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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
|- |  | ------------------------------------------------------------------

EXCHANGE ACT OF 1934



For the quarterly period ended June 29, 2003



OR



| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
|- |  | -------------------------------------------------------------------

EXCHANGE ACT OF 1934



For the transition period from  to



Commission file number 0-31051



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SMTC CORPORATION

(Exact name of Registrant as Specified in its Charter)



|Delaware                                                       |  | 98-0197680                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



635 Hood Road

Markham, Ontario, Canada L3r 4n6

(Address of Principal Executive Offices) (Zip Code)



(905) 479-1810

(Registrants telephone number, including area code)



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



Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes ̈No x



As of August 8, 2003, SMTC Corporation had 23,405,943 shares of common stock, par value $0.01 per share, and one share of special voting stock, par value $0.01 per share, outstanding. As of August 8, 2003, SMTC
Corporations subsidiary, SMTC Manufacturing Corporation of Canada, had 5,283,836 exchangeable shares outstanding, each of which is exchangeable into one share of common stock of SMTC Corporation.



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##### Table of Contents

SMTC Corporation

Form 10-Q



Table of Contents



|                                                                                                                       |  | Page
|---------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                       | 
|PART I    Financial Information                                                                                        |  |     
|                                                                                                                       | 
|Item 1.    Financial Statements                                                                                        |  | 3   
|                                                                                                                       | 
|Consolidated Balance Sheets as of December 31, 2002 and June 29, 2003 (unaudited)                                      |  | 3   
|                                                                                                                       | 
|Consolidated Statements of Operations for the three and six months ended June 29, 2003 and June 30, 2002 (unaudited)   |  | 4   
|                                                                                                                       | 
|Consolidated Statement of Changes in Shareholders Equity (Deficit) for the six months ended June 29, 2003 (unaudited) |  | 6   
|                                                                                                                       | 
|Consolidated Statements of Cash Flows for the three and six months ended June 29, 2003 and June 30, 2002 (unaudited)   |  | 7   
|                                                                                                                       | 
|Notes to Consolidated Financial Statements                                                                             |  | 9   
|                                                                                                                       | 
|Item 2.    Managements Discussion and Analysis of Financial Condition and Results of Operations                       |  | 22  
|                                                                                                                       | 
|Item 3.    Quantitative and Qualitative Disclosures about Market Risk                                                  |  | 42  
|                                                                                                                       | 
|Item 4.    Controls and Procedures                                                                                     |  | 42  
|                                                                                                                       | 
|PART II    Other Information                                                                                           |  |     
|                                                                                                                       | 
|Item 4.    Submission of Matters to a Vote of Security Holders                                                         |  | 43  
|                                                                                                                       | 
|Item 5.    Other Information                                                                                           |  | 43  
|                                                                                                                       | 
|Item 6.    Exhibits and Reports on Form 8-K                                                                            |  | 43  
|                                                                                                                       | 
|Signatures                                                                                                             |  | 45  



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##### Table of Contents

SMTC CORPORATION



Consolidated Balance Sheets

(expressed in thousands of U.S. dollars)



PART I    FINANCIAL INFORMATION



ITEM 1.    FINANCIAL STATEMENTS



|                                                                                                    |  | June 29,2003 |          |   | December 31,2002 |  
|--------------------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---------------- | -
|                                                                                                    |  | (unaudited)  |          |   |                  |  
|Assets                                                                                              |  |              |          |   |                  |  
|Current assets:                                                                                     |  |              |          |   |                  |  
|Cash                                                                                                |  | $            | 317      |   |                  | $
|Accounts receivable, net of an allowance for doubtful accounts of $2,117 (December 31, 2002$2,097) |  |              | 44,548   |   |                  |  
|Inventories (note 3)                                                                                |  |              | 30,737   |   |                  |  
|Prepaid expenses                                                                                    |  |              | 1,660    |   |                  |  
|Income taxes recoverable                                                                            |  |              | 251      |   |                  |  
|                                                                                                    |  |              |          |   |                  |  
|                                                                                                    |  |              | 77,513   |   |                  |  
|Capital assets                                                                                      |  |              | 35,809   |   |                  |  
|Other assets                                                                                        |  |              | 6,858    |   |                  |  
|Deferred income taxes (note 6)                                                                      |  |              |         |   |                  |  
|                                                                                                    |  |              |          |   |                  |  
|                                                                                                    |  | $            | 120,180  |   |                  | $
|                                                                                                    |  |              |          |   |                  |  
|Liabilities and Shareholders Equity (Deficit)                                                      |  |              |          |   |                  |  
|Current liabilities:                                                                                |  |              |          |   |                  |  
|Accounts payable                                                                                    |  | $            | 48,822   |   |                  | $
|Accrued liabilities                                                                                 |  |              | 25,722   |   |                  |  
|Current portion of long-term debt (note 4)                                                          |  |              | 20,000   |   |                  |  
|Current portion of capital lease obligations                                                        |  |              | 273      |   |                  |  
|                                                                                                    |  |              |          |   |                  |  
|                                                                                                    |  |              | 94,817   |   |                  |  
|Long-term debt (note 4)                                                                             |  |              | 47,160   |   |                  |  
|Capital lease obligations                                                                           |  |              | 65       |   |                  |  
|                                                                                                    |  |             
|Shareholders equity (deficit):                                                                     |  |              |          |   |                  |  
|Capital stock                                                                                       |  |              | 64,753   |   |                  |  
|Warrants                                                                                            |  |              | 1,255    |   |                  |  
|Loans receivable                                                                                    |  |              | (5       | ) |                  |  
|Additional paid-in-capital                                                                          |  |              | 165,409  |   |                  |  
|Deficit                                                                                             |  |              | (253,274 | ) |                  |  
|                                                                                                    |  |              |          |   |                  |  
|                                                                                                    |  |              | (21,862  | ) |                  |  
|Guarantees (note 11)                                                                                |  |              |          |   |                  |  
|                                                                                                    |  |              |          |   |                  |  
|                                                                                                    |  | $            | 120,180  |   |                  | $
|                                                                                                    |  |              |          |   |                  |  

See accompanying notes to consolidated financial statements.



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SMTC CORPORATION



Consolidated Statements of Operations

(Expressed in thousands of U.S. dollars, except share quantities and per share amounts)



(Unaudited)



|                                                                                                             |  | Three months ended |         |   | Six months ended |  
|------------------------------------------------------------------------------------------------------------ |  | ------------------ | ------- | - | ---------------- | -
|                                                                                                             |  | June 29,2003       |         |   | June 30,2002     |  
|Revenue                                                                                                      |  | $                  | 74,512  |   |                  | $
|Cost of sales                                                                                                |  |                    | 69,598  |   |                  |  
|                                                                                                             |  |                    |         |   |                  |  
|Gross profit                                                                                                 |  |                    | 4,914   |   |                  |  
|Selling, general and administrative expenses                                                                 |  |                    | 5,206   |   |                  |  
|Amortization                                                                                                 |  |                    | 972     |   |                  |  
|Restructuring charges and other charges (note 8)                                                             |  |                    | 2,873   |   |                  |  
|                                                                                                             |  |                    |         |   |                  |  
|Operating income (loss)                                                                                      |  |                    | (4,137  | ) |                  |  
|Interest                                                                                                     |  |                    | 1,328   |   |                  |  
|                                                                                                             |  |                    |         |   |                  |  
|Loss before income taxes, discontinued operations and the cumulative effect of a change in accounting policy |  |                    | (5,465  | ) |                  |  
|Income tax expense (recovery) (note 6)                                                                       |  |                    | 34,390  |   |                  |  
|                                                                                                             |  |                    |         |   |                  |  
|Loss from continuing operations                                                                              |  |                    | (39,855 | ) |                  |  
|Loss from discontinued operations (note 9)                                                                   |  |                    |        |   |                  |  
|Cumulative effect of a change in accounting policy (note 10)                                                 |  |                    |        |   |                  |  
|                                                                                                             |  |                    |         |   |                  |  
|Net loss                                                                                                     |  | $                  | (39,855 | ) |                  | $
|                                                                                                             |  |                    |         |   |                  |  



See accompanying notes
to consolidated financial statements.



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SMTC CORPORATION



Consolidated Statements of Operations (continued)

(Expressed in thousands of
U.S. dollars, except share quantities and per share amounts)



(Unaudited)



|                                                                                              |  | Three months ended |            |   | Six months ended |  
|--------------------------------------------------------------------------------------------- |  | ------------------ | ---------- | - | ---------------- | -
|                                                                                              |  | June 29, 2003      |            |   | June 30, 2002    |  
|Loss per share:                                                                               |  |                    |            |   |                  |  
|Basic loss per share from continuing operations                                               |  | $                  | (1.39      | ) |                  | $
|Loss from discontinued operations per share                                                   |  |                    |           |   |                  |  
|Loss from the cumulative effect of a change in accounting policy per share                    |  |                    |           |   |                  |  
|                                                                                              |  |                    |            |   |                  |  
|Basic loss per share                                                                          |  | $                  | (1.39      | ) |                  | $
|                                                                                              |  |                    |            |   |                  |  
|Diluted loss per share                                                                        |  | $                  | (1.39      | ) |                  | $
|                                                                                              |  |                    |            |   |                  |  
|Weighted average number of common shares used in the calculations of loss per share (note 5): |  |                    |            |   |                  |  
|Basic                                                                                         |  |                    | 28,689,779 |   |                  |  
|Diluted                                                                                       |  |                    | 28,689,779 |   |                  |  
|                                                                                              |  |                    |            |   |                  |  



See accompanying notes
to consolidated financial statements.



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SMTC CORPORATION



Consolidated Statement of Changes in Stockholders Equity (Deficit)

(Expressed in thousands of U.S. dollars)



Six months ended June 29, 2003

(Unaudited)



|                                                       |  | Capitalstock |        |   | Warrants |   | Additionalpaid-incapital |  | Loansreceivable |         |  | Deficit |    |   | Shareholdersequity |  
|------------------------------------------------------ |  | ------------ | ------ | - | -------- | - | ------------------------ |  | --------------- | ------- |  | ------- | -- | - | ------------------- | -
|Balance, December 31, 2002                             |  | $            | 66,802 |   |          | $ | 1,255                    |  | $               | 163,360 |  | $       | (5 | ) |                     | $
|Conversion of shares from exchangeable to common stock |  |              | (2,049 | ) |          |   |                         |  |                 | 2,049   |  |         |   |   |                     |  
|Net loss for the period                                |  |              |       |   |          |   |                         |  |                 |        |  |         |   |   |                     |  
|                                                       |  |              |        |   |          |   |                          |  |                 |         |  |         |    |   |                     |  
|Balance, June 29, 2003                                 |  | $            | 64,753 |   |          | $ | 1,255                    |  | $               | 165,409 |  | $       | (5 | ) |                     | $
|                                                       |  |              |        |   |          |   |                          |  |                 |         |  |         |    |   |                     |  



See accompanying notes
to consolidated financial statements.



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SMTC CORPORATION



Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)



(Unaudited)



|                                                            |  | Three months ended |         |   | Six months ended |  
|----------------------------------------------------------- |  | ------------------ | ------- | - | ---------------- | -
|                                                            |  | June 29,2003       |         |   | June 30,2002     |  
|Cash provided by (used in):                                 |  |                    |         |   |                  |  
|Operations:                                                 |  |                    |         |   |                  |  
|Net loss                                                    |  | $                  | (39,855 | ) |                  | $
|Items not involving cash:                                   |  |                    |         |   |                  |  
|Amortization                                                |  |                    | 972     |   |                  |  
|Depreciation                                                |  |                    | 2,178   |   |                  |  
|Deferred income tax expense (benefit)                       |  |                    | 34,221  |   |                  |  
|Gain on disposition of assets                               |  |                    | (25     | ) |                  |  
|Impairment of assets (note 8)                               |  |                    | 3,226   |   |                  |  
|Gain on disposal of assets previously written down (note 8) |  |                    | (208    | ) |                  |  
|Discount on prepayment of shareholder Loans (note 8)        |  |                    | 389     |   |                  |  
|Write-down of goodwill (note 10)                            |  |                    |        |   |                  |  
|Change in non-cash operating working capital:               |  |                    |         |   |                  |  
|Accounts receivable                                         |  |                    | 9,755   |   |                  |  
|Inventories                                                 |  |                    | 7,686   |   |                  |  
|Prepaid expenses                                            |  |                    | 393     |   |                  |  
|Income taxes recoverable                                    |  |                    | (75     | ) |                  |  
|Accounts payable                                            |  |                    | (4,503  | ) |                  |  
|Accrued liabilities                                         |  |                    | (4,246  | ) |                  |  
|                                                            |  |                    |         |   |                  |  
|                                                            |  |                    | 9,908   |   |                  |  
|Financing:                                                  |  |                    |         |   |                  |  
|Increase in long-term debt                                  |  |                    |        |   |                  |  
|Repayment of long-term debt                                 |  |                    | (13,709 | ) |                  |  
|Principal payments on capital lease obligations             |  |                    | (12     | ) |                  |  
|Repayment of shareholder loans                              |  |                    | 3,795   |   |                  |  
|Debt issuance costs                                         |  |                    |        |   |                  |  
|                                                            |  |                    |         |   |                  |  
|                                                            |  |                    | (9,926  | ) |                  |  
|Investments:                                                |  |                    |         |   |                  |  
|Purchase of capital assets                                  |  |                    | (35     | ) |                  |  
|Proceeds from sale of capital assets                        |  |                    | 233     |   |                  |  
|Other                                                       |  |                    |        |   |                  |  
|                                                            |  |                    |         |   |                  |  
|                                                            |  |                    | 198     |   |                  |  
|                                                            |  |                    |         |   |                  |  
|Increase (decrease) in cash                                 |  |                    | 180     |   |                  |  
|Cash, beginning of period                                   |  |                    | 137     |   |                  |  
|                                                            |  |                    |         |   |                  |  
|Cash, end of period                                         |  | $                  | 317     |   |                  | $
|                                                            |  |                    |         |   |                  |  

See accompanying notes to consolidated financial statements.



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SMTC CORPORATION



Consolidated Statements of Cash Flows (continued)

(Expressed in thousands of
U.S. dollars)



(Unaudited)



|                               |  | Three months ended |       | Six months ended
|------------------------------ |  | ------------------ | ----- | ----------------
|                               |  | June 29,2003       |       | June 30,2002    
|Supplemental disclosures:      |  |                    |       |                 
|Cash paid during the period:   |  |                    |       |                 
|Income taxes                   |  | $                  |      |                 
|Interest                       |  |                    | 1,384 |                 
|Non-cash financing activities: |  |                    |       |                 
|Issuance of warrants           |  | $                  |      |                 
|                               |  |                    |       |                 



See accompanying notes
to consolidated financial statements.



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SMTC CORPORATION



Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars, except share quantities and per share amounts)



Three and six months ended June 29, 2003 and June 30, 2002

(Unaudited)

---



1.    Basis of presentation:



The Companys accounting principles are in accordance with accounting principles generally accepted in the United States.



The accompanying unaudited consolidated balance sheet as at June 29, 2003,
unaudited consolidated statements of operations for the three and six month periods ended June 29, 2003 and June 30, 2002, unaudited consolidated statement of changes in shareholders equity (deficit) for the six month period ended June 29,
2003, and unaudited consolidated statements of cash flows for the three and six month periods ended June 29, 2003 and June 30, 2002 have been prepared on substantially the same basis as the annual consolidated financial statements, except as
described below. Management believes the consolidated financial statements reflect all adjustments, consisting only of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of the Companys
financial position, operating results and cash flows for the periods presented. The results of operations for the three and six month periods ended June 29, 2003 are not necessarily indicative of results to be expected for the entire year. These
unaudited interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto for the year ended December 31, 2002.



The unaudited interim consolidated financial statements are based upon accounting principles consistent with those described
in the December 31, 2002 audited consolidated financial statements except as follows:



In August 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 143, Accounting for Asset Retirement Obligations, which requires that the fair value of an asset retirement obligation
be recorded as a liability, at fair value, in the period in which the Company incurs the obligation. The Statement is effective for fiscal 2003 and there was no material effect as a result of the adoption of this Statement on January 1, 2003.



In July 2002, the FASB issued Statement No. 146, Accounting
for Costs Associated with Exit or Disposal Activities (Statement 146), which nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (EITF 94-3). Statement 146 provides for the recognition of a liability for an exit or disposal activity only when a liability is incurred and can be measured at fair value. Under EITF 94-3, a commitment to an exit or disposal
plan was sufficient to record the majority of the costs. Statement 146 is effective for exit or disposal activities initiated after December 31, 2002. The Company adopted this Statement on January 1, 2003 and accordingly, the restructuring charges
recorded in the three and six months ended June 29, 2003 were made in accordance with the new standard.



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SMTC CORPORATION



Notes to Consolidated Financial Statements (continued)

(Expressed in
thousands of U.S. dollars, except share quantities and per share amounts)



Three and six months ended June 29, 2003 and June 30, 2002

(Unaudited)

---



1.    Basis of presentation (continued):



In November 2002, the FASB issued Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others, which requires certain disclosures of obligations under guarantees. The disclosure requirements of FIN 45 were
effective for the Companys year ended December 31, 2002. Effective for 2003, FIN 45 also requires the recognition of a liability by a guarantor at the inception of certain guarantees entered into or modified after December 31, 2002, based on
the fair value of the guarantee. The Company adopted the disclosure requirements in its 2002 consolidated financial statements. The Company has not entered into or modified any guarantees after December 31, 2002. See note 11 for disclosure related
to guarantees.



In January 2003, the FASB issued FIN No. 46,
Consolidation of Variable Interest Entities, which requires variable interest entities, previously referred to as special-purpose entities or off-balance sheet structures, to be consolidated by a company if that company is subject to a majority of
the risk of loss from the entitys activities or is entitled to receive a majority of the entitys returns or both. The consolidation provisions of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003
and to existing entities in the first fiscal year or interim period beginning after June 15, 2003. Certain disclosure provisions apply in financial statements issued after January 31, 2003. The consolidation requirements of FIN No. 46 do not have a
material effect on the Companys consolidated financial statements.



In April 2003, the FASB issued Statement No. 149, Amendments of Statement 133 on Derivative Instruments and Hedging Activities (Statement 149), which amends and clarifies financial accounting and reporting
for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under Statement 133. This statement is effective for contracts entered into or modified after June 30, 2003, with certain
exceptions, and for hedging relationships designated after June 30, 2003. The Company does not expect adoption of Statement 149 to have a material impact on its consolidated financial statements.



In May 2003, the FASB issued Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity (Statement 150), which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and
equity. Financial instruments that are within the scope of the statement, which previously were often classified as equity, must now be classified as liabilities. This statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise shall be effective at the beginning of the first interim period after June 15, 2003. The Company does not expect adoption of Statement 150 to have a material impact on its consolidated financial statements.



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SMTC CORPORATION



Notes to Consolidated Financial Statements (continued)

(Expressed in
thousands of U.S. dollars, except share quantities and per share amounts)



Three and six months ended June 29, 2003 and June 30, 2002

(Unaudited)

---



2.    Stock-based compensation:



The Company accounts for stock options issued to employees using the
intrinsic value method of Accounting Principles Board Opinion No. 25. Compensation expense is recorded on the date stock options are granted only if the current fair value of the underlying stock exceeds the exercise price. The Company has provided
the pro forma disclosures required by FASB Statement No. 123, Accounting for Stock-Based Compensation (Statement 123) as amended by Statement 148.



The table below sets out the pro forma amounts of net earnings (loss) and net earnings (loss) per share that would have resulted if the Company had
accounted for its employee stock plans under the fair value recognition provisions of Statement 123.



|                                               |  | Three months ended |         |   | Six months ended |  
|---------------------------------------------- |  | ------------------ | ------- | - | ---------------- | -
|                                               |  | June 29,2003       |         |   | June 30,2002     |  
|Net earnings (loss), as reported               |  | $                  | (39,855 | ) |                  | $
|Stock-based compensation expense               |  |                    | (309    | ) |                  |  
|                                               |  |                    |         |   |                  |  
|Pro forma loss                                 |  |                    | (40,164 | ) |                  |  
|                                               |  |                    |         |   |                  |  
|Basic earnings (loss) per share, as reported   |  | $                  | (1.39   | ) |                  | $
|Stock-based compensation expense               |  |                    | (0.01   | ) |                  |  
|                                               |  |                    |         |   |                  |  
|Pro forma basic loss per share                 |  |                    | (1.40   | ) |                  |  
|                                               |  |                    |         |   |                  |  
|Diluted earnings (loss) per share, as reported |  | $                  | (1.39   | ) |                  | $
|Stock-based compensation expense               |  |                    | (0.01   | ) |                  |  
|                                               |  |                    |         |   |                  |  
|Pro forma diluted loss per share               |  |                    | (1.40   | ) |                  |  
|                                               |  |                    |         |   |                  |  



No compensation
expense has been recorded in the statement of operations for the three and six months ended June 29, 2003 and June 30, 2002.



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SMTC CORPORATION



Notes to Consolidated Financial Statements (continued)

(Expressed in
thousands of U.S. dollars, except share quantities and per share amounts)



Three and six months ended June 29, 2003 and June 30, 2002

(Unaudited)

---



2.    Stock-based compensation (continued):



The estimated fair value of options is calculated at the date of grant, is
amortized over the vesting period, on a straight-line basis, and was determined using the Black-Scholes option pricing model using the following assumptions:



|                        |  | Six months ended |  
|----------------------- |  | ---------------- | -
|                        |  | June29,2003      |  
|Risk-free interest rate |  | 4.0              | %
|Dividend yield          |  |                 |  
|Expected life           |  | 4 years          |  
|Volatility              |  | 120.0            | %
|                        |  |                  |  



During the six months
ended June 29, 2003, the Company granted 40,000 options to purchase common stock at an exercise price of $0.75 per share, the fair market value on the date of grant.



3.    Inventories:



|                |  | June 29,2003 |        | December 31,2002
|--------------- |  | ------------ | ------ | ----------------
|Raw materials   |  | $            | 15,559 |                 
|Work in process |  |              | 8,656  |                 
|Finished goods  |  |              | 5,725  |                 
|Other           |  |              | 797    |                 
|                |  |              |        |                 
|                |  | $            | 30,737 |                 
|                |  |              |        |                 



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SMTC CORPORATION



Notes to Consolidated Financial Statements (continued)

(Expressed in
thousands of U.S. dollars, except share quantities and per share amounts)



Three and six months ended June 29, 2003 and June 30, 2002

(Unaudited)

---



4.    Long-term debt:



During the fourth quarter of 2002, the Company was in violation of certain
covenants contained in the credit agreement. The violation was waived and effective December 31, 2002, the Company and its lending group signed an amendment to the credit agreement covering the period up to July 30, 2004 that provided for an initial
amount of $27,500 in term loans and $90,000 in revolving credit loans, swing-line loans and letters of credit and amended certain financial and other covenants based on the Companys business plan. During the amendment period, the facility
bears interest at the U.S. base rate plus 0.25% to 2.5%.



The
Company was in compliance with the amended financial covenants at June 29, 2003. Continued compliance with the amended financial covenants through July 30, 2004 is dependent on the Company achieving the forecasts inherent in its business plan. The
Company believes the forecasts are based on reasonable assumptions and are achievable; however, the forecasts are dependent on a number of factors, some of which are outside the control of the Company. These include, but are not limited to, general
economic conditions and specifically the strength of the electronics industry and the related demand for the products and services by the Companys customers. In the event of non-compliance, the Companys lenders have the ability to demand
repayment of the outstanding amounts under the amended credit facility.



The Companys revolving credit facility matures in July 2004 and accordingly as at June 29, 2003, this amount has been classified as a long-term liability. The Company has a number of initiatives underway to refinance its bank
indebtedness including discussions with current and potential lenders and investors. To date no agreements have been reached and there can be no assurances that such agreements will be reached. Should the Company not be able to refinance the debt
prior to July 30, 2004, the Company expects that it will be unable to repay the full amount of the debt upon maturity. In that event, the Company expects to initiate negotiations with its current lenders to modify the terms of the loan agreement.
There can be no assurances that the Company will be able to negotiate or reach an agreement with its current lenders to modify the terms of the loan agreement.



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SMTC CORPORATION



Notes to Consolidated Financial Statements (continued)

(Expressed in
thousands of U.S. dollars, except share quantities and per share amounts)



Three and six months ended June 29, 2003 and June 30, 2002

(Unaudited)

---



5.    Loss per share:



The following table sets forth the calculation of basic and diluted loss per
share:



|                                              |  | Three months ended |            |   | Six months ended |  
|--------------------------------------------- |  | ------------------ | ---------- | - | ---------------- | -
|                                              |  | June 29, 2003      |            |   | June 30, 2002    |  
|Numerator:                                    |  |                    |            |   |                  |  
|Net loss from continuing operations           |  | $                  | (39,855    | ) |                  | $
|Net loss                                      |  |                    | (39,855    | ) |                  |  
|                                              |  |                    |            |   |                  |  
|Denominator:                                  |  |                    |            |   |                  |  
|Weighted average sharesbasic                 |  |                    | 28,689,779 |   |                  |  
|Effect of dilutive securities:                |  |                    |            |   |                  |  
|Employee stock options                        |  |                    |           |   |                  |  
|Warrants                                      |  |                    |           |   |                  |  
|                                              |  |                    |            |   |                  |  
|Weighted-average sharesdiluted               |  |                    | 28,689,779 |   |                  |  
|                                              |  |                    |            |   |                  |  
|Loss per share:                               |  |                    |            |   |                  |  
|Basic and diluted, from continuing operations |  | $                  | (1.39      | ) |                  | $
|Basic and diluted                             |  |                    | (1.39      | ) |                  |  
|                                              |  |                    |            |   |                  |  



Options and warrants
to purchase common stock were outstanding during the three and six month periods ended June 29, 2003 and June 30, 2002 but were not included in the computation of diluted loss per share because their effect would be anti-dilutive on the loss per
share for the period.



6.    Income taxes:



In assessing the realization of deferred tax assets,
management considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Management
considers the scheduled reversal of deferred tax liabilities, change of control limitations, projected future taxable income and tax planning strategies in making this assessment. FAS 109 states that forming a conclusion that a valuation allowance
is not needed is difficult when there is negative evidence such as cumulative losses in recent years in the jurisdictions to which the deferred tax assets relate. As a result of the quarterly review undertaken at the end of the second quarter, the
Company concluded that given the weakness and uncertainty in the current economic environment, it was appropriate to establish a full valuation allowance for the deferred tax assets arising from its operations in the jurisdictions to which the
deferred tax assets relate. As a result, the total valuation allowance for deferred tax



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##### Table of Contents

SMTC CORPORATION



Notes to Consolidated Financial Statements (continued)

(Expressed in
thousands of U.S. dollars, except share quantities and per share amounts)



Three and six months ended June 29, 2003 and June 30, 2002

(Unaudited)

---



6.    Income taxes (continued):



assets in all jurisdictions worldwide increased from approximately $35,000
at December 31, 2002 to approximately $71,000 at June 29, 2003, resulting in income tax expense during the quarter ended June 29, 2003, of approximately $34,200. In addition the Company expects to provide a full valuation allowance on future tax
benefits until it can demonstrate a sustained level of profitability that establishes its ability to utilize the assets in the jurisdictions to which the assets relate.



7.    Segmented information:



The Company derives its revenue from one dominant industry segment, the electronics manufacturing services industry. The
Company is operated and managed geographically and has five facilities in the United States, Canada and Mexico. The Company monitors the performance of its geographic operating segments based on EBITA (earnings before interest, taxes and
amortization) before restructuring charges, discontinued operations and the effect of changes in accounting policies. Discontinued operations in the first quarter of 2002 relates to the Cork, Ireland facility (note 9), which was previously included
in the results of the European segment. Intersegment adjustments reflect intersegment sales that are generally recorded at prices that approximate arms-length transactions. Information about the operating segments is as follows:



|                                                                                                                          |  | Three months ended June 29, 2003 |         |                     | Six months ended June 29, 2003 |        
|------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | ------------------- | ------------------------------ | -------
|                                                                                                                          |  | Totalrevenue                     |         | Intersegmentrevenue |                                |        
|United States                                                                                                             |  | $                                | 47,774  |                     | $                              | (2,348 
|Canada                                                                                                                    |  |                                  | 34,511  |                     |                                | (6,211 
|Europe                                                                                                                    |  |                                  | 981     |                     |                                | (230   
|Mexico                                                                                                                    |  |                                  | 33,645  |                     |                                | (33,610
|                                                                                                                          |  |                                  |         |                     |                                |        
|                                                                                                                          |  | $                                | 116,911 |                     | $                              | (42,399
|                                                                                                                          |  |                                  |         |                     |                                |        
|                                                                                                                          |  |                                  |         |                     |                                |        
|EBITA (before discontinued operations, restructuring charges and the cumulative effect of a change in accounting policy):
|                                                                                                                          |  |                                  |         |                     |                                |        
|United States                                                                                                             |  | $                                | (902    | )                   |                                |        
|Canada                                                                                                                    |  |                                  | (1,452  | )                   |                                |        
|Europe                                                                                                                    |  |                                  | 63      |                     |                                |        
|Mexico                                                                                                                    |  |                                  | 1,610   |                     |                                |        
|                                                                                                                          |  |                                  |         |                     |                                |        
|                                                                                                                          |  |                                  | (681    | )                   |                                |        
|Interest                                                                                                                  |  |                                  | 1,328   |                     |                                |        
|Amortization                                                                                                              |  |                                  | 972     |                     |                                |        
|Restructuring charges (note 8)                                                                                            |  |                                  | 2,484   |                     |                                |        
|                                                                                                                          |  |                                  |         |                     |                                |        
|Loss before income taxes, discontinued operations and the cumulative effect of a change in accounting
policy              |  | $                                | (5,465  | )                   |                                |        
|                                                                                                                          |  |                                  |         |                     |                                |        
|Capital expenditures:                                                                                                     |  |                                  |         |                     |                                |        
|United States                                                                                                             |  | $                                | 35      |                     |                                |        
|Mexico                                                                                                                    |  |                                  |        |                     |                                |        
|                                                                                                                          |  |                                  |         |                     |                                |        
|                                                                                                                          |  | $                                | 35      |                     |                                |        
|                                                                                                                          |  |                                  |         |                     |                                |        



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##### Table of Contents

SMTC CORPORATION



Notes to Consolidated Financial Statements (continued)

(Expressed in
thousands of U.S. dollars, except share quantities and per share amounts)



Three and six months ended June 29, 2003 and June 30, 2002

(Unaudited)

---



7.    Segmented information (continued):

|                                                                  |  | Three months ended June 30, 2002 |         |                     | Six months ended June 30, 2002 |        
|----------------------------------------------------------------- |  | -------------------------------- | ------- | ------------------- | ------------------------------ | -------
|                                                                  |  | Totalrevenue                     |         | Intersegmentrevenue |                                |        
|United States                                                     |  | $                                | 142,588 |                     | $                              | (7,915 
|Canada                                                            |  |                                  | 29,341  |                     |                                | (3,893 
|Europe                                                            |  |                                  | 1,579   |                     |                                | (266   
|Mexico                                                            |  |                                  | 42,164  |                     |                                | (42,009
|                                                                  |  |                                  |         |                     |                                |        
|                                                                  |  | $                                | 215,672 |                     | $                              | (54,083
|                                                                  |  |                                  |         |                     |                                |        
|                                                                  |  |                                  |         |                     |                                |        
|EBITA (before discontinued operations and restructuring charges): |  |                                  |         |                     |                                |        
|United States                                                     |  |                                  |         |                     |                                |        
|Canada                                                            |  |                                  |         |                     |                                |        
|Europe                                                            |  |                                  |         |                     |                                |        
|Mexico                                                            |  |                                  |         |                     |                                |        
|                                                                  |  |                                  |         |                     |                                |        
|                                                                  |  |                                  |         |                     |                                |        
|Interest                                                          |  |                                  |         |                     |                                |        
|Amortization                                                      |  |                                  |         |                     |                                |        
|                                                                  |  |                                  |         |                     |                                |        
|Loss before income taxes, and discontinued operations             |  |                                  |         |                     |                                |        
|                                                                  |  |                                  |         |                     |                                |        
|Capital expenditures:                                             |  |                                  |         |                     |                                |        
|United States                                                     |  |                                  |         |                     |                                |        
|Canada                                                            |  |                                  |         |                     |                                |        
|Europe                                                            |  |                                  |         |                     |                                |        
|Mexico                                                            |  |                                  |         |                     |                                |        
|                                                                  |  |                                  |         |                     |                                |        
|                                                                  |  |                                  |         |                     |                                |        
|                                                                  |  |                                  |         |                     |                                |        





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##### Table of Contents

SMTC CORPORATION



Notes to Consolidated Financial Statements (continued)

(Expressed in
thousands of U.S. dollars, except share quantities and per share amounts)



Three and six months ended June 29, 2003 and June 30, 2002

(Unaudited)

---



7.    Segmented information (continued):



The following enterprise-wide information is provided. Geographic revenue
information reflects the destination of the product shipped. Long-lived assets information is based on the principal location of the asset.



|                    |  | Three months ended |        | Six months ended
|------------------- |  | ------------------ | ------ | ----------------
|                    |  | June 29,2003       |        | June 30,2002    
|Geographic revenue: |  |                    |        |                 
|United States       |  | $                  | 61,041 |                 
|Canada              |  |                    | 6,938  |                 
|Europe              |  |                    | 2,611  |                 
|Asia                |  |                    | 1,779  |                 
|Mexico              |  |                    | 2,143  |                 
|                    |  |                    |        |                 
|                    |  | $                  | 74,512 |                 
|                    |  |                    |        |                 
|                    |  |                    |        |                 
|                    |  |                    |        |                 
|Long-lived assets:  |  |                    |        |                 
|United States       |  |                    |        |                 
|Canada              |  |                    |        |                 
|Mexico              |  |                    |        |                 
|                    |  |                    |        |                 
|                    |  |                    |        |                 
|                    |  |                    |        |                 



The Company
manufactures a limited number of products for each customer. If the Company loses any of its largest customers or any product line manufactured for one of its largest customers, it could experience a significant reduction in revenue. Also, the
insolvency of one or more of its largest customers or the inability of one or more of its largest customers to pay for its orders could decrease revenue. As many costs and operating expenses are relatively fixed, a reduction in net revenue can
decrease profit margins and adversely affect business, financial condition and results of operations.



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##### Table of Contents

SMTC CORPORATION



Notes to Consolidated Financial Statements (continued)

(Expressed in
thousands of U.S. dollars, except share quantities and per share amounts)



Three and six months ended June 29, 2003 and June 30, 2002

(Unaudited)

---



8.    Restructuring and other charges:



2001 Restructuring Plan:



During fiscal year 2001, in response to excess capacity caused by the
slowing technology end market, the Company commenced a restructuring program aimed at reducing its cost structure. The following table details the related amounts included in accrued liabilities as at June 29, 2003 relating to the 2001 plan:



|                                     |  | Accrual atMarch 30,2003 |       | Cashpayments |   |      | Accrual atJune 29,2003
|------------------------------------ |  | ----------------------- | ----- | ------------ | - | ---- | ----------------------
|Lease and other contract obligations |  | $                       | 1,327 |              | $ | (256 | )                     
|Other facility exit costs            |  |                         | 409   |              |   | (126 | )                     
|                                     |  |                         |       |              |   |      |                       
|                                     |  |                         | 1,736 |              | $ | (382 | )                     
|                                     |  |                         |       |              |   |      |                       



2002 Restructuring
Plan:



In response to the continuing industry economic
downturn, the Company took further steps to realign its cost structure and plant capacity and in the third and fourth quarter of 2002 recorded restructuring charges of $37,444 related to the cost of exiting equipment and facility leases, severance
costs, asset impairment charges, inventory exposures and other facility exit costs and other charges of $2,135 primarily related to the costs associated with the disengagement of a customer and the continued downturn.



The Company recorded further charges related to the 2002 plan during the
first and second quarters of 2003 of $239 and $3,672, respectively. The Company is currently in discussions to sell its Appleton, Wisconsin manufacturing operations while retaining its design and engineering capabilities at this site. Accordingly, a
restructuring charge of $3,226 was recorded reflecting the write-down of the Appleton assets to the estimated realizable value. The balance of the restructuring charges related to lease and other contract obligations of $122 and severance costs of
$563, associated with the closure and resizing of facilities . The severance costs related to 110 plant and operational employees, primarily at the Austin and Mexico facilities. Also during the second quarter of 2003 the Company recorded adjustments
to its initial 2002 restructuring plan accrual for lease and other contract obligations and other facility exit costs of $661 and $303, respectively, due to the Company settling certain obligations for less than the original estimated amounts. The
Company also recorded a gain of $224 related to the disposal of assets previously written down at the Donegal and Austin facilities.



In light of the Companys plan to lower its bank indebtedness, it requested that certain shareholder loans be repaid prior to the expiration of the
term. Accordingly, during the second quarter of 2003 the Company recorded a discount of $389 on the prepayment of shareholder loans that had a carrying value of $4,184, resulting in net proceeds of $3,795.



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##### Table of Contents

SMTC CORPORATION



Notes to Consolidated Financial Statements (continued)

(Expressed in
thousands of U.S. dollars, except share quantities and per share amounts)



Three and six months ended June 29, 2003 and June 30, 2002

(Unaudited)

---



8.    Restructuring and other charges (continued):



The following table details the components of the restructuring and other
charges related to the 2002 restructuring plan:



|                                                                       |  | Three monthsendedJune 29, 2003 |       |   | Six monthsendedJune 29, 2003 |  
|---------------------------------------------------------------------- |  | ------------------------------ | ----- | - | ---------------------------- | -
|Lease and other contract obligations                                   |  | $                              | 122   |   |                              | $
|Adjustment of previously recorded lease and other contract obligations |  |                                | (661  | ) |                              |  
|Severance                                                              |  |                                | 324   |   |                              |  
|Adjustment to other facility exit costs                                |  |                                | (303  | ) |                              |  
|Asset impairment charge                                                |  |                                | 3,226 |   |                              |  
|Proceeds on assets previously written down                             |  |                                | (224  | ) |                              |  
|                                                                       |  |                                |       |   |                              |  
|                                                                       |  | $                              | 2,484 |   |                              | $
|Discount on prepayment of shareholder loans                            |  |                                | 389   |   |                              |  
|                                                                       |  |                                |       |   |                              |  
|                                                                       |  | $                              | 2,873 |   |                              | $
|                                                                       |  |                                |       |   |                              |  



The following table
details the related amounts included in accrued liabilities as at June 29, 2003 related to the 2002 plan:



|                                     |  | Accrual atMarch 31,2003 |        | 2003charges |   | 2003adjustments |  |   | Cashpayments |   |  | Accrual atJune 29,2003
|------------------------------------ |  | ----------------------- | ------ | ----------- | - | --------------- |  | - | ------------ | - |  | ----------------------
|Lease and other contract obligations |  | $                       | 15,961 |             | $ | 122             |  | $ | (661         | ) |  | $                     
|Severance                            |  |                         | 893    |             |   | 324             |  |   |             |   |  |                       
|Other facility exit costs            |  |                         | 1,509  |             |   |                |  |   | (303         | ) |  |                       
|                                     |  |                         |        |             |   |                 |  |   |              |   |  |                       
|                                     |  | $                       | 18,363 |             | $ | 446             |  | $ | (964         | ) |  | $                     
|                                     |  |                         |        |             |   |                 |  |   |              |   |  |                       



9.    Discontinued Operations:



In February 2002, the main customer of the Cork, Ireland facility was placed into administration as part of a financial restructuring. As a result, on March 19, 2002, the Company announced that it was closing the Cork, Ireland facility and
that it was taking steps to place the subsidiary that operated that facility in voluntary administration. During the first quarter of 2002, the Company recorded a charge of $9,717 related to the closure of the facility.



19



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##### Table of Contents

SMTC CORPORATION



Notes to Consolidated Financial Statements (continued)

(Expressed in
thousands of U.S. dollars, except share quantities and per share amounts)



Three and six months ended June 29, 2003 and June 30, 2002

(Unaudited)

---



9.    Discontinued Operations (continued):



The following information relates to the discontinued operations:



|                                  |  | Three months ended |   | Six months ended
|--------------------------------- |  | ------------------ | - | ----------------
|                                  |  | June 29,2003       |   | June 30,2002    
|Revenue                           |  | $                  |  |                 
|                                  |  |                    |   |                 
|Loss from discontinued operations |  | $                  |  |                 
|                                  |  |                    |   |                 



In 2002, the loss from
discontinued operations includes the costs of closing the facility of $9,717. Included in this amount are the write-off of the net assets of $6,717 (comprised of capital assets of $1,129 and net working capital of $5,588) and other costs associated
with exiting the facility of $3,000. Included in the other costs is severance of $1,350 related to the termination of all employees.



The following table details the related amounts included in accrued liabilities as at June 29, 2003:



|          |  | Accrual atMarch 31,2003 |     | Cashpayments |   | Accrual atJune 29,2003
|--------- |  | ----------------------- | --- | ------------ | - | ----------------------
|Severance |  | $                       | 188 |              |  |                       
|          |  |                         |     |              |   |                       



10.    Goodwill
and Intangible Assets:



In July 2001, the FASB issued
Statement No. 141, Business Combinations (Statement 141), and Statement No. 142, Goodwill and Other Intangible Assets (Statement 142). Statement 141 requires that the purchase method of accounting be used for all business
combinations. Statement 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. Statement 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 also requires that intangible assets with definite useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with Statement 144. Upon adoption of Statements 141 and 142 in their entirety on January 1, 2002, the Company determined that there
were no



20



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##### Table of Contents

SMTC CORPORATION



Notes to Consolidated Financial Statements (continued)

(Expressed in
thousands of U.S. dollars, except share quantities and per share amounts)



Three and six months ended June 29, 2003 and June 30, 2002

(Unaudited)

---



10.    Goodwill and Intangible Assets (continued):



intangible assets relating to previous acquisitions that need to be
reclassified and accounted for apart from goodwill under the provisions of those Statements.



In connection with the transitional goodwill impairment evaluation, Statement 142 required the Company to perform an assessment of whether there was an indication that goodwill was impaired as of January 1, 2002. To
accomplish this, the Company was required to identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill to those reporting units as of January 1,
2002. The Company identified its reporting units to be consistent with its business units, as defined in note 7, with the exception of the Boston, Massachusetts facility. This facility is not economically similar to the other U.S. facilities and as
a result, is a separate reporting unit. In connection with the implementation of the new accounting standards, the Company completed the transitional goodwill impairment test, resulting in a goodwill impairment charge of $55,560, which comprises the
goodwill in the Canadian, U.S. and Boston reporting units of $15,482, $26,698 and $13,380, respectively. The fair value of each reporting unit was determined using a discounted cash flow method. The transitional impairment loss was recognized as the
cumulative effect of a change in accounting principle in the Companys statements of operations as at January 1, 2002.



11.    Guarantees:



Contingent liabilities in the form of letters of credit and letters of guarantee are provided to certain third parties, which cover payments for certain
purchases. The total amount of future payments to be made under these guarantees is $858.



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##### Table of Contents

ITEM 2:    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



SELECTED CONSOLIDATED FINANCIAL DATA



The consolidated financial statements and our selected consolidated financial data have been prepared in accordance with United States GAAP.



Consolidated Statement of Operations Data:

(in millions, except per share amounts)



(Unaudited)



|                                                                                                             |  | Three months ended |       |   | Six months ended |  
|------------------------------------------------------------------------------------------------------------ |  | ------------------ | ----- | - | ---------------- | -
|                                                                                                             |  | June 29, 2003      |       |   | June 30, 2002    |  
|Revenue                                                                                                      |  | $                  | 74.5  |   |                  | $
|Cost of sales                                                                                                |  |                    | 69.6  |   |                  |  
|                                                                                                             |  |                    |       |   |                  |  
|Gross profit                                                                                                 |  |                    | 4.9   |   |                  |  
|Selling, general and administrative expenses                                                                 |  |                    | 5.2   |   |                  |  
|Amortization                                                                                                 |  |                    | 1.0   |   |                  |  
|Restructuring and other charges (a)                                                                          |  |                    | 2.9   |   |                  |  
|                                                                                                             |  |                    |       |   |                  |  
|Operating income (loss)                                                                                      |  |                    | (4.2  | ) |                  |  
|Interest                                                                                                     |  |                    | 1.3   |   |                  |  
|                                                                                                             |  |                    |       |   |                  |  
|Loss before income taxes, discontinued operations and the cumulative effect of a change in accounting policy |  |                    | (5.5  | ) |                  |  
|Income tax expense (recovery) (b)                                                                            |  |                    | 34.4  |   |                  |  
|                                                                                                             |  |                    |       |   |                  |  
|Loss from continuing operations                                                                              |  |                    | (39.9 | ) |                  |  
|Loss from discontinued operations (c)                                                                        |  |                    |      |   |                  |  
|Cumulative effect in a change in accounting policy (d)                                                       |  |                    |      |   |                  |  
|                                                                                                             |  |                    |       |   |                  |  
|Net loss                                                                                                     |  |                    | (39.9 | ) |                  | $
|                                                                                                             |  |                    |       |   |                  |  
|Net loss per common share: Basic from continuing operations                                                  |  | $                  | (1.39 | ) |                  | $
|Loss from discontinued operations                                                                            |  |                    |      |   |                  |  
|Cumulative effect of a change in accounting policy                                                           |  |                    |      |   |                  |  
|                                                                                                             |  |                    |       |   |                  |  
|Basic                                                                                                        |  | $                  | (1.39 | ) |                  | $
|Diluted                                                                                                      |  | $                  | (1.39 | ) |                  | $
|                                                                                                             |  |                    |       |   |                  |  
|Weighted average number of shares outstanding:                                                               |  |                    |       |   |                  |  
|Basic                                                                                                        |  |                    | 28.7  |   |                  |  
|Diluted                                                                                                      |  |                    | 28.7  |   |                  |  
|                                                                                                             |  |                    |       |   |                  |  



22



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##### Table of Contents

Consolidated Statement of Operations Data (continued):

(in millions, except per share amounts)



|(a) |  | In response to the continuing industry economic downturn during 2002, the Company took further steps to realign its cost structure and plant capacity and in the third and fourth
quarter of 2002 recorded restructuring charges of $37.4 million related to the costs associated with exiting or re-sizing facilities, and other charges of $2.1 million related to inventory charges resulting from its disengagement as a supplier to
Dell, coupled with the effects of the continued downturn in the technology sector. The Company recorded further charges related to the 2002 plan during the first and second quarters of 2003 of $0.2 million and $3.7 million, respectively. The Company
is currently in discussions to sell its Appleton, Wisconsin manufacturing operations while retaining its design and engineering capabilities at this site. Accordingly, a restructuring charge of $3.2 million was recorded reflecting the write-down of
the Appleton assets to the estimated realizable value. The balance of the restructuring charges related to lease and other contract obligations of $0.1 million and severance costs of $0.6 million, associated with the closure and resizing of
facilities. Also during the second quarter of 2003, the Company recorded adjustments to its initial 2002 restructuring plan accrual for lease and other contract obligations and other facility exit costs of $1.0 million due to the Company settling
certain obligations for less than the original estimated amounts. The Company also recorded a gain of $0.2 million related to the disposal of assets previously written down at the Donegal and Austin facilities. Also, during the second quarter of
2003, the Company recorded a discount of $0.4 million on the prepayment of shareholder loans. Refer to note 8 to our consolidated financial statements.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) |  | During the second quarter of 2003 the Company performed its quarterly review of its deferred tax assets in accordance with SFAS No. 109. This review resulted in a decision to
establish a full valuation allowance of for its deferred tax assets . Refer to note 10 to our consolidated financial statements.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) |  | In February, 2002 the main customer of the Cork, Ireland facility was placed into administration as part of a financial restructuring. As a result, on March 19, 2002, the Company
announced that it was closing the Cork, Ireland facility and that it was taking steps to place the subsidiary that operated that facility in voluntary administration. Refer to note 9 to our consolidated financial statements.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(d) |  | During 2002, the Company completed its transitional goodwill impairment test resulting in a goodwill impairment charge of $55.6 million. Prior to January 1, 2002, goodwill was
amortized on a straight-line basis over 10 years. Effective January 1, 2002, the Company discontinued amortization of all existing goodwill as a result of a new accounting standard issued in 2001. Refer to note 10 to our consolidated financial
statements.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Consolidated Balance Sheet Data:



|(in millions)                            |  | June 29, 2003 |       |   | December 31, 2002 |  
|---------------------------------------- |  | ------------- | ----- | - | ----------------- | -
|                                         |  | (Unaudited)   |       |   |                   |  
|Cash                                     |  | $             | 0.3   |   |                   | $
|Working capital (deficiency)             |  |               | (18.4 | ) |                   |  
|Total assets                             |  |               | 120.2 |   |                   |  
|Total debt, including current maturities |  |               | 67.2  |   |                   |  
|Shareholders equity (deficit)           |  |               | (21.9 | ) |                   |  



23



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##### Table of Contents

Managements Discussion and Analysis of Financial Condition and Results of Operations



Overview



We provide advanced electronics manufacturing services, or EMS, to electronics industry original equipment manufacturers, or
OEMs, primarily in the networking, industrial and communications market segments. We currently service our customers through five manufacturing and technology centers strategically located in key technology corridors in the United States, Canada and
the cost-effective location of Mexico. Our full range of value-added supply chain services include product design, procurement, prototyping, advanced cable and harness interconnect, high-precision enclosures, printed circuit board assembly, test,
final system build, comprehensive supply chain management, packaging, global distribution and after sales support.



During fiscal year 2001, in response to excess capacity caused by the slowing technology end market, we commenced a restructuring program aimed at
reducing our cost structure. Actions taken by management to improve capacity utilization included closing our Denver, Colorado assembly facility and our Haverhill, Massachusetts interconnect facility, re-sizing our Mexico and Ireland facilities and
addressing our excess equipment. Accordingly, we recorded restructuring charges of $67.2 million pre-tax (consisting of a write-down of goodwill and other intangible assets and the costs associated with exiting or re-sizing facilities) and other
charges of $27.2 million pre-tax (consisting of accounts receivable, inventory and asset impairment charges).



In response to the continuing industry economic downturn in 2002, the Company took further steps to realign its cost structure and plant capacity. In
February, 2002 the main customer of our Cork, Ireland facility was placed into administration as part of a financial restructuring. As a result, on March 19, 2002, we announced that we were closing our Cork, Ireland facility and that we were taking
steps to place the subsidiary that operated that facility in voluntary administration. During the first quarter of 2002, we recorded a charge of $9.7 million related to the closure of the Cork facility, which is included in the loss for discontinued
operations. Prior to taking steps to place the subsidiary that operated the Cork facility in voluntary liquidation, we and our lending group executed an amendment to our credit facility to waive the default that would have been caused by this action
and amend the agreement to permit such facility closure.



We
also made the decision to close our interconnect facility in Donegal, Ireland, primarily due to decreased revenues generated by that facility as a result of customer losses and reduced volume with existing customers. We ceased manufacturing at our
Donegal site during the second quarter of 2003. Additionally, we have concluded that operations at our Austin, Texas location have become too expensive to justify continued operation. We ceased manufacturing at our Austin site during the first
quarter of 2003. The Company decided it would close its facility in Charlotte, North Carolina during the second quarter of 2003, which corresponded to the expiration of the facility lease. We ceased manufacturing at our Charlotte site at the end of
the second quarter of 2003.



The Company recorded during the
third and fourth quarters of 2002 restructuring charges of $37.4 million related the cost of exiting the Donegal and Austin facilities and right-sizing the San Jose, California, Charlotte, North Carolina, Chihuahua, Mexico and Markham, Ontario
facilities, including the cost of exiting equipment leases and facility leases, severance costs, asset impairment charges and inventory exposures and other charges of $2.1 million related to inventory charges resulting from the disengagement of
Dell, coupled with the effects of the continued downturn in the technology sector.



The Company recorded further charges related to the 2002 plan during the first and second quarters of 2003 of $0.2 million and $3.7 million, respectively. The Company is currently in discussions to sell its Appleton,
Wisconsin manufacturing operations while retaining its design and engineering capabilities at this site. Accordingly, a restructuring charge of $3.2 million was recorded reflecting the write-down of the Appleton assets to the estimated realizable
value. The balance of the restructuring charges related to lease and other contract obligations of $0.1 million and severance costs of $0.6 million, associated with the closure and resizing of facilities. Also during the second quarter of 2003 the
Company recorded adjustments to its initial 2002 restructuring plan accrual for lease and other contract obligations and other facility exit costs of $1.0 million due to the Company settling certain obligations for less than the original estimated
amounts. The Company also recorded a gain of $0.2 million related to the disposal of assets previously written down at the Donegal and Austin facilities. In light of the Companys plan to lower its bank indebtedness, it requested that certain
shareholder loans be repaid prior to the expiration of the term. Accordingly, during the second quarter of 2003



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the Company recorded a discount of $0.4 million on the prepayment of shareholder loans, that had a carrying value of $4.2
million, resulting in net proceeds of $3.8 million.



Management
has been reviewing the valuation of its assets, and in particular, in assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Management considers the scheduled reversal of deferred tax liabilities, change of control limitations, projected future taxable income and
tax planning strategies in making this assessment. FAS 109 states that forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years in the jurisdictions to which
the deferred tax asset relate. As a result of the quarterly review undertaken at the end of the second quarter, the Company concluded that given the weakness and uncertainty in the current economic environment, it was appropriate to establish a full
valuation allowance for the deferred tax assets arising from its operations in the jurisdictions to which the deferred tax assets relate.



As a result of restructuring actions and market conditions we incurred a significant operating loss during 2001, which resulted in our non-compliance with
certain financial covenants contained in our credit agreement as at September 30, 2001. The Company and its lenders entered into a term sheet under which the Company operated until February 2002, when we and our lending group executed an amendment
to our credit facility to waive the September 30, 2001 defaults and to revise the covenant tests to be consistent with both then-current revenues and the forecast for 2002.



The Company and its lending group agreed in April 2002 to further amend the credit agreement to increase the Companys
permitted loan balances to correspond to its higher working capital needs.



The Company and its lending group further amended the credit agreement effective as of December 31, 2002, which was prior to the date on which the Company was to revert back to the covenants under the original credit
agreement, to revise certain covenants and waive certain defaults under the credit agreement. The revised terms of the credit agreement establish amended financial and other covenants covering the period up to June 30, 2004, based on the
Companys December 2002 business plan. (See Liquidity and Capital Resources)



The Company was in compliance with the amended financial covenants at June 29, 2003. Continued compliance with the amended financial covenants through June 30, 2004 is dependent on the Company achieving the forecasts
inherent in its current business plan. The forecasts are dependent on a number of factors, many of which are outside the control of the Company. These include, but are not limited to, general economic conditions and specifically the strength of the
electronics industry and the related demand for the products and services by the Companys customers. In the event of non-compliance, the Companys lenders have the ability to demand repayment of the outstanding amounts under the amended
credit facility.



The Companys revolving credit facility
matures in July 2004 and accordingly as at June 29, 2003, this amount has been classified as a long-term liability. The Company has a number of initiatives underway to refinance its bank indebtedness including discussions with current and potential
lenders and investors. To date no agreements have been reached and there can be no assurances that such agreements will be reached. Should the Company not be able to refinance the debt prior to July 30, 2004, the Company expects that it will be
unable to repay the full amount of the debt upon maturity. In that event, the Company expects to initiate negotiations with its current lenders to modify the terms of the loan agreement. There can be no assurances that the Company will be able to
negotiate or reach an agreement with its current lenders to modify the terms of the loan agreement.



Corporate History



SMTC
Corporation is the result of the July 1999 combination of the former SMTC Corporation, or Surface Mount, and HTM Holdings, Inc., or HTM. Surface Mount was established in Toronto, Ontario in 1985. HTM was established in Denver, Colorado in 1990. SMTC
was established in Delaware in 1998. After the combination, we purchased Zenith Electronics facility in Chihuahua, Mexico, which expanded our cost-effective manufacturing capabilities in an important geographic region. In September 1999, we
established a manufacturing presence in the Northeastern United States and expanded our value-added services to include high precision enclosure capabilities by acquiring Boston, Massachusetts based W.F. Wood. In July 2000, we acquired Pensar
Corporation, an EMS company specializing in design engineering and headquartered in



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Appleton, Wisconsin. In November 2000, we acquired Qualtron Teoranta, a provider of specialized cable and harness
interconnect assemblies, based in Donegal, Ireland and with a subsidiary in Haverhill, Massachusetts.



On July 27, 2000, we consummated an initial public offering of 6,625,000 shares of our common stock and 4,375,000 exchangeable shares of our subsidiary
SMTC Manufacturing Corporation of Canada, or SMTC Canada. Each exchangeable share of SMTC Canada is exchangeable at the option of the holder at any time into one share of our common stock, subject to compliance with applicable securities laws. On
August 18, 2000, we sold an additional 1,650,000 shares of common stock upon exercise of the underwriters over-allotment option.



Results of Operations



We currently provide turnkey manufacturing services to the majority of our customers. Turnkey manufacturing services typically result in higher revenue
and higher gross profits but lower gross profit margins when compared to consignment services.



Our contractual arrangements with our key customers generally provide a framework for our overall relationship with our customer. Revenue is recognized upon shipment to the customer as performance has occurred, all
customer specified acceptance criteria have been tested and met, and the earnings process is considered complete. Actual production volumes are based on purchase orders for the delivery of products. These orders typically do not commit to firm
production schedules for more than 30 to 90 days in advance. In order to minimize inventory risk, we generally order materials and components only to the extent necessary to satisfy existing customer forecasts or purchase orders. Fluctuations in
material costs are typically passed through to customers. We may agree, upon request from our customers, to temporarily delay shipments, which causes a corresponding delay in our revenue recognition.



Our fiscal year end is December 31. The consolidated financial statements of
SMTC, are prepared in accordance with United States GAAP.



The
following table sets forth certain operating data expressed as a percentage of revenue for the periods ended:



(Unaudited)

|                                                                                                             |  | Three months ended |    |  | Six months ended |   
|------------------------------------------------------------------------------------------------------------ |  | ------------------ | -- |  | ---------------- | --
|                                                                                                             |  | June 29, 2003      |    |  | June 30, 2002    |   
|Revenue                                                                                                      |  | 100                | %  |  | 100              | % 
|Cost of sales                                                                                                |  | 93.4               |    |  | 95.7             |   
|                                                                                                             |  |                    |    |  |                  |   
|Gross profit                                                                                                 |  | 6.6                |    |  | 4.3              |   
|Selling, general and administrative expenses                                                                 |  | 7.0                |    |  | 3.8              |   
|Amortization                                                                                                 |  | 1.4                |    |  | 0.4              |   
|Restructuring charges                                                                                        |  | 3.9                |    |  |                 |   
|                                                                                                             |  |                    |    |  |                  |   
|Operating income (loss)                                                                                      |  | (5.7               | )  |  | 0.1              |   
|Interest                                                                                                     |  | 1.7                |    |  | 1.5              |   
|                                                                                                             |  |                    |    |  |                  |   
|Loss before income taxes, discontinued operations and the cumulative effect of a change in accounting policy |  | (7.4               | )  |  | (1.4             | ) 
|Income tax expense (recovery)                                                                                |  | 46.2               |    |  | (0.3             | ) 
|                                                                                                             |  |                    |    |  |                  |   
|Loss from continuing operations                                                                              |  | (53.6              | )  |  | (1.1             | ) 
|Loss from discontinued operations                                                                            |  |                   |    |  |                 |   
|Cumulative effect of a change in accounting policy                                                           |  |                   |    |  |                 |   
|                                                                                                             |  |                    |    |  |                  |   
|Net Loss                                                                                                     |  | (53.6              | )% |  | (1.1             | )%
|                                                                                                             |  |                    |    |  |                  |   



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Quarter ended June 29, 2003 compared to the quarter ended June 30, 2002



Revenue



Revenue decreased $87.1 million, or 53.9%, from $161.6 million in the second
quarter of 2002 to $74.5 million in the second quarter of 2003 due to the Companys decision to terminate its supply agreement with Dell during 2002 and to a reduction in revenue earned from IBM, Alcatel and other customers due to the continued
economic slowdown. During the second quarter of 2002, the Company informed Dell of its intention to terminate its supply agreement and to end production over the third quarter of 2002. The Companys decision was taken after a review of the
Companys return on capital requirements indicated that the customers programs were not generating sufficient returns and, at the same time, were utilizing a disproportionate amount of working capital.



During the second quarter of 2003, we recorded approximately $2.3 million of
sales of raw materials inventory to customers, which carried no margin, compared to $8.0 million of such sales for the same period in 2002.



Revenue from the IBM program of $20.2 million and Ingenico of $10.0 million for the second quarter of 2003 was 27.2% and 13.4%, respectively, of total
revenue for the period. Revenue from Dell of $40.2 million, IBM of $26.1 million and Alcatel of $16.2 million for the second quarter of 2002 was 24.9%, 16.2% and 10.0%, respectively, of total revenue for the period. No other customers represented
more than 10% of revenue in either period.



In the second
quarter of 2003, 40.4% of our revenue was generated from operations in Mexico, 34.4% from the United States, 24.0% from Canada and 1.2% from Europe. In the second quarter of 2002, 60.1% of our revenue was generated from operations in the United
States, 24.3% from Mexico, 14.7% from Canada, and 0.9% from Europe. We expect to continue to increase the portion of revenue attributable to our Chihuahua and Markham facilities, with the transfer of certain production from other facilities. We
terminated manufacturing in Europe during the second quarter of 2003. Additionally, we expect to begin having products manufactured for us in China by the end of fiscal year 2003.



Gross Profit



Gross profit decreased $2.1 million from $7.0 million, or 4.3% of revenue, for the second quarter of 2002 to $4.9 million, or 6.6% of revenue, for the
second quarter of 2003. The decline in gross profit is primarily a result of lower sales, offset by the positive effect of changes in customer mix. The improvement in gross profit margin percentage reflects the focus on higher margin sectors coupled
with improved manufacturing efficiencies as we realize the benefits from our restructuring initiatives.



The Company writes down estimated obsolete or excess inventory for the difference between the cost of inventory and estimated market value based upon
customer forecasts, shrinkage, the aging and future demand of the inventory, past experience with specific customers and the ability to sell back inventory to customers or suppliers. If these estimates change, additional write-downs may be required.



Selling, General & Administrative Expenses



Selling, general and administrative expenses decreased
$1.0 million from $6.2 million, or 3.8% of revenue, for the second quarter of 2002 to $5.2 million, or 7.0% of revenue, for the second quarter of 2003. The reduction in selling, general and administrative expenses is due to the closure of our
Donegal and Austin facilities and to our continued focus on reducing selling, general and administrative expenses at each operating site. The increase in selling, general and administrative expenses as a percentage of revenue is a result of the
lower sales base.



Amortization



Amortization of intangible assets of $1.0 million for the second quarter of
2003 represents the amortization of deferred finance costs related to the establishment of our senior credit facility in July 2000 and



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subsequent amendments. The costs associated with our amended and restated senior credit facility are being amortized over
the remaining term of the debt.



Amortization of intangible
assets of $0.6 million for the second quarter of 2002 included the amortization of $0.5 million of deferred finance costs related to the establishment of our senior credit facility in July 2000 and subsequent amendments, and $0.1 million of deferred
equipment lease costs.



Restructuring Charges



During fiscal year 2001, in response to excess capacity
caused by the slowing technology end market, the Company commenced a restructuring program aimed at reducing its cost structure. In response to the continuing industry economic downturn, the Company took further steps to realign its cost structure
and plant capacity and in the third and fourth quarter of 2002 recorded restructuring charges of $37.4 million related to the cost of exiting equipment and facility leases, severance costs, asset impairment charges, inventory exposures and other
facility exit costs and other charges of $2.1 million primarily related to the costs associated with the disengagement of a customer and the continued downturn.



The Company recorded further charges related to the 2002 plan during the first and second quarters of 2003 of $0.2 million and $4.8 million,
respectively. The Company is currently in discussions to sell its Appleton, Wisconsin manufacturing operations while retaining its design and engineering capabilities at this site. Accordingly, a restructuring charge of $3.2 million was recorded
reflecting the write-down of the Appleton assets to the estimated realizable value. The balance of the restructuring charges related to lease and other contract obligations of $0.1 million and severance costs of $0.6 million, associated with the
closure and resizing of facilities. Also during the second quarter of 2003 the Company recorded adjustments to its initial 2002 restructuring plan accrual for lease and other contract obligations and other facility exit costs of $1.0 million due to
the Company settling certain obligations for less than the original estimated amounts. The Company also recorded a gain of $0.2 million related to the disposal of assets previously written down at the Donegal and Austin facilities.



The Company expects the majority of the remaining restructuring accruals as
at June 29, 2003 of $1.4 million relating to the 2001 restructuring program and $14.1 million relating to the 2002 restructuring program to be paid by the end of fiscal year 2004.



In light of the Companys plan to lower its bank indebtedness, it requested that certain shareholder loans be repaid
prior to the expiration of the term. Accordingly, during the second quarter of 2003, the Company recorded a discount of $0.4 million on the prepayment of shareholder loans that had a carrying value of $4.2 million, resulting in net proceeds of $3.8
million.



Interest Expense



Interest expense decreased $1.1 million from $2.4 million for the second
quarter of 2002 to $1.3 million, for the second quarter of 2003 due to lower average debt outstanding during the second quarter of 2003 and coupled with lower interest rates. The weighted average interest rates with respect to the debt for the
second quarter of 2003 and 2002 were 7.1% and 7.2%, respectively.



Income Tax Expense



In assessing the
realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income. Management considers the scheduled reversal of deferred tax liabilities, change of control limitations, projected future taxable income and tax planning strategies in making this assessment. FAS 109 states that forming a
conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years in the jurisdictions to which the deferred tax assets relate. As a result of the quarterly review undertaken
at the end of the second quarter, the Company concluded that given the weakness and uncertainty in the current economic environment, it was appropriate to establish a full valuation allowance for the deferred tax assets arising from its operations
in the jurisdictions to which the deferred tax assets relate. As a result, the total valuation allowance for deferred tax assets in all jurisdictions worldwide increased from approximately $35.0 million at December 31, 2002 to approximately $71.0
million at June 29, 2003, resulting in income tax expense during the quarter



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ended June 29, 2003, of approximately $34.2 million. In addition the Company expects to provide a full valuation
allowance on future tax benefits until it can demonstrate a sustained level of profitability that establishes its ability to utilize the assets in the jurisdictions to which the assets relate.



For the second quarter of 2002 an income tax recovery of $0.4 million was
recorded on a pre-tax loss before discontinued operations and the cumulative effect of a change in accounting policy of $2.2 million resulting in an effective tax recovery rate of 18.2%, as losses in certain jurisdictions were not tax effected due
to the uncertainty of our ability to utilize such losses.



Six months ended
June 29, 2003 compared to the six months ended June 30, 2002



Revenue



Revenue decreased $140.0 million, or
46.6%, from $300.5 million for the first six months of 2002 to $160.5 million for the same period in 2003 due to the Companys decision to terminate its supply agreement with Dell during 2002 and to a reduction in revenue earned from IBM,
Alcatel and other customers due to the continued economic slowdown. During the second quarter of 2002, the Company informed Dell of its intention to terminate its supply agreement and to end production over the third quarter of 2002. The
Companys decision was taken after a review of the Companys return on capital requirements indicated that the customers programs were not generating sufficient returns and, at the same time, were utilizing a disproportionate amount
of working capital.



During the first six months of 2003, we
recorded approximately $4.7 million of sales of raw materials inventory to customers, which carried no margin, compared to $17.9 million of such sales for the same period in 2002.



Revenue from the IBM program of $37.7 million, Alcatel of $18.9 million and Ingenico of $18.4 million for first six months
of 2003 was 23.5%, 11.8% and 11.5%, respectively, of total revenue for the period. Revenue from IBM of $62.5 million, Dell of $52.3 million and Alcatel of $36.0 million for the first six months of 2002 was 20.8%, 17.4% and 12.0%, respectively, of
total revenue for the period. No other customers represented more than 10% of revenue in either period.



In the first six months of 2003, 40.4% of our revenue was generated from operations in the United States, 35.7% from Mexico, 22.4% from Canada and 1.5%
from Europe. In the first six months of 2002, 55.7% of our revenue was generated from operations in the United States, 29.6% from Mexico, 13.8% from Canada, and 0.9% from Europe. We expect to continue to increase the portion of revenue attributable
to our Chihuahua and Markham facilities, with the transfer of certain production from other facilities. We terminated manufacturing in Europe during the second quarter of 2003. Additionally, we expect to begin having products manufactured for us in
China by the end of fiscal year 2003.



Gross Profit



Gross profit decreased $0.7 million from $13.7 million,
or 4.6% of revenue, for first six months of 2002 to $13.0 million, or 8.1% of revenue, for the same period in 2003. The decline in gross profit is the primarily a result of the lower sales, offset by the positive effect of changes in customer mix.
The improvement in gross profit margin percentage reflects the focus on higher margin sectors coupled with improved manufacturing efficiencies as we realize the benefits from our restructuring initiatives.



The Company writes down estimated obsolete or excess inventory for the
difference between the cost of inventory and estimated market value based upon customer forecasts, shrinkage, the aging and future demand of the inventory, past experience with specific customers and the ability to sell back inventory to customers
or suppliers. If these estimates change, additional write-downs may be required.



Selling, General & Administrative Expenses



Selling, general and administrative expenses decreased $2.8 million from $13.3 million, or 4.5% of revenue, for the first six months of 2002 to $10.5 million, or 6.5% of revenue, for the same period in 2003. The
reduction in selling, general and administrative expenses is a result of closing our Austin and Donegal facilities and our continued focus on reducing selling, general and administrative expenses at each operating site. The



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increase in selling, general and administrative expenses as a percentage of revenue is a result of the lower sales base.



Amortization



Amortization of intangible assets of $2.0 million for the first six months
of 2003 represents the amortization of deferred finance costs related to the establishment of our senior credit facility in July 2000 and subsequent amendments. The costs associated with our amended and restated senior credit facility are being
amortized over the remaining term of the debt.



Amortization of
intangible assets of $1.0 million for the first six months of 2002 included the amortization of $0.8 million of deferred finance costs related to the establishment of our senior credit facility in July 2000 and subsequent amendments, and $0.2
million of deferred equipment lease costs.



Restructuring
Charges



During fiscal year 2001, in response to excess
capacity caused by the slowing technology end market, the Company commenced a restructuring program aimed at reducing its cost structure. In response to the continuing industry economic downturn, the Company took further steps to realign its cost
structure and plant capacity and in the third and fourth quarter of 2002 recorded restructuring charges of $37.4 million related to the cost of exiting equipment and facility leases, severance costs, asset impairment charges, inventory exposures and
other facility exit costs and other charges of $2.1 million primarily related to the costs associated with the disengagement of a customer and the continued downturn.



The Company recorded further charges related to the 2002 plan during the first and second quarters of 2003 of $0.2 million
and $4.8 million, respectively. The Company is currently in discussions to sell its Appleton, Wisconsin manufacturing operations while retaining its design and engineering capabilities at this site. Accordingly, a restructuring charge of $3.2
million was recorded reflecting the write-down of the Appleton assets to the estimated realizable value. The balance of the restructuring charges related to lease and other contract obligations of $0.1 million and severance costs of $0.6 million,
associated with the closure and resizing of facilities. Also during the second quarter of 2003 the Company recorded adjustments to its initial 2002 restructuring plan accrual for lease and other contract obligations and other facility exit costs of
$1.0 million due to the Company settling certain obligations for less than the original estimated amounts. The Company also recorded a gain of $0.2 million related to the disposal of assets previously written down at the Donegal and Austin
facilities. .



The Company expects the majority of the
remaining restructuring accruals as at June 29, 2003 of $1.4 million relating to the 2001 restructuring program and $14.1 million relating to the 2002 restructuring program to be paid by the end of fiscal year 2004.



In light of the Companys plan to lower its bank indebtedness, it
requested that certain shareholder loans be repaid prior to the expiration of the term. Accordingly, during the second quarter of 2003 the Company recorded a discount of $0.4 million on the prepayment of shareholder loans that had a carrying value
of $4.2 million, resulting in net proceeds of $3.8 million.



Interest Expense



Interest expense decreased
$1.9 million from $4.7 million for the first six months of 2002 to $2.8 million for the same period in 2003 due to lower average debt outstanding during the first six months of 2003, offset by higher interest rates. The weighted average interest
rates with respect to the debt for the first six months of 2003 and 2002 were 7.3% and 7.2%, respectively.



Income Tax Expense



In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of its deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Management considers the scheduled reversal of deferred tax liabilities, change of control limitations, projected
future taxable income and tax planning strategies in making this assessment. FAS 109 states that forming a conclusion that a valuation



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allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years in the
jurisdictions to which the deferred tax assets relate. As a result of the quarterly review undertaken at the end of the second quarter, the Company concluded that given the weakness and uncertainty in the current economic environment, it was
appropriate to establish a full valuation allowance for the deferred tax assets arising from its operations in the jurisdictions to which the deferred tax assets relate. As a result, the total valuation allowance for deferred tax assets in all
jurisdictions worldwide increased from approximately $35.0 million at December 31, 2002 to approximately $71.0 million at June 29, 2003, resulting in income tax expense during the quarter ended June 29, 2003, of approximately $34.2 million. In
addition the Company expects to provide a full valuation allowance on future tax benefits until it can demonstrate a sustained level of profitability that establishes its ability to utilize the assets in the jurisdictions to which the assets relate.



For the six months ended June 30, 2002, an income tax recovery
of $1.0 million was recorded on a pre-tax loss before discontinued operations of $5.3 million resulting in an effective tax recovery rate of 18.9%, as losses in certain jurisdictions were not tax effected due to the uncertainty of our ability to
utilize such losses.



Discontinued Operations



In February, 2002 the main customer of our Cork, Ireland
facility was placed into administration as part of a financial restructuring. As a result, on March 19, 2002, we announced that we were closing our Cork, Ireland facility and that we were taking steps to place the subsidiary that operated that
facility in voluntary administration. During the first quarter of 2002, we recorded a charge of $9.7 million related to the closure of the facility. The Company placed the subsidiary in voluntary administration by the end of the first quarter.



The following information relates to the discontinued
operations:



|                                  |  | Six months ended
|--------------------------------- |  | ----------------
|(in millions)                     |  | June 29,2003    
|Revenue                           |  | $               
|                                  |  |                 
|Loss from discontinued operations |  | $               
|                                  |  |                 



In 2002, the loss from
discontinued operations includes the cost of closing the Cork facility of $9.7 million. Within this amount are the write-off of the net assets of $6.7 million (comprised of capital assets of $1.1 million and net working capital of $5.6 million) and
other costs associated with exiting the facility of $3.0 million. Included in the other costs is severance of $1.3 million related to the termination of all employees at that site. Costs of $2.7 million were paid out during 2002 and costs of $0.1
million were paid out during the six months ended June 29, 2003.



Liquidity
and Capital Resources



Our principal sources of liquidity
are cash provided from operations and borrowings under our senior credit facility. In the past, we have also relied on our access to the capital markets. Our principal uses of cash have been to meet debt service requirements and to finance capital
expenditures and working capital requirements and to fund operating losses in certain periods. We anticipate our principal uses of cash in the future will continue to be to meet debt service requirements and to finance capital expenditures and
working capital requirements.



The Companys revolving
credit facility matures in July 2004 and accordingly as at June 29, 2003, this amount has been classified as a long-term liability. The Company has a number of initiatives underway to refinance its bank indebtedness including discussions with
current and potential lenders and investors. To date no agreements have been reached and there can be no assurances that such agreements will be reached. Should the Company not be able to refinance the debt prior to July 30, 2004, the Company
expects that it will be unable to repay the full amount of the debt upon maturity. In that event, the Company expects to initiate negotiations



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with its current lenders to modify the terms of the loan agreement. There can be no assurances that the Company will be
able to negotiate or reach an agreement with its current lenders to modify the terms of the loan agreement.



During the second quarter of 2002, the Company informed Dell of its intention to terminate its supply agreement with Dell and to end production over the
third quarter of 2002. The Companys decision was taken after a review of the Companys return on capital requirements indicated that the customers programs were not generating sufficient returns and, at the same time, were utilizing
a disproportionate amount of working capital. The Company continues to expect lower revenues in 2003, which is expected to be offset by reduced expense levels and reduced working capital usage.



Six months ended June 29, 2003 Liquidity:



Net cash provided by operating activities for the first six months of 2003
was $11.5 million. Cash was generated largely from the operating loss of $39.8 million, after adjusting for non cash items of $44.4 million, the collection of accounts receivable and a reduction in inventory, partially offset by a decline in
accounts payable and accrued liabilities.



Net cash used in
financing activities for the first six months of 2003 was $11.7 million due to the repayment of long-term debt of $15.4 million and the repayment of capital leases of $0.1 million, offset by the repayment of shareholder loans of $3.8 million.



Net cash provided by investing activities for the first six
months of 2003 was $0.2 million, largely the result of proceeds from the sale of capital assets.



Six months ended June 30, 2002 Liquidity:



Net cash provided by operating activities for the first six months of 2002 was $1.8 million. Cash was generated largely an increase in accounts payable
and accrued liabilities.



Net cash used in financing activities
for the six months ended June 30, 2002 was $10.9 million due to the repayment of long-term debt of $8.8 million, the repayment of capital leases of $0.1 million and the costs associated with the amendment to our credit agreement of $2.0 million.



Net cash used in investing activities for the six months ended
June 30, 2002 was $2.2 million due to the purchase of capital assets of $2.3 million, offset by proceeds from the sale of capital assets of $0.1 million.



Capital Resources



As a result of restructuring actions and market conditions, we incurred a significant operating loss during 2001, which resulted in our non-compliance
with certain financial covenants contained in our credit agreement as at September 30, 2001. The Company and its lenders entered into a term sheet under which the Company operated until February 2002 when we and our lending group executed an
amendment to our credit facility to waive the September 30, 2001 defaults and to revise the covenant tests to be consistent with both then-current revenues and the forecast for 2002.



In connection with the February 2002 amendment, the Company agreed to issue to the lenders warrants to purchase common stock
of the Company for 1.5% of the total outstanding shares on February 11, 2002 and 0.5% of the total outstanding shares on December 31, 2002. All of these warrants were cancelled in exchange for warrants issued in connection with the December 31, 2002
amendment, as described below.



The Company paid amendment fees
of $1.5 million comprised of $0.7 million, representing 0.5% of the lenders commitments under the revolving credit facilities and term loans outstanding at February 11, 2002, and other amendment related fees of $0.8 million.



In March 2002, we and our lenders executed an amendment to our credit
facility to waive the default that would have been caused by placing the subsidiary that operated the Cork, Ireland facility in voluntary liquidation. We paid $0.1 million in amendment fees in connection with such amendment.



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The Company and its lending group agreed in April 2002 to further amend the credit agreement to increase
the Companys permitted loan balances to correspond to its higher working capital needs. In connection with such amendment, we paid approximately $0.1 million in amendment fees.



The Company and its lending group further amended the credit agreement effective December 31, 2002, which was prior to the
date on which the Company was to revert back to the covenants under the original credit agreement, to revise certain covenants and waive certain defaults under the credit agreement. The revised terms of the credit agreement establish amended
financial and other covenants covering the period up to June 30, 2004, based on the Companys December 2002 business plan. The amended facility provides for $27.5 million in term loans and $90.0 million in revolving credit loans, swing-line
loans and letters of credit.



Continued compliance with the
financial covenants is dependent on the Company achieving the forecasts inherent in its December 2002 business plan. The forecasts are dependent on a number of factors, many of which are outside the control of the Company. These include, but are not
limited to, general economic conditions and specifically the strength of the electronics industry and the related demand for products and services by the Companys customers. If the Company does not comply with its financial covenants and such
default is not cured or waived, it could result in all amounts outstanding, together with accrued interest, becoming immediately due and payable. If we were unable to repay such amounts, the lenders could proceed against any collateral granted to
them to secure the indebtedness. Substantially all of the Companys assets have been pledged to the lenders as collateral for the Companys obligations under the senior credit facility.



During the amendment period, the facility bears interest at the U.S. base
rate as defined in the credit agreement plus 0.25% to 2.5%. As at June 29, 2003 we had borrowed $67.2 million under this facility.



The Companys revolving credit facility matures in July 2004 and accordingly as at June 29, 2003, this amount has been classified as a long-term
liability. The Company has a number of initiatives underway to refinance its bank indebtedness including discussions with current and potential lenders and investors. To date no agreements have been reached and there can be no assurances that such
agreements will be reached. Should the Company not be able to refinance the debt prior to July 30, 2004, the Company expects that it will be unable to repay the full amount of the debt upon maturity. In that event, the Company expects to initiate
negotiations with its current lenders to modify the terms of the loan agreement. There can be no assurances that the Company will be able to negotiate or reach an agreement with its current lenders to modify the terms of the loan agreement.



If the Company is able to achieve its December 2002 business
plan, management believes that cash generated from operations, available cash and amounts available under our senior credit facility will be adequate to meet our debt service requirements, capital expenditures and working capital needs at our
current level of operations and organic growth through July 2004, although no assurance can be given in this regard, particularly with respect to amounts available under our credit facility, as discussed above. If the Company is unable to achieve
its December 2002 business plan and does not comply with its financial covenants, we would not have sufficient resources to meet our debt service requirements, capital expenditures and working capitals needs unless such default is cured or waived.
Further, there can be no assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available to enable us to service our indebtedness. Our future operating performance and ability to service or
refinance indebtedness will be subject to future economic conditions and to financial, business and other factors, certain of which are beyond our control.



In connection with the December 31, 2002 amendment, the lenders returned to the Company for cancellation the existing warrants they held, and the Company
agreed to issue to the lenders warrants to purchase common stock of the Company at an exercise price equal to the fair market value (defined as average of the last reported sales price of the common stock of the company for twenty consecutive
trading days commencing 22 trading days before the date in question) at the date of the grant for (a) 4.0% of the total outstanding shares on December 31, 2002, (b) 1.0% of the total outstanding shares on December 31, 2002, (c) 0.75% of the total
outstanding shares on the date that is 45 days after the end of the Companys first fiscal quarter of 2003, (d) 0.75% of the total outstanding shares on the date that is 45 days after the end of the Companys second fiscal quarter of 2003,
(e) 0.75% of the total outstanding shares on the date that is 45 days after the end of the Companys third fiscal quarter of 2003, (f) 0.75% of the total outstanding shares on the date that is 90 days after the end of the Companys fourth
fiscal quarter of 2003, (g) 1.0% of the total outstanding shares on the date that is 45 days after the end of the Companys first fiscal quarter of 2004 and (h) 1.0% of the



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total outstanding shares on the date that is 45 days after the end of the Companys second fiscal quarter of 2004;
provided, however that if the Company meets certain EBITDA targets on the dates identified in (c) through (h) above, it will not issue warrants corresponding to such date. The Company met its EBITDA targets as at March 30, 2003 and June 29, 2003. As
such, the warrants referred to in (c) and (d) above were not issued. If all amounts outstanding under the credit agreement are repaid in full on or before December 31, 2003, all warrants referred to in (b) through (e) above and received by the
lenders shall be returned to the Company and cancelled. The warrants will not be tradable separate from the related debt until the later of December 31, 2003 or nine months after the issuance of the warrants being transferred.



In connection with the December 31, 2002 amendment, we paid approximately
$1.7 million in amendment fees. The amendment fees and the fair value of the warrants to be issued in connection with the December 31, 2002 amendment have been accounted for as deferred financing fees included in other assets in the financial
statements.



Recently Issued Accounting Standards



In August 2001, the Financial Accounting Standard Board (FASB)
issued Statement No. 143, Accounting for Asset Retirement Obligations, which requires that the fair value of an asset retirement obligation be recorded as a liability, at fair value, in the period in which the Company incurs the obligation. The
Statement is effective for fiscal 2003 and there was no material effect as a result of the adoption of this Statement on January 1, 2003.



In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities (Statement 146), which
nulifies Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (EITF 94-3). Statement 146 recognizes the liability for an exit or
disposal activity only when a liability is incurred and can be measured at fair value. Under EITF 94-3 a commitment to an exit or disposal plan was sufficient to record the majority of the costs. Statement 146 is effective for exit or disposal
activities initiated after December 31, 2002. The Company adopted this Statement on January 1, 2003 and accordingly, the restructuring charges recorded in the first two quarters of 2003 were made in accordance with the new standard.



In November 2002, the FASB issued Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others, which requires certain disclosures of obligations under guarantees. The disclosure requirements of FIN 45 were
effective for the Companys year ended December 31, 2002. Effective for 2003, FIN 45 also requires the recognition of a liability by a guarantor at the inception of certain guarantees entered into or modified after December 31, 2002, based on
the fair value of the guarantee. The Company adopted the disclosure requirements in its 2002 consolidated financial statements. See note 11 for disclosure related to guarantees.



In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities, which requires variable interest
entities, previously referred to as special-purpose entities or off-balance sheet structures, to be consolidated by a company if that company is subject to a majority of the risk of loss from the entitys activities or is entitled to receive a
majority of the entitys returns or both. The consolidation provisions of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003 and to existing entities in the first fiscal year or interim period beginning
after June 15, 2003. Certain disclosure provisions apply in financial statements issued after January 31, 2003. The consolidation requirements of FIN No. 46 do not have a material effect on the Companys consolidated financial statements.



In April 2003, the FASB issued Statement No. 149, Amendments
of Statement 133 on Derivative Instruments and Hedging Activities (Statement 149), which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under Statement 133. This statement is effective for contracts entered into or modified after June 30, 2003, with certain exceptions, and for hedging relationships designated after June 30, 2003. The Company does
not expect adoption of Statement 149 to have a material impact on its consolidated financial statements.



In May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity
(Statement 150), which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. Financial



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instruments that are within the scope of the statement, which previously were often classified as equity, must now be
classified as liabilities. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period after June 15, 2003. The Company does not
expect adoption of Statement 150 to have a material impact on its consolidated financial statements.



Critical Accounting Policies



The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.



Note 2 to the Consolidated Financial Statements in our Annual Report on Form
10-K for the fiscal year ended December 31, 2002 describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. The following critical accounting policies are impacted significantly by
judgments, assumptions and estimates used in the preparation of financial statements. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial
statements.



Income Tax Valuation Allowance



In assessing the realization of deferred tax assets, management considers
whether it is more likely than not that some portion or all of its deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Management considers the
scheduled reversal of deferred tax liabilities, change of control limitations, projected future taxable income and tax planning strategies in making this assessment. FAS 109 states that forming a conclusion that a valuation allowance is not needed
is difficult when there is negative evidence such as cumulative losses in recent years in the jurisdictions to which the deferred tax assets relate. As a result of the quarterly review undertaken at the end of the second quarter, the Company
concluded that given the weakness and uncertainty in the current economic environment, it was appropriate to establish a full valuation allowance for the deferred tax assets arising from its operations in the jurisdictions to which the deferred tax
assets relate. As a result, the total valuation allowance for deferred tax assets in all jurisdictions worldwide increased from approximately $35.0 million at December 31, 2002 to approximately $71.0 million at June 29, 2003, resulting in income tax
expense during the quarter ended June 29, 2003, of approximately $34.2 million. In addition the Company expects to provide a full valuation allowance on future tax benefits until it can demonstrate a sustained level of profitability that establishes
its ability to utilize the assets in the jurisdictions to which the assets relate.



Allowance for Doubtful Accounts



The Company evaluates the collectibility of accounts receivable and records an allowance for doubtful accounts, which reduces the accounts receivable to the amount management reasonably believes will be collected. A specific allowance is
recorded against customer receivables that are considered to be impaired based on the Companys knowledge of the financial condition of its customers. In determining the amount of the allowance, the Company considers factors including the
length of time the receivables have been outstanding, customer and industry concentrations, current business environment and historical experience. Unanticipated changes in the liquidity or financial position of our customers may require additional
provisions for doubtful accounts.



Inventory Valuation



Inventories are valued on a first-in, first-out basis at
the lower of cost and replacement cost for raw materials and at the lower of cost and net realizable value for work in progress and finished goods. Inventories include an application of relevant overhead. Our industry is characterized by rapid
technological change, short-term customer commitments and rapid changes in demand. The Company writes down estimated obsolete or excess inventory for the difference between the cost of inventory and estimated market value based on customer
forecasts, shrinkage, the aging and future demand of the inventory, past experience with specific customers and the ability to sell back inventory to customers or suppliers. If actual market conditions or our customers product demands are less
favorable than those projected, additional provisions may be required.



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Restructuring and Other Charges



In response to excess capacity caused by the slowing technology end market, the Company recorded restructuring and other
charges aimed at reducing its cost structure. In connection with exit activities, the Company recorded charges for inventory write-downs, employee termination costs, lease and other contractual obligations, long-lived asset impairment and other
exit-related costs. These charges were incurred pursuant to formal plans developed by management. The recognition of restructuring and other charges required the Company to make certain judgments and estimates regarding the nature, timing and amount
of costs associated with the planned exit activities. The estimates of future liabilities may change, requiring the recording of additional charges or the reduction of liabilities already recorded. At the end of each reporting period, the Company
evaluates the remaining accrued balances to ensure that no excess accruals are retained and the utilization of the provision are for their intended purposed in accordance with the developed exit plans.



Long-lived Assets



The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset (or asset groupings) to future net cash flows
expected to be generated by the asset. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Effective January 1, 2002, the
Company adopted the new accounting standard issued in 2001, which is summarized in note 2(q(ii)), changes in accounting policies, to the December 31, 2002 consolidated financial statements contained in our Annual Report on Form 10-K for the year
ended December 31, 2002 filed with the Securities and Exchange Commission on March 27, 2003. The adoption of this new accounting standard did not affect the Companys financial statements as at the date of adoption.



FORWARD-LOOKING STATEMENTS



A number of the matters and subject areas discussed in this Form 10-Q are
forward-looking in nature. The discussion of such matters and subject areas is qualified by the inherent risks and uncertainties surrounding future expectations generally; these expectations may differ materially from SMTCs actual future
experience involving any one or more of such matters and subject areas. SMTC cautions readers that all statements other than statements of historical facts included in this quarterly Form 10-Q regarding SMTCs financial position and business
strategy may constitute forward-looking statements. All of these forward-looking statements are based upon estimates and assumptions made by SMTCs management, which although believed to be reasonable, are inherently uncertain. Therefore, undue
reliance should not be placed on such estimates and statements. No assurance can be given that any of such estimates or statements will be realized, and it is likely that actual results will differ materially from those contemplated by such
forward-looking statements. Factors that may cause such differences include: (1) inability to refinance long-term debt (2) increased competition; (3) increased costs; (4) the inability to implement our business plan and maintain covenant compliance
under our credit agreement; (5) the loss or retirement of key members of management; (6) increases in SMTCs cost of borrowings or lack of availability of debt or equity capital on terms considered reasonable by management; (7) adverse state,
federal or foreign legislation or regulation or adverse determinations by regulators; (8) changes in general economic conditions in the markets in which SMTC may compete and fluctuations in demand in the electronics industry; (9) the inability to
manage inventory levels efficiently in light of changes in market conditions; and (10) the inability to sustain historical margins as the industry develops. SMTC has attempted to identify certain of the factors that it currently believes may cause
actual future experiences to differ from SMTCs current expectations regarding the relevant matter or subject area. In addition to the items specifically discussed in the foregoing, SMTCs business and results of operations are subject to
the risks and uncertainties described under the heading Factors That May Affect Future Results below. The operations and results of SMTCs business may also be subject to the effect of other risks and uncertainties. Such risks and
uncertainties include, but are not limited to, items described from time to time in SMTCs reports filed with the Securities and Exchange Commission.



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FACTORS THAT MAY AFFECT FUTURE RESULTS



RISKS RELATED TO OUR CAPITAL STRUCTURE



Our indebtedness could adversely affect our financial health and severely limit our ability to plan for or respond to changes in our business.



At June 29, 2003, we had $67.2 million of indebtedness under our senior
credit facility. This debt could have adverse consequences for our business, including:



| | · |  | We will be more vulnerable to adverse general economic conditions;
| | - |  | ------------------------------------------------------------------



| | · |  | We will be required to dedicate a substantial portion of our cash flow from operations to repayment of debt, limiting the availability of cash for other purposes;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | We may have difficulty obtaining financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | We may have limited flexibility in planning for, or reacting to, changes in our business and industry;
| | - |  | ------------------------------------------------------------------------------------------------------



| | · |  | We could be limited by financial and other restrictive covenants in our credit arrangements in our borrowing of additional funds; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| | · |  | We may fail to comply with the covenants under which we borrowed our indebtedness which could result in an event of default. If an event of default occurs and is not cured or
waived, it could result in all amounts outstanding, together with accrued interest, becoming immediately due and payable. If we were unable to repay such amounts, the lenders could proceed against any collateral granted to them to secure that
indebtedness. Substantially all of the Companys assets have been pledged to the lenders as collateral for the Companys obligations under the senior credit facility. During the fourth quarter of 2002, we were in violation of certain
covenants contained in our credit agreement. Such violation was waived and the credit agreement was amended to provide financial covenants through June 2004 consistent with our December 2002 business plan. However, there can be no assurance that we
will maintain compliance with the covenants under our credit agreement.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Companys revolving credit facility matures in July 2004 and accordingly as at June 29, 2003, this amount has been classified as a long-term liability. The Company has a number of initiatives underway to
refinance its bank indebtedness including discussions with current and potential lenders and investors. To date no agreements have been reached and there can be no assurances that such agreements will be reached. Should the Company not be able to
refinance the debt prior to July 30, 2004, the Company expects that it will be unable to repay the full amount of the debt upon maturity. In that event, the Company expects to initiate negotiations with its current lenders to modify the terms of the
loan agreement. There can be no assurances that the Company will be able to negotiate or reach an agreement with its current lenders to modify the terms of the loan agreement.



There can be no assurance that our leverage and such restrictions will not materially adversely affect our ability to
finance our future operations or capital needs or to engage in other business activities. In addition, our ability to pay principal and interest on our indebtedness to meet our financial and restrictive covenants and to satisfy our other debt
obligations will depend upon our future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, certain of which are beyond our control, as well as the availability of revolving
credit borrowings under our senior credit facility or successor facilities.



The terms of our credit agreement impose significant restrictions on our ability to operate.



The terms of our current credit agreement restrict, among other things, our ability to incur additional indebtedness, complete acquisitions, pay dividends
or make certain other restricted payments, consummate certain asset sales, make capital expenditures, incur cash restructuring costs, enter into certain transactions with



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affiliates, merge, consolidate or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all
of our assets. We are also required to maintain specified financial ratios and satisfy certain monthly and quarterly financial condition tests, which further restrict our ability to operate as we choose. During the fourth quarter of 2002, we were in
violation of certain covenants contained in our credit agreement. Such violation was waived and the credit agreement was amended to provide financial covenants through June 2004 consistent with our December 2002 business plan. As a result of our
non-compliance, customers may lose confidence in us and reduce or eliminate their orders with us, which may have a material adverse effect on our business, financial condition and results of operations.



Substantially all of our assets and those of our subsidiaries are pledged as
security under our senior credit facility.



Institutional investors and
certain members of management have significant influence over our business, and could delay, deter or prevent a change of control or other business combination.



Certain of our institutional investors have representatives on our board of directors, including investment funds affiliated
with Bain Capital, LLC and investment funds affiliated with Celerity Partners. Further, certain members of our management, who are also stockholders of SMTC, serve on our board. By virtue of such stock ownership and board representation, certain of
our institutional investors and certain members of management have a significant influence over all matters submitted to our stockholders, including the election of our directors, and exercise significant control over our business policies and
affairs. Such concentration of voting power could have the effect of delaying, deterring or preventing a change of control or other business combination that might otherwise be beneficial to our stockholders.



Provisions in our charter documents and state law may make it harder for others to obtain
control of us even though some stockholders might consider such a development favorable.



Provisions in our charter, by-laws and certain provisions under Delaware law may have the effect of delaying or preventing a change of control or changes in our management that stockholders consider favorable or
beneficial. If a change of control or change in management is delayed or prevented, the market price of our shares could suffer.



RISKS RELATED TO OUR BUSINESS AND INDUSTRY



We are exposed to general economic conditions, which could have a material adverse impact on our business, operating results and financial condition.



As a result of recent unfavorable economic conditions and reduced capital
spending, our sales have declined from 2001 to 2002 and the first two quarters of 2003. In particular, sales to OEMs in the telecommunications and networking industries worldwide were impacted during 2002 and the first two quarters of 2003. If
economic conditions worsen or fail to improve, we may experience a material adverse impact on our business, operating results and financial condition.



A majority of our revenue comes from a small number of customers; if we lose any of our largest customers, our revenue could decline significantly.



Our two largest customers during the second quarter of 2003 were IBM and
Ingenico, which represented approximately 27.2% and 13.4%, respectively, of our total revenue for that period. Our top ten largest customers (including IBM and Ingenico) collectively represented approximately 86.0% of our total revenue during the
second quarter of 2003. During the second quarter of 2002, the Company informed Dell of its intention to terminate its supply agreement with Dell and to end production over the third quarter of 2002. The Companys decision was taken after a
review of the Companys return on capital requirements indicated that the customers programs were not generating sufficient returns and, at the same time, were utilizing a disproportionate amount of working capital. We expect to continue
to depend upon a relatively small number of customers for a significant percentage of our revenue. In addition to having a limited number of customers, we manufacture a limited number of products for each of our customers. If we lose any of our
largest customers or any product line manufactured for one of our largest customers, we could experience a significant reduction in our revenue. Also, the insolvency of one or more of our largest customers or the inability of one or more of our
largest customers to pay for its orders could decrease revenue. As many of our costs and operating expenses are



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relatively fixed, a reduction in net revenue can decrease our profit margins and adversely affect our business, financial
condition and results of operations.



Our industry is very competitive and
we may not be successful if we fail to compete effectively.



The electronics manufacturing services (EMS) industry is highly competitive. We compete against numerous domestic and foreign EMS providers including Celestica Inc., Flextronics International Ltd., Jabil Circuit, Inc., Sanmina-SCI, Inc.,
Solectron Corporation, Benchmark and Plexus. In addition, we may in the future encounter competition from other large electronics manufacturers that are selling, or may begin to sell, electronics manufacturing services. Many of our competitors have
international operations, and some may have substantially greater manufacturing, financial, research and development and marketing resources and lower cost structures than we do. We also face competition from the manufacturing operations of current
and potential customers, which are continually evaluating the merits of manufacturing products internally versus the advantages of using external manufacturers.



We may experience variability in our operating results, which could negatively impact the price of our shares.



Our annual and quarterly results have fluctuated in the past. The reasons
for these fluctuations may similarly affect us in the future. Historically, our calendar fourth quarter revenue has been highest and our calendar first quarter revenue has been lowest. Prospective investors should not rely on results of operations
in any past period to indicate what our results will be for any future period. Our operating results may fluctuate in the future as a result of many factors, including:



| | · |  | variations in the timing and volume of customer orders relative to our manufacturing capacity;
| | - |  | ----------------------------------------------------------------------------------------------



| | · |  | variations in the timing of shipments of products to customers;
| | - |  | ---------------------------------------------------------------



| | · |  | introduction and market acceptance of our customers new products;
| | - |  | ------------------------------------------------------------------



| | · |  | changes in demand for our customers existing products;
| | - |  | -------------------------------------------------------



| | · |  | the accuracy of our customers forecasts of future production requirements;
| | - |  | ---------------------------------------------------------------------------



| | · |  | effectiveness in managing our manufacturing processes and inventory levels;
| | - |  | ---------------------------------------------------------------------------



| | · |  | changes in competitive and economic conditions generally or in our customers markets;
| | - |  | --------------------------------------------------------------------------------------



| | · |  | changes in the cost or availability of components or skilled labor;
| | - |  | -------------------------------------------------------------------



| | · |  | the timing of, and the price we pay for, acquisitions and related integration costs; and
| | - |  | ----------------------------------------------------------------------------------------



| | · |  | difficulty in acquiring and retaining customers and obtaining competitive credit terms from suppliers due to weakened financial results.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



In addition, most of our customers typically do not commit to firm production
schedules more than 30 to 90 days in advance. Accordingly, we cannot forecast the level of customer orders with certainty. This makes it difficult to schedule production and maximize utilization of our manufacturing capacity. In the past, we have
been required to increase staffing, purchase materials and incur other expenses to meet the anticipated demand of our customers. Sometimes anticipated orders from certain customers have failed to materialize, and sometimes delivery schedules have
been deferred as a result of changes in a customers business needs. Any material delay, cancellation or reduction of orders from our largest customers could cause our revenue to decline significantly. In addition, as many of our costs and
operating expenses are relatively fixed, a reduction in customer demand can decrease our gross margins and adversely affect our business, financial condition and



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results of operations. On other occasions, customers have required rapid and unexpected increases in production, which
have placed burdens on our manufacturing capacity.



Any of
these factors or a combination of these factors could have a material adverse effect on our business, financial condition and results of operations.



We are dependent upon the electronics industry, which produces technologically advanced products with short life cycles.



Substantially all of our customers are in the electronics industry, which is
characterized by intense competition, short product life-cycles and significant fluctuations in product demand. In addition, the electronics industry is generally subject to rapid technological change and product obsolescence. If our customers are
unable to create products that keep pace with the changing technological environment, their products could become obsolete and the demand for our services could significantly decline. Our success is largely dependent on the success achieved by our
customers in developing and marketing their products. Furthermore, this industry is subject to economic cycles and has in the past experienced downturns. A continued recession or a downturn in the electronics industry would likely have a material
adverse effect on our business, financial condition and results of operations.



Shortage or price fluctuation in component parts specified by our customers could delay product shipment and affect our profitability.



A substantial portion of our revenue is derived from turnkey manufacturing. In turnkey manufacturing, we provide both the materials and the
manufacturing services. If we fail to manage our inventory effectively, we may bear the risk of fluctuations in materials costs, scrap and excess inventory, all of which can have a material adverse effect on our business, financial condition and
results of operations. We are required to forecast our future inventory needs based upon the anticipated demands of our customers. Inaccuracies in making these forecasts or estimates could result in a shortage or an excess of materials. In addition,
delays, cancellations or reductions of orders by our customers could result in an excess of materials. A shortage of materials could lengthen production schedules and increase costs. An excess of materials may increase the costs of maintaining
inventory and may increase the risk of inventory obsolescence, both of which may increase expenses and decrease profit margins and operating income.



Many of the products we manufacture require one or more components that we order from sole-source suppliers. Supply shortages for a particular component
can delay productions of all products using that component or cause cost increases in the services we provide. In addition, in the past, some of the materials we use, such as memory and logic devices, have been subject to industry-wide shortages. As
a result, suppliers have been forced to allocate available quantities among their customers and we have not been able to obtain all of the materials desired. Our inability to obtain these needed materials could slow production or assembly, delay
shipments to our customers, increase costs and reduce operating income. Also, we may bear the risk of periodic component price increases. Accordingly, some component price increases could increase costs and reduce operating income. Also we rely on a
variety of common carriers for materials transportation, and we route materials through various world ports. A work stoppage, strike or shutdown of a major port or airport could result in manufacturing and shipping delays or expediting charges,
which could have a material adverse effect on our business, financial condition and results of operations.



We have experienced significant growth and significant retrenchment in a short period of time.



Since 1995, we have completed seven acquisitions. Acquisitions may involve numerous risks, including difficulty in integrating operations, technologies,
systems, and products and services of acquired companies; diversion of managements attention and disruption of operations; increased expenses and working capital requirements; entering markets in which we have limited or no prior experience
and where competitors in such markets have stronger market positions; and the potential loss of key employees and customers of acquired companies. In addition, acquisitions may involve financial risks, such as the potential liabilities of the
acquired businesses, the dilutive effect of the issuance of additional equity securities, the incurrence of additional debt, the financial impact of transaction expenses and the amortization of goodwill and other intangible assets involved in any
transactions that are accounted for using the purchase method of accounting, and possible adverse tax and accounting effects.



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In 2001 we implemented a restructuring plan that called for significant retrenchment. We closed our
Denver and Haverhill facilities and resized operations in Mexico and Ireland in an effort to reduce our cost structure. In February, 2002 the main customer of our Cork, Ireland facility was placed into administration as part of a financial
restructuring. As a result, on March 19, 2002, we announced that we were closing our Cork, Ireland facility and that we were taking steps to place the subsidiary that operates that facility in voluntary administration. During the third quarter of
2002, the Company took further steps to realign its cost structure and plant capacity. We have also determined to close our interconnect facility in Donegal, Ireland and our sites in Austin, Texas and Charlotte, North Carolina. Manufacturing ceased
in Austin, Texas during the first quarter of 2003, and we ceased operations at Donegal, Ireland and Charlotte, North Carolina during the second quarter of 2003.Retrenchment has caused, and is expected to continue to cause, strain on our
infrastructure, including our managerial, technical and other resources. We may experience inefficiencies as we integrate operations from closed facilities to currently operating facilities and may experience delays in meeting the needs of
transferred customers. In addition, we are reducing the geographic dispersion of our operations, which may make it harder for us to compete and may cause us to lose customers. The loss of customers could have a material adverse effect on our
business, financial condition and results of operations.



The
Company is currently in discussions to sell its Appleton, Wisconsin manufacturing operations while retaining its design and engineering capabilities at this site.



Our rapid growth and subsequent retrenchment has placed and will continue to place a significant strain on management, on
our financial resources, and on our information, operating and financial systems. If we are unable to manage effectively, it may have a material adverse effect on our business, financial condition and results of operations.



If we are unable to respond to rapidly changing technology and process development, we may
not be able to compete effectively.



The market for our
products and services is characterized by rapidly changing technology and continuing process development. The future success of our business will depend in large part upon our ability to maintain and enhance our technological capabilities, to
develop and market products and services that meet changing customer needs, and to successfully anticipate or respond to technological changes on a cost-effective and timely basis. In addition, the EMS industry could in the future encounter
competition from new or revised technologies that render existing technology less competitive or obsolete or that reduce the demand for our services. There can be no assurance that we will effectively respond to the technological requirements of the
changing market. To the extent we determine that new technologies and equipment are required to remain competitive, the development, acquisition and implementation of such technologies and equipment may require us to make significant capital
investments. There can be no assurance that capital will be available for these purposes in the future or that investments in new technologies will result in commercially viable technological processes.



Our business will suffer if we are unable to attract and retain key personnel and skilled
employees.



Our business depends on our ability to
continue to recruit, train and retain skilled employees, particularly executive management, engineering and sales personnel. Recruiting personnel in our industry is highly competitive. In addition, our ability to successfully implement our business
plan depends in part on our ability to retain key management and existing employees. There can be no assurance that we will be able to retain our executive officers and key personnel or attract qualified management in the future. In connection with
our restructuring, we significantly reduced our workforce. If we receive a significant volume of new orders, we may have difficulty recruiting skilled workers back into our workforce to respond to such orders and accordingly may experience delays
that could adversely effect our ability to meet customers delivery schedules.



Risks particular to our international operations could adversely affect our overall results.



Revenue generated outside of the United States and Canada was approximately 8.8% in the second quarter of 2003. International operations are subject to
inherent risks, including:



| | · |  | fluctuations in the value of currencies and high levels of inflation;
| | - |  | ---------------------------------------------------------------------



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| | · |  | longer payment cycles and greater difficulty in collecting amounts receivable;
| | - |  | ------------------------------------------------------------------------------



| | · |  | unexpected changes in and the burdens and costs of compliance with a variety of foreign laws;
| | - |  | ---------------------------------------------------------------------------------------------



| | · |  | political and economic instability;
| | - |  | -----------------------------------



| | · |  | increases in duties and taxation;
| | - |  | ---------------------------------



| | · |  | imposition of restrictions on currency conversion or the transfer of funds;
| | - |  | ---------------------------------------------------------------------------



| | · |  | trade restrictions; and
| | - |  | -----------------------



| | · |  | dependence on key customers.
| | - |  | ----------------------------



We are subject to a variety of environmental laws, which expose us to potential financial liability.



Our operations are regulated under a number of federal, state, provincial, local and foreign environmental and safety laws and regulations, which govern,
among other things, the discharge of hazardous materials into the air and water as well as the handling, storage and disposal of such materials. Compliance with these environmental laws is a major consideration for us because we use metals and other
hazardous materials in our manufacturing processes. We may be liable under environmental laws for the cost of cleaning up properties we own or operate if they are or become contaminated by the release of hazardous materials, regardless of whether we
caused such release. In addition we, along with any other person who arranges for the disposal of our wastes, may be liable for costs associated with an investigation and remediation of sites at which we have arranged for the disposal of hazardous
wastes, if such sites become contaminated, even if we fully comply with applicable environmental laws. In the event of a contamination or violation of environmental laws, we could be held liable for damages including fines, penalties and the costs
of remedial actions and could also be subject to revocation of our discharge permits. Any such revocations could require us to cease or limit production at one or more of our facilities, thereby having a material adverse effect on our operations.
Environmental laws could also become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with any violation, which could have a material adverse effect on our business, financial condition and
results of operations.



ITEM 3.    
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK



Interest Rate Risk



Our senior credit facility
bears interest at a floating rate. The weighted average interest rate on our senior credit facility for the quarter ended June 29, 2003 was 7.1%. Our debt of $67.2 million bore interest at 5.3% on June 29, 2003 based on the U.S. base rate. If the
U.S. base rate increased by 10% our interest rate would have risen to 5.7 % and our interest expense would have increased by approximately $0.1 million for the second quarter of 2003.



Foreign Currency Exchange Risk



Most of our sales and purchases are denominated in U.S. dollars, and as a result we have relatively little exposure to foreign currency exchange risk with
respect to sales made.



ITEM 4.    
CONTROLS AND PROCEDURES



| | (a) |  | Evaluation of Disclosure Controls and Procedures.    As of the end of the period covered by this quarterly report, the Companys Chief Executive
Officer and Chief Financial Officer have conducted an evaluation of the Companys disclosure controls and procedures. Based on their evaluation, the Companys Chief Executive Officer and Chief Financial Officer have concluded that the
Companys disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the applicable Securities and Exchange Commission rules and forms.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | Changes in Internal Controls and Procedures.    There were no significant changes in the Companys internal controls or in other factors that could
significantly affect these controls subsequent to the date of the most recent evaluation of these controls by the Companys Chief Executive Officer and Chief Financial Officer.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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PART II OTHER INFORMATION



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



|(a) |  | The Company held its annual meeting on May 6, 2003.
|--- |  | ---------------------------------------------------



|(b) |  | At the annual meeting, stockholders elected Messrs. Stephen Adamson, Thomas Cowan and Ian Loring as directors. Messrs. Mark Benham, William Brock, John Caldwell, Blair
Hendrix,Stanley Plzak and Paul Walker continued serving their terms of office as directors after the annual meeting.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) |  | Results of annual meeting votes:
|--- |  | --------------------------------



|Proposal                                                                                                                                            |  | For        |  | Withheld 
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- |  | ---------
|To elect as director Stephen Adamson to hold office until the 2006 annual meeting of stockholders and in accordance with the
by-laws of the Company |  | 18,089,972 |  | 143,485  
|                                                                                                                                                    |  |            |  |          
|To elect as director Thomas Cowan to hold office until the 2006 annual meeting of stockholders and in accordance with the by-laws
of the Company    |  | 18,089,322 |  | 144,135  
|                                                                                                                                                    |  |            |  |          
|To elect as director Ian Loring to hold office until the 2006 annual meeting of stockholders and in accordance with the by-laws of
the Company      |  | 16,376,072 |  | 1,857,385
|                                                                                                                                                    |  |            |  |          



ITEM 5.    
OTHER INFORMATION.



Michael
Griffiths declined to stand for re-election as a director of the Company, and his term as a director of the Company expired at the Companys 2003 Annual Meeting held on May 6, 2003.



The Company announced on August 11, 2003 the resignation of Mr. Frank Burke, Chief Financial Officer. Mr. Burke will remain
with the Company through a transitional period, which will allow for a successor to be named.



ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K.



(a) List of Exhibits:



|10.1 |  | Separation Agreement dated as of June 26, 2003 by and between SMTC Corporation and Stanley Plzak.
|---- |  | -------------------------------------------------------------------------------------------------



|31.1 |  | Certification of Paul Walker pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 13, 2003.
|---- |  | --------------------------------------------------------------------------------------------------------------



|31.2 |  | Certification of Frank Burke pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 13, 2003.
|---- |  | --------------------------------------------------------------------------------------------------------------



|32.1 |  | Certification of Paul Walker, pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated
August 13, 2003.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|32.2 |  | Certification of Frank Burke, pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated
August 13, 2003.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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(b) Reports on Form 8-K:



On May 6, 2003, the Company furnished a Current Report on Form 8-K regarding the issuance of a press release announcing the
Companys financial results for the three months ended March 31, 2003.



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SIGNATURES



Pursuant to the
requirements of the Securities Exchange Act of 1934, SMTC Corporation has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.



SMTC CORPORATION





By:/s/ PAUL
WALKER

Name: Paul Walker

Title: President and CEO





By:/s/ FRANK BURKE

Name: Frank Burke

Title: Chief Financial Officer



Date:
August 13, 2003



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EXHIBIT INDEX



|ExhibitNumber |  | Document                                                                                                                                                                                        
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              | 
|10.1          |  | Separation Agreement dated as of June 26, 2003 by and between SMTC Corporation and Stanley Plzak.                                                                                               
|              | 
|31.1          |  | Certification of Paul Walker pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 13, 2003.                                                                                  
|              | 
|31.2          |  | Certification of Frank Burke pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 13, 2003.                                                                                  
|              | 
|32.1          |  | Certification of Paul Walker, pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated
August 13, 2003.
|              | 
|32.2          |  | Certification of Frank Burke, pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated
August 13, 2003.



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