SigmaTron International Inc.
Annual Report 2017

Plain-text annual report

SIGMATRON INTERNATIONAL, INC. ANNUAL REPORT 2017 EMS EXCELLENCE... INNOVATIVE. FLEXIBLE. GLOBAL. TRUSTED. EMS EXCELLENCE... TRUSTED. EMS EXCELLENCE... INNOVATIVE. FLEXIBLE. GLOBAL. . . . . . . . . . . ▼ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (NASDAQ: SGMA) is an electronic manufacturing services (EMS) SIGMATRON 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 four countries, 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 ensure we partner closely with customers to provide personalized program support from beginning to end. We offer superior EMS value, from design and engineering, and 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. ABOUT THE COVER For decades, and rare for a company our size, SigmaTron’s (SII’s) hallmarks: EMS Excellence: “Innovative. Flexible. Global. Trusted.” have constituted a “force multiplier” for our valued customers. SII’s strengths are helping win business, apparent in three technologically demanding programs profiled in this report. Specifically, when industrial, fitness and gaming market leaders sought to launch their latest patented technologies, SII was chosen as their EMS provider. . . . . . . . . ▲ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TO OUR STOCKHOLDERS For SigmaTron International, Inc. (“SigmaTron” or “SII”), Fiscal Year (FY) 2017 ended on an uptick. With our third quarter reflecting global economic volatility and pre-election uncertainty in the U.S., our fourth quarter (4Q) rebound links with favorable customer trends. Specifically, 4Q revenues increased to $65.6 million compared to $60.8 million for the same quarter in the prior fiscal year. Overall, since listing in 1994 as a public company on NASDAQ, SigmaTron’s revenues have grown from $36.6 million to $252.2 million in FY17. However, in FY17, revenues decreased to $252.2 million from $253.9 million in FY16. Net income decreased to $1,390,206 in FY17 compared to $2,082,659 in FY16. We have been managing through delays and volume decline from select customers, and the revenue volatility (not due to lost programs) impacted our organization as a whole. SII took proactive steps throughout the year to realign our customer strategy and to jumpstart programs slow to emerge from the pipeline. Facing FY17 growth challenges head-on, our stable year-end financial results reflect the steady hand of SII’s experienced management team, supported by a committed workforce. FY17 RESULTS AND FY18 MARKET OUTLOOK By SII’s fiscal year-end in April, long-lagging U.S. manufacturing output saw its strongest gain since early 2014, and the International Business Indicator’s metric on global business was the highest it has been in four years. When polled in 2017, U.S. companies expressed optimism about international business and emerging market opportunities in the year ahead. Given our strengths for an EMS company our size and numerous committed customers such as the three profiled in this report, SII remains encouraged about where we stand today, and our prospects for FY18. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SIGMATRON GROWTH IN REVENUES DOLLARS IN MILLIONS (USD). 1997 2008 2017 $87 $168 $252 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▲ . . . . . .. “The U.S. industrial sector was widely reported to be on a growth path, with the U.S. industrial production rising in April (2017) at the fastest pace in more than three years, and long-lagging manufacturing output’s strongest gain since early 2014.” | The Wall Street Journal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▲ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 17 SIGMATRON INTERNATIONAL 1 EMS EXCELLENCE: INNOVATIVE. FLEXIBLE. GLOBAL. TRUSTED. Since our founding, SII has emphasized EMS EXCELLENCE as we built a sustainable, competitively advantaged business and met the needs of a diverse and demanding customer base. For decades, and rare for a company our size, SigmaTron’s hallmarks: EMS Excellence: “Innovative. Flexible. Global. Trusted.” have constituted a “force multiplier” for our valued customers in FY17. And, SII’s strengths are helping win business — apparent in the three technologically demanding programs profiled in this report. Specifically, when industrial, fitness and gaming market leaders sought to launch their latest patented technologies, SII was chosen as their EMS provider. INNOVATIVE. ▲ Informed by over 20 years of market insight and experience, SII adds design, prototyping and manufacturing synergy to the engineering talent already present in our customers’ local and global teams. Since acquiring Spitfire Controls Design and Engineering Center (FY13) and with our Union City, California operation based in the cradle of American technological innovation, we leverage some of the latest technologies that align with our customers’ market-critical needs. Branded into SII’s culture are personalized program teams that ensure that customers benefit by all we have to offer. Throughout FY17, our program innovations often connected us to expanded business and added a barrier to entry for others amidst an increasingly competitive EMS marketplace. FLEXIBLE. ▲ A differentiating strength of our business model is SII’s flexibility in our human capital, supply chain and manufacturing service network across geographies and markets. For the eight markets we serve, SII’s IT and Supply Chain platform, in particular, allow SII to flexibly respond to changes (scale and specifications) for complex EMS programs, with integrated real-time information and process system updates. Our agility helps drive success at each production stage: engineering and design, prototyping, manufacturing and test. GLOBAL. ▲ In FY17 SII merited customer service awards in three different countries in which we manufacture. For decades, SII has offered customers a global program team and network through our seven facilities in the United States, Mexico, China and Vietnam. In FY17, two of these, Mexico and China, were among the three countries ranked highest for driving optimism in U.S. business development. Net/net, from local contact points, SII’s global support service network integrates and differentiates SigmaTron across markets and customer segments. TRUSTED. ▲ Our founding philosophy — “If we excel at taking care of our customers, we will win in the markets we serve” — is manifest throughout FY17 as we experienced customer trust and loyalty levels reflected in our long- term relationships. Evidenced by the customers featured in this report, our technical and service commitments net personalized program support from beginning to end. In FY17, we also enhanced inventory controls, Manufacturing Execution System (MES) and expanded benefits to Score® including cross-divisional component tracing. SII helped mitigate the industry’s actual (or risk of) lead time increases for sourced components required for our customer products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▲ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SIGMATRON INTERNATIONAL 2017 “SigmaTron’s support and manufacturing footprint provide flexibility for Life Fitness to advance our production schedules to meet the needs of our customers. In an industry predicated on meeting custom requirements, partnering with SII is a true asset.” Jason M. Adams | Director, Strategic Sourcing & Procurement | Life Fitness EMS SYNERGY, FOR OVER THREE DECADES LIFE FITNESS – A Brunswick Company, Life Fitness (LF) is an American fitness equipment company with 12 manufacturing facilities and distribution in over 120 countries. It is known globally as the innovator of the first electronic exercise equipment, the Lifecycle exercise bike. With our “One Source. Global Options.®” positioning and operations in countries where Life Fitness does business, SigmaTron International (SII) has served as an EMS provider to LF for over 30 of its 45-year history. The synergy of our organizations drives the highest standards of design, manufacturing and testing for existing and new products, each paced to remain ahead of the latest technology. Featured here, SII worked closely with LF Purchasing team in each stage of the company’s Elevation Series, just one such collaboration in LF’s luxury cardio equipment line. Production launch began in FY15, and after meeting rigorous standards of Design for Manufacturability (DFM) and Design for Test (DFT), progressed to finished goods. Preceding launch, dual facilities at SII aligned with LF to support in-house fixturing for precision assembly of the user interface control console, ultimately passing LF-engineered custom test standards. Currently rated a “Top Pick” in commercial treadmills, the product’s “Explore” console pairs FlexDeck technology with its Quick NavDial’s sleek design, Internet (wireless or wired) and Bluetooth® functionality. ▼ Photo: © 2017 Life Fitness, A Brunswick Company. All rights reserved. ...........................................................▲.......................................................................EMS EXCELLENCE. IN EACH GLOBAL LOCATION, SII provides highest-quality assemblies with state-of-the-art EMS, testing and quality control systems, and expanded industry-specific certifications. SII delivers service excellence worldwide through a central point of contact, a global IT and supply chain infrastructure, and systems for real-time process visibility and reporting. From Spitfire Controls, our design and engineering services deliver systems integration, with electronic controls that match performance specifications to other key components of a customer’s product. . . . . . . . . . ▼ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . UNITED STATES Manufacturing/Design SigmaTron International, Inc. Corporate Headquarters Midwest Operations Elk Grove Village, Illinois West Coast Operations Union City, California Spitfire Controls Division Elgin, Illinois Warehouses Del Rio, Texas El Paso, Texas San Diego, California MEXICO Manufacturing SigmaTron International, Inc. Mexico Operations Acuña Operations Chihuahua Operations Tijuana Operations ASIA 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 DIVISIONAL PROGRESS: UNITED STATES Elk Grove Village, Illinois. As company headquarters and a key manufacturing site, Elk Grove Village (EGV) helps position SigmaTron as a total solutions EMS provider by delivering front-end design and engineering services through commercial-ready (packaged) product. As in prior years, EGV capabilities were key to low-to-mid volume, high-mix and high-flexibility orders. The scope and mix of programs that emerged from the pipeline in FY17, and continuing into FY18, are the highest ever reported. In response to demand, EGV expanded plant space with a dedicated box-build area reflecting the increased demand for electromechanical subassemblies and complete products. EGV also added state-of-the-art equipment to advance standards of automation, productivity and quality. Spitfire Controls Design and Engineering Center, Elgin, Illinois. In FY17, the Spitfire Controls Design and Engineering Center (SF) continued to infuse design engineering, project management and test-engineering expertise into the highest number of sister division programs since its acquisition by SII in FY13. SF’s contribution led to program expansion for a number of new and existing category leaders in the industrial and industrial-appliance markets. The division continues to offer more than a decade of expertise in design for manufacturability (DFM) analysis and has a track record of addressing complex design challenges with cost-competitive solutions. SF’s focus, to drive new intellectual property, will continue in FY18 for customers who value high quality and field reliability in their new product development. Union City, California. Again in FY17, our Union City (UC) operation served high- complexity programs with leading edge, assembly technologies. UC also expanded its Surface Mount Technology (SMT) lines amidst the highest number of programs served in seven years. For a third consecutive year, the division merited a “Platinum Supplier” award from St. Jude Medical Center. With its track record in medical programs, UC in FY17 started the lengthy process to achieve FDA registration. Once realized, it will help the division meet a long-term goal to diversify accounts in medical markets. UC is at-the-ready for account expansion in FY18, especially in the gaming and industrial sectors. The division continued support to regional customers who benefit from California’s geographic proximity to our operations in Mexico. . . . . . . . . . ▲ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 SIGMATRON INTERNATIONAL 2017 “Reflecting on our two-year partnership, IGT benefits from SII’s expansive capabilities and geographic coverage and fully utilizes of the company’s engineering capabilities – with prototypes driven to full production. A mutual focus on communication, flexibility, cost and quality characterizes success.” Nancy Sarmento, CPM, CSCP, CPSM | Commodity Specialist IV | IGT Global Procurement~Commodity Management . . . . . . . . . ▼ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▼ EMS INNOVATION, THE GLOBAL LEADER IN GAMING INTERNATIONAL GAME TECHNOLOGY PLC – IGT is a world leader in end-to-end gaming that delivers top-performing products and services to legal, regulated gaming operators in over 100 countries across six continents. SigmaTron first collaborated with IGT in FY14 supporting its launch of 3D gaming technology. For IGT, recent EMS programs resulted in the on-time launch of the company’s groundbreaking CrystalCurve TRUE 4D™ gaming technology in FY17. IGT’s TRUE 4D™ technology allows players to interact with gaming platforms suffused with 4D: mid-air haptics that produce physical sensations in the player’s hands. SII’s comprehensive services flowed initially from a single location but quickly expanded to include an arc of global facilities, each aligned to critically support IGT’s technically sophisticated designs. For SII, our “One Source. Global Options®” in China, Mexico and California provides seamless programs that help IGT continue pushing the boundaries in gaming. For TRUE 4D, SII’s manufacturing, engineering and prototyping, joined by custom manufacturing and test services, netted a series of highly complex PCBAs through finished goods. And, SII’s International Procurement Office (Taiwan) augmented IGT’s own supply chain, effectively aligning regulatory-compliant, critical and fast-changing component sourcing needs. Looking ahead, we commit to delivering IGT-cited success factors: quality, cost effectiveness, clear and concise communications, and a sense of execution urgency. . . . . . . . . . ▲ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Photo: © 2017 IGT. All rights reserved. SPHINX 4D and TRUE 4D are trademarks of IGT. EMS EXCELLENCE. EMS EXCELLENCE. DIVISIONAL PROGRESS: MEXICO DIVISIONAL PROGRESS: ASIA Acuña. The Acuña operation links the U.S. to one of Mexico’s lower-cost regions and offers access and a desirable cost-structure for customers that appreciate the North American connection. One of SII’s largest facilities, Acuña offers a balance of high-volume manufacturing and, as of this year, a total of 13 high- tech Surface Mount Technology (SMT) lines. While regional labor in all of Mexico is widely publicized as a tight commodity, experienced management remains vigilant and prepared to act to minimize the effect when possible. Chihuahua. In FY17, Chihuahua’s flexibility and customer commitment helped it to double manufacturing output for select customers and enhanced efficiency with improvements to major equipment utilization for final assembly. For a second consecutive year, the division expanded its SMT lines following business expansion in the industrial sector. Chihuahua enhanced its manufacturing and test (software and equipment) platforms to include new Automated Optical Inspection (AOI) and In-Circuit Test (ICT) equipment as it continued to grow. Tijuana. In direct response to customer demand for high-volume production, especially for automotive and industrial, Tijuana (TJ) implemented new technologies with expanded SMT and other equipment and enhanced manufacturing proficiencies. In FY17, TJ achieved ISO TS 16949 certification (automotive). With its capabilities and quality expansion, TJ added noteworthy customers in the automotive, gaming and industrial markets. For programs with medium- to high-run rates, TJ integrated a streamlined production configuration managed by its “Customer Focus Teams” aimed at extending quality and efficiency levels in FY18 and beyond. Suzhou, China. In FY17, from its modern, 200,000 square-foot facility, the Suzhou operation reported a standout year of accomplishments with at least seven new programs added to its base programs. These programs include complex box builds for the desirable automotive, industrial (including agricultural) and gaming markets. Suzhou’s results include “Supplier Excellence” awards from several customers. Suzhou expanded its box-build assembly line, added new and renovated plant floor spaces, and added new automatic test equipment. We enhanced “Customer Focus Teams” and Manufacturing Execution System (MES) software in order to support flexibility in the domestic market. Suzhou increased manufacturing flexibility (“any mix, any volume”) with award-winning Next Production Modular (NPM) plant technology, maximizing the return on equipment investment. In FY17, the division earned MFi Certification, the special licensing required to build Apple Computer products, and also applied for ISO 16949 (automotive) certification. Meeting a FY16 goal, the division also grew its domestic business for customers desiring an assembly provider to support the Chinese market directly. In Suzhou for FY18, many customer programs, some including breakthrough technologies, are expected to emerge from the late prototype stages and show promise of achieving volume production. Taipei, Taiwan – International Procurement Office (IPO). In FY17, SII’s International Procurement Office (IPO) in Taipei continued to manage companywide needs for sourcing and procurement, and ensure supplier quality, thereby remaining a highly valued differentiating strength for SigmaTron. Our IPO comprehensively connects a network of mid-sized technology firms with high quality and cost effective partners in Southeast Asia. Our IPO delivers value for customers (often across multiple factories) who require sources and procurement for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▲ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SIGMATRON INTERNATIONAL 201 7 “SigmaTron is integral to our global supplier network. SII’s New Product Introduction (NPI) expertise is key to achievement of our strategic goals and we look forward to continuing a successful, cross-functional relationship in FY18.” Tony Rakoczy | Midtronics Director of Global Supply Chain ▼ “2017 SUPPLIER OF THE YEAR” TO THE GLOBAL LEADER IN BATTERY MANAGEMENT SYSTEMS MIDTRONICS, INC. – Midtronics is the global leader in vehicle battery management with a reputation for innovation evident in nearly 200 U.S. patents and recognition as Crain’s Chicago Business Most Innovative Company. Midtronics selected SigmaTron as its EMS partner more than a decade ago, and, in 2017, the company recognized SII as its Supplier of the Year. SII’s most recent collaboration with Midtronics was key in launching the DSS-5000 Battery Diagnostic Service System. This new product features patented Conductance Profiling™ technology to provide more detailed information about battery State of Charge and State of Health. The DSS-5000 supports conventional lead acid batteries, plus new Absorbed Glass Mat and Enhanced Flooded Battery models and advanced vehicle systems, including start-stop. For the DSS-5000, manufacturing and custom test services flowed from our Elk Grove Village operation along with support engineering services from our Elgin facility. The result was a technologically sophisticated array of PCBAs and box builds customized to net unique product features: color touchscreen display with preprogrammed battery service apps; Vehicle Identification Number scanning to auto-identify vehicle and battery system information and create service records; and Wi-Fi and Bluetooth capabilities to support test data management and automated software updates via Midtronics Battery Management Information System program maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▲ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Photo: © 2017 Midtronics, Inc. All rights reserved. EMS EXCELLENCE. EMS EXCELLENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▼ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MEASURED OPTIMISM, RENEWED STRATEGY FOR LONG-TERM SUCCESS The SigmaTron of today is more expansive and diversified as a world-class provider of EMS and is serving the largest number of technologically sophisticated customers than at any other time in SigmaTron’s history. With our rebounded financial results in 4Q, we are pleased by the progress each of our divisions has made and do not recall a time when our relative strength and industry position has been this strong. Financial reports point to a more bullish mood in the economy, positive growth trends are reported in each of the markets we serve, and new customer projects are emerging from the pipeline in every division of the company. I am pleased to report that during 4Q we entered into a new relationship with U.S. Bank N.A. as our primary bank, which provides access to significant additional working capital that will support our anticipated growth. Yet with a number of unknowns about the U.S. Administration’s pro-growth policy outcomes, we plan to remain fiscally conservative and vigilant. As always, I thank our employees, our Board of Directors and our professional firms for helping us navigate an economy in transition. We appreciate our customers and value their partnerships, whether they are new or long-standing. And, as we work with members of our supply chain on programs that allow us to be more productive, we thank them for helping us meet our mutual goals. Sincerely, Gary R. Fairhead President and Chief Executive Officer SigmaTron International, Inc. August 11, 2017 initial parts and materials, and also for subsequent, scaled-up runs. Our procurement communications serve SII systemwide, driving success to even the most complex, business transactions. In many cases, supply chain industry challenges are the result of consolidation of manufacturers, the rapid growth of automotive electronics and resumption in overall growth of EMS. This year, with decades of experience, our Taiwan IPO supported global customers by expertly helping to mitigate the well-publicized industrywide shortages and component lead-time increases publicized throughout FY17. Ho Chi Minh City, Vietnam. SII’s Vietnam operation continues to augment our China operation to serve customers’ EMS needs in Asia, and offers highly experienced management and program teams. Ho Chi Minh City’s long history of EMS, prior to and following SII’s FY12 acquisition, allows customers to capitalize on strategically located, reduced-cost manufacturing with valued insights into the region’s strengths. In FY17, the division reported noteworthy strides toward long-term, continuous-improvement initiatives and invested in new production and process efficiencies. For one, the Ho Chi Minh City operation expanded Tango™ information software to further standardize and integrate systems such as component traceability, while reducing production waste and inefficiency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▲ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SIGMATRON INTERNATIONAL 2017 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, 2017. Or Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from ___________to___________. Commission file number 0-23248 SIGMATRON INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 2201 Landmeier Rd., Elk Grove Village, IL (Address of principal executive offices) Registrant’s telephone number, including area code: 847-956-8000 Securities registered pursuant to Section 12(b) of the Act: 36-3918470 (I.R.S. Employer Identification Number) 60007 (Zip Code) Title of each class Common Stock $0.01 par value per share 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer (cid:134) Accelerated filer (cid:134) Non-accelerated filer (cid:134) Smaller reporting company (cid:58) Emerging growth company (cid:134) If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:134) 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, 2016 (the last business day of the registrant’s most recently completed second fiscal quarter) was $19,568,957 based on the closing sale price of $5.26 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 20, 2017 was 4,195,813. DOCUMENTS INCORPORATED BY REFERENCE Certain sections or portions of the definitive proxy statement of SigmaTron International, Inc., for use in connection with its 2017 annual meeting of stockholders, which the Company intends to file within 120 days of the fiscal year ended April 30, 2017, are incorporated by reference into Part III of this Form 10-K. 2 TABLE OF CONTENTS BUSINESS ITEM 1. ITEM 1A. RISK FACTORS ITEM IB. UNRESOLVED STAFF COMMENTS ITEM 2. ITEM 3. ITEM 4. MINE SAFETY DISCLOSURES PROPERTIES LEGAL PROCEEDINGS ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES SELECTED FINANCIAL DATA ITEM 6. ITEM 7. 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 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 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 ITEM 14. DIRECTOR INDEPENDENCE PRINCIPAL ACCOUNTANT FEES AND SERVICES PART I PART II PART III PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES ITEM 16. 10-K SUMMARY SIGNATURES 3 4 10 17 18 19 19 20 21 21 31 31 31 31 32 32 32 32 32 32 33 33 38 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, may be detailed from time to time in the Company’s filings with the Securities and Exchange Commission. These statements speak as of the date of such filings, and the Company undertakes no obligation to update such statements in light of future events or otherwise unless otherwise required by law. Overview SigmaTron is a Delaware corporation, which was organized on November 16, 1993, and commenced operations when it became the successor to all of the assets and liabilities of SigmaTron L.P., an Illinois limited partnership, through a reorganization on February 8, 1994. The Company operates in one business segment as an independent provider of electronic manufacturing services (“EMS”), which includes printed circuit board assemblies and completely assembled (box-build) electronic products. In connection with the production of assembled products, the Company also provides services to its customers, including (1) automatic and manual assembly and testing of products; (2) material sourcing and procurement; (3) manufacturing and test engineering support; (4) design services; (5) warehousing and distribution services; and (6) assistance in obtaining product approval from governmental and other regulatory bodies. The Company provides these manufacturing services through an international network of facilities located in the United States, Mexico, China, Vietnam and Taiwan. The Company provides manufacturing and assembly services ranging from the assembly of individual components to the assembly and testing of box-build electronic products. The Company has the ability to produce assemblies requiring mechanical as well as electronic capabilities. The products assembled by the 4 Company are then incorporated into finished products sold in various industries, particularly appliance, consumer electronics, gaming, fitness, industrial electronics, medical/life sciences, semiconductor and telecommunications. 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. 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 an international network of manufacturing facilities, 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 most of the services 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. 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 5 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, industrial electronics, consumer electronics, fitness, medical/life sciences, gaming, telecommunications and semiconductor equipment industries. As of April 30, 2017, the Company had approximately 175 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 Consumer Electronics Fitness Household appliance controls Motor controls, power supplies, lighting products, scales, joysticks Personal grooming, computers Treadmills, exercise bikes, cross trainers Medical/Life Sciences Clinical diagnostic systems and instruments Gaming Telecommunications Semiconductor Equipment Total Slot machines, lighting displays Routers, communication Process control and yield management equipment for semiconductor productions Fiscal 2017 % Fiscal 2016 % 43.3 50.1 31.2 30.1 8.5 6.8 4.5 3.6 1.1 1.0 4.2 7.3 4.5 0.8 1.0 2.0 100% 100% For the fiscal year ended April 30, 2017, the Company’s largest two customers, Electrolux and Whirlpool Inc., accounted for 26.7% and 12.6%, respectively, of the Company’s net sales. For the fiscal year ended April 30, 2016, Electrolux and Whirlpool Inc., accounted for 35.2% and 10.6%, respectively, of the Company’s net sales. 6 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 26 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 883 employees at April 30, 2017. 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 236 employees at April 30, 2017. 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 550 employees at April 30, 2017. 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 580 employees as of April 30, 2017. 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 305 employees as of April 30, 2017. 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 fluctuations for the fiscal year ended April 30, 2017 resulted in foreign currency transaction losses of approximately $508,000 compared to a net foreign currency loss of $59,000 in the prior year. In fiscal year 2017, the Company paid approximately $45,620,000 to its foreign subsidiaries. The Company has not recorded U.S. income taxes on the undistributed earnings of the Company’s foreign subsidiaries. Such earnings are considered to be indefinitely invested in the foreign subsidiaries. If such earnings were repatriated, additional tax expense may result. The cumulative amount of unremitted earnings for which U.S. income taxes have not been recorded is $10,672,000 as of April 30, 2017. The amount of U.S. income taxes on these earnings is impractical to compute due to the complexities of the hypothetical calculation. 7 During fiscal year 2017, the Company recorded tax expense of $78,100 related to the inability to realize the tax benefit recorded in fiscal year 2015 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, 2017 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 compliance with all such regulations, RoHS and 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 25, 2017, 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 $1,100,000 for the three most recently completed fiscal years ending April 30, 8 2017. 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, 2017 and 2016 was approximately $209,540,000 and $167,290,000, respectively. The Company anticipates a significant portion of the backlog at April 30, 2017 will ship in fiscal year 2018. 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 3,053 full-time employees as of April 30, 2017, including 219 engaged in engineering or engineering-related services, 2,414 in manufacturing and 420 in administrative and marketing functions. The Company has a labor contract with Chemical & Production Workers Union Local No. 30, AFL-CIO, covering the Company’s workers in Elk Grove Village, Illinois which expires on November 30, 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, 2018. 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. 9 Executive Officers of the Registrant Name Age Position Gary R. Fairhead 65 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 56 Chief Financial Officer, Vice President of Finance, Treasurer and Secretary since February 1994. Director of the Company since August 2011. Gregory A. Fairhead 61 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 56 Vice President, Director of Supply Chain and Assistant Secretary since February 1994. Daniel P. Camp 68 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 62 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 57 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. Prior to March 31, 2017 the Company had a senior secured credit facility with Wells Fargo, N.A. with a credit limit up to $30,000,000. The credit facility was collateralized by substantially all of the Company’s domestically located assets and the Company had pledged 65% of its equity ownership interest in some of its foreign entities. Prior to its payoff and termination, the Wells Fargo, N.A. senior secured credit facility was due to expire on October 31, 2018. On March 31, 2017, the Company paid the balance outstanding under the senior credit facility in the amount of $22,232,914. The remaining deferred financing costs of $68,475 were expensed in the fourth quarter of fiscal 2017. 10 On March 31, 2017, the Company entered into a $35,000,000 senior secured credit facility with U.S. Bank, N.A., which expires on March 31, 2022. The credit facility is collateralized by substantially all of the Company’s domestically located assets. The facility allows the Company to choose among interest rates at which it may borrow funds: the bank fixed rate of four percent or LIBOR plus one and one half percent (effectively 2.65% at April 30, 2017). Interest is due monthly. Under the senior secured credit facility, the Company may borrow up to the lesser of (i) $35,000,000 or (ii) an amount equal to a percentage of the eligible receivable borrowing base plus a percentage of the inventory borrowing base. Deferred financing costs of $207,647 were capitalized in the fourth quarter of fiscal 2017 and will be amortized over the term of the agreement. As of April 30, 2017, there was $23,178,429 outstanding and $11,821,571 of unused availability under the U.S. Bank, N.A. facility compared to an outstanding balance of $20,014,069 and $3,630,035 of unused availability under the Wells Fargo, N.A. senior credit facility at April 30, 2016. At April 30, 2017, the Company was in compliance with its financial covenant and other restricted covenants under the credit facility. On August 4, 2015, the Company’s wholly-owned subsidiary, Wujiang SigmaTron Electronics Co., Ltd entered into a credit facility with China Construction Bank. Under the agreement Wujiang SigmaTron Electronics Co., Ltd can borrow up to 5,000,000 Renminbi and the facility is collateralized by Wujiang SigmaTron Electronics Co., Ltd.’s manufacturing building. Interest is payable monthly and the facility bears a fixed interest rate of 6.67%. The facility was due to expire on August 3, 2017. The credit facility was closed as of March 1, 2017. There was no outstanding balance under the facility at April 30, 2017 or April 30, 2016. On March 24, 2017, the Company’s wholly-owned subsidiary, SigmaTron Electronic Technology Co., Ltd entered into a credit facility with China Construction Bank. Under the agreement SigmaTron Electronic Technology Co., Ltd can borrow up to 9,000,000 Renminbi and the facility is collateralized by Wujiang SigmaTron Electronics Co., Ltd.’s manufacturing building. Interest is payable monthly and the facility bears a fixed interest rate of 6.09%. The term of the facility extends to February 7, 2018. There was no outstanding balance under the facility at April 30, 2017. 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 2018. 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 11 - 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 55.2% and 61.9% of net sales for the fiscal years ended April 30, 2017 and 2016, respectively. For the year ended April 30, 2017, two customers accounted for 26.7% and 12.6%, respectively, of net sales of the Company, and 8.4% and 4.2%, respectively, of accounts receivable at April 30, 2017. 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. 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 12 - 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 operate and expand 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 14.0% and 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, 2017 and 2016, respectively. 13 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 fluctuations for the year ended April 30, 2017 resulted in foreign currency transaction losses of approximately $508,000 compared to a net foreign currency loss of $59,000 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. 14 Favorable labor relations are important to the Company. The Company currently has labor union contracts with its employees constituting approximately 50% and 45% of its workforce for fiscal years 2017 and 2016, respectively. 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. 15 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. If the security of the Company’s systems is breached or otherwise subjected to unauthorized access, the Company’s reputation may be severely harmed and it may be exposed to liability. The Company’s system stores confidential information which includes its financial information, its customers’ proprietary email distribution lists, product information, supplier information, and other critical data. Any accidental or willful security breaches or other unauthorized access could expose the Company to liability for the loss of such information, adverse regulatory action by federal and state governments, time-consuming and expensive litigation and other possible liabilities as well as negative publicity, which could severely damage the Company’s reputation. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in its software are exposed and exploited, and, as a result, a third party obtains unauthorized access to any of its customers’ data, its relationships with its customers may be severely damaged, and the Company could incur significant liability. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, the Company and its third-party hosting facilities may be unable to anticipate these techniques or to implement adequate preventive measures. In addition, many states have enacted laws requiring companies to notify customers of data security breaches involving their data. These mandatory disclosures regarding a security breach often lead to widespread negative publicity, which may cause the Company’s customers to lose confidence in the effectiveness of its data security measures. Any security breach whether actual or perceived, could harm the Company’s reputation, could cause it to lose customers and may negatively impact its ability to acquire new customers. With the increased use of technologies such as the Internet to conduct business, a company is susceptible to operational, information security and related risks. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyberattacks include, but are not limited to, gaining unauthorized access to digital systems (e.g., through “hacking” or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption (e.g., ransomware attacks). Cyberattacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites (i.e., efforts to make network services unavailable to intended users). Cyber incidents affecting the Company or its service providers have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Company’s ability to conduct business in the ordinary course, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, additional compliance costs and, in extreme cases, have caused companies to cease doing business. Cyber events also can affect counterparties or clients with which the Company does business, governmental and other regulatory authorities, banks, insurance 16 companies and other financial institutions, among others. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. While the Company has established risk management systems to prevent such cyber incidents, there are inherent limitations in such systems including the possibility that the Company has not prepared for certain risks that have not been or are not possible to have been identified. Further, the Company may be able to influence, but cannot control, the cyber security plans and systems put in place by its service providers or any other third parties whose operations may affect the Company. The Company could be negatively impacted as a result. ITEM 1B. UNRESOLVED STAFF COMMENTS None. 17 ITEM 2. PROPERTIES At April 30, 2017, 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 Taipei, Taiwan 4,685 International procurement office Elgin, IL 45,000 Design services San Diego, CA 30,240 Warehousing and distribution Leased 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 18 Rio, Texas properties expire December 2019. 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 2019. 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; and (d) 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. On October 16, 2015, the Company appealed the judgment to the Seventh Circuit Court of Appeals. On November 23, 2016, the U.S. District Court ruled that the plaintiff is entitled to an award for costs and attorneys’ fees. On November 29, 2016, the Seventh Circuit Court of Appeals affirmed the judgment of the U.S. District Court entered against the Company in December 2014. On January 30, 2017, the Company and Ms. Gracia settled the suit by entering into a confidential settlement and release agreement. The settlement was paid as of the fiscal year ended April 30, 2017. 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. 19 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, 2017 and 2016. Common Stock as Reported by NASDAQ Period High Low Fiscal 2017 Fourth Quarter Third Quarter Second Quarter First Quarter Fiscal 2016 Fourth Quarter Third Quarter Second Quarter First Quarter $ 5.45 5.50 6.81 6.20 $ 7.80 7.91 7.34 9.12 $ 4.01 4.34 5.25 5.42 $ 5.85 6.10 5.02 6.11 As of July 20, 2017, 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 2,623 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. 20 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 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, may be detailed from time to time in the Company’s filings with the Securities and Exchange Commission. These statements speak as of the date of such filings, and the Company undertakes no obligation to update such statements in light of future events or otherwise unless otherwise required by law. Overview The Company operates in one business segment as an independent provider of EMS, which includes printed circuit board assemblies and completely assembled (box-build) electronic products. In connection with the production of assembled products, the Company also provides services to its customers, including (1) automatic and manual assembly and testing of products; (2) material sourcing and procurement; (3) manufacturing and test engineering support; (4) design services; (5) warehousing and distribution services; and (6) assistance in obtaining product approval from governmental and other regulatory bodies. The Company provides these manufacturing services through an international network of facilities located in the United States, Mexico, China, Vietnam and Taiwan. 21 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. 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 1% of the Company’s revenues for each of the fiscal years ended April 30, 2017 and 2016. 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. The Company believes that the U.S. election results continue to drive a more positive attitude regarding the economy for calendar 2017 and at this time it expects the positive trend to continue. There has been some short-term volatility with the Company’s customers compared to three months ago. The Company does expect additional new customers to add to its revenue base in fiscal year 2018. The upturn in the economic outlook has created some additional challenges. The Company is seeing some shortages in the component marketplace that could affect its ability to meet our customers’ backlog. In all cases, the customer is working with the Company to address the issue with the supplier of the component. Margin pressures continue and the Company believes the additional revenue will assist it in managing those pressures. 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, lower of cost or market adjustment for inventory, contingent consideration, deferred taxes, uncertain tax positions, valuation allowance for deferred taxes and valuation of goodwill and 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 in time that title passes under the terms of the purchase order and control passes to the customer. 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 22 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 in time 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 - 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. 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 records these inventory reserves against the 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 results differing from these estimates could significantly affect the Company’s inventories and cost of products sold as the inventory is sold or otherwise relieved. 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, “Intangibles – Goodwill and Other,” 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, 2017 and determined no impairment existed as of that date. The step one analysis was performed using a combination of a market approach and an income approach based on a discounted cash flow approach. 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 first performs an impairment review 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, 23 revenue and expense growth rates. If the carrying value exceeds the undiscounted cash flows, the Company records an impairment, if any, for the difference between the estimated fair value of the asset group and its carrying value. The Company further conducts annual reviews for idle and underutilized equipment, and reviews business plans for possible impairment. As of April 30, 2017, 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 2016 financial statements to conform to the 2017 presentation. There was no change to net income. New Accounting Standards: In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers" (Topic 606) which supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition”. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue. In August 2015, the FASB amended the effective date to be annual reporting periods beginning after December 15, 2017, including interim periods within that year (effective the first quarter of the Company’s fiscal year ending April 30, 2019), with early adoption permitted for annual reporting periods beginning after December 15, 2016 including the interim period within that year. The FASB issued 24 several amendments clarifying various aspects of the ASU, including revenue transactions that involve a third party, goods or services that are immaterial in the context of the contract and licensing arrangements. ASC 606 may be adopted on either a full retrospective or modified retrospective basis. The Company plans to adopt the ASU effective the first quarter of fiscal year ending April 30, 2019. As the new standard will supersede all existing revenue guidance affecting the Company, it could impact the timing and amounts of revenue and costs recognized from customer contracts. The Company has developed an implementation plan, which is currently in the assessment phase. The Company has not selected a transition method and is currently evaluating the impact that adoption of the standard will have on its consolidated financial statements and related disclosures. 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 cost 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 plans to adopt ASU No. 2015-11 for the fiscal year ending April 30, 2018 and does not expect the impact of the adoption of this ASU to have a material impact on the Company’s consolidated financial statements. 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 in the fiscal year ending April 30, 2020, 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 plans to adopt the ASU for the fiscal year ending April 30, 2018. Upon adoption of the ASU all share-based awards will continue to be accounted for as equity awards, excess tax benefits recognized on stock-based compensation expense will be reflected in the consolidated statements of income as a component of the provision for income taxes on a prospective basis, excess tax benefits recognized on stock-based compensation expense will be classified as an operating activity in the consolidated statements of cash flows on a prospective basis and the Company will elect to continue to estimate expected forfeitures over the course of a vesting period. 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, 25 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 ASU may have on its consolidated financial statements. In August 2016, the FASB issued ASU Update No. 2016-15, “Statement of Cash Flows- Classification of Certain Cash Receipts and Cash Payments,” which is intended to reduce diversity in practice in how certain transactions are classified in the statements of cash flows. This update will be effective for fiscal years beginning after December 15, 2017 (the Company’s fiscal year ending April 30, 2019), and interim periods within those fiscal years. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company plans to adopt the ASU in its fiscal year ending April 30, 2019 using the retrospective transition method. The Company does not expect the impact of the adoption of this ASU to have a material impact on the Company’s Consolidated Statements of Cash Flows. In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which removes the step 2 requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. Goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the recorded amount of goodwill. This guidance is effective for public companies for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and early adoption is permitted. The Company does not expect this guidance to have a significant impact on its financial statements and plans to adopt ASU No. 2017-04 in the first quarter of its fiscal year ending April 30, 2018. In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. For public companies, this ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company plans to adopt this ASU in the first quarter of its fiscal year ending April 30, 2019. The Company will apply the clarified definition of a business, as applicable, from the period of adoption. Results of Operations: FISCAL YEAR ENDED APRIL 30, 2017 COMPARED TO FISCAL YEAR ENDED APRIL 30, 2016 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 2017 100.0% 90.5 8.2 98.7 1.3% 2016 100.0% 90.0 8.3 98.3 1.7% Net sales decreased 0.7% to $252,235,794 in fiscal year 2017 from $253,904,146 in the prior year. The Company’s sales decreased in fiscal year 2017 in appliance, fitness and semiconductor equipment marketplaces as compared to the prior year. The decrease in sales dollars for these marketplaces was partially offset by a increase in sales dollars in the industrial electronics, consumer electronics, gaming and telecommunications 26 marketplaces. Revenues started an upward trend during the fourth fiscal quarter of fiscal year 2017. The Company remains optimistic that revenues in fiscal year 2018 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 55.2% and 61.9% of net sales for fiscal years 2017 and 2016, respectively. Gross profit decreased to $24,040,927, or 9.5% of net sales, in fiscal year 2017 compared to $25,518,531 or 10.1% of net sales, in the prior fiscal year. The decrease in gross profit dollars for fiscal year 2017 was the result of decreased sales and product mix. The decrease in the foregoing gross profit was partially offset by approximately $780,000 resulting from a change in estimate related to the inventory reserve. Margin pressures continue from both customers and vendors and will likely continue in fiscal year 2018. Selling and administrative expenses decreased in fiscal year 2017 to $20,774,729, or 8.2% of net sales compared to $21,194,211, or 8.3% of net sales, in fiscal year 2016. The decrease in selling and administrative dollars was attributable to sales salaries, professional fees and bonus expense. The decrease in the foregoing selling and administrative expenses were partially offset by an increase in purchasing salaries, accounting professional fees and commissions. Selling and administrative expenses decreased as a percent of net sales due to a decrease in total selling and administrative dollars in fiscal year 2017 compared to the prior year. Other income increased in fiscal year 2017 to $376,338 compared to $165,864 in the prior fiscal year. During fiscal year 2017 the Company recorded an insurance recovery gain in the amount of $276,967 to other income related to a claim in excess of book value for replacement machinery and equipment destroyed in a fire at one of its plants. Interest expense, net, increased to $1,135,853 in fiscal year 2017 compared to $1,004,988 in fiscal year 2016. Interest expense increased primarily due to the increased borrowings under the Company’s banking arrangements and mortgage obligations. Interest expense for fiscal year 2018 may increase if interest rates or borrowings, or both, increase during fiscal year 2018. In fiscal year 2017, income tax expense was $1,107,477 compared to income tax expense of $1,402,537 in fiscal year 2016. The effective rate for the years ended April 30, 2017 and 2016 was 44.3% and 40.2%, respectively. The decrease in income tax expense is due to a decrease in pre-tax income in the current year. The increase in the effective rate for the year ended April 30, 2017 is due to an unfavorable 4.0% adjustment for realized and unrealized currency gains, losses, and the remeasurement of certain items to the Company’s functional currency, as well as a valuation allowance for foreign tax credits that the Company does not believe are more likely than not to be used in the carryforward period. The Company reported net income of $1,390,206 in fiscal year 2017 compared to $2,082,659 for fiscal year 2016. Basic and diluted earnings per share for fiscal year 2017 were $0.33 each, compared to basic and diluted earnings per share of $0.50 and $0.49, respectively, for the year ended April 30, 2016. Liquidity and Capital Resources: Operating Activities. Cash flow used in operating activities was $53,761 for the fiscal year ended April 30, 2017 compared to cash flow provided by operating activities of $13,130,447 for the prior fiscal year. Cash flow used in operating activities was primarily the result of an increase in accounts receivable and inventory. Accounts receivable increased due to higher revenues in the fourth quarter of fiscal year 2017 compared to fiscal year 2016. Inventories increased primarily due to additional customer orders and the start up of new programs. The increase in accounts payable was the result of timing of payment to vendors. Net cash used in operations was partially offset by a decrease in income taxes receivable. Net cash used in operating activities was partially offset by net income excluding the non-cash effects of depreciation and amortization. 27 Cash flow provided by operating activities was $13,130,447 for the fiscal year ended April 30, 2016. Cash flow provided by operating activities was primarily the result of net income excluding 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 taxes receivable. Investing Activities. In fiscal year 2017, the Company purchased in cash $3,505,486 in machinery and equipment to be used in the ordinary course of business. The Company anticipates it may purchase up to $5,000,000, although there is no guaranty the Company will not exceed such amount, in machinery and equipment in fiscal year 2018, 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 2016, the Company purchased in cash $3,049,943 in machinery and equipment to be used in the ordinary course of business. The Company purchases were funded by its’ bank line of credit. Financing Activities. Cash provided by financing activities was $2,727,303 for the fiscal year ended April 30, 2017 compared to cash used in financing activities of $8,789,867 in fiscal year 2016. Cash provided by financing activities in fiscal year 2017 was primarily the result of increased net borrowings of approximately $4,875,000 under the credit facility, equipment notes and sale leaseback agreements. The additional borrowings were primarily to support the increase in customer orders. Cash used in financing activities was $8,789,867 for the fiscal year ended April 30, 2016. 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. Financing Summary. Notes Payable - Banks Prior to March 31, 2017 the Company had a senior secured credit facility with Wells Fargo, N.A. with a credit limit up to $30,000,000. The credit facility was collateralized by substantially all of the Company’s domestically located assets and the Company had pledged 65% of its equity ownership interest in some of its foreign entities. Prior to its payoff and termination, the Wells Fargo, N.A. senior secured credit facility was due to expire on October 31, 2018. On March 31, 2017, the Company paid the balance outstanding under the senior credit facility in the amount of $22,232,914. The remaining deferred financing costs of $68,475 were expensed in the fourth quarter of fiscal 2017. On March 31, 2017, the Company entered into a $35,000,000 senior secured credit facility with U.S. Bank, N.A., which expires on March 31, 2022. The credit facility is collateralized by substantially all of the Company’s domestically located assets. The facility allows the Company to choose among interest rates at which it may borrow funds: the bank fixed rate of four percent or LIBOR plus one and one half percent (effectively 2.65% at April 30, 2017). Interest is due monthly. Under the senior secured credit facility, the Company may borrow up to the lesser of (i) $35,000,000 or (ii) an amount equal to a percentage of the eligible receivable borrowing base plus a percentage of the inventory borrowing base. Deferred financing costs of $207,647 were capitalized in the fourth quarter of fiscal 2017 and will be amortized over the term of the agreement. As of April 30, 2017, there was $23,178,429 outstanding and $11,821,571 of unused availability under the U.S. Bank, N.A. facility compared to an outstanding balance of $20,014,069 and $3,630,035 of unused availability under the Wells Fargo, N.A. senior credit facility at April 30, 2016. At April 30, 2017, the Company was in compliance with its financial covenant and other restricted covenants under the credit facility. On August 4, 2015, the Company’s wholly-owned subsidiary, Wujiang SigmaTron Electronics Co., Ltd entered into a credit facility with China Construction Bank. Under the agreement Wujiang SigmaTron Electronics Co., Ltd can borrow up to 5,000,000 Renminbi and the facility is collateralized by Wujiang SigmaTron Electronics 28 Co., Ltd.’s manufacturing building. Interest is payable monthly and the facility bears a fixed interest rate of 6.67%. The facility was due to expire on August 3, 2017. The credit facility was closed as of March 1, 2017. There was no outstanding balance under the facility at April 30, 2017 or April 30, 2016. On March 24, 2017, the Company’s wholly-owned subsidiary, SigmaTron Electronic Technology Co., Ltd entered into a credit facility with China Construction Bank. Under the agreement SigmaTron Electronic Technology Co., Ltd can borrow up to 9,000,000 Renminbi and the facility is collateralized by Wujiang SigmaTron Electronics Co., Ltd.’s manufacturing building. Interest is payable monthly and the facility bears a fixed interest rate of 6.09%. The term on the facility extends to February 7, 2018. There was no outstanding balance under the facility at April 30, 2017. Notes 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. 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 3.25% at April 30, 2017) 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 $2,574,500 and $2,688,500 at April 30, 2017 and April 30, 2016, 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 $1,096,500 and $1,147,500 at April 30, 2017 and April 30, 2016, respectively. Notes Payable - Equipment On November 1, 2016, the Company entered into a secured note agreement with Engencap Fin S.A. DE C.V. to finance the purchase of equipment in the amount of $596,987. The term of the agreement extends to November 1, 2021 with average quarterly payments of $35,060 beginning on February 1, 2017 and a fixed interest rate of 6.65%. The balance outstanding under this note agreement was $567,138 at April 30, 2017. On February 1, 2017, the Company entered into a secured note agreement with Engencap Fin S.A. DE C.V. to finance the purchase of equipment in the amount of $335,825. The term of the agreement extends to February 1, 2022 with average quarterly payments of $20,031 beginning on May 1, 2017 and a fixed interest rate of 7.35%. The balance outstanding under this note agreement was $335,825 at April 30, 2017. Capital Lease and Sale Leaseback 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, 2017, the balance outstanding under these capital lease agreements was $0 compared to $106,767 in fiscal year 2016. The net book value of the equipment under these leases at April 30, 2017 was $589,524 compared to $703,424 at April 30, 2016. From October 2013 through April 2017, the Company entered into various capital lease and sale leaseback agreements with Associated Bank, National Association to purchase equipment totaling $6,240,562. The terms of the lease and sale leaseback agreements extend to September 2018 through March 2022 with monthly installment payments ranging from $1,455 to $40,173 and a fixed interest rate ranging from 3.75% to 4.95%. The balance outstanding under these capital lease and sale leaseback agreements was $3,627,760 and $2,599,820 at April 30, 2017 and April 30, 2016, respectively. The net book value of the equipment under these leases and sale leaseback agreements at April 30, 2017 was $4,713,044 compared to $3,224,661 at April 30, 2016. 29 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, 2017, the balance outstanding under these capital lease agreements was $1,448,269 compared to $1,886,069 in fiscal year 2016. The net book value of the equipment under these leases at April 30, 2017 was $1,946,026 compared to $2,155,363 at April 30, 2016. Operating Leases In September 2010, the Company entered into a real estate lease agreement in Union City, CA, to rent approximately 117,000 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 March 2021. The amount of deferred rent income recorded for the fiscal year ended April 30, 2017 was $79,575 compared to $51,509 in fiscal year 2016. In addition, the landlord provided the Company tenant incentives of $418,000, which are being amortized over the life of the lease. The balance of deferred rent at April 30, 2017 was $550,672 compared to $630,247 at April 30, 2016. On May 31, 2012, the Company entered into a lease agreement in Tijuana, Mexico, to rent approximately 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 deferred rent income for the fiscal year ended April 30, 2017 was $127,967 compared to $115,837 in fiscal year 2016. The balance of deferred rent at April 30, 2017 was $224,964 compared to $352,931 at April 30, 2016. Other 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 fluctuations for the fiscal year ended April 30, 2017 resulted in foreign currency transaction losses of approximately $508,000 compared to a net foreign currency loss of $59,000 in the prior year. In fiscal year 2017, the Company paid approximately $45,620,000 to its foreign subsidiaries. The Company has not recorded U.S. income taxes on the undistributed earnings of the Company’s foreign subsidiaries. Such earnings are considered to be indefinitely invested in the foreign subsidiaries. If such earnings were repatriated, additional tax expense may result. The cumulative amount of unremitted earnings for which U.S. income taxes have not been recorded is $10,672,000 as of April 30, 2017. The amount of U.S. income taxes on these earnings is impractical to compute due to the complexities of the hypothetical calculation. 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 2018. In addition, in the event the Company desires to expand its operations, its business grows more rapidly than expected, the current economic climate deteriorates, customers delay payments, or the Company desires to consummate an acquisition, additional financing resources may be necessary in the current or future fiscal years. There is no assurance that the Company will be able to obtain equity or debt financing at acceptable terms, or at all, in the future. There is no assurance that the Company will be able to retain or renew its credit agreements in the future, or that any retention or renewal will be on the same terms as currently exist. The impact of inflation on the Company’s net sales, revenues and income from operations for the past two fiscal years has been minimal. Off-balance Sheet Transactions: The Company has no off-balance sheet transactions. 30 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, 2017. 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, 2017. 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, 2017. 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, 2017, that has materially affected or is reasonably likely to materially affect, its internal control over financial reporting. 31 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. The Company is performing an analysis to evaluate what changes to its 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, the Company 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, 2017. ITEM 11. EXECUTIVE COMPENSATION The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended April 30, 2017. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended April 30, 2017. ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended April 30, 2017. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended April 30, 2017. 32 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 34. ITEM 16. 10-K SUMMARY None. 33 Index to Exhibits 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. 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.* 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.* 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.* 2004 Employee Stock Option Plan, incorporated herein by reference to Appendix B to the Company’s 2004 Proxy Statement filed on August 16, 2004. * 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.* 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. 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.* 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.* 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. 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. 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.* 3.1 3.2 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 10.11 34 10.12 10.13 10.14 10.15 10.16 10.17 10.18 10.19 10.20 10.21 10.22 10.23 10.24 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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.* SigmaTron International, Inc. 2013 Employee Stock Purchase Plan disclosed on Form 8-K dated September 20, 2013, has been terminated effective as of August 15, 2016, incorporated herein by reference to the Company’s Form 8-K filed on August 15, 2016.* 35 10.25 10.26 10.27 10.28 10.29 10.30 10.31 10.32 21.0 23.1 24.0 31.1 31.2 32.1 32.2 Lease No. 009, entered into July 15, 2016, is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between Associated Bank, National Association and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10- Q filed on September 13, 2016. Lease No. 010, entered into August 8, 2016, is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between Associated Bank, National Association and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10- Q filed on December 12, 2016. Promissory Note, entered into November 1, 2016, by and between ENGENCAP FIN, S.A. DE C.V., SOFOM, E.N.R. and SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on March 14, 2017. SigmaTron International, Inc. Employee Bonus Plan for Fiscal Year 2018 dated April 21, 2017, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on April 25, 2017* Promissory Note, entered into January 5, 2017, by and between ENGENCAP FIN, S.A. DE C.V., SOFOM, E.N.R. and SigmaTron International, Inc. ** Lease No. 011, entered into May 8, 2017, is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between Associated Bank, National Association and SigmaTron International, Inc.** Lease No. 012, entered into May 8, 2017, is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between Associated Bank, National Association and SigmaTron International, Inc.** Loan and Security Agreement between SigmaTron International, Inc. and U.S. Bank National Association dated March 31, 2017.** 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. Consent of BDO USA, LLP.** 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, 2017).** 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.** 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.** 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).** 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).** 36 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Scheme Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document * Indicates management contract or compensatory plan. ** Filed herewith (c) Exhibits The Company hereby files as exhibits to this Report the exhibits listed in Item 15(a)(3) above, which are attached hereto or incorporated herein. 37 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES SIGMATRON INTERNATIONAL, INC. By: /s/ Gary R. Fairhead Gary R. Fairhead, President and Chief Executive Officer, Principal Executive Officer and Director Dated: July 24, 2017 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 Title /s/ Gary R. Fairhead Gary R. Fairhead Chairman of the Board of Directors, President and Chief Executive Officer, (Principal Executive Officer) and Director /s/ Linda K. Frauendorfer Linda K. Frauendorfer Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer) and Director /s/ Thomas W. Rieck Thomas W. Rieck /s/ Dilip S. Vyas Dilip S. Vyas /s/ Paul J. Plante Paul J. Plante /s/ Barry R. Horek Barry R. Horek /s/ Bruce J. Mantia Bruce J. Mantia Director Director Director Director Director 38 Date July 24, 2017 July 24, 2017 July 24, 2017 July 24, 2017 July 24, 2017 July 24, 2017 July 24, 2017 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, 2017 and 2016 and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the years then ended. These 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) and in accordance with auditing standards generally accepted in the United States of America. 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, 2017 and 2016, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. BDO USA, LLP Chicago, Illinois July 24, 2017 F-2 SigmaTron International, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS APRIL 30, 2017 and 2016 ASSETS 2017 2016 CURRENT ASSETS Cash and cash equivalents Accounts receivable, less allowance for doubtful accounts of $100,000 at April 30, 2017 and 2016, respectively Inventories, net Prepaid expenses and other assets Refundable income taxes Note receivable Other receivables $ 3,493,324 $ 4,325,268 26,656,871 73,571,238 2,971,087 339,791 887,531 1,112,071 17,844,228 67,649,022 2,128,128 774,847 887,531 481,860 Total current assets 109,031,913 94,090,884 PROPERTY, MACHINERY AND EQUIPMENT, NET 33,008,714 33,080,858 OTHER LONG-TERM ASSETS Intangible assets, net Goodwill Deferred income taxes Other assets 4,213,235 3,222,899 236,087 1,472,816 4,703,245 3,222,899 233,057 1,418,398 Total other long-term assets 9,145,037 9,577,599 TOTAL ASSETS $ 151,185,664 $ 136,749,341 The accompanying notes are an integral part of these statements. F-3 SigmaTron International, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS – CONTINUED APRIL 30, 2017 and 2016 LIABILITIES AND STOCKHOLDERS’ EQUITY 2017 2016 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, 4,195,813 and 4,183,955 shares issued and outstanding at April 30, 2017 and 2016, 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 $ $ 44,859,344 3,623,106 4,489,602 69,868 351,562 1,711,204 286,240 220,288 37,011,786 2,772,301 4,199,147 - 165,000 1,374,898 275,288 187,889 55,611,214 45,986,309 27,192,246 23,572,152 3,364,825 3,217,758 237,578 991,017 555,348 1,361,291 875,793 870,542 795,289 1,355,620 33,702,305 30,687,154 89,313,519 76,673,463 - - 41,702 22,952,535 38,877,908 41,560 22,546,616 37,487,702 61,872,145 60,075,878 $ 151,185,664 $ 136,749,341 SigmaTron International, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME Years ended April 30, 2017 and 2016 Net sales Cost of products sold Gross profit 2017 2016 $ 252,235,794 $ 253,904,146 228,194,867 228,385,615 24,040,927 25,518,531 Selling and administrative expenses 20,774,729 21,194,211 Operating income 3,266,198 4,324,320 Other income, net Interest expense (367,338) 1,135,853 (165,864) 1,004,988 Income before income tax expense 2,497,683 3,485,196 Income tax expense 1,107,477 1,402,537 NET INCOME Earnings per common share Basic Diluted Weighted-average shares of common stock outstanding Basic Diluted $ $ $ 1,390,206 0.33 0.33 $ $ $ 2,082,659 0.50 0.49 4,186,183 4,164,815 4,213,592 4,224,030 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, 2017 and 2016 Capital in Preferred Common excess of par Total Retained stockholders’ stock stock value earnings equity Balance at May 1, 2015 $ - 40,703 21,239,641 35,405,043 56,685,387 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 and awards Net income Balance at April 30, 2016 Recognition of stock-based compensation Exercise of stock options Vesting of restricted stock Employee stock purchases Excess tax expense on stock options and awards Net income - - - - - - - - - - - - - - - - 20 - 740 97 - - - 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 2,082,659 41,560 22,546,616 37,487,702 60,075,878 - 12 332,783 4,308 113 60,536 8,330 (38) 17 - - - - - - - 332,783 4,320 60,649 8,347 (38) - 1,390,206 1,390,206 Balance at April 30, 2017 $ - $ 41,702 $ 22,952,535 $ 38,877,908 $ 61,872,145 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, 2017 and 2016 Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization Stock-based compensation Restricted stock expense Increase in inventory obsolescence reserve Tax benefit from contingent consideration Deferred income tax expense Amortization of intangible assets Amortization of financing fees Fair value adjustment of contingent consideration Loss from disposal or sale of machinery and equipment Gain from involuntary conversion on non-monetary assets due to fire Changes in assets and liabilities Accounts receivable Inventories Prepaid expenses and other assets Refundable income taxes Income taxes payable Trade accounts payable Deferred rent Accrued expenses and wages Net cash (used in) provided by operating activities Cash flows from investing activities Purchases of machinery and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from the exercise of common stock options Proceeds from the sale of restricted stock Proceeds from Employee stock purchases Proceeds under equipment note Proceeds under sale leaseback agreements Proceeds from tax benefit on stock options and awards Tax expense on stock options and awards Payments of contingent consideration Payments under capital lease and sale leaseback agreements Payments under equipment note Payments under building notes payable Borrowings under lines of credit Payments under lines of credit Payments of financing fees Tax benefit from contingent consideration Net cash provided by (used in) financing activities 2017 2016 $ 1,390,206 $ 2,082,659 4,708,876 332,783 60,649 300,000 - 2,641 490,010 111,981 (353,591) 58,456 (276,967) (8,812,643) (6,222,216) (1,092,816) 435,056 69,868 7,847,558 (207,542) 1,103,930 (53,761) 5,119,376 588,245 69,400 - (23,972) 775,477 470,899 53,497 (5,742) 23,101 - 1,438,964 1,020,687 40,583 (693,801) (141,297) 1,173,511 (167,345) 1,472,619 13,296,861 (3,505,486) (3,505,486) (3,049,943) (3,049,943) 4,320 - 8,347 932,812 904,027 - (38) (273,672) (1,610,356) (29,850) (165,000) 94,123,100 (90,958,740) (207,647) - 2,727,303 7,200 518,000 52,266 - - 48,749 - (342,162) (1,363,754) - (165,000) 194,424,157 (201,826,881) (166,414) 23,972 (8,789,867) Change in cash (831,944) 1,457,051 F-7 SigmaTron International, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED Years ended April 30, 2017 and 2016 Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year $ 4,325,268 3,493,324 $ 2,868,217 4,325,268 Supplementary disclosures of cash flow information Cash paid for interest Cash paid for income taxes Purchase of machinery and equipment financed under capital leases Financing of insurance policy Conversion of accounts receivable into a note receivable The accompanying notes are an integral part of these statements. 2017 2016 $ 994,583 603,091 $ 964,537 1,634,772 1,189,701 157,805 - 1,308,865 159,616 887,531 F-8 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2017 and 2016 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, 2017, the Company provided these manufacturing services through an international network of facilities located in the United States, Mexico, China, Vietnam and Taiwan. Approximately 14.0% and 15.0% of the total non-current consolidated assets of the Company are located outside of the United States as of April 30, 2017 and 2016, 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, 2017 resulted in foreign currency transaction losses of approximately $508,000 compared to a net foreign currency loss of $59,000 in the prior year and is included in cost of products sold. 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, contingent consideration, deferred taxes, uncertain tax positions, valuation allowance for deferred taxes and valuation of goodwill and 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, 2017 and 2016 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. The Company has arrangements with various financial institutions to sell certain eligible accounts receivable balances from specific customers. The accounts receivable balances sold are at the election of the Company and the Company incurred fees for such sales, which were not material for the year ended April 30, 2017 or 2016. The accounts receivable balances are derecognized at the time of sale, as the Company does not have continuing involvement after the point of sale. During the years ended April 30, 2017 and 2016, the Company sold without recourse trade receivables of approximately $95,000,000 and $115,000,000, respectively. Cash proceeds from these agreements are reflected as operating activities included in the change in accounts receivable in the Company's Consolidated Statements of Cash Flows. 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 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. 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 records these inventory reserves against the 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 results differing from these estimates could significantly affect the Company’s inventories and cost of products sold as the inventory is sold or otherwise relieved. F-10 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 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 effective interest method over the term of the related debt. Deferred financing fees of $208,583 and $112,917 net of accumulated amortization of $11,916 and $443,763, respectively, as of April 30, 2017 and 2016, respectively, are deducted from long term debt 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. F-11 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Income Taxes - Continued The Company adjusts its tax liabilities when its judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from its current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined. Earnings per Share Basic earnings per share are computed by dividing net income (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. The computation of diluted earnings per share is similar to the computation of basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common stock equivalents such as stock options and restricted stock, had been exercised or vested. There were no anti-dilutive common stock equivalents at April 30, 2016. There were 285,000, anti-dilutive common stock equivalents at April 30, 2017, which have been excluded from the calculation of diluted earnings per share. Twelve Months Ended April 30, 2017 2016 $ 1,390,206 $ 2,082,659 4,186,183 27,409 4,164,815 59,215 4,213,592 4,224,030 $ $ 0.33 0.33 $ $ 0.50 0.49 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 in time that title passes under the terms of the purchase order and control passes to the customer. 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 in time 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 F-12 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Revenue Recognition - Continued 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. 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 2017 or 2016. 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, note receivable, other receivables, accounts payable and accrued expenses which approximate fair value at April 30, 2017 and 2016, 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, “Intangibles – Goodwill and Other,” 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 F-13 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Goodwill - Continued 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, 2017 and determined no impairment existed as of that date. The step one analysis was performed using a combination of a market approach and an income approach based on a discounted cash flow approach. 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 first performs an impairment review 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. If the carrying value exceeds the undiscounted cash flows, the Company records an impairment, if any, for the difference between the estimated fair value of the asset group and its carrying value. The Company further conducts annual reviews for idle and underutilized equipment, and reviews business plans for possible impairment. As of April 30, 2017, 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 2016 financial statements to conform to the 2017 presentation. There was no change to net income. F-14 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued New Accounting Standards In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers" (Topic 606) which supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition”. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue. In August 2015, the FASB amended the effective date to be annual reporting periods beginning after December 15, 2017, including interim periods within that year (effective the first quarter of the Company’s fiscal year ending April 30, 2019), with early adoption permitted for annual reporting periods beginning after December 15, 2016 including the interim period within that year. The FASB issued several amendments clarifying various aspects of the ASU, including revenue transactions that involve a third party, goods or services that are immaterial in the context of the contract and licensing arrangements. ASC 606 may be adopted on either a full retrospective or modified retrospective basis. The Company plans to adopt the ASU effective the first quarter of fiscal year ending April 30, 2019. As the new standard will supersede all existing revenue guidance affecting the Company, it could impact the timing and amounts of revenue and costs recognized from customer contracts. The Company has developed an implementation plan, which is currently in the assessment phase. The Company has not selected a transition method and is currently evaluating the impact that adoption of the standard will have on its consolidated financial statements and related disclosures. 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 cost 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 plans to adopt ASU No. 2015- 11 for the fiscal year ending April 30, 2018 and does not expect the impact of the adoption of this ASU to have a material impact on the Company’s consolidated financial statements. 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 in the fiscal year ending April 30, 2020, 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. F-15 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued New Accounting Standards - Continued This update is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company plans to adopt the ASU for the fiscal year ending April 30, 2018. Upon adoption of the ASU all share-based awards will continue to be accounted for as equity awards, excess tax benefits recognized on stock-based compensation expense will be reflected in the consolidated statements of income as a component of the provision for income taxes on a prospective basis, excess tax benefits recognized on stock-based compensation expense will be classified as an operating activity in the consolidated statements of cash flows on a prospective basis and the Company will elect to continue to estimate expected forfeitures over the course of a vesting period. 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 ASU may have on its consolidated financial statements. In August 2016, the FASB issued ASU Update No. 2016-15, “Statement of Cash Flows- Classification of Certain Cash Receipts and Cash Payments,” which is intended to reduce diversity in practice in how certain transactions are classified in the statements of cash flows. This update will be effective for fiscal years beginning after December 15, 2017 (the Company’s fiscal year ending April 30, 2019), and interim periods within those fiscal years. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company plans to adopt the ASU in its fiscal year ending April 30, 2019 using the retrospective transition method. The Company does not expect the impact of the adoption of this ASU to have a material impact on the Company’s Consolidated Statements of Cash Flows. In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which removes the step 2 requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. Goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the recorded amount of goodwill. This guidance is effective for public companies for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and early adoption is permitted. The Company does not expect this guidance to have a significant impact on its financial statements and plans to adopt ASU No. 2017-04 in the first quarter of its fiscal year ending April 30, 2018. In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. For public companies, this ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company plans to adopt this ASU in the first quarter of its fiscal year ending April 30, 2019. The Company will apply the clarified definition of a business, as applicable, from the period of adoption. F-16 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 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 2017 $ 100,000 - - $ 100,000 2016 186,844 - (86,844) 100,000 $ $ NOTE D - INVENTORIES Inventories consist of the following at April 30: 2017 2016 Finished products Work-in-process Raw materials Less obsolescence reserve $ $ 20,291,768 1,795,852 52,748,542 74,836,162 1,264,924 73,571,238 Changes in the Company’s inventory obsolescence reserve are as follows: Beginning balance Provision for obsolescence Write-offs 2017 1,212,532 300,000 (247,608) 1,264,924 $ $ $ $ $ $ 23,295,138 3,035,459 42,530,957 68,861,554 1,212,532 67,649,022 2016 1,276,386 - (63,854) 1,212,532 F-17 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 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, 2017, the Company had an outstanding note receivable and account receivable from that customer of approximately $888,000 and $1,271,000, respectively, compared to an outstanding note receivable and account receivable of approximately $888,000 and $233,000, respectively, at April 30, 2016. As of April 30, 2017, inventory on hand related to this customer approximated $310,000 compared to $1,600,000 at April 30, 2016. Sales to this customer have not been material for fiscal year 2017. On January 29, 2016, the Company entered into a memorandum of understanding with this customer. Under the subsequent agreement, effective January 29, 2016, the then 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 was scheduled to mature at the earlier of October 31, 2016, or 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. On December 6, 2016 the Company extended the maturity of the promissory note to July 31, 2017. The promissory note continues to bear interest at the rate of 8% per annum, payable monthly. As consideration, the Company received additional warrants under the agreement, which the Company currently believes have nil value. Management continues to assess whether the recorded accounts receivable, notes receivable and inventory are recoverable and whether reserves are necessary. This assessment includes 1) the customer’s successful efforts to raise capital in the past; 2) the status of the customer’s current progress in raising capital; and 3) orders that continue to come in from large big-box and online customers. The Company further improved its priority position as a secured creditor in a potential sale, liquidation or bankruptcy filing by or against the customer based on an amendment to the security agreement executed by the Company and the customer. Based on these factors, the Company believes the accounts receivable, notes receivable and inventory are recoverable as of April 30, 2017. However, in the event the customer fails to raise additional capital in the short term, the Company may not receive payment in full of the obligations owed by the customer or payments by the customer to the Company may be further delayed. The Company will continue to monitor and assess any need to record a reserve against this obligation. F-18 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 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 $2,940,833 and $1,972,085 at April 30, 2017 and 2016, respectively Property, machinery and equipment, net $ 2017 2016 16,969,769 $ 16,220,619 58,428,733 57,604,080 9,601,149 9,134,187 2,622,870 2,566,250 10,119,412 8,055,533 97,741,933 93,580,669 64,733,219 60,499,811 $ 33,008,714 $ 33,080,858 Depreciation and amortization expense of property, machinery and equipment was $4,708,876 and $5,119,376 for the years ended April 30, 2017 and 2016, respectively. F-19 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 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, 2017 and 2016. Other Intangible Assets Intangible assets subject to amortization are summarized as of April 30, 2017 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 - - $ 375,000 $ 2,395,000 10.08 - 15.08 2.08 0.08 4,690,000 22,000 980,000 50,000 400,000 8,912,000 $ $ 375,000 2,395,000 1,237,410 22,000 240,897 35,105 393,353 4,698,765 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 - - $ 375,000 $ 2,395,000 11.08 - 16.08 3.08 1.08 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 F-20 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 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: (cid:3) (cid:3) (cid:3) 2018 2019 2020 2021 2022 Thereafter (cid:3) (cid:3) (cid:3) $ $ 435,043 423,721 411,406 403,199 395,578 2,144,288 4,213,235 Amortization expense was $490,010 and $470,899 for the years ended April 30, 2017 and 2016, 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. The Company made payments totaling $273,672 during fiscal year 2017. During fiscal year 2017 the Company decreased the estimated remaining payments expected to be paid under the agreement, which resulted in a decrease of $353,591 to the contingent consideration liability. 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, 2017, the contingent consideration liability was $523,818 compared to $1,151,081 at April 30, 2016. F-21 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 NOTE H - LONG-TERM DEBT Note Payable - Bank Prior to March 31, 2017 the Company had a senior secured credit facility with Wells Fargo, N.A. with a credit limit up to $30,000,000. The credit facility was collateralized by substantially all of the Company’s domestically located assets and the Company had pledged 65% of its equity ownership interest in some of its foreign entities. Prior to its payoff and termination, the Wells Fargo, N.A. senior secured credit facility was due to expire on October 31, 2018. On March 31, 2017, the Company paid the balance outstanding under the senior credit facility in the amount of $22,232,914. The remaining deferred financing costs of $68,475 were expensed in the fourth quarter of fiscal 2017. On March 31, 2017, the Company entered into a $35,000,000 senior secured credit facility with U.S. Bank, N.A., which expires on March 31, 2022. The credit facility is collateralized by substantially all of the Company’s domestically located assets. The facility allows the Company to choose among interest rates at which it may borrow funds: the bank fixed rate of four percent or LIBOR plus one and one half percent (effectively 2.65% at April 30, 2017). Interest is due monthly. Under the senior secured credit facility, the Company may borrow up to the lesser of (i) $35,000,000 or (ii) an amount equal to a percentage of the eligible receivable borrowing base plus a percentage of the inventory borrowing base. Deferred financing costs of $207,647 were capitalized in the fourth quarter of fiscal 2017 and will be amortized over the term of the agreement. As of April 30, 2017, there was $23,178,429 outstanding and $11,821,571 of unused availability under the U.S. Bank, N.A. facility compared to an outstanding balance of $20,014,069 and $3,630,035 of unused availability under the Wells Fargo, N.A. senior credit facility at April 30, 2016. At April 30, 2017, the Company was in compliance with its financial covenant and other restricted covenants under the credit facility. On August 4, 2015, the Company’s wholly-owned subsidiary, Wujiang SigmaTron Electronics Co., Ltd entered into a credit facility with China Construction Bank. Under the agreement Wujiang SigmaTron Electronics Co., Ltd can borrow up to 5,000,000 Renminbi and the facility is collateralized by Wujiang SigmaTron Electronics Co., Ltd.’s manufacturing building. Interest is payable monthly and the facility bears a fixed interest rate of 6.67%. The facility is due to expire on August 3, 2017. The credit facility was closed as of March 1, 2017. There was no outstanding balance under the facility at April 30, 2017 or April 30, 2016. On March 24, 2017, the Company’s wholly-owned subsidiary, SigmaTron Electronic Technology Co., Ltd entered into a credit facility with China Construction Bank. Under the agreement SigmaTron Electronic Technology Co., Ltd can borrow up to 9,000,000 Renminbi and the facility is collateralized by Wujiang SigmaTron Electronics Co., Ltd.’s manufacturing building. Interest is payable monthly and the facility bears a fixed interest rate of 6.09%. The term of the facility extends to February 7, 2018. There was no outstanding balance under the facility at April 30, 2017. F-22 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 NOTE H - LONG-TERM DEBT - Continued Notes 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. 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 3.25% at April 30, 2017) 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 $2,574,500 and $2,688,500 at April 30, 2017 and April 30, 2016, 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 $1,096,500 and $1,147,500 at April 30, 2017 and April 30, 2016, respectively. Notes Payable - Equipment On November 1, 2016, the Company entered into a secured note agreement with Engencap Fin S.A. DE C.V. to finance the purchase of equipment in the amount of $596,987. The term of the agreement extends to November 1, 2021 with average quarterly payments of $35,060 beginning on February 1, 2017 and a fixed interest rate of 6.65%. The balance outstanding under this note agreement was $567,138 at April 30, 2017. On February 1, 2017, the Company entered into a secured note agreement with Engencap Fin S.A. DE C.V. to finance the purchase of equipment in the amount of $335,825. The term of the agreement extends to February 1, 2022 with average quarterly payments of $20,031 beginning on May 1, 2017 and a fixed interest rate of 7.35%. The balance outstanding under this note agreement was $335,825 at April 30, 2017. Capital Lease and Sale Leaseback 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, 2017, the balance outstanding under these capital lease agreements was $0 compared to $106,767 in fiscal year 2016. The net book value of the equipment under these leases at April 30, 2017 was $589,524 compared to $703,424 at April 30, 2016. From October 2013 through April 2017, the Company entered into various capital lease and sale leaseback agreements with Associated Bank, National Association to purchase equipment totaling $6,240,562. The terms of the lease and sale leaseback agreements extend to September 2018 through March 2022 with monthly installment payments ranging from $1,455 to $40,173 and a fixed interest rate ranging from 3.75% to 4.95%. The balance outstanding under these capital lease and sale leaseback agreements was $3,627,760 and $2,599,820 at April 30, 2017 and April 30, 2016, respectively. The net book value of the equipment under these leases and sale leaseback agreements at April 30, 2017 was $4,713,044 compared to $3,224,661 at April 30, 2016. 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, 2017, the balance outstanding under these capital lease agreements was F-23 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 NOTE H - LONG-TERM DEBT - Continued Capital Lease Obligations - Continued $1,448,269 compared to $1,886,069 in fiscal year 2016. The net book value of the equipment under these leases at April 30, 2017 was $1,946,026 compared to $2,155,363 at April 30, 2016. The aggregate amount of debt, net of deferred financing fees, maturing in each of the following fiscal years and thereafter is as follows: Fiscal Year Total 2018 2019 2020 2021 (cid:3) (cid:3) $ $ (cid:3) (cid:3) (cid:3) (cid:3) 351,562 (cid:3) 1,346,062 (cid:3) 2,533,062 (cid:3) 23,313,122 (cid:3) 27,543,808 (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) See Note M - Leases, Page F-30 for future maturities under capital lease obligations. Other Long-Term Liabilities As of April 30, 2017 and 2016, the Company had recorded $991,017 and $870,542, respectively, for seniority premiums and retirement accounts related to benefits for employees, $913,827 and $800,067 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, 2017 and 2016 NOTE I - ACCRUED EXPENSES AND WAGES Accrued expenses consist of the following at April 30: Interest Commissions Professional fees Other - Purchases Other 2017 2016 $ $ 90,639 143,738 419,801 1,418,120 1,550,808 $ 3,623,106 $ 61,350 80,819 397,375 491,027 1,741,730 2,772,301 Accrued wages consist of the following at April 30: 2017 2016 $ $ $ 1,785,078 819,207 1,885,317 4,489,602 $ 1,706,141 920,563 1,572,443 4,199,147 Wages Bonuses Foreign wages (cid:3) F-25 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 NOTE J - INCOME TAX U.S. and foreign income before income tax expense for the years ended April 30 are as follows: 2017 2016 $ $ 1,326,266 1,171,417 2,497,683 $ $ 2,224,802 1,260,394 3,485,196 Domestic Foreign Income Tax Provision The income tax provision for the years ended April 30 consists of the following: Current Federal State Foreign Total Current Deferred Federal State Foreign Total Deferred 2017 2016 $ $ 501,226 13,697 589,913 1,104,836 (54,213) 59,884 (3,030) 2,641 279,043 29,217 318,800 627,060 577,149 65,451 132,877 775,477 Provision for income taxes $ 1,107,477 $ 1,402,537 F-26 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 NOTE J - INCOME TAX - Continued Income Tax Provision - Continued The difference between the income tax provision 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 Other Foreign currency exchange gain/loss Impact of foreign permanent items Foreign inflation adjustment 2017 2016 $ 849,215 42,643 78,100 (89,885) 5,920 - (52,219) 328,239 7,171 (61,707) $ 1,184,967 117,922 (46,615) (94,124) (8,826) (48,680) 42,850 311,867 (20,056) (36,768) Provision for income taxes $ 1,107,477 $ 1,402,537 F-27 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 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 Foreign tax credit 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 2017 2016 $ 29,168 78,100 723,313 462,156 1,177,067 206,736 211,509 38,360 13,839 45,589 2,985,837 (78,100) 85,288 - 615,431 244,199 1,074,546 203,789 240,439 38,150 8,902 25,228 2,535,972 - 2,907,737 $ 2,535,972 (318,830) (3,441,393) (272,718) (4,032,941) (1,125,204) $ $ $ (113,665) (3,273,902) (270,968) (3,658,535) (1,122,563) $ $ $ $ $ The Company has state net operating loss carry-forwards totaling approximately $336,000 at April 30, 2017, that will begin to expire in fiscal year April 30, 2025. 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 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, 2017, related to state net operating loss carryforwards. The Company has established a valuation allowance of $78,100 related to its foreign tax credit carry-forward. The Company’s estimate of cumulative taxable income during the foreign tax credit carryforward period is insufficient to support that the tax benefit from the foreign tax credit is more likely than not to be realized. F-28 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 NOTE J - INCOME TAX - Continued Deferred Tax Assets and Liabilities - Continued The Company has not recorded U.S. income taxes on the undistributed earnings of the Company’s foreign subsidiaries. Such earnings are considered to be indefinitely invested in the foreign subsidiaries. If such earnings were repatriated, additional tax expense may result. The cumulative amount of unremitted earnings for which U.S. income taxes have not been recorded is $10,672,000 as of April 30, 2017. 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, 2017 and 2016, 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, 2017 and 2016, 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 2014. The Internal Revenue Service previously concluded an audit of the Company’s fiscal year 2013 tax return, 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 $91,686 and $75,448 to the plans during the fiscal years ended April 30, 2017 and 2016, respectively. The Company incurred total expenses of $8,000 and $13,460 for the fiscal years ended April 30, 2017 and 2016, 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, 2017 and 2016 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, 2017, two customers accounted for 26.7% and 12.6% of net sales of the Company, and 8.4% and 4.2%, respectively, of accounts receivable at April 30, 2017. 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. Further, the Company has $2,002,058 in cash in China as of April 30, 2017. Effective May 1, 2015, China implemented a deposit insurance program to insure up to approximately $81,000 in deposits, under certain circumstances. Funds above this amount are not insured by a guaranteed deposit insurance system. NOTE M - LEASES The Company leases certain facilities and office space under various operating leases expiring at various dates through April 2022. 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, 2018 2019 2020 2021 2022 Capital Leases Operating Leases $ $ 1,913,369 1,670,444 1,055,860 632,758 220,221 2,296,427 2,070,622 1,263,854 774,976 100,470 Total future minimum lease payments $ 5,492,652 $ 6,506,349 Less amounts representing interest Less Current Portion Long Term Portion 416,623 5,076,029 1,711,204 $ 3,364,825 F-30 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 NOTE M - LEASES - Continued Rent expense incurred under operating leases was $2,363,778 and $2,258,359 for the years ended April 30, 2017 and 2016, respectively. In September 2010, the Company entered into a real estate lease agreement in Union City, CA, to rent approximately 117,000 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 March 2021. The amount of deferred rent income recorded for the fiscal year ended April 30, 2017 was $79,575 compared to $51,509 in fiscal year 2016. In addition, the landlord provided the Company tenant incentives of $418,000, which are being amortized over the life of the lease. The balance of deferred rent at April 30, 2017 was $550,672 compared to $630,247 at April 30, 2016. On May 31, 2012, the Company entered into a lease agreement in Tijuana, Mexico, to rent approximately 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 deferred rent income for the fiscal year ended April 30, 2017 was $127,967 compared to $115,837 in fiscal year 2016. The balance of deferred rent at April 30, 2017 was $224,964 compared to $352,931 at April 30, 2016. 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, 2017, 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 $3,500 and $18,100 in compensation expense in fiscal year 2017 and 2016, respectively. The balance of unrecognized compensation expense at April 30, 2017 is $0. The Company granted 285,000 options to employees in fiscal year 2016. The Company recognized approximately $325,700 and $556,400 in compensation expense in fiscal year 2017 and 2016, respectively. The balance of unrecognized compensation expense at April 30, 2017 is approximately $83,700. On October 1, 2016 and 2015, the Company issued 11,250 and 10,000 shares of restricted stock pursuant to the 2013 Non-Employee Director Restricted Stock Plan, which fully vested on April 1, 2017 and 2016, respectively. The Company recognized $60,649 and $69,400 in compensation expense in fiscal year 2017 and 2016, respectively. The balance of unrecognized compensation expense related to the Company’s restricted stock award was $0 and $0 at April 30, 2017 and 2016, respectively. F-31 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 NOTE N - STOCK COMPENSATION AND EQUITY TRANSACTIONS - Continued The table below summarizes option activity through April 30, 2017: Number of securities to be issued upon exercise of outstanding options 85,954 285,000 (2,000) (991) 367,963 (1,200) 366,763 $ Weighted- average exercise price 3.81 6.45 3.60 9.17 5.84 3.60 5.85 Number of options exercisable at end of year 76,954 172,513 269,863 Outstanding at April 30, 2015 Options granted during 2016 Options exercised during 2016 Options expired during 2016 Outstanding at April 30, 2016 Options exercised during 2017 Outstanding at April 30, 2017 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, 2017 and 2016, the aggregate intrinsic value of options exercised was $2,172 and $5,100, respectively. As of April 30, 2017 and 2016, the aggregate intrinsic value of in the money options outstanding was $135,151 and $198,715, respectively. Information with respect to stock options outstanding at April 30, 2017 follows: Options outstanding Number outstanding at April 30, 2017 Weighted-average remaining contract life Weighted- average exercise price Range of exercise prices $3.60-6.45 366,763 7.64 years 366,763 F-32 $ $ 5.85 5.85 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 NOTE N - STOCK COMPENSATION AND EQUITY TRANSACTIONS - Continued Information with respect to stock options outstanding and exercisable at April 30, 2017 follows: (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) Options outstanding and exercisable Number outstanding at April 30, 2017 Weighted-average remaining contract life Weighted- average exercise price Range of exercise prices $3.60-6.45 269,863 7.41 years (cid:3) (cid:3) (cid:3) (cid:3) 269,863 (cid:3) (cid:3) Information with respect to stock options non-vested at April 30, 2017 follows: (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) 5.63 5.63 $ $ (cid:3) (cid:3) (cid:3) (cid:3) Options non-vested Number non-vested at April 30, 2017 Weighted-average remaining contract life Weighted- average exercise price Range of exercise prices $6.45 96,900 8.26 years (cid:3) (cid:3) (cid:3) (cid:3) 96,900 (cid:3) (cid:3) $ $ (cid:3) (cid:3) 6.45 6.45 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. The ESPP was terminated effective August 15, 2016. Final purchases under the ESPP were completed on August 31, 2016. There were 1,658 and 9,670 shares issued under the ESPP and the Company recorded $3,559 and $13,728 in compensation expense, for fiscal years ended April 30, 2017 and 2016, respectively. F-33 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 NOTE N - STOCK COMPENSATION AND EQUITY TRANSACTIONS - Continued 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, 2017 and 2016 NOTE O - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of unaudited quarterly financial data for fiscal year 2017: 2017 Net sales First Quarter Second Quarter Third Quarter Fourth Quarter $ 58,919,398 $ 65,842,957 $ 61,896,226 $ 65,577,213 Gross profit (1) 5,504,657 5,502,040 5,419,018 7,615,212 Income before income tax expense (1), (2), (3) 226,858 26,616 89,036 2,155,173 Net income (loss) 146,597 33,295 (47,852) 1,258,166 Earnings per share Basic Earnings per share Diluted $ 0.03 $ 0.01 $ (0.01) $ 0.30 $ 0.03 $ 0.01 $ (0.01) $ 0.30 Weighted average shares- Basic 4,183,955 4,185,752 4,186,813 4,188,279 Weighted average shares- Diluted 4,214,535 4,225,874 4,215,962 4,209,516 1.) Due to a fire at one of the Company’s plants during 2017, the Company recorded expense of approximately $230,000 in prior quarters in costs of goods sold that was realized as an insurance recovery during the fourth quarter of 2017 as recovery was considered probable. As part of this settlement, a gain of approximately $277,000 was also recorded in the fourth quarter of fiscal 2017 due to the insurance claim exceeding the net book value of the replacement machinery and equipment destroyed. 2.) The Company records inventory reserves for valuation and shrinkage throughout the year based on historical data. In the fourth quarter of fiscal 2017 physical inventory results were completed and the Company adjusted the estimate which increased income before income tax expense by approximately $780,000. 3.) As discussed in Note G, during the fourth quarter of fiscal 2017 the Company recorded a change in estimate related to Contingent Consideration which increased income before income tax expense in the amount of approximately $247,000. The aggregate after-tax effect for the above adjustments in the fourth quarter of fiscal 2017 was an increase to basic earnings per share of $0.21. F-35 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 NOTE O - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued 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 Basic Earnings per share Diluted $ 0.16 $ 0.28 $ 0.05 $ 0.01 $ 0.16 $ 0.27 $ 0.05 $ 0.01 Weighted average shares- Basic 4,148,285 4,166,758 4,170,193 4,174,251 Weighted average shares- Diluted 4,193,657 4,214,317 4,229,378 4,208,184 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. The Company accrued $375,000 in fiscal year 2016 in recognition of the judgment entered against the Company. On October 16, 2015, the Company appealed the judgment to the Seventh Circuit Court of Appeals. On November 23, 2016, the U.S. District Court ruled that the plaintiff is entitled to an award for costs and attorneys’ fees. The expense was accrued in the second fiscal quarter of 2017. On November 29, 2016, the Seventh Circuit Court of Appeals affirmed the judgment of the U.S. District Court entered against the Company in December 2014. On January 30, 2017, the Company and Ms. Gracia settled the suit by entering into a confidential settlement and release agreement. In the third fiscal quarter of 2017, the Company accrued an additional amount in connection with the settlement. The Company accrued and paid $436,124 in fiscal year 2017 in conjunction with the lawsuit. F-36 SigmaTron International, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED April 30, 2017 and 2016 NOTE P - LITIGATION - Continued As of April 30, 2017, all expenses for the settlement have been fully expensed and paid. From time to time the Company is involved in legal proceedings, claims, or investigations that are incidental to 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 these legal proceedings or claims will have any material adverse impact on its future consolidated financial position or results of operations. F-37   GROWTH: EMS MARKET WORLDWIDE 201 5 2020 $430B $580B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▲ . . . . . . . . . . . . . . . Source: New Venture Research Corp., 2017. GROWTH: FITNESS EQUIPMENT MARKET 201 4 2019 $I48B $206B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▲ . . . . . . . . . . . . . . . Source: MarketsandMarkets.com™, 2017. GROWTH: MEDICAL EQUIPMENT MARKET 201 7 2022 $I0B $14B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▲ . . . . . . . . . . . . . . . . Source: MarketsandMarkets.com™, 2017. GROWTH: GLOBAL GAMES MARKET* 201 6 2020 $I0IB $I29B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▲ . . . . . . . . . . . . . . . . Source: NewZoo, Q2 2017 Quarterly Update, Global Games Market Report. * Note: Statistics shown encompass all market categories and delivery systems, including those outside the lottery and casino gaming markets that SigmaTron serves. ALL REVENUES IN USD. Firm: Ackerly Communications, LLC Copywriting/Art Direction: Mary Ackerly Design: Lisa Romanowski Proofreading: Deborah Livingstone Printer: Dreamworks GC, LLC GROWTH IN MARKETS SERVEDGROWTH IN MARKETS SERVED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. 

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