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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 þ
    
    Annual report pursuant to section 13 or 15 (d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2005
 Commission file number 0-49651
 SUNTRON CORPORATION
  Delaware
    
    86-1038668(State of Incorporation)
    
    (I.R.S. Employer Identification No.)
 2401 West Grandview Road, Phoenix, Arizona 85023(Address of Principal Executive Offices)          (Zip Code)
 (602) 789-6600(Registrants telephone number, including area code)
 None
  Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, $0.01 par value
    
    Nasdaq SmallCap Market
 o þ
 o þ
 þ þ
 o
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-Accelerated Filer þ
 o þ
 $2.6 million
 February 28, 2006 27,468,321
 Documents Incorporated by Reference




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##### 



SUNTRON CORPORATION
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
 PART I1.
    
    Business
    
    
    21A.
    
    Risk Factors
    
    
    51B.
    
    Unresolved Staff Comments
    
    
    112.
    
    Properties
    
    
    123.
    
    Legal Proceedings
    
    
    134.
    
    Submission of Matters to a Vote of Security Holders
    
    
    13PART II5.
    
    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    146.
    
    Selected Financial Data
    
    
    157.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    177A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    308.
    
    Financial Statements and Supplementary Data
    
    
    319.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    319A.
    
    Controls and Procedures
    
    
    319B.
    
    Other Information
    
    
    31PART III10.
    
    Directors and Executive Officers of the Registrant
    
    
    3211.
    
    Executive Compensation
    
    
    3512.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    3813.
    
    Certain Relationships and Related Transactions
    
    
    4014.
    
    Principal Accountant Fees and Services
    
    
    40PART IV15.
    
    Exhibits and Financial Statement Schedules
    
    
    42Signatures
    
    
    44Index to Consolidated Financial Statements and Schedule
    
    
    F-1EX-21,1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  Statement Regarding Forward-Looking Statements
 This report on Form 10-K contains forward-looking statements regarding future events or
our future financial and operational performance. Forward-looking statements include statements
regarding markets for our products; trends in net sales, gross profits, and estimated expense
levels; liquidity and anticipated cash needs and capital resources; and any statement that contains
the words anticipate, believe, plan, estimate, expect, seek, and other similar
expressions. The forward-looking statements included in this report reflect our current
expectations and beliefs, and we do not undertake publicly to update or revise these statements,
even if experience or future changes make it clear that any projected results expressed in this
report, annual or quarterly reports to stockholders, press releases, or company statements will not
be realized. In addition, the inclusion of any statement in this report does not constitute an
admission by us that the events or circumstances described in such statement are material.
Furthermore, we wish to caution and advise readers that these statements are based on assumptions
that may not materialize and may involve risks and uncertainties, many of which are beyond our
control, that could cause actual events or performance to differ materially from those contained or
implied in these forward-looking statements. These risks and uncertainties include, but are not
limited to, risks related to the realization of anticipated revenue, profitability, the ability to
meet cost estimates and achieve the expected benefits associated with past and future restructuring
activities; trends affecting our growth; sufficient liquidity or financing at terms satisfactory to
the company; and the business and economic risks described herein under Item 1A, Risk Factors.




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PART I
 
 ITEM 1. BUSINESS
 Overview
  Our Services
 Design and Engineering Services
 Prototype Manufacturing Services
 Materials and Supply Chain Management Services
 Manufacturing and Assembly Services
 2




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Testing Services
 Quality Control Services
 After-market Repair Services
 Customers
  2003
    
    
    2004
    
    
    2005Aerospace and defense
    
    
    33
    %
    
    
    24
    %
    
    
    30
    %Industrial
    
    
    25
    %
    
    
    25
    %
    
    
    29
    %Semiconductor capital equipment
    
    
    24
    %
    
    
    39
    %
    
    
    22
    %Networking and telecommunications
    
    
    15
    %
    
    
    9
    %
    
    
    15
    %Medical equipment
    
    
    3
    %
    
    
    3
    %
    
    
    4
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Sales and Marketing
     Backlog
  3




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Suppliers
  Competition
  Governmental Regulation
    Employees
  Availability of Reports Filed with the Securities and Exchange Commission
  4




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ITEM 1A. RISK FACTORS
 An investment in our common stock involves a high degree of risk. You should carefully
consider the factors described below, in addition to those discussed elsewhere in this report, in
analyzing an investment in our common stock. If any of the events described below occur, our
business, financial condition, and results of operations could likely deteriorate, the trading
price of our common stock could fall, and you could lose all or part of the money you paid for our
common stock. In addition, the following factors could cause our actual results to differ
materially from those projected in our forward-looking statements, whether made in this Form 10-K ,
our annual or quarterly reports to stockholders, future press releases, other SEC filings, or
orally, whether in presentations, responses to questions, or otherwise. See Statement Regarding
Forward-Looking Statements.
 Our level of indebtedness could adversely affect our financial viability, and the restrictions
imposed by the terms of our debt instruments may severely limit our ability to plan for or respond
to changes in our business.
   
    
    require us to dedicate a substantial portion of our cash flow from operations to
service interest and principal repayment requirements, limiting the availability of
cash for other purposes;
    
    increase our vulnerability to adverse general economic conditions by making it
more difficult to borrow additional funds to maintain our operations if our
revenues decrease;
    
    limit our ability to attract new customers if we do not have sufficient
liquidity to meet working capital needs; and
    
    hinder our flexibility in planning for, or reacting to, changes in our business
and industry if we are unable to borrow additional funds to upgrade our equipment
or facilities.
 We may need additional capital in the future and it may not be available on acceptable terms, or at all.
  
    
    to fund working capital requirements for future growth that we may experience;
    
    to enhance or expand the range of services we offer;
    
    to increase our promotional and marketing activities; or
    
    to respond to competitive pressures or perceived
opportunities, such as investment, acquisition, and international expansion activities.
  We experience significant volatility in our net sales, which leads to significant operating
inefficiencies and the potential for significant charges.
  5




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We are dependent upon the highly competitive electronics industry, and excess capacity or decreased
demand for products produced by this industry could result in increased price competition as well
as a decrease in our gross margins and unit volume sales.
    We are dependent upon a small number of customers for a large portion of our net sales, and a
decline in sales to major customers could harm our results of operations.
   6




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Our financial condition could suffer if we fail to obtain a sufficient award in pending litigation.
  Our customers may cancel their orders, change production quantities, or delay production.
   If we are unable to respond to rapid technological change and process development, we may not be
able to compete effectively.
   Operating in foreign countries exposes us to increased risks that could adversely affect our
results of operations.
  
    
    economic or political instability;
    
    transportation delays and interruptions;
    
    increased employee turnover and labor unrest;
    
    incompatibility of systems and equipment used in foreign operations;
 7




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
    
    foreign currency exposure;
    
    difficulties in staffing and managing foreign personnel and diverse cultures; and
    
    less developed infrastructures.
  If we are unsuccessful in managing future opportunities for growth, our results of operations could
be harmed.
  Our results of operations are affected by a variety of factors, which could cause our results of
operations to fail to meet expectations.
  
    
    timing of orders from and shipments to major customers;
    
    mix of products ordered by major customers;
    
    volume of orders as related to our capacity at individual locations;
    
    pricing and other competitive pressures;
    
    component shortages, which could cause us to be unable to meet customer
delivery schedules;
    
    our ability to minimize excess and obsolete inventory exposure;
    
    our ability to manage the risks associated with uncollectible accounts receivable;
    
    our ability to manage effectively inventory and fixed asset levels; and
    
    timing and level of goodwill and other long-lived asset impairments.
 We are dependent on limited and sole source suppliers for electronic components and may experience
component shortages, which could cause us to delay shipments to customers.
  8




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We depend on our key personnel and may have difficulty attracting and retaining skilled employees.
  Our manufacturing processes depend on the collective EMS industry experience of our employees. If
these employees were to leave and take this knowledge with them, our manufacturing processes may
suffer and we may not be able to compete effectively.
  Our failure to comply with the requirements of environmental laws could result in fines and
revocation of permits necessary to our manufacturing processes.
   We may be subject to risks associated with acquisitions, and these risks could harm our results of
operations.
  9




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
    
    the business fails to achieve anticipated revenue and profit expectations;
    
    the potential inability to successfully integrate acquired operations and
businesses or to realize anticipated synergies, economies of scale, or other value;
    
    diversion of managements attention;
    
    difficulties in scaling up production and coordinating management of operations at new sites;
    
    the possible need to restructure, modify, or terminate customer relationships of
the acquired business;
    
    loss of key employees of acquired operations; and
    
    the potential liabilities of the acquired businesses.
  Failure to maintain an effective system of internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act could inhibit our ability to accurately report our financial results and have a
material adverse impact on our business and stock price.
  Our stock is traded on the Nasdaq SmallCap Market and if we are unable to sustain compliance with
their listing requirements this could adversely impact our ability to use the capital markets to
raise additional capital and our stockholders may be unable to efficiently sell their shares of our
common stock.
  10




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Our stock price may be volatile, and our stock is thinly traded, which could cause investors to
lose all or part of their investments in our common stock.
    
    
    announcements about the financial performance and prospects of the industries
and customers we serve;
    
    announcements about the financial performance of our competitors in the EMS industry;
    
    the timing of announcements by us or our competitors of significant contracts or acquisitions;
    
    failure to meet the performance estimates of securities analysts;
    
    changes in estimates of our results of operations by securities analysts; and
    
    general stock market conditions.
 Our major stockholder controls us and our stock price could be influenced by actions taken by this
stockholder. Additionally, this stockholder could prevent a change of control or other business
combination, or could effect a short form merger without the approval of other stockholders.
   
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  11




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ITEM 2. PROPERTIES
  Year Acquired/
    
    Approximate Size
    
    Owned/Location
    
    Opened
    
    (Square Feet)
    
    Leased
    
    Primary UseSugar Land, Texas (1)
    
    
    2000
    
    
    
    248,000
    
    
    Leased
    
    ManufacturingPhoenix, Arizona
    
    
    1999
    
    
    
    99,000
    
    
    Leased
    
    Manufacturing/HeadquartersLawrence, Massachusetts
    
    
    2001
    
    
    
    73,000
    
    
    Leased
    
    ManufacturingOlathe, Kansas
    
    
    2002
    
    
    
    49,000
    
    
    Leased
    
    ManufacturingGarner, Iowa
    
    
    2002
    
    
    
    40,000
    
    
    Leased
    
    ManufacturingNewberg, Oregon
    
    
    1998
    
    
    
    65,000
    
    
    Leased
    
    ManufacturingTijuana, Mexico
    
    
    2005
    
    
    
    78,000
    
    
    Leased
    
    ManufacturingManchester, New Hampshire
    
    
    1998
    
    
    
    19,000
    
    
    Leased
    
    Manufacturing
 
 (1)
    
    On March 30, 2006, we sold our building which consisted of 488,000 square feet and
subsequently leased back approximately 223,000 square feet of the facility under a seven-year lease
and 25,000 square feet under a one-year lease, with an unrelated third party.  12




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ITEM 3. LEGAL PROCEEDINGS
 Suntron Corporation and Suntron GCO, L.P. v. Applied Materials, Inc.
 Applied Materials, Inc. v. Suntron Corporation
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  13




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
 Market for Our Common Stock
  Fiscal Quarter Ended
    
    Low
    
    HighMarch 28, 2004
    
    $
    4.45
    
    
    $
    8.31June 27, 2004
    
    $
    5.18
    
    
    $
    9.00September 26, 2004
    
    $
    4.01
    
    
    $
    6.27December 31, 2004
    
    $
    3.00
    
    
    $
    5.19April 3, 2005
    
    $
    1.96
    
    
    $
    3.33July 3, 2005
    
    $
    1.00
    
    
    $
    2.10October 2, 2005
    
    $
    1.04
    
    
    $
    1.69December 31, 2005
    
    $
    1.05
    
    
    $
    1.35
  Dividends
  14




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ITEM 6. SELECTED FINANCIAL DATA
  Year Ended December 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(In thousands, except per share amounts)Statement of Operations Data:Net sales
    
    $
    574,401
    
    
    $
    370,797
    
    
    $
    313,231
    
    
    $
    475,388
    
    
    $
    328,730Cost of goods sold
    
    
    579,123
    
    
    
    398,767
    
    
    
    321,599
    
    
    
    449,516
    
    
    
    311,894Gross profit (loss)
    
    
    (4,722
    )
    
    
    (27,970
    )
    
    
    (8,368
    )
    
    
    25,872
    
    
    
    16,836Operating costs and expenses:Selling, general and administrative expenses
    
    
    29,619
    
    
    
    27,234
    
    
    
    22,648
    
    
    
    24,361
    
    
    
    22,758Severance, retention, and lease exit costs
    
    
    228
    
    
    
    169
    
    
    
    124
    
    
    
    1,085
    
    
    
    869Reorganization transaction costs
    
    
    2,375
    
    
    
    312
    
    
    
    
    
    
    
    
    
    
    
    Related party management and consulting fees
    
    
    3,750
    
    
    
    835
    
    
    
    750
    
    
    
    750
    
    
    
    750Impairment of long-lived assets
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    Goodwill amortization
    
    
    2,905
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating loss
    
    
    (43,599
    )
    
    
    (56,541
    )
    
    
    (31,890
    )
    
    
    (324
    )
    
    
    (7,541
    )Interest expense
    
    
    (12,217
    )
    
    
    (2,568
    )
    
    
    (2,696
    )
    
    
    (3,982
    )
    
    
    (4,703
    )Reduction in interest due to settlement of dispute
    
    
    
    
    
    
    1,029
    
    
    
    
    
    
    
    
    
    
    
    Gain (loss) on sale of assets
    
    
    764
    
    
    
    (166
    )
    
    
    50
    
    
    
    (11
    )
    
    
    695Other, net
    
    
    551
    
    
    
    835
    
    
    
    248
    
    
    
    (140
    )
    
    
    207Loss before income taxes and cumulative
effect of change in accounting principle
    
    
    (54,501
    )
    
    
    (57,411
    )
    
    
    (34,288
    )
    
    
    (4,457
    )
    
    
    (11,342
    )Income tax benefit (expense)
    
    
    (20
    )
    
    
    276
    
    
    
    
    
    
    
    
    
    
    
    Loss before cumulative effect of change in
accounting principle
    
    
    (54,521
    )
    
    
    (57,135
    )
    
    
    (34,288
    )
    
    
    (4,457
    )
    
    
    (11,342
    )Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    (69,015
    )
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (54,521
    )
    
    $
    (126,150
    )
    
    $
    (34,288
    )
    
    $
    (4,457
    )
    
    $
    (11,342
    )Net loss applicable to common stockholders:Basic and Diluted
    
    $
    (55,071
    )
    
    $
    (126,150
    )
    
    $
    (34,288
    )
    
    $
    (4,457
    )
    
    $
    (11,342
    )Net loss per share applicable to common
stockholders- Basic and Diluted:Loss before cumulative effect of
change in accounting principle
    
    $
    (2.29
    )
    
    $
    (2.08
    )
    
    $
    (1.25
    )
    
    $
    (0.16
    )
    
    $
    (0.41
    )Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    (2.52
    )
    
    
    
    
    
    
    
    
    
    
    Net loss per share applicable to common
shareholders- Basic and Diluted
    
    $
    (2.29
    )
    
    $
    (4.60
    )
    
    $
    (1.25
    )
    
    $
    (0.16
    )
    
    $
    (0.41
    )Number of shares used for computation-
Basic and Diluted
    
    
    24,092
    
    
    
    27,409
    
    
    
    27,409
    
    
    
    27,413
    
    
    
    27,415
 15




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Year Ended December 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(In thousands)Other Operating Data:Computation of EBITDA (a)(b)Loss before cumulative effect of change in
accounting principle
    
    $
    (54,521
    )
    
    $
    (57,135
    )
    
    $
    (34,288
    )
    
    $
    (4,457
    )
    
    $
    (11,342
    )Income tax expense (benefit)
    
    
    20
    
    
    
    (276
    )
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    12,217
    
    
    
    2,568
    
    
    
    2,696
    
    
    
    3,982
    
    
    
    4,703Reduction in interest under settlement
    
    
    
    
    
    
    (1,029
    )
    
    
    
    
    
    
    
    
    
    
    Depreciation and amortization expense
    
    
    25,064
    
    
    
    21,987
    
    
    
    22,133
    
    
    
    11,199
    
    
    
    7,809EBITDA (a)(b)
    
    $
    (17,220
    )
    
    $
    (33,885
    )
    
    $
    (9,459
    )
    
    $
    10,724
    
    
    $
    1,170Cash Flow Data:Cash provided by (used in):Operating activities
    
    $
    75,543
    
    
    $
    22,779
    
    
    $
    (19,768
    )
    
    $
    (22,774
    )
    
    $
    16,500Investing activities
    
    
    (16,772
    )
    
    
    (7,779
    )
    
    
    (2,805
    )
    
    
    (4,521
    )
    
    
    (59
    )Financing activities
    
    
    (78,762
    )
    
    
    (27,551
    )
    
    
    20,978
    
    
    
    27,283
    
    
    
    (16,396
    )
 December 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(In thousands)Balance Sheet Data:Total assets
    
    $
    322,639
    
    
    $
    172,216
    
    
    $
    154,646
    
    
    $
    180,109
    
    
    $
    155,349Total debt
    
    
    43,830
    
    
    
    10,856
    
    
    
    34,011
    
    
    
    59,128
    
    
    
    47,000Total stockholders equity
    
    
    230,132
    
    
    
    104,011
    
    
    
    69,949
    
    
    
    65,814
    
    
    
    54,568Total invested capital (c)
    
    
    273,962
    
    
    
    114,867
    
    
    
    103,960
    
    
    
    124,942
    
    
    
    101,568Liquidity Data:Working capital (d)
    
    $
    105,530
    
    
    $
    50,372
    
    
    $
    49,378
    
    
    $
    17,153
    
    
    $
    33,869
 
 (a)
    
    Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA) is
presented because we believe it is an indicator of our ability to incur and service debt and
to fund capital expenditures. An EBITDA-based calculation is also used by our lenders in
determining compliance with certain financial covenants.(b)
    
    The primary measure of operating performance is net income (loss). EBITDA should not be
construed as an alternative to net income (loss), determined in accordance with U.S.
generally accepted accounting principles, or GAAP, as an indicator of operating performance,
as a measure of liquidity or as an alternative to cash flows from operating activities
determined in accordance with GAAP. We believe the presentation of these additional
financial performance indicators is beneficial to investors since they provide an additional
perspective from which to evaluate our company. However, in evaluating alternative measures
of operating performance, it is important to understand that there are no standards for these
calculations. Accordingly, the lack of standards can result in subjective determinations by
management about which items may be excluded from the calculations, as well as the potential
for inconsistencies between different companies that have similarly titled alternative
measures. For example, as discussed in greater detail under Managements Discussion and
Analysis of Financial Condition and Results of Operations of this Report on Form 10-K, the
calculation of EBITDA in our amended credit agreement with Citibank is different than the
calculation of EBITDA shown above.(c)
    
    Total invested capital represents total debt plus total stockholders equity.(d)
    
    Working capital represents total current assets less total current liabilities. Beginning
in 2004, the principal balance under our revolving credit agreement is included in current
liabilities due to the existence of a lockbox requirement in the amended credit agreement. 16




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion of our financial condition and results of operations should be
read in conjunction with our consolidated financial statements and the related notes, and the other
financial information included in this report. This discussion and analysis contains
forward-looking statements that involve risks and uncertainties. Our actual results may differ
materially from those results anticipated in these forward-looking statements as a result of
certain factors, including those set forth in Part 1, Item 1A, Risk Factors and elsewhere in this
report.
 Overview
   
    
    On March 30, 2006, we sold a building and land in Sugar Land, Texas, which generated
net proceeds of approximately $16.8 million that we used to repay outstanding debt. We
leased back approximately 50% of the building under a seven-year lease to continue our
manufacturing operations at that location. In addition to the expected benefit from
eliminating future interest cost due to the repayment of debt, we also expect to eliminate
fixed overhead costs for real estate taxes, insurance and utilities related to the portion
of the building that was not leased back.
    
    On March 30, 2006, we entered into a $10.0 million subordinated Note Purchase Agreement
with an affiliate of our majority stockholder. In addition, the affiliate agreed to make
additional subordinated loans up to $5.0 million if we fail to comply with the financial
covenants in our new credit facility. The outstanding principal balance plus all accrued
interest is due in May 2009.
    
    On March 30, 2006, we entered into a new three-year credit facility with US Bank that
permits borrowings up to $50.0 million and matures in March 2009. As of March 30, 2006,
the principal balance was approximately $24.0 million, and we had unused borrowing
availability of approximately $18.0 million.
  17




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Caption
    
    OverviewInformation About Our Business
    
    Under this section we provide
information to help understand our
industry conditions and information
unique to our business and customer
relationships.Critical Accounting Policies and
Estimates
    
    This section provides details about
some of the critical estimates and
accounting policies that must be
applied in the preparation of our
financial statements. It is
important to understand the nature
of key uncertainties and estimates
that may not be apparent solely
from reading our financial
statements and the related
footnotes.Overview of Statement of Operations
    
    This section includes a description
of the types of transactions that
are included in each significant
category included in our statement
of operations.Results of Operations
    
    This section includes a discussion
and analysis of our operating
results for 2004 compared to 2005.
This section also contains a
similar discussion and analysis of
our operating results for 2003
compared to 2004.Liquidity and Capital Resources
    
    There are several sub-captions
under this section, including a
discussion of our cash flows for
2005 and other liquidity measures
that we consider important to our
business. Under the sub-caption for
Contractual Obligations, we
discuss on- and off-balance-sheet
obligations and the expected impact
on our liquidity. Under the
sub-caption for Capital
Resources, we have included a
discussion of our debt agreements,
including details about interest
rates charged, calculation of the
borrowing base and unused
availability, the potential impact
of litigation with Applied
Materials on our liquidity and
capital resources, compliance with
the financial covenant in our debt
agreement, and recent actions to
sell assets and enter into new debt
agreements.
 18




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##### Table of Contents



Information About Our Business
       19




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##### Table of Contents



Critical Accounting Policies and Estimates
  Revenue Recognition. Revenue Arrangements with Multiple Deliverables,
 Revenue Recognition
 Write-Downs for Obsolete and Slow-Moving Inventories.
   20




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##### Table of Contents



Allowance for Doubtful Accounts Receivable.
 Restructuring Activities and Asset Impairments.
  Contingencies.
   21




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##### Table of Contents



Overview of Statement of Operations
 Net sales
 Cost of goods sold
 Selling, general, and administrative expenses
 Severance, retention, and lease exit costs
 Related party management and consulting fees
 Interest expense
 Gain (Loss) on sale of assets
 Results of Operations
  2003
    
    
    2004
    
    
    2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    102.7
    %
    
    
    94.6
    %
    
    
    94.9
    %Gross profit (loss)
    
    
    (2.7
    )%
    
    
    5.4
    %
    
    
    5.1
    %Operating costs and expenses:Selling, general and administrative expenses
    
    
    7.3
    %
    
    
    5.1
    %
    
    
    6.9
    %Severance, retention, and lease exit costs
    
    
    
    
    
    
    0.2
    %
    
    
    0.3
    %Related party management and consulting fees
    
    
    0.2
    %
    
    
    0.2
    %
    
    
    0.2
    %Operating loss
    
    
    (10.2
    )%
    
    
    (0.1
    )%
    
    
    (2.3
    )%
 22




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##### Table of Contents



Comparison of Years Ended December 31, 2004 and 2005
 Net Sales.
   Gross Profit.
    Selling,
General, and Administrative Expenses.
 Severance, Retention, and Lease Exit Costs.
 23




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##### Table of Contents



Interest Expense.
 Gain (Loss) on Sale of Assets.
 Unrealized Loss on Marketable Securities.
 Comparison of Years Ended December 31, 2003 and 2004
 Net Sales.
   Gross Profit (Loss).
   24




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##### Table of Contents



Selling, General, and Administrative Expenses.
 Severance, Retention, and Lease Exit Costs.
 Interest Expense.
 Unrealized Loss on Marketable Equity Securities.
 Liquidity and Capital Resources
 Cash Flows from Operating Activities.
    25




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##### Table of Contents



Cash Flows from Investing Activities.
  Cash Flows from Financing Activities.
  Contractual Obligations.
 Revolving
    
    
    Operating
    
    
    PurchaseCredit(1)
    
    
    Leases (2)
    
    
    Obligations (3)
    
    
    Other (4)
    
    
    Total(Dollars in Table are in Millions)Year ending December 31:2006
    
    $
    47.0
    
    
    $
    4.3
    
    
    $
    38.5
    
    
    $
    0.7
    
    
    $
    90.52007
    
    
    
    
    
    
    3.2
    
    
    
    
    
    
    
    
    
    
    
    3.22008
    
    
    
    
    
    
    1.9
    
    
    
    
    
    
    
    
    
    
    
    1.92009
    
    
    
    
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    1.52010
    
    
    
    
    
    
    1.1
    
    
    
    0.4
    
    
    
    
    
    
    
    1.5After 2010
    
    
    
    
    
    
    1.1
    
    
    
    
    
    
    
    
    
    
    
    1.1$
    47.0
    
    
    $
    13.1
    
    
    $
    38.9
    
    
    $
    0.7
    
    
    $
    99.7
 
 (1)
    
    Our revolving credit agreement expires in July 2008 but all borrowings are classified
as current liabilities due to the lenders requirement for a lockbox arrangement. Effective
March 30, 2006, we terminated this credit agreement and obtained a new credit facility with US
Bank which has a similar lockbox arrangement but expires in March 2009.(2)
    
    Includes an aggregate of $1.0 million, which has been included in the determination of
our liability for lease exit costs that is recorded on our balance sheet at December 31, 2005.
U.S. generally accepted accounting principles require that we record a liability for future
lease payments, net of estimated sublease rentals, for facilities that we have closed. 26




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##### Table of Contents



(3)
    
    Consists of obligations under outstanding purchase orders. Approximately 92% of the
deliveries under outstanding purchase orders are expected to be received in the first quarter
of 2006. We often have the ability to cancel these obligations if we provide sufficient notice
to our suppliers.(4)
    
    Consists of $0.7 million payable under agreements for the acquisition of manufacturing
equipment. Capital Resources.
     27




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##### Table of Contents




    
    On March 30, 2006, we sold a building and land in Sugar Land, Texas, which generated
net proceeds of approximately $16.8 million that we used to repay outstanding debt. We
leased back approximately 50% of the building under a seven-year lease to continue our
manufacturing operations at that location. In addition to the expected benefit from
eliminating future interest cost due to the repayment of debt, we also expect to eliminate
fixed overhead costs for real estate taxes, insurance and utilities related to the portion
of the building that was not leased back.
    
    On March 30, 2006, we entered into a $10.0 million subordinated Note Purchase Agreement
with an affiliate of our majority stockholder. In addition, the affiliate agreed to make
additional subordinated loans up to $5.0 million if we fail to comply with the financial
covenants in our new credit facility. The outstanding principal balance plus all accrued
interest is due in May 2009.
 
    
    On March 30, 2006, we entered into a new three-year credit facility with US Bank that
permits borrowings
up to $50.0 million and matures in March 2009. As of March 30, 2006, the principal balance
under our US Bank credit agreement was approximately $24.0 million, and we have unused
borrowing availability of approximately $18.0 million.
 28




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##### Table of Contents



EBITDA Financial Covenant Under Previous Credit Agreement.
 2004
    
    
    2005(Dollars in Millions)Net loss
    
    $
    (4.5
    )
    
    $
    (11.3
    )Income tax expense
    
    
    
    
    
    
    Interest expense
    
    
    4.0
    
    
    
    4.7Depreciation and amortization
    
    
    11.2
    
    
    
    7.8EBITDA per traditional definition
    
    
    10.7
    
    
    
    1.2Restructuring costs (A)
    
    
    1.4
    
    
    
    1.7Other charges (B)
    
    
    0.3
    
    
    
    1.4EBITDA per credit agreement definition
    
    $
    12.4
    
    
    $
    4.3
 
 (A)
    
    Restructuring costs include lease exit costs, impairment of long-lived assets, and severance,
retention, and moving costs related to facility closures and other reductions in workforce.
For 2005, approximately $0.4 million of restructuring costs were incurred but are not included
in the calculation above since they exceeded the amount permitted under the credit agreement.(B)
    
    Includes stock-based compensation expense, net gains from disposition of capital assets, and
charges related to outstanding litigation related to termination of our business relationship
with Applied Materials.  29




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##### Table of Contents



Impact of Recently Issued Accounting Standards
 Inventory Cost. Inventory Costs, an amendment of ARB No.43, Chapter 4.
 Share-Based Payment.
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  30




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
   
 ITEM 9B. OTHER INFORMATION
  31




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
  Name
    
    Age
    
    Position(s) Held With the CompanyHargopal (Paul) Singh.
    
    
    55
    
    
    Chief Executive Officer, President and DirectorThomas B. Sabol.
    
    
    47
    
    
    Chief Financial Officer and DirectorJames A. Doran.
    
    
    50
    
    
    Vice President, Chief Accounting Officer, Controller and
SecretaryOscar A. Hager.
    
    
    51
    
    
    Vice President of Information Technology and AdministrationAllen S. Braswell, Jr.
    
    
    47
    
    
    DirectorIvor J. (Ike) Evans.
    
    
    63
    
    
    Director and Chairman of the BoardJames J. Forese.
    
    
    69
    
    
    DirectorKurt D. Grindstaff.
    
    
    53
    
    
    DirectorDouglas P. McCormick.
    
    
    37
    
    
    DirectorJose S. Medeiros.
    
    
    37
    
    
    DirectorScott D. Rued.
    
    
    49
    
    
    DirectorJohn C. Walker.
    
    
    44
    
    
    Director
 Hargopal (Paul) Singh
 Thomas B. Sabol
 James A. Doran
 Oscar A. Hager
 32




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##### Table of Contents



Allen S. Braswell, Jr.
 Ivor J. (Ike) Evans
 James J. Forese
 Kurt D. Grindstaff has 17-year
 Douglas P. McCormick
 Jose S. Medeiros
 Scott Rued has
 John C. Walker
 33




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##### Table of Contents



Audit Committee
  Section 16(a) Beneficial Ownership Reporting Compliance
  Name
    
    Grant Date
    
    Number of Shares
    
    Exercise Price
    
    Date FiledHargopal (Paul) Singh
    
    
    8-29-05
    
    
    
    56,950
    
    
    $
    0.01
    
    
    
    10-13-05Oscar A. Hager
    
    
    8-29-05
    
    
    
    10,050
    
    
    $
    0.01
    
    
    
    10-13-05John H. Kulp
    
    
    8-29-05
    
    
    
    10,050
    
    
    $
    0.01
    
    
    
    10-13-05Peter W. Harper
    
    
    8-29-05
    
    
    
    14,740
    
    
    $
    0.01
    
    
    
    10-13-05James A. Doran
    
    
    8-29-05
    
    
    
    6,700
    
    
    $
    0.01
    
    
    
    10-13-05Kurt D. Grindstaff
    
    
    11-8-05
    
    
    
    15,000
    
    
    $
    1.08
    
    
    
    11-17-05
 Code of Ethics
 www.suntroncorp.com/investor/index.html
 34




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##### Table of Contents



ITEM 11. EXECUTIVE COMPENSATION
 Executive Compensation
  Summary Compensation Table
 Long Term CompensationAnnual Compensation
    
    
    
    
    
    Awards
    
    PayoutsOther Annual
    
    Securities
    
    LTIPName and Principal
    
    
    
    
    
    
    
    
    
    
    
    
    
    Compensation
    
    Underlying
    
    Payouts
    
    All OtherPosition
    
    Year
    

Salary ($)
    

Bonus ($)
    
    ($)(1)
    

Options (#)
    
    ($)
    

Compensation ($)Hargopal Singh
    
    
    2003
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    Chief Executive
    
    
    2004
    
    
    
    75,417
    
    
    
    30,000
    
    
    
    
    
    
    
    25,000
    
    
    
    
    
    
    
    27,420
    (6)Officer and President
    
    
    2005
    
    
    
    263,333
    
    
    
    316,000
    
    
    
    
    
    
    
    756,950
    
    
    
    
    
    
    
    18,427
    (2)James Doran
    
    
    2003
    
    
    
    155,210
    
    
    
    
    
    
    
    
    
    
    
    9,000
    
    
    
    
    
    
    
    Chief Financial
Officer(3)
    
    
    2004
    
    
    
    158,401
    
    
    
    80,340
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    and Secretary
    
    
    2005
    
    
    
    165,680
    
    
    
    
    
    
    
    
    
    
    
    10,050
    
    
    
    
    
    
    
    20,000
    (5)Oscar A. Hager
    
    
    2003
    
    
    
    150,000
    
    
    
    15,000
    
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    Vice President of
    
    
    2004
    
    
    
    165,000
    
    
    
    77,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Information Technology
& Administration
    
    
    2005
    
    
    
    175,000
    
    
    
    
    
    
    
    
    
    
    
    10,050
    
    
    
    
    
    
    
    50,000
    (5)John H. Kulp
    
    
    2003
    
    
    
    170,000
    
    
    
    15,000
    
    
    
    
    
    
    
    12,000
    
    
    
    
    
    
    
    Vice President of
    
    
    2004
    
    
    
    195,000
    
    
    
    91,450
    
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    Sales and Marketing(4)
    
    
    2005
    
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    10,050
    
    
    
    
    
    
    
    50,000
    (5)
 
 (1)
    
    Except as otherwise provided in this table, no amounts for perquisites and other personal
benefits received by any of the named executive officers are shown because the aggregate
dollar amounts were lower than the reporting requirements established by the rules of the SEC.(2)
    
    Represents payment to defray moving expenses for relocation in connection with employment by
the Company.(3)
    
    Mr. Doran served as our interim Chief Financial Officer from October 2005 through February
13, 2006. Effective February 14, 2006, Mr. Doran resumed his duties as our Chief Accounting
Officer.(4)
    
    Effective February 21, 2006, Mr. Kulp terminated his employment with Suntron.(5)
    
    Represents bonus earned for remaining employed with Suntron through December 2005.(6)
    
    Represents a $20,000 sign-on bonus and $7,420 to defray moving expenses for relocation in
connection with employment by the Company. 35




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##### Table of Contents



Stock Option Grants
  Option Grants In Last Fiscal Year
 Individual GrantsNumber of
    
    % of Total
    
    
    
    
    
    Grant
    
    
    
    
    
    Potential Realizable Value at Assumed AnnualSecurities
    
    Options
    
    
    
    
    
    Date
    
    
    
    
    
    Rates of Stock Price Appreciation for OptionUnderlying
    
    Granted to
    
    Exercise or
    
    Market
    
    
    
    
    
    Terms(4)Options
    
    Employees in
    
    Base Price
    
    Value
    
    ExpirationName
    
    Granted (#)
    
    Fiscal Year(3)
    
    ($/Share)
    
    ($/Share)
    
    Date
    
    0% ($)
    
    5% ($)
    
    10% ($)Hargopal Singh
    
    
    700,000
    (1)
    
    
    65.8
    %
    
    $
    1.79
    
    
    $
    1.79
    
    
    
    5-15-15
    
    
    $
    
    
    
    $
    788,005
    
    
    $
    1,996,959Hargopal Singh
    
    
    56,950
    (2)
    
    
    5.4
    %
    
    $
    0.01
    
    
    $
    1.25
    
    
    
    3-10-08
    
    
    
    70,618
    
    
    
    79,877
    
    
    
    89,874James A. Doran
    
    
    6,700
    (2)
    
    
    0.6
    %
    
    $
    0.01
    
    
    $
    1.25
    
    
    
    3-10-08
    
    
    
    8,308
    
    
    
    9,397
    
    
    
    10,573James A. Doran
    
    
    3,350
    (2)
    
    
    0.3
    %
    
    $
    0.01
    
    
    $
    1.34
    
    
    
    3-10-08
    
    
    
    4,456
    
    
    
    4,977
    
    
    
    5,534John H. Kulp
    
    
    10,050
    (2)
    
    
    0.9
    %
    
    $
    0.01
    
    
    $
    1.25
    
    
    
    3-10-08
    
    
    
    12,462
    
    
    
    14,096
    
    
    
    15,860Oscar A. Hager
    
    
    10,050
    (2)
    
    
    0.9
    %
    
    $
    0.01
    
    
    $
    1.25
    
    
    
    3-10-08
    
    
    
    12,462
    
    
    
    14,096
    
    
    
    15,860
 
 (1)
    
    Represents options to purchase shares of Suntron common stock that become exercisable for 25%
of the underlying shares on each anniversary of the grant date so long as the executive
remains employed with Suntron.(2)
    
    Represents options to purchase shares of Suntron common stock that become exercisable for
33.33% of the underlying shares on March 1, 2006 and 8.33% every three months thereafter, so
long as the executive remains employed with Suntron.(3)
    
    The percentages shown above are based on an aggregate of 1,064,240 options for shares of
Suntron common stock that were granted to employees for the year ended December 31, 2005.(4)
    
    Potential realizable value assumes that the stock price increases from the date of the grant
until the end of the option term at the annual rate specified (0%, 5% and 10%). The 0%, 5%
and 10% assumed annual rates of appreciation are mandated by SEC rules and do not represent
our estimate or projection of the future price of our common stock. We do not believe this
method accurately illustrates the potential value of a stock option. Stock Option Exercises and Values for Fiscal 2005
  Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value
 Value of UnexercisedShares
    
    
    
    
    
    Number of Options at
    
    In-the-Money Options atAcquired on
    
    Value
    
    December 31, 2005
    

December 31, 2005 ($)(1)Name
    
    Exercise
    
    Realized
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    UnexercisableHargopal Singh
    
    
    
    
    
    $
    
    
    
    
    25,000
    
    
    
    756,950
    
    
    $
    
    
    
    $
    68,910James A. Doran
    
    
    
    
    
    
    
    
    
    
    42,250
    
    
    
    19,050
    
    
    
    
    
    
    
    23,051Oscar A. Hager
    
    
    
    
    
    
    
    
    
    
    49,875
    
    
    
    29,425
    
    
    
    
    
    
    
    30,311John H. Kulp
    
    
    
    
    
    
    
    
    
    
    71,063
    
    
    
    26,738
    
    
    
    
    
    
    
    26,681
 
 (1)
    
    The closing sales price per share for Suntron common stock as reported by the Nasdaq SmallCap
Market on December 31, 2005 was $1.22. The option value is calculated by multiplying (a) the
positive difference, if any,
between $1.22 and the option exercise price by (b) the number of shares of common stock
underlying the option. 36




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##### Table of Contents



Equity Compensation Plan Information
  (c)Number of SecuritiesRemaining Availablefor Future Issuance(a)
    
    
    
    
    
    
    Under EquityNumber of
    
    
    
    
    
    
    Compensation PlansSecurities to be
    
    
    (b)
    
    
    (ExcludingIssued Upon
    
    
    Weighted Average
    
    
    SecuritiesExercise of
    
    
    Exercise Price of
    
    
    Reflected in ColumnPlan Category
    
    Outstanding Options
    
    
    Outstanding Options
    
    
    (a))Equity Compensation
Plans Approved by
Stockholders
    
    
    2,263,703
    
    
    $
    5.94
    
    
    
    2,730,413Equity Compensation
Plans Not Approved
by Stockholders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    2,263,703
    
    
    $
    5.94
    
    
    
    2,730,413
 Employment Agreements and Change of Control Arrangements
   37




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##### Table of Contents



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
  Shares Beneficially OwnedName of Beneficial Owner(1)
    
    Number
    
    Percent(2)Thayer-Blum Funding III, L.L.C.(3)
    
    
    24,582,191
    
    
    
    89.5
    %Hargopal Singh(4)
    
    
    43,983
    
    
    
    *Allen S. Braswell, Jr.(5)
    
    
    241,395
    
    
    
    *Ivor J. Evans(6)
    
    
    24,582,191
    
    
    
    89.5
    %James J. Forese(6)
    
    
    24,582,191
    
    
    
    89.5
    %Kurt D. Grindstaff(7)
    
    
    3,000
    
    
    
    *Douglas P. McCormick(6)
    
    
    24,582,191
    
    
    
    89.5
    %Jose S. Medeiros(6)
    
    
    24,582,191
    
    
    
    89.5
    %Scott D. Rued(6)
    
    
    24,582,191
    
    
    
    89.5
    %Thomas B. Sabol(8)
    
    
    16,400
    
    
    
    *John C. Walker(6)
    
    
    24,582,191
    
    
    
    89.5
    %James A. Doran(9)
    
    
    42,342
    
    
    
    *Oscar A. Hager(10)
    
    
    53,350
    
    
    
    *All directors and executive officers as a
group(12 persons)(6)(11)
    
    
    24,982,661
    
    
    
    90.4
    %
 
 *
    
    Represents less than 1% of our outstanding common stock.(1)
    
    Except as otherwise indicated, the address of each person listed in the table is 2401 West
Grandview Road, Phoenix, Arizona 85023.(2)
    
    We have determined beneficial ownership in accordance with the rules of the Securities and
Exchange Commission. In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, we have included the shares of common stock subject to
options and convertible securities held by that person that are currently exercisable or
convertible or will become exercisable or convertible within 60 days after February 28, 2006,
but we have not included those shares for purposes of computing percentage ownership of any
other person. We have assumed unless otherwise indicated that the persons and entities named
in the table have sole voting and investment power with respect to all shares beneficially
owned, subject to community property laws where applicable. Beneficial ownership is based on
27,468,321 shares of our common stock outstanding as of February 28, 2006.(3)
    
    Thayer-Blum Funding III, L.L.C. is owned as follows: 59.94% by Thayer Equity Investors IV,
L.P., 0.04% by TC Manufacturing Holdings, L.L.C., 0.02% by TC KCo, L.L.C., 33.9% by Blum
Strategic Partners, L.P., and 6.1% by Blum (K*TEC) Co-Investment Partners, L.P.TC Manufacturing Holdings, L.L.C. is controlled by limited liability companies, the managing
members of which are Frederick Malek, Carl Rickersten and Paul Stern.Thayer Equity Investors IV, L.P. is controlled by a limited liability company, the managing
members of which are Frederick Malek and Carl Rickersten.TC KCo, L.L.C. is controlled by a limited liability company, the managing members of which are
Frederik Malek and Carl Rickersten.Blum Strategic Partners, L.P. is controlled by a limited liability company, of which the
general partner is Blum Strategic GP, L.L.C.Blum (K*TEC) Co-Investment Partners, L.P. is controlled by a limited liability company, of
which the general partner is Blum Strategic GP, L.L.C. 38




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##### Table of Contents



Messrs. McCormick and Rued, both directors of ours, are Managing Partners of the limited
liability company that controls Thayer Equity Investors IV, L.P. Mr. Forese, one of our
directors, is an Operating Partner and Chief Operating Officer of the company that controls
Thayer Equity Investors IV, L.P. Mr. Evans, one of our directors, is an Operating Partner of
the company that controls Thayer Equity Investors IV, L.P. Messrs. Walker and Medeiros,
both directors of ours, are members of the general partner of Blum Strategic Partners, L.P.The address of Thayer-Blum Funding III, L.L.C. is 1455 Pennsylvania Avenue, N.W., Suite 350,
Washington, D.C. 20004.(4)
    
    Consists of 43,983 shares issuable pursuant to options that are currently exercisable or
exercisable within 60 days of February 28, 2006.(5)
    
    Includes 37,520 shares beneficially owned by the Allen S. Braswell, Jr. Family Limited
Partnership #1; 24,455 shares beneficially owned by the Allen S. Braswell, Jr. EFTC Limited
Partnership, of which Allen S. Braswell, Jr. is a general partner; 2,750 shares beneficially
owned by the Allen S. Braswell, Sr. Trust, of which Allen S. Braswell, Jr.s father, is the
trustee; 8,750 shares beneficially owned by Circuit Test International, L.P., of which
Braswell Investment Corporation (BIC) is a general partner; 136,522 shares beneficially
owned by Braswell GRIT Limited Partnership, of which BIC is a general partner; and 19,170
shares issuable pursuant to options that are exercisable within 60 days of February 28, 2006.
Allen S. Braswell, Jr. is president of BIC.(6)
    
    Reflects 24,582,191 shares held by Thayer-Blum Funding III, L.L.C. See footnote 3. Messrs.
Evans, Forese, McCormick, Medeiros, Rued, and Walker disclaim beneficial ownership of these
securities, except to the extent of any pecuniary interest therein.(7)
    
    Consists of 3,000 shares issuable pursuant to options that are currently exercisable or
exercisable within 60 days of February 28, 2006.(8)
    
    Consists of 16,400 shares issuable pursuant to options that are currently exercisable or
exercisable within 60 days of February 28, 2006.(9)
    
    Includes 42,250 shares issuable pursuant to options that are currently exercisable or
exercisable within 60 days of February 28, 2006.(10)
    
    Includes 53,225 shares issuable pursuant to options that are currently exercisable or
exercisable within 60 days of February 28, 2006.(11)
    
    Includes 178,028 shares issuable pursuant to options that are currently exercisable or
exercisable within 60 days of February 28, 2006. 39




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##### Table of Contents



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 Thayer-Blum Management Fees
  Purchase and Sale of Material
   Participation Agreement
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Fees Charged By Independent Registered Public Accounting Firm
  2004
    
    
    2005Audit fees and expenses
    
    $
    230,000
    
    
    $
    255,000Audit-related fees
    
    
    9,630
    
    
    
    Income tax fees
    
    
    29,164
    
    
    
    7,000All other fees
    
    
    
    
    
    
    Total fees
    
    $
    268,794
    
    
    $
    262,000
  40




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##### Table of Contents



Pre-Approval Policy for Independent Registered Public Accounting Firms Fees
  41




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)
    
    Financial Statements and Financial Statement Schedule
 (1)
    
    Financial Statements are listed in the Index to Financial Statements on page
F-1 of this Report.
 (2)
    
    Schedule II is listed in the Index to Financial Statements on page F-1 of this
Report. Other schedules are omitted because they are not applicable, not required, or
because required information is included in the consolidated financial statements or
notes thereto.
 (b)
    
    Exhibits
 ExhibitNumber
    
    Description2.1
    
    Amended and Restated Agreement and Plan of Merger, dated as of May 3, 2001, by and among EFTC
Corporation, K*TEC Electronics Holding Corporation, Thayer-Blum Funding II, L.L.C. and the
registrant. (1)3.1
    
    Certificate of Incorporation of the registrant. (1)3.2
    
    Bylaws of the registrant. (1)4.1
    
    Specimen Stock Certificate. (1)10.1
    
    Suntron Corporation Amended and Restated 2002 Stock Option Plan. (4)10.2
    
    Registration Rights Agreement between the registrant and Thayer-Blum. (1)10.3
    
    Lease Agreement dated as of May 10, 1999 by and between Orsett/I-17 L.L.C. and EFTC
Corporation. (1)10.4
    
    Industrial Lease dated December 18, 1998 by and between Buckhorn Trading Co., LLC and EFTC
Corporation. (1)10.5
    
    Commercial/Industrial Lease dated as of April 1, 2001 by and between EFTC Corporation and H.
J. Brooks, LLC. (1)10.6
    
    Management and Consulting Agreement by and between Suntron Corporation and Thayer-Blum
Funding III, L.L.C. (3)10.7
    
    Second Amended and Restated Credit Agreement dated July 7, 2004 between Suntron Corporation
and Citicorp USA and Congress Financial Corporation (5)10.8
    
    Amendment No. 1, Consent and Waiver to Suntron Corporation Second Amended and Restated Credit
Agreement, dated March 29, 2005 (6)10.9
    
    Amendment No. 2 to Second Amended and Restated Credit Agreement (8)10.10
    
    Amendment No. 3 to Second Amended and Restated Credit Agreement (8)10.11
    
    Employment agreement between Suntron and Hargopal (Paul) Singh (7)21.1
    
    List of Subsidiaries of the registrant. (2)23.1
    
    Consent of KPMG LLP (2)31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002. (2)31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (2)32.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 (2)32.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (2)
 42




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##### Table of Contents



ExhibitNumber
    
    Description(1)
    
    Incorporated by reference to the Registration Statement on Form S-4 (Registration No.
333-72992) declared effective February 8, 2002.(2)
    
    Filed herewith.(3)
    
    Incorporated by reference to our Quarterly Report on Form 10-Q filed on August 14, 2002.(4)
    
    Incorporated by reference to our 2002 Annual Report on Form 10-K filed on April 15, 2003.(5)
    
    Incorporated by reference to our Quarterly Report on Form 10-Q filed on July 30, 2004.(6)
    
    Incorporated by reference to our Quarterly Report on Form 10-Q filed on May 17, 2005.(7)
    
    Incorporated by reference to our Quarterly Report on Form 10-Q filed on August 19, 2005.(8)
    
    Incorporated by reference to our Quarterly Report on Form 10-Q filed on November 14, 2005.
 43




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##### Table of Contents



SIGNATURES
  SUNTRON CORPORATIONDate:  March 31, 2006
    By:
    /s/ Hargopal SinghHargopal SinghPresident and Chief Executive Officer  Name
    
    Title
    
    Date/s/Hargopal Singh

Hargopal Singh
    
    President, Chief Executive Officer
(Principal Executive Officer), and
Director
    
    March 31, 2006/s/Thomas B. Sabol

Thomas B. Sabol
    
    Chief Financial Officer and Director
(Principal Financial Officer)
    
    March 31, 2006/s/James A. Doran

James A. Doran
    
    Chief Accounting Officer and Secretary
(Principal Accounting Officer)
    
    March 31, 2006/s/Allen S. Braswell, Jr.

Allen S. Braswell, Jr.
    
    Director
    
    March 31, 2006/s/Ivor J. Evans

Ivor J. Evans
    
    Director and Chairman of the Board
    
    March 31, 2006/s/James J. Forese

James J. Forese
    
    Director
    
    March 31, 2006/s/Kurt D. Grindstaff

Kurt D. Grindstaff
    
    Director
    
    March 31, 2006/s/Douglas P. McCormick

Douglas P. McCormick
    
    Director
    
    March 31, 2006/s/Jose S. Medeiros

Jose S. Medeiros
    
    Director
    
    March 31, 2006/s/Scott Rued

Scott Rued
    
    Director
    
    March 31, 2006/s/John C. Walker

John C. Walker
    
    Director
    
    March 31, 2006
 44




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##### Table of Contents



SUNTRON CORPORATION
 Index to Consolidated Financial Statements and Schedule
 Page(s)Consolidated Financial Statements:Report of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets as of December 31, 2004 and 2005
    
    F-3 to F-4Consolidated Statements of Operations for the years ended
December 31, 2003, 2004 and 2005
    
    F-5Consolidated Statements of Stockholders Equity for the
years ended December 31, 2003, 2004 and 2005
    
    F-6Consolidated Statements of Cash Flows for the years ended
December 31, 2003, 2004 and 2005
    
    F-7 to F-8Notes to Consolidated Financial Statements
    
    F-9 to F-28Supplementary Schedule:Schedule II- Valuation and Qualifying Accounts
    
    F-29
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 F-2




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 2004 and 2005
(In Thousands, Except Per Share Amounts)
 2004
    
    
    2005ASSETSCurrent Assets:Cash and equivalents
    
    $
    14
    
    
    $
    59Trade receivables, net of allowance for doubtful
accounts of $1,411 and $1,678, respectively
    
    
    50,435
    
    
    
    51,377Inventories
    
    
    79,202
    
    
    
    61,985Land, building and improvements held for sale, net
    
    
    
    
    
    
    18,772Prepaid expenses and other
    
    
    1,122
    
    
    
    1,430Total Current Assets
    
    
    130,773
    
    
    
    133,623Property, Plant and Equipment,at cost:Land
    
    
    4,748
    
    
    
    Building and improvements
    
    
    18,456
    
    
    
    Leasehold improvements
    
    
    6,958
    
    
    
    7,338Manufacturing machinery and equipment
    
    
    55,989
    
    
    
    48,050Furniture, computer equipment and software
    
    
    34,094
    
    
    
    34,327Total
    
    
    120,245
    
    
    
    89,715Less accumulated depreciation and amortization
    
    
    (84,857
    )
    
    
    (81,348
    )Net Property, Plant and Equipment
    
    
    35,388
    
    
    
    8,367Intangible and Other Assets:Goodwill
    
    
    10,915
    
    
    
    10,918Debt issuance costs, net
    
    
    1,932
    
    
    
    1,586Identifiable intangible assets, net of accumulated
amortization of $1,780 and $1,325, respectively
    
    
    875
    
    
    
    675Deposits and other
    
    
    226
    
    
    
    180Total Intangible and Other Assets
    
    
    13,948
    
    
    
    13,359Total Assets
    
    $
    180,109
    
    
    $
    155,349
  F-3




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
As of December 31, 2004 and 2005
(In Thousands, Except Per Share Amounts)
 2004
    
    
    2005LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    35,757
    
    
    $
    38,605Outstanding checks in excess of cash balances
    
    
    4,294
    
    
    
    1,039Borrowings under revolving credit agreement
    
    
    59,128
    
    
    
    47,000Accrued compensation and benefits
    
    
    6,667
    
    
    
    6,181Payable for acquisition of business
    
    
    1,408
    
    
    
    28Current portion of accrued exit costs related to facility closures
    
    
    537
    
    
    
    494Payable to affiliates
    
    
    218
    
    
    
    501Other accrued liabilities
    
    
    5,611
    
    
    
    5,906Total Current Liabilities
    
    
    113,620
    
    
    
    99,754Long-term Liabilities:Accrued exit costs related to facility closures
    
    
    130
    
    
    
    122Other
    
    
    545
    
    
    
    905Total Liabilities
    
    
    114,295
    
    
    
    100,781Commitments and Contingencies (Notes 9, 12 and 15)Stockholders Equity:Preferred stock, $.01 par value. Authorized 10,000 shares, none issuedCommon stock, $.01 par value. Authorized 50,000 shares; issued and
outstanding 27,415 shares
    
    
    274
    
    
    
    274Additional paid-in capital
    
    
    380,637
    
    
    
    380,744Deferred stock compensation
    
    
    (265
    )
    
    
    (276
    )Accumulated deficit
    
    
    (314,832
    )
    
    
    (326,174
    )Total Stockholders Equity
    
    
    65,814
    
    
    
    54,568Total Liabilities and Stockholders Equity
    
    $
    180,109
    
    
    $
    155,349
  F-4




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2003, 2004 and 2005
(In Thousands, Except Per Share Amounts)
 2003
    
    
    2004
    
    
    2005Net Sales
    
    $
    313,231
    
    
    $
    475,388
    
    
    $
    328,730Cost of Goods Sold
    
    
    321,599
    
    
    
    449,516
    
    
    
    311,894Gross profit (loss)
    
    
    (8,368
    )
    
    
    25,872
    
    
    
    16,836Operating Expenses:Selling, general and administrative expenses
    
    
    22,648
    
    
    
    24,361
    
    
    
    22,758Severance, retention, and lease exit costs
    
    
    124
    
    
    
    1,085
    
    
    
    869Related party management and consulting fees
    
    
    750
    
    
    
    750
    
    
    
    750Total operating expenses
    
    
    23,522
    
    
    
    26,196
    
    
    
    24,377Operating loss
    
    
    (31,890
    )
    
    
    (324
    )
    
    
    (7,541
    )Other Income (Expense):Interest expense
    
    
    (2,696
    )
    
    
    (3,982
    )
    
    
    (4,703
    )Gain (loss) on sale of assets
    
    
    50
    
    
    
    (11
    )
    
    
    695Unrealized loss on marketable equity securities
    
    
    
    
    
    
    (385
    )
    
    
    (144
    )Interest and other income
    
    
    248
    
    
    
    245
    
    
    
    351Total other income (expense)
    
    
    (2,398
    )
    
    
    (4,133
    )
    
    
    (3,801
    )Net loss
    
    $
    (34,288
    )
    
    $
    (4,457
    )
    
    $
    (11,342
    )Loss Per Share (Basic and Diluted)
    
    $
    (1.25
    )
    
    $
    (0.16
    )
    
    $
    (0.41
    )Weighted Average Shares Outstanding:Basic and diluted
    
    
    27,409
    
    
    
    27,413
    
    
    
    27,415
  F-5




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the Years Ended December 31, 2003, 2004 and 2005
(In Thousands)
 AdditionalCommon Stock
    
    
    Paid-in
    
    
    Deferred Stock
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Deficit
    
    
    TotalBalances, December 31, 2002
    
    
    27,409
    
    
    $
    274
    
    
    $
    380,175
    
    
    $
    (351
    )
    
    $
    (276,087
    )
    
    $
    104,011Compensation cost
related to stock
options granted to
employees
    
    
    
    
    
    
    
    
    
    
    599
    
    
    
    (599
    )
    
    
    
    
    
    
    Amortization of
deferred stock
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196
    
    
    
    
    
    
    
    196Compensation cost
related to stock
options granted to
directors
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    30Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,288
    )
    
    
    (34,288
    )Balances, December 31, 2003
    
    
    27,409
    
    
    
    274
    
    
    
    380,804
    
    
    
    (754
    )
    
    
    (310,375
    )
    
    
    69,949Amortization of
deferred stock
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300
    
    
    
    
    
    
    
    300Write-off of unvested
deferred stock
compensation related to
cancelled options
    
    
    
    
    
    
    
    
    
    
    (189
    )
    
    
    189
    
    
    
    
    
    
    
    Stock options exercised
    
    
    6
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    22Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,457
    )
    
    
    (4,457
    )Balances, December 31, 2004
    
    
    27,415
    
    
    
    274
    
    
    
    380,637
    
    
    
    (265
    )
    
    
    (314,832
    )
    
    
    65,814Compensation cost
related to stock
options granted to
employees
    
    
    
    
    
    
    
    
    
    
    414
    
    
    
    (414
    )
    
    
    
    
    
    
    Amortization of
deferred stock
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    96Write-off of unvested
deferred stock
compensation related to
cancelled options
    
    
    
    
    
    
    
    
    
    
    (307
    )
    
    
    307
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,342
    )
    
    
    (11,342
    )Balances, December 31, 2005
    
    
    27,415
    
    
    $
    274
    
    
    $
    380,744
    
    
    $
    (276
    )
    
    $
    (326,174
    )
    
    $
    54,568
  F-6




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2003, 2004 and 2005 (In Thousands)
 2003
    
    
    2004
    
    
    2005Cash Flows from Operating Activities:Net loss
    
    $
    (34,288
    )
    
    $
    (4,457
    )
    
    $
    (11,342
    )Adjustments to reconcile net loss to net cash provided by (used in)
by operating activities:Depreciation and amortization
    
    
    22,133
    
    
    
    11,199
    
    
    
    7,809Amortization of debt issuance costs
    
    
    954
    
    
    
    962
    
    
    
    843Impairment of property, plant and equipment
    
    
    40
    
    
    
    
    
    
    
    Loss (gain) on sale of assets
    
    
    (50
    )
    
    
    11
    
    
    
    (695
    )Stock-based compensation expense
    
    
    226
    
    
    
    300
    
    
    
    96Marketable equity securities received for recovery of bad debt
    
    
    
    
    
    
    (777
    )
    
    
    Unrealized loss on marketable equity securities
    
    
    
    
    
    
    385
    
    
    
    144Changes in operating assets and liabilities, net of effects of
purchase of businesses:Decrease (increase) in:Trade receivables, net
    
    
    (3,617
    )
    
    
    (15,940
    )
    
    
    (942
    )Inventories
    
    
    7,086
    
    
    
    (17,562
    )
    
    
    17,217Prepaid expenses and other
    
    
    (1,334
    )
    
    
    2,697
    
    
    
    (406
    )Increase (decrease) in:Accounts payable
    
    
    (855
    )
    
    
    2,530
    
    
    
    2,826Accrued compensation and benefits
    
    
    (204
    )
    
    
    (408
    )
    
    
    (486
    )Other accrued liabilities
    
    
    (9,859
    )
    
    
    (1,714
    )
    
    
    1,436Net cash provided by (used in) operating activities
    
    
    (19,768
    )
    
    
    (22,774
    )
    
    
    16,500Cash Flows from Investing Activities:Proceeds from sale of property, plant and equipment
    
    
    23
    
    
    
    642
    
    
    
    3,371Cash acquired as part of business acquisition
    
    
    301
    
    
    
    
    
    
    
    Payments for acquisition of businesses
    
    
    (205
    )
    
    
    (2,466
    )
    
    
    (1,383
    )Payments for property, plant and equipment
    
    
    (2,924
    )
    
    
    (2,697
    )
    
    
    (2,047
    )Net cash used in investing activities
    
    
    (2,805
    )
    
    
    (4,521
    )
    
    
    (59
    )Cash Flows from Financing Activities:Proceeds from debt agreements
    
    
    333,382
    
    
    
    505,224
    
    
    
    323,951Principal payments under debt agreements
    
    
    (311,817
    )
    
    
    (480,218
    )
    
    
    (336,529
    )Payments for debt issuance costs
    
    
    (628
    )
    
    
    (1,998
    )
    
    
    (563
    )Increase (decrease) in outstanding checks in excess of cash balances
    
    
    41
    
    
    
    4,253
    
    
    
    (3,255
    )Proceeds from exercise of stock options and warrants
    
    
    
    
    
    
    22
    
    
    
    Net cash provided by (used in) financing activities
    
    
    20,978
    
    
    
    27,283
    
    
    
    (16,396
    )Net increase (decrease) in cash and equivalents
    
    
    (1,595
    )
    
    
    (12
    )
    
    
    45Cash and Equivalents:Beginning of year
    
    
    1,621
    
    
    
    26
    
    
    
    14End of year
    
    $
    26
    
    
    $
    14
    
    
    $
    59
  F-7




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2003, 2004 and 2005
(In Thousands)
 2003
    
    
    2004
    
    
    2005Supplemental Disclosure of Cash Flow Information:Cash paid for interest
    
    $
    1,579
    
    
    $
    2,496
    
    
    $
    3,415Cash paid for income taxes
    
    $
    
    
    
    $
    
    
    
    $
    Supplemental Schedule of Non-cash Investing and
Financing Activities:Payable for acquisition of business
    
    $
    2,197
    
    
    $
    1,408
    
    
    $
    Contract payable for acquisition of equipment
    
    $
    
    
    
    $
    793
    
    
    $
    157Assumption of bank debt for acquisition of business
    
    $
    1,156
    
    
    $
    
    
    
    $
    
  F-8




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1.
    
    Basis of Presentation, Nature of Business and Significant Accounting Policies
 Basis of Presentation.
  Fiscal Year. st st
 Nature of Business.
 Cash and Equivalents
 F-9




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Trade Receivables.
 Inventories
 Property, Plant and Equipment
 YearsBuildings and improvements
    
    30 to 40Manufacturing machinery and equipment
    
    5 to 10Furniture, computer equipment and software
    
    3 to 7
  F-10




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
 Identifiable Intangible Assets.
  Debt Issuance Costs.
 Goodwill
 Revenue Recognition
 Revenue Recognition
 Revenue Arrangements with Multiple Deliverables,
 Shipping and Handling Fees.
 F-11




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
 Stock-based Compensation Accounting for Stock Issued to Employees
  2003
    
    
    2004
    
    
    2005Net Loss
    
    
    EPS
    
    
    Net Loss
    
    
    EPS
    
    
    Net Loss
    
    
    EPSAmounts reported
    
    $
    (34,288
    )
    
    $
    (1.25
    )
    
    $
    (4,457
    )
    
    $
    (0.16
    )
    
    $
    (11,342
    )
    
    $
    (0.41
    )Add stock-based employee
compensation recorded
under the intrinsic value
method
    
    
    196
    
    
    
    
    
    
    
    300
    
    
    
    
    
    
    
    96Less stock-based employee
compensation under the
fair value method
    
    
    (3,274
    )
    
    
    
    
    
    
    (995
    )
    
    
    
    
    
    
    (358
    )Pro forma under fair
value method
    
    $
    (37,366
    )
    
    $
    (1.36
    )
    
    $
    (5,152
    )
    
    $
    (0.19
    )
    
    $
    (11,604
    )
    
    $
    (0.42
    )
 Income Taxes
 Financial Instruments
 Earnings Per Share
 F-12




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
  New Accounting Standards. Inventory Costs
 Share-Based
Payment Accounting for Stock-Based Compensation Accounting for Stock
Issued to Employees.
  2.
    
    Liquidity
  F-13




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
   
    
    On March 30, 2006, a building and land in Sugar Land, Texas was sold, resulting in net
proceeds of approximately $16,800 that was used to repay outstanding debt. The Company
leased back approximately 50% of the building under a seven-year lease to continue its
manufacturing operations at that location. In addition to the expected benefit from
eliminating future interest cost due to the repayment of debt, management also expects to
eliminate fixed overhead costs for real estate taxes, insurance and utilities related to
the portion of the building that was not leased back.
    
    On March 30, 2006, the Company entered into a $10,000 subordinated Note Purchase
Agreement with an affiliate of its majority stockholder. In addition, the affiliate agreed
to make additional subordinated loans up to $5,000 if the Company fails to comply with the
financial covenants in its new credit facility. The outstanding principal balance plus all
accrued interest is due in May 2009.
    
    On March 30, 2006, the Company entered into a new three-year credit facility with US
Bank that permits borrowings up to $50,000 and matures in March 2009. As of March 30, 2006,
the principal balance under the US Bank credit agreement was approximately $24,000 and the
Company had unused borrowing availability of approximately $18,000.
  3.
    
    
    Business Combinations
 Acquisition of Trilogic Systems, LLC.
  F-14




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
    Cash and equivalents
    
    $
    301Accounts receivable
    
    
    1,612Inventories
    
    
    1,096Property, plant, and equipment
    
    
    248Goodwill
    
    
    3,931Bank debt assumed
    
    
    (1,156
    )Accounts payable assumed
    
    
    (2,022
    )Accrued liabilities assumed
    
    
    (340
    )Net assets acquired
    
    $
    3,670
 Skyline
Acquisition.
 4.
    
    
    Intangible Assets
 Goodwill.
 Northwest
    
    
    Midwestern
    
    
    Trilogic
    
    
    Skyline
    
    
    TotalBalance, December 31, 2003
    
    $
    6,729
    
    
    $
    235
    
    
    $
    2,663
    
    
    $
    
    
    
    $
    9,627Reversal of payable
for goodwill
    
    
    
    
    
    
    
    
    
    
    (44
    )
    
    
    
    
    
    
    (44
    )Goodwill recorded
    
    
    
    
    
    
    
    
    
    
    1,312
    
    
    
    20
    
    
    
    1,332Balance, December 31, 2004
    
    
    6,729
    
    
    
    235
    
    
    
    3,931
    
    
    
    20
    
    
    
    10,915Goodwill recorded
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Balance, December 31, 2005
    
    $
    6,729
    
    
    $
    235
    
    
    $
    3,931
    
    
    $
    23
    
    
    $
    10,918
 F-15




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
 Identifiable Intangible Assets.
 AccumulatedCost
    
    
    Amortization
    
    
    Net2004
    
    $
    2,655
    
    
    $
    1,780
    
    
    $
    8752005
    
    $
    2,000
    
    
    $
    1,325
    
    
    $
    675
  5.
    
    Inventories
  December 31,2004
    
    
    2005Purchased parts and completed sub-assemblies
    
    $
    53,015
    
    
    $
    41,798Work-in-process
    
    
    12,895
    
    
    
    10,622Finished goods
    
    
    13,292
    
    
    
    9,565Total
    
    $
    79,202
    
    
    $
    61,985
  6.
    
    Borrowings Under Revolving Credit Agreement
   F-16




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
      7.
    
    Income Taxes
  F-17




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
   2003
    
    
    2004
    
    
    2005Income tax benefit at the statutory rate
    
    $
    11,658
    
    
    $
    1,515
    
    
    $
    3,856Benefit (expense) resulting from:Increase in Federal valuation allowance
    
    
    (11,547
    )
    
    
    (1,786
    )
    
    
    (4,262
    )Other, net
    
    
    (111
    )
    
    
    271
    
    
    
    406Income tax benefit
    
    $
    
    
    
    $
    
    
    
    $
    
  2004
    
    
    2005Federal net operating loss carryforwards
    
    $
    75,229
    
    
    $
    80,598State net operating loss carryforwards
    
    
    5,873
    
    
    
    6,343Intangible assets
    
    
    23,259
    
    
    
    20,760Inventories
    
    
    5,086
    
    
    
    5,636Accrued compensation, benefits, severance
and lease exit costs
    
    
    1,546
    
    
    
    1,837Property, plant and equipment
    
    
    883
    
    
    
    1,020Allowance for doubtful accounts receivable
    
    
    616
    
    
    
    713Other
    
    
    141
    
    
    
    159Total deferred tax assets
    
    
    112,633
    
    
    
    117,066Less valuation allowance
    
    
    (112,633
    )
    
    
    (117,066
    )Net deferred tax assets
    
    $
    
    
    
    $
    
  8.
    
    Stock-based Compensation
 Stock Options.
 F-18




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
  2003
    
    
    2004
    
    
    2005Shares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding, beginning of year
    
    
    2,139
    
    
    $
    12.04
    
    
    
    2,361
    
    
    $
    10.28
    
    
    
    2,081
    
    
    $
    9.81Granted
    
    
    437
    
    
    
    3.15
    
    
    
    195
    
    
    
    8.31
    
    
    
    1,064
    
    
    
    1.36Canceled
    
    
    (215
    )
    
    
    13.25
    
    
    
    (469
    )
    
    
    11.66
    
    
    
    (881
    )
    
    
    9.54Exercised
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    3.81
    
    
    
    
    
    
    
    Outstanding, end of year
    
    
    2,361
    
    
    $
    10.28
    
    
    
    2,081
    
    
    $
    9.81
    
    
    
    2,264
    
    
    $
    5.94
  Stock Options Outstanding
    
        Stock Options ExercisableExercise Prices
    
    
    Remaining
    
    
    Number
    
    
    Weighted
    
    
    NumberRange

    
    Weighted
    
    
    Contractual
    
    
    of
    
    
    Average
    
    
    ofLow
    
    High
    
    
    Average
    
    
    Term (Years)
    
    
    Shares
    
    
    Exercise Price
    
    
    Shares$0.01
    
    $
    0.01
    
    
    $
    0.01
    
    
    
    1.8
    
    
    
    254
    
    
    $
    0.01
    
    
    
    1.04
    
    
    2.15
    
    
    
    1.69
    
    
    
    9.4
    
    
    
    835
    
    
    
    1.08
    
    
    
    32.83
    
    
    3.74
    
    
    
    3.68
    
    
    
    6.7
    
    
    
    118
    
    
    
    3.68
    
    
    
    1014.16
    
    
    5.77
    
    
    
    4.41
    
    
    
    7.9
    
    
    
    168
    
    
    
    4.41
    
    
    
    1687.36
    
    
    11.00
    
    
    
    10.48
    
    
    
    5.8
    
    
    
    669
    
    
    
    10.48
    
    
    
    66911.64
    
    
    16.00
    
    
    
    14.71
    
    
    
    4.7
    
    
    
    171
    
    
    
    14.71
    
    
    
    17118.00
    
    
    57.24
    
    
    
    27.51
    
    
    
    2.8
    
    
    
    49
    
    
    
    27.51
    
    
    
    49$0.01
    
    $
    57.24
    
    
    $
    5.94
    
    
    
    6.7
    
    
    
    2,264
    
    
    $
    10.32
    
    
    
    1,161
    F-19




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
   Year ended December 31,2003
    
    
    2004
    
    
    2005Dividend yield
    
    
    
    
    
    
    
    
    
    
    Expected volatility
    
    
    122.5
    %
    
    
    110.1
    %
    
    
    107.5
    %Risk-free interest rate
    
    
    2.9
    %
    
    
    3.6
    %
    
    
    3.8
    %Expected term (years)
    
    
    4.3
    
    
    
    5.5
    
    
    
    3.6
 9.
    
    Related Party Transactions
 Leasing Activities.
 Purchases and Net Sales.
 Management and Consulting Fees.
 Participation Agreement.






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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10. Restructuring Activities
  2003
    
    
    2004
    
    
    2005Amounts related to manufacturing activities and included in cost
of goods sold:Severance and retention costs
    
    $
    803
    
    
    $
    232
    
    
    $
    1,020Lease exit costs
    
    
    462
    
    
    
    16
    
    
    
    225Moving and relocation costs
    
    
    150
    
    
    
    50
    
    
    
    Impairment of manufacturing assets
    
    
    40
    
    
    
    
    
    
    
    Accelerated depreciation of
leasehold improvements
    
    
    1,257
    
    
    
    
    
    
    
    Reversal of previously accrued
lease exit cost upon termination
of lease
    
    
    (4,710
    )
    
    
    
    
    
    
    Total
    
    
    (1,998
    )
    
    
    298
    
    
    
    1,245Amounts unrelated to manufacturing activities and excluded from
cost of goods sold:Severance and retention costs
    
    
    123
    
    
    
    393
    
    
    
    510Lease exit costs
    
    
    (1
    )
    
    
    650
    
    
    
    321Moving, relocation and other costs
    
    
    2
    
    
    
    42
    
    
    
    38Total
    
    
    124
    
    
    
    1,085
    
    
    
    869Total Restructuring Expense (Benefit)
    
    $
    (1,874
    )
    
    $
    1,383
    
    
    $
    2,114
  Plant Consolidations
  F-21




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Summary of Restructuring Liabilities.
 Accrued
    
    
    AccruedLease Exit
    
    
    Severance &Costs
    
    
    RetentionBalance, December 31, 2003
    
    $
    1,017
    
    
    $
    55Accrued expense for restructuring activities
    
    
    430
    
    
    
    625Cash receipts under subleases
    
    
    489
    
    
    
    Cash payments
    
    
    (1,544
    )
    
    
    (553
    )Accretion of interest
    
    
    47
    
    
    
    Reclassification of non-level rent liability
    
    
    45
    
    
    
    Expense due to change in previous estimates
    
    
    183
    
    
    
    Balance, December 31, 2004
    
    
    667
    
    
    
    127Accrued expense for restructuring activities
    
    
    156
    
    
    
    1,530Cash receipts under subleases
    
    
    234
    
    
    
    Cash payments
    
    
    (835
    )
    
    
    (1,341
    )Accretion of interest
    
    
    14
    
    
    
    Reclassification of non-level rent liability
    
    
    4
    
    
    
    Expense due to change in previous estimates
    
    
    376
    
    
    
    Balance, December 31, 2005
    
    $
    616
    
    
    $
    316
  F-22




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 11. Business and Credit Concentrations
  Semiconductor
    
    Aerospace
    
    
    
    
    
    Networking andYear
    
    Capital Equipment
    
    and Defense
    
    Industrial
    
    Telecommunications
    
    Medical2003
    
    
    24
    %
    
    
    33
    %
    
    
    25
    %
    
    
    15
    %
    
    
    3
    %2004
    
    
    39
    %
    
    
    24
    %
    
    
    25
    %
    
    
    9
    %
    
    
    3
    %2005
    
    
    22
    %
    
    
    30
    %
    
    
    29
    %
    
    
    15
    %
    
    
    4
    %
  Honeywell
    
    AppliedYear
    
    International, Inc.
    
    Materials, Inc.2003
    
    
    29
    %
    
    
    18
    %2004
    
    
    21
    %
    
    
    25
    %2005
    
    
    25
    %
    
    
    0
    %
    F-23




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 12. Commitments and Contingencies
 Operating Leases.
  Year Ending December 31:2006
    
    $
    4,2582007
    
    
    3,1972008
    
    
    1,9132009
    
    
    1,4692010
    
    
    1,128After 2010
    
    
    1,145$
    13,110
  Employment Agreement.
 Employee Benefit Plan.
 Legal Proceedings.
 F-24




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    13. Bad Debt Recovery
   14. Assets Held for Sale
   F-25




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Vacant land held for sale
    
    $
    1,798Building and improvements
    
    
    18,477Land associated with building
    
    
    2,350Total
    
    
    22,625Accumulated depreciation
    
    
    (3,853
    )Net Carrying Value
    
    $
    18,772
  15. Subsequent Events
 Amendment to Credit Agreement.
 Real Estate Sales.
  F-26




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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Refinancing of Credit Agreement.
    Subordinated Debt Financing.
 F-27




---



##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  16. Quarterly Financial Information (Unaudited)
  Year Ended December 31, 2004
    
    
    Year Ended December 31, 2005Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4Net sales
    
    $
    100,671
    
    
    $
    130,381
    
    
    $
    128,542
    
    
    $
    115,794
    
    
    $
    82,736
    
    
    $
    81,758
    
    
    $
    80,383
    
    
    $
    83,853Cost of goods sold
    
    
    97,698
    
    
    
    121,635
    
    
    
    120,913
    
    
    
    109,270
    
    
    
    82,264
    
    
    
    77,884
    
    
    
    74,868
    
    
    
    76,878Gross profit
    
    
    2,973
    
    
    
    8,746
    
    
    
    7,629
    
    
    
    6,524
    
    
    
    472
    
    
    
    3,874
    
    
    
    5,515
    
    
    
    6,975Selling, general &
administrative
    
    
    (5,609
    )
    
    
    (6,394
    )
    
    
    (5,762
    )
    
    
    (6,596
    )
    
    
    (5,618
    )
    
    
    (6,136
    )
    
    
    (5,652
    )
    
    
    (5,352
    )Severance, retention and lease
exit costs
    
    
    (632
    )
    
    
    (67
    )
    
    
    (282
    )
    
    
    (104
    )
    
    
    (26
    )
    
    
    (611
    )
    
    
    (44
    )
    
    
    (188
    )Related party management and
consulting fees
    
    
    (188
    )
    
    
    (187
    )
    
    
    (188
    )
    
    
    (187
    )
    
    
    (188
    )
    
    
    (187
    )
    
    
    (188
    )
    
    
    (187
    )Operating income (loss)
    
    
    (3,456
    )
    
    
    2,098
    
    
    
    1,397
    
    
    
    (363
    )
    
    
    (5,360
    )
    
    
    (3,060
    )
    
    
    (369
    )
    
    
    1,248Interest expense
    
    
    (849
    )
    
    
    (1,097
    )
    
    
    (991
    )
    
    
    (1,045
    )
    
    
    (1,090
    )
    
    
    (1,187
    )
    
    
    (1,199
    )
    
    
    (1,227
    )Gain (loss) on sale of assets
    
    
    (9
    )
    
    
    (25
    )
    
    
    (1
    )
    
    
    24
    
    
    
    241
    
    
    
    397
    
    
    
    17
    
    
    
    40Unrealized gain (loss) on
marketable equity securities
    
    
    
    
    
    
    
    
    
    
    (428
    )
    
    
    43
    
    
    
    (144
    )
    
    
    
    
    
    
    
    
    
    
    Other, net
    
    
    35
    
    
    
    35
    
    
    
    133
    
    
    
    42
    
    
    
    164
    
    
    
    105
    
    
    
    17
    
    
    
    65Net income (loss)
    
    $
    (4,279
    )
    
    $
    1,011
    
    
    $
    110
    
    
    $
    (1,299
    )
    
    $
    (6,189
    )
    
    $
    (3,745
    )
    
    $
    (1,534
    )
    
    $
    126Basic and diluted earnings
(loss) per share
    
    $
    (0.16
    )
    
    $
    0.04
    
    
    $
    0.00
    
    
    $
    (0.05
    )
    
    $
    (0.23
    )
    
    $
    (0.14
    )
    
    $
    (0.06
    )
    
    $
    0.00
  F-28




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##### Table of Contents



SUNTRON
CORPORATION AND SUBSIDIARIES
SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS
Accounts ReceivableAllowance for Doubtful Accounts
(Dollars in Thousands)
 AdditionsBalance at
    
    Charged
    
    Charged
    
    
    
    
    
    Balance atBeginning
    
    To Costs &
    
    To Other
    
    
    
    
    
    End OfYear Ended December 31,
    
    Of Year
    
    Expenses
    
    Accounts
    
    Deductions
    
    Year2003
    
    $
    1,740
    
    
    $
    2,694
    
    
    $
    31
    (1)
    
    $
    1,567
    (2)
    
    $
    2,8982004
    
    
    2,898
    
    
    
    1,791
    
    
    
    
    
    
    
    3,278
    (3)
    
    
    1,4112005
    
    
    1,411
    
    
    
    1,465
    
    
    
    
    
    
    
    1,198
    (4)
    
    
    1,678
 
 (1)
    
    Allowance for doubtful accounts established in purchase accounting for Trilogic
Systems.(2)
    
    Deductions consist of write-offs of $345 and recoveries of $1,222.(3)
    
    Deductions consist of write-offs of $2,350 and recoveries of $928.(4)
    
    Deductions consist of write-offs of $637 and recoveries of $561. F-29




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##### Table of Contents



ExhibitNumber
    
    Description2.1
    
    Amended and Restated Agreement and Plan of Merger, dated as of May 3, 2001, by and among EFTC
Corporation, K*TEC Electronics Holding Corporation, Thayer-Blum Funding II, L.L.C. and the
registrant. (1)3.1
    
    Certificate of Incorporation of the registrant. (1)3.2
    
    Bylaws of the registrant. (1)4.1
    
    Specimen Stock Certificate. (1)10.1
    
    Suntron Corporation Amended and Restated 2002 Stock Option Plan. (4)10.2
    
    Registration Rights Agreement between the registrant and Thayer-Blum. (1)10.3
    
    Lease Agreement dated as of May 10, 1999 by and between Orsett/I-17 L.L.C. and EFTC
Corporation. (1)10.4
    
    Industrial Lease dated December 18, 1998 by and between Buckhorn Trading Co., LLC and EFTC
Corporation. (1)10.5
    
    Commercial/Industrial Lease dated as of April 1, 2001 by and between EFTC Corporation and H.
J. Brooks, LLC. (1)10.6
    
    Management and Consulting Agreement by and between Suntron Corporation and Thayer-Blum
Funding III, L.L.C. (3)10.7
    
    Second Amended and Restated Credit Agreement dated July 7, 2004 between Suntron Corporation
and Citicorp USA and Congress Financial Corporation (5)10.8
    
    Amendment No. 1, Consent and Waiver to Suntron Corporation Second Amended and Restated Credit
Agreement, dated March 29, 2005 (6)10.9
    
    Amendment No. 2 to Second Amended and Restated Credit Agreement (8)10.10
    
    Amendment No. 3 to Second Amended and Restated Credit Agreement (8)10.11
    
    Employment agreement between Suntron and Hargopal (Paul) Singh (7)21.1
    
    List of Subsidiaries of the registrant. (2)23.1
    
    Consent of KPMG LLP (2)31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002. (2)31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (2)32.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 (2)32.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (2)
 
 (1)
    
    Incorporated by reference to the Registration Statement on Form S-4 (Registration No.
333-72992) declared effective February 8, 2002.(2)
    
    Filed herewith.(3)
    
    Incorporated by reference to our Quarterly Report on Form 10-Q filed on August 14, 2002.(4)
    
    Incorporated by reference to our 2002 Annual Report on Form 10-K filed on April 15, 2003.(5)
    
    Incorporated by reference to our Quarterly Report on Form 10-Q filed on July 30, 2004.(6)
    
    Incorporated by reference to our Quarterly Report on Form 10-Q filed on May 17, 2005.(7)
    
    Incorporated by reference to our Quarterly Report on Form 10-Q filed on August 19, 2005.(8)
    
    Incorporated by reference to our Quarterly Report on Form 10-Q filed on November 14, 2005.