SigmaTron International Inc. Annual Report 2020

FY2020 Annual Report · SigmaTron International Inc.

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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, 2020.

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. Yes  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 Yes  No

Indicate by check mark whether the registrant has submitted electronically 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).  Yes  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  Accelerated filer  Non-accelerated filer  Smaller reporting company 
Emerging growth company 

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. 

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as
of October 31, 2019, the last business day of the registrant’s most recently completed second fiscal quarter was
$15,628,096 based on the closing sale price of $4.18 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 August 6, 2020 was
4,257,508.

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections or portions of the definitive proxy statement of SigmaTron International, Inc., for use in
connection with its 2020 annual meeting of stockholders, which the Company intends to file within 120 days of the
fiscal year ended April 30, 2020, 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

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35
42

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 direct and indirect
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 the Company’s operating results; the results of long-lived
assets impairment testing; the ability to achieve the expected benefits of acquisitions; the collection of aged
account receivables; the variability of the Company’s customers’ requirements; the availability and cost of
necessary components and materials; the ability of the Company and its customers to keep current with
technological changes within its industries; regulatory compliance, including conflict minerals; the continued
availability and sufficiency of the Company’s credit arrangements, including the phase-out of LIBOR; the
ability to meet the Company’s financial covenant; 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 spread of COVID-19 (commonly known as “Coronavirus”) which has threatened the Company’s
financial stability by causing a decrease in consumer revenues, caused a disruption to the Company’s global
supply chain, caused plant closings or reduced operations thus reducing output at those facilities; the stability of
the U.S., Mexican, Chinese, Vietnamese and Taiwanese economic, labor and political systems and conditions;
currency exchange fluctuations; and the ability of the Company to manage its growth. These and other factors
which may affect the Company’s future business and results of operations are identified throughout the
Company’s Annual Report on Form 10-K, and as risk factors, may be detailed from time to time in the
Company’s filings with the Securities and Exchange Commission. These statements speak as of the date of
such filings, and the Company undertakes no obligation to update such statements in light of future events or
otherwise unless otherwise required by law.

Overview

SigmaTron is a Delaware corporation, which was organized on November 16, 1993, and commenced operations
when it became the successor to all of the assets and liabilities of SigmaTron L.P., an Illinois limited
partnership, through a reorganization on February 8, 1994.

The Company operates in one business segment as an independent provider of 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, Coahuila, Mexico (“MX”); Chihuahua, Chihuahua, MX; and
Tijuana, Baja California, MX; Suzhou, Jiangsu Province, China; and Ho Chi Minh City, Dong Nai Province,
Vietnam. In addition, the Company maintains an International Procurement Office (“IPO”) in Taipei, Taiwan.
The Company also provides design services in Elgin, Illinois and warehousing services in Del Rio, Texas; El
Paso, Texas; and San Diego, California. 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.

Recent Developments

On June 4, 2020, SigmaTron and Wagz, Inc. (“Wagz”), a privately held company in the pet technology (“Pet
Tech”) market, announced that they have executed a Letter of Intent (“LOI”) relating to a proposed business
combination. Subject to the terms and conditions set forth in the LOI, SigmaTron expects to issue
approximately 2,270,000 shares of SigmaTron common stock that would result in the stockholders of Wagz
owning in the aggregate approximately one-third of the combined company. The potential benefits to the
Company from that transaction were summarized in the June 4, 2020 announcement. The parties expect the
transaction to close by the end of October 2020 and it remains subject to achievement of certain milestones and
satisfaction of conditions by both parties prior to closing including finalizing a material definitive agreement
and the Company raising additional capital that it projects will be needed for the expanded operations in the
amount of approximately or not less than $7,500,000.

A pandemic of respiratory disease (abbreviated "COVID-19") began to spread globally, including to the United
States, in early 2020. On March 11, 2020, the World Health Organization (WHO) declared COVID-19 to be a
public health emergency of international concern. The full impact of the COVID-19 outbreak is inherently
uncertain at the time of this report. The COVID-19 outbreak has resulted in travel restrictions and in some
cases, prohibitions of non-essential activities, disruption and shutdown of certain businesses and greater
uncertainty in global financial markets. The Company cannot predict the extent to which the COVID-19
outbreak will impact its business or operating results, which is highly dependent on inherently uncertain future
developments, including the severity and duration of the COVID-19 outbreak and the actions taken by
governments and businesses in relation to COVID-19 containment. The Company has adopted several measures
in response to the COVID-19 outbreak. The Company has been able to continue to meet the needs of its
customers. For more information on the potential impact of the COVID-19 pandemic on the Company, see
“Item 1A. Risk Factors – The ongoing COVID-19 global pandemic and measures taken in response thereto
have adversely affected the Company’s results of operations and its financial condition, and the full impact of
the pandemic will depend on future developments, which are highly uncertain and cannot be predicted.”

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 assembly and text complexity. 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. 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.

Government Compliance, 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 Locations 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, 2020, the Company had approximately 190 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, welding equipment, food processing equipment,
solar energy devices
Appliances/white goods, automotive-vision systems,
E-writers
Operating tables, battery packs, dental equipment,
sterilizers

Fiscal
2020
%

Fiscal
2019
%

56.5

55.2

37.7

39.6

5.8

5.2

100% 100%

For the fiscal year ended April 30, 2020, the Company’s largest two customers, Whirlpool Inc. and Electrolux
accounted for 16.7% and 14.1%, respectively, of the Company’s net sales. For the fiscal year ended April 30,
2019, Whirlpool Inc. and Electrolux accounted for 15.9% and 15.8%, respectively, of the Company’s net sales.
The Company believes that Whirlpool Inc. and Electrolux 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.

The majority of sales are made to U.S. based customers and denominated in USD. The following geographic
data includes net sales based on the country location of the Company’s operation providing the electronic
manufacturing service for the year ended April 30, 2020 and 2019:

Location

United States

Mexico

China

Vietnam

Total

Net Sales Fiscal 2020

Net Sales Fiscal 2019

75,443,339

146,922,207

45,198,018

13,478,918

281,042,482

70,637,601

147,985,643

60,884,385

11,046,322

290,553,951

Approximately 16% of the total assets of the Company are located in foreign jurisdictions outside the United
States as of April 30, 2020, 10% and 4% of the total assets were located in China and Mexico, respectively, and
2% in other foreign locations. As of April 30, 2019, approximately 13% of the total assets were located in
foreign jurisdictions, 8% and 4% were located in China and Mexico, respectively, and 1% in other foreign
locations.

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 six
independent manufacturers’ representative organizations that together currently employ 16 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
operations in 1968 and had 814 employees at April 30, 2020. 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 352 employees at April 30, 2020. 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 564 employees at April 30, 2020. 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 216,950 and the
operation had 464 employees as of April 30, 2020. 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 325 employees as of April 30,
2020.

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, 2020, resulted in net foreign currency transaction losses of
approximately $285,654 compared to net foreign currency losses of $433,742 in the prior year. In fiscal year
2020, the Company paid approximately $60,510,000 to its foreign subsidiaries for manufacturing services. All
intercompany balances have been eliminated upon consolidation.

The consolidated financial statements as of April 30, 2020, 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 Restriction of Hazardous Substances (“RoHS”) and Registration,
Evaluation, Authorization and Restriction of Chemicals (“REACH”). 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 substances of very high concerns (“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”) and contributing conflict. Consistent with recent prior years, in May
2020, 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 $1,700,000 for the three most recently completed fiscal years ending April 30,
2020. 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, 2020, and April 30, 2019, was approximately
$272,550,000 and $269,660,000, respectively. The Company believes a significant portion of the backlog at
April 30, 2020, will ship in fiscal year 2021. 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 3,065 full-time employees of which approximately 535 were located in
the U.S. as of April 30, 2020. There were 205 engaged in engineering or engineering-related services, 2,512 in
manufacturing and 348 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 7, 2022. 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 April 30, 2022.

Since the time the Company commenced operations, it has not experienced any union-related work stoppages.

Available Information

The Company’s website address is www.sigmatronintl.com. The Company announces material information,
including press releases 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 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, Operations and Global Accounts 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 ongoing COVID-19 global pandemic and measures taken in response thereto have adversely affected the
Company’s results of operations and its financial condition, and the full impact of the pandemic will depend
on future developments, which are highly uncertain and cannot be predicted.

The COVID-19 pandemic has materially and adversely impacted the worldwide economy and financial
markets, which could lead to a prolonged economic recession. In response, the federal and state governments in
the U.S. have taken unprecedented monetary and fiscal policy actions across all sectors of the U.S. economy,
and there is significant uncertainty as to the timing of stabilization and recovery. The Company’s business,
results of operations, and financial condition were adversely affected by the COVID-19 pandemic in the fourth
quarter of fiscal year 2020, especially beginning in mid-March, and such impact continues into the first quarter
of fiscal year 2021. The COVID-19 pandemic and both public and private measures taken to contain it have
negatively affected the Company’s business, results of operations, financial condition, and liquidity, all of
which may continue or worsen. The following are some of the issues that the Company continues to face:



Prolonged recessionary concerns. The COVID-19 pandemic has resulted in a significant
reduction of economic activity in the U.S., as well as a significant increase in unemployment,
which could lead to a prolonged economic recession;

Interruptions in the operations of industries in which the Company’s products are used,
including EMS. Consumer and business discretionary spending has been significantly
curtailed and may worsen, all of which adversely impacts some of the Company’s customers’
businesses, financial condition, and liquidity; even when certain government and regulatory
restrictions are lifted, consumer discretionary spending, and demand for the Company’s
customers’ products, may continue to be challenged due to uncertainty in the marketplace;

The Company’s facilities have been affected by the COVID-19 pandemic. The Company has
experienced plant closings or reduced operations in the following locations: Elk Grove
Village, Illinois U.S., Union City, California U.S., Suzhou, China; Acuna, Coahuila MX;
Chihuahua, Chihuahua MX; and Tijuana, Baja California MX. While all of the Company’s
facilities are currently operational, it has experienced and continues to experience employee
absences that negatively affect production capabilities, revenues, and cash flow. The
Company has and will continue to take actions to manage its expenses and to conserve its
financial resources;

Actual and potential delays in customer payments, defaults on the Company’s customer credit
arrangements; or other failures by third parties such as suppliers, and distributors to meet
their obligations to the Company due to their economic circumstances. The financial markets
have also been adversely impacted by the COVID-19 pandemic, potentially causing
operational cash flow issues for the Company, and potentially causing similar issues for the
Company’s customers, including, but not limited to, affecting their ability to meet their
payment obligations to us;

Adapting business practices. The Company has and will continue to take actions to manage its
expenses and to conserve its financial resources. The spread of COVID-19 has caused the
Company to modify its business practices, particularly with respect to its liquidity position
and near-term cost structure. The Company’s future strategies, prospects, and plans for
growth may also be negatively impacted by the COVID-19 pandemic;

Potential impact on the Company’s ability to meet obligations under credit facilities. The
pandemic could impact the Company’s ability to meet its obligations under its credit
agreement and other outstanding debt, which may require the Company to seek covenant
relief for a limited period of time. Although there can be no assurance that such relief would
be available, if such relief is available, the Company’s lenders may, in exchange, increase the

cost of borrowing, apply more stringent covenants, restrict merger and acquisition activity,
and require other terms and conditions that may limit its business and financing activities; and



Interruptions in manufacturing or distribution of the Company’s products. Outbreaks in the
communities in which the Company operates could affect its ability to operate its
manufacturing or distribution activities, and the Company’s suppliers could experience
similar interruptions.

The full extent to which COVID-19 impacts the Company’s business, results of operations and financial
condition will depend on future developments, which are highly uncertain and cannot be predicted, including,
but not limited to, the duration and spread of the outbreak within the U.S., China, Mexico, Vietnam and Taiwan,
its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal
economic and operating conditions can resume. Even after COVID-19 has subsided, the Company may
continue to experience materially adverse impacts to its business as a result of its global economic impact,
including any recession that has occurred or may occur in the future. There are no comparable recent events
which may provide guidance as to the effect of the spread of COVID-19, and, as a result, the ultimate impact of
COVID-19, or a similar health epidemic or pandemic, is highly uncertain and subject to change. The Company
does not yet know the full extent of the impacts on its business, its operations or the global economy as a whole.
However, the effects could have a material impact on the Company’s results of operations. While it continues to
monitor the business metrics that it has historically used to predict its financial performance, it is uncertain as to
whether these metrics will continue to function as they have in the past.

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 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.

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.

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.

The Company’s customer base is concentrated.

Sales to the Company’s five largest customers accounted for 51.4% and 49.7% of net sales for the fiscal years
ended April 30, 2020, and April 30, 2019, respectively. For the fiscal year ended April 30, 2020, two customers
accounted for 16.7% and 14.1% of net sales of the Company, and 3.6% and 5.0%, respectively, of 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. 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.

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’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 2.33% at
April 30, 2020). Interest is due monthly.

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 (i) 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 (ii) 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 of
$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 April 23, 2020, the Company entered into a loan with U.S. Bank, as lender, pursuant to the Paycheck
Protection Program of the CARES Act as administered by the U.S. Small Business Administration (the “SBA”)
in the amount of $6,282,973. The loan, in the form of a promissory note, matures on April 23, 2022. No
additional collateral or guarantees were provided by the Company for the loan. The PPP loan provides for
customary events of default. Under the CARES Act, loan forgiveness is available for the sum of documented
payroll costs, rent payments, mortgage interest and covered utilities during the 24-week period beginning on the
date of loan disbursement. The Company may be required to repay any portion of the outstanding principal that
is not forgiven, along with accrued interest, and it cannot provide any assurance that it will be eligible for loan
forgiveness, or that any amount of the PPP Loan will ultimately be forgiven by the SBA. All aspects of the PPP
loan are subject to review by the SBA, including without limitation, the Company’s eligibility for and the size
of the loan. The review procedures have not been made public. The Company cannot predict the outcome of
that review nor be assured that all or any part of the loan will be forgiven. To the extent that all or part of the
PPP loan is not forgiven, the Company will be required to make payments, including interest accruing at an
annual interest rate of 1.0% beginning on the date of disbursement

On July 15, 2020 and August 7, 2020, the Company and U.S. Bank entered into amendments of the revolving
credit facility. The amendments revise the Fixed Charge Coverage Ratio.

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 $709,000 as of April 30, 2020, and
the facility is collateralized by Wujiang SigmaTron Electronic 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. As of April 30, 2020 the outstanding balance under the facility was $304,658. 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 as of April 30, 2020.

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 have returned. 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.

The Company may not be entitled to forgiveness of its recently received Paycheck Protection Program Loan (“PPP
loan”), and its application for the PPP loan could in the future be determined to have been impermissible.

On April 23, 2020 the Company received proceeds of $6,282,973 from a loan under the PPP of the CARES Act,
which it has used to retain current employees, maintain payroll and make lease and utility payments. The PPP
loan matures on April 23, 2022 if not forgiven and bears annual interest at a rate of 1.0%. Due to the size of the
PPP loan, it is subject to review, which introduces an additional layer of uncertainty.

Under the CARES Act, small businesses may apply for a PPP loan if they employ no more than 500 employees,
or are a business in an industry that has an employee-based size standard established by the SBA that is greater
than 500 employees. The Company operates under NAICS Code 334418 where the minimum employee
threshold is 750. In establishing eligibility for a PPP loan, the Company has considered its U.S. Resident

headcount based on the SBA rules in place at the time of the application, which the Company believes is within
the eligibility threshold.

Under the CARES Act, forgiveness of a PPP loan is available for the sum of documented payroll costs, covered
rent payments, covered mortgage interest and covered utilities during the 24-week period beginning on the date
of loan approval. The Company may be required to repay any portion of the outstanding principal that is not
forgiven, along with accrued interest, and it cannot provide any assurance that it will be eligible for loan
forgiveness, or that any amount of the PPP loan will ultimately be forgiven by the SBA. If the loan is not
forgiven, the Company will be required to pay the lender equal monthly payments of principal and interest as
required to fully amortize by April 23, 2022 any principal amount outstanding on the PPP loan. In order to
apply for the PPP loan, the Company was required to certify, that the current economic uncertainty, including,
among other factors, the short term customer demand reduction, made the PPP loan request necessary to support
its ongoing operations. The Company made this certification in good faith after analyzing, among other things,
the continued employment of its entire U.S. workforce, certain obvious “work-from-home” limitations
associated with the nature of its business, and its ability to meet fixed cost obligations, in light of customer
concerns. Furthermore, the Company considered its classification as a “smaller reporting company” under SEC
rules and its need for additional funding to continue operations, and its lack of ability to currently access
alternative forms of capital in the current market environment to fund working capital requirements. Based on
this analysis, it believes that it satisfied all eligibility criteria for the PPP loan, and that the receipt of the PPP
loan is consistent with the broad objectives of the CARES Act. If, despite the Company’s actions and
certification that it satisfied all eligibility requirements for the PPP loan, it is later determined that it violated
applicable laws or was otherwise ineligible to receive the PPP loan, it may be required to repay the PPP loan in
its entirety in a lump sum or be subject to additional penalties, which could also result in adverse publicity and
damage to the Company’s reputation. If these events were to transpire, they could have a material adverse effect
on the Company’s business, results of operations and financial condition.

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.

The Company may not be able to achieve the expected benefits of the proposed business combination
between the Company and Wagz (the “acquisition”), including anticipated revenue and cost synergies, and
costs associated with achieving synergies or integrating Wagz may exceed its expectations.

The Company may not be able to achieve the expected benefits of the Wagz acquisition, including anticipated
revenue and cost synergies. There can be no assurance that the Wagz acquisition will be beneficial to the
Company. Moreover, the Company may not be able to integrate the assets acquired in the Wagz acquisition or
achieve our expected cost synergies without increases in costs or other difficulties. Although Wagz will be a
stand-alone operation of SigmaTron, the integration process may be complex, costly and time-consuming. The
Company expects to incur expenses in connection with the integration of the Wagz acquisition. While it is
anticipated that certain expenses will be incurred to achieve operational synergies, such expenses are difficult to
estimate accurately, and may exceed current estimates. Accordingly, the benefits from the Wagz acquisition
may be offset by costs incurred or delays in integrating the businesses. Any unexpected costs or delays incurred
in connection with the integration of the Wagz acquisition could have an adverse effect on the Company’s
business, results of operations, financial condition and prospects, as well as the market price of its common
stock.

The overall integration of the businesses may result in material unanticipated problems, expenses, liabilities,
competitive responses, loss of customer relationships, and diversion of management’s attention. In addition,
even if the operations of the Company’s business and Wagz’s business are integrated successfully, the
Company may not realize the full benefits of the Wagz acquisition, including the synergies, cost savings or
sales or growth opportunities that it expects. These benefits may not be achieved within the anticipated time
frame, or at all.

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.

The phase-out of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a different
reference rate or modification of the method used to calculate LIBOR, may adversely affect interest rates which
may have an adverse impact on the Company.

LIBOR is the basic rate of interest used in lending between banks on the London interbank market and is widely
used as a reference for setting the interest rate on loans globally. The Company uses LIBOR as a reference rate
in its senior secured credit facility. The interest rate for the Company’s senior secured credit facility is
calculated using LIBOR. The Company’s revolving credit facility contains a stated minimum value for LIBOR,
and as of April 30, 2020, the Company had $26,884,494 in outstanding indebtedness indexed to LIBOR.

In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it
intends to stop compelling banks to submit LIBOR rates after 2021. It is unclear whether LIBOR will cease to
exist at that time or if new methods of calculating LIBOR will be established such that it continues to exist after
2021. The Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight
Financing Rate (“SOFR”) as the rate that represents best practice as the alternative to LIBOR for use in
financial and other derivatives contracts that are currently indexed to United States dollar LIBOR. ARRC has
proposed a paced market transition plan to SOFR from LIBOR and organizations are currently working on
industry wide and company specific transition plans as it relates to financial and other derivative contracts
exposed to LIBOR. Uncertainty exists as to the transition process and broad acceptance of SOFR as the
primary alternative to LIBOR. At this time, due to a lack of consensus existing as to what rate or rates may
become accepted alternatives to LIBOR, it is impossible to predict the effect of any such alternatives on the
Company’s liquidity. However, if LIBOR ceases to exist or a new method of calculating LIBOR is adopted, the
Company may need to renegotiate its credit agreements that utilize LIBOR as a factor in determining the
interest rate to replace LIBOR with the new standard that is established. In addition, these changes may have an
adverse impact on the value of or interest earned on any LIBOR-based marketable securities, loans and
derivatives that are included in the Company’s financial assets and liabilities, which may have a material
adverse effect on its financial condition 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.

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. Lead
times have recently 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.

Most of the Company’s customers production schedules are volatile, 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.

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 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.

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, 2020, resulted in net foreign currency transaction losses of $285,654
compared to net foreign currency losses of approximately $434,000 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 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, the ability to identify,
hire, train and retain qualified personnel and operating management in Mexico, China and Vietnam, and the
Company’s ability to manage disruptions resulting from foreign government lockdowns and other actions taken
in response to the COVID-19 pandemic.

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 16% of the total assets of the Company are located in foreign jurisdictions outside the United
States as of April 30, 2020, of which 10% and 4% of the total assets were located in China and Mexico,
respectively, and 2% in other foreign locations. As of April 30, 2019, approximately 13% of the total assets
were located in foreign jurisdictions, of which 8% and 4% were located in China and Mexico, respectively, and
1% in other foreign locations.

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 46% and 48%
of its workforce for fiscal years 2020 and 2019, respectively. Although the Company believes its labor relations
are good, any labor disruptions, whether union-related or otherwise, could significantly impair the Company’s
business, substantially increase the Company’s costs or otherwise have a material impact on the Company’s
results of operations.

Failure to comply with environmental regulations could subject the Company to liability.

The Company is subject to a variety of environmental regulations relating to the use, storage, discharge and
disposal of hazardous chemicals used during its manufacturing process. To date, the cost to the Company of
such compliance has not had a material impact on the Company’s business, financial condition or results of
operations. However, there can be no assurance that violations will not occur in the future as a result of human
error, equipment failure or other causes. Further, the Company cannot predict the nature, scope or effect of
environmental legislation or regulatory requirements that could be imposed or how existing or future laws or
regulations will be administered or interpreted. Compliance with more stringent laws or regulations, as well as
more vigorous enforcement policies of regulatory agencies, could require substantial expenditures by the
Company and could have a material impact on the Company’s business, financial condition and results of
operations. Any failure by the Company to comply with present or future regulations could subject it to future
liabilities or the suspension of production which could have a material negative impact on the Company’s
results of operations.

Conflict minerals regulations may cause the Company to incur additional expenses and could increase the
cost of components contained in its products and adversely affect its inventory supply chain.

The Dodd-Frank Act, and the rules promulgated by the Securities and Exchange Commission (“SEC”)
thereunder, 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.

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.

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.

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.

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.

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

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

At April 30, 2020, 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 material procurement services through all its locations. 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

216,950 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

121,000 Electronic and electromechanical manufacturing

Leased

solutions

Tijuana, Mexico

112,100 Electronic and electromechanical manufacturing

Leased

solutions

El Paso, TX

18,200 Warehousing and distribution

Elgin, IL

45,000 Design services

Del Rio, TX

28,000 Warehousing and distribution

Del Rio, TX

16,000 Warehousing and distribution

San Diego, CA

30,240 Warehousing and distribution

Leased

Owned

Leased

Ho Chi Minh City,
Vietnam

24,475 Electronic and electromechanical manufacturing

Leased

solutions

Taipei, Taiwan

4,685 International procurement office

Taichung, Taiwan

1,650 Information technology office

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 ending on July 15, 2053.

**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 El
Paso, Texas properties are occupied pursuant to leases of the premises. The lease agreement for the El Paso,
Texas property expires January 2030. The lease agreement for the San Diego, California property expires
August 2024. 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, Del Rio, Texas, 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 Del Rio, Texas, 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 August 6, 2020, there were approximately 35 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 1,302 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

Overview

obtaining product approval from governmental and other regulatory bodies. The Company provides these
manufacturing services through an international network of facilities located in the United States, Mexico,
China, Vietnam and Taiwan.

Sales can be a misleading indicator of the Company’s financial performance. Sales levels can vary
considerably among customers and products depending on the type of services (turnkey versus consignment)
rendered by the Company and the demand by customers. Consignment orders require the Company to perform
manufacturing services on components and other materials supplied by a customer, and the Company charges
only for its labor, overhead and manufacturing costs, plus a profit. In the case of turnkey orders, the Company
provides, in addition to manufacturing services, the components and other materials used in assembly. Turnkey
contracts, in general, have a higher dollar volume of sales for each given assembly, owing to inclusion of the
cost of components and other materials in net sales and cost of goods sold. Variations in the number of turnkey
orders compared to consignment orders can lead to significant fluctuations in the Company’s revenue and gross
margin levels. Consignment orders accounted for less than 1% of the Company’s revenues for each of the fiscal
years ended April 30, 2020 and April 30, 2019.

Factors Affecting Results

COVID-19. The COVID-19 pandemic, including closures and other steps taken by governmental authorities in
response to the virus, has had a significant impact on the Company’s businesses. The Company reported a pre-
tax loss of $172,525 or the fourth quarter of fiscal year 2020 and a pre-tax profit of $1,093,134 for the fiscal
year. Through March 2020, sales were up year over year. In April 2020, sales were down approximately 30%,
as compared to April 2019. In addition, operating expenses were also down significantly in April 2020, as
compared to April 2019, as certain variable expenses decreased with sales.

PPP Loan and CARES Act. During the fourth fiscal quarter the Company received a $6,282,973 PPP loan.
The Company received the PPP loan under the CARES Act. The Company believes it met the requirements for
eligibility. When part or all of the loan is forgiven under the program, that benefit will be recorded in the
quarter in which the forgiveness occurs. During the fourth quarter the Company had operational interruptions
and incurred significant expenses related to the COVID pandemic at all of its operations. In some locations the
interruptions and expenses were worse than others.

For more information on the potential impact of the COVID-19 pandemic on the Company, see “Item 1A. Risk
Factors – The ongoing COVID-19 global pandemic and measures taken in response thereto have adversely
affected the Company’s results of operations and its financial condition, and the full impact of the pandemic
will depend on future developments, which are highly uncertain and cannot be predicted.”

One of several disappointments tied to the COVID pandemic is that the Company was approaching the fourth
quarter with significant momentum and a strong backlog. During the pandemic, the Company has seen several
customers with an unexpected and un-forecasted uptick in demand while others had a precipitous drop in
demand. It is difficult to predict how these various markets will sort themselves out over the next several
quarters but the Company is cautiously optimistic that things are heading in the right direction. The Company
believes its backlog and resultant revenue stream have recently started an upward trend. This is primarily based

on the Company’s customers’ orders and backlog. While the economic recovery seems fragile at this time, it
does appear that it is trending in a positive direction for the second half of calendar year 2020.

Recent Developments

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, deferred income, deferred taxes, uncertain tax positions, valuation
allowance for deferred taxes and valuation of 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. Of the Company’s raw materials inventory, a substantial portion has been purchased to fulfill
committed future orders or for which the Company is contractually entitled to recover its costs from its
customers. For the remaining raw materials inventory, a provision for excess and obsolete inventories is
recorded 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 non-

compete agreements and customer relationships. Finite life intangible assets are amortized on a straight line
basis over their estimated useful lives of 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. The Company’s analysis for fiscal year 2020 and 2019 did not
indicate that any of its other long-lived assets were impaired. For more information on the potential impact of
the COVID-19 pandemic on the Company, see “Item 1A. Risk Factors – The ongoing COVID-19 global
pandemic and measures taken in response thereto have adversely affected the Company’s results of operations
and its financial condition, and the full impact of the pandemic will depend on future developments, which are
highly uncertain and cannot be predicted.”

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 $989,194 and $1,294,605

as of April 30, 2020 and April 30, 2019, respectively. The reduction in valuation allowance is attributable to a
reduction of underlying NOL carryforwards in China to offset current year income and NOL carryforwards in
Vietnam, pursuant to a recently concluded examination by the Vietnam tax authorities.

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.

New Accounting Standards:

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

Results of Operations:

FISCAL YEAR ENDED APRIL 30, 2020 COMPARED
TO FISCAL YEAR ENDED APRIL 30, 2019

The following table sets forth the percentage relationships of expense items to net sales for the years indicated:

Net sales
Operating expenses:

Cost of products sold
Selling and administrative expenses

Total operating expenses

Operating income

Fiscal Years

2020

100.0%

91.1
7.9
99.0
1.0%

2019

100.0%

90.9
8.0
98.9
1.1%

Net sales decreased 3.3% to $281,042,482 in fiscal year 2020 from $290,553,951 in the prior year. The
Company’s sales decreased in fiscal year 2020 in consumer electronics and industrial electronics compared to
the prior year. The decrease in sales dollars for these marketplaces was partially offset by an increase in sales
dollars in the medical/life science marketplace. In the fourth quarter of fiscal 2020 sales were negatively
impacted by the COVID-19 pandemic due to temporary closings of several of the Company’s manufacturing
operations.

Gross profit decreased to $25,104,890, or 8.9% of net sales, in fiscal year 2020 compared to $26,341,769 or
9.1% of net sales, in the prior fiscal year. The decrease in gross profit dollars for fiscal year 2020 was primarily
the result of decreased sales.

Selling and administrative expenses decreased in fiscal year 2020 to $22,292,309, or 7.9% of net sales
compared to $23,263,117, or 8.0% of net sales, in fiscal year 2019. The decrease in selling and administrative
dollars was attributable to sales salaries, bad debt expense, financing fees and other professional fees. The
decrease in the foregoing selling and administrative expenses were partially offset by an increase in legal fees,
bonus expense and other general administrative expenses. Selling and administrative expenses decreased as a
percent of net sales due to a decrease in total selling and administrative dollars in fiscal year 2020 compared to
the prior year.

Interest expense, net, decreased to $1,839,060 in fiscal year 2020 compared to $2,413,297 in fiscal year 2019.
Interest expense decreased primarily due to the decreased borrowings under the Company’s banking
arrangements and mortgage obligations.

In fiscal year 2020, the Company reported income tax expense of $650,032 compared to an income tax expense
of $1,731,415 in fiscal year 2019. The effective rate for the fiscal years ended April 30, 2020 and April 30,
2019 was 59.47% and 199.86%, respectively. The decrease in income tax expense and effective tax rate is due
primarily to the valuation allowance established on certain deferred tax assets related to foreign net operating
loss carryforwards in the previous year.

The Company reported a net income of $443,102 in fiscal year 2020 compared to a net loss of $865,114 for
fiscal year 2019. Basic and diluted earnings per share for fiscal year 2020 were $0.10 each, compared to basic
and diluted loss per share of $0.20 each for the fiscal year ended April 30, 2019.

Liquidity and Capital Resources:

Operating Activities.

Cash flow provided by operating activities was $15,454,294 for the fiscal year ended April 30, 2020, compared
to cash flow used in operating activities of $1,619,500 for the prior fiscal year. Cash flow provided by
operating activities was primarily the result of net income and an increase in accounts payable in the amount of
$10,143,939. The increase in accounts payable is the result of more favorable payment terms with vendors.
Cash flow provided by operating activities was partially offset by an increase in prepaid expenses and other
assets.

Cash flow used in operating activities was $1,619,500 for the fiscal year ended April 30, 2019. 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 was the result of increased sales and the timing of payments. Cash flow used in operating activities
was partially offset by a decrease in inventory.

Investing Activities.

In fiscal year 2020, the Company purchased in cash $4,646,325 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 $4,570,000 in fiscal year 2021. 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 2019, the Company purchased in cash $2,361,629 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 used in financing activities was $4,265,834 for the fiscal year ended April 30, 2020. Cash used in
financing activities was primarily the result of net payments under the line of credit offset by the proceeds from
the PPP loan of $6,282,973.

Cash provided by financing activities was $3,265,340 for the fiscal year ended April 30, 2019. Cash provided
by financing activities was primarily the result of net borrowings under the line of credit.

Financing Summary.

Debt and finance lease obligations consisted of the following at April 30, 2020 and April 30, 2019:

2020

2019

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

Finance lease obligations
Less current maturities
Total finance lease obligations, less current portion

Notes Payable - Banks

33,472,125
6,922,561
1,300,278
(279,740)
41,415,224
2,878,160
38,537,064

3,787,017
1,902,295
1,884,722

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

PPP loan is not forgiven, the Company will be required to make payments, including interest accruing at an
annual interest rate of 1.0% beginning on the date of disbursement

On July 15, 2020 and August 7, 2020, the Company and U.S. Bank entered into amendments of the revolving
credit facility. The amendments revise the Fixed Charge Coverage Ratio.

As of April 30, 2020, there was $26,884,494 outstanding and $13,850,575 of unused availability under the U.S.
Bank facility compared to an outstanding balance of $35,727,212 and $6,645,730 of unused availability at April
30, 2019. Deferred financing costs of $97,611 were capitalized during the fiscal year ended April 30, 2020,
which are amortized over the term of the agreement. As of April 30, 2020 and April 30, 2019, the unamortized
amount offset against outstanding debt was $218,062 and $209,162, 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, 2020, the unamortized amount included as a
reduction to long-term debt was $32,760. A final payment of approximately $4,347,778 is due on or before
March 31, 2022. The outstanding balance was $4,732,000 and $4,940,000 at April, 30 2020 and April 30,
2019, 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, 2020 the unamortized amount included as a reduction to long-term debt was $28,918. A final
payment of approximately $1,505,000 is due on or before March 31, 2022. The outstanding balance was
$1,638,000 and $1,710,000 at April, 30 2020 and April 30, 2019, respectively.

The Company entered into a mortgage agreement on March 3, 2020, in the amount of $556,000, with The Bank
and Trust SSB to purchase the property that serves as the Company’s warehousing and distribution center in
Del Rio, Texas. The note requires the Company to pay monthly installment payments in the amount of $6,103,
bears interest at a fixed rate of 5.75% per year and is payable over a 120 month period. The outstanding
balance was $552,561 at April, 30 2020.

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%.

The Company routinely enters into secured note agreements with FGI Equipment Finance LLC to finance the
purchase of equipment. The terms of these secured note agreements mature from March 2025 through April
2025, with quarterly installment payments ranging from $10,723 to $12,856 and a fixed interest rate of 8.25%.

Finance Lease Obligations

The Company enters into various finance lease agreements. The terms of the lease agreements mature through
November 2023, with monthly installment payments ranging from $1,455 to $40,173 and a fixed interest rate
ranging from 3.75% to 12.73%.

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, 2020, resulted in net foreign currency transaction losses of $285,654 compared to net foreign
currency losses of approximately $434,000 in the prior year. In fiscal year 2020, the Company paid
approximately $60,510,000 to its foreign subsidiaries for manufacturing services. All intercompany balances
have been eliminated upon consolidation.

The Company expects that the significant disruption in business activity and the financial markets created by
the COVID-19 global pandemic will impact several sources of its liquidity, and is therefore continuously and
critically reviewing its liquidity and anticipated capital requirements. For more information on the potential
impact of the COVID-19 pandemic on the Company, see “Item 1A. Risk Factors – The ongoing COVID-19
global pandemic and measures taken in response thereto have adversely affected the Company’s results of
operations and its financial condition, and the full impact of the pandemic will depend on future developments,
which are highly uncertain and cannot be predicted.”

The Company is in compliance with its financial covenant and other restrictive covenants as of April 30, 2020.

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

Evaluation of Disclosure Controls and Procedures:

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, 2020. 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, 2020.

Management, including our Chief Executive Officer and Chief Financial Officer, believes the consolidated
financial statements included in this Annual Report on Form 10-K fairly represent in all material respects our
financial condition, results of operations and cash flows at and for the periods presented in accordance with
GAAP.

Management’s Report on Internal Control Over Financial Reporting:

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 (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment,
management believes that, as of April 30, 2020, our internal control over financial reporting was effective.

This annual report does not include an attestation report of the Company’s registered public accounting firm
regarding internal control over financial reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to the rules of the Securities and Exchange Commission
that permit the Company to provide only management’s report in this annual report.

There has been no change in the Company’s internal control over financial reporting during the quarter ended
April 30, 2020, 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, 2020.

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 36.

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

10.53

10.54

10.55

10.56

10.57

10.58

10.59

10.60

21.0

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.*

Lease No. 10, entered into August 20,2019, in an attachment to Maser 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 11, 2019.

Lease No. 11 entered into October 10, 2019, in 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’ Form 10-Q filed on December 11, 2019.

Sigmatron International, Inc. 2019 Employee Stock Option Plan dated September 13, 2019,
incorporated herein by reference to Exhibit 10.1 to the Company’ Form 8-K filed on September
17, 2019.*

Promissory Note , entered into February 18, 2020, by and between FGI Equipment Finance
LLC and SigmaTron International, Inc.**

Promissory Note , entered into March 16, 2020, by and between FGI Equipment Finance LLC
and SigmaTron International, Inc.**

Lease No. 12 entered into April 15, 2020, in an attachment to Master Lease No. 2017389 dated
August 15, 2017 by and between First American Commercial Bancorp, Inc. and SigmaTron
International, Inc.**

SigmaTron International, Inc., Employee Bonus Plan for Fiscal Year 2021 dated April 17,
2020, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on
April 20, 2020.*

U.S. Bank SBA Payroll Loan Agreement dated April 23, 2020 by and between SigmaTron
International, Incorporation, incorporated here by reference to Exhibit 10.1 to the Company’s
Form 8-K filed on April 24, 2020.

Subsidiaries of the Registrant, incorporated herein by reference to Exhibit 21 to the Company’s
Form 10-K for the fiscal year ended April 30, 2014, filed on July 24, 2014.

23.1

Consent of BDO USA, LLP.**

24.0

31.1

31.2

32.1

32.2

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, 2020).**

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: August 12, 2020

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

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

Title

Date

August 12, 2020

/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

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. (the “Company”) as
of April 30, 2020 and 2019, 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, 2020 and 2019, 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.

Change in Accounting Method Related to Leases

As discussed in Note B to the consolidated financial statements, the Company changed its method of accounting for
leases effective May 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.

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
August 12, 2020

F-2

SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
APRIL 30, 2020 and 2019

ASSETS

2020

2019

CURRENT ASSETS

Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of
$727,252 and $631,283 at April 30, 2020 and 2019,

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

6,779,445

1,005,810

30,804,976
87,179,369
1,510,943
1,699,970
2,642,094

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

Total current assets

130,616,797

123,545,289

PROPERTY, MACHINERY AND EQUIPMENT, NET

33,935,760

33,232,769

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

2,350,949
284,435
8,891,090

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

Total other long-term assets

11,526,474

4,686,707

TOTAL ASSETS

176,079,031

161,464,765

The accompanying notes are an integral part of these statements.

F-3

SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS – CONTINUED
APRIL 30, 2020 and 2019

LIABILITIES AND STOCKHOLDERS’ EQUITY

2020

2019

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

Total current liabilities

Long-term debt,

less current portion
Finance lease obligations,
less current portion

Operating 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, 4,242,508 and 4,240,008 shares issued
and outstanding at April 30, 2020 and 2019, 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

55,770,953
2,670,504
4,206,825
469,143
2,878,160
1,902,295
2,150,161
-
-

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

70,048,041

55,606,766

38,537,064

42,710,954

1,884,722

2,862,784

5,281,811
452,619
810,769
-
188,206

-
500,263
1,155,907
179,059
161,583

47,155,191

47,570,550

117,203,232

103,177,316

42,265
23,619,513
35,214,021

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

58,875,799

58,287,449

176,079,031

161,464,765

SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended April 30, 2020 and 2019

Net sales

Cost of products sold

Gross profit

2020

2019

281,042,482

290,553,951

255,937,592

264,212,182

25,104,890

26,341,769

Selling and administrative expenses

22,292,309

23,263,117

Operating income

2,812,581

3,078,652

Other income
Interest expense

Income before income taxes

(119,613)
1,839,060

(200,946)
2,413,297

1,093,134

866,301

Income tax expense

650,032

1,731,415

NET INCOME (LOSS)

Earnings (loss) per common share
Basic

Diluted

Weighted-average shares of common

stock outstanding

Basic

Diluted

443,102

0.10

(865,114)

(0.20)

4,242,351

4,228,592

4,270,050

4,228,592

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, 2020 and 2019

Capital in
Preferred Common excess of par

Retained

stockholders’

Total

stock

value

earnings

equity

Balance at May 1, 2018

41,896

23,132,017

35,636,038

58,809,951

Recognition of stock-based
compensation

Restricted stock awards

Net loss

Balance at April 30, 2019

Cumulative-effect adjustment for the
adoption of Topic 842

Recognition of stock-based
compensation

Restricted stock awards

Net income

166,612

250

175,750

166,612

176,000

(865,114)

42,146

23,474,379

34,770,924

58,287,449

119

(5)

90,432

54,702

443,102

90,432

54,821

443,102

Balance at April 30, 2020

- $ 42,265 $

23,619,513 $ 35,214,021 $ 58,875,799

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, 2020 and 2019

Cash flows from operating activities

Net income (loss)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities

Depreciation and amortization of property, machinery and equipment
Amortization of right-of-use operating lease assets
Stock-based compensation
Restricted stock expense
Provision for doubtful accounts
Provision for inventory obsolescence
Deferred income tax expense
Amortization of intangible assets
Amortization of financing fees
Fair value adjustment of contingent consideration
Loss from disposal or sale of machinery and equipment

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
Operating lease liabilities
Accrued expenses and wages

Net cash provided by (used in) operating activities

Cash flows from investing activities

Purchases of machinery and equipment
Advances on other receivables

Net cash used in investing activities

Cash flows from financing activities
Proceeds under equipment note
Payments of contingent consideration
Payments under finance 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
Proceeds under PPP loan note payable
Payments of debt financing costs

Net cash (used in) provided by financing activities

2020

2019

443,102

(865,114)

4,947,200
2,088,108
90,432
54,821
95,969
221,499
126,210
362,411
121,181
-
80,678

540,436
(1,821,293)
(2,366,279)
(360,231)
360,578
10,143,939
-
1,103,636
(778,103)
15,454,294

(4,646,325)
(768,500)
(5,414,825)

383,226
(57,537)
(2,099,685)
(411,701)
556,000
(283,439)
323,132,190
(331,670,250)
6,282,973
(97,611)
(4,265,834)

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

Change in cash and cash equivalents

5,773,635

(715,789)

F-7

SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED
Years ended April 30, 2020 and 2019

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

1,005,810

6,779,445 $

1,721,599
1,005,810

Supplementary disclosures of cash flow information

Cash paid for interest
Cash paid for income taxes
Purchase of machinery and equipment financed
under finance leases
Financing of insurance policy

The accompanying notes are an integral part of these statements.

2020

2019

1,841,381 $
827,630

2,272,487
645,049

1,084,543
219,584

617,470
203,435

F-8

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2020 and 2019

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, 2020, the
Company provided these manufacturing services through an international network of facilities located in the United
States, Mexico, China, Vietnam and Taiwan. Approximately 16% of the total assets of the Company are located in
foreign jurisdictions outside the United States as of April 30, 2020, of which 10% and 4% of the assets were located
in China and Mexico, respectively, and 2% in other foreign locations. As of April 30, 2019, approximately 13% of
the total assets were located in foreign jurisdictions, of which 8% and 4% were located in China and Mexico,
respectively, and 1% in other foreign locations.

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, 2020, resulted in net
foreign currency transaction losses of approximately $285,654 compared to net foreign currency losses of $433,742
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,
deferred income, 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, 2020 and 2019

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, 2020 or April 30, 2019. 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, 2020 and April 30, 2019, the Company sold
without recourse trade receivables of approximately $85,000,000 and $77,000,000, 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. Of the Company’s raw materials inventory, a
substantial portion has been purchased to fulfill committed future orders or for which the Company is contractually
entitled to recover its costs from its customers. For the remaining raw materials inventory, a provision for excess and
obsolete inventories is recorded 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, 2020 and 2019

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 $279,740 and $303,310 net
of accumulated amortization of $277,518 and $166,689, respectively, as of April 30, 2020 and April 30, 2019,
respectively, are deducted from long term debt on the Company’s balance sheet.

COVID-19 and CARES Act

A pandemic of respiratory disease (abbreviated "COVID-19") began to spread globally, including to the United States,
in early 2020. On March 11, 2020, the World Health Organization (WHO) declared COVID-19 to be a public health
emergency of international concern. The full impact of the COVID-19 outbreak is inherently uncertain at the time of
this report. The COVID-19 outbreak has resulted in travel restrictions and in some cases, prohibitions of non-essential
activities, disruption and shutdown of certain businesses and greater uncertainty in global financial markets. The full
extent to which COVID-19 impacts the Company’s business, results of operations and financial condition will depend
on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration
and spread of the outbreak within the U.S., China, Mexico, Vietnam and Taiwan, its severity, the actions to contain
the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.

Even after COVID-19 has subsided, the Company may continue to experience materially adverse impacts to its
business as a result of its global economic impact, including any recession that has occurred or may occur in the future.
There are no comparable recent events which may provide guidance as to the effect of the spread of COVID-19, and,
as a result, the ultimate impact of COVID-19, or a similar health epidemic or pandemic, is highly uncertain and subject
to change. The Company has adopted several measures in response to the COVID-19 outbreak. To date, the Company
has been able to continue to meet the needs of its customers. Although the Company cannot estimate the length or
gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it will have a material adverse
effect on the Company’s results of future operations, financial position, and liquidity in fiscal year 2021.

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES)
Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment
of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit
refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable
contributions, and technical corrections to tax depreciation methods for qualified improvement property. It also
appropriated funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote
continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by
COVID-19.

F-11

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

COVID-19 and CARES Act - Continued

As further described in Note H, the Company has applied for, and has received, funds under the Paycheck Protection
in the amount of $6,282,973. The application for these funds required the Company to, in good faith, certify that the
current economic uncertainty made the loan request necessary to support the ongoing operations of the Company.
This certification further requires the Company to take into account its current business activity and its ability to access
other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to
the business. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the
Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on its future
adherence to the forgiveness criteria.

Due to the size of the PPP Loan, it is subject to review, which introduces a layer of uncertainty. If, despite the
Company’s actions and certification that it satisfied all eligibility requirements for the PPP, it is later determined that
it violated applicable laws or was otherwise ineligible to receive the PPP, the Company may be required to repay the
PPP in its entirety in a lump sum or be subject to additional penalties, which could also result in adverse publicity and
damage to the Company’s reputation. If these events were to transpire, they could have a material adverse effect on
the Company’s business, results of operations and financial condition.

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.

F-12

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Income Taxes - Continued

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.

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 232,821 and 53,309 anti-dilutive
common stock equivalents at April 30, 2020 and April 30, 2019, respectively, which have been excluded from the
calculation of diluted earnings per share.

Net income (loss)
Weighted-average shares

Basic
Effect of dilutive stock options

Diluted

Basic earnings (loss) per share

Diluted earnings (loss) per share

Revenue Recognition

Fiscal Years Ended

April 30,

2020

2019

443,102

(865,114)

4,242,351
27,699

4,228,592
-

4,270,050

4,228,592

0.10

(0.20)

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

F-13

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Revenue Recognition - Continued

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, which accounted for less than 1% of the Company’s
revenue. 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.

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 fiscal year 2020, 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, 2020. 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, 2020, with an expected duration of greater than one year.

F-14

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Revenue Recognition - Continued

The majority of sales are made to U.S. based customers. The following table presents the Company’s revenue
disaggregated by the principal end-user markets it serves:

Net sales by end-market
Industrial Electronics

Consumer Electronics
Medical / Life Sciences

Total Net Sales

Shipping and Handling Costs

Year Ended April 30,

2020

2019

158,972,238

105,903,419

16,166,825

281,042,482

160,435,562
115,099,199
15,019,190
290,553,951

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 2020 or 2019.

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, 2020 and April 30,
2019, 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.

On April 30, 2018, the Company entered into an Asset Purchase Agreement with Wagz, Inc. (“Wagz”), whereby the
Company sold certain assets to Wagz for $350,000 cash, in exchange for 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 the most recent financing transaction, a level 3 input. As of April 30, 2020, and
April 30, 2019 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.

F-15

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Fair Value of Financial Instruments - Continued

On June 4, 2020, SigmaTron and Wagz, Inc. (“Wagz”), a privately held company in the pet technology (“Pet Tech”)
market, announced that they have executed a Letter of Intent (“LOI”) relating to a proposed business combination.
Subject to the terms and conditions set forth in the LOI, SigmaTron expects to issue approximately 2,270,000 shares
of SigmaTron common stock that would result in the stockholders of Wagz owning in the aggregate approximately
one-third of the combined company. The potential benefits to the Company from that transaction were summarized
in the June 4, 2020 announcement. The parties expect the transaction to close by the end of October 2020 and it
remains subject to achievement of certain milestones and satisfaction of conditions by both parties prior to closing
including finalizing a material definitive agreement and the Company raising additional capital that it projects will be
needed for the expanded operations in the amount of approximately or not less than $7,500,000.

Intangible Assets

Intangible assets are comprised of finite life intangible assets including non-compete agreements and customer
relationships. Finite life intangible assets are amortized on a straight line basis over their estimated useful lives of 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 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 of its long-lived asset groups for possible impairment. The Company’s analysis for fiscal year 2020
and 2019 did not indicate that any of its other long-lived assets were impaired. The Company has yet to experience
significant supply chain interruptions or material cancellations of orders; however, the potential impact of future
disruptions, continued economic uncertainty over COVID-19 may have a significant adverse impact on the timing of
delivery of customer orders and the levels of future customer orders. It is reasonably possible that these potential
adverse impacts may result in the recognition of material impairments or other related charges in future periods.

Investment in Wagz

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. 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. At April 30, 2020, the Company continued to recognize the fair value of the
Wagz common stock at $600,000; the reduction in the fair market of the Wagz inventory by $109,046 and the reserve
as bad debt for the Wagz total account receivable of $331,283.

F-16

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Investment in Wagz - Continued

On May 29, 2020, Wagz entered into a Convertible Secured Promissory Note with the Company in the principal sum
of up to $4,052,478. The outstanding principal amount of the Note shall be due and payable on the earliest to occur
of (1) August 31, 2021; (2) upon the closing of a sale of all or substantially all of the assets or common stock of Wagz,
or (3) an event of default, (the Maturity Date). Interest is payable at the rate of four percent (4%) per annum and is
payable on the Maturity Date. At April 30, 2020, $768,500 was outstanding under other receivables.

On June 4, 2020, the Company and Wagz announced that they have executed a LOI relating to a proposed business
combination. Subject to the terms and conditions set forth in the LOI, the Company expects to issue approximately
2,270,000 shares of its common stock that would result in the stockholders of Wagz owning in the aggregate
approximately one-third of the combined company. The parties expect the transaction to close by the end of October
2020 and the acquisition remains subject to achievement of certain milestones and satisfaction of conditions by both
parties prior to closing such as finalizing a material definitive agreement and the Company raising of additional capital
that it projects will be needed for the expanded operations in the amount of at least $7,500,000.

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.

New Accounting Standards

In February 2016, the FASB issued ASU 2016-02, as amended, Leases (Topic 842), which requires a lessee to record
a right-of-use asset and a lease liability for all leases with a term greater than twelve months regardless of whether the
lease is classified as an operating lease or a financing lease.

Effective May 1, 2019, the Company adopted the new standard under the modified retrospective approach, applying
the current-period adjustment method. Under the transition guidance of the modified retrospective approach there are
a number of optional practical expedients made available to simplify the transition of the new standard. The Company
has elected the following:

 The condensed consolidated balance sheets for reporting periods beginning on or after May 1, 2019 are
presented under the new guidance, while prior period amounts are not adjusted and continue to be reported
in accordance with ASC Topic 840, Leases. The Company recognized a cumulative effect adjustment to the
opening balance of retained earnings in the period of adoption of $5.

 The Company has elected to utilize the package of practical expedients permitted under the transition
guidance in the standard, which allowed the Company to not reassess (i) whether any expired or existing
contracts contain leases, (ii) historical lease classification, and (iii) initial direct costs.

 The Company has elected to combine lease and non-lease components as a single component for all asset

classes.

 The Company has elected to not assess whether existing or expired land easements that were not previously

accounted for as leases under Topic 840 are or contain a lease under this Topic.

 The Company has elected to keep leases with an initial term of 12 months or less off of the balance sheet.

F-17

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

New Accounting Standards - Continued

Upon adoption, the Company recorded Right-of-use ("ROU") assets and lease liabilities relating to operating leases
of $6,017,771 and $6,290,289, respectively. The changes did not have a material impact on our results of operations
or cash flows. The discount rates used to calculate the ROU assets and lease liabilities as of the effective date were
based on the remaining lease terms as of the effective date. See Note M - Leases, for the impact on the financial
statements and related disclosures from the adoption of this standard.

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, as amended by ASU 2019-04 and ASU 2019-05,
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 small reporting companies, ASU 2016-
13 is effective for annual and interim reporting periods beginning after December 15, 2022, and the guidance is to be
applied using the modified-retrospective approach. Earlier adoption is permitted for annual and interim reporting
periods beginning after December 15, 2018. The Company is currently evaluating the new guidance and has not
determined the impact this ASU may have on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes”, which simplifies accounting for income taxes by removing certain exceptions to intra-period
allocations, investments, calculations in interim periods and to improve consistent application. ASU 2019-12 is
effective for annual and interim reporting periods beginning after December 15, 2020. The Company is currently
evaluating the new guidance and has not determined the impact this ASU may have on its consolidated financial
statements.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting”, which provides optional guidance for a period of time to ease the
potential burden in accounting for the transition from reference rates that are expected to be discontinued. Regulators
and market participants in various jurisdictions have undertaken efforts to eliminate certain reference rates and
introduce new reference rates that are based on a larger and more liquid population of observable transactions. The
changes provide optional expedients and exceptions for applying US GAAP to contract, hedging relationships and
other transactions affected by reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020
and can be adopted no later than December 31, 2022. The Company is currently evaluating the new guidance and has
not determined the impact this ASU may have 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

2020

631,283

95,969

727,252

2019
300,000
331,283
-
631,283

F-18

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE D - INVENTORIES

Inventories consist of the following at April 30:

2020

2019

Finished products
Work-in-process
Raw materials

Less obsolescence reserve

20,998,329
5,215,280
62,316,122
88,529,731
1,350,362
87,179,369

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

Beginning balance
Provision for obsolescence
Write-offs

NOTE E - RELATED PARTIES

2020

1,343,972
221,499
(215,109)
1,350,362

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

2019

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

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 the most 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.

F-19

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

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 finance leases

Less accumulated depreciation

and amortization, including accumulated
amortization of assets under
finance leases of $2,295,223
and $2,644,661 at April 30,
2020 and 2019, respectively

Property, machinery and

equipment, net

2020

2019

18,297,353 $
71,490,678
11,574,938
2,818,161
8,739,177

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

112,920,307

107,454,793

78,984,547

74,222,024

33,935,760 $

33,232,769

Depreciation and amortization expense of property, machinery and equipment was $4,947,200 and $5,007,440 for
the fiscal years ended April 30, 2020 and April 30, 2019, respectively.

F-20

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE G - INTANGIBLE ASSETS

Intangible Assets

Intangible assets subject to amortization are summarized as of April 30, 2020 and April 30, 2019, as follows:

April 30, 2020

April 30, 2019

Gross

Carrying

Amount

Accumulated

Amortization

Gross

Carrying

Amount

Accumulated

Amortization

Spitfire:

Non-contractual customer
relationship
Non-compete agreements

4,690,000
50,000

2,339,051
50,000

4,690,000
50,000

Total

$ 4,740,000 $

2,389,051 $ 4,740,000 $

1,977,255
49,385
2,026,640

Estimated aggregate amortization expense for the Company’s intangible assets, which become fully amortized in
2027, for the remaining fiscal years is as follows:

For the fiscal years ending April 30:

2021
2022
2023
2024
2025
Thereafter

354,203
346,582
339,128
331,842
324,702
654,492
2,350,949

Amortization expense was $362,411 and $374,725 for the years ended April 30, 2020 and April 30, 2019,
respectively.

F-21

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE H - LONG-TERM DEBT

Debt and finance lease obligations consisted of the following at April 30, 2020 and April 30, 2019:

2020

2019

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

Finance lease obligations
Less current maturities
Total finance lease obligations, less current portion

Notes Payable - Banks

33,472,125
6,922,561
1,300,278
(279,740)
41,415,224
2,878,160
38,537,064

3,787,017
1,902,295
1,884,722

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

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 2.33% at April 30, 2020). Interest
is due monthly.

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 (i) 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 (ii) 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 of $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 April 23, 2020, the Company entered into a loan with U.S. Bank, as lender, pursuant to the Paycheck Protection
Program of the CARES Act as administered by the SBA in the amount of $6,282,973. The loan, in the form of a
promissory note, matures on April 23, 2022. No additional collateral or guarantees were provided by the Company
for the loan. The PPP loan provides for customary events of default. Under the CARES Act, loan forgiveness is
available for the sum of documented payroll costs, rent payments, mortgage interest and covered utilities during the
24-week period beginning on the date of loan disbursement. The Company may be required to repay any portion of
the outstanding principal that is not forgiven, along with accrued interest, and it cannot provide any assurance that it
will be eligible for loan forgiveness, or that any amount of the PPP Loan will ultimately be forgiven by the SBA. All
aspects of the PPP loan are subject to review by the SBA, including without limitation, the Company’s eligibility for

F-22

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE H - LONG-TERM DEBT - Continued

Notes Payable – Banks - Continued

and the size of the loan. The review procedures have not been made public. The Company cannot predict the outcome
of that review nor be assured that all or any part of the loan will be forgiven. To the extent that all or part of the PPP
loan is not forgiven, the Company will be required to make payments, including interest accruing at an annual interest
rate of 1.0% beginning on the date of disbursement.

On July 15, 2020 and August 7, 2020, the Company and U.S. Bank entered into amendments of the revolving credit
facility. The amendments revise the Fixed Charge Coverage Ratio.

As of April 30, 2020, there was $26,884,494 outstanding and $13,850,575 of unused availability under the U.S. Bank
facility compared to an outstanding balance of $35,727,212 and $6,645,730 of unused availability at April 30, 2019.
Deferred financing costs of $97,611 were capitalized during the fiscal year ended April 30, 2020, which are amortized
over the term of the agreement. As of April 30, 2020 and April 30, 2019, the unamortized amount offset against
outstanding debt was $218,062 and $209,162, 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 $709,000 as of April 30, 2020, and the facility is collateralized
by Wujiang SigmaTron Electronic 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. As of April 30, 2020, the
outstanding balance under the facility was $304,658. 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 as of April 30, 2020.

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, 2020, the unamortized amount included as a reduction to long-term debt was $32,760. A
final payment of approximately $4,347,778 is due on or before March 31, 2022. The outstanding balance was
$4,732,000 and $4,940,000 at April 30, 2020 and April 30, 2019, 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, 2020 the unamortized amount
included as a reduction to long-term debt was $28,918. A final payment of approximately $1,505,000 is due on or
before March 31, 2022. The outstanding balance was $1,638,000 and $1,710,000 at April 30, 2020 and April 30,
2019, respectively.

The Company entered into a mortgage agreement on March 3, 2020, in the amount of $556,000, with The Bank and
Trust SSB to purchase the property that serves as the Company’s warehousing and distribution center in Del Rio,
Texas. The note requires the Company to pay monthly installment payments in the amount of $6,103, bears interest

F-23

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE H - LONG-TERM DEBT - Continued

Notes Payable – Buildings - Continued

at a fixed rate of 5.75% per year and is payable over a 120 month period. The outstanding balance was $552,561 at
April 30, 2020.

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%.

The Company routinely enters into secured note agreements with FGI Equipment Finance LLC to finance the purchase
of equipment. The terms of these secured note agreements mature from March 2025 through April 2025, with quarterly
installment payments ranging from $10,723 to $12,856 and a fixed interest rate of 8.25%.

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, 2020, are as follows:

Fiscal Year

Bank

Building

Equipment

Total

2021
2022
2023
2024
2025
Thereafter

2,079,218 $
4,203,755
26,604,754
304,658

33,192,385 $

322,576 $

6,135,090
47,752
50,571
53,557
313,015
6,922,561 $

476,366 $
452,018
190,508
91,742
89,644
-

1,300,278 $

2,878,160
10,790,863
26,843,014
446,971
143,201
313,015
41,415,224

F-24

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE H - LONG-TERM DEBT - Continued

Finance Lease Obligations

The Company enters into various finance lease and sales leaseback agreements. The terms of the lease agreements
mature through November 2023, with monthly installment payments ranging from $1,455 to $40,173 and a fixed
interest rate ranging from 3.75% to 12.73%.

Annual future minimum obligations under finance leases and sale leaseback agreements for each of the next five fiscal
years and thereafter, as of April 30, 2020, are as follows:

Fiscal Year

Total

2021
2022
2023
2024
2025
Total minimum lease payments
Less: Amounts representing interest
Present value of net minimum lease payments

Other Long-Term Liabilities

2,118,178
1,374,628
498,307
167,721
-
4,158,834
371,817
3,787,017

As of April 30, 2020 and April 30, 2019 the Company had recorded $810,769 and $1,155,907, respectively, for
seniority premiums of which $717,528 and $1,067,686, respectively, were for retirement accounts related to benefits
for employees of the Company’s foreign subsidiaries.

F-25

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE I - ACCRUED EXPENSES AND WAGES

Accrued expenses consist of the following at April 30:

Interest
Commissions
Professional fees
Other - Purchases
Other

2020

2019

77,750
115,385
730,146
450,000
1,297,223

2,670,504

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

2,410,311

Accrued wages consist of the following at April 30:

Domestic wages
Bonuses
Foreign wages

2020

2019

1,809,572
241,480
2,155,773

4,206,825

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

4,680,399

F-26

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE J - INCOME TAX

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

2020

(131,058)
1,224,192

1,093,134

2019

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

866,301

Domestic
Foreign

Income Tax Provision

The income tax expense 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

2020

2019

(160,490)
(311)
684,623
523,822

23,565
3,058
99,587
126,210

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

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

650,032

1,731,415

F-27

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE J - INCOME TAX - Continued

Income Tax Provision - Continued

The difference between the income tax expense 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
Foreign currency exchange gain/loss
Foreign inflation adjustment
Stock based compensation

2020

2019

229,558
30
216,033
2,139
(305,411)
400,179
183,177
(75,673)
-

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

Provision for income taxes

650,032

1,731,415

F-28

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

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
Lease liabilities
Allowance for doubtful accounts
Other DTA
Federal benefit of state
Total gross deferred tax assets
Less: valuation allowance

2020

2019

904,074
78,100
748,977
402,394
948,029
722,192
1,936,772
189,522
13,043
6,464
5,949,567
(989,194)

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)

Net deferred tax assets

4,960,373

3,002,905

Deferred Tax Liabilities
Property, machinery & equipment
Prepaids
Lease right-of-use assets
Total deferred tax liabilities

Deferred tax asset
Deferred tax liability
Net deferred tax (liability) asset

$ (2,780,770)
(197,890)
(1,885,484)
$ (4,864,144)

284,435
(188,206)
96,229

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

384,022
(161,583)
222,439

F-29

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE J - INCOME TAX - Continued

Deferred Tax Assets and Liabilities - Continued

The CARES Act was signed into law by the President of the U.S. on March 27, 2020. This legislation is aimed at
providing relief for individuals and businesses impacted by the Coronavirus outbreak. The CARES Act includes
several significant business tax provisions that, among other things, would eliminate the taxable income limit for
certain net operating losses (NOL), allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five
prior tax years, accelerate refunds of corporate Alternative Minimum Tax credits, temporarily increase the business
interest limitation under section 163(j), and allow for deferral of payroll taxes.

The CARES Act also established the Paycheck Protection Program (“PPP”), to be administered by the SBA, whereby
certain businesses are eligible for a loan to fund payroll expenses, rent, and related costs. The PPP loan may be forgiven
if the funds are used for payroll and other qualified expenses within certain limits. As described in Note H, the
Company received a PPP Loan under the CARES Act of $6,282,963. For federal income tax purposes, the CARES
Act expressly provides that any forgiveness or cancellation of all or part of such loans will not be treated as income
for tax purposes. It is expected, however, that if the loan is deemed forgiven any deductions for the covered expenses
that gave rise to the loan forgiveness will be disallowed to prevent a double tax benefit. As of April 30, 2020 the loan
has not been forgiven and thus the expenses have not been disallowed for federal income tax purposes.

Pursuant to the CARES Act, the Company will carry back its fiscal year 2018 NOL to prior tax years when it was
subject to a 34.00% U.S. statutory income tax rate. It previously used this NOL to offset income generated in fiscal
year 2019, at which time it was subject to a 21.00% U.S. statutory income tax rate. The Company’s fiscal year 2020
income tax provision includes an estimated $95,000 tax benefit and income tax receivable amount related to the NOL
carryback. The Company continues to evaluate the impact of the CARES Act and subsequent guidance on its overall
tax position.

As of April 30, 2019, the Company does not have a NOL carryforward for federal income tax purposes. The Company
has state NOL carry-forwards totaling approximately $104,000 at April 30, 2020, that will begin to expire in fiscal
year April 30, 2025. The Company has foreign NOL carryforwards of $3,839,611 as of April 30, 2020, 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 NOL 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 $911,094 on its NOL 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.

Cash and cash equivalents held internationally may be subject to foreign withholding taxes if repatriated to the U.S.
Absent meeting an exception, unrepatriated foreign earnings generally 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 $3,307,000 as of April 30, 2020, from its foreign subsidiaries.

F-30

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE J - INCOME TAX - Continued

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, 2020 and April 30, 2019, the amount of consolidated worldwide liability for
uncertain tax positions that impacted the Company’s effective tax rate was $0.

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, 2020 and April 30, 2019, the amount included in the Company’s
balance sheet for such liabilities was $0.

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. Vietnam tax authorities recently concluded an examination of years 2009-2018 years and assessed an additional
amount due totaling $153,000.

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 25.0% of the first 5.0% participant contributions up to $2,000.00 per participant
annually. The Company contributed $201,819 and $96,086 to the plans during the fiscal years ended April 30, 2020
and April 30, 2019, respectively. The Company incurred total expenses of $8,250 and $11,750 for the fiscal years
ended April 30, 2020 and April 30, 2019, 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, 2020, two customers accounted for 16.7%
and 14.1% of net sales of the Company, and 3.6% and 5.0%, respectively, of accounts receivable at April 30, 2020.
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. Further, the Company has $355,324 in
cash in China as of April 30, 2020. 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. Under the Federal Deposit Insurance Corporation (“FDIC”) program deposit
insurance insures up to $250,000.

F-31

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE M - LEASES

The Company leases office and storage space, vehicles and other equipment under non-cancellable operating leases
with initial terms typically ranging from 1 to 5 years. At contract inception, the Company reviews the facts and
circumstances of the arrangement to determine if the contract is or contains a lease. The Company follows the
guidance in Topic 842 to evaluate whether the contract has an identified asset; if the Company has the right to obtain
substantially all economic benefits from the asset; and if the Company has the right to direct the use of the underlying
asset. When determining if a contract has an identified asset, the Company considers both explicit and implicit assets,
and whether the supplier has the right to substitute the asset. When determining if the Company has the right to direct
the use of an underlying asset, the Company considers if they have the right to direct how and for what purpose the
asset is used throughout the period of use and if they control the decision-making rights over the asset.

The Company’s lease terms may include options to extend or terminate the lease. The Company exercises judgment
to determine the term of those leases when extension or termination options are present and include such options in
the calculation of the lease term when it is reasonably certain that it will exercise those options.

The Company has elected to include both lease and non-lease components in the determination of lease payments.
Payments made to a lessor for items such as taxes, insurance, common area maintenance, or other costs commonly
referred to as executory costs, are also included in lease payments if they are fixed. The fixed portion of these payments
are included in the calculation of the lease liability, while any variable portion would be recognized as variable lease
expenses, when incurred. Variable payments made to third parties for these, or similar costs, such as utilities, are not
included in the calculation of lease payments.

At commencement, lease-related assets and liabilities are measured at the present value of future lease payments over
the lease term. As most of the Company’s leases do not provide an implicit rate, the Company exercises judgment in
determining the incremental borrowing rate based on the information available at when the lease commences to
measure the present value of future payments.

Operating lease expense is recognized on a straight-line basis over the lease term. Finance lease cost includes
amortization, which is recognized on a straight-line basis over the expected life of the leased asset, and interest
expense, which is recognized following an effective interest rate method.

Operating leases are included in other assets, current operating lease obligations, and operating lease obligations (less
current portion) on the Company’s consolidated balance sheet. Finance leases are included in property, plant and
equipment and current and long-term portion of finance lease obligations on the Company’s consolidated balance
sheet. Short term leases with an initial term of 12 months or less are not presented on the balance sheet with expense
recognized as incurred.

F-32

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE M - LEASES – Continued

The following table presents lease assets and liabilities and their balance sheet classification:

Classification

Operating Leases:

Right-of-use Assets
Operating lease current liabilities
Operating lease noncurrent liabilities Operating lease obligations, less current portion

Other assets
Current portion of operating lease obligations

Finance Leases:

Right-of-use Assets
Finance lease current liabilities
Finance lease noncurrent liabilities

Property, plant and equipment
Current portion of finance lease obligations
Finance lease obligations, less current portion

The components of lease expense for the fiscal year ended April 30, 2020, are as follows:

Operating Leases:

Operating lease cost
Variable lease cost
Short term lease cost

Finance Leases:

Classification

Operating expenses
Operating expenses
Operating expenses

Amortization of right-of-use assets
Interest expense

Operating expenses
Interest expense

Total

The weighted average lease term and discount rates are as follows:

Operating Leases:

Weighted average remaining lease term (months)
Weighted average discount rate

Finance Leases:

Weighted average remaining lease term (months)
Weighted average discount rate

F-33

April 30,
2020

7,235,166
2,150,161
5,281,811

6,443,954
1,902,295
1,884,722

April 30,
2020

2,483,385
300,274
5,400

451,870
275,217
3,516,146

April 30,
2020

52.7
3.8%

26.27
7.4%

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE M - LEASES – Continued

Future payments due under leases reconciled to lease liabilities are as follows:

Operating Leases

Finance Leases

For the fiscal years ending April 30:
2021
2022
2023
2024
2025
Thereafter
Total undiscounted lease payments
Present value discount, less interest
Lease liability

2,295,166
1,652,790
1,669,822
1,161,702
506,151
487,123
7,772,754
340,782
7,431,972

2,118,178
1,374,628
498,307
167,721
-
-
4,158,834
371,817
3,787,017

Supplemental disclosures of cash flow information related to leases as of fiscal year ended April 30, 2020 are as
follows:

Other Information
Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from finance leases
Operating cash flows from operating leases
Financing cash flows from finance leases

Supplemental non-cash information on lease labilities arising from obtaining
right-of-use assets:

Right-of-use assets obtained in exchange for new finance lease liabilities
Right-of-use assets obtained in exchange for operating lease liabilities

April 30,
2020

275,217
275,654
2,099,685

1,084,543
3,305,503

The future minimum lease payments due under operating and capital leases and sale leaseback arrangements under
the previous leases standard as of April 30, 2019, were as follows:

Fiscal Year

Operating leases

Capital leases and sale
leaseback

Years Ending April 30,
2020
2021
2022
2023
2024
Total

1,808,984
1,387,697
757,738
736,385
42,000
4,732,804

2,215,849
1,792,747
1,049,198
133,819
-
5,191,613

F-34

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

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, 2020, the Company has 102,000 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 using the Black-Scholes option pricing
model.

The Company granted 48,000 options to employees in fiscal year 2020, which vested immediately. The Company
recognized approximately $90,432 in compensation expense in fiscal year 2020. The balance of unrecognized
compensation expense was $0 at April 30, 2020.

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 December 2019, the Company issued 15,000 shares of restricted stock pursuant to the 2018 Non-Employee Director
Restricted Stock Plan, which fully vests on June 1, 2020. The Company recognized $54,821 in compensation expense
in fiscal year 2020. The balance of unrecognized compensation expense related to the Company’s restricted stock
award was $15,229 at April 30, 2020. 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, 2020:

Number of
securities to be
issued upon
exercise of
outstanding options
347,318
117,914
465,232
48,000
513,232 $

Weighted-
average
exercise
price

5.90
3.20
5.22
4.28
5.13

Number of
options
exercisable
at end
of year

347,318

465,232

513,232

Outstanding at April 30, 2018
Options granted during 2019
Outstanding at April 30, 2019
Options granted during 2020
Outstanding at April 30, 2020

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. As of April 30, 2020 and April 30, 2019, there was no aggregate intrinsic
value of the options outstanding.

F-35

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE N - STOCK COMPENSATION AND EQUITY TRANSACTIONS – Continued

Information with respect to stock options outstanding and exercisable at April 30, 2020 follows:

Options outstanding and exercisable

Number
outstanding at
April 30, 2020

Weighted-average
remaining
contract life

Weighted-
average
exercise price

Range of exercise prices

$ 3.20-6.45

513,232

6.04 years

As of April 30, 2020, there were no non-vested stock options.

513,232

5.13

F-36

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

NOTE O - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of unaudited quarterly financial data for fiscal year 2020:

2020

Net sales

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

$ 74,009,981 $ 74,855,312 $ 67,407,268 $ 64,769,921

Gross profit

6,960,332

7,129,486

5,521,777

5,493,295

Income (loss) before income
taxes (1)

608,140

977,289

(319,770)

(172,525)

Net income (loss)

361,025

661,183

(217,039)

(362,067)

Earnings (loss) per share
Basic

Earnings (loss) per share
Diluted

0.09 $

0.15 $

(0.05) $

(0.09)

0.09 $

0.15 $

(0.05) $

(0.09)

Weighted average shares- Basic

4,241,883

4,242,508

Weighted average shares- Diluted

4,241,883

4,278,901

4,242,508

1.) The Company records inventory reserves for valuation and shrinkage throughout the year based on historical
data. In the fourth quarter of fiscal year 2020 physical inventory results were completed resulting in an
increase in income before income taxes of approximately $530,000.

The aggregate after-tax effect for the above adjustments in the fourth quarter of fiscal year 2020 was an increase to
basic earnings per share of $0.05.

F-37

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

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

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.

2.) The Company recorded a discrete expense of approximately $457,000 during the second quarter related to

a valuation allowance recorded on NOL carryforwards at two of its foreign subsidiaries.

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

F-38

SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2020 and 2019

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-39

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