UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

Form 10-Q

__________________

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2023

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-23248

SIGMATRON INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware	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

Title of each class Common Stock $0.01 par value per share Trading Symbol SGMA Name of each exchange on which registered The NASDAQ Capital Market

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 x No ¨

‎

SigmaTron International, Inc.

October 31, 2023

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files. Yes x No ¨

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

Large Accelerated Filer ¨     Accelerated Filer ¨

Non-accelerated Filer x      Smaller Reporting Company x

Emerging Growth Company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

Indicate the number of shares outstanding of the registrant’s common stock, $0.01 par value, as of December 7, 2023: 6,094,288

2

SigmaTron International, Inc.

Index

PART 1.	FINANCIAL INFORMATION:		Page No.
	Item 1.	Condensed Consolidated Financial Statements
		Condensed Consolidated Balance Sheets – October 31, 2023 (Unaudited) and April 30, 2023	4
		Condensed Consolidated Statements of Operations – (Unaudited)
		Three and SixMonths Ended October 31, 2023 and 2022	6
		Condensed Consolidated Statements of Changes in Stockholders’
		Equity – (Unaudited) Three and Six Months Ended October 31, 2023 and 2022	7
		Condensed Consolidated Statements of Cash Flows – (Unaudited)
		Six Months Ended October 31, 2023 and 2022	8
		Notes to Condensed Consolidated Financial Statements – (Unaudited)	10
	Item 2.	Management’s Discussion and Analysis of Financial Condition and
		Results of Operations	35
	Item 3.	Quantitative and Qualitative Disclosures About Market Risks	53
	Item 4.	Controls and Procedures
PART II	OTHER INFORMATION:
	Item 1.	Legal Proceedings	53
	Item 1A.	Risk Factors	54
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
	Item 3.	Defaults Upon Senior Securities	54
	Item 4.	Mine Safety Disclosures	54
	Item 5.	Other Information	54
	Item 6.	Exhibits	55
		Signatures	56

3

SigmaTron International, Inc.
Condensed Consolidated Balance Sheets
		October 31,
		2023		April 30,
		(Unaudited)		2023
Current assets:
Cash and cash equivalents	$	3,250,026	$	819,129
Accounts receivable, less allowance for credit losses of $28,492
and $100,000 at October 31, 2023 and April 30, 2023, respectively		40,969,178		46,284,818
Inventories, net		146,340,350		165,555,199
Prepaid expenses and other assets		1,639,590		1,678,263
Refundable and prepaid income taxes		769,339		779,705
Other receivables		6,865,075		5,349,328
Total current assets		199,833,558		220,466,442
Property, machinery and equipment, net		35,716,761		35,788,357
Intangible assets, net		1,144,806		1,311,030
Deferred income taxes		2,907,481		2,640,902
Right-of-use assets		5,877,012		7,225,423
Other assets		1,094,741		1,195,045
Total other long-term assets		11,024,040		12,372,400
Total assets	$	246,574,359	$	268,627,199
Liabilities and stockholders' equity:
Current liabilities:
Trade accounts payable	$	70,229,205	$	75,159,716
Accrued wages		7,375,948		7,917,266
Accrued expenses		2,631,646		2,933,430
Income taxes payable		-		1,041,998
Deferred revenue		3,922,253		8,063,197
Current portion of long-term debt		2,610,651		52,761,520
Current portion of finance lease obligations		2,080,442		1,523,259
Current portion of operating lease obligations		2,617,363		2,908,213
Total current liabilities		91,467,508		152,308,599
Long-term debt, less current portion		79,055,775		40,539,180
Income taxes payable		148,888		267,998
Deferred income taxes		-		-
Finance lease obligations, less current portion		3,650,687		2,596,178
Operating lease obligations, less current portion		3,494,314		4,723,867
Other long-term liabilities		103,226		100,350
Total long-term liabilities		86,452,890		48,227,573
Total liabilities		177,920,398		200,536,172

4

SigmaTron International, Inc.
Condensed Consolidated Balance Sheets - Continued
		October 31,
		2023		April 30,
		(Unaudited)		2023
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; 500,000 shares
authorized, none issued or outstanding		-		-
Common stock, $0.01 par value; 12,000,000 shares
authorized, 6,094,288 and 6,091,288 shares issued and
outstanding at October 31, 2023 and April 30, 2023, respectively		60,707		60,634
Capital in excess of par value		42,259,070		41,986,570
Retained earnings		26,334,184		26,043,823
Total stockholders' equity		68,653,961		68,091,027
Total liabilities and stockholders' equity	$	246,574,359	$	268,627,199
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

‎

5

SigmaTron International, Inc.

Condensed Consolidated Statements of Operations

		Three Months		Three Months		Six Months		Six Months
		Ended		Ended		Ended		Ended
		October 31,		October 31,		October 31,		October 31,
		2023		2022		2023		2022
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Net sales	$	98,691,684	$	108,221,067	$	196,822,040	$	213,411,047
Cost of products sold		89,003,929		94,914,988		177,483,065		188,527,748
Gross profit		9,687,755		13,306,079		19,338,975		24,883,299
Selling and administrative expenses		6,613,634		6,506,097		13,456,439		13,035,939
Operating income		3,074,121		6,799,982		5,882,536		11,847,360
Other income		6,503		35,814		25,130		71,630
Interest expense, net		(2,708,696)		(1,976,831)		(5,427,774)		(2,930,389)
Income from continuing operations ‎before income tax expense		371,928		4,858,965		479,892		8,988,601
Income tax expense		(343,666)		(1,743,554)		(189,531)		(2,751,850)
Net income from continuing operations	$	28,262	$	3,115,411	$	290,361	$	6,236,751
Discontinued operations:
Loss before tax from discontinued operations		-		(2,731,126)		-		(4,954,687)
Tax benefit from discontinued operations		-		487,587		-		966,483
Net loss from discontinued operations	$	-	$	(2,243,539)	$	-	$	(3,988,204)
Net income	$	28,262	$	871,872	$	290,361	$	2,248,547
Basic earnings (loss) per common share:
Income (loss) from continuing operations		-		0.51		0.05		1.03
Income (loss) from discontinued operations		-		(0.37)		-		(0.66)
Basic earnings (loss) per common share:	$	-	$	0.14	$	0.05	$	0.37
Diluted earnings (loss) per common share:
Income (loss) from continuing operations		-		0.51		0.05		1.01
Income (loss) from discontinued operations		-		(0.37)		-		(0.65)
Diluted earnings (loss) per common share:	$	-	$	0.14	$	0.05	$	0.36
Weighted average shares of common stock outstanding
Basic		6,091,331		6,071,288		6,092,761		6,065,098
Weighted average shares of common stock outstanding
Diluted		6,190,696		6,145,223		6,166,524		6,159,265
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

6

SigmaTron International, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the six months ended October 31, 2023 (Unaudited)
						Capital in				Total
		Preferred		Common		excess of par		Retained		stockholders’
		stock		stock		value		earnings		equity
Balance at May 1, 2023	$	-	$	60,634	$	41,986,570	$	26,043,823	$	68,091,027
Recognition of stock-based ‎compensation		-		-		184,817		-		184,817
Net income		-		-		-		262,099		262,099
Balance at July 31, 2023	$	-	$	60,634	$	42,171,387	$	26,305,922	$	68,537,943
Recognition of stock-based ‎compensation		-		-		64,938		-		64,938
Exercise of stock options		-		30		9,570		-		9,600
Restricted stock awards		-		43		13,175		-		13,218
Net income		-		-		-		28,262		28,262
Balance at October 31, 2023	$	-	$	60,707	$	42,259,070	$	26,334,184	$	68,653,961

For the six months ended October 31, 2022 (Unaudited)
						Capital in				Total
		Preferred		Common		excess of par		Retained		stockholders’
		stock		stock		value		earnings		equity
Balance at May 1, 2022	$	-	$	60,379	$	41,654,410	$	46,619,208	$	88,333,997
Recognition of stock-based ‎compensation		-		-		94,893		-		94,893
Restricted stock awards		-		55		49,818		-		49,873
Net loss from discontinued ‎operations		-		-		-		(1,744,665)		(1,744,665)
Net income from continuing ‎operations		-		-		-		3,121,340		3,121,340
Balance at July 31, 2022	$	-	$	60,434	$	41,799,121	$	47,995,883	$	89,855,438
Recognition of stock-based ‎compensation		-		-		76,568		-		76,568
Restricted stock awards		-		36		17,769		-		17,805
Net loss from discontinued ‎operations		-		-		-		(2,243,539)		(2,243,539)
Net income from continuing ‎operations		-		-		-		3,115,411		3,115,411
Balance at October 31, 2022	$	-	$	60,470	$	41,893,458	$	48,867,755	$	90,821,683

‎

7

SigmaTron International, Inc.

Condensed Consolidated Statements of Cash Flows

		Six		Six
		Months Ended		Months Ended
		October 31,		October 31,
		2023		2022
		(Unaudited)		(Unaudited)
Cash flows from operating activities
Net income from continuing operations	$	290,361	$	6,236,751
Net loss from discontinued operations		-		(3,988,204)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities from continuing operations:
Depreciation and amortization of property, machinery and equipment		3,000,751		2,889,751
Stock-based compensation		249,755		171,461
Restricted stock expense		13,218		67,678
Provision for credit losses		71,508		-
Deferred income tax expense		(266,579)		194,704
Amortization of intangible assets		166,224		169,876
Amortization of financing fees		350,295		169,482
Loss from disposal or sale of machinery and equipment		43,287		13,673
Changes in operating assets and liabilities
Accounts receivable		5,244,132		(6,352,982)
Inventories		19,214,849		(11,193,619)
Prepaid expenses and other assets		45,478		3,569,825
Refundable and prepaid income taxes		10,366		593,140
Income taxes payable		(1,161,108)		403,956
Trade accounts payable		(4,930,511)		(15,946,950)
Operating lease liabilities		(1,520,403)		(1,667,995)
Accrued expenses and wages		(914,063)		(1,260,991)
Deferred revenue		(4,140,944)		2,026,825
Net cash provided by (used in) operating activities from continuing ‎operations		15,766,616		(19,915,415)
Cash flows from investing activities from continuing operations
Purchases of machinery and equipment		(405,413)		(178,001)
Net cash used in investing activities from continuing operations		(405,413)		(178,001)

8

SigmaTron International, Inc.
Condensed Consolidated Statements of Cash Flows - Continued
		Six		Six
		Months Ended		Months Ended
		October 31,		October 31,
		2023		2022
		(Unaudited)		(Unaudited)
Cash flows from financing activities from continuing operations
Proceeds from the exercise of common stock options		9,600		-
Proceeds under equipment notes		783,461		416,728
Payments under finance lease agreements		(955,337)		(764,377)
Payments under equipment notes		(552,965)		(539,383)
Payments under building notes payable		(24,923)		(6,017,979)
Borrowings under term loan agreement		-		40,000,000
Payments under term loan agreement		(500,000)		(250,000)
Borrowings under revolving line of credit		202,602,581		245,043,994
Payments under revolving line of credit		(213,829,509)		(252,957,625)
Proceeds under PPP loan note payable		-		-
Payments of debt financing costs		(463,214)		(1,487,901)
Net cash (used in) provided by financing activities from continuing ‎operations		(12,930,306)		23,443,457
Cash flows from discontinued operations:
Net cash used in operating activities		-		(3,922,035)
Net cash used in investing activities		-		(93,996)
Net cash used in discontinued operations		-		(4,016,031)
Change in cash and cash equivalents		2,430,897		(665,990)
Cash and cash equivalents at beginning of period		819,129		3,054,643
Cash and cash equivalents at end of period	$	3,250,026	$	2,388,653
Supplementary disclosures of cash flow information
Cash paid for interest	$	5,132,648	$	2,480,985
Cash paid for income taxes		1,600,055		567,282
Purchase of machinery and equipment financed
under finance leases		2,567,029		1,599,456
Right-of-use assets obtained in exchange for operating
lease liabilities		1,531		43,641
Financing of insurance policy		73,837		73,868
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

9

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note A - Description of the Business

SigmaTron International, Inc., its subsidiaries, foreign enterprises and international procurement office (collectively, the “Company”) operates as an independent provider of electronic manufacturing services (“EMS”). The EMS Segment includes printed circuit board assemblies, electro-mechanical subassemblies and completely assembled (box-build) electronic products. In connection with the production of assembled products, the EMS Segment 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; (6) assistance in obtaining product approval from governmental and other regulatory bodies and (7) compliance reporting. Until the sale described below, effective April 1, 2023, the Company, through its subsidiary, Wagz, Inc. (“Wagz”), operated in a second reportable segment, as a provider of products to the pet technology (“Pet Tech”) market. The Pet Tech reportable segment offered electronic products such as the Freedom Smart Dog Collar™, a wireless geo-mapped fence and wellness system, along with apparel and accessories.

During the fourth quarter of fiscal 2023, the Company exited its active involvement in the Pet Tech business conducted by Wagz through the sale by the Company of the majority ownership interest in Wagz, effective as of April 1, 2023. The Company entered into a Stock Purchase Agreement (“SPA”) by and among the Company, Wagz, Vynetic LLC, a Delaware limited liability company (“Buyer”), and Terry B. Anderton, co-founder of Wagz and principal of Buyer (“Anderton”), pursuant to which the Company sold to Buyer 81% of the issued and outstanding shares of common stock of Wagz for the purchase price of one dollar. Under the SPA, the Company also agreed to provide a $900,000 working capital term loan (the “Wagz Loan”) to Wagz during the month of April 2023. The Company agreed to work with Wagz as an EMS provider pursuant to a manufacturing agreement, but the Company did not commit to extending any further financial support beyond the Wagz Loan. On April 28, 2023, the sale of the majority ownership interest in Wagz pursuant to the SPA was consummated effective as of April 1, 2023, and as a result, as of the closing, the Company holds a minority 19% ownership of Wagz common stock and Buyer holds a majority 81% of Wagz common stock. However, the Company determined that due to financial uncertainty of Wagz after the Company’s sale, the Wagz Loan was uncollectable and the 19% ownership interest was fully reserved, in each case as of April 30, 2023.

Note B - Basis of Presentation

The accompanying unaudited condensed consolidated financial statements 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., and Spitfire Controls (Cayman) Co. Ltd., wholly-owned foreign enterprises Wujiang SigmaTron Electronics Co. Ltd., and Wujiang SigmaTron Electronic Technology Co., Ltd., its international procurement office, SigmaTron International Inc. Taiwan Branch, and Wagz, Inc. (19% ownership, effective as of April 1, 2023), 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 8 of Regulation S-X.

The accompanying unaudited condensed 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

10

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note B - Basis of Presentation - Continued

of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended October 31, 2023 are not necessarily indicative of the results that may be expected for the year ending April 30, 2024. The condensed consolidated balance sheet at April 30, 2023, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. For further information, refer to the condensed consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2023.

On April 1, 2023, SigmaTron completed the sale of the majority ownership interest in the Wagz, Inc. business. In accordance with the authoritative guidance for discontinued operations (Accounting Standards Codification (ASC) 205-20), the Company determined that the Wagz business met discontinued operations accounting criteria at the end of the fourth quarter of fiscal year 2023. The results of the Wagz business and the related cash flows have been reported as discontinued operations in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows, respectively, through the date of sale. These changes have been applied to all periods presented. See Note M - Discontinued Operations, for additional information.

Note C - Inventories, net

The components of inventory consist of the following:

	October 31,		April 30,
	2023		2023
Finished products	$	19,162,777	$	22,093,018
Work-in-process		4,709,050		5,415,917
Raw materials		122,468,523		138,046,264
	$	146,340,350	$	165,555,199

11

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note D - Earnings Per Share and Stockholders’ Equity

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

	Three Months Ended				Six Months Ended
		October 31,		October 31,		October 31,		October 31,
	2023		2022		2023		2022
Net income from continuing operations	$	28,262	$	3,115,411	$	290,361	$	6,236,751
Net loss from discontinued operations		-		(2,243,539)		-		(3,988,204)
Total net income		28,262		871,872		290,361		2,248,547
Weighted-average shares
Basic		6,091,331		6,071,288		6,092,761		6,065,098
Effect of dilutive stock options		99,365		73,935		73,763		94,167
Diluted		6,190,696		6,145,223		6,166,524		6,159,265
Basic (loss) earnings per common share
Basic earnings per share from continuing operations		-		0.51		0.05		1.03
Basic loss per share from discontinued operations		-		(0.37)		-		(0.66)
Basic total earnings per share	$	-	$	0.14	$	0.05	$	0.37
Diluted (loss) earnings per common share
Diluted earnings per share from continuing operations		-		0.51		0.05		1.01
Diluted loss per share from discontinued operations		-		(0.37)		-		(0.65)
Diluted total earnings per share	$	-	$	0.14	$	0.05	$	0.36

Options to purchase 596,081 and 508,519 shares of common stock were outstanding and exercisable at October 31, 2023 and 2022, respectively. There were no options granted during the three month period ended October 31, 2023 and October 31, 2022, respectively, and there were 177,000 options granted during the six month period ended October 31, 2023 and no options granted during the six month period ended October 31, 2022. There was $64,938 and $76,568 stock option expense recognized for the three month periods ended October 31, 2023 and 2022, respectively. There was $249,755 and $171,461 stock option expense recognized for the six month periods ended October 31, 2023 and 2022, respectively. The balance of unrecognized compensation expense related to the Company’s stock option plans at October 31, 2023 and 2022 was $487,120 and $848,916, respectively. There were 178,000 anti-dilutive common stock equivalents and 4,798 anti-dilutive common stock equivalents for the three month periods ended October 31, 2023 and 2022, respectively, which have been excluded from the calculation of diluted earnings per share. There were 260,886 anti-dilutive common stock equivalents and 6,251 anti-dilutive common stock equivalents for the six month periods ended October 31, 2023 and 2022, respectively, which have been excluded from the calculation of diluted earnings per share.

12

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note E - Long-term Debt

Debt and finance lease obligations consisted of the following at October 31, 2023 and April 30, 2023:

		October 31,		April 30,
		2023		2023
Debt:
Notes Payable - Secured lenders	$	79,241,072	$	90,968,000
Notes Payable - Buildings		392,220		417,143
Notes Payable - Equipment		3,754,611		3,524,115
Unamortized deferred financing costs		(1,721,477)		(1,608,558)
Total debt		81,666,426		93,300,700
Less current maturities*		2,610,651		52,761,520
Long-term debt	$	79,055,775	$	40,539,180
Finance lease obligations	$	5,731,129	$	4,119,437
Less current maturities		2,080,442		1,523,259
Total finance lease obligations, less current portion	$	3,650,687	$	2,596,178

* Due to availability being less than 10% of the Revolving Commitment, the Facility (as defined below) was classified as a current liability on the Consolidated Balance Sheet at April 30, 2023.

Notes Payable – Secured lenders

On January 29, 2021, the Company entered into a Credit Agreement (the “JPM Agreement”) with JPMorgan Chase Bank, N.A. (“Lender” or “JPM”), pursuant to which Lender provided the Company with a secured credit facility consisting of a revolving loan facility and a term loan facility (collectively, the “Facility”).

On July 18, 2022, SigmaTron, Wagz and Lender amended and restated the JPM Agreement by entering into an Amended and Restated Credit Agreement (as so amended and restated, the “JPM Credit Agreement”). Wagz and its property were released from the JPM Credit Agreement, effective April 1, 2023, pursuant to the JPM Waiver (as defined below) effective as of April 1, 2023. The Facility, as amended, allows the Company to borrow on a revolving basis up to the lesser of (i) $70,000,000 or (ii) an amount equal to a percentage of the eligible receivable borrowing base plus a percentage of the inventory borrowing base minus any reserves established by Lender (the “Revolving Commitment”). The maturity date of the Facility is July 18, 2027. Deferred financing costs of $177,119 and $332,139 were capitalized during the six month period ended October 31, 2023 and during the fiscal year ended April 30, 2023, respectively, which are amortized over the term of the JPM Credit Agreement. As of October 31, 2023, there was $39,907,771 outstanding and $13,403,925 of unused availability under the revolving loan facility compared to an outstanding balance of $51,134,699 and $11,539,183 of unused availability at April 30, 2023. As of October 31, 2023 and April 30, 2023, the unamortized amount offset against outstanding debt was $659,532 and $572,191, respectively.

13

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note E - Long-term Debt - Continued

Under the JPM Credit Agreement, a minimum Fixed Charge Coverage Ratio (“FCCR”) financial covenant of 1.10x is applicable only during an FCCR trigger period which occurs when (a) commencing on the Effective Date (as defined in the JPM Credit Agreement) and ending when the Term Loan Obligations (as defined in the JPM Credit Agreement) have been paid in full and (b) following the payment in full of the Term Loan Obligations, (i) an event of default (as defined in the JPM Credit Agreement) has occurred and is continuing, and Lender has elected to impose a FCCR trigger period upon notice to the Company or (ii) availability falls below the greater of (y) 10% of the Revolving Commitment and (z) the outstanding principal amount of the term loans. In addition, prior to the amendment to the JPM Credit Agreement pursuant to the JPM Waiver (as discussed below under “Waiver, Consent and Amendment to Credit Agreements”), the JPM Credit Agreement imposed a financial covenant that required the Company to maintain a leverage ratio of Total Debt to EBITDA (each as defined in the JPM Credit Agreement) for any twelve month period ending on the last day of a fiscal quarter through the maturity of the revolving Facility not to exceed a certain amount, which ratio (a) ranged from 5.00-to-1 for fiscal quarters beginning with the fiscal quarter ending on January 31, 2023 to 3.00-to-1 for the fiscal quarter ending on July 31, 2026 (if the Term Loan Borrowing Base Coverage Ratio (as defined in the JPM Credit Agreement) as of the end of the applicable fiscal quarter is less than or equal to 1.50-to-1) and (b) ranged from 5.50-to-1 for the fiscal quarter ending on January 31, 2023 to 4.00-to-1 for the fiscal quarters beginning with the fiscal quarter ending on July 31, 2026 (if the Term Loan Borrowing Base Coverage Ratio as of the end of the applicable fiscal quarter is greater than 1.50-to-1).

In addition, the JPM Credit Agreement imposes a cash dominion period if there is an event of default or if availability is less than 10% of the Revolving Commitment, and such requirement continues until there is no event of default and availability is greater than 10% of the Revolving Commitment, in each case for 30 consecutive days. Based on this criteria, the total debt balances for the Facility were required to be classified as a current liability on the Consolidated Balance Sheet at April 30, 2023.

In connection with the entry into the JPM Credit Agreement, Lender and TCW Asset Management Company LLC, as administrative agent under the Term Loan Agreement (as defined below), entered into the Intercreditor Agreement, dated July 18, 2022, and acknowledged by SigmaTron and Wagz (the “ICA”), to set forth and govern the lenders’ respective lien priorities, rights and remedies under the JPM Credit Agreement and the Term Loan Agreement.

The Facility under the JPM Credit Agreement is secured by: (a) a first priority security interest in SigmaTron’s (i) accounts receivable and inventory (excluding Term Priority Mexican Inventory (as defined in the ICA) and certain inventory in transit, (ii) deposit accounts, (iii) proceeds of business interruption insurance that constitute ABL BI Insurance Share (as defined in the ICA), (iv) certain other property, including payment intangibles, instruments, equipment, software and hardware and similar systems, books and records, to the extent related to the foregoing, and (v) all proceeds of the foregoing, in each case, now owned or hereafter acquired (collectively, the “ABL Priority Collateral”); and (b) a second priority security interest in Term Priority Collateral (as defined below) other than (i) real estate and (ii) the equity interests of SigmaTron’s foreign subsidiaries (unless such a pledge is requested by Lender).

14

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note E - Long-term Debt - Continued

On July 18, 2022, SigmaTron, Wagz and TCW Asset Management Company LLC, as administrative agent (the “Agent”), and other Lenders party thereto (collectively, the “TCW Lenders” and together with the Agent, “TCW”) entered into a Credit Agreement (the “Term Loan Agreement”) pursuant to which TCW made a term loan to the Company in the principal amount of $40,000,000 (the “TCW Term Loan”). Wagz and its property were released from the Term Loan Agreement, effective April 1, 2023, pursuant to the TCW Waiver (as defined below) effective as of April 1, 2023. The TCW Term Loan bears interest at a rate per annum based on SOFR, plus the Applicable Margin of 7.50% (each as defined in the Term Loan Agreement). The TCW Term Loan has a SOFR floor of 1.00%. The maturity date of the TCW Term Loan is July 18, 2027. The amount outstanding as of October 31, 2023, was $39,333,301 compared to an outstanding balance of $39,833,301 at April 30, 2023. Deferred financing costs of $163,179 and $1,233,894 were capitalized during the six month period ended October 31, 2023 and fiscal year ended April 30, 2023, respectively. As of October 31, 2023 and April 30, 2023, the unamortized amount offset against outstanding debt was $1,061,945 and $1,036,367, respectively.

The Term Loan Agreement imposes financial covenants, including covenants requiring the Company to maintain a minimum Fixed Charge Coverage Ratio (as defined in the Term Loan Agreement) of 1.10-to-1 and maintain the same leverage ratio of Total Debt to EBITDA as described above under the JPM Credit Agreement. The Company is required to make quarterly repayments of the principal amount of the TCW Term Loan in amounts equal to $250,000 per fiscal quarter for the quarters beginning October 31, 2022 and $500,000 per fiscal quarter for quarters beginning October 31, 2024. The Term Loan Agreement also requires mandatory annual repayments equal to 50% of Excess Cash Flow (as defined in the Term Loan Agreement).

The TCW Term Loan is secured by: (a) a first priority security interest in all property of SigmaTron that does not constitute ABL Priority Collateral, which includes: (i) SigmaTron’s real estate other than SigmaTron’s Del Rio, Texas, warehouses, (ii) SigmaTron’s machinery, equipment and fixtures (but excluding ABL Priority Equipment (as defined in the ICA)), (iii) the Term Priority Mexican Inventory (as defined in the ICA), (iv) SigmaTron’s stock in its direct and indirect subsidiaries, (v) SigmaTron’s general intangibles (excluding any that constitute ABL Priority Collateral), goodwill and intellectual property, (vi) the proceeds of business interruption insurance that constitute Term BI Insurance Share (as defined in the ICA), (vii) tax refunds, and (viii) all proceeds thereof, in each case, now owned or hereafter acquired (collectively, the “Term Priority Collateral”); and (b) a second priority security interest in all collateral that constitutes ABL Priority Collateral. Also, SigmaTron’s three Mexican subsidiaries pledged all of their assets as security for the TCW Term Loan.

15

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note E - Long-term Debt - Continued

Waiver, Consent and Amendment to Credit Agreements

On March 2, 2023, the Company received notices of default from both JPM and TCW. The Notices indicated the occurrence of certain events of default under the JPM Credit Agreement and the Term Loan Agreement (together with the JPM Credit Agreement the “Credit Agreements”). In addition, the Company received a delinquency notification letter from Nasdaq indicating that the Company was not in compliance with the continued listing requirements of Nasdaq for failing to timely file the Company’s Form 10-Q for the fiscal quarter ended January 31, 2023. This notification also constituted a default under the Credit Agreements. The Nasdaq delinquency was remedied on May 19, 2023.

The JPM Notice indicated that the Lender was informed of the occurrence of events of defaults and the continuation thereof under the JPM Credit Agreement as a result of the Company’s failure to maintain a FCCR for the twelve month period ended January 31, 2023 of at least 1.10x as required under the JPM Credit Agreement (the “JPM Covenant Defaults”).

The TCW Notice indicated that Agent and TCW Lenders were informed of the occurrence of events of default and the continuation thereof under the Term Loan Agreement (described below) as a result of the Company permitting the Total Debt to EBITDA Ratio for the twelve month period ended on January 31, 2023 to be greater than 5.00:1.00 in violation of the Term Loan Agreement and the Company’s failure to maintain FCCR as required under the JPM Credit Agreement (the “TCW Covenant Defaults” and together with the JPM Covenant Defaults, the “Defaults”).

As a result of the Defaults, the Company was not in compliance with its financial covenants under the Credit Agreements as of January 31, 2023. Due to the Notices received on March 2, 2023, from each of JPM and TCW, the total debt balances for both the Facility and the TCW Term Loan had been classified as a current liability on the Condensed Consolidated Balance Sheet as of January 31, 2023.

On April 28, 2023, the Company entered into (i) a Waiver, Consent and Amendment No. 1 to the JPM Credit Agreement (“JPM Waiver”) with Wagz and JPM, as lender, which waived certain events of default under and amended certain terms of the JPM Credit Agreement and (ii) a Waiver, Consent and Amendment No. 1 to the Credit Agreement (“TCW Waiver” and together with the JPM Waiver, the “Waivers”) with Wagz and TCW (collectively with JPM, the “Lender Parties”), which waived certain events of default under and amended certain terms of the Term Loan Agreement. The Company was in compliance with its revised financial covenants under the Credit Agreements as of October 31, 2023.

Pursuant to the Waivers, the Company has agreed, among other things, to (i) if requested by the Agent, effect a corporate restructuring that would create a new holding company structure to own all of the Company’s stock through a merger pursuant to Section 251(g) of the General Corporation Law of the State of Delaware, after which the holding company would continue as the public company,

16

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note E - Long-term Debt - Continued

become a guarantor under the Credit Agreements and pledge to the Lender Parties all of the equity of the Company (the “Corporate Restructuring”), (ii) engage a financial advisor to review certain of the Company’s financial reporting to JPM and the Agent and participate in weekly conference calls with the advisor, JPM and the Agent to discuss and provide updates on the Company’s liquidity and operations, (iii) extend the Wagz Loan, (iv) pay to JPM an amendment fee in the amount of $70,000, paid in cash, and (v) pay to the TCW Lenders an amendment fee of $395,000 and a default rate fee of $188,301, both of which were paid in kind by being added to the principal of the TCW Term Loan. The Company engaged a financial advisor in April 2023 and developed cashflow modeling tools. The financial advisor engagement was completed in September 2023.

The Waivers also amended the Credit Agreements to, among other things, (x) require that the Company maintain a minimum of $2.5 million in revolver availability under the JPM Credit Agreement, (y) modify the definition of EBITDA to allow adjustments to account for Wagz operating losses, impairment charges relating to the write-down of the Wagz business, the Wagz Loan and net assets of the Company and Wagz, and expenses relating to the Waivers, the Company’s sale of the majority ownership interest in Wagz under the SPA, and (z) modify the existing Total Debt to EBITDA Ratios (as defined in the Credit Agreements) as follows:

Fiscal Quarter	Total Debt to EBITDA Ratio* (as amended)	Total Debt to EBITDA Ratio* (prior to amendment)
October 31,2023	4.50:1.0	4.25:1.0
January 31, 2024	4.50:1.0	4.00:1.0
April 30, 2024	4.50:1.0	4.00:1.0
July 31, 2024	4.25:1.0	3.75:1.0
October 31, 2024	4.00:1.0	3.75:1.0

* Assumes the Term Loan Borrowing Base Coverage Ratio (as defined in the Term Loan Agreement) is less than or equal to 1.50:1.0.

The Company was in compliance with its revised financial covenants under the Credit Agreements as of October 31, 2023.

In addition, during the PIK Period (defined in the Term Loan Agreement), pursuant to the TCW Waiver, if the Total Debt to EBITDA Ratio for the trailing twelve month period as of the end of a third fiscal quarter exceeds the ratios that were in effect prior to the amendment (as set forth in the far right column of the table above) for that fiscal quarter, then the Applicable Margin under the Term Loan Agreement in respect of the outstanding TCW Term Loan would increase by an amount equal to 1.0% per annum for the fiscal quarter, with such interest being paid in kind. Furthermore, the JPM Waiver modified the definition of Applicable Margin from a fixed amount equal to 2.00% to an amount that varies from 2.00% (for revolver availability greater than or equal to $20.0 million), to 2.50% (for revolver availability greater than or equal to $10.0 million), to 3.00% (for revolver availability less than $10.0 million), and fixed the Applicable Margin at 3.00% for six months starting April 1, 2023.

17

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note E - Long-term Debt - Continued

In exchange for such agreements, the Lender Parties waived all of the existing events of default under the Credit Agreements through March 31, 2023, consented to the sale of the majority ownership interest in Wagz and released Wagz and its property and the Company’s 81% ownership interest in Wagz that was sold to Buyer from the lien of the Lender Parties.

In connection with the Waivers, the Company exited its active involvement in the Pet Tech business that is conducted by Wagz through the sale by the Company of the majority ownership interest in Wagz, effective as of April 1, 2023.

On June 15, 2023, the Company entered into (i) Amendment No. 2 to the Credit Agreement (the “JPM Amendment No. 2”) by and among the Company and Lender, with respect to the JPM Credit Agreement and (ii) Amendment No. 2 to the Credit Agreement (“TCW Amendment No. 2”) by and among the Company and TCW with respect to the Term Loan Agreement. The JPM Amendment No. 2 and TCW Amendment No. 2 (together, the “Amendments”) amended the Credit Agreements to extend the date, from May 31, 2023 to July 31, 2023, after which the Agent may request that the Company effect the Corporate Restructuring.

On March 15, 2019, the Company’s wholly-owned foreign enterprise, Wujiang SigmaTron Electronic Technology Co., Ltd., entered into a credit facility with China Construction Bank. On January 26, 2021, the agreement was amended and expired in accordance with its terms on January 6, 2022. On January 17, 2022, the agreement was renewed, and expired in accordance with its terms on December 23, 2022. On February 17, 2023, the agreement was renewed, and is scheduled to expire on February 7, 2024. Under the agreement Wujiang SigmaTron Electronic Technology Co., Ltd. can borrow up to 10,000,000 Renminbi, approximately $1,400,000 as of October 31, 2023, and the facility is collateralized by Wujiang SigmaTron Electronics Co., Ltd.’s manufacturing building. Interest is payable monthly and the facility bears a fixed interest rate of 3.35% per annum. There was no outstanding balance under the facility at October 31, 2023 and April 30, 2023.

Notes Payable – Buildings

The Company entered into a mortgage agreement on March 3, 2020, in the amount of $556,000, with The Bank and Trust SSB to finance the purchase of the property that serves as the Company’s warehousing and distribution center in Del Rio, Texas. The note requires the Company to pay monthly installment payments in the amount of $6,103. Interest accrues at a fixed rate of 5.75% per year until March 3, 2025, and adjusts thereafter, on an annual basis, equal to 1.0% over the Prime Rate as published by The Wall Street Journal. The note is payable over a 120 month period. The outstanding balance was $392,220 and $417,143 at October 31, 2023 and April 30, 2023, respectively.

18

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note E - Long-term Debt - Continued

Notes Payable – Equipment

The Company routinely entered into secured note agreements with Engencap Fin S.A. DE C.V. to finance the purchase of equipment. The terms of the outstanding secured note agreement, which had a fixed interest rate of 8.00% per annum, matured on May 1, 2023, and the final quarterly installment payment of $9,310 was paid.

The Company routinely enters into secured note agreements with FGI Equipment Finance LLC to finance the purchase of equipment. The terms of the outstanding secured note agreements mature from March 2025 through August 2028, with quarterly installment payments ranging from $10,723 to $69,439 and a fixed interest rate ranging from 8.25% to 11.75% per annum.

Annual maturities of the Company’s debt, net of deferred financing fees for the remaining periods, as of October 31, 2023, are as follows:

		Secured lenders		Building		Equipment		Total
For the remaining 6 months of the fiscal year ending April 30:	2024	$	355,189	$	25,648	$	626,229	$	1,007,066
For the fiscal years ending April 30:	2025		1,444,289		53,557		1,335,735		2,833,581
	2026		1,694,289		56,719		987,526		2,738,534
	2027		1,694,287		60,068		454,913		2,209,268
	2028		72,331,541		63,614		249,932		72,645,087
	2029		-		132,614		100,276		232,890
		$	77,519,595	$	392,220	$	3,754,611	$	81,666,426

Finance Lease Obligations

The Company enters into various finance lease agreements. The terms of the outstanding lease agreements mature through September 1, 2027, with monthly installment payments ranging from $2,874 to $33,706 and a fixed interest rate ranging from 7.09% to 12.73% per annum.

19

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note F - Income Tax

The income tax expense was $343,666 for the three month period ended October 31, 2023 compared to an income tax expense of $1,743,554 for the same period in the prior fiscal year. The Company’s effective tax rate was 92.40% and 35.88% for the quarters ended October 31, 2023 and 2022, respectively. The decrease in income tax expense for the three month period ended October 31, 2023 compared to the same period in the previous year is due to decreased taxable earnings in the current quarter compared to the same period in the previous year. The increase in effective tax rate is due to variations in income earned by jurisdiction and as compared to the previous quarter in the current fiscal year.

The income tax expense was $189,531 for the six month period ended October 31, 2023 compared to an income tax expense of $2,751,850 for the same period in the prior fiscal year. The Company’s effective tax rate was 39.49% and 30.61% for the six month period ended October 31, 2023 and 2022, respectively. The decrease in income tax expense for the six month period ended October 31, 2023 compared to the same period in the previous year is due to decreased taxable earnings in the current year compared to the previous year. The increase in effective tax rate for the six month period ended October 31, 2023 is due primarily to variations in income earned by jurisdiction.

SigmaTron and Wagz filed or are expected to file U.S. tax returns on a consolidated basis for periods during which Wagz was wholly owned. Therefore, a valuation allowance was established on the group’s U.S. deferred tax assets during fiscal year 2022. After the sale of the majority ownership interest in Wagz, SigmaTron expects to file on a standalone basis and utilize its U.S. deferred tax assets with the exception of the capital loss on sale, its investment in subsidiary, and certain foreign tax credits. The Company has established a valuation allowance of $7,215,769 on its U.S. capital loss, its investment in subsidiary, and foreign tax credit carryforwards. The Company has also established a valuation allowance of $439,511 on NOLs attributable to its Vietnam subsidiary as of October 31, 2023. Based on historical losses and forecasted future earnings, the Company has determined that the tax benefit from such assets are more likely than not to be realized. The Company’s valuation allowance was $7,655,280 and $7,703,517 as of October 31, 2023 and April 30, 2023, respectively.

The Company has not changed its plans to indefinitely reinvest the earnings of the Company’s foreign subsidiaries. The cumulative amount of unremitted earnings for which U.S. income taxes have not been recorded is $14,561,000 as of October 31, 2023.

Note G - Commitments and Contingencies

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, results of operations or cash flows.

20

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note H - Significant Accounting Policies

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

The potential impact of future disruptions and continued economic uncertainty over public health crises, including COVID-19 and variants, and the global supply chain may have a significant adverse impact on the timing of delivery of customer orders and the levels of future customer orders. It is possible that these potential adverse impacts may result in the recognition of material impairments of the Company’s long-lived assets or other related charges in future periods.

Accounts Receivable - Accounts receivable is presented net of allowance for credit losses of $28,492 and $100,000 as of October 31, 2023 and April 30, 2023, respectively. The Company believes that its allowance for credit losses is adequate and represents its best estimate as of October 31, 2023. The Company continues to closely monitor customer liquidity along with industry and economic conditions, which may result in changes to its estimate.

The following table presents the Company’s accounts receivable balance at the end of each period indicated:

	October 31,		April 30,		April 30,
	2023		2023		2022
Accounts receivable	$	40,997,670	$	46,384,818	$	40,911,280
Less allowance for credit losses		(28,492)		(100,000)		(100,000)
	$	40,969,178	$	46,284,818	$	40,811,280

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

	Three Months Ended					Six Months Ended
		October 31,		October 31,		October 31,		October 31,
Net trade sales by end-market		2023		2022		2023		2022
Industrial Electronics	$	69,366,781	$	70,679,415	$	137,242,311	$	141,008,904
Consumer Electronics		22,090,863		31,572,914		44,748,749		60,088,242
Medical / Life Sciences		7,234,040		5,968,738		14,830,980		12,313,901
Total Net Trade Sales	$	98,691,684	$	108,221,067	$	196,822,040	$	213,411,047

21

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note H - Significant Accounting Policies - Continued

During the three and six month periods ended October 31, 2023, no material revenues were recognized from performance obligations satisfied or partially satisfied in previous periods and no amounts were allocated to performance obligations that remain unsatisfied or partially unsatisfied at October 31, 2023. The Company is electing not to disclose the amount of the remaining unsatisfied performance obligations with a duration of one year or less. The Company had no material remaining unsatisfied performance obligations as of October 31, 2023, with an expected duration of greater than one year.

Contract liabilities consist of payments received in advance of the transfer of control to the customer. As products are delivered and control transfers, the Company recognizes the deferred revenue in net sales in the Consolidated Statements of Operations. The following table summarizes the deferred revenue associated with payments received in advance of the transfer of control to the customer reported as deferred revenue in the Consolidated Balance Sheets and amounts recognized through net sales for each period presented.

	Six Months Ended
		October 31,		October 31,
		2023		2022
Contract liability (deferred revenue) beginning of period	$	8,063,197	$	11,394,820
Deferred revenue recognized in period		(8,387,288)		(26,822,970)
Revenue deferred in period		4,246,344		28,849,795
Deferred revenue end of period	$	3,922,253	$	13,421,645

Income Tax - The Company’s income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management’s best assessment of estimated future taxes to be paid. The Company is subject to income taxes in both the U.S. and several foreign jurisdictions. Significant judgments and estimates by management are required in determining the consolidated income tax expense assessment.

Deferred income tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. In evaluating the Company’s ability to recover its deferred tax assets within the jurisdiction from which they arise, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, the Company begins with historical results and changes in accounting policies, and incorporates assumptions including the amount of future state, federal and foreign pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment and estimates by management about the forecasts of future taxable income and are consistent with the plans and estimates the Company uses to manage the underlying businesses. In evaluating the objective evidence that historical results provide, the Company considers three years of cumulative operating income and/or loss. Valuation allowances are established when necessary to reduce deferred income tax assets to an amount more likely than not to be realized. SigmaTron and Wagz filed or are expected to file U.S. tax returns on a consolidated basis for periods during which Wagz was wholly

22

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note H - Significant Accounting Policies - Continued

owned. Therefore, a valuation allowance was established on the group’s U.S. deferred tax assets during fiscal year 2022. After the sale of Wagz, SigmaTron expects to file on a standalone basis and utilize its U.S. deferred tax assets with the exception of the capital loss on sale and certain foreign tax credits. The Company has established a valuation allowance of $7,215,769 on its U.S. capital loss, its investment in subsidiary, and foreign tax credit carryforwards and a valuation allowance of $439,511 on certain foreign loss carryforwards as of October 31, 2023.

Impairment of Long-Lived Assets - The Company reviews long-lived assets, including amortizable intangible assets, for impairment in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360: Property, Plant and Equipment. Property, machinery and equipment and finite life intangible assets are reviewed whenever events or changes in circumstances occur that indicate possible impairment. If events or changes in circumstances occur that indicate possible impairment, the Company first performs an impairment review based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely independent of other groups of its assets and liabilities. This analysis requires management judgment with respect to changes in technology, the continued success of product lines, and future volume, revenue and expense growth rates. If the carrying value exceeds the undiscounted cash flows, the Company records an impairment, if any, for the difference between the estimated fair value of the asset group and its carrying value. The Company further conducts annual reviews of its long-lived asset groups for possible impairment.

Goodwill - Goodwill represents the excess cost over fair value of the net assets of acquired businesses. The Company does not amortize goodwill and intangible assets that have indefinite lives. The Company performs an impairment assessment of goodwill and intangible assets with indefinite lives annually, or more frequently if triggering events occur, based on the estimated fair value of the related reporting unit or intangible asset. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. When performing its annual impairment assessment as of April 30, the Company evaluates the goodwill assigned to each of its reporting units for potential impairment by comparing the estimated fair value of the relevant reporting unit to the carrying value. The Company uses various Level 2 and Level 3 valuation techniques to determine the fair value of its reporting units, including discounting estimated future cash flows based on a cash flow forecast prepared by the relevant reporting unit and market multiples of relevant public companies. If the fair value of a reporting unit is less than its carrying value, a goodwill impairment loss is recorded for the difference.

23

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note H – Significant Accounting Policies – Continued

New Accounting Standards:

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13, as amended by ASU 2019-04 and ASU 2019-05, that introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. For smaller reporting companies, ASU 2016- 13 is effective for annual and interim reporting periods beginning after December 15, 2022, and the guidance is to be applied using the modified-retrospective approach. Earlier adoption is permitted. The Company adopted this ASU in the first quarter ended July 31, 2023 and it had no material impact on the consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides optional expedients and exceptions for a period of time to ease the potential burden in accounting for the transition from reference rates that are expected to be discontinued. Regulators and market participants in various jurisdictions have undertaken efforts to eliminate certain reference rates and introduce new reference rates that are based on a larger and more liquid population of observable transactions. The amendments in this update apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. In January 2021, the FASB issued clarification on the scope of relief related to the reference rate reform. In December 2022, the FASB extended the period of time entities can use the reference rate reform relief guidance by two years which defers the sunset date from December 31, 2022 to December 31, 2024. The Company adopted this ASU in fiscal 2023 and it had no impact on its consolidated financial statements.

24

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note I – Leases

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

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

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

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

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

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

25

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note I – Leases – Continued

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

			October 31,		April 30,
	Classification		2023		2023
Operating Leases:
Right-of-use Assets	Right-of-use assets	$	5,877,012	$	7,225,423
Operating lease current ‎liabilities	Current portion of operating lease ‎obligations		2,617,363		2,908,213
Operating lease noncurrent ‎liabilities	Operating lease obligations, less ‎current portion		3,494,314		4,723,867
Finance Leases:
Right-of-use Assets	Property, machinery and equipment		6,646,169		5,294,097
Finance lease current ‎liabilities	Current portion of finance lease ‎obligations		2,080,442		1,523,259
Finance lease noncurrent ‎liabilities	Finance lease obligations, less ‎current portion		3,650,687		2,596,178

The components of lease expense for the three and six month periods ended October 31, 2023 and 2022, are as follows:

		Three Months	Three Months	Six Months	Six Months
		Ended	Ended	Ended	Ended
	Expense	October 31,	October 31,	October 31,	October 31,
	Classification	2023	2022	2023	2022
Operating Leases:
Operating lease cost	Operating	896,963	629,094	1,792,432	1,252,905
Variable lease cost	Operating	56,209	54,816	112,418	109,631
Short term lease cost	Operating	2,250	2,250	4,500	4,500
Finance Leases:
Amortization of ‎right-of-use assets	Operating	693,341	658,149	1,334,188	1,229,252
Interest expense	Interest	134,753	122,219	254,439	185,833
Total		1,783,516	1,466,528	3,497,977	2,782,121

26

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note I – Leases – Continued

The weighted average lease term and discount rates for the quarters ended October 31, 2023 and 2022, are as follows:

	October 31,	October 31,
	2023	2022
Operating Leases:
Weighted average remaining lease term (months)	32.00	41.19
Weighted average discount rate	3.4%	3.2%
Finance Leases:
Weighted average remaining lease term (months)	32.85	36
Weighted average discount rate	9.8%	9.7%

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

		Operating Leases		Finance Leases
For the remaining 6 months of the fiscal year ending April 30:
2024	$	1,638,248	$	1,275,605
For the fiscal years ending April 30:
2025		2,281,890		2,451,692
2026		1,790,446		1,784,423
2027		343,006		954,478
2028		144,382		174,281
2029		75,870		-
Thereafter		57,848		-
Total undiscounted lease payments		6,331,690		6,640,479
Present value discount, less interest		220,013		909,350
Lease liability	$	6,111,677	$	5,731,129

27

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note I – Leases – Continued

Supplemental disclosures of cash flow information related to leases for the six months ended October 31, 2023 and 2022 are as follows:

	Six Months Ended
	October 31,	October 31,
Other Information	2023	2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	134,753	185,833
Operating cash flows from operating leases	119,065	166,664
Financing cash flows from finance leases	955,337	764,377
Supplemental non-cash information on lease liabilities arising from ‎obtaining right-of-use assets:
Right-of-use assets obtained in exchange for ‎new finance lease liabilities	2,567,029	1,599,456
Right-of-use assets obtained in exchange for ‎operating lease liabilities	1,531	43,641

Note J – Disposition

During the fourth quarter of fiscal 2023, the Company exited its active involvement in the Pet Tech business that is conducted by Wagz through the sale of the majority ownership interest in Wagz, effective as of April 1, 2023. The Company entered into the SPA with Wagz, Buyer and Anderton, pursuant to which the Company sold to Buyer 81% of Wagz common stock for the purchase price of one dollar. Under the SPA, the Company also agreed to provide a Wagz Loan to Wagz during the month of April 2023. The Company agreed to work with Wagz as an EMS provider pursuant to a manufacturing agreement, but the Company did not commit to extending any further financial support beyond the Wagz Loan. On April 28, 2023, the sale of the majority interest in Wagz pursuant to the SPA was consummated with effect as of April 1, 2023, and as a result, as of the closing, the Company holds a minority 19% ownership of Wagz common stock and Buyer holds a majority 81% of Wagz common stock. However, the Company determined that due to financial uncertainty of Wagz after the Company’s sale, the Wagz Loan was uncollectable and the 19% ownership interest was fully reserved, in each case as of April 30, 2023. See Note M – Discontinued Operations, for more information.

28

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note K – Intangible Assets

Intangible assets subject to amortization are summarized as of October 31, 2023 as follows:

	October 31,2023
	Gross
	Carrying		Accumulated		Net Intangible
	Amount		Amortization		Asset Balance
Spitfire:
Non-contractual customer relationship		4,690,000		3,545,194		1,144,806
Total	$	4,690,000	$	3,545,194	$	1,144,806

Intangible assets subject to amortization are summarized as of April 30, 2023 as follows:

	April 30, 2023
	Gross
	Carrying		Accumulated		Impairment		Write Off		Net Intangible
	Amount		Amortization		Amount		Amount		Asset Balance
Spitfire:
Non-contractual customer relationship		4,690,000		3,378,970		-		-		1,311,030
Wagz:
Trade name		1,230,000		68,380		813,960		347,660		-
Patents		9,730,000		586,313		8,713,813		429,874		-
Total	$	15,650,000	$	4,033,663	$	9,527,773	$	777,534	$	1,311,030

Estimated aggregate amortization expense for the Company’s intangible assets, which become fully amortized in 2028, for the remaining periods as of October 31, 2023, are as follows:

For the remaining 6 months of the fiscal year ending April 30:	2024	$	165,618
For the fiscal years ending April 30:	2025		324,702
	2026		317,728
	2027		310,900
	2028		25,858
		$	1,144,806

Amortization expense was $82,809 and $84,628 for the three month periods ended October 31, 2023 and October 31, 2022, respectively. Amortization expense was $166,224 and $169,876 for the six month periods ended October 31, 2023 and October 31, 2022, respectively.

29

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note L – Segment and Geographic Area Information

The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. Separate financial information is regularly evaluated by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources. For the Company, the CODM is the Company’s Chief Executive Officer.

The EMS reportable segment includes printed circuit board assemblies, electro-mechanical subassemblies and completely assembled (box-build) electronic products. In connection with the production of assembled products, the EMS Segment 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; (6) assistance in obtaining product approval from governmental and other regulatory bodies and (7) compliance reporting. The EMS Segment produces the Freedom Smart Dog Collar™ sold by the Pet Tech Segment.

The Pet Tech reportable segment offered electronic products such as the Freedom Smart Dog Collar™, a wireless geo-mapped fence and wellness system, along with apparel and accessories. The majority ownership interest of the Pet Tech Segment was sold, effective as of April 1, 2023. The results for the Pet Tech Segment are reported as discontinued operations for the three and six month periods ended October 31, 2022.

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in Note-A Description of the Business. The CODM allocates resources to and evaluates the performance of each operating segment based on operating income.

30

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note L – Segment and Geographic Area Information – Continued

The tables below present information about the Company’s reportable segments for the three month periods ended October 31, 2023 and October 31, 2022.

		Three Months Ended October 31, 2023
		EMS		Pet Tech
		Segment		Segment		Consolidated
Net sales	$	98,691,684	$	-	$	98,691,684
Operating income		3,074,121		-		3,074,121
Other income						6,503
Interest expense, net						(2,708,696)
Income before income taxes					$	371,928
Depreciation and amortization of property, machinery ‎and equipment		1,504,717		-		1,504,717
Amortization of intangible assets		82,809		-		82,809
Identifiable assets	$	246,574,359	$	-	$	246,574,359

		Three Months Ended October 31, 2022
		EMS		Pet Tech
		Segment		Segment		Consolidated
Net sales (1)(2)	$	108,221,067	$	455,676	$	108,676,743
Operating income (loss)		6,799,982		(2,731,126)		4,068,856
Other income						35,814
Interest expense, net						(1,976,831)
Income before income taxes					$	2,127,839
Depreciation and amortization of property, machinery ‎and equipment		1,456,624		10,662		1,467,286
Amortization of intangible assets		84,628		150,514		235,142
Identifiable assets	$	281,517,954	$	23,685,666	$	305,203,620

(1)The EMS Segment manufactures products sold to the Pet Tech Segment. Related intersegment sales of $644,097 have been eliminated.

(2)The results for the Pet Tech Segment are reported as discontinued operations for the three and six month periods ended October 31, 2022.

31

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note L – Segment and Geographic Area Information – Continued

The tables below present information about the Company’s reportable segments for the six month periods ended October 31, 2023 and October 31, 2022.

		Six Months Ended October 31, 2023
		EMS		Pet Tech
		Segment		Segment		Consolidated
Net sales	$	196,822,040	$	-	$	196,822,040
Operating income		5,882,536		-		5,882,536
Other income						25,130
Interest expense, net						(5,427,774)
Income before income taxes					$	479,892
Depreciation and amortization of property, machinery ‎and equipment		3,000,751		-		3,000,751
Amortization of intangible assets		166,224		-		166,224
Identifiable assets	$	246,574,359	$	-	$	246,574,359

		Six Months Ended October 31, 2022
		EMS		Pet Tech
		Segment		Segment		Consolidated
Net sales (3)(4)	$	213,411,047	$	838,552	$	214,249,599
Operating income (loss)		11,847,360		(4,954,687)		6,892,673
Other income						71,630
Interest expense, net						(2,930,389)
Income before income taxes					$	4,033,914
Depreciation and amortization of property, machinery ‎and equipment		2,889,751		29,315		2,919,066
Amortization of intangible assets		169,876		301,028		470,904
Identifiable assets	$	281,517,954	$	23,685,666	$	305,203,620

(3)The EMS Segment manufactures products sold to the Pet Tech Segment. Related intersegment sales of $727,613 have been eliminated.

(4)The results for the Pet Tech Segment are reported as discontinued operations for the three and six month periods ended October 31, 2022.

32

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note L – Segment and Geographic Area Information – Continued

The following tables set forth net sales from continuing operations and tangible long-lived assets by geographic area where the Company operates. Tangible long-lived assets include property, machinery and equipment and operating lease assets.

	Three Months Ended				Six Months Ended
		October 31,		October 31,		October 31,		October 31,
		2023		2022		2023		2022
Net sales:
U.S.	$	31,122,784	$	28,781,002	$	63,854,950	$	54,288,755
China		9,123,160		13,380,106		18,035,461		26,972,492
Vietnam		1,467,467		2,762,806		3,457,841		6,355,450
Mexico		56,978,273		63,297,153		111,473,788		125,794,350
Total net sales	$	98,691,684	$	108,221,067	$	196,822,040	$	213,411,047

		October 31,		April 30,
		2023		2023
Tangible long-lived assets, net:
U.S.	$	18,990,639	$	20,371,298
China		4,079,255		4,212,780
Mexico		17,883,087		17,574,899
Other		640,792		854,803
Total tangible long-lived assets, net	$	41,593,773	$	43,013,780

Note M – Discontinued Operations

During the fourth quarter of fiscal 2023, the Company exited its active involvement in the Pet Tech business that is conducted by Wagz through the sale by the Company of the majority ownership interest in Wagz, effective as of April 1, 2023. The Company entered into the SPA with Wagz, Buyer and Anderton, pursuant to which the Company sold to Buyer 81% of Wagz common stock for the purchase price of one dollar. Under the SPA, the Company also agreed to provide a Wagz Loan to Wagz during the month of April 2023. The Company agreed to work with Wagz as an EMS provider pursuant to a manufacturing agreement, but the Company did not commit to extending any further financial support beyond the Wagz Loan. On April 28, 2023, the sale of the majority ownership interest in Wagz pursuant to the SPA was consummated with effect as of April 1, 2023, and as a result, as of the closing, the Company holds a minority 19% ownership of Wagz common stock and Buyer holds a majority 81% of Wagz common stock. However, the Company determined that due to financial uncertainty of Wagz after the Company’s sale, the Wagz Loan was uncollectable and the 19% ownership interest was fully reserved, in each case as of April 30, 2023.

In accordance with ASC 205-20 Presentation of Financial Statements: Discontinued Operations, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the component of an entity meets the criteria in

33

SigmaTron International, Inc.

October 31, 2023

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note M – Discontinued Operations – Continued

paragraph 205-20-45-10. In the period in which the component meets discontinued operations criteria the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations.

Pet Tech Segment (Wagz Business)

The following amounts related to the Pet Tech Segment (Wagz Business) have been segregated from the Company’s continuing operations and are reported as discontinued operations:

	Three Months Ended October 31,
	2023		2022
Net Sales	$	-	$	455,676
Cost of products sold		-		447,742
Gross profit		-		7,934
Selling and administrative expenses		-		2,739,060
Operating loss		-		(2,731,126)
Loss before income taxes from discontinued operations		-		(2,731,126)
Income tax benefit		-		487,587
Loss from discontinued operations	$	-	$	(2,243,539)

	Six Months Ended October 31,
	2023		2022
Net Sales	$	-	$	838,552
Cost of products sold		-		722,803
Gross profit		-		115,749
Selling and administrative expenses		-		5,070,436
Operating loss		-		(4,954,687)
Loss before income taxes from discontinued operations		-		(4,954,687)
Income tax benefit		-		966,483
Loss from discontinued operations	$	-	$	(3,988,204)

34

SigmaTron International, Inc.

October 31, 2023

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” or collectively with its subsidiaries, foreign enterprises and international procurement office, the “Company”), 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., and Spitfire Controls (Cayman) Co. Ltd., wholly-owned foreign enterprises Wujiang SigmaTron Electronics Co., Ltd. and Wujiang SigmaTron Electronic Technology Co., Ltd., its international procurement office, SigmaTron International Inc. Taiwan Branch, and Wagz, Inc. (19 percent ownership as of October 31, 2023) (“Wagz”) 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 direct and indirect risks and uncertainties inherent in the Company’s business including, but not necessarily limited to, the Company’s continued dependence on certain significant customers; the continued market acceptance of products and services offered by the Company and its customers; pricing pressures from the Company’s customers, suppliers and the market; the activities of competitors, some of which may have greater financial or other resources than the Company; the variability of the Company’s operating results; the results of long-lived assets and goodwill impairment testing; the risks inherent in any merger, acquisition or business combination, including the ability to achieve the expected benefits of acquisitions as well as the expenses of acquisitions; the collectability of aged account receivables; the variability of the Company’s customers’ requirements; the impact of inflation on the Company’s operating results; the availability and cost of necessary components and materials; the impact acts of war may have to the supply chain; the ability of the Company and its customers to keep current with technological changes within its industries; regulatory compliance, including conflict minerals; the continued availability and sufficiency of the Company’s credit arrangements; the costs of borrowing under the Company’s senior and subordinated credit facilities, including under the rate indices that replaced LIBOR; increasing interest rates; the ability to meet the Company’s financial and restrictive covenants under its loan agreements; changes in U.S., Mexican, Chinese, Vietnamese or Taiwanese regulations affecting the Company’s business; the turmoil in the global economy and financial markets; public health crises, including COVID-19 and variants; the continued availability of scarce raw materials, exacerbated by global supply chain disruptions, necessary for the manufacture of products by the Company; the stability of the U.S., Mexican, Chinese, Vietnamese and Taiwanese economic, labor and political systems and conditions; global business disruption caused by the Russian invasion of Ukraine and related sanctions; currency exchange fluctuations; and the ability of the Company to manage its growth. These and other factors which may affect the Company’s future business and results of operations are identified throughout the Company’s Annual Report on Form 10-K, and as risk factors, may be detailed from time to time in the Company’s filings with the Securities and Exchange Commission. These statements speak as of the date of such filings, and the Company undertakes no obligation to update such statements in light of future events or otherwise unless otherwise required by law.

‎

35

SigmaTron International, Inc.

October 31, 2023

Overview:

The Company currently operates in one reportable segment as an independent provider of electronic manufacturing services (“EMS”). The EMS Segment includes printed circuit board assemblies, electro-mechanical subassemblies and completely assembled (box-build) electronic products.

Prior to the sale described below, which was effective April 1, 2023, the Company also operated in a second reportable segment as a provider of products to the pet technology (“Pet Tech”) market. The majority ownership interest in the Pet Tech Segment was sold effective as of April 1, 2023. The Pet Tech Segment offered electronic products such as the Freedom Smart Dog Collar™, a wireless, geo-mapped fence, and wellness system, and apparel and accessories.

Except as otherwise noted, the description of the Company’s business below reflects its continuing operations. Refer to Note M - Discontinued Operations, to the consolidated financial statements for activity associated with discontinued operations.

The Company provides manufacturing and assembly services ranging from the assembly of individual components to the assembly and testing of box-build electronic products. The Company has the ability to produce assemblies requiring mechanical as well as electronic capabilities. The products assembled by the Company are then incorporated into finished products sold in various industries, particularly industrial electronics, consumer electronics and medical/life sciences. In some instances, the Company manufactures and assembles the completed finished product for its customers.

In connection with the production of assembled products, the Company 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; (6) assistance in obtaining product approval from governmental and other regulatory bodies and (7) compliance reporting. 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 an unreliable indicator of the Company’s financial performance. Sales levels can vary considerably among customers and products depending on the type of services (turnkey versus consignment) rendered by the Company and the demand by customers. Consignment orders require the Company to perform manufacturing services on components and other materials supplied by a customer, and the Company charges only for its labor, overhead and manufacturing costs, plus a profit. In the case of turnkey orders, the Company provides, in addition to manufacturing services, the components and other materials used in assembly. Turnkey contracts, in general, have a higher dollar volume of sales for each given assembly, owing to inclusion of the cost of components and other materials in net sales and cost of goods sold. Variations in the number of turnkey orders compared to

36

SigmaTron International, Inc.

October 31, 2023

consignment orders can lead to significant fluctuations in the Company’s revenue and gross margin levels. Consignment orders accounted for less than 1% of the Company’s revenues for the three and six month periods ended October 31, 2023 and October 31, 2022.

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

The Company reported a pre-tax profit from continuing operations for the three months ended October 31, 2023 of $371,928. Pre-tax profit from continuing operations for the three months ended October 31, 2022 was $4,858,965. The Company recorded revenue of $98,691,684 and $108,221,067 in the three month periods ended October 31, 2023 and October 31, 2022, respectively.

The Company reported a pre-tax profit from continuing operations for the six months ended October 31, 2023 of $479,892. Pre-tax profit from continuing operations for the six months ended October 31, 2022 was $8,988,601. The Company recorded revenue of $196,822,040 and $213,411,047 in the six month periods ended October 31, 2023 and October 31, 2022, respectively.

The impact of inflation and the continuing global supply chain disruptions in the electronic component marketplace have continued to be challenging. The Company has certain customers that have lowered their demand, while others remain strong. The Company expects this uncertainty to remain short term as it expects customer requirements to pick up by fourth quarter of fiscal 2024. The Company has seen modest improvements to the supply chain challenges that it has experienced over the last 18 months. The Company expects these challenges to continue to improve for the six months remaining of fiscal 2024, based on what is known at this time.

The Company began its Pet Technology operations after the December 2021 acquisition of Wagz. During the fourth quarter of fiscal 2023, the Company exited its active involvement in the Pet Tech business that is conducted by Wagz through the sale by the Company of the majority ownership interest in Wagz, effective as of April 1, 2023.

37

SigmaTron International, Inc.

October 31, 2023

Results of Operations:

Consolidated Results

The following table sets forth the Company’s consolidated results of operations, including the percentage relationships of gross profit and expense items to net sales for the periods indicated:

	Three Months Ended
	October 31,		October 31,
	2023		2022
Net sales	$	98,691,684	$	108,221,067
Cost of products sold		89,003,929		94,914,988
As a percent of net sales		90.2%		87.7%
Gross profit		9,687,755		13,306,079
As a percent of net sales		9.8%		12.3%
Selling and administrative expenses		6,613,634		6,506,097
As a percent of net sales		6.7%		6.0%
Operating income from continuing operations		3,074,121		6,799,982
Other income		6,503		35,814
Interest expense, net		(2,708,696)		(1,976,831)
Income before income taxes from continuing operations		371,928		4,858,965
Income tax benefit (expense)		(343,666)		(1,743,554)
Income from continuing operations	$	28,262	$	3,115,411
Discontinued operations:
Loss before taxes from discontinued operations		-		(2,731,126)
Tax benefit for discontinued operations		-		487,587
Net loss from discontinued operations		-		(2,243,539)
Net income	$	28,262	$	871,872

Net Sales

Net sales decreased $9,529,383, or 8.8%, to $98,691,684 for the three month period ended October 31, 2023, compared to $108,221,067 for the same period in the prior fiscal year. The Federal Reserve has raised interest rates several times leading up to the current fiscal quarter, which has negatively affected customer demand in the consumer electronics and certain industrial electronics markets, but has not had the same effect in the medical/life science market. As a result, the Company’s sales decreased for the three month period ended October 31, 2023, in the consumer electronics and industrial electronics markets, partially offset with an increase in net sales in the medical/life science market, compared to the same period in the prior fiscal year.

Costs of products sold

Cost of products sold decreased $5,911,059, or 6.2%, to $89,003,929 (90.2% of net sales) for the three month period ended October 31, 2023, compared to $94,914,988 (87.7% of net sales) for the same period in the prior fiscal year. The increase in cost of products sold as a percentage of sales is primarily due to higher labor costs and other fixed manufacturing costs, primarily due to continued

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inflationary pressures, for the three month period ended October 31, 2023, than in the same period in the prior fiscal year.

Gross profit margin

Gross profit margin was 9.8% of net sales, for the three month period ended October 31, 2023, compared to 12.3% for the same period in the prior fiscal year. The decrease in gross margins as a percentage of sales is primarily due to higher labor and other fixed manufacturing costs during the three month period ended October 31, 2023, compared to the same period in the prior fiscal year.

Selling and administrative expenses

Selling and administrative expenses increased $107,537, or 1.7% to $6,613,634 (6.7% of net sales) for the three month period ended October 31, 2023, compared to $6,506,097 (6.0% of net sales) for the same period in the prior fiscal year. The increase in selling and administrative expenses is primarily due to an increase in accounting fees, partially offset with a decrease in bonus expense.

Interest expense, net

Interest expense, net, increased to $2,708,696 for the three month period ended October 31, 2023, compared to $1,976,831 for the same period in the prior fiscal year. The increase relates to increased interest rates for the three month period ended October 31, 2023.

Income tax benefit/expense

Income tax expense decreased $1,399,888 to an income tax expense of $343,666 for the three month period ended October 31, 2023, compared to an income tax expense of $1,743,554 for the same period in the prior fiscal year. The effective tax rate increased to 92.40% for the three month period ended October 31, 2023, compared to 35.88% for the same period in the prior fiscal year. The decrease in income tax expense for the three month period ended October 31, 2023 compared to the same period in the previous year is due to decreased taxable earnings in the current quarter compared to the same period in the previous year. The increase in effective tax rate is due to variations in income earned by jurisdiction and as compared to the previous quarter in the current fiscal year.

Net income from continuing operations

Net income decreased $3,087,149, to $28,262 for the three month period ended October 31, 2023, compared to $3,115,411 for the same period in the prior fiscal year. The decreased net income primarily relates to lower sales and higher interest expense due to increased interest rates, partially offset by a decrease in bonus expense.

Net loss from discontinued operations

Net loss from discontinued operations was $2,243,539 for the three month period ended October 31, 2022. The net loss from discontinued operations consisted of operational losses from the Pet Tech Segment.

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SigmaTron International, Inc.

October 31, 2023

EMS Segment

The following table sets forth the Company’s results of operations for the EMS Segment, including the percentage relationships of gross profit and expense items to net sales for the periods indicated:

	Three Months Ended
	October 31,		October 31,
	2023		2022
Net sales	$	98,691,684	$	108,221,067
Cost of products sold		89,003,929		94,914,988
As a percent of net sales		90.2%		87.7%
Gross profit		9,687,755		13,306,079
As a percent of net sales		9.8%		12.3%
Selling and administrative expenses		6,613,634		6,506,097
As a percent of net sales		6.7%		6.0%
Operating income	$	3,074,121	$	6,799,982

Net Sales

Net sales decreased $9,529,383, or 8.8%, to $98,691,684 for the three month period ended October 31, 2023, compared to $108,221,067 for the same period in the prior fiscal year. The Federal Reserve has raised interest rates several times leading up to the current fiscal quarter, which has negatively affected customer demand in the consumer electronics and certain industrial electronics markets, but has not had the same effect in the medical/life science market. As a result, the Company’s sales decreased for the three month period ended October 31, 2023, in the consumer electronics and industrial electronics markets, partially offset with an increase in net sales in the medical/life science market, compared to the same period in the prior fiscal year.

Costs of products sold

Cost of products sold decreased $5,911,059, or 6.2%, to $89,003,929 (90.2% of net sales) for the three month period ended October 31, 2023, compared to $94,914,988 (87.7% of net sales) for the same period in the prior fiscal year. The increase in cost of products sold as a percentage of sales is primarily due to higher labor costs and other fixed manufacturing costs, primarily due to continued inflationary pressures, for the three month period ended October 31, 2023, than in the same period in the prior fiscal year.

Gross profit

Gross profit margin was 9.8% of net sales, for the three month period ended October 31, 2023, compared to 12.3% for the same period in the prior fiscal year. The decrease in gross margins as a percentage of sales is primarily due to higher labor and other fixed manufacturing costs during the three month period ended October 31, 2023, compared to the same period in the prior fiscal year.

Selling and administrative expenses

Selling and administrative expenses increased $107,537, or 1.7% to $6,613,634 (6.7% of net sales) for the three month period ended October 31, 2023, compared to $6,506,097 (6.0% of net sales) for the

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same period in the prior fiscal year. The increase in selling and administrative expenses is primarily due to an increase in accounting fees, partially offset with a decrease in bonus expense.

Operating income

Operating income decreased $3,725,861, to $3,074,121 (3.1% of net sales) for the three month period ended October 31, 2023, compared to operating income of $6,799,982 (6.3% of net sales) for the same period in the prior fiscal year. The decrease was primarily due to lower sales and higher labor and other fixed manufacturing costs.

Pet Tech Segment

The Company sold the majority ownership interest in Wagz on April 28, 2023, effective as of April 1, 2023. The Company still owns 19 % of Wagz common stock as a passive investment as of October 31, 2023. However, the Company determined that due to financial uncertainty of Wagz after the Company’s sale, the Wagz Loan was uncollectable and the 19% ownership interest was fully reserved, in each case as of April 30, 2023. The activity for fiscal 2023 has been classified as discontinued operations in the Consolidated Statements of Operations.

The following table sets forth the results of operations for the Pet Tech Segment, including the percentage relationships of gross profit and expense items to net sales for the periods indicated:

	Three Months Ended
	October 31,		October 31,
	2023		2022
Net sales	$	-	$	455,676
Cost of products sold		-		447,742
As a percent of net sales		-		98.3%
Gross profit		-		7,934
As a percent of net sales		-		1.7%
Selling and administrative expenses		-		2,739,060
As a percent of net sales		-		601.1%
Operating loss	$	-	$	(2,731,126)

Net sales

There were no sales for the three month period ended October 31, 2023 compared to $455,676 for the same period in the prior fiscal year. Sales for the prior period were primarily comprised of hardware and accessories, as well as recurring subscription revenue.

Cost of products sold

There were no cost of products sold for the three month period ended October 31, 2023, compared to $447,742 (98.3% of net sales) for the same period in the prior fiscal year.

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Gross profit margin

There was no gross profit margin of net sales for the three month period ended October 31, 2023 compared to gross profit margin of 1.7% for the same period in the prior fiscal year.‌

Selling and administrative expenses

There were no selling and administrative expenses for the three month period ended October 31, 2023, compared to $2,739,060 for the same period in the prior fiscal year. Selling and administrative costs were primarily comprised of research and development costs for new products expected to have launched in fiscal 2024, selling and marketing expenses, as well as general and administrative expenses.

Operating loss

There was no operating loss for the three month period ended October 31, 2023, compared to $2,731,126 for the same period in the prior fiscal year.

Consolidated Results

The following table sets forth the Company’s consolidated results of operations, including the percentage relationships of gross profit and expense items to net sales for the periods indicated:

	Six Months Ended
		October 31,		October 31,
		2023		2022
Net sales	$	196,822,040	$	213,411,047
Cost of products sold		177,483,065		188,527,748
As a percent of net sales		90.2%		88.3%
Gross profit		19,338,975		24,883,299
As a percent of net sales		9.8%		11.7%
Selling and administrative expenses		13,456,439		13,035,939
As a percent of net sales		6.8%		6.1%
Operating income from continuing operations		5,882,536		11,847,360
Other income		25,130		71,630
Interest expense, net		(5,427,774)		(2,930,389)
Income before income taxes from continuing operations		479,892		8,988,601
Income tax benefit (expense)		(189,531)		(2,751,850)
Income from continuing operations	$	290,361	$	6,236,751
Discontinued operations:
Loss before taxes from discontinued operations		-		(4,954,687)
Tax benefit for discontinued operations		-		966,483
Net loss from discontinued operations		-		(3,988,204)
Net income	$	290,361	$	2,248,547

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SigmaTron International, Inc.

October 31, 2023

Net Sales

Net sales decreased $16,589,007, or 7.8%, to $196,822,040 for the six month period ended October 31, 2023, compared to $213,411,047 for the same period in the prior fiscal year. The Federal Reserve has raised interest rates several times during the current and prior fiscal year, which has negatively affected customer demand in the consumer electronics and certain industrial electronics markets, but has not had the same effect in the medical/life science market. As a result, the Company’s sales decreased for the six month period ended October 31, 2023, in the consumer electronics and industrial electronics markets, partially offset with an increase in net sales in the medical/life science market, compared to the same period in the prior fiscal year.

Costs of products sold

Cost of products sold decreased $11,044,683, or 5.9%, to $177,483,065 (90.2% of net sales) for the six month period ended October 31, 2023, compared to $188,527,748 (88.3% of net sales) for the same period in the prior fiscal year. The increase in cost of products sold as a percentage of sales is primarily due to higher labor costs and other fixed manufacturing costs, primarily due to continued inflationary pressures, for the six month period ended October 31, 2023, than in the same period in the prior fiscal year.

Gross profit margin

Gross profit margin was 9.8% of net sales, for the six month period ended October 31, 2023, compared to 11.7% for the same period in the prior fiscal year. The decrease in gross margins as a percentage of sales is primarily due to higher labor and other fixed manufacturing costs during the six month period ended October 31, 2023, compared to the same period in the prior fiscal year.

Selling and administrative expenses

Selling and administrative expenses increased $420,500, or 3.2% to $13,456,439 (6.8% of net sales) for the six month period ended October 31, 2023, compared to $13,035,939 (6.1% of net sales) for the same period in the prior fiscal year. The increase in selling and administrative expenses is primarily due to an increase in accounting fees, partially offset with a decrease in bonus expense.

Interest expense, net

Interest expense, net, increased to $5,427,774 for the six month period ended October 31, 2023, compared to $2,930,389 for the same period in the prior fiscal year. The increase relates to increased interest rates for the six month period ended October 31, 2023.

Income tax benefit/expense

Income tax expense decreased $2,562,319 to an income tax expense of $189,531 for the six month period ended October 31, 2023, compared to an income tax expense of $2,751,850 for the same period in the prior fiscal year. The effective tax rate increased to 39.49% for the six month period ended October 31, 2023, compared to 30.61% for the same period in the prior fiscal year. The decrease in income tax expense for the six month period ended October 31, 2023 compared to the same period in the previous year is due to decreased taxable earnings in the current year compared to the previous year. The increase in effective tax rate is due to variations in income earned by jurisdiction.

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SigmaTron International, Inc.

October 31, 2023

Net income from continuing operations

Net income decreased $5,946,390, to $290,361 for the six month period ended October 31, 2023, compared to $6,236,751 for the same period in the prior fiscal year. The decreased net income primarily relates to lower sales, higher interest expense due to increased interest rates, partially offset by a decrease in bonus expense.

Net loss from discontinued operations

Net loss from discontinued operations was $3,988,204 for the six month period ended October 31, 2022. The net loss from discontinued operations consisted of operational losses from the Pet Tech Segment.

EMS Segment

The following table sets forth the Company’s results of operations for the EMS Segment, including the percentage relationships of gross profit and expense items to net sales for the periods indicated:

	Six Months Ended
		October 31,		October 31,
		2023		2022
Net sales	$	196,822,040	$	213,411,047
Cost of products sold		177,483,065		188,527,748
As a percent of net sales		90.2%		88.3%
Gross profit		19,338,975		24,883,299
As a percent of net sales		9.8%		11.7%
Selling and administrative expenses		13,456,439		13,035,939
As a percent of net sales		6.8%		6.1%
Operating income	$	5,882,536	$	11,847,360

Net Sales

Net sales decreased $16,589,007, or 7.8%, to $196,822,040 for the six month period ended October 31, 2023, compared to $213,411,047 for the same period in the prior fiscal year. The Federal Reserve has raised interest rates several times during the current and prior fiscal year, which has negatively affected customer demand in the consumer electronics and certain industrial electronics markets, but has not had the same effect in the medical/life science market. As a result, the Company’s sales decreased for the six month period ended October 31, 2023, in the consumer electronics and industrial electronics markets, partially offset with an increase in net sales in the medical/life science market, compared to the same period in the prior fiscal year.

Costs of products sold

Cost of products sold decreased $11,044,683, or 5.9%, to $177,483,065 (90.2% of net sales) for the six month period ended October 31, 2023, compared to $188,527,748 (88.3% of net sales) for the same period in the prior fiscal year. The increase in cost of products sold as a percentage of sales is primarily due to higher labor costs and other fixed manufacturing costs, primarily due to continued

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SigmaTron International, Inc.

October 31, 2023

inflationary pressures, for the six month period ended October 31, 2023, than in the same period in the prior fiscal year.

Gross profit margin

Gross profit margin was 9.8% of net sales, for the six month period ended October 31, 2023, compared to 11.7% for the same period in the prior fiscal year. The decrease in gross margins as a percentage of sales is primarily due to higher labor and other fixed manufacturing costs during the six month period ended October 31, 2023, compared to the same period in the prior fiscal year.

Selling and administrative expenses

Selling and administrative expenses increased $420,500, or 3.2% to $13,456,439 (6.8% of net sales) for the six month period ended October 31, 2023, compared to $13,035,939 (6.1% of net sales) for the same period in the prior fiscal year. The increase in selling and administrative expenses is primarily due to an increase in accounting fees.

Operating income

Operating income decreased $5,964,824, or 50.3%, to $5,882,536 (3.0% of net sales) for the six month period ended October 31, 2022, compared to $11,847,360 (5.6% of net sales) for the same period in the prior fiscal year. The decrease was primarily due to lower sales and higher labor and other fixed manufacturing costs.

Pet Tech Segment

The Company sold the majority ownership interest in Wagz on April 28, 2023, effective as of April 1, 2023. The Company still owns 19% of Wagz common stock as a passive investment as of October 31, 2023. However, the Company determined that due to financial uncertainty of Wagz after the Company’s sale, the Wagz Loan was uncollectable and the 19% ownership interest was fully reserved, in each case as of April 30, 2023. The activity for fiscal 2023 has been classified as discontinued operations in the Consolidated Statements of Operations.

The following table sets forth the results of operations for the Pet Tech Segment, including the percentage relationships of gross profit and expense items to net sales for the periods indicated:

	Six Months Ended
		October 31,		October 31,
		2023		2022
Net sales	$	-	$	838,552
Cost of products sold		-		722,803
As a percent of net sales		-		86.2%
Gross profit		-		115,749
As a percent of net sales		-		13.8%
Selling and administrative expenses		-		5,070,436
As a percent of net sales		-		604.7%
Operating loss	$	-	$	(4,954,687)

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SigmaTron International, Inc.

October 31, 2023

Net sales

There were no sales for the six month period ended October 31, 2023 compared to $838,552 for the same period in the prior fiscal year. Sales for the prior period were primarily comprised of hardware and accessories, as well as recurring subscription revenue.

Cost of products sold

There were no cost of products sold for the six month period ended October 31, 2023, compared to $722,803 (86.2% of net sales) for the same period in the prior fiscal year.

Gross profit margin

There was no gross profit margin of net sales for the six month period ended October 31, 2023 compared to gross profit margin of 13.8% for the same period in the prior fiscal year.‌

Selling and administrative expenses

There were no selling and administrative expenses for the six month period ended October 31, 2023, compared to $5,070,436 for the same period in the prior fiscal year. Selling and administrative costs were primarily comprised of research and development costs for new products expected to have launched in fiscal 2024, selling and marketing expenses, as well as general and administrative expenses.

Operating loss

There was no operating loss for the six month period ended October 31, 2023, compared to $4,954,687 for the same period in the prior fiscal year.

Liquidity and Capital Resources:

Operating Activities.

Cash flow provided by operating activities from continuing operations was $15,766,616 for the six months ended October 31, 2023, compared to cash flow used in operating activities of $19,915,415 for the same period in the prior fiscal year. Cash flow provided by operating activities from continuing operations was primarily the result of a decrease in inventory in the amount of $19,214,849 and a decrease in accounts receivable in the amount of $5,244,132. Cash flow from operating activities from continuing operations was offset by a decrease in accounts payable in the amount of $4,930,511 and a decrease in deferred revenue in the amount of $4,140,944. The decrease in inventory is the result of improvement in the component marketplace which has allowed the Company to complete assemblies for shipping. The decrease in accounts receivable is a result of lower accounts receivable balances due to lower volumes during the six months ended October 31, 2023, as compared to the same period in the prior year.

Cash flow used in operating activities from continuing operations was $19,915,415 for the six months ended October 31, 2022. Cash flow used in operating activities was primarily the result of an increase in both inventory and accounts receivable in the amount of $11,193,619 and $6,352,982, respectively and a decrease in accounts payable in the amount of $15,946,950. Cash flow from operating activities

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SigmaTron International, Inc.

October 31, 2023

was offset by an increase in deferred revenue in the amount of $2,026,825 and a decrease in prepaid expenses and other assets in the amount of $3,569,825.

Investing Activities.

Cash used in investing activities from continuing operations was $405,413 for the six months ended October 31, 2023. During the first six months of fiscal year 2024, the Company purchased $405,413 in machinery and equipment to be used in the ordinary course of business. The Company anticipates future purchases of machinery and equipment will be funded by lease transactions. However, there is no assurance that the Company will be able to obtain funding for leases at acceptable terms, if at all, in the future.

Cash used in investing activities from continuing operations was $178,001 for the six months ended October 31, 2022. During the first six months of fiscal year 2023, the Company purchased $178,001 in machinery and equipment used in the ordinary course of business.

Financing Activities.

Cash used in financing activities from continuing operations of $12,930,306 for the six months ended October 31, 2023, was primarily the result of net payments under the line of credit and term loan agreement.

Cash provided by financing activities from continuing operations of $23,443,457 for the six months ended October 31, 2022, was primarily the result of net borrowings under the line of credit and term loan agreement.

Liquidity from Discontinued Operations

During the six months ended October 31, 2022 cash used in discontinued operations from operating activities was $3,922,035, primarily related to Pet Tech Segment operations. During the six months ended October 31, 2022, cash used in investing activities primarily for capital expenditures was $93,996.

Financing Summary.

Notes Payable – Secured lenders

On January 29, 2021, the Company entered into a Credit Agreement (the “JPM Agreement”) with JPMorgan Chase Bank, N.A. (“Lender” or “JPM”), pursuant to which Lender provided the Company with a secured credit facility consisting of a revolving loan facility and a term loan facility (collectively, the “Facility”).

On July 18, 2022, SigmaTron, Wagz and Lender amended and restated the JPM Agreement by entering into an Amended and Restated Credit Agreement (as so amended and restated, the “JPM Credit Agreement”). Wagz and its property were released from the JPM Credit Agreement, effective April 1, 2023, pursuant to the JPM Waiver (as defined below) effective as of April 1, 2023. The Facility, as amended, allows the Company to borrow on a revolving basis up to the lesser of (i) $70,000,000 or (ii) an amount equal to a percentage of the eligible receivable borrowing base plus a percentage of the inventory borrowing base minus any reserves established by Lender (the “Revolving Commitment”). The maturity date of the Facility is July 18, 2027. Deferred financing costs of

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SigmaTron International, Inc.

October 31, 2023

$177,119 and $332,139 were capitalized during the six month period ended October 31, 2023 and during the fiscal year ended April 30, 2023, respectively, which are amortized over the term of the JPM Credit Agreement. As of October 31, 2023, there was $39,907,771 outstanding and $13,403,925 of unused availability under the revolving loan facility compared to an outstanding balance of $51,134,699 and $11,539,183 of unused availability at April 30, 2023. As of October 31, 2023 and April 30, 2023, the unamortized amount offset against outstanding debt was $659,532 and $572,191, respectively.

Under the JPM Credit Agreement, a minimum Fixed Charge Coverage Ratio (“FCCR”) financial covenant of 1.10x is applicable only during an FCCR trigger period which occurs when (a) commencing on the Effective Date (as defined in the JPM Credit Agreement) and ending when the Term Loan Obligations (as defined in the JPM Credit Agreement) have been paid in full and (b) following the payment in full of the Term Loan Obligations, (i) an event of default (as defined in the JPM Credit Agreement) has occurred and is continuing, and Lender has elected to impose a FCCR trigger period upon notice to the Company or (ii) availability falls below the greater of (y) 10% of the Revolving Commitment and (z) the outstanding principal amount of the term loans. In addition, prior to the amendment to the JPM Credit Agreement pursuant to the JPM Waiver (as discussed below under “Waiver, Consent and Amendment to Credit Agreements”), the JPM Credit Agreement imposed a financial covenant that required the Company to maintain a leverage ratio of Total Debt to EBITDA (each as defined in the JPM Credit Agreement) for any twelve month period ending on the last day of a fiscal quarter through the maturity of the revolving Facility not to exceed a certain amount, which ratio (a) ranged from 5.00-to-1 for fiscal quarters beginning with the fiscal quarter ending on January 31, 2023 to 3.00-to-1 for the fiscal quarter ending on July 31, 2026 (if the Term Loan Borrowing Base Coverage Ratio (as defined in the JPM Credit Agreement) as of the end of the applicable fiscal quarter is less than or equal to 1.50-to-1) and (b) ranged from 5.50-to-1 for the fiscal quarter ending on January 31, 2023 to 4.00-to-1 for the fiscal quarters beginning with the fiscal quarter ending on July 31, 2026 (if the Term Loan Borrowing Base Coverage Ratio as of the end of the applicable fiscal quarter is greater than 1.50-to-1).

In addition, the JPM Credit Agreement imposes a cash dominion period if there is an event of default or if availability is less than 10% of the Revolving Commitment, and such requirement continues until there is no event of default and availability is greater than 10% of the Revolving Commitment, in each case for 30 consecutive days. Based on this criteria, the total debt balances for the Facility were required to be classified as a current liability on the Consolidated Balance Sheet at April 30, 2023.

In connection with the entry into the JPM Credit Agreement, Lender and TCW Asset Management Company LLC, as administrative agent under the Term Loan Agreement (as defined below), entered into the Intercreditor Agreement, dated July 18, 2022, and acknowledged by SigmaTron and Wagz (the “ICA”), to set forth and govern the lenders’ respective lien priorities, rights and remedies under the JPM Credit Agreement and the Term Loan Agreement.

The Facility under the JPM Credit Agreement is secured by: (a) a first priority security interest in SigmaTron’s (i) accounts receivable and inventory (excluding Term Priority Mexican Inventory (as defined in the ICA) and certain inventory in transit, (ii) deposit accounts, (iii) proceeds of business interruption insurance that constitute ABL BI Insurance Share (as defined in the ICA), (iv) certain other property, including payment intangibles, instruments, equipment, software and hardware and similar systems, books and records, to the extent related to the foregoing, and (v) all proceeds of the foregoing, in each case, now owned or hereafter acquired (collectively, the “ABL Priority Collateral”); and (b) a second priority security interest in Term Priority Collateral (as defined below) other than (i)

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real estate and (ii) the equity interests of SigmaTron’s foreign subsidiaries (unless such a pledge is requested by Lender).

On July 18, 2022, SigmaTron, Wagz and TCW Asset Management Company LLC, as administrative agent (the “Agent), and other Lenders party thereto (collectively, “TCW Lenders,” together with the Agent, “TCW”) entered into a Credit Agreement (the “Term Loan Agreement”) pursuant to which TCW made a term loan to the Company in the principal amount of $40,000,000 (the “TCW Term Loan”). Wagz and its property were released from the Term Loan Agreement, effective April 1, 2023, pursuant to the TCW Waiver (as defined below) effective as of April 1, 2023. The TCW Term Loan bears interest at a rate per annum based on SOFR, plus the Applicable Margin of 7.50% (each as defined in the Term Loan Agreement). The TCW Term Loan has a SOFR floor of 1.00%. The maturity date of the TCW Term Loan is July 18, 2027. The amount outstanding as of October 31, 2023, was $39,333,301 compared to an outstanding balance of $39,833,301 at April 30, 2023. Deferred financing costs of $163,179 and $1,233,894 were capitalized during the six month period ended October 31, 2023 and fiscal year ended April 30, 2023, respectively. As of October 31, 2023 and April 30, 2023, the unamortized amount offset against outstanding debt was $1,061,945 and $1,036,367, respectively.

The Term Loan Agreement imposes financial covenants, including covenants requiring the Company to maintain a minimum Fixed Charge Coverage Ratio (as defined in the Term Loan Agreement) of 1.10-to-1 and maintain the same leverage ratio of Total Debt to EBITDA as described above under the JPM Credit Agreement. The Company is required to make quarterly repayments of the principal amount of the TCW Term Loan in amounts equal to $250,000 per fiscal quarter for the quarters beginning October 31, 2022 and $500,000 per fiscal quarter for quarters beginning October 31, 2024. The Term Loan Agreement also requires mandatory annual repayments equal to 50% of Excess Cash Flow (as defined in the Term Loan Agreement).

The TCW Term Loan is secured by: (a) a first priority security interest in all property of SigmaTron that does not constitute ABL Priority Collateral, which includes: (i) SigmaTron’s real estate other than SigmaTron’s Del Rio, Texas, warehouses, (ii) SigmaTron’s machinery, equipment and fixtures (but excluding ABL Priority Equipment (as defined in the ICA)), (iii) the Term Priority Mexican Inventory (as defined in the ICA), (iv) SigmaTron’s stock in its direct and indirect subsidiaries, (v) SigmaTron’s general intangibles (excluding any that constitute ABL Priority Collateral), goodwill and intellectual property, (vi) the proceeds of business interruption insurance that constitute Term BI Insurance Share (as defined in the ICA), (vii) tax refunds, and (viii) all proceeds thereof, in each case, now owned or hereafter acquired (collectively, the “Term Priority Collateral”); and (b) a second priority security interest in all collateral that constitutes ABL Priority Collateral. Also, SigmaTron’s three Mexican subsidiaries pledged all of their assets as security for the TCW Term Loan.

Waiver, Consent and Amendment to Credit Agreements

On March 2, 2023, the Company received notices of default from both JPM and TCW. The Notices indicated the occurrence of certain events of default under the JPM Credit Agreement and the Term Loan Agreement (together with the JPM Credit Agreement the “Credit Agreements”). In addition, the Company received a delinquency notification letter from Nasdaq indicating that the Company was not in compliance with the continued listing requirements of Nasdaq for failing to timely file the Company’s Form 10-Q for the fiscal quarter ended January 31, 2023. This notification also constituted a default under the Credit Agreements. The Nasdaq delinquency was remedied on May 19, 2023.

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SigmaTron International, Inc.

October 31, 2023

The JPM Notice indicated that the Lender was informed of the occurrence of events of defaults and the continuation thereof under the JPM Credit Agreement as a result of the Company’s failure to maintain a FCCR for the twelve month period ended January 31, 2023 of at least 1.10x as required under the JPM Credit Agreement (the “JPM Covenant Defaults”).

The TCW Notice indicated that Agent and TCW Lenders were informed of the occurrence of events of default and the continuation thereof under the Term Loan Agreement (described below) as a result of the Company permitting the Total Debt to EBITDA Ratio for the twelve month period ended on January 31, 2023 to be greater than 5.00:1.00 in violation of the Term Loan Agreement and the Company’s failure to maintain FCCR as required under the JPM Credit Agreement (the “TCW Covenant Defaults” and together with the JPM Covenant Defaults, the “Defaults”).

As a result of the Defaults, the Company was not in compliance with its financial covenants under the Credit Agreements as of January 31, 2023. Due to the Notices received on March 2, 2023, from each of JPM and TCW, the total debt balances for both the Facility and the TCW Term Loan had been classified as a current liability on the Condensed Consolidated Balance Sheet as of January 31, 2023.

On April 28, 2023, the Company entered into (i) a Waiver, Consent and Amendment No. 1 to the JPM Credit Agreement (“JPM Waiver”) with Wagz and JPM, as lender, which waived certain events of default under and amended certain terms of the JPM Credit Agreement and (ii) a Waiver, Consent and Amendment No. 1 to the Credit Agreement (“TCW Waiver” and together with the JPM Waiver, the “Waivers”) with Wagz and TCW (collectively with JPM, the “Lender Parties”), which waived certain events of default under and amended certain terms of the Term Loan Agreement. The Company was in compliance with its revised financial covenants under the Credit Agreements as of October 31, 2023.

Pursuant to the Waivers, the Company has agreed, among other things, to (i) if requested by the Agent, effect a corporate restructuring that would create a new holding company structure to own all of the Company’s stock through a merger pursuant to Section 251(g) of the General Corporation Law of the State of Delaware, after which the holding company would continue as the public company, become a guarantor under the Credit Agreements and pledge to the Lender Parties all of the equity of the Company (the “Corporate Restructuring”), (ii) engage a financial advisor to review certain of the Company’s financial reporting to JPM and the Agent and participate in weekly conference calls with the advisor, JPM and the Agent to discuss and provide updates on the Company’s liquidity and operations, (iii) extend the Wagz Loan, (iv) pay to JPM an amendment fee in the amount of $70,000, paid in cash, and (v) pay to the TCW Lenders an amendment fee of $395,000 and a default rate fee of $188,301, both of which were paid in kind by being added to the principal of the TCW Term Loan. The Company engaged a financial advisor in April 2023 and developed cashflow modeling tools. The financial advisor engagement was completed in September 2023.

The Waivers also amended the Credit Agreements to, among other things, (x) require that the Company maintain a minimum of $2.5 million in revolver availability under the JPM Credit Agreement, (y) modify the definition of EBITDA to allow adjustments to account for Wagz operating losses, impairment charges relating to the write-down of the Wagz business, the Wagz Loan and net assets of the Company and Wagz, and expenses relating to the Waivers, the Company’s sale of the majority ownership interest in Wagz under the SPA, and (z) modify the existing Total Debt to EBITDA Ratios (as defined in the Credit Agreements) as follows:

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SigmaTron International, Inc.

October 31, 2023

Fiscal Quarter	Total Debt to EBITDA Ratio* (as amended)	Total Debt to EBITDA Ratio* (prior to amendment)
October 31,2023	4.50:1.0	4.25:1.0
January 31, 2024	4.50:1.0	4.00:1.0
April 30, 2024	4.50:1.0	4.00:1.0
July 31, 2024	4.25:1.0	3.75:1.0
October 31, 2024	4.00:1.0	3.75:1.0

* Assumes the Term Loan Borrowing Base Coverage Ratio (as defined in the Term Loan Agreement) is less than or equal to 1.50:1.0.

The Company was in compliance with its revised financial covenants under the Credit Agreements as of October 31, 2023.

In addition, during the PIK Period (defined in the Term Loan Agreement), pursuant to the TCW Waiver, if the Total Debt to EBITDA Ratio for the trailing twelve month period as of the end of a third fiscal quarter exceeds the ratios that were in effect prior to the amendment (as set forth in the far right column of the table above) for that fiscal quarter, then the Applicable Margin under the Term Loan Agreement in respect of the outstanding TCW Term Loan would increase by an amount equal to 1.0% per annum for the fiscal quarter, with such interest being paid in kind. Furthermore, the JPM Waiver modified the definition of Applicable Margin from a fixed amount equal to 2.00% to an amount that varies from 2.00% (for revolver availability greater than or equal to $20.0 million), to 2.50% (for revolver availability greater than or equal to $10.0 million), to 3.00% (for revolver availability less than $10.0 million), and fixed the Applicable Margin at 3.00% for six months starting April 1, 2023.

In exchange for such agreements, the Lender Parties waived all of the existing events of default under the Credit Agreements through March 31, 2023, consented to the sale of Wagz and released Wagz and its property and the Company’s 81% ownership interest in Wagz that was sold to Buyer (as disclosed above) from the lien of the Lender Parties.

In connection with the Waivers, the Company exited its active involvement in the Pet Tech business that is conducted by Wagz through the sale by the Company of the majority ownership interest in Wagz, effective as of April 1, 2023.

On June 15, 2023, the Company entered into (i) Amendment No. 2 to the Credit Agreement (the “JPM Amendment No. 2”) by and among the Company and Lender, with respect to the JPM Credit Agreement and (ii) Amendment No. 2 to the Credit Agreement (“TCW Amendment No. 2”) by and among the Company and TCW with respect to the Term Loan Agreement. The JPM Amendment No. 2 and TCW Amendment No. 2 (together, the “Amendments”) amended the Credit Agreements to extend the date, from May 31, 2023 to July 31, 2023, after which the Agent may request that the Company effect the Corporate Restructuring.

On March 15, 2019, the Company’s wholly-owned foreign enterprise, Wujiang SigmaTron Electronic Technology Co., Ltd., entered into a credit facility with China Construction Bank. On January 26, 2021, the agreement was amended and expired in accordance with its terms on January 6, 2022. On January 17, 2022, the agreement was renewed, and expired in accordance with its terms on December 23, 2022. On February 17, 2023, the agreement was renewed, and is scheduled to expire on February

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SigmaTron International, Inc.

October 31, 2023

7, 2024. Under the agreement Wujiang SigmaTron Electronic Technology Co., Ltd. can borrow up to 10,000,000 Renminbi, approximately $1,400,000 as of October 31, 2023, and the facility is collateralized by Wujiang SigmaTron Electronics Co., Ltd.’s manufacturing building. Interest is payable monthly and the facility bears a fixed interest rate of 3.35% per annum. There was no outstanding balance under the facility at October 31, 2023 and April 30, 2023.

Notes Payable – Buildings

The Company entered into a mortgage agreement on March 3, 2020, in the amount of $556,000, with The Bank and Trust SSB to finance the purchase of the property that serves as the Company’s warehousing and distribution center in Del Rio, Texas. The note requires the Company to pay monthly installment payments in the amount of $6,103. Interest accrues at a fixed rate of 5.75% per year until March 3, 2025, and adjusts thereafter, on an annual basis, equal to 1.0% over the Prime Rate as published by The Wall Street Journal. The note is payable over a 120 month period. The outstanding balance was $392,220 and $417,143 at October 31, 2023 and April 30, 2023, respectively.

Notes Payable – Equipment

The Company routinely entered into secured note agreements with Engencap Fin S.A. DE C.V. to finance the purchase of equipment. The terms of the outstanding secured note agreement, which had a fixed interest rate of 8.00% per annum, matured on May 1, 2023, and the final quarterly installment payment of $9,310 was paid.

The Company routinely enters into secured note agreements with FGI Equipment Finance LLC to finance the purchase of equipment. The terms of the outstanding secured note agreements mature from March 2025 through August 2028, with quarterly installment payments ranging from $10,723 to $69,439 and a fixed interest rate ranging from 8.25% to 11.75% per annum.

Finance Lease Obligations

The Company enters into various finance lease agreements. The terms of the outstanding lease agreements mature through September 1, 2027, with monthly installment payments ranging from $2,874 to $33,706 and a fixed interest rate ranging from 7.09% to 12.73% per annum.

Other

The Company provides funds for salaries, wages, overhead and capital expenditure items as necessary to operate its wholly-owned Mexican, Vietnamese and Chinese subsidiaries and the Taiwan IPO. The Company provides funding in U.S. Dollars, which are exchanged for Pesos, Dong, Renminbi, and New Taiwan dollars. The fluctuation of currencies from time to time, without an equal or greater increase in inflation, could have a material impact on the financial results of the Company. The impact of currency fluctuations for the six month period ended October 31, 2023, resulted in net foreign currency transaction losses of $461,859 compared to net foreign currency losses of $797,459 for the same period in the prior year. During the six months of fiscal year 2024, the Company paid approximately $31,040,000 to its foreign subsidiaries for manufacturing services. All intercompany balances have been eliminated upon consolidation.

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SigmaTron International, Inc.

October 31, 2023

The Company has not changed its plans to indefinitely reinvest the earnings of the Company’s foreign subsidiaries. The cumulative amount of unremitted earnings for which U.S. income taxes have not been recorded is $14,561,000 as of October 31, 2023.

The Company anticipates that its credit facilities, expected future cash flow from operations and leasing resources are adequate to meet its working capital requirements and fund capital expenditures for the next 12 months. However, in the event customers delay orders or future payments are not made timely, the Company desires to expand its operations, its business grows more rapidly than expected, or the current economic climate deteriorates, additional financing resources may be necessary. There is no assurance that the Company will be able to obtain equity or debt financing at acceptable terms, or at all, in the future.  There is no assurance that the Company will be able to retain or renew its credit agreements in the future, or that any retention or renewal will be on the same terms as currently exist.

The impact of inflation and the continuing global supply chain disruptions in the electronic component marketplace have continued to be challenging. The Company has certain customers that have lowered their demand, while others remain strong. The Company expects this uncertainty to remain short term as it expects customer requirements to pick up by third quarter for fiscal 2024. The Company has seen modest improvements to the supply chain challenges that it has experienced over the last 18 months. The Company expects these challenges to continue to improve for fiscal 2024, based on what is known at this time.

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, the Company is not required to provide the information required by this item.

Item 4.Controls and Procedures.

Disclosure Controls:

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rules 13a-15(e) and 15(d)-15(e) thereunder) as of October 31, 2023. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and its 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 October 31, 2023.

Internal Controls:

There has been no change in the Company’s internal control over financial reporting during the six months ended October 31, 2023, that has materially affected or is reasonably likely to materially affect its internal control over financial reporting. The Company’s internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with U.S. GAAP.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

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SigmaTron International, Inc.

October 31, 2023

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

Item 1A. Risk Factors.

There have been no material changes to the Company’s risk factors since the filing of the Company’s annual report on Form 10-K for the fiscal year ended April 30, 2023.

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

None.

Item 3. Defaults Upon Senior Securities.

None beyond what was previously disclosed.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

 
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SigmaTron International, Inc.

October 31, 2023

Item 6.Exhibits.

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).
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	Inline XBRL Instance Document (the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document)
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)

 
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SigmaTron International, Inc.

October 31, 2023

SIGNATURES:

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

SIGMATRON INTERNATIONAL, INC.

/s/ Gary R. Fairhead	December 11, 2023
Gary R. Fairhead	Date
CEO (Principal Executive Officer)
/s/ James J. Reiman	December 11, 2023
James J. Reiman	Date
Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)

56