SigmaTron International Inc. Annual Report 2016

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FY2016 Annual Report · SigmaTron International Inc.

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SIGMATRON INTERNATIONAL, INC. 2016 ANNUAL REPORT

AGILE. DIVERSE. GLOBAL.

SIGMATRON (NASDAQ: SGMA) is an electronic manufacturing services (EMS) provider of printed circuit

board assemblies and completely assembled electronic products to customers in eight diverse end-user

markets through a global network of seven facilities located in the United States, Mexico, China and Vietnam.

Focused on service excellence, our scale allows us to embrace the most complex projects, yet our agility

and technical versatility ensures we partner closely with customers to provide personalized program

support from beginning to end. We offer superior EMS value, from design and engineering, integrated

real-time information and process systems, to manufacturing and test.

Our high-value, supply chain team provides component sourcing at internationally-competitive pricing

with expertise in green, regulatory compliance and documentation services.

TO OUR STOCKHOLDERS In fiscal 2016, despite what some experts refer to as the most
challenging economic environment in the last 30 years, SigmaTron International had
a number of banner achievements. Agile. Diverse. Global. – the three words used by
financial analysts to describe SigmaTron’s strengths – characterized every level of the
organization in FY16 and led to a number of noteworthy gains in our long-term strategy.

As a direct result of our focused strategy, strong
fundamentals and conservative methods of execution,
we saw our third consecutive year-over-year increase
in sales in FY16, with a 10% increase in revenues (up
$23 million) to $254 million, as compared to the same
period last year. Net Income increased along with profits
and pre-tax income in FY16, after dipping historically in
FY15 from FY14. The positive financial trends we saw
emerging for the first half of this fiscal year (and which
showed early indicators of being sustained) softened for
the second half, mirroring the same trend the company
experienced in FY15. Despite the weakness in the second
half of FY16, we are quite pleased to report these historic
year-end financial results.

a steady hand and seek every opportunity to refine
and execute on our strategy in FY17 and beyond.

AGILE. DIVERSE. GLOBAL.
In both times of uncertainty and in resolute periods,
we plan to leverage our three operating strengths:
Agile. Diverse. Global. – attributes cited by the financial
analysts who follow us and the customers who hire us.
Throughout FY16, our strategy focused on mid-, and
long-term value creation supported by consistently
exercised operational discipline and our deepened,
core EMS expertise to reflect our long-term value in
the diverse markets we serve. This focus will continue
in FY17 and for the foreseeable future.

While the difficult financial and economic
environment – coupled with external factors affecting
the manufacturing sector in particular – present clear
challenges for our business, we will continue to apply

STRENGTHENING CUSTOMER RELATIONSHIPS
In FY16, SigmaTron rigorously pursued and won new
customer programs combined with long-awaited
customer programs that emerged from the pipeline.

O U R D I V E R S E M A R K E T S S E R V E D

Industrial
Electronics

Medical
Life Sciences

Consumer
Electronics

Gaming

Appliance

Fitness

Tele-
communications Equipment

Semiconductor

2 0 16 SIGMATRON INTERNATIONAL 1

G R O W T H
In Industrial
Electronics Customers:

2 0 1 2
Sales Dollars:

$63

M
L
L
O
N

2 0 1 6
Sales Dollars:

$76

2 0 1 2
Customers:

2 0 1 6
Customers:

WE STRIVE to constantly improve our process and training of our

people in order to meet or exceed the high expectations
set by our customers, stockholders and Board of
Directors alike. Our work as a committed EMS

provider is highlighted by three customer programs found on the pages of this report
and it testifies to our investment in, and commitment to, the customers we serve –
from innovative startup organizations to a 105-year-old globalized, category leader.

• We offer our customers A G I L E resources in the diverse markets they represent from our
personalized network of design and engineering centers, to flexibility among our plants
and procurement professionals to expanded warehouses in three cities. Our team takes a
systematic approach to controlling customers’ costs and adding value by flexibly sourcing
and pricing inventory components through our International Procurement Office (IPO)
and delighting customers with enhanced visibility and technology-driven shop floor
controls. Our agility in late program stages was demonstrated in our enhanced test
automation, in-circuit and functional test capabilities launched throughout FY16 in each
division across the board.

• Companywide, we unlocked opportunities by deepening our commitment to customers
in the D I V E R S E markets we serve. As reflected in our financial results, our years-long
strategy to further balance our market mix achieved a satisfying result in FY16 with the
signing of new and noteworthy industrial and medical/life sciences accounts. We also
began to layer-on business in the gaming sector, adding a tailwind to our highly-valued
business in consumer electronics, fitness and appliance customers – affirmations of our
long-term strategy to further grow revenues and scale our profit margins.

• We offer customers a G L O B A L footprint that covers areas where growth has occurred
in the past and will occur again. In the two decades spent building SigmaTron as a
public company, we served our customers by acting on opportunity, prudently managing
resources and collaborating to solve problems effectively.

As a direct result of successes across existing and new markets, we are entering FY17
on solid footing, and will maintain a measured, modestly optimistic view as we look
to the year ahead.

SIGMATRON UNITED STATES

Elk Grove Village, Illinois. Elk Grove Village, the company’s headquarters and a key
manufacturing site, contributed by double digits to the company’s revenue gains for the
current fiscal year, by winning new accounts and expanding business across the board. In a
paradigm shift led by Central Sales, the operation’s customers are engaging earlier and more
comprehensively to programs, a factor that is translating to sales. For a second consecutive
year, Elk Grove expanded its Surface Mount Technology (SMT) capabilities for a total of six
lines in FY16, and began delivering more commercial box-build products to industrial and
medical accounts than ever before. In addition, customers see as a plus, the plant’s
geographic proximity to Spitfire Controls Design and Engineering Center in Elgin, Illinois.

2 SIGMATRON INTERNATIONAL 2016

2 0 1 2

Sales Dollars:

$63

2 0 1 6

Sales Dollars:

$76

2 0 1 2

Customers:

2 0 1 6

Customers:

AGILE. DIVERSE. GLOBAL.

S &C ELEC TRI C COMPANY, a 105-year-old
global leader in sophisticated power-equipment
and services, signed SigmaTron International, Inc.
(SII) as its EMS provider to help innovate
(next-generation efﬁciency and reliability) for
specialized self-healing equipment in use by its
customers worldwide.

Throughout FY14 and extending into FY16,
the SigmaTron and S&C teams optimized the
program’s design to meet the highest standards
of Design for Manufacturability and Design for
Test and implemented those recommendations
for the TripSaver® II Cutout-Mounted Recloser,
one of S&C’s newest innovations. Led by a central
contact point, paired SII and S&C teams converged

from their respective ofﬁces in four, in-common
global locations: Union City and Alameda in
California; Elk Grove Village and Chicago in
Illinois, to innovate program controls that met
strict quality standards in the manufacture of
these subassemblies.

SII’s International Procurement Ofﬁce in Taipei,
Taiwan, acquired an array of materials efﬁciently
and cost-effectively, meeting the power industry’s
strict design and regulatory standards.

Success was manifest in the late stages as the
program underwent SII’s rigorous quality testing,
with a high percentage of positive outcomes that
sped the way to on-budget, on-time delivery.

20 16 SIGMATRON INTERNATIONAL 3

While Elk Grove remains a plant of choice for low-to-
mid-volume work, higher-volume work is expanding
amidst advancements in personalized servicing and
program monitoring technologies. Elk Grove supported
other SigmaTron divisions throughout FY16 by
migrating customer programs requiring lower cost
structures to our Suzhou and Acuña operations.
These and other noteworthy opportunities are expected
to keep the company’s project pipeline replenished in
FY17 and beyond.

Spitﬁre Controls Design and Engineering Center,
Elgin, Illinois. For FY16, Spitfire’s design and
engineering team made additional strides for two
Fortune 500 industrial customers in the industrial food
and marine sectors, with the Center’s services steadily
being integrated in SigmaTron’s plants across the
organization, especially Elk Grove Village and Suzhou.
Beginning in FY15 and extending to the current fiscal
year, Spitfire offered 3D imaging and printing to New
Product Introduction (NPI) to optimize program
commercialization, drive innovation and reduce costs.
The Center also began working with the Elk Grove
operation to serve a third new industrial program –
a cloud-connected module for a residential, well
pump product. Responding to design and engineering
needs, Spitfire expanded employee access to advanced
technology training that includes CAD-CAM, design
automation, simulation and data management.

Union City, California. Continuing as a key, high-
technology hub for SigmaTron, Union City leveraged
its strengths throughout FY16 as an early-stage
development provider of Design for Manufacturability,
Design for Test and New Product Introduction services,
helping further differentiate the operation, especially
where “Made in the USA” labeling and local services

are of high value to complex programs in the medical,
industrial and high-tech markets. With service to
customers in all market sectors that we serve, Union
City also led expansion in FY16 of the new programs
in the gaming sector, leveraging nearly two decades
of the Company’s prior experience. Additionally,
the operation’s early-stage design and engineering
development has proved to be a valuable fit with the
innovative services demanded by the Internet of Things
(IoT). Throughout FY17 and beyond, Union City will
continue to support the transition of EMS programs to
Mexico, Vietnam and China for customers who benefit
by a lower-cost, yet high tech, labor mix.

SIGMATRON MEXICO

Acuña, Chihuahua and Tijuana, Mexico. In recent
fiscal years, our Acuña operation has proven to be
critical to the Company’s global footprint, linking the
U.S. with a lower-cost region to meet customer’s cost
objectives, product maturity and life cycle, as well as to
maintain competitive edge. As with our other operations
in the region, Acuña has balanced its labor costs.
However, should labor pressures intensify in the near-
term, our experienced management team is prepared to
respond with process efficiencies and other strategies
to minimize the impact. Again in FY16, our high-
volume production experience modeled best practices
to other regions. This is manifest in our series of new
launches for Kent Displays Inc. (KDI), the global leader
of patented e-WRITER display technology, (see page
seven of this report), a program awarded on the merits
of Acuña’s technologies, quality and customer service.
Customers and other divisions also benefit by Acuña’s
smooth border crossing – serving as a gateway to other
points in the U.S.

4 SIGMATRON INTERNATIONAL 2016

AGILE. DIVERSE. GLOBAL.

PE T ZIL A , INC . A consumer electronic
company headquartered in California’s
renowned Silicon Valley selected SigmaTron
International, Inc. (SII) as OEM to manufacture
its innovative platform of technology solutions
that promote the social, behavioral and
healthfulness of pets. Beginning in our Union
City, California facility, SII collaborated with
Inﬁnite Vision’s local product design engineers
to deliver Design for Manufacturability (DFM)
standards and New Product Introduction (NPI)
essential to the initial on-time market launch
of the Petzi Treat Cam.™ Our International
Procurement Ofﬁce secured the best raw

materials and met regulatory compliance ahead
of volume-manufacturing runs that transferred
to our nearby Tijuana, Mexico, facility. Working
with SII the customer achieved FDA pet food
requirements and risk mitigation at network
connectivity levels. Our customer-focused,
IT Systems added value and included Exact
Macola ES ERP software with our iScore™
suite of supply chain management tools, and
the Score™ customer portal and its live-time
inventory status. With retail distribution
growing, SII is currently manufacturing a next-
generation of Petzi product expected to launch
in ﬁscal 2017.

20 16 SIGMATRON INTERNATIONAL 5

G R O W T H
In Medical/Life
Sciences Customers:

2 0 1 2
Sales Dollars:

M
L
L
O
N

2 0 1 6
Sales Dollars:

$11

2 0 1 2
Customers:

2 0 1 6
Customers:

IN FY16, Chihuahua was awarded new programs with a major appliance

customer who, along with existing customers, grew the operation.
The operation also drove an increase in its inventory turns as
compared with the prior year. Through an investment in new

SMT technology, Chihuahua increased manufacturing capacity by 40% with the resultant
new program revenue streams continuing through the remainder of FY16, on into FY17
and beyond. The operation also added Equipment Automated Optical Inspection (AOI)
technology to drive next-level quality and processes.

Tijuana continued collaborations with other regional operations to serve a growing
number of customers in diverse markets that include telecommunications, industrial
electronics, gaming and medical/life sciences. The operation worked towards achieving
ISO/TS 16949, the quality management system required for the design and manufacturing
of automotive products. In FY16 as in the past, Tijuana offered strategic support to various
Union City customers seeking lower-cost manufacturing, especially as volumes ramped
up. To drive quality, efficiency and productivity, Tijuana also invested in professional
training for employees at all levels and addressed labor-rate pressures by reducing material
costs, and improving productivity, work-flow and automation.

SIGMATRON ASIA

Suzhou, China. Suzhou focused on growth strategies aimed at the local Chinese market
and acquiring customers who value the importance of the quality and service as they
grow their businesses domestically and globally. Suzhou offers important Design for
Manufacturability support to other divisions. With the achievement of ISO 13485: 2003
medical certification, the operation launched planning and design of a domestic
customer’s high performance, neuro-modulator used to treat Parkinson’s disease.
With manufacturing projected for FY17, China will produce this special PCBA-assembly
for a device that is implanted into the human body – another first for SigmaTron.

In FY16, China enhanced both quality and productivity using new, shop floor controls
that link with tracking during manufacturing and test. With nine SMT lines, the Suzhou
facility continued to invest capital in specialized equipment to support customers in
diverse markets including industrial, gaming, consumer, appliance and fitness. Other
gains were netted by merging our International Procurement Office in Taipei, Taiwan with
our customers’ sub-tier suppliers in Asia. China also launched a “lean” approach to test
program development and test equipment design surpassing self-sufficiency goals set the
prior fiscal year with 80% of the facility’s projects utilizing internally-designed equipment.
Suzhou also streamlined and extended the development of in-house, functional test software,
fixture circuitry design and functional fixture fabrication, each performing at new levels.

Ho Chi Minh City, Vietnam. Acquired by SigmaTron in FY12, our strategically situated
Ho Chi Minh City facility offers over 10 years operating experience to customers. Amidst
current, well-publicized benefits of manufacturing in Vietnam, the plant’s efficiency and
capacity nearly doubled this fiscal year, a stride attributable to our highly experienced
management and employee teams. In addition to programs that benefit by high-volume

6 SIGMATRON INTERNATIONAL 2016

2 0 1 2

Sales Dollars:

2 0 1 6

Sales Dollars:

$11

2 0 1 2

Customers:

2 0 1 6

Customers:

AGILE. DIVERSE. GLOBAL.

KENT DISPLAYS, INC. (KDI) An innovative,
award-winning global leader of patented
e-WRITER display technology selected
SigmaTron International, Inc. (SII) in FY15 to
source materials and expand the manufacturing
of its product lines into its key target markets
of consumer retail and OEM. KDI’s products
promote the act of human communication.
Affordable and requiring almost no power,
this LCD writing surface creates a natural
pen-on-paper expression that delights customers.

Initially, KDI’s manufacturing began beneﬁtting
from our Acuña, Mexico’s cost-structure,
speciﬁcally its high-volume manufacturing lines,
with other gains netted from its proximity to
KDI customers in North America. With millions
of customers in 30 countries and awards that
include “Exporter of the Year,” KDI will continue

to rely on SII’s systems to net production
reliability, scalability and 24/7 visibility, qualities
often associated with Tier One EMSs.

Augmenting KDI’s China supply base, superior
value was gained through SII’s International
Procurement Ofﬁce (IPO) in Taipei, Taiwan.
SII’s supply chain, program management and
manufacturing teams in the U.S., Mexico and
Taiwan drove unprecedented manufacturing
and sourcing efﬁciencies — key factors in KDI’s
on-time market launches of Boogie Board® Jot,
Scribble n’ Play™ and Play n’ Trace.™ With FY17
programs in the pipeline, KDI will continue to rely
on SII to deliver shortest manufacturing times,
while gaining complete control over its supply
base and processes as the business achieves
new growth in target markets.

20 16 SIGMATRON INTERNATIONAL 7

As a direct result of this clearly focused, decades-
long strategy, strong fundamentals and methodical
execution, SigmaTron continues to run a tight ship.
As foreshadowed last fiscal year, we implemented
cost saving measures, launched process and training
enhancements in FY16 at a level not seen in the
company’s history. We will continue to focus sourcing,
manufacturing and pricing our services to reflect long-
term value in the attractive and diverse markets we
serve. Net/net, evidences of SigmaTron’s operating
strengths – Agile. Diverse. Global. – are qualities
that dovetail with our One Source. Global Options.®
positioning. We will continue to perform in the face of
adverse economic circumstances and conservatively
manage the risks and prospects that will lead us to
future growth.

Commitment to our long-term strategy has been a
complex undertaking made possible by the determinism
and solid work relations among our stakeholders.
I express my gratitude to our committed management
and employee teams, customers and stockholders,
banking and supply chain partners, professional firms
and our Board of Directors whose confidence in our
EMS solutions has led us to this point.

Sincerely,

Gary R. Fairhead
President and Chief Executive Officer
SigmaTron International, Inc.
August 12, 2016

production, the operation signed a major new customer
that helped drive new levels of plant production quality,
while significantly improving margin percentages. In
FY16, the facility also launched software that automated
both warehouse and component traceability, while
enhancing inventory turns.

Taipei, Taiwan, International Procurement Ofﬁce.
For FY16, our International Procurement Office (IPO)
in Taipei again served as a strategic and critical resource
to our global operations by sourcing at internationally
competitive pricing from channels around the world.
From forecasting and planning to representation to
valued vendors in Southeast Asia, SigmaTron’s most
sophisticated customers are increasingly reliant on our
IPO. Among its core competencies, our IPO expertly
manages 10 dimensions of supply chain risk concerns
from a mature suite of Supply Chain Management tools
and strategies, vis–à–vis optimized suppliers, logistics,
Material Requirements Planning (MRP) adjustment,
shipment tracking/insurance, and inventory offerings.

Our IPO’s experts also helped our customers to
attain full regulatory compliance through our Green
Compliance Service Center (GCSC). SigmaTron’s
compliance experts also provide critical leadership
to maintain product marketability amidst regulations
(and recast regulations) in the electronics industry,
including those that fall under the scope of RoHS, as
well as compliance with Waste Electrical and Electronic
Equipment (WEEE) among other standards.

MEASURED CONFIDENCE IN THE YEAR AHEAD
Looking ahead, our momentum is strong as we look
to FY17. While there is no single factor to offset the
manufacturing slowdown in the U.S., the SigmaTron of
today is well positioned to pursue growth opportunities
in every dimension of our global business.

8 SIGMATRON INTERNATIONAL 2016

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, 2016.

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

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. (cid:134)Yes (cid:58) 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. (cid:134)Yes (cid:58) 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.
(cid:58) Yes (cid:134) 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
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). (cid:58) Yes (cid:134) 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. (cid:58)

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 (cid:134) Accelerated filer (cid:134) Non-accelerated (cid:134) Smaller reporting company (cid:58)

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act.) (cid:134)Yes (cid:58) No

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as
of October 31, 2015 (the last business day of the registrant’s most recently completed second fiscal quarter) was
$24,574,354 based on the closing sale price of $6.62 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, 2016 was
4,183,955.

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections or portions of the definitive proxy statement of SigmaTron International, Inc., for use in
connection with its 2016 annual meeting of stockholders, which the Company intends to file within 120 days of the
fiscal year ended April 30, 2016, are incorporated by reference into Part III of this Form 10-K.

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
10
16
16
17
18

19
19

29
29

29
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

ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND

ITEM 14.

DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART I

PART II

PART III

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

SIGNATURES

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

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. In some instances the Company manufactures the completed finished product for its
customers.

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 an International Procurement Office (IPO) in 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 will continue to serve the
Company well as its customers continuously evaluate their supply chain strategies.

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 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:

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 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 procures material from major manufacturers and distributors of electronic parts all over the
world.

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.

Warehousing and Distribution: The Company provides both 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. Those include, but are 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, 2016, the Company
had approximately 125 active customers ranging from Fortune 500 companies to small, privately held
enterprises.

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
2016
%

Fiscal
2015
%

50.1

49.9

30.1

31.2

7.3

4.2

2.0

4.5

1.0

0.8

6.7

4.7

2.9

2.6

1.7

0.3

100% 100%

For the fiscal year ended April 30, 2016, the Company’s largest two customers, Electrolux and Whirlpool Inc.,
accounted for 35.2% and 10.6%, respectively, of the Company’s net sales. For the fiscal year ended April 30,
2015, Electrolux and Whirlpool Inc., accounted for 36.8% and 9.9%, respectively, of the Company’s net sales.
The Company believes 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 4 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 838 employees at April 30, 2016. 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
186 employees at April 30, 2016. 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 474 employees at April 30, 2016. 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.

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 487 employees
as of April 30, 2016. 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 309 employees as of April 30,
2016.

The Company provides funds for salaries, wages, overhead and capital expenditure items as necessary to
operate its wholly-owned Mexican, Vietnamese 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.
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, 2016 resulted in a net foreign currency loss of $59,000 compared to a net foreign currency gain
of $40,000 in the prior year. In fiscal year 2016, the Company paid approximately $52,000,000 to its foreign
subsidiaries.

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 will continue to be indefinitely
reinvested, no deferred tax liability has been recorded. The cumulative amount of unremitted earnings for
which U.S. income taxes have not been recorded is $12,588,000 as of April 30, 2016. 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 recorded tax expense of $643,708 related to the inability to realize the
tax benefit recorded in fiscal year 2014 for potential foreign tax credits. The Company’s estimate of cumulative
taxable income during the foreign tax credit carryforward period was 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, 2016 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 Company’s foreign subsidiaries operations is the U.S. dollar. Intercompany
transactions are eliminated in the consolidated financial statements.

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 compete on
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 being sold into the European Union. 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 all listed SVHCs (substances
of very high concern). 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 May 1, 2016, the Company filed Form SD with the Securities and
Exchange Commission stating the Company’s supply chain remains DRC conflict undeterminable.

The Company’s costs of compliance with environmental laws, including conflict mineral reporting, is estimated
to be a total of approximately $750,000 for the three most recently completed fiscal years ending April 30,
2016. 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.

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, 2016 and 2015 was approximately
$167,290,000 and $142,520,000, respectively. The Company anticipates a significant portion of the backlog at
April 30, 2016 will ship in fiscal year 2017. 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 2,790 full-time employees as of April 30, 2016, including 186 engaged
in engineering or engineering-related services, 2,226 in manufacturing and 378 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 December 31, 2018. 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, 2018. 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 February 28, 2017.

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.

Executive Officers of the Registrant

Name

Age

Position

Gary R. Fairhead

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

Chief Financial Officer, Vice President of Finance, Treasurer and Secretary

since February 1994. Director of the Company since August 2011.

Gregory A. Fairhead

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

Vice President, Director of Supply Chain and Assistant Secretary since

February 1994.

Daniel P. Camp

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

Executive Vice President, West Coast Operations since 2005. Mr.

Upadhyaya was the Vice President of the Fremont Operations from 2001
until 2005.

Hom-Ming Chang

Vice President, China Operations since 2007. Vice President - Hayward
Materials / Test / IT from 2005 - 2007. Vice President of Engineering
Fremont Operation from 2001 to 2005.

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 pledged 65% of its equity ownership interest in some of its foreign entities. The facility
allows the Company to choose among interest rates at which it may borrow funds: the bank fixed rate of two
and one quarter percent plus one percent (effectively 3.25% at April 30, 2016) or LIBOR plus two and one
quarter percent (effectively 2.875% at April 30, 2016). Interest is paid monthly. Under the senior secured
credit facility, the Company may borrow up to the lesser of (i) $30,000,000 or (ii) an amount equal to a
percentage of the eligible receivable borrowing base plus a percentage of the inventory borrowing base
(collectively, “Borrowing Base”), which cannot exceed 50% of combined eligible receivables and inventory. In
January 2016, the existing senior credit facility was modified, including increasing the amount available under
the Borrowing Base calculation and extending the term of the facility through October 31, 2018. The bank fee
for the modification was $23,333 and is amortized over the term of the credit facility agreement. As of April
30, 2016, there was a $20,014,069 outstanding balance and $3,630,035 of unused availability under the credit
facility agreement compared to a $27,416,793 outstanding balance and $2,583,207 of unused availability at
April 30, 2015. The Company is required to be in compliance with several financial covenants. At April 30,
2016, 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 2017 at the Company’s current
level of business. The Company has received forecasts from current customers for increased business that
would require additional investments in inventory. To the extent that these forecasts come to fruition, the
Company may need to raise capital from other sources of debt or equity. The Company engaged an investment
banker for the purpose of completing a capital raise during fiscal year 2016 and subsequently terminated that
agreement. The Company plans to evaluate alternatives for raising capital in fiscal year 2017.

In addition, in the event the Company desires to expand its operations, its business grows more rapidly than
expected, the current economic climate deteriorates, customers delay payments, or the Company desires to
consummate an acquisition, additional financing resources may be necessary in the current or future fiscal
years. There is no assurance that the Company will be able to obtain equity or debt financing at acceptable
terms, or at all, in the future. There is no assurance that the Company will be able to retain or renew its credit
agreements in the future, or that any retention or renewal will be on the same terms as currently exist.

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 environments 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.

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 61.9% and 62.5% of net sales for the fiscal years
ended April 30, 2016 and 2015, respectively. For the year ended April 30, 2016, two customers accounted for
35.2% and 10.6%, respectively, of net sales of the Company, and 6.5% and 2.4%, respectively, of accounts
receivable at April 30, 2016. For the year ended April 30, 2015, two customers accounted for 36.8% and 9.9%,
respectively, of net sales of the Company and 9.6% and 5.5%, respectively, of accounts receivable at April 30,
2015. 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.

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
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.

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.

Adverse market conditions could reduce our future sales and earnings per share.

Uncertainty over the erosion of global consumer confidence amidst concerns about volatile energy costs,
geopolitical issues, the availability and cost of credit, declining asset values, inflation, rising unemployment,
and the stability and solvency of financial institutions, financial markets, businesses, and sovereign nations has
slowed global economic growth and resulted in recessions in many countries, including in the United States,
Europe and certain countries in Asia over the past several years. The economic recovery of recent years is
fragile and recessionary conditions may return. Any of these potential negative economic conditions may
reduce demand for the Company’s customers’ products and adversely affect the Company’s sales.
Consequently, the Company’s past operating results, earnings and cash flows may not be indicative of the
Company’s future operating results, earnings and cash flows.

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.

Approximately 15.0% of the total non-current consolidated assets of the Company are located in foreign
jurisdictions outside the United States as of April 30, 2016 and 2015.

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, 2016 resulted in a net foreign currency loss of approximately $59,000 compared to
a net foreign currency gain of $40,000 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% of its
workforce for both fiscal years 2016 and 2015. Although the Company believes its labor relations 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
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.

Any litigation, even where a claim is without merit, could result in substantial costs and diversion of
resources.

In the past, the Company has been notified of claims relating to various matters including intellectual property
rights, contractual matters, labor issues or other matters arising in the ordinary course of business. In the event
of any such claim, the Company may be required to spend a significant amount of money and resources, even
where the claim is without merit. Accordingly, the resolution of such disputes, even those encountered in the
ordinary course of business, could have a material adverse effect on the Company’s business, consolidated
financial conditions and results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

At April 30, 2016, 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

Leased

solutions

Acuna, Mexico

115,000 Electronic and electromechanical manufacturing

Owned **

solutions

Chihuahua, Mexico

113,000 Electronic and electromechanical manufacturing

Leased

solutions

Tijuana, Mexico

112,100 Electronic and electromechanical manufacturing

Leased

solutions

Ho Chi Minh City,
Vietnam

24,475 Electronic and electromechanical manufacturing

Leased

solutions

Del Rio, TX

44,000 Warehousing and distribution

Leased

Taipei, Taiwan

4,685 International procurement office

Elgin, IL

45,000 Design services

San Diego, CA

30,240 Warehousing and distribution

Leased

Owned

Leased

*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 and San Diego, 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 San Diego, California property
expires August 2019. The lease agreement for the Union City, California property expires March 2021. The
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. 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. 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 December 2014, a jury found for the Company on the claim regarding discrimination, harassment and hostile
work environment but awarded plaintiff damages regarding the retaliation/wrongful discharge claim totaling
$307,000. In post-trial motions, the judge reduced the verdict to $300,000. Subsequently, on September 17,
2015, the court ruled on plaintiff’s Claim for Equitable Relief, awarding the plaintiff an additional $74,478.
Including the equitable relief award, the judgment against the Company is currently $374,478. Along with the
grant of equitable relief to the plaintiff, the court denied the Company’s motion for sanctions. The judge has yet
to make a ruling on attorney’s fees and costs.

On October 16, 2015, the Company appealed the judgment to the Seventh Circuit Court of Appeals.

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.

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, 2016 and 2015.

Common Stock as Reported
by NASDAQ

Period

High

Low

Fiscal 2016
Fourth Quarter
Third Quarter
Second Quarter
First Quarter

Fiscal 2015
Fourth Quarter
Third Quarter
Second Quarter
First Quarter

$ 7.80
7.91
7.34
9.12

$ 8.08
8.24
11.49
12.44

$ 5.85
6.10
5.02
6.11

$ 5.84
5.55
6.29
8.12

As of July 22, 2016, there were approximately 40 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 2,965 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.

On May 1, 2015, the Company sold 74,000 shares of its common stock to three individual investors in a private
offering, pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), at $7.00
per share, representing an approximate average of the market price of the Company’s common stock in the
public market during the immediately preceding thirty day period. The transaction resulted in $518,000 of
proceeds from the sale of restricted stock. The stock was unregistered and may be sold only upon registration
or the availability of an exemption from registration under the Securities Act.

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
Management and Related Stockholders Matters” as well as the Company’s audited financial statements and
notes thereto, including Note N, 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

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.

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, 2016 and 2015.

Revenues in fiscal year 2016 increased compared to the same period in the prior year. The increase was the
result of sales to existing customers, new customers and from new programs with various customers. However,
the Company experienced a decrease in revenue in the second half of fiscal year 2016 compared to the first six
months of fiscal year 2016. The Company believes the decrease is the result of the continuing stagnant global
economy. The Company remains optimistic, however, that full-year revenues in fiscal year 2017 will continue
to increase.

Critical Accounting Policies:

Management Estimates and Uncertainties - The preparation of consolidated financial statements in

conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Significant estimates made in
preparing the consolidated financial statements include depreciation and amortization periods, the allowance for

doubtful accounts, reserves for inventory and valuation of long-lived assets. Actual results could materially
differ from these estimates.

Revenue Recognition - Revenues from sales of the Company's electronic manufacturing services

business are recognized when the finished good product is shipped to the customer. In general, and except for
consignment inventory, it is the Company's policy to recognize revenue and related costs when the finished
goods have been shipped from its facilities, which is also the same point that title passes under the terms of the
purchase order. Finished goods inventory for certain customers is shipped from the Company to an independent
warehouse for storage or shipped directly to the customer and stored in a segregated part of the customer’s own
facility. Upon the customer’s request for finished goods inventory, the inventory is shipped to the customer if
the inventory was stored off-site, or transferred from the segregated part of the customer’s facility for
consumption or use by the customer. The Company recognizes revenue upon such shipment or transfer. The
Company does not earn a fee for such arrangements. The Company from time to time may ship finished goods
from its facilities, which is also the same point that title passes under the terms of the purchase order, and
invoice the customer at the end of the calendar month. This is done only in special circumstances to
accommodate a specific customer. Further, from time to time customers request the Company hold finished
goods after they have been invoiced to consolidate finished goods for shipping purposes. The Company
generally provides a warranty for workmanship, unless the assembly was designed by the Company, in which
case it warrants assembly/design. The Company does not have any installation, acceptance or sales incentives
(although the Company has negotiated longer warranty terms in certain instances). The Company assembles
and tests assemblies based on customers’ specifications. Historically, the amount of returns for workmanship
issues has been de minimis under the Company’s standard or extended warranties.

Inventories - Inventories are valued at the lower of cost or market. Cost is determined by an average

cost method and the Company allocates labor and overhead to work-in-process and finished goods. In the event
of an inventory write-down, the Company records expense to state the inventory at lower of cost or market.
The Company establishes inventory reserves for valuation, shrinkage, and excess and obsolete inventory. The
Company records provisions for inventory shrinkage based on historical experience to account for unmeasured
usage or loss. Actual results differing from these estimates could significantly affect the Company’s inventories
and cost of products sold. The Company records provisions for excess and obsolete inventories for the
difference between the cost of inventory and its estimated realizable value based on assumptions about future
product demand and market conditions. For convenience, the Company reduces inventory cost through a contra
asset rather than through a new cost basis. Upon a subsequent sale or disposal of the impaired inventory, the
corresponding reserve is relieved to ensure the cost basis of the inventory reflects any reductions. Actual
product demand or market conditions could be different than that projected by management.

Goodwill - Goodwill represents the purchase price in excess of the fair value of assets acquired in

business combinations. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 350, “Goodwill and other Intangible Assets,” requires the Company to assess goodwill and other
indefinite-lived intangible assets for impairment at least annually in the absence of an indicator of possible
impairment and immediately upon an indicator of possible impairment. The Company is permitted the option
to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it
is more likely than not that the fair value of any reporting unit is less than its corresponding carrying value. If,
after assessing the totality of events and circumstances, the Company concludes that it is not more likely than
not that the fair value of any reporting unit is less than its corresponding carrying value, then the Company is
not required to take further action. However, if the Company concludes otherwise, then it is required to
perform a quantitative impairment test, including computing the fair value of the reporting unit and comparing
that value to its carrying value. If the fair value is less than its carrying value, a second step of the test is
required to determine if recorded goodwill is impaired. The Company also has the option to bypass the
qualitative assessment for goodwill in any period and proceed directly to performing the quantitative
impairment test. The Company will be able to resume performing the qualitative assessment in any subsequent
period. The Company performed its annual goodwill impairment test as of February 1, 2016 and determined no
impairment existed as of that date.

Intangible Assets - Intangible assets are comprised of finite life intangible assets including patents,
trade names, backlog, non-compete agreements, and customer relationships. Finite life intangible assets are
amortized on a straight line basis over their estimated useful lives of 5 years for patents, 20 years for trade

names, 1 year for backlog and 7 years for non-compete agreements except for customer relationships which are
amortized on an accelerated basis over their estimated useful life of 15 years.

Impairment of Long-Lived Assets - The Company reviews long-lived assets, including amortizable

intangible assets, for impairment. Property, machinery and equipment and finite life intangible assets are
reviewed whenever events or changes in circumstances occur that indicate possible impairment. If events or
changes in circumstances occur that indicate possible impairment, the Company’s impairment review is based
on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are
largely independent of other groups of its assets and liabilities. This analysis requires management judgment
with respect to changes in technology, the continued success of product lines, and future volume, revenue and
expense growth rates. The Company conducts annual reviews for idle and underutilized equipment, and
reviews business plans for possible impairment. Impairment occurs when the carrying value of the assets
exceeds the future undiscounted cash flows expected to be earned by the use of the asset group. When
impairment is indicated, the estimated future cash flows are then discounted to determine the estimated fair
value of the asset or asset group and an impairment charge is recorded for the difference between the carrying
value and the estimated fair value. As of April 30, 2016, there were no indicators of possible impairment of
long-lived assets.

Income Tax - The Company’s income tax expense, deferred tax assets and liabilities and reserves for
unrecognized tax benefits reflect management’s best assessment of estimated future taxes to be paid. The
Company is subject to income taxes in both the U.S. and several foreign jurisdictions. Significant judgments
and estimates by management are required in determining the consolidated income tax expense assessment.

Deferred income tax assets and liabilities are determined based on differences between financial reporting and
tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that are expected to be
in effect when the differences are expected to reverse. In evaluating the Company’s ability to recover its
deferred tax assets within the jurisdiction from which they arise, the Company considers all available positive
and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income,
tax planning strategies and recent financial operations. In projecting future taxable income, the Company
begins with historical results and changes in accounting policies, and incorporates assumptions including the
amount of future state, federal and foreign pre-tax operating income, the reversal of temporary differences, and
the implementation of feasible and prudent tax planning strategies. These assumptions require significant
judgment and estimates by management about the forecasts of future taxable income and are consistent with the
plans and estimates the Company uses to manage the underlying businesses. In evaluating the objective
evidence that historical results provide, the Company considers three years of cumulative operating income
and/or loss. Valuation allowances are established when necessary to reduce deferred income tax assets to an
amount more likely than not to be realized.

The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of
complex tax laws and regulations in a multitude of jurisdictions across its global operations. Changes in tax
laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management is not
aware of any such changes that would have a material effect on the Company’s results of operations, cash flows
or financial position.

A tax benefit from an uncertain tax position may only be recognized when it is more likely than not that the
position will be sustained upon examination, including resolutions of any related appeals or litigation processes,
based on the technical merits.

The Company adjusts its tax liabilities when its judgment changes as a result of the evaluation of new
information not previously available. Due to the complexity of some of these uncertainties, the ultimate
resolution may result in a payment that is materially different from its current estimate of the tax liabilities.
These differences will be reflected as increases or decreases to income tax expense in the period in which they
are determined.

Reclassifications - Certain reclassifications have been made to the previously reported 2015 financial

statements to conform to the 2016 presentation.

During the third quarter of fiscal year 2016, the Company began presenting all deferred tax assets and liabilities
as noncurrent on its Condensed Consolidated Balance Sheets as discussed further in New Accounting Standards
below.

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." ASU No. 2014-09 is a comprehensive new
revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or
services to a customer at an amount that reflects the consideration it expects to receive in exchange for those
goods or services. In August 2015, the FASB deferred the effective date of ASU No. 2014-09 by issuing ASU
2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date.” ASU No. 2015-14 defers
the effective date of ASU No. 2014-09 to annual reporting periods beginning after December 15, 2017 , with
early adoption permitted but not earlier than the original effective date. In March 2016, the FASB issued ASU
2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (ASU 2016-08), which
clarifies the implementation guidance of principal versus agent considerations. In April 2016, the FASB issued
ASU 2016-10, Identifying Performance Obligations and Licensing (ASU 2016-10), which clarifies the
identification of performance obligations and licensing implementation guidance. In May 2016, the FASB
issued ASU 2016-12, Narrow-Scope Improvements and Practical Expedients (ASU 2016-12), to improve
guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts
and contract modifications at transition. The effective date and transition requirements in ASU 2016-08, ASU
2016-10, and ASU 2016-12 are the same as the effective date and transition requirements of ASU 2015-14. The
Company has not yet selected a transition method and is currently evaluating the effect that the updated
standard will have on its consolidated financial statements and related disclosures.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern
(Subtopic 205-40)”. The amendments in this ASU provide guidance about management’s responsibility to
evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to
provide related footnote disclosures. An entity’s management should evaluate whether there are conditions or
events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going
concern within one year after the date that the financial statements are issued (or are available to be issued,
when applicable). ASU 2014-15 is effective for reporting periods beginning after December 15, 2016. Early
adoption is permitted. The Company elected early adoption of this ASU and it did not have a material impact on
its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015- 03, “Interest — Imputation of Interest (Subtopic 835-30) —
Simplifying the Presentation of Debt Issuance Costs.” ASU No. 2015-03 simplifies the presentation of debt
issuance costs by requiring that these costs related to a recognized debt liability be presented in the statement of
financial condition as a direct reduction from the carrying amount of that liability. ASU No. 2015-03 is
effective for annual reporting periods beginning after December 15, 2015, including interim periods within that
reporting period. ASU No. 2015-03 is required to be applied retrospectively to all periods presented beginning
in the year of adoption. The Company does not expect the impact of adoption of this ASU to have a material
impact on its consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of
Inventory”. ASU No. 2015-11 requires an entity that determines the cost of inventory by methods other than
last-in, first-out (LIFO) and the retail inventory method (RIM) to measure inventory at the lower of cost and net
realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less
reasonably predictable costs of completion, disposal and transportation. This amendment applies to all
inventory that is measured using the average costs or first-in first-out (FIFO) methods. This supersedes prior
guidance which allowed entities to measure inventory at the lower of cost or market, where market could be
replacement cost, net realizable value or net realizable value less an approximately normal profit margin. ASU
No. 2015-11 is effective for annual reporting periods, and interim periods therein, beginning after December 15,
2016. Prospective application is required. Early application is permitted as of the beginning of the interim or
annual reporting period. The Company does not expect the impact of the adoption of this ASU to have a
material impact on the Company’s consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet
Classification of Deferred Taxes”. ASU No. 2015-17 requires entities to classify deferred tax liabilities and
assets as noncurrent in a classified statement of financial position. ASU No. 2015-17 is effective for fiscal
years beginning after December 15, 2016, and interim periods within those annual periods. This update may be
applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods
presented. Early application is permitted as of the beginning of the interim or annual reporting period. The
Company elected to early adopt ASU 2015-17 during its third quarter of fiscal year 2016 on a retrospective
basis. Accordingly, it reclassified the current deferred taxes to noncurrent on the April 30, 2015 Consolidated
Balance Sheets, which decreased current deferred tax assets by $2,179,178, increased noncurrent deferred tax
assets by $365,935 and decreased noncurrent deferred tax liabilities by $1,813,244.

In February 2016, the FASB issued ASU No. 2016-02, “Leases”. The new standard establishes a right-of-use
(ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases
with terms longer than 12 months. Leases will be classified as either finance or operating, with classification
affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal
years beginning after December 15, 2018, including interim periods within those fiscal years. A modified
retrospective transition approach is required for capital leases and operating leases existing at, or entered into
after, the beginning of the earliest comparative period presented in the financial statements, with certain
practical expedients available. While the Company is still evaluating the impact of its pending adoption of the
new standard on its consolidated financial statements, the Company expects that upon adoption it will recognize
ROU assets and lease liabilities and that the amounts could be material.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation—Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting”, a new accounting standard update intended to
simplify several aspects of the accounting for share-based payment transactions including: income tax
consequences, classification of awards as either equity or liabilities and classification on the statement of cash
flows. Specifically, the update requires that excess tax benefits and tax deficiencies (the difference between the
deduction for tax purposes and the compensation cost recognized for financial reporting purposes) be
recognized as income tax expense or benefit in the Consolidated Statements of Income, introducing a new
element of volatility to the provision for income taxes. This update is effective for fiscal years beginning after
December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact this standard
will have on its consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 introduces a new forward-looking
approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including
trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of
historical information, current information and reasonable and supportable forecasts. This ASU also expands
the disclosure requirements to enable users of financial statements to understand the entity’s assumptions,
models and methods for estimating expected credit losses. For public business entities, ASU 2016-13 is
effective for annual and interim reporting periods beginning after December 15, 2019, and the guidance is to be
applied using the modified-retrospective approach. Earlier adoption is permitted for annual and interim
reporting periods beginning after December 15, 2018. The Company is currently evaluating the new guidance
and has not determined the impact this standards update may have on its consolidated financial statements.

Results of Operations:

FISCAL YEAR ENDED APRIL 30, 2016 COMPARED
TO FISCAL YEAR ENDED APRIL 30, 2015

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

2016

100.0%

90.0
8.3
98.3
1.7%

2015

100.0%

90.4
8.5
98.9
1.1%

Net sales increased 10.3% to $253,904,146 in fiscal year 2016 from $230,237,161 in the prior year. The
Company’s sales increased in fiscal year 2016 in appliance, fitness, medical/life sciences and gaming
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 industrial electronics, consumer electronics, semiconductor
equipment and telecommunications marketplaces. The increase in revenues is from sales to existing customers,
new customers and from new programs with various customers. The Company believes sales growth with
existing customers and new customers is an indication of customer satisfaction with the Company’s global
footprint and service capabilities among other things. The Company remains optimistic revenues in fiscal year
2017 will continue to 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 61.9% and 62.5% of net sales for fiscal years 2016 and 2015,
respectively.

Gross profit increased to $25,518,531, or 10.1% of net sales, in fiscal year 2016 compared to $22,068,838 or
9.6% of net sales, in the prior fiscal year. The increase in gross profit dollars for fiscal year 2016 was the result
of increased sales and product mix. Margin pressures continue from both customers and vendors and will likely
continue in fiscal year 2017.

Selling and administrative expenses increased in fiscal year 2016 to $21,194,211, or 8.3% of net sales compared
to $19,431,637, or 8.5% of net sales, in fiscal year 2015. The increase in selling and administrative dollars was
attributable to sales salaries, professional fees and bonus expense. The increase in the foregoing selling and
administrative expenses were partially offset by a decrease in legal fees, computer maintenance and freight out.
Selling and administrative expenses decreased as a percent of net sales due to increased revenue in fiscal year
2016 compared to the prior year.

Interest expense, net, decreased to $1,004,988 in fiscal year 2016 compared to $1,081,323 in fiscal year 2015.
Interest expense decreased primarily due to the decreased borrowings under the Company’s banking
arrangements and mortgage obligations. Interest expense for fiscal year 2017 may increase if interest rates or
borrowings, or both, increase during fiscal year 2017.

In fiscal year 2016, the income tax expense was $1,402,537 compared to income tax expense of $801,049 in
fiscal year 2015. The effective rate for the years ended April 30, 2016 and 2015 was 40.2% and 47.0%,
respectively. The increase in income tax expense is due to an increase in pre-tax income in the current year.
The decrease in the effective rate for the year ended April 30, 2016 is primarily due to the U.S. tax impact of

foreign dividends recognized in the prior year. In addition, the Company recognized higher pretax income in the
U.S. in the current year and lower pretax income in Mexico compared to the prior year as a result of the filing of
an application for an Advanced Pricing Agreement with the Mexican tax authorities in December 2015. The
agreement is effective for fiscal years beginning with fiscal year 2016 and ending with fiscal year 2019.

The Company reported net income of $2,082,659 in fiscal year 2016 compared to $903,412 for fiscal year 2015.
Basic and diluted earnings per share for fiscal year 2016 were $0.50 and $0.49, respectively, compared to basic
and diluted earnings per share of $0.22 each, for the year ended April 30, 2015.

Liquidity and Capital Resources:

Operating Activities.

Cash flow provided by operating activities was $13,130,447 for the fiscal year ended April 30, 2016 compared
to cash flow used in operating activities of $2,908,494 for the prior fiscal year. Cash flow provided by
operating activities was primarily the result of net income, the non-cash effects of depreciation and
amortization, a decrease in accounts receivable and inventory and an increase in accounts payable and accrued
expenses. Net cash provided by operations was partially offset by an increase in income tax receivable.

Cash flow used in operating activities was $2,908,494 for the fiscal year ended April 30, 2015. 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 was 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.

Investing Activities.

In fiscal year 2016, the Company purchased $3,165,083 in machinery and equipment to be used in the ordinary
course of business. The Company anticipates it may purchase up to $3,000,000 in machinery and equipment in
fiscal year 2017, which the Company plans to fund by lease or loan transactions. There is no assurance that the
Company will be able to obtain debt financing at acceptable terms, or at all, in the future.

In fiscal year 2015, the Company purchased $5,506,035 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.

Financing Activities.

Cash used in financing activities was $8,623,453 for the fiscal year ended April 30, 2016 compared to cash
provided by financing activities of $5,138,781 in fiscal year 2015. Cash used in financing activities in fiscal
year 2016 was primarily the result of net repayments under the line of credit of approximately $7,400,000 under
the credit facility and payments under capital lease agreements.

Cash provided by financing activities was $5,138,781 for the fiscal year ended April 30, 2015. Cash provided
by financing activities in fiscal year 2015 was primarily the result of increased net borrowings of $4,400,000
under the credit facility. 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.
The credit facility is collateralized by substantially all of the domestically located assets of the Company and
the Company has pledged 65% of its equity ownership interest in some of its foreign entities. The facility
allows the Company to choose among interest rates at which it may borrow funds: the bank fixed rate of two
and one quarter percent plus one percent (effectively 3.25% at April 30, 2016) or LIBOR plus two and one
quarter percent (effectively 2.875% at April 30, 2016). Interest is paid monthly. Under the senior secured
credit facility, the Company may borrow up to the lesser of (i) $30,000,000 or (ii) an amount equal to a
percentage of the eligible receivable borrowing base plus a percentage of the inventory borrowing base
(collectively, “Borrowing Base”), which cannot exceed 50% of combined eligible receivables and inventory. In
January 2016, the existing senior credit facility was modified, including increasing the amount available under
the Borrowing Base calculation and extending the term of the facility through October 31, 2018. The bank fee
for the modification was $23,333 and is amortized over the term of the credit facility agreement. As of April
30, 2016, there was a $20,014,069 outstanding balance and $3,630,035 of unused availability under the credit
facility agreement compared to a $27,416,793 outstanding balance and $2,583,207 of unused availability at
April 30, 2015. The Company is required to be in compliance with several financial covenants. At April 30,
2016, 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 bore interest at a fixed rate of 6.42% per year
and was amortized over a sixty - month period. A final payment of approximately $2,000,000 was due on or
before January 8, 2015. On November 24, 2014, the Company refinanced the mortgage agreement with Wells
Fargo, N.A. The note requires the Company to pay monthly principal payments in the amount of $9,500, bears
an interest rate of LIBOR plus two and one-quarter percent (effectively 3.00% at April 30, 2016) 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 was $2,688,500 and $2,802,500 at April 30, 2016 and April 30, 2015, respectively.

The Company entered into a mortgage agreement on October 24, 2013, in the amount of $1,275,000, with Wells
Fargo, N.A. to finance the property that serves as the Company’s engineering and design center in Elgin,
Illinois. The Wells Fargo, N.A. note requires the Company to pay monthly principal payments in the amount of
$4,250, bears interest at a fixed rate of 4.5% per year and is payable over a sixty - month period. A final
payment of approximately $1,030,000 is due on or before October 24, 2018. The outstanding balance was
$1,147,500 and $1,198,500 at April 30, 2016 and April 30, 2015, respectively.

During 2010, the Company entered into various capital lease agreements with Wells Fargo Equipment Finance
to purchase equipment totaling $1,376,799. The terms of the lease agreements extend to July 2016 through
October 2016 with monthly installment payments ranging from $3,627 to $13,207 and a fixed interest rate
ranging from 4.41% to 4.99%. At April 30, 2016, the balance outstanding under these capital lease agreements
was $106,767 compared to $336,883 in fiscal year 2015. The net book value of the equipment under these
leases at April 30, 2016 was $703,424 compared to $817,324 in fiscal year 2015.

From October 2013 through December 2015, the Company entered into various capital lease agreements with
Associated Bank, National Association to purchase equipment totaling $4,176,683. The terms of the lease
agreements extend to September 2018 through November 2020 with monthly installment payments ranging
from $1,455 to $40,173 and a fixed interest rate ranging from 3.75% to 4.14%. At April 30, 2016, the balance
outstanding under these capital lease agreements was $2,599,820 compared to $2,732,713 in fiscal year 2015.
The net book value of the equipment under these leases at April 30, 2016 was $3,224,661 compared to
$2,938,211 in fiscal year 2015.

From April 2014 through July 2015, the Company entered into various capital lease agreements with CIT
Finance LLC to purchase equipment totaling $2,512,051. The terms of the lease agreements extend to March
2019 through July 2020 with monthly installment payments ranging from $1,931 to $12,764 and a fixed interest
rate ranging from 5.65% through 6.50%. At April 30, 2016, the balance outstanding under these capital lease
agreements was $1,886,069 compared to $1,577,950 in fiscal year 2015. The net book value of the equipment
under these leases at April 30, 2016 was $2,155,363 compared to $1,661,473 in fiscal year 2015.

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, 2016 was $51,509 compared to $33,950 in fiscal year 2015.
In addition, the landlord provided the Company tenant incentives of $418,000, which are being amortized over
the life of the lease.

On May 31, 2012, the Company entered into a lease agreement in Tijuana, MX, to rent 112,000 square feet of
manufacturing and office space. Under the terms of the lease agreement, the Company receives incentives over
the life of the lease, which extends through November 2018. The amount of the deferred rent income for the
fiscal year ended April 30, 2016 was $115,837 compared to $8,353 in fiscal year 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.
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, 2016 resulted in a net foreign currency loss of $59,000 compared to a net foreign currency gain
of $40,000 in the prior year. In fiscal year 2016, the Company paid approximately $52,000,000 to its foreign
subsidiaries.

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, 2016 plans, will
continue to be indefinitely reinvested, no deferred tax liability has been recorded. The cumulative amount of
unremitted earnings for which U.S. income taxes have not been recorded is $12,588,000 as of April 30,
2016. The amount of U.S. income taxes on these earnings is impractical to compute due to the complexities of
the hypothetical calculation.

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.

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, 2016. 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, 2016.

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, 2016.

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, 2016, 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.

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, 2016.

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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.

(a)(2)
Financial statement schedules are omitted because they are not applicable or required.

(a)(3) and (b)
The exhibits required by Item 601 of Regulations S-K are listed in the Index to Exhibits filed as part of this
Annual Report on Form 10-K beginning on Page 32.

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.*

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,
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, incorporated herein by reference to
Exhibit 10.29 to the Company’s Form 10-K filed on July 24, 2015.

10.30 Second Amendment to Third Amended and Restated Credit Agreement entered into as of January 25,

2016, 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 14, 2016.

10.31 Fifth Amended and Restated Revolving Line of Credit Note delivered as of January 25, 2016, by
SigmaTron International, Inc. to Wells Fargo Bank, National Association, incorporated herein by
reference to Exhibit 10.2 to the Company’s Form 8-K filed on March 14, 2016.

10.32 Lease No. 007 is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between

Association Bank, National Association and SigmaTron International, Inc. dated December 22, 2015,
incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on March 15, 2016.

10.33 SigmaTron International, Inc. Employee Bonus Plan for Fiscal Year 2017 dated June 2, 2016,

incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 6, 2016.*

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, 2016).**

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

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.

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 29, 2016

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

Date

July 29, 2016

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

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, 2016 and 2015 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, 2016 and 2015 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 29, 2016

F-2

SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
APRIL 30, 2016 and 2015

ASSETS

2016

2015

CURRENT ASSETS

Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of
$100,000 and $186,844 at April 30, 2016 and 2015,
respectively

Inventories
Prepaid expenses and other assets
Refundable income taxes
Note receivable
Other receivables

4,325,268

2,868,217

17,844,228
67,649,022
2,128,128
774,847
887,531
481,860

20,170,723
68,669,709
2,103,367
81,046
-
486,085

Total current assets

94,090,884

94,379,147

PROPERTY, MACHINERY AND EQUIPMENT, NET

33,080,858

33,864,527

OTHER LONG-TERM ASSETS
Intangible assets
Goodwill
Deferred income taxes
Other assets

4,703,245
3,222,899
233,057
1,531,315

5,174,144
3,222,899
365,935
1,319,901

Total other long-term assets

9,690,516

10,082,879

TOTAL ASSETS

136,862,258

138,326,553

The accompanying notes are an integral part of these statements.

F-3

SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS - CONTINUED
APRIL 30, 2016 and 2015

LIABILITIES AND STOCKHOLDERS’ EQUITY

2016

2015

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, 4,183,955 and 4,075,785 shares issued
and outstanding at April 30, 2016 and 2015, 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

37,011,786
710,466
6,260,982
-
165,000
1,374,898
275,288
187,889

35,838,275
532,695
5,140,851
141,297
165,000
1,245,632
275,288
150,594

45,986,309

43,489,632

23,685,069

31,252,793

3,217,758

3,401,913

875,793
870,542
795,289
1,355,620

1,223,697
536,209
999,929
736,993

30,800,071

38,151,534

76,786,380

81,641,166

41,560
22,546,616
37,487,702

40,703
21,239,641
35,405,043

60,075,878

56,685,387

136,862,258

138,326,553

SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years ended April 30, 2016 and 2015

Net sales

Cost of products sold

Gross profit

2016

2015

253,904,146

230,237,161

228,385,615

208,168,323

25,518,531

22,068,838

Selling and administrative expenses

21,194,211

19,431,637

Operating income

4,324,320

2,637,201

Other income
Interest expense

(165,864)
1,004,988

(148,583)
1,081,323

Income before income tax expense

3,485,196

1,704,461

Income tax expense

1,402,537

801,049

NET INCOME

Earnings per common share
Basic

Diluted

Weighted-average shares of common

stock outstanding

Basic

Diluted

2,082,659

0.50

0.49

903,412

0.22

4,164,815

4,046,988

4,224,030

4,116,424

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, 2016 and 2015

Capital in
Preferred Common excess of par

Total

Retained

stockholders’

stock

value

earnings

equity

Balance at May 1, 2014

40,215

20,864,497

34,501,631

55,406,343

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

Balance at April 30, 2015

Recognition of stock-based
compensation

Exercise of stock options

Vesting of restricted
stock

Sale of restricted stock

Employee stock purchases

Tax benefit from contingent
consideration

Excess tax benefits on stock options

Net income

136

150

202

59,648

57,825

61,796

126,612

69,263

59,648

57,961

61,946

126,814

69,263

903,412

40,703

21,239,641

35,405,043

56,685,387

740

588,245

7,180

69,400

517,260

52,169

23,972

48,749

588,245

7,200

69,400

518,000

52,266

23,972

48,749

2,082,659

Balance at April 30, 2016

- $ 41,560 $

22,546,616 $ 37,487,702 $ 60,075,878

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, 2016 and 2015

Cash flows from operating activities

Net income
Adjustments to reconcile net income to net

cash provided by (used in) operating activities

Depreciation
Stock-based compensation
Restricted stock expense
(Benefit from) provision for doubtful accounts
Tax benefit from contingent consideration
Deferred income tax expense (benefit)
Amortization of intangible assets
Fair value adjustment of contingent consideration
Loss from disposal or sale of machinery and equipment

Changes in assets and liabilities

Accounts receivable
Inventories
Prepaid expenses and other assets
Income taxes receivable
Income taxes payable
Trade accounts payable
Deferred rent
Accrued expenses and wages

Net cash provided by (used in) operating activities

Cash flows from investing activities

Purchases of machinery and equipment
Disposals of machinery and equipment
Net cash used in investing activities

Cash flows from financing activities

Proceeds from the exercise of common stock options
Proceeds from the sale of restricted stock
Proceeds from Employee stock purchases
Proceeds from tax benefit on stock options and awards
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 contingent consideration

Net cash (used in) provided by financing activities

2016

2015

2,082,659 $

903,412

5,119,376
588,245
69,400
-
(23,972)
775,477
470,899
(5,742)
23,101

1,438,964
1,020,687
(72,334)
(693,801)
(141,297)
1,173,511
(167,345)
1,472,619
13,130,447

(3,165,083)
115,140
(3,049,943)

7,200
518,000
52,266
48,749
-
(342,162)
(1,363,754)
-
(165,000)
194,424,157
(201,826,881)
23,972
(8,623,453)

4,985,272
59,648
61,946
36,844
(69,263)
(252,347)
428,610
(106,015)
52,615

(913,776)
(14,941,332)
(1,082,509)
-
(80,634)
8,697,196
(25,598)
(662,563)
(2,908,494)

(5,506,035)
703,646
(4,802,389)

57,961
-
126,814
-
1,102,317
(260,000)
(1,050,850)
834,481
(157,998)
165,496,222
(161,079,429)
69,263
5,138,781

Change in cash

Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

1,457,051

(2,572,102)

2,868,217
4,325,268

5,440,319
2,868,217

F-7

SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Years ended April 30, 2016 and 2015

Supplementary disclosures of cash flow information

Cash paid for interest
Cash paid for income taxes
Purchase of machinery and equipment financed
under capital leases
Purchase of machinery and equipment financed
under sale leaseback agreements
Financing of insurance policy
Conversion of accounts receivable into a note receivable

The accompanying notes are an integral part of these statements.

2016

2015

964,537
1,634,772

1,018,419
1,159,362

1,308,865

1,407,116

-
159,616
887,531

1,102,317
146,546
-

F-8

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2016 and 2015

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, 2016, the Company provided these manufacturing services through an international network of facilities
located in the United States, Mexico, China, Vietnam and Taiwan. Approximately 15.0% of the total non-current
consolidated assets of the Company are located outside of the United States as of April 30, 2016 and 2015,
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,
2016 resulted in a net loss of approximately $59,000 compared to a net foreign currency gain of $40,000 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, lower of cost or market adjustment for
inventory, deferred taxes, uncertain tax positions, valuation allowance for deferred taxes 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 with original maturities within
three months of the purchase date.

F-9

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

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. For
convenience, the Company reduces inventory cost through a contra asset rather than through a new cost basis. Upon
a subsequent sale or disposal of the impaired inventory, the corresponding reserve is relieved to ensure the cost basis
of the inventory reflects any reductions. Actual product demand or market conditions could be different than that
projected by management.

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 $113,286 and $147,537 net of

F-10

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

accumulated amortization of $443,763 and $390,266, respectively, as of April 30, 2016 and 2015, respectively, are
classified in other long-term assets on the Company’s balance sheet.

Income Taxes

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.

Deferred income tax assets and liabilities are determined based on differences between financial reporting and tax
basis of assets and liabilities, and are measured using the enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse. In evaluating the Company’s ability to recover its deferred tax assets
within the jurisdiction from which they arise, the Company considers all available positive and negative evidence,
including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and
recent financial operations. In projecting future taxable income, the Company begins with historical results and
changes in accounting policies, and incorporates assumptions including the amount of future state, federal and
foreign pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and
prudent tax planning strategies. These assumptions require significant judgment and estimates by management
about the forecasts of future taxable income and are consistent with the plans and estimates the Company uses to
manage the underlying businesses. In evaluating the objective evidence that historical results provide, the Company
considers three years of cumulative operating income and/or loss. Valuation allowances are established when
necessary to reduce deferred income tax assets to an amount more likely than not to be realized.

The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax
laws and regulations in a multitude of jurisdictions across its global operations. Changes in tax laws and rates could
also affect recorded deferred tax assets and liabilities in the future. Management is not aware of any such changes
that would have a material effect on the Company’s results of operations, cash flows or financial position.

A tax benefit from an uncertain tax position may only be recognized when it is more likely than not that the position
will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the
technical merits.

The Company adjusts its tax liabilities when its judgment changes as a result of the evaluation of new information
not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in
a payment that is materially different from its current estimate of the tax liabilities. These differences will be
reflected as increases or decreases to income tax expense in the period in which they are determined.

F-11

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

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 April 30, 2015, which have been excluded from the calculation of diluted earnings per
share. There were no anti-dilutive common stock equivalents at April 30, 2016.

Twelve Months Ended

April 30,

2016

2015

2,082,659

903,412

4,164,815
59,215

4,046,988
69,436

4,224,030

4,116,424

0.50

0.49

0.22

Net income
Weighted-average shares

Basic
Effect of dilutive stock options

Diluted

Basic earnings per share

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 Company's
policy to recognize revenue and related costs when the finished goods have been shipped from its facilities, which is
also the same point that title passes under the terms of the purchase order. Finished goods inventory for certain
customers is shipped from the Company to an independent warehouse for storage or shipped directly to the customer
and stored in a segregated part of the customer’s own facility. Upon the customer’s request for finished goods
inventory, the inventory is shipped to the customer if the inventory was stored off-site, or transferred from the
segregated part of the customer’s facility for consumption or use by the customer. The Company recognizes
revenue upon such shipment or transfer. The Company does not earn a fee for such arrangements. The Company
from time to time may ship finished goods from its facilities, which is also the same point that title passes under the
terms of the purchase order, and invoice the customer at the end of the calendar month. This is done only in special
circumstances to accommodate a specific customer. Further, from time to time customers request the Company hold
finished goods after they have been invoiced to consolidate finished goods for shipping purposes. The Company
generally provides a warranty for workmanship, unless the assembly was designed by the Company, in which case it
warrants assembly/design. The Company does not have any installation, acceptance or sales incentives (although
the Company has negotiated longer warranty terms in certain instances). The Company assembles and tests
assemblies based on customers’ specifications. Historically, the amount of returns for workmanship issues has been
de minimis under the Company’s standard or extended warranties.

F-12

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

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 and such amounts are included in net sales. Shipping and handling costs were not
material to the financial statements for fiscal years 2016 or 2015.

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, 2016 and 2015, 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 contingent consideration included in the fiscal 2013 Spitfire acquisition under the fair
value standard (primarily using level 3 measurement inputs). The contingent consideration 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.
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, “Goodwill and
other Intangible Assets,” requires the Company to assess goodwill and other indefinite-lived intangible assets for
impairment at least annually in the absence of an indicator of possible impairment and immediately upon an
indicator of possible impairment. The Company is permitted the option to first assess qualitative factors to
determine whether the existence of events and circumstances indicates that it is more likely than not that the fair
value of any reporting unit is less than its corresponding carrying value. If, after assessing the totality of events and
circumstances, the Company concludes that it is not more likely than not that the fair value of any reporting unit is
less than its corresponding carrying value, then the Company is not required to take further action. However, if the
Company concludes otherwise, then it is required to perform a quantitative impairment test, including computing the
fair value of the reporting unit and comparing that value to its carrying value. If the fair value is less than its
carrying value, a second step of the test is required to determine if recorded goodwill is impaired. The Company
also has the option to bypass the qualitative assessment for goodwill in any period and proceed directly to
performing the quantitative impairment test. The Company will be able to resume performing the qualitative
assessment in any subsequent period. The Company performed its annual goodwill impairment test as of February
1, 2016 and determined no impairment existed as of that date.

F-13

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

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 basis over their
estimated useful lives of 5 years for patents, 20 years for trade names, 1 year for backlog and 7 years for non-
compete agreements except for customer relationships which are amortized on an accelerated basis over their
estimated useful life of 15 years.

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including amortizable intangible assets, for impairment. Property,
machinery and equipment and finite life intangible assets are reviewed whenever events or changes in circumstances
occur that indicate possible impairment. If events or changes in circumstances occur that indicate possible
impairment, the Company’s impairment review is based on an undiscounted cash flow analysis at the lowest level at
which cash flows of the long-lived assets are largely independent of other groups of its assets and liabilities. This
analysis requires management judgment with respect to changes in technology, the continued success of product
lines, and future volume, revenue and expense growth rates. The Company conducts annual reviews for idle and
underutilized equipment, and reviews business plans for possible impairment. Impairment occurs when the carrying
value of the assets exceeds the future undiscounted cash flows expected to be earned by the use of the asset group.
When impairment is indicated, the estimated future cash flows are then discounted to determine the estimated fair
value of the asset or asset group and an impairment charge is recorded for the difference between the carrying value
and the estimated fair value. As of April 30, 2016, there were no indicators of possible 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 2015 financial statements to conform to the 2016
presentation.

During the third quarter of fiscal year 2016, the Company began presenting all deferred tax assets and liabilities as
noncurrent on its Condensed Consolidated Balance Sheets as discussed further in New Accounting Standards below.

F-14

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

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." ASU No. 2014-09 is a comprehensive new revenue
recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a
customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In
August 2015, the FASB deferred the effective date of ASU No. 2014-09 by issuing ASU 2015-14, “Revenue from
Contracts with Customers: Deferral of the Effective Date.” ASU No. 2015-14 defers the effective date of ASU No.
2014-09 to annual reporting periods beginning after December 15, 2017 , with early adoption permitted but not
earlier than the original effective date. In March 2016, the FASB issued ASU 2016-08, Principal versus Agent
Considerations (Reporting Revenue Gross versus Net) (ASU 2016-08), which clarifies the implementation guidance
of principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Identifying Performance
Obligations and Licensing (ASU 2016-10), which clarifies the identification of performance obligations and
licensing implementation guidance. In May 2016, the FASB issued ASU 2016-12, Narrow-Scope Improvements and
Practical Expedients (ASU 2016-12), to improve guidance on assessing collectability, presentation of sales taxes,
noncash consideration, and completed contracts and contract modifications at transition. The effective date and
transition requirements in ASU 2016-08, ASU 2016-10, and ASU 2016-12 are the same as the effective date and
transition requirements of ASU 2015-14. The Company has not yet selected a transition method and is currently
evaluating the effect that the updated standard will have on its consolidated financial statements and related
disclosures.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern
(Subtopic 205-40)”. The amendments in this ASU provide guidance about management’s responsibility to evaluate
whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related
footnote disclosures. An entity’s management should evaluate whether there are conditions or events, considered in
the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year
after the date that the financial statements are issued (or are available to be issued, when applicable). ASU 2014-15
is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company
elected early adoption of this ASU and it did not have a material impact on its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015- 03, “Interest — Imputation of Interest (Subtopic 835-30) —
Simplifying the Presentation of Debt Issuance Costs.” ASU No. 2015-03 simplifies the presentation of debt issuance
costs by requiring that these costs related to a recognized debt liability be presented in the statement of financial
condition as a direct reduction from the carrying amount of that liability. ASU No. 2015-03 is effective for annual
reporting periods beginning after December 15, 2015, including interim periods within that reporting period. ASU
No. 2015-03 is required to be applied retrospectively to all periods presented beginning in the year of adoption. The
Company does not expect the impact of adoption of this ASU to have a material impact on its consolidated financial
statements.

In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of
Inventory”. ASU No. 2015-11 requires an entity that determines the cost of inventory by methods other than last-in,
first-out (LIFO) and the retail inventory method (RIM) to measure inventory at the lower of cost and net realizable
value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably
predictable costs of completion, disposal and transportation. This amendment applies to all inventory that is
measured using the average costs or first-in first-out (FIFO) methods. This supersedes prior guidance which allowed
entities to measure inventory at the lower of cost or market, where market could be replacement cost, net realizable
value or net realizable value less an approximately normal profit margin. ASU No. 2015-11 is effective for annual
reporting periods, and interim periods therein, beginning after December 15, 2016. Prospective application is
required. Early application is permitted as of the beginning of the interim or annual reporting period. The Company
does not expect the impact of the adoption of this ASU to have a material impact on the Company’s consolidated
financial statements.

F-15

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

New Accounting Standards - Continued

In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification
of Deferred Taxes”. ASU No. 2015-17 requires entities to classify deferred tax liabilities and assets as noncurrent in
a classified statement of financial position. ASU No. 2015-17 is effective for fiscal years beginning after December
15, 2016, and interim periods within those annual periods. This update may be applied either prospectively to all
deferred tax liabilities and assets or retrospectively to all periods presented. Early application is permitted as of the
beginning of the interim or annual reporting period. The Company elected to early adopt ASU 2015-17 during its
third quarter of fiscal year 2016 on a retrospective basis. Accordingly, it reclassified the current deferred taxes to
noncurrent on the April 30, 2015 Consolidated Balance Sheets, which decreased current deferred tax assets by
$2,179,178, increased noncurrent deferred tax assets by $365,935 and decreased noncurrent deferred tax liabilities
by $1,813,244.

In February 2016, the FASB issued ASU No. 2016-02, “Leases”. The new standard establishes a right-of-use
(ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases
with terms longer than 12 months. Leases will be classified as either finance or operating, with classification
affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years
beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective
transition approach is required for capital leases and operating leases existing at, or entered into after, the beginning
of the earliest comparative period presented in the financial statements, with certain practical expedients
available. While the Company is still evaluating the impact of its pending adoption of the new standard on its
consolidated financial statements, the Company expects that upon adoption it will recognize ROU assets and lease
liabilities and that the amounts could be material.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation—Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting”, a new accounting standard update intended to
simplify several aspects of the accounting for share-based payment transactions including: income tax
consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows.
Specifically, the update requires that excess tax benefits and tax deficiencies (the difference between the deduction
for tax purposes and the compensation cost recognized for financial reporting purposes) be recognized as income tax
expense or benefit in the Consolidated Statement of Income, introducing a new element of volatility to the provision
for income taxes. This update is effective for fiscal years beginning after December 15, 2016. Early adoption is
permitted. The Company is currently evaluating the impact this standard will have on its consolidated financial
statements and related disclosures.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 introduces a new forward-looking
approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including
trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of
historical information, current information and reasonable and supportable forecasts. This ASU also expands the
disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and
methods for estimating expected credit losses. For public business entities, ASU 2016-13 is effective for annual and
interim reporting periods beginning after December 15, 2019, and the guidance is to be applied using the modified-
retrospective approach. Earlier adoption is permitted for annual and interim reporting periods beginning after
December 15, 2018. The Company is currently evaluating the new guidance and has not determined the impact this
standards update may have on its consolidated financial statements.

F-16

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

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

2016

186,844

(86,844)

100,000

2015
150,000
36,844
-
186,844

NOTE D - INVENTORIES

Inventories consist of the following at April 30:

2016

2015

Finished products
Work-in-process
Raw materials

Less obsolescence reserve

23,295,138
3,035,459
42,530,957
68,861,554
1,212,532
67,649,022

Changes in the Company’s inventory obsolescence reserve are as follows:

Beginning balance
Write-offs

2016

1,276,386
(63,854)
1,212,532

24,316,404
2,966,846
42,662,845
69,946,095
1,276,386
68,669,709

2015

1,804,984
(528,598)
1,276,386

F-17

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE E - RELATED PARTIES

In March, 2015, two of the Company’s executive officers invested in a start-up customer. The executive officers’
investments constitute less than 2% (individually and in aggregate) of the outstanding beneficial ownership of the
customer, according to information provided by the customer to the executive officers. As of April 30, 2016, the
Company had an outstanding note receivable and account receivable from that customer of approximately $888,000
and $233,000, respectively. Inventory on hand related to this customer of approximately $1,600,000. Sales to this
customer, have not been material for the fiscal year ended April 30, 2016.

On January 29, 2016, the Company entered into a memorandum of understanding with this customer. Under the
subsequent agreement, effective January 29, 2016, the account receivable of approximately $888,000 was converted
into a short-term promissory note. The promissory note bears interest at the rate of 8% per annum, payable at the
maturity of the promissory note. The promissory note matures at the earlier of October 31, 2016, within 10 days
after the customer obtains certain equity financing, or at the closing of a sale of substantially all of the customer’s
stock or assets. As additional consideration, the Company received warrants under the agreement. The warrants are
ten years in duration and may be exercised at an exercise price of $0.01 per share and for a number of shares
determined pursuant to the warrant, expected to be, at a minimum, approximately 1% of the customer’s then –
outstanding equity securities. The Company believes the warrants have nil value. Further, the Company has been
granted a security interest in the customer’s accounts receivable and authority to access and be a signatory on the
customer’s deposit accounts.

F-18

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE F - 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 $1,972,085
and $1,329,661 at April 30,
2016 and 2015, respectively

Property, machinery and

equipment, net

2016

2015

16,220,619 $ 15,265,758
57,604,080
56,142,919
9,134,187
8,640,964
2,566,250
2,540,693
8,055,533
6,746,668

93,580,669

89,337,002

60,499,811

55,472,475

33,080,858 $ 33,864,527

Depreciation and amortization expense was $5,119,376 and $4,985,272 for the years ended April 30, 2016 and
2015, respectively.

F-19

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE G - 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, 2016 and 2015.

Other Intangible Assets

Intangible assets subject to amortization are summarized as of April 30, 2016 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

-
-

11.08
-
16.08
3.08
1.08

375,000 $

2,395,000

4,690,000
22,000
980,000
50,000
400,000
8,912,000 $

375,000
2,395,000

883,540
22,000
191,901
27,965
313,349
4,208,755

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

F-20

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE G - 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:

2017
2018
2019
2020
2021
Thereafter

490,010
435,043
423,721
411,406
403,199
2,539,866
4,703,245

Amortization expense was $470,899 and $428,610 for the years ended April 30, 2016 and 2015, respectively.

In conjunction with the May 2012 acquisition of Spitfire, an estimate of the fair value of the contingent
consideration, $2,320,000, was recorded based on expected operating results through fiscal 2019 and the specific
terms of when such consideration would be earned. Those terms provide for additional consideration to be paid
based on a percentage of sales and pre-tax profits over those years in excess of certain minimums. Payments are
made quarterly each year and adjusted after each year-end audit. The Company made payments totaling $342,162
during fiscal year 2016. As of April 30, 2016, the Company had not materially changed its estimated aggregate
consideration expected to be earned under this arrangement. Any change in the Company’s estimate is reflected as a
change in the contingent consideration liability and as additional charges or credits to selling and administrative
expenses. As of April 30, 2016, the contingent consideration liability was $1,151,081 compared to $1,498,985 at
April 30, 2015.

F-21

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE H - 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. The
credit facility is collateralized by substantially all of the domestically located assets of the Company and the
Company has pledged 65% of its equity ownership interest in some of its foreign entities. The facility allows the
Company to choose among interest rates at which it may borrow funds: the bank fixed rate of two and one quarter
percent plus one percent (effectively 3.25% at April 30, 2016) or LIBOR plus two and one quarter percent
(effectively 2.875% at April 30, 2016). Interest is paid monthly. Under the senior secured credit facility, the
Company may borrow up to the lesser of (i) $30,000,000 or (ii) an amount equal to a percentage of the eligible
receivable borrowing base plus a percentage of the inventory borrowing base (collectively, “Borrowing Base”),
which cannot exceed 50% of combined eligible receivables and inventory. In January 2016, the existing senior
credit facility was modified, including increasing the amount available under the Borrowing Base calculation and
extending the term of the facility through October 31, 2018. The bank fee for the modification was $23,333 and is
amortized over the term of the credit facility agreement. As of April 30, 2016, there was a $20,014,069 outstanding
balance and $3,630,035 of unused availability under the credit facility agreement compared to a $27,416,793
outstanding balance and $2,583,207 of unused availability at April 30, 2015. The Company is required to be in
compliance with several financial covenants. At April 30, 2016, 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 2017 at the Company’s current level of
business. The Company has received forecasts from current customers for increased business that would require
additional investments in inventory. To the extent that these forecasts come to fruition, the Company may need to
raise capital from other sources of debt or equity. The Company engaged an investment banker for the purpose of
completing a capital raise during fiscal year 2016 and subsequently terminated that agreement. The Company plans
to evaluate alternatives for raising capital in fiscal year 2017.

In addition, in the event the Company desires to expand its operations, its business grows more rapidly than
expected, the current economic climate deteriorates, customers delay payments, or the Company desires to
consummate an acquisition, additional financing resources may be necessary in the current or future fiscal years.
There is no assurance that the Company will be able to obtain equity or debt financing at acceptable terms, or at all,
in the future. There is no assurance that the Company will be able to retain or renew its credit agreements in the
future, or that any retention or renewal will be on the same terms as currently exist.

Capital Lease Obligations

During 2010, the Company entered into various capital lease agreements with Wells Fargo Equipment Finance to
purchase equipment totaling $1,376,799. The terms of the lease agreements extend to July 2016 through October
2016 with monthly installment payments ranging from $3,627 to $13,207 and a fixed interest rate ranging from
4.41% to 4.99%. At April 30, 2016, the balance outstanding under these capital lease agreements was $106,767
compared to $336,883 in fiscal year 2015. The net book value of the equipment under these leases at April 30, 2016
was $703,424 compared to $817,324 in fiscal year 2015.

From October 2013 through December 2015, the Company entered into various capital lease agreements with
Associated Bank, National Association to purchase equipment totaling $4,176,683. The terms of the lease
agreements extend to September 2018 through November 2020 with monthly installment payments ranging from
$1,455 to $40,173 and a fixed interest rate ranging from 3.75% to 4.14%. At April 30, 2016, the balance
outstanding under these capital lease agreements was $2,599,820 compared to $2,732,713 in fiscal year 2015. The
net book value of the equipment under these leases at April 30, 2016 was $3,224,661 compared to $2,938,211 in
fiscal year 2015.

F-22

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE H - LONG-TERM DEBT - Continued

Capital Lease Obligations - Continued

From April 2014 through July 2015, the Company entered into various capital lease agreements with CIT Finance
LLC to purchase equipment totaling $2,512,051. The terms of the lease agreements extend to March 2019 through
July 2020 with monthly installment payments ranging from $1,931 to $12,764 and a fixed interest rate ranging from
5.65% through 6.50%. At April 30, 2016, the balance outstanding under these capital lease agreements was
$1,886,069 compared to $1,577,950 in fiscal year 2015. The net book value of the equipment under these leases at
April 30, 2016 was $2,155,363 compared to $1,661,473 in fiscal year 2015.

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 bore interest at a fixed rate of 6.42% per year and
was amortized over a sixty - month period. A final payment of approximately $2,000,000 was due on or before
January 8, 2015. On November 24, 2014, the Company refinanced the mortgage agreement with Wells Fargo, N.A.
The note requires the Company to pay monthly principal payments in the amount of $9,500, bears an interest rate of
LIBOR plus two and one-quarter percent (effectively 3.00% at April 30, 2016) 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 was $2,688,500 and $2,802,500 at April 30, 2016 and April 30, 2015, respectively.

The Company entered into a mortgage agreement on October 24, 2013, in the amount of $1,275,000, with Wells
Fargo, N.A. to finance the property that serves as the Company’s engineering and design center in Elgin, Illinois.
The Wells Fargo, N.A. note requires the Company to pay monthly principal payments in the amount of $4,250,
bears interest at a fixed rate of 4.5% per year and is payable over a sixty - month period. A final payment of
approximately $1,030,000 is due on or before October 24, 2018. The outstanding balance was $1,147,500 and
$1,198,500 at April 30, 2016 and April 30, 2015, respectively.

F-23

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE H - 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

2017
2018
2019
2020

165,000
165,000
21,173,569
2,346,500
23,850,069

See Note M - Leases, Page F-30 for future maturities under capital lease obligations.

Other Long-Term Liabilities

As of April 30, 2016 and 2015, the Company had recorded $870,542 and $536,209, respectively, for seniority
premiums and retirement accounts related to benefits for employees, $800,067 and $467,221 of which, respectively,
are for the Company’s foreign subsidiaries.

F-24

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE I - ACCRUED EXPENSES AND WAGES

Accrued expenses consist of the following at April 30:

Interest
Commissions
Professional fees
Other

2016

2015

61,350
80,819
397,375
170,922

710,466

74,395
57,681
304,864
95,755

532,695

Accrued wages consist of the following at April 30:

Wages
Bonuses
Foreign wages
Foreign benefits

2016

2015

1,706,141
920,563
1,572,443
2,061,835

1,544,959
409,549
1,689,934
1,496,409

6,260,982

5,140,851

F-25

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE J - INCOME TAX

U.S. and foreign income (loss) before income tax expense for the years ended April 30 are as follows:

Domestic
Foreign

2016

2,224,802
1,260,394

3,485,196

2015

(2,481,049)
4,185,510

1,704,461

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

2016

2015

279,043
29,217
318,800
627,060

577,149
65,451
132,877
775,477

2,963
29,613
1,020,820
1,053,396

(138,335)
(154,208)
40,196
(252,347)

Provision (benefit) for income taxes

1,402,537

801,049

F-26

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE J - 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
Foreign valuation allowance
Foreign profit sharing
Foreign dividends
Other
Foreign currency exchange gain/loss
Impact of foreign permanent items
Foreign inflation adjustment

2016

2015

1,184,967
117,922
(46,615)
(94,124)
(8,826)
(48,680)
-
-
42,850
311,867
(20,056)
(36,768)

579,516
(86,377)
46,615
(256,343)
(42,471)
(53,011)
32,912
643,708
22,996
136,299
(123,987)
(98,808)

Provision (benefit) for income taxes

1,402,537

801,049

F-27

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE J - 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
Research & Other Credits
Reserves and accruals
Stock based compensation
Inventory
Other intangibles
Deferred rent
Allowance for doubtful accounts
Other DTA
Federal Benefit of State
Total Gross Deferred Tax Assets
Less: Valuation allowance

Net Deferred Tax Assets

Deferred Tax Liabilities
Other assets
Property, machinery & equipment
Prepaids
Total Deferred Tax Liabilities

Net Deferred Tax Liability

2016

2015

85,288
-
615,431
244,199
1,074,546
203,789
240,439
38,150
8,902
25,228
2,535,972
-

449,325
78,100
795,721
133,744
1,154,335
207,044
263,703
72,271
19,083
3,895
3,177,221
(95,295)

2,535,972

3,081,926

(113,665)
(3,273,902)
(270,968)
(3,658,535)

(1,122,563)

(272,409)
(3,180,575)
-
(3,452,984)

(371,058)

The Company has state net operating loss carry-forwards totaling approximately $1,071,000 at April 30, 2016, that
will begin to expire in fiscal year April 30, 2024. 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 deferred tax assets due to the
reversal of deferred tax liabilities. The state deferred tax liabilities exceed the state deferred tax assets and based

F-28

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE J - INCOME TAX - Continued

Deferred Tax Assets and Liabilities-Continued

on the reversing pattern the Company has concluded that 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. Therefore, the Company has
concluded that a valuation allowance is not required as of April 30, 2016, related to state net operating loss
carryforwards. The valuation allowance relating to the Company’s Vietnam net operating loss carry-forward was
reversed in the current year, as the loss carry-forward was used to reduce current year taxable income in that
jurisdiction.

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, 2016 plans, will
continue to be indefinitely reinvested, no deferred tax liability has been recorded. The cumulative amount of
unremitted earnings for which U.S. income taxes have not been recorded is $12,588,000 as of April 30, 2016. The
amount of U.S. income taxes on these earnings is impractical to compute due to the complexities of the hypothetical
calculation.

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, 2016 and 2015, 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 and penalties related to tax positions taken in the Company’s tax returns are recorded in income tax expense
and miscellaneous selling, general and administrative expense, respectively, in the Consolidated Statements of
Income. For the fiscal year ended April 30, 2016 and 2015, the amount included in the Company’s balance sheet for
such liabilities was $0 for each year.

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 fiscal
year 2013. The Internal Revenue Service concluded an audit of the Company’s fiscal year 2013 tax return in the
current year, and a no change letter was issued.

NOTE K - 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 $75,448 and $114,207 to the plans during the fiscal years ended April 30, 2016 and 2015, respectively.
The Company incurred total expenses of $13,460 and $8,500 for the fiscal years ended April 30, 2016 and 2015,
respectively, relating to costs associated with the administration of the plans.

F-29

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE L - 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, 2016, two customers accounted for 35.2% and
10.6% of net sales of the Company, and 6.5% and 2.4%, respectively, of accounts receivable at April 30, 2016. 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. Further, the Company has $3,940,197 in cash in
China as of April 30, 2016. 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, under
certain circumstances.

NOTE M - 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,

2017
2018
2019
2020
2021

Capital
Leases

Operating
Leases

1,562,593
1,454,538
1,211,612
597,028
173,925

2,009,228
2,043,424
1,740,801
1,033,798
674,506

Total future minimum lease payments

4,999,696

7,501,757

Less amounts representing interest

Less Current Portion

Long Term Portion

407,040

4,592,656

1,374,898

3,217,758

F-30

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE M - LEASES - Continued

Rent expense incurred under operating leases was $2,258,359 and $2,102,312 for the years ended April 30, 2016
and 2015, 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, 2016 was $51,509 compared to $33,950 in fiscal year 2015. In addition,
the landlord provided the Company tenant incentives of $418,000, which are being amortized over the life of the
lease.

On May 31, 2012, the Company entered into a lease agreement in Tijuana, MX, to rent 112,000 square feet of
manufacturing and office space. Under the terms of the lease agreement, the Company receives incentives over the
life of the lease, which extends through November 2018. The amount of the deferred rent income for the fiscal year
ended April 30, 2016 was $115,837 compared to $8,353 in fiscal year 2015.

NOTE N - STOCK COMPENSATION AND EQUITY TRANSACTIONS

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, 2016, the Company has 117,914 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 2016 and 2015. The balance of unrecognized compensation expense
at April 30, 2016 was approximately $3,500.

The Company granted 285,000 options to employees in fiscal year 2016. The Company recognized approximately
$556,400 in compensation expense in fiscal year 2016. The balance of unrecognized compensation expense at April
30, 2016 was approximately $409,300.

F-31

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE N - STOCK COMPENSATION AND EQUITY TRANSACTIONS - Continued

The table below summarizes option activity through April 30, 2016:

Number of
securities to be
issued upon
exercise of
outstanding options

Weighted-
average
exercise
price

101,554 $
(13,600)
(2,000)
85,954
285,000
(2,000)
(991)
367,963 $

3.88
4.26
4.24
3.81
6.45
3.60
9.17
5.84

Number of
options
exercisable
at end
of year

48,304

76,954

172,513

Outstanding at April 30, 2014
Options exercised during 2015
Options expired during 2015
Outstanding at April 30, 2015
Options granted during 2016
Options exercised during 2016
Options expired during 2016
Outstanding at April 30, 2016

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, 2016 and 2015, the aggregate
intrinsic value of options exercised was $5,100 and $51,520, respectively. As of April 30, 2016 and 2015, the
aggregate intrinsic value of in the money options outstanding was $198,715 and $365,245, respectively.

Information with respect to stock options outstanding at April 30, 2016 follows:

Options outstanding

Number
outstanding at
April 30, 2016

Weighted-average
remaining
contract life

Weighted-
average
exercise price

Range of exercise prices

$ 3.60-6.45

367,963

7.47 years

367,963

F-32

5.84

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE N - STOCK COMPENSATION AND EQUITY TRANSACTIONS - Continued

Information with respect to stock options outstanding and exercisable at April 30, 2016 follows:

Options outstanding and exercisable

Number
outstanding at
April 30, 2016

Weighted-average
remaining
contract life

Weighted-
average
exercise price

Range of exercise prices

$ 3.60-6.45

172,513

7.47 years

172,513

Information with respect to stock options non-vested at April 30, 2016 follows:

Number
non-vested at
April 30, 2016

Options non-vested

Weighted-average
remaining
contract life

Range of exercise prices

$ 4.24-6.45

195,450

8.23 years

195,450

5.21

Weighted-
average
exercise price

6.40

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 9,670 and 18,118 shares issued under the ESPP and the Company recorded $13,728 and $27,747
in compensation expense, for fiscal years ended April 30, 2016 and 2015, respectively.

F-33

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE N - STOCK COMPENSATION AND EQUITY TRANSACTIONS - Continued

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, 2016.

On October 1, 2015, the Company granted 2,000 shares to each non-employee director pursuant to the 2013 Non-
Employee Director Restricted Stock Plan. A total of 10,000 restricted shares were granted and the shares vest in six
months from the date of grant. The Company recognized $69,400 in compensation expense in fiscal year 2016.
There was no unrecognized compensation expense related to the 10,000 shares of restricted stock at April 30, 2016.

On May 1, 2015, the Company sold 74,000 shares of its common stock to three individual investors in a private
offering, pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), at $7.00 per
share, representing an approximate average of the market price of the Company’s common stock in the public
market during the immediately preceding thirty day period. The transaction resulted in $518,000 of proceeds from
the sale of restricted stock. The stock was unregistered and may be sold only upon registration or the availability of
an exemption from registration under the Securities Act.

F-34

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE O - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of unaudited quarterly financial data for fiscal year 2016:

2016

Net sales

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

$ 64,220,946 $ 69,723,493 $ 59,206,344 $ 60,753,363

Gross profit

6,230,274

7,597,013

5,708,096

5,983,148

Income before income

tax expense

962,323

1,857,036

377,599

288,238

Net income

658,806

1,156,298

218,728

48,827

Earnings per share

0.16 $

0.28 $

0.05 $

0.01

Basic

Earnings per share

0.16 $

0.27 $

0.05 $

0.01

Diluted

Total shares- Basic

4,148,285

4,166,758

4,170,193

4,174,251

Total shares- Diluted

4,193,657

4,214,317

4,229,378

4,208,184

F-35

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2016 and 2015

NOTE O - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued

The following is a summary of unaudited quarterly financial data for fiscal year 2015:

2015

Net sales

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

$ 54,947,477 $ 61,533,519 $ 53,702,613 $ 60,053,552

Gross profit

4,746,448

5,813,753

5,695,365

5,813,272

Income before income

tax expense

15,566

723,254

562,123

403,518

Net income

16,810

146,429

564,080

176,093

Earnings per share

Basic

Earnings per share

Diluted

0.00 $

0.04 $

0.14 $

0.04

0.00 $

0.04 $

0.14 $

0.04

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

NOTE P – LITIGATION

On October 25, 2011, Maria Gracia, a former employee of the Company, 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, alleging among other
things sexual harassment and retaliation.

In December 2014, a jury found for the Company on the sexual harassment claim but found for the plaintiff on her
retaliation claim and awarded her damages totaling $307,000. In post-trial motions, the judge reduced the verdict to
$300,000. Subsequently, on September 17, 2015, the court ruled on plaintiff’s Claim for Equitable Relief, awarding
the plaintiff an additional $74,478. Including the equitable relief award, the judgment against the Company is
currently $374,478.

On October 16, 2015, the Company appealed the judgment to the Seventh Circuit Court of Appeals.

As of April 30, 2016, the Company has accrued $375,000 in recognition of the current judgment entered against the
Company.

F-36

ONE SOURCE. GLOBAL OPTIONS.® SigmaTron’s global perspective is supported by a growing
number of diverse locations around the globe. Our proprietary IT infrastructure and local program
managers allow us to respond in real time, to provide single-source efﬁciency in response to our
customers’ needs, wherever they are in the world.

UNITED STATES

MEXICO

ASIA

Manufacturing/Design
SigmaTron International, Inc.
Corporate Headquarters
Midwest Operations
Elk Grove Village, Illinois

Warehouses
Del Rio, Texas
El Paso, Texas
San Diego, California

West Coast Operations
Union City, California

Spitﬁre Controls Division
Elgin, Illinois

Manufacturing
SigmaTron International, Inc.
Mexico Operations
Acuña Operations
Chihuahua Operations
Tijuana Operations

Manufacturing
SigmaTron International, Inc.
China Operations
Suzhou, China

SigmaTron International, Inc.
Vietnam Operations
Ho Chi Minh City, Vietnam

International
Procurement Ofﬁce
SigmaTron International, Inc.
Taiwan Procurement Ofﬁce
Taipei City, Taiwan

Firm: Ackerly Communications, LLC Copywriting/Art Direction: Mary Ackerly Design: Lisa Romanowski Proofreading: Deborah Livingstone Printer: Dreamworks Graphic Communications, LLC

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

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

CORPORATE INFORMATION

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

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.