UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

X  Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 For the fiscal year ended April 30, 2024.

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 (State or other jurisdiction of incorporation or organization) 2201 Landmeier Rd., Elk Grove Village, IL (Address of principal executive offices) Registrant’s telephone number, including area code: 847-956-8000 Securities registered pursuant to Section 12(b) of the Act: 36-3918470 (I.R.S. Employer Identification Number) 60007 (Zip Code)

		ASDAQ Capital Market
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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. oYes ý No

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

ý Yes o No

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

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

Large Accelerated Filer o Accelerated Filer o Non-accelerated Filer ý Smaller Reporting Company ý

Emerging Growth Company o

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of October 31, 2023, the last business day of the registrant’s most recently completed second fiscal quarter was $15,916,135 based on the closing sale price of $2.97 per share as reported by Nasdaq Capital Market as of such date.

The number of outstanding shares of the registrant’s Common Stock, $0.01 par value, as of August 27, 2024 was 6,119,288.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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TABLE OF CONTENTS

PART I
	ITEM 1.	BUSINESS	4
	ITEM 1A.	RISK FACTORS	12
	ITEM IB.	UNRESOLVED STAFF COMMENTS	22
	ITEM 1C.	CYBERSECURITY	22
	ITEM 2.	PROPERTIES	24
	ITEM 3.	LEGAL PROCEEDINGS	25
	ITEM 4.	MINE SAFETY DISCLOSURES	25
PART II
	ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	25
	ITEM 6.	RESERVED	26
	ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	26
	ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS	42
	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	42
	ITEM 9.	CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	42
	ITEM 9A.	CONTROLS AND PROCEDURES	42
	ITEM 9B.	OTHER INFORMATION	43
	ITEM 9C.	DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION	43
PART III
	ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	43
	ITEM 11.	EXECUTIVE COMPENSATION	43
	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	44
	ITEM 13.	CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	44
	ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	44
PART IV
	ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	44
	ITEM 16.	FORM 10-K SUMMARY	44
		SIGNATURES	48

‎

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PART I

ITEM 1. BUSINESS

CAUTIONARY NOTE:

In addition to historical financial information, this discussion of the business of SigmaTron International, Inc. (“SigmaTron”), its 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., and its international procurement office, SigmaTron International Inc. Taiwan Branch (collectively, the “Company”) and other Items in this Annual Report on Form 10-K contain forward-looking statements concerning the Company’s business or results of operations. Words such as “continue,” “anticipate,” “will,” “expect,” “believe,” “plan,” and similar expressions identify forward-looking statements. These forward-looking statements are based on the current expectations of the Company. Because these forward-looking statements involve risks and uncertainties, the Company’s plans, actions and actual results could differ materially. Such statements should be evaluated in the context of the direct and indirect risks and uncertainties inherent in the Company’s business including, but not necessarily limited to, the Company’s continued dependence on certain significant customers; the continued market acceptance of products and services offered by the Company and its customers; pricing pressures from the Company’s customers, suppliers and the market; the activities of competitors, some of which may have greater financial or other resources than the Company; the variability of the Company’s operating results; the results of long-lived assets and goodwill impairment testing; the ability to achieve the expected benefits of acquisitions as well as the expenses of acquisitions; the collection 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 and the Company’s customers; demand challenges resulting from inflation and supply chain uncertainty; 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; relatively high 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, such as pandemics; 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 and the Israel-Hamas conflict; 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 this Annual Report on Form 10-K, and as risk factors, may be detailed from time to time in the Company’s filings with the Securities and Exchange Commission. These statements speak as of the date of such filings, and the Company undertakes no obligation to update such statements in light of future events or otherwise unless otherwise required by law.

Overview

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

Prior to April 1, 2023, the Company operated in two reportable segments as an independent provider of electronic manufacturing services (“EMS”), and as a provider of products to the pet technology (“Pet Tech”) market. The majority of the Pet Tech Segment was sold, effective as of April 1, 2023, and following such date,

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the Company operates in one reportable segment, the EMS segment. The EMS segment includes printed circuit board assemblies, electro-mechanical subassemblies and completely assembled (box-build) electronic products. 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’ business below reflects its continuing operations. Refer to Note P - Discontinued Operations, to the consolidated financial statements for fiscal 2023 activity associated with discontinued operations.

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

Prior to April 1, 2023, the Company operated in two reportable segments as an independent provider of EMS services and as a provider of products to the pet technology (“Pet Tech”) market. The majority of the Pet Tech Segment was sold, effective as of April 1, 2023, and following such date, the Company operates in one reportable segment, the EMS segment. 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. See “Recent Developments” below for additional information.

Except as otherwise noted, the description of the Company’ business below reflects its continuing operations. Refer to Note P - Discontinued Operations, to the consolidated financial statements for fiscal 2023 activity associated with discontinued operations.

The Company’s headquarters is in Elk Grove Village, Illinois, U.S. which also operates as a manufacturing facility. In addition, the Company has manufacturing facilities in Union City, California, U.S.; Acuna, Coahuila, Mexico; Chihuahua, Chihuahua, Mexico; and Tijuana, Baja California, Mexico; Suzhou, Jiangsu Province, China; and Bien Hoa City, Dong Nai Province, Vietnam. In addition, the Company maintains an International Procurement Office and Compliance and Sustainability Center (“IPO”) in Taipei, Taiwan. The Company also provides design services in its Elk Grove Village location and warehousing services in Del Rio, Texas, U.S.; El Paso, Texas, U.S.; its Elk Grove Village location; and San Diego, California, U.S. The Company has an information technology office in Taichung, Taiwan.

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

For the fiscal year ended April, 30 2024, the Company reported a pre-tax loss of approximately $2,800,000 from continuing operations. The Company reported sales of approximately $373,900,000. The fiscal year end revenue results decreased 10% compared to the prior fiscal year. The lower sales related to both decreased customer demand for certain customers and price decreases passed on to customers for certain raw materials due to the improvement in supply chain shortages. 

The Company’s backlog remains reasonably strong across the vast majority of markets and customers the Company serves. The continued supply chain shortages have improved significantly during fiscal 2024, but

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certain components continue to be challenging to receive on a timely basis and could impact the Company’s ability to ship the backlog as scheduled.  This is a problem faced by almost every customer and competitor in the EMS industry over the past two fiscal years, but has improved in the current fiscal year and the Company anticipates the situation to continue improving through fiscal 2025.

Products and Services

The Company provides a broad range of electronic and electromechanical manufacturing related outsourcing solutions for its customers. These solutions incorporate the Company’s knowledge and expertise in the EMS industry to provide its customers with an international network of manufacturing facilities, advanced manufacturing technologies, complete supply chain management, responsive and flexible customer service, as well as product design, test and engineering support. The Company’s EMS solutions are available from inception of product concept through the ultimate delivery of a finished product. Such technologies and services include the following:

Manufacturing and Testing Services: The Company’s core business is the assembly and testing of all types of electronic printed circuit board assemblies (“PCBA”) and often incorporating these PCBAs into electronic modules used in all types of devices and products that depend on electronics for their operation. This assembly work utilizes state of the art manufacturing and test equipment to deliver highly reliable products to the Company’s customers. The Company supports new product introduction (“NPI”), low volume/high mix as well as high volume/low mix assembly work at all levels of assembly and test complexity. From simple component assembly through the most complicated industry testing, the Company offers services required to build the vast majority of electronic devices commercially required in the market today.

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

Supply Chain Management: The Company provides complete supply chain management for the procurement of components needed to build customers’ products. This includes the procurement and management of all types of electronic components and related mechanical parts such as plastics and metal. The Company’s resources supporting this activity are provided both on a plant specific basis as well as globally through its IPO in Taipei, Taiwan. Each of its sites is linked together using the same Enterprise Resource Planning (“ERP”) system and custom Iscore software tools with real-time on-line visibility for customer access. The Company procures material from major manufacturers and distributors of electronic parts all over the world.

The Company relies on numerous third-party suppliers for components used in the Company’s production process. Certain of these components are available only from single-sources or a limited number of suppliers. In addition, a customer’s specifications may require the Company to obtain components from a single-source or a small number of suppliers. The loss of any such suppliers could have a material impact on the Company’s results of operations. Further, the Company could operate at a cost disadvantage compared to competitors who have greater direct buying power from suppliers. The Company orders material from its suppliers consistent with the purchase orders and binding forecasts it receives from its customers. See “Item 1A. Risk Factors – Raw material price increases and supply shortages could adversely affect results”.

Warehousing and Distribution: The Company provides both in-house and third-party warehousing, including in-bond warehouses, shipping, and customs brokerage for certain border crossings as part of its service offering. This includes international shipping, drop shipments to the end customer as well as support of inventory optimization activities such as kanban and consignment.

Government Compliance, Green, Sustainability, and Social Responsible Initiatives: The Company supports initiatives that promote sustainability, green environment and social responsibility. The Company helps its customers in achieving effective compliance. Those include, but are not limited to, Restrictions of Hazardous Substances (“RoHS”), Restriction of Chemicals (“REACH”) and Conflict Minerals regulations.

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Manufacturing Locations and Certifications: The Company’s manufacturing locations are strategically located to support our customers with locations in Elk Grove Village, Illinois U.S.; Union City, California U.S.; Acuna, Chihuahua and Tijuana, Mexico; Suzhou, China; and Bien Hoa City, Vietnam. The Company’s ability to transition manufacturing to lower cost regions without jeopardizing flexibility and service differentiates it from many competitors. Manufacturing certifications and registrations are location specific, and include ISO 9001:2015, ISO 14001:2004, ISO 14001:2015, IATF 16949:2016, Medical ISO 13485:2016 and FDB Certification and International Traffic in Arms Regulations (“ITAR”) certifications.

In addition, the Company provided products, design and manufacturing services to the pet technology market through its former subsidiary, Wagz. Wagz offered electronic products such as the Freedom Smart Dog Collar™, a wireless, geo-mapped fence, and wellness system, and apparel and accessories. It also sold its products online. The Company sold a majority of its interest in Wagz on April 28, 2023, effective as of April 1, 2023. The Company still owns a 19% interest in Wagz as a passive investment as of April 30, 2024. However, the Company determined that due to financial uncertainty of Wagz after the Company’s sale, the 19% ownership interest was fully reserved as of April 30, 2023.

The Company sold its Elgin, Illinois property in February 2024, and moved all operations from Elgin to Elk Grove Village, Illinois.

Markets and Customers

The Company’s customers are in the industrial electronics, consumer electronics and medical/life sciences industries. As of April 30, 2024, the Company had approximately 130 active customers ranging from Fortune 500 companies to small, privately held enterprises.

The following table shows, for the periods indicated, the percentage of net sales to the principal end-user markets the Company serves.

	Percent of Net Sales
Markets	Typical OEM Application	Fiscal 2024%	Fiscal 2023%
Industrial Electronics	Clean energy, off road equipment, controls, smart grid connectivity, gaming equipment, IOT connectivity, etc.	70.4	67.0
Consumer Electronics	Appliances, automotive electronics, carbon monoxide detectors, etc.	22.9	26.6
Medical/Life Sciences	Rehabilitation tables, battery packs, dental equipment, sterilizers, dialysis, etc.	6.7	6.4
Total		100%	100%

For the fiscal year ended April 30, 2024, the Company’s largest customer accounted for 13.1% of the Company’s net sales. For the fiscal year ended April 30, 2023, the Company’s largest customer accounted for 13.4% of the Company’s net sales.

The majority of sales are made to U.S. based customers and denominated in USD. The following geographic data includes net sales based on the country location of the Company’s operation providing the electronic manufacturing service for the year ended April 30, 2024 and 2023:

Location	Net Sales Fiscal 2024		Net Sales Fiscal 2023
United States	$	111,520,788	$	117,389,877
Mexico		217,897,991		236,938,519
China		38,363,805		48,584,165
Vietnam		6,101,237		11,523,284
Total	$	373,883,821	$	414,435,845

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As of April 30, 2024, approximately 43% of the total assets of the Company are located in foreign jurisdictions outside the United States, 31% and 10% of the total assets were located in Mexico and China, respectively, and 2% in other foreign locations. As of April 30, 2023, approximately 37% of the total assets were located in foreign jurisdictions, 25% and 10% were located in China and Mexico, respectively, and 2% in other foreign locations.

Sales and Marketing

Many of the members of the Company’s senior management are actively involved in sales and marketing efforts, and the Company has direct sales employees. The Company also markets its services through independent manufacturers’ representative organizations that employ sales personnel in the United States and Canada. Independent manufacturers’ representative organizations receive variable commissions based on orders received by the Company and are assigned specific accounts, not territories. In addition, the Company markets itself through its website and tradeshows. Wagz sold its products primarily online.

Mexico, China, Vietnam and Taiwan Operations

The Company’s subsidiary, Standard Components de Mexico, S.A, a Mexican entity, is located in Acuna, Coahuila, Mexico, a border town across the Rio Grande River from Del Rio, Texas, U.S. and is 155 miles west of San Antonio. Standard Components de Mexico, S.A. was incorporated and commenced operations in 1968 and had 785 employees at April 30, 2024. The Company’s subsidiary, AbleMex S.A. de C.V., a Mexican entity, is located in Tijuana, Baja California, Mexico, a border town south of San Diego, California, U.S. AbleMex S.A. de C.V. was incorporated and commenced operations in 2000. The operation had 390 employees at April 30, 2024. The Company’s subsidiary, Digital Appliance Controls de Mexico S.A., a Mexican entity, operates in Chihuahua, Chihuahua, Mexico, located approximately 235 miles from El Paso, Texas, U.S. Digital Appliance Controls de Mexico S.A. was incorporated and commenced operations in 1997. The operation had 445 employees at April 30, 2024. The Company believes that one of the key benefits to having operations in Mexico is its access to cost-effective labor resources while having geographic proximity to the United States.

The Company’s wholly-owned foreign enterprises, Wujiang SigmaTron Electronics Co., Ltd. and Wujiang SigmaTron Electronic Technology Co., Ltd., are located in Suzhou, China. The Company has entered into an agreement with governmental authorities in the economic development zone of Wujiang, Jiangsu Province, Peoples Republic of China, pursuant to which the Company became the lessee of a parcel of land of approximately 100 Chinese acres. The term of the land lease is 50 years. The Company built a manufacturing plant, office space and dormitories on this site during 2004. In fiscal year 2015, the China facility expanded and added 40,000 square feet in warehouse and manufacturing. The total square footage of the facility is 216,950 and the operation had 316 employees as of April 30, 2024. Both Wujiang SigmaTron Electronics Co., Ltd. and Wujiang SigmaTron Electronic Technology Co., Ltd. operate at this site.

The Company’s subsidiary, Spitfire Controls (Cayman) Co. Ltd., owns all of the equity of the subsidiary, Spitfire Controls (Vietnam) Co. Ltd., and does not conduct any other operations. Spitfire Controls (Vietnam) Co. Ltd. is located in Amata Industrial Park, Bien Hoa City, Dong Nai Province, Vietnam, and is 18 miles east of Bien Hoa City. Spitfire Controls (Vietnam) Co. Ltd. was incorporated and commenced operation in 2005 and had 291 employees as of April 30, 2024.

The Company maintains an international procurement office (“IPO”) in Taipei, Taiwan which was incorporated in 1991. The total square footage of the office is 4,685 square feet. The Company has an information technology office in Taichung, Taiwan. The total square footage of the office is 1,650 square feet. The Company had 37 employees located in the Taiwan offices as of April 30, 2024.

The Company provides funds for manufacturing services such as salaries, wages, inventory purchases for certain locations, overhead and capital expenditure items as necessary to operate its Mexican, Vietnamese and Chinese subsidiaries and foreign enterprises and the IPO in Taiwan. The Company provides funding in U.S. Dollars, which are exchanged for Pesos, Dong, Renminbi, and New Taiwan dollars. The fluctuation of currencies from time to time, without an equal or greater increase in inflation, could have a material impact on the financial results of the Company. The impact of currency fluctuations for the fiscal year ended April 30,

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2024, resulted in net foreign currency transaction losses of $796,315 compared to net foreign currency losses of $892,642 in the prior fiscal year. In fiscal year 2024, the Company paid approximately $60,320,000 to its foreign subsidiaries for manufacturing services. All intercompany balances have been eliminated upon consolidation.

The consolidated financial statements as of April 30, 2024, include the accounts and transactions of SigmaTron, its 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 IPO, SigmaTron International, Inc. Taiwan Branch, and Wagz, Inc. The Company still owns a 19% interest in Wagz as a passive investment as of April 30, 2024. However, the Company determined that due to financial uncertainty of Wagz after the Company’s sale, the 19% ownership interest was fully reserved as of April 30, 2023. The functional currency of the Company’s foreign subsidiaries operations is the U.S. Dollar. Intercompany transactions are eliminated in the consolidated financial statements.

Competition

The EMS industry is highly competitive and subject to rapid change. Furthermore, both large and small companies compete in the industry, and many have significantly greater financial resources, more extensive business experience and greater marketing and production capabilities than the Company. The significant competitive factors in this industry include price, quality, service, timeliness, reliability, the ability to source raw components, and manufacturing and technological capabilities. The Company believes it can compete on all of these factors.

Consolidation

As a result of consolidation and other transactions involving competitors and other companies in the Company’s markets, the Company occasionally reviews potential transactions relating to its business, products and technologies. Such transactions could include mergers, acquisitions, strategic alliances, joint ventures, licensing agreements, co-promotion agreements, financing arrangements or other types of transactions. In the future, the Company may choose to enter into these types of or other transactions at any time depending on available sources of financing, and such transactions could have a material impact on the Company’s business, financial condition or operations.

Governmental Regulations

The Company’s operations are subject to certain foreign government, U.S. federal, state and local regulatory requirements relating to, among others, environmental, waste management, consumer, labor and health and safety matters.  Management believes that the Company’s business is operated in compliance with all such regulations, which include European regulations known as Restriction of Hazardous Substances (“RoHS”) and Registration, Evaluation, Authorization and Restriction of Chemicals (“REACH”).  From time-to-time the Company's customers request REACH required information and certifications on the assemblies the Company manufactures for them.  These requests require the Company to gather information from component suppliers to verify the presence and level of mass of any substances of very high concerns (“SVHCs”) greater than 0.1% in the assemblies the Company manufactures based on customer specifications.  If any SVHCs are present at more than 0.1% of the mass of the item, the specific concentration and mass of the SVHC must be reported to proper authorities by the Company's customer.

Backlog

The Company relies on binding forecasted orders and purchase orders (firm orders) from its customers to estimate backlog. The Company’s backlog of firm orders as of April 30, 2024, and April 30, 2023, was approximately $289,900,000 and $387,350,000, respectively. The Company believes a significant portion of the backlog at April 30, 2024, will ship in fiscal year 2025. Because customers may cancel or reschedule deliveries, backlog may not be a meaningful indicator of future revenue. Variations in the magnitude and duration of contracts, forecasts and purchase orders received by the Company and delivery requirements generally may result in substantial fluctuations in backlog from period to period. The Company believes the

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decrease in backlog is largely the result of customers shortening the forecasting period as market conditions and lead times for components have improved.

Human Capital Resources

The Company employed approximately 2,750 full-time employees of which approximately 490 were located in the U.S. as of April 30, 2024. There were approximately 240 engaged in engineering or engineering-related services, 2,090 in manufacturing and 420 in administrative functions, including supply chain, accounting, management and sales and marketing.

The Company makes a considerable effort to maintain a qualified and engaged work force. The Company makes a concerted effort to engage its employees and provide opportunities for growth and the Company believes that its employee relations are good. The Company considers the health and safety of its employees a key priority. The Company is committed to removing conditions that may cause personal injury or occupational illness.

SigmaTron has a labor contract with Chemical & Production Workers Union Local No. 30, AFL-CIO, covering the Company’s workers in Elk Grove Village, Illinois which expires on November 30, 2024. The Company’s Mexican subsidiary, Standard Components de Mexico S.A., has a labor contract with Sindicato De Trabajadores de la Industra Electronica, Similares y Conexos del Estado de Coahuila, C.T.M. covering the Company’s workers in Acuna, Mexico which expires on February 1, 2026. The Company’s subsidiary located in Tijuana, Mexico has a labor contract with Sindicato Mexico Moderno De Trabajadores De La, Baja California, C.R.O.C. The contract does not have an expiration date. The Company’s subsidiary located in Bien Hoa City, Vietnam, has a labor contract with CONG DOAN CO SO CONG TY TNHH Spitfire Controls Vietnam. The contract expires on April 30, 2025.

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

Available Information

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

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

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Information about our Executive Officers

Name	Age	Position
Gary R. Fairhead	72	Chief Executive Officer and Chairman of the Board of Directors. Gary R. Fairhead has been the Chief Executive Officer of the Company and a director since November 1993 and Chairman of the Board of Directors of the Company since August 2011. He was also President from November 1993 until October 2021 and then from August 2022 until January 2023. Gary R. Fairhead is the brother of Gregory A. Fairhead.
John P. Sheehan	63	President since January 2023. Vice President, Director of Supply Chain, and Assistant Secretary from February 1994 until January 2023.
James J. Reiman	61	Chief Financial Officer, Vice President of Finance, Treasurer and Secretary since November 2021. Corporate Controller at Chroma Color Corporation from August 2019 to October 2021. Corporate Controller at Methode Electronics, Inc. from April 2007 to December 2018.
Gregory A. Fairhead	68	Executive Vice President and Assistant Secretary. Gregory A. Fairhead has been the Executive Vice President since February 2000 and Assistant Secretary since 1994. Mr. Fairhead was Vice President - Acuna Operations for the Company from November 1993 to February 2000. Gregory A. Fairhead is the brother of Gary R. Fairhead.
Rajesh B. Upadhyaya	69	Executive Vice President, West Coast Operations since 2005. Mr. Upadhyaya was the Vice President of the Fremont Operations from 2001 until 2005.
Hom-Ming Chang	64	Vice President, China Operations since 2007. Vice President - Hayward Materials / Test / IT from 2005 - 2007.

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ITEM 1A. RISK FACTORS

The following risk factors should be read carefully in connection with evaluating our business and the forward-looking information contained in this Annual Report on Form 10-K. Any of the following risks could materially adversely affect our business, operations, industry or financial position or our future financial performance. While the Company believes it has identified and discussed below the key risk factors affecting its business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect its business, operations, industry, financial position and financial performance in the future.

Business and Operational Risks

Raw material price increases and supply shortages could adversely affect results.

The supply of raw materials to the Company and to its component parts suppliers could be interrupted for a variety of reasons, including availability and pricing. In particular, inflation, changes in trade policies, the imposition of duties and tariffs, potential retaliatory countermeasures, public health crises (such as the COVID-19 pandemic), and geopolitical conflicts (including involving Russia, Belarus, or Ukraine, which supply raw materials, such as neon, palladium and nickel, to the semiconductor industry) could adversely impact the price or availability of raw materials. Prices for raw materials necessary for production have fluctuated significantly in the past and the Company is currently experiencing upward pricing pressure on raw materials. Historically, it has been difficult to pass increased prices for components and raw materials through to our customers in the form of price increases. The Company may not be able to pass along increased raw material and components parts prices to its customers in the form of price increases or its ability to do so could be delayed. Significant price increases for components and raw materials could adversely affect the Company’s results of operations and operating margins. Consequently, its results of operations and financial condition may be adversely affected.

The Company experiences variable operating results.

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

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

-          changes in availability and rising component costs

-          changes in sales mix to customers

-          volume of customer orders relative to capacity

-          market demand and acceptance of our customers’ products

-          price erosion within the EMS marketplace

-          capital equipment requirements needed to remain technologically competitive

-          volatility in the U.S. and international economic and financial markets

The volume and timing of sales to the Company’s customers may vary due to:

-          component availability

-          variation in demand for the Company’s customers’ products

-          customers’ attempts to manage their inventory

-          design changes

-          acquisitions of or consolidation among customers

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Most of the Company’s customers’ production schedules are volatile, which makes it difficult to schedule production and achieve maximum efficiency at the Company’s manufacturing facilities and manage inventory levels.

The Company’s inability to forecast the level of customer orders with certainty can make it difficult to schedule production and maximize utilization of manufacturing capacity and manage inventory levels. The Company could be required to increase or decrease staffing and more closely manage other expenses in order to meet the anticipated demand of its customers. Orders from the Company’s customers could be cancelled or delivery schedules could be deferred or accelerated as a result of changes in our customers’ demand, which can put added stress on resources. Sudden decreases in production can lead to excess inventory on hand which may or may not be reimbursed by our customers even when under contract. These and other factors could harm our ability to achieve anticipated levels of profitability and thereby adversely affecting the Company’s results of operations in any given period.

The Company’s inventory levels have been adversely impacted by the global supply chain crisis, with an unprecedented impact on working capital requirements.

The impact of component shortages on sales of finished goods and the resulting increase in inventory levels in prior fiscal years had been unprecedented although inventory levels have decreased significantly during fiscal year 2024. The supply chain uncertainty has significantly lessened during the fiscal year, however there are still certain components that are difficult to obtain on a timely basis. The continued impact of increased inventory levels on working capital requirements materially increases our operating costs and if it continues unabated, could materially and adversely affect our business and results of operations.

If our manufacturing processes and services do not comply with applicable statutory and regulatory requirements, or if we manufacture products containing design or manufacturing defects, demand for our services may decline and we may be subject to liability claims.

We provide a broad range of electronic and electromechanical manufacturing related outsourcing solutions and, in some cases, our manufacturing processes and facilities may need to comply with applicable statutory and regulatory requirements. For example, the products we manufacture or design, as well as the facilities and manufacturing processes that we use to produce them are subject to certain foreign government, U.S. federal, state and local regulatory requirements relating to, among others, environmental, waste management, consumer, labor and health and safety matters. In addition, our customers’ products and the manufacturing processes that we use to produce them often are highly complex. As a result, products that we manufacture may at times contain manufacturing or design defects, and our manufacturing processes may be subject to errors or not be in compliance with applicable statutory and regulatory requirements. Defects in the products we manufacture or design, whether caused by a design, manufacturing or component failure or error, or deficiencies in our manufacturing processes, may result in delayed shipments to customers or reduced or canceled customer orders. If these defects or deficiencies are significant, our reputation may also be damaged. The failure of the products that we manufacture or our manufacturing processes and facilities to comply with applicable statutory and regulatory requirements may subject us to legal fines or penalties and, in some cases, require us to shut down or incur considerable expense to correct a manufacturing process or facility. If our customers are responsible for the defects, they may not, or may not have resources to, assume responsibility for any costs or liabilities arising from these defects, which could expose us to additional liability claims.

We have, and may in the future, encounter complications with acquisitions, which could potentially harm our business.

To integrate acquired businesses, we must implement our management information systems, operating systems and internal controls, and assimilate and manage the personnel of the acquired operations. The integration of acquired businesses may be further complicated by difficulties managing operations in geographically dispersed locations. The integration of acquired businesses may not be successful and could result in disruption by diverting management’s attention from the core business. Also, the acquired business’s products or services may not be accepted by the market. In addition, the integration of acquired businesses may require that we incur significant restructuring charges or other increases in our expenses and working capital requirements, which reduce our return on invested capital. Acquisitions may involve numerous other risks and challenges

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including but not limited to; potential loss of key employees and customers of the acquired companies; the potential for deficiencies in internal controls at acquired companies; lack of experience operating in the geographic market or industry sector of the acquired business; constraints on available liquidity, and exposure to unanticipated liabilities of acquired companies. These and other factors could harm our ability to achieve anticipated levels of profitability at acquired operations or realize other anticipated benefits of an acquisition, and could adversely affect our consolidated business and operating results.

We are subject to increased regulatory compliance costs associated with climate change and to the potential impacts of severe weather events.

The increasing worldwide attention on climate change has led to evolving stakeholder and societal expectations on companies. In the U.S., changes in climate disclosure requirements and environmental regulations could subject the Company to additional restrictions, costs, or obligations, both directly as we face new environmental and reporting requirements, and indirectly as increased costs are realized in our supply chain.

The Company’s manufacturing facilities and real property are subject to extensive and changing federal, state, local, and foreign environmental laws and regulations, including those relating to discharges in air, water, and land, the handling and disposal of solid and hazardous waste, the use of certain hazardous materials in the production of select products, and the remediation of contamination associated with releases of hazardous substances. Compliance with more stringent laws or regulations, or stricter interpretation of existing laws, may require additional expenditures, some of which could be material.

Environmental regulations or changes in the supply, demand, or available sources of energy, water, or other resources may affect the availability or cost of goods and services, including raw goods and natural resources necessary to run our business. Increases in the cost of energy in particular could reduce our profitability. Given the political significance and uncertainty around these issues, we cannot predict how climate change, and the legal and regulatory initiatives related to climate change, will affect our operations and financial condition.

Market Risks

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

Uncertainty over the erosion of global consumer confidence amidst concerns about volatile energy costs, geopolitical issues, the availability and cost of credit, declining asset values, inflation, unemployment, and the stability and solvency of financial institutions, financial markets, businesses, and sovereign nations has slowed global economic growth. The economic recovery of recent years is fragile. The Company’s sales and gross margins depend significantly on market demand for its customers’ products. The uncertainty in the U.S. and international economic and political environments could result in a decline in demand for our customers’ products in any industry and the duration of the decline is unpredictable. Further, any adverse changes in tax rates and laws or trade policies affecting our customers could result in decreasing gross margins. Any of these potential negative economic conditions may reduce demand for the Company’s customers’ products and adversely affect the Company’s sales. Consequently, the Company’s past operating results, earnings and cash flows may not be indicative of the Company’s future operating results, earnings and cash flows. Even a short-term decline in sales could create financial pressures on the Company’s performance and exacerbate other risk factors discussed in this Annual Report on Form 10-K.

Persistent inflation could have a material adverse impact on our business, operating results and financial condition.

Inflation has risen globally and has remained persistently at levels not experienced in years. Inflation directly and indirectly increases the costs of operating expenses such as fuel, energy, transportation, materials, and labor. We may not be able to increase our product prices enough to offset these increased costs, and any increase in our product prices may reduce our future customer orders and profitability. Inflation further erodes consumer confidence, and may negatively impact the market for our customers’ products. Persistent inflation could exacerbate other risk factors discussed in this Annual Report on Form 10-K.

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

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

-          recessionary periods in our customers’ markets

-          increased competition among our customers and their competitors

-          the inability of our customers to develop and market their products

-          the inability of our customers to obtain all necessary material to manufacture their products

-          the potential that our customers’ products become obsolete

-          our customers’ inability to react to rapidly changing technology

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

Our exposure to financially troubled customers or suppliers may adversely affect the Company’s financial results.

On occasion, we provide services to customers and rely upon suppliers that have in the past and may in the future experience financial difficulty. If any of the Company’s customers have financial difficulties, the Company could encounter delays or defaults in the payment of amounts owed for accounts receivable and inventory obligations. Additionally, if our suppliers experience financial difficulties, we could have difficulty sourcing raw material in the amounts and at the times necessary for production requirements. These risks may be heightened by the effects of recent economic volatility. Any financially troubled customer or supplier could have a significant adverse impact on the Company’s results of operations and financial condition.

The Company’s customer base is concentrated.

Sales to the Company’s five largest customers accounted for 49.2% and 47.4% of net sales for the fiscal years ended April 30, 2024, and April 30, 2023, respectively. For the fiscal year ended April 30, 2024, the Company’s largest customer accounted for 13.1% of the Company’s net sales and 4.6% of accounts receivable. For the fiscal year ended April 30, 2023, the Company’s largest customer accounted for 13.4% of the Company’s net sales and 6.8% of accounts receivable. Significant reductions in sales to any of the Company’s major customers or the loss of a major customer could have a material impact on the Company’s operations. If the Company cannot replace cancelled or reduced orders, sales will decline, which could have a material adverse impact on the results of operations. There can be no assurance that the Company will retain any or all of its largest customers. This risk may be further complicated by pricing pressures and intense competition prevalent in our industry.

The Company faces intense industry competition and downward pricing pressures.

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

Customer relationships with start-up companies present more risk.

A small portion of the Company’s current customer base is comprised of start-up companies.  Customer relationships with start-up companies may present heightened risk due to the lack of product history.  Slow market acceptance of their products could result in demand fluctuations causing inventory levels to rise.  Further, the current economic environment could make it difficult for such emerging companies to obtain

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additional funding.  This may result in additional credit risk including, but not limited to, the collection of trade account receivables and payment for their inventory.  If the Company does not have adequate allowances recorded, the results of operations may be negatively affected.

International Operations Risks

The Company has significant foreign operations that may pose additional risks.

The Company manufactures product in facilities located in Mexico, China, Vietnam and the United States. These operations may be subject to a number of risks, including:

-the political climate and relations with the United States, including the impact of trade wars, tariffs and trade barriers (including quotas)

-political and economic instability (including acts of terrorism, territorial disputes, pandemics, civil unrest, forms of violence, and outbreaks of war), which could impact our ability to ship, manufacture, or receive product

-the instability of the foreign economies

-burdens of complying with a wide variety of foreign laws and labor practices

-unexpected changes in regulatory requirements and laws

-potentially adverse tax consequences, including changes in tax rates and the manner in which multinational companies are taxed in the United States and other countries

-foreign labor practices, including difficulties in staffing, turnover and managing onshore and offshore operations

-export duties and import controls

-legal authority of the Company to operate and expand its business in foreign countries

-impact of physical and operational risks from natural disasters, severe weather events, and climate change

The Company obtains many of its materials and components through its IPO in Taipei, Taiwan. The Company’s access to these materials and components is dependent on the continued viability of its Asian suppliers.

Approximately 43% of the total assets of the Company are located in foreign jurisdictions outside the United States as of April 30, 2024; 31% and 10% of the total assets were located in Mexico and China, respectively, and 2% in other foreign locations. As of April 30, 2023, approximately 37% of the total assets were located in foreign jurisdictions; 25% and 10% were located in China and Mexico, respectively and 2% in other foreign locations.

There is a risk of fluctuation of various currencies integral to the Company’s operations.

The Company purchases some of its material components and funds some of its operations in foreign currencies. From time to time the currencies fluctuate against the U.S. Dollar. Such fluctuations could have a material impact on the Company’s results of operations and performance. During the past two fiscal years, the U.S. Dollar has weakened against the Mexican Peso and Chinese Renminbi, resulting in net currency translation losses of $796,315 and $892,642 for the fiscal year ended April 30, 2024 and April 30, 2023, respectively. These fluctuations are expected to continue and could have a negative impact on the Company’s results of operations. The Company has not, and does not expect to, utilize derivatives or hedge foreign currencies to reduce the risk of such fluctuations.

Unanticipated changes in our tax position, the adoption of new tax legislation or exposure to additional tax liabilities could adversely affect our financial results.

We base our tax position upon our understanding of the current tax laws of the various countries in which we have assets or conduct activities. Our tax position, however, is subject to review and possible challenge by taxing authorities and to possible changes in law. We cannot determine in advance the extent to which some jurisdictions may assess additional tax or interest and penalties on such additional taxes. Given the scope of our international operations and our international tax arrangements, changes to the manner in which U.S. based

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multinational companies are taxed in the U.S. could have a material impact on our financial results and competitiveness. Based on current and future tax policy in Washington D.C., our effective tax rates and overall cash taxes may change in the future and could have an impact on our financial results.

Although forgiven, the Company’s Paycheck Protection Program Loan (“PPP Loan”) remains subject to audit.

On April 23, 2020, the Company received a $6,282,973 PPP Loan under the CARES Act, which it used to retain current U.S. employees, maintain payroll and make lease and utility payments. The PPP Loan was forgiven on July 9, 2021. However, due to the size of the PPP Loan, it is subject to audit by the SBA for up to six years after forgiveness. While the Company believes that it satisfied all eligibility criteria for the PPP Loan, there is a risk that on audit, the Company will be determined to have been ineligible to receive the PPP Loan. In that case, the Company could be required to repay the PPP Loan in a lump sum and be subject to additional penalties and interest and adverse publicity and damage to the Company’s reputation. If these events were to transpire, they could have a material adverse effect on the Company’s business, results of operations and financial condition.

Financing and Capital Risks

If we fail to comply with our credit agreements in future periods, we may be unable to secure any required waivers or amendments from the lenders and repayment obligations on our outstanding indebtedness may be accelerated.

Our credit agreements contain numerous financial and operating covenants with which we must comply. In August 2024, the Company was able to negotiate amendments and waivers with both J.P. Morgan Chase and TCW Asset Management Company, lenders of our revolving and term loan facilities, respectively, as a result of our failure to maintain certain covenants as of April 30, 2024 and during the first quarter of fiscal year 2025. However, even as amended, the covenants impose tight parameters under which our financial performance is measured and has increased the Company’s costs. Our continued compliance with our obligations in general and these financial covenants in particular is dependent on our financial results, which are subject to fluctuation as described elsewhere in the risk factors discussed in this Annual Report on Form 10-K. If we fail to comply with the covenants in the future and if our lenders do not agree to waive any future non-compliance, we may be unable to borrow funds and any outstanding indebtedness could become immediately due and payable, which could materially harm our business.

The Company’s current credit facilities may become unavailable.

We cannot be certain that we will be able to again amend the revolving and term loan credit facilities or revise covenants, if necessary, to accommodate changes or developments in our business and operations. Our ability to meet any current or future financing covenants will largely depend on our financial performance, which in turn will be subject to general economic conditions and financial, business and other factors. The cessation of any of our current credit facilities could cause a material adverse effect on the Company’s business, results of operations and financial condition. Furthermore, it is possible that counterparties to the receivables factoring programs in which we participate may not be willing or able to meet their obligations, either due to instability in the global financial markets or otherwise, which could, among other impacts, increase the duration of our cash collection cycle.

We may fail to secure or maintain necessary additional financing or capital.

If the current credit facilities are not adequate to finance our business and manage the financial impact of current economic challenges, we may seek to raise additional capital by issuing additional equity, modifying our existing or obtaining new credit facilities, or through a combination of these methods. Our ability to issue additional common stock, other equity securities or debt securities may be hampered by any actual or perceived weakness or volatility in our stock price. Any such securities also likely will be dilutive to stockholders’ ownership interests. We may not be able to obtain capital when we want or need it, or on satisfactory terms. The failure to have access to sufficient capital could adversely materially affect the Company’s business, results of operations and financial condition.

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Increasing interest rates for our borrowings could adversely affect our results of operations.

The Company pays interest on outstanding borrowings under its secured credit facilities and certain other long-term debt obligations at interest rates that fluctuate. In recent months, persistent global inflation and other factors have resulted in a substantial increase in interest rates, and future borrowing costs may rise further. The amendments to the revolving and term loan facilities increased interest and fees owed to the lenders. Adverse changes in the Company’s interest rates could have a material adverse effect on its financial condition and results of operations.

The price of the Company’s stock is volatile.

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

Regulatory and Legal Risks

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

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

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

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

Changes in securities laws and regulations may increase the Company’s compliance efforts and costs.

The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and listing requirements subsequently adopted by Nasdaq in response to Sarbanes-Oxley, have required changes in corporate governance practices, internal control policies and securities disclosure and compliance practices of public companies. More recently the Dodd-Frank Act has required changes to our corporate governance, compliance practices and securities disclosures, increasing the Company’s disclosure requirements. Regulations adopted (and in certain cases subsequently stayed due to ongoing legal challenges) by the SEC mandating new disclosures of environmental, social and governance information, including climate-related risks, targets and goals and their financial impact, could become effective in the future. Compliance with these rules has increased our legal, financial and accounting costs, and those costs will increase if additional requirements are imposed. These legal developments may result in the Company having difficulty in attracting

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and retaining qualified directors or officers. The Company’s failure to comply with present or future regulations could result in the SEC or Nasdaq levying sanctions against the Company or even moving to delist its stock. Such consequences, as well as compliance costs, could have a material impact on the Company’s business, financial condition and results of operations.

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

The Dodd-Frank Act, and the rules promulgated by the SEC thereunder, require the Company to attempt to determine and report annually whether any Conflict Minerals contained in our products originated from the DRC or an adjoining country. The Dodd-Frank Act and these rules could affect our ability to source components that contain Conflict Minerals at acceptable prices and could impact the availability of Conflict Minerals, since there may be only a limited number of suppliers of conflict-free Conflict Minerals. Our customers may require that our products contain only conflict-free Conflict Minerals, and our revenues and margins may be negatively impacted if we are unable to meet this requirement at a reasonable price or are unable to pass through any increased costs associated with meeting this requirement. Additionally, the Company may suffer reputational harm with our customers and other stakeholders if our products are not conflict-free. The Company could incur significant costs in the event we are unable to manufacture products that contain only conflict-free Conflict Minerals or to the extent that we are required to make changes to products, processes, or sources of supply due to the foregoing requirements or pressures.

The Company’s operations are subject to numerous other regulations and failure to comply with all applicable regulations could subject the Company to liability.

The Company is subject to a variety of regulations, including environmental regulation of the use, storage, discharge and disposal of hazardous chemicals used during its manufacturing process; disclosures relating to cancer-causing substances in drinking water as required under California Proposition 65; and compliance with the European Union’s requirements relating to certain chemical and hazardous substances including under the Registration, Evaluation, Authorization and Restriction of Chemicals (REACH) Act and the Restriction of Hazardous Substances (RoHS-2) Directive. To date, the cost to the Company of such compliance has not had a material impact on the Company’s business, financial condition or results of operations. However, federal, state and local legislation and regulation are constantly evolving. Further, increased public awareness and concern regarding environmental risks, including global climate change, may result in more international, federal, state or local requirements or industry standards to reduce or mitigate climate change and other environmental risks. The Company cannot predict the nature, scope or effect of regulatory legislation or requirements that could be imposed or how existing or future laws or regulations will be administered or interpreted. Any failure by the Company to comply with present or future regulations, whether as a result of human error, equipment failure or other causes, could subject it to future liabilities to customers or governmental agencies, the suspension of production, increased costs or reputational harm with our customers and other stakeholders. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of regulatory agencies, could require substantial expenditures by the Company and could have a material impact on the Company’s business, financial condition and results of operations.

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

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

Failure to protect our intellectual property could undermine our competitive position.

Competing effectively depends, to a significant extent, on maintaining the proprietary nature of our intellectual property. We attempt to protect our intellectual property rights worldwide through a combination of keeping our

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proprietary information secret and utilizing trademark, copyright, and trade secret laws. Because of the differences in foreign laws concerning proprietary rights, our intellectual property rights do not generally receive the same degree of protection in foreign countries as they do in the United States, and therefore, in some parts of the world, we have limited protections, if any, for our intellectual property. If we are unable to adequately protect our intellectual property embodied in our solutions, designs, processes and manufacturing, the competitive advantages of our proprietary technology could be reduced or eliminated, which would harm our business and could have a material adverse effect on our results of operations and financial position.

Technology Risks

It is increasingly difficult to protect the Company’s Information Technology (“IT”) systems.

With the increased use of technologies to conduct business, a company is susceptible to operational, information security and related risks. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyberattacks include gaining unauthorized access to digital systems (e.g., through “hacking” or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption (e.g., ransomware attacks). Cyberattacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites (i.e., efforts to make network services unavailable to intended users). Cyber incidents affecting the Company or its service providers have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Company’s ability to conduct business in the ordinary course, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, additional compliance costs and, in extreme cases, have caused companies to cease doing business. Cyber events also can affect counterparties or entities with which the Company does business, governmental and other regulatory authorities, banks, insurance companies and other financial institutions, among others. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. While the Company has established risk management systems designed to prevent such cyber incidents, there are inherent limitations in such systems including the possibility that the Company has not prepared for certain risks that have not been or are not possible to have been identified. Further, the Company may have limited ability to influence, and cannot control, the cyber security plans and systems put in place by its service providers or any other third parties whose operations may affect the Company. The Company could be negatively impacted as a result.

If the security of the Company’s IT systems is breached or otherwise subjected to unauthorized access, the Company’s reputation may be severely harmed and it may be exposed to liability.

The Company’s IT systems store confidential information which includes its financial information, its customers’ proprietary information, product information, supplier information, and other critical data.  Any accidental or willful security breach or other unauthorized access could expose the Company to liability for the loss of such information, adverse regulatory action by federal, state and local governments, time-consuming and expensive litigation and other possible liabilities as well as negative publicity, which could severely damage the Company’s reputation.  If security measures are breached because of third-party action, employee action or error, malfeasance or otherwise, or if design flaws in its software are exposed and exploited, and, as a result, a third party obtains unauthorized access to any of the Company’s customer data, its relationships with its customers may be severely damaged, and the Company could incur significant liability.  Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, the Company and its third-party hosting facilities may be unable to anticipate these techniques or to implement adequate preventive measures.  In addition, many states have enacted laws requiring companies to notify customers of data security breaches involving their data.  These mandatory disclosures regarding a security breach often lead to widespread negative publicity, which may cause the Company’s customers to lose confidence in the effectiveness of its data security measures.  Any security breach whether actual or perceived, could harm the Company’s reputation, could cause it to lose customers and may negatively impact its ability to acquire new customers.

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

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

Human Capital Risks

The Company depends on management and skilled personnel.

The Company depends significantly on its Chief Executive Officer and Chairman of the Board, President and other executive officers. The Company’s employees generally are not bound by employment agreements and the Company cannot assure that it will retain its executive officers or skilled personnel. The loss of the services of any of these key employees could have a material impact on the Company’s business and results of operations. In addition, due to significant competition in the labor market, continued growth and expansion of the Company’s EMS business will require that the Company attract, motivate and retain additional skilled and experienced personnel. The Company’s future growth depends on the contributions and abilities of key executives and skilled, experienced employees. The Company’s future growth also depends on its ability to recruit and retain high-quality employees. A failure to obtain or retain the number of skilled employees necessary to support the Company’s efforts, a loss of key employees or a significant shortage of skilled, experienced employees could jeopardize its ability to meet its growth targets.

Favorable labor relations are important to the Company, and failures to comply with domestic or international employment laws could result in significant damages.

The Company currently has labor union contracts with its employees constituting approximately 46% and 48% of its workforce for fiscal years 2024 and 2023, respectively. Although the Company believes its labor relations are good, any labor disruptions, whether union-related or otherwise, could significantly impair the Company’s business, substantially increase the Company’s costs or otherwise have a material impact on the Company’s results of operations. The Company is also subject to a variety of domestic and foreign employment laws, including those related to safety, wages, discrimination, harassment, organizing, employee privacy and severance. Allegations of violations of these laws could result in defense costs, damages, settlements and fines, which could have a material impact on the Company’s results of operations.

Accounting Risks

The Company has intangible assets, and future impairment of these assets could have a material adverse impact on the Company's financial results.

The Company has recorded identifiable intangible assets on its balance sheet as a result of operations and acquisitions. A number of factors may result in impairments to intangible assets, including significant negative industry or economic trends, disruptions to our business, increased competition and significant changes in the use of the assets. For example, we concluded that our goodwill and long-lived assets as of April 30, 2023 were impaired and recorded asset impairment charges equal to a total of $23,096,771, which adversely impacted our results of operations. See Note F – Disposition, for a discussion related to impairment testing of goodwill and intangible assets for the year ended April 30, 2023. Any additional impairment charges could adversely affect the Company's financial condition or results of operations in the periods recognized.

Inadequate internal control over financial reporting could result in a reduction in the value of our common stock.

If the Company identifies and reports a material weakness in its internal control over financial reporting, stockholders and the Company’s lenders could lose confidence in the reliability of the Company’s financial

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statements. This could have a material adverse impact on the value of the Company’s stock and the Company’s liquidity.

Disclosure and internal controls may not detect all errors or fraud.

The Company’s disclosure controls and internal controls can provide only reasonable assurance that the procedures will meet the control objectives. Controls are limited in their effectiveness by human error, including faulty judgments in decision-making. Further, controls can be circumvented by collusion of two or more people or by management override of controls. Therefore, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, cannot conclude with certainty that the Company’s disclosure controls and internal controls will prevent all errors and all fraud.

Changes in financial accounting standards may affect our reported financial condition or results of operations as well as increase costs related to implementation of new standards and modifications to internal controls.

Our consolidated financial statements are prepared in conformity with accounting standards generally accepted in the United States, or U.S. GAAP. These principles are subject to amendments made primarily by the Financial Accounting Standards Board (FASB) and the SEC. A change in those policies can have a significant effect on our reported results and may affect our reporting of transactions which are completed before a change is announced. Changes to accounting rules or challenges to our interpretation or application of the rules by regulators may have a material adverse effect on our reported financial results or on the way we conduct business.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 1C. CYBERSECURITY

Risk Management and Strategy

The Company is committed to incorporating industry best practices in its cybersecurity program. Its Information Security Management System (ISMS), which the Company uses in the identification of cybersecurity risks and their classification and evaluation, is based on the National Institute Standards and Technology (NIST) framework and International Organization for Standardization (ISO) standards. The Company invests considerable resources in its information systems and personnel to safeguard its operations. It also regularly engages with external security consultants and auditors to validate its overall cybersecurity and risk management posture.

Key elements of the Company’s cybersecurity program are a formal Risk Management Strategy within ISMS, which is based on the ISO 27001 framework, and an Incident Response Plan, which establishes the process for the Company to identify, assess, mitigate, and remediate risks from cybersecurity events and incidents, including internal notification, breach reporting, and external communications protocols for material incidents. The Company responds to risks in a prioritized fashion. Remediation priority considers the risk likelihood and impact, cost, work effort, and availability of resources.

The Company has a formal third-party management policy that is incorporated into the overall ISMS. It includes procedures to identify, document, and address potential risks posed by third-party service providers of business-critical information systems owned or used by the Company (“Providers”). The Company assesses all Providers and will take additional steps to assess risk from Providers without an industry standard cybersecurity certification. The Company monitors the security posture of all Providers and reviews each Provider’s security and service delivery performance at least annually.

In addition, the Company has adopted company-wide policies and procedures and conducts periodic employee training on a range of matters with cybersecurity risk management implications, including information security and acceptable use of technology policies.

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As of the date hereof, the Company is not aware of any material risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect the Company or its business strategy, results of operations, or financial condition. Nevertheless, there is no guaranty that the Company will not experience a cybersecurity threat or that the Company will successfully address an incident in the future. Also, notwithstanding the Company’s vigilance, a cybersecurity incident at one of its suppliers or customers could materially adversely impact the Company. See Item 1A “Risk Factors – Technology Risks” for a discussion of cybersecurity risks.

Governance

The Board of Directors, directly and through the Audit Committee, actively engages in reviews of cybersecurity risks. The full Board of Directors meets with the Company’s Vice President of Information Technology and Director of IT Infrastructure and Security at each of the Board’s regularly scheduled meetings to discuss the Company’s cybersecurity posture, including malicious activity experiences and vulnerabilities for potentially material cybersecurity threats and incidents. The results of disaster recovery exercises, penetration testing, and other external audits are also presented to the Board. The Audit Committee is responsible to review and evaluate the Company’s cybersecurity and other information technology controls and procedures, including the Company’s plans to mitigate cybersecurity risks and to respond to threats. In addition to being represented on the oversight committee under the Incident Response Plan, the Audit Committee meets regularly with the Company’s information technology leadership team and reviews with them any specific cybersecurity issues that could affect the adequacy of the Company’s internal and disclosure controls.

The Company’s information technology team is primarily responsible to manage the Company’s information systems and assess and address all cybersecurity events that are internally detected or externally reported. Communication among Company personnel, including members of upper management when appropriate, is a high priority. An escalation process is in place under the Incident Response Plan to manage cybersecurity events depending on the severity of the risk of information system exploitation. Incidents of critical severity require immediate notice to members of an oversight committee comprised of upper executive and information technology officers, a member of the Audit Committee, and corporate counsel for evaluation and appropriate response. Incidents of medium or low severity are assigned to the appropriate personnel for response, mitigation and remediation.

The Company’s information technology team is led by the Vice President of Information Technology. He has overall responsibility for developing, implementing, and maintaining the Company’s technology strategy, systems, and operations. The current Vice President of Information Technology has been employed in the Company’s information technology department for 10 years, previously as a Director of IT Development and a Business Analyst. He has a Master of Science in Information Systems Degree from DePaul University of Chicago. The leadership team also includes our Director of IT Infrastructure and Security, who is responsible for managing the Company’s cybersecurity strategy, including management of firewalls, identity and access management, endpoint protection, and backups. The current Director of IT Infrastructure and Security has been employed in the Company’s information technology department for 12 years, previously as a Technician and Network Administrator. He has a Master of Science in Information Management Degree from the University of Illinois.

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ITEM 2. PROPERTIES

The Company’s EMS business is operated through its manufacturing facilities located in Elk Grove Village, Illinois U.S., Union City, California U.S.; Acuna, Coahuila, Mexico, Chihuahua, Chihuahua, Mexico and Tijuana, Baja California, Mexico; Bien Hoa City, Dong Nai Province, Vietnam and Suzhou, Jiangsu Province, China. In addition, the Company maintains an IPO in Taipei, Taiwan. The Company provides design services in Elk Grove Village, Illinois, U.S. The Company has an information technology office in Taichung, Taiwan.

Certain information about the Company’s manufacturing, warehouse, purchasing and design facilities is set forth below:

Location	Square Feet	Services Offered	Owned/Leased
Suzhou, China	216,950	Electronic and electromechanical manufacturing solutions	* ‎***
Acuna, Mexico	128,440	Electronic and electromechanical manufacturing solutions	Owned ‎**
Elk Grove Village, IL	124,300	Corporate headquarters, electronic and electromechanical manufacturing solutions and warehousing	Owned
Chihuahua, Mexico	121,000	Electronic and electromechanical manufacturing solutions	Leased
Union City, CA	117,000	Electronic and electromechanical manufacturing solutions	Leased
Tijuana, Mexico	112,100	Electronic and electromechanical manufacturing solutions	Leased
San Diego, CA	30,240	Warehousing and distribution	Leased
Del Rio, TX	30,000	Warehousing and distribution	Leased
Del Rio, TX	28,000	Warehousing and distribution	Owned
Bien Hoa City, Vietnam	24,475	Electronic and electromechanical manufacturing solutions	Leased
El Paso, TX	18,200	Warehousing and distribution	Leased
Del Rio, TX	16,000	Warehousing and distribution	Leased
Taipei, Taiwan	4,685	International procurement office	Leased
Taichung, Taiwan	1,650	Information technology office	Leased

*The Company’s Suzhou, China buildings are owned by the Company and the land is leased from the Chinese government for a 50 year term ending on July 15, 2053.

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

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

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The Union City and San Diego, California, U.S., Tijuana, Baja California and Chihuahua, Chihuahua Mexico, Bien Hoa City, Dong Nai Province, Vietnam, and Del Rio and El Paso, Texas, U.S. properties are occupied pursuant to leases of the premises. The lease agreement for the El Paso, Texas, U.S. property expires January 2030. The lease agreement for the Del Rio, Texas, U.S. property expires November 2025. The lease agreement for the San Diego, California, U.S. property expires December 2034. The lease agreement for the Union City, California, U.S. property expires June 2026. The Chihuahua, Mexico lease expires April 2026. The Tijuana, Baja California, Mexico lease expires November 2029. The lease agreement for the Bien Hoa City, Dong Nai Province, Vietnam property expires June 2025. The Company’s manufacturing facilities located in Acuna, Coahuila, Mexico, and Elk Grove Village, Illinois, U.S., are owned by the Company, except for a portion of the facility in Acuna, Coahuila, Mexico. The Company has an option to buy the leased portion of the facility in Acuna, Coahuila, Mexico. The property in Elk Grove Village, Illinois is financed under the Term Loan Agreement and the Del Rio, Texas, U.S. is financed under a separate mortgage loan agreement. The Company leases the IPO office in Taipei, Taiwan to coordinate southeast Asia purchasing and logistics activities. The Company leases the information technology office in Taichung, Taiwan. The Company believes its current facilities are adequate to meet its current needs. In addition, the Company believes it can find alternative facilities to meet its needs in the future, if required.

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

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

Market Information

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

Holders and Dividends

As of August 9, 2024, there were approximately 60 holders of record of the Company’s common stock, which does not include stockholders whose stock is held through securities position listings. The Company estimates there to be approximately 3,200 beneficial owners of the Company’s common stock. As a result of our credit agreements, we are subject to restrictions on our ability to declare or pay dividends in cash or stock. We have not paid a cash dividend and do not anticipate payment of dividends in the foreseeable future.

Equity Compensation Plan Information

The information required by this item concerning securities authorized for issuance under equity compensation plans is incorporated by reference to Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Share Owner Matters of Part III.

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ITEM 6. RESERVED

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

In addition to historical financial information, this discussion of the business of the Company and other Items in this Annual Report on Form 10-K contain forward-looking statements concerning the Company’s business or results of operations. See “Item 1. Business—Cautionary Note” for a discussion of these forward-looking statements and the associated risks and uncertainties.

Overview

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

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.

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.

Prior to April 1, 2023, the Company operated in two reportable segments as an independent provider of EMS, and as a provider of products to the Pet Tech market. A majority of the Pet Tech Segment was sold on April 28, 2023, effective as of April 1, 2023, and following such date, the Company operates in one reportable segment, the EMS segment. The Pet Tech reportable segment offered electronic products such as the Freedom Smart Dog Collar™, a wireless, geo-mapped fence, and wellness system, and apparel and accessories.

Sales can be a misleading indicator of the Company’s financial performance. Sales levels can vary considerably among customers and products depending on the type of services (turnkey versus consignment) rendered by the Company and the demand by customers. Consignment orders require the Company to perform manufacturing services on components and other materials supplied by a customer, and the Company charges only for its labor, overhead and manufacturing costs, plus a profit. In the case of turnkey orders, the Company provides, in addition to manufacturing services, the components and other materials used in assembly. Turnkey contracts, in general, have a higher dollar volume of sales for each given assembly, owing to inclusion of the cost of components and other materials in net sales and cost of goods sold. Variations in the number of turnkey orders compared to consignment orders can lead to significant fluctuations in the Company’s revenue and gross margin levels. Consignment orders which require the Company to perform manufacturing services on components and other materials supplied by a customer accounted for less than 1% of the Company’s revenues for each of the fiscal years ended April 30, 2024 and April 30, 2023.

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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.

Factors Affecting Results

Supply Chain Component Shortages. Despite supply chain component shortages improving in fiscal 2024, the Company’s business, results of operations, and financial condition continue to be adversely affected by certain supply chain issues due to world-wide component shortages. The Company anticipates continuing improvement in supply chain predictability in fiscal 2025.

Impairment of Goodwill and Long-Lived Assets. During the third quarter of fiscal 2023, the Company determined its goodwill and long-lived asset group related to the Wagz acquisition was fully impaired and an impairment charge of $23,096,771 was recorded. This non-cash charge was recorded to impairment of goodwill and intangible assets on the consolidated statements of operations. See Note H – Intangible Assets, for more information.

Recent Developments

The Company’s primary secured credit agreements, being the Amended and Restated Credit Agreement dated as of July 18, 2022 (as amended, restated, supplemented or otherwise modified from time to time, the “JPM Credit Agreement”) by and among the Company, the other loan party thereto and JPMorgan Chase Bank, N.A, as lender (“JPM”), and the Credit Agreement dated as of July 18, 2022 (as amended, restated, supplemented or otherwise modified from time to time, the “Term Loan Agreement” and together with the JPM Credit Agreement, the “Credit Agreements”) by and among the Company, the financial institutions identified therein (the “TCW Lenders”) and TCW Asset Management Company LLC, as administrative agent for the TCW Lenders (in such capacity, the “Agent,” and collectively with the TCW Lenders and JPM, the “Lender Parties”), contain financial covenants relating to (i) the Fixed Charge Coverage Ratio (as defined in the Credit Agreements), which is the ratio of the Company’s fixed payments on its indebtedness made during any fiscal period minus non-financed capital expenditures to EBITDA (as defined in the Credit Agreements) and (ii) the Total Debt to EBITDA Ratio (as defined in the Credit Agreements), which is the ratio of the Company’s borrowed money or letters of credit to EBITDA.

As of August 19, 2024, the Company was not in compliance with the financial covenants under the Credit Agreements as follows: the Fixed Charge Coverage Ratio for each of the twelve month periods ending on April 30, 2024, May 31, 2024, June 30, 2024, and July 31, 2024 was less than 1.10:1.00, the Total Debt to EBITDA Ratio for the twelve month period ending on April 30, 2024 was greater than 4.50:1.00, and the Total Debt to EBITDA Ratio for the twelve month period ending on July 31, 2024 was greater than 4.25:1.00 (collectively, the “2024 Covenant Defaults”). In addition, the Company received a delinquency notification letter from Nasdaq, dated August 16, 2024, 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- K annual report for the fiscal year ended April 30, 2024. This notification also constituted a default under the Credit Agreements (collectively with the 2024 Covenant Defaults, the “2024 Defaults”). The Company has 60 days from the date of the Nasdaq delinquency notice, or until October 15, 2024, to file a plan with Nasdaq to regain compliance.

Due to the 2024 Defaults, the total debt balances for both the Facility and the TCW Term Loan had been classified as a current liability on the Consolidated Balance Sheet as of April 30, 2024.

On August 19, 2024 (the “Third Amendment Effective Date”), the Lender Parties waived the 2024 Defaults pursuant to (i) the Waiver and Amendment No. 3 to Credit Agreement (the “JPM Amendment”) between the Company and JPM, and (ii) the Waiver and Amendment No. 3 to Credit Agreement (the “TCW Amendment” and together with the JPM Amendment, the “2024 Amendments”) by and among the Company, the TCW Lenders, and the Agent. In consideration of the TCW Amendment, the Company and the Agent also entered into the Third Amendment Fee Letter to the TCW Credit Agreement (the “Fee Letter”) dated as of the Third Amendment Effective Date. The 2024 Amendments also amended the financial covenants and certain other terms of the Credit Agreements, including, among other things, that the Company will pursue and close a Replacement Transaction (as defined in the Credit Agreements) to pay the obligations under the Credit

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Agreements in full no later than September 30, 2025 unless the Company meets certain debt ratios for the twelve month period ending on August 31, 2025. See Waivers and Amendments No. 3 below for more information.

The Company is taking steps to reduce its debt and cost structure. Most recently, since the beginning of calendar year 2024, these actions include the sale of its Elgin, Illinois property and consolidation of the Elgin operations to the Elk Grove Village, Illinois headquarters, reduction of headcounts at various operations and corporate, and inventory reduction. At this time, it is expected that these results plus the amendments to the financial covenants and other provisions of the Credit Agreements that are included in the 2024 Amendments should poise the Company for compliance. At the same time, the Company continues to explore other strategic initiatives to further reduce its debt to enable it to continue to comply with increasingly stringent financial covenants. Delays or a failure to effectively reduce debt, including due to circumstances outside of our control, could have an adverse effect on our financial position and results of operations.

Critical Accounting Estimates:

Management Estimates and Uncertainties – The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made in preparing the consolidated financial statements include depreciation and amortization periods, the allowance for doubtful accounts, 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 continued economic uncertainty due to persistent inflation and continuing global supply chain shortages and unpredictability may have a significant adverse impact on the timing of delivery of customer orders and the levels of future customer orders.

Inventories – Inventories are valued at cost. Cost is determined by an average cost method and the Company allocates labor and overhead to work-in-process and finished goods. In the event of an inventory write-down, the Company records expense to state the inventory at lower of cost or net realizable value. The Company establishes inventory reserves for valuation and excess and obsolete inventory for which the customer is not obligated. The Company records provisions for inventory shrinkage based on historical experience to account for unmeasured usage or loss. Of the Company’s raw materials inventory, a substantial portion has been purchased to fulfill committed future orders or for which the Company is contractually entitled to recover its costs from its customers. For the remaining raw materials inventory, a provision for excess and obsolete inventories is recorded for the difference between the cost of inventory and its estimated realizable value based on assumptions about future product demand and market conditions. Upon a subsequent sale or disposal of the impaired inventory, the corresponding reserve is relieved to ensure the cost basis of the inventory reflects any reductions. Actual results differing from these estimates could significantly affect the Company’s inventories and cost of products sold as the inventory is sold or otherwise relieved.

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

During the third quarter of fiscal 2023, the Company revised the financial outlook for the Pet Tech segment, resulting in lower projected sales and net income for future periods. The Company assessed the overall market

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acceptance of the current Wagz product offerings after the holiday season and determined that this constituted a triggering event for the Company’s long-lived asset groups, primarily consisting of patents, trade names and certain fixed assets. The Company reviewed the undiscounted future cash flows for the identified long-lived asset group, and the results of the analysis indicated the carrying amount for the long-lived group was not expected to be recovered.

The fair value of the identified intangible assets was estimated using the relief from royalty method, which is a risk-adjusted discounted cash flow approach. The relief from royalty method values an intangible asset by estimating the royalties saved through ownership of the asset. The relief from royalty method requires identifying the future revenue that would be generated by the intangible asset, multiplying it by a royalty rate deemed to be avoided through ownership of the asset and discounting the projected royalty savings amounts back to the acquisition date using the internal rate of return.

The Company determined the fair value of the long-lived asset group was lower than its carrying value and recorded an intangible asset impairment charge of $9,527,773 during the three months ended January 31, 2023. This non-cash charge was recorded to impairment of goodwill and intangible assets on the unaudited condensed consolidated statements of operations. As of April 30, 2023 this non-cash charge has been reported under discontinued operations. See Note H – Intangible Assets and Note P – Discontinued Operations, for more information.

Impairment of Goodwill – Goodwill represents the cost of business acquisitions in excess of the fair value of identifiable net tangible and intangible assets acquired. On an annual basis, or more frequently if triggering events occur, the Company compares the estimated fair value of its reporting units to the carrying value of each reporting unit to determine if a potential goodwill impairment exists. If the fair value of a reporting unit is less than its carrying value, a goodwill impairment loss is recorded for the difference. In calculating the fair value of the reporting units or specific intangible assets, management relies on a number of factors, including business plans, economic projections, anticipated future cash flows, comparable transactions and other market data. There are inherent uncertainties related to these factors and management's judgment in applying them in the impairment tests of goodwill and other intangible assets. The Company had no goodwill balances remaining at April 30, 2024 and April 30, 2023.

The Company observed during the third quarter of fiscal 2023, the overall lack of market acceptance of the current Wagz product offerings during the holiday season and determined this constituted a triggering event. Accordingly, the Company performed a quantitative goodwill impairment test and estimated the fair value of the Pet Tech segment based on a combination of an income approach (estimates of future discounted cash flows), a market approach (market multiples for similar companies) and a cost approach. Significant unobservable inputs and assumptions inherent in the valuation methodologies, which represented Level 3 inputs, under the fair value hierarchy, were employed and included, but were not limited to, prospective financial information, terminal value assumptions, discount rates, and multiples from comparable publicly traded companies in the Pet Tech industry.

The cost approach is based upon the concept of replacement cost as an indicator of value. Stated another way, this approach is premised on the assumption that a prudent investor would pay no more for an asset than the amount for which the asset could be replaced. The cost approach establishes value based on the cost reproducing or replacing the property, less depreciation from physical deterioration and functional obsolescence, if present and measurable.

During the third quarter of fiscal 2023, the Company determined its goodwill was fully impaired as the fair value was lower than the carrying value and recorded an impairment charge of $13,320,534. This non-cash charge was recorded to impairment of goodwill and intangible assets as of January 31, 2023. The Company further conducts annual reviews for idle and underutilized equipment, and reviews business plans for possible impairment.

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

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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 owned. Therefore, a valuation allowance was previously established on the group’s U.S. deferred tax assets during fiscal year 2022. After the sale of a majority stake in Wagz, SigmaTron will 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 previously maintained a valuation allowance on certain foreign loss carryforwards; however, all foreign tax loss carryforwards have been used as of April 30, 2024 and no related valuation allowance remains. The Company has established a valuation allowance of $7,302,639 on its U.S. capital loss and foreign tax credit carryforwards as of April 30, 2024.

New Accounting Standards:

See Note B – Summary of Significant Accounting Policies of Item 15(a) Exhibits and Financial Statement Schedules.

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Results of Operations:

FISCAL YEAR ENDED APRIL 30, 2024 COMPARED

TO FISCAL YEAR ENDED APRIL 30, 2023

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

	Fiscal Years Ended
	April 30,
		2024		2023
Net sales	$	373,883,821	$	414,435,845
Costs of products sold		340,357,503		362,982,248
As a percent of net sales		91.0%		87.6%
Gross profit		33,526,318		51,453,597
As a percent of net sales		9.0%		12.4%
Selling and administrative expenses		26,392,403		26,495,951
As a percent of net sales		7.1%		6.4%
Operating income from continuing operations		7,133,915		24,957,646
Other income		466,704		632,223
Interest expense, net		(10,362,038)		(8,403,904)
(Loss) income before income taxes from continuing operations		(2,761,419)		17,185,965
Income tax benefit (expense)		275,262		(2,991,541)
Net (loss) income from continuing operations	$	(2,486,157)	$	14,194,424
Discontinued operations:
Loss before taxes from discontinued operations	$	-		(36,629,902)
Tax benefit from discontinued operations		-		1,860,093
Net loss from discontinued operations	$	-	$	(34,769,809)
Net loss	$	(2,486,157)	$	(20,575,385)

Net sales

Net sales decreased $40,552,024, or 9.8%, to $373,883,821 in fiscal 2024, compared to $414,435,845 in fiscal 2023. The decline was primarily attributable to a decline in customer demand in the consumer electronics, industrial electronics and medical/life science markets as compared to fiscal 2023.

Costs of products sold

Cost of products sold decreased $22,624,745, or 6.2%, to $340,357,503 (91.0% of net sales) for fiscal 2024, compared to $362,982,248 (87.6% of net sales) for 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 in fiscal 2024, compared to the prior fiscal year. These cost increases reflect continuing inflationary pressures.

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Gross profit margin

Gross profit margin was 9.0% of net sales, in fiscal year 2024 compared to 12.4% of net sales in fiscal 2023. The decrease in gross margins as a percentage of sales is primarily due to higher labor and other fixed manufacturing costs in fiscal 2024, compared to the prior fiscal year.

Selling and administrative expenses

Selling and administrative expenses decreased $103,548, or 0.4%, to $26,392,403 (7.1% of net sales) in fiscal 2024, compared to $26,495,951 (6.4% of net sales) for the same period in the last fiscal year. The decrease in selling and administrative expenses is primarily due to a decrease in bonus expense, partially offset with an increase in accounting fees.

Other Income

Other income decreased to $466,704 in fiscal 2024, compared to $632,223 in fiscal 2023. The amount for fiscal 2023 primarily related to insurance proceeds received for fire damage at one of our manufacturing locations.

Interest expense, net

Interest expense, net, increased to $10,362,038 in fiscal 2024, compared to $8,403,904 for the prior fiscal year. The increase relates to higher average interest rates in fiscal 2024, compared to fiscal 2023.

Income tax expense

Income tax expense decreased $3,266,803 to an income tax benefit of $275,262 for fiscal 2024, compared to an income tax expense of $2,991,541 for the prior fiscal year. The effective tax rate decreased to 10.0% for fiscal 2024, compared to 17.4% for fiscal 2023. The decrease in income tax expense for fiscal 2024 compared to fiscal 2023 is primarily due to decreased pre-tax book income in the current fiscal year compared to the previous fiscal year.

Net loss from continuing operations

Net income from continuing operations decreased $16,680,581, to a net loss of $2,486,157 for fiscal 2024, compared to net income of $14,194,424 for the prior fiscal year. The decreased net income primarily relates to lower sales, higher wages and other fixed manufacturing costs, 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 in fiscal 2023 from the Pet Tech Segment was $34,769,809 which includes an impairment of goodwill and long-lived assets of $23,096,771 and losses on the sale of a business of $3,742,709. The fiscal 2023 discontinued losses include a tax benefit of $1,860,093.

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EMS Segment

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

	Fiscal Years Ended
	April 30,
		2024		2023
Net sales	$	373,883,821	$	414,435,845
Costs of products sold		340,357,503		362,982,248
As a percent of net sales		91.0%		87.6%
Gross profit		33,526,318		51,453,597
As a percent of net sales		9.0%		12.4%
Selling and administrative expenses		26,392,403		26,495,951
As a percent of net sales		7.1%		6.4%
Operating income	$	7,133,915	$	24,957,646

Net sales

Net sales decreased $40,552,024, or 9.8%, to $373,883,821 in fiscal 2024, compared to $414,435,845 in fiscal 2023. The decline was primarily attributable to a decline in customer demand in the consumer electronics, industrial electronics and medical/life science markets compared to fiscal 2023.

Cost of products sold

Cost of products sold decreased $22,624,745, or 6.2%, to $340,357,503 (91.0% of net sales) for fiscal 2024, compared to $362,982,248 (87.6% of net sales) for 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 in fiscal 2024, compared to the prior fiscal year. These cost increases reflect continuing inflationary pressures.

Gross profit

Gross profit margin was 9.0% of net sales, for fiscal 2024, compared to 12.4% of net sales in fiscal 2023. The decrease in gross margins as a percentage of sales is primarily due to higher labor and other fixed manufacturing costs in fiscal 2024, compared to the prior fiscal year.

Selling and administrative expenses

Selling and administrative expenses decreased $103,548 or 0.4% to $26,392,403 (7.1% of net sales) for fiscal 2024, compared to $26,495,951 (6.4% of net sales) for the prior fiscal year. The decrease in selling and administrative expenses is primarily due to a decrease in bonus expense, partially offset with an increase in accounting fees.

Operating income

Operating income decreased $17,823,731, or 71.4%, to $7,133,915 (1.9% of net sales) for fiscal 2024, compared to $24,957,646 (6.0% 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 Technology Segment

The Company sold the majority ownership interest in Wagz on April 28, 2023, effective as of April 1, 2023. The Company still owns a 19% interest in Wagz as a passive investment as of April 30, 2024. However, the

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Company determined that due to financial uncertainty of Wagz after the Company’s sale, the 19% ownership interest was fully reserved 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 percentage relationships of gross profit and expense items to net sales for the years indicated:

	Fiscal Years Ended
	April 30,
		2024		2023
Net sales	$	-	$	1,598,929
Costs of products sold		-		1,732,352
As a percent of net sales		0.0%		108.3%
Gross profit		-		(133,423)
As a percent of net sales		0.0%		-8.3%
Selling and administrative expenses		-		9,656,999
Impairment of notes receivable ‎and investment		-		-
Impairment of goodwill and other long-lived assets		-		23,096,771
Operating loss	$	-	$	(32,887,193)

Net sales

There were no sales for fiscal 2024 compared to $1,598,929 in fiscal 2023. Sales in fiscal 2023 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 fiscal 2024, compared to $1,732,352 (108.3% of net sales) for the prior fiscal year.

Gross profit margin

There was no gross profit margin of net sales for fiscal 2024 compared to gross profit margin of -8.3% for the prior fiscal year.

Selling and administrative expenses

There were no selling and administrative expenses for fiscal 2024, compared to $9,656,999 for 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.

Impairment of goodwill and other long-lived assets

In connection with the preparation and review of the financial statements for the quarter ended January 31, 2023, the Company revised the financial projections for its Pet Tech segment. The revised projections resulted in a triggering event for the Company’s goodwill and long-lived asset groups consisting of patents and trade names. As a result, the Company concluded that the carrying amount for goodwill and the long-lived asset groups was impaired and not expected to be recovered. Accordingly, a non-cash pre-tax goodwill impairment charge of $13,320,534 and a non-cash intangible assets impairment charge of $9,527,773, was recorded for the Company’s Pet Tech segment in fiscal 2023. In addition, Pet Tech fixed assets of $248,464 were written off due to the sale of Wagz effective April 1, 2023.

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Operating loss

There was no operating loss for fiscal 2024, compared to an operating loss of $32,887,193 in fiscal 2023. The fiscal 2023 operating loss was primarily due to the impairment of goodwill and other long-lived assets, lower than expected sales and increased selling and administrative expenses.

Liquidity and Capital Resources:

The Company’s liquidity requirements are primarily to fund its business operations, including capital expenditures and working capital requirements, as well as to fund debt service requirements. The Company’s primary sources of liquidity are cash flows from operations and borrowings under the revolving Facility credit agreement. At this time, the Company believes its liquidity position will be sufficient to fund its existing operations and current commitments for at least the next twelve months. In addition to its cash flows from operations and borrowings under the revolving Facility credit agreement, the Company has taken steps to reduce its debt and cost structure to enhance its liquidity, including consolidating its Illinois operations into its Elk Grove Village, Illinois headquarters, and reduction of headcounts and inventory, and continues to explore other strategic initiatives to further reduce its debt. However, if it experiences delays or fails to effectively reduce debt, if economic conditions remain impacted for longer than the Company expects, if it experiences continued supply chain disruptions on certain raw materials, any new public health crises arise, or geopolitical risks continue or worsen, the Company’s liquidity position could be severely impacted.

Operating Activities

Cash flow provided by operating activities was $27,760,048 for the fiscal year ended April 30, 2024, compared to cash flow used in operating activities of $13,256,804 for the prior fiscal year. Cash flow provided by operating activities was primarily the result of a decrease in inventory in the amount of $36,122,113 and accounts receivable in the amount of $14,240,833 partially offset by a decrease in accounts payable in the amount of $18,470,463 and a decrease in deferred revenue in the amount of $4,952,135. The decrease in inventory is the result of improvement in the component marketplace which has allowed the Company to complete assemblies for shipping to customers. The decrease in accounts payable is a result of lower accounts payable balances due to lower volumes and the timing of payments.

Cash flow used in operating activities was $13,256,804 for the fiscal year ended April 30, 2023. Cash flow used in operating activities was primarily the result of an increase in accounts receivable in the amount of $5,328,740, a decrease in accounts payable in the amount of $22,202,026 and a decrease in deferred revenue in the amount of $3,179,709. Cash flow from operating activities was offset by a decrease in right-of-use assets in the amount of $3,721,341 and prepaid expenses and other assets in the amount of $2,232,861. The increase in accounts receivable is the result of an increase in net sales. The decrease in accounts payable is the result of the timing of vendor payments.

Investing Activities

In fiscal 2024, cash provided by investing activities was $117,112. During fiscal 2024, the Company purchased $1,799,148 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.

In fiscal year 2023, cash used in investing activities was $5,179,247. During fiscal year 2023, the Company purchased $4,334,169 in machinery and equipment to be used in the ordinary course of business. The Company purchases were funded by the bank line of credit and lease transactions. During the month of April 2023, the Company made advances of $900,000 to Wagz as agreed upon under the SPA. On April 28, 2023, the sale of the majority 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 the equity interests. However, the Company determined that due to financial uncertainty of Wagz after the Company’s sale, the 19% ownership interest was fully reserved as of April 30, 2023.

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Financing Activities