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

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 and six months ended October 31, 2014 and 2013, respectively.

The Company continued to experience volatile demand from its customer base, but revenue was more in line with the Company’s expectations after lower-than-anticipated first fiscal quarter revenue.  From the Company’s perspective, the general economy remains sluggish and volatile and margin pressures continue.  However, the Company remains cautiously optimistic going forward as several new customers are scheduled to begin production with the Company in the third and fourth quarters of fiscal 2015.  These customers will continue to help the Company diversify the markets it serves and hopefully will help stabilize its revenue base.  While the Company expects to continue to encounter volatile customer demand for the balance of fiscal 2015, it will continue its efforts to best manage that environment while positioning the Company for growth.

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 the primary market for the Spitfire division, it has applications that the Company believes can be used worldwide.  The Company provided 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 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   2014 and 2013 , 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 increased for the three month period ended October 31, 2014 to $ 61,533,519 from $56,577,287 for the three month period ended October 31, 2013. Net sales increased   for the six month period ended October 31, 2014 to $116,480,996 from $112,743,348 for the same period in the prior fiscal year.  Sales volume increased for the three and six month periods ended October 31, 2014 as compared to the prior year in the appliance marketplace.  The increase in sales for this marketplace was partially offset by a decrease in sales in the industrial electronics, fitness, gaming and medical/life sciences marketplaces.  The Company continued to experience volatile demand from its customer base, but revenue was more in line with the Company’s expectations after lower-than-anticipated first fiscal quarter revenue.  The Company remains cautiously optimistic going forward as several new customers are scheduled to begin production with the Company in the third and fourth quarters of fiscal 2015.  These customers will continue to diversify the markets the Company serves and hopefully will help stabilize its revenue base.  While the Company expects to continue to encounter volatile customer demand for the balance of fiscal 2015, it will continue its efforts to best manage that environment while positioning the Company for growth.

Gross Profit

Gross profit decreased during the three month period ended October 31, 2014 to $ 5,813,753 or 9.4% of net sales compared to $ 5,996,136 or 10.5 % of net sales for the same period in the prior fiscal year .  Gross profit decreased for the six month period ended October 31, 2014   to $ 10,560,201 or 9.1% of net sales compared to $ 12,284,544 or 10.9% of net sales for the same period in the prior fiscal year. The decrease in gross profit for the three and six month period ended October 31, 2014 was primarily the result of continuing pricing pressures, which the Company expects to continue.

Selling and Administrative Expenses

Sellin g and administrative expenses increased to $ 4,847,801 or 7.9% of net sales for the three month period ended October 31, 2014 compared to $ 4,839,754 or 8 . 6 % of net sales for the same period in the prior fiscal year.  The net increase  f or the three month period ended October 31, 2014 was approximately $ 8 ,000 .  Commission expense, legal fees and IT salaries increased approximately $182,500   for the three months ended October 31, 2014.  The in crease in the foregoing selling and administrative expense s   was partially offset by a de crease in general office salaries, sales   and bonus expense.  Selling and administrative expenses decreased to $ 9,362,012   o r   8.0% of net sales for the six month period ended October 31, 2014 compared to $ 9,695,312 or 8.6% of net sales for the same period in the prior fiscal year.  The decrease for the six month period ended October 31, 2014 was primarily from decreases in sales salaries, amortization expense and bonus expense.  The decrease in the foregoing selling and administrative expenses was partially offset by an increase in legal fees and purchasing, accounting and IT salaries.

Interest Expense

Interest expense increased to $ 278,516 for the three month period ended October 31, 2014 compared to $ 236,094 for the same period in the prior fiscal year.  Interest expenses for the six month period ended October 31, 2014 was $ 535,063 compared to $ 450,054 for the same period in the prior fiscal year.  The increase in interest expense for the three and six month period s ended October 31, 2014 was due to increased borrowings under the Company’s banking arrangements and capital lease obligations.  Interest expense for future quarters may fluctuate depending on interest rates or borrowings levels .  

Taxes

The income tax expense   was $ 576,825 for the three month period ended October 31, 2014 compared to an income tax expense of $ 165,157 for the same period in the prior fiscal year.  During the second fiscal quarter the Company recorded $529,257 in income tax expense as a discrete item related to its inability to utilize a foreign tax credit resulting from a dividend repatriation.  The distribution from its foreign subsidiaries does not change the Company’s intentions to indefinitely reinvest income from the Company foreign subsidiaries.  The income tax expense was $575,581 for the six month period ended October 31, 2014 compared to income tax expense of $ 438,030 for the same period in the prior year.

Net Income

Net income decreased to $ 146,429 for the three month period ended October 31, 2014 compared to net income of $ 784,654 for the same period in the prior fiscal year. Net income decreased to $ 163,239 for the six month period ended October 31, 2014 compared to $ 1,752,121 for the same period in the prior fiscal year. Basic and diluted earnings per share for the second quarter of 2014 were each $ 0.04   compared to basic and diluted earnings per share of $0. 20 and $.019, respectively, for the same pe riod in the prior fiscal year.  Basic and diluted earnings per share for the six month period ended October 31, 2014 were each $ 0.04 compared to basic and diluted earnings per share of $0. 44 and $.043, respectively, for the same pe riod in the prior fiscal year .

Liquidity and Capital Resources:

Operating Activities.

Cash flow used in   operating activities was $ 968,271   for the six months ended October 31, 201 4 , compared to cash flow provided by operating activities of $ 2,262,950 for the same period in the prior fiscal year.  During the first six months of fiscal year 201 5 , cash flow used in operating activit ies was primarily the result of increased inventories of $ 5,359,581, due to a slower demand for product than forecasted and the startup of new customer programs during the period.  Net cash used in operating activities was partially offset by an increase in trade accounts payable of $ 3,325,544, and the result of net income and the non-cash effects of depreciation and amortization.  The increase in accounts payable resulted without any changes to payments to vendors in the ordinary course of business.

Cash flow provided by operating activities was $ 2,262,950 for the six months ended October 31, 2013. During the first six months of fiscal year 2014, cash flow provided by operating activities was primarily the result of net income, the non-cash effects of depreciation and amortization, stock-based compensation expense and a decrease of $541,183 in trade accounts receivable.  Net cash provided by operating activities was partially offset by a decrease in accounts payable.  The decrease in accounts payable of $3,844,814 was due to timing of payments to vendors in the ordinary course of business.

Investing Activities .

During the first six months of fiscal year 2015, the Company purchased approximately $ 2,317,007 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 and potentially expand manufacturing operations in Mexico and China in fiscal year 2015 in the amount of approximately $12,000,000.  The Company anticipates purchases and expansions will be funded by lease transactions, its senior secured credit facility or raising capital from other sources .

During the first six months of fiscal year 2014, the Company purchased $6,344,654 in machinery and equipment to be used in the ordinary course of business.  The Company made additional machinery and equipment purchases of $ 2,021,000 during the balance of fiscal year 2014.

Financing Activities.

Cash provided   by financing activities was $ 118,543 for the six months ended October 31, 201 4.     Cash provided by financing activities was primarily the result of sale leaseback agreements for machinery and equipment.

Cash provided by financing activities was $4,550,793 for the six months ended October 31, 2013.

Cash provided by financing activities was primarily the result of increased borrowings under the credit facility, a sales leaseback transaction for machinery and equipment and obtaining a mortgage of the Company’s facility in Elgin, Illinois.

Financing Summary .

The Company has a senior secured credit facility with Wells Fargo with a credit limit up to $30,000,000 and it had 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.  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 .

On October 31, 2014, the Company and Wells Fargo, N.A. extended the senior secured credit facility to October 31, 2017 .  Pursuant to the agreement, financial covenants were amended, an unused line fee was added, and the borrowing interest rate was changed.  The facility allows the Company to choose among interest rates at which it may borrow funds.  The interest rate is the prime rate ( effectively 3.25% at October 31, 2014) or LIBOR plus two and one quarter percent ( effectively 2.50% at October 31, 2014).  Interest is paid monthly.  Under the senior secured credit facility, the Company may borrow up to the lesser of (i) $30,000,000 or (ii) an amount equal to the sum of 85% of the receivable borrowing base plus a percentage of the inventory borrowing base.  Further, in specific circumstances, the Company is entitled to an over advance of up to $5,000,000; however at no time can the borrowings under the credit facility exceed $30,000,000.  As of October 31, 2014, there was a $22,500,000 outstanding balance and $7,500,000 of unused availability under the credit facility agreement.  At October 31, 2014, the Company was in compliance with its financial covenants.

The Company entered into a mortgage agreement on January 8, 2010, in the amount of $2,500,000, with Wells Fargo , N.A. to refinance the property that serves as the Company’s corporate headquarters and its Illinois manufacturing facility.  The Wells Fargo , N.A. note 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 Company expects to refinance the mortgage prior to January 8, 2015.  The outstanding balance as of October 31 , 201 4 was $2,025,019 .

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 October 31 , 201 4 ,   $ 109,486 and $266,248   was outstanding under the lease finance and sale leaseback agreements, respectively.  The net book value at October 31 , 201 4 of the equipment under the lease finance agreement and sale leaseback agreement was $ 207,978 and $ 516,194 , respectively.

In September 2010, the Company entered into a real estate lease agreement in Union City, CA, to rent 116,993 square feet of manufacturing and office space.  Under the terms of the lease agreement, the Company receives incentives over the life of the lease, which extends through March 2021.  The amount of the deferred rent income recorded for the three and six month periods ended October 31, 2014 was $8,142 and $16,285, respectively. In addition, the landlord provided the Company tenant incentives of $418,000, which are being amortized over the life of the lease.

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 October 31 , 201 4 , the balance outstanding under the capital lease agreement was $ 82,683.  The net book value of the equipment under this lease at October 31, 201 4 was $150,102 .

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 three and six month periods ended October 31, 2014 was $23,295 and $23,295, respectively.

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 Spitfire’s design capabilities which allow s 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 Associated Bank, National Association 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 $2,201,637, 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 October 31, 2014, $ 1,753,478

and $ 63,490 was outstanding under the first and second agreements, respectively.  The net book value at October 31, 2014 of the equipment under each of the two agreements was $ 1,828,245 and $ 64,770 .

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, 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 October 31 , 201 4 was $ 1,224,000 .

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 October  3 1 , 2014, the balance outstanding under the capital lease agreement was $ 534,646 .  The net book value of the equipment under the lease as of October 31, 2014 was $ 548,793 .

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 October 31, 2014, the balance outstanding under the capital lease was $ 101,811 .  The net book value of the equipment under the lease as of October 31, 2014 was $ 104,430 .

On August   1 , 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase equipment in the amount of $ 609 , 179 .  The term of the lease extends to July 2019 with monthly payments of $1 0 , 797 and a fixed interest rate of 5.65%.  At October 31, 2014, the balance outstanding under the capital lease was $ 585,279 .  The net book value of the equipment under the lease as of October 31, 2014 was $592,257.

On September 22, 2014, the Company entered into a sale leaseback agreement with Associated Bank, National Association in the amount of $664,676 to finance equipment purchases.  The term of lease extends to August 2019 with monthly payments of $12,163 and a fixed interest rate of 3. 87 %.  At October 31, 2014, the balance outstanding under the lease was $ 642,455. The net book value of the equipment under the lease as of October 31, 2014 was $ 594,762.

On September 22, 2014, the Company entered into a sale leaseback agreement with Associated Bank, National Association in the amount of $437,641 to finance equipment purchases.  The term of lease extends to August 2019 with monthly payments of $8,008 and a fixed interest rate of 3. 87 %.  At October 31, 2014, the balance outstanding under the lease was $ 423,010. The net book value of the equipment under the lease as of October 31, 2014 was $ 414,103.

On September 22, 2014, the Company entered into a capital lease agreement with Associated Bank, National Association in the amount of $106,346 to finance equipment purchases.  The term of lease extends to August 2019 with monthly payments of $1,947 and a fixed interest rate of 3. 89 %.  At October 31, 2014, the balance outstanding under the lease was $ 102,791. The net book value of the equipment under the lease as of October 31, 2014 was $ 104,131 .

On October 27, 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase equipment in the amount of $501,590.  The term of lease extends to October 2019 with monthly payments of $8,890 and a fixed interest rate of 5 . 65 %.  At October 31, 2014, the balance

outstanding under the lease was $ 501,590. The net book value of the equipment under the lease as of October 31, 2014 was $ 491,359.

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 international 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 six month period ended October 31 , 201 4   resulted in a foreign currenc y   loss of approximately $74,135 compared to a foreign currency loss of approximately $8 8 ,000 for the same period in the prior year .  During the first six months of fiscal year 2015, the Company’s U.S. operations paid approximately $ 25,910,000 to its foreign subsidiaries for services provided.

During the second quarter of fiscal year 2015, the Company received distributions from two of its subsidiaries based in Mexico, Acuna in the amount of $2,041,432 and Tijuana in the amount of $965,394. The U.S. income tax on these distributions of $333,128 was reflected in the Company’s tax provision for the fiscal year ended April 30, 2014.  The distribution from the foreign subsidiaries based in Mexico does not change the Company’s intentions to indefinitely reinvest the income from the Company’s foreign subsidiaries.

During the second quarter of fiscal year 2015, the Company recorded a discrete tax expense of $529,257 related to the inability to realize the tax benefit of a foreign tax credit that was generated in the period.   The Company’s estimate of cumulative taxable income during the foreign tax credit carryforward period are insufficient to support that the tax benefit from the foreign tax credit is more likely than not to be realized.

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 recorded is approximately $1 4 ,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 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.