##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-K

|  |                                                                                                                                      
|- | -------------------------------------------------------------------------------------------------------------------------------------
|þ | Annual report pursuant to section 13 or 15 (d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2002, or
| 
|o | Transition report pursuant section 13 or 15 (d) of the Securities Exchange Act of 1934
For the transition period from          to    

Commission file number 0-49651

SUNTRON CORPORATION

(Exact Name of Registrant as Specified in Its Charter)


|                         |  |                                     
|------------------------ |  | ------------------------------------
|Delaware                 |  | 86-1038668                          
|                         |  |                                     
|(State of Incorporation) |  | (I.R.S. Employer Identification No.)

2501 West Grandview Road, Phoenix, Arizona 85023

(Address of Principal Executive Offices) (Zip Code)


(602) 789-6600

(Registrants telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act:

|                              |  |                                          
|----------------------------- |  | -----------------------------------------
|Title of Each Class           |  | Name of Each Exchange on Which Registered
|                              |  |                                          
|                              |  |                                          
|Common Stock, $0.01 par value |  | Nasdaq National Market                   
|                              |  |                                          

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

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

Indicate by check mark if the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes
o No þ

The aggregate market value of the outstanding common equity held by
non-affiliates of the registrant, computed as of June 28, 2002, which was the
last business day of the registrants most recently completed second fiscal
quarter, was $21.1 million. This amount is based on 2,496,000 shares held by
non-affiliates. For purposes of this computation, all officers, directors, and
10% beneficial owners of the registrant are deemed to be affiliates. Such
determination should not be deemed to be an admission that such officers,
directors, or 10% beneficial owners are, in fact, affiliates of the registrant.

As of March 31, 2003, there were outstanding 27,409,338shares of the
registrants Common Stock, $0.01 par value.

Documents Incorporated by
Reference

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None






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SUNTRON CORPORATION

ANNUAL REPORT ON FORM 10-K


TABLE OF CONTENTS



|                                                        |                                                                                                                   |  |  |  |  |  |  | 
|------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                 
|                                                        | ITEM 1. BUSINESS                                                                                                 
|                                                        | ITEM 2. PROPERTIES                                                                                               
|                                                        | ITEM 3. LEGAL PROCEEDINGS                                                                                        
|                                                        | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                      
|PART II                                                
|                                                        | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                    
|                                                        | ITEM 6. SELECTED FINANCIAL DATA                                                                                  
|                                                        | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                    
|                                                        | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                              
|                                                        | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                              
|                                                        | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND                      FINANCIAL DISCLOSURE
|PART III                                               
|                                                        | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS                                                                        
|                                                        | ITEM 11. EXECUTIVE COMPENSATION                                                                                  
|                                                        | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS          
|                                                        | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                          
|                                                        | ITEM 14. DISCLOSURE CONTROLS AND PROCEDURES                                                                      
|PART IV                                                
|                                                        | ITEM 15. EXHIBITS AND REPORTS ON FORM 8-K                                                                        
|SIGNATURES                                             
|CERTIFICATION                                          
|Index to Consolidated Financial Statements and Schedule
|Exhibit Index                                          
|EX-10.1                                                
|EX-21                                                  
|EX-23.1                                                
|EX-23.2                                                
|EX-99.1                                                
|EX-99.2                                                



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TABLE OF CONTENTS

|         |  |                                                                                                |  |  |      | 
|-------- |  | ---------------------------------------------------------------------------------------------- |  |  | ---- | 
|Item     |  |                                                                                                |  |  | Page
|         |  |                                                                                                |  |  |     
|PART I   |  |                                                                                                |  | 
|1.       |  | Business                                                                                       |  |  | 1    | 
|2.       |  | Properties                                                                                     |  |  | 5    | 
|3.       |  | Legal Proceedings                                                                              |  |  | 5    | 
|4.       |  | Submission of Matters to a Vote of Security Holders                                            |  |  | 5    | 
|PART II  |  |                                                                                                |  | 
|5.       |  | Market for Registrants Common Equity and Related Stockholder Matters                          |  |  | 6    | 
|6.       |  | Selected Financial Data                                                                        |  |  | 7    | 
|7.       |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations          |  |  | 9    | 
|7A.      |  | Quantitative and Qualitative Disclosures about Market Risk                                     |  |  | 27   | 
|8.       |  | Financial Statements and Supplementary Data                                                    |  |  | 27   | 
|9.       |  | Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure           |  |  | 27   | 
|PART III |  |                                                                                                |  | 
|10.      |  | Directors and Executive Officers of the Registrant                                             |  |  | 28   | 
|11.      |  | Executive Compensation                                                                         |  |  | 31   | 
|12.      |  | Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters |  |  | 34   | 
|13.      |  | Certain Relationships and Related Transactions                                                 |  |  | 36   | 
|14.      |  | Disclosure Controls and Procedures                                                             |  |  | 36   | 
|PART IV  |  |                                                                                                |  | 
|15.      |  | Exhibits and Reports on Form 8-K                                                               |  |  | 37   | 
|         |  | Signatures and Certifications                                                                  |  |  | 39   | 
|         |  | Index to Consolidated Financial Statements                                                     |  |  | F-1  | 



Statement Regarding Forward-Looking Statements

This report on Form 10-K contains forward-looking statements regarding future
events or our future financial and operational performance. Forward-looking
statements include statements regarding markets for our products; trends in net
sales, gross profits, and estimated expense levels; liquidity and anticipated
cash needs and availability; and any statement that contains the words
anticipate, believe, plan, estimate, expect, seek, and other
similar expressions. The forward-looking statements included in this report
reflect our current expectations and beliefs, and we do not undertake publicly
to update or revise these statements, even if experience or future changes make
it clear that any projected results expressed in this report, annual or
quarterly reports to stockholders, press releases, or company statements will
not be realized. In addition, the inclusion of any statement in this report
does not constitute an admission by us that the events or circumstances
described in such statement are material. Furthermore, we wish to caution and
advise readers that these statements are based on assumptions that may not
materialize and may involve risks and uncertainties, many of which are beyond
our control, that could cause actual events or performance to differ materially
from those contained or implied in these forward-looking statements. These
risks and uncertainties include, but are not limited to, risks related to the
realization of anticipated revenue, profitability, and synergies of the recent
business combinations; the ability to meet cost estimates and achieve the
expected benefits associated with planned restructuring activities; trends
affecting our growth; and the business and economic risks described herein
under Factors That May Affect Future Results.





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PART I




ITEM 1.      BUSINESS

Overview

Suntron Corporation is a provider of vertically integrated electronics
manufacturing solutions supplying high-mix services that target the aerospace
and defense, semiconductor capital equipment, industrial controls,
instrumentation, medical, networking, and telecommunications industries. Our
manufacturing services include printed circuit card assembly, cable and harness
production, plastic injection molding, sheet metal, engineering services, full
systems integration, testing, and after-market repair and warranty services.
We offer original equipment manufacturers, or OEMs, the ability to outsource
all stages of the product life cycle, including development and design,
materials procurement and supply chain management, prototyping, manufacturing
and assembly, testing, quality control, and after-market support. High-mix
manufacturing involves processing assemblies in small lots (generally less than
100 assemblies per production run) in a flexible manufacturing environment. We
believe that our success in the marketplace is primarily attributable to our
ability to provide intelligent solutions tailored to match customer
requirements, while meeting the highest quality standards in the industry.

Suntron was formed as a holding company for the purpose of effecting the
business combination of EFTC Corporation and K*TEC Operating Company, L.L.C.
(formerly known as Thayer-Blum Funding II, L.L.C.) and its wholly owned
subsidiary, K*TEC Electronics Holding Corporation (referred to together as
K*TEC). The combination of EFTC and K*TEC was completed on February 28, 2002
and, in connection with the combination, EFTC and K*TEC each became a wholly
owned subsidiary of Suntron. As a result of the combination, the former holder
of membership interests in K*TEC received 15,119,356 shares of Suntron common
stock, representing approximately 55% of our outstanding shares, and the former
shareholders of EFTC received .25 shares of Suntron common stock for each share
of EFTC common stock, or an aggregate of 12,290,032 shares, representing the
approximately 45% balance of our outstanding shares.

The combination was accounted for as a reorganization of entities under
common control. Accordingly, our financial statements have been retroactively
adjusted to present the combined results of EFTC since its inception and K*TEC
since October 10, 2000 (the date that common control was established).

Manufacturing Services

We provide a variety of manufacturing services including printed circuit
board assembly and testing, electronic interconnect assemblies, subassemblies,
sheet metal fabrication and powder paint, plastic injection molding, and full
systems integration (known as box build), after-market repair and warranty
services, and engineering and design services. Our competitive strengths
include our ability to manufacture highly complex products in short cycle times
with smaller lot sizes. Our strategy targets capturing turnkey work by
providing customers with support throughout the entire manufacturing process,
starting with prototype design for manufacturability all the way through
material procurement, supply chain management, final assembly, and testing, to
reduce our customers costs and improve their time to market. We provide the
following services:

Design Services. We provide our customers product development and design
and test engineering services. Our design for manufacturability and design for
testability reviews allow our engineering group to collaborate with our
customers early in the design process to reduce variation, cost, and complexity
in new designs. Following completion of the initial design, we also offer
design services to assist our customers in taking their product to market. Our
support teams work closely with our customers through all stages of product
planning and production. Our computer systems feature a computer-aided design
capability that allows our engineers to collaborate online with a customers
engineers when developing and changing product designs.

Prototype Manufacturing Services. We provide quick-turn prototype
manufacturing services that provide customers with 24 hour to 10-day turnaround
times. Our prototype manufacturing operations, located in Manchester, New
Hampshire and Phoenix, Arizona, provide full turnkey solutions to support our
customers with new product introduction activities. These services permit our
customers to be more competitive by reducing the amount of time required to
bring new products to market.





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Materials and Supply Chain Management Services. We consult with our
customers and their suppliers early in the component selection process. This
early supplier involvement helps ensure an efficient supply stream that focuses
not only on cost but also on availability of components and the component life
cycle. When material obsolescence affects our customers designs, we can
provide recommendations on alternative components through our component
engineering group. We have developed innovative material planning
relationships with a select group of OEMs in the aerospace and defense,
semiconductor capital equipment, computer, medical instrumentation, networking,
and telecommunications industries. These relationships are supported by
sophisticated in-house product design and technical support capabilities. In
addition, certain of our customers have internet access to our intranet in
order to monitor printed circuit board production quality, board and box build
assembly methods, and product throughput in a real-time environment. Each
customers internet access is secured and tailored for the customers unique
needs. We further complement our offerings by providing full logistics support
that allows the final assembly to be shipped directly to the customers end
user. This supply chain management ability differentiates us as a resource in
enhancing customers cost-efficiency and time-to-market.

Manufacturing and Assembly Services. We provide high-mix manufacturing
services for a variety of highly complex electronic products. Our manufacturing
methodology is central to supporting high-mix manufacturing. While typical
high-volume manufacturing companies use high-volume runs to recover costs
incurred in the initial set-up for the manufacturing process, our high-mix
manufacturing technique focuses on parallel processing and set-up reductions in
order to reduce initial set-up costs.

Testing Services. We offer in-circuit functional testing and environmental
stress testing that includes temperature and motion/shock/electronic cycle
testing. These tests verify that components have been properly placed and
electrical continuity exists at the proper places on the circuit card.
Functional testing is performed on the in-circuit testers or separate test
adapters and verifies that the board or system is in compliance with customer
specifications. Environmental tests determine how the product will function at
various temperatures and seeks to identify and remove any latent defects that
might appear later in the product life cycle.

Quality Control Services. Our quality control standards provide another
means of serving the needs of our customers, because OEMs often rely on
suppliers to assure quality control for subassemblies rather than providing
such quality control themselves. We believe that our adherence to strict
quality control standards and our investment in state-of-the-art production
facilities and equipment have attracted and retained important customers that
have established extremely rigid product quality standards.

After-market Repair Services. We provide after-market warranty and repair
services for electronic products, including products that may not have been
originally manufactured by us, in support of customer product warranty, repair,
and upgrade programs.

Customers

Suntron focuses on serving OEMs in industries that have high-mix
requirements. Sales to Honeywell International, Inc, Applied Materials, Inc.
and Emulex Corporation represented approximately 42%, 22% and 9%, respectively,
of our net sales for 2002. The loss of Honeywell, Applied Materials, or Emulex
as a customer would, and the loss of any other significant customer could, have
a material adverse effect on our financial condition and results of operations.

The following table presents Suntrons net sales by industry segment for
the years ended December 31, 2000, 2001 and 2002:

|                                            |       |  |      |     |      |  |      |     |   |  |    |     |  
|------------------------------------------- | ----- |  | ---- | --- | ---- |  | ---- | --- | - |  | -- | --- | -
|                                            |       |  | 2000 |     | 2001 |  | 2002
|                                            |       |  |      |     |      |  |     
|Aerospace and defense                       |       |  | 52   | %   |      |  | 51   | %   |   |  | 42 | %  
|Semiconductor capital equipment             |       |  | 16   | %   |      |  | 17   | %   |   |  | 25 | %  
|Industrial controls and instrumentation     |       |  | 1    | %   |      |  | 2    | %   |   |  | 9  | %  
|Networking and telecommunications equipment |       |  | 17   | %   |      |  | 21   | %   |   |  | 18 | %  
|Medical equipment                           |       |  | 1    | %   |      |  | 1    | %   |   |  | 1  | %  
|Other                                       |       |  | 13   | %   |      |  | 8    | %   |   |  | 5  | %  
|                                            |       |  |      |     |      |  |      |     |   |  |    |    
|                                            | Total |  |      | 100 | %    |  |      | 100 | % |  |    | 100 | %
|                                            |       |  |      |     |      |  |      |     |   |  |    |    

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Sales and Marketing

Our sales force develops close working relationships with customers
beginning early in the design phase and throughout all stages of production. We
focus our marketing efforts on developing long-term relationships with our
customers key personnel.

We continue to focus our sales and marketing efforts on the following
markets: (1) aerospace and defense, (2) semiconductor capital equipment, (3)
industrial controls and instrumentation, (4) networking and telecommunications
equipment, and (5) medical equipment. This approach facilitates sales personnel
specialization within related product groupings and permits sales
representatives to develop a high degree of technical expertise.

Our sales strategy is to target (1) technology companies with minimal
manufacturing capabilities that require one-stop shopping service in rapidly
evolving sectors and (2) OEMs in our target market that require the outsourcing
services in which we specialize. Our vertical integration, coupled with our
unique focus on the underserved high-mix needs of our customers, differentiates
us from other electronics manufacturing services providers.

We supplement the efforts of our sales force in the marketing of our
services with direct mailings of brochures and other literature, the
publication of various white papers, as well as advertisements in trade
journals.

Backlog

Although we obtain firm purchase orders from customers, most customers do
not place firm purchase orders for products until 30 to 90 days prior to the
delivery date for the finished goods. Backlog covered by firm purchase orders
does not demonstrate a meaningful projection of our future sales because orders
may be modified or canceled.

Suppliers

We use numerous suppliers of electronic components and other materials for
our operations. From time to time, some components we use have been subject to
shortages, and suppliers have been forced to allocate available quantities
among their customers. See Item 7  Managements Discussion and Analysis of
Financial Condition and Results of Operations - Factors that may affect future
results - We are dependent on limited and sole source suppliers for electronic
components and may experience component shortages, which would cause us to
delay shipments to customers. We attempt to mitigate the risks of component
shortages by working with customers to delay delivery schedules or by working
with suppliers to provide the needed components using just-in-time inventory
programs.

Competition

The electronics manufacturing services industry is extremely competitive
and includes hundreds of companies. The contract manufacturing services we
provide are available from many independent sources. Many of our competitors
are more established in the industry and have substantially greater financial,
manufacturing, or marketing resources than we do. Certain of our competitors
have broader geographic presence than we do, including manufacturing facilities
in Asia, Europe, and South America. We believe that the principal competitive
factors in our targeted market are quality, reliability, ability to meet
delivery schedules, technological sophistication, geographic location, and
price. We also face competition from current and potential customers, which are
continually evaluating the relative merits of internal manufacturing versus
contract manufacturing for various products.

Intellectual Property

We seek to protect our proprietary technology and other intangible assets
primarily through trade secret protection. In addition, we depend heavily on
training, recruiting, and retaining our employees, who are required to have
sufficient know-how to operate advanced equipment and to conduct sensitive and
complicated manufacturing processes.

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Governmental Regulation

Our operations are subject to certain federal, state, and local regulatory
requirements relating to environmental, waste management, and health and safety
matters, and there can be no assurance that material costs and liabilities will
not be incurred in complying with those regulations or that past or future
operations will not result in exposure to injury or claims of injury by
employees or the public. To meet various legal requirements, we have modified
our circuit board cleaning processes to utilize only aqueous (water-based)
methods.

Some risk of liabilities related to these matters is inherent in our
business, as with many similar businesses. Our management team believes that
our business is operated in substantial compliance with applicable
environmental, waste management, and health and safety regulations, the
violation of which could have a material adverse effect on our business,
financial condition, and results of operations. In the event of violation,
these regulations provide for civil and criminal fines, injunctions, and other
sanctions and, in certain instances, allow third parties to sue to enforce
compliance. In addition, new, modified, or more stringent requirements or
enforcement policies could be adopted that may adversely affect our business.

We periodically generate and temporarily handle limited amounts of
materials that are considered hazardous waste under applicable law. We engage
independent contractors for the off-site disposal of these materials. For
additional information, see Item 7  Managements Discussion and Analysis of
Financial Condition and Results of Operations - Factors That May Affect Future
Results - Our failure to comply with the requirements of environmental laws
could result in fines and revocation of permits necessary to our manufacturing
processes.

Employees

As of March 14, 2003, we had 1,801 full-time equivalent employees,
including 1,395 that were engaged in manufacturing operations, 197 in material
handling and procurement, and 209 in finance, sales, and administration. As of
the same date, we also engaged the full-time services of 338 temporary laborers
through employment agencies. None of our employees is subject to a collective
bargaining agreement. Our management team believes that the relationship with
our employees is good.

Availability of Reports Filed with the Securities and Exchange Commission

Our Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, registration statements, and amendments to those reports
are available without charge on our website,
http://www.suntroncorp.com/investor/index.html#, as soon as reasonably
practicable after they are filed electronically with the SEC. Copies are also
available without charge by (i) telephonic request by calling 1-888-520-3382,
(ii) email request to ir@suntroncorp.com, or (iii) a written request to Suntron
Corporation Investor Relations, 2501 West Grandview Road, Phoenix, Arizona
85023.

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ITEM 2.      PROPERTIES

The following table describes locations where our material operations are
conducted.

|                          |  |                |      |                    |  |        |         |             |  |        |  |                |  |              |  | 
|------------------------- |  | -------------- | ---- | ------------------ |  | ------ | ------- | ----------- |  | ------ |  | -------------- |  | ------------ |  | 
|                          |  | Year Acquired/ |      | Approximate        |  | Owned/ |         |             |  |       
|Location                  |  | Opened         |      | Size (Square Feet) |  | Leased |         | Primary Use
|                          |  |                |      |                    |  |        |         |            
|Sugar Land, Texas         |  |                | 2000 |                    |  |        | 472,000 |             |  | Owned  |  | Manufacturing 
|Phoenix, Arizona          |  |                | 1999 |                    |  |        | 145,000 |             |  | Leased |  | Manufacturing/
|                          |  |                |      |                    |  |        |         |             |  |        |  |                |  | Headquarters
|Lawrence, Massachusetts   |  |                | 2001 |                    |  |        | 73,000  |             |  | Leased |  | Manufacturing 
|Olathe, Kansas            |  |                | 2002 |                    |  |        | 49,000  |             |  | Leased |  | Manufacturing 
|Garner, Iowa              |  |                | 2002 |                    |  |        | 40,000  |             |  | Leased |  | Manufacturing 
|Newberg, Oregon           |  |                | 1998 |                    |  |        | 65,000  |             |  | Leased |  | Manufacturing 
|Austin, Texas             |  |                | 1996 |                    |  |        | 45,000  |             |  | Leased |  | Warehouse     
|Tijuana, Mexico           |  |                | 1999 |                    |  |        | 30,000  |             |  | Leased |  | Manufacturing 
|Manchester, New Hampshire |  |                | 1998 |                    |  |        | 19,000  |             |  | Leased |  | Manufacturing 

In addition, we lease a building in Denver, Colorado where EFTCs former
executive offices were located. We have subleased a significant portion of this
building and are actively pursuing a sublease for the remainder of the space.
We also lease additional manufacturing facilities in Milpitas and Fremont,
California and Plano, Texas, which we have closed. We have subleased a
significant portion of our facilities in Milpitas, California and Plano, Texas
and we are actively pursuing a sublease of the space in Fremont, California.
We own a manufacturing facility in Ottawa, Kansas that we recently closed, and
we are marketing this property for sale.

We believe our facilities are in good condition and that our current
capacity is sufficient to handle our anticipated needs for the foreseeable
future.




ITEM 3.      LEGAL PROCEEDINGS

There are no legal proceedings to which we are a party or to which any of
our properties are subject, that we expect to have a material adverse effect on
our company.




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

Not applicable.

5



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PART II




ITEM 5.      MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market for Our Common Stock

Our common stock has been listed on the Nasdaq National Market since March
1, 2002 under the symbol SUNN. The following table sets forth the low and
high sale prices for the Companys common stock, as reported on the Nasdaq
National Market, for the period from March 1, 2002 through March 31, 2002, and
for the last three fiscal quarters of 2002:

|                   |  |     |      |      |  |   |      | 
|------------------ |  | --- | ---- | ---- |  | - | ---- | 
|Period Ended       |  | Low |      | High
|                   |  |     |      |     
|March 31, 2002     |  | $   | 6.23 |      |  | $ | 9.35 | 
|June 30, 2002      |  | $   | 7.45 |      |  | $ | 8.50 | 
|September 29, 2002 |  | $   | 2.75 |      |  | $ | 9.80 | 
|December 31, 2002  |  | $   | 3.25 |      |  | $ | 5.50 | 

As of March 31, 2003, there were approximately 530 holders of record of
our common stock. The closing sale price of our common stock on the Nasdaq
National Market on March 31, 2003 was $3.41 per share.

Dividends

Our senior credit facility prohibits the payment of dividends. Suntron
has not declared or paid any dividends, and we do not anticipate paying any
cash dividends in the foreseeable future. We presently intend to retain any
future earnings to finance future operations and expansion of our business, and
to reduce indebtedness.

Recent Sales of Unregistered Securities

Not applicable.

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ITEM 6.     SELECTED FINANCIAL DATA

The selected financial data presented below as of and for each of the
years in the five-year period ended December 31, 2002, are derived from our
consolidated financial statements (including financial statements of our
predecessors, EFTC Corporation and K*TEC Electronics Holding Corporation) that
have been audited by KPMG LLP and Arthur Andersen, LLP, independent certified
public accountants. The consolidated financial statements as of December 31,
2001 and 2002, and for each of the years in the three-year period ended
December 31, 2002, and the independent auditors reports thereon, are included
elsewhere in this Annual Report on Form 10-K.

|                                                                         |                                                    |                     |                                                                                  |          |        |                         |         |        |        |                                          |         |        |        |         |         |        |        |         |          |        |         |          |       |  
|------------------------------------------------------------------------ | -------------------------------------------------- | ------------------- | -------------------------------------------------------------------------------- | -------- | ------ | ----------------------- | ------- | ------ | ------ | ---------------------------------------- | ------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | -------- | ------ | ------- | -------- | ----- | -
|                                                                         |                                                    |                     |                                                                                  |          |        | Year Ended December 31,
|                                                                         |                                                    |                     |                                                                                  |          |        |                        
|                                                                         |                                                    |                     |                                                                                  |          |        | 1998                    |         | 1999   |        | 2000                                     |         | 2001   |        | 2002   
|                                                                         |                                                    |                     |                                                                                  |          |        |                         |         |        |        |                                          |         |        |        |        
|                                                                         |                                                    |                     |                                                                                  |          |        |                         |         |        |        | (In thousands, except per share amounts) |         |        |        |        
|Statement of Operations Data:                                            |                                                    |                     |                                                                                  |          |        |                         |         |        |        |                                          |         |        |        |         |         |        |        |         |          |       
|Net sales                                                                |                                                    | $                   | 226,780                                                                          |          |        | $                       | 221,864 |        |        | $                                        | 463,130 |        |        | $       | 574,401 |        |        | $       | 370,797  |       
|Cost of goods sold                                                       |                                                    |                     | 200,581                                                                          |          |        |                         | 229,892 |        |        |                                          | 439,210 |        |        |         | 579,123 |        |        |         | 398,767  |       
|                                                                         |                                                    |                     |                                                                                  |          |        |                         |         |        |        |                                          |         |        |        |         |         |        |        |         |          |       
|                                                                         |                                                    | Gross profit (loss) |                                                                                  |          | 26,199 |                         |         |        | (8,028 | )                                        |         |        | 23,920 |         |         |        | (4,722 | )       |          |        | (27,970 | )       
|Operating costs and expenses:                                            |                                                    |                     |                                                                                  |          |        |                         |         |        |        |                                          |         |        |        |         |         |        |        |         |          |       
|                                                                         | Selling, general and administrative expenses       |                     |                                                                                  | 22,838   |        |                         |         | 25,389 |        |                                          |         | 27,020 |        |         |         | 29,619 |        |         |          | 27,234 |        
|                                                                         | Severance, retention, closure and relocation
costs |                     |                                                                                  | 200      |        |                         |         | 300    |        |                                          |         | 4,579  |        |         |         | 228    |        |         |          | 169    |        
|                                                                         | Recapitalization and merger transaction costs      |                     |                                                                                  | 1,048    |        |                         |         |       |        |                                          |         | 5,336  |        |         |         | 2,375  |        |         |          | 312    |        
|                                                                         | Related party fees                                 |                     |                                                                                  |         |        |                         |         |       |        |                                          |         | 2,713  |        |         |         | 3,750  |        |         |          | 835    |        
|                                                                         | Impairment of long-lived assets                    |                     |                                                                                  | 3,342    |        |                         |         | 2,822  |        |                                          |         | 1,662  |        |         |         |       |        |         |          | 21     |        
|                                                                         | Goodwill amortization                              |                     |                                                                                  | 1,564    |        |                         |         | 1,133  |        |                                          |         | 907    |        |         |         | 2,905  |        |         |          |       |        
|                                                                         | Litigation settlement                              |                     |                                                                                  |         |        |                         |         | 6,400  |        |                                          |         |       |        |         |         |       |        |         |          |       |        
|                                                                         |                                                    |                     |                                                                                  |          |        |                         |         |        |        |                                          |         |        |        |         |         |        |        |         |          |       
|                                                                         |                                                    |                     | Operating loss                                                                   |          |        | (2,793                  | )       |        |        | (44,072                                  | )       |        |        | (18,297 | )       |        |        | (43,599 | )        |        |         | (56,541  | )    
|Interest expense                                                         |                                                    |                     | (4,312                                                                           | )        |        |                         | (6,516  | )      |        |                                          | (10,881 | )      |        |         | (12,217 | )      |        |         | (2,568   | )     
|Reduction in interest due to settlement of
dispute                       |                                                    |                     |                                                                                 |          |        |                         |        |        |        |                                          |        |        |        |         |        |        |        |         | 1,029    |       
|Gain (loss) on sale of assets                                            |                                                    |                     | 400                                                                              |          |        |                         | (20,880 | )      |        |                                          | 4,369   |        |        |         | 764     |        |        |         | (166     | )     
|Other, net                                                               |                                                    |                     | (104                                                                             | )        |        |                         | (55     | )      |        |                                          | 549     |        |        |         | 551     |        |        |         | 835      |       
|                                                                         |                                                    |                     |                                                                                  |          |        |                         |         |        |        |                                          |         |        |        |         |         |        |        |         |          |       
|                                                                         |                                                    |                     | Loss before income taxes and cumulative
effect of change in accounting principle |          |        | (6,809                  | )       |        |        | (71,523                                  | )       |        |        | (24,260 | )       |        |        | (54,501 | )        |        |         | (57,411  | )    
|Income tax benefit (expense)                                             |                                                    |                     | 2,631                                                                            |          |        |                         | (2,180  | )      |        |                                          | (287    | )      |        |         | (20     | )      |        |         | 276      |       
|                                                                         |                                                    |                     |                                                                                  |          |        |                         |         |        |        |                                          |         |        |        |         |         |        |        |         |          |       
|                                                                         |                                                    |                     | Loss before cumulative effect of change in
accounting principle                  |          |        | (4,178                  | )       |        |        | (73,703                                  | )       |        |        | (24,547 | )       |        |        | (54,521 | )        |        |         | (57,135  | )    
|Cumulative effect of change in accounting
principle                      |                                                    |                     |                                                                                 |          |        |                         |        |        |        |                                          |        |        |        |         |        |        |        |         | (69,015  | )     
|                                                                         |                                                    |                     |                                                                                  |          |        |                         |         |        |        |                                          |         |        |        |         |         |        |        |         |          |       
|                                                                         |                                                    |                     | Net loss                                                                         |          | $      | (4,178                  | )       |        | $      | (73,703                                  | )       |        | $      | (24,547 | )       |        | $      | (54,521 | )        |        | $       | (126,150 | )    
|                                                                         |                                                    |                     |                                                                                  |          |        |                         |         |        |        |                                          |         |        |        |         |         |        |        |         |          |       
|Net loss applicable to common stockholders-
Basic and Diluted            |                                                    | $                   | (4,495                                                                           | )        |        | $                       | (73,703 | )      |        | $                                        | (27,019 | )      |        | $       | (55,071 | )      |        | $       | (126,150 | )     
|                                                                         |                                                    |                     |                                                                                  |          |        |                         |         |        |        |                                          |         |        |        |         |         |        |        |         |          |       
|Net loss per share applicable to common
stockholders- Basic and Diluted: |                                                    |                     |                                                                                  |          |        |                         |         |        |        |                                          |         |        |        |         |         |        |        |         |          |       
|                                                                         |                                                    |                     | Loss before cumulative effect of
change in accounting principle                  |          | $      | (1.22                   | )       |        | $      | (18.97                                   | )       |        | $      | (3.64   | )       |        | $      | (2.29   | )        |        | $       | (2.08    | )    
|                                                                         |                                                    |                     | Cumulative effect of change in accounting
principle                              |          |        |                        |         |        |        |                                         |         |        |        |        |         |        |        |        |          |        |         | (2.52    | )    
|                                                                         |                                                    |                     |                                                                                  |          |        |                         |         |        |        |                                          |         |        |        |         |         |        |        |         |          |       
|                                                                         |                                                    |                     |                                                                                  | Net loss |        | $                       | (1.22   | )      |        | $                                        | (18.97  | )      |        | $       | (3.64   | )      |        | $       | (2.29    | )      |         | $        | (4.60 | )
|                                                                         |                                                    |                     |                                                                                  |          |        |                         |         |        |        |                                          |         |        |        |         |         |        |        |         |          |       
|Number of shares used for computation-
Basic and Diluted                 |                                                    |                     | 3,683                                                                            |          |        |                         | 3,886   |        |        |                                          | 7,433   |        |        |         | 24,092  |        |        |         | 27,409   |       
|                                                                         |                                                    |                     |                                                                                  |          |        |                         |         |        |        |                                          |         |        |        |         |         |        |        |         |          |       

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|                             |                                                                 |  |               |                |                         |       |      |         |      |         |      |          |      |      |   |         |   |         |   |         |   |         |  
|---------------------------- | --------------------------------------------------------------- |  | ------------- | -------------- | ----------------------- | ----- | ---- | ------- | ---- | ------- | ---- | -------- | ---- | ---- | - | ------- | - | ------- | - | ------- | - | ------- | -
|                             |                                                                 |  |               |                | Year Ended December 31,
|                             |                                                                 |  |               |                |                        
|                             |                                                                 |  |               |                | 1998                    |       | 1999 |         | 2000 |         | 2001 |          | 2002
|                             |                                                                 |  |               |                |                         |       |      |         |      |         |      |          |     
|                             |                                                                 |  |               | (In thousands)
|Other Operating Data:        |                                                                 |  |               |                |                         |       |      |         |      |         |      |          |      |      |   |         |   |         |   |        
|Computation of EBITDA (a)(b) |                                                                 |  |               |                |                         |       |      |         |      |         |      |          |      |      |   |         |   |         |   |        
|                             | Loss before cumulative effect of change in
accounting principle |  | $             | (4,178         | )                       |       | $    | (73,703 | )    |         | $    | (24,547  | )    |      | $ | (54,521 | ) |         | $ | (57,135 | )
|                             | Income tax expense (benefit)                                    |  |               | (2,631         | )                       |       |      | 2,180   |      |         |      | 287      |      |      |   | 20      |   |         |   | (276    | )
|                             | Interest expense                                                |  |               | 4,312          |                         |       |      | 6,516   |      |         |      | 10,881   |      |      |   | 12,217  |   |         |   | 2,568   |  
|                             | Reduction in interest under settlement                          |  |               |               |                         |       |      |        |      |         |      |         |      |      |   |        |   |         |   | (1,029  | )
|                             | Depreciation and amortization expense                           |  |               | 6,244          |                         |       |      | 7,242   |      |         |      | 12,639   |      |      |   | 25,064  |   |         |   | 21,987  |  
|                             |                                                                 |  |               |                |                         |       |      |         |      |         |      |          |      |      |   |         |   |         |   |         |  
|                             |                                                                 |  | EBITDA (a)(b) |                | $                       | 3,747 |      |         | $    | (57,765 | )    |          | $    | (740 | ) |         | $ | (17,220 | ) |         | $ | (33,885 | )
|                             |                                                                 |  |               |                |                         |       |      |         |      |         |      |          |      |      |   |         |   |         |   |         |  
|Cash Flow Data:              |                                                                 |  |               |                |                         |       |      |         |      |         |      |          |      |      |   |         |   |         |   |        
|Cash provided (used) by:     |                                                                 |  |               |                |                         |       |      |         |      |         |      |          |      |      |   |         |   |         |   |        
|                             | Operating activities                                            |  | $             | (18,181        | )                       |       | $    | (9,873  | )    |         | $    | (84,062  | )    |      | $ | 75,543  |   |         | $ | 22,779  |  
|                             | Investing activities                                            |  |               | (21,924        | )                       |       |      | 17,752  |      |         |      | (171,428 | )    |      |   | (16,772 | ) |         |   | (7,779  | )
|                             | Financing activities                                            |  |               | 38,851         |                         |       |      | (7,786  | )    |         |      | 288,937  |      |      |   | (78,762 | ) |         |   | (27,551 | )

|                           |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|-------------------------- |  | -------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                           |  | December 31,  
|                           |  |               
|                           |  | 1998           |         | 1999 |  | 2000 |         | 2001 |  | 2002
|                           |  |                |         |      |  |      |         |      |  |     
|                           |  | (In thousands)
|Balance Sheet Data:        |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Total assets               |  | $              | 190,666 |      |  | $    | 131,129 |      |  | $    | 535,445 |  |  | $ | 322,639 |  |  | $ | 172,216 | 
|Total debt                 |  |                | 54,983  |      |  |      | 42,994  |      |  |      | 152,854 |  |  |   | 43,830  |  |  |   | 10,856  | 
|Stockholders equity       |  |                | 94,979  |      |  |      | 21,278  |      |  |      | 244,671 |  |  |   | 230,132 |  |  |   | 104,011 | 
|Total invested capital (c) |  |                | 149,962 |      |  |      | 64,272  |      |  |      | 397,525 |  |  |   | 273,962 |  |  |   | 114,867 | 
|Liquidity Data:            |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Working capital (d)        |  | $              | 59,037  |      |  | $    | 26,232  |      |  | $    | 216,416 |  |  | $ | 105,530 |  |  | $ | 50,372  | 



---

|(a) |  | EBITDA is presented because we
believe it is an indicator of our ability to incur and service debt and to fund capital expenditures. An
EBITDA-based calculation is also used by our lenders in determining
compliance with certain financial covenants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|(b) |  | The primary measure of operating performance is net income (loss).
EBITDA should not be construed as alternatives to net
income (loss), determined in accordance with generally accepted
accounting principles, or GAAP, as an indicator of operating performance,
as a measure of liquidity or as an alternative to cash flows from
operating activities determined in accordance with GAAP. We believe the
presentation of these additional financial performance indicators is
beneficial to investors since they provide an additional perspective from
which to evaluate our company. However, in evaluating alternative
measures of operating performance, it is important to understand that
there are no standards for these calculations. Accordingly, the lack of
standards can result in subjective determinations by management about
which items may be excluded from the calculations, as well as the
potential for inconsistencies between different companies that have
similarly titled alternative measures. For example, the calculation of
EBITDA in our amended credit agreement with Citibank is different than
the calculation of EBITDA shown above.
|   
|(c) |  | Total invested capital represents total debt plus total stockholders
equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(d) |  | Working capital represents total current assets less total current
liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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

The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the related notes, and the other financial information included
in this report. This discussion and analysis contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in Factors That May
Affect Future Results below and elsewhere in this report.

Organization and Basis of Financial Presentation

Suntron Corporation is a provider of vertically integrated electronics
manufacturing solutions, supplying high-mix services for the aerospace and
defense, semiconductor capital equipment, industrial controls, instrumentation,
medical, networking, and telecommunications industries. Our manufacturing
services include printed circuit card assembly, cable and harness production,
plastic injection molding, sheet metal, engineering services, and full systems
integration, testing, and after-market repair and warranty services. High-mix
manufacturing involves processing small lots in a flexible manufacturing
environment. Our success in the marketplace is a direct result of our ability
to provide intelligent solutions tailored to match customer requirements, while
meeting the highest quality standards in the industry.

Suntron was formed as a holding company for the purpose of effecting the
business combination of EFTC Corporation and K*TEC Operating Company, L.L.C.
(formerly known as Thayer-Blum Funding II, L.L.C.) and its wholly owned
subsidiary, K*TEC Electronics Holding Corporation. This business combination
was completed on February 28, 2002 and, in connection with the combination,
EFTC and K*TEC each became a wholly owned subsidiary of Suntron. As a result
of the combination, the former holder of membership interests in K*TEC received
15,119,356 shares of Suntron common stock, and the former stockholders of EFTC
received .25 shares of Suntron common stock for each share of EFTC common
stock, resulting in the issuance of an additional 12,290,032 shares of Suntron
common stock.

The combination was accounted for as a reorganization of entities under
common control. Accordingly, our consolidated financial statements included
herein have been retroactively restated to include the combined results of EFTC
since its inception and K*TEC since October 10, 2000 (the date that common
control was established).

Information About Our Business

As an electronic manufacturing services company, many of our customers are
original equipment manufacturers, or OEMs, that have designed their own
products. Our customers request proposals that include key terms such as
quality, delivery, and the price to purchase the materials and perform the
manufacturing services to make one or more components or assemblies. Generally,
the component or assembly that we manufacture is delivered to the customer
where it is then integrated into their final product. We price new business
with our customers by obtaining raw material quotes from our suppliers and then
estimating the amount of labor and overhead that will be required to make the
products.

Before we begin a customer relationship, we typically enter into
arrangements that are intended to protect us in case a customer cancels an
order after we purchase the raw materials to fill that order. In these
circumstances, the customer is generally required to purchase the materials or
reimburse us if we incur a loss from liquidating the raw materials.

The electronics manufacturing services industry is extremely dynamic and
our customers make frequent changes to their orders. The magnitude and
frequency of these changes make it difficult to predict revenues beyond the
next quarter, and even relatively short-term forecasts may prove inaccurate
depending on changes in economic, political, and military factors, as well as
unexpected customer requests to delay shipments near the end of our fiscal
quarters. These changes in customer orders also cause substantial difficulties
in managing inventories, which often leads to excess inventories and the need
to recognize losses on inventories. However, from time to time, we may also
have difficulties obtaining certain electronic components that are in short
supply, which can result in a decision to purchase some materials before formal
notice of demand is received from our customer. In addition, our inventories
consist of over 150,000 different parts and many of these parts have limited
alternative uses or markets,

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beyond the products that we manufacture for our
customers. When we liquidate excess materials through an inventory broker or
auction, we often realize less than the original cost of the materials, and in
some cases we determine that there is no market for the excess materials.

The most common reasons we incur losses related to inventories are if we
purchase more materials than are necessary to meet a customers requirements or
if we fail to act promptly to minimize losses once the customer communicates a
cancellation. Occasionally it is not clear what action caused an inventory loss
and there is a shared responsibility whereby our customers agree to negotiate a
settlement with us. Accordingly, management continually evaluates inventory
on-hand, forecasted demand, contractual protections, and net realizable values
in order to determine whether an adjustment to the carrying amount of inventory
is necessary. When the relationship with a customer terminates, we tend to be
more vulnerable to inventory losses because the customer may be reluctant to
accept responsibility for the remaining inventory if a product is at the end of
its life cycle. We can also incur inventory losses if a customer becomes
insolvent and the materials do not have alternative uses or markets into which
we can sell them.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires that we
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to bad debts, inventories, property, plant and equipment,
intangible assets, income taxes, warranty obligations, restructuring-related
obligations, and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. We cannot assure you that actual results will not differ
from those estimates. We believe the following critical accounting policies
affect our more significant judgments and estimates used in the preparation of
our consolidated financial statements.

Write-Downs for Obsolete and Slow-Moving Inventories.Our judgments about
excess and obsolete inventories are especially difficult because (i) hundreds
of different components may be associated with a single product we manufacture
for a customer, (ii) we make numerous products for most of our customers, (iii)
even though we are engaged in the electronic manufacturing services industry,
most of our customers are engaged in diverse industries, and (iv) all of our
customers experience dynamic business environments affected by a wide variety
of economic, political, and regulatory factors. This complex environment
results in positive and negative events that can change daily and which affect
judgments about future demand for our manufacturing services and the amounts we
can realize when it is not possible to liquidate inventories through production
of finished products.

We frequently review customer demand to determine if we have excess raw
materials that will not be consumed in production. In determining demand we
consider firm purchase orders and forecasts of demand submitted by our
customers. If we determine that excess inventories exist and that the customer
is not contractually obligated for the excess inventories, we need to make
judgments about whether unforecasted demand for those materials is likely to
occur or the amount we would likely realize in the sale of this material
through a broker or auction. If we determine that future demand from the
customer is unlikely, we write down our inventories to the extent that the cost
of the inventory exceeds the estimated market value.

If actual market conditions are less favorable than those projected by
management, additional inventory write-downs may be required in future periods.
Likewise, if we underestimate contractual recoveries from customers or future
demand, hindsight may indicate that we over-reported our costs of goods sold in
earlier periods, which results in the recognition of additional gross profit at
the time the material is used in production and the related goods are sold.
Therefore, although we make every effort to ensure the accuracy of our
forecasts of future product demand, any significant unanticipated changes in
demand or the outcome of customer negotiations with respect to the enforcement
of contractual provisions, could have a significant impact on the value of our
inventory and our reported operating results.

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Allowance for Doubtful Accounts Receivable.We maintain allowances for
doubtful accounts for estimated losses resulting from the inability of our
customers to make required payments, as well as to provide for adjustments
related to pricing and quantity differences. If the financial condition of our
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances would be required.

Impairment of Long-Lived Assets.When we undergo changes in our business,
including the closure or relocation of facilities, we often have equipment and
other long-lived assets that are no longer needed in continuing operations.
When this occurs, we are required to estimate future cash flows and if such
cash flows are less than the carrying value of the assets (or asset group, as
applicable), we recognize impairment charges to reduce the carrying value to
estimated fair value. The determination of future cash flows and fair value
tend to be highly subjective estimates. When assets are held for sale and the
actual market conditions deteriorate, or are less favorable than those
projected by management, additional impairment charges may be required in
subsequent periods.

Effective January 1, 2002, we were required to adopt a new accounting
standard that changed the method for evaluating impairment of goodwill. In
order to comply with this standard we engaged an independent business valuation
firm to determine the fair value of each reporting unit that had goodwill
associated with it. The valuation of reporting units is a highly subjective
process that can be influenced by a wide range of factors including historical
and forecasted results for the reporting unit, interest rates, and political,
regulatory, and economic conditions. Because of the volatility of these
factors, a significant reduction in the value of a reporting unit may occur in
a relatively short period of time, which could result in a material charge for
impairment. Effective January 1, 2002, we implemented this new accounting
standard and were required to recognize an impairment charge of $69.0 million
related to the K*TEC reporting unit. We are required to evaluate potential
impairment of goodwill related to other reporting units at least annually and,
depending on changes in the fair value of those reporting units at future
testing dates, we may need to recognize additional impairment losses that could
have a material adverse impact on our results of operations.

Accrual of Lease Exit Costs.When we undertake restructuring activities
and decide to close a plant that we occupy under a non-cancelable operating
lease, we are required to estimate how long it will take to locate a new tenant
to sublease the facility and to estimate the rate that we are likely to receive
when a tenant is located. Accordingly, we will incur additional lease exit
charges in future periods if our estimates of the rate or timing of sublease
payments turns out to be less favorable than our current expectations. We also
consider the estimated cost of building improvements, brokerage commissions,
and any other costs we believe will be incurred in connection with the
subleasing process. The precise outcome of most of these factors is difficult
to predict. We review our estimates at least quarterly, including consultation
with our commercial real estate advisors to assess changes in market
conditions, feedback from parties that have expressed interest, and other
information that we believe is relevant to most accurately reflect the expected
outcome of obtaining a subtenant to lease the facility. Commercial real estate
conditions are currently very poor in the areas that we are attempting to
sublease closed facilities, and we believe our estimates have appropriately
considered these conditions. As discussed under Impact of Recently Issued
Accounting Standardson page 20, new accounting rules are effective for all
restructuring activities after December 31, 2002.

For a detailed discussion on the application of these and other accounting
policies, see Note 1 in our audited consolidated financial statements referred
to in Item 8 of this Report.

Overview of Statement of Operations

We recognize revenue when title is transferred to our customers, which
predominantly occurs upon shipment from our facilities. Our gross sales are
reduced by an allowance for returns to arrive at the net sales reported in our
financial statements.

Cost of goods sold includes materials, labor, and overhead expenses
incurred in the manufacture of our products. Cost of goods sold also includes
charges for obsolete and slow moving inventories and charges for impairment of
long-lived assets used in our manufacturing operations. Many factors affect
our gross margin, including capacity utilization, product mix, and production
volume.

Selling, general, and administrative expenses primarily include the
salaries for executive, finance, accounting, and human resources personnel;
salaries and commissions paid to our internal sales force and external

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sales representatives and marketing costs; insurance expenses; depreciation expense
related to assets not used in manufacturing activities; and professional fees
for auditing and legal assistance and general corporate expenses.

Severance, retention, closure and relocation costs primarily related to
costs associated with the closure of administrative offices in 2000 and
severance costs due to reductions in our administrative workforce. Severance,
retention, relocation and closure costs that relate to manufacturing activities
are included in cost of goods sold.

Recapitalization transaction costs consist of financial advisory fees and
legal, accounting and consulting fees related to the recapitalization
transaction for EFTC that was completed in 2000. Merger transaction costs
relate primarily to costs incurred in connection with the business combination
between EFTC and K*TEC, which is described in Note 2 of our consolidated
financial statements included in this Report. The costs included fees primarily
related to professional fees and printing costs for the combination and related
Securities and Exchange Commission filings. The business combination was
accounted for as a reorganization of entities under common control, and,
accordingly, these costs were charged to operations in the period when the
costs were incurred.

Related party fees include management fees and advisory fees paid to
affiliates of our majority stockholder.

Impairment of long-lived assets reflects charges related to administrative
assets; impairment of manufacturing assets is included in cost of goods sold.

Goodwill amortization expenses include the amortization of goodwill
relating to the 1997 acquisition of Current Electronics, Inc. and the 2000
acquisition of K*TEC Electronics Holding Corporation. Effective January 1,
2002, goodwill was no longer permitted to be amortized when Statement of
Financial Accounting Standards No. 142 became effective.

Interest expense relates to our senior credit facilities and other
long-term debt obligations. Interest expense also includes the amortization of
debt issuance costs.

Results of Operations

Our results of operations are affected by several factors, primarily the
level and timing of customer orders (especially orders from our top three
customers, Honeywell, Applied Materials, and Emulex). The level and timing of
orders placed by a customer vary due to the customers attempts to balance its
inventory, changes in the customers manufacturing strategy, and variation in
demand for its products due to, among other things, product life cycles,
competitive conditions, and general economic conditions. In the past, changes
in orders from customers have had a significant effect on our quarterly results
of operations. The following table sets forth certain operating data as a
percentage of net sales for the years ended December 31, 2000, 2001, and 2002.

|                              |                                                     |                         |       |      |      |      |       |      |      |    |       |      |       |   
|----------------------------- | --------------------------------------------------- | ----------------------- | ----- | ---- | ---- | ---- | ----- | ---- | ---- | -- | ----- | ---- | ----- | --
|                              |                                                     |                         |       | 2000 |      | 2001 |       | 2002
|                              |                                                     |                         |       |      |      |      |       |     
|Net sales                     |                                                     |                         | 100.0 | %    |      |      | 100.0 | %    |      |    | 100.0 | %   
|Cost of goods sold            |                                                     |                         | 94.8  | %    |      |      | 100.8 | %    |      |    | 107.5 | %   
|                              |                                                     |                         |       |      |      |      |       |      |      |    |       |     
|                              | Gross profit (loss)                                 |                         |       | 5.2  | %    |      |       | (0.8 | )%   |    |       | (7.5 | )%   
|Operating costs and expenses: |                                                     |                         |       |      |      |      |       |      |      |    |       |     
|                              | Selling, general, and administrative                |                         |       | 5.8  | %    |      |       | 5.2  | %    |    |       | 7.4  | %    
|                              | Severance, retention, closure, and relocation costs |                         |       | 1.0  | %    |      |       |     |      |    |       |     |      
|                              | Recapitalization and merger transaction costs       |                         |       | 1.2  | %    |      |       | 0.4  | %    |    |       | 0.1  | %    
|                              | Related party management and advisory fees          |                         |       | 0.6  | %    |      |       | 0.7  | %    |    |       | 0.2  | %    
|                              | Impairment of long-lived assets                     |                         |       | 0.4  | %    |      |       |     |      |    |       |     |      
|                              | Goodwill amortization                               |                         |       | 0.2  | %    |      |       | 0.5  | %    |    |       |     |      
|                              |                                                     |                         |       |      |      |      |       |      |      |    |       |     
|                              |                                                     | Operating income (loss) |       |      | (4.0 | )%   |       |      | (7.6 | )% |       |      | (15.2 | )%
|                              |                                                     |                         |       |      |      |      |       |      |      |    |       |     

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Year Ended December 31, 2001 Compared to Year Ended December 31, 2002

Net Sales.Net sales decreased $203.6 million, or 35.4%, from $574.4
million in 2001 to $370.8 million in 2002. This decrease in 2002 net sales was
primarily attributable to significant decreases in net sales across our
customer base, including decreases with Honeywell and Emulex of $133.5 million
and $32.9 million, respectively. The decrease in net sales in 2002 was
primarily attributable to significant downturns in the industries that our
major customers are engaged in, including aerospace and networking equipment.
During 2002, our net sales included $24.2 million of excess inventories that
were sold back to our customers pursuant to contractual provisions of our
customer agreements. The decrease in net sales in 2002 was partially offset by
$20.9 million of net sales related to the March 2002 acquisition of the assets
of Midwestern Electronics, Inc.

For 2001, Honeywell, Applied Materials, and Emulex accounted for 50%, 15%,
and 11%, respectively, of our net sales. For 2002, Honeywell, Applied Materials
and Emulex accounted for 42%, 22%, and 9%, respectively, of our net sales.

For the first quarter of 2003, we do not expect a significant change from
the approximately $78 million of net sales that we reported in the fourth
quarter of 2002.

Gross Profit (Loss).Our gross profit decreased $23.3 million from a loss
of $4.7 million in 2001 to a loss of $28.0 million in 2002. Similarly, gross
profit as a percentage of net sales deteriorated from a loss of 0.8% of net
sales in 2001 to a loss of 7.5% of net sales in 2002, primarily due to $13.6
million of restructuring charges, unfavorable changes in product mix, our
inability to reduce fixed costs in proportion to the decline in net sales, and
nominal gross margins associated with $24.2 million of revenue from the sale of
excess inventories in 2002. These adverse changes were partially offset by a
$9.1 million reduction in write-downs resulting from excess and obsolete
inventories during 2002 compared to 2001.

During 2002, we decided to close manufacturing facilities in Ottawa,
Kansas and Fremont, California, and we took other actions to reduce the size of
our workforce. These activities resulted in total charges to cost of goods sold
of $13.6 million. The $13.6 million charge consists of $10.1 million for lease
exit costs; $2.8 million for impairment of a building and manufacturing
equipment; and $0.7 million for severance, retention, and moving costs. The
benefits of these restructuring activities are not expected to be fully
realized until the first quarter of 2003.

During 2001, we assessed certain long-lived assets for impairment related
to the planned move to a new facility in the Northeast, and the abandonment of
manufacturing-related software that is no longer expected to be used. Due to
changes in our customers and product mix, we also assessed the carrying value
of intellectual property and manufacturing equipment related to those customers
during 2001. Accordingly, we recognized an impairment expense of $1.3 million
that was included in cost of goods sold in 2001. During 2001, we also
recognized charges of $1.4 million for severance costs related to workforce
reductions and $0.1 million for lease exit cost related to facility closures.

Inventory write-downs decreased $9.1 million from $14.5 million, or 2.5%
of net sales in 2001 to $5.4 million, or 1.5% of net sales, in 2002. This
reduction in inventory write-downs resulted primarily from our substantial
efforts over the past year to improve our inventory management processes and to
work more closely with our customers to minimize losses due to excess
inventories.

Selling, General and Administrative Expenses.Selling, general and
administrative expenses (SG & A) decreased $2.4 million, or 8.1%, from $29.6
million in 2001 to $27.2 million in 2002. The decrease in SG & A in 2002 was
primarily attributable to a reduction in selling related expenses, partially
offset by an increase in professional fees.

Severance, Retention, Closure and Relocation Costs.The income statement
caption for severance, retention, closure and relocation costs (SCRC) only
includes costs that were unrelated to manufacturing activities. In 2001 and
2002, we incurred SCRC costs of $0.2 million, primarily for severance costs
related to the termination of administrative employees.

Recapitalization and Merger Transaction Costs.In 2001, we incurred
costs, primarily for a fairness opinion and professional fees, of $2.4 million
related to the business combination between EFTC and K*TEC.

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During 2002, we incurred additional costs of $0.3 million, primarily for professional fees and
printing costs. This business combination, which was completed on February 28,
2002, was accounted for as a reorganization of entities under common control
and, accordingly, these costs were charged to operations in the period in which
the costs were incurred.

Related Party Fees.Related party fees decreased $3.0 million, or 77.7%,
from $3.8 million in 2001 to $0.8 million in 2002. In 2001, affiliates of our
majority stockholder charged fees of $1.8 million for investment advisory
services related to the credit facility entered into in January 2001 with
Citibank and $0.7 million in connection with the merger of EFTC and K*TEC.
During 2001, affiliates of our majority stockholder charged management fees of
$1.3 million. Effective March 1, 2002, a new management fee arrangement was
effective which provides for annual fees of $0.8 million.

Goodwill amortization.During 2001, goodwill amortization included $0.3
million related to the 1997 acquisition of Current Electronics, Inc. and $2.6
million related to the 2000 acquisition of K*TEC from Kent Electronics.
Effective January 1, 2002, goodwill was no longer permitted to be amortized
when Statement of Financial Accounting Standards No. 142 became effective.

Interest Expense.Interest expense decreased $9.6 million, or 79.0%, from
$12.2 million in 2001 to $2.6 million in 2002, primarily due to a decrease in
average outstanding borrowings. Our weighted average borrowings decreased from
$85.9 million in 2001 to $16.7 million in 2002. Our weighted average interest
rate (computed without regard to amortization of debt issuance costs) also
decreased from 9.9% in 2001 to 9.4% in 2002. The most significant event leading
to lower borrowings and interest rates in 2002 was the May 2001 conversion to
common stock of over $59 million of Convertible Notes held by Thayer-Blum
Funding. These notes accrued interest at 8.875% and were converted to 5,940,837
shares of Suntron common stock in May 2001 as a condition of the K*TEC merger
agreement.

Lower interest rates on our revolving credit facilities in 2002 also
contributed to the reduction in interest expense. The prime rate decreased by
approximately 4.75 percentage points during 2001 and the prime rate decreased
by one-half percentage point in 2002. These reductions in the prime rate also
had a favorable impact because the interest rate on the revolving line of
credit is a variable rate based on the prime and LIBOR rates. However, the
positive impact of lower prime and LIBOR rates in 2002 was partially offset by
an increase in the margin in excess of these rates due to the November 2001
amendment to our credit agreement with Citibank. Additionally, as we reduce the
principal balance on the revolver, we are still subject to a 0.5% commitment
fee on the unused portion of the facility and these fees accounted for about
two percentage points of our 9.4% effective interest rate in 2002.

A portion of the purchase price for the October 2000 acquisition of K*TEC
was subject to a dispute that was expected to be resolved through arbitration
proceedings. On May 7, 2002, the parties agreed to settle the dispute, and the
$12.2 million principal balance of a note payable to the former owner was
reduced by $6.9 million, resulting in an adjusted principal balance of $5.3
million. This note, which provided for interest at 14%, was repaid in May 2002.
This settlement also resulted in a $1.0 million benefit in 2002 due to
elimination of previously accrued interest on the portion of the principal
balance that was eliminated in the settlement.

Gain (Loss) on Sale of Assets.In April 2001, we entered into a
settlement agreement with respect to the earn-out calculation related to the
1999 sale of our Services Division. As a result of this agreement, we received
a final payment of $0.6 million that accounted for $0.6 million of the gain on
sale of assets in 2001. In 2001, we also recognized a gain of $0.2 million from
the sale of equipment. In 2002, we recognized a loss from the sale of equipment
for $0.2 million.

Income Taxes.K*TEC and EFTC reported their results separately for income
tax purposes in 2000 and 2001. In 2000, K*TEC generated earnings that resulted
in an income tax provision of $0.3 million. In 2001, K*TEC incurred a
significant net loss which resulted in a tax benefit of $0.3 million. However,
in 2001 EFTC generated earnings that resulted in alternative minimum tax
liability of $0.3 million, resulting in nominal tax expense for 2001 on a
combined basis. In 2002, the tax laws changed and the alternative minimum tax
liability that we accrued in 2001 was eliminated, resulting in a tax benefit of
$0.3 million for 2002.

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Cumulative Effect of Change in Accounting for Goodwill.During the first
quarter of 2002, we adopted the provisions of Statement of Financial Accounting
Standards No. 142, which resulted in the requirement to perform a periodic
impairment test, using a two-step process. The first step is to identify if
potential impairment of goodwill exists. If impairment of goodwill is
determined to exist, the second step of the goodwill impairment test measures
the amount of the impairment loss, using a fair value-based approach.

We engaged an independent firm specializing in valuation services to
assist in the determination if impairment of goodwill should be recognized
under Statement 142. We concluded that goodwill related to the K*TEC reporting
unit was impaired for the entire carrying value, which resulted in an
impairment loss of $69.0 million. This impairment loss was recorded as the
cumulative effect of a change in accounting principle.

Year Ended December 31, 2000 Compared to Year Ended December 31, 2001

Net Sales.Net sales increased $111.3 million, or 24.0%, from $463.1
million in 2000 to $574.4 million in 2001. This increase in net sales in 2001
was primarily attributable to a full year of operations related to the October
2000 acquisition of K*TEC. Net sales related to the customers of K*TEC
accounted for $135.7 million of net sales in 2000 and $226.4 million in 2001,
an increase of $90.7 million. The increase in net sales in 2001 was also
attributable to an increase of approximately $51.7 million in sales to
Honeywell. Despite the overall increase in net sales in 2001, we experienced
sequential quarterly declines in net sales throughout 2001, which was primarily
attributable to significant downturns in the industries that our major
customers are engaged in, including aerospace, semiconductor capital equipment
and networking equipment.

For 2000, Honeywell, Applied Materials, and Emulex accounted for 51%, 15%,
and 6%, respectively, of our net sales. For 2001, Honeywell, Applied Materials
and Emulex accounted for 50%, 15%, and 11%, respectively, of our net sales.

Gross Profit (Loss).Our gross profit decreased $28.6 million from a
profit of $23.9 million in 2000 to a loss of $4.7 million in 2001. Similarly,
gross profit as a percentage of net sales deteriorated from a profit of 5.2% of
net sales in 2000 to a loss of 0.8% of net sales in 2001. During 2001, we began
experiencing sharp sequential reductions in quarterly net sales which resulted
in several facilities that were substantially under utilized. While we took
actions as described below, it was not possible to reduce fixed costs in
proportion to the drop in net sales. The decrease in gross profit in 2001 was
also attributable to an increase in losses due to excess and obsolete
inventories of $7.4 million, and an increase of $1.3 million in restructuring
charges.

In response to poor factory utilization in 2001, we decided to close a
manufacturing facility in Plano, Texas, and we took other actions to reduce the
size of our workforce. These activities resulted in total charges to cost of
goods sold of $2.8 million, including $1.4 million for severance and retention
payments related to workforce reductions and the relocation of certain
employees.

In connection with the relocation of our Northeast facility in 2001, we
assessed certain long-lived assets for impairment and we also decided to
abandon certain manufacturing-related software that is no longer expected to be
used. Due to changes in our customers and product mix, in 2001 we also assessed
the carrying value of intellectual property and manufacturing equipment related
to those customers. Accordingly, we recognized an aggregate impairment charge
of $1.3 million that was included in cost of goods sold in 2001.

Inventory write-downs increased $7.4 million, from $7.1 million or 1.5% of
net sales in 2000, to $14.5 million or 2.5% of net sales in 2001. This increase
in inventory write-downs in 2001 resulted primarily from the reduction in
demand that resulted from the precipitous decline in net sales that we
experienced during 2001.

Selling, General, and Administrative Expenses.Selling, general, and
administrative expenses (SG & A) increased $2.6 million, or 9.6%, from $27.0
million in 2000 to $29.6 million in 2001. In 2000, SG & A expenses included
$3.1 million for consulting services intended to accelerate operational
improvement at several of our facilities. SG & A in 2000 also included a charge
of $1.9 million for accelerated depreciation and amortization of assets that
were not expected to be utilized after the 2000 relocation of corporate
headquarters to Phoenix. Finally, the results in 2000 included approximately
$0.6 million for SG & A at divisions that were sold or closed by September
2000.

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In addition to the charges discussed above, the increase in SG & A during
2001 was attributable to the October 2000 acquisition of K*TEC, which accounted
for SG & A costs of $3.3 million in 2000 and $12.3 million in 2001. The 2001
increase in SG & A related to K*TEC was partially offset by reductions in
administrative expenditures as we reduced the administrative workforce and
other costs in response the lower levels of business activity as our sales
declined throughout the year.

Severance, Retention, Closure and Relocation Costs.The income statement
caption for severance, retention, closure and relocation costs (SCRC) only
includes such costs that were unrelated to manufacturing activities. We
recognized SCRC charges totaling $4.6 million in 2000 for severance,
recruiting, and other costs associated with changes in management and the
relocation of corporate headquarters. In 2001, we incurred SCRC costs of $0.2
million, primarily for severance costs related to the termination of
administrative employees.

Recapitalization and Merger Transaction Costs.In March 2000, we
completed the first stage of a recapitalization that resulted in a cash
infusion of $68.0 million. In connection with this transaction, we incurred
charges totaling $5.3 million, including $1.6 million for financial advisor
fees paid to unrelated parties, a fee of $0.8 million paid to Thayer-Blum
Funding, costs of $0.8 million related to a shareholder meeting to approve the
recapitalization, and costs for legal, accounting, and management consultant
services of $2.1 million. We capitalized costs associated with the issuance of
senior subordinated exchangeable notes and a revolving credit agreement, and
all other costs were charged to operations in 2000.

In 2001, we incurred costs, primarily for a fairness opinion and
professional fees, of $2.4 million related to the business combination between
EFTC and K*TEC. This business combination, which was initiated in May 2001 and
completed in February 2002, was accounted for as a reorganization of entities
under common control. Accordingly, these costs were charged to operations in
the period in which the costs were incurred.

Related Party Fees.Related party fees increased $1.0 million, or 38.2%,
from $2.7 million in 2000 to $3.7 million in 2001. In 2000, affiliates of our
majority stockholder charged fees of $2.3 million for investment advisory
services related to the October 2000 purchase of K*TEC from Kent Electronics.
In 2001, affiliates of our majority stockholder charged fees of $1.8 million
for investment advisory services related to the credit facility entered into in
January 2001 with Citibank and $0.7 million in connection with the merger of
EFTC and K*TEC. During 2000, affiliates of our majority stockholder charged
management fees of $0.4 million and in 2001 management fees amounted to $1.3
million.

Impairment of Long-lived Assets.In 2000, we recognized an impairment
charge of $1.7 million, including $1.3 million for software that we decided to
abandon. During 2001, we recognized impairment of manufacturing assets, but the
amounts were charged to cost of goods sold as discussed above under the caption
Gross Profit.

Goodwill amortization.During 2000, goodwill amortization included $0.3
million related to the 1997 acquisition of Current Electronics, Inc. and $0.6
million related to the 2000 acquisition of K*TEC from Kent Electronics. During
2001, goodwill amortization included $0.3 million related to the 1997
acquisition of Current Electronics, Inc. and $2.6 million related to the 2000
acquisition of K*TEC.

Interest Expense.Interest expense increased $1.3 million, or 12.3%, from
$10.9 million in 2000 to $12.2 million in 2001. The increase in interest
expense in 2001 was primarily due to the November 2001 amendment to our
Citibank credit facility, which resulted in $2.6 million of accelerated
amortization. This charge was partially offset by lower rates on our revolving
credit facilities due to reductions in prime and LIBOR interest rates. The
prime rate increased by one percentage point in 2000, followed by a decrease of
nearly five percentage points during 2001. The 2001 reductions in the prime
rate favorably impacted our interest expense, since the interest rates under
our revolving lines of credit fluctuate based on the prime and LIBOR rates.

Gain (Loss) on Sale of Assets.During 1999, we recognized a loss of $20.6
million in connection with the sale of substantially all of the assets of our
Services Division. The 1999 loss gave effect to the deferral of $2.5 million of
the proceeds for a post-closing earn-out contingency. During 2000, the
purchaser agreed to pay $1.9 million under the earn-out contingency provision
of the sales agreement. Accordingly, we recognized a gain of $4.4 million in
2000, consisting of $2.5 million of the 1999 proceeds that we were entitled to
retain and the additional consideration of $1.9 million that the purchaser
agreed to pay in 2000. However, in the fourth quarter of 2000 we notified the
purchaser that we believed we were entitled to a higher payment than their
calculation of $1.9 million.

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In April 2001, we entered into a settlement agreement with respect to the
earn-out calculation. As a result of this agreement, we received a final
payment of $0.6 million that accounted for $0.6 million of the gain on sale of
assets in 2001. In 2001, we also recognized a gain of $0.2 million from the
sale of equipment.

Income Taxes.K*TEC and EFTC reported their results separately for income
tax purposes in 2000 and 2001. In 2000, K*TEC generated earnings that resulted
in an income tax provision of $0.3 million.

In 2001, K*TEC incurred a significant net loss which resulted in a tax
benefit of $0.3 million. However, in 2001 EFTC generated earnings that resulted
in a tax liability of $0.3 million, resulting in nominal tax expense on a
combined basis.

Liquidity and Capital Resources

Cash Flows from Operating Activities.Net cash provided by operating
activities was $75.5 million in 2001 compared to $22.8 million in 2002. The
difference between our net loss in 2002 of $126.2 million and $22.8 million of
cash provided by operating activities was primarily attributable to the $69.0
million cumulative effect adjustment related to the change in accounting for
goodwill, a reduction in inventories of $42.9 million, $22.0 million of
depreciation and amortization expense, an increase in liabilities for
severance, retention, closure and relocation costs of $8.5 million, a decrease
of $5.0 million in trade receivables, and $2.8 million of impairment expense,
partially offset by a decrease of $1.8 million in accrued compensation and
benefits.

Days sales outstanding (based on net sales for the year and net trade
receivables outstanding at the end of the year) amounted to 20 days in 2001 and
29 days in 2002.

Inventories decreased 36.9% to $67.4 million at December 31, 2002,
compared to $106.8 million at December 31, 2001. Inventory turns (i.e., cost of
goods sold for the year, excluding restructuring charges, divided by period end
inventory) amounted to 5.4 times in 2001, compared to 5.7 times in 2002. The
improvement in inventory turns in 2002 is due in part to our success in selling
excess inventories to our customers pursuant to contractual agreements with
those customers, and by effectively reducing the levels of inventories in
response to lower customer sales forecasts.

Cash Flows from Investing Activities.Net cash used by investing
activities in 2001 was $16.8 million, compared with net cash used by investing
activities of $7.8 million in 2002. Investing cash flows in 2002 reflect the
payment of approximately $5.5 million in March 2002 for the acquisition of the
assets of Midwestern Electronics, Inc., and $2.3 million for other capital
expenditures.

Cash Flows from Financing Activities.Net cash used by financing
activities in 2001 was $78.8 million, compared with net cash used by financing
activities of $27.6 million in 2002. During 2002, financing cash flows reflect
the net repayment of debt under revolving credit facilities of $21.0 million,
the repayment of $5.3 million of debt to the former parent of K*TEC, the
payment of $0.3 million of debt issuance costs related to the credit facility
with Citibank, and a decrease in outstanding checks in excess of cash balances
of $0.9 million.

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Contractual Obligations.The following table summarizes our contractual
obligations as of December 31, 2002 (Dollars in Thousands):

|                         |            |            |        |                |  |       |        |       |  |   |        |        | 
|------------------------ | ---------- | ---------- | ------ | -------------- |  | ----- | ------ | ----- |  | - | ------ | ------ | 
|                         |            | Long-term  |        | Non-cancelable |  |       |        |      
|                         |            | Debt       |        | Operating      |  |       |        |      
|                         |            | (Citibank) |        | Leases         |  | Total
|                         |            |            |        |                |  |      
|Year ending December 31: |            |            |        |                |  |       |        |       |  |   |        |       
|                         | 2003       |            | $      |               |  |       | $      | 8,937 |  |   | $      | 8,937  | 
|                         | 2004       |            |        |               |  |       |        | 7,264 |  |   |        | 7,264  | 
|                         | 2005       |            |        | 10,856         |  |       |        | 6,157 |  |   |        | 17,013 | 
|                         | 2006       |            |        |               |  |       |        | 5,676 |  |   |        | 5,676  | 
|                         | 2007       |            |        |               |  |       |        | 3,878 |  |   |        | 3,878  | 
|                         | After 2007 |            |        |               |  |       |        | 2,264 |  |   |        | 2,264  | 
|                         |            |            |        |                |  |       |        |       |  |   |        |       
|                         |            | $          | 10,856 |                |  | $     | 34,176 |       |  | $ | 45,032 |       
|                         |            |            |        |                |  |       |        |       |  |   |        |       

The amounts shown above for non-cancelable operating leases include $11.6
million, which has been included in the determination of our liability for
lease exit costs which is recorded on our balance sheet at December 31, 2002.
Accounting principles generally accepted in the United States require that we
record a liability for future lease payments, net of estimated sublease
rentals, for facilities that we have decided to close. Non-cancelable operating
lease obligations (net of the accrued liability for lease exit costs) represent
the only off-balance-sheet financing activities into which we have entered.

We believe we will be able to fund the non-cancelable operating lease
obligations from operating cash flows during the periods that payments are
required. If we have not repaid outstanding borrowings from cash flow that may
be generated over the next three years, upon maturity of the Citibank credit
facility in 2005, we currently intend to enter into negotiations for a new
credit agreement that provides for an extension of the maturity date. However,
there can be no assurance that we will be successful in this regard.

Capital Resources.Our working capital at December 31, 2002 totaled $50.4
million compared to $105.5 million at December 31, 2001. The $55.1 million
decrease in working capital was primarily attributable to a $39.4 million
reduction in inventories and a $12.6 million reduction in cash and equivalents.

At December 31, 2002, the borrowing base under our $75.0 million revolving
credit facility with Citibank would have supported borrowings up to $54.3
million, and we had outstanding borrowings of approximately $10.9 million and
an outstanding letter of credit of $0.3 million under this credit facility.
Accordingly, as of December 31, 2002, we had unused availability of $43.1
million. At December 31, 2002, we also had cash and equivalents of $1.6
million, resulting in aggregate existing capital resources of $44.7 million.

On February 28, 2002, the combination of EFTC and K*TEC was completed, and
EFTC and K*TEC became wholly owned subsidiaries of Suntron. The credit
facility with Bank of America, N.A. was repaid in March 2002, and we are now a
party to the credit facility with Citibank, N.A. that K*TEC entered into in
January 2001. As a result of the substantial net loss in 2002, we would have
violated year-end restrictive covenants for EBITDA and tangible net worth as
contained in the credit agreement with Citibank. On March 31, 2003, Citibank
agreed to a permanent waiver of the year-end covenant violations, as well as
expected violations of the same covenants for the first quarter of 2003. In
addition, on April 11, 2003, Citibank agreed to amend the credit facility to
provide less stringent covenants for EBITDA and tangible net worth, and we
believe we will be able to comply with the revised covenants. The amended
facility continues to provide a revolving line of credit of up to $75.0
million, and the maturity date was extended until April 2005. Borrowings under
the amended credit facility will bear interest at the prime rate plus 2.50% for
Base Rate borrowings and the LIBOR rate plus 3.75% for LIBOR Rate
borrowings. The credit agreement also limits or prohibits us from paying
dividends, incurring additional debt, selling significant assets, or merging
with other entities without the consent of the lenders. Substantially all of
our assets are pledged as collateral for outstanding borrowings.

Total borrowings are subject to limitation based on a percentage of
eligible accounts receivable, inventories, real estate, and equipment. During
the first quarter of 2003, updated inventory and equipment appraisals related
to the borrowing base determinations were completed. After giving effect to the
revised appraisals and other

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changes resulting from the April 2003 amendment,
the borrowing base calculation would have permitted borrowings up to $46.9
million as of April 11, 2003. After deducting outstanding borrowings of $17.4
million, we had additional borrowing availability of approximately $29.5
million under the amended credit facility as of April 11, 2003.

We believe that adequate capital resources are in place to fund our
working capital and other cash requirements for the next 12 months. However,
depending on the amount of capital resources that are devoted to any future
acquisitions of businesses, and increased working capital requirements if sales
levels increase significantly, we may need to seek additional funds through
public or private debt or equity offerings, bank borrowings, or leasing
arrangements.

The continued availability of our credit facility with Citibank is a
critical assumption underlying our belief that adequate capital resources are
currently in place to fund our planned activities for the next 12 months. The
borrowing base calculation under this credit facility is based on a percentage
of eligible receivables and inventories, plus the appraised value of certain
real estate and equipment. Accordingly, our borrowing availability decreases as
our net receivables and inventories decline. However, the borrowing base
generally increases as our receivables and inventories increase. If our sales
begin to increase rapidly, this credit facility is critical to enable us to
finance the increased working capital requirements associated with growth.

In order to ensure the continuing availability of funding under our credit
facility, we are required to comply with certain financial and reporting
covenants as discussed above. While the EBITDA financial covenant included in
the April 2003 amended credit agreement is less stringent than the previous
agreement, we will generally be required to demonstrate sequential quarterly
improvements in our financial performance beginning in the third quarter of
2003. If we violate the financial covenants in the future, there can be no
assurance that Citibank would waive our noncompliance. In these circumstances,
Citibank could elect to withdraw the credit facility, which would have a
material adverse effect on our liquidity and financial condition, resulting in
the need to seek other sources of financing. There can be no assurance that we
would be successful in securing additional financing, and even if we would be
successful, the terms may be less favorable than we currently have with
Citibank.

Impact of Recently Issued Accounting Standards

In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 143, Accounting for Asset Retirement Obligations. This standard
requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. When the liability
is initially recorded, the entity capitalizes a cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is accreted to
its present value each period, and the capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the liability, an entity
either settles the obligation for its recorded amount or incurs a gain or loss
upon settlement. This standard is effective for fiscal years beginning after
June 15, 2002, with earlier application encouraged. Management does not believe
the initial application of Statement 143 will have a significant impact on our
consolidated financial statements.

In July 2002, the FASB issued Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This standard requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by this standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity.
Previous accounting guidance was provided by EITF Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). Statement
146 replaces Issue 94-3. Statement 146 is to be applied prospectively to exit
or disposal activities initiated after December 31, 2002. Accordingly, plant
closures in Ottawa, Kansas and Fremont, California that were announced in the
third quarter of 2002 were not accounted for under Statement 146.

In December 2002, the FASB issued Statement No. 148, Accounting for
Stock-Based CompensationTransition and Disclosure. Statement 148 is effective
for fiscal years beginning after December 15, 2002 and amends Statement No.
123, Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, Statement 148 amends the
disclosure requirements of Statement 123 to require prominent disclosures in

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both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company adopted Statement 148 as of December 31, 2002. The effect
of the adoption of this statement was not material as the Company continues to
use the intrinsic value method allowed under Statement 123.

Factors That May Affect Future Results

An investment in our common stock involves a high degree of risk. You
should carefully consider the factors described below, in addition to those
discussed elsewhere in this report, in analyzing an investment in our common
stock. If any of the events described below occurs, our business, financial
condition, and results of operations would likely suffer, the trading price of
our common stock could fall, and you could lose all or part of the money you
paid for our common stock. In addition, the following factors could cause our
actual results to differ materially from those projected in our forward-looking
statements, whether made in this Form 10-K, our annual or quarterly reports to
stockholders, future press releases, other SEC filings, or orally, whether in
presentations, responses to questions, or otherwise. See Statement Regarding
Forward-Looking Statements.

We have experienced declining net sales.

Our net sales declined throughout 2001 from $197.9 million in the first
quarter to $86.0 million in the fourth quarter. During 2002, our net sales
have increased to $92.6 million in the first quarter, $100.4 million in the
second quarter and $99.5 million in the third quarter. For the fourth quarter
of 2002, we experienced a sharp decline in net sales to $78.3 million, as a
result of the continuing soft demand in the end markets served by our
customers, specifically aerospace and semiconductor capital equipment. For the
first quarter of 2003, we do not expect a significant change from the
approximately $78 million of net sales that we reported in the fourth quarter
of 2002.

We are dependent upon the highly competitive electronics industry, and excess
capacity or decreased demand for products produced by this industry could
result in increased price competition as well as a decrease in our gross
margins and unit volume sales.

Our business is heavily dependent on the electronics manufacturing
services industry, which is extremely competitive and includes hundreds of
companies. The contract manufacturing services we provide are available from
many independent sources, and we compete with numerous domestic and foreign
electronic manufacturing services firms, including Benchmark Electronics, Inc.;
Celestica Inc; Flextronics International Ltd.; Jabil Circuit, Inc.;
Manufacturers Services, Ltd.; Pemstar, Inc.; Plexus Corp.; Sanmina-SCI
Corporation; SMTC Corporation; Solectron Corporation; Sypris Electronics, LLC;
and others. Many of such competitors are more established in the industry and
have greater financial, manufacturing or marketing resources than we do. We may
be operating at a cost disadvantage as compared to our competitors that have
greater direct buying power from component suppliers, distributors, and raw
material suppliers and have lower cost structures. In addition, many of our
competitors have a broader geographic presence, including manufacturing
facilities in Asia, Europe, and South America.

We believe that the principal competitive factors in our targeted market
are quality, reliability, ability to meet delivery schedules, technological
sophistication, geographic location, and price. We also face competition from
our current and potential customers, who are continually evaluating the
relative merits of internal manufacturing versus contract manufacturing for
various products. As stated above, the price of our services is often one of
many factors that may be considered by prospective customers in awarding new
business. We believe existing and prospective customers are placing greater
emphasis on contract manufacturers that can offer manufacturing services in low
cost regions of the world, such as certain countries in Asia. Accordingly, in
situations where the price of our services is a primary driver in prospective
customers decision to award new business, we currently believe we may have a
competitive disadvantage in these circumstances.

A significant percentage of our net sales are generated from the
aerospace, semiconductor capital equipment, industrial controls and
instrumentation, medical equipment, networking and telecommunications equipment
segments of the electronics industry, which is characterized by intense
competition and significant fluctuations in product demand. Furthermore, these
segments are subject to economic cycles and have experienced in the past, and
are likely to experience in the future, recessionary economic cycles. A
recession or any other event leading to excess capacity or a downturn in these
segments of the electronics industry results in intensified price competition
as well as a decrease in our unit volume sales and our gross margins.

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We are dependent on the aerospace industry.

Our principal customer is engaged in the aerospace market. See We are
dependent upon a small number of customers for a large portion of our net
sales, and a decline in sales to major customers would harm our results of
operations. Consequently, a significant percentage of our net sales have been
derived from the aerospace segment of the electronics industry. The September
11, 2001 terrorist attacks using hijacked commercial aircraft and the ensuing
war on terrorism have resulted in a reduction in demand for our services, which
has had an adverse impact on our results of operations over the past year. See
We have experienced declining net sales. In addition, continuing tensions
in the Middle East, including the war in Iraq, have resulted in higher oil
prices, which could result in further reductions in demand for products of our
aerospace customers, which would have a continuing negative impact on our
results of operations.

We are dependent upon a small number of customers for a large portion of our
net sales, and a decline in sales to major customers would harm our results of
operations.

A small number of customers is responsible for a significant portion of
our net sales. Sales to Honeywell, Applied Materials and Emulex represented
approximately 42%, 22%, and 9%, respectively, of our net sales in 2002. We
expect a significant portion of our net sales will continue to be generated by
a small number of customers.

Our customer concentration could increase or decrease depending on future
customer requirements, which will depend in large part on market conditions in
the electronics industry segments in which our customers participate. The loss
of one or more major customers or a decline in sales to our major customers
could significantly harm our business and results of operations.

If we are not able to expand our customer base, we will continue to depend
upon a small number of customers for a significant percentage of our net sales.
There can be no assurance that current customers, including Honeywell, Applied
Materials, Emulex, or future customers will not terminate their manufacturing
arrangements with us or significantly change, reduce, or delay the amount of
manufacturing services ordered from us.

In addition, we generate significant accounts receivable in connection
with providing services to our customers. If one or more of our significant
customers were to become insolvent or were otherwise unable or unwilling to pay
for our services, our results of operations would deteriorate substantially.

Our customers may cancel their orders, change production quantities, or delay production.

Electronics manufacturing service providers must provide increasingly
rapid product turnaround for their customers. We generally do not obtain firm,
long-term purchase commitments from our customers, and we expect to continue to
experience reduced lead-times in customer orders. Customers may cancel their
orders, change production quantities, or delay production for a number of
reasons. Cancellations, reductions, or delays by a significant customer or by a
group of customers would seriously harm our results of operations. When
customer orders are changed or cancelled, we may be forced to hold excess
inventories and incur carrying costs as a result of delays, cancellations, or
reductions in orders or poor forecasting by our key customers.

In addition, we make significant decisions, including determining the
levels of business that we seek and accept, production schedules, component
procurement commitments, personnel needs, and other resource requirements based
on estimates of customer production requirements. The short-term nature of our
customers commitments to us, combined with the possibility of rapid changes in
demand for their products, reduces our ability to estimate accurately future
customer orders. In addition, because many of our costs and operating expenses
are relatively fixed, a reduction in customer demand could harm our operating
results.

Conversely, customers may on occasion require rapid increases in
production. These situations often result in inefficiencies related to hiring
and training workers, as well as incremental costs incurred to expedite the
purchase and delivery of raw materials. Periods of rapid growth tend to stress
our resources and we may not have sufficient capacity to meet our customers
delivery requirements.

If we experience excess capacity due to variability in customer demand, our gross margins may fall.

We may schedule certain of our production facilities at less than full
capacity to retain our ability to respond to additional quick turnaround
orders. However, if these orders are not received, we may forego some

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production and could experience excess capacity. When we experience excess
capacity, our sales revenue may be insufficient to fully cover our fixed
overhead expenses and our gross margins will fall. Conversely, we may not be
able to capture all potential revenue in a given period if our customers
demands for quick turnaround services exceed our capacity during that period.

If we are unable to respond to rapid technological change 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 continual implementation of new production processes.
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 that meet changing customer needs, and to successfully anticipate or
respond to technological changes on a cost-effective and timely basis. We
expect that the investment necessary to maintain our technological position
will increase as customers make demands for products and services requiring
more advanced technology on a quicker turnaround basis.

In addition, the electronics manufacturing services industry could
encounter competition from new or revised manufacturing and production
technologies that render existing manufacturing and production technology less
competitive or obsolete. We may not be able to respond effectively to the
technological requirements of the changing market. If we need new technologies
and equipment to remain competitive, the development, acquisition and
implementation of those technologies may require us to make significant capital
investments.

We periodically address excess capacity issues through plant closures, which
may result in significant charges.

When our net sales decline significantly, it is difficult to operate our
plants profitably since it is not possible to eliminate most of our fixed
costs. If we determine that the decline in sales is unlikely to be followed by
a rapid recovery, we may determine that there are significant benefits to
reducing our cost structure by closing plants and transferring existing
business to other plants that are also operating below optimal capacity levels.
In order to realize the long-term benefits of these actions, we usually incur
substantial charges for impairment of assets, lease exit costs, and the payment
of severance and retention benefits to affected employees. In addition to the
up-front costs associated with these actions, the transition of inventory and
manufacturing services to a different facility can result in quality and
delivery issues that may have an adverse impact in retaining customers that are
affected by the plant closure. Our results of operations could also be
materially and adversely affected by our inability to timely sell or sublet
closed facilities on expected terms, or otherwise achieve the expected benefits
of our restructuring activities.

Operating in foreign countries exposes us to increased risks that could
adversely affect our results of operations.

We currently have foreign operations in Mexico. We may in the future
expand into other foreign countries. We have limited experience in managing
geographically dispersed operations and in operating in foreign countries.
Because of the scope of our international operations, we are subject to the
following risks, which could adversely impact our results of operations:



| |  |  | economic or political instability;                                               
| | - |  | ---------------------------------------------------------------------------------
|
| |  |  | transportation delays and interruptions;                                         
|
| |  |  | increased employee turnover and labor unrest;                                    
|
| |  |  | incompatibility of systems and equipment used in foreign operations;             
|
| |  |  | foreign currency exposure;                                                       
|
| |  |  | difficulties in staffing and managing foreign personnel and diverse cultures; and
|
| |  |  | less developed infrastructures.                                                  

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In addition, changes in policies by the United States or foreign
governments could negatively affect our operating results due to increased
duties, increased regulatory requirements, higher taxation, currency conversion
limitations, restrictions on the transfer of funds, the imposition of or
increase in tariffs, and limitations on imports or exports. Also, we could be
negatively affected if our host countries revise their policies away from
encouraging foreign investment or foreign trade, including tax holidays.

If we are unsuccessful in managing future opportunities for growth, our results
of operations will be harmed.

Our future results of operations will be affected by our ability to
successfully manage future opportunities for growth. Rapid growth is likely to
place a significant strain on our managerial, operational, financial, and other
resources. If this growth materializes, it may require us to implement
additional management information systems, to further develop our operating,
administrative, financial, and accounting systems and controls and to maintain
close coordination among our accounting, finance, sales and marketing, and
customer service and support departments. In addition, we may be required to
retain additional personnel to adequately support our growth. If we cannot
effectively manage periods of rapid growth in our operations, we may not be
able to continue to grow, or we may grow at a slower pace. Any failure to
successfully manage growth and to develop financial controls and accounting and
operating systems or to add and retain personnel that adequately support growth
could harm our business and financial results.

Our results of operations are affected by a variety of factors, which could
cause our results of operations to fail to meet expectations.

Our results of operations have varied, and our results of operations may
continue to fluctuate significantly from period to period, including on a
quarterly basis. Our results of operations are affected by a number of factors,
including:



| |  |  | timing of orders from and shipments to major customers;                                    
| | - |  | -------------------------------------------------------------------------------------------
|
| |  |  | mix of products ordered by major customers;                                                
|
| |  |  | volume of orders as related to our capacity at individual locations;                       
|
| |  |  | pricing and other competitive pressures;                                                   
|
| |  |  | component shortages, which could cause us to be unable to meet customer
delivery schedules;
|
| |  |  | our ability to minimize inventory obsolescence and bad debt expense risk;                  
|
| |  |  | our ability to manage effectively inventory and fixed asset levels; and                    
|
| |  |  | timing and level of goodwill and other long-lived asset impairments.                       

We are dependent on limited and sole source suppliers for electronic components
and may experience component shortages, which would cause us to delay shipments
to customers.

We are dependent on certain suppliers, including limited and sole source
suppliers, to provide critical electronic components and other materials for
our operations. At various times, there have been shortages of some of the
electronic components we use, and suppliers of some components have lacked
sufficient capacity to meet the demand for these components. For example, from
time to time, some components we use, including semiconductors, capacitors, and
resistors, have been subject to shortages, and suppliers have been forced to
allocate available quantities among their customers. Such shortages have
disrupted our operations in the past, which resulted in incomplete or late
shipments of products to our customers. Our inability to obtain any needed
components during future periods of allocations could cause delays in shipments
to our customers. The inability to make scheduled shipments could in turn cause
us to experience a shortfall in revenue. Component shortages may also increase
our cost of goods due to premium charges we may pay to purchase components in
short supply. Accordingly, even though component shortages have not had a
lasting negative impact on our business, component shortages could harm our
results of operations for a particular fiscal period due to the resulting
revenue shortfall or cost increases and could also damage customer
relationships over a longer-term period.

We depend on our key personnel and may have difficulty attracting and retaining
skilled employees.

Our future success will depend to a significant degree upon the continued
contributions of our key management, marketing, technical, financial,
accounting and operational personnel, including James K. Bass, our President
and Chief Executive Officer. The loss of the services of one or more key
employees could have a material

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adverse effect on our results of operations. We
also believe that our future success will depend in large part upon our ability
to attract and retain additional highly skilled managerial and technical
resources. Competition for such personnel is intense. There can be no assurance
that we will be successful in attracting and retaining such personnel. In
addition, recent and potential future facility shutdowns and workforce
reductions may have a negative impact on employee recruiting and retention.

Our manufacturing processes depend on the collective industry experience of our
employees. If these employees were to leave and take this knowledge with them,
our manufacturing processes may suffer and we may not be able to compete
effectively.

We have no patent or trade secret protection for our manufacturing
processes, but instead rely on the collective experience of our employees to
ensure that we continuously evaluate and adopt new technologies in our
industry. Although we are not dependent on any one employee or a small number
of employees, if a significant number of employees involved in our
manufacturing processes were to leave our employment and we are not able to
replace these people with new employees with comparable experience, our
manufacturing processes may suffer as we may be unable to keep up with
innovations in the industry. As a result, we may not be able to continue to
compete effectively.

Our failure to comply with the requirements of environmental laws could result
in fines and revocation of permits necessary to our manufacturing processes.

Our operations are regulated under a number of federal, state, and foreign
environmental and safety laws and regulations that 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. These laws and regulations
include the Clean Air Act; the Clean Water Act; the Resource Conservation and
Recovery Act; and the Comprehensive Environmental Response, Compensation, and
Liability Act; as well as analogous state and foreign laws. Compliance with
these environmental laws is a major consideration for us because our
manufacturing processes use and generate materials classified as hazardous,
such as ammoniacal etching solutions, copper, and nickel. In addition, because
we use hazardous materials and generate hazardous wastes in our manufacturing
processes, we may be subject to potential financial liability for costs
associated with the investigation and remediation of our own sites or 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
and are not directly at fault for the contamination, we may still be liable.
The wastes we generate include spent ammoniacal etching solutions, solder
stripping solutions, and hydrochloric acid solutions containing palladium;
waste water that contains heavy metals, acids, cleaners, and conditioners; and
filter cake from equipment used for on-site waste treatment. We have not
incurred significant costs related to compliance with environmental laws and
regulations in the prior three years, and we believe that our operations
substantially comply with all applicable environmental laws. However, any
material violations of environmental laws by us could subject us to revocation
of our effluent discharge and other environmental permits. Any such revocations
could require us to cease or limit production at one or more of our facilities.
Even if we ultimately prevail, environmental lawsuits against us would be time
consuming and costly to defend.

Environmental laws could also become more stringent over time, imposing
greater compliance costs and increasing risks and penalties associated with
violation. We operate in environmentally sensitive locations and are subject to
potentially conflicting and changing regulatory agendas of political, business,
and environmental groups. Changes or restrictions on discharge limits;
emissions levels; or material storage, handling, or disposal might require a
high level of unplanned capital investment or relocation. It is possible that
environmental compliance costs and penalties from new or existing regulations
may harm our business, financial condition, and results of operations.

We may be subject to risks associated with acquisitions, and these risks could
harm our results of operations.

In 2002, we completed two business combinations and we anticipate that we
will seek to identify and acquire additional suitable businesses in the
electronics manufacturing services industry. The long-term success of recent
business combinations will depend on our ability to unite the business
strategies, human resources and information technology systems of previously
separate companies. The difficulties of combining operations include the
necessity of coordinating geographically separated organizations and
integrating personnel with diverse business backgrounds. Combining management
resources will result in changes affecting all employees and operations.
Differences in management approach and corporate culture may strain employee
relations.

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Future business combinations could cause certain customers to either seek
alternative sources of product supply or service, or delay or change orders for
products due to uncertainty over the integration of the two companies or the
strategic position of the combined company. As a result, we may experience some
customer attrition.

Acquisitions of companies and businesses and expansion of operations
involve certain risks, including the following:



| |  |  | the business fails to achieve anticipated revenue and
profit expectations;                                                                                   
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the potential inability to successfully integrate
acquired operations and businesses or to realize anticipated
synergies, economies of scale, or other value;
|
| |  |  | diversion of managements attention;                                                                                                                         
|
| |  |  | difficulties in scaling up production and coordinating management of operations at new sites;                                                                
|
| |  |  | the possible need to restructure, modify, or terminate
customer relationships of the acquired business;                                                      
|
| |  |  | loss of key employees of acquired operations; and                                                                                                            
|
| |  |  | the potential liabilities of the acquired businesses.                                                                                                        

Accordingly, we may experience problems in integrating the operations
associated with any future acquisition. We therefore cannot provide assurance
that any future acquisition will result in a positive contribution to our
results of operations. In particular, the successful combination with any
businesses we acquire will require substantial effort from each company,
including the integration and coordination of sales and marketing efforts. The
diversion of the attention of management and any difficulties encountered in
the transition process, including the interruption of, or a loss of momentum
in, the activities of any business acquired, problems associated with
integration of management information and reporting systems, and delays in
implementation of consolidation plans, could harm our ability to realize the
anticipated benefits of any future acquisition. In addition, future
acquisitions may result in dilutive issuances of equity securities, the
incurrence of additional debt, large one-time write-offs, and the creation of
goodwill or other intangible assets that could result in increased amortization
or impairment expense.

Our level of indebtedness could adversely affect our financial viability, and
the restrictions imposed by the terms of our debt instruments may severely
limit our ability to plan for or respond to changes in our business.

As of December 31, 2002, we had outstanding bank debt of approximately
$10.9 million. In addition, subject to the restrictions under our debt
agreements, we may incur significant additional indebtedness from time to time
to finance business acquisitions, capital expenditures, or for other purposes.

Significant levels of debt could have negative consequences. For example,
it could:



| |  |  | require us to dedicate a substantial portion of our
cash flow from operations to service interest and principal
repayment requirements, limiting the availability of cash for
other purposes;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | increase our vulnerability to adverse general economic
conditions by making it more difficult to borrow additional funds
to maintain our operations if we suffer revenue shortfalls;         
|
| |  |  | limit our ability to attract new customers if we do not
have sufficient liquidity to meet working capital needs; and                                                                         
|
| |  |  | hinder our flexibility in planning for, or reacting to,
changes in our business and industry if we are unable to borrow
additional funds to upgrade our equipment or facilities.             

We may need additional capital in the future and it may not be available on acceptable terms, or at all.

While we believe our capital resources are currently adequate, we may need
to raise additional funds for the following purposes:



| |  |  | to fund our operations;                                                       
| | - |  | ------------------------------------------------------------------------------
|
| |  |  | to fund working capital requirements for future growth that we may experience;
|
| |  |  | to enhance or expand the range of services we offer;                          
|
| |  |  | to increase our promotional and marketing activities; or                      
|
| |  |  | to respond to competitive pressures or perceived opportunities, such as       

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investment, acquisition, and international expansion activities.

If such funds are not available when required or on acceptable terms, our
business and financial results could suffer.

Our stock price may be volatile, and our stock is thinly traded, which could
cause investors to lose all or part of their investments in our common stock.

The stock market has recently experienced volatility that has often been
unrelated to the operating performance of any particular company or companies.
If market or industry-based fluctuations continue, our stock price could
decline regardless of our actual operating performance, and investors could
lose a substantial part of their investments. Moreover, if an active public
market for our stock is not sustained in the future, it may be difficult to
resell our stock.

From March 1, 2002 through December 31, 2002, the average number of shares
of our common stock that traded on the NASDAQ exchange amounted to
approximately 7,000 shares per day compared to 27,409,000 issued and
outstanding shares. When trading volumes are this low, a relatively small buy
or sell order can result in a large percentage change in the trading price of
our common stock, which may be unrelated to changes in our stock price that are
associated with our operating performance.

The market price of our common stock will likely fluctuate in response to
a number of factors, including the following:



| |  |  | failure to meet the performance estimates of securities analysts;                                                  
| | - |  | -------------------------------------------------------------------------------------------------------------------
|
| |  |  | changes in estimates of our net sales and results of operations by securities analysts;                            
|
| |  |  | announcements about the financial performance and
prospects of the industries and customers we serve;              
|
| |  |  | announcements about the financial performance of our
competitors in the electronic manufacturing services industry;
|
| |  |  | the timing of announcements by us or our competitors of
significant contracts or acquisitions; and                 
|
| |  |  | general stock market conditions.                                                                                   

Our major stockholder controls us and our stock price could be influenced by
actions taken by this stockholder. Additionally, this stockholder could prevent
a change of control or other business combination, or could effect a short
form merger without the approval of other stockholders.

Thayer-Blum owns approximately 90% of our common stock, and four of our
nine directors are representatives of Thayer-Blum. The interests of Thayer-Blum
may not always coincide with those of our other stockholders, particularly if
Thayer-Blum decides to sell its controlling interest. In addition, Thayer-Blum
will have sufficient voting power (without the approval of Suntrons other
stockholders) to elect the entire Board of Directors of Suntron and, in
general, to determine the outcome of various matters submitted to stockholders
for approval, including fundamental corporate transactions. Thayer-Blum could
cause us to take actions that we would not consider absent Thayer-Blums
influence, or could delay, deter, or prevent a change of control or other
business combination that might otherwise be beneficial to our public
stockholders.

In addition, Thayer-Blum could contribute its Suntron stock to a
subsidiary corporation that, as a 90% stockholder, then would have the ability
under Delaware law to merge with or into Suntron without the approval of the
other Suntron stockholders. In the event of such a short-form merger, Suntron
stockholders would have the right to assert appraisal/dissenters rights to
receive cash in the amount of the fair market value of their shares in lieu of
the consideration they would have otherwise received from the transaction.

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##### Table of Contents






ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

On January 26, 2001, the Company entered into a revolving line of credit
agreement with Citibank, N.A. The amended credit agreement provides for total
borrowings up to $75 million. The interest rate under this agreement is based
either on the prime rate or LIBOR rate, plus applicable margins. Therefore, as
interest rates fluctuate, the Company may experience changes in interest
expense that will impact financial results. The Company has not entered into
any interest rate swap agreements, or similar instruments, to protect against
the risk of interest rate fluctuations. Assuming outstanding borrowings of $75
million, if interest rates were to increase or decrease by one percentage
point, the result would be an increase or decrease in annual interest expense
of $750,000. Accordingly, significant increases in interest rates could have a
material adverse effect on the Companys future results of operations.




ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the financial statements, the report thereon, the
notes thereto, and the supplementary data commencing at page F-1 of this
Report, which financial statements, report, notes, and data are incorporated
herein by reference.






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


None.

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##### Table of Contents






PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

The following table, together with the accompanying text, presents certain
information, as of March 31, 2003, with respect to each of our executive
officers and directors.

|                       |  |     |    |                                   |  |                                                            
|---------------------- |  | --- | -- | --------------------------------- |  | -----------------------------------------------------------
|Name                   |  | Age |    | Position(s) Held With the Company
|                       |  |     |    |                                  
|James K. Bass          |  |     | 46 |                                   |  | Chief Executive Officer, President and Director            
|                       |  |     |    |                                   |  |                                                            
|John W. Briant         |  |     | 37 |                                   |  | Vice President of Materials, Quality and Process Management
|                       |  |     |    |                                   |  |                                                            
|James A. Doran         |  |     | 48 |                                   |  | Vice President, Controller and Chief Accounting Officer    
|                       |  |     |    |                                   |  |                                                            
|Michael Eblin          |  |     | 40 |                                   |  | Chief Operating Officer                                    
|                       |  |     |    |                                   |  |                                                            
|R. Michael Gibbons     |  |     | 44 |                                   |  | Executive Vice President of New Business Development       
|                       |  |     |    |                                   |  |                                                            
|Oscar A. Hager         |  |     | 47 |                                   |  | Vice President of Human Resources                          
|                       |  |     |    |                                   |  |                                                            
|Peter W. Harper        |  |     | 41 |                                   |  | Chief Financial Officer and Secretary                      
|                       |  |     |    |                                   |  |                                                            
|John H. Kulp           |  |     | 45 |                                   |  | Vice President of Sales and Marketing                      
|                       |  |     |    |                                   |  |                                                            
|Kevin Sauer            |  |     | 39 |                                   |  | Vice President of Information Technology                   
|                       |  |     |    |                                   |  |                                                            
|Allen S. Braswell, Jr. |  |     | 44 |                                   |  | Director                                                   
|                       |  |     |    |                                   |  |                                                            
|Fred A. Breidenbach    |  |     | 56 |                                   |  | Director                                                   
|                       |  |     |    |                                   |  |                                                            
|Jeffrey W. Goettman    |  |     | 43 |                                   |  | Chairman of the Board and Director                         
|                       |  |     |    |                                   |  |                                                            
|Douglas P. McCormick   |  |     | 33 |                                   |  | Director                                                   
|                       |  |     |    |                                   |  |                                                            
|Jose S. Medeiros       |  |     | 34 |                                   |  | Director                                                   
|                       |  |     |    |                                   |  |                                                            
|Richard L. Monfort     |  |     | 48 |                                   |  | Director                                                   
|                       |  |     |    |                                   |  |                                                            
|James C. Van Horne     |  |     | 67 |                                   |  | Director                                                   
|                       |  |     |    |                                   |  |                                                            
|John C. Walker         |  |     | 41 |                                   |  | Director                                                   

James K. Basshas served as our Chief Executive Officer and President and
as a director since May 2001 and as EFTCs Chief Executive Officer since July
2000. From 1996 to June 2000, Mr. Bass was a senior vice president of Sony
Corporation, a company engaged in the development, design, manufacture and sale
of various kinds of electronic equipment, instruments and devices for consumer
and professional markets. Prior to that, Mr. Bass spent 15 years in various
manufacturing management positions at the aerospace group of General Electric
Company, a company engaged in the development, manufacturing and marketing of a
wide variety of products for the generation, transmission, distribution,
control, and utilization of electricity. Mr. Bass also serves as a director of
TTM Technologies, Inc., a provider of time-critical, one-stop manufacturing
services for highly complex printed circuit boards which is also an affiliate
of Thayer Capital Partners.

John W. Brianthas served as our Vice President of Materials, Quality and
Process Management since February 2002. Mr. Briant served as EFTCs Vice
President of Material and Logistics from October 1999 to February 2002. Mr.
Briant served as the Director of Process and Quality Management of EFTC from
July 1998 to September 1999. Prior to joining EFTC, Mr. Briant held various
management, procurement, and engineering positions at AlliedSignal from 1993 to
1998 and was responsible for the development of their corporate supply base for
Electronic Manufacturing Services and Printed Wiring Boards. Prior to that, he
held engineering positions with Honeywells Business and Commuter Aviation
Division, a manufacturer of aerospace products and services.

James A. Doranhas served as our Vice President, Controller and Chief
Accounting Officer since February 2002. Mr. Doran served as EFTCs Controller
from September 1999 to February 2002, and Mr. Doran was a member of the Board
of Directors of EFTC from 1993 until 2000. Prior to joining EFTC, from 1994 to
September

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1999, Mr. Doran served as a Senior Audit Manager with Hein & Associates
LLP, a public accounting and consulting firm.

Michael Eblinhas served as our Chief Operating Officer since February
2002. Mr. Eblin served as the Senior Vice President of Operations of EFTC from
July 2000 to February 2002. From 1995 to June 2000, Mr. Eblin was Director of
Operations of Sony Corporation. Prior to that, Mr. Eblin held various
management positions in the Electronics Controls division of United
Technologies and Hughes Electronics, part of General Motors Corporation, an
automobile manufacturer and communications systems and financial services
provider.

R. Michael Gibbonshas served as our Executive Vice President of New
Business Development since February 2002. Mr. Gibbons served as the President
and Chief Executive Officer of K*TEC from May 2000 to February 2002. From
January 1998 to May 2000, Mr. Gibbons served as Executive Vice President and
General Manager of K*TEC and from February 1997 to January 1998 as Corporate
Quality Director of K*TEC. From July 1984 to February 1997, Mr. Gibbons worked
in various capacities in the electronics manufacturing industry at Schlumberger
Oilfield Services.

Oscar A. Hagerhas served as our Vice President of Human Resources since
February 2002. Mr. Hager served as EFTCs Vice President of Human Resources
from November 2000 to February 2002. From April 1999 to October 2000, Mr. Hager
was EFTCs Director of Human Resources for Southwest Commercial Operations.
Prior to joining EFTC, Mr. Hager spent fifteen years with Honeywells
Commercial Aviation group, a manufacturer of commercial avionics equipment, in
various human resource management capacities. Prior to joining Honeywell, Mr.
Hager held various human resource positions in the aerospace industry.

Peter W. Harperhas served as our Chief Financial Officer and Secretary
since May 2001. Mr. Harper has served as the Chief Financial Officer of EFTC
since July 2000. From 1996 to June 2000, Mr. Harper served as Vice President
of Finance at Iomega Corporation, a company that designs, manufactures and
markets personal and professional storage solutions for users of personal
computers and consumer electronics devices. Prior to that, Mr. Harper spent 12
years in various management positions at General Electric Company.

John H. Kulphas served as our Vice President of Sales and Marketing since
February 2002. Mr. Kulp served as the Vice President of Sales and Marketing of
EFTC from December 2001 to February 2002. From October 1999 to August 2001,
Mr. Kulp served as Vice President of Sales at FlexTek Incorporated, a supplier
of electromechanical subassemblies. From 1979 to October 1999, Mr. Kulp served
in various capacities, most recently as regional sales manager, at AMP Inc., a
supplier of electrical and electronic connections and interconnection systems.

Kevin Sauerhas served as our Vice President of Information Technology
since February 2002. Mr. Sauer served as Vice President of Information
Technology of K*TEC from May 2001 to February 2002. From May 1997 to April
2001, Mr. Sauer held various management and information technology-related
positions with K*TEC. From November 1993 to May 1997, Mr. Sauer served in
various capacities at Schlumberger, most recently as a Quality Assurance
Manager.

Allen S. Braswell, Jr.has served as a director since October 2001. Mr.
Braswell has engaged in private investment activities as his principal
occupation since December 2000. From September 1999 until such time, Mr.
Braswell served as President of Jabil Global Services, a subsidiary of Jabil
Circuit, Inc. engaged in electronic product service and repair, which was
purchased by EFTC from affiliates of Mr. Braswell in September 1997 and sold to
Jabil Circuit in September 1999. Mr. Braswell also served as President of the
predecessors of Jabil Global Services since October 1996.

Fred A. Breidenbachhas served as a director since October 2001. Mr.
Breidenbach has served as the principal of FA Breidenbach & Associates, LLC, a
management consulting firm providing services to the aerospace industry, since
November 1997. From April 1993 until July 1997, Mr. Breidenbach served as
President and Chief Operating Officer of Gulfstream Aerospace Corporation (now
a subsidiary of General Dynamics).

Jeffrey W. Goettmanhas served as our Chairman of the Board and a director
since May 2001. Mr. Goettman has served as a Managing Partner of Thayer Capital
Partners, a private equity investment company, since April 2001. Mr. Goettman
joined Thayer Capital Partners in February 1998. From February 1994 to February
1998,

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##### Table of Contents



Mr. Goettman served as a Managing Director and founder of the electronic
manufacturing services group at Robertson Stephens & Co., Inc., an investment
banking firm. Mr. Goettman also serves as Chairman of the Board and a director
of TTM Technologies, Inc.

Douglas P. McCormickhas served as a director since October 2001. Mr.
McCormick has served as a Managing Director of Thayer Capital Partners since
January 2001 and was a Vice President of that company since January 1999. From
June 1997 to January 1999, Mr. McCormick served as an associate at Morgan
Stanley & Co. Incorporated, an investment banking firm. From September 1995 to
June 1997, Mr. McCormick attended Harvard Business School. Mr. McCormick also
serves as a director of TTM Technologies, Inc.

Jose S. Medeiroshas served as a director since October 2001. Mr. Medeiros
has been a Partner in Blum Capital Partners, L.P., a San Francisco-based
private equity and strategic block investment firm, since August 2000 and Vice
President since August 1998. From June 1996 to August 1998, Mr. Medeiros served
as a Vice President in the Technology Mergers & Acquisitions group of Robertson
Stephens & Co., Inc. From January 1990 to June 1996, Mr. Medeiros served as an
Associate at McKinsey & Company.

Richard L. Monforthas served as a director since October 2001. Mr.
Monfort has been engaged in private investment activities as his principal
occupation since June 1995. From July 1989 to June 1995, Mr. Monfort served as
President and Chief Operating Officer of ConAgra Red Meat Companies, a division
of ConAgra Foods Inc. engaged in beef, pork and lamb production. Mr. Monfort
also serves as a director of Famous Daves of America, Inc., an owner and
operator of restaurants.

James C. Van Hornehas served as a director since October 2001. Mr. Van
Horne has served as the A.P. Giannini Professor of Finance at the Stanford
University Graduate School of Business since 1979, and has taught at such
institution since 1965. Mr. Van Horne also serves as a director of United
California Bank, Montgomery Street Income Securities, Inc. (an investment
company), and Bailard Biehl & Kaiser Fund Group (a family of five mutual
funds).

John C. Walkerhas served as a director since May 2001. Mr. Walker has
been a Partner with Blum Capital Partners since April 1997. From 1992 until
April 1997, Mr. Walker served as the Vice President of PEXCO Holdings, Inc., a
private investment holding company. Mr. Walker also serves as a director of
Smarte Carte, Inc., a company providing products and services to travelers to
efficiently store or move their belongings, and Playtex Products, Inc., a
manufacturer and distributor of a diversified portfolio of consumer and
personal products.

Section 16(a) Beneficial Ownership Reporting Compliance.

Section 16(a) of the Exchange Act requires our directors, officers, and
persons who own more than 10% of a registered class of our securities to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Directors, officers, and greater than 10% stockholders are
required by SEC regulations to furnish us with copies of all Section 16(a)
forms they file. We believe, during fiscal year 2002, that our directors,
executive officers and 10 percent stockholders complied with all Section 16(a)
filing requirements, except that our directors and executive officers
inadvertently filed their respective Initial Statements of Beneficial Ownership
of Securities on Form 3 late.

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##### Table of Contents






ITEM 11. EXECUTIVE COMPENSATION

Executive Compensation

The following table sets forth information concerning the compensation
paid by Suntron (including EFTC and K*TEC) for the fiscal years ended December
31, 2002, 2001, and 2000 to our Chief Executive Officer and each of the four
other most highly compensated individuals who now serve as executive officers
of Suntron, as well as their titles with Suntron.

Summary Compensation Table

|                            |                       |      |                     |           |        |          |         |         |  |               |   |         |  |                 |              |   |            |  |                        |         |           |   |   |   |  |   |        |        |    
|--------------------------- | --------------------- | ---- | ------------------- | --------- | ------ | -------- | ------- | ------- |  | ------------- | - | ------- |  | --------------- | ------------ | - | ---------- |  | ---------------------- | ------- | --------- | - | - | - |  | - | ------ | ------ | ---
|                            |                       |      |                     |           |        |          |         |         |  |               |   |         |  |                 |              |   |            |  | Long Term Compensation |         |           |   |  
|                            |                       |      |                     |           |        |          |         |         |  |               |   |         |  |                 |              |   |            |  |                        |         |           |   |  
|                            |                       |      | Annual Compensation |           | Awards |          | Payouts |         |  |               |  
|                            |                       |      |                     |           |        |          |         |         |  |               |  
|                            |                       |      |                     |           |        |          |         |         |  |               |   |         |  |                 | Other Annual |   | Securities |  | LTIP                   |         |           |   |  
|                            |                       |      |                     |           |        |          |         |         |  |               |   |         |  |                 | Compensation |   | Underlying |  | Payouts                |         | All Other
|Name and
Principal Position |                       | Year |                     | Salary($) |        | Bonus($) |         | ($)(1)  |  | Options(#)(2) |   | ($)     |  | Compensation($)
|                            |                       |      |                     |           |        |          |         |         |  |               |   |         |  |                
|James K. Bass (3)           |                       |      | 2002                |           |        | $        | 300,000 |         |  | $             |  |         |  | $               |             |   |            |  | 227,000                |         |           | $ |  |   |  | $ |       |       
|                            | Chief Executive       |      |                     | 2001      |        |          |         | 300,000 |  |               |   | 300,000 |  |                 |              |  |            |  |                        | 13,750  |           |   |   |  |  |   |        |       |    
|                            | Officer and
President |      |                     | 2000      |        |          |         | 126,918 |  |               |   | 135,500 |  |                 |              |  |            |  |                        | 225,000 |           |   |   |  |  |   |        | 42,133 | (4)
|John H. Kulp (5)            |                       |      | 2002                |           |        |          | 170,004 |         |  |               |  |         |  |                 |             |   |            |  | 40,750                 |         |           |   |  |   |  |   | 70,707 | (4)   
|                            | Vice President of     |      |                     | 2001      |        |          |         | 9,808   |  |               |   | 7,000   |  |                 |              |  |            |  |                        | 25,000  |           |   |   |  |  |   |        | 25,000 | (6)
|                            | Sales and Marketing   |      |                     | 2000      |        |          |         |        |  |               |   |        |  |                 |              |  |            |  |                        |        |           |   |   |  |  |   |        |       |    
|Michael Eblin (3)           |                       |      | 2002                |           |        |          | 200,004 |         |  |               |  |         |  |                 |             |   |            |  | 132,500                |         |           |   |  |   |  |   |       |       
|                            | Chief Operating       |      |                     | 2001      |        |          |         | 200,004 |  |               |   | 140,000 |  |                 |              |  |            |  |                        | 8,750   |           |   |   |  |  |   |        |       |    
|                            | Officer               |      |                     | 2000      |        |          |         | 74,712  |  |               |   | 80,125  |  |                 |              |  |            |  |                        | 75,000  |           |   |   |  |  |   |        | 38,245 | (4)
|R. Michael Gibbons          |                       |      | 2002                |           |        |          | 200,538 |         |  |               |  |         |  |                 |             |   |            |  | 32,500                 |         |           |   |  |   |  |   |       |       
|                            | Exec.Vice President-  |      |                     | 2001      |        |          |         | 198,000 |  |               |   | 25,000  |  |                 |              |  |            |  |                        | 197,310 |           |   |   |  |  |   |        |       |    
|                            | New Business Dev.     |      |                     | 2000      |        |          |         | 220,000 |  |               |   | 100,000 |  |                 |              |  |            |  |                        |        |           |   |   |  |  |   |        |       |    
|Peter W. Harper (3)         |                       |      | 2002                |           |        |          | 200,004 |         |  |               |  |         |  |                 |             |   |            |  | 65,000                 |         |           |   |  |   |  |   |       |       
|                            | Chief Financial       |      |                     | 2001      |        |          |         | 200,004 |  |               |   | 100,000 |  |                 |              |  |            |  |                        | 15,000  |           |   |   |  |  |   |        |       |    
|                            | Officer and
Secretary |      |                     | 2000      |        |          |         | 81,827  |  |               |   | 60,125  |  |                 |              |  |            |  |                        | 37,500  |           |   |   |  |  |   |        | 36,463 | (4)



---

|(1) |  | Except as otherwise provided in this table, no amounts for perquisites
and other personal benefits received by any of the named executive
officers are shown because the aggregate dollar amounts were lower than
the reporting requirements established by the rules of the SEC.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Represents options to purchase shares of Suntron common stock, after
giving effect to the assumption of EFTC and K*TEC options upon the
completion of the combination and the applicable exchange ratios.                                                                        
|   
|(3) |  | Messrs. Bass, Eblin, and Harper joined the Company in July 2000.                                                                                                                                                                                                                 
|   
|(4) |  | Represents payment to defray moving expenses related to relocation to
Phoenix, Arizona in connection with employment with the Company.                                                                                                                                           
|   
|(5) |  | Mr. Kulp joined the Company in December 2001.                                                                                                                                                                                                                                    
|   
|(6) |  | Represents a sign-on bonus.                                                                                                                                                                                                                                                      

Stock Option Grants

Suntron did not grant any stock appreciation rights in 2002. The following
table sets forth information concerning the grant of stock options in 2002 to
Suntrons Chief Executive Officer and the other executive officers named in the
Summary Compensation Table above.

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##### Table of Contents



Option Grants In Last Fiscal Year

|                   |  |                   |         |                 |  |             |      |           |  |            |       |       |  |                 |      |                              |  |  |          |                               |  |   |         |  |  |   |           | 
|------------------ |  | ----------------- | ------- | --------------- |  | ----------- | ---- | --------- |  | ---------- | ----- | ----- |  | --------------- | ---- | ---------------------------- |  |  | -------- | ----------------------------- |  | - | ------- |  |  | - | --------- | 
|                   |  | Individual Grants |         |                 |  |             |      |           |  |           
|                   |  |                   |         |                 |  |             |      |           |  |           
|                   |  | Number of         |         |                 |  |             |      |           |  |            |       |       |  |                 |      |                              |  |  |          | Potential Realizable Value at
|                   |  | Securities        |         | % of Total      |  |             |      |           |  | Grant      |       |       |  |                 |      | Assumed Annual Rates of     
|                   |  | Underlying        |         | Options         |  |             |      |           |  | Date       |       |       |  |                 |      | Stock Price Appreciation for
|                   |  | Options           |         | Granted to      |  | Exercise or |      | Market    |  |            |       |       |  | Option Terms(3)
|                   |  | Granted           |         | Employees in    |  | Base Price  |      | Value     |  | Expiration |       |      
|Name               |  | (#)(1)            |         | Fiscal Year (2) |  | ($/Share)   |      | ($/Share) |  | Date       |       | 5%($) |  | 10%($)         
|                   |  |                   |         |                 |  |             |      |           |  |            |       |       |  |                
|James K. Bass      |  |                   | 164,500 |                 |  |             | 20.3 | %         |  | $          | 10.52 |       |  | $               | 8.00 |                              |  |  | 4/23/12  |                               |  | $ | 413,085 |  |  | $ | 1,682,825 | 
|James K. Bass      |  |                   | 62,500  |                 |  |             | 7.7  | %         |  |            | 3.74  |       |  |                 | 3.74 |                              |  |  | 12/29/12 |                               |  |   | 147,004 |  |  |   | 372,537   | 
|John H. Kulp       |  |                   | 22,000  |                 |  |             | 2.7  | %         |  |            | 10.52 |       |  |                 | 8.00 |                              |  |  | 4/23/12  |                               |  |   | 55,245  |  |  |   | 225,059   | 
|John H. Kulp       |  |                   | 18,750  |                 |  |             | 2.3  | %         |  |            | 3.74  |       |  |                 | 3.74 |                              |  |  | 12/29/12 |                               |  |   | 44,101  |  |  |   | 111,761   | 
|Michael Eblin      |  |                   | 95,000  |                 |  |             | 11.7 | %         |  |            | 10.52 |       |  |                 | 8.00 |                              |  |  | 4/23/12  |                               |  |   | 238,560 |  |  |   | 971,844   | 
|Michael Eblin      |  |                   | 37,500  |                 |  |             | 4.6  | %         |  |            | 3.74  |       |  |                 | 3.74 |                              |  |  | 12/29/12 |                               |  |   | 88,202  |  |  |   | 223,522   | 
|R. Michael Gibbons |  |                   | 20,000  |                 |  |             | 2.5  | %         |  |            | 10.52 |       |  |                 | 8.00 |                              |  |  | 4/23/12  |                               |  |   | 50,223  |  |  |   | 204,599   | 
|R. Michael Gibbons |  |                   | 12,500  |                 |  |             | 1.5  | %         |  |            | 3.74  |       |  |                 | 3.74 |                              |  |  | 12/29/12 |                               |  |   | 29,401  |  |  |   | 74,507    | 
|Peter W. Harper    |  |                   | 40,000  |                 |  |             | 4.9  | %         |  |            | 10.52 |       |  |                 | 8.00 |                              |  |  | 4/23/12  |                               |  |   | 100,446 |  |  |   | 409,198   | 
|Peter W. Harper    |  |                   | 25,000  |                 |  |             | 3.1  | %         |  |            | 3.74  |       |  |                 | 3.74 |                              |  |  | 12/29/12 |                               |  |   | 58,802  |  |  |   | 149,015   | 



---

|(1) |  | Represents options to purchase shares of Suntron common stock that become
exercisable for 25% of the underlying shares on the first anniversary of
the date of grant and for the balance in equal semi-annual installments
over the three-year period thereafter, so long as the executive remains
employed.                                                                                                                                          
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The percentages shown above are based on an aggregate of 808,750 options
for shares of Suntron common stock that were granted to employees for the
year ended December 31, 2002.                                                                                                                                                                                                                                                                      
|   
|(3) |  | Potential realizable value assumes that the stock price increases from
the date of the grant until the end of the option term (10 years) at the
annual rate specified (5% and 10%). The 5% and 10% assumed annual rates
of appreciation are mandated by SEC rules and do not represent our
estimate or projection of the future price of our common stock. We do not
believe this method accurately illustrates the potential value of a stock
option.

Stock Option Exercises and Values for Fiscal 2002

The following table sets forth information with respect to Suntrons Chief
Executive Officer and the executive officers named in the Summary Compensation
Table concerning options exercised in 2002 and unexercised options held by them
as of the end of such fiscal year:

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value

|                   |  |          |   |          |  |             |   |                   |  |                               |  |                      |        |  |  |  |  |  |  |  |  |  |         |  |  |  |  |  |  |  |  |  |   |   |  |  |  |  |   |        |  |  |  | 
|------------------ |  | -------- | - | -------- |  | ----------- | - | ----------------- |  | ----------------------------- |  | -------------------- | ------ |  |  |  |  |  |  |  |  |  | ------- |  |  |  |  |  |  |  |  |  | - | - |  |  |  |  | - | ------ |  |  |  | 
|                   |  |          |   |          |  |             |   |                   |  | Number of Unexercised Options |  | Value of Unexercised
|                   |  | Shares   |   |          |  |             |   | at                |  | In-the-Money Options at      
|                   |  | Acquired |   |          |  |             |   | December 31, 2002 |  | December 31, 2002($)(1)      
|                   |  | on       |   | Value    |  |             |   |                  
|Name               |  | Exercise |   | Realized |  | Exercisable |   | Unexercisable     |  | Exercisable                   |  | Unexercisable       
|                   |  |          |   |          |  |             |   |                   |  |                               |  |                     
|James K. Bass      |  |          |  |          |  | $           |  |                   |  |                               |  |                      | 68,875 |  |  |  |  |  |  |  |  |  | 396,875 |  |  |  |  |  |  |  |  |  | $ |  |  |  |  |  | $ | 58,125 | 
|John H. Kulp       |  |          |  |          |  |             |  |                   |  |                               |  |                      | 2,500  |  |  |  |  |  |  |  |  |  | 63,250  |  |  |  |  |  |  |  |  |  |   |  |  |  |  |  |   | 17,438 | 
|Michael Eblin      |  |          |  |          |  |             |  |                   |  |                               |  |                      | 15,875 |  |  |  |  |  |  |  |  |  | 200,375 |  |  |  |  |  |  |  |  |  |   |  |  |  |  |  |   | 34,875 | 
|R. Michael Gibbons |  |          |  |          |  |             |  |                   |  |                               |  |                      | 39,462 |  |  |  |  |  |  |  |  |  | 190,348 |  |  |  |  |  |  |  |  |  |   |  |  |  |  |  |   | 11,625 | 
|Peter W. Harper    |  |          |  |          |  |             |  |                   |  |                               |  |                      | 9,000  |  |  |  |  |  |  |  |  |  | 108,500 |  |  |  |  |  |  |  |  |  |   |  |  |  |  |  |   | 23,250 | 



---

|(1) |  | The closing sales price per share for Suntron common stock as reported by
the Nasdaq National Market on December 31, 2002 was $4.67. The option
value is calculated by multiplying (a) the positive difference, if any,
between $4.67 and the option exercise price by (b) the number of shares of
common stock underlying the option.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

32



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##### Table of Contents



Equity Compensation Plan Information

The following table sets forth certain information, as of December 31,
2002, regarding shares of our common stock that may be issued upon the exercise
of options under our only stock option plan (the Amended and Restated 2002
Stock Option Plan).

|                                                       |  |         |           |                  |           |                         |       |                              |       |  |           |  |           | 
|------------------------------------------------------ |  | ------- | --------- | ---------------- | --------- | ----------------------- | ----- | ---------------------------- | ----- |  | --------- |  | --------- | 
|                                                       |  |         |           | (a)              |           | (b)                     |       | (c)                         
|                                                       |  |         |           | Number of        |           | Weighted                |       | Number of Securities        
|                                                       |  |         |           | Securities to be |           | Average                 |       | Remaining Available for     
|                                                       |  |         |           | Issued Upon      |           | Exercise                |       | Future Issuance Under Equity
|                                                       |  |         |           | Exercise of      |           | Price of                |       | Compensation Plans          
|                                                       |  |         |           | Outstanding      |           | Outstanding             |       | (Excluding Securities       
|Plan Category                                          |  | Options |           | Options          |           | Reflected in Column(a))
|                                                       |  |         |           |                  |           |                        
|Equity Compensation
Plans Approved by Stockholders     |  |         | 2,138,508 |                  |           | $                       | 12.04 |                              |       |  | 2,861,492 | 
|Equity Compensation
Plans Not Approved by Stockholders |  |         |          |                  |           |                         |      |                              |       |  |          | 
|                                                       |  |         |           |                  |           |                         |       |                              |       |  |           | 
|                                                       |  | Total   |           |                  | 2,138,508 |                         |       | $                            | 12.04 |  |           |  | 2,861,492 | 
|                                                       |  |         |           |                  |           |                         |       |                              |       |  |           | 

Employment Agreements and Change of Control Arrangements

James K. Bass, our Chief Executive Officer and President, has entered into
an employment agreement that provides for him to be employed as Chief Executive
Officer for a term ending on December 31, 2003, which term automatically
extends for successive one-year periods until the agreement is terminated. Mr.
Bass agreement provides for a minimum annual base salary of $300,000 and
incentive-based bonus compensation in an amount determined by the compensation
committee of our board of directors. We may terminate his employment agreement
with or without cause. In the case of a termination without cause, however, we
must continue to pay Mr. Bass base salary and prorated bonus compensation for
a period of one year from the date of termination.

R. Michael Gibbons, one of our Vice Presidents, has entered into an
employment agreement that provides for an initial term that ended on March 9,
2002, but has been extended until the agreement is terminated by Mr. Gibbons or
Suntron. Mr. Gibbons agreement provides for a minimum annual base salary of
$220,000. From July 2001 through August 2002, Mr. Gibbons participated in a
cost reduction program, along with several other executives of the Company,
whereby salaries were reduced by 10%. Suntron may terminate his employment
agreement with or without cause. In the case of a termination without cause,
Suntron must continue to pay Mr. Gibbons base salary and prorated bonus
compensation for a period of one year from the date of termination. In the
case of a termination with cause, however, Suntron must continue to pay Mr.
Gibbons base salary for a period of six months.

33



---



##### Table of Contents








ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS


The following table sets forth information with respect to our common
stock beneficially owned as of March 31, 2003 by (a) each person known by us to
own beneficially more than five percent of our outstanding common stock, (b)
each of our directors, (c) each of our executive officers, and (d) all of our
directors and executive officers as a group.

|                                                                     |  |                           |            |             |  |  |      |  
|-------------------------------------------------------------------- |  | ------------------------- | ---------- | ----------- |  |  | ---- | -
|                                                                     |  | Shares Beneficially Owned
|                                                                     |  |                          
|Name of Beneficial Owner(1)                                          |  | Number                    |            | Percent (2)
|                                                                     |  |                           |            |            
|Thayer-Blum Funding III, L.L.C. (3)                                  |  |                           | 24,582,191 |             |  |  | 89.7 | %
|James K. Bass (4)                                                    |  |                           | 111,375    |             |  |  |      | *
|Allen S. Braswell, Jr. (5)                                           |  |                           | 224,025    |             |  |  |      | *
|Fred A. Breidenbach (6)                                              |  |                           | 10,200     |             |  |  |      | *
|Jeffrey W. Goettman (7)                                              |  |                           | 24,582,191 |             |  |  | 89.7 | %
|Douglas P. McCormick (7)                                             |  |                           | 24,582,191 |             |  |  | 89.7 | %
|Jose S. Medeiros (7)                                                 |  |                           | 24,582,191 |             |  |  | 89.7 | %
|Richard L. Monfort (8)                                               |  |                           | 111,361    |             |  |  |      | *
|James C. Van Horne (9)                                               |  |                           | 4,300      |             |  |  |      | *
|John C. Walker (7)                                                   |  |                           | 24,582,191 |             |  |  | 89.7 | %
|John W. Briant (10)                                                  |  |                           | 29,750     |             |  |  |      | *
|James A. Doran (11)                                                  |  |                           | 27,342     |             |  |  |      | *
|Michael Eblin (12)                                                   |  |                           | 40,500     |             |  |  |      | *
|R. Michael Gibbons (13)                                              |  |                           | 44,462     |             |  |  |      | *
|Oscar A. Hager (14)                                                  |  |                           | 14,375     |             |  |  |      | *
|Peter W. Harper (15)                                                 |  |                           | 20,500     |             |  |  |      | *
|John H. Kulp (16)                                                    |  |                           | 8,000      |             |  |  |      | *
|Kevin Sauer (17)                                                     |  |                           | 12,077     |             |  |  |      | *
|All directors and executive
officers as a group
(17 persons) (7)(18) |  |                           | 25,240,458 |             |  |  | 91.0 | %



---

|*   |  | Represents less than 1% of our outstanding common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | Except as otherwise indicated, the address of each person listed on the
table is 2501 West Grandview Road, Phoenix, Arizona 85023.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(2) |  | We have determined beneficial ownership in accordance with the rules of
the Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, we have included the shares of common stock subject to options and
convertible securities held by that person that are currently exercisable
or convertible or will become exercisable or convertible within 60 days
after March 31, 2003, but we have not included those shares for purposes
of computing percentage ownership of any other person. We have assumed
unless otherwise indicated that the persons and entities named in the
table have sole voting and investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Beneficial ownership is based on 27,409,338 shares of our common stock
outstanding as of March 31, 2003.
|   
|(3) |  | Thayer-Blum Funding III, L.L.C. is owned as follows: 59.94% by Thayer
Equity Investors IV, L.P., 0.04% by TC Manufacturing Holdings, L.L.C.,
0.02% by TC KCo, L.L.C., 34.4% by Blum Strategic Partners, L.P., and 5.6%
by Blum (K*TEC) Co-Investment Partners, L.P.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | TC Manufacturing Holdings, L.L.C. is controlled by limited liability
companies, the managing members of which are Frederick Malek, Carl
Rickersten and Paul Stern.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | Thayer Equity Investors IV, L.P. is controlled by a limited liability
company, the managing members of which are Frederick Malek and Carl
Rickersten.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | TC KCo, L.L.C. is controlled by a limited liability company, the managing
members of which are Frederik Malek and Carl Rickertsen.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

34



---



##### Table of Contents



|     |  | Blum Strategic Partners, L.P. is controlled by a limited liability company,
a managing member of which is Richard C. Blum.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | Blum (K*TEC) Co-Investment Partners, L.P. is controlled by a limited
liability company, a managing member of which is Richard C. Blum.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|     |  | Messrs. Goettman and McCormick, both directors of ours, are managing
directors of the limited liability company that controls Thayer Equity
Investors IV, L.P. Messrs. Walker and Medeiros, both directors of ours, are
members of the general partner of Blum Strategic Partners, L.P.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|     |  | The address of Thayer-Blum Funding III, L.L.C. is 1455 Pennsylvania Avenue,
N.W., Suite 350, Washington, D.C. 20004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|(4)  |  | Consists of 111,375 shares issuable pursuant to options that are
currently exercisable or exercisable within 60 days of March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|(5)  |  | Includes 37,520 shares beneficially owned by the Allen S. Braswell, Jr.
Family Limited Partnership #1; 24,455 shares beneficially owned by the
Allen S. Braswell, Jr. EFTC Limited Partnership, of which Allen S.
Braswell is a general partner; 2,750 shares beneficially owned by the
Allen S. Braswell, Sr. Trust, of which Allen S. Braswell, Sr., Allen S.
Braswell, Jr.s father, is the trustee; 8,750 shares beneficially owned by
Circuit Test International, L.P., of which Braswell Investment Corporation
(BIC) is a general partner; 136,522 shares beneficially owned by
Braswell GRIT Limited Partnership, of which BIC is a general partner; and
1,800 shares issuable pursuant to options that are exercisable within 60
days of March 31, 2003. Allen S. Braswell, Jr. is president of BIC.
|    
|(6)  |  | Includes 1,700 shares issuable pursuant to options currently exercisable
or exercisable within 60 days of March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|(7)  |  | Reflects 24,582,191 shares held by Thayer-Blum. See footnote 3. Messrs.
Goettman, McCormick, Medeiros, and Walker disclaim beneficial ownership of
these securities, except to the extent of any pecuniary interest therein.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|(8)  |  | Includes 67,875 shares held by the Monfort Family Partnership; 23,168
shares held by a partnership in which Mr. Monfort is the principal
investor; 11,518 shares owned by three of Mr. Monforts minor children;
and 8,800 shares issuable pursuant to options that are currently
exercisable within 60 days of March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|(9)  |  | Includes 1,800 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    
|(10) |  | Consists of 29,750 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|(11) |  | Includes 27,250 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|(12) |  | Consists of 40,500 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|(13) |  | Consists of 44,462 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|(14) |  | Includes 14,250 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|(15) |  | Consists of 20,500 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|(16) |  | Consists of 8,000 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(17) |  | Consists of 12,077 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of March 31, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(18) |  | Includes 322,264 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

35



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##### Table of Contents






ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Sale/Leaseback Transaction

Richard L. Monfort, currently a member of our board of directors, entered
into a sale/leaseback transaction with EFTC in December 1998 whereby EFTC sold
manufacturing facilities located in Newberg, Oregon and Tucson, Arizona to Mr.
Monfort for $10.5 million. Mr. Monfort leased these manufacturing facilities
back to us for a term of five years with aggregate monthly payments of $90,000.

Combination with K*TEC

On October 10, 2000, K*TEC Operating Company, L.L.C. (formerly known as
Thayer-Blum Funding II, L.L.C.) acquired all of the issued and outstanding
capital stock of K*TEC Electronics Holding Corporation. Pursuant to the recent
combination of EFTC and K*TEC, each of K*TEC Operating Company and EFTC merged
with a separate, wholly owned subsidiary of Suntron, with K*TEC Operating
Company and EFTC continuing as the surviving corporations and wholly owned
subsidiaries of Suntron.

Thayer-Blum Management Fees

During the first two months of 2002, EFTC and K*TEC paid Thayer-Blum
affiliates management fees of $42,000 and $167,000, respectively. These
management fee arrangements were terminated on February 28, 2002 and a new
agreement between Suntron and Thayer-Blum affiliates was put in place. Under
this new agreement, Thayer-Blum is entitled to annual fees of $750,000. During
2002, we incurred management fees of $625,000 pursuant to this new agreement,
resulting in total fees paid to Thayer-Blum affiliates in 2002 of approximately
$835,000.

In addition, in 2001 we accrued advisory fees payable to Thayer-Blum
affiliates of $750,000 in connection with the recent combination of EFTC and
K*TEC. This fee was paid to Thayer-Blum in 2002.




ITEM 14. DISCLOSURE CONTROLS AND PROCEDURES

As required by Rule 13a-15 under the Exchange Act, within the 90 days
prior to the filing date of this report, the Company carried out an evaluation
of the effectiveness of the design and operation of the Companys disclosure
controls and procedures. This evaluation was carried out under the supervision
and with the participation of the Companys management, including our Chief
Executive Officer and our Chief Financial Officer. Based upon that evaluation,
our Chief Executive Officer and our Chief Financial Officer concluded that the
Companys disclosure controls and procedures are effective. There have been no
significant changes in the Companys internal controls or in other factors that
could significantly affect internal controls subsequent to the date the Company
carried out its evaluation.

Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in Company
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commissions rules and forms. Disclosure controls and procedures
include controls and procedures designed to ensure that information required to
be disclosed in Company reports filed under the Exchange Act is accumulated and
communicated to management, including the Companys Chief Executive Officer and
Chief Financial Officer as appropriate, to allow timely decisions regarding
required disclosure.

36



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##### Table of Contents






PART IV




ITEM 15. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Financial Statements and Financial Statement Schedule



| | (1) |  | Financial Statements and Schedule II are listed in the Index
to Financial Statements on page F-1 of this Report.
| | --- |  | ----------------------------------------------------------------------------------------------------------------

Other schedules are omitted because they are not applicable, not required,
or because required information is included in the consolidated financial
statements or notes thereto.

(b)  Reports on Form 8-K

None.

(c)  Exhibits

|        |  |                                                                                                                                                                                                                                                                                          
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                          
|Number  |  | Exhibits                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                          
|2.1     |  | Amended and Restated Agreement and Plan of Merger, dated as of May 3,
2001, by and among EFTC Corporation, K*TEC Electronics Holding
Corporation, Thayer-Blum Funding II, L.L.C. and the registrant. (1)                                                                                 
|        |  |                                                                                                                                                                                                                                                                                          
|3.1     |  | Certificate of Incorporation of the registrant. (1)                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                          
|3.2     |  | Bylaws of the registrant. (1)                                                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                          
|4.1     |  | Specimen Stock Certificate. (1)                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                          
|10.1    |  | Suntron Corporation Amended and Restated 2002 Stock Option Plan. (2)                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                          
|10.2    |  | Registration Rights Agreement between the registrant and Thayer-Blum. (1)                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                          
|10.3    |  | Memorandum of Understanding dated as of December 6, 2000 by and between
Honeywell International, Inc. and EFTC Corporation. (1)                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                          
|10.4    |  | Form of Management and Consulting Agreement by and between Thayer-Blum
Funding, L.L.C. and the registrant. (1)                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                          
|10.5    |  | Module Supplier Agreement dated as of February 2, 2000 by and between
Applied Materials, Inc. and K*TEC Electronics Corporation. (1)                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                          
|10.6    |  | Comprehensive Supplier Agreement #305038 dated as of August 3, 1997 by
and between Applied Materials, Inc. and K*TEC Electronics Corporation. (1)                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                          
|10.7    |  | Credit Agreement dated as of January 26, 2001 by and among K*TEC
Electronics Corporation and certain of its subsidiaries and Citicorp. USA,
Inc., and the lenders and issuers parties thereto. (1)                                                                                       
|        |  |                                                                                                                                                                                                                                                                                          
|10.8    |  | Amendment No. 1 and Waiver to K*TEC Electronics Holding Corporation
Credit Agreement, Guaranty and Pledge and Security Agreement dated as of
November 7, 2001 by and between K*TEC Electronics Holding Corporation and
Citicorp USA, Inc. as sole Lender and as Administrative Agent. (1)

37



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##### Table of Contents



|        |  |                                                                                                                                                                                                                                            
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                            
|Number  |  | Exhibits                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                            
|10.9    |  | Amendment No. 2 to K*TEC Electronics Holding Corporation Credit Agreement
dated as of December 19, 2001 among K*TEC Electronics Holding Corporation
and Citicorp USA, Inc. as sole Lender and as Administrative Agent. (3)                 
|        |  |                                                                                                                                                                                                                                            
|10.10   |  | Amendment No. 3 to K*TEC Electronics Holding Corporation Credit
Agreement dated as of March 8, 2002 among K*TEC Electronics Holding
Corporation, EFTC Operating Corp., and Citicorp USA, Inc., as
Administrative Agent and sole Lender. (3)
|        |  |                                                                                                                                                                                                                                            
|10.11   |  | Employment Agreement dated as of June 23, 2000 by and between James Bass
and EFTC Corporation. (1)                                                                                                                                         
|        |  |                                                                                                                                                                                                                                            
|10.12   |  | Employment Agreement dated as of March 9, 2000 by and between Raymond M.
Gibbons and K*TEC Electronics Corporation. (1)                                                                                                                    
|        |  |                                                                                                                                                                                                                                            
|10.13   |  | Lease Agreement dated as of May 10, 1999 by and between Orsett/I-17
L.L.C. and EFTC Corporation. (1)                                                                                                                                       
|        |  |                                                                                                                                                                                                                                            
|10.14   |  | Industrial Lease dated December 18, 1998 by and between Buckhorn Trading
Co., LLC and EFTC Corporation. (1)                                                                                                                                
|        |  |                                                                                                                                                                                                                                            
|10.15   |  | Commercial/Industrial Lease dated as of April 1, 2001 by and between
EFTC Corporation and H. J. Brooks, LLC. (1)                                                                                                                           
|        |  |                                                                                                                                                                                                                                            
|10.16   |  | Lease Agreement dated September 5, 2000 by and between Fremont
Industrial Portfolio, Inc. and K*TEC Electronics Corporation. (1)                                                                                                           
|       
|10.17   |  | Consulting Services
Agreement dated as of April 24, 2002 by and between Suntron
Corporation and Allen S. Brassell, Jr. (4)                                                                                                                 
|       
|10.18   |  | Management and
Consulting Agreement by and between Suntron Corporation and
Thayer-Blum Funding III, L.L.C. (4)                                                                                                                             
|        |  |                                                                                                                                                                                                                                            
|21      |  | List of Subsidiaries of the registrant. (2)                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                            
|23.1    |  | Consent of KPMG LLP (2)                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                            
|23.2    |  | Notice Regarding Consent of Arthur Andersen LLP (2)                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                            
|99.1    |  | Certificate of Chief Executive Officer. (2)                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                            
|99.2    |  | Certificate of Chief Financial Officer. (2)                                                                                                                                                                                                



---



|(1) |  | Incorporated by reference to the Registration Statement on Form S-4
(Registration No. 333-72992) declared effective February 8, 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Filed herewith.                                                                                                                      
|   
|(3) |  | Incorporated by reference to the
Annual Report on Form 10-K filed on April 1, 2002.                                                  
|   
|(4) |  | Incorporated by reference to the
Quarterly Report on Form 10-Q filed on August 14, 2002.                                             

38



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##### Table of Contents






SIGNATURES

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

|                     |  |                     |  |                                                    
|-------------------- |  | ------------------- |  | ---------------------------------------------------
|                     |  | SUNTRON CORPORATION
|                     |  |                     |  |                                                    
|Date: April 14, 2003 |  | By:                 |  | /s/ James K. Bass                                  
|                     |  |                     |  |                                                    
|                     |  |                     |  | James K. Bass
President and Chief Executive Officer

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

|                                                      |  |                                                                                |  |               
|----------------------------------------------------- |  | ------------------------------------------------------------------------------ |  | --------------
|Name                                                  |  | Title                                                                          |  | Date          
|                                                      |  |                                                                                |  |               
|/s/James K. Bass

    James K. Bass                   |  | President, Chief Executive Officer
(Principal Executive Officer), and Director |  | April 14, 2003
|                                                      |  |                                                                                |  |               
|/s/Peter W. Harper

    Peter W. Harper               |  | Chief Financial Officer and Secretary,
(Principal Financial Officer)           |  | April 14, 2003
|                                                      |  |                                                                                |  |               
|/s/James A. Doran

    James A. Doran                 |  | Chief Accounting Officer 
(Principal Accounting Officer)                       |  | April 14, 2003
|                                                      |  |                                                                                |  |               
|/s/Allen S. Braswell, Jr.

    Allen S. Braswell, Jr. |  | Director                                                                       |  | April 14, 2003
|                                                      |  |                                                                                |  |               
|/s/Fred A. Breidenbach

    Fred A. Breidenbach       |  | Director                                                                       |  | April 14, 2003
|                                                      |  |                                                                                |  |               
|/s/Jeffrey W. Goettman

    Jeffrey W. Goettman       |  | Director                                                                       |  | April 14, 2003
|                                                      |  |                                                                                |  |               
|/s/Douglas P. McCormick

    Douglas P. McCormick     |  | Director                                                                       |  | April 14, 2003
|                                                      |  |                                                                                |  |               
|/s/Jose S. Medeiros

    Jose S. Medeiros             |  | Director                                                                       |  | April 14, 2003
|                                                      |  |                                                                                |  |               
|/s/Richard L. Monfort

    Richard L. Monfort         |  | Director                                                                       |  | April 14, 2003
|                                                      |  |                                                                                |  |               
|/s/ James C. Van Horne

    James C. Van Horne        |  | Director                                                                       |  | April 14, 2003
|                                                      |  |                                                                                |  |               
|/s/John C. Walker

    John C. Walker                 |  | Director                                                                       |  | April 14, 2003





---



##### Table of Contents






CERTIFICATION

I, James K. Bass certify that:

1.     I have reviewed this Annual Report on Form 10-K of Suntron Corporation;

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

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

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



| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Annual Report is
being prepared;
|
| | b) evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this Annual Report (the Evaluation Date); and                                                                                                  
|
| | c) presented in this Annual Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

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



| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants ability
to record, process, summarize, and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
|
| | b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and                                                                                                                                         

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

|                     |  |                                       
|-------------------- |  | --------------------------------------
|Date: April 14, 2003 |  | /s/ James K. Bass                     
|                     |  |                                       
|                     |  | James K. Bass 
Chief Executive Officer





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##### Table of Contents



CERTIFICATION

I, Peter W. Harper, certify that:

1.     I have reviewed this Annual Report on Form 10-K of Suntron Corporation;

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

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

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



| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Annual Report is
being prepared;
|
| | b) evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this Annual Report (the Evaluation Date); and                                                                                                  
|
| | c) presented in this Annual Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

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



| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants ability
to record, process, summarize, and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
|
| | b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and                                                                                                                                         

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

|                     |  |                                        
|-------------------- |  | ---------------------------------------
|Date: April 14, 2003 |  | /s/ Peter W. Harper                    
|                     |  |                                        
|                     |  | Peter W. Harper
Chief Financial Officer





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##### Table of Contents






SUNTRON CORPORATION
Index to Consolidated Financial Statements and Schedule

|                                   |                                                                                                      |  |              |      | 
|---------------------------------- | ---------------------------------------------------------------------------------------------------- |  | ------------ | ---- | 
|                                   |                                                                                                      |  | Page(s)     
|                                   |                                                                                                      |  |             
|Consolidated Financial Statements: |                                                                                                      |  |              |     
|                                   | Independent auditors reports                                                                        |  | F-2 to F-3  
|                                   | Consolidated balance sheets as of December 31, 2001 and 2002                                         |  | F-4 to F-5  
|                                   | Consolidated statements of operations for the years ended
December 31, 2000, 2001 and 2002           |  |              | F-6  | 
|                                   | Consolidated statements of stockholders equity for the
years ended December 31, 2000, 2001 and 2002 |  |              | F-7  | 
|                                   | Consolidated statements of cash flows for the years ended
December 31, 2000, 2001 and 2002           |  | F-8 to F-9  
|                                   | Notes to consolidated financial statements                                                           |  | F-10 to F-32
|Supplementary Schedule:            |                                                                                                      |  |              |     
|                                   | Independent auditors report                                                                         |  |              | F-33 | 
|                                   | Schedule II- Valuation and Qualifying Accounts                                                       |  |              | F-34 | 

F-1



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Board of Directors and Stockholders
Suntron Corporation:

We have audited the accompanying consolidated balance sheets of Suntron
Corporation and subsidiaries as of December 31, 2001 and 2002, and the related
consolidated statements of operations, stockholders equity and cash flows for
each of the years in the three-year period ended December 31, 2002. In
connection with our audits, we also have audited the accompanying financial
statement schedule for each of the years in the three-year period ended
December 31, 2002. These consolidated financial statements and financial
statement schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.

The consolidated financial statements of Suntron Corporation as of December 31,
2001 and for the years ended December 31, 2000 and 2001, have been restated to
reflect the combination of entities under common control with K*TEC Operating
Company, L.L.C. (formerly known as Thayer-BLUM Funding II, L.L.C.) and
subsidiary as described in Note 2 to the consolidated financial statements. We
did not audit the consolidated financial statements and financial statement
schedule of K*TEC Operating Company, L.L.C. for the period from September 14,
2000 (inception) through December 31, 2000 which statements reflect total
revenues constituting 29 percent of Suntron Corporations fiscal 2000
consolidated revenues. Those statements and financial statement schedule were
audited by other auditors who have ceased operations. Those auditors expressed
an unqualified opinion on those consolidated financial statements and financial
statement schedule in their report dated May 25, 2001.

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

In our opinion, based on our audits and the report of the other auditors who
have ceased operations, the consolidated financial statements referred to in
the first paragraph present fairly, in all material respects, the financial
position of Suntron Corporation and subsidiaries as of December 31, 2001 and
2002, and the results of their operations and their cash flows for each of the
years in the three year period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, the related financial statement schedule for each of the years
in the three-year period ended December 31, 2002, when considered in relation
to the basic consolidated financial statements taken as a whole and based on
the report of other auditors who have ceased operations, presents fairly, in
all material respects, the information set forth therein.

As discussed in Note 3 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, effective January 1, 2002.

/s/ KPMG LLP

Phoenix, Arizona
April 11, 2003

F-2





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##### Table of Contents



This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with Thayer-BLUM Funding II, L.L.C.s consolidated financial
statements as of December 31, 2000 and for the period September 14, 2000
through December 31, 2000. See Note 2 of the accompanying financial statements
for a description of the relationship between Thayer-BLUM Funding II, L.L.C.
and Suntron Corporation and the accounting for the merger of these entities.
Additionally, the reference to Note 4 in the date of the following report
relates to financial statements that were included in the Form S-4 registration
statement and not to Note 4 of the financial statements included in this
Annual Report on Form 10-K. The following audit report has not been reissued by
Arthur Andersen LLP in connection with this Annual Report on Form 10-K because
Arthur Andersen LLP has ceased operations.

INDEPENDENT AUDITORS REPORT

To the Member
K*TEC Operating Company, L.L.C.:

We have audited the accompanying consolidated balance sheet of K*TEC
Operating Company, L.L.C. (formerly known as Thayer-BLUM Funding II, L.L.C.)
and subsidiary as of December 31, 2000, and the related consolidated statements
of operations, members equity and cash flows for the period from September 14,
2000 (inception) through December 31, 2000. These consolidated financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of K*TEC
Operating Company, L.L.C. and subsidiary as of December 31, 2000, and the
results of their operations and their cash flows for the period from September
14, 2000 (inception) through December 31, 2000, in conformity with accounting
principles generally accepted in the United States.

/s/ Arthur Andersen LLP

Houston, Texas
May 25, 2001 (except with respect to the fourth paragraph of
   Note 4, as to which the date is November 7, 2001)

F-3





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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2002
(Dollars in Thousands, Except Per Share Amounts)

|                                       |                                                                                                    |   |                                   |         |   |         |         |         |   |         |  | 
|-------------------------------------- | -------------------------------------------------------------------------------------------------- | - | --------------------------------- | ------- | - | ------- | ------- | ------- | - | ------- |  | 
|                                       |                                                                                                    |   |                                   |         |   | 2001    |         | 2002   
|                                       |                                                                                                    |   |                                   |         |   |         |         |        
|                                       |                                                                                                    |   |                                   | ASSETS  |   |         |         |         |   |         |  | 
|Current
Assets:                        |                                                                                                    |   |                                   |         |   |         |         |        
|                                       | Cash and equivalents                                                                               |   | $                                 | 14,172  |   |         | $       | 1,621   |  
|                                       | Trade receivables, net of allowance for
doubtful accounts of $5,636 and $1,740,
respectively       |   |                                   | 31,029  |   |         |         | 29,161  |  
|                                       | Inventories                                                                                        |   |                                   |         |   | 106,768 |         |         |   | 67,381  | 
|                                       | Prepaid expenses and other                                                                         |   |                                   | 2,037   |   |         |         | 1,860   |  
|                                       |                                                                                                    |   |                                   |         |   |         |         |         |  
|                                       |                                                                                                    |   | Total Current Assets              |         |   | 154,006 |         |         |   | 100,023 | 
|                                       |                                                                                                    |   |                                   |         |   |         |         |         |  
|Property, Plant and Equipment,at cost: |                                                                                                    |   |                                   |         |   |         |         |        
|                                       | Land                                                                                               |   |                                   | 4,798   |   |         |         | 4,798   |  
|                                       | Leasehold improvements                                                                             |   |                                   | 6,161   |   |         |         | 6,517   |  
|                                       | Buildings and improvements                                                                         |   |                                   | 20,933  |   |         |         | 19,204  |  
|                                       | Manufacturing machinery and equipment                                                              |   |                                   | 54,163  |   |         |         | 53,699  |  
|                                       | Furniture, computer equipment and software                                                         |   |                                   | 32,928  |   |         |         | 32,056  |  
|                                       |                                                                                                    |   |                                   |         |   |         |         |         |  
|                                       |                                                                                                    |   | Total                             |         |   | 118,983 |         |         |   | 116,274 | 
|                                       | Less accumulated depreciation and amortization                                                     |   |                                   | (37,559 | ) |         |         | (54,368 | )
|                                       |                                                                                                    |   |                                   |         |   |         |         |         |  
|                                       |                                                                                                    |   | Net Property, Plant and Equipment |         |   | 81,424  |         |         |   | 61,906  | 
|                                       |                                                                                                    |   |                                   |         |   |         |         |         |  
|Intangible and Other Assets:           |                                                                                                    |   |                                   |         |   |         |         |        
|                                       | Goodwill                                                                                           |   |                                   | 82,604  |   |         |         | 6,964   |  
|                                       | Identifiable intangible assets, net of
accumulated amortization of $3,329 and
$4,004, respectively |   |                                   | 2,383   |   |         |         | 1,708   |  
|                                       | Debt issuance costs, net                                                                           |   |                                   | 1,806   |   |         |         | 1,156   |  
|                                       | Deposits and other                                                                                 |   |                                   | 416     |   |         |         | 459     |  
|                                       |                                                                                                    |   |                                   |         |   |         |         |         |  
|                                       |                                                                                                    |   | Total Intangible and Other Assets |         |   | 87,209  |         |         |   | 10,287  | 
|                                       |                                                                                                    |   |                                   |         |   |         |         |         |  
|                                       |                                                                                                    | $ | 322,639                           |         |   | $       | 172,216 |        
|                                       |                                                                                                    |   |                                   |         |   |         |         |         |  

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.

F-4



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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
December 31, 2001 and 2002
(Dollars in Thousands, Except Per Share Amounts)

|                                               |                                                                                                                                   |                        |                            |                                      |        |         |         |          |        |         |  | 
|---------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | ---------------------- | -------------------------- | ------------------------------------ | ------ | ------- | ------- | -------- | ------ | ------- |  | 
|                                               |                                                                                                                                   |                        |                            |                                      |        | 2001    |         | 2002    
|                                               |                                                                                                                                   |                        |                            |                                      |        |         |         |         
|                                               |                                                                                                                                   |                        |                            | LIABILITIES AND STOCKHOLDERS EQUITY |        |         |         |          |        |         |  | 
|Current Liabilities:                           |                                                                                                                                   |                        |                            |                                      |        |         |         |         
|                                               | Accounts payable                                                                                                                  |                        | $                          | 28,391                               |        |         | $       | 32,550   |       
|                                               | Outstanding checks in excess of cash balances                                                                                     |                        |                            | 900                                  |        |         |         |         |       
|                                               | Accrued compensation and benefits                                                                                                 |                        |                            | 8,197                                |        |         |         | 7,268    |       
|                                               | Current portion of accrued exit costs related to facility closures                                                                |                        |                            | 1,900                                |        |         |         | 3,341    |       
|                                               | Accrued interest expense                                                                                                          |                        |                            | 1,721                                |        |         |         | 87       |       
|                                               | Payable to affiliates                                                                                                             |                        |                            | 1,730                                |        |         |         | 295      |       
|                                               | Accrued property taxes                                                                                                            |                        |                            | 1,347                                |        |         |         | 1,626    |       
|                                               | Other accrued liabilities                                                                                                         |                        |                            | 4,290                                |        |         |         | 4,484    |       
|                                               |                                                                                                                                   |                        |                            |                                      |        |         |         |         
|                                               |                                                                                                                                   |                        | Total Current Liabilities  |                                      |        | 48,476  |         |          |        | 49,651  | 
|Long-term Liabilities:                         |                                                                                                                                   |                        |                            |                                      |        |         |         |         
|                                               | Long-term debt, net of current maturities:                                                                                        |                        |                            |                                      |        |         |         |          |       
|                                               |                                                                                                                                   | Banks                  |                            |                                      | 31,628 |         |         |          | 10,856 |        
|                                               |                                                                                                                                   | Former Parent of K*TEC |                            |                                      | 12,202 |         |         |          |       |        
|                                               | Accrued exit costs related to facility closures                                                                                   |                        |                            |                                     |        |         |         | 6,980    |       
|                                               | Other                                                                                                                             |                        |                            | 201                                  |        |         |         | 718      |       
|                                               |                                                                                                                                   |                        |                            |                                      |        |         |         |         
|                                               |                                                                                                                                   |                        | Total Liabilities          |                                      |        | 92,507  |         |          |        | 68,205  | 
|                                               |                                                                                                                                   |                        |                            |                                      |        |         |         |         
|Commitments and Contingencies (Notes 8 and 11) |                                                                                                                                   |                        |                            |                                      |        |         |         |         
|Stockholders Equity:                          |                                                                                                                                   |                        |                            |                                      |        |         |         |         
|                                               | Preferred stock, $.01 par value. Authorized 10,000,000 shares,
none issued                                                        |                        |                            |                                      |        |         |         |          |       
|                                               | Common stock, $.01 par value. Authorized 75,000,000 shares; issued
and outstanding 27,409,589 and 27,409,338 shares, respectively |                        |                            | 274                                  |        |         |         | 274      |       
|                                               | Additional paid-in capital                                                                                                        |                        |                            | 380,000                              |        |         |         | 380,175  |       
|                                               | Deferred stock compensation cost                                                                                                  |                        |                            | (205                                 | )      |         |         | (351     | )     
|                                               | Accumulated deficit                                                                                                               |                        |                            | (149,937                             | )      |         |         | (276,087 | )     
|                                               |                                                                                                                                   |                        |                            |                                      |        |         |         |         
|                                               |                                                                                                                                   |                        | Total Stockholders Equity |                                      |        | 230,132 |         |          |        | 104,011 | 
|                                               |                                                                                                                                   |                        |                            |                                      |        |         |         |         
|                                               |                                                                                                                                   | $                      | 322,639                    |                                      |        | $       | 172,216 |         
|                                               |                                                                                                                                   |                        |                            |                                      |        |         |         |         

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.

F-5



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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars In Thousands, Except Per Share Amounts)

|                                                                      |                                                                 |                                    |                                                                                  |           |                         |         |         |            |       |         |         |            |     |          |  
|--------------------------------------------------------------------- | --------------------------------------------------------------- | ---------------------------------- | -------------------------------------------------------------------------------- | --------- | ----------------------- | ------- | ------- | ---------- | ----- | ------- | ------- | ---------- | --- | -------- | -
|                                                                      |                                                                 |                                    |                                                                                  |           | Year Ended December 31,
|                                                                      |                                                                 |                                    |                                                                                  |           |                        
|                                                                      |                                                                 |                                    |                                                                                  |           | 2000                    |         | 2001    |            | 2002 
|                                                                      |                                                                 |                                    |                                                                                  |           |                         |         |         |            |      
|Net Sales                                                             |                                                                 | $                                  | 463,130                                                                          |           |                         | $       | 574,401 |            |       | $       | 370,797 |           
|Cost of Goods Sold                                                    |                                                                 |                                    | 439,210                                                                          |           |                         |         | 579,123 |            |       |         | 398,767 |           
|                                                                      |                                                                 |                                    |                                                                                  |           |                         |         |         |            |       |         |         |           
|                                                                      |                                                                 |                                    | Gross profit (loss)                                                              |           |                         | 23,920  |         |            |       | (4,722  | )       |            |     | (27,970  | )
|Operating Costs and Expenses:                                         |                                                                 |                                    |                                                                                  |           |                         |         |         |            |       |         |         |           
|                                                                      | Selling, general and administrative expenses                    |                                    |                                                                                  | 27,020    |                         |         |         | 29,619     |       |         |         | 27,234     |    
|                                                                      | Severance, retention, closure and relocation costs              |                                    |                                                                                  | 4,579     |                         |         |         | 228        |       |         |         | 169        |    
|                                                                      | Recapitalization and merger transaction costs                   |                                    |                                                                                  | 5,336     |                         |         |         | 2,375      |       |         |         | 312        |    
|                                                                      | Related party expenses:                                         |                                    |                                                                                  |           |                         |         |         |            |       |         |         |            |    
|                                                                      |                                                                 | Acquisition and financing expenses |                                                                                  |           | 2,300                   |         |         |            | 2,500 |         |         |            |    |         
|                                                                      |                                                                 | Management fees                    |                                                                                  |           | 413                     |         |         |            | 1,250 |         |         |            | 835 |         
|                                                                      | Impairment of long-lived assets                                 |                                    |                                                                                  | 1,662     |                         |         |         |           |       |         |         | 21         |    
|                                                                      | Goodwill amortization                                           |                                    |                                                                                  | 907       |                         |         |         | 2,905      |       |         |         |           |    
|                                                                      |                                                                 |                                    |                                                                                  |           |                         |         |         |            |       |         |         |           
|                                                                      |                                                                 |                                    | Total operating costs and expenses                                               |           |                         | 42,217  |         |            |       | 38,877  |         |            |     | 28,571   |  
|                                                                      |                                                                 |                                    |                                                                                  |           |                         |         |         |            |       |         |         |           
|                                                                      |                                                                 |                                    | Operating loss                                                                   |           |                         | (18,297 | )       |            |       | (43,599 | )       |            |     | (56,541  | )
|Other Income (Expense):                                               |                                                                 |                                    |                                                                                  |           |                         |         |         |            |       |         |         |           
|                                                                      | Interest expense                                                |                                    |                                                                                  | (10,881   | )                       |         |         | (12,217    | )     |         |         | (2,568     | )  
|                                                                      | Reduction in interest expense due to settlement of
dispute      |                                    |                                                                                  |          |                         |         |         |           |       |         |         | 1,029      |    
|                                                                      | Gain (loss) on sale of assets                                   |                                    |                                                                                  | 4,369     |                         |         |         | 764        |       |         |         | (166       | )  
|                                                                      | Interest and other income                                       |                                    |                                                                                  | 549       |                         |         |         | 551        |       |         |         | 835        |    
|                                                                      |                                                                 |                                    |                                                                                  |           |                         |         |         |            |       |         |         |           
|                                                                      |                                                                 |                                    | Loss before income taxes and cumulative
effect of change in accounting principle |           |                         | (24,260 | )       |            |       | (54,501 | )       |            |     | (57,411  | )
|Income Tax Benefit (Expense)                                          |                                                                 |                                    | (287                                                                             | )         |                         |         | (20     | )          |       |         | 276     |           
|                                                                      |                                                                 |                                    |                                                                                  |           |                         |         |         |            |       |         |         |           
|                                                                      |                                                                 |                                    | Loss before cumulative effect of change in
accounting principle                  |           |                         | (24,547 | )       |            |       | (54,521 | )       |            |     | (57,135  | )
|Cumulative
Effect of Change in Accounting Principle                   |                                                                 |                                    |                                                                                 |           |                         |         |        |            |       |         | (69,015 | )         
|                                                                      |                                                                 |                                    |                                                                                  |           |                         |         |         |            |       |         |         |           
|                                                                      |                                                                 |                                    | Net loss                                                                         |           | $                       | (24,547 | )       |            | $     | (54,521 | )       |            | $   | (126,150 | )
|                                                                      |                                                                 |                                    |                                                                                  |           |                         |         |         |            |       |         |         |           
|Net Loss Applicable to Common Stockholders:                           |                                                                 |                                    |                                                                                  |           |                         |         |         |            |       |         |         |           
|                                                                      | Net loss                                                        |                                    | $                                                                                | (24,547   | )                       |         | $       | (54,521    | )     |         | $       | (126,150   | )  
|                                                                      | Accrued dividends related to preferred stock                    |                                    |                                                                                  | (450      | )                       |         |         | (550       | )     |         |         |           |    
|                                                                      | Beneficial conversion feature of preferred stock                |                                    |                                                                                  | (2,022    | )                       |         |         |           |       |         |         |           |    
|                                                                      |                                                                 |                                    |                                                                                  |           |                         |         |         |            |       |         |         |           
|                                                                      |                                                                 |                                    | Net loss applicable to common stockholders                                       |           | $                       | (27,019 | )       |            | $     | (55,071 | )       |            | $   | (126,150 | )
|                                                                      |                                                                 |                                    |                                                                                  |           |                         |         |         |            |       |         |         |           
|Loss Per Share Applicable to Common Stockholders
(Basic and Diluted): |                                                                 |                                    |                                                                                  |           |                         |         |         |            |       |         |         |           
|                                                                      | Loss before cumulative effect of change in
accounting principle |                                    | $                                                                                | (3.64     | )                       |         | $       | (2.29      | )     |         | $       | (2.08      | )  
|                                                                      | Cumulative effect of change in accounting principle             |                                    |                                                                                  |          |                         |         |         |           |       |         |         | (2.52      | )  
|                                                                      |                                                                 |                                    |                                                                                  |           |                         |         |         |            |       |         |         |           
|                                                                      |                                                                 |                                    | Net loss                                                                         |           | $                       | (3.64   | )       |            | $     | (2.29   | )       |            | $   | (4.60    | )
|                                                                      |                                                                 |                                    |                                                                                  |           |                         |         |         |            |       |         |         |           
|Number of Shares Used for Computation:                                |                                                                 |                                    |                                                                                  |           |                         |         |         |            |       |         |         |           
|                                                                      | Basic and diluted                                               |                                    |                                                                                  | 7,433,000 |                         |         |         | 24,092,000 |       |         |         | 27,409,000 |    
|                                                                      |                                                                 |                                    |                                                                                  |           |                         |         |         |            |       |         |         |           

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.

F-6



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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Years Ended December 31, 2000, 2001 and 2002
(Dollars in Thousands)

|                            |                                                                                       |  |        |                 |   |              |        |            |   |            |            |                |   |             |     |              |  |         |         |         |   |   |       |        |   |   |      |      |   |   |          |          |   |   |         |          |   | 
|--------------------------- | ------------------------------------------------------------------------------------- |  | ------ | --------------- | - | ------------ | ------ | ---------- | - | ---------- | ---------- | -------------- | - | ----------- | --- | ------------ |  | ------- | ------- | ------- | - | - | ----- | ------ | - | - | ---- | ---- | - | - | -------- | -------- | - | - | ------- | -------- | - | 
|                            |                                                                                       |  |        | Preferred Stock |   | Common Stock |        | Additional |   |            |            |                |   |             |     |              |  |         |         |         |   |   |       |       
|                            |                                                                                       |  |        |                 |   |              |        | Paid-in    |   | Settlement |            | Deferred Stock |   | Accumulated |     |              |  |        
|                            |                                                                                       |  |        | Shares          |   | Amount       |        | Shares     |   | Amount     |            | Capital        |   | Obligation  |     | Compensation |  | Deficit |         | Total  
|                            |                                                                                       |  |        |                 |   |              |        |            |   |            |            |                |   |             |     |              |  |         |         |        
|Balances, December 31, 1999 |                                                                                       |  |       |                 |   | $            |       |            |   |            | 3,885,872  |                |   | $           | 39  |              |  | $       | 92,108  |         |   | $ |      |        |   | $ |     |      |   | $ | (70,869  | )        |   | $ | 21,278  |         
|                            | Fair value of warrants
issued for services                                            |  |        |                |   |              |        |           |   |            |            |               |   |             |     |             |  |         |         | 536     |   |   |       |       |   |   |      |     |   |   |          |         |   |   |         | 536      |  
|                            | Compensation cost
related to stock options
granted to employees                       |  |        |                |   |              |        |           |   |            |            |               |   |             |     |             |  |         |         | 367     |   |   |       |       |   |   |      | (367 | ) |   |          |         |   |   |         |         |  
|                            | Amortization of deferred
stock compensation cost                                      |  |        |                |   |              |        |           |   |            |            |               |   |             |     |             |  |         |         |        |   |   |       |       |   |   |      | 87   |   |   |          |         |   |   |         | 87       |  
|                            | Conversion of
exchangeable notes for
preferred stock, net of
issuance costs           |  |        | 14,233          |   |              |        | 14,233     |   |            |            |               |   |             |     |             |  |         |         | (206    | ) |   |       |       |   |   |      |     |   |   |          |         |   |   |         | 14,027   |  
|                            | Common stock issued in
lawsuit settlement                                             |  |        |                |   |              |        |           |   |            |            | 97,500         |   |             |     | 1            |  |         |         | 986     |   |   |       |       |   |   |      |     |   |   |          |         |   |   |         | 987      |  
|                            | Lawsuit settlement
common stock obligation                                            |  |        |                |   |              |        |           |   |            |            |               |   |             |     |             |  |         |         |        |   |   |       | 2,303  |   |   |      |     |   |   |          |         |   |   |         | 2,303    |  
|                            | Dividend requirement                                                                  |  |        |                |   |              |        | 450        |   |            |            |               |   |             |     |             |  |         |         | (450    | ) |   |       |       |   |   |      |     |   |   |          |         |   |   |         |         |  
|                            | Common stock issued to
owners of K*TEC                                                |  |        |                |   |              |        |           |   |            |            | 15,119,356     |   |             |     | 151          |  |         |         | 229,849 |   |   |       |       |   |   |      |     |   |   |          |         |   |   |         | 230,000  |  
|                            | Net loss                                                                              |  |        |                |   |              |        |           |   |            |            |               |   |             |     |             |  |         |         |        |   |   |       |       |   |   |      |     |   |   |          | (24,547  | ) |   |         | (24,547  | )
|                            |                                                                                       |  |        |                 |   |              |        |            |   |            |            |                |   |             |     |              |  |         |         |         |   |   |       |        |   |   |      |      |   |   |          |          |   |   |         |         
|Balances, December 31, 2000 |                                                                                       |  | 14,233 |                 |   |              | 14,683 |            |   |            | 19,102,728 |                |   |             | 191 |              |  |         | 323,190 |         |   |   | 2,303 |        |   |   | (280 | )    |   |   | (95,416  | )        |   |   | 244,671 |         
|                            | Stock options exercised                                                               |  |        |                |   |              |        |           |   |            |            | 22,775         |   |             |     |             |  |         |         | 232     |   |   |       |       |   |   |      |     |   |   |          |         |   |   |         | 232      |  
|                            | Amortization of deferred
stock compensation cost                                      |  |        |                |   |              |        |           |   |            |            |               |   |             |     |             |  |         |         |        |   |   |       |       |   |   |      | 75   |   |   |          |         |   |   |         | 75       |  
|                            | Dividend requirement                                                                  |  |        |                |   |              |        | 550        |   |            |            |               |   |             |     |             |  |         |         | (550    | ) |   |       |       |   |   |      |     |   |   |          |         |   |   |         |         |  
|                            | Conversion of preferred
stock to common stock                                         |  |        | (14,233         | ) |              |        | (15,233    | ) |            |            | 2,115,749      |   |             |     | 21           |  |         |         | 15,212  |   |   |       |       |   |   |      |     |   |   |          |         |   |   |         |         |  
|                            | Conversion of
Convertible Notes to
common stock, net of
debt issuance costs of $1,635 |  |        |                |   |              |        |           |   |            |            | 5,940,837      |   |             |     | 60           |  |         |         | 59,615  |   |   |       |       |   |   |      |     |   |   |          |         |   |   |         | 59,675   |  
|                            | Distribution to former
owner of K*TEC                                                 |  |        |                |   |              |        |           |   |            |            |               |   |             |     |             |  |         |         | (20,000 | ) |   |       |       |   |   |      |     |   |   |          |         |   |   |         | (20,000  | )
|                            | Common stock issued in
lawsuit settlement                                             |  |        |                |   |              |        |           |   |            |            | 227,500        |   |             |     | 2            |  |         |         | 2,301   |   |   |       | (2,303 | ) |   |      |     |   |   |          |         |   |   |         |         |  
|                            | Net loss                                                                              |  |        |                |   |              |        |           |   |            |            |               |   |             |     |             |  |         |         |        |   |   |       |       |   |   |      |     |   |   |          | (54,521  | ) |   |         | (54,521  | )
|                            |                                                                                       |  |        |                 |   |              |        |            |   |            |            |                |   |             |     |              |  |         |         |         |   |   |       |        |   |   |      |      |   |   |          |          |   |   |         |         
|Balances, December 31, 2001 |                                                                                       |  |       |                 |   |              |       |            |   |            | 27,409,589 |                |   |             | 274 |              |  |         | 380,000 |         |   |   |      |        |   |   | (205 | )    |   |   | (149,937 | )        |   |   | 230,132 |         
|                            | Compensation cost
related to stock options
granted to employees                       |  |        |                |   |              |        |           |   |            |            |               |   |             |     |             |  |         |         | 233     |   |   |       |       |   |   |      | (233 | ) |   |          |         |   |   |         |         |  
|                            | Amortization of deferred
stock compensation cost                                      |  |        |                |   |              |        |           |   |            |            |               |   |             |     |             |  |         |         | (56     | ) |   |       |       |   |   |      | 87   |   |   |          |         |   |   |         | 31       |  
|                            | Fractional shares retired                                                             |  |        |                |   |              |        |           |   |            |            | (251           | ) |             |     |             |  |         |         | (2      | ) |   |       |       |   |   |      |     |   |   |          |         |   |   |         | (2       | )
|                            | Net loss                                                                              |  |        |                |   |              |        |           |   |            |            |               |   |             |     |             |  |         |         |        |   |   |       |       |   |   |      |     |   |   |          | (126,150 | ) |   |         | (126,150 | )
|                            |                                                                                       |  |        |                 |   |              |        |            |   |            |            |                |   |             |     |              |  |         |         |         |   |   |       |        |   |   |      |      |   |   |          |          |   |   |         |         
|Balances, December 31, 2002 |                                                                                       |  |       |                 |   | $            |       |            |   |            | 27,409,338 |                |   | $           | 274 |              |  | $       | 380,175 |         |   | $ |      |        |   | $ | (351 | )    |   | $ | (276,087 | )        |   | $ | 104,011 |         
|                            |                                                                                       |  |        |                 |   |              |        |            |   |            |            |                |   |             |     |              |  |         |         |         |   |   |       |        |   |   |      |      |   |   |          |          |   |   |         |         

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.

F-7



---



##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)

|                                      |                                                                                        |                                                                                                   |                         |                                                  |        |                         |          |          |        |      |         |          |        |   |         |  
|------------------------------------- | -------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | ----------------------- | ------------------------------------------------ | ------ | ----------------------- | -------- | -------- | ------ | ---- | ------- | -------- | ------ | - | ------- | -
|                                      |                                                                                        |                                                                                                   |                         |                                                  |        | Year Ended December 31,
|                                      |                                                                                        |                                                                                                   |                         |                                                  |        |                        
|                                      |                                                                                        |                                                                                                   |                         |                                                  |        | 2000                    |          | 2001     |        | 2002
|                                      |                                                                                        |                                                                                                   |                         |                                                  |        |                         |          |          |        |     
|Cash Flows from Operating Activities: |                                                                                        |                                                                                                   |                         |                                                  |        |                         |          |          |        |      |         |         
|                                      | Net loss                                                                               |                                                                                                   | $                       | (24,547                                          | )      |                         | $        | (54,521  | )      |      | $       | (126,150 | )     
|                                      | Adjustments to reconcile net loss to net cash provided (used) by
operating activities: |                                                                                                   |                         |                                                  |        |                         |          |          |        |      |         |          |       
|                                      |                                                                                        | Cumulative effect of change in accounting principle                                               |                         |                                                  |       |                         |          |          |       |      |         |          | 69,015 |  
|                                      |                                                                                        | Depreciation and amortization                                                                     |                         |                                                  | 12,639 |                         |          |          | 25,064 |      |         |          | 21,987 |  
|                                      |                                                                                        | Amortization of debt issuance costs                                                               |                         |                                                  | 901    |                         |          |          | 3,755  |      |         |          | 995    |  
|                                      |                                                                                        | Impairment of property, plant and equipment                                                       |                         |                                                  | 1,662  |                         |          |          | 1,329  |      |         |          | 2,791  |  
|                                      |                                                                                        | Change in accrued severance, retention and lease exit costs                                       |                         |                                                  | 1,323  |                         |          |          | (2,595 | )    |         |          | 8,483  |  
|                                      |                                                                                        | Deferred income tax expense                                                                       |                         |                                                  | (1,979 | )                       |          |          | 1,979  |      |         |          |       |  
|                                      |                                                                                        | Interest on exchangeable and convertible notes                                                    |                         |                                                  | 5,326  |                         |          |          | 2,217  |      |         |          |       |  
|                                      |                                                                                        | Reduction of interest expense due to settlement                                                   |                         |                                                  |       |                         |          |          |       |      |         |          | (1,029 | )
|                                      |                                                                                        | Loss (gain) on sale of assets                                                                     |                         |                                                  | (4,369 | )                       |          |          | (767   | )    |         |          | 166    |  
|                                      |                                                                                        | Stock-based compensation and services expense                                                     |                         |                                                  | 297    |                         |          |          | 75     |      |         |          | 31     |  
|                                      |                                                                                        | Changes in operating assets and liabilities, net of effects of
purchases and sales of businesses: |                         |                                                  |        |                         |          |          |        |      |         |          |        |  
|                                      |                                                                                        |                                                                                                   | Decrease (increase) in: |                                                  |        |                         |          |          |        |      |         |          |        |   |        
|                                      |                                                                                        |                                                                                                   |                         | Trade receivables                                |        |                         | (21,402  | )        |        |      | 83,052  |          |        |   | 5,017   |  
|                                      |                                                                                        |                                                                                                   |                         | Inventories                                      |        |                         | (47,098  | )        |        |      | 95,035  |          |        |   | 42,942  |  
|                                      |                                                                                        |                                                                                                   |                         | Income taxes receivable                          |        |                         | 2,106    |          |        |      |        |          |        |   |        |  
|                                      |                                                                                        |                                                                                                   |                         | Prepaid expenses and other                       |        |                         | 802      |          |        |      | 627     |          |        |   | 383     |  
|                                      |                                                                                        |                                                                                                   | Increase (decrease) in: |                                                  |        |                         |          |          |        |      |         |          |        |   |        
|                                      |                                                                                        |                                                                                                   |                         | Accounts payable                                 |        |                         | (8,103   | )        |        |      | (64,805 | )        |        |   | 1,457   |  
|                                      |                                                                                        |                                                                                                   |                         | Accrued compensation and benefits                |        |                         | 3,258    |          |        |      | (1,776  | )        |        |   | (1,834  | )
|                                      |                                                                                        |                                                                                                   |                         | Other accrued liabilities                        |        |                         | (4,878   | )        |        |      | (13,126 | )        |        |   | (1,475  | )
|                                      |                                                                                        |                                                                                                   |                         |                                                  |        |                         |          |          |        |      |         |         
|                                      |                                                                                        |                                                                                                   |                         | Net cash provided (used) by operating activities |        |                         | (84,062  | )        |        |      | 75,543  |          |        |   | 22,779  |  
|                                      |                                                                                        |                                                                                                   |                         |                                                  |        |                         |          |          |        |      |         |         
|Cash Flows from Investing Activities: |                                                                                        |                                                                                                   |                         |                                                  |        |                         |          |          |        |      |         |         
|                                      | Proceeds from sale of assets, net of cash transferred                                  |                                                                                                   |                         | 14,392                                           |        |                         |          | 1,505    |        |      |         | 115      |       
|                                      | Payment of commission on sale of division                                              |                                                                                                   |                         | (500                                             | )      |                         |          |         |        |      |         |         |       
|                                      | Payments for acquisition of businesses                                                 |                                                                                                   |                         | (175,350                                         | )      |                         |          |         |        |      |         | (5,523   | )     
|                                      | Capital expenditures                                                                   |                                                                                                   |                         | (9,970                                           | )      |                         |          | (18,277  | )      |      |         | (2,371   | )     
|                                      |                                                                                        |                                                                                                   |                         |                                                  |        |                         |          |          |        |      |         |         
|                                      |                                                                                        |                                                                                                   |                         | Net cash used by investing activities            |        |                         | (171,428 | )        |        |      | (16,772 | )        |        |   | (7,779  | )
|                                      |                                                                                        |                                                                                                   |                         |                                                  |        |                         |          |          |        |      |         |         
|Cash Flows from Financing Activities: |                                                                                        |                                                                                                   |                         |                                                  |        |                         |          |          |        |      |         |         
|                                      | Proceeds from long-term debt                                                           |                                                                                                   |                         | 392,902                                          |        |                         |          | 628,506  |        |      |         | 318,592  |       
|                                      | Principal payments on long-term debt                                                   |                                                                                                   |                         | (336,427                                         | )      |                         |          | (678,437 | )      |      |         | (344,896 | )     
|                                      | Payments for debt issuance costs                                                       |                                                                                                   |                         | (3,009                                           | )      |                         |          | (4,492   | )      |      |         | (347     | )     
|                                      | Increase (decrease) in outstanding checks in excess of cash balances                   |                                                                                                   |                         | 5,471                                            |        |                         |          | (4,571   | )      |      |         | (900     | )     
|                                      | Proceeds from exercise of stock options and warrants                                   |                                                                                                   |                         |                                                 |        |                         |          | 232      |        |      |         |         |       
|                                      | Issuance of common stock to owners of K*TEC                                            |                                                                                                   |                         | 230,000                                          |        |                         |          |         |        |      |         |         |       
|                                      | Distribution to former owner of K*TEC                                                  |                                                                                                   |                         |                                                 |        |                         |          | (20,000  | )      |      |         |         |       
|                                      |                                                                                        |                                                                                                   |                         |                                                  |        |                         |          |          |        |      |         |         
|                                      |                                                                                        |                                                                                                   |                         | Net cash used by financing activities            |        |                         | 288,937  |          |        |      | (78,762 | )        |        |   | (27,551 | )
|                                      |                                                                                        |                                                                                                   |                         |                                                  |        |                         |          |          |        |      |         |         
|                                      |                                                                                        |                                                                                                   |                         | Net increase (decrease) in cash and equivalents  |        |                         | 33,447   |          |        |      | (19,991 | )        |        |   | (12,551 | )
|Cash and Equivalents:                 |                                                                                        |                                                                                                   |                         |                                                  |        |                         |          |          |        |      |         |         
|                                      | Beginning of year                                                                      |                                                                                                   |                         | 716                                              |        |                         |          | 34,163   |        |      |         | 14,172   |       
|                                      |                                                                                        |                                                                                                   |                         |                                                  |        |                         |          |          |        |      |         |         
|                                      | End of year                                                                            |                                                                                                   | $                       | 34,163                                           |        |                         | $        | 14,172   |        |      | $       | 1,621    |       
|                                      |                                                                                        |                                                                                                   |                         |                                                  |        |                         |          |          |        |      |         |         

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.

F-8



---



##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)

|                                                                      |                                                                                                       |  |                         |        |      |  |      |        |   |  |   |       | 
|--------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ----- | 
|                                                                      |                                                                                                       |  | Year Ended December 31,
|                                                                      |                                                                                                       |  |                        
|                                                                      |                                                                                                       |  | 2000                    |        | 2001 |  | 2002
|                                                                      |                                                                                                       |  |                         |        |      |  |     
|Supplemental Disclosure of Cash Flow Information:                     |                                                                                                       |  |                         |        |      |  |      |        |   |  |   |      
|                                                                      | Cash paid for interest                                                                                |  | $                       | 3,571  |      |  | $    | 5,924  |   |  | $ | 2,175 | 
|                                                                      |                                                                                                       |  |                         |        |      |  |      |        |   |  |   |      
|                                                                      | Cash received (paid) for income taxes                                                                 |  | $                       | 2,106  |      |  | $    | (221   | ) |  | $ | 220   | 
|                                                                      |                                                                                                       |  |                         |        |      |  |      |        |   |  |   |      
|Supplemental Schedule of Non-cash Investing and Financing Activities: |                                                                                                       |  |                         |        |      |  |      |        |   |  |   |      
|                                                                      | Reduction of goodwill and note payable to Former Parent due to
settlement of dispute                  |  | $                       |       |      |  | $    |       |   |  | $ | 6,860 | 
|                                                                      |                                                                                                       |  |                         |        |      |  |      |        |   |  |   |      
|                                                                      | Issuance of 5,940,837 shares of common stock as a result of
conversion of Convertible Notes           |  | $                       |       |      |  | $    | 61,310 |   |  | $ |      | 
|                                                                      |                                                                                                       |  |                         |        |      |  |      |        |   |  |   |      
|                                                                      | Issuance of 2,115,749 shares of common stock as a result of
conversion of Convertible Preferred Stock |  | $                       |       |      |  | $    | 15,233 |   |  | $ |      | 
|                                                                      |                                                                                                       |  |                         |        |      |  |      |        |   |  |   |      
|                                                                      | Issuance of preferred stock for exchangeable notes, net of debt
issuance costs of $205                |  | $                       | 14,027 |      |  | $    |       |   |  | $ |      | 
|                                                                      |                                                                                                       |  |                         |        |      |  |      |        |   |  |   |      
|                                                                      | Obligation to issue common stock in lawsuit settlement                                                |  | $                       | 2,303  |      |  | $    |       |   |  | $ |      | 
|                                                                      |                                                                                                       |  |                         |        |      |  |      |        |   |  |   |      
|                                                                      | Issuance of shares of common stock in connection with lawsuit
settlement                              |  | $                       | 987    |      |  | $    | 2,303  |   |  | $ |      | 
|                                                                      |                                                                                                       |  |                         |        |      |  |      |        |   |  |   |      
|                                                                      | Proceeds from sale of assets placed in escrow account                                                 |  | $                       | 500    |      |  | $    |       |   |  | $ |      | 
|                                                                      |                                                                                                       |  |                         |        |      |  |      |        |   |  |   |      
|                                                                      | Stock options granted for deferred compensation                                                       |  | $                       | 367    |      |  | $    |       |   |  | $ |      | 
|                                                                      |                                                                                                       |  |                         |        |      |  |      |        |   |  |   |      
|                                                                      | Issuance of warrants to purchase common stock for debt issuance costs                                 |  | $                       | 326    |      |  | $    |       |   |  | $ |      | 
|                                                                      |                                                                                                       |  |                         |        |      |  |      |        |   |  |   |      

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.

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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

1.     Basis of Presentation, Nature of Business and Significant Accounting Policies

Basis of Presentation.Suntron Corporation (the Company) is a Delaware
Corporation that was formed on May 2, 2001. Prior to February 28, 2002, Suntron
was a wholly owned subsidiary of EFTC Corporation (EFTC). On February 28,
2002, the mergers described in Note 2 were completed whereby Suntron became the
parent company of EFTC and EFTC subsequently was merged into a successor
Delaware Corporation. The accompanying consolidated financial statements
present the accounts and capital structure of the Company and its wholly-owned
subsidiaries as if this capital structure had been in place since the date of
formation or acquisition, as described in Note 2. All intercompany balances and
transactions have been eliminated in consolidation.

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during
the reporting period. The actual results could differ significantly from those
estimates. The Companys consolidated financial statements are based on several
significant estimates, including the allowance for doubtful accounts, the
write-down of excess and obsolete inventories, the outcome of lease exit
activities, determination of impairment of long-lived assets, and the selection
of estimated useful lives of intangible assets and property, plant and
equipment.

Fiscal Year.The Companys fiscal year ends on December 31st. Except for the
fourth quarter of each year, the Companys fiscal quarters end on the Sunday
closest to the end of each calendar quarter.

Nature of Business.The Company is a provider of vertically integrated
electronics manufacturing solutions supplying high-mix services that target the
aerospace and defense, semiconductor capital equipment, industrial controls,
instrumentation, medical, networking, and telecommunications industries. The
Companys manufacturing services include printed circuit card assembly, cable
and harness production, plastic injection molding, sheet metal, engineering
services, full systems integration, testing, and after-market repair and
warranty services. High-mix manufacturing involves processing assemblies in
small lots (generally less than 100 assemblies per production run) in a
flexible manufacturing environment. The Company operates in one business
segment and substantially all of its operations are conducted in the United
States.

Cash and Equivalents.The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents. Under the Companys credit agreement and banking
arrangements, the Company is not required to fund amounts for outstanding
checks until the day that the checks are presented to the Companys bank for
payment. Accordingly, the Company is not required to maintain cash balances in
anticipation of funding requirements for outstanding checks, which often
results in a current liability for outstanding checks in excess of cash
balances. Changes in the amount of outstanding checks in excess of cash
balances are reflected as a financing activity in the accompanying Consolidated
Statements of Cash Flows.

Trade Receivables.The allowance for doubtful accounts is based on
managements assessment of the collectibility of specific customer accounts and
the contractual aging of accounts receivable. The Company controls credit risk
through credit approvals, credit limits and monitoring procedures. If there is
a deterioration of a customers credit worthiness, managements estimate of the
recoverability of amounts due the Company could be adversely affected. Upon
exhausting all reasonable alternatives to collect past due

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SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

receivables, accounts or portions thereof are written off with a corresponding reduction in
the allowance for doubtful accounts during the period when management
determines that the probability of collection is remote.

Inventories.Inventories are stated at the lower of cost (standard cost,
which approximates the first-in, first-out method) or market. The Company
evaluates inventory on hand, forecasted demand, contractual protections and net
realizable values in order to determine whether an adjustment to the carrying
amount of inventory is necessary. Groups of identifiable inventory are
segregated by customer or category of inventory and the adjustment to carrying
value for such groups are tracked separately. If the Company records a
write-down to reduce the cost of inventories to market, such write-down is not
subsequently reversed. Finished goods and work-in-process inventories include
material, labor and manufacturing overhead.

Property, Plant and Equipment.Property, plant and equipment are stated
at cost. Material expenditures that increase the life of an asset are
capitalized and depreciated over the estimated remaining useful life of the
asset. The cost of normal maintenance and repairs is charged to operating
expenses as incurred. Upon disposal of an asset, the cost of the properties and
the related accumulated depreciation are removed from the accounts, and any
gains or losses are reflected in current operations. Leasehold improvements are
amortized over the lesser of the life of the lease or the estimated life of the
improvement. For the years ended December 31, 2000, 2001 and 2002, the Company
recognized depreciation and amortization expense of $9,945, $21,315 and
$21,312, respectively. Depreciation is computed using the straight-line method
over the following estimated useful lives:

|                                           |  |         
|------------------------------------------ |  | --------
|                                           |  | Years   
|                                           |  |         
|Buildings and improvements                 |  | 30 to 40
|Manufacturing machinery and equipment      |  | 5 to 10 
|Furniture, computer equipment and software |  | 3 to 7  

Under Statement of Financial Accounting Standards No. 144 which was adopted on
January 1, 2002, the Company reviews the carrying value of property, plant, and
equipment for impairment whenever events and circumstances indicate that the
carrying value of an asset may not be recoverable from the estimated future
cash flows expected to result from its use and eventual disposition. In cases
where undiscounted expected future cash flows are less than the carrying value,
an impairment loss is recognized equal to an amount by which the carrying value
exceeds the fair value of assets. The factors considered by management in
performing this assessment include current operating results, trends, and
prospects, as well as the effects of obsolescence, demand, competition, and
other economic factors.

Identifiable Intangible Assets.Amortization of identifiable intangible
assets is computed using the straight-line method over the following estimated
useful lives:

|                            |  |        
|--------------------------- |  | -------
|                            |  | Years  
|                            |  |        
|Intellectual property costs |  | 5 to 10
|Customer agreement          |  | 3      
|Covenant not to compete     |  | 1.5    

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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

Under Statement of Financial Accounting Standards No. 142 which was
adopted on January 1, 2002, management periodically reviews the carrying value
of acquired intangible assets that are being amortized to determine whether
impairment may exist. The Company considers relevant cash flow and
profitability information, including estimated future operating results, trends
and other available information, in assessing whether the carrying value of
intangible assets being amortized can be recovered. If the Company determines
that the carrying value of intangible assets will not be recovered from the
undiscounted future cash flows of the acquired business, the Company considers
the carrying value of such intangible assets as impaired and reduces them by a
charge to operations in the amount of the impairment. An impairment charge is
measured as any deficiency in the amount of estimated undiscounted future cash
flows of the acquired business available to recover the carrying value related
to the intangible assets that are being amortized.

Debt Issuance Costs.Debt issuance costs are being amortized over the
term of the related debt using the interest method.

Goodwill.Through 2001, goodwill was amortized using the straight-line
method over 30 years. As discussed in Note 3, effective January 1, 2002 the
Company adopted Statement of Financial Accounting Standards No. 142 and ceased
amortizing goodwill. Instead of amortizing goodwill, Statement 142 requires a
periodic impairment test, using a two-step process. The first step is to
identify if potential impairment of goodwill exists. If impairment of goodwill
is determined to exist, the second step of the goodwill impairment test
measures the amount of the impairment loss, using a fair value-based approach.
Goodwill is tested for impairment at least annually.

Impairment of Long-Lived Assets Prior to 2002.Before the adoption of
Statements 142 and 144, the Company assessed impairment whenever events or
changes in circumstances indicated that the carrying amount of a long-lived
asset, including goodwill and other identifiable intangible assets, may not be
recoverable. Assets held for sale were stated at the lower of the carrying
value or fair value (net of costs to sell). Recoverability of assets to be held
and used was measured by a comparison of the carrying amount of an asset to the
undiscounted future net cash flows, excluding interest expense, expected to be
generated by the asset. If such assets were considered to be impaired, the
impairment to be recognized was measured as the amount by which the carrying
amount of the asset exceeded its fair value. For purposes of evaluating
impairment of goodwill, management considered historical results and current
projections in estimating the future undiscounted cash flows of the business to
which the goodwill related. For purposes of determining the fair value of
impaired assets that were held and used, the projected cash flows were
discounted at a rate corresponding to the Companys estimated cost of capital.

Revenue Recognition.The Company recognizes revenue from the sale of
products upon shipment and the transfer of title to customers. In limited
circumstances, although the physical product remains in the Companys
facilities at the request of customers, revenue is recognized when title to the
product and the risks and rewards of ownership have passed to the customer in
accordance with the guidance in SEC Staff Accounting Bulletin No. 101.
Inventory sold under bill and hold arrangements is physically segregated from
inventory owned by the Company and is not subject to being used to fill other
orders.

The Company is generally not contractually obligated to accept returns,
except for defective product. Based upon historical experience the liability
for warranty claims has not been significant. Revenue is recorded net of
customer discounts taken or expected to be taken.

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SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

Shipping and Handling Fees.The Company classifies costs associated with
shipping and handling fees as a component of cost of goods sold. Amounts billed
to customers for shipping and handling services are included in net sales.

Stock-based Compensation.The Company accounts for stock-based compensation
issued to employees using the intrinsic value method. Accordingly, compensation
cost for stock options granted to employees is measured as the excess, if any,
of the quoted market price of the Companys common stock at the measurement
date (generally, the date of grant) over the amount an employee must pay to
acquire the stock. For fixed awards of stock options with pro rata vesting, the
Company utilizes the attribution method described in FASB Interpretation No.
28.

If compensation cost had been determined for all options granted to
employees under the fair value method using an option pricing model, the
Companys pro forma net loss and earnings (loss) per share (EPS) for the
years ended December 31, 2000, 2001 and 2002, would have been as follows:

|                                                                      |                                   |   |          |         |      |   |          |       |     |   |          |         |     |   |       |       |   |   |          |          |   |   |       |       |  
|--------------------------------------------------------------------- | --------------------------------- | - | -------- | ------- | ---- | - | -------- | ----- | --- | - | -------- | ------- | --- | - | ----- | ----- | - | - | -------- | -------- | - | - | ----- | ----- | -
|                                                                      |                                   |   | 2000     |         | 2001 |   | 2002    
|                                                                      |                                   |   |          |         |      |   |         
|                                                                      |                                   |   | Net Loss |         | EPS  |   | Net Loss |       | EPS |   | Net Loss |         | EPS
|                                                                      |                                   |   |          |         |      |   |          |       |     |   |          |         |    
|Amounts reported                                                      |                                   | $ | (24,547  | )       |      | $ | (3.64    | )     |     | $ | (54,521  | )       |     | $ | (2.29 | )     |   | $ | (126,150 | )        |   | $ | (4.60 | )    
|Additional charge for
compensation
if fair value
method had been used |                                   |   | (3,620   | )       |      |   | (0.49    | )     |     |   | (3,412   | )       |     |   | (0.14 | )     |   |   | (2,487   | )        |   |   | (0.09 | )    
|                                                                      |                                   |   |          |         |      |   |          |       |     |   |          |         |     |   |       |       |   |   |          |          |   |   |       |      
|                                                                      | Pro forma under fair
value method |   | $        | (28,167 | )    |   | $        | (4.13 | )   |   | $        | (57,933 | )   |   | $     | (2.43 | ) |   | $        | (128,637 | ) |   | $     | (4.69 | )
|                                                                      |                                   |   |          |         |      |   |          |       |     |   |          |         |     |   |       |       |   |   |          |          |   |   |       |      

Income Taxes.Deferred income tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. Valuation allowances are recorded when necessary to
reduce deferred tax assets to an amount considered more likely than not to be
realized. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

Financial Instruments.The fair value of a financial instrument is the amount
at which the instrument could be exchanged in a current transaction between
willing parties. The carrying amounts of cash and equivalents, trade
receivables, accounts payable and accrued liabilities approximate fair value
because of the short maturity of these instruments. The carrying amount of bank
debt approximates fair value due to the variable interest rate.

Earnings Per Share.Basic Earnings per Share excludes dilution for potential
common shares and is computed by dividing net income or loss applicable to
common stockholders by the weighted average number of common shares outstanding
for the period. For the computation of Basic Earnings per Share, accrued
dividends on preferred stock are deducted to arrive at net income or loss
applicable to common stockholders. Diluted Earnings per Share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. Basic and diluted
loss per share are the same for the years ended December 31, 2000, 2001 and
2002, as all potential common shares

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SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

were antidilutive. As of December 31, 2000, 2001 and 2002, common stock
options and warrants that were excluded from the calculation of earnings per
share amounted to an aggregate of 1,246,000, 1,960,000 and 2,292,000 shares,
respectively.

For purposes of the weighted average share calculations, beginning on
August 31, 2000, 325,000 shares required to be issued in a lawsuit settlement
were treated as issued and outstanding. As discussed in Note 8, the calculation
of Earnings per Share for 2000 includes a $2,022 adjustment for a beneficial
conversion feature and accrued dividends for convertible preferred stock that
was issued in the third quarter of 2000.

New Accounting Standards.In August 2001, the Financial Accounting
Standards Board (FASB) issued Statement No. 143, Accounting for Asset
Retirement Obligations. This standard requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. When the liability is initially recorded, the entity
capitalizes a cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement.
This standard is required to be adopted by the Company in the first quarter of
2003. Management does not believe the initial application of Statement 143 will
have a significant impact on the Companys consolidated financial statements.

In July 2002, the FASB issued Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This standard requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity.
Previous accounting guidance was provided by EITF Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). Statement
146 replaces Issue 94-3. Statement 146 is required to be applied prospectively
to exit or disposal activities initiated after December 31, 2002. Accordingly,
the closure of the Ottawa and Fremont facilities discussed in Note 10 were
accounted for under EITF Issue No. 94-3.

In December 2002, the FASB issued Statement No. 148, Accounting for Stock-Based
CompensationTransition and Disclosure. Statement 148 is effective for
fiscal years beginning after December 15, 2002 and amends Statement No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, Statement 148 amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company adopted Statement 148 as of December 31, 2002. The effect
of the adoption of this statement was not material as the Company continues to
use the intrinsic value method allowed under Statement 123.

2.     Business Combinations

Reorganization of Entities Under Common Control.On May 3, 2001, EFTC;
K*TEC Electronics Holding Corporation, formerly known as K*TEC Electronics
Corporation (K*TEC); K*TEC Operating Company, L.L.C., formerly know as
Thayer-Blum Funding II, L.L.C. (TBF II); and Suntron Corporation (Suntron),
a wholly owned subsidiary of EFTC, entered into an Amended and Restated Merger

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SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

Agreement (the Merger Agreement). K*TEC was a privately held electronic
manufacturing services company based in Sugar Land, Texas. K*TEC was 100% owned
by TBF II, an affiliate of Thayer-Blum Funding L.L.C. (TBF), EFTCs principal
stockholder. TBF owned approximately 77% of the outstanding common stock of
EFTC. A special committee comprised of EFTCs independent directors negotiated
the terms of the Merger Agreement on behalf of the minority stockholders of
EFTC. On February 28, 2002, EFTCs stockholders voted in favor of the business
combination and the closing occurred on that date.

In connection with the signing of the Merger Agreement, EFTC entered into
a stockholder agreement, as amended (the Stockholder Agreement), with TBF,
TBF II and Suntron that required TBF to convert the Senior Subordinated
Convertible Notes described in Note 5, and the Series B Preferred Stock
discussed in Note 8, into EFTC common stock on or before May 31, 2001. These
conversions resulted in the issuance of an aggregate of 8,056,586 additional
shares of common stock to TBF.

Under the terms of the Amended and Restated Merger Agreement, Suntron
formed two new wholly owned subsidiaries, which merged with and into EFTC and
TBF II, respectively. EFTC subsequently was merged into a successor Delaware
corporation. Accordingly, on February 28, 2002, EFTCs successor and TBF II
became wholly owned subsidiaries of Suntron. Based upon the Amended and
Restated Merger Agreements exchange ratios, the owner of TBF II received
approximately 55% of Suntrons outstanding capital stock, while EFTCs former
stockholders received approximately 45% of Suntrons outstanding capital stock.
TBF and its affiliates currently own approximately 90% of the outstanding
capital stock of Suntron.

The business combination of EFTC and K*TEC has been accounted for as a
reorganization of entities under common control. Accordingly, the accompanying
financial statements have been restated to give effect to the business
combination as if it occurred on October 10, 2000, which is the date that
common control was established. Under this accounting method all transaction
costs were charged to operations in the period incurred.

Acquisition of K*TEC.On October 10, 2000, TBF II acquired all of the
outstanding common stock of K*TEC from Kent Electronics Corporation (the
Former Parent) in a business combination accounted for as a purchase. The
effective date of the acquisition was October 7, 2000. No events occurred
between October 7, 2000 and October 10, 2000 that materially affected K*TECs
financial position or results of operations. The purchase price amounted to
$238,009, consisting of a cash payment to the seller of $175,000, notes payable
to the seller of $62,202 and acquisition costs of $807. The purchase price
allocation was based on the estimated fair value of the assets acquired and
liabilities assumed, as follows:

|                              |  |   |         |  
|----------------------------- |  | - | ------- | -
|Trade receivables, net        |  | $ | 66,922  |  
|Inventories                   |  |   | 102,457 |  
|Prepaid expenses and other    |  |   | 1,072   |  
|Property, plant and equipment |  |   | 67,336  |  
|Goodwill                      |  |   | 79,089  |  
|Other intangible assets       |  |   | 1,050   |  
|Liabilities assumed and other |  |   | (79,917 | )
|                              |  |   |         |  
|                              |  | $ | 238,009 |  
|                              |  |   |         |  

In applying purchase accounting, the historical cost basis of property,
plant and equipment was increased by $1,980, and inventories were reduced by
$21,219 to arrive at the fair value amounts shown above. The

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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

Company accrued $2,995 of remaining noncancelable lease costs associated with
facilities in Milpitas, California and Austin, Texas, as part of exit plans to
relocate those operations. A portion of the purchase price was subject to a
dispute that was expected to be resolved through arbitration proceedings. On
May 7, 2002, the parties agreed to settle the dispute whereby the $12,202
principal balance of a note payable to the Former Parent was reduced by $6,860,
resulting in an adjusted principal balance of $5,342. In accounting for this
settlement, during the first quarter of 2002 the Company reduced the carrying
amount of goodwill by $6,860 and recognized a credit to operations of $1,029
for accrued interest that was previously expensed and that is no longer payable
due to the settlement.

The table below reflects unaudited pro forma combined results of the Company
for the year ended December 31, 2000, as if the acquisition had taken place as
of January 1, 2000:

|                                     |  |   |         |  
|------------------------------------ |  | - | ------- | -
|Net sales                            |  | $ | 748,694 |  
|                                     |  |   |         |  
|Net loss                             |  | $ | (28,266 | )
|                                     |  |   |         |  
|Basic and diluted net loss per share |  | $ | (1.25   | )
|                                     |  |   |         |  

The unaudited pro forma data gives effect to actual operating results prior to
the acquisition, adjusted to include the pro forma effect of interest expense
on acquisition debt, amortization of intangible assets and the elimination of
all income tax benefits.

Acquisition of Midwestern Electronics.In March 2002, the Company
purchased substantially all of the assets and assumed certain liabilities of
Midwestern Electronics, a privately held electronics manufacturing services
(EMS) provider. Midwesterns business focused on high-mix products and
services, including printed circuit board assembly, subassemblies, box-build,
and aftermarket repair services. The purchase price was $5,523, which was paid
in cash through borrowings under the Companys revolving line of credit with
Citibank. Midwesterns results of operations have been included in the
consolidated financial statements since the date of acquisition.

The following table presents the allocation of the acquisition cost to the
assets acquired and liabilities assumed, based on their fair values:

|                                          |                     |   |        |       | 
|----------------------------------------- | ------------------- | - | ------ | ----- | 
|Accounts receivable                       |                     | $ | 3,149  |      
|Inventories                               |                     |   | 3,555  |      
|Other current assets                      |                     |   | 238    |      
|Property, plant, and equipment            |                     |   | 940    |      
|Goodwill                                  |                     |   | 235    |      
|Accounts payable assumed                  |                     |   | (1,736 | )    
|Accrued compensation and benefits assumed |                     |   | (858   | )    
|                                          |                     |   |        |      
|                                          | Net assets acquired |   | $      | 5,523 | 
|                                          |                     |   |        |      

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SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

The table below reflects unaudited pro forma combined results of the Company as
if the acquisition had taken place as of January 1, 2001:

|                                                                |  |                         |         |      |  |   |          |  
|--------------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | - | -------- | -
|                                                                |  | Year Ended December 31:
|                                                                |  |                        
|                                                                |  | 2001                    |         | 2002
|                                                                |  |                         |         |     
|Net sales                                                       |  | $                       | 607,335 |      |  | $ | 374,132  |  
|                                                                |  |                         |         |      |  |   |          |  
|Loss before cumulative effect of change in
accounting principle |  | $                       | (53,908 | )    |  | $ | (57,005  | )
|                                                                |  |                         |         |      |  |   |          |  
|Net loss                                                        |  | $                       | (53,908 | )    |  | $ | (126,020 | )
|                                                                |  |                         |         |      |  |   |          |  
|Basic and diluted earnings per share                            |  | $                       | (2.24   | )    |  | $ | (4.60    | )
|                                                                |  |                         |         |      |  |   |          |  

The unaudited pro forma data gives effect to actual operating results prior to
the acquisition, adjusted to include the pro forma effect for the amortization
of goodwill in 2001 and the estimated effects of interest expense on
acquisition financing for both years.

3.     Intangible Assets

Goodwill.In July 2001, the Financial Accounting Standards Board issued
Statement No. 141, Business Combinations and Statement No. 142, Goodwill and
Other Intangible Assets. Statement No. 141 requires that the purchase method of
accounting be used for business combinations initiated after June 30, 2001,
except for business combinations between entities under common control.
Statement 142 addresses how intangible assets that are acquired individually or
with a group of other assets (but not those acquired in a business combination)
should be accounted for in financial statements upon their acquisition.
Statement 142 also addresses how goodwill and other intangible assets should be
accounted for after they have been initially recognized in the financial
statements.

In connection with the adoption of Statement 142 during the first quarter
of 2002, the Company engaged an independent firm specializing in valuation
services to assist in the determination if impairment of goodwill should be
recognized under this new standard. The Company concluded that no impairment
exists with respect to goodwill with a carrying value of $6,729 on January 1,
2002 related to the Companys Northwest reporting unit (which arose in
connection with the February 1997 acquisition of Current Electronics). However,
the Company concluded that goodwill related to the K*TEC reporting unit (which
arose in connection with the October 2000 acquisition from Kent Electronics)
was impaired for the entire carrying value which resulted in an impairment loss
that was computed as follows:

|                                                         |                 |   |        |        | 
|-------------------------------------------------------- | --------------- | - | ------ | ------ | 
|Net carrying value of K*TEC goodwill, December 31, 2001  |                 | $ | 75,875 |       
|Less effect of settlement of dispute discussed in Note 3 |                 |   | (6,860 | )     
|                                                         |                 |   |        |       
|                                                         | Impairment loss |   | $      | 69,015 | 
|                                                         |                 |   |        |       

This impairment loss was recorded as the cumulative effect of a change in
accounting principle in the accompanying Consolidated Statement of Operations.
The following table presents reported net loss and loss per share exclusive of
goodwill amortization for the years ended December 31, 2000 and 2001:

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SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

|                                  |                                    |                   |         |       |         |      |         |       |         |   |          |       |          |  
|--------------------------------- | ---------------------------------- | ----------------- | ------- | ----- | ------- | ---- | ------- | ----- | ------- | - | -------- | ----- | -------- | -
|                                  |                                    |                   |         | 2000  |         | 2001 |         | 2002 
|                                  |                                    |                   |         |       |         |      |         |      
|Reported net loss                 |                                    | $                 | (24,547 | )     |         | $    | (54,521 | )     |         | $ | (126,150 | )    
|Add back goodwill amortization    |                                    |                   | 907     |       |         |      | 2,905   |       |         |   |         |      
|                                  |                                    |                   |         |       |         |      |         |       |         |   |          |      
|                                  |                                    | Adjusted net loss |         | $     | (23,640 | )    |         | $     | (51,616 | ) |          | $     | (126,150 | )
|                                  |                                    |                   |         |       |         |      |         |       |         |   |          |      
|Basic and Diluted Loss Per Share: |                                    |                   |         |       |         |      |         |       |         |   |          |      
|                                  | Reported net loss per common share |                   | $       | (3.64 | )       |      | $       | (2.29 | )       |   | $        | (4.60 | )       
|                                  | Add back goodwill amortization     |                   |         | 0.13  |         |      |         | 0.12  |         |   |          |      |         
|                                  |                                    |                   |         |       |         |      |         |       |         |   |          |      
|                                  |                                    | Adjusted net loss |         | $     | (3.51   | )    |         | $     | (2.17   | ) |          | $     | (4.60    | )
|                                  |                                    |                   |         |       |         |      |         |       |         |   |          |      

The changes in the carrying amount of goodwill for the years ended December 31,
2001 and 2002 are as follows:

|                           |                               |   |                |      |       |   |            |         |       |   |     |     |  |   |        |         |  
|-------------------------- | ----------------------------- | - | -------------- | ---- | ----- | - | ---------- | ------- | ----- | - | --- | --- |  | - | ------ | ------- | -
|                           |                               |   | Reporting Unit
|                           |                               |   |               
|                           |                               |   | Northwest      |      | K*TEC |   | Midwestern |         | Total
|                           |                               |   |                |      |       |   |            |         |      
|Balance, December 31, 2000 |                               | $ | 6,996          |      |       | $ | 78,483     |         |       | $ |    |     |  | $ | 85,479 |        
|                           | Goodwill acquired during year |   |                |     |       |   |            | 30      |       |   |     |    |  |   |        | 30      |  
|                           | Amortization of goodwill      |   |                | (267 | )     |   |            | (2,638  | )     |   |     |    |  |   |        | (2,905  | )
|                           |                               |   |                |      |       |   |            |         |       |   |     |     |  |   |        |        
|Balance, December 31, 2001 |                               |   | 6,729          |      |       |   | 75,875     |         |       |   |    |     |  |   | 82,604 |        
|                           | Impact of dispute settlement  |   |                |     |       |   |            | (6,860  | )     |   |     |    |  |   |        | (6,860  | )
|                           | Impairment loss               |   |                |     |       |   |            | (69,015 | )     |   |     |    |  |   |        | (69,015 | )
|                           | Goodwill acquired during year |   |                |     |       |   |            |        |       |   |     | 235 |  |   |        | 235     |  
|                           |                               |   |                |      |       |   |            |         |       |   |     |     |  |   |        |        
|Balance, December 31, 2002 |                               | $ | 6,729          |      |       | $ |           |         |       | $ | 235 |     |  | $ | 6,964  |        
|                           |                               |   |                |      |       |   |            |         |       |   |     |     |  |   |        |        

Identifiable Intangible Assets.Identifiable intangible assets consist of
the following at December 31, 2001 and 2002:

|                        |  |                   |       |                   |  |             |       |      |  |              |       |     |  |   |       |             |  |   |       |  |  |   |       | 
|----------------------- |  | ----------------- | ----- | ----------------- |  | ----------- | ----- | ---- |  | ------------ | ----- | --- |  | - | ----- | ----------- |  | - | ----- |  |  | - | ----- | 
|                        |  | December 31, 2001 |       | December 31, 2002
|                        |  |                   |       |                  
|                        |  |                   |       |                   |  | Accumulated |       |      |  |              |       |     |  |   |       | Accumulated |  |   |       | 
|                        |  | Cost              |       | Amortization      |  | Net         |       | Cost |  | Amortization |       | Net
|                        |  |                   |       |                   |  |             |       |      |  |              |       |    
|Intellectual property   |  | $                 | 4,662 |                   |  | $           | 2,819 |      |  | $            | 1,843 |     |  | $ | 4,662 |             |  | $ | 3,207 |  |  | $ | 1,455 | 
|Customer agreement      |  |                   | 800   |                   |  |             | 293   |      |  |              | 507   |     |  |   | 800   |             |  |   | 547   |  |  |   | 253   | 
|Covenant not to
compete |  |                   | 200   |                   |  |             | 167   |      |  |              | 33    |     |  |   | 200   |             |  |   | 200   |  |  |   |      | 
|Other                   |  |                   | 50    |                   |  |             | 50    |      |  |              |      |     |  |   | 50    |             |  |   | 50    |  |  |   |      | 
|                        |  |                   |       |                   |  |             |       |      |  |              |       |     |  |   |       |             |  |   |       |  |  |   |       | 
|                        |  | $                 | 5,712 |                   |  | $           | 3,329 |      |  | $            | 2,383 |     |  | $ | 5,712 |             |  | $ | 4,004 |  |  | $ | 1,708 | 
|                        |  |                   |       |                   |  |             |       |      |  |              |       |     |  |   |       |             |  |   |       |  |  |   |       | 

For the years ended December 31, 2000, 2001 and 2002, the Company recognized
amortization expense related to identifiable intangible assets of $1,787, $844
and $675, respectively. Estimated amortization expense for identifiable
intangible assets shown above for the years ending December 31, 2003, 2004,
2005, 2006 and 2007 amounts to approximately $556, $277, $200, $200 and $200,
respectively.

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SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

4.     Inventories

Inventories are summarized as follows:

|                                             |       |   |              |         |      |   |        |        | 
|-------------------------------------------- | ----- | - | ------------ | ------- | ---- | - | ------ | ------ | 
|                                             |       |   | December 31,
|                                             |       |   |             
|                                             |       |   | 2001         |         | 2002
|                                             |       |   |              |         |     
|Purchased parts and completed sub-assemblies |       | $ | 77,225       |         |      | $ | 47,686 |       
|Work-in-process                              |       |   | 8,115        |         |      |   | 6,967  |       
|Finished goods                               |       |   | 21,428       |         |      |   | 12,728 |       
|                                             |       |   |              |         |      |   |        |       
|                                             | Total |   | $            | 106,768 |      |   | $      | 67,381 | 
|                                             |       |   |              |         |      |   |        |       

For the years ended December 31, 2000, 2001 and 2002, the Company recognized
write-downs of excess and obsolete inventories resulting in charges of $7,105,
$14,502 and $5,427, respectively.

5.     Debt Financing

Long-term debt at December 31, 2001 and 2002 consists of the following:

|                                                                                                                                                                                                                              |       |   |        |        |      |   |        |        | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----- | - | ------ | ------ | ---- | - | ------ | ------ | 
|                                                                                                                                                                                                                              |       |   | 2001   |        | 2002
|                                                                                                                                                                                                                              |       |   |        |        |     
|Revolving line of credit payable to Citibank,
N.A., interest at variable rates (weighted
average rate of 5.9% at December 31, 2001 and
5.1% at December 31, 2002), collateralized by
substantially all assets, due April 2005 |       | $ | 31,556 |        |      | $ | 10,856 |       
|Revolving line of credit payable to Bank of
America, N.A., interest at the prime rate plus
0.5% (5.3% at December 31, 2001), repaid in
March 2002                                                                             |       |   | 72     |        |      |   |       |       
|Note payable to Former Parent, interest at
variable rate (14.0% at December 31, 2001),
unsecured, repaid in May 2002                                                                                                          |       |   | 12,202 |        |      |   |       |       
|                                                                                                                                                                                                                              |       |   |        |        |      |   |        |       
|                                                                                                                                                                                                                              | Total |   | $      | 43,830 |      |   | $      | 10,856 | 
|                                                                                                                                                                                                                              |       |   |        |        |      |   |        |       

Revolving Lines of Credit.On February 28, 2002, the combination of EFTC
and K*TEC was completed, and EFTC and K*TEC became wholly owned subsidiaries of
Suntron. The credit facility with Bank of America, N.A. was repaid and the
Company is now a party to the credit facility with Citicorp USA that K*TEC
entered into in January 2001.

The credit facility with Citibank provides for a $75,000 revolving line of
credit. During 2002, the interest rate was the prime rate plus 2.00% (6.75% at
December 31, 2001 and 6.25% at December 31, 2002) for Base Rate borrowings
and the LIBOR rate plus 3.25% (weighted average rate of 5.6% at December 31,
2001 and 4.7% at December 31, 2002) for LIBOR Rate borrowings. The Company
can periodically elect to use either the base rate or LIBOR rate in connection
with borrowings under the line of credit. In addition, the Company is obligated
to pay a commitment fee of 0.5% per annum of the unused portion of the credit
facility. Total borrowings are subject to limitation based on a percentage of
eligible accounts receivable, inventories, real estate, and equipment.
Substantially all of the Companys assets are pledged as collateral for
outstanding borrowings. The credit agreement requires compliance with certain
financial and non-financial covenants, including quarterly requirements related
to tangible net worth; earnings before interest,

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SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

taxes, depreciation and amortization (EBITDA); and limitations on the amount
of capital expenditures. The credit agreement also limits or prohibits the
Company from paying dividends, incurring additional debt, selling significant
assets, or merging with other entities without the consent of the lenders. As
of December 31, 2002, the borrowing base calculation permitted total borrowings
of approximately $54,329. After deducting an outstanding letter of credit for
$315 and the outstanding principal balance of $10,856, the Company had net
borrowing availability of $43,158 .

On April 11, 2003, the Company and Citibank agreed to an amendment that
resulted in an increase of 0.5% from the interest rates that were in effect
during 2002, the calculation of the borrowing base was revised, and the
maturity date was extended until April 2005. During the first quarter of 2003,
the Company also completed updated inventory and equipment appraisals for
purposes of determining the borrowing base. After giving effect to these
changes, the borrowing base calculation permitted total borrowings of
approximately $47,000 as of April 11, 2003.

Interest Charge Resulting From 2001 Amendment.In connection with an amendment
to the credit agreement in November 2001, the borrowing commitment was reduced
and the maturity date was accelerated. Accordingly, the Company applied the
provisions of Emerging Issues Task Force Issue No. 98-14, Debtors Accounting
for Changes in Line-of-Credit or Revolving-Debt Arrangements to the
unamortized debt issuance costs related to this credit facility, which resulted
in additional amortization of $2,586. This amount is included in interest
expense in the accompanying consolidated statement of operations for the year
ended December 31, 2001.

Operating Losses and Bank Covenant Violations.During 2002, the Company
incurred a net loss of $126,150 (including $69,015 for the cumulative effect of
a change in accounting for goodwill). The Company also incurred net losses of
$24,547 and $54,521 in 2000 and 2001, respectively. The Company continues to
evaluate sales forecasts in relation to its operations and, as discussed in
Note 10, many restructuring actions have been taken to position the Company for
improved operating results in the future. Despite numerous and extensive
actions that were taken in 2002, the economic downturn has had a severe impact
on several industries that the Companys major customers are engaged in,
resulting in a reduction in net sales from $574,401 in 2001 to $370,797 in
2002.

As a result of the substantial net loss in 2002, the Company would have
violated year-end restrictive covenants for EBITDA and tangible net worth as
contained in the credit agreement with Citibank. On March 31, 2003, Citibank
agreed to a permanent waiver of the year-end covenant violations, as well as
expected violations of the same covenants for the first quarter of 2003. In
addition, the credit agreement was amended on April 11, 2003 to provide
financial covenants that are less restrictive whereby management believes the
Company will be able to comply with the revised covenants.

Management believes the Companys borrowing availability under the amended
credit agreement with Citibank will be sufficient to carry out planned
activities for 2003. However, in order to maintain the availability of this
credit facility, it is critical that the Company achieves its 2003 operating
plan to avoid any further covenant violations that could result in the
termination of the credit facility. If the credit facility is withdrawn, the
Company would be forced to consider alternative sources of financing and there
is no assurance that such financing would be available.

Recapitalization.On March 30, 2000, the Company completed the first stage of
a recapitalization transaction with Thayer-Blum Funding, L.L.C. (Thayer-Blum
Funding), an entity formed by affiliates of

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SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

Thayer Capital Partners (Thayer) and Blum Capital Partners (Blum). The
first stage of the recapitalization involved the issuance of a total of $54,000
in Senior Subordinated Exchangeable Notes (the March Exchangeable Notes),
which was closed on March 30, 2000. On July 14, 2000, the Company issued an
additional $14,000 of Senior Subordinated Exchangeable Notes (the July
Exchangeable Notes) to Thayer-Blum Funding in the second stage of the
transaction. As described below, on August 23, 2000, the March and July
Exchangeable Notes were exchanged for the Senior Subordinated Convertible Notes
(the Convertible Notes) and the Series B Convertible Preferred Stock (the
Series B Preferred Stock), respectively. The recapitalization also involved a
tender offer by Thayer-Blum Funding that was completed on August 23, 2000 for
1,406,250 shares of the Companys outstanding common stock at a price of $16.00
per share. Upon completion of the final stage of the recapitalization,
Thayer-Blum Funding obtained the right to designate a majority of the members
of the Companys board of directors and has the right to approve any
significant financings, acquisitions and dispositions.

The March and July Exchangeable Notes initially provided for an interest
rate of 15% and were accompanied by warrants to purchase 773,289 shares of the
Companys common stock at an exercise price of $.04 per share. However, since
stockholders approved the issuance of the Convertible Notes and the Series B
Preferred Stock and the tender offer was consummated, the warrants never became
exercisable and expired. Accordingly, no value was assigned to the warrants in
the accompanying consolidated financial statements.

Upon receipt of stockholder approval, the March Exchangeable Notes were
exchanged for the Convertible Notes. The Convertible Notes provide for interest
at 8.875%, payable in kind, and were convertible into the Companys common
stock at $10.32 per share, subject to adjustment. As described in Note 7, the
July Exchangeable Notes were exchanged for Series B Preferred Stock. As
described in Note 2, in May 2001 the outstanding principal and accrued interest
related to the Convertible Notes was converted into 5,940,837 shares of common
stock, and the Series B Convertible Preferred Stock was converted into
2,115,749 shares of common stock, for total conversions into 8,056,586 shares
of common stock.

6.     Income Taxes

Actual income tax expense for the years ended December 31, 2000, 2001 and
2002 differs from the amounts computed using the federal statutory tax rate of
34%, as follows:

|                                                   |                                                    |                              |       |        |      |      |        |         |     |   |        |         |     | 
|-------------------------------------------------- | -------------------------------------------------- | ---------------------------- | ----- | ------ | ---- | ---- | ------ | ------- | --- | - | ------ | ------- | --- | 
|                                                   |                                                    |                              |       | 2000   |      | 2001 |        | 2002   
|                                                   |                                                    |                              |       |        |      |      |        |        
|Income tax benefit (expense) at the statutory rate |                                                    | $                            | 8,249 |        |      | $    | 18,531 |         |     | $ | 42,891 |        
|Benefit (expense) resulting from:                  |                                                    |                              |       |        |      |      |        |         |     |   |        |        
|                                                   | State income taxes                                 |                              |       | (25    | )    |      |        | (485    | )   |   |        |        |    
|                                                   | Amortization of non-deductible goodwill            |                              |       | (97    | )    |      |        | (115    | )   |   |        |        |    
|                                                   | Change in law related to alternative minimum tax   |                              |       |       |      |      |        |        |     |   |        | 250     |    
|                                                   | Decrease (increase) in Federal valuation allowance |                              |       | (8,250 | )    |      |        | (17,829 | )   |   |        | (43,114 | )  
|                                                   | Other, net                                         |                              |       | (164   | )    |      |        | (122    | )   |   |        | 249     |    
|                                                   |                                                    |                              |       |        |      |      |        |         |     |   |        |        
|                                                   |                                                    | Income tax benefit (expense) |       | $      | (287 | )    |        | $       | (20 | ) |        | $       | 276 | 
|                                                   |                                                    |                              |       |        |      |      |        |         |     |   |        |        

Income tax benefit (expense) for the years ended December 31, 2000, 2001
and 2002, is comprised of the following:

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SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

|          |         |                |                              |        |        |      |      |        |        |     |   |     |     |     | 
|--------- | ------- | -------------- | ---------------------------- | ------ | ------ | ---- | ---- | ------ | ------ | --- | - | --- | --- | --- | 
|          |         |                |                              |        | 2000   |      | 2001 |        | 2002  
|          |         |                |                              |        |        |      |      |        |       
|Current:  |         |                |                              |        |        |      |      |        |        |     |   |    
|          | Federal |                | $                            | (1,989 | )      |      | $    | 1,732  |        |     | $ | 257 |    
|          | State   |                |                              | (277   | )      |      |      | 227    |        |     |   | 19  |    
|          |         |                |                              |        |        |      |      |        |        |     |   |     |    
|          |         | Total current  |                              |        | (2,266 | )    |      |        | 1,959  |     |   |     | 276 |    
|          |         |                |                              |        |        |      |      |        |        |     |   |     |    
|Deferred: |         |                |                              |        |        |      |      |        |        |     |   |    
|          | Federal |                |                              | 1,730  |        |      |      | (1,730 | )      |     |   |    |    
|          | State   |                |                              | 249    |        |      |      | (249   | )      |     |   |    |    
|          |         |                |                              |        |        |      |      |        |        |     |   |     |    
|          |         | Total deferred |                              |        | 1,979  |      |      |        | (1,979 | )   |   |     |    |    
|          |         |                |                              |        |        |      |      |        |        |     |   |     |    
|          |         |                | Income tax benefit (expense) |        | $      | (287 | )    |        | $      | (20 | ) |     | $   | 276 | 
|          |         |                |                              |        |        |      |      |        |        |     |   |     |    

At December 31, 2000, 2001 and 2002, the tax effects of temporary differences
that give rise to significant deferred tax assets and liabilities are presented
below (KPMG will update 2002):

|                          |                                                                                        |                                |   |         |        |      |   |         |        |   |   |          |         |  
|------------------------- | -------------------------------------------------------------------------------------- | ------------------------------ | - | ------- | ------ | ---- | - | ------- | ------ | - | - | -------- | ------- | -
|                          |                                                                                        |                                |   | 2000    |        | 2001 |   | 2002   
|                          |                                                                                        |                                |   |         |        |      |   |        
|Deferred tax assets:      |                                                                                        |                                |   |         |        |      |   |         |        |   |   |         
|                          | Federal net operating loss carryforwards                                               |                                | $ | 24,224  |        |      | $ | 37,865  |        |   | $ | 50,562   |        
|                          | State net operating loss carryforwards                                                 |                                |   | 5,823   |        |      |   | 6,995   |        |   |   | 8,701    |        
|                          | Inventories                                                                            |                                |   | 8,668   |        |      |   | 14,948  |        |   |   | 10,779   |        
|                          | Intangible assets                                                                      |                                |   | 4,465   |        |      |   | 4,184   |        |   |   | 33,859   |        
|                          | Allowance for doubtful accounts receivable                                             |                                |   | 762     |        |      |   | 1,642   |        |   |   | 978      |        
|                          | Accrued compensation, benefits, severance
and lease exit costs                         |                                |   | 2,039   |        |      |   | 1,519   |        |   |   | 6,123    |        
|                          | Impairment of property, plant and equipment                                            |                                |   | 830     |        |      |   | 350     |        |   |   | 1,733    |        
|                          | Other                                                                                  |                                |   | 3,634   |        |      |   | 3,018   |        |   |   | 2,201    |        
|                          |                                                                                        |                                |   |         |        |      |   |         |        |   |   |          |        
|                          |                                                                                        | Total deferred tax assets      |   |         | 50,445 |      |   |         | 70,521 |   |   |          | 114,936 |  
|                          | Less valuation allowance                                                               |                                |   | (45,888 | )      |      |   | (66,824 | )      |   |   | (113,764 | )      
|                          |                                                                                        |                                |   |         |        |      |   |         |        |   |   |          |        
|                          |                                                                                        | Net deferred tax assets        |   | $       | 4,557  |      |   | $       | 3,697  |   |   | $        | 1,172   |  
|                          |                                                                                        |                                |   |         |        |      |   |         |        |   |   |          |        
|Deferred tax liabilities: |                                                                                        |                                |   |         |        |      |   |         |        |   |   |         
|                          | Accelerated depreciation and other basis
differences for property, plant and
equipment |                                | $ | (2,020  | )      |      | $ | (2,249  | )      |   | $ | (1,172   | )      
|                          | Amortization of intangible assets                                                      |                                |   | (558    | )      |      |   | (1,448  | )      |   |   |         |        
|                          |                                                                                        |                                |   |         |        |      |   |         |        |   |   |          |        
|                          |                                                                                        | Total deferred tax liabilities |   | $       | (2,578 | )    |   | $       | (3,697 | ) |   | $        | (1,172  | )
|                          |                                                                                        |                                |   |         |        |      |   |         |        |   |   |          |        

At December 31, 2002, the Company has a net operating loss carryforward
(NOL) for Federal income tax purposes of approximately $165,000. If not
previously utilized, this NOL will expire in 2019 through 2022. At December 31,
2002, approximately $47,000 of this NOL is subject to limitation, whereby
approximately $3,600 becomes available each year through 2015, as a result of
changes in ownership that occurred in 2000. The remaining $118,000 NOL can be
utilized to offset future taxable income that may be generated in the Companys
continuing business activities. Additionally, even though goodwill related to
the K*TEC acquisition was written off as a cumulative effect adjustment in the
first quarter of 2002, this amount is not deductible for income tax purposes in
2002. The tax basis of goodwill will continue to be amortized over 15 years for
income tax purposes, which will generate additional tax deductions through
2015.

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SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

7.     Stock-based Compensation

Warrants.At December 31, 2002, the Company has warrants outstanding for
153,517 shares of common stock at an exercise price of $10.24 per share. If not
previously exercised, these warrants expire in December 2003. The above amounts
have been adjusted based on the anti-dilution provisions of the warrant
agreements. These warrants were granted to financial advisors in connection
with the recapitalization discussed in Note 5. As required by Statement of
Financial Accounting Standards No. 123, the Company estimated the fair value of
these warrants using the Black-Scholes model. The assumptions for valuation of
the warrants provided for volatility of 96%, a risk-free interest rate of 5.6%,
and an expected life of 2.7 years, which resulted in a valuation of $536, of
which $210 was charged to operations in 2000 and $326 was recorded as debt
issuance costs.

Stock Options.In June 2002, shareholders approved the Amended and
Restated 2002 Stock Option Plan (the Plan) which provides that options for
5,000,000 shares of common stock may be granted under the Plan. The Plan
provides for the grant of incentive and non-qualified options to employees,
directors and consultants of the Company. EFTC previously had three stock
option plans and K*TEC had one plan (the Predecessor Plans), all of which
were terminated upon adoption and approval of the Plan. All outstanding options
under the Predecessor Plans were replaced with new options under the Plan with
no change to the terms or vesting provisions, except the number of shares and
exercise prices were adjusted based upon the exchange ratios in the business
combination as discussed in Note 2. At December 31, 2002, approximately
2,861,000 shares were available for grant under the Plan.

The following summarizes activity related to all stock options granted
under the Plan and the Predecessor Plans for the years ended December 31, 2000,
2001 and 2002:

|                               |           |  |           |          |                |   |                  |       | 
|------------------------------ | --------- |  | --------- | -------- | -------------- | - | ---------------- | ----- | 
|                               |           |  |           |          |                |   | Weighted Average
|                               |           |  | Shares    |          | Exercise Price
|                               |           |  |           |          |               
|Outstanding, December 31, 1999 |           |  | 783,765   |          |                | $ | 23.08            |      
|                               | Granted   |  |           | 699,254  |                |   |                  | 10.48 | 
|                               | Canceled  |  |           | (394,083 | )              |   |                  | 23.04 | 
|                               |           |  |           |          |                |   |                  |      
|Outstanding, December 31, 2000 |           |  | 1,088,936 |          |                |   | 15.12            |      
|                               | Granted   |  |           | 863,678  |                |   |                  | 14.29 | 
|                               | Exercised |  |           | (22,775  | )              |   |                  | 10.36 | 
|                               | Canceled  |  |           | (122,955 | )              |   |                  | 16.97 | 
|                               |           |  |           |          |                |   |                  |      
|Outstanding, December 31, 2001 |           |  | 1,806,884 |          |                |   | 14.67            |      
|                               | Granted   |  |           | 808,750  |                |   |                  | 8.49  | 
|                               | Canceled  |  |           | (477,126 | )              |   |                  | 15.93 | 
|                               |           |  |           |          |                |   |                  |      
|Outstanding, December 31, 2002 |           |  | 2,138,508 |          |                |   | 12.04            |      
|                               |           |  |           |          |                |   |                  |      

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SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

The following table summarizes information about stock options outstanding at
December 31, 2002:

|                          |                |           |          |         |                  |        |           |                |                  |                           |           |         |  |   |       |   |  |  |         |   | 
|------------------------- | -------------- | --------- | -------- | ------- | ---------------- | ------ | --------- | -------------- | ---------------- | ------------------------- | --------- | ------- |  | - | ----- | - |  |  | ------- | - | 
|Stock Options Outstanding |                |           |          |         |                  |        |           |               
|                          |                |           |          |         |                  |        |           |               
|Exercise Prices           |                |           |          |         |                  |        |           |                |                  | Stock Options Exercisable
|                          |                | Remaining |          |         |                  |        |           |               
|                          |                |           | Weighted |         | Contractual Life |        | Number of |                | Weighted Average |                           | Number of
|Range                     |                | Average   |          | (Years) |                  | Shares |           | Exercise Price |                  | Shares                   
|                          |                |           |          |         |                  |        |           |                |                  |                          
|                          | $3.74 to $3.74 |           | $        | 3.74    |                  |        |           | 10.0           |                  |                           |           | 250,000 |  |   | $     |  |  |  |         |  | 
|$7.36 to $11.00           |                | $         | 10.52    |         |                  |        | 8.4       |                |                  |                           | 1,177,294 |         |  | $ | 10.51 |   |  |  | 187,644 |  
|$11.40 to $16.00          |                | $         | 14.88    |         |                  |        | 7.8       |                |                  |                           | 557,183   |         |  | $ | 14.39 |   |  |  | 183,743 |  
|$17.24 to $23.00          |                | $         | 19.31    |         |                  |        | 5.3       |                |                  |                           | 83,000    |         |  | $ | 19.31 |   |  |  | 82,969  |  
|$30.00 to $57.24          |                | $         | 35.68    |         |                  |        | 5.1       |                |                  |                           | 71,031    |         |  | $ | 35.68 |   |  |  | 71,031  |  
|                          |                |           |          |         |                  |        |           |                |                  |                           |           |         |  |   |       |   |  |  |         |  
|$3.74 to $57.24           |                | $         | 12.04    |         |                  |        | 8.2       |                |                  |                           | 2,138,508 |         |  | $ | 16.66 |   |  |  | 525,387 |  
|                          |                |           |          |         |                  |        |           |                |                  |                           |           |         |  |   |       |   |  |  |         |  

The Company uses the intrinsic value method to account for stock-based
compensation. During 2000, the Company granted approximately 510,000 options
with an intrinsic value of $367 on the measurement date. During 2002, the
Company granted 250,000 options with an intrinsic value of $233 on the
measurement date. These amounts are reflected as deferred compensation cost in
the accompanying statements of stockholders equity and compensation expense is
being charged to operations over the vesting period for the related stock
options.

Effective December 31, 2000, EFTCs Board of Directors agreed to accelerate
vesting of certain options that were outstanding under the Predecessor Plans,
subject to continued employment and other terms of the options. The
acceleration of vesting resulted in a new measurement date but a compensation
charge was not required. In June 2002, option holders were given the
opportunity to exchange certain options for an aggregate of 476,285 shares. All
option holders accepted the offer which resulted in the exchange of options
that would have cliff vested in 2007 for new options that will vest 20%
annually over five years. There was no change to the terms of these options.
This modification resulted in a new measurement date but a compensation charge
was not required since the exercise price of these options was in excess of the
fair market value of the Companys common stock. Under the intrinsic value
method used to account for options granted to employees, the Company recognized
total compensation cost of $87, $75 and $31 for the years ended December 31,
2000, 2001 and 2002, respectively.

The weighted average fair value of options granted for the years ended
December 31, 2000, 2001 and 2002 was $5.52, $10.44 and $5.06, respectively. In
estimating the fair value of options, the Company used the Black-Scholes
option-pricing model with the following weighted average assumptions:

|                        |  |                         |      |      |  |      |      |   |  |  |       |  
|----------------------- |  | ----------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ----- | -
|                        |  | Year ended December 31,
|                        |  |                        
|                        |  | 2000                    |      | 2001 |  | 2002
|                        |  |                         |      |      |  |     
|Dividend yield          |  |                         |     |      |  |      |     |   |  |  |      |  
|Expected volatility     |  |                         | 98.5 | %    |  |      | 94.7 | % |  |  | 110.5 | %
|Risk-free interest rate |  |                         | 5.5  | %    |  |      | 4.8  | % |  |  | 4.1   | %
|Expected lives (years)  |  |                         | 5.3  |      |  |      | 5.3  |   |  |  | 5.1   |  

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SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

8.     Stockholders Equity

In connection with the recapitalization discussed in Note 5, EFTCs Board
of Directors authorized the issuance of a new series of preferred stock,
designated Series B Convertible Preferred Stock (the Series B Preferred
Stock), with 15,000 shares of Series B Preferred Stock authorized for
issuance. The Series B Preferred Stock accrued dividends, compounded quarterly,
at 8.875% per annum on the liquidation preference, which was $1,000 per share
plus accrued and unpaid dividends. Each share of Series B Preferred Stock was
convertible into common stock at a conversion price of $7.20 per share, subject
to adjustment.

Upon stockholder approval of the recapitalization on August 22, 2000, the
July Exchangeable Notes held by Thayer-Blum Funding in the original principal
amount of $14,000, plus accrued interest of $233 were exchanged for 14,233
shares of Series B Preferred Stock. Based on the $7.20 per share conversion
price, the shares of Series B Preferred Stock were convertible into 1,976,852
shares of common stock on August 23, 2000. As of December 31, 2000, accrued and
unpaid dividends on the Series B Preferred Stock amounted to $450. In
connection with the business combination discussed in Note 2, all outstanding
shares of Series B Preferred Stock plus accrued dividends were converted into
2,115,749 shares of common stock in May 2001.

The market price of the Companys common stock was in excess of the
conversion price for the July Exchangeable Notes on the commitment date. The
commitment date was July 14, 2000, the date when the investor agreed to the
terms, funded the investment, and completed its performance obligations.
Accordingly, in the calculation of net loss per share applicable to common
stockholders, the Company was required to include a deemed dividend of $2,022
related to the holders of the Series B Preferred Stock due to the existence of
a beneficial conversion feature on the commitment date.

9.     Related Party Transactions

Leasing Activities.The Company has entered into two operating leases
with a director of the Company. The Company leases manufacturing facilities in
Newberg, Oregon and Tucson, Arizona through December 2003, with aggregate
monthly payments of $90. Honeywell International, Inc. subleases the Tucson
facility under a month-to-month agreement that provides for monthly payments of
$32.

Consulting and Employment Agreements.The Company has entered into
employment agreements with two executive officers that provides for monthly
payments of $25 until expiration in December 2003. The employment agreements
may be terminated prior to expiration but the Company would generally be
required to pay severance benefits up to one-years salary which would amount
to an aggregate amount of $520. During 2002, a director of the Company provided
consulting services for $15.

Management Fees.During 2000, 2001 and 2002, the Company incurred
management fees of $413, $1,250 and $835, respectively, for services provided
by affiliates of the Companys majority stockholder. In March 2002, the Company
entered into a management agreement with affiliates of the Companys major
stockholder that provides for annual payments of $750 for management and
consulting services related to corporate development activities.

Acquisition and Financing Fees.During 2000 and 2001, the Company
incurred acquisition and financing fees of $2,300 and $2,500, respectively, for
services provided by affiliates of the Companys majority

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SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

stockholder. In connection with the recapitalization discussed in Note 10,
during 2000 the Company also paid a fee of $750 to an affiliate of the
Companys major stockholder.

Distribution.In April 2001, K*TEC paid a dividend of $20,000 to its sole
owner.

10.     Sale of Assets, Facility Closures, Recapitalization and Relocation
Activities

The Company periodically takes actions to increase capacity utilization
through the closure of facilities and the sale of assets. During 2000, the
Company also completed a recapitalization transaction and relocated its
corporate headquarters to improve efficiency and control costs. During 2001,
the Company initiated actions to complete the business combination discussed in
Note 2 and which was accounted for as a reorganization of entities under common
control.

The results of operations related to these activities for the years ended
December 31, 2000, 2001 and 2002 are summarized as follows:

|                                                   |  |                                    |       |      |        |      |       |      |       |   |        |   |        | 
|-------------------------------------------------- |  | ---------------------------------- | ----- | ---- | ------ | ---- | ----- | ---- | ----- | - | ------ | - | ------ | 
|                                                   |  |                                    |       | 2000 |        | 2001 |       | 2002
|                                                   |  |                                    |       |      |        |      |       |     
|Cost of goods sold:                                |  |                                    |       |      |        |      |       |      |       |   |        |  
|                                                   |  | Impairment of manufacturing assets |       | $    |       |      |       | $    | 1,329 |   |        | $ | 2,770  | 
|                                                   |  | Severance and retention costs      |       |      |       |      |       |      | 1,366 |   |        |   | 565    | 
|                                                   |  | Lease exit costs                   |       |      |       |      |       |      | 116   |   |        |   | 10,093 | 
|                                                   |  | Moving and relocation costs        |       |      | 393    |      |       |      |      |   |        |   | 131    | 
|                                                   |  | Other closure costs                |       |      | 1,092  |      |       |      |      |   |        |   |       | 
|                                                   |  |                                    |       |      |        |      |       |      |       |   |        |  
|                                                   |  |                                    | 1,485 |      |        |      | 2,811 |      |       |   | 13,559 |  
|Selling, general and administrative:               |  |                                    |       |      |        |      |       |      |       |   |        |  
|                                                   |  | Depreciation                       |       |      | 1,931  |      |       |      |      |   |        |   |       | 
|                                                   |  | Other closure costs                |       |      | 649    |      |       |      |      |   |        |   |       | 
|Recapitalization transaction costs                 |  |                                    | 5,336 |      |        |      |      |      |       |   |       |  
|Reorganization transaction costs                   |  |                                    |      |      |        |      | 2,375 |      |       |   | 312    |  
|Severance, retention, closure and relocation costs |  |                                    | 4,579 |      |        |      | 228   |      |       |   | 169    |  
|Impairment of long-lived assets                    |  |                                    | 1,662 |      |        |      |      |      |       |   | 21     |  
|                                                   |  |                                    |       |      |        |      |       |      |       |   |        |  
|                                                   |  | Total Expenses                     |       | $    | 15,642 |      |       | $    | 5,414 |   |        | $ | 14,061 | 
|                                                   |  |                                    |       |      |        |      |       |      |       |   |        |  
|Gain on sale of Services business                  |  | $                                  | 4,357 |      |        | $    | 574   |      |       | $ |       |  
|                                                   |  |                                    |       |      |        |      |       |      |       |   |        |  

Presented below is a description of the recapitalization and
reorganization transaction costs and each location that was impacted by
significant asset sales, facility closures and relocation activities:

Recapitalization Costs.In connection with the recapitalization described in
Note 5, the Company incurred costs of $5,336 that were charged to operations
for the year ended December 31, 2000. These costs included due diligence costs
for legal, accounting and management consulting services of $2,130; financial
advisory fees of $1,645; costs related to a Special Meeting of Stockholders and
other costs of $811; and a fee paid to Thayer-Blum Funding of $750.

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SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

Reorganization Transaction Costs.In connection with the business combination
discussed in Note 2, the Company incurred $2,375 and $312 during 2001 and 2002,
respectively. These costs include fees related to a fairness opinion and
professional fees related to the preparation of a proxy statement for the
merger. Since this merger was accounted for as a reorganization of entities
under common control, these costs were charged to operations in the period in
which they were incurred.

Headquarters Relocation.In July 2000, the Company announced plans to relocate
its corporate headquarters from Denver to Phoenix. Accordingly, management
assessed the estimated useful lives of the assets located in Denver and
determined that it was not practical to use certain assets at the Phoenix
location. The Company also reevaluated the carrying value of intellectual
property related to a customer whose business was expected to terminate by the
end of 2000. The aggregate carrying value of the Denver assets and the
intellectual property as of March 31, 2000 was $2,133. Accordingly, effective
April 1, 2000, the estimated useful lives of these assets were reduced from
approximately five years to nine months to coincide with the expected period
that the assets would continue to be used in the business. This change in
estimate resulted in an increase in depreciation and amortization (included in
selling, general and administrative) expense of $1,931 ($.12 per share) for the
year ended December 31, 2000, and the net book value of these assets was
reduced to zero at the end of 2000. During 2000, the Company also recognized
impairment expense related to software of $1,312 and computer equipment of $100
since the Company decided to abandon these assets in the relocation of
corporate headquarters.

In connection with the Denver headquarters relocation and other changes in
management in 2000, the Company incurred $4,579 for severance, retention,
closure and relocation costs, consisting of $2,299 for severance and retention
costs, $823 for the expected loss on subleasing the Denver facility, $608 for
moving and relocation costs, $538 for recruiting fees, and $311 for other
related costs. At December 31, 2000, all of these costs had been paid except
for $1,181 of severance costs and the $823 provision related to the Denver exit
costs. With respect to the relocation of headquarters and changes in
management, the Company terminated approximately 45 executive and
administrative employees.

Southeast Operations.In September 1999, the Company initiated a plan to
consolidate and close its Southeast Operations in Fort Lauderdale, Florida.
During 1999, the Company incurred charges of approximately $700 for severance
costs related to approximately 200 employees whose employment period ended by
April 2000. During 2000, the Company incurred additional charges included in
cost of goods sold for $1,485, including $393 for relocation and moving costs.
During 2000 the Company also incurred additional selling, general and
administrative expenses of $649, and $250 for impairment of excess equipment
that was held for sale. At December 31, 2000, the carrying value of the
equipment held for sale was $50, and this equipment was sold in 2001. The
closure was substantially complete in April 2000.

Sale of Services Division.In September 1999, the Company sold substantially
all of the assets of its Services Division subject to an Earn-out Contingency
(the EC). Under the EC, if the earnings related to the division sold for the
year ended August 31, 2000 exceeded $4,455 (Target Earnings), the Company was
entitled to an additional payment equal to three times the difference between
the actual earnings and Target Earnings. If actual earnings were less than
Target Earnings, the Company would have been required to refund an amount equal
to three times the difference. The maximum amount that either party would have
been required to pay under the EC was $2,500; accordingly, the Company recorded
a liability for $2,500 of the consideration received in 1999 until the outcome
of the EC was known. In October 2000, the purchaser notified the Company that
actual earnings exceeded Target Earnings by $619, resulting in a payment due
the Company of $1,857. Accordingly, the Company recognized a gain of $4,357 in
2000. In the fourth quarter

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SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

of 2000, the Company notified the purchaser that the Company disputed the
calculation of the EC. In April 2001, the Company entered into a settlement
agreement with respect to the EC and received a final payment of $574, which is
included in the gain on sale of assets in 2001.

2001 Impairment of Long-lived Assets.During 2001, the Company recognized
impairment of $1,329, which is included in cost of good sold since the assets
were previously used in manufacturing operations. This charge consisted of $305
for materials management software that was expected to be abandoned, $308 for
equipment that would not be used upon relocation to a new facility in the
Northeast, $326 for intellectual property that was impaired due to termination
of a customer relationship, and $390 for other assets no longer used in the
Companys business.

2001 Reductions in Force.During 2001, the Company incurred charges of $1,583
for severance and retention costs ($217 included in selling, general and
administrative expenses and $1,366 included in cost of goods sold) related to
approximately 800 employees. All of these amounts were paid in 2001 except for
$22. These severance costs related to the Dallas plant closure and other
reductions in force that occurred in 2001.

2002 Plant Consolidations.During the third quarter of 2002, the Company
announced plans to consolidate manufacturing capabilities by closing facilities
in Ottawa, Kansas and Fremont, California in order to eliminate fixed and
variable costs associated with excess capacity. The Fremont closure was
completed in the fourth quarter of 2002 and resulted in lease exit costs of
$9,686 that are included in cost of goods sold in the 2002 Consolidated
Statement of Operations.

These consolidations resulted in a plan to sell the Companys building in
Ottawa and certain machinery, equipment, furniture and fixtures that were
previously used at both facilities. In connection with the plan of disposal,
the Company determined that the carrying values of some of the underlying
assets exceeded their fair values. Consequently, the Company recorded an
impairment charge of $2,791 (including $2,770 charged to cost of goods sold),
which represents the excess of the carrying values of the assets over their
fair values, less cost to sell. This impairment charge consists of $1,294
related to the Ottawa plant that is held for sale, and $1,397 for equipment
that is no longer being used, and $100 related to equipment
that will continue to be used in operations. Fair value of impaired assets
that will be held for sale was determined by consultation with brokers and
comparison to similar assets that have been sold or are currently being offered
for sale.

During 2002, the Company incurred charges of $674 for severance costs ($109
included in selling, general and administrative expenses and $565 included in
cost of goods sold) related to approximately 420 employees, of which $613 was
paid in 2002. These severance costs related to the Fremont and Ottawa closures
and other reductions in force that occurred in 2002.

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SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

Summary of Restructuring Liabilities.Presented below is a summary of changes
in liabilities for lease exit costs and severance and retention obligations
related to the closures discussed above:

|                                             |                            |  |            |        |             |  |        |       | 
|-------------------------------------------- | -------------------------- |  | ---------- | ------ | ----------- |  | ------ | ----- | 
|                                             |                            |  | Accrued    |        | Accrued    
|                                             |                            |  | Lease Exit |        | Severance &
|                                             |                            |  | Costs      |        | Retention  
|                                             |                            |  |            |        |            
|                                             | Balance, December 31, 2000 |  | $          | 3,314  |             |  | $      | 1,181 | 
|Accrued expense for restructuring activities |                            |  | 325        |        |             |  | 1,583  |      
|Cash receipts under subleases                |                            |  | 151        |        |             |  |       |      
|Cash payments                                |                            |  | (1,692     | )      |             |  | (2,742 | )    
|Benefit due to change in previous estimates  |                            |  | (198       | )      |             |  |       |      
|                                             |                            |  |            |        |             |  |        |      
|                                             | Balance, December 31, 2001 |  |            | 1,900  |             |  |        | 22    | 
|Accrued expense for restructuring activities |                            |  | 9,686      |        |             |  | 674    |      
|Cash receipts under subleases                |                            |  | 457        |        |             |  |       |      
|Cash payments                                |                            |  | (2,189     | )      |             |  | (635   | )    
|Expense due to change in previous estimates  |                            |  | 467        |        |             |  |       |      
|                                             |                            |  |            |        |             |  |        |      
|                                             | Balance, December 31, 2002 |  | $          | 10,321 |             |  | $      | 61    | 
|                                             |                            |  |            |        |             |  |        |      

Accrued lease exit costs are expected to be paid through September 2007.
As shown in the accompanying balance sheet as of December 31, 2002, $3,341 of
this obligation is included in current liabilities and $6,980 is included in
long-term liabilities.

11.     Business and Credit Concentrations

The Company operates in the electronic manufacturing services segment of
the electronics industry. Substantially all of the Companys customers are
located in the United States. For the years ended December 31, 2000, 2001 and
2002, the Companys net sales were derived from companies engaged in the
following industries:

|     |  |           |    |                   |  |                    |    |              |  |  |    |  
|---- |  | --------- | -- | ----------------- |  | ------------------ | -- | ------------ |  |  | -- | -
|     |  |           |    |                   |  | Semiconductor      |    | Networking &
|Year |  | Aerospace |    | Capital Equipment |  | Telecommunications
|     |  |           |    |                   |  |                   
|2000 |  |           | 52 | %                 |  |                    | 16 | %            |  |  | 17 | %
|2001 |  |           | 51 | %                 |  |                    | 17 | %            |  |  | 21 | %
|2002 |  |           | 42 | %                 |  |                    | 25 | %            |  |  | 18 | %

The Company has a policy to regularly monitor the credit worthiness of its
customers and provide for uncollectible amounts if credit problems arise.
Customers may experience financial difficulties, including those that may
result from industry developments, which may increase bad debt exposure to the
Company. In addition, the electronics manufacturing services industry has
experienced component supply shortages which have impacted the Companys
profitability in previous years. If this situation recurs, the Company may
experience reduced net sales and profitability in the future.

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SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

At December 31, 2001 and 2002, approximately 40% and 20%, respectively, of the
Companys net trade receivables were due from Honeywell International, Inc. The
Company does not require collateral to support trade receivables.

The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. At December 31, 2001 and 2000, the Company had
approximately $14,609 and $2,400, respectively, in excess of federally insured
limits. The difference between these amounts and the amount of cash and
equivalents shown in the accompanying balance sheets is primarily attributable
to outstanding checks. The Company has not experienced any losses related to
investments in cash and equivalents.

Sales to significant customers as a percentage of net sales for the years
ended December 31, 2000, 2001 and 2002, were as follows:

|     |  |                     |    |                 |  |             |    |   |  |  |    |  
|---- |  | ------------------- | -- | --------------- |  | ----------- | -- | - |  |  | -- | -
|     |  | Honeywell           |    | Applied         |  | Emulex     
|Year |  | International, Inc. |    | Materials, Inc. |  | Corporation
|     |  |                     |    |                 |  |            
|2000 |  |                     | 51 | %               |  |             | 15 | % |  |  | 6  | %
|2001 |  |                     | 50 | %               |  |             | 15 | % |  |  | 11 | %
|2002 |  |                     | 42 | %               |  |             | 22 | % |  |  | 9  | %

12.     Commitments and Contingencies

Operating Leases.The Company has noncancelable operating leases for
facilities and equipment that expire in various years through 2007. Lease
expense under all operating leases (excluding charges for lease exit costs
discussed in Note 10) amounted to $10,702, $11,927 and $9,602 for the years
ended December 31, 2000, 2001 and 2002, respectively. At December 31, 2002,
future minimum lease payments for operating leases, net of future payments
included in the determination of lease exit liabilities discussed in Note 10,
are as follows:

|                         |      |       |        |             |  |            |            |       |     |   |        |       | 
|------------------------ | ---- | ----- | ------ | ----------- |  | ---------- | ---------- | ----- | --- | - | ------ | ----- | 
|                         |      |       |        |             |  |            | Lease Exit |       | Net
|Year Ending December 31: |      | Total |        | Liabilities |  | Commitment
|                         |      |       |        |             |  |           
|                         | 2003 |       | $      | 8,937       |  |            | $          | 2,736 |     |   | $      | 6,201 | 
|                         | 2004 |       |        | 7,264       |  |            |            | 2,474 |     |   |        | 4,790 | 
|                         | 2005 |       |        | 6,157       |  |            |            | 2,244 |     |   |        | 3,913 | 
|                         | 2006 |       |        | 5,676       |  |            |            | 2,315 |     |   |        | 3,361 | 
|                         | 2007 |       |        | 3,878       |  |            |            | 1,789 |     |   |        | 2,089 | 
|After 2007               |      |       | 2,264  |             |  |            |           |       |     |   | 2,264  |      
|                         |      |       |        |             |  |            |            |       |     |   |        |      
|                         |      | $     | 34,176 |             |  | $          | 11,558     |       |     | $ | 22,618 |      
|                         |      |       |        |             |  |            |            |       |     |   |        |      

The amounts shown above for payments related to lease exit liabilities differs
from the $10,321 liability for lease exit costs shown in Note 10. The primary
reasons for differences between these amounts are because the calculation of
the lease exit liability is reduced for subleases that the Company expects to
enter into prior to termination of the leases, net of expected costs for broker
commissions and tenant improvements.

Employee Benefit Plan.The Company has a 401(k) Savings Plan covering
substantially all employees, whereby the Company matches 50% of an employees
contributions, up to a maximum matching

F-30





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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

contribution of 3% of the employees compensation. Additional profit sharing
contributions to the plan are at the discretion of the Board of Directors.
During the years ended December 31, 2000, 2001 and 2002, total contributions by
the Company to the Plan were approximately $860, $1,712 and $1,416,
respectively. Effective January 1, 2003, the Company suspended the 50% matching
contributions.

Legal Proceedings.The Company is subject to litigation, claims and
assessments that arise in the ordinary course of its business activities. Such
matters include contractual matters, employment-related issues and regulatory
proceedings. Although occasional adverse decisions or settlements may occur,
the Company believes that the final disposition of such matters will not have a
material adverse effect on the Companys financial position, results of
operations or liquidity.

13.     Quarterly Financial Information (Unaudited)

Presented below is selected unaudited quarterly financial information:



|                                                                    |                                                                 |   |                                                            |          |   |                              |         |         |   |       |         |         |   |       |        |         |   |       |       |  
|------------------------------------------------------------------- | --------------------------------------------------------------- | - | ---------------------------------------------------------- | -------- | - | ---------------------------- | ------- | ------- | - | ----- | ------- | ------- | - | ----- | ------ | ------- | - | ----- | ----- | -
|                                                                    |                                                                 |   |                                                            |          |   | Year Ended December 31, 2001
|                                                                    |                                                                 |   |                                                            |          |   |                             
|                                                                    |                                                                 |   |                                                            |          |   | Q1                           |         | Q2      |   | Q3    |         | Q4     
|                                                                    |                                                                 |   |                                                            |          |   |                              |         |         |   |       |         |        
|Net sales                                                           |                                                                 | $ | 197,915                                                    |          |   | $                            | 156,676 |         |   | $     | 133,761 |         |   | $     | 86,049 |        
|Cost of sales                                                       |                                                                 |   | 190,454                                                    |          |   |                              | 156,419 |         |   |       | 134,019 |         |   |       | 98,231 |        
|                                                                    |                                                                 |   |                                                            |          |   |                              |         |         |   |       |         |         |   |       |        |        
|                                                                    | Gross profit (loss)                                             |   |                                                            | 7,461    |   |                              |         | 257     |   |       |         | (258    | ) |       |        | (12,182 | )
|SG&A                                                                |                                                                 |   | (8,041                                                     | )        |   |                              | (7,762  | )       |   |       | (7,153  | )       |   |       | (6,891 | )      
|Reorganization costs                                                |                                                                 |   | (50                                                        | )        |   |                              | (1,038  | )       |   |       | (294    | )       |   |       | (993   | )      
|Related party expenses                                              |                                                                 |   | (2,062                                                     | )        |   |                              | (313    | )       |   |       | (313    | )       |   |       | (1,062 | )      
|Goodwill amortization                                               |                                                                 |   | (727                                                       | )        |   |                              | (727    | )       |   |       | (727    | )       |   |       | (724   | )      
|                                                                    |                                                                 |   |                                                            |          |   |                              |         |         |   |       |         |         |   |       |        |        
|                                                                    | Operating loss                                                  |   |                                                            | (3,419   | ) |                              |         | (9,583  | ) |       |         | (8,745  | ) |       |        | (21,852 | )
|Interest expense                                                    |                                                                 |   | (3,334                                                     | )        |   |                              | (3,245  | )       |   |       | (1,726  | )       |   |       | (3,912 | )      
|Reduction of interest expense
due to settlement of dispute          |                                                                 |   |                                                           |          |   |                              |        |         |   |       |        |         |   |       |       |        
|Gain (loss) on sale of assets                                       |                                                                 |   | 4                                                          |          |   |                              | 734     |         |   |       | 43      |         |   |       | (17    | )      
|Other, net                                                          |                                                                 |   | 62                                                         |          |   |                              | 5       |         |   |       | 404     |         |   |       | 80     |        
|                                                                    |                                                                 |   |                                                            |          |   |                              |         |         |   |       |         |         |   |       |        |        
|                                                                    | Loss before income taxes and
cumulative effect
adjustment       |   |                                                            | (6,687   | ) |                              |         | (12,089 | ) |       |         | (10,024 | ) |       |        | (25,701 | )
|Income tax benefit (expense)                                        |                                                                 |   | 287                                                        |          |   |                              | (305    | )       |   |       | (146    | )       |   |       | 144    |        
|                                                                    |                                                                 |   |                                                            |          |   |                              |         |         |   |       |         |         |   |       |        |        
|                                                                    | Loss before cumulative
effect
of change in accounting
principle |   |                                                            | (6,400   | ) |                              |         | (12,394 | ) |       |         | (10,170 | ) |       |        | (25,557 | )
|Cumulative
effect of change in accounting principle                 |                                                                 |   |                                                           |          |   |                              |        |         |   |       |        |         |   |       |       |        
|                                                                    |                                                                 |   |                                                            |          |   |                              |         |         |   |       |         |         |   |       |        |        
|                                                                    | Net loss                                                        |   | $                                                          | (6,400   | ) |                              | $       | (12,394 | ) |       | $       | (10,170 | ) |       | $      | (25,557 | )
|                                                                    |                                                                 |   |                                                            |          |   |                              |         |         |   |       |         |         |   |       |        |        
|Basic and diluted loss per
share applicable to common
stockholders- |                                                                 |   |                                                            |          |   |                              |         |         |   |       |         |         |   |       |        |        
|                                                                    |                                                                 |   | Before cumulative effect
of
change in accounting
principle |          | $ | (0.35                        | )       |         | $ | (0.57 | )       |         | $ | (0.37 | )      |         | $ | (0.93 | )    
|                                                                    |                                                                 |   | Cumulative effect of
change
in accounting principle        |          |   |                             |         |         |   |      |         |         |   |      |        |         |   |      |      
|                                                                    |                                                                 |   |                                                            |          |   |                              |         |         |   |       |         |         |   |       |        |        
|                                                                    |                                                                 |   |                                                            | Net loss |   | $                            | (0.35   | )       |   | $     | (0.57   | )       |   | $     | (0.37  | )       |   | $     | (0.93 | )
|                                                                    |                                                                 |   |                                                            |          |   |                              |         |         |   |       |         |         |   |       |        |        

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                    |                                                                 |   |                                                            |          |   |                              |         |        |   |       |         |         |   |       |        |         |   |       |       |  
|------------------------------------------------------------------- | --------------------------------------------------------------- | - | ---------------------------------------------------------- | -------- | - | ---------------------------- | ------- | ------ | - | ----- | ------- | ------- | - | ----- | ------ | ------- | - | ----- | ----- | -
|                                                                    |                                                                 |   |                                                            |          |   | Year Ended December 31, 2002
|                                                                    |                                                                 |   |                                                            |          |   |                             
|                                                                    |                                                                 |   |                                                            |          |   | Q1                           |         | Q2     |   | Q3    |         | Q4     
|                                                                    |                                                                 |   |                                                            |          |   |                              |         |        |   |       |         |        
|Net sales                                                           |                                                                 | $ | 92,608                                                     |          |   | $                            | 100,387 |        |   | $     | 99,535  |         |   | $     | 78,267 |        
|Cost of sales                                                       |                                                                 |   | 95,182                                                     |          |   |                              | 100,099 |        |   |       | 117,095 |         |   |       | 86,391 |        
|                                                                    |                                                                 |   |                                                            |          |   |                              |         |        |   |       |         |         |   |       |        |        
|                                                                    | Gross profit (loss)                                             |   |                                                            | (2,574   | ) |                              |         | 288    |   |       |         | (17,560 | ) |       |        | (8,124  | )
|SG&A                                                                |                                                                 |   | (7,230                                                     | )        |   |                              | (7,294  | )      |   |       | (6,864  | )       |   |       | (6,036 | )      
|Reorganization costs                                                |                                                                 |   | (265                                                       | )        |   |                              | (32     | )      |   |       | (15     | )       |   |       |       |        
|Related party expenses                                              |                                                                 |   | (271                                                       | )        |   |                              | (188    | )      |   |       | (188    | )       |   |       | (188   | )      
|Goodwill amortization                                               |                                                                 |   |                                                           |          |   |                              |        |        |   |       |        |         |   |       |       |        
|                                                                    |                                                                 |   |                                                            |          |   |                              |         |        |   |       |         |         |   |       |        |        
|                                                                    | Operating loss                                                  |   |                                                            | (10,340  | ) |                              |         | (7,226 | ) |       |         | (24,627 | ) |       |        | (14,348 | )
|Interest expense                                                    |                                                                 |   | (1,234                                                     | )        |   |                              | (477    | )      |   |       | (411    | )       |   |       | (446   | )      
|Reduction of interest expense
due to settlement of dispute          |                                                                 |   | 1,029                                                      |          |   |                              |        |        |   |       |        |         |   |       |       |        
|Gain (loss) on sale of assets                                       |                                                                 |   | (149                                                       | )        |   |                              | (8      | )      |   |       | (5      | )       |   |       | (4     | )      
|Other, net                                                          |                                                                 |   | 38                                                         |          |   |                              | 124     |        |   |       | 525     |         |   |       | 148    |        
|                                                                    |                                                                 |   |                                                            |          |   |                              |         |        |   |       |         |         |   |       |        |        
|                                                                    | Loss before income taxes and
cumulative effect
adjustment       |   |                                                            | (10,656  | ) |                              |         | (7,587 | ) |       |         | (24,518 | ) |       |        | (14,650 | )
|Income tax benefit (expense)                                        |                                                                 |   | 236                                                        |          |   |                              |        |        |   |       | 40      |         |   |       |       |        
|                                                                    |                                                                 |   |                                                            |          |   |                              |         |        |   |       |         |         |   |       |        |        
|                                                                    | Loss before cumulative
effect
of change in accounting
principle |   |                                                            | (10,420  | ) |                              |         | (7,587 | ) |       |         | (24,478 | ) |       |        | (14,650 | )
|Cumulative
effect of change in accounting principle                 |                                                                 |   | (69,015                                                    | )        |   |                              |        |        |   |       |        |         |   |       |       |        
|                                                                    |                                                                 |   |                                                            |          |   |                              |         |        |   |       |         |         |   |       |        |        
|                                                                    | Net loss                                                        |   | $                                                          | (79,435  | ) |                              | $       | (7,587 | ) |       | $       | (24,478 | ) |       | $      | (14,650 | )
|                                                                    |                                                                 |   |                                                            |          |   |                              |         |        |   |       |         |         |   |       |        |        
|Basic and diluted loss per
share applicable to common
stockholders- |                                                                 |   |                                                            |          |   |                              |         |        |   |       |         |         |   |       |        |        
|                                                                    |                                                                 |   | Before cumulative effect
of
change in accounting
principle |          | $ | (0.38                        | )       |        | $ | (0.28 | )       |         | $ | (0.89 | )      |         | $ | (0.53 | )    
|                                                                    |                                                                 |   | Cumulative effect of
change
in accounting principle        |          |   | (2.52                        | )       |        |   |      |         |         |   |      |        |         |   |      |      
|                                                                    |                                                                 |   |                                                            |          |   |                              |         |        |   |       |         |         |   |       |        |        
|                                                                    |                                                                 |   |                                                            | Net loss |   | $                            | (2.90   | )      |   | $     | (0.28   | )       |   | $     | (0.89  | )       |   | $     | (0.53 | )
|                                                                    |                                                                 |   |                                                            |          |   |                              |         |        |   |       |         |         |   |       |        |        

During the fourth quarter of 2002, the Company completed an accounting system
conversion to integrate the accounts of K*TEC into the system used by the
Company. During this process, management identified

F-31





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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

inconsistencies that were primarily related to the classification and
allocation of facilities expenses, outbound shipping costs, and information
technology costs. The accompanying annual consolidated financial statements and
the quarterly amounts shown above reflect the consistent classification of
these costs for all periods presented. The impact of this reclassification was
an increase in previously reported cost of goods sold with a corresponding
reduction in previously reported selling, general and administrative expenses.
The amount of this reclassification for the first three quarters of 2001 was
$777, $834 and $988, respectively. The amount of this reclassification for the
first three quarters of 2002 was $1,174, $922 and $1,172, respectively.

F-32



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##### Table of Contents



This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with Thayer-BLUM Funding II, L.L.C.s consolidated Schedule II as
of December 31, 2000 and for the period September 14, 2000 through December 31,
2000. See Note 2 of the accompanying financial statements for a description of
the relationship between Thayer-BLUM Funding II, L.L.C. and Suntron Corporation
and the accounting for the merger of these entities. Additionally, the
reference to Note 4 in the following report relates to financial statements
that were included in the Form S-4 registration statement and not to Note 4 to
the financial statements included in this Annual Report on Form 10-K. The
following report has not been reissued by Arthur Andersen LLP in connection
with this Annual Report on Form 10-K because Arthur Andersen LLP has ceased
operations.

INDEPENDENT AUDITORS REPORT

The Board of Directors
Thayer-BLUM Funding II, L.L.C.:

We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of Thayer-BLUM Funding II,
L.L.C. and subsidiary included in this Form S-4 registration statement and have
issued our report thereon dated May 25, 2001 (except with respect to the last
paragraph of Note 4, as to which the date is November 7, 2001). Our audit was
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule listed in the index of financial statements is
the responsibility of the Companys management and is presented for purposes of
complying with the Securities and Exchange Commission rules and is not part of
the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

/s/ ARTHUR ANDERSEN LLP

Houston, Texas
May 25, 2001 (except with respect to the last paragraph of        Note
4, as to which the date is November 7, 2001)

F-33





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##### Table of Contents



SUNTRON CORPORATION AND SUBSIDIARIES

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS
Accounts ReceivableAllowance for Doubtful Accounts
(Dollars in Thousands)

|                        |  |            |       |            |  |           |       |            |  |      |       |            |  |   |       |     |  |   |       | 
|----------------------- |  | ---------- | ----- | ---------- |  | --------- | ----- | ---------- |  | ---- | ----- | ---------- |  | - | ----- | --- |  | - | ----- | 
|                        |  |            |       |            |  | Additions |       |            |  |      |       |            |  |  
|                        |  |            |       |            |  |           |       |            |  |      |       |            |  |  
|                        |  | Balance at |       | Charged    |  | Charged   |       |            |  |      |       | Balance at
|                        |  | Beginning  |       | To Costs & |  | To Other  |       |            |  |      |       | End Of    
|Year Ended December 31, |  | Of Year    |       | Expenses   |  | Accounts  |       | Deductions |  | Year
|                        |  |            |       |            |  |           |       |            |  |     
|2000                    |  | $          | 3,689 |            |  | $         | 1,209 |            |  | $    | 2,434 | (3)        |  | $ | 2,744 | (1) |  | $ | 4,588 | 
|2001                    |  |            | 4,588 |            |  |           | 2,387 |            |  |      |      |            |  |   | 1,339 | (2) |  |   | 5,636 | 
|2002                    |  |            | 5,636 |            |  |           | 117   |            |  |      | 1,308 | (3)        |  |   | 5,321 | (5) |  |   | 1,740 | 



---



|(1) |  | Deductions relate to write-offs.                                                              
|--- |  | ----------------------------------------------------------------------------------------------
|   
|(2) |  | Deductions consist of write-offs of $675 and recoveries of $664.                              
|   
|(3) |  | Allowance for doubtful accounts established in purchase accounting
for K*tec.                 
|   
|(4) |  | Allowance for doubtful accounts established in purchase accounting
for Midwestern Electronics.
|   
|(5) |  | Deductions consist of write-offs of $3,213 and recoveries of
$2,108.                          

F-34





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##### Table of Contents






Exhibit Index

|        |  |                                                                                                                                                                                                                                                                                          
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                          
|Number  |  | Exhibits                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                          
|2.1     |  | Amended and Restated Agreement and Plan of Merger, dated as of May 3,
2001, by and among EFTC Corporation, K*TEC Electronics Holding
Corporation, Thayer-Blum Funding II, L.L.C. and the registrant. (1)                                                                                 
|        |  |                                                                                                                                                                                                                                                                                          
|3.1     |  | Certificate of Incorporation of the registrant. (1)                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                          
|3.2     |  | Bylaws of the registrant. (1)                                                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                          
|4.1     |  | Specimen Stock Certificate. (1)                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                          
|10.1    |  | Suntron Corporation Amended and Restated 2002 Stock Option Plan. (2)                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                          
|10.2    |  | Registration Rights Agreement between the registrant and Thayer-Blum. (1)                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                          
|10.3    |  | Memorandum of Understanding dated as of December 6, 2000 by and between
Honeywell International, Inc. and EFTC Corporation. (1)                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                          
|10.4    |  | Form of Management and Consulting Agreement by and between Thayer-Blum
Funding, L.L.C. and the registrant. (1)                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                          
|10.5    |  | Module Supplier Agreement dated as of February 2, 2000 by and between
Applied Materials, Inc. and K*TEC Electronics Corporation. (1)                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                          
|10.6    |  | Comprehensive Supplier Agreement #305038 dated as of August 3, 1997 by
and between Applied Materials, Inc. and K*TEC Electronics Corporation. (1)                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                          
|10.7    |  | Credit Agreement dated as of January 26, 2001 by and among K*TEC
Electronics Corporation and certain of its subsidiaries and Citicorp. USA,
Inc., and the lenders and issuers parties thereto. (1)                                                                                       
|        |  |                                                                                                                                                                                                                                                                                          
|10.8    |  | Amendment No. 1 and Waiver to K*TEC Electronics Holding Corporation
Credit Agreement, Guaranty and Pledge and Security Agreement dated as of
November 7, 2001 by and between K*TEC Electronics Holding Corporation and
Citicorp USA, Inc. as sole Lender and as Administrative Agent. (1)





---



##### Table of Contents



|        |  |                                                                                                                                                                                                                                            
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                            
|Number  |  | Exhibits                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                            
|10.9    |  | Amendment No. 2 to K*TEC Electronics Holding Corporation Credit Agreement
dated as of December 19, 2001 among K*TEC Electronics Holding Corporation
and Citicorp USA, Inc. as sole Lender and as Administrative Agent. (3)                 
|        |  |                                                                                                                                                                                                                                            
|10.10   |  | Amendment No. 3 to K*TEC Electronics Holding Corporation Credit
Agreement dated as of March 8, 2002 among K*TEC Electronics Holding
Corporation, EFTC Operating Corp., and Citicorp USA, Inc., as
Administrative Agent and sole Lender. (3)
|        |  |                                                                                                                                                                                                                                            
|10.11   |  | Employment Agreement dated as of June 23, 2000 by and between James Bass
and EFTC Corporation. (1)                                                                                                                                         
|        |  |                                                                                                                                                                                                                                            
|10.12   |  | Employment Agreement dated as of March 9, 2000 by and between Raymond M.
Gibbons and K*TEC Electronics Corporation. (1)                                                                                                                    
|        |  |                                                                                                                                                                                                                                            
|10.13   |  | Lease Agreement dated as of May 10, 1999 by and between Orsett/I-17
L.L.C. and EFTC Corporation. (1)                                                                                                                                       
|        |  |                                                                                                                                                                                                                                            
|10.14   |  | Industrial Lease dated December 18, 1998 by and between Buckhorn Trading
Co., LLC and EFTC Corporation. (1)                                                                                                                                
|        |  |                                                                                                                                                                                                                                            
|10.15   |  | Commercial/Industrial Lease dated as of April 1, 2001 by and between
EFTC Corporation and H. J. Brooks, LLC. (1)                                                                                                                           
|        |  |                                                                                                                                                                                                                                            
|10.16   |  | Lease Agreement dated September 5, 2000 by and between Fremont
Industrial Portfolio, Inc. and K*TEC Electronics Corporation. (1)                                                                                                           
|       
|10.17   |  | Consulting Services
Agreement dated as of April 24, 2002 by and between Suntron
Corporation and Allen S. Brassell, Jr. (4)                                                                                                                 
|       
|10.18   |  | Management and
Consulting Agreement by and between Suntron Corporation and
Thayer-Blum Funding III, L.L.C. (4)                                                                                                                             
|        |  |                                                                                                                                                                                                                                            
|21      |  | List of Subsidiaries of the registrant. (2)                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                            
|23.1    |  | Consent of KPMG LLP (2)                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                            
|23.2    |  | Notice Regarding Consent of Arthur Andersen LLP (2)                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                            
|99.1    |  | Certificate of Chief Executive Officer. (2)                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                            
|99.2    |  | Certificate of Chief Financial Officer. (2)                                                                                                                                                                                                



---



|(1) |  | Incorporated by reference to the Registration Statement on Form S-4
(Registration No. 333-72992) declared effective February 8, 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Filed herewith.                                                                                                                      
|   
|(3) |  | Incorporated by reference to the
Annual Report on Form 10-K filed on April 1, 2002.                                                  
|   
|(4) |  | Incorporated by reference to the
Quarterly Report on Form 10-Q filed on August 14, 2002.                                             

38