SigmaTron International(SGMA) - 2025 Q4 - Annual Report

PART I ITEM 1. BUSINESS The Company, an EMS provider, reported a $3.9 million pre-tax loss on $304.7 million sales in FY2025, and was acquired by Transom Axis AcquireCo, LLC - The Company operates as an independent provider of electronic manufacturing services (EMS), including printed circuit board assemblies, electro-mechanical subassemblies, and box-build electronic products[12] - On July 28, 2025, Transom Axis AcquireCo, LLC completed the acquisition of the Company, making it a wholly-owned subsidiary. Prior to the merger, the Company's common stock traded on the Nasdaq Capital Market under 'SGMA'[12][50] | Metric | FY2025 (Approx.) | Change YoY | | :----------- | :--------------- | :--------- | | Pre-tax Loss | $3,900,000 | N/A | | Sales | $304,700,000 | -19% | - The decrease in sales is primarily attributed to customers lowering demand in response to the easing of supply chain limitations and related stocking demands experienced in prior years[16] ITEM 1A. RISK FACTORS The Company faces significant operational, market, international, financing, regulatory, technology, and human capital risks, including raw material price volatility and customer concentration - Raw material price increases and supply shortages, exacerbated by inflation and geopolitical conflicts, could adversely affect the Company's results and operating margins, as passing these costs to customers is difficult[52][53] - The Company's operating results are volatile due to factors like customer production schedules, component availability, market demand, and pricing pressures, making forecasting and efficiency challenging[54][55] | Customer Concentration | FY2025 | FY2024 | | :--------------------- | :----- | :----- | | Top 5 Customers (% Net Sales) | 57.3% | 49.2% | | Largest Customer (% Net Sales) | 16.8% | 13.1% | | Largest Customer (% Accounts Receivable) | 8.0% | 4.6% | - Significant foreign operations (42% of total assets in FY2025) expose the Company to political, economic, and currency fluctuation risks, with net foreign currency transaction losses of $981,838 in FY2025[73][74] - The Company has identified a material weakness in internal control over financial reporting related to revenue recognition criteria for non-standard transactions, leading to a conclusion that disclosure controls were not effective as of April 30, 2025[102] ITEM 1B. UNRESOLVED STAFF COMMENTS There are no unresolved staff comments from the SEC - The Company has no unresolved staff comments[108] ITEM 1C. CYBERSECURITY The Company maintains a robust cybersecurity program overseen by the Board, with no material incidents reported as of the report date - The Company's cybersecurity program is based on the National Institute Standards and Technology (NIST) framework and International Organization for Standardization (ISO) standards, including a formal Risk Management Strategy within its ISMS and an Incident Response Plan[109][110] - The Board of Directors, directly and through the Audit Committee, actively reviews cybersecurity risks, including malicious activity, vulnerabilities, and results of disaster recovery exercises and penetration testing[115] - The IT team, led by the Vice President, Information Technology and Operating Initiatives (with a Master of Science in Information Systems) and the Director of IT Infrastructure and Security (with a Master of Science in Information Management), is responsible for managing systems and addressing cybersecurity events[117] - As of the report date, the Company is not aware of any material risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect its business strategy, results of operations, or financial condition[114] ITEM 2. PROPERTIES The Company operates EMS facilities across the U.S., Mexico, China, and Vietnam, with most properties leased and deemed adequate - The Company's EMS business operates through manufacturing facilities in the U.S., Mexico, China, and Vietnam, with an IPO in Taiwan and an IT office in Taichung, Taiwan[118] | Location | Square Feet | Services Offered | Ownership Status | | :----------------------- | :---------- | :------------------------------------------------- | :---------------------- | | Suzhou, China | 216,950 | Electronic and electromechanical manufacturing solutions | Owned (land leased) | | Acuna, Mexico | 128,440 | Electronic and electromechanical manufacturing solutions | Owned (partially leased) | | Elk Grove Village, IL | 124,300 | Corporate headquarters, manufacturing, warehousing | Leased | | Chihuahua, Mexico | 121,000 | Electronic and electromechanical manufacturing solutions | Leased | | Union City, CA | 117,000 | Electronic and electromechanical manufacturing solutions | Leased | | Tijuana, Mexico | 112,100 | Electronic and electromechanical manufacturing solutions | Leased | | San Diego, CA | 30,240 | Warehousing and distribution | Leased | | Del Rio, TX | 30,000 | Warehousing and distribution | Leased | | Del Rio, TX | 28,000 | Warehousing and distribution | Owned | | Bien Hoa City, Vietnam | 24,475 | Electronic and electromechanical manufacturing solutions | Leased | | El Paso, TX | 18,200 | Warehousing and distribution | Leased | | Del Rio, TX | 16,000 | Warehousing and distribution | Leased | | Taipei, Taiwan | 4,685 | International procurement office | Leased | | Taichung, Taiwan | 1,650 | Information technology office | Leased | - The Company believes its current facilities are adequate for its needs and that alternative facilities could be found if required in the future[121] ITEM 3. LEGAL PROCEEDINGS The Company is involved in ordinary course legal proceedings, not expected to materially impact its financial position or operations - The Company is involved in legal proceedings, claims, or investigations incidental to its business[122] - Management does not expect these legal matters to have a material adverse impact on the Company's future consolidated financial position or results of operations[122] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[123] PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company's common stock was delisted post-merger on July 28, 2025, with no anticipated future cash dividends - The Company's common stock was delisted from the Nasdaq Capital Market on July 28, 2025, due to the merger[125] - As of July 28, 2025, there was one holder of record for the Company's common stock[126] - The Company has not paid cash dividends and does not anticipate paying them in the foreseeable future[126] ITEM 6. RESERVED This item is reserved and contains no information - Item 6 is reserved[129] ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net sales decreased by 18.5% to $304.7 million in FY2025, resulting in a $10.25 million net loss, with debt obligations repaid post-merger - Net sales decreased by $69.17 million, or 18.5%, to $304.72 million in fiscal 2025, primarily due to a broad decline in customer demand across industrial, consumer, and medical/life science markets, driven by a normalized supply chain[156] | Financial Metric (FY2025 vs FY2024) | FY2025 ($) | FY2024 ($) | Change ($) | Change (%) | | :---------------------------------- | :------------ | :------------ | :------------ | :--------- | | Net sales | 304,716,119 | 373,883,821 | (69,167,702) | -18.5% | | Cost of products sold | 277,410,159 | 340,357,503 | (62,947,344) | -18.5% | | Gross profit | 27,305,960 | 33,526,318 | (6,220,358) | -18.6% | | Gross profit margin | 9.0% | 9.0% | 0.0% | 0.0% | | Selling and administrative expenses | 25,534,298 | 26,392,403 | (858,105) | -3.3% | | Operating income | 1,771,662 | 7,133,915 | (5,362,253) | -75.2% | | Other income | 7,582,017 | 466,704 | 7,115,313 | 1524.6% | | Change in fair value of warrants | 544,945 | 0 | 544,945 | N/A | | Interest expense, net | (13,841,606) | (10,362,038) | (3,479,568) | 33.6% | | Loss before income taxes | (3,942,982) | (2,761,419) | (1,181,563) | 42.8% | | Income tax (expense) benefit | (6,311,926) | 275,262 | (6,587,188) | -2393.0% | | Net loss | (10,254,908) | (2,486,157) | (7,768,751) | 312.5% | | Basic Loss per common share | (1.63) | (0.41) | (1.22) | 297.6% | | Diluted Loss per common share | (1.63) | (0.41) | (1.22) | 297.6% | - The Company experienced a significant increase in net loss, primarily due to lower sales volumes, warrant remeasurement, deferred financing costs, higher fixed manufacturing costs, and a full valuation allowance on deferred tax assets, partially offset by a $7.18 million gain from a sale/leaseback transaction[164] - The Company was in non-compliance with financial covenants in its credit agreements in FY2024 and FY2025, leading to debt reclassification as current liabilities and requiring multiple waivers and amendments. All obligations under the credit agreements were repaid in full on July 28, 2025, due to the merger[137][139][140][143][166] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS As a smaller reporting company, the Company is not required to provide market risk disclosures - As a smaller reporting company, the Company is not required to provide quantitative and qualitative disclosures about market risks[211] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary data are included in Item 15(a) of this report - The financial statements and supplementary data are included in Item 15(a) of this Report[212] ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There are no changes or disagreements with accountants on accounting and financial disclosure - There are no changes in or disagreements with accountants on accounting and financial disclosure[213] ITEM 9A. CONTROLS AND PROCEDURES Disclosure controls were ineffective as of April 30, 2025, due to a material weakness in revenue recognition for non-standard transactions - As of April 30, 2025, the Company's disclosure controls and procedures were not effective at the reasonable assurance level due to a material weakness in internal control over financial reporting[215] - The material weakness is related to the application of appropriate accounting principles over non-standard revenue transactions, specifically, controls to ensure revenue recognition criteria were met were not operating effectively[220] - Management believes the consolidated financial statements fairly represent the Company's financial condition, results of operations, and cash flows, despite the identified material weakness[216] - Remediation activities include strengthening the review process for revenue contracts, such as implementing multiple levels of review and supporting evidence for such transactions[222] ITEM 9B. OTHER INFORMATION No Rule 10b5-1 trading arrangements were adopted, and credit agreements were amended to suspend covenants and facilitate a Replacement Transaction - No director or officer adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the quarter ended April 30, 2025[228] - On March 28, 2025, the Company entered into the March 2025 Amendments to its Credit Agreements, which suspended Fixed Charge Coverage Ratio and Total Debt to EBITDA Ratio covenants until Q1 FY2026[230] - The March 2025 Amendments required the Company to pursue a Replacement Transaction to repay obligations by September 30, 2025, including delivering an indication of interest, a signed exclusivity agreement, and commencing a tender offer by May 15, 2025[230] - The JPM Credit Agreement was amended to reduce the Revolving Commitment to $35 million and establish a $3.7 million reserve block against Availability[232] ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION This item is not applicable to the Company - Disclosure regarding foreign jurisdictions that prevent inspection is not applicable to the Company[236] PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE This section outlines executive officers, independent board committees, corporate governance policies, and compliance with insider trading rules - Key executive officers include Gary R. Fairhead (CEO and Chairman), John P. Sheehan (President), and Frank Cesario (CFO)[49] - The Board of Directors has established independent Audit, Compensation, and Nominating Committees, with members meeting Nasdaq independence criteria[249][251][254][255] - The Audit Committee oversees financial reporting, independent accountants, and the Company's cybersecurity controls and procedures[250] - The Company's Insider Trading Policy prohibits transactions with material non-public information and requires pre-clearance for securities transactions[261] - There were no late Section 16(a) filings during the year ended April 30, 2025[264] ITEM 11. EXECUTIVE COMPENSATION Executive compensation, including salaries and equity awards, is detailed, with no bonuses earned due to pre-tax losses | Name (Position) | Fiscal Year | Salary ($) | Bonus ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | | :-------------------------- | :---------- | :--------- | :-------- | :---------------- | :------------------------- | :-------- | | Gary R. Fairhead (CEO) | 2025 | 360,000 | - | - | 1,800 | 361,800 | | | 2024 | 350,000 | - | - | 6,486 | 356,486 | | John P. Sheehan (President) | 2025 | 348,000 | - | - | 2,000 | 350,000 | | | 2024 | 340,472 | - | 67,800 | 2,000 | 410,272 | | Rajesh B. Upadhyaya (EVP) | 2025 | 228,476 | - | - | 1,786 | 230,262 | | | 2024 | 319,837 | - | 67,800 | 12,552 | 400,189 | - No bonuses were earned by Executive Officers under the Employee Bonus Plan for fiscal years 2025 and 2024 due to the Company's pre-tax losses[272] - The Company has a Change in Control Severance Payment Plan (CIC Plan) entitling participants to severance pay upon involuntary termination within 24 months of a change in control[273] | Equity Compensation Plan | Number of Securities to be Issued upon Exercise | Weighted-Average Exercise Price ($) | Number of Securities Remaining Available for Future Issuance | | :----------------------- | :---------------------------------------------- | :---------------------------------- | :----------------------------------------------------------- | | 1993 | 125,000 | 6.45 | — | | 2004 | 129,914 | 4.83 | 12,813 | | 2011 | 19,400 | 3.20 | 11,650 | | 2019 | 136,767 | 4.56 | — | | 2021 | 384,500 | 5.04 | 15,500 | | Total | 795,331 | | 39,963 | - The Company sponsors a 401(k) retirement plan for U.S. employees, with Company matching contributions up to 25% of 5% of wages, limited to $2,000 per year for non-union participants and $300 for union participants[282][286] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Beneficial ownership of common stock and equity compensation plan details are provided, including major shareholders and executive holdings | Name | Number of Shares (1) | Percent | | :-------------------------------------------- | :------------------- | :------ | | Peter J. Abrahamson | 570,403 | 9.3% | | Cyrus Tang Foundation | 246,537 | 4.0% | | Tang Foundation for the Research of Traditional Chinese Medicine | 113,527 | 1.9% | | Beryl Capital Management | 590,881 | [ ]% | | The TCW Group, Inc. | 770,250 | [ ]% | | Gary R. Fairhead (CEO) | 200,217 | 3.2% | | John P. Sheehan (President) | 101,666 | 1.7% | | Rajesh B. Upadhyaya | 60,500 | * | | Thomas W. Rieck | 42,000 | * | | Bruce J. Mantia | 36,500 | * | | Dilip S. Vyas | 32,000 | * | | Paul J. Plante | 32,000 | * | - As of July 10, 2025, there were 6,119,288 shares of common stock outstanding[294] | Equity Compensation Plans | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options warrants and rights ($) | Number of securities remaining available for future issuance (excluding securities in column (a)) | | :------------------------ | :------------------------------------------------------------------------------------------ | :--------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------ | | Employee plans: | | | | | 1993 | 125,000 | 6.45 | — | | 2004 | 129,914 | 4.83 | 12,813 | | 2011 | 19,400 | 3.20 | 11,650 | | 2019 | 136,767 | 4.56 | — | | 2021 | 384,500 | 5.04 | 15,500 | | Total | 795,331 | | 39,963 | - Non-employee directors received monthly retainers ($5,250-$5,500) and additional fees for committee chairmanships or lead independent director roles. No stock awards were granted to non-employee directors in FY2025[288][291] ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE No reportable related party transactions occurred, and a majority of the Board is independent under Nasdaq rules - There have not been any reportable related party transactions during the applicable period[296] - The Board of Directors has determined that Messrs. Mantia, Plante, Rieck, and Vyas are independent under Nasdaq rules, ensuring a majority of independent Directors[297] ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES BDO USA, P.C. served as auditor for FY2025 and FY2024, with all audit and non-audit services pre-approved by the Audit Committee - BDO USA, P.C. served as the Company's auditor for fiscal years 2025 and 2024[298] | Service | 2025 ($) | 2024 ($) | | :--------- | :---------- | :---------- | | Audit Fees | 817,908 | 637,825 | - All audit and non-audit engagement services performed by the registered public accountants were pre-approved by the Audit Committee[301] PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES This section lists required financial statements, schedules, and exhibits for the Annual Report on Form 10-K - The financial statements are listed in the Index to Financial Statements filed as part of this Annual Report on Form 10-K beginning on Page F-1[303] - Financial statement schedules are omitted because they are not applicable or required[303] - Exhibits required by Item 601 of Regulations S-K are listed in the Index to Exhibits starting on Page 56[304] ITEM 16. FORM 10-K SUMMARY No Form 10-K summary is provided - No Form 10-K Summary is provided[305] SIGNATURES The report is signed by the CEO and CFO, along with other directors, on August 27, 2025 - The report is signed by Gary R. Fairhead (CEO, Principal Executive Officer, and Director) and Frank J. Cesario (CFO, Principal Financial and Accounting Officer) on August 27, 2025[318][320] INDEX TO FINANCIAL STATEMENTS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM BDO USA, P.C. issued an unqualified opinion on the financial statements, emphasizing the acquisition and inventory valuation as a critical audit matter - BDO USA, P.C. issued an unqualified opinion on the Company's consolidated financial statements for fiscal years ended April 30, 2025 and 2024[323] - The acquisition of the Company on July 28, 2025, is highlighted as an emphasis of matter[327] - The valuation of the inventory obsolescence reserve for 'value over stock raw material inventory' was identified as a critical audit matter, requiring challenging auditor judgment due to assumptions about future product demand and market conditions[329][330][331] CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS Total assets decreased to $194.60 million in FY2025, driven by reduced inventories and property, with liabilities and equity also declining | Asset/Liability/Equity | April 30, 2025 ($) | April 30, 2024 ($) | | :-------------------------------- | :----------------- | :----------------- | | Total Current Assets | 154,055,930 | 175,902,619 | | Property, Machinery and Equipment, Net | 27,708,226 | 33,755,078 | | Total Assets | 194,599,039 | 223,793,975 | | Total Current Liabilities | 126,440,531 | 145,888,791 | | Total Long-Term Liabilities | 11,334,781 | 11,832,931 | | Total Liabilities | 137,775,312 | 157,721,722 | | Total Stockholders' Equity | 56,823,727 | 66,072,253 | - Inventories, net, decreased from $128.85 million in FY2024 to $107.67 million in FY2025[333] - Current portion of long-term debt decreased from $66.24 million in FY2024 to $50.60 million in FY2025, reflecting debt reduction efforts and reclassification due to covenant defaults[335] CONSOLIDATED STATEMENTS OF OPERATIONS Net loss increased to $10.25 million in FY2025 due to an 18.5% sales decrease, higher interest expense, and income tax expense | Metric | FY2025 ($) | FY2024 ($) | | :------------------------ | :------------ | :------------ | | Net sales | 304,716,119 | 373,883,821 | | Gross profit | 27,305,960 | 33,526,318 | | Gross profit margin | 9.0% | 9.0% | | Operating income | 1,771,662 | 7,133,915 | | Other income | 7,582,017 | 466,704 | | Interest expense | (13,841,606) | (10,362,038) | | Loss before income taxes | (3,942,982) | (2,761,419) | | Income tax (expense) benefit | (6,311,926) | 275,262 | | Net loss | (10,254,908) | (2,486,157) | | Basic Loss per common share | (1.63) | (0.41) | | Diluted Loss per common share | (1.63) | (0.41) | - Net sales decreased by 18.5% in FY2025 compared to FY2024[336] - Net loss increased significantly from $2.49 million in FY2024 to $10.25 million in FY2025[336] CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Total stockholders' equity decreased to $56.82 million in FY2025, primarily due to a $10.25 million net loss | Equity Component | April 30, 2023 ($) | Stock-based Compensation ($) | Exercise of Options ($) | Restricted Stock Awards ($) | Net Loss ($) | April 30, 2024 ($) | | :------------------------ | :----------------- | :--------------------------- | :------------------ | :-------------------------- | :------------ | :----------------- | | Common stock | 60,634 | - | 30 | 529 | - | 61,193 | | Capital in excess of par value | 41,986,570 | 381,034 | 9,570 | 76,220 | - | 42,453,394 | | Retained earnings | 26,043,823 | - | - | - | (2,486,157) | 23,557,666 | | Total stockholders' equity | 68,091,027 | 381,034 | 9,600 | 76,749 | (2,486,157) | 66,072,253 | | Equity Component | April 30, 2024 ($) | Stock-based Compensation ($) | Issuance of Warrants ($) | Net Loss ($) | April 30, 2025 ($) | | :------------------------ | :----------------- | :--------------------------- | :----------------------- | :------------- | :----------------- | | Common stock | 61,193 | - | - | - | 61,193 | | Capital in excess of par value | 42,453,394 | 236,129 | 770,253 | - | 43,459,776 | | Retained earnings | 23,557,666 | - | - | (10,254,908) | 13,302,758 | | Total stockholders' equity | 66,072,253 | 236,129 | 770,253 | (10,254,908) | 56,823,727 | - Total stockholders' equity decreased by $9.25 million from April 30, 2024, to April 30, 2025, primarily due to the net loss incurred[338] CONSOLIDATED STATEMENTS OF CASH FLOWS Operating cash flow decreased to $18.53 million in FY2025, while investing cash flow significantly increased due to a sale/leaseback transaction | Cash Flow Activity | FY2025 ($) | FY2024 ($) | | :-------------------------------- | :------------ | :------------ | | Net cash provided by operating activities | 18,530,322 | 27,760,048 | | Net cash provided by investing activities | 7,100,406 | 117,112 | | Net cash used in financing activities | (25,015,838) | (26,278,929) | | Change in cash and cash equivalents | 614,890 | 1,598,231 | | Cash and cash equivalents at end of year | 3,032,250 | 2,417,360 | - The decrease in operating cash flow was primarily due to a $20.55 million decrease in inventory and a $3.52 million increase in operating lease liabilities, partially offset by a $4.12 million decrease in customer deposits[169] - Investing cash flow significantly increased due to $8.29 million in net proceeds from the sale/leaseback of the Elk Grove Village facility[170] - Cash paid for interest increased to $11.50 million in FY2025 from $10.17 million in FY2024[341] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The notes detail business operations, accounting policies, merger impact, debt compliance issues, critical accounting estimates, and various financial disclosures - The Company operates in one reportable segment as an independent provider of electronic manufacturing services (EMS) through an international network of facilities[343] - The Company was acquired on July 28, 2025, by Transom Axis AcquireCo, LLC, becoming a wholly-owned subsidiary[350] - Due to 2024 covenant defaults and lender demand for a Replacement Transaction by September 2025, the Company's credit agreement facilities were classified as current liabilities as of April 30, 2025[347] - A full valuation allowance was established on deferred tax assets as of October 31, 2024, and remains effective as of April 30, 2025, due to recent operating losses[364] - The Company executed a sale/leaseback transaction for its Elk Grove Village, Illinois headquarters in December 2024, generating $8.29 million in net proceeds and a pretax gain of $7.18 million[349][443]