SIGMATRON INTERNATIONAL INC (Form: 10-Q, Received: 09/11/2014 12:34:45)

UNITED STATES

SECURITIES AND EXCHANGE COMM ISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ QU ARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2014

☐ 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	36-3918470
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

2201 Landmeier Road
Elk Grove Village, Illinois	60007
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (847) 956-8000

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such fi les . Yes ☒ No ☐

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SigmaTron International, Inc.

July 31, 2014

Indicate by check mark whether the registrant is a large accelerated filer , an accelerated filer, a non-accelerated filer , or a smaller reporting company. See definition of “large accelerated filer , ” “accelerated filer” and “smaller reporting company ” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☒

Indicate by check mark whether the registrant is a shell company (as defined by Rul e 12b-2 of the Exchange Act) . Yes ☐ No ☒

Indicate the number of shares outstanding of the registrant’s common stock, $0.01 par value, as of September 8 , 201 4 : 4,045,267

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SigmaTron International, Inc.

Index



PART 1.	FINANCIAL INFORMATION:		Page No.
	Item 1.	Consolidated Financial Statements
		Consolidated Balance Sheets – July 31, 2014 (Unaudited)
		and April 30, 201 4	4
		Consolidated Statements of Operations – (Unaudited)
		Three Months Ended July 31, 2014 and 201 3	6
		Consolidated Statements of Cash Flows – (Unaudited)
		Three Months Ended July 31, 2014 and 201 3	7
		Notes to Consolidated Financial Statements	9
	Item 2.	Management’s Discussion and Analysis of Financial Condition and	18
		Results of Operations	18
	Item 3.	Quantitative and Qualitative Disclosures About Market Risks	26
	Item 4.	Controls and Procedures	26

PART II	OTHER INFORMATION:
	Item 1.	Legal Proceedings	26
	Item 1A.	Risk Factors	26
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
	Item 3.	Defaults Upon Senior Securities	27
	Item 4.	Mine Safety Disclosures	27
	Item 5.	Other Information	27
	Item 6.	Exhibits	27
		Signatures	29

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SigmaTron International, Inc.

Consolidated Balance Sheets



	July 31,
	2014		April 30,
	(Unaudited)		2014

Current assets:
Cash	$	2,454,303	$	5,440,319
Accounts receivable, less allowance for doubtful
accounts of $150,000 at July 31, 2014
and April 30, 2014		19,793,046		19,293,791
Inventories, net		57,545,337		53,728,377
Prepaid expenses and other assets		1,896,509		1,826,254
Refundable income taxes		385,115		-
Deferred income taxes		2,539,214		2,524,993
Other receivables		452,936		356,746

Total current assets		85,066,460		83,170,480

Property, machinery and equipment, net		33,629,990		32,692,908

Intangible assets, net of amortization of $3,410,760
and $3,309,246 at July 31, 2014 and April 30, 2014		5,501,240		5,602,754
Goodwill		3,222,899		3,222,899
Other assets		1,003,384		790,390

Total other long-term assets		9,727,523		9,616,043

Total assets	$	128,423,973	$	125,479,431

Liabilities and stockholders' equity:
Current liabilities:
Trade accounts payable	$	30,975,751	$	27,141,079
Accrued wages		3,261,062		4,027,029
Accrued expenses		2,708,577		2,526,045
Income taxes payable		-		80,936
Current portion of long-term debt		2,101,018		2,126,017
Current portion of capital lease obligations		791,738		765,961
Current portion of contingent consideration		275,288		331,429

Total current liabilities		40,113,434		36,998,496

Long-term debt, less current portion		24,107,204		24,198,500
Capital lease obligations, less current portion		2,314,888		2,423,001
Contingent consideration, less current portion		1,418,697		1,533,571
Other long-term liabilities		552,046		525,739
Deferred rent		1,191,274		1,176,121
Deferred income taxes		3,217,660		3,217,660

Total long-term liabilities		32,801,769		33,074,592

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Total liabilities		72,915,203		70,073,088

Commitments and contingencies:

Stockholders' equity:
Preferred stock, $.01 par value; 500,000 shares
authorized, none issued or outstanding		-		-
Common stock, $.01 par value; 12,000,000 shares
authorized, 4,040,807 and 4,012,319 shares issued
and outstanding at July 31, 2014 and April 30, 2014		40,441		40,215
Capital in excess of par value		20,949,888		20,864,497
Retained earnings		34,518,441		34,501,631

Total stockholders' equity		55,508,770		55,406,343

Total liabilities and stockholders' equity	$	128,423,973	$	125,479,431

The accompanying notes to financial statements are an integral part of these statements.

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SigmaTron International, Inc.

Consolidated Statements o f Operations



		Three Months		Three Months
		Ended		Ended
		July 31,		July 31,
		2014		2013
		(Unaudited)		(Unaudited)

Net sales	$	54,947,477	$	56,166,061
Cost of products sold		50,201,029		49,877,653

Gross profit		4,746,448		6,288,408

Selling and administrative expenses		4,514,211		4,855,558

Operating income		232,237		1,432,850

Other income		(39,876)		(21,449)
Interest expense		256,547		213,960
Income from operations before income tax (benefit) expense		15,566		1,240,339

Income tax (benefit) expense		(1,244)		272,875

Net income	$	16,810	$	967,464


Earnings per share - basic	$	0.00	$	0.24

Earnings per share - diluted	$	0.00	$	0.24


Weighted average shares of common stock outstanding
Basic		4,028,535		3,961,232

Weighted average shares of common stock outstanding
Diluted		4,105,627		4,011,001

The accompanying notes to financial statements are an integral part of these statements.

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SigmaTron International, Inc.

Consolidated Statements o f Cash Flows



		Three		Three
		Months Ended		Months Ended
		July 31,		July 31,
		2014		2013
		(Unaudited)		(Unaudited)

Cash flows from operating activities
Net income	$	16,810	$	967,464

Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Depreciation and amortization		1,210,235		1,172,137
Stock-based compensation		28,038		29,292
Restricted stock expense		1,746		5,236
Employee stock purchases		49,712		-
Deferred income tax benefit		(14,221)		(45,011)
Amortization of intangibles		101,514		87,246
Loss from disposal or sale of machinery and equipment		-		1,675

Changes in assets and liabilities
Accounts receivable		(499,255)		(99,385)
Inventories		(3,816,960)		(1,797,940)
Prepaid expenses and other assets		(379,438)		474,201
Income taxes payable/refundable		(466,051)		228,026
Trade accounts payable		3,834,672		1,365,181
Deferred rent		15,153		21,091
Accrued expenses and wages		(728,143)		(33,872)

Net cash (used in) provided by operating activities		(646,188)		2,375,341

Cash flows from investing activities
Purchases of machinery and equipment		(2,038,346)		(4,900,370)

Net cash used in investing activities		(2,038,346)		(4,900,370)


Cash flows from financing activities
Proceeds from the exercise of common stock options		6,120		-
Payments under capital lease and sale leaseback agreements		(191,307)		(56,440)
Payments under building notes payable		(37,749)		(24,999)
Net changes under lines of credit		(78,546)		763,208
Change in bank overdraft		-		33,066

Net cash (used in) provided by financing activities		(301,482)		714,835

Change in cash		(2,986,016)		(1,810,194)
Cash at beginning of period		5,440,319		4,607,731

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Cash at end of period	$	2,454,303	$	2,797,537

Supplementary disclosures of cash flow information
Cash paid for interest	$	241,511	$	195,973
Cash paid for income taxes		104,110		4,200
Cash refunded for income taxes		-		(159,999)
Purchase of machinery and equipment financed
under a capital lease		108,971		-


The accompanying notes to financial statements are an integral part of these statements.

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SigmaTron International, Inc.

July 31, 2014

Notes to Consolidated Financial Statements

(Unaudited)

Note A - Basis of Presentation

The accompanying unaudited consolidated financial statements of SigmaTron International, Inc. (“SigmaTron”) , SigmaTron’s wholly- owned subsidiaries Stan dard Components de Mexico S.A., Ab leM ex, 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 wholly-owned foreign enterprise s Wujiang SigmaTron Electronics Co. , Ltd. and SigmaTron Electronic Technology Co., Ltd. (“SigmaTron China”) and internat ional procurement office SigmaTron Taiwan branch (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

Accordingly, the consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month period ended July 31, 2014 are not necessarily indicative of the results that may be expected f or the year ending April 30, 201 5 . For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended April 30, 20 1 4 .

Note B - Inventories , net

The components of inventory consist of the following:



	July 31,		April 30,
	2014		2014

Finished products	$	22,577,250	$	18,553,112
Work-in-process		3,135,634		3,126,596
Raw materials		33,588,822		33,853,653
		59,301,706		55,533,361
Less obsolescence reserve		1,756,369		1,804,984
	$	57,545,337	$	53,728,377

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SigmaTron International, Inc.

July 31, 2014

Notes to Consolidated Financial Statements

(Unaudited)

Note C - Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:


	Three Months Ended
	July 31,
	2014		2013

Net income	$	16,810	$	967,464
Weighted-average shares
Basic		4,028,535		3,961,232
Effect of dilutive stock options		77,092		49,769

Diluted		4,105,627		4,011,001

Basic earnings per share	$	0.00	$	0.24

Diluted earnings per share	$	0.00	$	0.24

Options to purchase 97,854 and 540,192 shares of common stock were outstanding at July 3 1, 2014 and 20 13, respectively. There were no opt ions granted during the quarter ended July 31, 2014 . During the quarter ended July 31, 2013 there were 25,000 options granted . The Company recognized $ 18, 37 2 and $ 29 , 300 in stock option expense for the three month period ended July 31, 2014 and 2013, respectively. The balance of unrecognized compensation expense related to the Company’s stock option plans was approximately $ 35,23 5 and $ 115,725 at July 31, 2014 and 2013, respectively.

The Company issued 25,000 shares of restricted stock on June 1, 2012, of which 8, 330 vested in June 2012 , 8, 330 vested in June 2013 and 8, 340 in June 2014 . The Company recognized approximately $ 1 ,746 and $ 5 , 250 in compe nsation expense for the three month s period ended July 31, 2014 and 2013, respectively . There was no issuance of restricted stock during the quarters ended July 31, 2014 and 2013. The balance of unrecognized compensation expense related to the Company’s restricted stock award was approximately $0 and $ 11,830 and at July 31, 201 4 and 201 3 respectively .

On October 1, 2013, the Company granted 1,500 shares to each non-employee director pursuant to the 2013 Non-Employee Director Restricted Stock Plan. A total of 7,500 restricted shares were granted and the shares vest ed six months from the date of grant. The Company recognized approximately $ 39,700 in compensation expense in fiscal year 2014. The re was no unrecognized compensation expense related to the 7,500 shares of restricted stock at July 31, 2014.

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SigmaTron International, Inc.

July 31, 2014

Notes to Consolidated Financial Statements

(Unaudited)

Note C - Earnings Per Share - Continued

The Company implemented an employee stock purchase plan (“ESPP”) for all eligible employees on February 1, 2014. The ESPP reserved 500,000 shares of common stock for issuance to our employees and t he number of shares of common stock reserved for issuance under the plan automatically increases on the first day of the Company’s fiscal years by 25,000 shares. In the quarter ended July 31, 2014, 3,790 shares were issued under the ESPP and the Company recorded $ 9, 66 6 in compensation expense . During the quarter ended July 31, 2014, the Company recorded $49,712 within stockholders equity relating to purchases under the ESPP.

The Company offered to purchase 395,190 Eligible Options (as defined below) from Eligible Holders (as defined below) upon the terms stated in Schedule TO (“TO”) filed with the SEC on October 1, 2013. The stock options subject to the TO were those options to purchase SGMA common stock which had not expired or terminated prior to the Expiration Time (as defined below) having the grant dates and exercise prices set forth in the TO (the “ Eligible Options ”). Eligible Options, all of which were fully vested, were granted under the following Company stock option plans: 1993 Stock Option Plan, 2004 Employee Stock Option Plan, 2000 Directors’ Stock Option Plan and 2004 Directors’ Stock Option Plan.

“ Eligible Holders ” were: (a) those current or former employees, including all officers, who hold Eligible Options as of the Expiration Time; and (b) all current or former directors of the Company who hold Eligible Options as of the Expiration Time. “ Expiration Time ” means 11:59 p.m., Eastern Time, on October 29, 2013.

The Company offered to pay a cash amount ranging from $0.18 to $1.35 per Eligible Option, totaling up to $301,500 , as specifically set forth in the TO. Each Eligible Holder who participated in the TO received cash payment (subject to tax and other withholding for employees) for each properly tendered Eligible Option promptly following the Expiration Time.

The Company made this offer subject to the terms and conditions stated in the TO and 394,200 Eligible Options were tendered and purchased for a total cash payment of $300,410 .

Note D - Long-term Debt

The Company has a senior secured credit facility with Wells Fargo with a credit limit up to $30,000,000 and an initial term through September 30, 2013 . The facility allows the Company to choose among interest rates at which it may borrow funds. The credit facility is collateralized by substantially all of the domestically located assets of the Company and the Company has pledged 65% of its equity ownership interest in some of its foreign entities. The Company is required to be in compliance with several financial covenants.

In May 2012 two of the financial covenants under the senior secured credit facility were amended . During the quarter ended October 31, 2013, the Company renewed its senior secured credit facility. The facility was revised to extend the term of the agreement to October 31, 2015.

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SigmaTron International, Inc.

July 31, 2014

Notes to Consolidated Financial Statements

(Unaudited)

Note D - Long-term Debt - Continued

As of July 31, 2014, there was a $22,921,454 outstanding balance and $7,078,546 of unused availability under the credit facility agreement, assuming the company remained in compliance with its financial covenants. The facility allows the Company to choose among interest rates at which it may borrow funds. The interest rate is prime rate ( 3.25% at July 31, 2014) or LIBOR plus two and a one half percent ( 2.75% at July 31, 2014), which is paid monthly. At July 31, 2014, the Company was in compliance with its amended financial covenants.

In August 2014 the Company and Wells Fargo, N.A. agreed on a proposal to extend the existing senior secured credit facility for three years from the date of closing. Under the proposal financial covenants will be amended, an unused line fee will be added and the net borrowing interest rate will be reduced. The Company expects the transaction will close by October 31, 2014.

The Company entered into a mortgage agreement on January 8, 2010, in the amount of $2,500,000 , with Wells Fargo to refinance the property that serves as the Company’s corporate headquarters and its Illinois manufacturing facility. The Wells Fargo note bears interest at a fixed rate of 6.42% per year and is amortized over a sixty month period. A final payment of approximately $2,000,000 is due on or before January 8, 2015 . The outstanding balance as of July 31, 2014 was $2,050,018 .

The Company entered into a mortgage agreement on October 24, 2013, in the amount of $1,275,000 , with Wells Fargo to finance the property that serves as the Company’s engineering and design center in Elgin, Illinois. The Wells Fargo note requires the Company to pay monthly principal payments in the amount of $4,250 and bears interest at a fixed rate of 4.5% per year and is payable over a sixty month period. A final payment of approximately $1,030,000 is due on or before October 2018 . The outstanding balance as of July 31, 2014 was $1,236,750 .

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SigmaTron International, Inc.

July 31, 2014

Notes to Consolidated Financial Statements

(Unaudited)

Note E - Goodwill and Other Intangible Assets

Goodwill

The change in carrying amount of goodwill for the three months ended July 31, 201 4 , are as follows:


	Total

Balance at April 30, 2014	$	3,222,899
Changes in carrying amount		-
Balance at July 31, 2014	$	3,222,899

Other Intangible Assets

Intangible assets subject to amorti zation are summarized as of July 31, 201 4 as follows:



	Weighted Average
	Remaining	Gross
	Amortization	Carrying		Accumulated
	Period (Years)	Amount		Amortization

Other i ntangible assets – Able	-	$	375,000	$	375,000
Customer relationships – Able	-		2,395,000		2,395,000
Spitfire:
Non-contractual customer relationships	12.8		4,690,000		323,790
Backlog	-		22,000		22,000
Trade names	17.8		980,000		106,158
Non-compete agreements	4.8		50,000		15,470
Patents	2.8		400,000		173,342
Total		$	8,912,000	$	3,410,760

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SigmaTron International, Inc.

July 31, 2014

Notes to Consolidated Financial Statements

(Unaudited)

Note E - Goodwill and Other Intangible Assets - Continued

Intangible assets subject to amortization are summarized as of April 3 0 , 2014 , as follows:



	Weighted Average
	Remaining	Gross
	Amortization	Carrying		Accumulated
	Period (Years)	Amount		Amortization

Other intangible assets – Able	-	$	375,000	$	375,000
Customer relationships – Able	-		2,395,000		2,395,000
Spitfire:
Non-contractual customer relationships	13.1		4,690,000		256,311
Backlog	-		22,000		22,000
Trade names	18.1		980,000		93,909
Non-compete agreements	5.1		50,000		13,685
Patents	3.1		400,000		153,341
Total		$	8,912,000	$	3,309,246

Estimated aggregate amortization expense for intangible assets, which become fully amortized in 2032, for the remaining periods is as follows:



For the remaining 9 months of the fiscal year ending April 30:	2015	$	327,096
For the fiscal year ending April 30:	2016		470,899
	2017		490,010
	2018		435,043
	2019		423,721
	2020		411,406
	Thereafter		2,943,065
		$	5,501,240

Amortization expense was $101,514 and $87,246 for the quarters ended July 31, 2014 and 2013, respectively.

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SigmaTron International, Inc.

July 31, 2014

Notes to Consolidated Financial Statements

(Unaudited)

Note F - Critical Accounting Policies

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

Revenue Recognition - Revenues from sales of the Company's electronic manufacturing services business are recognized when the finished good product is shipped to the customer. In general, and except for consignment inventory, it is the Company's policy to recognize revenue and related costs when the finished goods have been shipped from its facilities, which is also the same point that title passes under the terms of the purchase order. Finished goods inventory for certain customers is shipped from the Company to an independent warehouse for storage or shipped directly to the customer and stored in a segregated part of the customer’s own facility. Upon the customer’s request for finished goods inventory, the inventory is shipped to the customer if the inventory was stored off-site, or transferred from the segregated part of the customer’s facility for consumption or use by the customer. The Company recognizes revenue upon such shipment or transfer. The Company does not earn a fee for such arrangements. The Company from time to time may ship finished goods from its facilities, which is also the same point that title passes under the terms of the purchase order, and invoice the customer at the end of the calendar month. This is done only in special circumstances to accommodate a specific customer. Further, from time to time customers request the Company hold finished goods after they have been invoiced to consolidate finished goods for shipping purposes. The Company generally provides a 90 day warranty for workmanship only, except for products with proprietary design and does not have any installation, acceptance or sales incentives (although the Company has negotiated longer warranty terms in certain instances). The Company assembles and tests assemblies based on customers’ specifications. Historically, the amount of returns for workmanship issues has been de minimis under the Company’s standard or extended warranties.

Inventories - Inventories are valued at the lower of cost or market. Cost is calculated as average cost. In the event of an inventory write-down, the Company records expense to state the inventory at lower of cost or market. The Company establishes inventory reserves for valuation, shrinkage, and excess and obsolete inventory. The Company records provisions for inventory shrinkage based on historical experience to account for unmeasured usage or loss. Actual results differing from these estimates could significantly affect the Company’s inventories and cost of products sold. The Company records provisions for excess and obsolete inventories for the difference between the cost of inventory and its estimated realizable value based on assumptions about future product demand and market conditions. Actual product demand or market conditions could be different than that projected by management .

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SigmaTron International, Inc.

July 31, 2014

Notes to Consolidated Financial Statements

(Unaudited)

Note F - Critical Accounting Policies - Continued

Goodwill - Goodwill represents the purchase price in excess of the fair value of assets acquired in business combinations. The Company assesses goodwill for impairment at least annually in the absence of an indicator of possible impairment and immediately upon an indicator of possible impairment. The Company is permitted the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the fair value of any reporting unit is less than its corresponding carrying value. If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that the fair value of any reporting unit is less than its corresponding carrying value then the Company is not required to take further action. However, if the Company concludes otherwise, then it is required to perform a quantitative impairment test, including computing the fair value of the reporting unit and comparing that value to its carrying value. If the fair value is less than its carrying value, a second step of the test is required to determine if recorded goodwill is impaired. The Company also has the option to bypass the qualitative assessment for goodwill in any period and proceed directly to performing the quantitative impairment test. The Company will be able to resume performing the qualitative assessment in any subsequent period. The Company performed its annual goodwill impairment test as of February 1, 2014 and determined that no impairment existed as of that date.

Impairment of Long-Lived Assets - The Company reviews long-lived assets, including amortizable intangible assets for impairment. Property, machinery and equipment and finite life intangible assets are reviewed whenever events or changes in circumstances occur that indicate possible impairment. If events or changes in circumstances occur that indicate possible impairment, the Company’s impairment review is based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely independent of other groups of its assets and liabilities. This analysis requires management judgment with respect to changes in technology, the continued success of product lines, and future volume, revenue and expense growth rates. The Company conducts annual reviews for idle and underutilized equipment, and reviews business plans for possible impairment. Impairment occurs when the carrying value of the assets exceeds the future undiscounted cash flows expected to be earned by the use of the asset group. When impairment is indicated, the estimated future cash flows are then discounted to determine the estimated fair value of the asset or asset group and an impairment charge is recorded for the difference between the carrying value and the estimated fair value.

Income Tax - Deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases 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. 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.

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SigmaTron International, Inc.

July 31, 2014

Notes to Consolidated Financial Statements

(Unaudited)

Note F - Critical Accounting Policies - Continued

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

New Accounting Standards:

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360)." ASU 2014-08 amends the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations or that have a major effect on the Company's operations and financial results should be presented as discontinued operations. This new accounting guidance is effective for annual periods beginning after December 15, 2014. The Company is currently evaluating the impact of adopting ASU 2014-08 on the Company's results of operations or financial condition.

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This ASU is effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. Accordingly, we will adopt this ASU on May 1, 2017. Companies may use either a full retrospective or modified retrospective approach to adopt this ASU and we are currently evaluating which transition approach to use and the full impact this ASU will have on our future financial statements.

Note G - Subsequent Event

In August 2014 the Company and Wells Fargo Bank, N.A. agreed on a proposal to extend the existing senior secured credit facility for the existing three years from the date of closing. The existing facility expires on October 31, 2015 . Under the terms of the proposal , financial covenants will be amended, an unused line fee will be added and net borrowing interest rates will be reduced. The Company expects the transaction will close by October 31, 2014.

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Item 2 . Management’s Discussion and Analysis of Financial Condition and Results of Operations.

In addition to historical financial information, this discussion of the business of SigmaTron International, Inc. (“SigmaTron”), its wholly-owned subsidiaries Standard Components de Mexico S.A., AbleMex, S.A. de C.V., Digital Appliance Controls de Mexico, S.A. de C.V., Spitfire Controls (Vietnam) Co. Ltd., Spitfire Controls (Cayman) Co. Ltd., wholly-owned foreign enterprises Wujiang SigmaTron Electronics Co., Ltd. and SigmaTron Electronic Technology Co., Ltd. (collectively, “SigmaTron China”) and international procurement office SigmaTron Taiwan branch (collectively, the “Company”) and other Items in this Quarterly Report on Form 10- Q contain forward-looking statements concerning the Company’s business or results of operations. Words such as “continue,” “anticipate,” “will,” “expect,” “believe,” “plan,” and similar expressions identify forward-looking statements. These forward-looking statements are based on the current expectations of the Company. Because these forward-looking statements involve risks and uncertainties, the Company’s plans, actions and actual results could differ materially. Such statements should be evaluated in the context of the risks and uncertainties inherent in the Company’s business including, but not necessarily limited to, the Company’s continued dependence on certain significant customers; the continued market acceptance of products and services offered by the Company and its customers; pricing pressures from the Company’s customers, suppliers and the market; the activities of competitors, some of which may have greater financial or other resources than the Company; the variability of our operating results; the results of long-lived assets and goodwill impairment testing; the variability of our customers’ requirements; the availability and cost of necessary components and materials; the ability of the Company and our customers to keep current with technological changes within our industries; regulatory compliance, including conflict minerals; the continued availability and sufficiency of our credit arrangements; changes in U.S., Mexican, Chinese, Vietnamese or Taiwanese regulations affecting the Company’s business; the turmoil in the global economy and financial markets; the stability of the U.S., Mexican, Chinese, Vietnamese and Taiwanese economic, labor and political systems and conditions; currency exchange fluctuations; and the ability of the Company to manage its growth. These and other factors which may affect the Company’s future business and results of operations are identified throughout the Company’s Annual Report on Form 10-K, a nd as risk factors, and may be detailed from time to time in the Company’s filings with the Securities and Exchange Commission. These statements speak as of the date of such filings, and the Company undertakes no obligation to update such statements in light of future events or otherwise unless otherwise required by law.

Overview:

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

The Company relies on numerous third-party suppliers for components used in the Company’s production process. Certain of these components are available only from single-sources or a limited number of suppliers. In addition, a customer’s specifications may require the Company to obtain

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components from a single-source or a small number of suppliers. The loss of any such suppliers could have a material impact on the Company’s results of operations. Further, the Company could operate at a cost disadvantage compared to competitors who have greater direct buying power from suppliers. The Company does not enter into long-term purchase agreements with major or single-source suppliers. The Company believes that short-term purchase orders with its suppliers provides flexibility, given that the Company’s orders are based on the changing needs of its customers.

Sales can be a misleading indicator of the Company’s financial performance. Sales levels can vary considerably among customers and products depending on the t ype of services (consignment versus turnkey) rendered by the Company and the demand by customers. Consignment orders require the Company to perform manufacturing services on components and other materials supplied by a customer, and the Company charges only for its labor, overhead and manufacturing costs, plus a profit. In the case of turnkey orders, the Company provides, in addition to manufacturing services, the components and other materials used in assembly. Turnkey contracts, in general, have a higher dollar volume of sales for each given assembly, owing to inclusion of the cost of components and other materials in net sales and cost of goods sold . Variations in the number of turnkey orders compared to consignment orders can lead to significant fluctuations in the Company’s revenue and gross margin levels. Consignment orders accounted for less than 5 % of the Company’s revenues for the three months ended July 31, 2014 and 2013 .

As the Company has stated previously , customers demand for product can be volatile and the Company experienced an unexpected short term slowdown in shipments during the quarter ended July 31, 2014. Revenue was down from th e fourth quarter of fiscal 2014. While there is some seasonality to the Company’s overall customer demand, this slowdown was unexpected going into the first quarter of fiscal 2015 and the Company believes it reflects the continuing volatility of customer demand and the short term focus of the economy.

The Company was able to manage to breakeven results for the quarter ended July 31, 2014 , in spite of the lower revenue in the quarter and the continuing pricing pressures in the market . And furthermore, the Company is pleased to report that the revenue for the second quarter of fiscal year 2015 has started out stronger than the first quarter of fiscal year 2015. The Company suspects that the slowdown experienced in the first fiscal quarter of 2015 was primarily due to customers managing their inventories short term and are now back on track to their original forecasts.

The Company has recently been awarded new programs with existing customers that is expected to increase its business with them. Also, several programs with new customers will launch during the second quarter of fiscal year 2015 which should help set the stage for future revenue growth, which is important given the pricing pressures the Company faces. Even with continuing margin pressures the Company continues to see positive developments and anticipates improved results in the future. The addition of the Spitfire engineering capability continues to be a positive for the Company as it attracts new customers in new markets and supports new programs with existing customers. The Company will continue to plan for growth while managing the operations to be flexible to the volatile demand swings, with an eye on long term results.

On May 31, 2012, the Company acquired certain assets and assumed certain liabilities of Spitfire. Spitfire was a privately held Illinois corporation with captive manufacturing sites in Chihuahua, Mexico and suburban Ho Chi Minh City, Vietnam. Both manufacturing sites were among the assets acquired by the Company. Spitfire was an original equipment manufacturer of electronic controls, with a focus on the major appliance (white goods) industry. Although North America is currently its primary market, Spitfire has applications that can be used worldwide. The Company provided

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manufacturing solutions for Spitfire since 1994, and was a strategic partner to Spitfire as it developed its original equipment manufacturer electronic controls business.

The Company’s Spitfire division provides cost effective designs as control solutions for its customers, primarily in high volume applications of domestic cooking ranges, dishwashers, refrigerators, and portable appliances. It is a member of the Association of Home Appliance Manufacturer as well as other industry related trade associations and is ISO 9001:2008 certified. The acquisition has enabled the Company to offer design services for the first time in specific markets.

Due to the acquisition of Spitfire, effective June 1, 2012, the Company discontinued selling to Spitfire. The Company instead began selling directly to Spitfire’s former customers.

The Company’s international footprint provides our customers with flexibility within the Company to manufacture in China, Mexico, Vietnam or the U.S. We believe this strategy has continued to serve the Company well during these uncertain economic times as its customers continuously evaluate their supply chain strategies.

I n fiscal year s 2013 and 2014, the Company continued to see a trend of Chinese costs increasing, thereby making Mexico a more cost-competitive manufacturing location to service North America. Indications suggest that this trend will continue.

Results of Operations:

Net Sales

Net sales de creased for the three month period ended July 31, 2014 to $ 54,947,477 from $ 56 , 166 , 061 for the three month period ended July 31, 2013 . Sales volume de creased for the three month period ended July 31, 2014 as compared to the same period in the prior fiscal year in the industrial electronic s , fitness and gaming marketplace . The de crease in sales for these marketplaces was partially offset by a n in crease in sales in the telecommunications, a ppliance, medical/life sciences, semiconductor equipment and consumer electronics marketplaces. Customer demand for product can be volatile and the Company experienced a slowdown during the quarter ended July 31, 2014. Sales were down from the fourth quarter of fiscal 2014 . While there is some seasonality to the Company’s overall customer demand, this slowdown was unexpected going into the first quarter of fiscal 2015 and the Company believes it reflects the continuing volatility and the short term focus of the economy .

The Company is pleased to report that the sales for the second quarter of fiscal year 2015 have started stronger than the first quarter of fiscal year 2015. The Company suspects that the slowdown experienced in the first quarter of fiscal 2015 was primarily due to customer s managing their inventories shor t term and those customers are now back on track to their original forecast . The Company has recently been awarded new programs with existing customers that is expected to increase its business with them. Also, several programs with new customers will launch during the second quarter of fiscal 2015 which should help set the stage for future revenue growth, which is important given the pricing pressures the C ompany faces.

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Gross Profit

Gross profit de creased during the three month period ended July 31, 2014 to $ 4,746,448 or 8.6% of net sales, compared to $ 6,288,408 or 11 . 2 % of net sales for the same period in the prior fiscal year . The de crease in gross profit for the three month period ended July 31, 2014 was primarily the result of d ecreased sales to customers and continuing pricing pressures . As the Company concentrates on growth it will manag e its operations to be flexible to volatile customer demand s and pricing pressures, with an eye on long term results.

Selling and Administrative Expenses

Sellin g and administrative expenses de creased to $ 4,514,211 or 8.2% of net sales for the three month period ended July 31, 2014 , compared to $ 4, 85 5, 558 or 8 . 6 % of net sales for the same period in the prior fiscal year. The net de crease f or the three month period ended July 31, 2014 was approximately $ 341,000 . Bonus expense, legal fees and sales salaries accounted for approximately $ 310,000 of the decrease in selling and administrative expense for the quarter ended July 31, 2014. The de crease in the for egoing selling and administrative expense s was partially offset by a n in crease in purchasing, accounting and IT salaries, and additional expenses at the Elgin location .

Interest Expense

Interest expense increased to $ 256,547 for the three month period ended July 31, 201 4 compared to $ 213,960 for the same period in the prior fiscal year. The in crease in interest expense for the three month period ended July 31, 201 4 was due to in creased borrowings under the Company’s banking arrangements and capital lease obligations. Interest expense for future quarters may increase if interest rates or borrowings, or both, increase.

Taxes

The i ncome tax benefit from operations was $ 1,244 for the three month period ended July 31, 2014 compared to an income tax expense of $ 272,875 for the same period in the prior fiscal year. The income tax benefit for the three month period ended July 31, 2014 is a result of lower pre-tax income for the period compared to the quarter ended July 31, 2013. The Company’s effective tax rate was negative 8% and 22% for the quarter ended July 31, 2014 and 2013 , respectively. The decrease in the effective tax rate between periods was driven by the tax benefit of the pre-tax loss in the U.S. which offsets a higher level of pre-tax income by foreign subsidiaries, which are subject to lower statutory tax rates.

Net Income

Net income was $ 16,810 for the three month period ended July 31, 201 4 compared to net income of $ 967 , 464 for the same period in the prior fiscal year. Basic and diluted earnings per share for the first quarter of 201 4 were $ 0.0 0 compared to basic and diluted earnings per share of $0. 24 for the same pe riod in the prior fiscal year.

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Liquidity and Capital Resources:

Operating Activities.

Cash flow used in operating activities was $ 646,188 for the three months ended July 31, 201 4 , compared to cash flow provided by operating activities of $ 2,375,341 for the same period in the prior fiscal year. During the first three months of fiscal year 2014, cash flow used in operating activit ies was primarily the result of increased inventor ies in the amount of $ 3,816,960 , due to a slowdown in customer sales during the quarter. Net cash used in operating activities was partially offset by an increase in trade accounts payable in the amount of $3,834,672 , and the result of net income and the non-cash effects of depreciation and amortization. The increase in accounts payable was due to payments in the ordinary course of business.

Cash flow provided by operating activities was $ 2,375,341 for the three months ended July 31, 2013 . During the first three months of fiscal year 201 4 , cash flow used in operating activities was the result of net income, the non-cash effects of depreciation and amortization, stock-based compensation expense and an increase of $1,365,181 in trade accounts payable. The increase in accounts payable was due to timing of payments in the ordinary course of business. Net cash provided by operating activities was partially offset by an increase in inventories and accounts receivable. The increase in accounts receivable of $99,385 and inventories of $1,797,940 was primarily related to increased customer orders during the period.

Investing Activities .

During the first three months of fiscal year 201 5 , the Company purchased $ 2,038,346 in machinery and equipment to be used in the ordinary course of business. The Company has received forecast s 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 and potentially expand manufacturing operations in Mexico and China in fiscal year 2015 in the amount of approximately $ 13,800,000 . The Company anticipates purchases and expansions will be funded by lease transactions, its senior secured credit facility or raising capital from other sources. There is no assurance that the Company will be able to obtain equity or debt financing at acceptable terms, or at all, in the future. There is no assurance that the Company will be able to retain or complete the pending renewal of its credit agreements in the future .

During the first three months of fiscal year 201 4 , the Company purchased approximately $4, 900 , 000 in machinery and equipment to be used in the ordinary course of business. The Company made additional machinery and equipment purchases of $3,500,000 during the balance of fiscal year 201 4 . T he purchases were funded by lease transactions and its bank line of credit.

Financing Activities.

Cash used in financing activities was $ 301,482 for the three months ended July 31, 201 4 , compared to cash provided by financing activities of $ 714,835 for the same period in the prior fiscal year. Cash used in financing activities was primarily the result of payments under capital lease and sales leaseback agreements .

Cash provided by financing activities was $ 714,835 for the three months ended July 31, 2013 . Cash provided by financing activities was primarily the result of increased borrowings of $ 763,208 under

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the credit facility. The additional borrowings were required to support the purchases of machinery and equipment and the increase in in ventory.

Financing Summary .

The Company has a senior secured credit facility with Wells Fargo with a credit limit up to $30,000,000 and an initial term through September 30, 2013. The facility allows the Company to choose among interest rates at which it may borrow funds. The credit facility is collateralized by substantially all of the domestically located assets of the Company and the Company has pledged 65% of its equity ownership interest in some of its foreign entities. The Company is required to be in compliance with several financial covenants.

In conjunction with Spitfire acquisition, two of the financial covenants required by terms of the senior secured credit facility were amended as of May 31, 2012. During the quarter ended October 31, 2013, the Company renewed its senior secured credit facility. The facility was revised to extend the term of the agreement to October 31, 2015.

As of July 31, 2014, there was a $22,921,454 outstanding balance and $7,078,546 of unused availability under the credit facility agreement, assuming the Company remained in compliance with its financial covenants. The facility allows the Company to choose among interest rates at which it may borrow funds. The interest rate is prime rate (3.25% at July 31, 2014) or LIBOR plus two and a one half percent (2.75% at July 31, 2014), which is paid monthly. At July 31, 2014, the Company was in compliance with its amended financial covenants.

The Company entered into a mortgage agreement on January 8, 2010, in the amount of $2,500,000, with Wells Fargo to refinance the property that serves as the Company’s corporate headquarters and its Illinois manufacturing facility. The Wells Fargo note bears interest at a fixed rate of 6.42% per year and is amortized over a sixty month period. A final payment of approximately $2,000,000 is due on or before January 8, 2015. The outstanding balance as of July 31 , 201 4 was $ 2,050,018 .

O n August 20, 2010 and October 26, 2010, the Company entered into two capital leasing transactions (a lease finance agreement and a sale leaseback agreement) with Wells Fargo Equipment Finance, Inc., to purchase equipment totaling $1,150,582. The term of the lease finance agreement, with an initial principal amount of $315,252, extends to September 2016 with monthly payments of $4,973 and a fixed interest rate of 4.28%. The term of the sale leaseback agreement, with an initial principal payment amount of $835,330, extends to August 2016 with monthly payments of $13,207 and a fixed interest rate of 4.36%. At July 31 , 201 4 , $ 123,098 and $ 302,608 was outstanding under the lease finance and sale leaseback agreements, respectively. The net book value at July 31 , 201 4 of the equipment under the lease finance agreement and sale leaseback agreement was $ 214,546 and $ 533,389 , respectively.

I n November 2010, the Company entered into a capital lease with Wells Fargo Equipment Finance, Inc., to purchase equipment totaling $226,216. The term of the lease agreement extends to October 2016 with monthly payments of $3,627 and a fixed interest rate of 4.99%. At July 31 , 201 4 , the

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balance outstanding under the capital lease agreement was $ 92,452 . The net book value of the equipment under this lease at July 31, 201 4 was $ 154,815 .

In September 2010, the Company entered into a real estate lease agreement in Union City, CA, to rent 116,993 square feet of manufacturing and office space. Under the terms of the lease agreement, the Company receives incentives over the life of the lease, which extends through March 2021. The amount of the deferred rent income recorded in the first quarter of fiscal 2015 was $ 8 , 142 . In addition, the landlord provided the Company tenant incentives of $418,000, which are being amortized over the life of the lease.

O n May 31, 2012, the Company entered into a lease agreement in Tijuana, MX, to rent 112,000 square feet of manufacturing and office space. Under the terms of the lease agreement, the Company receives incentives over the life of the lease, which extends through November 2018. The amount of the deferred rent expense recorded in the first quarter of fiscal 2015 was $ 23,295 .

O n May 31, 2012, the Company completed the acquisition of Spitfire, an OEM of electronic controls, with a focus on the major appliance industry. The acquisition added two manufacturing operations in locations that augment the Company’s footprint and add Spitfire’s design capabilities which allow the Company to offer design service for the first time in specific markets. In conjunction with the Spitfire acquisition, the Company recorded goodwill and other intangible assets of $3,222,899 and $6,142,000, respectively.

On October 3, 2013, the Company entered into two capital leases ( sale leaseback agreements ) with Assoc iated Bank, National Associat ion in the amount of $2,281,355 to finance equipment purchased in June 2012 . The term of the first agreement, with an initial principal amount of $2,201,63 7 , extends to September 2018 with monthly payments of $40,173 and a fixed interest rate of 3.75%. The term of the second agreement, with an initial principal payment amount of $79,717, extends to September 2018 with monthly payments of $1,455 and a fixed interest rate of 3.75% . At July 31, 2014 , $ 1,856,911 and $ 67,235 was outstanding under the first and second agreements, respectively. The net book value at July 31, 2014 of the equipment under each of the two agreement s was $ 1,784,396 and $ 66,431 .

The Company entered into a mortgage agreement on October 24, 2013 , in the amount of $ 1,275,000 , with Wells Fargo to finance the property that serves as the Company’s engineering and design center in Elgin, Illinois . The Wells Fargo note requires the Company to pay monthly principal payments in the amount of $4,250 and bears interest at a fixed rate of 4.5 % per year and is payable over a sixty month period. A final payment of approximately $ 1,030,000 is due on or before October 2018 . The outstanding balance as of July 31 , 201 4 was $ 1,236,750 .

On March 6, 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase equipment in the amount of $589,082. The term of the lease extends to March 2019 with monthly payments of $10,441 and a fixed interest rate of $5.65%. At July 3 1 , 2014, the balance outstanding under the capital lease agreement was $ 558,19 5 . The net book value of the equipment under the lease as of July 31, 2014 was $ 561,066 .

On May 7 , 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase equipment in the amount of $108,971. The term of the lease extends to May 2019 with monthly payments of $1,931 and a fixed interest rate of 5.65%. At July 31, 2014, the balance outstanding under the capital lease was $106,217. The net book value of the equipment under the lease as of July 31, 2014 was $106,701 .

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The Company provides funds for salaries, wages, overhead and capital expenditure items as necessary to operate its wholly-owned Mexican, Vietnam and Chinese subsidiaries and the Taiwan internat ional procurement office. The Company provides funding, as needed, in U.S. dollars, which are exchanged for Pesos, Dong, Renminbi, and New Taiwan dollars . The fluctuation of currencies from time to time, without an equal or greater increase in inflation, could have a material impact on the financial results of the Company. The impact of currency fluctuation for the quarter ended July 31 , 201 4 resulted in a foreign currenc y loss of approximately $ 76, 900 compared to a foreign currency gain of approximately $8,000 for the same period in the prior year . During the first three months of fiscal year 201 5 , the Company’s U.S. operations paid approximately $ 12,200,000 to its foreign subsidiaries for services provided.

The Company has not recorded U.S. income taxes for a significant portion of undistributed earnings of the Company’s foreign subsidiaries, since these earnings have been, and under current plans will continue to be, permanently reinvested in these foreign subsidiaries. The cumulative amount of unremitted earnings for which U.S. income taxes have not been record ed is approximately $ 13 ,000,000 . The Company’s intent is to keep unrepatriated funds indefinitely reinvested outside of the United States and current plans do not demonstrate a need to fund U.S. operations.

The Company anticipates that its credit facilities, cash flow from operations and leasing resources are adequate to meet its working capital requirements and capital expenditures for fiscal year 2015 at the Company’s current level of business. The Company has received forecasts from current customers for increased business that would require additional investment in inventory, capital equipment and facilities. To the extent that these forecasts come to fruition, the Company intends to meet any increased capital requirements by seeking an increase in its secured line of credit or raising capital from other sources of debt or equity. In addition, in the event the Company expands its operations, its business grows rapidly, the current economic climate deteriorates, customers delay payments, or the Company consummates an acquisition, additional financing resources would be necessary in the current or future fiscal years. There is no assurance that the Company will be able to obtain equity or debt financing at acceptable terms, or at all, in the future. There is no assurance that the Company will be able to retain or complete the pending renewal of its credit agreements in the future, or that any retention or renewal will be on the same terms as currently exist .

Off-balance Sheet Transactions:

The Company has no off-balance sheet transactions.

Contractual Obligations and Commercial Commitments :

As a smaller reporting company, as defined in Item 10(f)(1) of Regulation S-K under the Exchange Act, we are not required to provide the information required by this item.

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Item 3. Quantitative and Qualitative Disclosures About Market Risks .

As a smaller reporting company, as defined in Item 10(f)(1) of Regulation S-K under the Exchange Act, we are not required to provide the information required by this item.

Item 4. Controls and Procedures.

Disclosure Controls:

Our management, including our President and Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rules 13a-15(e) and 15(d)-15(e)) as of July 31, 2014. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and our 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 the end of the period covered by this report.

Internal Controls:

There has been no change in our internal control over financial reporting during the quarter ended July 31, 2014, that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting. Our 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.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

As of July 31, 2014, the Company was not a party to any material 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 is 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 1A. Risk Factors.

There have been no material changes to the description of the risk factors affecting our business as previously disclosed in Item 1A. to Part 1 of our Annual Report on Form 10-K for the fiscal year ended April 30, 201 4 .

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

As discussed in the Current Report on Form 8-K filed on June 4, 2012 (the “Report”), the Company agreed to sell a total of 50,000 shares of the Company’s common stock to Gregory Jay Ramsey in

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connection with the closing of the Spitfire Transaction, which served as partial consideration for the Acquired Assets (as such term is defined in the Report). The information contained in the Report with respect to such sale is incorporated herein by reference. Of the total, 12,500 shares were sold in each of June, 2012, 2013 and 2014, each in an unregistered sale, in accordance with and under Rule 506 under the Securities Act of 1933, as amended. The facts related to the Company’s reliance on Rule 506 are contained in the Company’s Form D filed with the Commission on June 25, 2012, and updated on June 17, 2013, and June 10, 2014, which information is incorporated herein by reference. The remaining shares will vest and be sold in one additional installment of 12,500 shares on May 31, 2015, and no event will accelerate the vesting thereof. The unvested shares may be forfeited in limited circumstances, as described in the Report.

The Company hired Peter Sognefest as an employee in connection with the Spitfire Transaction and agreed to sell a total of 25,000 shares of the Company’s common stock to Mr. Sognefest in connection with Mr. Sognefest’s hiring, and in partial consideration for his services rendered and to be rendered to the Company as an employee. Of the total, 8,330 shares were sold in each of June, 2012 and June, 2013, and 8,340 shares were sold in June 2014, each in an unregistered sale, in accordance with and under Rule 506 under the Securities Act of 1933, as amended. The facts related to the Company’s reliance on Rule 506 are contained in the Company’s Form D filed with the Commission on June 25, 2012, and updated on June 17, 2013, and June10, 2014, which information is inc orporated herein by reference.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5 . Other Information.

None.

Item 6. Exhibits.

10.1 This Schedule # 1217927 to Master Lease Agreement Number 81344 entered into between CIT Finance LLC and SigmaTron International, Inc., dated May 7, 2014.

31.1 Certification of Principal Executive Officer of the Company Pursuant to Rule 13a-14(a) under the Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

31.2 Certification of Principal Financial Officer of the Company Pursuant to Rule 13a-14(a) under the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

32.1 Certification by the Principal Executive Officer of SigmaTron International, Inc. Pursuant to Rule 13a-14(b) under the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

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32.2 Certification by the Principal Financial Officer of SigmaTron International, Inc. Pursuant to Rule 13a-14(b) under the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Scheme Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES :

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behal f by the undersigned thereunto duly authorized.

SIGMATRON INTERNATIONAL, INC.


/s/ Gary R. Fairhead		September 1 1 , 2014

Gary R. Fairhead		Date
President and CEO (Principal Executive Officer)


/s/ Linda K. Frauendorfer		September 11 , 2014

Linda K. Frauendorfer		Date
Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)


Exhibit 10.1
Product Schedule to Master Lease Agreement

This Schedule # 1217927 to Master Lease Agreement # 81344 (the “Schedule”) contains the terms of your agreement with us. Please read it carefully and ask us any questions you may have. The words you, your and lessee mean you, the Lessee listed below who are our customer. The words we, us, our and the lessor , mean CIT Finance LLC

Product Description


Quantity	Asset Description	Product Address

1	EVS Solder Recovery system 10k, part # EVS10K	Miguel De Cervantes No. 151
1	Model 5380 Precisioncure UV Oven Module, part # SA-885-1008-1	Complejo Industrial Chihuahua
1	Computer for Stand Alone Precisioncure UV Oven, part # SA-138-1068-1	Chihuahua, Chih. Mexico
1	TR-10-ems - System Electronics with Analyst ems software for Windows XP/2K	C.P. 31109
1	12KN - Dual Level Pneumatic Fixture Press, ten 200-point receiver blocks
1	PW R-2 - Power Module
1	TPCXICU20 - PC W in XP, LCD monitor, USB system module, industrial 20-slot chassis
1	Hot Air Station 120V, Ref # JT-1B, with 2 Tools Control Unit 120V, Ref # DD-1B, Compact Soldering St. 120V, Ref # CD-1BC

For additional equipment and accessories, attach addendum.

Supplier Info (Name, Address, Phone): Interlatin Inc, Specialty Coating Systems, CheckSum LLC, JBC Tools Inc.


	End of Lease Purchase		Lessee
	☒ 10% Purchase Upon Termination		SigmaTron International, Inc .
			Lessee Legal Name (as “Lessee”)
	Term and Lease
	Term (Months) 60		2201 Landmeier Road
	Lease Payment 60 payments at $1,931.43, plus PUT amount of $10,897.08		Billing Street Address
	(plus taxes, if applicable)		Elk Grove Village, IL 60007
	Payment Frequency Monthly		Billing City, State, Zip

	Variable Payment Schedule if applicable:		Billing Contact Name & Phone No.

			Lessee Phone Number (if different from above)


	The following additional payments are due on the date you sign this agreement: One-time Documentation Fee $ n/a Payable with First Invoice Advanced Payment $ n/a due at Lease signing (plus taxes, if applicable)			1. LEASE OF PRODUCT; FEE: W e agree to lease to you and you agree to lease from us the Products shown above for the number of months and monthly payment identified above ("Lease Payment"). You agree to pay the Documentation Fee with your first invoice. This Schedule will commence on the date that any of the Products are delivered to you ("Inception Date"). Your first Lease Payment is due 30 days from the Acceptance Date, and your remaining Lease Payments shall be due on the same day of each subsequent month until you have paid all the Lease Payments due under the Schedule. Each day between the Inception Date and the Acceptance Date is an "Interim Rent Day". You shall pay us interim rent for each Interim Rent Day at 1/30th of the Lease Payment. You will make all payments required under the Lease at the address set forth in our Lease invoice. You will execute a Delivery and Acceptance Certificate upon receipt of the Products, if we provide one to you, and if not, you expressly agree that you accepted the Products no later than 10 days after it was delivered to you (collectively, the "Acceptance Date") unless you have notified us of your non-acceptance in writing. 2. LESSEE REPRESENTATIONS: By execution of this Schedule, you confirm that (a) no Event of Default exists under the Master Lease as of the date hereof, and (b) the Products will be used for a business purpose, and not for personal, family or household purposes. 3. CELLULAR PHONES: You agree that providing a telephone number to a cellular or other wireless device, you are expressly consenting to receiving communications from us, our affiliates and agents (for non-marketing purposes) at that number, including, but not limited to, prerecorded and artificial voice messages, text messages, and calls from automated telephone dialing systems; these calls may incur fees from your cellular provider; and this consent applies to each telephone number you provide to us now or in the future. 4. FINANCIAL STATEMENTS: You agree to provide us copies of your balance sheet, income statement and other financial reports as we may reasonably request. 5. PRODUCTS PLACED OUTSIDE OF UNITED STATES. Products may be relocated from the United States to within a “Maquiladora Zone” in Mexico. If a Schedule lists a Product location outside of the United States (“Foreign Use Product”). Lessee agrees that in addition to its obligations under the Agreement, Lessee will be obligated to pay, or to reimburse Lessor for the payment of, any and all taxes applicable to the Foreign Use Product and the periodic Payments described in the Schedule which are assessed by any taxing authorities. Tax This includes any withholding tax, goods and services tax, value added tax, or any other taxes that may arise out of any Foreign Use Product being located in the Approved Location (“Relevant Tax”) together with any penalty and/or interest thereon. Lessee agrees to self-assess any Relevant Tax and remit such tax to the relevant taxing authorities on a monthly basis. Lessee agrees that Lessor will receive from Lessee a net amount equal to the full amount which Lessor would have received had the Payments not been made subject to any Relevant Tax. Lessee will cooperate with Lessor in obtaining any relevant documentation necessary to substantiate payment of such Relevant Tax and in providing original or certified copies thereof. If any income, franchise, turnover or other taxes are due and payable to any taxing authority as a result of the lease of Foreign Use Product, Lessee agrees to register and file all necessary returns, on Lessor’s behalf, and pay all such taxes and associated costs. Lessee agrees to act as importer / exporter of record and pay all costs of customs, duties and other fees with respect to the import and export of any Foreign Use Product (whether in connection with the delivery or return of the
	DATA SECURITY: Some or all of the items of Equipment returned to us at any time may contain sensitive information or data belonging to your organization, or your customer/clients/patients, that is stored, recorded, or in any way contained within or on the Equipment. You specifically agree that before the Equipment is shipped to or retrieved by us or our agents, or removed by a supplier, you will, at your sole cost and expense, permanently destroy, delete and remove all such information and data that is stored, recorded or in any way contained within or on the Equipment, to the extent that further recovery of any of such data and information is not possible. You have the sole responsibility to so destroy, delete, and remove all data and information stored in or on the Equipment. We have absolutely no liability for any data or information that you fail to so destroy, delete, and remove. All hard drives and other data retention components must function as originally installed after data removal.

	IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT: To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. What this means for you: W hen you open an account, we will ask for (i) if you are a legal entity, your name, address, and other information that will allow us to identify you; (ii) if you are an individual, your name, address, and date of birth. We may also ask to see your driver’s license or other identifying documents.

		Foreign Use Product from the Approved Location, or otherwise). 5.1 DELIVERY AND RETURN OF FOREIGN USE PRODUCT: Upon termination or expiring of the Schedule, and notwithstanding any other provision hereof limiting such costs, you will, at its full cost and expense, act as importer / exporter of record and return the Foreign Use Product pursuant to the terms of the Agreement to a location designated by us in the United States and will obtain (at your cost) all appropriate export and import permits and licenses with respect to the export of the Foreign Use Product, and ensuring that Foreign Use Product is properly marked for import. Provided, however, that if you are not in Default under this Schedule and in the event you have either a nominal purchase option or a fixed purchase price a PUT, title will pass to you upon payment of such purchase price. 5.2 EXPORT CONTROL: Y ou acknowledges that the export of Foreign Use Product supplied hereunder (which may include technology and software licensed for use on or with such Foreign Use Product), is subject to such export control laws and regulations, including by not limited to the United States Export Control Act of 1079 and the Export Administration Act of 1985, together with such further United States, local, or other export laws and regulations as may be in force from time to time and applicable to the Foreign Use Product and software when being delivered to or returned from the Approved Location. You agree to comply with all such laws. 5.3 TAX INDEMNIFICATION. You agree that the indemnification rights of ours under the Agreement shall include, and you shall indemnify, defend and hold harmless us from and against any claim, demand, action, proceeding, investigation, loss, liability, cost or expense, including attorneys’ fees, suffered or incurred by us or any such persons arising out of or related to the location, use or possession of Foreign Use Product and Relevant Taxes. The parties will cooperate with each other with respect to any tax audits conducted by a taxing jurisdiction and other matters involving taxes, including without limitation any tax related credits due to or from a taxing jurisdiction and evidence of tax exemption certificates. If we are subjected to a Tax audit with respect to this Agreement or the Products, you agree to promptly provide evidence of the Relevant Taxes paid to the jurisdiction relating to the Master Lease or the Products leased hereunder and the basis for such Tax payment. 6. Custodial Agreement. Following the acceptance of the Products and origination of this Lease, Lessee shall cause its Authorized Affiliate to execute a Custodial Agreement, in such form as reasonably agreed by the parties, within 10 days of Lessor’s execution of the document and have the agreement returned to Lessor. The failure of Lessee to obtain the execution of the Custodial Agreement within the presubscribed timeframe shall be an additional event of default under Section 13(b) of the Master Lease. 7. PURCHASE UPON TERMINATION (“PUT”): For value received, receipt of which is hereby acknowledged, Lessee hereby agrees to purchase, at the end of the original 60 month term of the Lease, Lessor’s interest in the Equipment on an AS-IS, WHERE-IS basis, for $$10,897.08 or 10% of the Equipment’s original cash price (“PUT Price”). Customer will pay to Lessor the PUT Price and all other unpaid obligations of the Customer under the Lease, plus any applicable tax within 15 days of the expiration of the original term of the Lease and upon receipt of such payment, Lessor will transfer to Customer its interest in the Equipment on an AS-IS, W HERE-IS basis, without any warranty or representation of any kind, express or implied.


LESSOR:		CIT Finance LLC		Lessee: SigmaTron International, Inc.
		10201 Centurion Parkway N. #100
		Jacksonville, FL 32256
				/s/ Linda K. Frauendorfer
				Authorized Signature
	/s/ Magalie Gilbert
	Authorized Signature			Linda K. Frauendorfer
				Print Signer’s Name
	Magalie Gilbert
	Printed Name			Chief Financial Officer	5/7/14
				Signers Title
	Authorized Signature		5/30/14
	Printed Title		Date Signed	Federal Tax ID Number




					Bank T100S rev. 7-24-13

SigmaTron International, Inc.

July 31, 2014

EXHIBIT 31.1

Certification of Principal Executive Officer of

SigmaTron International, Inc.

Pursuant to Rule 13a-14(a) under the Exchange Act,

as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Gary R. Fairhead , President and Chief Executive Officer of SigmaTron International, Inc., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of SigmaTron International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

SigmaTron International, Inc.

July 31, 2014

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 11, 2014

/s/ Gary R. Fairhead

Gary R. Fairhead

President and Chief Executive Officer

of SigmaTron International, Inc.

SigmaTron International, Inc.

July 31, 2014

EXHIBIT 31.2

Certification of Principal Financial Officer of

SigmaTron International, Inc.

Pursuant to Rule 13a-14(a) under the Exchange Act,

as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Linda K. Frauendorfer , Chief Financial Officer, Secretary and Treasurer of SigmaTron International, Inc., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of SigmaTron International, Inc.;

SigmaTron International, Inc.

July 31, 2014

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 11, 2014

/s/ Linda K. Frauendorfer

Linda K. Frauendorfer

Chief Financial Officer, Secretary and

Treasurer of SigmaTron International, Inc.

SigmaTron International, Inc.

July 31, 2014

EXHIBIT 32.1

Certification by the Principal Executive Officer of

SigmaTron International, Inc.

Pursuant to Rule 13a-14(b) under the Exchange Act and

Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

I, Gary R. Fairhead , am President and Chief Executive Officer of SigmaTron International, Inc. (the “Company”).

This certification is being furnished pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2014 (the “Report”).

I hereby certify that to the best of my knowledge:

(a) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act (15 U.S.C. 78 m(a) or 78o(d)); and

(b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: September 11, 2014

/s/ Gary R. Fairhead

Gary R. Fairhead

President and Chief Executive Officer of

SigmaTron International, Inc.

July 31, 2014

EXHIBIT 32.2

Certification by the Principal Financial Officer of

SigmaTron International, Inc.

Pursuant to Rule 13a-14(b) under the Exchange Act and

Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

I, Linda K. Frauendorfer , am Chief Financial Officer, Secretary and Treasurer of SigmaTron International, Inc. (the “Company”).

I hereby certify that to the best of my knowledge:

(a) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act (15 U.S.C. 78 m(a) or 78o(d)); and

(b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: September 11, 2014

/s/ Linda K. Frauendorfer

Linda K. Frauendorfer

Chief Financial Officer, Secretary and

Treasurer of SigmaTron International, Inc.