may borrow funds. The interest rate is the bank fixed rate of two and one quarter percent plus one percent (effectively 3.25% at April 30, 2015) or LIBOR plus two and one quarter percent (effectively 2.625% at April 30, 2015). 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 the sum of 85% of the receivable borrowing base plus a percentage of the inventory borrowing base (collectively, “Borrowing Base”, which cannot exceed 50% of combined eligible receivables and inventory). Further, in specific circumstances, the Company is entitled to an over advance of up to $5,000,000 through October 31, 2015; however, at no time can the borrowings under the credit facility exceed $30,000,000. The effective interest rate for the over advance facility was LIBOR plus two and three quarter percent. Effective December 31, 2014, the Company amended its senior secured credit facility agreement to temporarily increase the total Borrowing Base limit to 60% through June 30, 2015 and reverting to 50% of total Borrowing Base after June 30, 2015. Further, the senior secured credit facility agreement was modified to allow specific foreign receivables to become eligible collateral. The receivable modification is effective until June 30, 2015. The Company agreed to an increase in the effective interest rate for the over advance facility and a $5,000 amendment fee. The interest rate for the over advance facility increased from LIBOR plus two and three quarter percent (effectively 3.125% at April 30, 2015) or the bank fixed rate of two and one quarter percent plus one percent (effectively 3.25% at April 30, 2015) to LIBOR plus three and one half percent (effectively 3.875% at April 30, 2015) or the bank fixed rate of two and one quarter percent plus one percent (effectively 3.25% at April 30, 2015). As of April 30, 2015, there was a $27,416,793 outstanding balance and $2,583,207 of unused availability under the credit facility agreement. At April 30, 2015, the Company was in compliance with its financial covenants. 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 2016 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 intends to meet any increased capital requirements by raising capital from other sources of debt or equity. The Company has selected an investment banker for the purpose of completing a capital raise in the third fiscal quarter of 2016. The capital raise, if successful, may consist of debt, equity or a combination of debt and equity. If the capital raise is not completed, the Company has determined that it might be required to repatriate from offshore cash, fiscal 2016 foreign earnings, to meet certain domestic funding needs but will not need to repatriate prior earnings based on current forecasts. The cumulative amount of unremitted earnings for which U.S. income taxes have not been recorded is $12,163,000 as of April 30, 2015. The amount of U.S. income taxes on these earnings is impractical to compute due to the complexities of the hypothetical calculation. 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. F-19 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE G - LONG-TERM DEBT - Continued Capital Lease Obligations On August 20, 2010 and October 26, 2010, the Company entered into two capital leasing transactions (a lease finance agreement and a sale leaseback agreement) with Wells Fargo Equipment Finance, Inc., to purchase equipment totaling $1,150,582. The term of the lease finance agreement, with an initial principal amount of $315,252, extends to September 2016 with monthly payments of $4,973 and a fixed interest rate of 4.28%. The term of the sale leaseback agreement, with an initial principal payment amount of $835,330, extends to August 2016 with monthly payments of $13,207 and a fixed interest rate of 4.36%. At April 30, 2014, $136,561 and $338,562 was outstanding under the lease finance and sale leaseback agreements, respectively. The net book value at April 30, 2014 of the equipment under the lease finance agreement and sale leaseback agreement was $221,114 and $550,583, respectively. At April 30, 2015, $81,809 and $192,296 was outstanding under the lease finance and sale leaseback agreements, respectively. The net book value at April 30, 2015 of the equipment under the lease finance agreement and sale leaseback agreement was $194,843 and $481,805, respectively. On November 29, 2010, the Company entered into a capital lease with Wells Fargo Equipment Finance, Inc., to purchase equipment totaling $226,216. The term of the lease agreement extends to October 2016 with monthly payments of $3,627 and a fixed interest rate of 4.99%. At April 30, 2014, the balance outstanding under the capital lease agreement was $102,099. The net book value of the equipment under this lease at April 30, 2014 was $159,528. At April 30, 2015, the balance outstanding under the capital lease agreement was $62,777. The net book value of the equipment under this lease at April 30, 2015 was $140,676. On October 3, 2013, the Company entered into two sale leaseback agreements with Associated Bank, National Association in the amount of $2,281,355 to finance equipment purchased in June 2012. The term of the first agreement, with an initial principal amount of $2,201,638, extends to September 2018 with monthly payments of $40,173 and a fixed interest rate of 3.75%. The term of the second agreement, with an initial principal payment amount of $79,717, extends to September 2018 with monthly payments of $1,455 and a fixed interest rate of 3.75%. At April 30, 2014, $1,959,381 and $70,945 was outstanding under the first and second agreements, respectively. The net book value at April 30, 2014 of the equipment under each of the two agreements was $1,828,038 and $68,092, respectively. At April 30, 2015, $1,543,684 and $55,894 was outstanding under the first and second agreements, respectively. The net book value at April 30, 2015 of the equipment under each of the two agreements was $1,736,474 and $61,448, respectively. On March 6, 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase equipment in the amount of $589,083. The term of the lease extends to March 2019 with monthly payments of $10,441 and a fixed interest rate of 5.65%. At April 30, 2014, the balance outstanding under the capital lease agreement was $581,415. The net book value of the equipment under the lease as of April 30, 2014 was $573,338. At April 30, 2015, the balance outstanding under the capital lease agreement was $486,541. The net book value of the equipment under the lease as of April 30, 2015 was $524,248. On May 7, 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase equipment in the amount of $108,971. The term of the lease extends to May 2019 with monthly payments of $1,931 and a fixed interest rate of 5.65%. At April 30, 2015, the balance outstanding under the capital lease was $92,996. The net book value of the equipment under the lease as of April 30, 2015 was $99,890. On August 1, 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase equipment in the amount of $609,179. The term of the lease extends to July 2019 with monthly payments of $10,797 and a fixed interest rate of 5.65%. At April 30, 2015, the balance outstanding under the capital lease was $536,459. The net book value of the equipment under the lease as of April 30, 2015 was $566,875. F-20 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE G - LONG-TERM DEBT - Continued Capital Lease Obligations - Continued On September 22, 2014, the Company entered into a sale leaseback agreement with Associated Bank, National Association in the amount of $664,676 to finance equipment purchases. The term of lease extends to August 2019 with monthly payments of $12,163 and a fixed interest rate of 3.87%. At April 30, 2015, the balance outstanding under the lease was $581,419. The net book value of the equipment under the lease as of April 30, 2015 was $567,067. On September 22, 2014, the Company entered into a sale leaseback agreement with Associated Bank, National Association in the amount of $437,641 to finance equipment purchases. The term of lease extends to August 2019 with monthly payments of $8,008 and a fixed interest rate of 3.87%. At April 30, 2015, the balance outstanding under the lease was $382,822. The net book value of the equipment under the lease as of April 30, 2015 was $395,868. On September 22, 2014, the Company entered into a capital lease agreement with Associated Bank, National Association in the amount of $106,346 to finance equipment purchases. The term of lease extends to August 2019 with monthly payments of $1,947 and a fixed interest rate of 3.89%. At April 30, 2015, the balance outstanding under the lease was $93,030. The net book value of the equipment under the lease as of April 30, 2015 was $99,700. On October 27, 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase equipment in the amount of $501,590. The term of lease extends to October 2019 with monthly payments of $8,890 and a fixed interest rate of 5.65%. At April 30, 2015, the balance outstanding under the lease was $461,954. The net book value of the equipment under the lease as of April 30, 2015 was $470,460. On January 16, 2015, the Company entered into a capital lease agreement with Associated Bank, National Association in the amount of $81,030 to finance equipment purchases. The term of lease extends to December 2019 with monthly payments of $1,487 and a fixed interest rate of 4.01%. At April 30, 2015, the balance outstanding under the lease was $75,864. The net book value of the equipment under the lease as of April 30, 2015 was $77,654. Note Payable - Buildings The Company entered into a mortgage agreement on January 8, 2010, in the amount of $2,500,000, with Wells Fargo, N.A. to refinance the property that serves as the Company’s corporate headquarters and its Illinois manufacturing facility. The Wells Fargo, N.A. note historically boar 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 2.625% at April 30, 2015) and is payable over a sixty month period. Final payment of approximately $2,289,500 is due on or before November 8, 2019. The outstanding balance as of April 30, 2014 was $2,075,017. The outstanding balance as of April 30, 2015 was $2,802,500. 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 4.51% per year and is payable over a sixty month period. A final payment of approximately $1,030,000 is due on or before October 24, 2018. The outstanding balance as of April 30, 2014 was $1,249,500. The outstanding balance as of April 30, 2015 was $1,198,500. F-21 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE G - LONG-TERM DEBT - Continued The aggregate amount of debt maturing in each of the following fiscal years and thereafter is as follows: Fiscal Year Total 2016 2017 2018 2019 2020 $ $ 165,000 165,000 27,581,793 1,159,500 2,346,500 31,417,793 See Note L - Leases, Page F-30 for future maturities under capital lease obligations. Other Long-Term Liabilities As of April 30, 2015 and 2014, the Company had recorded $536,209 and $525,739, respectively, for seniority premiums and retirement accounts related to benefits for employees working in the Company’s foreign subsidiaries. F-22 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE H - ACCRUED EXPENSES AND WAGES Accrued expenses consist of the following at April 30: Interest Commissions Professional fees Other 2015 2014 $ $ $ 74,395 57,681 304,864 155,704 592,644 $ 69,467 48,043 262,755 203,785 584,050 Accrued wages consist of the following at April 30: Wages Bonuses Foreign wages Foreign benefits 2015 2014 $ $ 1,544,959 409,549 1,689,934 1,496,409 1,812,049 510,159 1,704,821 1,941,995 $ 5,140,851 $ 5,969,024 F-23 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE I - INCOME TAX U.S. and foreign income (loss) before income tax expense for the years ended April 30 are as follows: Domestic Foreign 2015 2014 $ $ (2,481,049) 4,185,510 1,704,461 $ $ (545,501) 3,330,325 2,784,824 Provision (benefit) for Income Taxes The income tax provision (benefit) for the years ended April 30 consists of the following: Current Federal State Foreign Total Current Deferred Federal State Foreign Total Deferred 2015 2014 $ 2,963 29,613 1,020,820 1,053,396 $ (203,951) 28,726 664,591 489,366 (138,335) (154,208) 40,196 (252,347) 365,008 64,952 (1,053,193) (623,233) Provision (benefit) for income taxes $ 801,049 $ (133,867) F-24 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE I - INCOME TAX - Continued Provision (benefit) for Income Taxes - Continued The difference between the income tax provision (benefit) and the amounts computed by applying the statutory Federal income tax rates to income before tax expense for the years ended April 30 are as follows: U.S Federal Provision: At statutory rate State taxes Change in valuation allowance Foreign tax differential Impact of state tax rate change Change in foreign valuation allowance Foreign profit sharing Foreign dividends Other Foreign currency exchange gain/loss Impact of tax legislation Impact of foreign permanent items Foreign inflation adjustment Insurance reserves 2015 2014 $ 579,516 (86,377) 46,615 (256,343) (42,471) (53,011) 32,912 643,708 22,996 136,299 - (123,987) (98,808) - $ 951,623 61,828 - (465,835) - - (60,626) 295,522 20,175 - (828,175) (25,099) - (83,280) Provision (benefit) for income taxes $ 801,049 $ (133,867) F-25 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE I - INCOME TAX - Continued Deferred Tax Assets and Liabilities Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the deferred tax assets for federal and state income taxes are as follows: Deferred Tax Assets Federal & State NOL carryforwards Foreign NOL carryforwards Research & Other Credits Reserves and accruals Stock based compensation Inventories Other intangible assets Deferred rent Allowance for doubtful accounts Other Total Gross Deferred Tax Assets Less: Valuation allowance Net Deferred Tax Assets Deferred Tax Liabilities Other assets Property, machinery & equipment Undistributed foreign earnings Total Deferred Tax Liabilities Net Deferred Tax Liability 2015 2014 $ 449,325 - 78,100 795,721 133,744 1,154,335 207,044 263,703 72,271 22,978 3,177,221 (95,295) - 98,254 - 944,454 137,343 1,340,302 338,014 293,242 61,515 305,335 3,518,459 (101,691) 3,081,926 $ 3,416,768 (272,409) (3,180,575) - (3,452,984) (371,058) $ $ $ (474,768) (3,384,821) (249,846) (4,109,435) (692,667) $ $ $ $ $ As of April 30, 2015, the Company had net operating loss carryforwards for federal income tax purposes of approximately $658,000, portions of which will begin to expire in 2035. The Company had a total state net operating loss carryforward of approximately $2,318,000, which will begin to expire in 2023 to 2031. Utilization of some of the federal and state net operating loss and credit carryforwards are subject to annual limitations due to the “change in ownership” provisions of Section 382 the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before utilization. At April 30, 2015, the Company has federal net operating loss carry-forward totaling approximately $657,529 that will expire on April 30, 2035. The Company recognizes a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. The Company determined it is more likely than not that it will realize the federal deferred tax assets due to the reversal of F-26 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE I - INCOME TAX - Continued Deferred Tax Assets and Liabilities-Continued federal deferred tax liabilities. The federal deferred tax liabilities exceed the federal deferred tax assets and based on the reversing pattern, the Company has concluded that substantially all of the federal deferred tax liabilities are expected to reverse and be a sufficient source of future federal taxable income within the period of time available for existing net operating loss carry-forwards and other federal deferred tax assets. The federal deferred tax liability is of the same character as the differences giving rise to the federal deferred tax assets. If the Company experiences substantial changes in ownership, the net operating loss carry-forwards would be subject to an annual limitation pursuant to Section 382 which may impact the realization of the net operating loss carry-forwards. The Company also has state net operating loss carry-forwards totaling approximately $2,318,000 at April 30, 2015, that will begin to expire in fiscal year April 30, 2022. The Company recorded a valuation allowance related to state net operating loss carry-forwards of $46,615 as of the year ended April 30, 2015. The state deferred tax liabilities exceed the state deferred tax assets and based on the reversing pattern the Company has concluded that substantially all of the state deferred tax liabilities are expected to reverse within the period of time available to fully utilize all state deferred tax assets except for certain state net operating losses, with shorter expirations. Based on the reversing schedule performed on a state by state basis, the Company has concluded that a valuation allowance of $46,615 is required as of April 30, 2015, related to state net operating loss carryforwards that are expected to expire before being utilized. These states required a valuation allowance because the net operating loss carry-forward periods are expected to expire before being utilized, based upon the scheduled reversal of the deferred tax liabilities. F-27 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE I - INCOME TAX - Continued Deferred Tax Assets and Liabilities - Continued The above amounts are classified in the Consolidated Balance Sheets at April 30, are as follows: Current assets: Deferred income taxes Non-current liabilities: Deferred income taxes Net Deferred Tax Liability 2015 2014 2,179,178 $ 2,524,993 (2,550,236) (371,058) $ (3,217,660) (692,667) $ $ The Company has not recorded U.S. income taxes on the undistributed earnings of the Company’s foreign subsidiaries. Since the earnings of the foreign subsidiaries have been, and under fiscal April 30, 2015 plans, will continue to be indefinitely reinvested, no deferred tax liability has been recorded. With respect to fiscal April 30, 2016, as a result of the uncertainty of the Company’s financing arrangements and its domestic liquidity profile, the Company has determined that it might be required to repatriate from offshore cash, fiscal 2016 foreign earnings, to meet certain domestic funding needs but will not need to repatriate prior earnings based on current forecasts . The cumulative amount of unremitted earnings for which U.S. income taxes have not been recorded is $12,163,000 as of April 30, 2015. The amount of U.S. income taxes on these earnings is impractical to compute due to the complexities of the hypothetical calculation. Effective January 1, 2014, the Mexican federal income tax law changes were enacted eliminating the statutory income tax rate reduction scheduled to start in 2014, and leaving the 30% statutory income tax rate in effect for future years. In addition the Entrepreneurial Tax of Unique Rate (flat tax) was repealed as of January 31, 2014. During fiscal year 2015, the Company reflected tax expense of $643,708 related to the inability to realize the tax benefit recorded in fiscal year 2014 for potential foreign tax credits related to the above distribution from Mexico. The Company’s current estimate of cumulative taxable income during the foreign tax credit carryforward period is insufficient to support that the tax benefit from the foreign tax credit is more likely than not to be realized. F-28 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE I - INCOME TAX - Continued Deferred Tax Assets and Liabilities - Continued The Company has a foreign tax credit carry-forward of $78,100 and $112,327 at April 30, 2015 and 2014, respectively, that will begin to expire in fiscal year April 30, 2024. The Company determined it is more likely than not that it will realize the foreign tax credit due to the reversal of federal deferred tax liabilities. The Company’s Vietnam subsidiary has a net operating loss carry-forward of $221,274 and $399,109 at April 30, 2015 and 2014, respectively, that will begin to expire within the fiscal year April 30, 2017. A portion of the net operating loss carry-forward, $147,594, expired in the fiscal year ended April 30, 2015. Vietnam has a tax holiday and is at a 0% tax rate currently. The Company anticipates that it will use the net operating loss before the tax holiday expires, which resulted in no benefit being booked. Unrecognized Tax Benefits The Company has not identified any uncertain tax positions or expects any to be taken in the Company’s tax returns. For the fiscal year ended April 30, 2015 and 2014, the amount of consolidated worldwide liability for uncertain tax positions that impacted the Company’s effective tax rate was $0 for each year. Other Interest related to tax positions taken in the Company’s tax returns are recorded in income tax expense in the Consolidated Statements of Income. The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to state, local or foreign examinations by tax authorities for tax years before 2011. The Internal Revenue Service is currently examining fiscal year 2013. The Company is no longer subject to U.S. Federal examinations by tax authorities for tax years before 2012. NOTE J - 401(k) RETIREMENT SAVINGS PLAN The Company sponsors 401(k) retirement savings plans, which are available to all non-union U.S. employees. The Company may elect to match participant contributions up to $300 per participant annually. The Company contributed $114,207 and $93,452 to the plans during the fiscal years ended April 30, 2015 and 2014, respectively. The Company paid total expenses of $8,500 and $6,850 for the fiscal years ended April 30, 2015 and 2014, respectively, relating to costs associated with the administration of the plans. NOTE K - MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to concentration of credit risk consist principally of uncollateralized accounts receivable. For the year ended April 30, 2015, two customers accounted for 36.8% and 9.9% of net sales of the Company, and 9.6% and 5.5%, respectively, of accounts receivable at April 30, 2015. For the year ended April 30, 2014, two customers accounted for 31.6% and 12.0% of net sales of the Company and 11.2% and 4.5%, respectively, of accounts receivable at April 30, 2014. Further, the Company has $2,462,057 in cash in China as of April 30, 2015. These funds are not insured by a guaranteed deposit insurance system. Effective May 1, 2015, China implemented a deposit insurance program to insure up to approximately $81,000 in deposits. F-29 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE L - LEASES The Company leases certain facilities and office space under various operating leases expiring at various dates through March 2021. The Company also leases various machinery and equipment under capital leases. Future minimum lease payments under leases with terms of one year or more are as follows: Years ending April 30, 2016 2017 2018 2019 2020 Thereafter Capital Leases Operating Leases $ $ 1,429,205 1,253,770 1,167,522 924,596 310,012 - 1,840,697 2,026,999 1,960,493 1,651,233 950,166 603,437 Total future minimum lease payments $ 5,085,105 $ 9,033,025 Less amounts representing interest Less Current Portion 437,560 4,647,545 1,245,632 Long Term Portion $ 3,401,913 F-30 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE L - LEASES - Continued Rent expense incurred under operating leases was $2,102,312 and $1,981,977 for the years ended April 30, 2015 and 2014, respectively. In September 2010, the Company entered into a real estate lease agreement in Union City, CA, to rent 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 was $33,950 for the fiscal year ended April 30, 2015, compared to deferred rent income of $17,770 recorded for the year ended April 30, 2014. 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 fiscal year ended April 30, 2015 was $8,353. Deferred rent expense in the amount of $8,353 was recorded for the twelve month period ended April 30, 2015. NOTE M - STOCK COMPENSATION The Company has stock option plans (“Option Plans”) under which certain employees and non-employee directors may acquire shares of common stock. All Option Plans have been approved by the Company’s shareholders. At April 30, 2015, the Company has 402,914 shares available for future issuance to employees under the employee plans and none are available under the non-employee director plans. The Option Plans are interpreted and administered by the Compensation Committee of the Board of Directors. The maximum term of options granted under the Option Plans is generally 10 years. Options granted under the Option Plans are either incentive stock options or nonqualified options. Each option under the Option Plans is exercisable for one share of stock. Options forfeited under the Option Plans are available for reissuance. Options granted under these plans are granted at an exercise price equal to the fair market value of a share of the Company’s common stock on the date of grant. The Company granted 25,000 options to employees in fiscal year 2014. The Company recognized approximately $18,100 in compensation expense in fiscal year 2015 and 2014. The balance of unrecognized compensation expense at April 30, 2015 was approximately $21,700. In fiscal year 2013, 115,000 options were granted to employees. The Company recognized approximately $13,800 and $54,860 of compensation expense in fiscal years 2015 and 2014, respectively. The balance of unrecognized compensation expense at April 30, 2015 and 2014 was approximately $0 and $13,800, respectively. F-31 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE M - STOCK COMPENSATION - Continued The Company offered to purchase 395,190 options upon the terms stated in Schedule TO (“TO”) filed with the SEC on October 1, 2013. The stock options subject to the TO were those options to purchase SGMA common stock which had not expired or terminated prior to October 29, 2013. Options, all of which were fully vested, were granted under the following Company stock option plans: 1993 Stock Option Plan, 2004 Employee Stock Option Plan, 2000 Directors’ Stock Option Plan and 2004 Directors’ Stock Option Plan. The Company offered to pay a cash amount ranging from $0.18 to $1.35 per Eligible Option, totaling up to $301,500 and 394,200 options were tendered and purchased for a total cash payment of $300,410 as of October 31, 2013. The fair value of each option grant in fiscal 2014 is estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: Expected dividend yield Expected stock price volatility Average risk-free interest rate Weighted-average expected life of options 0% 78% 4.49% 6.0 years Option-valuation models require the input of highly subjective assumptions. Because the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing method does not necessarily provide a reliable single measure of the fair value of the Company’s stock options. When the Company does grant stock options, it uses the U.S. Treasury yield in effect at the time of the option grant to calculate the risk- free interest rate and the simplified method to calculate the weighted-average expected life, due to limited history. The expected dividend, volatility and forfeitures rates of options are based on historical experience and expected future results. The vesting period of the stock options ranges from three to five years. F-32 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE M - STOCK COMPENSATION - Continued The table below summarizes option activity through April 30, 2015: Number of securities to be issued upon exercise of outstanding options Weighted- average exercise price 515,192 $ 25,000 (43,588) (850) (394,200) 101,554 (13,600) (2,000) 85,954 $ 8.02 4.24 3.64 4.24 9.34 3.88 4.26 4.24 3.81 Number of options exercisable at end of year 438,142 48,304 76,954 Outstanding at April 30, 2013 Options granted during 2014 Options exercised during 2014 Options expired during 2014 Options repurchased during 2014 Outstanding at April 30, 2014 Options exercised during 2015 Options expired during 2015 Outstanding at April 30, 2015 Intrinsic value is calculated as the positive difference between the market price of the Company’s common stock and the exercise price of the underlying options. During the fiscal years ended April 30, 2015 and 2014, the aggregate intrinsic value of options exercised was $51,520 and $291,025, respectively. As of April 30, 2015 and 2014, the aggregate intrinsic value of in the money options outstanding was $365,245 and $653,803, respectively. Information with respect to stock options outstanding at April 30, 2015 follows: Range of exercise prices $ 3.60-5.40 $ 9.17-11.56 Number outstanding at April 30, 2015 Options outstanding Weighted-average remaining contract life Weighted- average exercise price 84,963 991 85,954 7.87 years .38 years $ $ 3.75 9.17 3.81 F-33 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE M - STOCK COMPENSATION - Continued Information with respect to stock options outstanding and exercisable at April 30, 2015 follows: Number outstanding at April 30, 2015 Options outstanding and exercisable Weighted-average remaining contract life Weighted- average exercise price Range of exercise prices $ 3.60-5.40 $ 9.17-11.56 75,963 991 76,954 7.87 years .38 years $ $ 3.69 9.17 3.76 The Company implemented an employee stock purchase plan (“ESPP”), for all eligible employees on February 1, 2014. Under the ESPP, employees may purchase shares of the Company’s common stock at three-month intervals at 85% of the lower of the fair market value of the Company’s common stock on the first day or the last day of the offering period (calculated in the manner provided in the plan). Employees purchase such stock using payroll deductions, which may not be less than 1% nor exceed 15% of their total gross compensation. Shares of common stock are offered under the ESPP through a series of successive offering periods. The plan imposes certain limitations upon an employee’s right to acquire common stock, including the following: (i) termination of employment for any reason immediately terminates the employee’s participation in the plan (ii) no employee may be granted rights to purchase more than $25,000 worth of common stock for each calendar year that such rights are at any time outstanding, and (iii) the maximum number of shares of common stock purchasable in total by all participants in the ESPP on any purchase date is limited to 500,000 shares. 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. There were 18,118 and 2,158 shares issued under the ESPP and the Company recorded $27,747 and $4,151 in compensation expense, for fiscal years ended April 30, 2015 and 2014, respectively. The Company issued 25,000 shares of restricted stock on June 1, 2012, of which 8,330 vested in June 2012 and 8,330 vested in June 2013. The Company recognized approximately $1,745 and $15,325 in compensation expense for the years ended April 30, 2015 and 2014, respectively. The balance of unrecognized compensation expense related to the Company’s restricted stock award was approximately $0 and $1,750 at April 30, 2015 and 2014, respectively. On October 1, 2014, the Company granted 1,750 shares to each non-employee director pursuant to the 2013 Non- Employee Director Restricted Stock Plan. A total of 8,750 restricted shares were granted and the shares vest in six months from the date of grant. The Company recognized $60,200 in compensation expense in fiscal year 2015. There was no unrecognized compensation expense related to the 8,750 shares of restricted stock at April 30, 2015. On October 1, 2013, the Company granted 1,500 shares to each non-employee director pursuant to the 2013 Non- Employee Director Restricted Stock Plan. A total of 7,500 restricted shares were granted and the shares vested in six months from the date of grant. The Company recognized no compensation expense in fiscal year 2015 and there was no unrecognized compensation expense related to the 7,500 shares of restricted stock at April 30, 2015. F-34 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE N - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of unaudited quarterly financial data for fiscal year 2015: 2015 Net sales Income before income tax expense First Quarter Second Quarter Third Quarter Fourth Quarter $ 54,947,477 $ 61,533,519 $ 53,702,613 $ 60,053,552 15,566 723,254 562,123 403,518 Net income 16,810 146,429 564,080 176,093 Earnings per share $ 0.00 $ 0.04 $ 0.14 $ 0.04 Basic Earnings per share $ 0.00 $ 0.04 $ 0.14 $ 0.04 Diluted Total shares- Basic 4,028,535 4,044,240 4,054,146 4,061,504 Total shares- Diluted 4,105,627 4,120,178 4,116,015 4,117,600 F-35 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE N - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued The following is a summary of unaudited quarterly financial data for fiscal year 2014: 2014 Net sales Income (loss) before income tax (benefit) expense First Quarter Second Quarter Third Quarter Fourth Quarter $ 56,166,061 $ 56,577,287 $ 54,175,196 $ 55,567,396 1,240,339 949,811 (130,182) 724,856 Net income 967,464 784,654 743,794 422,779 Earnings per share Basic Earnings per share Diluted $ 0.24 $ 0.20 $ 0.19 $ 0.11 $ 0.24 $ 0.19 $ 0.18 $ 0.10 Total shares- Basic 3,961,232 3,961,232 3,966,814 3,988,923 Total shares- Diluted 4,011,001 4,037,627 4,088,695 4,107,736 NOTE O – LITIGATION In November 2008, the Company received notice of an Equal Employment Opportunity Commission (“EEOC”) claim based on allegations of discrimination, sexual harassment, and retaliation filed by Maria Gracia, a former employee. On December 5, 2008, Ms. Gracia’s employment as an assembly supervisor was terminated after she knowingly permitted an assembly line to run leaded boards in a lead-free room with lead-free solder, contrary to the customer’s specifications and prohibited by Company policy. The use of lead-free solder for leaded components can lead to devices that fail and significant penalties to the Company and customers from regulatory bodies. The parts were quarantined and were not shipped. Ms. Gracia openly admitted to permitting this to take place. The EEOC declined to pursue Ms. Gracia’s charges against the Company but on July 26, 2011, Ms. Gracia received a right to sue letter from the EEOC. On October 25, 2011, Ms. 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. The Complaint alleged claims that Ms. Gracia was subject to discrimination, harassment, and hostile work environment based on sex and national origin. In the Complaint, Ms. Gracia alleged that her supervisor engaged in a pattern of unwanted sexual advances and that he sent her emails that were offensive to her gender and national origin. Further, the Complaint also alleged that the Company retaliated by terminating Ms. Gracia’s employment after she filed her initial charge of F-36 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2015 and 2014 NOTE O – LITIGATION - Continued discrimination with the EEOC. Ms. Gracia sought relief in the form of (a) damages sufficient to compensate her injuries; (b) attorney’s fees; (c) costs of the action; (d) and equitable remedies. In the court’s October 25, 2013 ruling on the Company’s Motion for Summary Judgment, the court limited plaintiff’s claims to two: (1) hostile work environment caused by gender (sexual harassment), and (2) retaliation. In December 2014, a jury trial found in favor of the Company with respect to the first claim and for the plaintiff with respect to the second claim, awarding plaintiff damages totaling $307,000. In post-trial motions, the judge reduced the verdict to $300,000. The judge will now consider plaintiff’s claim for equitable remedies and attorneys’ fees and costs, along with the Company’s motion for sanctions, as the plaintiff introduced knowingly altered documents as evidence during the trial which had not been previously disclosed. It is uncertain when these claims will be ruled upon by the court. The plaintiff has offered to accept $607,000 in settlement of all claims. The Company has rejected that offer and intends to await the final judgment. The Company has not waived its right to appeal that judgment and will determine its next steps once it is entered. As of April 30, 2015, the Company has accrued $300,000 in recognition of the jury’s verdict and the judge’s subsequent adjustment to that verdict. Even with a favorable ruling for the Company with regard to sanctions, the Company believes it will be required to pay plaintiff a minimum of $300,000. While the plaintiff has offered to accept $607,000 in settlement of all claims, it is not possible to predict where, within the range of $300,000 to $607,000 that the judge may enter the judgment. From time to time the Company is involved in legal proceedings, claims or investigations that are incidental to the conduct of the Company’s business. In future periods, the Company could be subjected to cash cost or non-cash charges to earnings if any of these matters are resolved on unfavorable terms. However, although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including management’s assessment of the merits of any particular claim, the Company does not expect that these legal proceedings or claims will have any material adverse impact on its future consolidated financial position or results of operations. F-37 

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