SIGMATRON INTERNATIONAL INC - 10-K Annual Report

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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, 2003

or

Transition Report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934. For the transition period from
___________to___________.

Commission file number 0-23248

SIGMATRON INTERNATIONAL, INC.
-----------------------------
(Exact name of registrant as specified in its charter)

Delaware 36-3918470
- -------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)

2201 Landmeier Rd., Elk Grove Vlge., IL 60007
- --------------------------------------- -----
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: 847-956-8000
Securities registered pursuant to Section 12(g) of the Act:

Common Stock $0.01 par value per share
Title of each class

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [ ] No [X]

The aggregate market value of the voting common equity held by non-affiliates of
the registrant as of October 31, 2002 (the last business day of the registrant's
most recently completed second fiscal quarter) was $7,224,937, based on the
closing sale price of $3.959 per share as reported by Nasdaq National Market as
of such date.

The number of outstanding shares of the registrant's Common Stock, as of July
18, 2003, was 2,885,652.

DOCUMENTS INCORPORATED BY REFERENCE

Those sections or portions of the definitive proxy statement of SigmaTron
International, Inc., for use in connection with its annual meeting of
stockholders, which will be filed within 120 days of the fiscal year ended April
30, 2003, are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

PART I

ITEM 1. BUSINESS.................................................. 3
ITEM 2. PROPERTIES................................................ 11
ITEM 3. LEGAL PROCEEDINGS......................................... 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....... 12
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT...................... 12

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS............................ 13
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA...................... 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................... 14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISKS..................................... 19
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA................ 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.................... 19

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........ 19
ITEM 11. EXECUTIVE COMPENSATION.................................... 19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT......................................... 19
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............ 20
ITEM 14. CONTROLS AND PROCEDURES................................... 20

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K............................................ 20

SIGNATURES................................................................. 23

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PART 1
- --------------------------------------------------------------------------------

ITEM 1. BUSINESS

CAUTIONARY NOTE:

In addition to historical financial information, this discussion of
the business of SigmaTron International, Inc. (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. These 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; 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 availability and cost of
necessary components; the continued availability and sufficiency of the
Company's credit arrangements; changes in U.S. or Mexican regulations affecting
the Company's business; the continued stability of the Mexican economic, labor
and political conditions and the ability of the Company to manage its growth;
including expansion into China and securing financing for the operation in
China. 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 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
this Report and the Company undertakes no obligation to update such statements
in light of future events or otherwise.

OVERVIEW

The Company operates primarily in one business segment as an
independent provider of electronic manufacturing services, which includes
printed circuit board assemblies and completely assembled (boxbuild) electronic
products. In connection with the production of its assembled products the
Company, its wholly owned subsidiary, Standard Components de Mexico, S.A., its
affiliate, SMT Unlimited L.P. ("SMTU") and its operating branch SigmaTron Taiwan
also provides services to their 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 North America and
Asia.

The Company provides manufacturing and assembly services ranging
from the assembly of individual components to the assembly and testing of
boxbuild electronic products. The Company has the ability to produce assemblies
requiring mechanical as well as electronic capabilities. The products assembled
by the Company are then incorporated into finished products sold in various
marketplaces, particularly consumer electronics, gaming, fitness, industrial
electronics, telecommunications, home appliances and automotive.

The Company operates manufacturing facilities in Elk Grove Village,
Illinois; Las Vegas, Nevada; and Acuna, Mexico. The Company maintains materials
sourcing offices in Elk Grove Village, Illinois; Las Vegas, Nevada, Acuna
Mexico, and Taipei, Taiwan. The Company provides warehousing services in Del
Rio, Texas and Huntsville, Alabama. In addition, the Company's 42.5% owned
affiliate, SMT Unlimited L.P. ("SMTU"), provides EMS in Fremont and Hollister,
California.

The Company expects to expand its manufacturing capabilities to
include a facility in China. The Company expects the facility to be operational
by January 2004.

The Company is a Delaware corporation which was organized on
November 16, 1993 and commenced business 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.

3

PRODUCTS AND SERVICES

The Company provides a broad range of manufacturing related
outsourcing solutions for its customers on both a turnkey (material purchased by
the Company) and consignment basis (material provided by the customer). These
solutions incorporate the Company's knowledge and expertise in the EMS industry
to provide its customers with advanced manufacturing technologies, high quality,
and responsive and flexible manufacturing services. SigmaTron's outsourcing
solutions provide services from product inception through the ultimate delivery
of a finished good. Such technologies and services include the following:

Manufacturing and Related Services. As its customers experience
greater competition and shorter product life cycles in their respective
industries, the Company has responded by expanding its existing prototype
services. The Company provides quick-turnaround, turnkey prototype services at
all of its locations.

Materials Procurement. The Company is primarily a turnkey
manufacturer and directly sources all, or a substantial portion, of the
components necessary for its product assemblies, rather than receiving the raw
materials from its customers on consignment. Material procurement includes the
purchasing, management, storage and delivery of raw components required for the
manufacture or assembly of a customer's product based upon the customer's
orders. The Company procures components from a select group of vendors which
meet its standards for timely delivery, high quality and cost effectiveness, or
as directed by its customers. Raw materials used in the assembly and manufacture
of printed circuit boards and electronic assemblies are generally available from
several suppliers, unless restricted by the customer.

The Company believes that its ability to source and procure
competitively priced, quality components is critical to its ability to
effectively compete. In addition to obtaining materials in North America, the
Company utilizes its Taiwanese procurement office and agents to source materials
from the Far East. SigmaTron believes this office allows the Company to more
effectively manage its relationships with key suppliers in the Far East by
allowing the Company to respond more quickly to changes in market dynamics,
including fluctuations in price, availability and quality.

Assembly and Manufacturing. The Company's core business is the
assembly of printed circuit boards through the automated and manual insertion of
components onto raw printed circuit boards. The Company offers its assembly
services using both pin-through-hole ("PTH") and surface mount ("SMT")
interconnect technologies at all of its manufacturing locations. SMT is an
assembly process which allows the placement of a higher density of components
directly on both sides of a printed circuit board. The SMT process is an
advancement over the mature PTH technology, which normally permits electronic
components to be attached to only one side of a printed circuit board by
inserting the component into holes drilled through the board. The SMT process
allows original equipment manufacturers ("OEMs") to use advanced circuitry,
while at the same time permitting the placement of a greater number of
components on a printed circuit board without having to increase the size of the
board. By allowing increasingly complex circuits to be packaged with the
components in closer proximity to each other, SMT greatly enhances circuit
processing speed, and thus, board and system performance.

The Company performs PTH assembly both manually and with automated
component insertion and soldering equipment. Although SMT is a more
sophisticated interconnect technology, the Company intends to continue providing
PTH assembly services for its customers because it believes that SMT will not
entirely eliminate the need for PTH technology. The Company believes that OEMs
with products not limited by internal space constraints will continue to favor
PTH over SMT. SigmaTron possesses ball grid array ("BGA") technology and fine
pitch SMT at several locations and through SMTU. BGA is used for more complex
circuit boards required to perform at higher speeds.

In addition to printed circuit board assemblies, the Company also
manufactures DC-to-AC inverters, coils, transformers and cable and harness
assemblies. These products are manufactured using both automated and
semi-automated preparation and insertion equipment and manual assembly
techniques. The Company also offers boxbuild services which integrate its
printed circuit board and other manufacturing and assembly technologies into
higher level sub-assemblies and end products.

4

Product Testing. The Company has the ability to perform both
in-circuit and functional testing of its assemblies and finished products.
In-circuit testing verifies that the correct components have been properly
inserted and that the electrical circuits are complete. Functional testing
determines if a board or system assembly is performing to customer
specifications. The Company provides X-ray laminography services through its
affiliate SMTU. The Company seeks to provide customers with highly sophisticated
testing services that are at the forefront of current test technology.

Warehousing and Distribution. In response to the needs of select
customers, the Company has the ability to provide in-house warehousing, shipping
and receiving and customer brokerage services in Del Rio, Texas for goods
manufactured or assembled in Mexico and for goods manufactured for a customer in
Huntsville, Alabama. The Company also has the ability to provide custom-tailored
delivery schedules to fulfill the just-in-time inventory needs of its customers.

MARKETS AND CUSTOMERS

SigmaTron's customers are in the consumer electronics, gaming,
industrial electronics, fitness, telecommunications, automotive and home
appliance industries. As of April 30, 2003, the Company had approximately 110
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 it serves.

For the fiscal year ended April 30, 2003, Spitfire Controls, Inc.
and Life Fitness accounted for 27.6% and 15.6%, respectively, of the Company's
net sales. For the fiscal year ended April 30, 2002 Spitfire Controls, Inc. and
Life Fitness accounted for 21.9% and 18.3%, respectively, of the Company's net
sales. In fiscal 2001, Life Fitness and Kidde Safety/Nighthawk Systems Inc.
("NSI") accounted for 21.7% and 15.8%, respectively, of net sales. The Company
expects that these customers as a group will continue to account for a
significant percentage of the Company's net sales, although the individual
percentages may vary from period to period.

NSI is a leading U.S. manufacturer of residential carbon monoxide
detection systems. NSI and the Company have had a relationship since 1995.
Currently NSI and the Company work under a year to year contract. Much of NSI's
high volume business has migrated to its wholly owned operation in China.
Therefore, NSI's sales to the Company have declined over the past several years.
NSI remains an important customer of the Company, but there is no guaranty that
business will continue beyond the current expiration of the contract, which is
December 31, 2003.

5

SALES AND MARKETING

The Company markets its services through 18 independent
manufacturers' representative organizations that together currently employ
approximately 49 sales personnel in the United States and Canada. Independent
manufacturers' representative organizations receive variable commissions based
on orders received by the Company. The members of the Company's senior
management are actively involved in sales and marketing efforts.

Sales volume and gross profit margins can vary considerably among
customers and products depending on the type of services rendered by the
Company. Specifically, variations in orders for turnkey services versus
consignment services and variations in the number of orders for products with
high raw material costs can lead to significant fluctuations in the Company's
operating results. Further, customers' orders can be delayed, rescheduled or
canceled at any time, which can significantly impact the operating results of
the Company. The ability to replace such delayed or lost sales in a short period
of time is not assured.

MEXICAN OPERATIONS

The Company's wholly-owned subsidiary, Standard Components de
Mexico, S.A. ("Standard Components"), a Mexican corporation, is located in
Acuna, Mexico, a border town across the Rio Grande River from Del Rio, Texas,
and is 155 miles west of San Antonio. Standard Components was incorporated and
commenced operation in 1969. The Company believes that one of the key benefits
to having operations in Mexico is its access to cost-effective labor resources.

The Company provides funds for salaries, wages, overhead and capital
expenditure items as necessary to operate Standard Components. The Company
provides funding to Standard Components in U.S. dollars, which are exchanged for
pesos as needed. The fluctuation of the peso from time to time, without an equal
or greater increase in Mexican inflation, has not had a material impact on the
financial results of the Company. In fiscal 2003 the Company paid approximately
$10,360,000 to Standard Components for services provided.

CHINA OPERATIONS

The Company has entered into an agreement with governmental
authorities in the economic development zone of Wujiang, Republic of China,
pursuant to which the Company became the lessee of approximately nine U.S.
acres. The construction of a manufacturing facility of approximately 80,000
square feet including dormitories will commence soon. The facility is expected
to be completed and ready for manufacturing to commence around January 1, 2004.

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.
Also, foreign companies, especially companies with production operations in the
Far East, have substantially lower costs, and thus, may be able to offer their
services at lower prices. 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 competitively provide all of these services.

In addition, the Company may be operating at a cost disadvantage
compared to manufacturers who have greater direct buying power with component
suppliers or who have lower cost structures. Current and prospective customers
continually evaluate the merits of manufacturing products internally and will
from time to time offer manufacturing services to third parties in order to
utilize excess capacity. During downturns in the electronics industry, OEMs may
become more price sensitive.

There can be no assurance that competition from existing or
potential competitors will not have a material adverse impact on the Company's
business, financial condition, or results of operations. The introduction of
lower priced competitive products or significant price reductions by the
Company's competitors

6

could result in price reductions that would adversely affect the Company's
business, financial condition, and results of operations, as would the
introduction of new technologies which render the Company's manufacturing
process technology less competitive or obsolete.

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. The Company
may choose to enter into such transactions at any time, and such transactions
could have a material impact on the Company, its business or operations.

GOVERNMENTAL REGULATIONS

The Company's operations are subject to certain foreign, federal,
state and local regulatory requirements relating to environmental, waste
management and health and safety matters. Management believes that the Company's
business is operated in material compliance with all such regulations. The cost
to the Company of such compliance to date has not had a material impact on the
Company's business, financial condition or results of operations. However, there
can be no assurance that violations will not occur in the future as a result of
human error, equipment failure or other causes. The Company cannot predict the
nature, scope or effect of environmental legislation or regulatory requirements
that could be imposed or how existing or future laws or regulations will be
administered or interpreted. 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.

BACKLOG

The Company's backlog as of April 30, 2003 was approximately
$39,000,000. Backlog consists of contracts or purchase orders with delivery
dates scheduled within the next twelve months. The Company currently expects to
ship substantially all of the April 30, 2003 backlog by the end of the 2004
fiscal year. Backlog as of April 30, 2002 totaled $38,236,000. Variations in the
magnitude and duration of contracts and purchase orders received by the Company
and delivery requirements generally may result in substantial fluctuations in
backlog from period to period. Because customers may cancel or reschedule
deliveries, backlog may not be a meaningful indicator of future financial
results.

EMPLOYEES

The Company employed approximately 1,400 people as of April 30,
2003, including 8 engaged in engineering, 1,310 in manufacturing and 82 in
administrative and marketing functions.

The Company has a labor contract with Production Workers Union Local
No. 10, AFL-CIO, covering the Company's workers in Elk Grove Village, Illinois
which expires on November 30, 2003. The Company's Mexican subsidiary 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 January 15, 2004.

Since the time the Company commenced operations, it has not
experienced any work stoppages. The Company believes its relations with both
unions and its other employees are good.

RISK FACTORS

In addition to the other risks identified herein, the Company's
business is subject to the following risks:

7

THE COMPANY'S ABILITY TO SECURE AND MAINTAIN SUFFICIENT CREDIT ARRANGEMENTS IS
KEY TO ITS CONTINUED OPERATIONS.

The ability of the Company to secure and maintain sufficient credit
arrangements is key to its continued operations. The Company entered into an
Amended Loan and Security Agreement in October 2002, which provides for a
revolving credit facility. The maximum borrowing limit under the revolving
line-of-credit facility is limited to the lesser of: (i) $20,000,000 or (ii) an
amount equal to the sum of 85% of the receivable borrowing base and the lesser
of $9,000,000 or varying percentages of the inventory base. The Amended Loan and
Security Agreement expires on September 30, 2004. At April 30, 2003 the Company
was in compliance with its financial covenants.

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.
These factors include:

- Changes in sales mix to customers

- Changes in availability and cost of components

- Volume of customer orders relative to capacity

- Market demand and acceptance of our customers' products

THE COMPANY'S CUSTOMER BASE IS CONCENTRATED.

Sales to the Company's five largest customers accounted for 68%, 62%
and 66% of net sales for the fiscal years ended 2003, 2002 and 2001,
respectively. Significant reduction 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 canceled or reduced orders
sales will decline, which could have a material impact on the results of
operations.

THERE IS VARIABILITY IN THE REQUIREMENTS OF THE COMPANY'S CUSTOMERS.

The timing of purchase orders placed by the Company's customers is
affected by a number of factors, including variation in demand for the
customers' products, regulatory changes affecting customer industries, customer
attempts to manage inventory, changes in the customers' manufacturing strategies
and customers' technical problems or issues. Many of these factors are outside
the control of the Company.

THE COMPANY MUST 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 its customers'
ability to maintain and enhance their technological capabilities, 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.

THE COMPANY HAS INTENSE INDUSTRY COMPETITION.

The EMS industry is highly fragmented and characterized by intense
competition. Many of the Company's competitors have substantially greater
experience, as well as greater manufacturing, purchasing, marketing and
financial resources than the Company. From time to time, the Company reviews
potential transactions relating to its business, products and technologies. Such
transactions could include mergers, acquisitions, strategic alliances, joint
ventures, financing arrangements or other types of arrangements. The

8

Company may choose to enter into such transactions at any time, and such
transactions could have a material effect on the Company's business or
operations.

THE COMPANY HAS FOREIGN OPERATIONS THAT MAY POSE ADDITIONAL RISKS.

A substantial part of the Company's manufacturing operations is
based in Mexico. Therefore, the Company's business and results of operations are
dependent upon numerous related factors, including the stability of the Mexican
economy, the political climate in Mexico, prevailing worker wages, the legal
authority of the Company to own and operate its business in Mexico and the
ability to identify, hire, train and retain qualified personnel and operating
management in Mexico. The Company obtains many of its materials and components
in Taipei, Taiwan and, therefore, the Company's access to these materials and
components is dependent on the continued success of these Asian suppliers.

The Company is in the process of expanding its manufacturing
operations and is opening an operation in China in order to better support and
grow its customer base. It is uncertain whether the China operation will have a
material impact, either positive or negative, on the Company's business,
financial condition and results of operations. The successful startup of the
operation is dependent on the Company's ability to secure financing for the
operation in China, to hire and train qualified personnel and to implement an
efficient manufacturing environment within a relative short period of time.
Other factors could have a material impact on the business, including the
political climate, stability of the economy, the need for additional capital to
expand operations in China, and effects of public health issues (e.g., Severe
Acute Respiratory Syndrome or SARS).

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 measurable
impact on the Company's operations and performance. These fluctuations are
expected to continue.

THE COMPANY'S EXPERIENCES SEASONALITY OF RESULTS.

The Company has generally experienced seasonality in quarterly
results, with stronger net sales and demand for its products and services
historically in its second and third fiscal quarters.

THE AVAILABILITY OF RAW COMPONENTS MAY AFFECT THE COMPANY'S OPERATIONS.

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. The Company could operate at a cost disadvantage compared to
competitors who have greater direct buying power from suppliers.

THE COMPANY IS DEPENDENT ON KEY PERSONNEL.

The Company depends significantly on its President and Chief
Executive Officer, Gary R. Fairhead, and on other executive officers. The loss
of the services of these key employees could have a material impact on the
Company's business and results of operations. In addition, despite significant
competition, continued growth and expansion of the Company's contract
manufacturing business will require that it attract, motivate and retain
additional skilled and experienced personnel.

FAVORABLE LABOR RELATIONS IS IMPORTANT TO THE COMPANY.

The Company currently has labor union contracts with certain of its
employees. 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.

9

FAILURE TO COMPLY WITH ENVIRONMENTAL REGULATIONS COULD SUBJECT THE COMPANY TO
LIABILITY.

The Company is subject to a variety of environmental regulations
relating to the use, storage, discharge and disposal of hazardous chemicals used
during its manufacturing process. Any failure by the Company to comply with
present or future regulations could subject it to future liabilities or the
suspension of production which could have a material impact on the Company's
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 and the limited number of market
makers also affect the volatility of the Company's Common Stock. Such
fluctuations are expected to continue.

THE COMPANY HAS MADE INVESTMENTS IN AND ADVANCES TO AFFILIATES.

The Company has a 42.5% ownership interest in SMTU, which was formed
on September 15, 1994, as a joint venture to provide surface mount technology
assembly services primarily to electronic original equipment manufacturers. The
Company owns 50% of the outstanding stock of SMT Unlimited, Inc. ("SMT, Inc."),
which is the general partner of SMTU. One of the limited partners of SMTU is
also an equal shareholder of SMT, Inc., along with the Company.

The Company holds subordinated debentures totaling $1,050,000 from
SMTU. Debentures totaling $650,000 bear interest at 8%, and debentures totaling
$400,000 bear interest at 12%. On November 1, 2002 the Company waived all
additional subordinated interest charges until further notice. On May 27, 2003,
the Company amended the debenture agreement extending the repayment date from
August 1, 2003 to August 1, 2005. As a result of the cancellation of future
interest expense and the extension of the loan repayment date the subordinated
debentures were deemed to be impaired. The Company determined that the fair
value of the future cash flows exceeded the investment by $329,208 at April 30,
2002 and recorded an impairment provision of this amount. Payment of principal
and interest on the debentures is subordinated to prior payment in full of
SMTU's revolving line of credit.

SMTU incurred a $13,680 monthly administrative fee in fiscal year
2003, a $24,000 monthly administrative fee for November 2001 through April 2002,
and a $28,500 monthly administrative fee prior to November 2001 for
administrative services provided by the Company.

The investment in SMTU is carried at a cost plus equity in
undistributed earnings or losses since acquisition. The Company has recorded its
share of the income or losses in SMTU as an increase or reduction, respectively,
of the investment in SMTU.

In August 1999, the Company entered into a guaranty agreement with
SMTU's lender to guarantee the obligation of SMTU under its revolving line of
credit to a maximum of $2,000,000 plus interest and related costs associated
with the enforcement of the guaranty. In connection with the guaranty agreement
Gary R. Fairhead, President and CEO of the Company and Vice President of SMT,
Inc. has executed a guaranty to the lender to reimburse the Company for up to
$500,000 of payments made by the Company under its guaranty to the lender in
excess of $1,000,000. In conjunction with the Company's guaranty agreement one
of SMTU's limited partners has agreed to indemnify the Company for 50% of all
payments made on behalf of SMTU to the lender.

The Company also has guaranteed lease obligations of approximately
$388,000 for SMTU. The Company has been indemnified by one of the other limited
partners in the amount of $194,000 for the guaranteed lease obligations.

10

The Company's investment and advances to and receivables from SMTU
totaled approximately $3,582,000 at April 30, 2003, and no liability has been
recorded by the Company related to its guaranty of SMTU's credit agreement.

ITEM 2. PROPERTIES

The Company, in combination with its wholly-owned subsidiary and
affiliate, has manufacturing facilities located in Elk Grove Village, Illinois;
Las Vegas, Nevada; Fremont and Hollister, California and Acuna, Mexico. In
addition, the Company provides inventory management services through its Del
Rio, Texas, warehouse facilities and materials procurement services through its
Elk Grove Village, Illinois; Las Vegas, Nevada; Acuna, Mexico and Taipei, Taiwan
offices.

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

*There is no lease for this facility. The Company has entered into a service
agreement whereby contracted warehouse personnel provide services for the
Company and its customer.

All of the above properties are occupied pursuant to leases of the
premises except for the Huntsville, Alabama facility and one manufacturing
operation in Acuna, Mexico. The Alabama space is provided under a service
agreement. One of the Company's manufacturing facility located in Acuna, Mexico
is owned by the Company. The Company, through an agent, leases the purchasing
and engineering office in Taipei, Taiwan to coordinate Far East purchasing and
design activities.

In addition, SMTU leases two facilities in Fremont and Hollister,
California totaling 134,000 square feet. The Company has guaranteed lease
payments of approximately $388,000 for SMTU, and has been indemnified by one of
the SMTU limited partners to the extent of 50% of the lease payment guaranty.

11

ITEM 3. LEGAL PROCEEDINGS

During the fiscal year ended April 30, 2002, the Company received a
Charge of Discrimination from the Equal Employment Opportunity Commission
regarding a former employee claiming unspecified damages resulting in a lawsuit
being filed against the Company. The Company believes that it has meritorious
defenses to the charges and is defending itself vigorously in this action.
Although the charges do not specify a dollar amount, based on information
presently available to the Company, the Company believes that the resolution of
these charges will not have a material adverse effect on the financial condition
or results of the operations of the Company.

During the fiscal year ended April 30, 2003, a lawsuit was filed by
the liquidating trustee of Circuit Systems, Inc. ("CSI") against Gary R.
Fairhead, President and CEO of the Company and a former director of CSI
("Fairhead"), and other former directors of CSI, alleging, in part, that
Fairhead had breached his fiduciary duty to CSI and its stockholders in a number
of respects. Fairhead joined the CSI Board in 1995, resigning in early 2002.
Fairhead has requested that the Company (i) indemnify him against all expenses,
including legal fees, judgments and amounts paid in settlement actually incurred
by him in connection with the SigmaTron lawsuit, and (ii) advance his costs
incurred in defending against these claims. The Company is reviewing Fairhead's
request, but has not decided under what basis, if any, to provide
indemnification or advancement of expenses.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders in the fourth
quarter of fiscal 2003.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

12

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PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's Common Stock is traded on the Nasdaq SmallCap System
under the symbol SGMA. The following table sets forth the range of quarterly
high and low bid information for the Common Stock for the periods ended April
30, 2003 and 2002.

Common Stock as Reported
by Nasdaq

As of July 18, 2003, there were approximately 88 holders of record
of the Company's Common Stock, which does not include shareholders whose stock
is held through securities position listings. The Company estimates there to be
approximately 1,217 beneficial owners of the Company's Common Stock.

13

The Company has not paid cash dividends on its Common Stock since
completing its February 1994 initial public offering and does not intend to pay
any dividends in the foreseeable future. So long as any indebtedness remains
unpaid under the Company's revolving loan facility, the Company is prohibited
from paying or declaring any cash or other dividends on any of its capital
stock, except stock dividends, without the written consent of the lender under
the facility.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

CRITICAL ACCOUNTING POLICES

Management Estimates and Uncertainties - The preparation of
consolidated financial statements in conformity with generally accepted
accounting principles 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, and reserves for inventory. Actual results
could materially differ from these estimates.

Revenue Recognition - The company's net sales are comprised of
product sales and other service revenue. Revenue from electronic manufacturing
services, which generally includes cost of material unless the customer provides
the material, is recognized upon shipment of goods, which is when title passes
to the customer, or in the case of consigned inventory, when placed into the
customer's manufacturing process. Certain service revenues are directly related
to product assembly and, as such, recognized upon shipment of goods. Other
service revenue is recognized as the services are performed and is generally
immaterial. The Company allows product returns for repair or replacement.
Product returns have historically not been significant.

14

Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market. Cost includes labor, material and manufacturing
overhead. Provisions are based on assumptions about future product life cycles,
product demand and market conditions. When required, provisions are made to
reduce excess inventories to their estimated net realizable values. It is
possible that estimates of net realizable values can change in the near term.

Impairment of Long-Lived Assets - The Company reviews long-lived
assets for impairment, including its investment and assets related to its
affiliate SMTU 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 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, if any, exceeds its fair market value.

In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which establishes a single
accounting model for the impairment or disposal of long-lived assets, including
discontinued operations. SFAS No. 144 supersedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
and APB Option No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions for the Disposal of a Segment of
a Business." The provisions of SFAS No. 144 are effective in fiscal years
beginning after December 15, 2001, with early adoption permitted and, in
general, are to be applied prospectively. The Company adopted SFAS No. 144 at
May 1, 2002, and has determined that adoption did not have a material effect on
its results of operations or financial position.

CAUTIONARY NOTE:

The following discussion provides an analysis of the Company's
financial condition and results of operations, and should be read in conjunction
with the Selected Consolidated Financial Data and the Consolidated Financial
Statements of the Company, and the Notes thereto, appearing in this Annual
Report on Form 10-K, as well as in conjunction with the cautionary note
concerning forward-looking information which appears at the beginning of Item 1.

OVERVIEW

SigmaTron International, Inc. (the "Company") operates primarily in
one business segment as an independent provider of electronic manufacturing
services, which includes printed circuit board assemblies and completely
assembled (boxbuild) electronic products. In connection with the production of
its assembled products the Company, its wholly-owned subsidiary, Standard
Components de Mexico, S.A., its affiliate, SMT Unlimited L.P. ("SMTU") and its
operating branch SigmaTron Taiwan, provide services to their 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 North America and Asia.

Sales volume can be misleading as an indication of the Company's
financial performance. Gross profit margins can vary considerably among
customers and products depending on the type of services rendered by the
Company. Variations in the number of turnkey orders compared to consignment
orders can lead to significant fluctuations in the Company's revenue levels and
margins. Further, generally customers' orders can be delayed, rescheduled or
canceled at any time, which can significantly impact the operating results of
the Company. In addition, the ability to replace such delayed or lost sales in a
short period of time cannot be assured.

As a manufacturing company, the Company includes all fixed
manufacturing overhead in cost of products sold. The inclusion of fixed
manufacturing overhead in cost of goods sold magnifies the fluctuations in gross
profit margin percentages caused by fluctuations in net sales and capital
expenditures. Specifically, fluctuations in the mix of consignment and turnkey
contracts could have an effect on the cost of goods sold and the resulting gross
profit as a percentage of net sales. Consignment orders require the Company to
perform

15

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. However, turnkey contracts typically have
lower gross margins due to the large material content. Historically, more than
90% of the Company's sales have been from turnkey orders.

In the past, the timing and rescheduling of orders has caused the
Company to experience significant quarterly fluctuations in its revenues and
earnings and the Company expects such fluctuations to continue. In addition, the
Company's second and third quarters have historically been the strongest
periods.

RESULTS OF OPERATIONS:

FISCAL YEAR ENDED APRIL 30, 2003 COMPARED
TO FISCAL YEAR ENDED APRIL 30, 2002

Net sales increased 10% to $93,165,149 in fiscal 2003 from
$84,770,921 in the prior year. The primary reason for the increase in sales was
due to the increased sales volume in the appliance market. Sales can be
misleading as an indication of the Company's financial performance. Gross profit
margins can vary considerably among customers and products depending on the type
of services rendered by the Company, specifically the variation of orders for
turnkey services versus consignment services. Variations in the number of
turnkey orders compared to consignment orders can lead to significant
fluctuations in the Company's revenue levels and margins. Further, generally,
customers' orders can be delayed, rescheduled or canceled at any time, which can
significantly impact the operating results of the Company. In addition, the
ability to replace such delayed or lost sales in a short period of time cannot
be assured.

Gross profit increased to $17,432,533 in fiscal 2003 compared to
$10,108,524 in fiscal 2002. The increase in gross profit is primarily related to
higher revenue volume and increased capacity utilization. Other factors
contributing to the increase in gross profit include product mix, labor cost and
component pricing. Gross profit can vary significantly from quarter to quarter.
Management continues to re-evaluate and align its overhead structure with
current customer requirements.

Selling and administrative expenses increased from $6,775,308 or 8%
of net sales in fiscal 2002 to $8,581,932 or 9.2% of net sales in fiscal 2003.
The increase is primarily due to an increase in insurance and bad debt expense
and bonus accruals, which was partially offset by a reduction in bank and
professional fees.

Interest expense decreased in fiscal 2003 to $595,673 from
$1,434,563 in fiscal 2002. The overall decrease was primarily due to a reduction
in the loan balance of the Company's line of credit and a lower interest rate.
Interest expense as a percent of sales decreased to .6% of sales compared to
1.7% in the prior fiscal year.

In fiscal 2003 tax expense was $3,251,551 which resulted in an
effective tax rate of 39.1% compared to $943,603 in income tax expense and an
effective tax rate of 38% in fiscal 2002.

As a result of the forgoing, the Company recorded net income of
$5,385,716 in fiscal 2003 compared to $1,542,056 in fiscal 2002. Diluted
earnings per share for the year ended April 30, 2003 was $1.61 compared to $0.52
in fiscal 2002.

FISCAL YEAR ENDED APRIL 30, 2002 COMPARED
TO FISCAL YEAR ENDED APRIL 30, 2001

Net sales increased 5% to $84,770,921 in fiscal 2002 from
$80,890,699 in the prior year. The primary reason for the increase in sales was
due to the increased sales volume in the appliance market. Sales decreased to
many of the Company's existing customers in fiscal 2002. The Company's sales in
fiscal 2002 have been affected by the overall slow-down in the economy. Sales to
the Company's significant customers may vary from time to time depending on
timing of customers' orders, including delays, modifications or cancellations.

16

Gross profit increased to $10,108,524 or 12% of net sales in fiscal
2002 compared to $5,065,017 or 6% of net sales in fiscal 2001. The increase in
gross profit is the result of several factors including, increased capacity
utilization, product mix, labor cost and overhead efficiencies and component
pricing. Management continues to re-evaluate and align its overhead structure
with current customer requirements.

Selling and administrative expenses increased from $5,752,984 or
7.1% of net sales in fiscal 2001 to $6,775,308 or 8% of net sales in fiscal
2002. The increase is primarily due to an increase in sales commission expense
and bonus accruals, which was partially offset by a reduction in certain
insurance expenses.

Interest expense decreased in fiscal 2002 to $1,434,563 from
$1,963,282 in fiscal 2001. The overall decrease was primarily due to a lower
interest rate and a reduction in the loan balance of the Company's line of
credit. Interest expense as a percent of sales decreased to 1.7% of sales
compared to 2.4% on the prior fiscal year.

In fiscal 2002 tax expense was $943,603, which resulted in an
effective tax rate of 38%. In fiscal 2001 the pre-tax loss resulted in a tax
benefit of $699,866, which resulted in an effective tax benefit of 37.7%

As a result of the forgoing, the Company recorded net income of
$1,542,056 in fiscal 2002 compared to a net loss of $1,155,764 in fiscal 2001.
Diluted earnings per share for the year ended April 30, 2002 was $0.52 compared
to a loss of $(.40) in fiscal 2001.

QUARTERLY RESULTS AND SEASONALITY

Historically, the Company's highest levels of sales are achieved in
its second and third quarters. This was due to the seasonal nature of the
business for several of the Company's customers. This trend caused the Company
to generally experience stronger second and third quarters in each fiscal year.
The Company experienced less seasonality in fiscal 2003 compared to prior fiscal
years. However, regardless of seasonal fluctuations, there can be no assurance
that the Company will be profitable in any particular quarter.

The Company's results of operations have varied significantly and
may continue to fluctuate from quarter to quarter. Operating results are
affected by a number of factors, including timing of orders from and shipments
to major customers, component pricing and shortages, the volume of orders as
related to the Company's capacity, timing of expenditures in anticipation of
future sales, price erosion within the electronics industry, capacity
utilization, the mix of turnkey and consignment business, competition within the
electronic industry, the gain or loss of significant customers and variations in
the demand for products in the industries served by the Company. A significant
portion of the Company's expenses are relatively fixed in nature and planned
expenditures are based in part on anticipated orders. The inability to adjust
expenditures to compensate for a decline in net sales may magnify the adverse
impact of such decline on the Company's results of operations. The Company's
customers generally require short delivery cycles. In the absence of substantial
backlog, quarterly sales and operating results depend on the volume and timing
of orders received during the quarter, which can be difficult to forecast. In
addition, variations in the size and delivery schedules of purchase orders
received by the Company, as well as changes in customers' delivery requirements
or the rescheduling or cancellations of orders and commitments, may result in
substantial fluctuations in backlog from period to period. Accordingly, the
Company believes that backlog may not be a meaningful indicator of future
operating results.

LIQUIDITY AND CAPITAL RESOURCES:

In fiscal 2003 the Company financed operations through cash provided
by operating activities. During the period, cash provided by operating
activities was primarily related to net income and an increase in accounts
payable, which was partially offset by an increase in accounts receivable. Net
income increased to $5,385,716 in fiscal 2003 compared to an increase of
$1,542,056 in the prior fiscal year.

The Company paid $1,636,621 in cash for machinery and equipment in
fiscal 2003, compared to $724,766 in fiscal 2002. The Company wrote off $515,721
in machinery and equipment in fiscal 2003.

17

Net cash used in financing activities of $8,139,335 was primarily
used for payments under the line of credit and capital lease obligations.

The Company entered into an Amended Loan and Security Agreement in
October 2002, which provides for a revolving credit facility. The maximum
borrowing limit under the revolving line-of-credit facility is limited to the
lesser of: (i) $20,000,000 or (ii) an amount equal to the sum of 85% of the
receivable borrowing base and the lesser of $9,000,000 or varying percentages of
the inventory base. The Amended Loan and Security Agreement expires in September
2004. At April 30, 2003 the Company was in compliance with its financial
covenants. The outstanding loan balance of $1,653,963 has been classified as a
long-term liability in the Company's balance sheet at April 30, 2003.

The loan facility is collateralized by substantially all of the
assets of the Company and contains certain financial covenants, including
specific covenants pertaining to the maintenance of minimum tangible net worth
and net income. The agreement also restricts annual lease rentals and capital
expenditures and the payment of dividends or distributions of any cash or other
property on any of its capital stock, other than by common stock dividends or
stock splits.

The Company provides funds for salaries, wages, overhead and capital
expenditure items as necessary to operate Standard Components. The Company
provides funding to Standard Components in U.S. dollars, which are exchanged for
pesos as needed. The fluctuation of the peso from time to time, without an equal
or greater increase in Mexican inflation, has not had a material impact on the
financial results of the Company. In fiscal 2003 the Company paid approximately
$10,360,000 to Standard Components for services provided.

The Company has a 42.5% ownership interest in SMTU, which was formed
on September 15, 1994, as a joint venture to provide surface mount technology
assembly services primarily to electronic original equipment manufacturers. The
Company owns 50% of the outstanding stock of SMT Unlimited, Inc. ("SMT, Inc."),
which is the general partner of SMTU. One of the limited partners of SMTU is
also an equal shareholder of SMT, Inc., along with the Company.

The Company holds subordinated debentures totaling $1,050,000 from
SMTU. Debentures totaling $650,000 bear interest at 8%, and debentures totaling
$400,000 bear interest at 12%. On November 1, 2002 the Company waived all
additional subordinated interest charges until further notice. On May 27, 2003,
the Company amended the debenture agreement extending the repayment date from
August 1, 2003 to August 1, 2005. As a result of the cancellation of future
interest expense and the extension of the loan repayment date the subordinated
debentures were deemed to be impaired. The Company determined that the fair
value of the future cash flows exceeded the investment by $329,208 at April 30,
2002 and recorded an impairment provision of this amount. Payment of principal
and interest on the debentures is subordinated to prior payment in full of
SMTU's revolving line of credit.

The Company also has guaranteed lease obligations of approximately
$388,000 for SMTU. The Company has been indemnified by one of the other limited
partners in the amount of $194,000 for the guaranteed lease obligations. SMTU
incurred a $13,680 monthly administrative fee in fiscal year 2003, a $24,000
monthly administrative fee for November 2001 through April 2002, and a $28,500
monthly administrative fee prior to November 2001 for administrative services
provided by the Company.

The investment in SMTU is carried at a cost plus equity in
undistributed earnings or losses since acquisition. The Company has recorded its
share of the income or losses in SMTU as an increase or reduction, respectively,
of the investment in SMTU.

In August 1999, the Company entered into a guaranty agreement with
SMTU's lender to guarantee the obligation of SMTU under its revolving line of
credit to a maximum of $2,000,000 plus interest and related costs associated
with the enforcement of the guaranty. In connection with the guaranty agreement,
one of the limited partners of SMTU and a Vice President of SMTU have each
executed a guaranty to the lender to reimburse the Company for up to $500,000 of
payments made by the Company under its guaranty to the lender in excess of
$1,000,000. In addition, the limited partner has agreed to indemnify the Company
for 50% of all payments made on behalf of SMTU to the lender. The limited
partner's obligation to the Company under the indemnity is

18

reduced dollar for dollar to the extent the limited partner would otherwise be
obligated to pay more than $1,000,000 as a result of his guaranty to the lender.
The revolving line of credit expires on July 31, 2004.

The Company's investment and advances to and receivables from SMTU
totaled approximately $3,582,000 at April 30, 2003, and no liability has been
recorded by the Company related to its guaranty of SMTU's credit agreement.

The impact of inflation for the past three fiscal years has been
minimal.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Not applicable.

ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA

The response to this item is included in Item 15(a) of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On October 31, 2001, Registrant's Board of Directors elected to
appoint Grant Thornton LLP as its independent auditors, and dismissed Ernst &
Young LLP. Such election and dismissal was previously reported in the Company's
8-K dated November 6, 2001. There has been no disagreements with the accountants
on accounting or financial disclosure matters during the Company's fiscal years
ended April 30, 2003 and 2002.

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PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement, filed with the Commission
not later than 120 days after the close of the Company's fiscal year ended April
30, 2003.

ITEM 11. EXECUTIVE COMPENSATION

The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement, filed with the Commission
not later than 120 days after the close of the Company's fiscal year ended April
30, 2003.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement, filed with the Commission
not later than 120 days after the close of the Company's fiscal year ended April
30, 2003.

19

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement, filed with the Commission
not later than 120 days after the close of the Company's fiscal year ended April
30, 2003.

ITEM 14. CONTROLS AND PROCEDURES

The Company maintains a set of disclosure controls and procedures
that are designed to ensure that information required to be disclosed by the
Company in the reports filed by the Company under the Securities Exchange Act of
1934, as amended ("Exchange Act"), is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission. Within the 90 days prior to the date of this
Report, the Company carried out an evaluation, under the supervision of the
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Rule 13a-14 of the Exchange Act. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective.

There have been no significant changes in the Company's internal
controls or other factors that could significantly affect those controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.

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PART IV
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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) and (a)(2)

The financial statements, including required supporting schedule,
are listed in the index to Financial Statements and Financial Schedule filed as
part of the Form 10-K on Page F-1.

20

INDEX TO EXHIBITS

(a)(3)

3.1 Certificate of Incorporation of the Company, incorporated herein by
reference to Exhibit 3.1 to Registration Statement on Form S-1, File
No. 33-72100, dated February 9, 1994.

3.2 Restated By-laws of the Company, adopted on September 24, 1999, and
hereby incorporated by reference.

10.1 Form of 1993 Stock Option Plan - filed as Exhibit 10.4 to the Company's
Registration Statement on Form S-1, File No. 33-72100, and hereby
incorporated by reference.
*
10.2 Form of Incentive Stock Option Agreement for the Company's 1993 Stock
Option Plan - filed as exhibit 10.5 to the Company's Registration
Statement on Form S-1, File No. 33-72100, and hereby incorporated by
reference.
*
10.3 Form of Non-Statutory Stock Option Agreement for the Company's 1993
stock Option Plan - filed as Exhibit 10.6 to the Company's Registration
Statement on Form S-1, File No. 33-72100, and hereby incorporated by
reference.
*
10.4 1994 Outside Directors Stock Option Plan - filed as Exhibit 10.15 to
the Company's Registration Statement on Form S-1, File No. 33-72100,
and hereby incorporated by reference.

10.5 The Company's 1997 Directors' Stock Option Plan - filed as Exhibit A to
the Company's 1997 Proxy Statement filed on August 18, 1997 and hereby
incorporated by reference.

10.6 Organization Agreement between the Company and other Partners of SMT
Unlimited L.P. dated September 15, 1994 - filed as Exhibit 10.23 to the
Company's Form 10-K for the fiscal year ended April 30, 1995 and hereby
incorporated by reference.
*
10.7 2000 Outside Directors' Stock Option Plan and hereby incorporated by
reference - filed as Appendix 1 to the Company's 2000 Proxy Statement
filed on August 21, 2000.
*
10.8 2000 Employee Stock Option Plan - filed as Appendix 2 to the Company's
2000 Proxy Statement filed on August 21, 2000 and hereby incorporated
by reference.

10.9 Lease Agreement # 98-106 between SigmaTron International, Inc. and
International Financial Services dated June 30, 1998 and hereby
incorporated by reference filed as Exhibit 10.42 to the Company's Form
10-Q for the quarter ended July 31, 1998 and hereby incorporated by
reference.

10.10 Lease Agreement # 99-048 between SigmaTron International, Inc. and
International Financial Services dated April 30, 1999 and hereby
incorporated by reference.

10.11 Loan and Security Agreement between SigmaTron International, Inc. and
LaSalle National Bank dated August 25, 1999 filed as Exhibit 10.26 to
the Company's Form 10-Q for the quarter ended October 31, 1999 and
hereby incorporated by reference.

10.12 Amended and Restated Agreement between Nighthawk Systems, Inc. and
SigmaTron International Inc., dated January 1, 2000. Filed as Exhibit
10.25 to the Company's Form 10-K for the year ended April 30, 2000 and
hereby incorporated by reference.

10.13 Lease Agreement # E004 between SigmaTron International, Inc. and G.E.
Capital dated May 9, 2000. Filed as Exhibit 10.26 to the Company's Form
10-K for the year ended April 30, 2000 and hereby incorporated by
reference.

21

10.14 Lease Agreement # 00-190 between SigmaTron International, Inc. and
International Financial Services dated July 18, 2000, filed as Exhibit
10.27 to the Company's Form 10-Q for the quarter ended October 31, 2000
and hereby incorporated by reference.

10.15 Lease Agreement # GE005 between SigmaTron International, Inc. and
General Electric Capital Corporation dated December 21, 2000, filed as
Exhibit 10.28 to the Company's Form 10-Q for the quarter ended January
31, 2001 and hereby incorporated by reference.

10.16 Lease Agreement # 00-280 between SigmaTron International, Inc. and
International Financial Services dated December 12, 2000 and hereby
incorporated by reference.

10.17 Lease Agreement # 200029352 between SigmaTron International, Inc. and
Citicorp Vendor Finance, Inc. dated March 15, 2001 and hereby
incorporated by reference.

10.18 Amended Loan and Security Agreement between SigmaTron International,
Inc. and LaSalle National Association, dated October 16, 2002, and
hereby incorporated by reference.

22.1 Subsidiaries of the Registrant - filed as Exhibit 22.1 of the Company's
Registration Statement on Form S-1, File No. 33-72100, and hereby
incorporated by reference.

23.1 Consent of Grant Thornton LLP

23.2 Consent of Ernst & Young LLP

99.1 Certification by the Principal Executive Officer of SigmaTron
International, Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (18 U.S.C. 1350).

99.2 Certification by the Principal Financial Officer of SigmaTron
International, Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (18 U.S.C. 1350).

* Indicates management contract or compensatory plan.

(b) Reports on Form 8-K

The Company filed no reports on Form 8-K during the last
quarter of the period covered by this Report.

(c) Exhibits

The Company hereby files as exhibits to this Report the
exhibits listed in Item 15(a)(3) above, which are attached
hereto or incorporated herein.

(d) Financial Statements Schedules

The Company hereby files a schedule to this Report the
financial schedules in Item 15, which are attached hereto.

22

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

SIGMATRON INTERNATIONAL, INC.

By: /s/ Gary R. Fairhead
------------------------
Gary R. Fairhead, President
and Chief Executive Officer

Dated: July 21, 2003

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned directors
and officers of SigmaTron International, Inc., a Delaware corporation, which is
filing an Annual Report on Form 10-K with the Securities and Exchange Commission
under the provisions of the Securities Exchange Act of 1934 as amended, hereby
constitute and appoint Gary R. Fairhead and Linda K. Blake, and each of them,
each of their true and lawful attorneys-in fact and agents; with full power of
substitution and resubstitution, for him and in his name, place and stead, in
all capacities, to sign any or all amendments to the report to be filed with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as each of them might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities, and on the dates indicated.

23

CERTIFICATIONS

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

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

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

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

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: July 21, 2003

/s/ Gary R. Fairhead
------------------------------------------
Gary R. Fairhead
President and Chief Executive Officer of
SigmaTron International, Inc.

24

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

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

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

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

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: July 21, 2003

/s/ Linda K. Blake
------------------------------------------
Linda K. Blake
Chief Financial Officer, Secretary and
Treasurer of SigmaTron International, Inc.

25

INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES

Financial statement schedules not listed above are omitted because they are not
applicable or required.

F-1

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
SigmaTron International, Inc.

We have audited the accompanying consolidated balance sheets of SigmaTron
International, Inc. (a Delaware corporation) and subsidiary as of April 30, 2003
and 2002, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the 2003 and 2002 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of SigmaTron International, Inc. and subsidiary as of April 30, 2003
and 2002, and the consolidated results of their operations and their cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.

We have also audited Schedule II of SigmaTron International, Inc. and subsidiary
for the years ended April 30, 2003 and 2002. In our opinion this schedule
presents fairly, in all material respects, the information required to be set
forth therein.

GRANT THORNTON LLP

Chicago, Illinois
June 27, 2003

F-2

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
SigmaTron International, Inc.

We have audited the accompanying consolidated statements of operations, changes
in stockholders' equity and cash flows of SigmaTron International, Inc. for the
year ended April 30, 2001. Our audit also included the financial statement
schedule listed in the Index at Item 14(a) for the year ended April 30, 2001.
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of SigmaTron International, Inc. for the year ended April 30, 2001,
in conformity with accounting principles generally accepted in the United States
of America. Also in our opinion, the related financial statement schedule for
the year ended April 30, 2001, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in paragraph
three of note R, the Company has not complied with certain covenants of loan
agreements with banks. In addition, the Company has significant receivables
from, and has guaranteed debt and other obligations of, its equity method
affiliate, SMTU (see note F and paragraph four of note R). SMTU's independent
auditors added an explanatory paragraph to their report dated June 29, 2001, on
SMTU's 2001 financial statements because of uncertainty due to SMTU not being in
compliance with certain covenants of its bank loan agreements. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans with regard to this matter are also described in
note R. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.

ERNST & YOUNG LLP

Chicago, Illinois
June 29, 2001, except for the third paragraph of
note R, as to which the date is July 11, 2001

F-3

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
APRIL 30,

- --------------------------------------------------------------------------------

F-4

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - CONTINUED
APRIL 30,

- --------------------------------------------------------------------------------

The accompanying notes are an integral part of these statements.

F-5

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30,

- --------------------------------------------------------------------------------

The accompanying notes are an integral part of these statements.

F-6

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED APRIL 30, 2003

- --------------------------------------------------------------------------------

The accompanying notes are an integral part of these statements.

F-7

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30,

- --------------------------------------------------------------------------------

The accompanying notes are an integral part of these statements.

F-8

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE A - DESCRIPTION OF THE BUSINESS

SigmaTron International, Inc. (the "Company") operates primarily in one business
segment as an independent provider of electronic manufacturing services, which
includes printed circuit board assemblies and completely assembled (boxbuild)
electronic products. In connection with the production of its assembled
products, the Company; its wholly-owned subsidiary, Standard Components de
Mexico, S.A.; its affiliate, SMT Unlimited L.P. ("SMTU") and its operating
branch, SigmaTron Taiwan, provide services to their 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 North America and Asia.

- --------------------------------------------------------------------------------

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION POLICY

The consolidated financial statements include the accounts and transactions of
the Company, its wholly-owned subsidiary, Standard Components de Mexico, S.A.,
and its operating branch, SigmaTron Taiwan. The functional currency of the
Mexican subsidiary is the U.S. dollar. Investment in the Company's affiliate,
SMTU, is included based on the equity method of accounting, and the Company's
share of the affiliate's operating results is included in the Consolidated
Statement of Operations. Significant intercompany accounts and transactions have
been eliminated in consolidation.

USE OF ESTIMATES

The preparation of 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 amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

ACCOUNTS RECEIVABLE

The majority of the Company's accounts receivable are due from companies in the
consumer electronics, gaming, fitness, industrial electronics,
telecommunications, home appliances and automotive industries. Credit is
extended based on evaluation of a customer's financial condition, and generally,
collateral is not required. Accounts receivable are due in accordance with
agreed upon terms, and are stated at amounts due from customers net of an
allowance for

F-9

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

ACCOUNTS RECEIVABLE - CONTINUED

doubtful accounts. Accounts outstanding longer than the contractual payments
terms are considered past due. The Company determines its allowance by
considering a number of factors, including the length of time trade accounts
receivable are past due, the Company's previous loss history, the customer's
current ability to pay its obligation to the Company, and the condition of the
general economy and the industry as a whole. The Company writes off accounts
receivable when they become uncollectible, and payments subsequently received on
such receivables are credited to the allowance for doubtful accounts.

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 projected by
management.

MACHINERY AND EQUIPMENT

Machinery and equipment are valued at cost. The Company provides for
depreciation and amortization using the straight-line method over the estimated
useful life of the assets:

Buildings 20 years
Machinery and equipment 12 years
Office equipment 5 years
Leasehold improvements 15 years

INCOME TAXES

Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities, and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.

F-10

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

EARNINGS PER SHARE

Basic earnings per share are computed by dividing income available to common
stockholders (the numerator) by the weighted-average number of common shares
outstanding (the denominator) for the period. The computation of the diluted
earnings per share is similar to the basic earnings per share, except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the potentially dilutive common shares had been
issued.

REVENUE RECOGNITION

The Company's net sales are comprised of product sales and other service
revenue. Revenue from electronic manufacturing services, which generally
includes cost of material unless the customer provides the material, is
recognized upon shipment of goods, which is when title passes to the customer,
or in the case of consigned inventory, when placed into the customer's
manufacturing process. Certain service revenues are directly related to product
assembly and, as such, recognized upon shipment of goods. Other service revenue
is recognized as the services are performed and is generally immaterial. The
Company allows product returns for repair or replacement. Product returns have
historically not been significant.

SHIPPING AND HANDLING COSTS

The Company records shipping and handling costs net, within selling and
administrative expenses. Customers are typically invoiced for shipping costs.
Shipping and handling costs totaled $112,380, $93,150 and $68,600 in fiscal
2003, 2002 and 2001, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments include receivables, notes payable, accounts
payable and accrued liabilities. The fair values of financial instruments are
not materially different from their carrying values.

LONG-LIVED ASSETS

The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," effective
May 1, 2002. SFAS No. 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This statement supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and the accounting and reporting provisions of
Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and

F-11

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

LONG-LIVED ASSETS - CONTINUED

Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business. The adoption of this statement did not
have a material effect on the Company's results of operations or financial
position.

In accordance with SFAS No. 144, long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. If the fair value of an asset is determined to be less
than the carrying amount of the asset, a loss is recognized for the difference.

The Company evaluates the impairment of its long-term receivable relating to the
subordinated debenture due from SMTU (see note F) in accordance with SFAS No.
114, "Accounting by Creditors for Impairment of a Loan". If the Company
determines that the fair value of the loan is less than the investment, an
impairment loss is recorded.

STOCK INCENTIVE PLANS

The Company maintains various stock incentive plans. See note N for additional
information regarding these plans. The Company accounts for these plans under
the recognition and measurement principles of APB Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. The Company
recognizes compensation cost for restricted shares and restricted stock units to
employees. As of April 30, 2003 there are no issued restricted shares or
restricted stock units. No compensation cost is recognized for stock option
grants. All options granted under the Company's plans had an exercise price
equal to the market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net earnings and earnings per
share if the Company had applied the fair value recognition provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation," to stock-based compensation.
The following table also provides the amount of stock-based compensation cost
included in net earnings as reported.

F-12

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

STOCK INCENTIVE PLANS - CONTINUED

- --------------------------------------------------------------------------------

RISKS AND UNCERTAINTIES

The Company's inventories include parts and components that may be specialized
in nature or subject to customers' future usage requirements. The Company has
programs to minimize the required inventories on hand and actively monitors
customer purchase orders and backlog. The Company uses estimated allowances to
reduce recorded amounts to market values, such estimates could change in the
future.

NEW ACCOUNTING STANDARDS

On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Intangible
Assets." SFAS No. 141 is effective for all business combinations completed after
June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001; however, certain provisions of this statement apply to
goodwill and other intangible assets acquired between July 1, 2001, and the
effective date of SFAS No. 142. The implementation of SFAS No. 141 and SFAS No.
142 did not have a material effect on the financial position or results of
operations of the Company.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statement Nos.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS No. 145 addresses a variety of accounting practices. Its provisions related
to the rescission of SFAS No. 4, "Reporting Gains and Losses From Extinguishment
of Debt," are effective for fiscal years beginning after May 15, 2002. Its
provisions related to SFAS No. 13, "Accounting for Leases," are effective for
transactions occurring after May 15, 2002. All other provisions are effective
for financial statements issued on or after May 15, 2002. SFAS No. 44 was titled
"Accounting for Intangible Assets of Motor Carriers." SFAS No. 64 was titled
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements."

F-13

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

NEW ACCOUNTING STANDARDS - CONTINUED

The Company adopted the provisions of SFAS No. 145 that were effective as of May
15, 2002. This adoption did not have a material effect on the Company's results
of operations or financial position. The Company does not expect adoption of the
provisions that are effective for fiscal years beginning after May 15, 2002, to
have a material effect on its results of operations or financial position.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
With Exit or Disposal Activities." It requires recognition of costs associated
with exit or disposal activities at the time they are incurred rather than at
the date of a commitment to an exit or disposal plan. The statement is effective
for exit or disposal activities initiated after December 31, 2002. The Company
does not expect adoption of this statement to have a material effect on its
results of operations or financial position.

In November 2002, the Emerging Issues Task Force of the FASB reached consensus
on Issue 0216, "Accounting by a Customer for Certain Consideration Received From
a Vendor." The consensus reached was that cash consideration from a vendor is
presumed to be a reduction of the prices of the vendor's products and should be
recognized as a reduction of cost of merchandise sold. It also reached consensus
on when a customer should recognize a rebate or refund that is payable when the
customer completes a specific level of purchases. Recognition should occur when
the rebate or refund is probable and reasonably estimable, and should be based
on a systematic and rational method. This is effective for arrangements entered
into after November 21, 2002. The Company does not expect adoption to have a
material effect on its results of operations or financial position.

In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." It is an interpretation of FASB Statement
Nos. 5, 57 and 107 and rescission of FASB Interpretation No. 34. FIN 45
elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under certain guarantees that
it has issued. It also clarifies that a guarantor is required to recognize at
the inception of a guarantee a liability for the fair value of the obligation
undertaken in issuing the guarantee. Initial recognition and measurement
provisions of FIN 45 are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002, irrespective of the guarantor's fiscal
year-end. Disclosure requirements of FIN 45 are effective for financial
statements of interim or annual periods ending after December 15, 2002. The
Company has not yet determined whether this interpretation would have a material
effect on its results of operations or financial position.

F-14

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

NEW ACCOUNTING STANDARDS - CONTINUED

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." It amends SFAS No. 123 to provide
alternative methods of transition for a voluntary change to the fair-value-based
method of accounting for stock-based employee compensation. It also amends the
disclosure requirements of SFAS No. 123 to require more prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method on reported
amounts. The amendments to SFAS No. 123 in paragraphs 2(a)-2(e) were effective
for financial statements for fiscal years ending after December 15, 2002, and
were adopted by the Company in 2003. This adoption did not have a material
effect on the Company's results of operations or financial position. The
amendment to SFAS No. 123 in paragraph 2(f) and the amendment to Opinion 28 in
paragraph 3 are effective for financial reports containing condensed financial
statements for interim periods beginning after December 15, 2002. The Company
does not expect adoption of these portions of the statement to have a material
effect on its results of operations or financial position.

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." It is an interpretation of
Accounting Research Bulletin No. 51 and revises the requirements for
consolidation by business enterprises of variable interest entities. FIN 46
applies immediately to variable interest entities created after January 31,
2003, and to variable interest entities in which an enterprise obtains an
interest after that date. It applies in the first fiscal year or interim period
beginning after June 15, 2003, to variable interest entities in which an
enterprise holds a variable interest acquired before February 1, 2003. FIN 46
applies to public enterprises as of the beginning of the applicable interim or
annual period and to nonpublic enterprises as of the end of the applicable
annual period. It may be applied prospectively with a cumulative-effect
adjustment as of the date on which it is first applied or by restating
previously issued financial statements for one or more years with a
cumulative-effect adjustment as of the beginning of the first year restated. The
Company does not believe this interpretation will have a material effect on its
results of operations or financial position.

In April 2003 the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This statement clarifies under
what circumstances a contract with an initial net investment meets the
characteristic of a derivative and when a derivative contains a financing
component that warrants special reporting in the statement of cash flows. The
Statement also amends other existing pronouncements in order to achieve more
consistent reporting of contracts that are derivatives in their entirety or that
contain embedded

F-15

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

NEW ACCOUNTING STANDARDS - CONTINUED

derivatives that warrant special reporting. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The Company is not party to any
derivative transactions and does not expect adoption of this statement to have a
material effect on its results of operations or financial position.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." This statement
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 requires that an issuer classify a
financial instrument that is within the scope as a liability (or an asset in
some circumstances) because that financial instrument embodies an obligation of
the issuer. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003 and otherwise is effective at the beginning of the
first interim periods beginning after June 15, 2003, except for mandatory
redeemable financial instruments of nonpublic entities. The Company does not
expect the adoption of this statement will have a material effect on its results
of operations or financial position.

RECLASSIFICATIONS

Certain amounts in the 2001 and 2002 financial statements have been reclassified
to conform with the 2003 presentation.

- --------------------------------------------------------------------------------

NOTE C - ALLOWANCE FOR DOUBTFUL ACCOUNTS

Changes in the Company's allowance for doubtful accounts are as follows:

F-16

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE D - INVENTORIES

Inventories consist of the following at April 30:

- --------------------------------------------------------------------------------

NOTE E - MACHINERY AND EQUIPMENT

Machinery and equipment consist of the following at April 30:

F-17

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE F - INVESTMENT AND ADVANCES WITH SMTU

The Company has a 42.5% ownership interest in SMTU, which was formed on
September 15, 1994, as a joint venture to provide surface mount technology
assembly services primarily to electronic original equipment manufacturers. The
Company owns 50% of the outstanding stock of SMT Unlimited, Inc. ("SMT, Inc."),
which is the general partner of SMTU. One of the limited partners of SMTU is
also an equal shareholder of SMT, Inc., along with the Company.

The Company holds subordinated debentures totaling $1,050,000 from SMTU.
Debentures totaling $650,000 bear interest at 8%, and debentures totaling
$400,000 bear interest at 12%. Accrued interest receivable on the debentures
amounted to $525,962 and $474,850 at April 30, 2003 and 2002, respectively. On
November 1, 2002 the Company waived all future subordinated interest charges
until further notice. On May 27, 2003, the Company amended the debenture
agreement extending the repayment date from August 1, 2003 to August 1, 2005. As
a result of the waiver of future interest expense and the extension of the loan
repayment date the subordinated debentures were deemed to be impaired. The
Company determined that the fair value of the future cash flows exceeded the
investment by $329,208 at April 30, 2003 and recorded an impairment provision
for this amount. Payments of principal and interest on the debentures is
subordinated to prior payment in full of SMTU's revolving line of credit.

SMTU incurred a $13,680 monthly administrative fee in fiscal year 2003, a
$24,000 monthly administrative fee for November 2001 through April 2002, and a
$28,500 monthly administrative fee prior to November 2001 for administrative
services provided by the Company.

The investment in SMTU is carried at cost plus equity in undistributed earnings
or losses since acquisition. The Company has recorded its share of the income or
losses in SMTU as an increase or reduction, respectively, of the investment in
SMTU.

In August 1999, the Company entered into a guaranty agreement with SMTU's lender
to guarantee the obligation of SMTU under its revolving line of credit to a
maximum of $2,000,000 plus interest and related costs associated with the
enforcement of the guaranty. In conjunction with the guaranty agreement, Gary R.
Fairhead, President and CEO of the Company and Vice President of SMT, Inc. has
executed a guaranty to the lender to reimburse the Company for up to $500,000 of
payments made by the Company under its guaranty to the lender in excess of
$1,000,000. In conjunction, with the Company's guaranty agreement one of SMTU's
limited partners has agreed to indemnify the Company for 50% of all payments
made on behalf of SMTU to the lender.

The Company also has guaranteed lease obligations of approximately $388,000 for
SMTU. The Company has been indemnified by one of the other limited partners in
the amount of $194,000 for the guaranteed lease obligations.

F-18

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE F - INVESTMENT AND ADVANCES WITH SMTU - CONTINUED

The Company's investment and advances to and receivables from SMTU totaled
approximately $3,582,000 and $4,680,000 at April 30, 2003 and 2002,
respectively, and no liability has been recorded by the Company related to its
guaranty of SMTU's credit agreement.

Summarized financial information for SMTU is as follows at April 30:

NOTE G - NOTES PAYABLE

The Company amended its loan and security agreement in October 2002, that
provides for a revolving line-of-credit facility, an $800,000 equipment loan
facility, and a $2,000,000 letter-of-credit facility. The maximum borrowing
limit under the revolving line-of-credit facility is limited to the lesser of
(i) $20,000,000 or (ii) an amount equal to the sum of up to 85% of the
receivables borrowing base and the lesser of $9,000,000, or up to 50% of the
inventory borrowing base, as defined. At April 30, 2003 and 2002, the Company
had outstanding borrowings of $1,653,963 and $9,234,015, respectively.

Borrowings under the revolving line of credit bear interest at the prime rate
plus 1.5% (5.75% at April 30, 2003). The Company must also pay an unused
commitment fee equal to 0.25% on the revolving credit facility. As of April 30,
2003, the Company had an available line-of-credit of $12,508,691. The revolving
line of credit facility matures September 30, 2004. At April 30, 2003, the
Company was in compliance with its financial covenants.

Borrowings under the equipment loan bear interest at prime plus 0.5%. The
equipment loan matures August 2004. No amounts were outstanding under the
equipment loan facility at April 30, 2003.

F-19

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE G - NOTES PAYABLE - CONTINUED

The loan and security agreement is collateralized by substantially all of the
assets of the Company and contains certain financial covenants, including
specific covenants pertaining to the maintenance of minimum tangible net worth
and net income. The agreement also restricts annual lease rentals and capital
expenditures and the payment of dividends or distributions of any cash or other
property on any of its capital stock, except that common stock dividends may be
distributed by a stock split or dividends pro rata to its stockholders.

- --------------------------------------------------------------------------------

NOTE H - ACCRUED EXPENSES

Accrued expenses consist of the following at April 30:

- --------------------------------------------------------------------------------

NOTE I - RELATED-PARTY TRANSACTIONS AND COMMITMENTS

The Company has transactions with Circuit Systems, Inc., which filed for
protection under Chapter 11 of the Federal bankruptcy code, and is now known as
Circuit Systems, Inc. Liquidating Grantor's Trust, dated October 14, 2001
("CSI"), a former shareholder of the Company. CSI divested itself of the
investment in common stock of the Company in April 2001. These transactions
primarily involved the purchase of raw materials and the leasing of operating
space. Purchases of raw materials were zero for the years ended April 30, 2003
and 2002, and approximately $3,598,000 for April 30, 2001. The Company leases
space in Elk Grove Village, Illinois, at a base rental of $33,800 per month,
with an additional $7,000 per month for property taxes. The lease requires the
Company to pay maintenance and utility expenses. In July 2000, the Company
exercised its renewal option for an additional five-year period through February

F-20

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE I - RELATED-PARTY TRANSACTIONS AND COMMITMENTS - CONTINUED

2006. Subsequent to the renewal agreement, CSI sold the building to a
non-related party. The Company's exercise of the renewal option was acknowledged
by the new owner. Rent and property tax expense related to the agreement totaled
approximately $495,000, $493,000 and $515,000 for the years ended April 30,
2003, 2002 and 2001, respectively.

At April 30, 2003 and 2002, the Company had non-interest-bearing receivables of
approximately $114,000 and $183,000, respectively, for advances to a company in
which an officer of the Company is an investor. The balance has been recorded as
other assets at April 30, 2003 and 2002. This outstanding receivable has been
guaranteed by an officer of the Company.

During 1996, the Company invested $1,200 in exchange for a 12% limited
partnership interest in Lighting Components, L.P. ("LC") and invested $1,300 in
Lighting Components, Inc., which is the general partner of LC, in exchange for
13% of its capital stock. At April 30, 1998, the Company had also made advances
to LC in exchange for subordinated debentures and promissory notes totaling
$280,000. The subordinated debentures and promissory notes totaling $280,000
were fully reserved at April 30, 1998.

In addition to the subordinated debentures and promissory notes, at April 30,
2000, the Company had recorded miscellaneous receivables, interest and trade
receivables from LC of $1,560,000, against which a reserve of $789,000 was
recorded. The Company wrote off its investment in LC of $2,500 in the statement
of operations for the year ended April 30, 2001. In April 2001, LC sold certain
assets to a third party. In connection with the asset sale, the Company received
a $400,000 promissory note receivable from a third party. Payments are due on
the promissory note as follows: $125,000 plus accrued interest due January 1,
2002, $125,000 plus accrued interest due January 1, 2003, and $150,000 plus
accrued interest due January 1, 2004. The payment obligations for $125,000 due
January 1, 2003 and 2002, plus accrued interest were paid in December 2002 and
2001, respectively. Interest on the promissory note will accrue at 5% per annum.
The third party also agreed to pay LC royalties on certain sales derived from
the purchase of the acquired assets as defined in the agreement. LC or its
successor will receive royalty payments through April 30, 2007. Per the terms of
a separate agreement, the Company will receive its share of the royalty
payments. These royalty payments, if any, will be recorded by the Company as
received and reflected as payments on the notes.

F-21

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE J - INCOME TAXES

The income tax provision (benefit) for the years ended April 30 consists of the
following:

The reasons for the differences between the income tax provision (benefit) and
the amounts computed by applying the statutory Federal income tax rates to
income (loss) before income tax expense for the years ended April 30 are as
follows:

Significant temporary differences that result in deferred tax assets and
(liabilities) at April 30, 2003 and 2002, are as follows:

F-22

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE J - INCOME TAXES - CONTINUED

Gain on involuntary conversion $ (224,281) $ (224,281)
Machinery and equipment (983,747) (981,575)
Partnership in SMTU (105,753) (19,223)
Impairment reserve 128,720 --
------------ ------------

Net long-term deferred tax liability $ (1,185,061) $ (1,225,079)
============ ============

- --------------------------------------------------------------------------------

NOTE K - 401(k) RETIREMENT SAVINGS PLAN

The Company sponsors a 401(k) retirement savings plan, which is available to all
non-union U.S. employees who complete 1,000 hours of service annually.
Participants are allowed to contribute up to 15% of their annual compensation,
and the Company may elect to match participant contributions up to $300. The
Company contributed $40,445, $43,745 and $50,942 to the plan during the fiscal
years ended April 30, 2003, 2002 and 2001, respectively. The Company paid total
expenses of $7,978, $8,139 and $14,968 for the fiscal years ended April 30,
2003, 2002 and 2001, respectively, relating to costs associated with the Plan's
administration.

- --------------------------------------------------------------------------------

NOTE L - MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentration of
credit risk consist principally of uncollateralized accounts receivable. See
note F for additional information. For the year ended April 30, 2003, two
customers accounted for 28% and 16%, respectively, of net sales of the Company,
and 21% and 7%, respectively, of accounts receivable at April 30, 2003. For the
year ended April 30, 2002, two customers accounted for 22% and 18%,
respectively, of net sales of the Company, and 35% and 4%, respectively, of
accounts receivable at April 30, 2002. For the year ended April 30, 2001, two
customers accounted for 22% and 16%, respectively, of net sales of the Company,
and 5% and 11%, respectively, of accounts receivable at April 30, 2001.

F-23

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE M - LEASES

The Company leases its facilities under various operating leases. The Company
also leases various machinery and equipment under capital leases.

Future minimum lease payments under leases with terms of one year or more are as
follows at April 30, 2003:

The Company subleased the machinery and equipment relating to certain of the
above capital lease agreements to its affiliate, SMTU, and recorded equipment
financing lease receivables from SMTU. These lease receivables contain the same
maturity dates as the minimum lease payments underlying the capital lease
agreements. The effective interest rates on these receivables are approximately
2% higher than the effective interest rates (ranging from 9.43% to 14.05%)
implicit in the capital lease agreements to cover various administrative
expenses of the Company. The equipment lease receivables are collateralized by
the underlying machinery and equipment. Management believes the machinery and
equipment would be readily usable in the Company's manufacturing operations if
necessary.

F-24

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE M - LEASES - CONTINUED

Future minimum rentals to be received under the subleases related to the
equipment lease receivables from SMTU with terms of one year or more are as
follows:

Years ending April 30,
- ----------------------

2004 $ 2,148,612
2005 349,691
2006 147,384
-----------

2,645,687
Less amounts representing interest 475,502
-----------
$ 2,170,185
===========

As a result of the uncertainty surrounding the timing of collection of these
future minimum rentals, the Company has classified these equipment lease
receivables as long-term at April 30, 2003 and 2002.

Rent expense incurred under operating leases was approximately $886,000,
$836,000 and $851,000 for the years ended April 30, 2003, 2002 and 2001,
respectively.

In July 1997, the Company refinanced some machinery and equipment under a
sale/leaseback arrangement. The equipment was sold for approximately $1.4
million in cash. The Company has the option to purchase the equipment at the end
of the lease term for $1. The transaction has been accounted for as a financing
lease, wherein the property remains on the balance sheet and will continue to be
depreciated, and a financing obligation equal to the proceeds has been recorded.

- --------------------------------------------------------------------------------

NOTE N - STOCK OPTIONS

The Company has stock option plans ("Option Plans") under which certain members
of management and outside nonmanagement directors may acquire up to 1,303,500
shares of common stock. Options to be granted under the management plans total
967,500, with the nonmanagement director plans allowing for a total of 336,000
options to be granted. At April 30, 2003, the Company has 176,373 shares
reserved for future issuance to management under the Option Plans. The Option
Plans are interpreted and administered by the Compensation Committee of the
Board of Directors. The maximum term of options granted under the Option

F-25

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE N - STOCK OPTIONS - CONTINUED

Plans is generally 10 years. Options granted under the Option Plans are either
incentive stock options or nonqualified options. Options forfeited under the
Option Plans are available for reissuance. Options granted under these plans are
granted at an exercise price equal to the fair market value of a share of the
Company's common stock on the date of grant. Management options of 26,900 vest
over five years with the remaining 663,470 management options vesting over three
years from the date of grant, provided the optionee remains an employee of the
Company. Options granted to nonemployee directors are vested on the date of
grant.

The Company has elected to follow APB Opinion No. 25 in accounting for its
employee stock options because, as discussed below, the alternative fair value
accounting method provided for under SFAS No. 123 requires the use of
option-valuation models that were not developed for use in valuing employee
stock options. Under APB Opinion No. 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized. Pro forma
information regarding net income and earnings per share is required by SFAS No.
123 as if the Company had accounted for its employee stock options granted
subsequent to December 31, 1994, under the fair value method of that statement.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option vesting period.

The weighted-average grant date fair value of the options granted during fiscal
2003, 2002 and 2001 was $2.84, $2.31 and $2.02, respectively.

The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-valuation model with the following assumptions:

- --------------------------------------------------------------------------------

Option-valuation models require the input of highly subjective assumptions.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate in management's
opinion, the existing method does not necessarily provide a reliable single
measure of the fair value of the Company's employee stock options.

F-26

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE N - STOCK OPTIONS - CONTINUED

The table below summarizes option activity through April 30, 2003:

Information with respect to stock options outstanding and stock options
exercisable at April 30, 2003, follows:

F-27

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE N - STOCK OPTIONS - CONTINUED

- --------------------------------------------------------------------------------

NOTE O - EARNINGS PER SHARE

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

Options to purchase 969,370, 1,130,493 and 741,098 shares of common stock were
outstanding at April 30, 2003, 2002 and 2001, respectively. The options
outstanding during 2001 were not included in the computation of diluted earnings
per share for all or part of the year because the options exercise price was
greater than the average market price of the common shares; therefore, the
effect would be antidilutive.

F-28

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE P - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of unaudited quarterly financial data for fiscal
2003, 2002 and 2001.

Amounts for the first three quarters of 2001 differ from the amounts previously
reported in 2001. These adjustments resulted in a reduction in revenue and gross
margin, net income (loss) and net income (loss) per share of $641,224, $300,000
and $191,000; $359,415, $180,354 and $142,851; and $.13, $.07 and $.05; in the
first, second and third quarters of 2001, respectively.

F-29

SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE Q - LITIGATION

In the normal course of business, the Company is involved in various legal and
administrative proceedings. In the opinion of management, any liability
resulting from such proceedings will not have a material adverse effect on the
financial position or results of operation of the Company.

- --------------------------------------------------------------------------------

NOTE R - FINANCIAL CONDITION

In fiscal 2002, the Company experienced an increase in sales as the economy
began to recover. This increase in sales accelerated in fiscal 2003. The
increase in sales and the Company's continued efforts to control overhead
expenses resulted in a profit in fiscal 2003 and 2002. The Company entered into
an amended loan agreement that extends to September 30, 2004, and is in
compliance with all bank covenants at April 30, 2003.

The Company experienced significantly lower sales and increased losses for the
last several months of fiscal 2001. In an effort to mitigate some of its losses,
the Company substantially downsized its work force and reduced overhead expenses
during fiscal 2001.

The Company was in violation of its pretax income and interest coverage ratio
covenants under its bank agreement for the quarters ended July 31, 2000, October
31, 2000, January 31, 2001, and April 30, 2001. On February 1, 2001, the Company
entered into a forbearance agreement with its lenders. Under the terms of the
agreement, the lenders agreed to forbear from exercising and enforcing their
rights until May 31, 2001. On July 11, 2001, the lenders agreed to extend the
forbearance agreement until July 31, 2001. The Company operated under the
forbearance agreement until November 30, 2001. On December 4, 2001, the original
credit agreement was amended and extended to April 30, 2002.

The report of independent auditors, dated June 29, 2001, referring to SMTU's
financial statements for the year ended April 30, 2001, contained an explanatory
paragraph regarding uncertainty concerning SMTU's ability to continue as a going
concern because SMTU had not complied with certain covenants of loan agreements
with a bank at April 30, 2001. Subsequent to April 30, 2003, SMTU entered into
an amended loan agreement expiring on July 31, 2004.

F-30

SCHEDULE II

SIGMATRON INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED APRIL 30, 2003

- --------------------------------------------------------------------------------

(1) Accounts receivable and investments written off in conjunction with the
settlement of amounts with Lighting Components, L.P.

F-31

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Partners
SMT Unlimited L.P.

We have audited the accompanying balance sheets of SMT Unlimited L.P. as of
April 30, 2003 and 2002, and the related statements of income, changes in
partners' (deficit) equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The financial statements of SMT Unlimited L.P. for the year ended
April 30, 2001, were audited by other auditors, whose report dated June 29,
2001, included an explanatory paragraph relating to a substantial doubt about
the Company's ability to continue as a going concern that described the
Company's non-compliance with certain covenants of the loan agreements discussed
in note L to the financial statements.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SMT Unlimited L.P. as of April
30, 2003 and 2002, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States of America.

GRANT THORNTON LLP

Chicago, Illinois
June 27, 2003, except for the fourth paragraph of
note G and the second paragraph of note L, as
to which the date is July 9, 2003

F-32

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Partners
SMT Unlimited L.P.

We have audited the accompanying statements of income, partners' deficit, and
cash flows of SMT Unlimited L.P. for the year ended April 30, 2001. Our audit
also included the financial statement schedule listed in the Index at Item 14(a)
for the year ended April 30, 2001. These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of SMT Unlimited
L.P. for the year ended April 30, 2001, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
related financial statement schedule for the year ended April 30, 2001, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in paragraphs
three and four of note L, the Company has not complied with certain covenants of
loan agreements with a bank. This condition raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans with regard
to this matter are also described in paragraphs three and four of note L. The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.

ERNST & YOUNG LLP

Chicago, Illinois
June 29, 2001

F-33

SMT UNLIMITED L.P.
BALANCE SHEETS
APRIL 30,

- --------------------------------------------------------------------------------

F-34

SMT UNLIMITED L.P.
BALANCE SHEETS - CONTINUED
APRIL 30,

- --------------------------------------------------------------------------------

The accompanying notes are an integral part of these statements.

F-35

SMT UNLIMITED L.P.
STATEMENTS OF INCOME
YEARS ENDED APRIL 30,

- --------------------------------------------------------------------------------

The accompanying notes are an integral part of these statements.

F-36

SMT UNLIMITED L.P.
STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) EQUITY
THREE YEARS ENDED APRIL 30, 2003

- --------------------------------------------------------------------------------

The accompanying notes are an integral part of these statements.

F-37

SMT UNLIMITED L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30,

- --------------------------------------------------------------------------------

The accompanying notes are an integral part of these statements.

F-38

SMT UNLIMITED L.P.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE A - DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

SMT Unlimited L.P. (the "Company") was formed as an Illinois limited partnership
on September 15, 1994, by the Patel Group ("Patel"), SigmaTron International,
Inc. ("SigmaTron") and a minority partner, and is located in Hollister and
Fremont, California. The Company, which operates primarily in one segment,
provides surface-mount technology assembly services, primarily to electronic
original-equipment manufacturers in the United States. Patel and SigmaTron each
contributed capital of $49,500 in exchange for 45% ownership of the Company, and
additionally, Patel and SigmaTron formed a new corporation, SMT Unlimited Inc.
("SMT, Inc."), which is the general partner of the Company. SMT, Inc.
contributed capital of $1,000 in exchange for a 1% ownership interest. The
minority partner vested in the remaining ownership equally over the following
five years. During fiscal 1997, Patel and SigmaTron each sold 2.5% of their
interest to key employees of the Company.

- --------------------------------------------------------------------------------

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of 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 amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

ACCOUNTS RECEIVABLE

The majority of the Company's accounts receivable are due from companies in the
original equipment manufacturers industries. Credit is extended based on
evaluation of a customer's financial condition, and generally, collateral is not
required. Accounts receivable are due in accordance with agreed upon terms and
are stated at amounts due from customers net of an allowance for doubtful
accounts. Accounts outstanding longer than the contractual payments terms are
considered past due. The Company determines its allowance by considering a
number of factors, including the length of time trade accounts receivable are
past due, the Company's previous loss history, the customer's current ability to
pay its obligation to the Company, and the condition of the general economy and
the industry as a whole. The Company writes off accounts receivable when they
become uncollectible, and payments subsequently received on such receivables are
credited to the allowance for doubtful accounts.

F-39

SMT UNLIMITED L.P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

INVENTORIES

Inventories are stated 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 goods 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 then that projected by
management.

MACHINERY AND EQUIPMENT

Machinery and equipment are stated at cost. The Company provides for
depreciation and amortization using the straight-line method over the useful
life of the asset.

The estimated useful lives of the fixed assets are as follows:

Machinery and equipment 5 - 12 years
Office equipment 5 years
Leasehold improvements 15 years

INCOME TAXES

The Company makes no provision for income taxes, as the partners include their
respective shares of the results of the operations on their tax returns.

DEFERRED FINANCING COSTS

Deferred financing costs are being amortized by the straight-line method over
the life of the related debt.

REVENUE RECOGNITION

The Company's net sales are comprised of product sales and other service revenue
earned from engineering and design services. Revenue from product sales is
recognized upon shipment of goods, which is when title passes or, in the case of
consigned inventory, when placed into the customer's manufacturing process.
Certain service revenues are directly related to product assembly and, as such,
recognized upon shipment of goods. Other service revenue is recognized as the
services are performed. The Company allows product returns for repair or
replacement. Product returns have historically not been significant.

F-40

SMT UNLIMITED L.P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

LONG-LIVED ASSETS

The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," effective
May 1, 2002. SFAS No. 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This statement supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and the accounting and reporting provisions of
Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business. The adoption of this statement did not
have a material effect on the Company's results of operations or financial
position.

In accordance with SFAS No. 144, long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. If the fair value of an asset is determined to be less
than the carrying amount of the asset, a loss is recognized for the difference.

EQUITY INCENTIVE PLANS

The Company maintains various equity incentive plans. See note K for additional
information regarding these plans. The Company accounts for these plans under
the recognition and measurement principles of APB Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. No compensation
cost is recognized for equity option grants. All options granted under the
Company's plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. The following table illustrates
the effect on net earnings and earnings per share if the Company had applied the
fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," to stock-based compensation. The following table also provides
the amount of stock-based compensation cost included in net earnings as
reported.

F-41

SMT UNLIMITED L.P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

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NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

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RECLASSIFICATIONS

Certain amounts in the 2001 and 2002 financial statements have been reclassified
to conform to the 2003 presentations.

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NOTE C - ALLOWANCE FOR DOUBTFUL ACCOUNTS

Changes in the Company's allowance for doubtful accounts are as follows:

F-42

SMT UNLIMITED L.P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

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NOTE D - INVENTORIES

Inventories consist of the following at April 30:

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NOTE E - OTHER INCOME

In 2002, other income primarily comprises compensation from one of the Company's
customers relating to cancelled purchase order commitments.

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NOTE F - MACHINERY AND EQUIPMENT

Machinery and equipment consist of the following at April 30:

F-43

SMT UNLIMITED L.P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

- --------------------------------------------------------------------------------

NOTE G - DEBT

The Company has $1,300,000 of 8% subordinated debentures and $800,000 of 12%
subordinated debentures, with principal and interest due August 1, 2003, to
SigmaTron and Patel. Accrued interest on these debentures amounted to $1,051,923
and $949,701 at April 30, 2003 and 2002, respectively. On November 1, 2002
SigmaTron and Patel waived all future subordinated interest charges until
further notice. On May 27, 2003, SigmaTron and Patel amended the debenture
agreement extending the repayment date to August 1, 2005. The payment of
principal and interest on the subordinated debentures is subordinated in right
of payment to the prior payment in full of the revolving line of credit.

On July 10, 2002 the Company amended its Loan and Security Agreement
("Agreement") covering the Company's revolving line-of-credit facility. Under
the amended terms of the Agreement, the maximum borrowing limit is the lesser of
(i) $5,000,000, or (ii) an amount equal to the sum of up to 85% of the
receivables borrowing base and the lesser of $2,500,000 or up to 50% of the
inventory borrowing base. In conjunction with the amendment the covenant
violations were waived. The amended revolving line of credit matures on July 31,
2003. Borrowings under the revolving line of credit bear interest at the bank's
prime plus 2% (6.25% at April 30, 2003). The Company is obligated to pay an
annual commitment fee of 1/4 of 1% on the average daily unused portion of the
revolving line of credit. The available portion of the line of credit at April
30, 2003 is $210,084.

The Agreement is collateralized by substantially all of the assets of the
Company and contains certain financial covenants, including specific covenants
pertaining to the maintenance of tangible net worth and net income before
partnership distributions. As of April 30, 2003 the Company is in compliance
with these debt covenants. As described in note L, the Company was in violation
of these debt covenants at April 30, 2002.

On July 9, 2003, the Company entered into an amended loan and security agreement
extending its provisions to July 31, 2004. The amendment provides that, among
other matters, the total commitment was reduced to $3,000,000, the cap on
eligible inventory was reduced to $1,500,000 and covenant requirements were
amended.

The Agreement also provides for letters of credit up to $500,000. There were no
outstanding letters of credit at April 30, 2003 or 2002.

In August 1999, SigmaTron entered into a guaranty agreement with the Company's
lender to guarantee the obligation of the Company under its revolving line of
credit to a maximum of $2,000,000, plus interest and related costs associated
with the enforcement of the guaranty. In connection with the guaranty agreement,
one of the limited partners of SMTU and Vice President of SMTU have each
executed a guaranty to the lender to reimburse SigmaTron for up

F-44

SMT UNLIMITED L.P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

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NOTE G - DEBT - CONTINUED

to $500,000 of payments made by SigmaTron under its guaranty to the lender in
excess of $1,000,000. In addition, the limited partner has agreed to indemnify
SigmaTron for 50% of all the Company's payments to the lender. The limited
partner's obligation to SigmaTron under the indemnity is reduced dollar for
dollar to the extent the limited partner would otherwise be obligated to pay
more than $1,000,000 as a result of his guaranty to the lender.

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NOTE H - LEASES

The Company leases its facilities under operating lease agreements expiring
through February 2008. The Company also has various capital lease agreements
with SigmaTron and two capital lease agreements with a third party to acquire
machinery and equipment.

Future minimum lease payments under leases with terms of one year or more are as
follows at April 30, 2003:

Rent expense, including maintenance, property taxes and insurance incurred under
operating leases, was approximately $785,000, $762,000 and $572,000 for the
years ended April 30, 2003, 2002 and 2001, respectively.

F-45

SMT UNLIMITED L.P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

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NOTE I - RELATED-PARTY TRANSACTIONS

The Company is involved in transactions with SigmaTron. SigmaTron charged the
Company a minimum of $28,500 per month from May 1, 2001 to September 30, 2001,
and $24,000 per month from October 1, 2001 to April 30, 2002, and $13,680 per
month in fiscal year 2003 in administrative fees for various services. The
Company paid SigmaTron $210,760, $315,000 and $285,000 in administrative fees
for the years ended April 30, 2003, 2002 and 2001, respectively. At April 30,
2003 and 2002, the Company has accrued $-0- for administrative fees not paid by
year-end.

The Company paid $476,048 and $821,227 in principal and interest in connection
with its capital lease agreements with SigmaTron in 2003 and 2002, respectively.
At April 30, 2003, the Company was approximately 22 months delinquent in its
lease payments to SigmaTron and has accrued overdue interest of approximately
$12,240 in connection with these lease payments. At April 30, 2003 and 2002, the
accrued interest related to these lease payments was $133,683 and $362,189,
respectively. SigmaTron and Patel have equally guaranteed the Company's
operating lease obligation for the Fremont manufacturing facility.

During 2001, SigmaTron received stock on behalf of the Company. The stock was
given to SigmaTron by one of the Company's customers in lieu of cash for
outstanding receivables. The Company has recorded the market value of the stock
outstanding at April 30, 2001, as a due from affiliate on the balance sheet. The
stock is classified as a trading security, and accordingly, the unrealized loss
is recorded as "other loss" in the accompanying statement of income. During
2001, the Company recorded a realized loss of $8,000 and an unrealized loss of
$43,000 related to this stock. As of April 30, 2002, the Company recorded a
realized loss of $7,000, which brought the investment to zero.

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NOTE J - MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK

For the year ended April 30, 2003, four customers accounted for 58% of net sales
of the Company and 27% of accounts receivable at April 30, 2003.

For the year ended April 30, 2002, four customers accounted for 87% of net sales
of the Company and 75% of accounts receivable at April 30, 2002.

For the year ended April 30, 2001, four customers accounted for 78% of net sales
of the Company and 66% of accounts receivable at April 30, 2001.

F-46

SMT UNLIMITED L.P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

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NOTE K - EMPLOYEE OPTION PLAN

In fiscal 2001, the Company adopted an employee option plan ("Option Plan")
under which employees may acquire up to 500,000 units of limited partnership
interests. At April 30, 2003, the Company has 157,000 units reserved for future
issuance under the Option Plan.

The maximum term of options granted under the Option Plans generally is 10
years. Options granted under the plan shall be deemed to constitute
non-qualified equity options. Options forfeited under the Option Plans are
available for reissuance. Options granted under this plan are granted at an
exercise price equal to or greater than the fair market value of a unit of the
Company's limited partnership interest on the date of grant. The general partner
administers the plan and determines the vesting period of the options, which may
be immediate vesting.

The Company has elected to follow APB Opinion No. 25 in accounting for its
employee equity options because, as discussed below, the alternative fair-value
accounting method provided for under SFAS No. 123 requires the use of
option-valuation models that were not developed for use in valuing employee
options. Under APB Opinion No. 25, because the exercise price of the Company's
employee options equals the market price of the underlying units on the date of
grant, no compensation expense is recognized. For purposes of disclosure of pro
forma net income, the estimated fair value of the options is amortized to
expense over the option vesting period. See note B Equity Incentive Plan.

The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-valuation model with a dividend yield of zero, average
risk-free interest rate of 6.28%, and weighted-average expected life of options
of 5 years.

Option-valuation models require the input of highly subjective assumptions.
Because the Company's employee equity options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate in management's
opinion, the existing method does not necessarily provide a reliable single
measure of the fair value of the Company's employee stock options.

The Company did not grant options during fiscal 2003. During fiscal 2003, 21,000
options were forfeited, leaving 322,000 options outstanding at April 30, 2003.
The weighted-average remaining contractual life at April 30, 2003, was 7.13
years. At April 30, 2003, 190,564 options were exercisable at a weighted-average
exercise price of $.14 per unit.

F-47

SMT UNLIMITED L.P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2003, 2002 AND 2001

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NOTE L - FINANCIAL CONDITION

In fiscal 2002, the Company experienced a decrease in sales, which continued in
2003 as the Company continued its efforts to reduce overhead expenses. The
continued reduction in overhead expenses and the addition of several orders of
labor only services resulted in a profit in fiscal year 2003. The Company was in
compliance with financial covenants as of April 30, 2003 and 2002.

On July 9, 2003, the Company entered into an amended loan and security agreement
expiring on July 31, 2004. The amendment provides that, among other matters, the
total commitment was reduced to $3,000,000 and the cap on eligible inventory was
reduced to $1,500,000.

Due to the downturn in the economy, which significantly affected the electronics
industry, the Company experienced significantly lower sales and increased losses
for the last several months of fiscal 2001. The Company did not anticipate a
recovery of sales in the near term. In an effort to mitigate some of its losses,
the Company substantially downsized its work force and reduced overhead
expenses.

At April 30, 2001, the Company had not complied with certain covenants of loan
agreements with banks.

F-48

SCHEDULE II

SMT UNLIMITED L.P.
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED APRIL 30, 2003

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F-49