In addition to historical financial information, this discussion of the business of SigmaTron International, Inc., its wholly-owned subsidiaries Standard Components de Mexico S.A., and AbleMex S.A. de C.V., SigmaTron International Trading Co., and its wholly-owned foreign enterprise Wujiang SigmaTron Electronics Co., Ltd. ("SigmaTron China"), and its procurement branch SigmaTron Taiwan (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 risks and uncertainties inherent in the Company's business including 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 our customers, suppliers and the market; the activities of competitors, some of which may have greater financial or other resources than the Company; the variability of our operating results; the results of long-lived assets impairment testing; the variability of our customers' requirements; the availability and cost of necessary components and materials; the ability of the Company and our customers to keep current with technological changes within our industries; regulatory compliance; the continued availability and sufficiency of our credit arrangements; changes in U.S., Mexican, Chinese or Taiwanese regulations affecting the Company's business; the current turmoil in the global economy and financial markets; the stability of the U.S., Mexican, Chinese and Taiwanese economic systems, labor and political conditions; currency exchange fluctuations; and the ability of the Company to manage its growth. These and other factors which may affect the Company's future business and results of operations are identified throughout the Company's Annual Report on Form 10-K and as risk factors and may be detailed from time to time in the Company's filings with the Securities and Exchange Commission. These statements speak as of the date of such filings, and the Company undertakes no obligation to update such statements in light of future events or otherwise unless otherwise required by law. Overview
The Company operates in one business segment as an independent provider of EMS, which includes printed circuit board assemblies and completely assembled (box-build) electronic products. In connection with the production of assembled products, the Company also provides services to its customers, including
(1) automatic and manual assembly and testing of products; (2) material sourcing and procurement; (3) design,

manufacturing and test engineering support; (4) warehousing and shipment services; and (5) assistance in obtaining product approval from governmental and other regulatory bodies. The Company provides these manufacturing services through an international network of facilities located in the United States, Mexico, China and Taiwan.
The Company relies on numerous third-party suppliers for components used in the Company's production process. Certain of these components are available only from single sources or a limited number of suppliers. In addition, a customer's specifications may require the Company to obtain components from a single source or a small number of suppliers. The loss of any such suppliers could have a material impact on the Company's results of operations, and the Company may be required to operate at a cost disadvantage compared to competitors who have greater direct buying power from suppliers. The Company does not enter into purchase agreements with major or single-source suppliers. The Company believes that ad-hoc negotiations with its suppliers provides flexibility, given that the Company's orders are based on the needs of its customers, which constantly change.
The Sarbanes-Oxley Act, as well as rules subsequently implemented by the Securities and Exchange Commission and listing requirements subsequently adopted by Nasdaq in response to Sarbanes-Oxley, have required changes in corporate governance practices, internal control policies and audit committee practices of public companies. These rules and regulations could also make it more difficult for us to attract and retain qualified members for our board of directors, particularly to serve on our audit committee. In addition, if the Company receives a qualified opinion on the adequacy of its internal control over financial reporting, shareholders and the Company's lenders could lose confidence in the reliability of the Company's financial statements. This could have a material adverse impact on the value of the Company's stock and the Company's liquidity.
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 (consignment and turnkey) rendered by the Company and the demand by customers. Consignment orders require the Company to perform manufacturing services on components and other materials supplied by a customer, and the Company charges only for its labor, overhead and manufacturing costs, plus a profit. In the case of turnkey orders, the Company provides, in addition to manufacturing services, the components and other materials used in assembly. Turnkey contracts, in general, have a higher dollar volume of sales for each given assembly, owing to inclusion of the cost of components and other materials in net sales and cost of goods sold. Variations in the number of turnkey orders compared to consignment orders can lead to significant fluctuations in the Company's revenue levels. However, the Company does not believe that such variations are a meaningful indicator of the Company's gross margins. Consignment orders accounted for less than 5% of the Company's revenues for the year ended April 30, 2009.
In the past, the timing and rescheduling of orders have caused the Company to experience significant quarterly fluctuations in its revenues and earnings, and the Company expects such fluctuations to continue. The uncertainty associated with the worldwide economy in general and the United States economy specifically make forecasting difficult. All of the Company's customer's markets remain volatile. The Company believes it will continue to see lower revenues and more volatility until at least the fall of 2009. Critical Accounting Policies:
Management Estimates and Uncertainties - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made in preparing the consolidated financial statements include depreciation and amortization periods, the allowance for doubtful accounts, reserves for inventory and valuation of long-lived assets. Actual results could materially differ from these estimates.
Revenue Recognition - Revenues from sales of the Company's electronic manufacturing services business are recognized when the product is shipped to the customer. In general, it is the Company's policy to

recognize revenue and related costs when the order has been shipped from our facilities, which is also the same point that title passes under the terms of the purchase order except for consignment inventory. Consignment inventory is shipped from the Company to an independent warehouse for storage or shipped directly to the customer and stored in a segregated part of the customer's own facility. Upon the customer's request for inventory, the consignment inventory is shipped to the customer if the inventory was stored offsite or transferred from the segregated part of the customer's facility for consumption, or use, by the customer. The Company recognizes revenue upon such transfer. The Company does not earn a fee for storing the consignment inventory. The Company generally provides a 90 day warranty for workmanship only and does not have any installation, acceptance or sales incentives, although the Company has negotiated longer warranty terms in certain instances. The Company assembles and tests assemblies based on customers' specifications. Historically, the amount of returns for workmanship issues has been de minimis under the Company's standard or extended warranties. Any returns for workmanship issues received after each period end are accrued in the respective financial statements.
Inventories - Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out method. The Company establishes inventory reserves for valuation, shrinkage, and excess and obsolete inventory. The Company records provisions for inventory shrinkage based on historical experience to account for unmeasured usage or loss. Actual results differing from these estimates could significantly affect the Company's inventories and cost of products sold. The Company records provisions for excess and obsolete inventories for the difference between the cost of inventory and its estimated realizable value based on assumptions about future product demand and market conditions. Actual product demand or market conditions could be different than that projected by management.
Impairment of Long-Lived Assets - The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset is considered impaired if its carrying amount exceeds the future undiscounted net cash flow the asset is expected to generate. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair market value.
Goodwill and Other Intangibles - In December 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard
("SFAS") No. 141(R), Accounting Standards Codification ("ASC") (805-10-10-1)
"Business Combinations" ("SFAS 141(R)") which replaces SFAS No. 141, "Business Combinations." The FASB has since codified FASB 141(R) as Accounting Standards Codification ("ASC") 805-10-10-1. This Statement retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting (formerly referred to as purchase method) is to be used for all business combinations and that an acquirer is identified for each business combination. This Statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as of the date that the acquirer achieves control. This Statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquire at the acquisition date, measured at their fair values. This Statement requires the acquirer to recognize acquisition-related costs and restructuring costs separately from the business combination as period expense. This Statement is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company will implement SFAS No. 141(R) for any business combinations occurring subsequent to April 30, 2009.
In January 2008, the Company changed the date of its annual goodwill impairment test from the last day of the fiscal year to the first day of the fiscal fourth quarter. The impairment test procedures were carried out during the fourth quarter of fiscal year 2008 and up to the time of the filing of the Company's Form 10-K for fiscal year 2008, which allowed the Company additional time to complete the required analysis. The Company believes that the resulting change in accounting principle related to the annual testing date did not delay, accelerate or avoid an impairment charge. The Company determined that the change in accounting principle related to the annual testing date was preferable under the circumstances and did not result in adjustments to the Company's financial statements when applied retrospectively. During the fiscal year 2008, the Company performed its annual goodwill impairment testing and the carrying value of the Company's reporting unit exceeded the fair value indicating a goodwill impairment. The Company completed the second step of the goodwill impairment test used to measure the amount of the impairment loss by comparing the implied fair value of the reporting unit goodwill with the carrying amount of the goodwill. As a result of this

impairment analysis, the Company recorded an impairment charge for the full amount of goodwill ($9.3 million) during the fiscal year ended April 30, 2008. The impairment was due to continuing customer pricing pressures and uncertain economic conditions as well as the Company's declining stock price during fiscal 2008.
New Accounting Standards:
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"), (ASC 820-10-05-1), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for the Company beginning on May 1, 2008. In November 2007, the FASB agreed to a one-year deferral of the effective date of SFAS 157 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. There was no significant impact from adoption of SFAS 157 for financial assets and liabilities on the Company's financial statements and none are expected when SFAS 157 is adopted for non-financial assets and liabilities.
In February 2007, the FASB issued SFAS No. 159 "The Fair Value Options for Financial Assets and Financial Liabilities" ("SFAS No. 159"), (ASC 820-10-10-1). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 was effective for fiscal years beginning after November 15, 2007. The Company did not elect the fair value option pursuant to SFAS 159.
In December 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 141(R), Accounting Standards Codification ("ASC") (805-10-10-1) "Business Combinations" ("SFAS
141(R)") which replaces SFAS No. 141, "Business Combinations." The FASB has since codified FASB 141(R) as Accounting Standards Codification ("ASC") 805-10-10-1. This Statement retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting (formerly referred to as purchase method) is to be used for all business combinations and that an acquirer is identified for each business combination. This Statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as of the date that the acquirer achieves control. This Statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquire at the acquisition date, measured at their fair values. This Statement requires the acquirer to recognize acquisition-related costs and restructuring costs separately from the business combination as period expense. This Statement is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company will implement SFAS No. 141(R) for any business combinations occurring subsequent to April 30, 2009. In December 2007, the FASB issued SFAS No. 160, "Noncontrolling interests in Consolidated Financial Statements-an amendment of Accounting Research Bulletin No. 51" ("SFAS 160"), (ASC 810-10-65-1). SFAS 160 establishes accounting reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent's ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company has determined that SFAS 160 will not have a material impact on its consolidated results of operations and financial condition. Results of Operations:
FISCAL YEAR ENDED APRIL 30, 2009 COMPARED TO FISCAL YEAR ENDED APRIL 30, 2008
Net sales decreased 20.3% to $133,744,642 in fiscal year 2009 from $167,810,994 in the prior year. The Company's sales decreased in fiscal year 2009 in the industrial electronics, fitness, telecommunications, life sciences, appliance, gaming and semiconductor marketplaces as compared to the prior year. The decrease in revenue for the fiscal year end 2009 is a result of our customers' decreased demand for product based on

their forecast, which we believe is attributable to the global economic slowdown and the recent financial crisis. The Company anticipates sales will remain soft in the first quarter of fiscal year 2010 and anticipates sales to slowly increase in late calendar 2009.
The Company's sales in a particular industry are driven by the fluctuating forecasts and end-market demand of the customers within that industry. Sales to customers are subject to variations from period to period depending on customer order terminations, the life cycle of customer products and product transition. Sales to the Company's five largest customers accounted for 63% of net sales for fiscal years 2009 and 2008.
Gross profit decreased to $15,974,902 or 11.9% of net sales in fiscal year 2009 compared to $19,563,390 or 11.7% of net sales in the prior year. The decrease in the Company's gross profit in total dollars is due to decreased revenue levels and decreased plant capacity utilization. The Company has continued to lower its cost structure during the fourth quarter of fiscal year 2009 and will continue cost cutting initiatives based on customer's demand for product. During the third and fourth quarters of fiscal year 2009, the Company reduced its worldwide headcount, through attrition and lay-offs. Further the Company implemented salary reductions for all non-union U.S. employees beginning February 2009. There can be no assurance that sales levels or gross margins will not continue to decrease in future periods.
Selling and administrative expenses decreased in fiscal year 2009 to $11,591,440 or 8.7% of net sales compared to $12,375,458 or 7.4% of net sales in fiscal year 2008. The decrease in total dollars is primarily due to a decrease in sales commissions, insurance expense, amortization expense, bonus expense, legal fees and other professional fees. This decrease in total dollars was partially offset by an increase in sales and IT salaries in fiscal year 2009 compared to the prior year. The increase in selling and administrative expenses as a percent of net sales in fiscal year 2009 is due to the 20% decrease in net sales.
During fiscal year 2008, the Company performed its annual goodwill impairment testing and the carrying value of the Company's reporting unit exceeded the fair value indicating a goodwill impairment. The Company completed the second step of the goodwill impairment test used to measure the amount of impairment loss by comparing the implied fair value of the reporting unit goodwill with the carrying amount of the goodwill. As a result of this impairment analysis, the Company recorded an impairment charge for the full amount of goodwill ($9.3 million) during the year ended April 30, 2008. The impairment was due to continuing customer pricing pressures and uncertain economic conditions as well as the Company's declining stock price during fiscal 2008.
Interest expense decreased to $1,710,817 in fiscal year 2009 compared to $2,667,473 in fiscal year 2008. The interest expense decreased due to decreased borrowings under its revolving credit facility, term loan and capital leases and lower interest rates. Interest expense for fiscal year 2010 may increase if interest rates or borrowings increase during fiscal year 2010.
In fiscal year 2009, the income tax expense from operations was $936,278 compared to $1,655,518 in income tax expense in fiscal year 2008. The effective tax rate for the year ended April 30, 2009 was 32%. The lower effective tax rate was a result of the tax holiday for the China operation. The Company recorded income tax expense in fiscal 2008 despite a pre-tax loss due primarily to the fact that the goodwill impairment charge of $9.3 million related to non-deductible goodwill which is treated as a permanent difference between book and tax income (loss).
The Company reported net income of $1,955,847 in fiscal year 2009. Basic and diluted earnings per share was $0.51 for fiscal year 2009 compared to basic and diluted loss per share of ($1.69) for the year ended April 30, 2008. Excluding the goodwill impairment charge, net income was $2,842,109 for fiscal year 2008, which resulted in diluted earnings per share of $0.74 for fiscal year 2008 compared to $0.51 for the fiscal year ended April 30, 2009. We believe the Non-Gaap measure is a meaningful disclosure of the operating performance of the Company as it is an alternative measure utilized by investors, management and the Board of Directors. See the following Non-Gaap Reconciliation.

                                                                            Non-Gaap Reconciliation*
                                                                                  Twelve Months
                                                                                      Ended
                                                                                 April 30, 2008

Income (loss) Reconciliation:

Net income before goodwill impairment                                       $               2,842,109

Goodwill impairment charge                                                                  9,298,945


Net loss                                                                                  ($6,456,836 )


EPS Reconciliation:

Net income per common share - assuming dilution before goodwill
impairment                                                                  $                    0.74

Goodwill impairment charge                                                                     ($2.43 )


Net loss per common share - assuming dilution                                                  ($1.69 )


Weighted average number of common equivalent shares outstanding -
assuming dilution                                                                           3,811,832

* A non-GAAP financial measure is a numerical measure of a company's performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.

Liquidity and Capital Resources:
Operating Activities.
Cash flow provided by operating activities was $10,844,265 for the year ended April 30, 2009, compared to $4,163,469 for the prior fiscal year. Cash flow provided by operating activities in fiscal year 2009 was primarily the result of a $9,944,685 decrease in accounts receivable, a reduction in inventory levels, the result of the non-cash effect of depreciation and amortization and net income. Net cash provided by operations in fiscal year 2009 was partially offset by a $9,190,622 reduction in accounts payable. The decrease in accounts payable and accounts receivable is due to payments in the ordinary course of business, coupled with the Company's reduced sales in fiscal year 2009. The decrease in inventory was the result of our customers' decreased demand for product based on their forecasts, which we believe is attributable to the global economic slowdown and financial crisis. The Company's working capital requirements have decreased primarily as a result of the decrease in sales volume during fiscal 2009.
Cash flow provided by operating activities was $4,163,469 for the year ended April 30, 2008. Cash provided by operating activities was primarily the result of net income (excluding the goodwill impairment charge) net of the non-cash effect of depreciation and amortization and an increase in trade accounts payable. Trade accounts payable increased due to timing of payment to vendors. Cash provided by operating activities in 2008 was partially offset by an increase in accounts receivable of $6,530,677 due to timing of cash receipts from a significant customer. The Company's inventories increased by $1,774,698. The primary reason for the increase in inventories was customer safety stock requirements and the startup of new programs with new and existing customers.

Investing Activities.
During fiscal year 2009, the Company purchased approximately $1,180,000 in machinery and equipment for various operating facilities. The Company executed a five year capital lease to finance approximately $360,000 of these acquisitions in fiscal year 2009. The Company decided to postpone the planned expansion of the China facility announced in July 2008 in response to the current economic conditions. The Company anticipates that it will make additional machinery and equipment purchases in fiscal year 2010 of approximately $2 million.
In fiscal year 2008, the Company purchased approximately $2,400,000 in machinery and equipment. The Company executed a five year sale lease back agreement for approximately $615,000 for certain acquisitions made during fiscal year 2008, which has been treated for accounting purposes as a capital lease. Financing Activities.
The Company has a revolving credit facility under which the Company may borrow up to the lesser of (i) $32 million or (ii) an amount equal to the sum of 85% of the receivable borrowing base and the lesser of $16 million or a percentage of the inventory borrowing base. As of April 30, 2009, $18,746,696 was outstanding under the revolving credit facility. There was approximately $7.8 million of unused availability under the revolving credit facility as of April 30, 2009. In June 2008, the Company amended the revolving credit facility to extend the term of the agreement until September 30, 2010 from September 30, 2009 and to amend certain financial covenants. . . .