SigmaTron International Inc. Annual Report 2019

FY2019 Annual Report · SigmaTron International Inc.

Loading PDF…

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, 2019.

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

Trading Symbol
SGMA

ASDAQ Capital Market
Name of each exchange on which registered
The NASDAQ Capital Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. (cid:1)Yes (cid:2) 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:1)Yes (cid:2) 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:2) Yes (cid:1) No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to
be submitted 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 such files). (cid:2) Yes (cid:1) No

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:1) Accelerated filer (cid:1) Non-accelerated filer (cid:2) Smaller reporting company (cid:2)
Emerging growth company (cid:1)

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:1)

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act.) (cid:1)Yes (cid:2) No

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as
of October 31, 2018, the last business day of the registrant’s most recently completed second fiscal quarter was
$15,870,189 based on the closing sale price of $4.25 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 19, 2019 was
4,242,508.

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections or portions of the definitive proxy statement of SigmaTron International, Inc., for use in
connection with its 2019 annual meeting of stockholders, which the Company intends to file within 120 days of the
fiscal year ended April 30, 2019, are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

BUSINESS

ITEM 1.
ITEM 1A. RISK FACTORS
ITEM IB. UNRESOLVED STAFF COMMENTS
ITEM 2.
ITEM 3.
ITEM 4. 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.

FORM 10-K SUMMARY

SIGNATURES

4
10
17
18
19
19

20
20

28
28

28
29

30
30

30
30
37

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 impairment of long-lived assets; 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; the impact of tariffs; 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

Company are then incorporated into finished products sold in various industries, particularly industrial
electronics, consumer electronics and medical/life sciences. 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 has an
information technology office in Taichung, Taiwan.

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 complement the manufacturing services it offers its customers, the Company also
offers design for manufacturing (“DFM”), and design for test (“DFT”) review services to help customers ensure
that the products they have designed are optimized for production and testing. The Company also offers
complete product design services.

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. In the past twelve months the component marketplace has
experienced shortages of various components, which in some cases has delayed delivery of product to
customers. The loss of any such suppliers could have a material impact on the Company’s results of operations.
Further, the Company could operate at a cost disadvantage compared to competitors who have greater direct

buying power from suppliers. The Company does not enter into long-term purchase agreements with major or
single-source suppliers. The Company believes that short-term purchase orders with its suppliers provides
flexibility, given that the Company’s orders are based on the changing needs of its customers.

Warehousing and Distribution: The Company provides both in-house and third party warehousing,

shipping, and customs brokerage for border crossings as part of its service offering. This includes international
shipping, drop shipments to the end customer, as well as, support of inventory optimization activities such as
kanban and consignment.

Green, Sustainability, and Social Responsible Initiatives: The Company supports initiatives that

promote sustainability, green environment and social responsibility. The Company requires its supply chain to
meet all government imposed requirements in these areas and helps its customers in achieving effective
compliance. Those include, but are not limited to, Restrictions of Hazardous Substances (“RoHS”), Restriction
of Chemicals (“REACH”) and Conflict Minerals regulations.

Manufacturing Location and Certifications: The Company’s manufacturing and warehousing

locations are strategically located to support our customers with locations in Elk Grove Village, Illinois U.S.;
Union City, California U.S.; Acuna, Chihuahua and Tijuana, Mexico; Suzhou, China and Ho Chi Minh City,
Vietnam. The Company’s ability to transition manufacturing to lower cost regions without jeopardizing
flexibility and service, differentiates it from many competitors. Manufacturing certifications and registrations
are location specific, and include ISO 9001:2015, ISO 14001:2015, IATF 16949:2009, Medical ISO
13485:2016 and FDB Certification, Aerospace AS9100D and International Traffic in Arms Regulations
(“ITAR”) certifications.

Markets and Customers

The Company’s customers are in the industrial electronics, consumer electronics and medical/life sciences
industries. As of April 30, 2019, the Company had approximately 180 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

Industrial Electronics

Consumer Electronics

Medical/Life Sciences

Total

Health club equipment, gaming, controls, smart grid, IOT
connectivity
Appliances/white goods, automotive-vision systems,
E-writers
Operating tables, battery packs, dental equipment,
sterilizers

Fiscal
2019
%

Fiscal
2018
%

55.2

54.8

39.6

40.4

5.2

4.8

100% 100%

For the fiscal year ended April 30, 2019, the Company’s largest two customers, Whirlpool Inc. and Electrolux,
accounted for 15.9% and 15.8%, respectively, of the Company’s net sales. For the fiscal year ended April 30,
2018, Electrolux and Whirlpool Inc., accounted for 20.2% and 13.3%, respectively, of the Company’s net sales.
The Company believes that Electrolux and Whirlpool will continue to account for a significant percentage of
the Company’s net sales, although the percentage of net sales may vary from period to period.

Sales and Marketing

Many of the members of the Company’s senior management are actively involved in sales and marketing
efforts, and the Company has four direct sales employees. The Company markets its services through five
independent manufacturers’ representative organizations that together currently employ 15 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. 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 806 employees at April 30, 2019. 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
364 employees at April 30, 2019. 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 513 employees at April 30, 2019. 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 year 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 the
operation had 505 employees as of April 30, 2019. 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 392 employees as of April 30,
2019.

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 foreign enterprises 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, 2019, resulted in net foreign currency transaction losses of
approximately $433,742 compared to net foreign currency gains of $125,000 in the prior year. In fiscal year
2019, the Company paid approximately $53,090,000 to its foreign subsidiaries.

The consolidated financial statements as of April 30, 2019, 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 government, U.S. 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,
which include European regulations known as RoHS and REACH. RoHS prohibits the use of lead, mercury
and certain other specified substances in products being sold into the European Union. The Company has
RoHS-dedicated manufacturing capabilities at all of its manufacturing operations. REACH 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”). Consistent with recent prior years, in May 2019, 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 $1,600,000 for the three most recently completed fiscal years ending April 30,
2019. 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 forecasted orders and purchase orders (firm orders) from its customers to estimate
backlog. The Company’s backlog of firm orders as of April 30, 2019, and April 30, 2018, was approximately
$269,660,000 and $219,100,000, respectively. The Company believes a significant portion of the backlog at
April 30, 2019, will ship in fiscal year 2020. 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 3,106 full-time employees as of April 30, 2019, including 208 engaged
in engineering or engineering-related services, 2,510 in manufacturing and 388 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, 2021. 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 3, 2020. 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 on February 5, 2020.

Since the time the Company commenced operations, it has not experienced any union-related work stoppages.
The Company believes its relations with its unions and its other employees are good.

Available Information

The Company’s website address is www.sigmatronintl.com . The Company announces material information,
including press releases, analyst presentations and financial information regarding the Company, through a
variety of means, including the Company’s website, the Investors subpage of its website
(www.sigmatronintl.com/investors/), press releases, filings with the SEC, public conference calls and social
media, in order to achieve broad, non-exclusionary distribution of information to the public. The Investors
subpage is accessible by clicking on the tab labeled “Investors” on the Company’s website home page. The
Company also uses these channels to expedite public access to time-critical information regarding the Company
in advance of or in lieu of distributing a press release or a filing with the SEC disclosing the same information.
Therefore, investors should look to these channels for important and time-critical information. In addition, the
Company is subject to the informational requirements of the Exchange Act and files or furnishes reports, proxy
statements, and other information with the SEC. Such reports and other information filed by the Company with
the SEC are available free of charge on its website when such reports are simultaneously available on the SEC’s
website at http://www.sec.gov. The Company encourages investors, the media and others interested in the
Company to review the information it posts on these various channels, as such information could be deemed to
be material information.

The contents of the websites referred to above are not incorporated into this filing. Further, the Company’s
references to the URLs for these websites are intended to be inactive textual references only.

Information about our Executive Officers

Name

Age

Position

Gary R. Fairhead

President, Chief Executive Officer and Chairman of the Board of Directors.

Gary R. Fairhead has been the President of the Company and a director
since January 1990 and Chairman of the Board of Directors of the
Company since August 2011. Gary R. Fairhead is the brother of Gregory
A. Fairhead.

Linda K. Frauendorfer

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

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

Gregory A. Fairhead

Executive Vice President and Assistant Secretary. Gregory A. Fairhead

has been the Executive Vice President since February 2000 and Assistant
Secretary since 1994. Mr. Fairhead was Vice President - Acuna Operations
for the Company from February 1990 to February 2000. Gregory A.
Fairhead is the brother of Gary R. Fairhead.

John P. Sheehan

Vice President, Director of Supply Chain and Assistant Secretary since

February 1994.

Daniel P. Camp

Vice President, Acuna Operations since 2007. Vice President - China
Operations from 2003 to 2007. General Manager / Vice President of
Acuna Operations from 1994 to 2003.

Rajesh B. Upadhyaya

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

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

Hom-Ming Chang

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

James E. Barnes

Executive Vice President, Acuna and Elk Grove Village Operations since

2018. Vice President of Operations from 2014 to 2018. Director of
Operations from 2011 to 2014. Senior Program Manager from 2010 to
2011. Program Manager from 2005 to 2010. Inventory Analyst from 2004
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.

On March 31, 2017, the Company entered into a $35,000,000 senior secured credit facility with U.S. Bank,
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 five percent or LIBOR plus one and one half percent (effectively 4.09% at
April 30, 2019). 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 accounts receivable plus a
percentage of the eligible inventory (the “Borrowing Base”).

On July 16, 2018, the Company and U.S. Bank entered into an amendment of the revolving line of credit under
the senior secured credit facility. The amended revolving credit facility allows the Company to borrow up to
the lesser of (i) $45,000,000 (the “Revolving Line Cap”) less reserves or (ii) the Borrowing Base, but no more
than 90% of the Company’s Revolving Line Cap, except that the 90% limitation will expire if the Company’s
actual revolving loans for 90 consecutive days after the amendment’s effective date are less than 80% of the
Company’s Borrowing Base and the Company maintains a Fixed Charge Coverage Ratio of 1.2 to 1.0 for four
consecutive quarters. The amendment also imposes sublimits on categories of inventory equal to $10,500,000
on raw materials, $10,000,000 on finished goods and $28,000,000 on all eligible inventory.

On December 13, 2018, the Company and U.S. Bank entered into an amendment of the revolving credit facility.
The amendment provides an exception to otherwise ineligible foreign receivables for up to $3,000,000 of
receivables paid by certain enumerated account debtors outside of the U.S. and Canada.

On March 22, 2019, the Company and U.S. Bank entered into an amendment of the revolving credit facility.
The amendment allows the Company to borrow up to the lesser of (i) the Revolving Line Cap less reserves or
(ii) the Borrowing Base, but no more than 95% of the Company’s Revolving Line Cap until August 1, 2019 and
90% on and after August 1, 2019. As of April 30, 2019, there was $35,727,212 outstanding and $6,645,730 of
unused availability under the U.S. Bank facility compared to an outstanding balance of $29,279,631 and
$5,720,369 of unused availability at April 30, 2018. At April 30, 2019, the Company was in compliance with
its financial covenant and other restrictive covenants under the credit facility. Deferred financing costs of
$75,083 were capitalized during the fiscal year ended April 30, 2019, which are amortized over the term of the
agreement. As of April 30, 2019, and April 30, 2018, the unamortized amount offset against outstanding debt
was $209,162 and $192,502, respectively.

On March 15, 2019, 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 5,000,000 Renminbi, approximately $743,000 as of April 30, 2019, 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 March
14, 2024. There was no outstanding balance under the facility at April 30, 2019.

The Company is in compliance with its financial covenant and other restrictive covenants and anticipates that its
credit facilities, expected future cash flows from operations and leasing resources are adequate to meet its
working capital requirements, and fund capital expenditures for the next 12 months. In addition, if customers
delay orders, future payments are not made timely, the Company desires to expand its operations, its business
grows more rapidly than expected, or the current economic climate deteriorates, additional financing resources
may be necessary. 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 or trade

policies affecting our customers could result in decreasing gross margins. Any of these factors could negatively
impact the Company’s business, results of operations and financial condition.

The Company experiences variable operating results.

The Company’s results of operations have varied and may continue to fluctuate significantly from period to
period, including on a quarterly basis. Consequently, results of operations in any period should not be
considered indicative of the results for any future period, and fluctuations in operating results may also result in
fluctuations in the price of the Company’s common stock.

The Company’s quarterly and annual results may vary significantly depending on numerous factors, many of
which are beyond the Company’s control. Some of these factors include:

- changes in sales mix to customers
- changes in availability and rising component costs
- volume of customer orders relative to capacity
- market demand and acceptance of our customers’ products
- price erosion within the EMS marketplace
- capital equipment requirements needed to remain technologically competitive
- volatility in the U.S. and international economic and financial markets

The Company’s customer base is concentrated.

Sales to the Company’s five largest customers accounted for 49.7% and 50.2% of net sales for the fiscal years
ended April 30, 2019, and April 30, 2018, respectively. For the fiscal year ended April 30, 2019, two customers
accounted for 15.9% and 15.8% of net sales of the Company, and 3.9% and 11.5%, respectively, of accounts
receivable. For the fiscal year ended April 30, 2018, two customers accounted for 20.2% and 13.3% of net sales
of the Company and 6.0% and 2.9%, respectively, of accounts receivable. 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 cancelled 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 period.

The Company and its customers may be unable to keep current with the industry’s technological changes.

The market for the Company’s manufacturing services is characterized by rapidly changing technology and
continuing product development. The future success of the Company’s business will depend in large part upon
our customers’ ability to maintain and enhance their technological capabilities, develop and market
manufacturing services which meet changing customer needs and successfully anticipate or respond to
technological changes in manufacturing processes on a cost-effective and timely basis.

Our customers have competitive challenges, including rapid technological changes, pricing pressure and
decreasing demand from their customers, which could adversely affect their business and the Company’s.

Factors affecting the industries that utilize our customers’ products could negatively impact our customers and
the Company. These factors include:

- increased competition among our customers and their competitors
- the inability of our customers to develop and market their products
- recessionary periods in our customers’ markets
- the potential that our customers’ products become obsolete
- our customers’ inability to react to rapidly changing technology

Any such factor or a combination of factors could negatively impact our customers’ need for or ability to pay
for our products, which could, in turn, affect the Company’s results of operations.

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

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

Customer relationships with start-up companies present more risk.

A small portion of the Company’s current customer base is comprised of start-up companies. Customer
relationships with start-up companies may present heightened risk due to the lack of product history. Slow
market acceptance of their products could result in demand fluctuations causing inventory levels to rise.
Further, the current economic environment could make it difficult for such emerging companies to obtain
additional funding. This may result in additional credit risk including, but not limited to, the collection of trade
account receivables and payment for their inventory. If the Company does not have adequate allowances
recorded, the results of operations may be negatively affected.

The Company faces intense industry competition and downward pricing pressures.

The EMS industry is highly fragmented and characterized by intense competition. Many of the Company’s
competitors have greater experience, as well as greater manufacturing, purchasing, marketing and financial
resources than the Company. Competition from existing or potential new competitors may have a material
adverse impact on the Company’s business, financial condition or results of operations. The introduction of
lower priced competitive products, significant price reductions by the Company’s competitors or significant
pricing pressures from its customers could adversely affect the Company’s business, financial condition, and
results of operations.

The Company has foreign operations that may pose additional risks.

The Company has substantial manufacturing operations in multiple countries. Therefore, the Company’s
foreign businesses and results of operations are dependent upon numerous related factors, including the stability
of the foreign economies, the political climate, relations with the United States, prevailing worker wages, the
legal authority of the Company to 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 13.0% and 14.0% of the total non-current consolidated assets of the Company are located in
foreign jurisdictions outside the United States as of April 30, 2019 and 2018, respectively.

Disclosure and internal controls may not detect all errors or 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. Therefore, the Company’s management, including the
Chief Executive Officer and Chief Financial Officer, cannot conclude with certainty that the Company’s
disclosure controls and internal controls will prevent all errors and all fraud.

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 fiscal year ended April 30, 2019, resulted in net foreign currency transaction losses of $433,742
compared to net foreign currency gain of approximately $125,000 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 buying power from suppliers. The Company does not enter into long-term purchase agreements
with major or single-source suppliers, but the Company frequently places cancellable scheduled purchase orders
with suppliers that extend out as far as one year. The current component market place remains volatile. During
the last two quarters of fiscal year 2019, lead times were generally shortened but lead times for certain select

components can still exceed 24 to 36 weeks. The Company’s orders for components are always 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 Company’s future growth
depends on the contributions and abilities of key executives and skilled, experienced employees. The
Company’s future growth also depends on its ability to recruit and retain high-quality employees. A failure to
obtain or retain the number of skilled employees necessary to support the Company’s efforts, a loss of key
employees or a significant shortage of skilled, experienced employees could jeopardize its ability to meet its
growth targets.

Favorable labor relations are important to the Company.

The Company currently has labor union contracts with its employees constituting approximately 48% of its
workforce for fiscal years 2019 and 2018. 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, require the Company to determine and report annually whether any conflict minerals contained in
our products originated from the DRC or an adjoining country. The Dodd-Frank Act and these rules could affect
our ability to source components that contain conflict minerals at acceptable prices and could impact the
availability of conflict minerals, since there may be only a limited number of suppliers of conflict-free conflict
minerals. Our customers may require that our products contain only conflict-free conflict minerals, and our
revenues and margins may be negatively impacted if we are unable to meet this requirement at a reasonable
price or are unable to pass through any increased costs associated with meeting this requirement. Additionally,
the Company may suffer reputational harm with our customers and other stakeholders if our products are not
conflict-free. The Company could incur significant costs in the event we are unable to manufacture products
that contain only conflict-free conflict minerals or to the extent that we are required to make changes to
products, processes, or sources of supply due to the foregoing requirements or pressures.

The price of the Company’s stock is volatile.

The price of the Company’s common stock historically has experienced significant volatility due to fluctuations
in the Company’s revenue and earnings, other factors relating to the Company’s operations, the market’s
changing expectations for the Company’s growth, overall equity market conditions and other factors unrelated
to the Company’s operations. In addition, the limited float of the Company’s common stock and the limited
number of market makers also affect the volatility of the Company’s common stock. Such fluctuations are
expected to continue in the future.

An adverse change in the interest rates for our borrowings could adversely affect our results of operations.

The Company pays interest on outstanding borrowings under its senior secured credit facility and certain other
long-term debt obligations at interest rates that fluctuate. An adverse change in the Company’s interest rates
could have a material adverse effect on its results of operations.

Changes in securities laws and regulations may increase costs.

The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and listing
requirements subsequently adopted by Nasdaq in response to Sarbanes-Oxley, have required changes in
corporate governance practices, internal control policies and securities disclosure and compliance practices of
public companies. More recently the Dodd-Frank Act requires changes to our corporate governance,
compliance practices and securities disclosures. Compliance following the implementation of these rules has
increased our legal, financial and accounting costs. The Company expects increased costs related to these new
regulations to continue, including, but not limited to, legal, financial and accounting costs. These developments
may result in the Company having difficulty in attracting and retaining qualified members of the board or
qualified officers. Further, the costs associated with the compliance with and implementation of procedures
under these laws and related rules could have a material impact on the Company’s results of operations.

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

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

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 breach 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 the Company’s customer 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
entities with which the Company does business, governmental and other regulatory authorities, banks, insurance
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.

Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, may have a
material adverse impact on our business and results of operations.

The U.S. government has indicated its intent to adopt a new approach to trade policy and in some cases to
renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements. It has also
initiated tariffs on certain foreign goods, including steel and aluminum and other raw materials utilized by the
Company. Changes in U.S. trade policy could result in one or more of the U.S.’ trading partners adopting
responsive trade policy making it more difficult or costly for the Company to import our products from those
countries. This in turn could require us to increase prices to our customers which may reduce demand, or, if we
are unable to increase prices, result in a lower margin on products sold.

China and the European Union have imposed tariffs on U.S. products in retaliation for new U.S. tariffs.
Additional tariffs could be imposed by China and the European Union in response to proposed increased tariffs
on products imported from China and the European Union. There is also a concern that the imposition of
additional tariffs by the United States could result in the adoption of additional tariffs by other countries. The
resulting trade war could have a significant adverse effect on world trade and the world economy. To the extent
that trade tariffs and other restrictions imposed by the United States increase the price of, or limit the amount of
steel, aluminum and other raw materials utilized by the Company imported into the United States, the costs of
our raw materials may be adversely affected and the demand from our customers for products and services may
be diminished, which could adversely affect our revenues and profitability.

We cannot predict future trade policy or the terms of any renegotiated trade agreements and their impact on our
business. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental
action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our
products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could adversely impact
our business, financial condition and results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

At April 30, 2019, 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. The Company
has an information technology office in Taichung, Taiwan.

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

solutions

Owned
**

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

Taichung, Taiwan

1,650 Information technology office

Elgin, IL

45,000 Design services

San Diego, CA

30,240 Warehousing and distribution

Leased

Owned

Leased

*The Company’s Suzhou, China building is owned by the Company and the land is leased from the Chinese
government for a 50 year term.

**A portion of the facility is leased and the Company has an option to purchase it.

***Total square footage includes 70,000 square feet of dormitories.

The Union City and San Diego, California, Tijuana and Chihuahua, Mexico, Ho Chi Minh City, Vietnam and
Del Rio, Texas properties are occupied pursuant to leases of the premises. The lease agreements for the Del
Rio, Texas properties expire December 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 2021. The Tijuana, Mexico lease expires November 2023. 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 leases the information technology office in
Taichung, Taiwan. 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

From time to time the Company is involved in legal proceedings, claims or investigations that are incidental to
the conduct of the Company’s business. In future periods, the Company could be subjected to cash cost or non-
cash charges to earnings if any of these matters are resolved on unfavorable terms. However, although the
ultimate outcome of any legal matter cannot be predicted with certainty, based on present information,
including management’s assessment of the merits of any particular claim, the Company does not expect that
these legal proceedings or claims will have any material adverse impact on its future consolidated financial
position or results of operations.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The Company’s common stock is traded on the NASDAQ Capital Market System under the symbol SGMA.

As of July 19, 2019, there were approximately 36 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 1,476 beneficial owners of the Company’s common stock.

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 impairment of long-lived assets; 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; the impacts of tariffs; 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 required by law.

Overview

The Company operates in one business segment as an independent provider of EMS, which includes printed
circuit board assemblies and completely assembled (box-build) electronic products. In connection with the
production of assembled products, the Company also provides services to its customers, including (1) automatic
and manual assembly and testing of products; (2) material sourcing and procurement; (3) manufacturing and
test engineering support; (4) design services; (5) warehousing and distribution services; and (6) assistance in
obtaining product approval from governmental and other regulatory bodies. The Company provides these
manufacturing services through an international network of facilities located in the United States, Mexico,
China, Vietnam and Taiwan.

The Company relies on numerous third-party suppliers for components used in the Company’s production
process. Certain of these components are available only from single-sources or a limited number of suppliers.
In addition, a customer’s specifications may require the Company to obtain components from a single-source or
a small number of suppliers. In the past twelve months the component marketplace has experienced shortages
of various components, which in some cases has delayed delivery of product to customers. 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, 2019 and April 30, 2018.

As the Company enters fiscal 2020, uncertainty remains pervasive in the market. The trade war with China
weighs heavily on the Company’s operations. Customers are continuing to re-evaluate their supply chains and
the uncertainty regarding trade policy remains a difficult variable to manage. The Company has seen the
electronic component marketplace calm down modestly. The primary change is a shortening of lead-time for
some components, which assists in lowering inventory and reacting more efficiently to the volatility of
customer demand requirements.

The Company believes it is heading into fiscal year 2020 with a solid plan and some appealing new
opportunities ahead of it. Current customers are launching new programs and several new customers are
starting to ramp production. However, the labor markets remain tight. The Company’s focus will remain on
reducing inventory levels and increasing cash flows as the trade volatility remains. The Company is optimistic
regarding the fiscal year ahead of it and if the trade wars are resolved, it would appear that there is some
additional upside available for fiscal year 2020.

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 - The Company recognizes revenue when control of the promised goods or services are
transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to
in exchange for those goods or services. The Company’s primary performance obligation to its customers is the
production of finished goods electronic assembly products pursuant to purchase orders. The Company has

concluded that control of the products it sells and transfers to its customers and an enforceable right to receive
payment is customarily established at the point in time when the finished goods are shipped to its customers, or
in some cases delivered pursuant to the specified shipping terms of each customer arrangement. With respect to
consignment arrangements, control transfers and revenue is recognized at the point in time when the goods are
shipped to the customer from the consignment location or when delivered to the customer (pursuant to agreed
upon shipping terms). In those limited instances where finished goods delivered to the customer location are
stored in a segregated area which are not controlled by the customer (title transfer, etc.) until they are pulled
from the segregated area and consumed by the Company’s customer, revenue is recognized upon consumption.
For tooling services, the Company’s performance obligation is satisfied at the point in time when the customer
takes possession of dies or molds. For engineering, design, and testing services, the Company’s performance
obligations are satisfied over time as the respective services are rendered as its customers simultaneously derive
value from the Company’s performance. From the time that a customer purchase order is received and contract
is established, the Company’s performance obligations are typically fulfilled within a few weeks. The
Company does not have any performance obligations that require more than one year to fulfill.

Each customer purchase order sets forth the transaction price for the products and services purchased under that
arrangement. The Company evaluates the credit worthiness of its customers and exercises judgment to
recognize revenue based upon the amount the Company expects to be paid for each sales transaction it enters
into with its customers. Some customer arrangements include variable consideration, such as volume rebates,
some of which depend upon the Company’s customers meeting specified performance criteria, such as a
purchasing level over a period of time. The Company exercises judgment to estimate the most likely amount of
variable consideration at each reporting date.

Inventories - Inventories are valued at cost. 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 net realizable value. 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.

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. In the fourth quarter of fiscal year 2018, the Company
determined that the carrying value of the trade name intangible asset was not recoverable and recorded a fourth
quarter charge of $690,107 for the entire carrying amount. The Company’s analysis for fiscal year 2019 did not
indicate that any of its other long-lived assets were impaired.

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 Company’s valuation allowance was $1,294,605 and $78,100
as of April 30, 2019 and April 30, 2018, respectively.

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. Except as noted below,
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 2018 financial

statements to conform to the 2019 presentation. There was no change to net income.

New Accounting Standards:

See Note B – Summary of Significant Accounting Policies in the consolidated financial statements.

Results of Operations:

FISCAL YEAR ENDED APRIL 30, 2019 COMPARED
TO FISCAL YEAR ENDED APRIL 30, 2018

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
Impairment of goodwill and intangible asset

Loss on settlement of receivable and disposal of related
assets

Total operating expenses

Operating income (loss)

Fiscal Years

2019

100.0%

90.9
8.0
-

-
98.9
1.1%

2018

100.0%

90.4
8.3
1.4

0.9
101.0
(1.0%)

Net sales increased 4.5% to $290,553,951 in fiscal year 2019 from $278,131,709 in the prior year. The
Company’s sales increased in fiscal year 2019 in industrial electronics and medical/life science marketplaces as
compared to the prior year. The increase in sales dollars for these marketplaces was partially offset by a
decrease in sales dollars in the consumer electronics marketplace. Revenues started an upward trend during the
fourth fiscal quarter of fiscal year 2019.

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 49.7% and 50.2% of net sales for fiscal years 2019 and 2018,
respectively.

Gross profit decreased to $26,341,769, or 9.1% of net sales, in fiscal year 2019 compared to $26,602,918 or
9.6% of net sales, in the prior fiscal year. The decrease in gross profit dollars for fiscal year 2019 was primarily
the result of margin pressures from both customers and vendors and product mix. Margin pressures continue
from both customers and vendors. However, price increases were implemented in fiscal year 2019 for some
customers.

Selling and administrative expenses increased in fiscal year 2019 to $23,263,117, or 8.0% of net sales compared
to $23,089,939, or 8.3% of net sales, in fiscal year 2018. The increase in selling and administrative dollars was
attributable to sales salaries, bad debt expense, general insurance, accounting professional fees and financing
fees. The increase in the foregoing selling and administrative expenses were partially offset by a decrease in
legal professional fees, bonus expense and other general administrative expenses. Selling and administrative
expenses decreased as a percent of net sales due to an increase in net sales in fiscal year 2019 compared to the
prior year.

During fiscal year 2018, the Company recorded a goodwill and intangible asset impairment in the amount of
$3,913,006 and the write off of the account receivable and note receivable related to a customer in the amount
of $2,509,423. See Note E - Related Parties and Note G - Intangible Asset.

Other income increased in fiscal year 2019 to $200,946 compared to other income of $144,574 in the prior
fiscal year. The increase in other income is due to the Company recording in fiscal year 2019 an earn-out based

on sales by Wagz in the amount of $91,920 to other income. However, the $91,920 was reserved as bad debt at
April 30, 2019.

Interest expense, net, increased to $2,413,297 in fiscal year 2019 compared to $1,537,446 in fiscal year 2018.
Interest expense increased primarily due to the increased borrowings under the Company’s banking
arrangements and mortgage obligations.

In fiscal year 2019, the Company had an income tax expense of $1,731,415 compared to an income tax benefit
of $1,060,452 in fiscal year 2018. The effective rate for the fiscal years ended April 30, 2019 and April 30,
2018 was 199.86% and 24.6%, respectively. The increase in income tax expense as well as the accompanying
change in the effective tax rate is the result of the valuation allowance established on certain deferred tax assets
related to foreign net operating loss carryforwards that more likely than not will not be realized based on
projected income in those jurisdictions and the impact of foreign currency remeasurement.

The Company reported a net loss of $865,114 in fiscal year 2019 compared to a net loss of $3,241,870 for fiscal
year 2018. Basic and diluted loss per share for fiscal year 2019 were $0.20 each, compared to basic and diluted
loss per share of $0.77 each for the fiscal year ended April 30, 2018.

Liquidity and Capital Resources:

Operating Activities.

Cash flow used in operating activities was $1,619,500 for the fiscal year ended April 30, 2019, compared to
cash flow used in operating activities of $4,968,479 for the prior fiscal year. Cash flow used in operating
activities was primarily the result of an increase in accounts receivable in the amount of $5,134,297, a decrease
in accounts payable of $3,699,388 and the reported net loss. The increase in accounts receivable is the result of
increased sales and the timing of payments. Cash flow used in operating activities was partially offset by a
decrease in inventory.

Cash flow used in operating activities was $4,968,479 for the fiscal year ended April 30, 2018. Cash flow used
in operating activities was primarily the result of an increase in inventory in the amount of $13,415,555. The
increase in inventory is the result of an increase in customer orders and in some cases orders being pushed out.
Further, capacity issues in the component industry made it difficult to obtain some components to complete
assemblies for shipping. Cash flow used in operating activities was partially offset by the result of an increase
in accounts payable, a decrease in prepaid expenses and other assets.

Investing Activities.

In fiscal year 2019, the Company purchased in cash $2,361,629 in machinery and equipment to be used in the
ordinary course of business. The Company has received forecasts from current customers for increased
business that would require additional investment in capital equipment and facilities. To the extent that these
forecasts come to fruition, the Company anticipates that it will make additional machinery and equipment
purchases up to $6,000,000 in fiscal year 2020. The Company anticipates purchases will be funded by lease
transactions. However, there is no assurance that such increased business will be obtained or that the Company
will be able to obtain funding or leases at acceptable terms, if at all, in the future.

In fiscal year 2018, the Company purchased in cash $3,731,370 in machinery and equipment to be used in the
ordinary course of business. The Company purchases were funded by the bank line of credit and lease
transactions.

Financing Activities.

Cash provided by financing activities was $3,265,340 for the fiscal year ended April 30, 2019, compared to
cash provided by financing activities of $6,676,729 in fiscal year 2018. Cash provided by financing activities
was primarily the result of net borrowings under the line of credit.

Cash provided by financing activities was $6,676,729 for the fiscal year ended April 30, 2018. Cash provided
by financing activities was primarily the result of net borrowings under the line of credit and proceeds under
building notes. Proceeds under building notes was due to the mortgage agreements on December 21, 2017 with
U.S. Bank to refinance the Company’s corporate headquarters and its manufacturing facility in Elk Grove
Village, Illinois and the Company’s engineering and design center in Elgin, Illinois.

Financing Summary.

Debt and capital lease obligations consisted of the following at April 30, 2019 and April 30, 2018:

2019

2018

Debt:
Notes Payable - Banks
Notes Payable - Buildings
Notes Payable - Equipment
Unamortized deferred financing costs
Total debt
Less current maturities
Long-term debt

Capital lease obligations
Less current maturities
Total capital lease obligations, less current portion

Notes Payable - Banks

35,727,212
6,650,000
1,328,753
(303,310)
43,402,655
691,701
42,710,954

4,802,158
1,939,374
2,862,784

29,279,631
6,930,000
1,548,770
(319,332)
37,439,069
655,190
36,783,879

6,618,384
2,320,538
4,297,846

$5,720,369 of unused availability at April 30, 2018. At April 30, 2019, the Company was in compliance with
its financial covenant and other restrictive covenants under the credit facility. Deferred financing costs of
$75,083 were capitalized during the fiscal year ended April 30, 2019, which are amortized over the term of the
agreement. As of April 30, 2019 and April 30, 2018, the unamortized amount offset against outstanding debt
was $209,162 and $192,502, respectively.

Notes Payable - Buildings

The Company entered into a mortgage agreement on December 21, 2017, in the amount of $5,200,000, with
U.S. Bank to refinance the property that serves as the Company’s corporate headquarters and its Illinois
manufacturing facility in Elk Grove Village, Illinois. The note requires the Company to pay monthly principal
payments in the amount of $17,333, bears interest at a fixed rate of 4.0% per year and is payable over a fifty-
one month period. Deferred financing costs of $74,066 were capitalized in fiscal year 2018 which are
amortized over the term of the agreement. As of April 30, 2019, the unamortized amount included as a
reduction to long-term debt was $49,852. A final payment of approximately $4,347,778 is due on or before
March 31, 2022. The outstanding balance was $4,940,000 and $5,148,000 at April, 30 2019 and April 30,
2018, respectively.

The Company entered into a mortgage agreement on December 21, 2017, in the amount of $1,800,000, with
U.S. Bank to refinance the property that serves as the Company’s engineering and design center in Elgin,
Illinois. The note requires the Company to pay monthly principal payments in the amount of $6,000, bears
interest at a fixed rate of 4.0% per year and is payable over a fifty-one month period. Deferred financing costs
of $65,381 were capitalized in the fiscal year 2018 which are amortized over the term of the agreement. As of
April 30, 2019 the unamortized amount included as a reduction to long-term debt was $44,006. A final
payment of approximately $1,505,000 is due on or before March 31, 2022. The outstanding balance was
$1,710,000 and $1,782,000 at April, 30 2019 and April 30, 2018, respectively.

Notes Payable - Equipment

The Company routinely enters into secured note agreements with Engencap Fin S.A. DE C.V. to finance the
purchase of equipment. The terms of these secured note agreements mature from November 2021 through May
2023, with quarterly installment payments ranging from $11,045 to $37,941 and a fixed interest rate ranging
from 6.65% to 8.00%.

Capital Lease and Sale Leaseback Obligations

From October 2013 through January 2019, the Company entered into various capital lease and sale leaseback
agreements with a gross cost of $13,034,503. The terms of the lease agreements mature through January 2023
with monthly installment payments ranging from $1,455 to $40,173 and a fixed interest rate ranging from
3.75% to 8.00%. The net book value of the equipment under these leases was $8,884,475 and $9,344,724 at
April 30, 2019 and April 30, 2018, respectively.

Operating Leases

In September 2010, the Company entered into a real estate lease agreement in Union City, California, 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
the deferred rent income recorded for fiscal year ended April 30, 2019 and April 30, 2018 was $128,505 and
$103,599, respectively. 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, 2019, was $318,568
compared to $447,073 at April 30, 2018.

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 expired in November 2018. The amount of the deferred rent
income for the fiscal year ended April 30, 2019 and April 30, 2018 was $85,527 and $139,437, respectively.
The balance of deferred rent at April 30, 2019, was $0 compared to $85,527 at April 30, 2018.

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, 2019, resulted in net foreign currency transaction losses of approximately $433,742 compared
to net foreign currency gains of $125,000 in the prior year. In fiscal year 2019, the Company paid
approximately $53,090,000 to its foreign subsidiaries.

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 2020. 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 on 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.

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”), and Rules 13a-15(e) and 15(d)-
15(e) thereunder) as of April 30, 2019. 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, 2019.

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. 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 implemented the 2013
Framework in the fourth fiscal quarter of 2018. 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,
2019.

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 fiscal year
ended April 30, 2019, that has materially affected or is reasonably likely to materially affect its internal control
over financial reporting.

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, 2019.

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1)
The financial statements are listed in the Index to Financial Statements filed as part of this Annual Report on
Form 10-K beginning on Page F-1.

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

(a)(3) and (b)
The exhibits required by Item 601 of Regulations S-K are listed in the Index to Exhibits filed as part of this
Annual Report on Form 10-K beginning on Page 31.

ITEM 16. FORM 10-K SUMMARY

None.

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. (P)(Rule 311)

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.* (P)(Rule 311)

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.* (P)(Rule 311)

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.* (P)(Rule 311)

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 10.2 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

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.*

10.25

10.26

10.27

10.28

10.29

10.30

10.31

10.32

10.33

10.34

10.35

10.36

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., incorporated herein by reference to
Exhibit 10.29 to the Company’s Form 10-K filed on July 24, 2017.

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., incorporated herein by reference to Exhibit 10.30 to the Company’s Form
10-K filed on July 24, 2017.

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., incorporated herein by reference to Exhibit 10.31 to the Company’s Form
10-K filed on July 24, 2017.

Loan and Security Agreement between SigmaTron International, Inc. and U.S. Bank National
Association dated March 31, 2017, incorporated herein by reference to Exhibit 10.32 to the
Company’ Form 10-K filed on July 24, 2017.

Promissory Note, entered into June 1, 2017, 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 September 13, 2017.

Lease No. 013, entered into July 6, 2017, 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 10.2 to the Company’s Form 10-
Q filed on September 13, 2017.

Lease No. 1, entered into September 13, 2017, is an attachment to Master Lease No. 2017389
dated August 15, 2017 by and between First American Commercial Bancorp, Inc. and
SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.1 to the
Company’s Form 10-Q filed on December 12, 2017.

Lease No. 2, entered into October 9, 2017, is an attachment to Master Lease No. 2017389 dated
August 15, 2017 by and between First American Commercial Bancorp, Inc. and SigmaTron
International, Inc., incorporated herein by reference to Exhibit 10.2 to the Company’s Form 10-
Q filed on December 12, 2017.

10.37

10.38

10.39

10.40

10.41

10.42

10.43

10.44

10.45

10.46

10.47

10.48

Promissory Note, entered into October 12, 2017, by and between ENGENCAP FIN, S.A. DE
C.V., SOFOM, E.N.R. and SigmaTron International, Inc., incorporated herein by reference to
Exhibit 10.3 to the Company’s Form 10-Q filed on December 12, 2017.

Real Property mortgage (Cook County, Illinois) made as of the 21st day of December, 2017, is
made and executed by SigmaTron International, Inc. (“Mortgagor”) and U.S. Bank National
Association (“Lender”), incorporated herein by reference to Exhibit 10.1 to the Company’s
Form 10-Q filed on March 14, 2018.

Real Property mortgage (Kane County, Illinois) made as of the 21st day of December, 2017, is
made and executed by SigmaTron International, Inc. (“Mortgagor”) and U.S. Bank National
Association (“Lender”), incorporated herein by reference to Exhibit 10.2 to the Company’s
Form 10-Q filed on March 14, 2018.

Lease No. 3, entered into December 20, 2017, is an attachment to Master Lease No. 2017389
dated August 15, 2017 by and between First American Commercial Bancorp, Inc. and
SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.3 to the
Company’s Form 10-Q filed on March 14, 2018.

Lease No. 4, entered into January 9, 2018, is an attachment to Master Lease No. 2017389 dated
August 15, 2017 by and between First American Commercial Bancorp, Inc. and SigmaTron
International, Inc., incorporated herein by reference to Exhibit 10.4 to the Company’s Form 10-
Q filed on March 14, 2018.

Asset Purchase Agreement effective April 30, 2018 between SigmaTron International, Inc. and
Wagz, Inc., incorporated herein by reference to Exhibit 99.1 to the Company’s Form 8-K/A
filed on May 4, 2018.

SigmaTron International, Inc. Employee Bonus Plan for Fiscal Year 2019 dated July 12, 2018,
incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on July 16,
2018.*

Amendment No.1 to Amended and Restated Loan and Security Agreement entered into as of
July 16, 2018, by and between SigmaTron International, Inc., and U.S. Bank National
Association incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed
on July 17, 2018.

Lease No. 5, entered into March 15, 2018, is an attachment to Master Lease No. 2017389 dated
August 15, 2017 by and between First American Commercial Bancorp, Inc. and SigmaTron
International, Inc., incorporated herein by reference to Exhibit 10.45 to the Company’s Form
10-K filed on July 24, 2018.

Lease No. 6, entered into April 20, 2018, is an attachment to Master Lease No. 2017389 dated
August 15, 2017 by and between First American Commercial Bancorp, Inc. and SigmaTron
International, Inc., incorporated herein by reference to Exhibit 10.46 to the Company’s Form
10-K filed on July 24, 2018.

Promissory Note, entered into May 1, 2018, 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 September 13, 2018.

SigmaTron International, Inc. 2018 Non-Employee Director Restricted Stock Plan dated
September 21, 2018, incorporated herein by reference to Exhibit 10.1 to the Company’s Form
8-K filed on September 24, 2018.*

10.49

10.50

10.51

10.52

21.0

23.1

24.0

31.1

31.2

32.1

32.2

Lease No. 7, entered into October 17, 2018, is an attachment to Master Lease No. 2017389
dated August 15, 2017 by and between First American Commercial Bancorp, Inc. and
SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.1 to the
Company’s Form 10-Q filed on December 12, 2018.

Lease No. 8, entered into January 25, 2019, is an attachment to Master Lease No. 2017389
dated August 15, 2017 by and between First American Commercial Bancorp, Inc. and
SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.1 to the
Company’s Form 10-Q filed on March 15, 2019.

Lease No. 9, entered into January 25, 2019, is an attachment to Master Lease No. 2017389
dated August 15, 2017 by and between First American Commercial Bancorp, Inc. and
SigmaTron International, Inc., incorporated herein by reference to Exhibit 10.2 to the
Company’s Form 10-Q filed on March 15, 2019.

SigmaTron International, Inc. Employee Bonus Plan for Fiscal Year 2020 dated July 12, 2019,
incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on July 15,
2019.*

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, 2019).**

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).**

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Scheme Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

* Indicates management contract or compensatory plan.
** Filed herewith

The Company hereby files as exhibits to this Report the exhibits listed in Item 15(a)(3) above, which are
attached hereto or incorporated herein.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

SIGMATRON INTERNATIONAL, INC.

By: /s/ Gary R. Fairhead

Gary R. Fairhead, President and Chief Executive Officer,
Principal Executive Officer and Director

Dated: July 24, 2019

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned directors and officers of SigmaTron
International, Inc., a Delaware corporation, which is filing an Annual Report on Form 10-K with the Securities
and Exchange Commission under the provisions of the Securities Exchange Act of 1934 as amended, hereby
constitute and appoint Gary R. Fairhead and Linda K. Frauendorfer, and each of them, each of their true and
lawful attorneys-in fact and agents, with full power of substitution and resubstitution, for him and in his name,
place and stead, in all capacities, to sign any or all amendments to the report to be filed with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities, and on the dates indicated.

Signature

/s/ Gary R. Fairhead
Gary R. Fairhead

Title

Chairman of the Board of Directors,
President and Chief Executive Officer,
(Principal Executive Officer) and Director

/s/ Linda K. Frauendorfer
Linda K. Frauendorfer

Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer) and Director

/s/ Thomas W. Rieck
Thomas W. Rieck

/s/ Dilip S. Vyas
Dilip S. Vyas

/s/ Paul J. Plante
Paul J. Plante

/s/ Barry R. Horek
Barry R. Horek

/s/ Bruce J. Mantia
Bruce J. Mantia

Director

Date

July 24, 2019

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 OPERATIONS
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

Stockholders and Board of Directors
SigmaTron International, Inc.
Elk Grove Village, Illinois

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Sigmatron International, Inc. and
subsidiaries (the “Company”) as of April 30, 2019 and 2018, the related consolidated statements of
operations, stockholders’ equity, and cash flows for each of the years then ended, and the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company at April
30, 2019 and 2018, and the results of their operations and their cash flows for each of the years then ended,
in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the Company’s consolidated financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part
of our audits we are required to obtain an understanding of internal control over financial reporting 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.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

BDO USA, LLP

We have served as the Company’s auditor since 2006.

Chicago, Illinois
July 24, 2019

F-2

SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
APRIL 30, 2019 and 2018

ASSETS

2019

2018

CURRENT ASSETS

Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of
$631,283 and $300,000 at April 30, 2019 and 2018,

respectively
Inventories, net
Prepaid expenses and other assets
Refundable and prepaid income taxes
Other receivables

1,005,810

1,721,599

31,441,381
85,579,575
2,436,894
1,339,739
1,741,890

26,638,367
86,929,793
1,948,748
1,655,409
1,135,810

Total current assets

123,545,289

120,029,726

PROPERTY, MACHINERY AND EQUIPMENT, NET

33,232,769

35,288,997

OTHER LONG-TERM ASSETS
Intangible assets, net
Deferred income taxes
Other assets

2,713,360
384,022
1,589,325

3,088,085
1,109,681
1,713,481

Total other long-term assets

4,686,707

5,911,247

TOTAL ASSETS

161,464,765

161,229,970

The accompanying notes are an integral part of these statements.

F-3

SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS – CONTINUED
APRIL 30, 2019 and 2018

LIABILITIES AND STOCKHOLDERS’ EQUITY

2019

2018

CURRENT LIABILITIES
Trade accounts payable
Accrued expenses
Accrued wages
Income taxes payable
Current portion of long-term debt
Current portion of capital lease obligations
Contingent consideration
Current portion of deferred rent

Total current liabilities

Long-term debt,

less current portion
Capital lease obligations,
less current portion
Income taxes payable
Other long-term liabilities
Deferred rent, less current portion
Deferred income taxes

Total long-term liabilities

Total liabilities

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, 4,240,008 and 4,215,258 shares issued
and outstanding at April 30, 2019 and 2018, 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

45,627,014
2,410,311
4,680,399
60,921
691,701
1,939,374
57,537
139,509

49,326,402
2,930,792
3,730,755
-
655,190
2,320,538
213,460
201,349

55,606,766

59,378,486

42,710,954

36,783,879

2,862,784
500,263
1,155,907
179,059
161,583

4,297,846
498,000
1,130,557
331,251
-

47,570,550

43,041,533

103,177,316

102,420,019

42,146
23,474,379
34,770,924

41,896
23,132,017
35,636,038

58,287,449

58,809,951

161,464,765

161,229,970

SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended April 30, 2019 and 2018

Net sales

Cost of products sold

Gross profit

Selling and administrative expenses
Impairment of goodwill and intangible asset
Loss on settlement of receivable and disposal of related
assets

2019

2018

290,553,951

278,131,709

264,212,182

251,528,791

26,341,769

26,602,918

23,263,117
-
-

23,089,939
3,913,006
2,509,423

Operating income (loss)

3,078,652

(2,909,450)

Other income
Interest expense

Income (loss) before income taxes

(200,946)
2,413,297

(144,574)
1,537,446

866,301

(4,302,322)

Income tax expense (benefit)

1,731,415

(1,060,452)

NET LOSS

Loss per common share
Basic

Diluted

Weighted-average shares of common

stock outstanding

Basic

Diluted

(865,114)

(0.20)

(3,241,870)

(0.77)

4,228,592

4,205,483

4,228,592

4,205,483

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, 2019 and 2018

Capital in
Preferred Common excess of par

Retained

stockholders’

Total

stock

value

earnings

equity

Balance at May 1, 2017

41,702

22,952,535

38,877,908

61,872,145

Recognition of stock-based
compensation

Exercise of stock options

Net loss

Balance at April 30, 2018

Recognition of stock-based
compensation

Restricted stock awards

Net loss

194

83,659

95,823

83,659

96,017

(3,241,870)

41,896

23,132,017

35,636,038

58,809,951

166,612

175,750

250

166,612

176,000

(865,114)

Balance at April 30, 2019

- $ 42,146 $

23,474,379 $ 34,770,924 $ 58,287,449

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, 2019 and 2018

Cash flows from operating activities

Net loss
Adjustments to reconcile net loss to net

cash used in operating activities
Depreciation and amortization
Stock-based compensation
Restricted stock expense
Provision for doubtful accounts
Provision for inventory obsolescence
Loss on settlement of receivable and disposal of related assets
Impairment of goodwill
Impairment of intangible asset
Deferred income tax expense (benefit)
Amortization of intangible assets
Amortization of financing fees
Fair value adjustment of contingent consideration
Loss from disposal or sale of machinery and equipment

Changes in operating assets and liabilities

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

Net cash used in operating activities

Cash flows from investing activities

Purchases of machinery and equipment
Proceeds from insurance settlement

Net cash used in investing activities

Cash flows from financing activities

Advances on notes receivable
Proceeds from the exercise of common stock options
Proceeds under equipment note
Payments of contingent consideration
Payments under capital lease and sale leaseback agreements
Payments under equipment note
Proceeds under building notes payable
Payments under building notes payable
Borrowings under revolving line of credit
Payments under revolving line of credit
Payments of debt financing costs

Net cash provided by financing activities

2019

2018 (As Revised)

(865,114) $

(3,241,870)

5,007,440
166,612
176,000
331,283
268,234
-
-
-
887,242
374,725
91,104
40,324
5,086

(5,134,297)
1,081,984
(766,635)
315,670
63,184
(3,699,388)
(214,032)
251,078
(1,619,500)

(2,361,629)
-
(2,361,629)

-
-
182,557
(196,247)
(2,410,895)
(402,574)
-
(280,000)
333,607,697
(327,160,115)
(75,083)
3,265,340

5,118,297
83,659
-
200,000
-
2,509,423
3,222,899
690,107
(2,234,885)
435,043
63,669
(84,344)
20,011

(1,716,793)
(13,415,555)
1,509,675
(1,315,618)
428,132
3,166,007
(243,036)
(163,300)
(4,968,479)

(3,731,370)
251,395
(3,479,975)

(880,000)
96,017
943,136
(226,014)
(2,144,866)
(297,328)
7,000,000
(3,741,000)
334,944,553
(328,843,351)
(174,418)
6,676,729

Change in cash

(715,789)

(1,771,725)

F-7

SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED
Years ended April 30, 2019 and 2018

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

1,721,599
1,005,810

3,493,324
1,721,599

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

The accompanying notes are an integral part of these statements.

2019

2018

2,272,487
645,049

1,435,067
2,053,779

617,470
203,435

3,687,221
152,730

F-8

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2019 and 2018

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, 2019, the
Company provided these manufacturing services through an international network of facilities located in the United
States, Mexico, China, Vietnam and Taiwan. Approximately 13.0% and 14.0% of the total non-current consolidated
assets of the Company are located in foreign jurisdictions outside the United States as of April 30, 2019 and 2018,
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 currency fluctuations for the fiscal year ended April 30, 2019, resulted in net
foreign currency transaction losses of approximately $433,742 compared to net foreign currency gains of $125,000 in
the prior year.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in
the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Significant estimates made in preparing the consolidated financial statements include depreciation and amortization
periods, the allowance for doubtful accounts, reserves for inventory, lower of cost or net realizable value for inventory,
contingent consideration, deferred taxes, uncertain tax positions, valuation allowance for deferred taxes and valuation
of long-lived assets. Actual results could materially differ from these estimates.

Cash and Cash Equivalents

Cash and cash equivalents include cash and all highly liquid short-term investments with original maturities within
three months of the purchase date.

F-9

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Accounts Receivable

The majority of the Company’s accounts receivable are due from companies in the industrial electronics, consumer
electronics and medical/life sciences 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 without recourse. The accounts receivable balances sold are at the election of the Company.
The Company incurred fees for such sales, which are reflected as selling and administrative expenses on the
Company’s income statement and were not material for the fiscal year ended April 30, 2019 or April 30, 2018. 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, 2019 and April 30, 2018, the Company sold
without recourse trade receivables of approximately $77,000,000 and $78,000,000, 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

Inventories are valued at cost. 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 net realizable value. The Company establishes inventory reserves
for 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, 2019 and 2018

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 $303,310 and $319,332 net
of accumulated amortization of $166,689 and $75,585, respectively, as of April 30, 2019 and April 30, 2018,
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.

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 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. Except as noted below, 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.

F-11

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

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 (loss) (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 53,309 and 109,402 anti-dilutive
common stock equivalents at April 30, 2019 and April 30, 2018, respectively, which have been excluded from the
calculation of diluted earnings per share.

Fiscal Years Ended

April 30,

2019

2018

(865,114)

(3,241,870)

4,228,592
-

4,205,483
-

4,228,592

4,205,483

(0.20)

(0.77)

Net loss
Weighted-average shares

Basic
Effect of dilutive stock options

Diluted

Basic loss per share

Diluted loss per share

Revenue Recognition

The Company recognizes revenue when control of the promised goods or services are transferred to its customers, in
an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The Company’s primary performance obligation to its customers is the production of finished goods electronic
assembly products pursuant to purchase orders. The Company has concluded that control of the products it sells and
transfers to its customers and an enforceable right to receive payment is customarily established at the point in time
when the finished goods are shipped to its customers, or in some cases delivered pursuant to the specified shipping
terms of each customer arrangement. With respect to consignment arrangements, control transfers and revenue is
recognized at the point in time when the goods are shipped to the customer from the consignment location or when
delivered to the customer (pursuant to agreed upon shipping terms). In those limited instances where finished goods
delivered to the customer location are stored in a segregated area which are not controlled by the customer (title
transfer, etc.) until they are pulled from the segregated area and consumed by the Company’s customer, revenue is
recognized upon consumption. For tooling services, the Company’s performance obligation is satisfied at the point
in time when the customer takes possession of dies or molds. For engineering, design, and testing services, the
Company’s performance obligations are satisfied over time as the respective services are rendered as its customers

F-12

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Revenue Recognition - Continued

simultaneously derive value from the Company’s performance. From the time that a customer purchase order is
received and contract is established, the Company’s performance obligations are typically fulfilled within a few weeks.
The Company does not have any performance obligations that require more than one year to fulfill.

Each customer purchase order sets forth the transaction price for the products and services purchased under that
arrangement. The Company evaluates the credit worthiness of its customers and exercises judgment to recognize
revenue based upon the amount the Company expects to be paid for each sales transaction it enters into with its
customers. Some customer arrangements include variable consideration, such as volume rebates, some of which
depend upon the Company’s customers meeting specified performance criteria, such as a purchasing level over a
period of time. The Company exercises judgment to estimate the most likely amount of variable consideration at
each reporting date.

The Company’s typical payment terms are 30 days and its sales arrangements do not contain any significant financing
component for its customers. The Company’s customer arrangements do not generate contract assets or liabilities that
are material to the consolidated financial statements. 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
assembles and tests assemblies based on customers’ specifications prior to shipment. Historically, the amount of
returns for workmanship issues has been de minimis under the Company’s standard or extended warranties. The
Company does not provide its customers the option to purchase additional warranties and, therefore, the Company’s
warranties are not considered a separate service or performance obligation.

The Company utilizes the practical expedient to treat shipping and handling activities after the customer obtains
control as fulfillment activities. The Company records shipping and handling costs as selling and administrative
expenses and costs are accrued when revenue is recognized.

The Company pays sales commissions to its sales representatives which may be considered as incremental costs to
obtain a contract. However, since the recoverability period is less than one year, the Company utilizes the practical
expedient provided by the new revenue recognition accounting standard that allows an entity to expense the costs of
obtaining a contract as incurred.

During the twelve months of fiscal year 2019, no revenues were recognized from performance obligations satisfied or
partially satisfied in previous periods and no amounts were allocated to performance obligations that remain
unsatisfied or partially unsatisfied at April 30, 2019. The Company is electing not to disclose the value of the
remaining unsatisfied performance obligation with a duration of one year or less as permitted by the practical expedient
in ASU 2014-09, “Revenue from Contracts with Customers.” The Company had no material remaining unsatisfied
performance obligations as of April 30, 2019, with an expected duration of greater than one year.

The following table presents the Company’s revenue disaggregated by the principal end-user markets it serves:

Year Ended April 30,

Net trade sales by end-market

2019

Industrial Electronics

Consumer Electronics
Medical / Life Sciences
Total Net Trade Sales

160,435,562

115,099,199

15,019,190

290,553,951

2018

152,166,932
112,480,023
13,484,754
278,131,709

F-13

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Shipping and Handling Costs

The Company records shipping and handling costs for goods shipped to customers 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 2019 or 2018.

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, 2019 and April 30,
2018, 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 Control, Inc. acquisition
under the fair value standard (primarily using level 3 measurement inputs). The contingent consideration was
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.

The Company entered into an Asset Purchase Agreement with Wagz, Inc. (“Wagz”) whereby the Company sold assets
to Wagz for $350,000 cash, 600,000 shares of Wagz Class C Common Stock and an earn-out based on sales by Wagz
generated from use of the assets through July 31, 2022. The earn-out is $6.00 per unit of a product specified in the
asset purchase agreement and any upgrade to such product. The fair value of the non-cash consideration at April 30,
2019, is $600,000 for the 600,000 shares of Wagz common stock.

F-14

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

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 (the “step 2” requirement). 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.

For fiscal year 2018, the Company early adopted the guidance contained in Accounting Standards Update (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.
Beginning with the Company’s February 1, 2018 goodwill impairment testing, goodwill impairment is the amount by
which the Company’s single reporting unit carrying value exceeds its fair value, not to exceed the recorded amount
of goodwill. To estimate the fair value of the Company’s equity, the Company used both a market approach based on
the guideline companies’ method, and an income approach based on a discounted cash flow analysis. The value
indicated by both methods was weighted to arrive at a concluded value. The Company’s fiscal year 2018 assessment
concluded that the carrying value of the Company’s equity was greater than the fair value of the Company by an
amount greater than the recorded amount of the goodwill and the Company recognized a full goodwill impairment
charge of $3,222,899.

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.

F-15

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including amortizable intangible assets, for impairment in accordance with
FASB AC 360: Property, Plant and Equipment. 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. In the
fourth quarter of fiscal year 2018, the Company determined that the carrying value of the trade name intangible asset
was not recoverable and recorded a fourth quarter charge of $690,107 for the entire carrying amount. The Company’s
analysis for fiscal year 2019 did not indicate that any of its other long-lived assets were impaired.

Settlement of Receivable, Related Sale of Assets and Investments

As more fully described in Note E – Related Parties, the Company has recorded an investment in Wagz, a privately
held company whose equity does not have a readily determinable fair value. As permitted by ASC 321, Investments
- Equity Securities, paragraph 321-35-2, the Company has elected to carry its investment in Wagz equity at its cost
minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for
identical or a similar investment of the same issuer until the investment no longer qualifies to be measured under
paragraph 321-35-2. The balance at fiscal year ended April 30, 2018 was $600,000 which is recorded under other
assets. At April 30, 2019, the Company continued to recognize the fair value of the Wagz common stock at $600,000;
it reduced the fair market of the Wagz inventory by $109,046 and it reserved as bad debt the Wagz total account
receivable of $331,283.

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 2018 financial statements to conform to the 2019
presentation. There was no change to net income.

Revision of Previously Issued Financial Statements

During the quarter ended April 30, 2019, the Company identified mechanical errors in its calculation of borrowings
and payments under its revolving line of credit presented in the consolidated statement of cash flows. The Company
assessed the materiality of these errors considering both qualitative and quantitative factors and determined that for
the year ended April 30, 2018, the three month periods ended July 31, 2018 and July 31, 2017, the six month periods
ended October 31, 2018 and October 31, 2017, and the nine month periods ended January 31, 2019 and January 31,
2018, the errors were immaterial. The Company decided to correct these immaterial errors as revisions to previously
issued financial statements and will revise the Forms 10-Q when filed in succeeding periods of the next fiscal year.

F-16

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Revision of Previously Issued Financial Statements - Continued

The errors had no impact to total cash flows from financing activities, net loss or net loss per share, or the consolidated
balance sheets or statements of operations or stockholders’ equity.

The effect of the revisions on the Company’s previously issued consolidated statements of cash flows for the year
ended April 30, 2018 are as follows:

Year Ended April 30, 2018

As Previously
Reported

Adjustments

As Revised

Cash flows from financing activities

Advances on notes receivable

$
Proceeds from the exercise of common stock options
Proceeds under equipment note
Payments of contingent consideration
Payments under capital lease and sale leaseback
agreements
Payments under equipment note
Proceeds under building notes payable
Payments under building notes payable
Borrowings under revolving line of credit
Payments under revolving line of credit
Payments of financing fees

Net cash provided by financing activities

(880,000) $
96,017
943,136
(226,014)

(2,144,866)

(297,328)
7,000,000
(3,741,000)
15,912,446
(9,811,244)
(174,418)
6,676,729 $

-
-
-
-

-
-
-
319,032,107
(319,032,107)

-
- $

(880,000)
96,017
943,136
(226,014)

(2,144,866)

(297,328)
7,000,000
(3,741,000)
334,944,553
(328,843,351)
(174,418)
6,676,729

F-17

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Revision of Previously Issued Financial Statements - Continued

The effects of the revisions on the line items within the Company’s unaudited condensed consolidated statements of
cash flows for the three month periods ended July 31, 2018 and 2017, six month periods ended October 31, 2018
and 2017, and nine month periods ended January 31, 2019 and 2018 are as follows:

Three months Ended July 31, 2018

Three months Ended July 31, 2017

As Previously
Reported

Adjustments

As Revised

As Previously
Reported

Adjustments

As Revised

Cash flows from financing activities
Proceeds from the exercise of common
stock options
Proceeds under equipment note
Payments of contingent consideration
Payments under capital lease and sale
leaseback agreements
Payments under equipment note
Proceeds under building notes payable
Payments under building notes payable
Borrowings under revolving line of credit
Payments under revolving line of credit
Payments of financing fees
Net cash provided by financing activities $

$
182,557
(55,075)

$
-
-
-

$
182,557
(55,075)

$
25,542
636,100
(45,875)

$
-
-
-

25,542
636,100
(45,875)

(643,290)
(93,798)
-
(70,000)
5,100,005
(177,896)
(11,100)
4,231,403 $

-
-
-
-
77,379,006
(77,379,006)
-
- $

(643,290)
(93,798)
-
(70,000)
82,479,011
(77,556,902)
(11,100)
4,231,403 $

(442,472)
(46,640)
-
(41,250)
2,676,851
(858,971)
(14,631)
1,888,654 $

-
-
-
-
85,564,315
(85,564,315)
-
- $

(442,472)
(46,640)
-
(41,250)
88,241,166
(86,423,286)
(14,631)
1,888,654

Six months Ended October 31, 2018

Six months Ended October 31, 2017

As Previously
Reported

Adjustments

As Revised

As Previously
Reported

Adjustments

As Revised

Cash flows from financing activities

Advances on notes receivable

Proceeds from the exercise of common
stock options
Proceeds under equipment note

Payments of contingent consideration

Payments under capital lease and sale
leaseback agreements

Payments under equipment note

Proceeds under building notes payable

Payments under building notes payable

- $

-
182,557
(55,075)

(1,246,334)
(196,723)
-
(140,000)

Borrowings under revolving line of credit

10,690,386

- $

-
-
-

-
-
-
-
161,469,547

- $

(315,000) $

- $

(315,000)

-
182,557
(55,075)

(1,246,334)
(196,723)
-
(140,000)

42,940
943,136
(112,151)

(966,579)
(125,085)
-
(82,500)

-
-
-

-
-
-
-

42,940
943,136

(112,151)

(966,579)

(125,085)

(82,500)

172,159,933

9,298,262

166,947,747

176,246,009

Payments under revolving line of credit

(3,785,780)

(161,469,547)

(165,255,327)

(3,675,691)

(166,947,747)

(170,623,438)

Payments of financing fees

(24,197)

(14,632)

Net cash provided by financing activities $

5,424,834 $

- $

5,424,834 $

4,992,700 $

(14,632)

- $

4,992,700

F-18

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Revision of Previously Issued Financial Statements - Continued

Nine months Ended January 31, 2019

Nine months Ended January 31, 2018

As Previously
Reported

Adjustments

As Revised

As Previously
Reported

Adjustments

As Revised

- $

(630,000) $

- $

(630,000)

-
-
-
182,557
182,557
-
(156,881)
-
(156,881)
(1,783,543)
-
(1,783,543)
(299,648)
-
(299,648)
-
-
-
(210,000)
(210,000)
-
14,963,270 242,144,025
257,107,295
(5,856,146) (242,144,025) (248,000,171)
(51,198)
6,788,411 $

(51,198)
6,788,411 $

-
- $

(1,536,508)

96,017
943,136
(175,269)

96,017
-
943,136
-
-
(175,269)
-
(1,536,508)
-
(203,531)
-
7,000,000
-
(3,671,000)
15,613,799
245,691,562
261,305,361
(7,345,462) (245,691,562) (253,037,024)
(151,926)
(151,926)
9,939,256 $

-
- $

(3,671,000)

9,939,256

7,000,000

(203,531)

Cash flows from financing activities
Advances on notes receivable
Proceeds from the exercise of common
stock options
Proceeds under equipment note
Payments of contingent consideration
Payments under capital lease and sale
leaseback agreements

Payments under equipment note

Proceeds under building notes payable

Payments under building notes payable
Borrowings under revolving line of credit
Payments under revolving line of credit
Payments of financing fees
Net cash provided by financing activities $

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.” The guidance requires an entity to recognize the amount of revenue to which it expects to be entitled
for the transfer of promised goods or services to a customer, and replaces most existing revenue recognition guidance
in U.S. GAAP. The Company adopted the ASU on May 1, 2018 using the modified retrospective transition method.
Under the modified retrospective transition method, the cumulative effect of applying ASC 606 to all contracts that
are not completed as of the date of adoption is recorded as an adjustment to the opening balance of retained earnings
(if applicable) while the comparative periods are not restated and continue to be reported under the accounting
standards in effect for those periods. The Company has determined that the amount of revenue from contracts with
customers under the new revenue recognition standard is the same as under prior accounting standards. Accordingly,
the Company did not record an adjustment to the beginning balance of retained earnings as a result of adopting ASC
606.

F-19

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

New Accounting Standards - Continued

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which sets out the principles for the
recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors).
This update requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on
the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This
classification will determine whether the lease expense is recognized based on an effective interest method or on a
straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability
for all leases with a term of greater than 12 months regardless of their classification. This update is effective for annual
periods beginning after December 15, 2018, using a modified retrospective approach, with early adoption permitted.

ASC 842 will be effective for the Company on May 1, 2019. There are a number of optional practical expedients made
available to simplify the transition of the new standard. The Company has made the following elections:

•

•
•
•

to adopt the optional transition method defined within ASU 2018-11 and not restate comparative prior periods
but instead recognize a cumulative effect adjustment to the opening balance of retained earnings in the period
of adoption;
to elect the package of three practical expedients addressing whether a contract contains a lease, lease
classification and initial direct costs;
to combine lease and non-lease components as a single component for all asset classes;
to use a portfolio approach to determine the incremental borrowing rate; and
to apply the short-term lease exception to leases that, at the commencement date, have a lease term of 12
months or less and do not include an option to purchase the underlying asset that the lessee is reasonably
certain to exercise.

During fiscal year 2019, the Company made progress on implementing the new standard which included surveying
the Company’s businesses, assessing the Company’s portfolio of leases and compiling a central repository of active
leases. The Company evaluated key policy elections and considerations under the standard which the Company will
utilize to develop an internal policy to address the new standard requirements. The Company continues to assess the
impact on its accounting policies, internal control processes and related disclosures required under the new guidance,
as well as its process to determine the actual amount of the required transition adjustment to reflect the balance of the
right of use asset and lease liability. These conclusions may change as the Company continues to evaluate the new
standard or if there are any changes in the Company’s lease portfolio. The Company does not currently believe that
the standard will have a material impact on its results of operations or cash flows.

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.

On May 1, 2018, the Company adopted the guidance contained in ASU 2016 -15, “Statement of Cash Flows (Topic
230), Classification of Certain Cash Receipts and Cash Payments.” The amendments in ASU 2016-15 are applied
using a retrospective transition method to each period presented. The Company has evaluated each of the eight
specific issues addressed by ASU 2016-15. During the fiscal year ended April 30, 2018, the Company received cash

F-20

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

New Accounting Standards - Continued

settlement of insurance claims related to equipment damaged by a fire and including replacement of inventory and
clean-up costs at one of its subsidiaries. The Company has classified these receipts as cash flows from operating
activities for the fiscal year ended April 30, 2018. As a result of the adoption of this guidance in fiscal year 2019, the
Company reclassified $251,395 of cash receipts related to this insurance settlement from cash flows from operations
to cash flows from investing activities in its statements of cash flows for the fiscal year ended April 30, 2018.

In February 2018, the FASB issued ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income.” The guidance permits entities to reclassify tax effects stranded in Accumulated Other
Comprehensive Income as a result of tax reform to retained earnings. This new guidance is effective for annual and
interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted in annual and interim
periods and can be applied retrospectively or in the period of adoption. The Company adopted this ASU in the first
quarter of its fiscal year ending April 30, 2019 and it had no impact on its consolidated financial statements.

NOTE C - ALLOWANCE FOR DOUBTFUL ACCOUNTS

Changes in the Company’s allowance for doubtful accounts are as follows:

Beginning Balance

Bad debt expense

Write-offs

2019

300,000

331,283

631,283

2018
100,000
200,000
-
300,000

F-21

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE D - INVENTORIES

Inventories consist of the following at April 30:

2019

2018

Finished products
Work-in-process
Raw materials

Less obsolescence reserve

20,682,669
3,037,810
63,203,068
86,923,547
1,343,972
85,579,575

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

Beginning balance
Provision for obsolescence
Write-offs

NOTE E - RELATED PARTIES

2019

1,202,932
268,234
(127,194)
1,343,972

20,404,849
2,075,465
65,652,411
88,132,725
1,202,932
86,929,793

2018

1,264,924
-
(61,992)
1,202,932

In March, 2015, two of the Company’s executive officers invested in a start-up customer, Petzila, Inc. (“Petzila”). The
executive officers’ investments constituted less than 2% (individually and in aggregate) of the outstanding beneficial
ownership of Petzila, according to information provided by Petzila to the executive officers.

On April 30, 2018, the Company foreclosed on its security interest and held a public sale of the assets in accordance
with the requirements of Article 9 of the California Uniform Commercial Code. The Company acquired all of the
assets of Petzila as the winning bidder at the public sale by a credit bid of $3,500,000, the aggregate amount of Petzila’s
liability to the company. Concurrent with the foreclosure sale, the Company entered into an Asset Purchase Agreement
with Wagz, Inc. (Wagz) whereby the Company sold the assets to Wagz for $350,000 cash, 600,000 shares of Wagz
common stock and an earn-out based on sales by Wagz generated from use of the assets through July 31, 2022. The
earn-out is $6.00 per unit of a product specified in the asset purchase agreement and any upgrade to such product.

The fair value of the non-cash consideration consisted of $600,000 for the 600,000 shares of Wagz common stock
which is recorded within other assets. The Company determined the fair value of the equity using the price per
common share received by Wagz in a recent financing transaction, a level 3 input. The Company did not assign any
value to the earn-out because any receipts from the earn-out are highly uncertain and contingent upon Wagz selling
the product specified in the asset purchase agreement between the Company and Wagz. Accordingly, the Company
recognized the fair value of the assets received from Wagz and derecognized the receivables from Petzila. The fair
value of the assets received from Wagz was approximately $950,000; therefore, the Company recognized a loss of
approximately $2,509,423 in its consolidated statement of operations for the fiscal year ended April 30, 2018.

F-22

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

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 $2,644,661
and $3,072,310 at April 30,
2019 and 2018, respectively

Property, machinery and

equipment, net

2019

2018

17,158,071 $
66,390,457
11,008,826
2,733,372
10,164,067

17,072,098
61,746,650
10,670,918
2,673,100
12,417,034

107,454,793

104,579,800

74,222,024

69,290,803

33,232,769 $

35,288,997

Depreciation and amortization expense of property, machinery and equipment was $5,007,440 and $5,118,297 for
the fiscal years ended April 30, 2019 and April 30, 2018, respectively.

F-23

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE G - INTANGIBLE ASSETS

Intangible Assets

Intangible assets subject to amortization are summarized as of April 30, 2019 and April 30, 2018, as follows:

April 30, 2019

April 30, 2018

Gross

Carrying

Amount

Accumulated

Amortization

Gross

Carrying

Amount

Accumulated

Amortization

Spitfire:

Non-contractual customer
relationship
Non-compete agreements

4,690,000
50,000

1,977,255
49,385

4,690,000
50,000

Total

$ 4,740,000 $

2,026,640 $ 4,740,000 $

1,609,670
42,245
1,651,915

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 years ending April 30:

2020
2021
2022
2023
2024
Thereafter

362,410
354,203
346,582
339,128
331,842
979,195
2,713,360

Amortization expense was $374,725 and $435,043 for the years ended April 30, 2019 and April 30, 2018,
respectively.

In conjunction with the May 2012 acquisition of Spitfire Control, Inc., an estimate of the fair value of the contingent
consideration, $2,320,000, was recorded based on expected operating results through fiscal year 2019 and the specific
terms of when such consideration would be earned. Those terms provided 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 were
made quarterly each year and adjusted after each year-end audit. The Company adjusted the estimated remaining
payments expected to be paid under the agreement, which resulted in an increase of $40,324 for the fiscal year ended
April 30, 2019. 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. This was measured and reported as a level
3 fair value at each period end. The Company made payments totaling $196,247 and $226,014 for the fiscal years
ended April 30, 2019 and April 30, 2018, respectively. As of April 30, 2019, the contingent consideration liability
was $57,537 compared to $213,460 at April 30, 2018.

F-24

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE H - LONG-TERM DEBT

Debt and capital lease obligations consisted of the following at April 30, 2019 and April 30, 2018:

2019

2018

Debt:
Notes Payable - Banks
Notes Payable - Buildings
Notes Payable - Equipment
Unamortized deferred financing costs
Total debt
Less current maturities
Long-term debt

Capital lease and sale leaseback obligations
Less current maturities
Total capital lease obligations, less current portion

Notes Payable - Banks

35,727,212
6,650,000
1,328,753
(303,310)
43,402,655
691,701
42,710,954

4,802,158
1,939,374
2,862,784

29,279,631
6,930,000
1,548,770
(319,332)
37,439,069
655,190
36,783,879

6,618,384
2,320,538
4,297,846

On March 31, 2017, the Company entered into a $35,000,000 senior secured credit facility with U.S. Bank, 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 five percent or LIBOR plus one and one half percent (effectively 4.09% at April 30, 2019). 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 accounts receivable plus a percentage of the eligible inventory
(the “Borrowing Base”).

On July 16, 2018, the Company and U.S. Bank entered into an amendment of the revolving line of credit under the
senior secured credit facility. The amended revolving credit facility allows the Company to borrow up to the lesser
of (i) $45,000,000 (the “Revolving Line Cap”) less reserves or (ii) the Borrowing Base, but no more than 90% of the
Company’s Revolving Line Cap, except that the 90% limitation will expire if the Company’s actual revolving loans
for 90 consecutive days after the amendment’s effective date are less than 80% of the Company’s Borrowing Base
and the Company maintains a Fixed Charge Coverage Ratio of 1.2 to 1.0 for four consecutive quarters. The
amendment also imposes sublimits on categories of inventory equal to $10,500,000 on raw materials, $10,000,000 on
finished goods and $28,000,000 on all eligible inventory.

On December 13, 2018, the Company and U.S. Bank entered into an amendment of the revolving credit facility. The
amendment provides an exception to otherwise ineligible foreign receivables for up to $3,000,000 of receivables paid
by certain enumerated account debtors outside of the U.S. and Canada.

F-25

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE H - LONG-TERM DEBT - Continued

Notes Payable – Banks - Continued

covenants under the credit facility. Deferred financing costs of $75,083 were capitalized during the fiscal year ended
April 30, 2019, which are amortized over the term of the agreement. As of April 30, 2019 and April 30, 2018, the
unamortized amount offset against outstanding debt was $209,162 and $192,502, respectively.

On March 15, 2019, 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 5,000,000 Renminbi, approximately $743,000 as of April 30, 2019, 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 March 14, 2024. There was no outstanding
balance under the facility at April 30, 2019.

The Company is in compliance with its financial covenant and other restrictive covenants and anticipates that its
credit facilities, expected future cash flows from operations and leasing resources are adequate to meet its working
capital requirements, and fund capital expenditures for the next 12 months. In addition, if customers delay orders,
future payments are not made timely, the Company desires to expand its operations, its business grows more rapidly
than expected, or the current economic climate deteriorates, additional financing resources may be necessary. 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

Notes Payable - Buildings

The Company entered into a mortgage agreement on December 21, 2017, in the amount of $5,200,000, with U.S.
Bank to refinance the property that serves as the Company’s corporate headquarters and its Illinois manufacturing
facility in Elk Grove Village, Illinois. The note requires the Company to pay monthly principal payments in the
amount of $17,333, bears interest at a fixed rate of 4.0% per year and is payable over a fifty-one month period.
Deferred financing costs of $74,066 were capitalized in fiscal year 2018 which are amortized over the term of the
agreement. As of April 30, 2019, the unamortized amount included as a reduction to long-term debt was $49,852. A
final payment of approximately $4,347,778 is due on or before March 31, 2022. The outstanding balance was
$4,940,000 and $5,148,000 at April, 30 2019 and April 30, 2018, respectively.

The Company entered into a mortgage agreement on December 21, 2017, in the amount of $1,800,000, with U.S.
Bank to refinance the property that serves as the Company’s engineering and design center in Elgin, Illinois. The note
requires the Company to pay monthly principal payments in the amount of $6,000, bears interest at a fixed rate of
4.0% per year and is payable over a fifty-one month period. Deferred financing costs of $65,381 were capitalized in
the fiscal year 2018 which are amortized over the term of the agreement. As of April 30, 2019 the unamortized amount
included as a reduction to long-term debt was $44,006. A final payment of approximately $1,505,000 is due on or
before March 31, 2022. The outstanding balance was $1,710,000 and $1,782,000 at April, 30 2019 and April 30,
2018, respectively.

F-26

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE H - LONG-TERM DEBT - Continued

Notes Payable - Equipment

The Company routinely enters into secured note agreements with Engencap Fin S.A. DE C.V. to finance the purchase
of equipment. The terms of these secured note agreements extend to November 2021 through May 2023, with quarterly
installment payments ranging from $11,045 to $37,941 and a fixed interest rate ranging from 6.65% to 8.00%.

Annual maturities of the Company’s debt, net of deferred financing fees for each of the next five years and thereafter,
as of April 30, 2019, are as follows:

Fiscal Year

Bank

Building

Equipment

Total

2020
2021
2022
2023
2024

- $
-
35,727,212
-
-

35,727,212 $

280,000 $
280,000
5,786,689
-
-

6,346,689 $

411,701 $
411,701
381,852
114,372
9,128
1,328,754 $

691,701
691,701
41,895,753
114,372
9,128
43,402,655

Capital Lease and Sale Leaseback Obligations

The Company enters into various capital lease and sales leaseback agreements. The terms of the lease agreements
mature through January 2023, with monthly installment payments ranging from $1,455 to $40,173 and a fixed interest
rate ranging from 3.75% to 8.00%.

Annual future minimum obligations under capital leases and sale leaseback agreements for each of the next five fiscal
years and thereafter, as of April 30, 2019, are as follows:
Fiscal Year

Total

2020
2021
2022
2023
2024
Total minimum lease payments
Less: Amounts representing interest
Present value of net minimum lease payments

2,215,849
1,792,747
1,049,198
133,819
-
5,191,613
389,455
4,802,158

F-27

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE H - LONG-TERM DEBT - Continued

Other Long-Term Liabilities

As of April 30, 2019 and April 30, 2018, the Company had recorded $1,155,907 and $1,130,557, respectively, for
seniority premiums and $1,067,686 and $1,052,082, respectively, for retirement accounts related to benefits for
employees of the Company’s foreign subsidiaries.

NOTE I - ACCRUED EXPENSES AND WAGES

Accrued expenses consist of the following at April 30:

Interest
Commissions
Professional fees
Other - Purchases
Other

2019

2018

171,551
176,135
351,575
183,148
1,527,902

2,410,311

121,845
187,936
322,377
156,634
2,142,000

2,930,792

Accrued wages consist of the following at April 30:

Domestic wages
Bonuses
Foreign wages

2019

2018

2,030,155
194,354
2,455,890

4,680,399

1,945,142
467,306
1,318,307

3,730,755

F-28

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE J - INCOME TAX

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

2019

2,400,998
(1,534,697)

866,301

2018

(5,906,596)
1,604,274

(4,302,322)

Domestic
Foreign

Income Tax Provision

The income tax expense (benefit) for the fiscal years ended April 30 consists of the following:

Current
Federal
State
Foreign
Total Current

Deferred
Federal
State
Foreign
Total Deferred

Income tax

2019

2018

285,351
27,577
531,245
844,173

458,572
134,287
294,383
887,242

433,291
28,296
712,846
1,174,433

(1,551,921)
(240,647)
(442,317)
(2,234,885)

1,731,415

(1,060,452)

F-29

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE J - INCOME TAX - Continued

Income Tax Provision - Continued

The difference between the income tax expense (benefit) and the amounts computed by applying the statutory
Federal income tax rates to income before tax expense for the fiscal years ended April 30 are as follows:

U.S Federal Provision:
At statutory rate
State taxes
Foreign tax differential
Impact of state tax rate change
Foreign valuation allowance
Impact of foreign permanent items
Tax law changes
Foreign currency exchange gain/loss
Foreign inflation adjustment
Stock based compensation

2019

2018

181,922
127,245
75,990
626
1,216,504
62,544
-
156,119
(96,749)
7,214

(1,325,872)
(151,508)
60,302
3,670
-
23,106
581,222
(172,062)
(129,227)
49,917

Provision for income taxes

1,731,415

(1,060,452)

F-30

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

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 and liabilities for federal, state and foreign income taxes
are as follows:

Deferred Tax Assets
Federal, foreign & 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

2019

2018

1,196,341
78,100
657,471
360,065
962,525
778,744
83,233
162,492
12,717
5,822
4,297,510
(1,294,605)

730,561
78,100
598,364
314,221
869,471
834,512
114,171
76,500
-
-
3,615,900
(78,100)

Net Deferred Tax Assets

3,002,905

3,537,800

Deferred Tax Liabilities
Other assets
Property, machinery & equipment
Prepaids
Federal benefit of state
Total Deferred Tax Liabilities

Deferred Tax Asset
Deferred Tax Liability
Net Deferred Tax Asset (Liability)

-
(2,615,868)
(164,598)
-
$ (2,780,466)

384,022
(161,583)
222,439

(3,485)
(2,198,332)
(203,924)
(22,378)
$ (2,428,119)

1,109,681
-
1,109,681

On December 22, 2017, the U.S. Government enacted comprehensive tax legislation commonly referred to as the Tax
Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including,
but not limited to: (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) changing rules related to uses
and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; (3) bonus
depreciation that will allow for full expensing of qualified property; (4) creating a new limitation on deductible interest
expense; (5) eliminating the corporate alternative minimum tax; and (6) new tax rules related to foreign operations.

F-31

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE J - INCOME TAX - Continued

Deferred Tax Assets and Liabilities - Continued

Due to the Tax Act, the SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on
accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond
one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance
with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting
under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act
is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial
statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should
continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the
enactment of the Tax Act.

Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the
Company made reasonable estimates for certain effects of the Tax Act and recorded provisional amounts in its
financial statements as of April 30, 2018. The Company completed its accounting for the tax effects of the Tax Act
in fiscal year 2019 with no material changes to the provisional estimates recorded in prior periods.

As of April 30, 2019, the Company does not have a net operating loss carryforward for federal income tax purposes.
The Company has state net operating loss carry-forwards totaling approximately $51,000 at April 30, 2019, that will
begin to expire in fiscal year April 30, 2025. The Company has foreign net operating loss carryforwards of $5,149,000
as of April 30, 2019, which will begin to expire in 2023. 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. With the exception of its foreign tax credits and foreign net operating losses described below, the Company
determined it is more likely than not that it will realize its deferred tax assets due to the reversal of deferred tax
liabilities and forecast of future earnings. 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. The Company has also established a valuation allowance of $1,216,505 on its net operating loss
carryforwards and other deferred tax assets at one of its Chinese subsidiaries and its Vietnam subsidiaries. Based on
historical losses and forecasted future earnings the Company has determined that the tax benefit from such assets are
not more likely than not to be realized.

As a result of the Tax Act, the historic undistributed earnings of the Company’s foreign subsidiaries will be taxed in
the U.S. via the one-time repatriation tax in fiscal year 2018. As a result of this transition tax, the Company may
repatriate its cash and cash equivalents held by its foreign subsidiaries without such funds being subject to further U.S.
income tax liability. Certain unrepatriated foreign earnings remain subject to local country withholding taxes upon
repatriation. The Company continues to apply its permanent reinvestment assertion on the cumulative amount of
unremitted earnings of $9,141,000 as of April 30, 2019, from its foreign subsidiaries.

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 years ended April 30, 2019 and April 30, 2018, 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
operations. For the fiscal years ended April 30, 2019 and April 30, 2018, the amount included in the Company’s
balance sheet for such liabilities was $0 for each year.

F-32

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE J - INCOME TAX - Continued

Other - Continued

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
2015. 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
$96,086 and $90,744 to the plans during the fiscal years ended April 30, 2019 and April 30, 2018, respectively. The
Company incurred total expenses of $11,750 and $12,700 for the fiscal years ended April 30, 2019 and April 30, 2018,
respectively, relating to costs associated with the administration of the plans.

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 fiscal year ended April 30, 2019, two customers accounted for 15.9%
and 15.8% of net sales of the Company, and 3.9% and 11.5%, respectively, of accounts receivable at April 30, 2019.
For the fiscal year ended April 30, 2018, two customers accounted for 20.2% and 13.3% of net sales of the Company
and 6.0% and 2.9%, respectively, of accounts receivable at April 30, 2018. Further, the Company has $661,115 in
cash in China as of April 30, 2019. 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.

F-33

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE M - OPERATING LEASE COMMITMENTS

The Company leases certain facilities and office space under various operating leases expiring at various dates
through April 2024.

Future minimum lease payments under leases with terms of one year or more are as follows:

Years ending April 30,

2020
2021
2022
2023
2024

Operating
Leases

1,808,984
1,387,697
757,738
736,385
42,000

Total future minimum lease payments $

4,732,804

Rent expense incurred under operating leases was $2,427,658 and $2,391,328 for the fiscal years ended April 30, 2019
and April 30, 2018, respectively.

In September 2010, the Company entered into a real estate lease agreement in Union City, California, 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 the
deferred rent income recorded for fiscal years ended April 30, 2019 and April 30, 2018 was $128,505 and $103,599,
respectively. 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, 2019, was $318,568 compared to
$447,073 at April 30, 2018.

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 expired in November 2018. The amount of the deferred rent income for
the fiscal years ended April 30, 2019 and April 30, 2018 was $85,527 and $139,437, respectively. The balance of
deferred rent at April 30, 2019, was $0 compared to $85,527 at April 30, 2018.

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, 2019, the Company does not have 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.

F-34

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE N - STOCK COMPENSATION AND EQUITY TRANSACTIONS - Continued

The Company granted 117,914 options to employees in fiscal year 2019. The Company recognized approximately
$166,612 in compensation expense in fiscal year 2019. The balance of unrecognized compensation expense was $0
at April 30, 2019.

In October 2017, the Company issued 12,500 shares of restricted stock pursuant to the 2013 Non-Employee Director
Restricted Stock Plan, which fully vested on April 1, 2018. In October 2018, the Company issued 12,500 shares of
restricted stock pursuant to the 2018 Non-Employee Director Restricted Stock Plan, which fully vested on April 1,
2019. The Company recognized $176,000 in compensation expense in fiscal year 2019. The balance of unrecognized
compensation expense related to the Company’s restricted stock award was $0 at April 30, 2019.

The table below summarizes option activity through April 30, 2019:

Number of
securities to be
issued upon
exercise of
outstanding options
366,763
(19,445)
347,318
117,914
465,232 $

Weighted-
average
exercise
price

5.85
4.94
5.90
3.20
5.22

Number of
options
exercisable
at end
of year

269,863

347,318

465,232

Outstanding at April 30, 2017
Options exercised during 2018
Outstanding at April 30, 2018
Options granted during 2019
Outstanding at April 30, 2019

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, 2019 and April 30, 2018, the
aggregate intrinsic value of options exercised was $0 and $35,820, respectively. As of April 30, 2019 and April 30,
2018, the aggregate intrinsic value of the options outstanding was $0 and $305,396, respectively.

Information with respect to stock options outstanding and exercisable at April 30, 2019 follows:

Options outstanding and exercisable

Number
outstanding at
April 30, 2019

Weighted-average
remaining
contract life

Weighted-
average
exercise price

Range of exercise prices

$ 3.20-6.45

465,232

6.68 years

As of April 30, 2019, there were no non-vested stock options.

465,232

5.22

F-35

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE O - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of unaudited quarterly financial data for fiscal year 2019:

2019

Net sales

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

$ 71,414,057 $ 77,001,091 $ 68,852,050 $ 73,286,753

Gross profit

5,789,056

6,694,085

5,529,120

8,329,508

(Loss) income before income
taxes (1)

(723,613)

402,051

(601,133)

1,788,996

Net (loss) income (2)

(526,607)

(723,941)

(595,526)

980,960

(Loss) earnings per share
Basic

(Loss) earnings per share
Diluted

(0.12) $

(0.18) $

(0.14) $

0.23

(0.12) $

(0.17) $

(0.14) $

0.23

Weighted average shares- Basic

4,223,657

4,230,008

4,230,766

Weighted average shares- Diluted

4,223,657

4,230,008

4,233,266

1.) The Company records inventory reserves for valuation and shrinkage throughout the year based on historical
data. In the fourth quarter of fiscal year 2019 physical inventory results were completed resulting in an
increase in income before income taxes of approximately $1,900,000.

The aggregate after-tax effect for the above adjustments in the fourth quarter of fiscal year 2019 was an increase to
basic earnings per share of $0.25.

2.) The Company recorded a discrete expense of approximately $457,000 during the second quarter related to
a valuation allowance recorded on Net Operating Loss carryforwards at two of its foreign subsidiaries.

The aggregate after-tax effect for the above adjustments in the second quarter of fiscal year 2019 was an increase to
basic earnings per share of $0.19.

F-36

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

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

The following is a summary of unaudited quarterly financial data for fiscal year 2018:

2018

Net sales

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

$ 71,224,293 $ 72,959,074 $ 65,733,723 $ 68,214,619

Gross profit

6,757,054

7,103,568

5,897,340

6,844,956

Income (loss) before income
taxes (1), (2)

580,845

1,151,454

(115,872)

(5,918,749)

Net income (loss)

382,882

736,115

31,338

(4,392,205)

Earnings (loss) per share
Basic

Earnings (loss) per share
Diluted

0.09 $

0.17 $

0.01 $

(1.04)

0.09 $

0.17 $

0.01 $

(1.04)

Weighted average shares- Basic

4,195,985

4,201,442

4,209,566

4,215,258

Weighted average shares- Diluted

4,269,501

4,326,854

4,356,509

4,215,258

1.) The Company records inventory reserves for valuation and shrinkage throughout the year based on historical
data. In the fourth quarter of fiscal year 2018 physical inventory results were completed resulting in an
increase in income before income taxes of approximately $1,500,000.

2.) The Company recognized a full goodwill impairment charge of $3,222,899, an impairment of intangible
assets in the amount of $690,107 and the write off of the account receivable and note receivable related to
Petzila in the amount of $2,509,423.

The aggregate after-tax effect for the above adjustments in the fourth quarter of fiscal year 2018 was a decrease to
basic earnings (loss) per share of $0.55.

F-37

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2019 and 2018

NOTE P - LITIGATION

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-38