<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
 |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934
                   For the quarterly period ended July 1, 2001
                                       OR

     |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM________ TO_________

                         COMMISSION FILE NUMBER 0-31051

                                SMTC CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

            DELAWARE                                            98-0197680
  (STATE OR OTHER JURISDICTION                               (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION)                           IDENTIFICATION NO.)

                                  635 HOOD ROAD
                        MARKHAM, ONTARIO, CANADA L3R 4N6
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

                                 (905) 479-1810
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

As of July 1, 2001, SMTC Corporation had 22,318,820 shares of common stock, par
value $0.01 per share, and one share of special voting stock, par value $0.01
per share, outstanding. As of July 1, 2001, SMTC Corporation's subsidiary, SMTC
Manufacturing Corporation of Canada, had 6,370,959 exchangeable shares
outstanding, each of which is exchangeable into one share of common stock of
SMTC Corporation.
<PAGE>

                                SMTC Corporation
                                    Form 10-Q

                                Table of Contents

                                                                        Page No.
                                                                        --------

PART I      Financial Information                                          3

Item 1.     Financial Statements                                           3

            Consolidated Balance Sheets as of July 1, 2001
            and December 31, 2000                                          3

            Consolidated Statements of Earnings (Loss) for the three
            months ended and the six months ended July 1, 2001 and
            July 2, 2000                                                   4

            Consolidated Statement of Changes in Shareholders' Equity
            for the six months ended July 1, 2001                          5

            Consolidated Statements of Cash Flows for the three months
            ended and the six months ended July 1, 2001 and July 2, 2000   6

            Notes to Consolidated Financial Statements                     8

Item 2.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations                                      16

Item 3.     Quantitative and Qualitative Disclosures about Market Risk     36

PART II     Other Information                                              38

Item 4.     Submission of Matters to a Vote of Security Holders            38

Item 5.     Other Information                                              38

Item 6.     Exhibits and Reports on Form 8-K                               38

Signatures                                                                 39


                                        2
<PAGE>

SMTC CORPORATION

Consolidated Balance Sheets
(Expressed in thousands of U.S. dollars)


                          PART I FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
==========================================================================================
                                                      July 1,  December 31,
                                                         2001          2000
------------------------------------------------------------------------------------------
                                                  (unaudited)
<S>                                                 <C>           <C>
Assets

Current assets:
    Cash and short-term investments                 $   1,556     $   2,698
    Accounts receivable                               111,606       194,749
    Inventories (note 2)                              126,397       191,821
    Prepaid expenses                                    6,427         5,233
    Deferred income taxes                               1,062         1,044
------------------------------------------------------------------------------------------
                                                      247,048       395,545

Capital assets                                         62,687        58,564
Goodwill                                               75,927        80,149
Other assets                                           11,487         9,859
Deferred income taxes                                  18,246         3,359
------------------------------------------------------------------------------------------
                                                    $ 415,395     $ 547,476
==========================================================================================

Liabilities and Shareholders' Equity

Current liabilities:
    Accounts payable                                $  71,652     $ 141,574
    Accrued liabilities                                39,454        51,695
    Income taxes payable                                4,611         5,458
    Current portion of long-term debt                  10,000         7,500
    Current portion of capital lease obligations          198           995
------------------------------------------------------------------------------------------
                                                      125,915       207,222

Long-term debt (note 3)                                91,825       108,305
Capital lease obligations                                 507         1,242
Deferred income taxes                                   2,221         2,221

Shareholders' equity:
    Capital stock                                      77,431        77,427
    Warrants                                               --           367
    Loans receivable                                      (13)          (27)
    Additional paid-in-capital                        152,072       151,396
    Deficit                                           (34,563)         (677)
------------------------------------------------------------------------------------------
                                                      194,927       228,486
------------------------------------------------------------------------------------------
                                                    $ 415,395     $ 547,476
==========================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                        3
<PAGE>

SMTC CORPORATION

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

(Unaudited)

<TABLE>
<CAPTION>
========================================================================================================
                                           Three months ended           Six months ended
                                         ---------------------      ---------------------
                                          July 1,      July 2,       July 1,      July 2,
                                             2001         2000          2001         2000
--------------------------------------------------------------------------------------------------------
<S>                                   <C>           <C>          <C>           <C>
Revenue                               $   151,875   $  167,136   $   352,790   $ 291,469

Cost of sales (including restructuring
  charges of $9,044 for the three
  months ended July 1, 2001 and
  $15,944 for the six months ended
  July 1, 2001, 2000 - nil) (note 8)      156,019      153,391       355,420      266,518
--------------------------------------------------------------------------------------------------------

Gross profit (loss)                        (4,144)      13,745        (2,630)      24,951

Selling, general and
  administrative expenses                   8,251        7,265        18,046       14,944

Amortization                                2,353        1,230         4,705        2,502

Restructuring charge (note 8)                  --           --        15,754           --

--------------------------------------------------------------------------------------------------------

Operating income (loss)                   (14,748)       5,250       (41,135)       7,505

Interest                                    2,561        4,115         5,453        7,904

--------------------------------------------------------------------------------------------------------
Earnings (loss) before inncome taxes      (17,309)       1,135       (46,588)        (399)

Income tax expense (recovery)              (3,435)       1,016       (12,702)         925

--------------------------------------------------------------------------------------------------------

Net earnings (loss)                   $   (13,874)  $      119   $   (33,886)  $   (1,324)

========================================================================================================

Loss per share:
    Basic                             $     (0.48)  $    (0.53)  $     (1.19)  $    (1.69)
    Diluted                           $     (0.48)  $    (0.53)  $     (1.19)  $    (1.69)

========================================================================================================

Weighted average number of common
  shares used in the calculations
  of loss per share:
    Basic                              28,689,779    2,422,927    28,525,916    2,422,927
    Diluted                            28,689,779    2,422,927    28,525,916    2,422,927

========================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                        4
<PAGE>

SMTC CORPORATION

Consolidated Statement of Changes in Shareholders' Equity
(Expressed in thousands of U.S. dollars)

Six months ended July 1, 2001
(Unaudited)

<TABLE>
<CAPTION>
========================================================================================================
                                                    Additional
                                Capital                paid-in       Loans               Shareholders'
                                  stock  Warrants      capital  receivable     Deficit          equity
--------------------------------------------------------------------------------------------------------
<S>                            <C>        <C>        <C>            <C>      <C>             <C>
Balance, December 31, 2000     $ 77,427   $   367    $ 151,396      $  (27)  $    (677)      $ 228,486

Warrants exercised                    4      (367)         363          --          --              --

Options exercised                    --        --          313          --          --             313

Repayment of loans receivable        --        --           --          14          --              14

Loss for the period                  --        --           --          --     (33,886)        (33,886)

--------------------------------------------------------------------------------------------------------
Balance, July 1, 2001          $ 77,431   $    --    $ 152,072      $  (13)  $ (34,563)      $ 194,927
========================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                        5
<PAGE>

SMTC CORPORATION

Consolidated Statements of Cash Flows
(Expressed in thousands of U.S. dollars)

(Unaudited)

<TABLE>
<CAPTION>
====================================================================================================
                                                     Three months ended      Six  months ended
                                                    --------------------    --------------------
                                                     July 1,     July 2,     July 1,     July 2,
                                                        2001        2000        2001        2000
----------------------------------------------------------------------------------------------------
<S>                                                 <C>         <C>         <C>         <C>
Cash provided by (used in):

Operations:
    Net earnings (loss)                             $(13,874)   $    119    $(33,886)   $ (1,324)
    Items not involving cash:
      Amortization                                     2,353       1,230       4,705       2,502
      Depreciation                                     2,900       2,365       5,796       4,840
      Deferred income tax provision (benefit)         (5,326)        253     (14,905)        478
      Loss on disposition of capital assets               --          --          --         (44)
      Impairment of assets                                --          --       5,023          --
    Change in non-cash operating working capital:
      Accounts receivable                             63,065     (39,889)     83,143     (48,943)
      Inventories                                     31,694     (36,673)     65,424     (61,387)
      Prepaid expenses                                  (740)        224      (1,936)     (1,470)
      Accounts payable, accrued liabilities and
        income taxes payable                         (36,599)     67,201     (81,164)     74,595
----------------------------------------------------------------------------------------------------
                                                      43,473      (5,170)     32,200     (30,753)

Financing:
    Increase in long-term debt                            --          --          --      30,554
    Decrease in long-term debt                       (32,462)       (921)    (13,980)         --
    Principal payments on capital leases                 (49)       (303)       (253)       (721)
    Proceeds from warrants                                --       2,500          --       2,500
    Issuance of subordinated notes                        --       5,200          --       5,200
    Loans to shareholders (note 7)                    (5,236)         --      (5,236)         --
    Proceeds from issuance of common stock                --          --         313          --
    Repayment of loans receivable                         --          --          14          --
----------------------------------------------------------------------------------------------------
                                                     (37,747)      6,476     (19,142)     37,533

Investments:
    Purchase of capital assets                        (5,870)     (4,664)    (14,200)     (7,154)
    Proceeds from sale of capital assets                  --          --          --          44
----------------------------------------------------------------------------------------------------
                                                      (5,870)     (4,664)    (14,200)     (7,110)
----------------------------------------------------------------------------------------------------

Decrease in cash and cash equivalents                   (144)     (3,358)     (1,142)       (330)

Cash and cash equivalents, beginning of period         1,700       5,111       2,698       2,083

====================================================================================================
Cash and cash equivalents, end of period            $  1,556    $  1,753    $  1,556    $  1,753
====================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                        6
<PAGE>

SMTC CORPORATION

Consolidated Statements of Cash Flows (continued)
(Expressed in thousands of U.S. dollars)

(Unaudited)

<TABLE>
<CAPTION>
=============================================================================================
                                                 Three months ended    Six months ended
                                                 ------------------    ----------------
                                                  July 1,  July 2,     July 1,  July 2,
                                                     2001     2000        2001     2000
---------------------------------------------------------------------------------------------
<S>                                                <C>      <C>         <C>      <C>
Supplemental disclosures:
    Cash paid during the period:
      Income taxes                                 $   --   $6,765      $3,502   $1,602
      Interest                                      2,418    3,976       5,244    7,895
    Non-cash investing and financing activities:

      Cash released from escrow                     3,125       --       3,125       --
      Acquisition of equipment under
        capital lease                                  --      248          --      541
      Value of warrants issued in excess of
        proceeds received                              --    1,098          --    1,098

=============================================================================================
</TABLE>

Cash and cash equivalents is defined as cash and short-term investments.

See accompanying notes to consolidated financial statements.


                                        7
<PAGE>

SMTC CORPORATION

Consolidated Notes to Financial Statements
(Expressed in thousands of U.S. dollars, except share quantities and per share
amounts)

Three and six months ended July 1, 2001 and July 2, 2000
(Unaudited)

================================================================================

1.    Basis of presentation:

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

      The accompanying unaudited consolidated balance sheet as at July 1, 2001,
      the unaudited consolidated statements of earnings (loss) for the three and
      six month periods ended July 1, 2001 and July 2, 2000, the unaudited
      consolidated statement of changes in shareholders' equity for the six
      month period ended July 1, 2001, and the unaudited consolidated statements
      of cash flows for the three and six month periods ended July 1, 2001 and
      July 2, 2000 have been prepared on substantially the same basis as the
      annual consolidated financial statements. Management believes the
      financial statements reflect all adjustments, consisting only of normal
      recurring accruals, which are, in the opinion of management, necessary for
      a fair presentation of the Company's financial position, operating results
      and cash flows for the periods presented. The results of operations for
      the three and six month periods ended July 1, 2001 are not necessarily
      indicative of results to be expected for the entire year. These unaudited
      interim consolidated financial statements should be read in conjunction
      with the annual consolidated financial statements and notes thereto for
      the year ended December 31, 2000.

2.    Inventories:

      ==========================================================================
                                                      July 1,  December 31,
                                                         2001          2000
      --------------------------------------------------------------------------

      Raw materials                                  $ 88,021      $107,767
      Work in process                                  22,233        56,521
      Finished goods                                   14,556        25,493
      Other                                             1,587         2,040

      --------------------------------------------------------------------------
                                                     $126,397      $191,821
      ==========================================================================


                                        8
<PAGE>

SMTC CORPORATION

Consolidated Notes to Financial Statements
(Expressed in thousands of U.S. dollars, except share quantities and per share
amounts)

Three and six months ended July 1, 2001 and July 2, 2000
(Unaudited)

================================================================================

3.    Long-term debt:

      The Company's credit agreement contains certain financial covenants. The
      Company complied with all required covenants as at July 1, 2001 and
      accordingly the related debt is classified as long-term. However, it is
      unlikely the Company will earn sufficient EBITDA (earnings before interest
      expense, income taxes, depreciation and amortization) during the third
      quarter to satisfy the requirements of the credit agreement. If the
      Company fails to meet the covenants, the lenders will have the right to
      demand repayment of the debt or to modify the existing credit agreement.
      The Company has notified the lenders of the possible future violation and
      is in the process of discussing the circumstances under which the lenders
      would be willing to waive or modify the financial covenants included in
      the credit agreement.

4.    Loss per share:

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

<TABLE>
<CAPTION>
========================================================================================
                                 Three months ended               Six months ended
                            ----------------------------    ----------------------------
                                 July 1,         July 2,         July 1,         July 2,
                                    2001            2000            2001            2000
----------------------------------------------------------------------------------------
<S>                         <C>             <C>             <C>             <C>
Numerator:
  Net earnings (loss)       $    (13,874)   $        119    $    (33,886)   $     (1,324)
  Less Class L preferred
    entitlement                       --          (1,408)             --          (2,774)

----------------------------------------------------------------------------------------
Loss available to
  common shareholders       $    (13,874)   $     (1,289)   $    (33,886)   $     (4,098)
========================================================================================

Denominator:
  Weighted-average shares
    Basic                     28,689,779       2,422,927      28,525,916       2,422,927
    Diluted                   28,689,779       2,422,927      28,525,916       2,422,927
========================================================================================

Loss per share:
  Basic                     $      (0.48)   $      (0.53)   $      (1.19)   $      (1.69)
  Diluted                   $      (0.48)   $      (0.53)   $      (1.19)   $      (1.69)
========================================================================================
</TABLE>

      For the three and six month periods ended July 1, 2001 and July 2, 2000
      options and warrants to purchase common stock were outstanding during
      those periods but were not included in the computation of diluted loss per
      share because their effect would be anti-dilutive on the loss per share
      for the period.


                                        9
<PAGE>

SMTC CORPORATION

Consolidated Notes to Financial Statements
(Expressed in thousands of U.S. dollars, except share quantities and per share
amounts)

Three and six months ended July 1, 2001 and July 2, 2000
(Unaudited)

================================================================================

5.    Income taxes:

      The Company's effective tax rate differs from the statutory rate primarily
      due to non-deductible goodwill amortization and operating losses not tax
      effected in certain jurisdictions.

6.    Segmented information:

      The Company derives its revenue from one dominant industry segment, the
      electronics manufacturing services industry. The Company is operated and
      managed geographically and has ten facilities in the United States,
      Canada, Europe and Mexico. The Company monitors the performance of its
      geographic operating segments based on EBITA (earnings before interest,
      taxes and amortization) before restructuring charges. Prior to 2001, the
      Company had not incurred any restructuring charges. Intersegment
      adjustments reflect intersegment sales that are generally recorded at
      prices that approximate arm's-length transactions. Information about the
      operating segments is as follows:

<TABLE>
<CAPTION>
=================================================================================================================
                                          Three months ended July 1, 2001        Six months ended July 1, 2001
                                        -----------------------------------   -----------------------------------
                                                                        Net                                   Net
                                            Total Intersegment     external       Total Intersegment     external
                                          revenue      revenue      revenue     revenue      revenue      revenue
-----------------------------------------------------------------------------------------------------------------
<S>                                     <C>          <C>          <C>         <C>          <C>          <C>
United States                           $ 155,417    $ (30,998)   $ 124,419   $ 313,892    $ (38,414)   $ 275,478
Canada                                     15,739         (633)      15,106      42,680       (1,520)      41,160
Europe                                      7,199         (951)       6,248      14,996         (951)      14,045
Mexico                                     24,119      (18,017)       6,102      48,588      (26,481)      22,107
-----------------------------------------------------------------------------------------------------------------
                                        $ 202,474    $ (50,599)   $ 151,875   $ 420,156    $ (67,366)   $ 352,790
=================================================================================================================

EBITA (before restructuring charges):
    United States                                                 $     255                             $   1,687
    Canada                                                             (368)                                  212
    Europe                                                             (365)                                 (566)
    Mexico                                                           (2,873)                               (6,065)
    -------------------------------------------------------------------------------------------------------------
                                                                     (3,351)                               (4,732)

    Interest                                                          2,561                                 5,453
    Amortization                                                      2,353                                 4,705
-----------------------------------------------------------------------------------------------------------------
Loss before income taxes
  and restructuring charges                                          (8,265)                              (14,890)

Restructuring charges                                                 9,044                                31,698
-----------------------------------------------------------------------------------------------------------------
Loss before income taxes                                          $ (17,309)                            $ (46,588)
=================================================================================================================

Capital expenditures:
    United States                                                 $   3,592                             $   8,221
    Canada                                                              809                                 1,565
    Europe                                                              220                                   243
    Mexico                                                            1,249                                 4,171
-----------------------------------------------------------------------------------------------------------------
                                                                  $   5,870                             $  14,200
=================================================================================================================
</TABLE>


                                       10
<PAGE>

SMTC CORPORATION

Consolidated Notes to Financial Statements
(Expressed in thousands of U.S. dollars, except share quantities and per share
amounts)

Three and six months ended July 1, 2001 and July 2, 2000
(Unaudited)

================================================================================

6.    Segmented information (continued):

<TABLE>
<CAPTION>
===============================================================================================================
                                        Three months ended July 2, 2000        Six months ended July 2, 2000
                                      -----------------------------------   -----------------------------------
                                                                      Net                                   Net
                                          Total Intersegment     external       Total Intersegment     external
                                        revenue      revenue      revenue     revenue      revenue      revenue
---------------------------------------------------------------------------------------------------------------
<S>                                   <C>          <C>          <C>         <C>          <C>          <C>
United States                         $ 133,224    $  (2,895)   $ 130,329   $ 240,020    $  (3,569)   $ 236,451
Canada                                   16,967       (1,437)      15,530      30,005       (2,422)      27,583
Europe                                    4,638         (685)       3,953       9,365       (2,161)       7,204
Mexico                                   18,549       (1,225)      17,324      21,470       (1,239)      20,231
---------------------------------------------------------------------------------------------------------------
                                      $ 173,378    $  (6,242)   $ 167,136   $ 300,860    $  (9,391)   $ 291,469
===============================================================================================================

EBITA:
    United States                                               $   5,500                             $   9,077
    Canada                                                          1,500                                 2,228
    Europe                                                           (728)                               (1,222)
    Mexico                                                            208                                   (76)
    -----------------------------------------------------------------------------------------------------------
                                                                    6,480                                10,007

    Interest                                                        4,115                                 7,904
    Amortization                                                    1,230                                 2,502
---------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes                             $   1,135                             $    (399)
===============================================================================================================

Capital expenditures:
    United States                                               $   2,701                             $   3,965
    Canada                                                            192                                   857
    Europe                                                             41                                   219
    Mexico                                                          1,978                                 2,654
---------------------------------------------------------------------------------------------------------------
                                                                $   4,912                             $   7,695
===============================================================================================================
</TABLE>

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

      ======================================================================
                                 Three months ended       Six months ended
                                --------------------    --------------------
                                 July 1,     July 2,     July 1,     July 2,
                                    2001        2000        2001        2000
      ----------------------------------------------------------------------

      Geographic revenue:
          United States         $128,602    $147,703    $300,743    $258,584
          Canada                   9,698       5,190      23,744       8,494
          Europe                  10,620      10,655      22,680      18,450
          Asia                     2,955       3,588       5,623       5,941

      ----------------------------------------------------------------------
                                $151,875    $167,136    $352,790    $291,469
      ======================================================================


                                       11
<PAGE>

SMTC CORPORATION

Consolidated Notes to Financial Statements
(Expressed in thousands of U.S. dollars, except share quantities and per share
amounts)

Three and six months ended July 1, 2001 and July 2, 2000
(Unaudited)

================================================================================

6.    Segmented information (continued):

      =======================================================================
                                                       July 1,   December 31,
                                                         2001           2000
      -----------------------------------------------------------------------

      Long-lived assets:
          United States                               $ 77,234       $ 79,136
          Canada                                        23,824         24,540
          Europe                                        19,305         20,410
          Mexico                                        18,251         14,627

      -----------------------------------------------------------------------
                                                      $138,614       $138,713
      -----------------------------------------------------------------------

7.    Loans to shareholders:

      Pursuant to agreements in connection with the share reorganization and the
      acquisition of Pensar Corporation, the Company loaned $5,236 to certain
      shareholders. The loans are non-interest bearing and are secured by a
      first priority security interest over all of the shares of capital stock
      of the Company held by the shareholders, and will be repayable at such
      time and to the extent that the shareholders receive after-tax proceeds in
      respect of such shares. The amounts are included in other assets.


                                       12
<PAGE>

SMTC CORPORATION

Consolidated Notes to Financial Statements
(Expressed in thousands of U.S. dollars, except share quantities and per share
amounts)

Three and six months ended July 1, 2001 and July 2, 2000
(Unaudited)

================================================================================

8.    Restructuring charge:

      During the first quarter, in response to the slowing technology end
      market, the Company announced that, along with its work force reduction
      initiatives, it would close its assembly facility in Denver, Colorado. As
      a result, the Company recorded a restructuring charge of $22,654 pre-tax
      during the first quarter and $9,044 pre-tax during the second quarter. The
      following tables detail the components of the restructuring charges, and
      the related amounts included in accrued liabilities:

      Restructuring charges:

<TABLE>
<CAPTION>
===========================================================================================
                                             Three months     Three months       Six months
                                                    ended            ended            ended
                                            April 1, 2001     July 1, 2001     July 1, 2001
-------------------------------------------------------------------------------------------
<S>                                               <C>              <C>             <C>
-------------------------------------------------------------------------------------------
Inventory reserves included in cost of sales      $ 6,900          $ 9,044         $15,944
-------------------------------------------------------------------------------------------

Lease and other contract obligations                5,178               --           5,178
Severance                                           2,526               --           2,526
Asset impairment                                    5,023               --           5,023
Other                                               3,027               --           3,027
-------------------------------------------------------------------------------------------
                                                   15,754               --          15,754

-------------------------------------------------------------------------------------------
                                                  $22,654          $ 9,044         $31,698
-------------------------------------------------------------------------------------------
</TABLE>

      Amounts included in accrued liabilities:

<TABLE>
<CAPTION>
=======================================================================================
                                            Restructuring   Payments for  Restructuring
                                                  reserve   three months        reserve
                                                    as at          ended          as at
                                            April 1, 2001   July 1, 2001   July 1, 2001
---------------------------------------------------------------------------------------
<S>                                                <C>            <C>            <C>
Lease and other contract obligations               $5,127         $  362         $4,765
Severance                                           1,678          1,437            241
Other                                               2,827            861          1,966
---------------------------------------------------------------------------------------
                                                   $9,632         $2,660         $6,972
---------------------------------------------------------------------------------------
</TABLE>


                                       13
<PAGE>

SMTC CORPORATION

Consolidated Notes to Financial Statements
(Expressed in thousands of U.S. dollars, except share quantities and per share
amounts)

Three and six months ended July 1, 2001 and July 2, 2000
(Unaudited)

================================================================================

8.    Restructuring charge (continued):

      The closure of the assembly facility in Denver involves the severance of
      employees, the disposition of assets and the decommissioning, exiting and
      subletting of the facility. The severance costs related to Denver include
      all 429 employees. The severance costs also include 847 plant and
      operational employees at our Mexico facility and 45 plant and operational
      employees at our Cork, Ireland facility. Of the total severance costs,
      $848 was paid out during the first quarter.

      The asset impairment reflects the write-down of certain long lived assets
      primarily at the Denver location that became impaired as a result of the
      rationalization of facilities. The asset impairment was determined based
      on undiscounted projected future net cash flows relating to the assets
      resulting in a write-down to estimated salvage values.

      Other facility exit costs include personnel costs and other fees directly
      related to exit activities at the Denver location.

      The major components of the restructuring are estimated to be complete by
      early fiscal year 2002.

9.    Implementation of Recently Issued Accounting Standards:

      In June 1998, the Financial Accounting Standards Board ("FASB") issued
      SFAS No. 133, "Accounting for Derivative Instruments and Hedging
      Activities." SFAS No. 133 establishes methods of accounting for derivative
      financial instruments and hedging activities related to those instruments
      as well as other hedging activities. SFAS No. 133 requires all derivatives
      to be recognized either as assets or liabilities and measured at fair
      value. SFAS No. 137 delays the effective date of SFAS No. 133 to fiscal
      years beginning after June 15, 2000. The Company implemented SFAS No. 133
      for the first quarter of 2001. As a result of implementing SFAS No. 133,
      the Company has recorded the interest rate swaps in the balance sheet at
      fair value and recorded a $410 charge to earnings representing the change
      in fair value of the swaps for the six month period. The fair value of the
      interest rate swaps at the date of implementation of SFAS No. 133 was not
      significant.


                                       14
<PAGE>

SMTC CORPORATION

Consolidated Notes to Financial Statements
(Expressed in thousands of U.S. dollars, except share quantities and per share
amounts)

Three and six months ended July 1, 2001 and July 2, 2000
(Unaudited)

================================================================================

9.    Implementation of Recently Issued Accounting Standards (continued):

      In July 2001 the FASB issued SFAS No. 141 and SFAS No. 142. The new
      standards mandate the purchase method of accounting for business
      combinations and require that goodwill no longer be amortized but instead
      be tested for impairment at least annually. Upon adoption of the standards
      beginning January 1, 2002, the Company will discontinue amortization of
      goodwill and test for impairment using the new standards. Effective July
      1, 2001 and for the remainder of the fiscal year, goodwill acquired in
      business combinations completed after June 30, 2001, will not be amortized
      and impairment testing will be based on existing standards. The Company is
      currently determining the impact of the new standards. It is likely that
      the elimination of the amortization of goodwill will have a material
      impact on the Company's financial statements.


                                       15
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

SELECTED CONSOLIDATED FINANCIAL DATA

The consolidated financial statements of SMTC are prepared in accordance with
United States GAAP, which conforms in all material respects to Canadian GAAP.

Consolidated Statement of Operations Data (excluding $9.0 million of pre-tax
restructuring charges for the three months ended July 1, 2001 and $31.7 million
of pre-tax restructuring charges for the six months ended July 1, 2001):
(in millions, except share and per share amounts)

<TABLE>
<CAPTION>
                                              Three months ended                 Six months ended
                                        July 1, 2001     July 2, 2000      July 1, 2001     July 2, 2000
--------------------------------------------------------------------------------------------------------
<S>                                      <C>              <C>               <C>              <C>
Revenue                                  $     151.9      $     167.1       $     352.8      $     291.4
Cost of sales                                  147.0            153.4             339.5            266.6
                                        ----------------------------------------------------------------
Gross profit                                     4.9             13.7              13.3             24.8
Selling, general and administrative
  expenses                                       8.2              7.2              18.0             14.9
Amortization                                     2.4              1.3               4.7              2.5
                                        ----------------------------------------------------------------
Operating income (loss)                         (5.7)             5.2              (9.4)             7.4
Interest                                         2.6              4.1               5.5              7.8
                                        ----------------------------------------------------------------
Earnings (loss) before income taxes             (8.3)             1.1             (14.9)            (0.4)
Income tax expense (recovery)                   (1.6)             1.0              (3.6)             0.9
                                        ----------------------------------------------------------------
Net earnings (loss)                      $      (6.7)     $       0.1       $     (11.3)     $      (1.3)
                                        ================================================================
Net loss per common share:
  Basic                                  $     (0.23)     $     (0.53)      $     (0.39)     $     (1.69)
  Diluted                                $     (0.23)     $     (0.53)      $     (0.39)     $     (1.69)
                                        ================================================================
Weighted average number of shares
outstanding:
  Basic                                   28,689,779        2,422,927        28,525,916        2,422,927
  Diluted                                 28,689,779        2,422,927        28,525,916        2,422,927
                                        ================================================================
</TABLE>


                                       16
<PAGE>

Consolidated Statement of Operations Data (including $9.0 million of pre-tax
restructuring charges for the three months ended July 1, 2001 and $31.7 million
of pre-tax restructuring charges for the six months ended July 1, 2001):

(in millions, except share and per share amounts)

<TABLE>
<CAPTION>
                                                  Three Months Ended                 Six months ended
                                            July 1, 2001     July 2, 2000      July 1, 2001     July 2, 2000
------------------------------------------------------------------------------------------------------------
<S>                                          <C>              <C>               <C>              <C>
Revenue                                      $     151.9      $     167.1       $     352.8      $     291.4
Cost of sales (including restructuring
  charges of $9.0 million for the three
  months ended July 1, 2001 and
  $15.9 million for the six months
  ended July 1, 2001)                              156.0            153.4             355.4            266.6
                                            ----------------------------------------------------------------
Gross profit                                        (4.1)            13.7              (2.6)            24.8
Selling, general and administrative
  expenses                                           8.2              7.2              18.0             14.9
Amortization                                         2.4              1.3               4.7              2.5
Restructuring charge                                  --               --              15.8               --
                                            ----------------------------------------------------------------
Operating income (loss)                            (14.7)             5.2             (41.1)             7.4
Interest                                             2.6              4.1               5.5              7.8
                                            ----------------------------------------------------------------
Earnings (loss) before income taxes                (17.3)             1.1             (46.6)            (0.4)
Income tax expense (recovery)                       (3.4)             1.0             (12.7)             0.9
                                            ----------------------------------------------------------------
Net earnings (loss)                          $     (13.9)     $       0.1       $     (33.9)     $      (1.3)
                                            ================================================================
Net loss per common share:
  Basic                                      $     (0.48)     $     (0.53)      $     (1.19)     $     (1.69)
  Diluted                                    $     (0.48)     $     (0.53)      $     (1.19)     $     (1.69)
                                            ================================================================
Weighted average number of shares
outstanding:
  Basic                                       28,689,779        2,422,927        28,525,916        2,422,927
  Diluted                                     28,689,779        2,422,927        28,525,916        2,422,927
                                            ================================================================
</TABLE>


                                       17
<PAGE>

Other Financial Data - Consolidated Adjusted Net Earnings (Loss):
(in millions, except share and per share amounts)

<TABLE>
<CAPTION>
                                          Three months ended                 Six Months Ended
                                    July 1, 2001     July 2, 2000      July 1, 2001      July 2, 2000
-----------------------------------------------------------------------------------------------------
<S>                                  <C>              <C>               <C>               <C>
Net earnings (loss)                  $     (13.9)     $       0.1       $     (33.9)      $      (1.3)
Adjustments:
  Amortization of goodwill                   2.1              1.0               4.2               2.0
  Restructuring charge                       9.0               --              31.7                --
  Income tax effect                         (2.2)            (0.1)             (9.9)             (0.3)
                                    -----------------------------------------------------------------
Adjusted earnings (loss)             $      (5.0)     $       1.0       $      (7.9)      $      (0.4)
Adjusted loss per common share:
  Basic                              $     (0.17)     $     (0.18)      $     (0.28)      $     (1.00)
  Diluted                            $     (0.17)     $     (0.18)      $     (0.28)      $     (1.00)
                                    =================================================================
Weighted average number of
shares outstanding:
  Basic                               28,689,779        2,422,927        28,525,916         2,422,927
  Diluted                             28,689,779        2,422,927        28,525,916         2,422,927
                                    =================================================================
</TABLE>

As a result of the combination of Surface Mount and HTM and a number of
subsequent acquisitions, we use consolidated adjusted net earnings (loss) as a
measure of our operating performance. Consolidated adjusted net earnings (loss)
is consolidated net earnings (loss) adjusted for acquisition related charges
such as the amortization of goodwill, restructuring charges and the related
income tax effect of these adjustments. Consolidated adjusted net earnings
(loss) is not a measure of performance under United States GAAP or Canadian
GAAP. Consolidated adjusted net earnings (loss) should not be considered in
isolation or as a substitute for net earnings prepared in accordance with United
States GAAP or Canadian GAAP or as an alternative measure of operating
performance or profitability.

Consolidated Balance Sheet Data:
(in millions)

                                                          As at       As at
                                                         July 1,   December 31,
                                                          2001         2000
--------------------------------------------------------------------------------
Cash and short-term investments                          $  1.6       $  2.7
Working capital                                           121.1        188.3
Total assets                                              415.4        547.5
Total debt, including current maturities                  102.5        118.0
Shareholders' equity                                      194.9        228.5


                                       18
<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Overview

We are a leading provider of advanced electronics manufacturing services, or
EMS, to electronics industry original equipment manufacturers, or OEM's,
worldwide. Our full range of value-added services include product design,
procurement, prototyping, advanced cable and harness interconnect,
high-precision enclosures, printed circuit board assembly, test, final system
build, comprehensive supply chain management, packaging, global distribution and
after sales support.

SMTC Corporation, or SMTC, is the result of the July 1999 combination of the
former SMTC Corporation, or Surface Mount, and HTM Holdings, Inc., or HTM. Upon
completion of the combination and concurrent recapitalization, the former
stockholders of HTM held approximately 58.0% of the outstanding shares of SMTC.
We have accounted for the combination under the purchase method of accounting as
a reverse acquisition of Surface Mount by HTM. Because HTM acquired Surface
Mount for accounting purposes, HTM's assets and liabilities are included in our
consolidated financial statements at their historical cost. The results of
operations of Surface Mount are included in our consolidated financial
statements from the date of the combination. Surface Mount was established in
Toronto, Ontario in 1985. HTM was established in Denver, Colorado in 1990. SMTC
was established in Delaware in 1998.

Our revenue has grown from approximately $59.0 million in 1997 to pro forma
revenue of $842.6 million in 2000 through both internal growth and strategic
acquisitions. The July 1999 combination of Surface Mount and HTM provided us
with increased customer relationships. Collectively, since 1995 we have
completed the following seven acquisitions:

      o     Radian Electronics' operations, which enabled our expansion into
            Austin, Texas, and established our relationship with Dell, in 1996;

      o     Ogden Atlantic Design's operations in Charlotte, North Carolina,
            which provided us with a facility in a major technology center in
            the Southeastern United States, in 1997;

      o     Ogden International Europe's operations in Cork, Ireland, which
            expanded our global presence into Europe, in 1998;

      o     Zenith Electronics' facility in Chihuahua, Mexico, which expanded
            our cost-effective manufacturing capabilities;

      o     W.F. Wood, based outside Boston, Massachusetts, which provided us
            with a manufacturing presence in the Northeastern United States,
            expanded our value-added services to include high precision
            enclosures capabilities, and added EMC and Sycamore Networks as
            customers, in September 1999;


                                       19
<PAGE>

      o     Pensar Corporation, located in Appleton, Wisconsin, which provided
            us with a wide range of electronics and design manufacturing
            services, on July 27, 2000 and concurrent with the closing of the
            initial public offering; and

      o     Qualtron Teoranta, with sites in both Donegal, Ireland and
            Haverhill, Massachusetts, which allowed us to expand our ability to
            provide customers with a broad range of services focusing on fiber
            optic connector assemblies and volume cable assemblies, on November
            22, 2000.

In addition, we completed the following financing activities in 2000:

Initial Public Offering

      o     On July 27, 2000, we completed an initial public offering of our
            common stock in the United States and the exchangeable shares of our
            subsidiary, SMTC Manufacturing Corporation of Canada, in Canada,
            raising net proceeds (not including proceeds from the sale of shares
            upon the exercise of the underwriters' over-allotment option) of
            $157.1 million;

      o     Concurrent with the effectiveness of the initial public offering, we
            completed a share capital reorganization;

      o     In connection with the initial public offering, we entered into an
            amended and restated credit agreement with our lenders, which
            provided for an initial term loan of $50.0 million and revolving
            credit loans, swing line loans and letters of credit up to $100.0
            million;

      o     On July 27, 2000, we paid a fee of $1.8 million to terminate a
            management agreement under which we paid quarterly fees of
            approximately $0.2 million; and

      o     On August 18, 2000, we sold additional shares of common stock upon
            exercise of the underwriters' over-allotment option, raising net
            proceeds of $24.6 million.

Pre Initial Public Offering

      o     In May 2000, we issued senior subordinated notes to certain
            shareholders for proceeds of $5.2 million, which were repaid with
            the proceeds of our initial public offering;

      o     On May 18, 2000, we issued 41,667 warrants for $2.5 million cash
            consideration in connection with the May 2000 issue of $5.2 million
            in senior subordinated notes; and

      o     On July 3, 2000, we issued demand notes in the aggregate principal
            amount of $9.9 million, which were repaid with the proceeds of our
            initial public offering.


                                       20
<PAGE>

Due to the continued economic downturn in the technology sectors, we expect that
we will be unable in the near term to maintain the historic growth we have
achieved to date.

During the first quarter of 2001, in response to the slowing technology end
market, we announced that we would close our Denver, Colorado facility, leaving
in place a sales and marketing presence to service the Rocky Mountain region.
During the second quarter of 2001, production at the Denver facility, one of the
last remaining sites not recently refurbished, was migrated to SMTC facilities
closer to customer locations, and to our recently retrofitted and expanded,
lower cost Chihuahua facility. In connection with the closure of the Denver
facility, and other cost realignment initiatives, we recorded a restructuring
charge of $22.7 million pre-tax for the three months ended April 1, 2001 and
$9.0 million pre-tax for the three months ended July 1, 2001, consisting
primarily of an inventory write-down, an asset impairment charge, lease and
other contractual charges and employee severance and other facility exit costs.
The major components of the restructuring are estimated to be complete by early
fiscal year 2002.

Consistent with our past practices and normal course of business, we engage from
time to time in discussions with respect to potential acquisitions that enable
us to expand our geographic reach, add manufacturing capacity and diversify into
new markets. We intend to continue to capitalize on attractive acquisition
opportunities in the EMS marketplace, and our goal is generally to have each
acquisition be accretive to earnings after a transition period of approximately
one year. We also plan to continue our strategy of augmenting our existing EMS
capabilities with the addition of related value-added services. By expanding the
services we offer, we believe that we will be able to expand our business with
our existing customers and develop new opportunities with potential customers.
While we have identified several opportunities that would expand our global
presence, add to our value-added services and establish strategic relationships
with new customers, we are not currently party to any definitive acquisition
agreements.

We used approximately $143.7 million of the proceeds from our initial public
offering to reduce indebtedness under our credit facility. On July 27, 2000, we
entered into an amended and restated credit facility with our lenders, which
provided for an initial term loan of $50.0 million and revolving credit loans,
swing line loans and letters of credit up to $100.0 million. As at July 1, 2001,
we had borrowed $101.8 million under this facility. We intend to continue to
borrow under our credit facility to finance working capital growth and any cash
portion of future acquisitions.

We currently provide turnkey manufacturing services to the majority of our
customers. In 2000, 98.8% of our pro forma revenue was from turnkey
manufacturing services compared to 97.1 % in 1999. From July 1999 to March 2000,
under the terms of a production agreement with Zenith, we manufactured products
for Zenith on a consignment basis. In a consignment arrangement, we provide
manufacturing services only, while the customer purchases the materials and
components necessary for production. In April 2000, we began to purchase
materials for Zenith, and as a result, our relationship with Zenith evolved into
a turnkey manufacturing relationship. Turnkey manufacturing services typically
result in higher revenue and higher gross profits but lower gross profit margins
when compared to consignment services.

With our turnkey manufacturing customers, we generally operate under contracts
that provide a general framework for our business relationship. Our actual
production volumes are based on purchase orders under which our customers do not
commit to firm production schedules more than 30 to 90 days in advance. In order
to minimize customers' inventory risk, we generally order materials and
components


                                       21
<PAGE>

only to the extent necessary to satisfy existing customer forecasts or purchase
orders. Fluctuations in material costs are typically passed through to
customers. We may agree, upon request from our customers, to temporarily delay
shipments, which causes a corresponding delay in our revenue recognition.
Ultimately, however, our customers are generally responsible for all goods
manufactured on their behalf.

We service our customers through a total of ten facilities located in the United
States, Canada, Europe and Mexico. In the second quarter of 2001, approximately
76.8% of our revenue was generated from operations in the United States,
approximately 7.8% from Canada, approximately 3.5% from Europe and approximately
11.9% from Mexico. We expect to continue to increase revenue from our Chihuahua
facility, with the transfer of certain production from other facilities and with
the addition of new business and increased volume from our current business.

Our fiscal year end is December 31. The consolidated financial statements of
SMTC are prepared in accordance with United States GAAP, which conforms in all
material respects to Canadian GAAP.


                                       22
<PAGE>

SMTC Corporation

Results of Operations

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

(Excluding $9.0 million of pre-tax restructuring charges for the three months
ended July 1, 2001 and $31.7 million of pre-tax restructuring charges for the
six months ended July 1, 2001):

<TABLE>
<CAPTION>
                                        Three months ended           Six months ended
                                   July 1, 2001  July 2, 2000  July 1, 2001  July 2, 2000
-----------------------------------------------------------------------------------------
<S>                                     <C>            <C>          <C>           <C>
Revenue                                 100.0%         100.0%       100.0%        100.0%
Cost of sales                            96.8           91.8         96.2          91.4
                                   ------------------------------------------------------
Gross profit                              3.2            8.2          3.8           8.6
Selling, general and administrative
  expenses                                5.4            4.3          5.1           5.1
Amortization                              1.6            0.7          1.3           0.9
                                   ------------------------------------------------------
Operating income (loss)                  (3.8)           3.2         (2.6)          2.6
Interest                                  1.7            2.5          1.6           2.7
                                   ------------------------------------------------------
Earnings (loss) before income taxes      (5.5)           0.7         (4.2)         (0.1)
Income tax expense (recovery)            (1.1)           0.6         (1.0)          0.3
                                   ------------------------------------------------------
Net earnings (loss)                      (4.4)%          0.1%        (3.2)%        (0.4)%
                                   ======================================================
</TABLE>

(Including $9.0 million of pre-tax restructuring charges for the three months
ended July 1, 2001 and $31.7 million of pre-tax restructuring charges for the
six months ended July 1, 2001):

<TABLE>
<CAPTION>
                                           Three months ended          Six months ended
                                       July 1, 2001  July 2, 2000  July 1, 2001  July 2, 2000
---------------------------------------------------------------------------------------------
<S>                                         <C>            <C>          <C>           <C>
Revenue                                     100.0%         100.0%       100.0%        100.0%
Cost of sales (including restructuring
  charges of $9.0 million for the three
  months ended July 1, 2001 and
  $15.9 million for the six months
  ended July 1, 2001)                       102.7           91.8        100.7          91.4
                                       ------------------------------------------------------
Gross profit (loss)                          (2.7)           8.2         (0.7)          8.6
Selling, general and administrative
  expenses                                    5.4            4.3          5.1           5.1
Amortization                                  1.6            0.7          1.3           0.9
Restructuring charge                           --             --          4.5            --
                                       ------------------------------------------------------
Operating income (loss)                      (9.7)           3.2        (11.6)          2.6
Interest                                      1.7            2.5          1.6           2.7
                                       ------------------------------------------------------
Earnings (loss) before income taxes         (11.4)           0.7        (13.2)         (0.1)
Income tax expense (recovery)                (2.2)           0.6         (3.6)          0.3
                                       ------------------------------------------------------
Net earnings (loss)                          (9.2)%          0.1%        (9.6)%        (0.4)%
                                       ======================================================
</TABLE>

Quarter ended July 1, 2001 compared to the quarter ended July 2, 2000

Revenue

Revenue decreased $15.2 million, or 9.1%, from $167.1 million in the second
quarter of 2000 to $151.9 million in the second quarter of 2001. The decrease in
revenue is due to the impact of the technology market slowdown across the
customer base. We recorded approximately $11.1 million of sales of raw


                                       23
<PAGE>

materials inventory to customers, which carry no margin, during the second
quarter of 2001, compared to $16.3 million in the second quarter of 2000.

Revenue from IBM of $22.1 million and Dell of $15.9 million for the second
quarter of 2001 was 14.5% and 10.5% respectively, of total revenue. In the
second quarter of 2000, revenue from Dell of $32.7 million represented 19.6% of
total revenue. The 2000 revenue from Dell consisted of approximately $6.0
million of revenue derived from personal computer based products and $26.7
million of revenue derived from networking based products, whereas the 2001
revenue from Dell consisted entirely of revenue derived from networking based
products. No other customers represented more than 10% of revenue.

In the second quarter of 2001, 76.8% of our revenue was generated from
operations in the United States, 7.8% from Canada, 11.9% from Mexico and 3.5%
from Europe. In the second quarter of 2000, 76.8% of our revenue was generated
from operations in the United States, 9.8% from Canada, 2.7% from Europe and
10.7% from Mexico.

Gross Profit

Gross profit, excluding a $9.0 million restructuring charge related to a
write-down of inventory in connection with the closure of our Denver facility,
decreased $8.8 million from $13.7 million in the second quarter of 2000 to $4.9
million in the second quarter of 2001. Our gross profit margin, excluding the
restructuring charge, decreased from 8.2% in the second quarter of 2000 to 3.2%
in the second quarter of 2001.

The decline in the gross profit and gross margin was due to an under-absorption
of the fixed production overheads put in place to support the rapid sales
increase experienced during the later half of 2000.

Gross profit including $9.0 million of the total restructuring charge was a loss
of $4.1 million in the second quarter of 2001.

Selling, General & Administrative Expenses

Selling, general and administrative expenses increased $1.0 million from $7.2
million in the second quarter of 2000 to $8.2 million in the second quarter of
2001 due to the acquisitions of Pensar and Qualtron. As a percentage of revenue,
selling, general and administrative expenses increased from 4.3% in the second
quarter of 2000 to 5.4% in the second quarter of 2001 due to the under-
absorption of fixed selling, general and administrative expenses as a result of
the general technology market slowdown.

Amortization

Amortization of intangible assets of $2.4 million in the second quarter of 2001
included the amortization of $0.6 million of goodwill related to the combination
of Surface Mount and HTM, $0.4 million of goodwill related to the acquisition of
W.F. Wood, $0.7 million related to the acquisition of Pensar and $0.4 million
related to the acquisition of Qualtron. Amortization of intangible assets in the
second quarter of 2001 also included the amortization of $0.2 million of
deferred finance costs related to the establishment of our senior credit
facility in July 2000 and $0.1 million of deferred equipment lease costs.


                                       24
<PAGE>

Amortization of $1.3 million in the second quarter of 2000 included the
amortization of $0.6 million of goodwill related to the combination of Surface
Mount and HTM, $0.4 million of goodwill related to the acquisition of W.F. Wood,
$0.2 million of deferred finance costs related to the establishment of our
senior credit facility in July 1999 and $0.1 million of deferred equipment lease
costs.

Restructuring Charge

In response to the economic slowdown, we announced during the first quarter of
2001 that along with other cost realignment initiatives, we would close our
assembly facility located in Denver, Colorado. As such a restructuring charge of
$22.7 million pre-tax was recorded during the first quarter, consisting of an
inventory write-down of $6.9 million, lease and other contractual obligations of
$5.2 million, severance costs of $2.5 million, asset impairment charges of $5.0
million and other facility exit charges of $3.1 million. An additional $9.0
million pre-tax charge was recorded during the second quarter relating to a
further inventory write-down at our now closed Denver facility.

The cash component of the restructuring charge accrued for at the end of the
first quarter of $9.6 million was drawn down by $2.7 million during the second
quarter, consisting of $0.4 million in lease and other contract obligation
payments, $1.4 million in severance payments and $0.9 million in other payments.
We believe the restructuring accrual remaining of $7.0 million at July 1, 2001
will be sufficient to satisfy the remaining obligations associated with the
restructuring charge.

The major components of the restructuring are estimated to be complete by early
fiscal year 2002.

Interest Expense

Interest expense decreased $1.5 million from $4.1 million in the second quarter
of 2000 to $2.6 million in the second quarter of 2001. The weighted average
interest rates with respect to the debt for the second quarter of 2000 and the
second quarter of 2001 were 9.6% and 8.5%, respectively.

Income Tax Expense

In the second quarter of 2001 an income tax recovery of $3.4 million was
recorded on a pre-tax loss of $17.3 million resulting in an effective tax
recovery rate of 19.7%, as losses in certain jurisdictions were not tax effected
due to the uncertainty of our ability to utilize such losses and we are unable
to deduct $1.0 million of goodwill related to the combination of Surface Mount
and HTM and the acquisition of Qualtron.

In the second quarter of 2000, an income tax expense of $1.0 million was
recorded on a pre-tax income of $1.1 resulting in an effective income tax rate
of 89.5%, as we were not able to claim a recovery on losses of $0.7 million
incurred by our Irish subsidiary or deduct $0.6 million of goodwill expense
related to the combination of Surface Mount and HTM.

Six months  ended July 1, 2001 compared to six months ended July 2, 2000

Revenue


                                       25
<PAGE>

Revenue increased $61.4 million, or 21.1%, from $291.4 million for the six month
period ended July 2, 2000 to $352.9 million for the six month period ended July
1, 2001. The increase in revenue is due to the acquisitions of Pensar and
Qualtron and the transition of our Chihuahua facility from consignment to
turnkey, both of which were offset by a reduction in organic revenue due to the
impact of the technology market slowdown. Pensar and Qualtron contributed $49.8
million and $15.6 million, respectively, to the increase in revenue. Revenue at
our Chihuahua facility increased $27.1 million from $21.5 million for the six
months ended July 2, 2000 to $48.6 million for the six months ended July 1,
2001. We recorded approximately $22.6 million of sales of raw materials
inventory to customers, which carry no margin, during the first six months of
2001, compared to $20.5 million during the first six months of 2000.

Revenue from IBM of $52.6 million and Dell of $38.4 million for the six month
period ended July 1, 2001 was 14.9% and 10.9%, respectively, of total revenue
for the period. Revenue from Dell for the six months ended July 2, 2000 was
$65.3 million, or 22.4% of total revenue for the period. The decline in the
revenue from Dell is due to the elimination of revenue earned from PC based
products, which contributed $18.3 million to revenue for the six months ended
July 2, 2000, and the general decline in the technology market conditions. No
other customers represented more than 10% of revenue.

For the six month period ended July 1, 2001, 74.7% of our revenue was generated
from operations in the United States, 10.2% from Canada, 3.6% from Europe and
11.5% from Mexico. During the six month period ended July 2, 2000, 79.8% of our
revenue was generated from operations in the United States, 10.0% from Canada,
3.1% from Europe and 7.1% from Mexico.

Gross Profit

Gross profit, excluding the $15.9 million portion of our restructuring charge
that related to a write-down of inventory in connection with the closure of our
Denver facility, decreased $11.5 million from $24.8 million for the six months
ended July 2, 2000 to $13.3 million for the six months ended July 1, 2001. Our
gross profit margin, excluding the restructuring charge, decreased from 8.6% in
the first six months of 2000 to 3.8% in the first six months of 2001.

The decline in the gross profit was due to the lower sales base and an
under-absorption of the fixed production overheads. The gross margin decreased
due to lower utilization of fixed costs and a change in revenue mix to include a
lower proportion of consignment sales.

Gross profit for the first six months of 2001, including the $15.9 million
restructuring charge, was a loss of $2.6 million.


                                       26
<PAGE>

Selling, General & Administrative Expenses

Selling, general and administrative expenses increased $3.1 million from $14.9
million for the six months ended July 2, 2000 to $18.0 million for the six
months ended July 1, 2001 due to the acquisitions of Pensar and Qualtron.
Selling, general and administrative expenses were 5.1% of revenue for each of
the six months ended July 2, 2000 and July 1, 2001.

Amortization

Amortization of intangible assets of $4.7 million in the first six months of
2001 included the amortization of $1.2 million of goodwill related to the
combination of Surface Mount and HTM, $0.8 million of goodwill related to the
acquisition of W.F. Wood, $1.4 million related to the acquisition of Pensar and
$0.8 million related to the acquisition of Qualtron. Amortization of intangible
assets in the first six months of 2001 also included the amortization of $0.3
million of deferred finance costs related to the establishment of our senior
credit facility in July 2000 and $0.2 million of deferred equipment lease costs.

Amortization of $2.5 million in the first six months of 2000 included the
amortization of $1.2 million of goodwill related to the combination of Surface
Mount and HTM, $0.8 million of goodwill related to the acquisition of W.F. Wood,
$0.4 million of deferred finance costs related to the establishment of our
senior credit facility in July 1999 and $0.1 million of deferred equipment lease
costs.

Restructuring Charge

In response to the economic slowdown, we announced during the first quarter of
2001 that along with other cost realignment initiatives, we would close our
assembly facility located in Denver, Colorado. As such a restructuring charge of
$31.7 million pre-tax was recorded, consisting of an inventory write-down of
$15.9 million, lease and other contractual obligations of $5.2 million,
severance costs of $2.5 million, asset impairment charges of $5.0 million and
other facility exit charges of $3.1 million. Of the total restructuring charge,
$28.1 million relates to the closure of our Denver facility. The closure of the
assembly facility in Denver involves the severance of employees, the disposition
of assets and the decommissioning, exiting and subletting of the facility. The
severance costs related to Denver include all 429 employees. The severance costs
also include 847 plant and operational employees at our Mexico facility and 45
plant and operational employees at our Cork, Ireland facility. Of the total
severance costs, $0.8 million was paid during the first quarter of 2001. The
asset impairment reflects the write-down of certain long lived assets primarily
at the Denver location that became impaired as a result of the rationalization
of facilities. The asset impairment was determined based on undiscounted
projected future net cash flows relating to the assets resulting in a write-down
to estimated salvage values. Other facility exit costs include personnel costs
and other fees directly related to exit activities at the Denver location.

The non-cash component of the write-down is $20.9 million. We recorded an income
tax recovery of $9.1 million related to the restructuring charge at an effective
rate of 28.7%.

The cash component of the restructuring charge accrued for at the end of the
first quarter of $9.6 million was drawn down by $2.7 million during the second
quarter, consisting of $0.4 million in lease and other contract obligation
payments, $1.4 million in severance payments and $0.9 million in other payments.
We believe the


                                       27
<PAGE>

restructuring accrual remaining of $7.0 million at July 1, 2001 will be
sufficient to satisfy the remaining obligations associated with the
restructuring charge.

The major components of the restructuring are estimated to be complete by early
fiscal year 2002.

Interest Expense

Interest expense decreased $2.3 million from $7.8 million for the six months
ended July 2, 2000 to $5.5 million for the six months ended July 1, 2001 due to
a reduction of debt as a result of the initial public offering . The weighted
average interest rates with respect to the debt for the six months ended July 2,
2000 and the six months ended July 1, 2001 were 9.8% and 8.3%, respectively.

Income Tax Expense

For the six month period ended July 1, 2001 an income tax recovery of $12.7
million was recorded on a pre-tax loss of $46.6 million resulting in an
effective tax recovery rate of 27.3%, as losses in certain jurisdictions were
not tax effected due to the uncertainty of our ability to utilize such losses
and we are unable to deduct $2.0 million of goodwill related to the combination
of Surface Mount and HTM and the acquisition of Qualtron.

For the six month period ended July 2, 2000, we recorded an income tax expense
of $0.9 million on a loss of $0.4 million as we were not able to claim a
recovery on losses of $1.2 million incurred by our Irish subsidiary or deduct
$1.2 million of goodwill expense related to the combination of Surface Mount and
HTM.

Liquidity and Capital Resources

Our principal sources of liquidity are cash provided from operations and from
borrowings under our senior credit facility and our access to the capital
markets. Our principal uses of cash have been to finance mergers and
acquisitions, to meet debt service requirements and to finance capital
expenditures and working capital requirements. We anticipate that these will
continue to be our principal uses of cash in the future.

Net cash used for operating activities for the six month period ended July 2,
2000 was $30.8 million compared to net cash generated from operating activities
of $32.2 million for the six month period ended July 1, 2001. The continued
focus on improving our accounts receivable and inventory levels during the
period led to the reduced use of working capital.

Net cash provided by financing activities for the six month period ended July 2,
2000 was $37.5 million due to the net increase of borrowings of $30.5 million,
and proceeds received from the issue of warrants and subordinated notes of $2.5
million and $5.2 million, respectively, which was offset by capital lease
payments of $0.7 million. Net cash used in financing activities for the six
month period ended July 1, 2001 was $19.1 million due to the repayment in
long-term debt and capital leases of $14.0 million and $0.2


                                       28
<PAGE>

million, respectively, and the loans issued to shareholders of $5.2 million,
both of which were offset by the proceeds from issuance of capital stock on the
exercise of options of $0.3 million. As at July 1, 2001, we had borrowed $101.8
million under our credit facility. We intend to continue to borrow under our
credit facility to finance working capital needs and any cash portion of future
acquisitions.

Net cash used in investing activities for the six months ended July 2, 2000 and
July 1, 2001 was $7.1 million and $14.2 million, respectively, due to the net
purchase of capital assets. We expect our capital expenditures for the balance
of the year to be between $3.0 and $4.0 million.

The Company's credit agreement contains certain financial covenants. The Company
complied with all required covenants as at July 1, 2001 and accordingly the
related debt is classified as long-term. However, it is unlikely the Company
will earn sufficient EBITDA (earnings before interest expense, income taxes,
depreciation and amortization) during the third quarter to satisfy the
requirements of the credit agreement. If the Company fails to meet the
covenants, the lenders will have the right to demand repayment of the debt or to
modify the existing credit agreement. The Company has notified the lenders of
the possible future violation and is in the process of discussing the
circumstances under which the lenders would be willing to waive or modify the
financial covenants included in the credit agreement.

Our management believes that cash generated from operations, available cash and
amounts available under our senior credit facility will be adequate to meet our
debt service requirements, capital expenditures and working capital needs at our
current level of operations and organic growth, although no assurance can be
given in this regard, particularly with respect to amounts available under our
credit facility, as discussed above. If we experience strong growth or pursue
acquisitions, we will likely require additional capital. There can be no
assurance that our business will generate sufficient cash flow from operations
or that future borrowings will be available to enable us to service our
indebtedness. Our future operating performance and ability to service or
refinance indebtedness will be subject to future economic conditions and to
financial, business and other factors, certain of which are beyond our control.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. SFAS No. 133 requires all derivatives to be recognized either as
assets or liabilities and measured at fair value. SFAS No. 137 delays the
effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. We
have implemented SFAS No. 133 for the first quarter of 2001. As a result of
implementing SFAS No. 133, we have recorded the interest rate swaps in our
balance sheet at fair value and recorded a charge to earnings representing the
change in fair value of the swaps for the period.

In July 2001 the FASB issued SFAS No. 141 and SFAS No. 142. The new standards
mandate the purchase method of accounting for business combinations and require
that goodwill no longer be amortized but instead be tested for impairment at
least annually. Upon adoption of the standards


                                       29
<PAGE>

beginning January 1, 2002, the Company will discontinue amortization for
goodwill and test for impairment using the new standards. Effective July 1, 2001
and for the remainder of the fiscal year, goodwill acquired in business
combinations completed after June 30, 2001, will not be amortized and impairment
testing will be based on existing standards. The Company is currently
determining the impact of the new standards. It is likely that the elimination
of the amortization on goodwill will have a material impact on the Company's
financial statements.

FORWARD-LOOKING STATEMENTS

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

FACTORS THAT MAY AFFECT FUTURE RESULTS

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

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

Our largest customer in the six months ended July 1, 2001 was IBM, which
represented approximately 14.9% of our total revenue for such period. Our next
five largest customers collectively represented an


                                       30
<PAGE>

additional 34.8% of our total revenue in the first six months of 2001. We expect
to continue to depend upon a relatively small number of customers for a
significant percentage of our revenue. In addition to having a limited number of
customers, we manufacture a limited number of products for each of our
customers. If we lose any of our largest customers or any product line
manufactured for one of our largest customers, we could experience a significant
reduction in our revenue. Also, the insolvency of one or more of our largest
customers or the inability of one or more of our largest customers to pay for
its orders could decrease revenue. As many of our costs and operating expenses
are relatively fixed, a reduction in net revenue can decrease our profit margins
and adversely affect our business, financial condition and results of
operations.

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

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

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

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

      o     variations in the timing and volume of customer orders relative to
            our manufacturing capacity;

      o     variations in the timing of shipments of products to customers;

      o     introduction and market acceptance of our customers' new products;

      o     changes in demand for our customers' existing products;

      o     the accuracy of our customers' forecasts of future production
            requirements;

      o     effectiveness in managing our manufacturing processes and inventory
            levels;

      o     changes in competitive and economic conditions generally or in our
            customers' markets;

      o     changes in the cost or availability of components or skilled labor;
            and

      o     the timing of, and the price we pay for, acquisitions and related
            integration costs.

In addition, most of our customers typically do not commit to firm production
schedules more than 30 to 90 days in advance. Accordingly, we cannot forecast
the level of customer orders with certainty. This makes it difficult to schedule
production and maximize utilization of our manufacturing capacity. In the past,
we


                                       31
<PAGE>

have been required to increase staffing, purchase materials and incur other
expenses to meet the anticipated demand of our customers. Sometimes anticipated
orders from certain customers have failed to materialize, and sometimes delivery
schedules have been deferred as a result of changes in a customer's business
needs. Any material delay, cancellation or reduction of orders from our largest
customers could cause our revenue to decline significantly. In addition, as many
of our costs and operating expenses are relatively fixed, a reduction in
customer demand can decrease our gross margins and adversely affect our
business, financial condition and results of operations. On other occasions,
customers have required rapid and unexpected increases in production, which have
placed burdens on our manufacturing capacity. Any of these factors or a
combination of these factors could have a material adverse effect on our
business, financial condition and results of operations.

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

Substantially all of our customers are in the electronics industry, which is
characterized by intense competition, short product life-cycles and significant
fluctuations in product demand. In addition, the electronics industry is
generally subject to rapid technological change and product obsolescence. If our
customers are unable to create products that keep pace with the changing
technological environment, their products could become obsolete and the demand
for our services could significantly decline. Our success is largely dependent
on the success achieved by our customers in developing and marketing their
products. Furthermore, this industry is subject to economic cycles and has in
the past experienced downturns. The downturn in the electronics industry that
began in the first quarter of 2001 has adversely affected us. A future recession
or a downturn in the electronics industry would also likely have a material
adverse effect on our business, financial condition and results of operations.

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

A substantial portion of our revenue is derived from "turnkey" manufacturing. In
turnkey manufacturing, we provide both the materials and the manufacturing
services. If we fail to manage our inventory effectively, we may bear the risk
of fluctuations in materials costs, scrap and excess inventory, all of which can
have a material adverse effect on our business, financial condition and results
of operations. We are required to forecast our future inventory needs based upon
the anticipated demands of our customers. Inaccuracies in making these forecasts
or estimates could result in a shortage or an excess of materials. In addition,
delays, cancellations or reductions of orders by our customers could result in
an excess of materials. A shortage of materials could lengthen production
schedules and increase costs. An excess of materials may increase the costs of
maintaining inventory and may increase the risk of inventory obsolescence, both
of which may increase expenses and decrease profit margins and operating income.
Many of the products we manufacture require one or more components that we order
from sole-source suppliers. Supply shortages for a particular component can
delay productions of all products using that component or cause cost increases
in the services we provide. In addition, in the past, some of the materials we
use, such as memory and logic devices, have been subject to industry-wide
shortages. As a result, suppliers have been forced to allocate available
quantities among their customers and we have not been able to obtain all of the
materials desired. Our inability to obtain these needed materials could slow
production or assembly, delay shipments to our customers, increase costs and
reduce operating income. Also, we may bear the risk of periodic component price
increases. Accordingly, some component price increases could increase costs and
reduce operating income. Also we rely on a variety of common carriers for
materials transportation, and we route materials through various world ports. A
work stoppage, strike or shutdown of a major port or airport could result in
manufacturing and shipping delays or expediting charges, which could have a
material adverse effect on our business, financial condition and results of
operations.

We have experienced significant growth in a short period of time and may have
trouble integrating acquired businesses and managing our expansion.

Since 1995, we have completed eight acquisitions. Acquisitions may involve
numerous risks, including


                                       32
<PAGE>

difficulty in integrating operations, technologies, systems, and products and
services of acquired companies; diversion of management's attention and
disruption of operations; increased expenses and working capital requirements;
entering markets in which we have limited or no prior experience and where
competitors in such markets have stronger market positions; and the potential
loss of key employees and customers of acquired companies. In addition,
acquisitions may involve financial risks, such as the potential liabilities of
the acquired businesses, the dilutive effect of the issuance of additional
equity securities, the incurrence of additional debt, the financial impact of
transaction expenses and the amortization of goodwill and other intangible
assets involved in any transactions that are accounted for using the purchase
method of accounting, and possible adverse tax and accounting effects. We have a
limited history of owning and operating our acquired businesses on a
consolidated basis. There can be no assurance that we will be able to meet
performance expectations or successfully integrate our acquired businesses on a
timely basis without disrupting the quality and reliability of service to our
customers or diverting management resources. Our rapid growth has placed and
will continue to place a significant strain on management, on our financial
resources, and on our information, operating and financial systems. If we are
unable to manage this growth effectively, it may have a material adverse effect
on our business, financial condition and results of operations.

Our acquisition strategy may not succeed.

As part of our business strategy, we expect to continue to grow by pursuing
acquisitions of other companies, assets or product lines that complement or
expand our existing business. Competition for attractive companies in our
industry is substantial. We cannot assure you that we will be able to identify
suitable acquisition candidates or finance and complete transactions that we
select. Our failure to execute our acquisition strategy may have a material
adverse effect on our business, financial condition and results of operations.
Also, if we are not able to successfully complete acquisitions, we may not be
able to compete with larger EMS providers who are able to provide a total
customer solution.

If we do not effectively manage the expansion of our operations, our business
may be harmed.

We have grown rapidly in recent periods, and this growth may be difficult to
sustain. Internal growth and further expansion of services may require us to
expand our existing operations and relationships. We plan to expand our design
and development services and our manufacturing capacity by expanding our
facilities and by adding new equipment. Expansion has caused, and is expected to
continue to cause, strain on our infrastructure, including our managerial,
technical, financial and other resources. Our ability to manage future growth
effectively will require us to attract, train, motivate and manage new employees
successfully, to integrate new employees into our operations and to continue to
improve our operational and information systems. We may experience
inefficiencies as we integrate new operations and manage geographically
dispersed operations. We may incur cost overruns. We may encounter construction
delays, equipment delays or shortages, labor shortages and disputes, and
production start-up problems that could adversely affect our growth and our
ability to meet customers' delivery schedules. We may not be able to obtain
funds for this expansion on acceptable terms or at all. In addition, we expect
to incur new fixed operating expenses associated with our expansion efforts,
including increases in depreciation expense and rental expense. If our revenue
does not increase sufficiently to offset these expenses, our business, financial
condition and results of operations would be materially adversely affected.

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

The market for our products and services is characterized by rapidly changing
technology and continuing process development. The future success of our
business will depend in large part upon our ability to maintain and enhance our
technological capabilities, to develop and market products and services that
meet changing customer needs, and to successfully anticipate or respond to
technological changes on a cost-effective and timely basis. In addition, the EMS
industry could in the future encounter competition from new or revised
technologies that render existing technology less competitive or obsolete or
that reduce the demand for our services. There can be no assurance that we will
effectively respond to the


                                       33
<PAGE>

technological requirements of the changing market. To the extent we determine
that new technologies and equipment are required to remain competitive, the
development, acquisition and implementation of such technologies and equipment
may require us to make significant capital investments. There can be no
assurance that capital will be available for these purposes in the future or
that investments in new technologies will result in commercially viable
technological processes.

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

We depend on the services of our key senior executives, including Paul Walker,
Philip Woodard, Gary Walker and Derrick D'Andrade. Our business also depends on
our ability to continue to recruit, train and retain skilled employees,
particularly executive management, engineering and sales personnel. Recruiting
personnel in our industry is highly competitive. In addition, our ability to
successfully integrate acquired companies depends in part on our ability to
retain key management and existing employees at the time of the acquisition.
There can be no assurance that we will be able to retain our executive officers
and key personnel or attract qualified management in the future.

In the first half of 2001, we responded to the downturn in the electronics
industry by reducing our workforce from 6,173 at December 31, 2000 to 2,818 at
July 1, 2001. If demand for our products and services grows, we may find it
difficult to expand our workforce to meet that demand.

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

Our success will depend, among other things, on successful expansion into new
foreign markets in order to offer our customers lower cost production options.
Entry into new foreign markets may require considerable management time as well
as start-up expenses for market development, hiring and establishing office
facilities before any significant revenue is generated. As a result, operations
in a new foreign market may operate at low profit margins or may be
unprofitable. Pro forma revenue generated outside of the United States and
Canada was approximately 11% in 2000. International operations are subject to
inherent risks, including:

      o     fluctuations in the value of currencies and high levels of
            inflation;

      o     longer payment cycles and greater difficulty in collecting amounts
            receivable;

      o     unexpected changes in and the burdens and costs of compliance with a
            variety of foreign laws;

      o     political and economic instability;

      o     increases in duties and taxation;

      o     inability to utilize net operating losses incurred by our foreign
            operations to reduce our U.S. and Canadian income taxes;

      o     imposition of restrictions on currency conversion or the transfer of
            funds; and

      o     trade restrictions.

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

Our operations are regulated under a number of federal, state, provincial, local
and foreign environmental and safety laws and regulations, which govern, among
other things, the discharge of hazardous materials into the air and water as
well as the handling, storage and disposal of such materials. Compliance with


                                       34
<PAGE>

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

RISKS RELATED TO OUR CAPITAL STRUCTURE

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

At July 1, 2001 we had $101.8 million of indebtedness under our senior credit
facility. We may incur additional indebtedness from time to time to finance
acquisitions or capital expenditures or for other purposes. This debt could have
adverse consequences for our business, including:

      o     We will be more vulnerable to adverse general economic conditions;

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

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

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

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

      o     We may fail to comply with the covenants under which we borrowed our
            indebtedness, which could result in an event of default. If an event
            of default occurs and is not cured or waived, it could result in all
            amounts outstanding, together with accrued interest, becoming
            immediately due and payable. If we were unable to repay such
            amounts, the lenders could proceed against any collateral granted to
            them to secure that indebtedness.

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

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

The terms of our current credit agreement restrict, among other things, our
ability to incur additional indebtedness, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, merge, consolidate or sell, assign, transfer,
lease, convey or


                                       35
<PAGE>

otherwise dispose of all or substantially all of our assets. We are also
required to maintain specified financial ratios and satisfy certain financial
condition tests, which further restrict our ability to operate as we choose. The
Company complied with all required covenants as at July 1, 2001 and accordingly
the related debt is classified as long-term. However, it is unlikely the Company
will earn sufficient EBITDA (earnings before interest expense, income taxes,
depreciation and amortization) during the third quarter to satisfy the
requirements of the credit agreement. If the Company fails to meet the
covenants, the lenders will have the right to demand repayment of the debt or to
modify the existing credit agreement. The Company has notified the lenders of
the possible future violation and is in the process of discussing the
circumstances under which the lenders would be willing to waive or modify the
financial covenants included in the credit agreement. There can be no assurance
that those discussions will be successful.

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

Investment funds affiliated with Bain Capital, Inc., investment funds affiliated
with Celerity Partners, Inc., Kilmer Electronics Group Limited and certain
members of management have significant influence over our business, and could
delay, deter or prevent a change of control or other business combination.

Investment funds affiliated with Bain Capital, Inc., investment funds affiliated
with Celerity Partners, Inc., Kilmer Electronics Group Limited and certain
members of management held approximately 13.4%, 12.1%, 7.1% and 13.2%,
respectively, of our outstanding shares as of June 30, 2001. In addition, three
of the nine directors who serve on our board are, or were, representatives of
the Bain funds, two are representatives of the Celerity funds, two are
representatives of Kilmer Electronics Group Limited and two are members of
management. By virtue of such stock ownership and board representation, the Bain
funds, the Celerity funds, Kilmer Electronics Group Limited and certain members
of management have a significant influence over all matters submitted to our
stockholders, including the election of our directors, and exercise significant
control over our business policies and affairs. Such concentration of voting
power could have the effect of delaying, deterring or preventing a change of
control or other business combination that might otherwise be beneficial to our
stockholders.

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our senior credit facility bears interest at a floating rate. The weighted
average interest rate on our senior credit facility for the quarter ended July
1, 2001 was 8.6%. We reduce our exposure to interest rate risks through swap
agreements. We have entered into swap agreements to hedge $65.0 million of our
outstanding debt. Under the terms of our current swap agreement expiring on
September 22, 2001, the maximum annual rate we would pay on approximately $65.0
million of our debt is 8.7%, as of July 1, 2001. The remainder of our debt of
$36.8 million bore interest at 6.3% on July 1, 2001 based on the Eurodollar base
rate. If the Eurodollar base rate increased by 10% to 6.9%, our interest expense
on the unhedged portion of our debt would increase by approximately $0.2 million
and the fair value of our interest rate swap would increase by approximately
$0.4 million for the balance of 2001.

Foreign Currency Exchange Risk


                                       36
<PAGE>

Most of our sales and purchases are denominated in U.S. dollars, and as a result
we have relatively little exposure to foreign currency exchange risk with
respect to sales made. As a result of our Qualtron acquisition, we have assumed
forward exchange contracts to sell U.S. dollars for Irish punts. The aggregate
principal amount of the contracts was $1.3 million at July 1, 2001 and was
valued at the closing dollar exchange rate of $1.08 for financial statement
purposes. These contracts matured at various dates through July 31, 2001. If the
U.S. dollar strengthened by 10% against the Irish punt, we would experience an
exchange loss of approximately $0.1 million in 2001.


                                       37
<PAGE>

                            PART II OTHER INFORMATION

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

      (a)   The Company held its annual meeting on May 9, 2001.
      (c)   Results of annual meeting votes:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Proposal                              For     Against  Withheld  Abstentions Broker Non-
                                                                                Votes
----------------------------------------------------------------------------------------
<S>                                <C>           <C>     <C>           <C>            <C>
To elect as director David         16,333,194              8,650
Dominik to hold office until
2004 and in accordance with the
by-laws of the Company
----------------------------------------------------------------------------------------

To elect as director Gary Walker   16,330,962             10,882
to hold office until 2004 and in
accordance with the by-laws of
the Company
----------------------------------------------------------------------------------------

To elect as director Paul Walker   15,917,762            424,082
to hold office until 2004 and in
accordance with the by-laws of
the Company
----------------------------------------------------------------------------------------

To ratify the appointment of       16,335,272    2,590                 3,982          0
KPMG LLP as independent auditors
of the Company for the fiscal
year ending December 31, 2001
----------------------------------------------------------------------------------------
</TABLE>

ITEM 5. OTHER INFORMATION

On July 27, 2001, David Dominik resigned from our Board of Directors and from
the Audit Committee of the Board. The Board accepted his resignation and
appointed Blair Hendrix to fill the vacancy created by Mr. Dominik's resignation
from each of the Board and the Audit Committee and to serve for the remainder of
Mr. Dominik's term, which expires at the annual meeting of stockholders in 2004.

On August 14, 2001, Prescott Ashe informed the Company that he was resigning as
a member of the Board of Directors of the Company, effective as of that same
date.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      (a) List of Exhibits:

      10.1  Real Property Lease dated as of November 24, 2000 between Udaras Na
            Gaeltachta and Qualtron Teoranta.

      10.2  First Amendment to Real Estate Sale Agreement dated July 31, 2001
            between Flextronics International USA, Inc. and SMTC Manufacturing
            Corporation of Texas.

      10.3  First Amendment to Real Property Lease dated July 31, 2001 between
            Flextronics International USA, Inc. and SMTC Manufacturing
            Corporation of Texas.

      (b) Reports on Form 8-K: None.


                                       38
<PAGE>

                                   SIGNATURES

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

                                SMTC CORPORATION

                                        By: /s/ Paul Walker
                                            ------------------------------------
                                            Name: Paul Walker
                                            Title: President and CEO


                                        By: /s/ Richard Smith
                                            ------------------------------------
                                            Name: Richard Smith
                                            Title: Chief Financial Officer

Date:  August 15, 2001


                                       39
<PAGE>

                                  EXHIBIT INDEX


Exhibit
Number      Description
------      -----------

10.1        Real Property Lease dated as of November 24, 2000 between Udaras Na
            Gaeltachta and Qualtron Teoranta.

10.2        First Amendment to Real Estate Sale Agreement dated July 31, 2001
            between Flextronics International USA, Inc. and SMTC Manufacturing
            Corporation of Texas.

10.3        First Amendment to Real Property Lease dated July 31, 2001 between
            Flextronics International USA, Inc. and SMTC Manufacturing
            Corporation of Texas.


                                       40