<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 April 2, 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 May 14, 1999.

                                       1
<PAGE>
 
                               TABLE OF CONTENTS

<TABLE>   
<CAPTION> 
                                                                           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.......   18

PART II - OTHER INFORMATION
  Item 1. Legal Proceedings...............................................   19
  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................................   19
</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 
                         CONSOLIDATED BALANCE SHEETS 

                (In thousands, except share and per share data)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                       APRIL 2,        DECEMBER 31,
                                    Assets                                               1999              1998
             --------------------------------------------------------                ------------      ------------ 
<S>                                                                                  <C>               <C>
Current Assets:
 Cash and cash equivalents.....................................................      $      1,832      $      1,192
 Accounts receivable, net......................................................            33,868            36,969
 Inventories, net..............................................................            54,296            49,219
 Prepaids......................................................................             3,102             2,820
 Other.........................................................................             4,940             4,773
                                                                                     ------------      ------------ 
   Total current assets........................................................            98,038            94,973
                                                                                     ------------      ------------ 
Notes Receivable...............................................................             1,079             1,084
                                                                                     ------------      ------------ 
Long-Term Retainage............................................................             4,187             3,570
                                                                                     ------------      ------------ 
Property, Plant and Equipment, net.............................................            50,841            50,257
                                                                                     ------------      ------------ 
Other Assets:                                                                                           
 Goodwill, net.................................................................            10,829            12,646
 Other intangible assets, net..................................................             7,309             7,541
 Deferred financing costs, net.................................................             3,732             4,063
 Other.........................................................................               731               514
                                                                                     ------------      ------------ 
   Total other assets..........................................................            22,601            24,764
                                                                                     ------------      ------------ 
   Total assets................................................................      $    176,746      $    174,648
                                                                                     ============      ============
                                                                                                        
                   LIABILITIES AND  STOCKHOLDERS' EQUITY
          --------------------------------------------------------
Current Liabilities:                                                                                    
 Accounts payable..............................................................      $     16,910      $     14,459
 Payroll and payroll related expenses..........................................             5,458             4,950
 Deferred income taxes.........................................................             1,049             1,049
 Billings in excess of costs...................................................             6,134             4,983
 Accrued warranty..............................................................             2,475             2,527
 Accrued interest..............................................................             4,501             1,807
 Other accrued expenses........................................................             4,839             5,742
 Customer deposits.............................................................             9,274             5,631
 Current maturities of long-term debt..........................................             3,775             4,572
                                                                                     ------------      ------------ 
   Total current liabilities...................................................            54,415            45,720
                                                                                     ------------      ------------ 
Long-Term Debt, less current maturities........................................           139,703           134,216
                                                                                     ------------      ------------ 
Deferred Income Taxes..........................................................             1,608             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...............................................................             2,473             2,473
 Accumulated other comprehensive loss (cumulative currency                                              
  adjustment)..................................................................            (7,273)           (2,203)
 Retained earnings.............................................................            11,333            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.................................................      $    (18,980)     $     (6,966)
                                                                                     ------------      ------------ 
   Total liabilities and stockholders' equity..................................      $    176,746      $    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
                     CONSOLIDATED STATEMENTS OF OPERATIONS

                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                    PERIOD ENDED
                                                                                    ------------            
                                                                            APRIL 2,           APRIL 3,
                                                                              1999               1998
                                                                            --------           --------     
<S>                                                                        <C>                <C>
Net sales.............................................................     $    44,751        $    52,161
 
Cost of sales.........................................................          36,187             40,154
Cost of sales - restructuring charges.................................             348                 --
                                                                           -----------        -----------
 Total cost of sales..................................................          36,535             40,154
 
   Gross profit.......................................................           8,216             12,007
 
Selling, general and administrative expenses..........................          10,874             10,286
Amortization expense..................................................             330                104
Restructuring charges.................................................             669                 --
                                                                           -----------        -----------
 Total operating expenses.............................................          11,873             10,390
 
 Operating income (loss)..............................................          (3,657)             1,617
 
Other income (expense):
 Interest expense.....................................................          (3,681)            (2,910)
 Interest income......................................................              11                233
 Other, net...........................................................             142                (26)
                                                                           -----------        -----------
 
   Loss before income taxes...........................................          (7,185)            (1,086)
                                                                           -----------        -----------
 
Income taxes..........................................................            (241)              (165)
                                                                           -----------        -----------
 
   Net loss...........................................................     $    (6,944)       $      (921)
                                                                           -----------        -----------
 
Basic and diluted loss per share:
 Net loss.............................................................     $     (3.47)       $     (0.46)
                                                                           -----------        -----------
 
Weighted average common shares outstanding............................       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
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                (IN THOUSANDS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                            PERIOD ENDED
                                                                                            ------------            
                                                                                    APRIL 2,           APRIL 3,
                                                                                      1999               1998
                                                                                    --------           --------     
<S>                                                                              <C>                <C>  
Cash Flows From Operating Activities:
 Net loss....................................................................    $    (6,944)       $      (921)
 Adjustments to reconcile net income to cash provided
  by operating activities:
   Depreciation and amortization.............................................          1,565              1,257
   Amortization of deferred financing costs..................................            171                 96
   Gain on sale of assets....................................................            (50)                (1)
      Deferred taxes.........................................................            (70)                --
   Changes in assets and liabilities:
     Accounts receivable.....................................................            122             (4,619)
     Inventories.............................................................         (7,197)            (7,559)
     Other current assets....................................................           (449)             1,514
     Accounts payable........................................................          4,269                448
     Accrued expenses and payroll and payroll related expenses...............          3,398              5,279
     Customer deposits.......................................................          3,643              4,781
     Other...................................................................           (279)                --
                                                                                 -----------        -----------
      Net cash flows provided by (used in) operating activities..............         (1,821)               275
                                                                                 -----------        -----------

Cash Flows From Investing Activities:
 Capital expenditures........................................................         (4,647)            (2,669)
 Proceeds from sale of fixed assets..........................................            108                 75
 Payments received on notes receivable.......................................              5                 --
 Write-down of goodwill for Avemarau Equipamentos Agricolas Ltda.
  related to the Brazilian Real devaluation..................................         (1,556)                --
 Other.......................................................................           (344)                --
                                                                                 -----------        -----------
      Net cash flows used in investing activities............................         (6,434)            (2,594)
                                                                                 -----------        -----------

Cash Flows From Financing Activities:
 Payments on former shareholder loans........................................             --            (14,312)
 Payments on long-term debt..................................................           (713)               (85)
 Deferred financing costs....................................................             --                (65)
 Net borrowings under line-of-credit agreement...............................          8,097                 --
 Dividends...................................................................             --             (1,791)
 Write-down of note payable to former stockholders of Avemarau
  Equipamentos Agricolas Ltda. related to the Brazilian Real devaluation.....          1,235                 --
 Other.......................................................................            276                 --
                                                                                 -----------        -----------
      Net cash flows provided by (used in) financing activities..............          8,895            (16,253)
                                                                                 -----------        -----------

Increase (Decrease) In Cash and Cash Equivalents.............................    $       640        $   (18,572)
Cash and Cash Equivalents, beginning of period...............................          1,192             18,572
                                                                                 -----------        -----------
Cash and Cash Equivalents, end of period.....................................    $     1,832        $         0
                                                                                 -----------        -----------
</TABLE>
                                                                                
 The accompanying notes to financial statements are an integral part of these
                                  statements

                                       5
<PAGE>
 
                     THE GSI GROUP, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION

     The accompanying financial statements reflect the consolidated results of
The GSI Group, Inc. and its subsidiaries. All intercompany transactions and
balances have been eliminated.

     Certain reclassifications have been made to prior-year amounts to conform
to the current-year presentation.

     Beginning with the first quarter of 1998, the Company adopted thirteen week
fiscal quarter periods for operational and financial reporting purposes. The
Company's year end will continue to be December 31.

  Financial Information About Industry Segments

     The Company operates in primarily one industry segment, which includes the
design, manufacture and sale of agricultural equipment.

  Comprehensive Income

     During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"), which requires companies to report all changes in equity during a
period, except those resulting from investment by owners and distributions to
owners, in a financial statement for the period in which they are recognized.
The Company has chosen to disclose Comprehensive Income, which encompasses net
income and foreign currency translation adjustments, in the notes to financial
statements for interim periods.

     The components of Comprehensive Income for the periods presented are as
follows:

 
<TABLE>
<CAPTION>
                                                                          April 2,              April 3,     
                                                                            1999                  1998      
                                                                     ---------------       ---------------   
          <S>                                                        <C>                   <C>              
          Net loss...........................................             $ (6,944)                $(921)   
          Cumulative translation adjustment..................               (5,070)                  (32)   
                                                                     ---------------       ---------------   
            Comprehensive loss...............................             $(12,014)                $(953)    
                                                                     ===============       ===============
</TABLE>
                                                                                
2. 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. The charges
   associated with the reduction in work force include severance costs for
   approximately 186 employees, of whom 52% effected cost of goods sold and 48%
   effected operating expenses. The charges associated with facility closures
   consist of remaining lease obligations and related expenses for the Company's
   facilities in Nova Odessa, Brazil and Lenni, Pennsylvania. These lease
   obligations and related expenses totaling $148,000 have been included in cost
   of goods sold.

                                       6
<PAGE>
 
3.  DETAIL OF CERTAIN ASSETS

<TABLE>
<CAPTION>
                                                                                     AS OF                
                                                                      --------------------------------    
                                                                          APRIL 2,        DECEMBER 31,    
                                                                           1999               1998        
                                                                      ------------      --------------    
                                                                               (IN THOUSANDS)             
<S>                                                                   <C>               <C>                
Accounts Receivable
                  Trade receivables............................        $     35,366           $ 38,764                 
                  Allowance for doubtful accounts..............              (1,498)            (1,795)                
                                                                      -------------     --------------                 
                     Total.....................................        $     33,868           $ 36,969                 
                                                                      =============     ==============                 
                                                                                                                       
Inventories                                                                                                            
                  Raw materials................................        $     15,036           $ 11,817                 
                  Work-in-process..............................              16,306             14,330                 
                  Finished goods...............................              22,954             23,072                 
                                                                      -------------     --------------                 
                     Total.....................................        $     54,296           $ 49,219                 
                                                                      =============     ==============                 
                                                                                                                       
Property, Plant and Equipment                                                                                          
                  Land.........................................        $        925           $    865                 
                  Buildings and improvements...................              21,047             18,866                 
                  Machinery and equipment......................              43,125             41,237                 
                  Office equipment and furniture...............               6,242              5,322                 
                  Construction-in-progress.....................               6,628             10,104                 
                                                                      -------------     --------------                  
                                                                             77,967             76,394                 
                  Accumulated depreciation.....................             (27,126)           (26,137)                
                                                                      -------------     --------------                  
                  Property, plant and equipment, net...........        $     50,841           $ 50,257                 
                                                                      =============     ==============                 
                                                                                                                       
Intangible Assets                                                                                                      
                  Goodwill.....................................        $     11,538           $ 13,286                 
                  Accumulated amortization.....................                (709)              (640)                
                                                                      -------------     --------------                   
                     Total.....................................        $     10,829           $ 12,646                 
                                                                      =============     ==============                 
                                                                                                                       
                  Non-compete agreements.......................        $      8,227           $  8,227                 
                  Accumulated amortization.....................              (1,168)              (991)                
                                                                      -------------     --------------                    
                     Total.....................................        $      7,059           $  7,236                 
                                                                      =============     ==============                 
                                                                                                                       
                  Patents and other intangible assets..........        $        333           $    453                 
                  Accumulated amortization.....................                 (83)              (148)                
                                                                      -------------     --------------                   
                     Total.....................................        $        250           $    305                 
                                                                      =============     ==============                 
                                                                                                                       
Deferred Financing Costs                                                                                               
                  Deferred financing costs.....................        $      4,412           $  4,612                 
                  Accumulated amortization.....................                (680)              (549)                
                                                                      -------------     --------------                    
                     Total.....................................        $      3,732           $  4,063                 
                                                                      =============     ==============                  
</TABLE>

                                       7
<PAGE>
 
4. SUPPLEMENTAL CASH FLOW INFORMATION

     The Company paid approximately $0.6 and $0.7 million in interest during the
first quarters ended April 2, 1999 and April 3, 1998, respectively. The Company
paid no income taxes during the first quarters of 1999 and 1998.

     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
Brazilian Real devaluation from the operating results of the Company.

<TABLE>
<CAPTION>
                                                                                 APRIL 2,          APRIL 3,        
                                                                                   1999              1998          
                                                                             ----------------  ----------------     
<S>                                                                          <C>               <C>                  
Cash Flows From Operating Activities:
 Net loss................................................................          $(6,944)         $   (921)
 Adjustments to reconcile net income to cash provided
  by operating activities:
   Depreciation and amortization.........................................            1,565             1,257
   Amortization of deferred financing costs..............................              171                96
   Gain on sale of assets................................................              (50)               (1)
      Deferred taxes.....................................................              (70)               --
   Changes in assets and liabilities, net of acquisitions:
     Accounts receivable.................................................            2,484            (4,619)
     Inventories.........................................................           (5,077)           (7,527)
     Other current assets................................................             (449)            1,514
     Accounts payable....................................................            2,451               448
     Accrued expenses and payroll and payroll related expenses...........            3,398             5,279
     Customer deposits...................................................            3,643             4,781
     Other...............................................................               --                --
                                                                             ----------------  ----------------           
      Net cash flows provided by (used in) operating activities..........            1,122               307
                                                                             ----------------  ----------------           
 
Cash Flows From Investing Activities:
 Capital expenditures....................................................           (2,841)           (2,669)
 Proceeds from sale of fixed assets......................................              108                75
 Payments received on notes receivable...................................                5                --
 Other...................................................................             (344)               --
                                                                             ----------------  ----------------           
      Net cash flows provided by (used in) investing activities..........           (3,072)           (2,594)
                                                                             ----------------  ----------------           
 
Cash Flows From Financing Activities:
 Payments on former shareholder loans....................................               --           (14,312)
 Payments on long-term debt..............................................             (713)              (85)
 Deferred financing costs................................................               --               (65)
 Net borrowings under line-of-credit agreement...........................            8,097                --
 Dividends...............................................................               --            (1,791)
 Other...................................................................              276                --
                                                                             ----------------  ----------------           
      Net cash flows provided by (used in) financing activities..........            7,660           (16,253)
                                                                             ----------------  ----------------           
 
Cumulative translation adjustment impact                                            (5,070)              (32)
                                                                             ----------------  ----------------           
 
Increase (Decrease) In Cash and Cash Equivalents.........................          $   640          $(18,572)
Cash and Cash Equivalents, beginning of period...........................            1,192            18,572
                                                                             ----------------  ----------------           
Cash and Cash Equivalents, end of period.................................          $ 1,832          $      0
                                                                             ----------------  ----------------           
</TABLE>

                                       8
<PAGE>
 
5.  LONG-TERM DEBT

     Long-term debt at April 2, 1999 and December 31, 1998 consisted of the
following (in thousands):

<TABLE>
<CAPTION>
                                                                                 APRIL 2,       DECEMBER 31,  
                                                                                   1999             1998      
                                                                                ----------      ------------  
  <S>                                                                           <C>             <C>           
  Citizens National Bank IRB                                                     $  1,834          $  1,875   
  Various noncompete, license and patent agreements...........................         65                65   
  LaSalle National Bank revolving line of credit..............................      7,904                --   
  LaSalle National Bank term note.............................................     31,900            32,500   
  Clark Products, Inc. promissory note........................................        386               429   
  10.25% senior subordinated notes payable....................................     98,574            98,533   
  Note payable to former stockholders of Avemarau Equipamentos Agricolas Ltda.      1,533             3,900   
  Various notes payable.......................................................        816               991   
  City of Assumption promissory note..........................................        466               495   
                                                                              -----------     -------------    
            Total.............................................................    143,478           138,788   
  Less -                                                                                                      
            Current maturities................................................     (3,775)           (4,572)  
                                                                              -----------     -------------      
            Total long-term debt..............................................   $139,703          $134,216   
                                                                              ===========     =============    
</TABLE>

  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.

  On February 4, 1999, LaSalle National Bank and the Company amended the
existing credit facility (as amended, the "Credit Facility") to provide for
revolving loans up to a maximum of $27.5 million (limited based on a borrowing
base which includes accounts receivable, inventory and principal reductions of
the LaSalle National Bank term loan) and a $32.5 million term loan.  The
borrowings bear interest at a floating rate per annum equal to (at the Company's
option) 1.75% to 3.00% over LIBOR or 0.25% to 0.50% over the banks floating rate
based on the senior debt to EBITDA ratio of the Company.  The term loan is
payable in quarterly principal installments of $0.6 million plus interest over
three years and matures on February 1, 2002.  As the principal amount
outstanding on the term loan is reduced, the availability on the revolving loans
is increased maintaining a total commitment of $60.0 million under the Credit
Facility.  The Credit Facility requires the Company to maintain a certain senior
debt to EBITDA ratio, tangible net worth and certain levels of capital
expenditures. These covenants are retroactive and were reset in February 1999
for December 31, 1998.  Borrowings under the Credit Facility are secured by
substantially all of the assets of the Company, including the capital stock of
any existing or future subsidiaries.  The Credit Facility expires on February 1,
2002.  The Company was in compliance with or obtained waivers for all covenants
under the Credit Facility as of April 2, 1999.  LaSalle National Bank and the
Company have agreed in principle to amend certain covenants for the rest of 1999
as well as to provide a seasonal over-advance facility for the second and third
quarters of 1999.

6.   COMMITMENTS AND CONTINGENCIES

  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 long-term
retainage include $6.5 million of retainage withheld until completion of the
projects and the meeting of certain performance criteria.  These assets are
secured by letters of credit totaling $6.5 million and are expected to be
collected through the year 2001.

                                       9
<PAGE>
 
7.   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 SAFS 131, the Company reports net
sales by each group of product lines. Amounts for the first quarters of 1999 and
1998 are as shown in the table below (in thousands).

<TABLE>
<CAPTION>
                                                         APRIL 2,       APRIL 3,    
                                                           1999           1998      
                                                       -------------  ------------- 
          <S>                                          <C>            <C>            
          Grain product line.......................        $23,019        $25,224
          Swine product line.......................          8,836         17,485
          Poultry product line.....................         12,824          9,452
                                                           -------        -------
               Net sales...........................        $44,751        $52,161
                                                           =======        ======= 
</TABLE>
                                                                                
          For the first quarters of 1999 and 1998, sales in Brazil were $4.8 and
$0.4 million, respectively.  Long-lived assets in Brazil were $4.2 and $0.5
million at April 2, 1999 and April 3, 1998, respectively.
 

                                       10
<PAGE>
 
8.   GUARANTOR SUBSIDIARIES

The Company's payment obligation under the senior subordinated notes are fully
and unconditionally guaranteed on a joint and several basis by DMC,
GSI/Cumberland de Mexico S. de R.L. de C.V., GSI/Cumberland BV, GSI/Cumberland
SA (Pty) Ltd., GSI/Cumberland Sdn. Bhd. and Cumberland do Brasil 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.

                                       11
<PAGE>
 
8.   GUARANTOR SUBSIDIARIES (CONTINUED)

              SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
                                 APRIL 2, 1999
                                (In thousands)
<TABLE>
<CAPTION>
                                                                                 Parent     Guarantor
                                                                                Company    Subsidiaries   Eliminations  Consolidated
                                                                              -----------  ------------   ------------  ------------
<S>                                                                           <C>          <C>            <C>           <C>      
                                                                                ASSETS
Current assets:
     Cash and cash equivalents ....................................             $      29    $   1,803    $    --      $   1,832
     Accounts  receivable, net.....................................                36,628        9,487      (12,247)      33,868
     Inventories, net..............................................                36,407       17,889         --         54,296
     Other current assets..........................................                 5,053        2,989         --          8,042
                                                                              -----------  ------------   ------------  ----------
     Total current assets..........................................                78,117       32,168      (12,247)      98,038

Property, plant and equipment, net ................................                37,535       13,306         --         50,841
Goodwill ..........................................................                 1,153        9,676         --         10,829
                                                                         
Investment in and advances to/from subsidiaries ...................                51,386      (24,702)     (26,684)        --   
Other long-term assets ............................................                 9,880        7,158         --         17,038
                                                                              -----------  ------------   ------------  ----------
     Total assets..................................................             $ 178,071    $  37,606    $ (38,931)   $ 176,746
                                                                              -----------  ------------   ------------  ----------

                                                    LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Current portion of long-term debt.............................             $   2,842    $     933    $    --      $   3,775
     Accounts payable..............................................                12,143       14,248       (9,481)      16,910
     Accrued liabilities ..........................................                29,549        4,181         --         33,730
                                                                              -----------  ------------   ------------  ----------
     Total current liabilities ....................................                44,534       19,362       (9,481)      54,415

Long-term debt ....................................................               136,468        3,235         --        139,703
Other long-term liabilities .......................................           -----------  ------------   ------------  ----------

     Total liabilities.............................................               181,002       24,205       (9,481)     195,726 

Stockholders' equity:
     Common stock .................................................                    20       17,816      (17,816)          20
     Additional paid-in capital                                                     2,473           --           --        2,473
     Accumulated other comprehensive income........................                    --       (7,273)          --       (7,273)
     Retained earnings (deficit)...................................                20,109        2,858      (11,634)      11,333
     Treasury stock, at cost.......................................               (25,533)          --           --      (25,533)
                                                                              -----------  ------------   ------------  ----------
     Total stockholders' equity (deficit)..........................                (2,931)      13,401      (29,450)     (18,980)
                                                                              -----------  ------------   ------------  ----------
Total liabilities and stockholders' equity ........................             $ 178,071    $  37,606    $ (38,931)   $ 176,746
                                                                              ===========  ============   ============  ==========
</TABLE>

                                       12
<PAGE>
 
8.    GUARANTOR SUBSIDIARIES (CONTINUED)

         SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                       THREE MONTHS ENDED APRIL 2, 1999
                                (In thousands)

<TABLE> 
<CAPTION> 
                                                           Parent            Guarantor            
                                                           Company         Subsidiaries       Eliminations       Consolidated   
                                                         -----------       --------------     ------------       ------------    
<S>                                                      <C>               <C>                <C>                <C>  
Net sales..........................................        $37,343          $     9,806       $   (2,398)        $    44,751
Cost of sales......................................         29,691                8,336           (1,492)             36,535
                                                         -----------       --------------     ------------       ------------ 
     Gross profit..................................          7,652                1,470             (906)              8,216
 
Selling, general and administrative expenses.......          8,493                3,380               --              11,873
                                                         -----------       --------------     ------------       ------------     
     Operating income (loss).......................           (841)              (1,910)            (906)             (3,657)
 
Interest expense...................................         (3,603)                 (78)              --              (3,681)
Other income (expense).............................            114                   39               --                 153
                                                         -----------       --------------     ------------       ------------ 
 
Income (loss) before income taxes..................         (4,330)              (1,949)            (906)             (7,185)
Provision (benefit) for income taxes...............             18                 (259)              --                (241)
                                                         -----------       --------------     ------------       ------------   
Income (loss) before equity in income of
   consolidated subsidiaries.......................         (4,348)              (1,690)            (906)             (6,944)  
Equity in income of consolidated subsidiaries......         (1,690)                  --            1,690                  --
                                                         -----------       --------------     ------------       ------------ 
Net income (loss)..................................        $(6,038)         $    (1,690)      $      784         $    (6,944)
                                                         ===========       ==============     ============       ============
</TABLE>

                                       13
<PAGE>
 
8.    GUARANTOR SUBSIDIARIES (CONTINUED)

          SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                       THREE MONTHS ENDED APRIL 2, 1999
                                (In thousands)
 
<TABLE> 
<CAPTION> 
                                                              Parent          Guarantor
                                                             Company         Subsidiaries       Eliminations      Consolidated
                                                           ------------     --------------     --------------    --------------  
<S>                                                        <C>              <C>                <C>               <C> 
Cash flows from operating activities....................   $     601        $  (2,422)         $           --    $    (1,821)
                                                           ----------       ----------         --------------    ------------    
                                                                                                                                 
Cash flows from investing activities:                                                                                            
   Capital expenditures.................................      (4,085)            (562)                     --         (4,647)    
   Other................................................      (1,967)             180                      --         (1,787)    
                                                           ----------       ----------         --------------    ------------    
                                                                                                                                 
   Net cash provided by (used in) investing activities..      (6,052)            (382)                     --         (6,434)    
                                                           ----------       ----------         --------------    ------------    
                                                                                                                                 
Cash flows from financing activities:                                                                                            
   Advances (to) from affiliates........................      (2,813)           2,813                      --             --     
   Net borrowings (payments) on debt....................       6,403              981                      --          7,384     
   Other................................................       1,511               --                      --          1,511     
                                                          -----------       ----------         --------------    ------------    
                                                                                                                                 
   Net cash provided by (used in) financing activities..       5,101            3,794                     --           8,895     
                                                          -----------       ----------         --------------    ------------    
                                                                                                                                 
Change in cash and cash equivalents.....................        (350)             990                     --             640     
                                                                                                                                 
Cash and cash equivalents, beginning of period..........         379              813                     --           1,192     
                                                          -----------       ----------         --------------    ------------     
                                                                                                                                 
Cash and cash equivalents, end of period................   $      29        $   1,803                     --     $     1,832     
                                                          ===========       ==========         ==============    ============     
</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.

  Do to the seasonality of the Company's markets, the Company typically
experiences a loss in the first quarter.  However, as a result of less than
anticipated sales in the first quarter of 1999 and forecasted continued weakness
in the sale of swine equipment throughout the remainder of the year, management
implemented a restructuring program in the first quarter of 1999.  In connection
with the restructuring, the Company recorded a charge of approximately $1.0
million in the first quarter of 1999, the majority of which was for severance
costs.

  Management believes that the restructuring program will significantly reduce
the Company's cost of operations and allow the Company to maintain its
competitiveness at lower sales levels.  Management believes that the
restructuring will reduce the Company's operating costs by at least $20 million
on an annual basis, compared to operating costs incurred in the first quarter of
1999 prior to the restructuring.  Certain portions of the Company's business are
experiencing increased sales activity over year ago levels.  Most notably, both
the Company's domestic grain bin business and domestic poultry business
experienced record sales levels in the first quarter.  Further, the Company's
Brazilian operation has experienced an increase in shipments (in Brazilian Real
terms) in the first quarter of 1999 compared with the first quarter of 1998.
Management believes that the weaker Real is providing increased export
opportunities to Brazilian producers of poultry and swine, and, as a result,
these producers are expanding their production capacity.  Management believes
that its Malaysian operation will post higher sales volume in 1999, compared
with 1998 levels.  As a result of the reduced cost structure and the anticipated
seasonal sales increases in the second and third quarters, management does not
believe that the financial performance experienced by the Company in the first
quarter of 1999 will be indicative of the Company's performance for the
remainder of the year.

  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.

  In June 1998, the Company acquired a manufacturer and supplier of poultry
feeding equipment in Brazil.  In the first quarter, the Brazilian Real
experienced a devaluation (1.21 Brazilian Reals/U.S. Dollar at December 31, 1998
as compared to 1.66 Brazilian Reals/U.S. Dollar at May 12, 1999).  The effect of
the devaluation was a reduction in the Company's stockholders' equity and
results of operations.  Further deterioration in the Brazilian economy could
negatively effect the performance of the Company's Brazilian operation.

  The Company's international sales have historically comprised a significant
portion of net sales. In the first quarters of 1999 and 1998, the Company's
international sales accounted for 46% and 36% of net sales, respectively.
Although the Company's sales are primarily denominated in U.S. dollars, the
production costs, profit margins and 

                                       15
<PAGE>
 
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. For
example, the financial crises in many countries in Southeast Asia have caused
some agricultural producers to cancel orders or have led to the inability of
such producers to secure necessary lines of credit to buy agricultural
commodities and/or equipment. While this trend has not led to material
cancellations of orders by the Company's customers, the Company believes that it
has contributed to a decline in the number of new orders that the Company has
received from customers located in such regions.

  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 first
quarter of 1999, the Company continued to benefit from modest price decreases in
steel and polymers.  There can be no assurances that these price decreases 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

Quarter Ended April 2, 1999 Compared to Quarter Ended April 3, 1998

  Net sales decreased 14.2% or $7.4 million to $44.8 million in the first
quarter of 1999 from $52.2 million in the same period of 1998.  This decrease
was primarily driven by the reduced demand for hog equipment caused by
historically low swine prices.  This decrease was partially offset by $4.4
million of increased sales from the Company's Brazilian operation.

  Gross profit decreased to $8.2 million in the first quarter of 1999 or 18.4%
of net sales from $12.0 million or 23.0% 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.  The restructuring charges
relate primarily to severance costs for terminated employees and the expenses
related to shutting down two manufacturing facilities.

  Operating expenses increased 14.3% or $1.5 million to $11.9 million in the
first quarter of 1999 from $10.4 million in the same period of 1998.  Of the
$1.5 million increase, $0.5 million was from the Company's Brazilian operation
and $0.7 million resulted from the restructuring charges for severance costs for
terminated employees.

  Operating income decreased from $1.6 million in the first quarter of 1998 to
an operating loss of $3.7 million in the first quarter of 1999.  This decrease
is attributable to the reduction in sales, reduced margins and an increase in
operating expenses.

  Interest expense increased $0.8 million for the first quarter 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 loss increased $6.0 million to a loss of $6.9 million for the first
quarter of 1999 from a loss of $0.9 million in the same period of 1998.
 

                                       16
<PAGE>
 
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 43% devaluation during the first quarter of
1999, from 1.21 Reals/U.S. Dollar at December 31, 1998 to 1.73 Reals/U.S. Dollar
at April 2, 1999.  The impact of this devaluation on the balance sheet was to
decrease the Company's assets by approximately $8.4 million and decrease
liabilities by approximately $3.4 million, resulting in an approximate $5.0
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 April 2,
1999, the Company had $43.6 million of working capital, a decrease of $5.6
million from working capital as of December 31, 1998.  The decrease in working
capital was primarily due to increased customer deposits, accrued interest and
accounts payable partially offset by an increase in inventory.

  Operating activities used $1.8 million and generated $0.3 million in cash flow
in the first quarter of 1999 and 1998, respectively.  This $2.1 million decrease
in cash flow was primarily the result of a decrease in net income, other current
assets and accrued expenses of $9.9 million, partially offset by decreases in
accounts receivable and increases in accounts payable of $8.6 million, compared
to the first quarter of 1998.

  Cash used in investing activities in the first quarter of 1999 consisted
primarily of $4.6 million of capital expenditures, $2.8 million of which was for
the purchase of machinery and equipment and $1.8 million of which was the impact
of the Brazilian Real devaluation on property, plant and equipment.  Cash used
in investing activities in the first quarter of 1998 was $2.6 million.  The cash
was used primarily for machinery and equipment purchases.

  Cash provided by financing activities in the first quarter of 1999 consisted
primarily of $8.1 million from net borrowings under the line-of-credit facility
and a $1.2 million impact relating to the Brazilian Real devaluation.  Cash used
in financing activities in the first quarter of 1998 was $16.3 million.  The
cash was used primarily to retire former stockholder debt of $14.3 million and
to pay dividends of $1.8 million  for stockholder 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 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 or obtained waivers for
all covenants under the Credit Facility as of April 2, 1999.  LaSalle National
Bank and the Company have agreed in principle to amend certain covenants for the
rest of 1999 as well as to provide a seasonal over-advance facility for the
second and third quarters of 1999.

  The Company believes that existing cash, cash flow from operations and
available borrowings under the proposed amendments to 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 programs using two digits rather
than four to define the applicable year.  Such software 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.

                                       17
<PAGE>
 
  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 intends to modify or replace non-compliant IT and non-IT software
and systems.  The failure to address these systems issues on a timely basis may
result in a disruption of the manufacturing process and the Company's ability to
efficiently conduct business.  Currently, the Company's compliance projects are
at different phases of completion.  Domestic IT system projects are
approximately 90% complete and domestic non-IT system projects are approximately
75% complete.  All IT and non-IT system projects for the Company's international
subsidiaries are 100% complete.  The Company's current target is to complete its
domestic IT and non-IT system projects by June 30, 1999. The Company has not
fully assessed the cost associated with these compliance projects. However,
based upon current information, the Company expects these costs to range from
$0.3 to $0.4 million.

  The Company is also assessing the compliance of its major customers and
suppliers. The Company is in the process of conducting 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.  Issues with a significant portion of
the Company's customers in processing and paying invoices 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
identifies potential problems with a service provider or supplier, it will
attempt to obtain services and products from other available sources.

  Finally, the Company is developing contingency plans that assume some
estimated level of noncompliance by, or business disruption to, suppliers and
customers.  The contingency plans will include development of the capabilities
to process critical transactions manually.  The Company intends to have
contingency plans finalized by the third quarter of 1999.

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, but does not hold any market
risk sensitive instruments for trading purposes. Principal exposed to interest
rate risk is limited to $39.8 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.

  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.

                                      18
<PAGE>
 
                                    PART III
                               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 April 2, 1999.

                                       19
<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/ John W. Funk
                                               --------------------------------
                                               John W. Funk, Director, Chief
                                               Financial Officer, Secretary and
                                               General Counsel (Authorized
                                               Signatory and Principal Financial
                                               Officer)
 
Date:  May 17, 1999

                                       20
<PAGE>
 
                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                        DOCUMENT DESCRIPTION
----------                                    --------------------
<S>              <C>
  10.1           Amended and Restated Stock Restriction and Buy-Sell Agreement dated March 18, 1999 by and
                 among Jorge Andrade, Howard Buffett, John Funk, Craig Sloan and The GSI Group, Inc.
  10.2           Amended and Restated Employment Agreement dated March 18, 1999 between The GSI Group, Inc.
                 and Jorge Andrade.
  10.3           Amended and Restated Employment Agreement dated March 18, 1999 between The GSI Group, Inc.
                 and Howard Buffett.
  10.4           Amended and Restated Employment Agreement dated March 18, 1999 between The GSI Group, Inc.
                 and John Funk.
  10.5           Amended and Restated Employment Agreement dated March 18, 1999 between The GSI Group, Inc.
                 and Craig Sloan.
  10.6           Stockholder Agreement dated March 18, 1999 between The GSI Group, Inc., Jorge Andrade,
                 Howard Buffett, John Funk and Craig Sloan
  10.7           Amended and Restated Stock Restriction and Buy Sell Agreement - Non Voting dated as of March
                 31, 1999 by and among The GSI Group, Inc., Jorge Andrade, Howard Buffett, John Funk, Craig
                 Sloan and the nonvoting shareholders of The GSI Group, Inc.
  27.1           Financial Data Schedule
</TABLE>

____________

                                       21