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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended September 28, 2003

OR

COMMISSION FILE NUMBER 0-31051

SMTC CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

635 HOOD ROAD

MARKHAM, ONTARIO, CANADA L3R 4N6

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(905) 479-1810

(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November 7, 2003, SMTC Corporation had 24,095,968 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 November 7, 2003, SMTC Corporation’s subsidiary, SMTC Manufacturing Corporation of Canada, had 4,593,811 exchangeable shares outstanding, each of which is exchangeable into one share of common stock of SMTC Corporation.

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SMTC Corporation

Form 10-Q

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SMTC CORPORATION

Consolidated Balance Sheets

(expressed in thousands of U.S. dollars)

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Operations

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

(Unaudited)

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Operations (continued)

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

(Unaudited)

See accompanying notes to consolidated financial statements.

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Consolidated Statement of Changes in Shareholders’ Equity (Deficit)

(Expressed in thousands of U.S. dollars)

Nine months ended September 28, 2003

(Unaudited)

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

(Unaudited)

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Cash Flows (continued)

(Expressed in thousands of U.S. dollars)

(Unaudited)

See accompanying notes to consolidated financial statements.

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Notes to Consolidated Financial Statements

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

Three and nine months ended September 28, 2003 and September 29, 2002

(Unaudited)

1. Basis of presentation:

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

The accompanying unaudited consolidated balance sheet as at September 28, 2003, unaudited consolidated statements of operations for the three and nine month periods ended September 28, 2003 and September 29, 2002, unaudited consolidated statement of changes in shareholders’ equity (deficit) for the nine month period ended September 28, 2003, and unaudited consolidated statements of cash flows for the three and nine month periods ended September 28, 2003 and September 29, 2002 have been prepared on substantially the same basis as the annual consolidated financial statements, except as described below. Management believes the consolidated financial statements reflect all adjustments, consisting only of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position, operating results and cash flows for the periods presented. The results of operations for the three and nine month periods ended September 28, 2003 are not necessarily indicative of results to be expected for the entire year. These unaudited interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto for the year ended December 31, 2002.

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

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

In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“Statement 146”), which nullifies Emerging Issues Task Force (“EITF”) Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (“EITF 94-3”). Statement 146 provides for the recognition of a liability for an exit or disposal activity only when a liability is incurred and can be measured at fair value. Under EITF 94-3, a commitment to an exit or disposal plan was sufficient to record the majority of the costs. Statement 146 is effective for exit or disposal activities initiated after December 31, 2002. The Company adopted this Statement on January 1, 2003 and accordingly, the restructuring charges recorded in the three and nine months ended September 28, 2003 were made in accordance with the new standard.

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Notes to Consolidated Financial Statements (continued)

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

Three and nine months ended September 28, 2003 and September 29, 2002

(Unaudited)

1. Basis of presentation (continued):

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

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

In April 2003, the FASB issued Statement No. 149, Amendments of Statement 133 on Derivative Instruments and Hedging Activities (“Statement 149”), which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under Statement 133. This statement is effective for contracts entered into or modified after June 30, 2003, with certain exceptions, and for hedging relationships designated after June 30, 2003. There was no material effect as a result of the adoption of this statement on July 1, 2003.

In May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (“Statement 150”), which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. Financial instruments that are within the scope of the statement, which previously were often classified as equity, must now be classified as liabilities. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period after June 15, 2003. There was no material effect as a result of the adoption of this statement in the third quarter of 2003.

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Notes to Consolidated Financial Statements (continued)

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

Three and nine months ended September 28, 2003 and September 29, 2002

(Unaudited)

2. Stock-based compensation:

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

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

No compensation expense related to stock options has been recorded in the statement of operations for the three and nine months ended September 28, 2003 and September 29, 2002.

The weighted average estimated fair value at the date of the grant for the options granted during the nine months ended September 28, 2003 was $0.59 per share (2002—$1.00).

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Notes to Consolidated Financial Statements (continued)

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

Three and nine months ended September 28, 2003 and September 29, 2002

(Unaudited)

2. Stock-based compensation (continued):

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

During the second quarter of 2003, the Company granted 40,000 options to purchase common stock at an exercise price of $0.75 per share, the fair market value on the date of grant. No options to purchase common stock were granted during the third quarter of 2003.

3. Inventories:

4. Long-term debt:

During November, 2003, the Company and its lending group executed an amendment to the credit agreement with an effective date of November 17, 2003 (the “Effective Date”), providing for a waiver of certain events of default, if any, arising prior to the Effective Date. The Company and its lending group also amended the credit facility to provide for term loans of $11,942 and revolving credit loans, swing-line loans and letters of credit of $80,000 with an extension of the maturity date to October 1, 2004 and amendments of certain financial and other covenants based on the Company’s current business plan. During the amendment period, the facility bears interest at the U.S. base rate plus 0.25% to 2.5%.

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Notes to Consolidated Financial Statements (continued)

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

Three and nine months ended September 28, 2003 and September 29, 2002

(Unaudited)

4. Long-term debt (continued):

The Company was in compliance with the financial covenants at September 28, 2003. Continued compliance with the amended financial covenants through to October 1, 2004 is dependent on the Company achieving the forecasts inherent in its current business plan. The Company believes the forecasts are based on reasonable assumptions; however, the forecasts are dependent on a number of factors, some of which are outside the control of the Company. These include, but are not limited to, general economic conditions and specifically the strength of the electronics industry and the related demand for the products and services by the Company’s customers. In the event of non-compliance, the Company’s lenders have the right to demand repayment of all outstanding amounts under the amended credit facility. If the Company was unable to repay such amounts, the lenders could proceed against any collateral granted to them to secure the indebtedness. Substantially all of the Company’s assets have been pledged to the lenders as collateral for the Company’s obligations under the senior credit facility.

The Company’s revolving credit facility matures on October 1, 2004 and accordingly as at September 28, 2003, this amount has been classified as a long-term liability. The Company has initiatives underway to refinance its bank indebtedness including discussions with current and potential lenders and investors. A transaction resulting from these discussions is likely to involve significant dilution to existing shareholders. To date no agreements have been reached and there can be no assurances that any agreement will be reached. Should the Company not be able to refinance the debt prior to October 1, 2004, the Company expects that it will be unable to repay the full amount of the debt upon maturity. In that event, or the event of any earlier default under the credit agreement, the Company would attempt to negotiate with its current lenders to modify the terms of the credit agreement. There can be no assurances that the Company will be able to negotiate or reach an agreement with its current lenders to modify the terms of the credit agreement.

Warrants:

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

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Notes to Consolidated Financial Statements (continued)

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

Three and nine months ended September 28, 2003 and September 29, 2002

(Unaudited)

4. Long-term debt (continued):

end of the Company’s first fiscal quarter of 2004 and (h) 1.0% of the total outstanding shares on the date that is 45 days after the end of the Company’s second fiscal quarter of 2004; provided, however that if the Company meets certain EBITDA targets on the dates identified in (c) through (h) above, it will not issue warrants corresponding to such date. The Company met its EBITDA target as at March 30, 2003. The Company did not meet its EBITDA target at June 29, 2003 and 228,210 warrants were issued in the third quarter of 2003 with an effective date of August 13, 2003 at an exercise price of $0.61 per share. Also, the Company did not meet its EBITDA target at September 28, 2003 and will issue 229,934 warrants in the fourth quarter of 2003 with an effective date of November 12, 2003 at an exercise price of $1.04 per share.

The estimated fair value of the Series D and Series E warrants were measured using a Black-Scholes model at the respective issuance dates using the following assumptions:

The estimated fair values of the Series D warrants of $110 and the Series E warrants to be issued of $158 have been classified in shareholders’ equity.

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Notes to Consolidated Financial Statements (continued)

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

Three and nine months ended September 28, 2003 and September 29, 2002

(Unaudited)

5. Earnings (loss) per share:

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

Options and warrants to purchase common stock were outstanding during the nine month period ended September 28, 2003 and the three and nine month periods ended September 29, 2002 but were not included in the computation of diluted loss per share because their effect would be anti-dilutive on the earnings (loss) per share for the period.

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Notes to Consolidated Financial Statements (continued)

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

Three and nine months ended September 28, 2003 and September 29, 2002

(Unaudited)

6. Income taxes:

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Management considers the scheduled reversal of deferred tax liabilities, change of control limitations, projected future taxable income and tax planning strategies in making this assessment. FAS 109 states that forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years in the jurisdictions to which the deferred tax assets relate. As a result of the quarterly review undertaken at the end of the second quarter, the Company concluded that given the weakness and uncertainty in the current economic environment, it was appropriate to establish a full valuation allowance for the deferred tax assets arising from its operations in the jurisdictions to which the deferred tax assets relate. As a result, the total valuation allowance for deferred tax assets in all jurisdictions worldwide increased from approximately $35,000 at December 31, 2002 to approximately $71,000 at June 29, 2003, resulting in income tax expense during the quarter ended June 29, 2003, of approximately $34,200. In addition, the valuation allowance at September 28, 2003 remained at approximately $71,000. The Company expects to provide a full valuation allowance on future tax benefits until it can demonstrate a sustained level of profitability that establishes its ability to utilize the assets in the jurisdictions to which the assets relate.

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Notes to Consolidated Financial Statements (continued)

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

Three and nine months ended September 28, 2003 and September 29, 2002

(Unaudited)

7. Segmented information:

The Company derives its revenue from one dominant industry segment, the electronics manufacturing services industry. The Company is operated and managed geographically and has four facilities in the United States, Canada and Mexico. The Company monitors the performance of its geographic operating segments based on EBITA (earnings before interest, taxes and amortization) before restructuring charges, discontinued operations and the effect of changes in accounting policies. Discontinued operations relate to the Cork, Ireland facility, which was previously included in the results of the European segment and the sale of the Appleton manufacturing operations, previously included in the results of the United States segment (note 9). 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: