<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 October 1, 1999

                                       OR

         [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934


                        Commission File Number 333-43089


                              The GSI Group, Inc.
            (Exact name of registrant as specified in its charter)

               Delaware                                         37-0856587
      (State or other jurisdiction                           (I.R.S. Employer
    of incorporation or organization)                       Identification No.)

1004 E. Illinois Street, Assumption, Illinois                      62510
  (Address of principal executive offices)                       (Zip Code)


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


  Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.  Common stock, par value
$0.01 per share, 2,000,000 shares outstanding as of November 12, 1999.


===============================================================================
<PAGE>

<TABLE>
<CAPTION>
                                         TABLE OF CONTENTS
                                                                                                              Page
                                                                                                              ----
<S>                                                                                                           <C>
PART I - Financial Information
   Item 1.      Financial Statements
                    Balance Sheets...........................................................................    3
                    Statements of Operations.................................................................    4
                    Statements of Cash Flows.................................................................    5
                    Notes to Financial Statements............................................................    6
   Item 2.      Management's Discussion and Analysis of Financial Condition and Results of
                Operations...................................................................................   15
   Item 3.      Quantitative and Qualitative Disclosure About Market Risk....................................   19

PART II - Other Information
   Item 1.      Legal Proceedings............................................................................   20
   Item 2.      Changes in Securities and Use of Proceeds....................................................   *
   Item 3.      Defaults Upon Senior Securities..............................................................   *
   Item 4.      Submission of Matters to a Vote of Security Holders..........................................   *
   Item 5.      Other Information............................................................................   *
   Item 6.      Exhibits and Reports on Form 8-K.............................................................   20
</TABLE>
-------------------
* No response to this item is included herein for the reason that it is
inapplicable.

                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

                      THE GSI GROUP, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                (In thousands, except share and per share data)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                       October 1,        December 31,
                                    Assets                                                1999              1998
------------------------------------------------------------------------------            ----              ----
<S>                                                                                      <C>                <C>
Current Assets:
 Cash and cash equivalents.....................................................          $  3,257           $  1,192
 Accounts receivable, net......................................................            37,276             36,969
 Inventories, net..............................................................            40,474             49,219
 Prepaids......................................................................             1,303              2,820
 Other.........................................................................             3,461              4,773
                                                                                         --------           --------
   Total current assets........................................................            85,771             94,973
                                                                                         --------           --------
Notes Receivable...............................................................                59              1,084
                                                                                         --------           --------
Property, Plant and Equipment, net.............................................            50,429             50,257
                                                                                         --------           --------
Other Assets:
 Goodwill and other intangible assets, net.....................................            20,436             24,250
 Other.........................................................................             4,992              4,084
                                                                                         --------           --------
   Total other assets..........................................................            25,428             28,334
                                                                                         --------           --------
   Total assets................................................................          $161,687           $174,648
                                                                                         ========           ========

               Liabilities and  Stockholders' Deficit
-------------------------------------------------------------------------------
Current Liabilities:
 Accounts payable..............................................................          $ 14,106           $ 14,459
 Deferred income taxes.........................................................             1,049              1,049
 Accrued interest..............................................................             4,457              1,807
 Other accrued expenses........................................................            12,736             17,555
 Customer deposits.............................................................             4,873              6,278
 Current maturities of long-term debt..........................................             3,387              4,572
                                                                                         --------           --------
   Total current liabilities...................................................            40,608             45,720
                                                                                         --------           --------
Long-Term Debt, less current maturities........................................           132,924            134,216
                                                                                         --------           --------
Deferred Income Taxes..........................................................             1,468              1,678
                                                                                         --------           --------
Commitments and Contingencies
Stockholders' Deficit:
 Common stock, $.01 par value, voting (authorized 6,900,000 shares;
  issued 6,633,652 shares; outstanding 1,800,000 shares).......................                18                 18
 Common stock, $.01 par value, nonvoting (authorized 1,100,000 shares;
  issued 1,059,316 shares; outstanding 200,000 shares).........................                 2                  2
 Paid-in capital...............................................................             2,935              2,473
 Accumulated other comprehensive loss (cumulative currency
  adjustment)..................................................................            (8,198)            (2,203)
 Retained earnings.............................................................            17,463             18,277
 Treasury stock, at cost, voting (4,833,652 shares)............................           (25,524)           (25,524)
 Treasury stock, at cost, nonvoting (859,316 shares)...........................                (9)                (9)
                                                                                         --------           --------
   Total stockholders' deficit.................................................           (13,313)            (6,966)
                                                                                         --------           --------
   Total liabilities and stockholders' deficit.................................          $161,687           $174,648
                                                                                         ========           ========
</TABLE>

  The accompanying notes to financial statements are an integral part of these
                                balance sheets.

                                       3
<PAGE>

                     THE GSI GROUP, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                (In thousands, except share and per share data)
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                                    Three Fiscal Months            Nine Fiscal Months
                                                                           Ended                          Ended
                                                                 ----------------------------------------------------------
                                                                    Oct 1,         Oct 2,         Oct 1,         Oct 2,
                                                                     1999           1998           1999           1998
                                                                 -------------  -------------  -------------  -------------

<S>                                                              <C>            <C>            <C>            <C>
Net sales......................................................    $   77,050     $   86,043     $  180,049     $  202,590

Cost of sales..................................................        59,051         66,953        140,945        156,141
Cost of sales - restructuring charges..........................            --             --            248             --
                                                                   ----------     ----------     ----------     ----------
   Total cost of sales.........................................        59,051         66,953        141,193        156,141

      Gross profit.............................................        17,999         19,090         38,856         46,449

Selling, general and administrative expenses...................         8,932         14,025         27,099         35,517
Amortization expense...........................................           439            295          1,073            489
Restructuring charges..........................................            --             --            669             --
                                                                   ----------     ----------     ----------     ----------
   Total operating expenses....................................         9,371         14,320         28,841         36,006

Operating income...............................................         8,628          4,770         10,015         10,443

Other income (expense):
   Interest expense............................................        (3,745)        (3,642)       (11,280)        (9,843)
   Interest income.............................................            28            304             46            729
   Other, net..................................................           268             32            304            485
                                                                   ----------     ----------     ----------     ----------

      Income (loss) before income taxes........................         5,179          1,464           (915)         1,814
                                                                   ----------     ----------     ----------     ----------

Income tax expense (benefit)...................................           177           (120)          (101)          (328)
                                                                   ----------     ----------     ----------     ----------

      Net income (loss)........................................    $    5,002     $    1,584     $     (814)    $    2,142
                                                                   ----------     ----------     ----------     ----------

Basic and diluted income (loss) per share:
   Net income (loss)...........................................    $     2.50     $     0.79     $     (.41)    $     1.07
                                                                   ----------     ----------     ----------     ----------

Weighted average common shares outstanding.....................     2,000,000      2,000,000      2,000,000      2,000,000
                                                                   ==========     ==========     ==========     ==========
</TABLE>



        The accompanying notes to financial statements are an integral
                           part of these statements.

                                       4
<PAGE>

                     THE GSI GROUP, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                   Nine Fiscal Months Ended
                                                                              ----------------------------------
                                                                                   Oct 1,            Oct 2,
                                                                                    1999              1998
                                                                              ----------------  ----------------
<S>                                                                           <C>               <C>
Cash Flows From Operating Activities:
      Net cash flows provided by (used in) operating activities.............          $ 8,738          $  3,998
                                                                                      -------          --------


Cash Flows From Investing Activities:
 Capital expenditures.......................................................           (8,434)          (13,220)
 Proceeds from sale of fixed assets.........................................              405             1,612
 Payments received on notes receivable......................................            1,025                --
 Write-down of goodwill for Avemarau Equipamentos Agricolas Ltda.
  related to the Brazilian Real devaluation.................................           (1,814)               --
 Acquisition of Avemarau Equipamentos Agricolas Ltda. stock, net
  of cash acquired..........................................................               --            (4,954)
 Payment for noncompete agreement to former stockholders of
  Avemarau Equipamentos Agricolas Ltda......................................               --            (7,590)
 Other......................................................................             (677)             (919)
                                                                                      -------          --------
      Net cash flows provided by (used in) investing activities.............           (9,495)          (25,071)
                                                                                      -------          --------

Cash Flows From Financing Activities:
 Payments on former shareholder loans.......................................               --           (14,312)
 Proceeds from issuance of long-term debt...................................               --            35,000
 Payments on long-term debt.................................................           (1,657)           (1,700)
 Deferred financing costs...................................................              (24)             (709)
 Net borrowings (payments) under line-of-credit agreement...................            2,000            (1,125)
 Contributed capital........................................................              462                --
 Dividends..................................................................               --            (6,426)
 Write-down of note payable to former stockholders of Avemarau
  Equipamentos Agricolas Ltda. related to the Brazilian Real devaluation....            1,616                --
 Other......................................................................              425                90
                                                                                      -------          --------
      Net cash flows provided (used in) by financing activities.............            2,822            10,818
                                                                                      -------          --------

Increase (Decrease) In Cash and Cash Equivalents............................          $ 2,065          $(10,255)
Cash and Cash Equivalents, beginning of period..............................            1,192            18,572
                                                                                      -------          --------
Cash and Cash Equivalents, end of period....................................          $ 3,257          $  8,317
                                                                                      =======          ========
</TABLE>

  The accompanying notes to financial statements are an integral part of these
                                   statements

                                       5
<PAGE>

                     THE GSI GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.  Summary of Significant Accounting Policies

     The financial statements have been prepared by The GSI Group, Inc. (the
"Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission.  Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information not misleading.  These
financial statements should be read in conjunction with the financial statements
and related notes contained in the Company's 1998 10-K as filed with the U.S.
Securities and Exchange Commission.  Other than as indicated herein, there have
been no significant changes from the data presented in said 10-K.

     In the opinion of management, the financial statements contain all
adjustments necessary to present fairly the financial position of the Company as
of October 1, 1999 and the results of operations for the three and nine months
ended October 1, 1999 and cash flows for the nine months ended October 1, 1999.
Certain prior year amounts have been reclassified to be consistent with the
current year presentation.

     The results of operations for the three and nine month periods ended
October 1, 1999 are not necessarily indicative of the operating results for the
full year.



2.  Comprehensive Income

     The components of comprehensive income (loss) for the periods presented are
as follows (in thousands):

<TABLE>
<CAPTION>
                                                             October 1,        October 2,
                                                                1999              1998
                                                            ------------      ------------
<S>                                                          <C>               <C>
Net income (loss)..................................           $  (814)           $ 2,142
Cumulative translation adjustment..................            (5,995)            (1,110)
                                                              -------            -------
  Comprehensive loss...............................           $(6,809)           $(1,032)
                                                              =======            =======
</TABLE>

3.  Restructuring Charges

     During the first quarter of 1999, the Company recorded a restructuring
charge of approximately $1.0 million related to cost-cutting measures, including
primarily work force reductions and facility closures. During the second quarter
of 1999, the Company changed its restructuring plan to allow its Nova Odessa,
Brazil facility to remain open. This change resulted in a reduction of the
restructuring charge of approximately $0.1 million. The charges associated with
the reduction in work force include severance costs for approximately 155
employees, of whom 52% affected cost of goods sold and 48% affected operating
expenses. The charges associated with facility closures consist of remaining
lease obligations and related expenses for the Company's facility in Lenni,
Pennsylvania which was closed during the first quarter of 1999. The charges
associated with this lease obligation and related expenses totaling $48,000 had
been included in cost of goods sold and were utilized during the second quarter
of 1999. Of the $0.9 million charge, $0.7 million was utilized in the second
quarter and $0.2 million was utilized in the third quarter. As of October 1,
1999, the Company has terminated 155 employees who were paid severance of $0.6
million in the second quarter and $0.2 million in the third quarter.

                                       6
<PAGE>

4.  Detail Of Certain Assets
<TABLE>
<CAPTION>
                                                                 October 1,       December 31,
                                                                    1999              1998
                                                                ------------     -------------
                                                                        (In thousands)
<S>               <C>                                            <C>              <C>
Inventories
                  Raw materials................................    $12,527          $11,817
                  Work-in-process..............................     10,089           14,330
                  Finished goods...............................     17,858           23,072
                                                                   -------          -------
                  Total........................................    $40,474          $49,219
                                                                   =======          =======
</TABLE>


5.  Supplemental Cash Flow Information

     The Company paid approximately $7.6 and $6.5 million in interest during the
three quarters ended October 1, 1999 and October 2, 1998, respectively.  The
Company paid income taxes of $0.1 and $1.3 during the first three quarters of
1999 and 1998, respectively.

     The following is a cash flow statement that isolates the cumulative
translation adjustment impact from the other components of cash flow.  This
presentation is not in compliance with generally accepted accounting principles;
however, management desires to include this information because management
believes this presentation of cash flow information segregates the effect of the
foreign translation adjustments from the operating results of the Company.

<TABLE>
<CAPTION>
                                                                                Nine Fiscal Months Ended
                                                                           ----------------------------------
                                                                              October 1,        October 2,
                                                                                 1999              1998
                                                                           ----------------  ----------------
<S>                                                                        <C>               <C>
Cash Flows From Operating Activities:
      Net cash flows provided by (used in) operating activities..........          $11,967          $  4,952
                                                                                   -------          --------
Cash Flows From Investing Activities:
 Capital expenditures....................................................           (5,866)          (13,092)
 Proceeds from sale of fixed assets......................................              405             1,612
 Payments received on notes receivable...................................            1,025                --
 Acquisition of Avemarau Equipamentos Agricolas Ltda. stock, net
  of cash acquired.......................................................               --            (4,954)
 Payment for noncompete agreement with former stockholders of
  Avemarau Equipamentos Agricolas Ltda...................................               --            (7,590)
 Other...................................................................             (677)             (919)
                                                                                   -------          --------
      Net cash flows provided by (used in) investing activities..........           (5,113)          (24,943)
                                                                                   -------          --------

Cash Flows From Financing Activities:
 Payments on former shareholder loans....................................               --           (14,312)
 Proceeds from issuance of long-term debt................................               --            35,000
 Payments on long-term debt..............................................           (1,657)           (1,700)
 Deferred financing costs................................................              (24)             (709)
 Net borrowings (payments) under line-of-credit agreement................            2,000            (1,125)
 Contributed capital.....................................................              462                --
 Dividends...............................................................               --            (6,426)
 Other...................................................................              425                75
                                                                                   -------          --------
      Net cash flows provided by (used in) financing activities..........            1,206            10,803
                                                                                   -------          --------

Cumulative translation adjustment impact                                            (5,995)           (1,067)
                                                                                   -------          --------

Increase (Decrease) In Cash and Cash Equivalents.........................          $ 2,065          $(10,255)
Cash and Cash Equivalents, beginning of period...........................            1,192            18,572
                                                                                   -------          --------
Cash and Cash Equivalents, end of period.................................          $ 3,257          $  8,317
                                                                                   =======          ========
</TABLE>

                                       7
<PAGE>

6.  Long-Term Debt

     The indenture governing the Company's senior subordinated notes provides
for certain restrictive covenants. The more significant of the covenants
restrict the ability of the Company to dispose of assets, incur additional
indebtedness, pay dividends or make distributions and other payments affecting
subsidiaries. The Company was in compliance with the covenants under the
indenture as of October 1, 1999.

     On July 6, 1999, LaSalle Bank National Association ("LaSalle") and the
Company amended the existing credit facility (as amended, the "Credit Facility")
to modify the EBITDA and the senior debt to EBITDA covenants for the remainder
of 1999 and the year 2000 as well as to provide for a seasonal over-advance
facility of up to $5 million for the third and fourth quarters of 1999. At
October 1, 1999, the term loan and revolving line of credit bore interest at
rates ranging from 8.87% to 8.94%. The overall level of borrowings available
under the revolving line of credit are reduced by the Company's revolving credit
loans outstanding, outstanding letters of credit and debt of FarmPRO, Inc.
guaranteed by the Company and increased by principal reductions of the term
loan. As of October 1, 1999, the overall availability of the line was $20.7
million. The Company was in compliance with the covenants under the Credit
Facility as of October 1, 1999.



7.      Commitments and Contingencies

     Sales of agricultural equipment are seasonal, with farmers traditionally
purchasing grain storage bins and grain drying and handling equipment in the
summer and fall in conjunction with the harvesting season, and swine and poultry
producers purchasing equipment during prime construction periods in the spring,
summer and fall.  The Company's net sales and net income have historically been
lower during the first and fourth fiscal quarters as compared to the second and
third quarters.

     The Company has two contracts with the Syrian government and one with the
Yemen Company for Industrial Development to manufacture and supervise the
assembly of grain handling systems.  Other current assets and other assets
include $5.7 million of retainage withheld until completion of the projects and
the meeting of certain performance criteria.  These receivables are secured by
letters of credit totaling $5.7 million and are expected to be collected through
the year 2001.

     On June 8, 1999, John Funk, the Company's General Counsel and Chief
Financial Officer, submitted a letter of resignation to Craig Sloan, Chief
Executive Officer of the Company. Based on subsequent discussions, it appears
Mr. Funk may maintain that the Company has a contractual obligation to
repurchase his stock if and when the Company meets certain financial performance
criteria. Management believes that the Company has meritorious defenses against
this and other claims Mr. Funk may make in the future, and management will
defend these positions vigorously; however, if Mr. Funk were to prevail, the
Company's liability could be very substantial. On October 27, 1999, Messrs.
Sloan, Andrade and Buffett executed an agreement clarifying that none of them
can claim that the Company has a contractual obligation to purchase their
shares. Management is uncertain at this time of the amount of any potential
liabilities resulting from this matter. No liability relating thereto has been
recorded as of the date of this filing.

     The Company has an operating lease agreement that requires the Company to
maintain a certain senior debt to EBITDA ratio, tangible net worth and certain
levels of capital expenditures and EBITDA. The Company was in compliance with
these covenants under the operating lease agreement as of October 1, 1999.
Certain lease agreements are collateralized by a letter of credit of $2.0
million that expires on October 15, 2000.

                                       8
<PAGE>

8.  Business Segment

    In January 1998, the Company adopted SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information." The Company has no
separately reportable segments in accordance with this standard. Under the
enterprise wide disclosure requirements of SFAS 131, the Company reports net
sales by each group of product line. Amounts for the first three quarters of
1999 and 1998 are as shown in the table below (in thousands).

<TABLE>
<CAPTION>
                                             October 1,   October 2,
                                                1999         1998
                                             ----------   ----------
            <S>                              <C>          <C>
            Grain product line............    $107,500     $108,481
            Poultry product line..........      42,022       35,959
            Swine product line............      30,527       58,150
                                              --------     --------
                 Net sales................    $180,049     $202,590
                                              ========     ========
</TABLE>

    For the first three quarters of 1999 and 1998, sales in Brazil were $13.6
and $7.8 million, respectively. Long-lived assets in Brazil were $18.7 million
at October 1, 1999.

                                       9
<PAGE>

9.  Guarantor Subsidiaries

The Company's payment obligation under the senior subordinated notes are fully
and unconditionally guaranteed on a joint and several basis by David
Manufacturing Company, GSI/Cumberland de Mexico S. de R.L. de C.V.,
GSI/Cumberland BV, GSI/Cumberland SA (Pty) Ltd., GSI/Cumberland Sdn. Bhd. and
Agromarau Industria e Comercio Ltda. (the "Guarantor Subsidiaries"). The
Guarantor Subsidiaries are direct wholly-owned subsidiaries of the Company. The
obligations of the Guarantor Subsidiaries under their guarantees are
subordinated to such subsidiaries' obligations under their guarantee of the
Credit Facility.

Presented below is unaudited condensed consolidating financial information for
The GSI Group, Inc. ("Parent Company") and the Guarantor Subsidiaries. In the
Company's opinion, separate financial statements and other disclosures
concerning the Guarantor Subsidiaries would not provide additional information
that is material to investors.

Investments in subsidiaries are accounted for by the Parent Company using the
equity method of accounting. Earnings of subsidiaries are, therefore, reflected
in the Parent Company's investments in and advances to/from subsidiaries'
accounts and earnings. The elimination entries eliminate investments in
subsidiaries and intercompany balances and transactions.

                                       10
<PAGE>

9.   Guarantor Subsidiaries (Continued)


              SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
                                OCTOBER 1, 1999
                                (In thousands)

<TABLE>
<CAPTION>
                                                         Parent            Guarantor
                                                         Company           Subsidiaries         Eliminations         Consolidated
                                                         -------           ------------         ------------         ------------
                                                             ASSETS
<S>                                                     <C>             <C>                      <C>                  <C>
Current assets:
  Cash and cash equivalents......................       $    464            $    2,793          $        --            $    3,257
  Accounts receivable, net.......................         37,526                13,091              (13,341)               37,276
  Inventories, net...............................         24,919                17,137               (1,582)               40,474
  Other current assets...........................          2,814                 2,009                   --                 4,823
                                                        --------            ----------          -----------            ----------
  Total current assets...........................         65,723                35,030              (14,923)               85,830

Property, plant and equipment, net...............         37,617                12,812                   --                50,429
Goodwill and other intangible assets, net........          5,259                15,177                   --                20,436
Investment in and advances to/from
  subsidiaries...................................         51,535               (31,273)             (20,262)                   --
Other long-term assets...........................          3,565                 1,427                   --                 4,992
                                                        --------            ----------          -----------            ----------
  Total assets...................................       $163,699            $   33,173          $   (35,185)           $  161,687
                                                        ========            ==========          ===========            ==========

                                              LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities:
  Current portion of long-term debt..............       $  2,852            $      535          $        --            $    3,387
  Accounts payable...............................         10,513                12,890               (9,297)               14,106
  Accrued liabilities............................         19,145                 3,970                   --                23,115
                                                        --------            ----------          -----------           -----------
  Total current liabilities......................         32,510                17,395               (9,297)               40,608

Long-term debt...................................        131,622                 1,302                   --               132,924
Other long-term liabilities......................             --                 1,468                   --                 1,468
                                                        --------            ----------          -----------           -----------
  Total liabilities..............................        164,132                20,165               (9,297)              175,000

Stockholders' equity:
  Common stock...................................             20                18,958              (18,958)                   20
  Additional paid-in capital.....................          2,935                   305                 (305)                2,935
  Accumulated other comprehensive income.........             --                (8,198)                  --                (8,198)
  Retained earnings (deficit)....................         22,145                 1,943               (6,625)               17,463
  Treasury stock, at cost........................        (25,533)                   --                   --               (25,533)
                                                        --------            ----------          -----------           -----------
  Total stockholders' equity (deficit)...........           (433)               13,008              (25,888)              (13,313)
                                                        --------            ----------          -----------           -----------
Total liabilities and stockholders'
  equity.........................................       $163,699            $   33,173          $   (35,185)          $   161,687
                                                        ========            ==========          ===========           ===========
</TABLE>

                                      11
<PAGE>

9.  Guarantor Subsidiaries (Continued)

         SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                   THREE FISCAL MONTHS ENDED OCTOBER 1, 1999
                                (In thousands)

<TABLE>
<CAPTION>
                                                            Parent         Guarantor
                                                            Company      Subsidiaries      Eliminations       Consolidated
                                                            -------      ------------      ------------       ------------
<S>                                                         <C>          <C>               <C>                <C>
Net sales..........................................         $62,326           $18,556           $(3,832)           $77,050
Cost of sales......................................          49,208            14,410            (4,567)            59,051
                                                            -------           -------           -------            -------

   Gross profit....................................          13,118             4,146               735             17,999

Selling, general and administrative expenses.......           5,056             4,315                --              9,371
                                                            -------           -------           -------            -------

   Operating income (loss).........................           8,062              (169)              735              8,628

Interest expense...................................          (3,651)              (94)               --             (3,745)
Other income (expense).............................              92               204                --                296
                                                            -------           -------           -------            -------

Income (loss) before income taxes..................           4,503               (59)              735              5,179
Provision (benefit) for income taxes...............              --               177                --                177
                                                            -------           -------           -------            -------
Income (loss) before equity in income of
   consolidated subsidiaries.......................           4,503              (236)              735              5,002
Equity in income of consolidated subsidiaries......            (236)               --               236                 --
                                                            -------           -------           -------            -------

Net income (loss)..................................         $ 4,267           $  (236)          $   971            $ 5,002
                                                            =======           =======           =======            =======
</TABLE>

                                       12
<PAGE>

9.    Guarantor Subsidiaries (Continued)

         SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                   NINE FISCAL MONTHS ENDED OCTOBER 1, 1999
                                (In thousands)

<TABLE>
<CAPTION>
                                                              Parent           Guarantor
                                                              Company        Subsidiaries        Eliminations        Consolidated
                                                              -------        ------------        ------------        ------------
<S>                                                           <C>            <C>                 <C>                 <C>
Net sales..........................................          $148,060             $41,750             $(9,761)           $180,049
Cost of sales......................................           116,562              33,381              (8,750)            141,193
                                                             --------             -------             -------            --------

   Gross profit                                                31,498               8,369              (1,011)             38,856

Selling, general and administrative expenses.......            18,014              10,827                  --              28,841
                                                             --------             -------             -------            --------

   Operating income (loss)......                               13,484              (2,458)             (1,011)             10,015

Interest expense...................................           (11,032)               (248)                 --             (11,280)
Other income (expense).............................               367                 (17)                 --                 350
                                                             --------             -------             -------            --------

Income (loss) before income taxes..................             2,819              (2,723)             (1,011)               (915)
Provision (benefit) for income taxes...............                18                (119)                 --                (101)
                                                             --------             -------             -------            --------
Income (loss) before equity in income of
   consolidated subsidiaries                                    2,801              (2,604)             (1,011)               (814)
Equity in income of consolidated subsidiaries......            (2,604)                 --               2,604                  --
                                                             --------             -------             -------            --------

Net income (loss)..................................          $    197             $(2,604)            $ 1,593            $   (814)
                                                             ========             =======             =======            ========
</TABLE>

                                       13
<PAGE>

9.  Guarantor Subsidiaries (Continued)

          SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                   NINE FISCAL MONTHS ENDED OCTOBER 1, 1999
                                (In thousands)


<TABLE>
<CAPTION>
                                                           Parent          Guarantor
                                                           Company       Subsidiaries      Eliminations      Consolidated
                                                           -------       ------------     -------------      ------------
<S>                                                        <C>           <C>              <C>                <C>
Cash flows from operating activities...............        $ 9,283            $  (545)      $        --           $ 8,738
                                                           -------            -------       -----------           -------

Cash flows from investing activities:
   Capital expenditures............................         (7,432)            (1,002)               --            (8,434)
   Other...........................................         (2,041)               980                --            (1,061)
                                                           -------            -------       -----------           -------

   Net cash provided by (used in) investing
   activities......................................         (9,473)               (22)               --            (9,495)
                                                           -------            -------       -----------           -------

Cash flows from financing activities:
   Advances (to) from affiliates...................         (4,156)             4,156                --                --
   Net borrowings (payments) on debt...............          1,952             (1,609)               --               343
   Other...........................................          2,479                 --                --             2,479
                                                           -------            -------       -----------           -------

   Net cash provided by (used in) financing
   activities......................................            275              2,547                --             2,822
                                                           -------            -------       -----------           -------

Change in cash and cash equivalents................             85              1,980                --             2,065

Cash and cash equivalents, beginning of period.....            379                813                --             1,192
                                                           -------            -------       -----------           -------

Cash and cash equivalents, end of period...........        $   464            $ 2,793                --           $ 3,257
                                                           =======            =======       ===========           =======
</TABLE>

                                       14
<PAGE>

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

     The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and the notes included in Item 1 hereof.

General

     The Company is a leading manufacturer and supplier of agricultural
equipment and services worldwide. The Company's grain, swine and poultry
products are used by producers and purchasers of grain, and by producers of
swine and poultry. Fluctuations in grain and feed prices directly impact sales
of the Company's grain equipment. Because the primary cost of producing swine
and poultry is the cost of the feed grain consumed by animals, fluctuations in
the supply and cost of grain to users of the Company's products in the past has
impacted sales of the Company's swine and poultry equipment. The Company
believes that its diversified product offerings mitigate some of the effects of
fluctuations in the price of grain since the demand for grain storage, drying
and handling equipment tends to increase during periods of higher grain prices,
which somewhat offsets the reduction in demand during such periods for the
Company's products by producers of swine and poultry. However, the Company
believes that low swine prices and environmental regulations will for the
foreseeable future continue to effect negatively the sales of its swine
equipment, and, therefore, its overall results of operations and financial
condition.

     Sales of agricultural equipment are seasonal, with farmers traditionally
purchasing grain storage bins and grain drying and handling equipment in the
summer and fall in conjunction with the harvesting season, and swine and poultry
producers purchasing equipment during prime construction periods in the spring,
summer and fall. The Company's net sales and net income have historically been
lower during the first and fourth fiscal quarters as compared to the second and
third quarters. The Company anticipates that fourth quarter sales will be
significantly lower than fourth quarter sales of prior years. Prior years'
fourth quarter results have included significant turn-key international grain
bin sales that are not expected to recur in the fourth quarter of 1999.

     The Company's international sales have historically comprised a significant
portion of net sales. In the first three quarters of 1999 and 1998, the
Company's international sales accounted for 28% and 26% of net sales,
respectively. Although the Company's sales are primarily denominated in U.S.
dollars, the production costs, profit margins and competitive position of the
Company are affected by the strength of the U.S. dollar relative to the strength
of the currencies in countries where its products are sold. International
operations generally are subject to various risks that are not present in
domestic operations, including restrictions on dividends, restrictions on
repatriation of funds, unexpected changes in tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, political instability,
fluctuations in currency exchange rates, reduced protection for intellectual
property rights in some countries, seasonal reductions in business activity and
potentially adverse tax consequences, any of which could adversely impact the
Company's international operations.

     In June 1998, the Company acquired a manufacturer and supplier of poultry
feeding equipment in Brazil. In the first quarter of 1999, the Brazilian Real
experienced a devaluation (1.21 Brazilian Reals/U.S. Dollar at December 31, 1998
as compared to 1.77 Brazilian Reals/U.S. Dollar at July 21, 1999). The effect of
these devaluations was a reduction in the Company's stockholders' equity and
results of operations. In the third quarter of 1999, the Brazilian Real
experienced an additional devaluation (1.77 Brazilian Reals/U.S. Dollar at July
21, 1999 as compared to 1.92 Brazilian Reals/U.S. Dollar at November 5, 1999).
Further deterioration in the Brazilian economy could negatively effect the
performance of the Company's Brazilian operation.

     During the first quarter of 1999, the Company recorded a restructuring
charge of approximately $1.0 million related to cost-cutting measures, including
primarily work force reductions and facility closures. During the second quarter
of 1999, the Company changed its restructuring plan to allow its Nova Odessa,
Brazil facility to remain open. This change resulted in a reduction of the
restructuring charge of approximately $0.1 million. The charges associated with
the reduction in work force include severance costs for approximately 155
employees, of whom 52% affected cost of goods sold and 48% affected operating
expenses. The charges associated with facility closures consist of remaining
lease obligations and related expenses for the Company's facility in Lenni,
Pennsylvania which was closed during the first quarter of 1999. The charges
associated with this lease obligation and related expenses totaling $48,000 had
been included in cost of goods sold and were utilized during the second quarter
of 1999. Of the $0.9 million charge, $0.7 million was utilized in the second
quarter and $0.2 million was utilized in the third quarter.

                                      15
<PAGE>

As of October 1, 1999, the Company has terminated 155 employees who were paid
severance of $0.6 million in the second quarter and $0.2 million in the third
quarter.

     On June 8, 1999, John Funk, the Company's General Counsel and Chief
Financial Officer, submitted a letter of resignation to Craig Sloan, Chief
Executive Officer of the Company. Based on subsequent discussions, it appears
Mr. Funk may maintain that the Company has a contractual obligation to
repurchase his stock if and when the Company meets certain financial performance
criteria. Management believes that the Company has meritorious defenses against
this and other claims Mr. Funk may make in the future, and management will
defend these positions vigorously; however, if Mr. Funk were to prevail, the
Company's liability could be very substantial. On October 27, 1999, Messrs.
Sloan, Andrade and Buffett executed an agreement clarifying that none of them
can claim that the Company has a contractual obligation to purchase their
shares. Management is uncertain at this time of the amount of any potential
liabilities resulting from this matter. No liability relating thereto has been
recorded as of the date of this filing.

     The primary raw materials used by the Company to manufacture its products
are steel and polymers. Fluctuations in the prices of steel and, to a lesser
extent, polymer materials can impact the Company's cost of sales. During the
third quarter of 1999, the Company did not experience any significant changes in
steel and polymer pricing. There can be no assurances that the current price
stability will continue or that prices for these materials will not increase in
the future.

     The Company currently operates as a subchapter S corporation and,
accordingly, is not subject to federal income taxation for the periods for which
financial information has been presented herein. Because the Company's
stockholders are subject to tax liabilities based on their pro rata shares of
the Company's income, the Company's policy is to make periodic distributions to
its stockholders in amounts equal to such tax liabilities.

Results of Operations

Three Months Ended October 1, 1999 Compared to Three Months Ended October 2,
1998

     Net sales decreased 10.5% or $9 million to $77.1 million in the third
quarter of 1999 from $86.0 million in the same period of 1998. This decrease was
primarily driven by the reduced demand for swine equipment which was caused by
low swine prices. Reduced international demand in all product lines also
contributed to this decrease. Increased domestic poultry equipment sales
partially offset this impact.

     Gross profit decreased to $18.0 million in the third quarter of 1999 or 23%
of net sales from $19.1 million or 22.2% of net sales in the same period of
1998. This increase in the gross profit percentage of net sales reflected the
impact of cost efficiencies associated with the restructuring program
implemented towards the end of the first quarter of 1999.

     Operating expenses decreased 34.6% or $4.9 million to $9.4 million in the
third quarter of 1999 from $14.3 million in the same period of 1998. This
decrease was primarily the result of the restructuring program implemented
towards the end of the first quarter of 1999.

     Operating income increased from $4.8 million in the third quarter of 1998
to $8.6 million in the third quarter of 1999. This increase was primarily
attributable to the reduced operating expenses partially offset by the reduction
in sales.

     Net income increased $3.4 million to $5.0 million for the third quarter of
1999 from $1.6 million in the same period of 1998.

Nine Months Ended October 1, 1999 Compared to Nine Months Ended October 2, 1998

     Net sales decreased 11.1% or $22.5 million to $180 million in the first
three quarters of 1999 from $202.6 million in the same period of 1998. This
decrease was primarily driven by the reduced demand for swine equipment which
was caused by low swine prices. This decrease was partially offset by $8.0
million of increased sales from the Company's Brazilian operation.

                                       16
<PAGE>

     Gross profit decreased to $38.9 million in the first three quarters of 1999
or 21.6% of net sales from $46.4 million or 22.9% of net sales in the same
period of 1998. This decrease was caused by reduced sales, shipment of a low-
margin international project and restructuring charges.

     Operating expenses decreased 19.9% or $7.2 million to $28.8 million in the
first three quarters of 1999 from $36 million in the same period of 1998. This
decrease was primarily due to the restructuring program and was partially offset
by restructuring charges as well as the addition of the Company's Brazilian
operation.

     Operating income decreased from $10.4 million in the first three quarters
of 1998 to $10.0 million in the same period of 1999. This decrease was
attributable to the reduction in sales and reduced margins, mostly offset by
reduced operating expenses.

     Interest expense increased $1.4 million for the first three quarters of
1999. This increase was primarily due to the interest expense on the term note
issued to finance, among other things, the acquisition of the Company's
Brazilian operation.

     Net income decreased from $2.1 million in the first three quarters of 1998
to a net loss of $0.8 million in the same period of 1999.

Liquidity and Capital Resources

     The Company has historically funded capital expenditures, working capital
requirements, debt service, stockholder dividends and stock repurchases from
cash flow from its operations, augmented by borrowings made under various credit
agreements and the sale of the Company's 10 1/4% senior subordinated notes.

     The Brazilian Real experienced a 61% devaluation during the first three
quarters of 1999, from 1.21 Reals/U.S. Dollar at December 31, 1998 to 1.95
Reals/U.S. Dollar at October 1, 1999. The impact of this devaluation on the
balance sheet was to decrease the Company's assets by approximately $11.2
million and decrease liabilities by approximately $5.2 million, resulting in an
approximate $6.0 million decrease in stockholders' equity.

     The Company's working capital requirements for its operations are seasonal,
with investments in working capital typically building in the second and third
quarters and then declining in the first and fourth quarters. As of October 1,
1999, the Company had $45.2 million of working capital, a decrease of
$4.1 million from working capital as of December 31, 1998. The decrease in
working capital was primarily due to decreased inventories partially offset by
decreased accrued expenses.

     Operating activities provided $8.7 million and $4.0 million in cash flow in
the first three quarters of 1999 and 1998, respectively. This $4.7 million
increase in cash flow was primarily the result of a decrease in accounts
receivable and inventory of $21.5 million, partially offset by a decrease in net
income, accrued expenses and accounts payable of $15.3 million.

     Investing activities used $9.5 million and $25.1 million in cash flow in
the first three quarters of 1999 and 1998, respectively. Cash used in investing
activities in the first three quarters of 1999 consisted primarily of $8.4
million of capital expenditures, $5.9 million of which was for the purchase of
machinery and equipment and $2.5 million of which was the impact of the
Brazilian Real devaluation on property, plant and equipment. Cash used in
investing activities in the first three quarters of 1998 consisted primarily of
$12.5 million for the acquisition of Avemarau Equipmentos Agricolas, Ltda. and
the related noncompete agreement with its former stockholders and $13.1 million
for machinery and equipment purchases.

     Financing activities provided $2.8 million and $10.8 million in cash flow
in the first three quarters of 1999 and 1998, respectively. Cash provided by
financing activities in the first three quarters of 1999 consisted primarily of
$2.0 million from net borrowings under the Credit Facility. Cash provided by
financing activities in the first three quarters of 1998 consisted primarily of
$33.9 million from net borrowings under the Credit Facility, offset by the
retirement of former stockholder debt of $14.3 million and $6.4 million of
dividends for stockholder estimated tax liabilities.

     During the first quarter of 1999, the Company's Credit Facility was amended
to provide for a $27.5 million revolving loan facility and a $32.5 million term
loan. As a part of this amendment, the financial covenants were

                                       17
<PAGE>

eased and the amortization of the term loan was reduced from $5.0 million per
year to $2.4 million per year. The Company was in compliance with all covenants
under the Credit Facility as of October 1, 1999. LaSalle Bank N.A. and the
Company have further amended the Credit Facility to modify certain covenants for
the rest of 1999 and 2000 as well as to provide a seasonal over-advance facility
for the third and fourth quarters of 1999. For a more detailed description of
the Credit Facility, see Note 5 to the Consolidated Financial Statements
included in Item 1 hereof.

     The Company believes that existing cash, cash flow from operations and
available borrowings under the Credit Facility will be sufficient to support its
working capital, capital expenditures and debt service requirements for the
foreseeable future.


Year 2000 Issues

     The year 2000 issue is the result of computer systems using two digits
rather than four to define the applicable year. Such systems may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
system failures or miscalculations leading to disruptions in the Company's
operations (the "year 2000" or "Y2K" issue). If the Company or its significant
suppliers or customers fail to make necessary modifications, conversions and
contingency plans on a timely basis, the year 2000 issue could have a material
adverse effect on the Company's business, operations, cash flow and financial
condition. However, the effect cannot be quantified at this time because the
Company cannot accurately estimate the magnitude, duration or ultimate impact of
noncompliance by suppliers, customers and third parties that have no direct
relationship to the Company. The Company believes that its competitors face a
similar risk.

     In 1997, the Company began identifying non-compliant software and
identified three categories of software and systems that require attention:

     (1)  information technology ("IT") systems, such as mainframes, PCs,
          networks and production control systems,
     (2)  non-IT systems, such as equipment, machinery, climate control and
          security systems, which may contain microcontrollers with embedded
          technology, and
     (3)  supplier and customer IT and non-IT systems

     The Company has modified or replaced all of its non-compliant IT and non-IT
software and systems. The costs associated with these compliance projects ranged
from $0.3 to $0.4 million.

     The Company has also attempted to assess the compliance of its major
customers and suppliers. The Company has conducted formal communications with
its significant suppliers and customers to determine the extent to which it may
be affected by those third parties' Y2K compliance plans. The Company believes
that customers and suppliers present the area of greatest risk in part because
of the Company's limited ability to influence actions of third parties and in
part because of the Company's inability to estimate the level and impact of
noncompliance by these third parties. If a significant portion of the Company's
customers experience Year 2000 problems in processing and paying invoices, this
could impact the Company's cash flows and financial liquidity. A prolonged
interruption in the supply of essential services or products could adversely
effect the Company's operations and ability to generate revenues. In the event
that the Company experiences problems with a service provider or supplier, it
will attempt to obtain services and products from other available sources.

     Finally, the Company has developed contingency plans that assume some
estimated level of noncompliance by, or business disruption to, suppliers and
customers. The contingency plans include, among other things, the performance of
critical processes manually in the unlikely event of a loss in the capabilities
to process critical transactions electronically.

                                       18
<PAGE>

Inflation

     The Company believes that inflation has not had a material effect on its
results of operations or financial condition during recent periods.


Forward-Looking Statements

     Certain statements contained in this Report are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements are statements other than historical information or
statements of current condition. Some forward-looking statements may be
identified by use of terms such as "believes," "anticipates," "intends," or
"expects." Forward-looking statements are subject to risks, uncertainties and
other factors that could cause actual results to differ materially from future
results expressed or implied by such statements, and such statements should not
be regarded as a representation the stated objectives will be achieved.


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is subject to market risk associated with adverse changes in
interest rates and foreign currency exchange rates. The Company does not hold
any market risk sensitive instruments for trading purposes. At October 1, 1999,
principal exposed to interest rate risk was limited to $33.3 million in variable
rate debt. The Company measures its interest rate risk by estimating the net
amount by which potential future net earnings would be impacted by hypothetical
changes in market interest rates related to all interest rate sensitive assets
and liabilities.

     At October 1, 1999, approximately 12% of net sales were derived from
international operations with exposure to foreign currency exchange rate risk.
The Company mitigates its foreign currency exchange rate risk principally by
establishing local production facilities in the markets it serves and by
invoicing customers in the same currency as the source of the products. The
Company also monitors its foreign currency exposure in each country and
implements strategies to respond to changing economic and political
environments. The Company's exposure to foreign currency exchange rate risk
relates primarily to the financial position and the results of operations of its
Brazilian subsidiary. The Company's exposure to such exchange rate risk as it
relates to the Company's financial position and results of operations would be
adversely impacted by further devaluation of the Brazilian Real per U.S. dollar.
These amounts are difficult to accurately estimate due to factors such as the
inherent fluctuation of inter-company account balances, balance sheet accounts
and the existing economic uncertainty and future economic conditions in the
international marketplace.

                                       19
<PAGE>

                                    PART II
                               OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS.

     There are no legal proceedings pending against the Company which, in the
opinion of management, would have a material adverse affect on the Company's
business, financial position or results of operations.


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

     (a)  Exhibits:

     A list of the exhibits included as part of this Form 10-Q is set forth in
the Index to Exhibits that immediately precedes such exhibits, which is
incorporated herein by reference.

     (b)  Reports on Form 8-K:

     The GSI Group, Inc. did not file any Current Reports on Form 8-K during its
fiscal quarter ended October 1, 1999.

                                      20
<PAGE>

                                  SIGNATURES

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

                                   The GSI Group, Inc.

                                   By: /s/ Russell C. Mello
                                      -------------------------------
                                      Senior Vice-President - Finance,
                                      Secretary and Treasurer (Authorized
                                      Signatory and Principal Financial Officer)

                            Date:  November 12, 1999

                                      21
<PAGE>

                               INDEX TO EXHIBITS

 Exhibit
   No.                                Document Description
--------                              --------------------
  10.1     Letter Agreement dated as of October 27, 1999 among John C. Sloan,
           Jorge Andrade and Howard Buffet.

  10.2     Amendment to Addendum dated September 30, 1999 by and between The GSI
           Group and Fleet Capital Corporation relating to a certain Master
           Lease Agreement for machinery and equipment

  10.3     Letter of Credit Amendment to the Master Lease Agreement by and
           between The GSI Group and Fleet Capital Corporation.

  27.1     Financial Data Schedule
____________

                                      22