SMTC (SMTX)

Jane

Thanks John.

As expected, revenues increased 2% over the third quarter of 2008 to $61.1 million, and 8.5% lower than the fourth quarter of 2007. Net income was essentially breakeven as we incurred a net loss of $0.1 million which included a $0.1 million restructuring charge and a $0.2 million unrealized gain on foreign exchange hedging instruments. We continue to sustain losses in our Franklin facility of approximately $1 million in the quarter. As John reported, this facility will be closed in Q2. On the positive side, cash generation was once again solid in the quarter. The Company generated $1.7 million in cash from operations and $7.0 million year to date, taking debt to a new low.

I will now comment more fully on our results including a quarterly comparison to Q3 and the fourth quarter of last year.

For the fourth quarter of 2008, the Company reported revenue of $61.1 million compared to $60.1 million last quarter and $66.8 million in the fourth quarter of 2007. The increase over last quarter was largely a result of the ramp-up of three of our newer customers as well as strengthening demand for one of our longstanding customers seeing improved demand for certain products, somewhat

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		Q4-08 Earnings Call

offset by declines we have been experiencing all year with customers in the semi conductor capital and construction end markets and one of our larger customers lowering inventory levels. Much of the same dynamics explain the change Q4 over the same period last year with the addition of the impact discussed last quarter of a smaller customer disengagement as the customer in-sourced production after being acquired.

In total, newer customers accounted for approximately $11.0 million in revenue in the quarter. We continue to pursue a solid pipeline of new opportunities and are seeing a healthy schedule of prospective customer visits to our operations; a good indicator of the strength of our pipeline.

Revenue distribution for the fourth quarter did shift back to historical levels with the industrial segment at 72% versus 77% last quarter. This category incorporates one of our larger newer customers offset by our larger customer adjusting inventory as referred to earlier. Communications remained unchanged at 11% and computing and networking increased to 17% from 12% with one of our new customers in this category and a long standing customer increasing demand. The Company continues to have a well diversified customer base. Our top ten customers accounted for 86% of the quarter’s total revenue. Approximately one third of our revenue in the fourth quarter was attributable to our operations in Mexico and Canada, 14% in the U.S. and 18% in Asia.

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		Q4-08 Earnings Call

Gross profit for the fourth quarter of 2008 of $3.8 million decreased by $1.0 million compared with last quarter and by $2.6 million compared with the same period in 2007. Gross profit as a percent of revenues was 6.2% compared to 7.9% last quarter and 9.6% in the same period last year. Profit continues to be negatively affected by reduced revenues in our Enclosures Systems division in Franklin. Gross margins were also negatively impacted by higher freight costs which are being addressed, somewhat offset by favourable foreign exchange rates.

Selling, general and administrative expenses at $3.6 million were largely unchanged from the prior quarter but down $0.6 million compared to the fourth quarter of 2007. The fourth quarter of 2007 included a $0.2 million recovery for the revaluation of deferred stock units (or DSUs) which are marked to market each quarter end and the resulting change in value is recorded as either a charge or a recovery to earnings. In the fourth quarter of 2008, a $0.2 million recovery was also recorded.

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		Q4-08 Earnings Call

Let me now turn to the bottom line. We essentially broke even, recording a net loss in the quarter of $0.1 million compared to net income last quarter of $0.1 million. The Q4 loss included a non-cash $0.2 million unrealized gain on foreign exchange hedging instruments which we realized in Q1 of this year and a $0.1 million in restructuring charge as we further reduced costs to better match revenues. Interest expense decreased by more than a third from $1.1 million a year ago to $0.7 million due to reduced debt levels and lower interest rates. However interest costs were higher than the previous quarter by $0.2 million due to higher average debt levels. On an EBITDA basis, we generated $1.0 million in Q4 compared to $1.7 million last quarter and $3.2 million a year earlier.

Now let me comment on cash and debt; a continued area of focus for the Company and one where we have achieved solid results for the past several years. We generated $1.7 million from operations in the quarter and $7.0 million year to date. Added to last year, we have generated a total of $31.7 million in cash from operations. Net bank debt decreased by $1.1 million at the end of the quarter to $16.1 million, a new low. Capital investments continue to be managed carefully; with selective spending largely related to support new customer requirements. Year to date capital expenditures totaled $1.4 million compared to $1.9 million last year. Including assets under capital lease we’ve invested $2.8 million in 2008 compared to $2.5 million last year.

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		Q4-08 Earnings Call

Let me now comment on working capital. Inventory of $37 million or 59 days was down from $41 million last quarter or 67 days, largely related to our backlog at the end of the last quarter. However, average inventory for the quarter was somewhat higher than the prior quarter for the first time this year, contributing to higher average debt levels, largely due to new customers ramping production. We continue to work with our customers and vendors to manage inventory levels.

Accounts receivable was $29 million or 43 days compared to $30 million or 46 days last quarter. This reduction was due to higher collections at quarter end. While our ending position was solid, average receivables increased as collections within the quarter decreased, also contributing to higher average debt.

Accounts payable was $37 million, reduced from $41 million last quarter. Days were decreased from 67 days to 59 days matching the decrease in inventory.

Let me now turn the call back over to John.

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		Q4-08 Earnings Call

Jane

Thanks John.

We have had a great quarter and a great year. In 2006 we have consistently generated year over year and sequential quarterly revenue growth with a 15% overall growth rate; we recorded record profits for the year with industry leading margins. The only area we were dissatisfied with overall was cash generation, however we did see some improvement in Q4. Let me comment more fully on our results including a quarterly comparison to both Q3 and the same quarter last year, and a review of our annual results.

For the fourth quarter of 2006, the Company reported revenue of $76.1 million compared with revenue of $65.7 million for the third quarter of 2006 and $58.1 million in Q4 2005. That is a 16% improvement over Q3 and a 31% improvement over the same quarter last year. Growth in Q4 was supported by increased orders from the majority of our customers, some of which you may recall came from orders pushed out of Q3. We continue to see growth from new customers. In Q4, two new customers that we mentioned in Q3 began ramping production. One is in the industrial segment, the other in communications. Both are expected to add to our growth in 2007. In comparison to Q4 last year, eight of our top ten customers showed growth which more than offset the expected $7 million decline from the other two.

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		Q4-06 Earnings Call

Revenue distribution for the fourth quarter remained relatively stable compared to last quarter. The industrial segment remained unchanged at 66%, communications increased marginally from 19% to 20% while the computing and networking segment decreased marginally from 15% to 14%. Over the past year, we have seen an increase in our diversified industrial base and a reduction in our reliance on networking and computing. Our top ten customers accounted for 82% of the quarter’s total revenue compared with 85% last quarter.

For the year, revenue was $263 million compared to $229 million last year, an increase of 15%. Of our top 10 customers on an annual basis, only 1 showed a significant decline totaling $28 million which again was more than offset by over $50 million in increased business from four of our larger customers. This decline is for long-standing customer we have talked about for some time now, caused by a specific product going end of life. Of our top ten, one customer declined, one was relatively flat and eight grew.

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		Q4-06 Earnings Call

Gross margin for the quarter was $7.7 million or 10.1%, compared to 9% last quarter and 8.4% a year ago. Margins in Q4 benefited from higher revenue, the effect of increased plant utilization, leveraging other fixed costs and continued cost containment. Overall for the year, margins were 10.1% compared to 7.5% last year, for the same reasons as Q4. We expect margins will typically remain in the 9-10% range.

In the quarter, selling, general and administrative costs were $3.7 million or 4.8% of revenue, compared to $3.4 million or 5.1% of revenue last quarter. For the year, SG&A has increased from $13.1 million or 5.7% to $15.2 million or 5.8% in part due to higher variable compensation tied to Company performance. We expect SG&A costs typically will remain in the 5%-6% range, depending on revenues as the majority of these costs are relatively fixed.

Let me now talk to earnings for which we have delivered seven consecutive profitable quarters. Net income in Q4 was $2.1 million, or $0.14 per share compared with $6.1 million, or $0.41 per share for Q3, including one-time items totaling $5 million including a US tax refund, proceeds on a sale of surplus real estate, final proceeds from operations discontinued in 2002 and a net adjustment to restructuring; prior to these one-time items, Q3 net income was $1.1 million. Compared to last year, net income for Q4 was up 49% $700 thousand from $1.4 million to $2.1 million.

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		Q4-06 Earnings Call

For those who prefer to track our results on an EBITDA basis, EBITDA has continued to improve almost every quarter for the past 2 years. For Q4, EBITDA was $5.3 million compared to $3.6 million in Q3. On a percentage basis, Q4 EBITDA was 6.8% of revenue, ranking among the best of the industry. For the year, EBITDA was approximately $16 million. Our EBITDA calculation excludes one-time items.

The Company generated approximately $4.3 million in cash from operating activities before working capital and $1.2 million after investment in working capital in Q4. This was used largely to fund capital expenditures. The Company invested in capital expenditures for selected capacity expansion in Mexico in the quarter. Many of the sites are operating at close to capacity and we plan to add capacity in 2007. Of the Company’s $45 million revolving credit facility, $17 million was outstanding at the end of the quarter. Net debt at quarter end was virtually unchanged at $41.2 million. Last quarter, Wachovia increased our credit facility from $40 million to $45 million and added, within this facility a, $10 million term piece leveraging our Mexican assets including a plant we own. This has provided more financial flexibility in managing accounts payable to allow us to take advantage of certain discounts. Let me know turn to working capital.

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		Q4-06 Earnings Call

We have mentioned in the past that we were dissatisfied with inventory levels. While John stated last quarter that this would take a few quarters to resolve, we did see significant improvement in Q4. Inventory was reduced by $6.9 million to $42.8 million or 55 days compared to $49.7 million or 76 days in Q3, largely due to a 16% increase in shipments in Q4 and the effect of a number of other initiatives underway. While the inventory position has improved at the end of Q4, it will remain a focus on improvement.

Accounts receivable was $45.3 million or 55 days, relatively flat in absolute dollars compared to last quarter at $44.4 million or 62 days. The reduction in days is driven by improved collections as well as more consistent shipments through the quarter.

Accounts payable was $36.5 million or 50 days, compared with $45.3 million or 69 days in the third quarter of 2006. In Q3 we were extended terms with certain vendors. In Q4, we have been taking advantage of our new extended line of credit to make payments allowing us to take advantage of certain discounts with returns that more than cover cost of debt.

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		Q4-06 Earnings Call

On an annual basis, we generated $15.3 million in cash from operations before working capital compared to $7.3 million last year. After working capital, we invested $9.5 million in 2006. The major investment being in accounts receivable and inventory of $18.4 million and $9.6 million, respectively. Approximately half the increase in receivables is due to the 31% revenue increase at the end of 2006, the remainder is due largely to extending terming with certain customers. The quality of our receivables in essentially unchanged with our past due percent and allowance for doubtful accounts remaining relatively flat compared to last year. Inventory days, year over year, have remained flat at 57 days, the increase being the result of supporting higher revenue levels.

To conclude my comments today, we continue to produce growth and sustained profitability as we have said we would. We have taken steps to improve cash flow and expect improvement through 2007. We continue to see positive trends in the majority our diversified customers’ markets and believe we are well positioned for the future. Thanks to our customers, partners and employees for a solid performance in 2006.

Let me now turn the call back over to John.

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		Q4-06 Earnings Call

Jane

Thanks John.

We have had another strong quarter, now four consecutively. We were profitable, delivering on our continued commitment to achieve bottom line results on a sustained basis. We grew revenue sequentially in what is typically a weaker quarter in the industry, and 22% over the same period last year. We beat our own internal targets. And again this quarter, we were among the industry leaders for EBITDA as a percent of sales.

For the first quarter of 2006, the Company reported revenue of $60 million, compared to revenue of $58 million for the fourth quarter of 2005. As expected, Q1 showed an improvement over last quarter led by higher volume from a number of our customers, both existing and newer additions. Compared with Q1 last year, the Company grew 22%, from $49 million; the third consecutive quarter of year over year growth. Revenue growth was driven both by new customer wins and growth with existing customers. We saw double digit sequential growth with four of our top ten customers, somewhat offset by lower sales with two customers; the result of seasonality with one and the impact of the previously announced end of life of a portion of business with another. In addition, we have new program wins with six of our existing customers, with

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more such opportunities on the horizon. We continue to see program ramp ups on 2005 new customer wins as we move toward full production. Last quarter, we stated that we had signed three new customers but our policy is to announce new customer wins when we ramp to reasonable production levels. In Q1, all three customers have submitted initial orders and we would expect to start making announcements in Q2, obviously subject to customer consent.

Revenue distribution for the first quarter was relatively unchanged from Q4, with the industrial segment representing 57% of revenue, computing and networking at 25% and communications running at 18%. Our top ten customers accounted for 85% of the quarter’s total revenue compared with 84% last quarter.

Gross margin was $6.1 million or 10.1%, breaking the 10% mark for the first time in close to two years as our mix of business has strengthened. This compares to a gross margin of $4.9 million or 8.4% last quarter, a $1.1 million improvement.

In the quarter, selling, general and administrative costs were $3.9 million or 6.5% of revenue compared to $2.9 million or 5.0% of revenue last quarter. For the same quarter last year selling, general and administrative costs were $3.4

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million or 6.9% of revenue. While the company continues to monitor costs closely, some key investments in staffing to support growth were made in the quarter including new leadership in our Boston facility. In addition, Q1 included accrued stock-based and other variable-based compensation.

Let me now talk to earnings in which we have delivered four consecutive quarters of profitable results and increasing operating income. Net income in Q1 was $1.0 million compared to $1.4 million in the previous quarter in which the Company recorded an income tax recovery of $600 thousand. Operating income for the quarter was $2.2 million compared to $2.0 million in the previous quarter. This improvement reflects a stronger mix of business somewhat offset by our investment in SG&A.

For those who prefer to track our results on an EBITDA basis, EBITDA has also improved in each of the past four quarters. For Q1, EBITDA was $3.3 million compared to $3.2 million in Q4; both at 5.5% of revenue. EBITDA margins at 5.5% are amongst the industry leaders.

The Company used $6 million in cash for operations primarily due to an investment in working capital of $8.4 million, offset by net cash earnings of $2.4

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million. Financing activities provided $6.3 million in debt to support working capital and $300 thousand in capital expenditures. Of the Company’s $40 million revolving credit facility $10.3 million was outstanding at the end of the quarter. Net debt was $35.1 million, including $800 thousand related to the unamortized value of previously cancelled warrants.

Let me now talk to working capital. Inventory was $35.5 million or 60 days compared to $33 million or 57 days in Q4 as we brought in inventory to support our customers’ growth and lead-free initiatives.

Accounts receivable was $33.9 million or 52 days compared to $26.9 million or 42 days for the fourth quarter of 2005 reflecting reversion of special terms back to standard as well as significant sales activity recorded toward the end of the quarter.

Accounts payable was $34.1 million or 58 days compared to $30.9 million or 53 days in the fourth quarter of 2005. The increase is primarily due to quarter end vendor shipments for Q2 business.

To conclude, we have demonstrated that we can produce sustained profitability and we expect to continue to do so. We are seeing positive trends in our customers’ markets and in our industry and believe we are well positioned to continue our progress.

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And now back to John for some additional comments;

Jane

Thanks John.

We have had another solid quarter, now three consecutively. Once again we were profitable, delivering on our commitment to achieve bottom line results on a sustained basis and consistent with our guidance. We grew revenue 21% over the same period last year. We generated positive cash and further reduced debt. And again this quarter, we were among the industry leaders for gross margin as well as EBITDA as a percent of sales.

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Q4-05 Earnings Call

Let me now compare our Q4 results to Q3 and Q4 of last year for you and I will briefly compare 2005 to 2004 on an annual basis. For the fourth quarter of 2005, the Company reported revenue of $58 million, compared to revenue of $65 million for the third quarter of 2005. As expected, Q4 did not meet the strong revenue performance in Q3, the combined result of some seasonality in certain end customer markets, an increase in customer bill and hold inventory and some reduction in a customer product line that is moving to end of life over the next year. Compared with Q4 last year, the Company grew 21%, the second consecutive quarter of year over year growth since 2000. This year over year growth was driven both by new customer wins and growth with existing customers. In the last half of the year, revenue grew by 16% over the first half of the year and by 13% over the same period last year. For the year, revenue was $229 million compared to $245 million in 2004, but clearly in 2005 the revenue was trending in the right direction. In Q1 of this year, revenue grew 2%, in Q2 revenue grew 16% and in Q3 revenue grew 13%, a solid year.

Revenue distribution for the fourth quarter had the industrial segment representing 55% of revenue, with computing and networking at 27% and communications running at 18%. Our industrial segment strengthened from the previous quarter the result of growth from existing and new customers. Our top ten (10) customers accounted for 84% of the quarter’s total revenue, compared with 81% last quarter.

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Q4-05 Earnings Call

Gross margin was $4.9 million holding our margins steady in the quarter at 8.4% compared to 8.5% last quarter despite lower revenues. We continue to perform as one of the industry leaders on margins largely the result of the efficiency of our business model.

In the quarter, selling, general and administrative costs were $2.9 million or 5% of revenue, an improvement over the previous quarter’s costs of $3.7 million or 5.7% of revenue. For the same quarter last year selling, general and administrative costs were $3.6 million or 7.4% of revenue. This improvement is the result of both cost containment and growing revenues.

Let me move now to earnings where we have delivered three consecutive quarters of growth. Net income in Q4 was $1.4 million compared to $800 thousand in the previous quarter. The Company recorded an income tax recovery of $600 thousand in the quarter. Before the tax recovery, net income was at Q3 levels even on lower revenues, reflecting a stronger mix of business.

For those who prefer to track our progress on an EBITDA basis, like earnings, EBITDA has improved each quarter of 2005. For Q4, EBITDA was $3.2 million or

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Q4-05 Earnings Call

5.5% of revenue, compared to $3 million in Q3, $2.9 million in Q2 and break-even in Q1. Q4 EBITDA margins at 5.5% are amongst the industry leaders.

On an annual basis, the Company essentially broke even with a modest net loss of $100 thousand compared to $600 thousand in net income for 2004, the result of higher but declining revenue in the first two quarters of 2004.

Let me now turn to working capital. While inventory has improved significantly from levels earlier in the year, we were not able to hold inventory to the levels experienced last quarter as a result of some early vendor shipments and bill and hold inventory. Inventory was $33 million or 57 days compared to $29 million or 45 days for Q3. We continue to target inventory in the 45 to 50 day range.

Accounts receivable was $26.9 million or 42 days, compared to $30.6 million or 43 days in the third quarter of 2005.

Accounts payable was $30.9 million or 53 days, compared to $27.8 million or 43 days in the third quarter of 2005 due to early vendor shipments and a typical delay in payments over the holiday period.

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Q4-05 Earnings Call

The Company generated cash from operations of $7 million during the fourth quarter of 2005 from income and working capital. This cash was primarily used to reduce debt and capital leases. Of the Company’s $40 million revolving credit facility only $2 million was outstanding at the end of the quarter. Net debt was $28 million. The lowest it has been in over five years.

We have had another strong quarter where we’ve done what we said we would; continue to generate sustained profitability. We are pleased that we are generating better returns for our shareholders and look forward to continued progress.

I will now turn the call over to Steve for his review of business development.

Jane

Thanks John.

We have had another solid quarter. Once again, we were profitable, delivering on our commitment to achieve bottom line results on a sustained basis. We grew revenue by 13%. We generated positive cash and further reduced debt in a quarter where we continued to ramp up. And once again, we beat our internal targets.

Let me compare our Q3 results to Q2 for you. For the third quarter of 2005, the Company reported revenue of $65 million, compared to revenue of $57 million for the second quarter of 2005. As expected, this was the Company’s third consecutive growth quarter, growing 13% over Q2 which was also a strong growth quarter growing 16% over Q1. Compared with Q3 last year, the Company grew 6%, the first year over year growth since 2000. Our growth in Q3 was driven by some seasonality with one of our larger customers, new business and improvements in end markets for several customers in our diversified customer base. Revenue distribution for the quarter had the industrial segment representing 51% of revenue, with enterprise computing and networking at 31% and communications running at 18%. Our industrial segment strengthened from the previous quarter as the result of growth from existing and new customers.

Our top 10 customers accounted for 81% of the quarter’s total revenue, compared with 85% last quarter. Steve will comment more fully on our growth.

Gross margin was $5.5 million, up 15%, increasing our margins in the quarter to 8.5% from 8.3% last quarter as we leveraged our fixed costs on the increased volume of business and maintained control of our costs. We continue to perform as one of the top industry leaders on margins and expect margins to remain in the 8% to 9% range, on average, given our current mix of business.

In the quarter, selling, general and administration costs remained flat as a percentage of sales at 5.6%.

Let me now talk about earnings. In Q3 we more than doubled net income over the second quarter. Net income was $800 thousand compared to $300 thousand last quarter. The effect of higher interest rates and the continued strengthening of the Canadian dollar somewhat dampened strong operating results.

Let me now turn to working capital. We have made significant progress in managing our inventory. In the past two quarters we have reduced inventory by a total of 20 days as the inventory reduction initiatives we talked about earlier in

the year have taken effect. We reduced inventory by $3.3 million in the quarter; inventory was $28.9 million or 45 days, compared to $32.2 million or 56 days in the second quarter of 2005 – an 11 day improvement. All this, as we ramped the supply chain in support of the increased business levels. We expect inventory to stay in the 45 to 50 day range.

Accounts receivable was $30.6 million or 43 days, compared to $26.6 million or 43 days in the second quarter of 2005. The $4 million dollar increase was the result of increased revenue.

Accounts payable was $27.8 million or 42 days, compared to $29.7 million or 52 days in the second quarter of 2005. We still have some work to do in this area.

The Company generated cash from operations of $1.8 million during the third quarter of 2005. This cash was primarily used to reduce debt and capital leases. Of the Company’s $40 million revolving credit facility $8.1 million was outstanding at the end of the quarter. The Company does not show cash on its balance sheet as it is more cost effective to apply cash to reduce debt.

Finally, let me confirm that we have regained compliance with NASDAQ Marketplace rules. We stated that we believed the best way to regain

compliance was to increase shareholder value through improving results; which we have accomplished in the second and third quarters.

We have had another very strong quarter and I am proud with the way our SMTC team has continued to push for quality performance for our customers and results for our stakeholders.

I will now turn the call over to Steve for his review of the business.

Jane

Thanks John.

We had a good quarter. We were profitable. We grew revenue. We generated positive cash and paid down debt. And, our results came in slightly ahead of our internal targets and were in line with the guidance provided last quarter. My comments will compare Q2 results to Q1 of this year. Frankly, a comparison to Q2 of last year is not particularly relevant for our discussion today given the significant transformation the Company has effected over the past year.

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For the second quarter of 2005, the Company reported revenue of $57 million, compared to revenue of $49.1 million for the first quarter of 2005, a 16% increase. As expected, this was the Company’s second consecutive growth quarter; marking the success of our transformation plan. This growth was driven by increases in existing customers as well as new customers. Revenue distribution for the quarter had the industrial segment representing 45% of revenue, with enterprise computing and networking at 39% and communications running at 16%. Our top 10 customers accounted for 85% of the quarter’s total revenue. Steve will comment more fully on our growth.

Margins more than doubled to 8.4% from 4.1% last quarter. Interestingly, our second quarter margins were just slightly behind the industry leader Plexus but were well ahead of top tier players. Gross profit for the second quarter of 2005 was $4.8 million compared with $2.0 million for the first quarter of 2005. As we said in our call last quarter, in Q1 we retained additional resources on the expectation of growth in the second quarter. This is precisely what happened. We managed our costs well in the quarter. Overall, manufacturing expenses were kept virtually flat in a quarter with significant new programs ramping and volumes increasing. We will maintain our focus on cost containment as we continue to grow the business. We continue to expect 8% to 9% margins given our current mix of business.

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In the quarter, we reduced selling, general and administration costs by $200 thousand to $3.2 million, and, more importantly, as a percent of revenue these expenses dropped from 6.9% last quarter to 5.6% in Q2. Over the past year, the Company has significantly reduced general and administrative expenses, while at the same time investing in our sales resources. Just to put this into perspective, our selling, general and administrative expenses last year in Q2 were $4.2 million, $1 million higher than this quarter. Going forward, we expect to remain in the 5-6% range.

Let me now talk about earnings. We believe the right measure is after tax income not EBITDA. In Q2 we increased net income over the first quarter by $2.9 million from a loss of $2.6 million to a small profit of approximately $300 thousand.

Let me turn to working capital where again we had positive results. Accounts receivable was $26.6 million or 42 days, compared to $21.3 million or 40 days in the first quarter of 2005. The $5.3 million dollar increase was primarily the result of increased revenue.

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We managed inventory very well. In a period that we ramped the business, we reduced inventory by $1.2 million. Inventory was $32.2 million or 56 days, compared to $33.4 million or 65 days in the first quarter of 2005 – a 9 day improvement. Last quarter we talked about a number of inventory reduction measures that were put in place; we are now seeing the benefit of these measures. We expect to continue to see an improvement in inventory in the later half of the year.

Accounts payable was $29.7 million or 52 days, compared to $22.1 million or 43 days in the first quarter of 2005. Last quarter we talked about the need to improve terms with some of our newer vendors; we have been successful in extending terms for key new vendors and continue to work to improve others. Our improved results, growth of the business and improved relationships will help us drive further improvements.

The Company generated cash from operations of $3.7 million during the second quarter of 2005. This cash was used to purchase $2.1 million in capital assets to improve operational efficiencies. We do not expect to continue capital spending at this level going forward. We also reduced debt by $1.4 million. Of the Company’s $40 million revolving credit facility only $8.4 million was outstanding at the end of the quarter. The Company does not show cash on its balance sheet as it is more cost effective to apply cash to reduce debt.

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Finally, I would like to address the Nasdaq listing. As previously announced, we were informed by Nasdaq that our stock traded below $1 for more than 30 days, and as a result we have until the end of November to rectify this situation. The best way to resolve the Nasdaq issue is to increase shareholder value through improving results which we accomplished in the second quarter. Obviously should our improved performance not be recognized in the market, we will consider other available options.

As I said, this has been a good quarter and I would like to thank our employees for their constant focus on quality, exceptional service and cost and working capital management.

I will now turn the call over to Steve for his review of the business.