<PAGE>
 
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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
 
                               ----------------
 
                                   FORM 10-K
(Mark One)
 
  [X]Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange
  Act of 1934.
                 For the Fiscal Year Ended: December 31, 1998
                                      or
 
  [_]Transition Report Pursuant to Section 13 or 15(d) of The Securities
  Exchange Act of 1934.
                   For the transition period     from     to
 
                        Commission File Number: 0-25560
 
                               ----------------
 
                            ACT Manufacturing, Inc.
            (Exact name of registrant as specified in its charter)
 
<TABLE>
<CAPTION>
                Massachusetts                                    04-2777507
<S>                                            <C>
       (State or other jurisdiction of              (I.R.S. Employer Identification No.)
       incorporation or organization)
</TABLE>
 
<TABLE>
<CAPTION>
                2 Cabot Road                                       01749
<S>                                            <C>
            Hudson, Massachusetts                                (Zip Code)
  (Address of principal executive offices)
</TABLE>
 
      Registrant's telephone number, including area code: (978) 568-0105
 
       Securities registered pursuant to Section 12(b) of the Act: None
 
          Securities registered pursuant to Section 12(g) of the Act:
 
                         Common Stock, $.01 par value
                               (Title of class)
 
  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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K.  [_]
 
  The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 23, 1999 (based on the closing sale price as quoted by
the Nasdaq National Market as of such date) was $52,868,484.
 
  As of March 23, 1999, 9,087,700 shares of the registrant's common stock were
outstanding.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
  Portions of registrant's definitive proxy statement for the annual meeting
of stockholders to be held on or about May 18, 1999 to be filed pursuant to
Regulation 14A are incorporated by reference into Part III of this Form 10-K.
 
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<PAGE>
 
                                    PART I
 
  Except for the historical information contained herein, the matters
discussed in this Annual Report on Form 10-K are forward-looking statements
that involve risks and uncertainties. ACT Manufacturing, Inc. makes such
forward-looking statements under the provision of the "Safe Harbor" section of
the Private Securities Litigation Reform Act of 1995. Any forward-looking
statements should be considered in light of the factors described below in
Item 7 under "Year 2000 Readiness Disclosure Statements" and "Cautionary
Statements." Actual results may vary materially from those projected,
anticipated or indicated in any forward-looking statements. In this Annual
Report on Form 10-K, the words "anticipates," "believes," "expects,"
"intends," "future," "could," "may," and similar words or expressions (as well
as other words or expressions referencing future events, conditions or
circumstances) identify forward-looking statements.
 
ITEM 1. BUSINESS
 
  ACT Manufacturing, Inc. ("ACT" or the "Company") provides value-added
electronics manufacturing services for original equipment manufacturers
("OEMs") in the networking and telecommunications, computer, industrial and
medical equipment markets. The Company provides OEMs with complex printed
circuit board ("PCB") assembly primarily utilizing advanced surface mount
technology ("SMT"), mechanical and molded cable and harness assembly, electro-
mechanical sub-assembly, and total system assembly and integration. The
Company targets moderate-volume production runs of the complex, leading-edge
commercial market applications of emerging and established OEMs, which
generally require technologically-advanced and flexible manufacturing as well
as a higher degree of value-added services. These applications are generally
characterized by multiple configurations and high PCB densities. As an
integral part of its service to OEM customers, the Company provides advanced
manufacturing and test engineering, flexible materials management, and
comprehensive test services, as well as product repair, packaging, order
fulfillment and distribution services.
 
Services Provided by the Company
 
  The Company utilizes a business unit or "cell" approach to provide value-
added services to its customers. Within this environment, dedicated equipment,
personnel and systems are assigned to specific customers. Throughout the
manufacturing organization, state-of-the-art production performance,
statistical process control and quality reporting systems are utilized to
provide accurate, timely and relevant management and customer information.
 
 Manufacturing of Electronic Assemblies
 
  ACT offers manufacturing capabilities for PCB assembly, cable and harness
assembly, electro-mechanical sub-assembly and total system assembly and
integration.
 
 Printed Circuit Board Assembly
 
  The Company's PCB assembly operations are primarily oriented toward a full
range of advanced SMT applications, including ball grid array. The Company
also continues to support pin-through-hole technology and related semi-
automated and manual placement processes for existing and new applications
that require these technologies. ACT's manufacturing process is supported by
state-of-the-art, high-speed placement systems, screen printers, epoxy
dispensers, wave solderers, reflow and cleaning systems and a highly-trained
and experienced engineering and manufacturing workforce. In addition, the
Company has made significant investments in computer-aided manufacturing and
test equipment, process technology, and information processing technology. ACT
utilizes environmentally clean, water-soluble and no-clean process technology
that the Company believes meets or exceeds all applicable environmental
regulations.
 
  ACT also provides in-circuit, functional and stress environmental testing
services for substantially all completed PCB assemblies in connection with the
manufacturing process. In-circuit tests verify that the components have been
inserted properly and meet certain functional standards and that the
electrical circuits have
 
                                       2
<PAGE>
 
been completed properly. These tests are performed on industry standard
testing equipment using proprietary software developed either by the customer
or the Company's test engineers. In addition, using specialized testing
equipment designed and provided by the customer, the Company performs
customized functional tests designed to ensure that the PCB assembly will
perform its intended functions. Since defective components normally fail after
a relatively short period of use, normal process parameters require that
certain PCB assemblies be subjected to controlled environmental stresses,
typically thermal or electrical stresses.
 
 Cable and Harness Assembly
 
  ACT offers a wide range of cable and harness assembly services for molded
and mechanical applications. The Company provides custom manufactured ribbon,
multiconductor, co-axial and fiber optic cable assemblies and discrete wire
harness assemblies. The Company uses advanced and diverse manufacturing
processes, in-line inspection and test and dedicated work cells to minimize
work in process time and focus on process efficiencies and quality. The cable
and harness assembly process is accomplished using both automated and semi-
automated preparation and insertion equipment and manual assembly techniques.
ACT tests substantially all of its cable and harness assemblies using
automated test equipment.
 
 Electro-Mechanical Sub-Assembly and Total System Assembly and Integration
 
  ACT integrates components, including its PCB and cable and harness
assemblies, into higher level sub-assemblies and system assemblies. ACT
provides custom configuration, documentation, packaging and order fulfillment
services as customers seek to streamline and integrate manufacturing and
distribution activities.
 
  ACT provides the following value-added services across the full range of its
electronics manufacturing services:
 
 Advanced Manufacturing and Test Engineering
 
  The Company's advanced manufacturing engineers work closely with an OEM's
product designers at the early design stage in order to optimize product
manufacturability, testability, and reliability. The Company's advanced
manufacturing engineers also participate in the OEM's parts selection and
materials utilization decisions at the design stage in order to mitigate
component availability issues which might arise during the manufacturing
cycle. The Company's engineers evaluate the ongoing manufacturing process and
recommend improvements to reduce manufacturing costs or lead times, or to
increase the quality of finished assemblies. The Company's engineering
services are designed to ensure that OEM products are rapidly brought to
market, meet the market's expectation for quality and take advantage of
advances in manufacturing and testing technology and processes.
 
 Materials Management
 
  The Company directly sources all or a substantial portion of the components
necessary for its product assemblies. The Company procures components from
vendors which meet ACT's standards for timely delivery, high quality, cost
effectiveness and in accordance with customer specifications. To help control
inventory investment, components are generally ordered when the Company has a
customer forecast, purchase order or commitment from a customer to purchase
the completed assemblies. Material planning and procurement is accomplished by
the use of a Materials Requirements Planning (MRP) system. Communication with
certain vendors is enhanced with the use of Electronic Data Interchange (EDI)
systems, through which a majority of the active components purchased by the
Company are acquired. Additionally, ACT uses just-in-time inventory management
techniques and manages its material pipelines and vendor base in order to
enable the Company's customers to increase or decrease volume requirements
within established frameworks.
 
 Product Diagnostics and Repair
 
  The Company offers product diagnostic and repair services for assemblies
manufactured by the Company and, in some instances, other products of its
customers. Utilizing its engineering and test capabilities, the
 
                                       3
<PAGE>
 
Company provides product diagnostic, repair and product upgrade services. The
Company provides revision control, lot tracking and materials management
services for product revisions, upgrades and repairs.
 
 Order Fulfillment and Distribution
 
  To more rapidly respond to market demands of its OEM customers, the Company
offers delivery programs and capabilities designed with the flexibility to
ship products directly to their customers. Under these programs, the Company
packages products to the customer's specification with appropriate product
documentation and manages the logistics of delivery. The Company works closely
with its customers to identify and offer additional services in anticipation
of future customer needs.
 
Customers and Markets
 
  The Company serves a wide range of customers from emerging growth companies
to established, multinational corporations in a variety of markets including
networking and telecommunications, computer, industrial and medical equipment.
 
  In many cases, the Company's OEM customers utilize more than one electronic
manufacturing services provider across their product lines. The Company's goal
is to be the primary electronics manufacturing services provider for its OEM
customers, and to attract the OEMs' high-value, leading-edge products. The
Company believes that its close interaction with the design engineering
personnel of its customers at the product development stage, together with the
Company's established materials pipeline and prototype production experience,
advantageously positions the Company to be selected to provide manufacturing
and value-added services for its customers' new product offerings. The Company
assigns each customer a program manager whose responsibilities, as the primary
contact into the Company, include the development of the manufacturing
relationship and the assignment of Company resources to meet customer
requirements.
 
  The Company continues to focus on expanding and diversifying its customer
base to reduce dependence on any individual customer or market. Electronics
manufacturing services providers generally face a long sales cycle and must
perform satisfactorily on a trial basis prior to capturing significant orders
from that OEM.
 
  Ascend Communications, Inc. (as successor to Cascade Communications Corp.,
"Ascend"), EMC Corporation ("EMC") and Bay Networks, Inc. ("Bay Networks"),
respectively, accounted for 19%, 18%, and 16%, of the Company's net sales for
1998. Bay Networks, Ascend and EMC accounted for 31%, 13% and 13%,
respectively, of the Company's net sales for 1997. The Company's five largest
customers accounted for 68% and 70% of the Company's net sales for 1998 and
1997, respectively.
 
  The Company generally warrants that its products will be free from defects
in workmanship for twelve months, and passes on to the customer any warranties
provided by component manufacturers and material suppliers to the extent
permitted. During the warranty period, the Company's warranty provides that
the Company will take action to repair or replace failed products. The Company
tests substantially all of its assemblies prior to shipment. In addition, the
Company's OEM customers generally test or have tested final products on a
sample basis prior to deployment in the field. The Company's warranty costs
have not been material to date.
 
Sales and Marketing
 
  The Company focuses its sales efforts on developing close relationships with
customers primarily during product design and development. The Company's
services are marketed primarily through a direct sales force, and to a lesser
extent, through independent manufacturer's representatives in the United
States, Canada and Europe. In addition, the Company supports its existing
customer relationships through a comprehensive staff of program managers
dedicated to individual customer accounts.
 
                                       4
<PAGE>
 
  As the Company has grown, it has increasingly relied on and developed its
direct selling organization as opposed to utilizing independent manufacturer
representatives. The Company expects to continue to expand its direct sales
organization and marketing efforts in response to increased customer
opportunities in new geographic markets.
 
Competition
 
  The electronics manufacturing services industry is highly competitive. The
Company competes against numerous U.S. and foreign electronics manufacturing
services providers with global operations. The Company also faces competition
from a number of electronics manufacturing services providers who operate on a
local or regional basis. In addition, current and prospective customers
continually evaluate the merits of manufacturing products internally. Certain
of the Company's competitors have substantially greater manufacturing,
financial, systems, sales and marketing resources than the Company. Also, due
to the consolidation trend within the industry, the Company faces larger and
more geographically diverse competitors who have combined resources with which
to compete against the Company. In addition, these competitors may have the
ability to respond more quickly to new or emerging technologies, may adapt
more quickly to changes in customer requirements and may devote greater
resources to the development, promotion and sale of their services than the
Company. The Company may be operating at a cost disadvantage compared to
manufacturers who have greater direct buying power from component suppliers or
who have lower cost structures. The Company's manufacturing processes are
generally not subject to significant proprietary protection, and companies
with significant resources or international operations may enter the market.
Increased competition could result in price reductions, reduced margins or
loss of market share, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
believes that the principal competitive factors in the segments of the
electronics manufacturing services industry in which it operates are
technology, service, manufacturing capability, quality, geographic location,
price, reliability, timeliness in delivering finished products and flexibility
in adapting to customers' needs. There can be no assurance that competition
from existing or potential competitors will not have a material adverse effect
on the Company's business, financial condition and results of operations.
 
Governmental Regulation
 
  The Company's operations are subject to certain federal, state and local
regulatory requirements relating to environmental, waste management and health
and safety matters. The Company believes that it complies with applicable
regulations promulgated by the Occupational Safety and Health Administration
and the Environmental Protection Agency and corresponding state agencies
pertaining to health and safety in the workplace and the use, storage,
discharge and disposal of hazardous chemicals used in its manufacturing
processes. The current costs of compliance are not material to the Company.
Nevertheless, no assurances can be given that additional or modified
requirements will not be imposed in the future and, if so imposed, will not
involve substantial additional expenditures by the Company.
 
Employees
 
  At December 31, 1998, the Company had 1,042 permanent employees, compared
with 985 permanent employees at December 31, 1997. The employees of the
Company are not represented by a union and the Company has experienced no
labor stoppages. The Company considers its relations with its employees to be
good. See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations--Cautionary Statements--Management of Growth," "--
Dependence Upon Key Personnel and Skilled Employees," and "--Acquisitions and
Geographic Expansion."
 
                                       5
<PAGE>
 
ITEM 2. PROPERTIES
 
  The Company's principal manufacturing facilities are located in six leased
facilities containing an aggregate of 358,000 square feet. The Company's
significant facilities are as follows:
 
<TABLE>
<CAPTION>
   Location                                                          Square Feet
   --------                                                          -----------
   <S>                                                               <C>
   Hudson, MA......................................................    147,000
   Hudson, MA......................................................     32,000
   Hudson, MA......................................................     28,000
   Mansfield, MA...................................................     44,000
   Lawrenceville, GA...............................................     62,000
   Dublin, Ireland.................................................     45,000
                                                                       -------
     Total.........................................................    358,000
                                                                       =======
</TABLE>
 
  The Company's Hudson, Massachusetts headquarters include a state-of-the-art
manufacturing facility which houses PCB and systems assembly businesses, and
two other facilities which contain manufacturing capabilities for mechanical
and molded cable and harness assembly and electro-mechanical sub-assembly
operations. The Company occupies the Hudson facilities under leases scheduled
to expire in 2007, 2003 and 2003, respectively. The Company leases two of the
Hudson facilities from Re-Act Realty Trust, a Massachusetts nominee trust,
which is controlled by John A. Pino, the President and Chief Executive Officer
of the Company, and the beneficial interest of which is principally owned by
Mr. Pino.
 
  In February 1996, the Company entered into a five year lease for a facility
in Mansfield, Massachusetts to expand its manufacturing operations. The lease
expires in January 2001 and the Company has an option to renew the lease for
an additional five years. The Company believes that its Massachusetts
facilities will be sufficient for the Company's activities in the Northeastern
United States for the foreseeable future.
 
  In the second quarter of 1998, the Company occupied and began manufacturing
in a new 45,000 square foot leased facility in Dublin, Ireland and
consolidated operations from the existing Dublin facility into the new plant.
The lease expires in the first quarter of 2005.
 
  In the fourth quarter of 1998, the Company began manufacturing in a new
62,000 square foot leased facility in Lawrenceville, Georgia and consolidated
operations from the existing Norcross, Georgia facility into this plant. This
lease expires in the fourth quarter of 2005.
 
  All of the Company's manufacturing facilities have been certified to the ISO
9002 international quality standard.
 
  At December 31, 1998, the Company's Massachusetts facilities contained nine
SMT lines. The Company operates two SMT lines at its Lawrenceville, Georgia
facility and has implemented one SMT line in the Dublin, Ireland facility. See
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations."
 
ITEM 3. LEGAL PROCEEDINGS
 
  On February 27, 1998, the Company and certain of the Company's officers and
directors were named as defendants in a purported securities class action
lawsuit filed in the United States District Court for the District of
Massachusetts. The complaint was then amended on October 16, 1998. The
plaintiffs purport to represent a class of all persons who purchased or
otherwise acquired the Company's Common Stock in the period from April 17,
1997 through March 31, 1998. The amended complaint alleges, among other
things, that the defendants knowingly made misstatements to the investing
public about the value of the Company's inventory and the nature of its
accounting practices. On December 15, 1998, the Company filed a motion to
dismiss the case in its entirety based on the pleadings. The Company's motion
to dismiss has been fully briefed by both sides, and oral
 
                                       6
<PAGE>
 
argument is scheduled for April 1999. The Company believes the claims asserted
in the amended complaint are without merit and intends to continue to defend
itself vigorously in this action. The Company further believes that this
litigation will not have a material adverse effect on the Company's business
and results of operations, although there can be no assurance as to the
ultimate outcome of these matters.
 
  From time to time, the Company is also subject to claims or litigation
incidental to its business. The Company does not believe that any such
incidental claims or litigation will have a material adverse effect on the
operations of the Company.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  No matters were submitted during the fourth quarter of the fiscal year ended
December 31, 1998 to a vote of security holders of the Company, through the
solicitation of proxies or otherwise.
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
  The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol "ACTM". Public trading of the Common Stock commenced on March 30, 1995.
Prior to that time, there was no public market for the Company's Common Stock.
The following table sets forth the high and low bid information for the Common
Stock as reported by Nasdaq for the periods indicated. Such information
reflects inter-dealer prices, without retail mark-up, markdown or commission
and may not necessarily represent actual transactions.
 
<TABLE>
<CAPTION>
                                                                 High    Low
                                                                 ----    ----
<S>                                                              <C>     <C>
1998:
  First quarter................................................. $17 7/8 $ 9 7/8
  Second quarter................................................  12 3/4   6 5/8
  Third quarter.................................................   12       6
  Fourth quarter................................................  14 1/2   5 1/4
<CAPTION>
                                                                 High    Low
                                                                 ----    ----
<S>                                                              <C>     <C>
1997:
  First quarter................................................. $ 29    $19 1/4
  Second quarter................................................  41 3/4  19 1/2
  Third quarter.................................................  47 1/4  32 3/8
  Fourth quarter................................................   33     13 1/4
</TABLE>
 
  On March 23, 1999, the last reported sale price of the Common Stock on the
Nasdaq National Market was $14.063 per share. As of March 23, 1999, there were
approximately 45 holders of record of the Common Stock. This number does not
include stockholders for whom shares were held in a "nominee" or "street
name."
 
  The Company does not presently intend to declare cash dividends on the
Common Stock in the foreseeable future and expects to retain any future
earnings to fund future operations. Additionally, the Company's bank senior
secured credit agreement prohibits the payment of cash dividends on the
Company's capital stock. See Note 5 of Notes to the Company's Consolidated
Financial Statements.
 
                                       7
<PAGE>
 
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
 
  The selected consolidated financial data should be read in conjunction with,
and are qualified in their entirety by, the Company's consolidated financial
statements, related notes and other financial information included herein.
 
                      SUMMARY CONSOLIDATED FINANCIAL DATA
                     (In Thousands, Except Per Share Data)
 
<TABLE>
<CAPTION>
                                         Year Ended December 31,
                               -----------------------------------------------
                                 1998      1997      1996      1995     1994
                               --------  --------  --------  --------  -------
<S>                            <C>       <C>       <C>       <C>       <C>
Consolidated Statement of
 Operations Data:
  Net sales................... $290,529  $264,654  $225,900  $115,658  $85,848
  Cost of goods sold..........  271,311   253,122   197,530   101,449   72,574
                               --------  --------  --------  --------  -------
  Gross profit................   19,218    11,532    28,370    14,209   13,274
  Selling, general and
   administrative expenses....   14,686    15,062    10,016     6,682    5,434
                               --------  --------  --------  --------  -------
  Operating income (loss).....    4,532    (3,530)   18,354     7,527    7,840
                               --------  --------  --------  --------  -------
  Interest and other expense,
   net........................   (2,241)   (2,706)   (1,424)      (62)    (534)
                               --------  --------  --------  --------  -------
  Income (loss) before
   provision for income
   taxes......................    2,291    (6,236)   16,930     7,465    7,306
  Benefit (provision) for
   income taxes (1)...........   (1,009)    2,229    (6,773)   (2,999)  (2,953)
                               --------  --------  --------  --------  -------
  Net income (loss)........... $  1,282  $ (4,007) $ 10,157  $  4,466  $ 4,353
                               ========  ========  ========  ========  =======
  Basic net income (loss) per
   common share (2)(3)........ $   0.14  $  (0.45) $   1.16  $   0.55  $  0.70
                               ========  ========  ========  ========  =======
  Diluted net income (loss)
   per common share (2)(3).... $   0.14  $  (0.45) $   1.13  $   0.54  $  0.65
                               ========  ========  ========  ========  =======
  Weighted average shares
   outstanding--basic (3).....    9,063     8,952     8,762     8,057    6,250
                               ========  ========  ========  ========  =======
  Weighted average shares
   outstanding--diluted (3)...    9,199     8,952     9,012     8,334    6,748
                               ========  ========  ========  ========  =======
<CAPTION>
                                              December 31,
                               -----------------------------------------------
                                 1998      1997      1996      1995     1994
                               --------  --------  --------  --------  -------
<S>                            <C>       <C>       <C>       <C>       <C>
Consolidated Balance Sheet
 Data:
  Working capital............. $ 70,175  $ 35,048  $ 71,091  $ 35,070  $14,646
  Total assets................  145,369   113,539   107,595    61,095   33,618
  Long-term liabilities, less
   current portion............   40,475       730    29,055     2,638   10,255
  Total stockholders'
   equity.....................   50,234    49,259    47,132    35,688    7,355
</TABLE>
--------
(1) The Company had operated as an S Corporation for income tax purposes from
    November 1, 1987 to March 28, 1995, and accordingly during that period had
    not been subject to federal income taxes and had been subject to certain
    state income taxes at a reduced rate. Accordingly, net income for the
    years ended December 31, 1995 and 1994 is presented on a pro forma basis
    as if the Company had been a C corporation for the period presented.
(2) Pro forma net income per common share for the years ended December 31,
    1994 and 1995 reflects the assumed issuance of 650,000 shares that the
    Company would have needed to issue at the initial public offering price of
    the Company's Common Stock ($12.00 per share) to fund the distribution of
    all previously taxed but undistributed S Corporation earnings to the
    Company's stockholders through March 28, 1995 (approximately $7,800,000).
(3) Pro forma basic net income per common share and diluted net income per
    common share for 1995 reflect the impact on the calculation of weighted
    average shares outstanding of the issuance of Common Stock from the
    Company's 1995 initial public offering, which shares of Common Stock were
    outstanding April through December 1995 and were weighted as if they had
    been outstanding over the full year.
 
                                       8
<PAGE>
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS
 
  The Private Securities Litigation Reform Act of 1995 contains certain safe
harbors regarding forward-looking statements. Any statements in this Annual
Report on Form 10-K that are not statements of historical fact are forward-
looking statements (including, but not limited to, statements concerning the
Company's Year 2000 readiness and compliance, the characteristics and growth
of the Company's market and customers, the Company's expectations, objectives
and plans for future operations, and the Company's expected liquidity and
capital resources). Such forward-looking statements are based on a number of
assumptions and involve a number of risks and uncertainties, and accordingly
the Company's actual results could differ materially. Factors that may cause
such differences include those set forth below under "Year 2000 Readiness
Disclosure Statements" and "Cautionary Statements" and elsewhere in this
Annual Report on Form 10-K. The following discussion should be read in
conjunction with the Consolidated Financial Statements and Notes thereto,
appearing elsewhere in this Annual Report on Form 10-K.
 
Overview
 
  ACT Manufacturing, Inc. provides value-added electronics manufacturing
services for original equipment manufacturers ("OEMs") in the networking and
telecommunications, computer, industrial and medical equipment markets. The
Company provides OEMs with complex printed circuit board ("PCB") assembly
primarily utilizing advanced surface mount technology ("SMT"), mechanical and
molded cable and harness assembly, electro-mechanical sub-assembly, and total
system assembly and integration. The Company targets moderate-volume
production runs of the complex, leading-edge commercial market applications of
emerging and established OEMs, which generally require technologically
advanced and flexible manufacturing as well as a higher degree of value-added
services. These applications are generally characterized by multiple
configurations and high PCB densities. As an integral part of its service to
OEM customers, the Company provides advanced manufacturing and test
engineering, flexible materials management, and comprehensive test services,
as well as product repair, packaging, order fulfillment and distribution
services.
 
  The Company was founded in 1982 as a contract manufacturer of cable and
harness assemblies. In 1986, the founder of the Company organized a separate
corporation to serve as a contract manufacturer of PCB assemblies. Each of
these companies was acquired by the current principal stockholder of the
Company effective January 1, 1993 pursuant to two option agreements, one of
which was entered into in July 1989 and the other of which was entered into in
June 1991. The predecessor PCB assembly company was merged with and into the
Company in December 1994, at which time the Company changed its name to ACT
Manufacturing, Inc.
 
  From November 1, 1987 to March 28, 1995, the Company was treated as an S
Corporation for federal and certain state income tax purposes. As a result,
during that period the Company had not been subject to federal income taxes
and had been subject to certain state income taxes at a reduced rate.
Accordingly, net income for periods prior to 1996 is presented on a pro forma
basis as if the Company had been a C Corporation for such periods.
 
  The Company expanded the geographic scope of its operations through two
strategic acquisitions in June 1997. The Company acquired substantially all of
the assets and liabilities of Electronic Systems International, located in
Norcross, Georgia. Electronic Systems International provides electronics
manufacturing services to OEMs based primarily in the Southeastern United
States consisting of PCB assembly, electro-mechanical subassembly and total
system assembly. The Company also acquired Advanced Component Technologies
Limited (f.k.a. SignMax Limited), located in Dublin, Ireland. Advanced
Component Technologies Limited (f.k.a. SignMax Limited) provides electronics
manufacturing services primarily consisting of cable and harness assembly and
production has been expanded to include a PCB operation utilizing SMT
technology. The operating results of the acquired businesses are included from
the date of purchase in the Company's Consolidated Statement of Operations for
the year ended December 31, 1997. The Consolidated Statement of Operations for
the year ended December 31, 1998 includes a full year of operations of the
acquired businesses. See Note 2 of Notes to the Company's Consolidated
Financial Statements.
 
                                       9
<PAGE>
 
  The Company typically recognizes revenue upon shipment to customers. The
Company generally does not obtain long-term purchase orders or commitments
from its customers, and, accordingly, works with its customers to anticipate
delivery dates and future volume of orders based on customer forecasts. The
level and timing of orders placed by the Company's OEM customers vary due to
customer attempts to manage inventory, changes in the OEM's manufacturing
strategy and variation in demand for customer products due to, among other
things, introduction of new products, product life cycles, competitive
conditions or industry or general economic conditions. The Company may source
components for product assemblies based on customer forecasts. However, the
Company's policy is that customers are responsible for materials and
associated acquisition costs in the event of a significant reduction, delay or
cancellation of orders from the forecasted amounts.
 
Results of Operations
 
  The following table sets forth certain consolidated statement of operations
data as a percentage of net sales for each fiscal year indicated. The table
and the discussion below should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto appearing elsewhere in
this Annual Report on Form 10-K.
 
<TABLE>
<CAPTION>
                                                              Year Ended
                                                             December 31,
                                                           --------------------
                                                           1998   1997    1996
                                                           -----  -----   -----
<S>                                                        <C>    <C>     <C>
Net sales................................................. 100.0% 100.0%  100.0%
Cost of goods sold........................................  93.3   95.6    87.4
                                                           -----  -----   -----
Gross profit..............................................   6.7    4.4    12.6
Selling, general and administrative expenses..............   5.1    5.7     4.5
                                                           -----  -----   -----
Operating income (loss)...................................   1.6   (1.3)    8.1
Interest and other expense, net...........................  (0.9)  (1.0)   (0.6)
                                                           -----  -----   -----
Income (loss) before provision for income taxes...........   0.7   (2.4)    7.5
Benefit (provision) for income taxes......................  (0.3)   0.9    (3.0)
                                                           -----  -----   -----
Net income (loss).........................................   0.4%  (1.5)%   4.5%
                                                           =====  =====   =====
</TABLE>
 
  For the year ended December 31, 1997, the Company experienced significant
changes and events that adversely affected its 1997 results of operations. In
the third and fourth quarters of 1997, the Company experienced a decrease in
net sales on both a sequential and comparable period basis. The decline in net
sales was principally due to a softness in demand from several major customers
resulting in the conversion of fewer forecasted orders than anticipated as
well as, in the case of the third quarter, orders and commitments anticipated
to ship prior to the end of the quarter that were received too late for
configuration and completion in the quarter.
 
  The Company identified a significant inventory shortfall as a result of its
1997 year-end physical inventory. As a result of the shortfall, the Company
recorded a charge of approximately $13.1 million that was included in cost of
goods sold for 1997. The shortfall was investigated by Company personnel and,
under the direction of the Audit Committee of the Board of Directors, by
independent external accounting specialists. The ultimate cause of the
shortfall could not be finally determined, and accordingly the associated
charge was reported in the fourth quarter of 1997. As a result of this
shortfall, the Company has reviewed and continues to review its security
procedures and operating and financial controls and, based upon such review,
has implemented enhanced security systems and inventory work-in-process
tracking systems and expects to continue to identify opportunities to
implement enhanced procedures and controls. The Company expects to continue to
conduct quarterly inventories until it can assess the effectiveness of these
measures.
 
  In addition, in 1997 the Company included in its accounts receivable reserve
approximately $1.7 million in connection with amounts due from discontinued
customers and accrued an expense of $600,000 for professional fees related to
the investigation of the inventory shortfall.
 
                                      10
<PAGE>
 
  The Company provides electronics manufacturing services to customers in the
networking and telecommunications, computer, industrial and medical equipment
markets. The percentage of net sales by market for the years ended 1998, 1997
and 1996 is as follows:
 
<TABLE>
<CAPTION>
   Market                                         Percentage of Net Sales
   ------                                         ---------------------------
                                                   1998      1997      1996
                                                  -------   -------   -------
   <S>                                            <C>       <C>       <C>
   Networking/Telecommunications.................      58%       65%       73%
   Computer......................................      22        15        13
   Industrial....................................      17        17        12
   Medical.......................................       3         3         2
                                                  -------   -------   -------
                                                  100%          100%      100%
                                                  =======   =======   =======
</TABLE>
 
1998 Compared to 1997
 
  The Company's net sales increased $25.8 million or 9.8% to $290.5 million in
1998 from $264.7 million in 1997. The increase was attributed principally to
an expansion of business from existing customers and sales to new customers in
the PCB assembly markets. The increase was also due to the effect of a full
year of operations of the acquisitions made in 1997. As a percentage of net
sales, the Company's largest customers in 1998 included Ascend (19%), EMC
(18%) and Bay Networks (16%) as compared to Bay Networks (31%), EMC (13%) and
Ascend (13%) in 1997. In each of the second, third and fourth quarters of 1998
the Company experienced increased net sales compared to the respective
comparable quarters in 1997.
 
  Net sales in the PCB assembly division (including system integration and
test operations), as a percentage of net sales was 87.6% in 1998 compared to
89.5% in 1997. Net sales in the cable and harness assembly division accounted
for 12.4% of 1998 net sales compared to 10.5% of 1997 net sales.
 
  Gross profit increased $7.7 million or 66.6% to $19.2 million compared to
$11.5 million in 1997. Gross profit as a percentage of net sales ("gross
margin") increased to 6.7% in 1998 from 4.4% in 1997. Within 1998 gross margin
was 3.2%, 5.4%, 7.4% and 9.7% in the first, second, third and fourth quarters,
respectively. This sequential improvement is due primarily to higher
absorption of manufacturing overhead, the positive impact of the Company's
cost management programs and a favorable product mix. In addition, 1997
expenses were impacted by a charge relating to the inventory shortfall of
approximately $13.1 million which was included in cost of goods sold.
 
  Selling, general and administrative ("SG&A") expenses decreased $0.4 million
or 2.5% to $14.7 million in 1998, from $15.1 million in 1997. SG&A expenses as
a percentage of net sales decreased to 5.1% in 1998 from 5.7% in 1997. The
decrease in SG&A expenses as a percentage of net sales in 1998 compared to
1997 is primarily the result of a reduction in SG&A in 1998 due to cost
management programs at the Company while net sales increased in 1998.
 
  Operating income increased $8.1 million to $4.5 million in 1998, compared
with an operating loss of $3.5 million for 1997 as a result of the previously
discussed factors.
 
  Interest and other expense, net decreased $0.5 million to $2.2 million for
1998 from $2.7 million for 1997. The decrease in interest and other expenses
resulted principally from reduced average borrowings on the Company's Credit
Facility.
 
  The Company recorded a provision for income taxes of $1.0 million in 1998
compared to a benefit for income taxes of $2.2 million in 1997. The effective
income tax rate was 44.0% in 1998. The Company expects that the effective
income tax rate for the year ended December 31, 1999 will approximate 42%.
 
                                      11
<PAGE>
 
1997 Compared to 1996
 
  The Company's net sales increased $38.8 million or 17.2% to $264.7 million
in 1997 from $225.9 million in 1996. This increase was attributed principally
to an expansion of business from existing customers and sales to new customers
in the PCB assembly markets. The increase was also due to the effect of
acquisitions made by the Company during 1997. Without the acquisitions, the
increase in net sales would have been approximately 11%. As a percentage of
net sales, the Company's largest customers in 1997 included Bay Networks
(31%), EMC (13%) and Ascend (13%). As a percentage of net sales in 1996,
Ascend was the largest customer with 20% of net sales. During 1997, the
Company experienced a reduction in, and then a termination of, business with
3Com. Sales to 3Com were less than 10% of net sales in 1997 compared to 17% of
Company net sales in 1996.
 
  Net sales in the PCB assembly division (including system integration and
test operations) increased as a percentage of net sales to 89.5% in 1997
compared to 87.2% in 1996. Net sales in the cable and harness assembly
division accounted for 10.5% of 1997 net sales compared to 12.8% of 1996 net
sales.
 
  Gross profit decreased by $16.8 million or 59% to $11.5 million in 1997
compared to $28.4 million in 1996. Gross margin decreased to 4.4% in 1997 from
12.6% in 1996. This change is attributable primarily to the following: the
$13.1 million inventory shortfall, changes in product mix with shipments of
lower margin products higher than anticipated, lower than anticipated
shipments resulting in lower manufacturing absorption, and the incidence of
higher than normal manufacturing efficiency variances. These occurrences
primarily affected business operating results in the second half of 1997.
Gross profit as a percentage of net sales in the first and second quarters of
1997 was relatively consistent with 1996 business operating results. Without
the effect of the inventory shortfall charge, gross margin would have
decreased to 9.3% in 1997 due to the aforementioned reasons.
 
  SG&A expenses increased $5.1 million or 50.0% to $15.1 million in 1997 from
$10.0 million in 1996. SG&A expenses as a percentage of net sales increased to
5.7% in 1997 from 4.5% in 1996. The increase in SG&A expenses as a percentage
of net sales for 1997 compared to 1996 reflects the charges associated with
accounts receivable provisions, provision for professional fees related to the
investigation of the inventory shortfall, acquisitions made in Ireland and
Norcross, Georgia, the continued investment in sales and marketing programs at
the Company, and the effects of lower third and fourth quarter 1997 net sales
levels affecting full year comparative results. Without the effect of these
provisions for accounts receivable and non-recurring professional services,
SG&A as a percentage of net sales would have been 4.8% in 1997 compared to
4.5% of net sales in 1996.
 
  Operating income was a loss of $3.5 million for 1997 compared with operating
income of $18.4 million for 1996 as a result of the previously discussed
factors.
 
  Interest and other income, net increased to $2.7 million for 1997 compared
with $1.4 million for 1996. The increase in interest and other expense
resulted principally from additional borrowings on the Company's line of
credit to support working capital requirements.
 
  The Company recorded a benefit for income taxes of $2.2 million in 1997
compared to a provision for income taxes of $6.8 million in 1996.
 
Financial Condition, Liquidity and Capital Resources
 
  The Company had working capital of $70.2 million at December 31, 1998
compared with $35.0 million at December 31, 1997. The $35.2 million increase
is primarily due to the classification of the outstanding amount under the
Credit Facility as a long-term liability at December 31, 1998. Operating
activities provided $9.4 million of cash in 1998 compared with the use of $3.4
million of cash in 1997. Cash was generated by operations in 1998 primarily as
a result of the refund of income taxes, the increase in accounts payable
balances, and the positive impact of a profitable operation in 1998, offset by
the impact of higher trade receivables and inventories
 
                                      12
<PAGE>
 
at December 31, 1998. Cash provided by operations was used primarily for the
acquisition of property and equipment in 1998 of $7.9 million compared with
$2.4 million for 1997.
 
  Accounts receivable increased $28.2 million to $70.5 million as of December
31, 1998 from $42.4 million as of December 31, 1997. The increase reflects
higher net sales in the fourth quarter of 1998 as compared to the fourth
quarter of 1997, as well as a shift in the requirements of the Company's
customers to having a higher proportion of shipments occur nearer to the end
of the quarter in 1998 than in 1997. As of December 31, 1998, the Company's
accounts receivable days sales outstanding for product shipments measured from
date of shipment was approximately 31 days.
 
  Inventory increased $5.4 million to $45.3 million as of December 31, 1998
from $40.0 million as of December 31, 1997. The increase reflects higher net
sales activity levels anticipated in the first quarter of 1999 as compared to
net sales activity levels in the first quarter of 1998. Increases for
anticipated higher net sales activity levels were offset slightly by inventory
management initiatives such as the implementation of in-house stores programs
with key distributors, whereby certain distributors of the Company maintain
inventory stockrooms on the Company's premises which provide just-in-time
purchases of certain components upon issuance to the Company's manufacturing
process. It is expected that distributor in-house stores programs will reduce
Company owned raw materials requirements during 1999.
 
  Capital expenditures amounted to $7.9 million in 1998. Of such capital
expenditures, $3.0 million related to leasehold improvements for facility
expansion at the Company's Hudson, Massachusetts printed circuit board
facility, and $2.3 million related to leasehold improvements in the Company's
new facility in Ireland. The remaining $2.6 million related primarily to the
purchase of various manufacturing equipment, furniture and computer equipment.
Capital expenditures are expected to be approximately $3.0 million in 1999.
 
  In the fourth quarter of 1998, the Company executed a new $55 million Senior
Secured Credit Facility ("Credit Facility") to replace the Company's $50
million loan and security agreement then outstanding. This new Credit Facility
provides for borrowings up to an aggregate amount of $55 million, limited to a
certain percentage of qualified accounts receivable and qualified inventory,
of which $39.5 million was utilized at December 31, 1998. An additional $7.8
million was available for use at December 31, 1998 based upon the applicable
borrowing base. Interest is payable monthly and the Credit Facility matures in
2001. Through November 30, 1999, the Company may choose an interest rate of
either (i) 0% to .75% above the prime rate as announced by the bank, or (ii)
1.75% to 2.75% above the prevailing Eurodollar rate depending upon the average
borrowing base availability of the Company. Commencing December 1, 1999, the
Company may choose an interest rate of either (i) 0% to .50% above the prime
rate as announced by the bank, or (ii) 1.50% to 2.50% above the prevailing
Eurodollar rate depending upon the calculated leverage rates of the Company.
The Credit Facility requires the Company to maintain certain levels of minimum
availability and maximum leverage ratios. In addition to certain other
prohibited actions, the Credit Facility also limits capital expenditures by
the Company and prohibits the payment of cash dividends on the Company's
capital stock. The Company exceeded the limit of capital expenditures for 1998
provided in the Credit Facility. A waiver with regard to the excess has been
received from the banks. At December 31, 1998 the interest rate on the Credit
Facility was 8.0%.
 
  The Company entered into a $17 million interest rate swap agreement in the
fourth quarter of 1998 simultaneous with the execution of the Credit Facility.
The swap agreement provides for payments by the Company of a fixed rate of
interest of 6.76% and matures on October 19, 2001. The fair value of the
interest rate swap at December 31, 1998 was approximately $(770,000) since the
fixed rate of interest of 6.76% was higher than the floating rate.
 
  The Company was in default as of December 31, 1997 with certain financial
covenants under its former loan and security agreement. The Company's banks
waived compliance with such covenants as of December 31, 1997. Due to the
nature of the financial covenants under such former agreements, in 1997 the
Company reclassified all its long-term bank debt of $40.2 million at December
31, 1997 to a current liability.
 
 
                                      13
<PAGE>
 
  The Company has equipment lease lines of approximately $11.3 million
available for purchases of manufacturing equipment, computer hardware and
software and furniture. In May 1998, the Company entered into a $5.0 million
operating lease line agreement for the purchase of certain equipment in the
Dublin, Ireland facility. At December 31, 1998 substantially all of this
available lease line had been utilized for outstanding commitments.
 
  The Company's need for, cost of and access to funds are dependent in the
long-term on future operating results as well as conditions external to the
Company. The Company believes that its current sources of and access to future
capital are adequate to support operations for the next twelve months. Because
the Company's capital requirements cannot be predicted with certainty,
however, there is no assurance that the Company will not require additional
financing during this period. There is no assurance that any additional
financing will be available on terms satisfactory to the Company.
 
Year 2000 Readiness Disclosure Statements
 
  The Company and the companies with which it does business utilize computer
software programs and operating systems and embedded technology in the conduct
of their operations. Many computer software programs and operating systems and
much technology in use today are unable to distinguish between the year 2000
and the year 1900 because they use two-digit shorthand to define the
applicable year. This is commonly known as the Year 2000 problem or issue. If
the Company does not properly identify and correct its Year 2000 issues prior
to January 1, 2000, the operations of the Company could be materially
disrupted, due to, among other things, an inability to process transactions,
send invoices, receive and record inventory or payments, or engage in similar
normal business activities. In addition, the Company's operations could also
be significantly disrupted if the companies with which it does business are
not Year 2000 compliant on a timely basis, and such failure adversely affects
their ability to do business with the Company. Any of these Year 2000 failures
or disruptions could have a material adverse effect on the Company's business,
financial condition or results of operations.
 
  To address these issues the Company has undertaken an extensive project to
assess and remedy the areas within its business and operations which could be
adversely affected by Year 2000 issues, including its information technology
("IT") and non-IT systems and processes. The first phase of the project is (i)
to determine the extent of the Company's Year 2000 problem by reviewing all of
the Company's hardware, software, equipment and embedded technology to
determine if any of this software and technology is not Year 2000 compliant
and (ii) to determine whether companies with which it does significant
business will be Year 2000 compliant on a timely basis. The next stage in the
project is to correct or replace and test all such hardware, software,
equipment and embedded technology of the Company and to address the Year 2000
issues identified at the Company's vendors and customers, as appropriate. The
project is being conducted by the Company using internal and external
resources. Finally, the Company will determine the need to formulate and
revise contingency plans based on the results of its assessment and
remediation efforts with regard to its own Year 2000 issues as well as those
of its customers and suppliers.
 
  The Company has substantially completed the assessment stage of the project
and has commenced the remediation stage. The Company has also begun
discussions regarding Year 2000 compliance with its vendors and customers, and
has not been informed by any vendor or customer of material Year 2000
compliance problems which are likely to cause a material disruption in the
Company's operations. The Company will continue to work with its vendors and
customers to identify any possible issues, including testing interfaces and
site audits.
 
  Based on its review to date, the Company expects the total cost of its Year
2000 assessment and remediation project to be approximately $1.7 million, of
which approximately $0.3 million has been expensed to date. The Company's
current expectations regarding the total cost of its Year 2000 project are
subject to change as the project progresses and more detailed information is
developed regarding the remediation efforts necessary to
 
                                      14
<PAGE>
 
make the Company Year 2000 compliant on a timely basis. The sources of the
funds for the Company's Year 2000 project are operating cash flow and
available equipment lease-lines. No other material Company IT project has been
deferred as a result of the Year 2000 project. The Company currently does not
believe that internal Year 2000 issues will have a material adverse effect on
the Company's business.
 
  The Company has identified its significant systems which could be adversely
affected by Year 2000 issues to be: (i) manufacturing equipment (including SMT
lines) and testing equipment, (ii) integrated enterprise resource planning
("ERP") systems and networking software and equipment used in its
Massachusetts, Atlanta and Ireland facilities, and (iii) electronic commerce
capabilities. The Company has obtained certifications from its equipment
vendors indicating that its critical manufacturing and testing equipment is
Year 2000 compliant. The Company plans to test its critical equipment by June
30, 1999. The Company has installed a vendor-certified Year 2000 compliant
version of ERP software in its Massachusetts facilities. The Company plans to
test such ERP software by June 30, 1999. The version of the ERP software used
by the Company's Atlanta facility is certified as Year 2000 compliant by the
vendor and was installed and tested by the Company in February 1999. The ERP
systems used in the Company's Ireland facility is not Year 2000 compliant and
cannot be upgraded. The Company has purchased the version of the vendor-
certified Year 2000 compliant software utilized in the Atlanta facility and
has engaged the software vendor to assist in implementing the new ERP system
in its Ireland facility. The project plan provides for a completion date of
June 14, 1999. All network software and electronic commerce capabilities are
in the remediation phase with completion of testing and contingency planning
scheduled for June 30, 1999. For the above identified applications, the
Company is developing manual process procedures as a contingency plan.
 
  There can be no assurance, however, that the Company's plans and programs to
become Year 2000 compliant will succeed in their entirety, or be completed on
a timely basis or that the use of the Company's internal resources to complete
the project will not adversely effect other aspects of the Company's business.
The Company's ability to implement its Year 2000 compliance plan and to make
the necessary modifications or replacements may be adversely affected by a
number of factors outside the control of the Company, including the
availability and cost of trained personnel and the ability of such personnel
to acquire Year 2000 compliant systems and otherwise to locate and correct all
relevant computer codes. In addition, there can be no assurance that one or
more of the Company's vendors or customers won't have material Year 2000
compliance problems. If either the Company or any of its customers or
suppliers fail to become Year 2000 compliant on a timely basis, or if the
costs to the Company are significantly greater than currently anticipated, the
result could be a significant disruption in the Company's business due to a
failure in the systems designed to allow the Company to process transactions,
invoice and receive payments, receive inventory from suppliers or engage in
similar business practices. Such failure would result in a material adverse
effect on the Company's business, financial condition or results of
operations.
 
Newly Issued Accounting Standard
 
  In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
effective for fiscal years beginning after June 15, 1999. The new standard
requires that all companies record derivatives on the balance sheet as assets
or liabilities, measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the use
of the derivative and whether it qualifies for hedge accounting. Management is
currently assessing the impact of SFAS No. 133 on the financial statements of
the Company. The Company will adopt this accounting standard on January 1,
2000, as required.
 
Cautionary Statements
 
  The Private Securities Litigation Reform Act of 1995 (the "Act") contains
certain safe harbors regarding forward-looking statements. From time to time,
information provided by the Company or statements made by its employees may
contain "forward-looking" information, which involve risk and uncertainties.
Any statements in this Annual Report on Form 10-K that are not statements of
historical fact are forward-looking statements (including, but not limited to,
statements concerning the Company's Year 2000 plans, expectations, compliance
 
                                      15
<PAGE>
 
and cost, the characteristics and growth of the Company's market and
customers, the Company's expectations, objectives and plans for future
operations, the Company's ability to effectively manage the costs of the
manufacturing processes, and the Company's expected results of operations,
financial condition, liquidity and capital resources). The following
cautionary statements should be considered carefully in evaluating the Company
and its business. The factors discussed in these cautionary statements, among
other factors, could cause actual results to differ materially from those
contained in the forward-looking statements made in this Annual Report on Form
10-K and presented elsewhere by management from time to time. These cautionary
statements are being made pursuant to the provisions of the Act and with the
intention of obtaining the benefits of the safe harbor provisions of the Act.
 
 Customer and Market Concentration; Dependence on Electronics Industry
 
  For 1998, the Company's five largest customers accounted for approximately
68% of net sales. Three customers accounted for in excess of 10% of net sales
individually in 1998. Sales to Ascend, EMC and Bay Networks were approximately
19%, 18%, and 16%, respectively, of the Company's net sales for 1998. In 1997,
the Company's five largest customers accounted for approximately 70% of the
Company's net sales. Sales to Bay Networks, Ascend and EMC were approximately
31%, 13%, and 13%, respectively, of the Company's net sales for 1997. The
Company's results will depend to a significant extent on the success achieved
by its OEM customers in marketing their products and the Company's ability to
diversify its customer base in order to reduce its reliance on particular
customers. There can be no assurance that the Company's principal customers
will continue to purchase products and services from the Company at current
levels, if at all, or that the Company will be able to consistently expand its
customer base to make up any sales shortfalls from such major customers and
increase overall revenue. The loss of one or more major customers, a
significant reduction in purchases from such customers, discontinuance by any
major customer of products manufactured by the Company, the failure to expand
its customer base or developments adverse to the Company's customers or their
products could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company could
be adversely affected if a major customer were unable or unwilling to pay for
products and services on a timely basis or at all.
 
  The Company's customer base has historically been concentrated in a limited
number of segments within the electronics industry. Net sales to customers
within the networking and telecommunications segment accounted for over 50% of
the Company's net sales in each of 1996, 1997 and 1998. These industry
segments, and the electronics industry as a whole, are subject to intense
competition, consolidation, rapid technological changes, significant
fluctuations in product demand, relatively short product life-cycles, and
consequent product obsolescence. Developments adverse to such industry
segments could have a material negative effect on the Company. The industry
segments served by the Company are also subject to economic cycles and have in
the past experienced, and are likely in the future to experience, recessionary
periods. In addition, the Company cannot predict whether Year 2000 concerns
will adversely affect demands or spending patterns for its customers'
products, thereby adversely affecting demand for the Company's services. A
recessionary period or other event leading to excess capacity or downturn
affecting the electronics industry generally or one or more of the industry
segments served by the Company would likely result in intensified price
competition, reduced gross margins and a decrease in net sales, all of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
 
 Variability of Customer Requirements; Nature and Extent of Customer
Commitments on Orders
 
  The level and timing of orders placed by the Company's OEM customers vary
due to customer attempts to manage inventory, changes in the OEM's
manufacturing strategy and variation in demand for customer products due to,
among other things, introduction of new products, product life cycles,
competitive conditions or industry or general economic conditions. The Company
generally does not obtain long-term purchase orders or commitments from its
customers and, accordingly, works with its customers to anticipate delivery
dates and future volume of orders based on customer forecasts. The Company
relies on its estimates of anticipated future volumes when making commitments
regarding the levels of business that it will seek and accept, the timing of
production schedules, the purchase of inventory and the levels and utilization
of personnel and other resources. From time to time, the Company will purchase
certain components without a customer commitment to pay for them. The Company
may source components for product assemblies based on customer forecasts.
However, the
 
                                      16
<PAGE>
 
Company's policy is that customers are responsible for materials and
associated acquisition costs in the event of a significant reduction, delay or
cancellation of orders from the forecasted amounts. In the event a customer is
unwilling or unable or not obligated to reimburse the Company for materials
costs in the case of a significant variance from forecast, the Company's
business, financial condition and results of operations could be materially
and adversely affected. A variety of conditions, both specific to the
individual customer and generally affecting the customer's industry, may cause
customers to cancel, reduce or delay orders that were either previously made
or anticipated. Significant or numerous cancellations, reductions or delays in
orders by a customer or group of customers could have a material adverse
effect on the Company's business, financial condition and results of
operations.
 
 Fluctuations in Operating Results
 
  The Company's operating results have varied and may continue to fluctuate
significantly from period to period, including on a quarterly basis. The
variability of the level and timing of orders from, and shipments to, major
customers may result in significant periodic and quarterly fluctuations in the
Company's results of operations. A substantial portion of net sales in a given
quarter may depend on obtaining and fulfilling orders for assemblies to be
manufactured and shipped in the same quarter in which those orders are
received. Further, a significant portion of net sales in a given quarter may
depend on assemblies configured, completed, packaged and shipped in the final
weeks of such quarter. In addition to the variability resulting from the
short-term nature of its customers' commitments, other factors have
contributed, and may in the future contribute, to such fluctuations. These
factors include, among other things, customers' announcements and
introductions of new products or new generations of products, evolutions in
the life cycles of customers' products, timing of expenditures in anticipation
of future orders, cost effectiveness in managing manufacturing processes,
changes in costs and availability of labor and components, efficiencies
achieved by the Company in managing inventory and fixed assets, a shift in the
Company's product assembly mix which results in fluctuating margins, capacity
utilization, inventory obsolescence, currency exchange rate movements,
acquisitions and related charges and expenses, competition in the electronics
manufacturing services market, trends in the electronics industry and changes
or anticipated changes in economic conditions. An interruption in
manufacturing resulting from shortages of parts or equipment, fire, earthquake
or other natural disaster, equipment failure or otherwise could have a
material adverse effect on the Company's business, financial condition and
results of operations. Because the Company's operating expenses are based on
anticipated revenue levels and a high percentage of the Company's operating
expenses are relatively fixed, any unanticipated shortfall in revenue in a
quarter may have a material adverse impact on the Company's business,
financial condition and results of operations for that quarter. Management's
failure to cost effectively manage its manufacturing processes and manage
inventory levels also could have a material adverse effect on the Company's
business, financial condition and results of operations. Results of operations
in any period should not be considered indicative of the results to be
expected for any future period.
 
  As a result of the foregoing or other factors, it is possible that in some
future period the Company's results of operations will fail to meet the
expectations of securities analysts or investors, and the price of the Common
Stock would then be materially and adversely affected.
 
 Competition
 
  The electronics manufacturing services industry is highly competitive. The
Company competes against numerous U.S. and foreign electronics manufacturing
services providers with global operations. The Company also faces competition
from a number of electronics manufacturing services providers who operate on a
local or regional basis. In addition, current and prospective customers
continually evaluate the merits of manufacturing products internally. Certain
of the Company's competitors have substantially greater manufacturing,
financial, systems, sales and marketing resources than the Company. Also, due
to the consolidation trend within the industry, the Company faces larger and
more geographically diverse competitors who have combined resources with which
to compete against the Company. In addition, these competitors may have the
ability to respond more quickly to new or emerging technologies, may adapt
more quickly to changes in customer requirements and may
 
                                      17
<PAGE>
 
devote greater resources to the development, promotion and sale of their
services than the Company. The Company may be operating at a cost disadvantage
compared to manufacturers who have greater direct buying power from component
suppliers or who have lower cost structures. The Company's manufacturing
processes are generally not subject to significant proprietary protection, and
companies with significant resources or international operations may enter the
market. Increased competition could result in price reductions, reduced
margins or loss of market share, any of which could have a material adverse
effect on the Company's business, financial condition and results of
operations. The Company believes that the principal competitive factors in the
segments of the electronics manufacturing services industry in which it
operates are technology, service, manufacturing capability, quality,
geographic location, price, reliability, timeliness in delivering finished
products and flexibility in adapting to customers' needs. There can be no
assurance that competition from existing or potential competitors will not
have a material adverse effect on the Company's business, financial condition
and results of operations.
 
 Management of Growth
 
  The Company has grown rapidly in recent years and expects to continue to
expand its operations. Such growth has placed, and will continue to place,
significant strain on the Company's management, operations, technical,
financial, systems, marketing and other resources. The Company's ability to
manage its growth will require it to continue to invest in its operational,
financial and management information systems, as well as to develop further
the management skills of its managers and supervisors and to retain, motivate
and effectively manage its employees. In addition, as a result of the
inventory shortfall occurring in the fourth quarter of 1997, the Company has
reviewed and continues to review its security procedures and operating and
financial controls and, based upon such review, has implemented enhanced
security systems and inventory work-in-process tracking systems and expects to
continue to identify opportunities to implement enhanced procedures and
controls. There can be no assurance, however, that the controls implemented by
management will result in the cost savings anticipated by management. If the
Company's management is unable to manage growth effectively, the quality of
the Company's services and products, its ability to retain key personnel and
its results of operations could be materially and adversely affected.
Competition for personnel is intense, and there can be no assurance that the
Company will be able to attract, assimilate or retain additional highly
qualified employees in the future, especially senior managers, engineering and
sales personnel. The failure to hire and retain such personnel could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Cautionary Statements--
Acquisitions and Geographic Expansion" and "--Dependence Upon Key Personnel
and Skilled Employees."
 
 Acquisitions and Geographic Expansion
 
  In June 1997, the Company acquired substantially all of the assets and
liabilities of Electronic Systems International, located in Norcross, Georgia.
The acquired company provides electronics manufacturing services, primarily
consisting of PCB assembly, electro-mechanical subassembly and total systems
assembly to customers based primarily in the Southeastern United States. Also
in June 1997, the Company completed the acquisition of Advanced Component
Technologies Limited (f.k.a. SignMax Limited) located in Dublin, Ireland.
Advanced Component Technologies Limited (f.k.a. SignMax Limited) provides
electronics manufacturing services primarily consisting of cable and harness
assembly. The Company has limited experience in managing geographically
dispersed operations, in integrating acquired companies into its operations,
in expanding the scope of operations of acquired businesses, and in operating
in the Southeastern United States or internationally. Therefore, there can be
no assurance that the Company will operate the acquired businesses profitably
in the future.
 
  The Company may expand into other geographical areas within the United
States and internationally by acquiring additional electronics manufacturing
services providers or by establishing new manufacturing operations in such
areas. The Company may compete for acquisition and expansion opportunities
with entities having significantly greater resources than the Company. Any
such transactions may result in the potentially dilutive issuance of equity
securities, the incurrence of debt and amortization expenses related to
goodwill and
 
                                      18
<PAGE>
 
other intangible assets, and other costs and expenses, all of which could
materially and adversely affect the Company's business, financial condition
and results of operations following such a transaction. Such transactions also
involve numerous business risks, including difficulties in the assimilation of
the operations, technologies and products of the acquired companies, the
diversion of management's attention from other business concerns and the
potential loss of key employees from the combined company. Therefore, there
can be no assurance that the key employees and businesses of acquired
companies will be successfully integrated with the Company, that any acquired
business will contribute significantly to the Company's sales or earnings, or
that sales and earnings of the Company will not be adversely effected by the
integration process or other factors.
 
 Dependence Upon Key Personnel and Skilled Employees
 
  The Company's future success will be largely dependent upon the skills and
efforts of John A. Pino, its President and Chief Executive Officer, and other
key executives as well as its managerial, sales and technical employees. None
of the senior management or other key employees of the Company is subject to
any employment contract or noncompetition agreement and the Company does not
maintain any key-man life insurance on any of its key executives. The loss of
services of any of its executives or other key personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, continued growth of the Company will require that,
despite significant competition, it attract, motivate and retain additional
skilled and experienced managerial, sales and technical personnel. There can
be no assurance that the Company will be able to attract, motivate and retain
personnel with the skills and experience needed to successfully manage the
Company's business and operations.
 
 Expansion of Facilities and Manufacturing Capacity
 
  The Company believes its long-term competitive position depends in part on
its ability to increase manufacturing capacity. The Company may obtain such
additional capacity through acquisitions or through expansion of its current
facilities. The acquisition and expansion of additional facilities from time
to time will require substantial additional capital, and there can be no
assurance that such capital will be available. Further, there can be no
assurance that the Company will be able to acquire sufficient capacity or
successfully integrate and manage such additional facilities. In addition, the
Company's expansion of its manufacturing capacity has significantly increased
its fixed costs, and the future profitability of the Company will depend on
its ability to utilize its manufacturing capacity in an effective manner. The
failure to obtain sufficient capacity or to successfully integrate and manage
additional manufacturing facilities could adversely impact the Company's
relationships with its customers, limit the Company's growth opportunities and
materially and adversely affect the Company's business, financial condition
and results of operations. See "Item 2. Properties."
 
 Availability of Key Components
 
  The Company and many of its customers rely on a single or limited number of
third-party suppliers for many components used in the assembly process. The
Company does not have any long-term supply agreements. Shortages of certain
electronic components have occurred from time to time. In addition, due to the
Company's utilization of just-in-time inventory techniques, the timely
availability of many components to the Company is dependent on the Company's
ability to continuously develop accurate forecasts of customer volume
requirements. Component shortages could result in manufacturing and shipping
delays or increased component prices that could have a material adverse effect
on the Company's business, financial condition and results of operations. To
the extent that the Company is unable to timely obtain key components for the
reasons cited above or otherwise, the Company's business, financial condition
and results of operations could be materially and adversely affected. See
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Cautionary Statements--Risks of International
Operations."
 
 Technological Change and Process Development
 
  The market for the Company's manufacturing services is characterized by
rapidly changing technology and evolving process development. The continued
success of the Company's business will depend in large part upon
 
                                      19
<PAGE>
 
its ability to maintain and enhance its technological capabilities, develop
and market manufacturing services which meet changing customer needs and
successfully anticipate or respond to technological changes in manufacturing
processes on a cost-effective and timely basis. Although management believes
that the Company's operations utilize the assembly and testing technologies
and equipment currently required by the Company's customers, there can be no
assurance that the Company's process development efforts will be successful or
that the emergence of new technologies, industry standards or customer
requirements will not render the Company's equipment, inventory or processes
obsolete or noncompetitive. In addition, to the extent that the Company
determines that new assembly and testing technologies and equipment are
required to remain competitive, the acquisition and implementation of such
technologies and equipment may require significant expense or capital
investment by the Company. There can be no assurance that such additional
capital will be available on terms satisfactory to the Company or at all.
 
 Risks of International Operations
 
  The Company acquired in 1997 and then expanded operations in Dublin, Ireland
and may in the future expand into other geographic regions. The Company also
purchases a significant number of components manufactured in foreign
countries. Because of the scope of its international operations, the Company
is subject to numerous risks, including economic or political disruptions and
instability, transportation delays and interruptions, foreign exchange rate
fluctuations, employee turnover and labor unrest, longer payment cycles,
greater difficulty in collecting accounts receivable, and less developed
infrastructure, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. Changes in
policies by the U.S. or foreign governments resulting in, among other things,
increased duties, increased regulatory requirements, higher taxation, currency
conversion limitations, restrictions on the transfer of funds, the imposition
of tariffs, or limitations on imports or exports could also have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company could also be adversely affected if the current
policies encouraging foreign investment or foreign trade by its host countries
were to be reversed.
 
 Litigation
 
  On February 27, 1998, the Company and certain of the Company's officers and
directors were named as defendants in a purported securities class action
lawsuit filed in the United States District Court for the District of
Massachusetts. The complaint was then amended on October 16, 1998. The
plaintiffs purport to represent a class of all persons who purchased or
otherwise acquired the Company's Common Stock in the period from April 17,
1997 through March 31, 1998. The amended complaint alleges, among other
things, that the defendants knowingly made misstatements to the investing
public about the value of the Company's inventory and the nature of its
accounting practices. On December 15, 1998, the Company filed a motion to
dismiss the case in its entirety based on the pleadings. The Company's motion
to dismiss has been fully briefed by both sides, and oral argument is
scheduled for April 1999. The Company believes the claims asserted in the
amended complaint are without merit and intends to continue to defend itself
vigorously in this action. The Company further believes that this litigation
will not have a material adverse effect on the Company's business and results
of operations, although there can be no assurance as to the ultimate outcome
of these matters.
 
 Significant Influence of Principal Stockholder
 
  John A. Pino, the Company's President and Chief Executive Officer, and
certain trusts for the benefit of members of his family beneficially own
approximately 60% of the outstanding Common Stock. As a result, Mr. Pino will
be able to exert significant influence over the Company through his ability to
influence the election of directors and all other matters that require action
by the Company's stockholders. The voting power of these stockholders under
certain circumstances could have the effect of preventing or delaying a change
in control of the Company.
 
                                      20
<PAGE>
 
 Environmental Compliance
 
  The Company is subject to a variety of environmental regulations relating to
the use, storage, discharge and disposal of hazardous chemicals used during
its manufacturing process. A failure by the Company to comply with present and
future regulations could subject it to future liabilities or the suspension of
production. Such regulations could also restrict the Company's ability to
expand its facilities or could require the Company to acquire costly equipment
or to incur other significant expenses to comply with environmental
regulations.
 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
  The Company is exposed to changes in interest rates and foreign currency
exchange primarily in its cash, debt and foreign currency transactions. The
Company does not hold derivative financial instruments for trading or
speculative purposes. A discussion of the Company's accounting policies for
derivative financial instruments is included in the Summary of Significant
Accounting Policies in Note 1 of Notes to the Company's Consolidated Financial
Statements. Additional information relating to financial instruments and debt
is included in Note 5--Note Payable Bank.
 
  The Company has a $55 million Senior Secured Credit Facility ("Credit
Facility") which bears interest at a variable interest rate. The Company has
also entered into a $17 million interest rate swap agreement which matures in
October 2001 and is classified as held for purposes other than trading, in
order to reduce the impact of fluctuating interest rates on its Credit
Facility. Under this swap agreement, the Company agrees with the counterpart
to pay fixed rate payments on a monthly basis, based upon an annual interest
rate of 6.76% in exchange for receiving variable rate payments, on a monthly
basis, calculated on an agreed-upon notional amount. Net interest payments or
receipts from interest rate swaps are recorded as adjustments to interest
expense in the Company's Consolidated Statement of Operations. The Company's
exposure related to adverse movements in interest rates is primarily derived
from the variable rate on the remainder of the Company's Credit Facility. As
of December 31, 1998, $17 million of the outstanding balance of $39.5 million
under the Credit Facility was at a rate of 6.76% and the remainder of the
Credit Facility was at an 8.0% interest rate. Based on the portion of this
balance in excess of $17 million, an adverse change of one percent in the
interest rate would cause a change in interest expense of approximately
$225,000 on an annual basis.
 
  The foreign currency to which the Company has exchange rate exposure is the
Irish punt. International operations do not constitute a significant portion
of the revenues of the Company and therefore this exposure is not considered
material to the Company.
 
  Based on a hypothetical ten percent adverse movement in foreign currency
exchange rates, the potential losses in future earnings, fair value of the
risk-sensitive financial instruments and cash flows are immaterial. However,
the actual effects of interest rates and foreign currency exchange rates may
differ materially from the hypothetical analysis.
 
                                      21
<PAGE>
 
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
 
  The Company's Consolidated Financial Statements and the Independent Auditors'
Report thereon are presented in the following pages. The Consolidated Financial
Statements filed in Item 8 are as follows:
 
  Independent Auditors' Report
 
  Consolidated Balance Sheets as of December 31, 1998 and 1997
 
  Consolidated Statements of Operations for the years ended December 31,
  1998, 1997 and 1996
 
  Consolidated Statements of Comprehensive Income (Loss) for the years ended
  December 31, 1998, 1997 and 1996
 
  Consolidated Statements of Stockholders' Equity for the years ended
  December 31, 1998, 1997 and 1996
 
  Consolidated Statements of Cash Flows for the years ended December 31,
  1998, 1997 and 1996
 
  Notes to Consolidated Financial Statements
 
                                       22
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT
 
Board of Directors and Stockholders
ACT Manufacturing, Inc.:
 
  We have audited the accompanying consolidated balance sheets of ACT
Manufacturing, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, comprehensive income (loss),
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. Our audits also included the consolidated financial
statement schedule listed in the index at Item 14. These consolidated
financial statements and consolidated financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and consolidated
financial statement schedule based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December
31, 1998 and 1997, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. Also, in our opinion, such
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
 
DELOITTE & TOUCHE LLP
 
Boston, Massachusetts
February 26, 1999
 
                                      23
<PAGE>
 
                            ACT MANUFACTURING, INC.
 
                          CONSOLIDATED BALANCE SHEETS
 
                           December 31, 1998 and 1997
 
<TABLE>
<CAPTION>
                                                         1998          1997
                                                     ------------  ------------
<S>                                                  <C>           <C>
                       ASSETS
Current Assets:
  Cash and cash equivalents......................... $  5,388,537  $  5,165,197
  Accounts receivable trade (less allowance for
   doubtful accounts of $1,151,000 in 1998 and
   $2,030,000 in 1997)                                 70,546,435    42,361,878
  Inventory.........................................   45,336,768    39,950,859
  Prepaid expenses and other assets.................    2,204,173     1,194,731
  Income taxes refundable...........................          --      8,417,111
  Deferred tax asset................................    1,359,626     1,509,000
                                                     ------------  ------------
    Total current assets............................  124,835,539    98,598,776
Property and Equipment--Net.........................   13,489,424     8,005,742
Goodwill--Net.......................................    5,505,964     6,129,527
Other Assets--Net...................................    1,538,050       805,443
                                                     ------------  ------------
    Total........................................... $145,368,977  $113,539,488
                                                     ============  ============
        LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Note payable bank................................. $        --   $ 40,206,410
  Accounts payable..................................   50,592,094    18,556,645
  Accrued compensation and related taxes............    1,463,526     1,657,610
  Income tax payable................................      504,755           --
  Accrued expenses and other........................    2,099,950     3,130,562
                                                     ------------  ------------
    Total current liabilities.......................   54,660,325    63,551,227
                                                     ------------  ------------
Other Long-Term Liabilities.........................      976,990       729,668
                                                     ------------  ------------
Note Payable Bank...................................   39,497,836           --
                                                     ------------  ------------
Commitments and Contingencies (Notes 12 and 14)
Stockholders' Equity:
  Preferred stock--$.01 par value; authorized,
   5,000,000 shares; issued and outstanding, none...          --            --
  Common stock--$.01 par value; authorized,
   20,000,000 shares; issued and
   outstanding, 9,058,500 shares in 1998 and
   9,062,946 shares in 1997.........................       90,585        90,629
  Additional paid-in capital........................   39,204,973    39,327,194
  Accumulated other comprehensive income (loss).....     (179,750)        4,307
  Retained earnings.................................   11,118,018     9,836,463
                                                     ------------  ------------
    Total stockholders' equity......................   50,233,826    49,258,593
                                                     ------------  ------------
      Total......................................... $145,368,977  $113,539,488
                                                     ============  ============
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       24
<PAGE>
 
                            ACT MANUFACTURING, INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
                  Years Ended December 31, 1998, 1997 and 1996
 
<TABLE>
<CAPTION>
                                          1998          1997          1996
                                      ------------  ------------  ------------
<S>                                   <C>           <C>           <C>
Net sales...........................  $290,529,091  $264,654,208  $225,900,182
Cost of goods sold..................   271,310,626   253,122,066   197,529,503
                                      ------------  ------------  ------------
Gross profit........................    19,218,465    11,532,142    28,370,679
Selling, general and administrative
 expenses...........................    14,686,751    15,061,975    10,016,851
                                      ------------  ------------  ------------
Operating income (loss).............     4,531,714    (3,529,833)   18,353,828
                                      ------------  ------------  ------------
Other income (expense):
  Interest expense..................    (2,334,350)   (2,659,323)   (1,555,697)
  Other, net........................        92,794       (46,593)      131,783
                                      ------------  ------------  ------------
    Total...........................    (2,241,556)   (2,705,916)   (1,423,914)
                                      ------------  ------------  ------------
Income (loss) before provision for
 income taxes.......................     2,290,158    (6,235,749)   16,929,914
Benefit (provision) for income
 taxes..............................    (1,008,603)    2,229,000    (6,773,000)
                                      ------------  ------------  ------------
Net income (loss)...................  $  1,281,555  $ (4,006,749) $ 10,156,914
                                      ============  ============  ============
Basic net income (loss) per common
 share..............................  $       0.14  $      (0.45) $       1.16
                                      ------------  ------------  ------------
Diluted net income (loss) per common
 share..............................  $       0.14  $      (0.45) $       1.13
                                      ------------  ------------  ------------
Weighted average shares
 outstanding--basic.................     9,062,576     8,951,688     8,762,233
                                      ------------  ------------  ------------
Weighted average shares
 outstanding--diluted...............     9,199,184     8,951,688     9,012,495
                                      ============  ============  ============
</TABLE>
 
--------------------------------------------------------------------------------
 
                            ACT MANUFACTURING, INC.
 
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
                  Years Ended December 31, 1998, 1997 and 1996
 
<TABLE>
<CAPTION>
                                           1998          1997           1996
                                       ------------  -------------  ------------
<S>                                    <C>           <C>            <C>
Net income (loss)..................... $  1,281,555  $  (4,006,749) $ 10,156,914
Other comprehensive income (loss):
  Foreign currency translation
   adjustment.........................     (184,057)         4,307           --
                                       ------------  -------------  ------------
Comprehensive income (loss)........... $  1,097,498  $  (4,002,442) $ 10,156,914
                                       ============  =============  ============
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       25
<PAGE>
 
                            ACT MANUFACTURING, INC.
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
                  Years Ended December 31, 1998, 1997 and 1996
 
<TABLE>
<CAPTION>
                         $.01 Par                Accumulated
                          Value    Additional       Other                      Total
                          Common     Paid-in    Comprehensive  Retained    Stockholders'
                          Stock      Capital    Income (Loss)  Earnings       Equity
                         --------  -----------  ------------- -----------  -------------
<S>                      <C>       <C>          <C>           <C>          <C>
Balance, January 1,
 1996................... $87,132   $31,914,331    $     --    $ 3,686,298   $35,687,761
  Net income............     --            --           --     10,156,914    10,156,914
  Net proceeds from sale
   of stock.............   1,040       522,721          --            --        523,761
  Income tax benefit
   from employees'
   exercise of stock
   options..............     --        763,625          --            --        763,625
                         -------   -----------    ---------   -----------   -----------
Balance, December 31,
 1996...................  88,172    33,200,677          --     13,843,212    47,132,061
  Net loss..............     --            --           --     (4,006,749)   (4,006,749)
  Net proceeds from sale
   of stock.............     552       503,438          --            --        503,990
  Issuance of stock for
   acquisition .........   1,905     5,248,095          --            --      5,250,000
  Cumulative foreign
   currency Translation
   adjustments..........     --            --         4,307           --          4,307
  Income tax benefit
   from employees'
   exercise of stock
   options..............     --        374,984          --            --        374,984
                         -------   -----------    ---------   -----------   -----------
Balance, December 31,
 1997...................  90,629    39,327,194        4,307     9,836,463    49,258,593
  Net income............     --            --           --      1,281,555     1,281,555
  Cumulative foreign
   currency translation
   adjustments..........     --            --      (184,057)          --       (184,057)
  Cancellation of common
   stock from
   acquisition escrow...     (44)     (122,221)         --            --       (122,265)
                         -------   -----------    ---------   -----------   -----------
Balance, December 31,
 1998................... $90,585   $39,204,973    $(179,750)  $11,118,018   $50,233,826
                         =======   ===========    =========   ===========   ===========
</TABLE>
 
 
 
                See notes to consolidated financial statements.
 
                                       26
<PAGE>
 
                            ACT MANUFACTURING, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                  Years Ended December 31, 1998, 1997 and 1996
 
<TABLE>
<CAPTION>
                                           1998          1997          1996
                                       ------------  ------------  ------------
<S>                                    <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income (loss)...................  $  1,281,555  $ (4,006,749) $ 10,156,914
 Adjustment to reconcile net income
  (loss) to net cash provided by
  (used for) operating activities:
  Depreciation and amortization......     2,649,250     1,781,667     1,117,966
  Deferred income taxes..............       149,374       (22,000)     (982,000)
  Provision for doubtful accounts....     1,925,000     1,805,000        20,169
  Loss on disposal of fixed assets...       140,625           --            --
  Increase (decrease) in cash from:
   Accounts receivable--trade........   (30,109,557)      155,175   (21,909,379)
   Inventory.........................    (5,385,909)   16,365,565   (23,606,811)
   Prepaid expenses and other
    assets...........................    (1,009,442)   (1,573,433)     (254,881)
   Accounts payable..................    32,035,449    (9,655,635)    5,666,094
   Accrued compensation and related
    taxes............................      (194,084)      130,026       693,453
   Income tax refundable (payable)...     8,921,866    (9,976,944)    2,048,589
   Accrued expenses and other........      (978,767)    1,579,289     1,026,905
                                       ------------  ------------  ------------
    Net cash provided by (used for)
     operating activities............     9,425,360    (3,418,039)  (26,022,981)
                                       ------------  ------------  ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Acquisition of property and
  equipment..........................    (7,945,817)   (2,432,380)   (3,026,585)
 (Increase) decrease in other
  noncurrent assets..................      (632,012)     (152,661)       98,303
 Proceeds from the sale of property
  and equipment......................        72,963           --            --
 Acquisitions, net of cash acquired..           --     (2,387,938)          --
                                       ------------  ------------  ------------
    Net cash used for investing
     activities......................    (8,504,866)   (4,972,979)   (2,928,282)
                                       ------------  ------------  ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Borrowings under line-of-credit
  agreements.........................   255,404,553   243,631,547   167,079,696
 Repayments under line-of-credit
  agreements.........................  (256,113,127) (233,885,125) (140,624,721)
 Repayments of other long-term
  liabilities........................      (287,863)   (1,790,386)      (70,258)
 Receipt of deferred revenue.........       483,340           --            --
 Net proceeds from sale of stock.....           --        503,990       523,761
                                       ------------  ------------  ------------
    Net cash (used for) provided by
     financing activities............      (513,097)    8,460,026    26,908,478
                                       ------------  ------------  ------------
EFFECT OF EXCHANGE RATE CHANGES ON
 CASH AND EQUIVALENTS................      (184,057)       41,823           --
                                       ------------  ------------  ------------
NET INCREASE (DECREASE) IN CASH AND
 CASH EQUIVALENTS....................       223,340       110,831    (2,042,785)
CASH AND CASH EQUIVALENTS, BEGINNING
 OF YEAR.............................     5,165,197     5,054,366     7,097,151
                                       ------------  ------------  ------------
CASH AND CASH EQUIVALENTS, END OF
 YEAR................................  $  5,388,537  $  5,165,197  $  5,054,366
                                       ============  ============  ============
</TABLE>
 
                 See notes to consolidated financial statements
 
                                       27
<PAGE>
 
                            ACT MANUFACTURING, INC.
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. Nature of Business and Summary of Significant Accounting Policies
 
  Nature of Business--ACT Manufacturing, Inc. and Subsidiaries (the "Company")
provide value-added electronics manufacturing services for original equipment
manufacturers in the networking and telecommunications, computer, industrial
and medical equipment markets. The Company provides OEMs with complex printed
circuit board assembly primarily utilizing advanced surface mount technology,
mechanical and molded cable and harness assembly, electro-mechanical
subassembly, and total system assembly and integration.
 
  Principles of Consolidation--The consolidated financial statements include
the accounts of ACT Manufacturing, Inc. and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
 
  Translation of Foreign Currency--The Company translates financial statements
denominated in foreign currency by translating balance sheet accounts at the
end of period exchange rate and statement of operations accounts at the
average exchange rate for the period. Translation gains and losses are
recorded as a separate component of stockholders' equity in accumulated other
comprehensive income (loss) and transaction gains and losses are reflected in
other income (loss).
 
  Use of Estimates--The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
necessarily requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the balance sheet dates. Estimates include such
items as reserves for accounts receivable and inventory, useful lives of other
assets, goodwill, property and equipment, and accrued liabilities.
 
  Fair Value of Financial Instruments--Statement of Financial Accounting
Standards ("SFAS") No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of the fair value of certain financial
instruments. The carrying amounts of cash, cash equivalents, accounts
receivable, accounts payable and accrued expenses approximate fair value
because of their short-term nature. The Company's bank debt, because it
carries a variable interest rate, is also stated at its approximate fair
market value.
 
  Derivatives--The Company has entered into an interest rate swap that
qualifies as a matched swap that is linked by designation with a balance sheet
liability and has opposite interest rate characteristics of such balance sheet
item. Matched interest rate swaps qualify for settlement accounting. Under
settlement accounting, periodic net cash settlements under the swap agreement
are recognized in income on an accrual basis. These settlements are offset
against interest expense in the consolidated statements of operations.
 
  Revenue Recognition--Revenue is recognized upon shipment of the product.
 
  Cash and Cash Equivalents--For the purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments purchased with a
remaining maturity of three months or less to be cash equivalents.
 
  Inventory--Inventory is valued at the lower of cost or market using the
first-in, first-out ("FIFO") method.
 
  Property and Equipment--Purchased property and equipment is recorded at
cost. Capital lease property and equipment is recorded at the lesser of cost
or the present value of the minimum lease payments required. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of the related assets (five to seven years) and over the terms of
the related leases (five years).
 
  Goodwill--Goodwill is being amortized on a straight-line basis over fifteen
years.
 
  Other Assets--Other assets include cash surrender value of officer's life
insurance and noncompete agreements. The noncompete agreements are being
amortized over three to ten years.
 
 
                                      28
<PAGE>
 
                            ACT MANUFACTURING, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
  Warranty--The Company generally warrants that its hardware assemblies will
be free from defects in workmanship for 12 months and passes on to the
customer any warranties provided by component manufacturers and material
suppliers to the extent permitted. Warranty costs have not been material to
date, and accordingly, no reserves have been provided for.
 
  Income Taxes--The Company accounts for income taxes under Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." This Statement requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the Company's consolidated financial statements or tax returns.
Deferred tax liabilities and assets are determined based on the difference
between the financial statement carrying amounts and tax bases of existing
assets and liabilities, using enacted tax rates in effect in the years in
which the differences are expected to reverse.
 
  Stock Based Compensation--As permitted by SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company accounts for stock option grants using
the intrinsic value method in accordance with Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees."
 
  Net Income (Loss) Per Common Share--Basic net income per common share is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted net income
per common share reflects the potential dilution if common equivalent shares
outstanding (common stock options) were exercised or converted into common
stock unless the effects of such equivalent shares were antidilutive.
 
  A reconciliation of shares used in the earnings per share ("EPS")
calculation is as follows:
 
<TABLE>
<CAPTION>
                                           Income (loss)    Shares     Per Share
                                            (Numerator)  (Denominator)  Amount
                                           ------------- ------------- ---------
                                              (000s)         (000s)
<S>                                        <C>           <C>           <C>
1998
Basic EPS.................................   $  1,282        9,063      $ 0.14
                                             ========                   ======
Stock options.............................                     136
                                                             -----
Diluted EPS...............................   $  1,282        9,199      $ 0.14
                                             ========        =====      ======
1997
Basic and diluted EPS.....................   $ (4,007)       8,952      $ (.45)
                                             ========        =====      ======
1996
Basic EPS.................................   $ 10,157        8,762      $ 1.16
                                             ========                   ======
Stock options.............................                     250
                                                             -----
Diluted EPS...............................   $ 10,157        9,012      $ 1.13
                                             ========        =====      ======
</TABLE>
 
  Options to purchase 557,200 and 892,364 shares of common stock were
outstanding during 1998 and 1997, respectively, but were not included in the
computation of diluted EPS because of either the net loss in 1997 or because
the option's exercise price was greater than the average market price of the
common stock and, therefore, their effect would be antidilutive.
 
                                      29
<PAGE>
 
                            ACT MANUFACTURING, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
  Supplemental Cash Flow Information--Selected cash payments and noncash
activities were as follows:
 
<TABLE>
<CAPTION>
                                                 1998       1997        1996
                                              ---------- ----------  ----------
<S>                                           <C>        <C>         <C>
Cash paid for interest....................... $2,518,781 $2,435,000  $1,446,000
Cash refunded from (paid for) income taxes...  8,314,000 (7,935,000) (5,713,000)
Noncash investing and financing activities:
  Reduction in income taxes payable for
   disqualifying common stock dispositions...        --     374,984     736,625
  Assets acquired in exchange for common
   stock.....................................        --   5,250,000         --
  Reduction of goodwill upon cancellation of
   common stock from acquisition escrow......    122,265        --          --
</TABLE>
 
  Comprehensive Income--The Company adopted SFAS No. 130, "Reporting
Comprehensive Income" in 1998. SFAS No. 130 requires the reporting of
comprehensive income, which in the case of the Company, is the combination of
reported net income and the change in the cumulative translation adjustment,
which is a component of stockholders' equity.
 
  Segments--Effective January 1, 1998 the Company adopted provisions of SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." The standard requires the reporting of certain information about
operating segments including the basis for the presentation and segment profit
or loss. The disclosures relating to this statement are included in Note 13.
 
  Reclassifications--Certain reclassifications have been made to the 1997
consolidated financial statements to conform with 1998 presentation.
 
  Recently Issued Financial Accounting Standard--In June 1998, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," effective for fiscal years
beginning after June 15, 1999. The new standard requires that all companies
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. Management is currently assessing
the impact of SFAS No. 133 on the consolidated financial statements of the
Company. The Company will adopt this accounting standard on January 1, 2000,
as required.
 
2. Acquisitions
 
  Effective June 9, 1997, the Company acquired substantially all of the assets
and liabilities of Electronics Systems International ("ESI") located in
Norcross, Georgia. ESI is a contract manufacturer to customers throughout the
southeastern United States. Under the terms of the purchase agreement, the
Company acquired assets and liabilities of ESI in exchange for 190,546 shares
of the Company's common stock plus acquisition costs. In 1998 the Company
cancelled 4,446 shares previously issued and held in escrow. The per share
market value of the Company's common stock on the date of the purchase was
$27.50.
 
  Effective June 10, 1997, the Company acquired substantially all of the
outstanding stock of Advanced Component Technologies Limited (f.k.a. SignMax
Limited), a cable and harness manufacturing company based in Dublin, Ireland.
Under the terms of the purchase agreement, approximately 82% of the
outstanding common shares of Advanced Component Technologies Limited (f.k.a.
SignMax Limited) were acquired for cash of $1,000,000 plus acquisition costs.
 
  Effective June 27, 1997, the Company acquired all of the outstanding stock
of SignMax America, LLC, which owned the remaining 18% of Advanced Component
Technologies Limited (f.k.a. SignMax Limited). Under the terms of the purchase
agreement, 100% of the outstanding common shares were acquired for cash of
$460,000 and the assumption of $575,000 in notes payable.
 
                                      30
<PAGE>
 
                            ACT MANUFACTURING, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
  The transactions were accounted for as purchases in accordance with APB
Opinion No. 16 "Business Combinations" as follows:
 
<TABLE>
<S>                                                                 <C>
Details of Acquisitions:
  Cash paid, net of cash acquired.................................. $ 1,454,480
  Acquisition expenses.............................................     939,025
                                                                    -----------
    Total cash paid................................................   2,393,505
  Common stock issued..............................................   5,250,000
                                                                    -----------
    Total cash paid and common stock issued........................   7,643,505
  Liabilities assumed..............................................   4,334,315
                                                                    -----------
    Total purchase price of acquisitions...........................  11,977,820
  Fair value of assets acquired....................................   5,609,230
                                                                    -----------
    Excess of purchase price over net assets....................... $ 6,368,590
                                                                    ===========
</TABLE>
 
  The Company attributes the goodwill to the expected ability to expand sales
in these new geographic markets, utilizing the acquired existing business
infrastructure, and geographic market presence as a basis for expansion.
Accumulated amortization amounted to approximately $640,000 and $239,000 at
December 31, 1998 and 1997, respectively. The operating results of the
acquired businesses from the dates of purchases are included in the Company's
Consolidated Statement of Operations for the year ended December 31, 1997. The
Consolidated Statement of Operations for the year ended December 31, 1998
includes a full year of operations of the acquired businesses. Pro forma
information has not been provided, as the operations of the acquired
businesses were not material to the consolidated results of operations or
financial position of the Company in 1997 and 1996.
 
3. Inventory
 
  Inventory consisted of the following at December 31:
 
<TABLE>
<CAPTION>
                                                           1998         1997
                                                       ------------ ------------
<S>                                                    <C>          <C>
Raw materials......................................... $ 32,486,190 $ 27,903,435
Work in process.......................................   10,873,591   11,370,378
Finished goods........................................    1,976,987      677,046
                                                       ------------ ------------
  Total............................................... $ 45,336,768 $ 39,950,859
                                                       ============ ============
</TABLE>
 
4. Property And Equipment
 
  Property and equipment consisted of the following at December 31:
 
<TABLE>
<CAPTION>
                                                          1998         1997
                                                       -----------  -----------
<S>                                                    <C>          <C>
Leasehold improvements................................ $ 6,043,003  $ 2,869,522
Equipment.............................................   7,349,340    6,181,792
Office furniture and equipment........................   4,923,249    3,467,301
Vehicles..............................................     143,536      143,536
Construction-in-progress..............................   2,687,139    1,059,703
                                                       -----------  -----------
  Total property and equipment........................  21,146,267   13,721,854
Less accumulated depreciation and amortization........  (7,656,843)  (5,716,112)
                                                       -----------  -----------
  Property and equipment--net......................... $13,489,424  $ 8,005,742
                                                       ===========  ===========
</TABLE>
 
  Included in property and equipment is equipment held under capital leases
with a net carrying value of $580,950 and $821,638 at December 31, 1998 and
1997, respectively.
 
  The Company has capitalized interest in the amount of $171,000 in 1998
related to the construction-in-progress.
 
                                      31
<PAGE>
 
                            ACT MANUFACTURING, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
5. Note Payable Bank
 
  In the fourth quarter of 1998, the Company executed a new $55 million Senior
Secured Credit Facility ("Credit Facility") to replace the Company's $50
million loan and security agreement then outstanding. This new Credit Facility
provides for borrowings up to an aggregate amount of $55 million, limited to a
certain percentage of qualified accounts receivable and qualified inventory,
of which $39.5 million was utilized at December 31, 1998. An additional $7.8
million was available for use at December 31, 1998 based upon the applicable
borrowing base. Interest is payable monthly and the Credit Facility matures in
2001. Through November 30, 1999, the Company may choose an interest rate of
either (i) 0% to .75% above the prime rate as announced by the bank, or (ii)
1.75% to 2.75% above the prevailing Eurodollar rate depending upon the average
borrowing base availability of the Company. Commencing December 1, 1999, the
Company may choose an interest rate of either (i) 0% to .50% above the prime
rate as announced by the bank, or (ii) 1.50% to 2.50% above the prevailing
Eurodollar rate depending upon the calculated leverage rates of the Company.
The Credit Facility requires the Company to maintain certain levels of minimum
availability and maximum leverage ratios. In addition to certain other
prohibited actions, the Credit Facility also limits capital expenditures by
the Company and prohibits the payment of cash dividends on the Company's
capital stock. At December 31, 1998 the interest rate on the Credit Facility
was 8.0%.
 
  At December 31, 1998 the Company was not in compliance with the capital
expenditure covenant of its Credit Facility. The Company has received a waiver
from the bank relating to this covenant.
 
  The Company was in default as of December 31, 1997 with certain financial
covenants under its former loan and security agreement. The Company's banks
waived compliance with such covenants as of December 31, 1997. Due to the
nature of the financial covenants, the Company reclassified all its long-term
bank debt of $40.2 million at December 31, 1997 to a current liability.
 
  The Company entered into a $17 million interest rate swap agreement in the
fourth quarter of 1998 simultaneous with the execution of the Credit Facility.
The swap agreement provides for payments by the Company at a fixed rate of
interest of 6.76% and matures on October 19, 2001. The fair value of the
interest rate swap at December 31, 1998 was approximately $(770,000) since the
fixed rate of interest of 6.76% was higher than the floating rate.
 
6. Other Long-Term Liabilities
 
  Other long-term liabilities consisted of the following at December 31:
 
<TABLE>
<CAPTION>
                                                             1998       1997
                                                          ---------- ----------
<S>                                                       <C>        <C>
Noncompete covenant...................................... $  302,779 $  349,954
Deferred revenue.........................................    483,340        --
Capital leases--equipment................................    580,950    821,638
                                                          ---------- ----------
  Total..................................................  1,367,069  1,171,592
Less current portion.....................................    390,079    441,924
                                                          ---------- ----------
  Other long-term liabilities............................ $  976,990 $  729,668
                                                          ========== ==========
</TABLE>
 
  Noncompete Covenant--In 1993, the Company entered into an agreement with its
former sole stockholder, which provides for monthly payments over a ten-year
period, in return for a promise not to compete. The liability is recorded at
the present value of the required future payments at an interest rate of 8%.
 
  Deferred Revenue--The Company received a $483,340 grant in the fourth
quarter of 1998 under an agreement with the Ireland Industrial Development
Agency. The $483,340 payment has been recorded as
 
                                      32
<PAGE>
 
                            ACT MANUFACTURING, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
deferred revenue at December 31, 1998 since the Company will be required to
return the grant if certain conditions such as employment level are not met by
December 31, 2002.
 
  Equipment Leases--The Company leases certain equipment used in its
manufacturing operations under capital lease agreements that expire through
2003.
 
  Other long-term liabilities at December 31, 1998 are due as follows:
 
<TABLE>
<CAPTION>
                                       Noncompete  Capital  Deferred
                                        Covenant   Leases   Revenue    Total
                                       ---------- --------- -------- ----------
<S>                                    <C>        <C>       <C>      <C>
1999.................................. $  79,345  $ 363,282 $    --  $  442,627
2000..................................    85,691    171,728      --     257,419
2001..................................    92,547     84,927      --     177,474
2002..................................    99,950     13,735  483,340    597,025
2003..................................       --       7,523      --       7,523
                                       ---------  --------- -------- ----------
  Total...............................   357,533    641,195  483,340  1,482,068
Less amount representing interest.....    54,754     60,245      --     114,999
                                       ---------  --------- -------- ----------
Present value of minimum payments.....   302,779    580,950  483,340  1,367,069
Less current portion..................    57,188    332,891      --     390,079
                                       ---------  --------- -------- ----------
  Other long-term liabilities......... $ 245,591  $ 248,059 $483,340 $  976,990
                                       =========  ========= ======== ==========
</TABLE>
 
7. Income Taxes
 
  The (provisions) benefit for income taxes are as follows:
 
<TABLE>
<CAPTION>
                                            1998         1997          1996
                                         -----------  -----------  ------------
   <S>                                   <C>          <C>          <C>
   Current taxes:
     Federal............................ $  (729,000) $ 2,289,000  $ (5,922,000)
     State..............................    (130,229)     (82,000)   (1,833,000)
                                         -----------  -----------  ------------
                                           (859,229)    2,207,000    (7,755,000)
   Deferred taxes.......................    (149,374)      22,000       982,000
                                         -----------  -----------  ------------
     Total.............................. $(1,008,603) $ 2,229,000  $ (6,773,000)
                                         ===========  ===========  ============
</TABLE>
 
  Deferred income tax assets are attributable to the following at December 31:
 
<TABLE>
<CAPTION>
                                                            1998        1997
                                                         ----------  ----------
   <S>                                                   <C>         <C>
   Accounts receivable.................................. $  460,000  $  800,000
   Inventory............................................    435,000     270,000
   Depreciation.........................................   (289,000)   (211,000)
   Accrued expenses.....................................    386,626     263,000
   State operating loss, net............................    367,000     387,000
                                                         ----------  ----------
   Net deferred tax asset............................... $1,359,626  $1,509,000
                                                         ==========  ==========
</TABLE>
 
  No valuation allowance is required as the net deferred tax asset is expected
to be fully realized.
 
                                       33
<PAGE>
 
                            ACT MANUFACTURING, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
  A reconciliation of the expected tax rate at the U.S. statutory rate to the
effective tax rate is as follows:
 
<TABLE>
<CAPTION>
                                                               1998  1997   1996
                                                               ----  ----   ----
   <S>                                                         <C>   <C>    <C>
   Federal statutory rate.....................................  34%  (34)%   34%
   State income taxes, net of federal benefit.................   6    (4)     6
   Adjustments to prior year tax liability....................   3   --     --
   Other......................................................   1     2    --
                                                               ---   ---    ---
   Effective rate.............................................  44%  (36)%   40%
                                                               ===   ===    ===
</TABLE>
 
  For income tax purposes, the Company incurred in 1997 a federal net
operating loss of approximately $7,947,000, which the Company has elected to
carryback and recover federal income taxes paid in prior years. The amount of
federal income taxes related to the net operating loss carryback was
approximately $2,700,000. For state income tax purposes the Company has a net
operating loss carryforward in 1998 of approximately $6,219,000 which is
available to offset future state taxable income. The carryforward will expire
in 2002. A deferred tax asset of $367,000 and $387,000 for 1998 and 1997,
respectively, has been recorded to reflect the net future benefit of this
asset.
 
8. Stock Options
 
  The Company has a 1995 Stock Plan, which provides for the grant of incentive
and nonqualified stock options to purchase up to an aggregate 1,250,000
shares. The Company has a 1995 Non-Employee Director Stock Option Plan that
provides for the grant of options to purchase a maximum of 100,000 shares to
nonemployee directors of the Company. The Company also has a 1993 Incentive
Stock Option Plan under which options for up to 690,664 shares of common stock
may be granted at an exercise price not less than fair market value at the
date of grant. Stock option activity was as follows:
 
<TABLE>
<CAPTION>
                                            Number of     Weighted     Average
                                             Options   Exercise Price Fair Value
                                            ---------  -------------- ----------
<S>                                         <C>        <C>            <C>
Outstanding at January 1, 1996.............   484,664      $ 5.90
Granted....................................   268,000       12.79       $ 3.12
Exercised..................................  (104,000)       5.04
Forfeited..................................  (160,000)      10.91
                                            ---------
Outstanding at December 31, 1996...........   488,664        8.22
Granted....................................   598,500       25.50        13.49
Exercised..................................   (55,200)       9.13
Forfeited..................................  (139,600)      21.45
                                            ---------
Outstanding at December 31, 1997...........   892,364       17.55
Granted....................................   888,500       11.04         3.56
Exercised..................................       --          --
Forfeited..................................  (539,300)      24.07
                                            ---------
Outstanding at December 31, 1998........... 1,241,564       10.11
                                            =========
</TABLE>
 
                                      34
<PAGE>
 
                            ACT MANUFACTURING, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
<TABLE>
<CAPTION>
             Options Outstanding                    Options Exercisable
   ---------------------------------------------------------------------------
                 Range Of   Weighted Average
   Number Of     Exercise    Remaining Life  Weighted Average Number Currently
    Options       Price        (in Years)     Exercise Price    Exercisable
   ---------   ------------ ---------------- ---------------- ----------------
   <S>         <C>          <C>              <C>              <C>
    33,600     $       0.48         4             $ 0.48           33,600
    63,932        3.70-3.96         4               3.84           53,666
   435,832        5.45-7.88         7               7.48          121,666
   235,400       8.75-12.25         8               9.66           28,400
   466,800      13.64-20.38         7              14.12          102,400
     6,000            27.13         8              27.13            1,200
</TABLE>
 
  The options vest over three to five-year periods.
 
  The Company has reserved shares for future grants of common stock for
issuance pursuant to the 1993 Incentive Stock Option Plan, 1995 Non-Employee
Director Stock Option Plan and the 1995 Stock Plan for 450,800, 62,000 and
286,300 shares, respectively.
 
  In January 1998 the Board of Directors approved a vote to reprice 516,500
employee stock options. The options were originally issued between March 1997
through October 1997 and had original grant prices ranging between $14.44 and
$39.25. The grant price for these options was lowered to $13.94, which
reflects the market value of the stock as of the reprice date. The repriced
options continue to vest according to the original grant date. No compensation
expense was required to be recorded in the consolidated statements of
operations.
 
  As described in Note 1, the Company uses the intrinsic value method to
measure compensation expense associated with grants of stock options to
employees. Had the Company used the fair value method to measure compensation
for grants made after December 31, 1994, (including the repricing described
above) pro forma net income and net income per share would have been as
follows:
 
<TABLE>
<CAPTION>
                                               1998        1997         1996
                                             ---------  -----------  ----------
<S>                                          <C>        <C>          <C>
Net income (loss)........................... $(666,943) $(6,030,779) $9,727,914
                                             =========  ===========  ==========
Diluted earnings (loss) per common share.... $   (0.07) $     (0.67) $     1.08
                                             =========  ===========  ==========
</TABLE>
 
  The fair value of options on their grant date was measured using the
Black/Scholes option-pricing model. Key assumptions used to apply this pricing
model are as follows:
 
<TABLE>
<CAPTION>
                                                  1998       1997       1996
                                                ---------  ---------  ---------
<S>                                             <C>        <C>        <C>
Risk-free interest rate........................       5.5%       6.0%       6.4%
Expected life of option grants................. 3-5 years  3-5 years  3-5 years
Expected volatility of underlying stock........       102%        82%        63%
</TABLE>
 
  It should be noted that the option-pricing model used was designed to value
readily tradable stock options with relatively short lives. The options
granted to employees are not tradable and have contractual lives of up to ten
years. However, management believes that the assumptions used to value the
options and the model applied yield a reasonable estimate of the fair value of
the grants made under the circumstances.
 
9. Employee Benefits Plan
 
  During 1994, the Company adopted a savings plan for its employees pursuant
to Section 401(k) of the
Internal Revenue Code. Substantially all employees are eligible to
participate, and the plan allows a deferral
 
                                      35
<PAGE>
 
                            ACT MANUFACTURING, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
ranging from a minimum 1% to the maximum percentage of compensation permitted
by law. Company contributions to the plan are at the discretion of the Board
of Directors. Contributions to the Plan were $0, $50,000 and $0, in 1998, 1997
and 1996, respectively.
 
10. Major Customers
 
  The three largest customers accounted for 19%, 18% and 16%, respectively, of
the Company's net sales for 1998. The three largest customers accounted for
31%, 13% and 13%, respectively, of the Company's net sales for 1997. In 1996,
the Company's four largest customers accounted for 20%, 17%, 13% and 13%,
respectively, of net sales.
 
11. Transactions With Related Parties
 
  The Company leases certain facilities and equipment from a realty trust
controlled by its principal stockholder under leases that expire in 2003.
These commitments are included in Note 12. The Company pays all operating
costs of the building. Total payments to the realty trust were approximately
$388,000 in 1998 and $364,000 in 1997 and 1996, respectively.
 
  In 1993, the Company entered into a ten-year agreement with one of its
directors for future consulting services. Payments under the agreement were
approximately $280,000 in 1998, $259,000 in 1997 and $240,000 in 1996. Future
commitments under this agreement are approximately $302,000 in 1999, $326,000
in 2000, $352,000 in 2001, $380,000 in 2002 and $233,000 in 2003. The
agreement expires in 2003. A noncompete agreement was also entered into with
the same individual (see Notes 1 and 6). Payments under this agreement were
$73,000 in 1998, $68,000 in 1997, and $63,000 in 1996 with future payments
totaling $358,000.
 
12. Operating Lease Commitments
 
  The Company leases various plant and office equipment under noncancelable
operating leases expiring through 2007. Rent expense in 1998, 1997 and 1996
was approximately $8,848,000, $5,911,000, and $2,700,000, respectively. The
future minimum rental payments under these leases over the next five years are
approximately as follows:
 
<TABLE>
<CAPTION>
                                              Related-
                                                party       Other
                                             Commitments Commitments    Total
                                             ----------- ----------- -----------
<S>                                          <C>         <C>         <C>
1999........................................ $  364,000  $ 8,193,261 $ 8,557,261
2000........................................    364,000    7,470,787   7,834,787
2001........................................    364,000    5,770,319   6,134,319
2002........................................    364,000    3,893,487   4,257,487
2003........................................    196,083    2,127,411   2,323,494
                                             ----------  ----------- -----------
Total....................................... $1,652,083  $27,455,265 $29,107,348
                                             ==========  =========== ===========
</TABLE>
 
  The Company has equipment lease lines of approximately $11.3 million
available for purchases of manufacturing equipment, computer hardware and
software and furniture. In May 1998, the Company entered into a $5.0 million
operating lease line agreement for the purchase of certain equipment in the
Dublin, Ireland facility. At December 31, 1998 substantially all of this
available lease line had been utilized for outstanding commitments.
 
                                      36
<PAGE>
 
                            ACT MANUFACTURING, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
13. Segment Information
 
  The Company has identified two distinct and reportable segments: the Printed
Circuit Board ("PCB") and Cable and Harness ("Cable") segments. The Company
considers these two segments reportable under SFAS No. 131 criteria as they
are managed separately and the operating results of each segment are regularly
reviewed and evaluated separately by the Company's chief decision maker.
Evaluations of each segment are done on the basis of revenue, material and
direct labor expenses and direct gross profit. The Company's reportable
segments are strategic business units that are each managed separately,
because they provide different services with different operating processes and
marketing strategies. The Company accounts for intersegment sales and
transactions as if they were to third parties and attempts to set fees
consistent with those that would apply in an arm's length transaction with a
non-affiliate.
 
  The PCB operations provide OEM's with complex printed circuit board assembly
primarily utilizing advanced surface mount technology, electromechanical sub-
assembly and total system assembly. The Cable operations provide custom-
manufactured ribbon, multiconductor, co-axial and fiber optic cable assemblies
and discrete harness assemblies. The accounting policies of each segment are
in accordance with those described in Note 1.
 
  A summary of information about the Company's operations by segment for the
years ended December 31, 1998, 1997 and 1996 is as follows:
 
<TABLE>
<CAPTION>
                             PCB         Cable    Intercompany   Corporate     Total
                         ------------ ----------- ------------  ----------- ------------
<S>                      <C>          <C>         <C>           <C>         <C>
1998
Revenue................. $258,134,002 $42,671,928 $(10,276,839) $       --  $290,529,091
Material and direct
 labor expense..........  208,131,202  32,042,318          --           --   240,173,520
Direct gross profit.....   50,002,800  10,629,610  (10,276,839)         --    50,355,571
Indirect labor and
 overhead...............          --          --           --    31,137,107   31,137,107
Total gross profit......          --          --           --           --    19,218,465
 
1997
Revenue................. $236,886,054 $31,692,605 $ (3,924,451) $       --  $264,654,208
Material and direct
 labor expense..........  205,449,206  22,580,981          --           --   228,030,187
Direct gross profit.....   31,436,848   9,111,624   (3,924,451)         --    36,624,021
Indirect labor and
 overhead...............          --          --           --    25,091,879   25,091,879
Total gross profit......          --          --           --           --    11,532,142
 
1996
Revenue................. $198,158,791 $31,192,456 $ (3,451,065) $       --  $225,900,182
Material and direct
 labor expense..........  159,445,638  20,489,363          --           --   179,935,001
Direct gross profit.....   38,713,153  10,703,093   (3,451,065)         --    45,965,181
Indirect labor and
 overhead...............          --          --           --    17,594,502   17,594,502
Total gross profit......          --          --           --           --    28,370,679
</TABLE>
 
                                      37
<PAGE>
 
                            ACT MANUFACTURING, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
14. Contingencies
 
  On February 27, 1998, the Company and certain of the Company's officers and
directors were named as defendants in a purported securities class action
lawsuit filed in the United States District Court for the District of
Massachusetts. The complaint was then amended on October 16, 1998. The
plaintiffs purport to represent a class of all persons who purchased or
otherwise acquired the Company's Common Stock in the period from April 17,
1997 through March 31, 1998. The amended complaint alleges, among other
things, that the defendants knowingly made misstatements to the investing
public about the value of the Company's inventory and the nature of its
accounting practices. On December 15, 1998, the Company filed a motion to
dismiss the case in its entirety based on the pleadings. The Company's motion
to dismiss has been fully briefed by both sides, and oral argument is
scheduled for April 1999. The Company believes the claims asserted in the
amended complaint are without merit and intends to continue to defend itself
vigorously in this action. The Company further believes that this litigation
will not have a material adverse effect on the Company's business and results
of operations, although there can be no assurance as to the ultimate outcome
of these matters. No provision for any liability that may result from this
litigation has been made in the accompanying consolidated financial
statements.
 
15. Selected Quarterly Financial Data (unaudited):
 
  Summarized quarterly financial data are as follows (in thousands except per
share amounts):
 
<TABLE>
<CAPTION>
                                                     1998 Quarters
                                            ----------------------------------
                                             First   Second   Third    Fourth
                                            -------  ------- -------  --------
<S>                                         <C>      <C>     <C>      <C>
Net sales.................................. $60,943  $74,173 $78,887  $ 76,526
Gross profit...............................   1,972    3,986   5,821     7,439
Net income (loss)..........................  (1,126)      86     796     1,526
Earnings (loss) per share:
  Basic....................................   (0.12)    0.01    0.09      0.17
  Diluted..................................   (0.12)    0.01    0.09      0.17
<CAPTION>
                                                     1997 Quarters
                                            ----------------------------------
                                             First   Second   Third    Fourth
                                            -------  ------- -------  --------
<S>                                         <C>      <C>     <C>      <C>
Net sales.................................. $70,250  $72,364 $62,306  $ 59,734
Gross profit...............................   9,042    9,496   3,390   (10,396)
Net income (loss)..........................   3,361    3,631    (620)  (10,379)
Earnings (loss) per share:
  Basic....................................    0.38     0.41   (0.07)    (1.15)
  Diluted..................................    0.37     0.39   (0.07)    (1.15)
</TABLE>
 
  The Company's 1997 loss (before taxes) includes certain significant
adjustments and non-recurring charges recorded during the fourth quarter:
 
<TABLE>
<S>                                                                 <C>
Physical inventory adjustments..................................... $13,113,000
Allowance for doubtful accounts....................................   1,740,000
Non-recurring professional fees....................................     600,000
                                                                    -----------
                                                                    $15,453,000
                                                                    ===========
</TABLE>
 
                                      38
<PAGE>
 
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
  Not applicable.
 
                                   PART III
 
  Anything herein to the contrary notwithstanding, in no event are the
sections entitled "Stock Performance Graph" and "Compensation Committee and
Stock Option Committee Report on Executive Compensation" to be incorporated by
reference herein from the Company's definitive proxy statement for the
Company's 1999 Annual Meeting of Stockholders which will be filed with the
Commission within 120 days after the close of the fiscal year (the "Definitive
Proxy Statement").
 
Item 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
 
  Certain information concerning the directors of the Company is incorporated
by reference herein from the information contained under the heading "Election
of Directors" in the Company's Definitive Proxy Statement.
 
  Certain information concerning directors and executive officers of the
Company is incorporated by reference herein from the information contained
under the heading "Occupations of Directors and Executive Officers" in the
Company's Definitive Proxy Statement.
 
  The information concerning compliance with Section 16(a) of the Exchange Act
required under this item is incorporated herein by reference from the
information contained under the heading "Section 16 Reporting" in the
Company's Definitive Proxy Statement.
 
Item 11. EXECUTIVE COMPENSATION
 
  Certain information concerning executive compensation is incorporated by
reference herein from the information contained under the heading
"Compensation and Other Information Concerning Directors and Executive
Officers" in the Company's Definitive Proxy Statement.
 
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
  Certain information concerning security ownership of certain beneficial
owners and management is incorporated by reference herein from the information
contained under the heading "Securities Ownership of Certain Beneficial Owners
and Management" in the Company's Definitive Proxy Statement.
 
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
  Certain information concerning certain relationships and related
transactions is incorporated by reference herein from the information
contained under the heading "Certain Relationships and Related Transactions"
in the Company's Definitive Proxy Statement.
 
                                      39
<PAGE>
 
                                    PART IV
 
Item 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES AND REPORTS ON FORM 8-K
 
(a)(1) Index To Consolidated Financial Statements
 
  The following Consolidated Financial Statements of the Registrant are filed
as part of this report:
    Independent Auditors' Report.
    Consolidated Balance Sheets as of December 31, 1998 and 1997.
    Consolidated Statements of Operations for the years ended December 31,
  1998, 1997 and 1996.
    Consolidated Statements of Comprehensive Income (Loss) for the years
     ended December 31, 1998, 1997 and 1996.
    Consolidated Statements of Stockholders' Equity for the years ended
     December 31, 1998, 1997 and 1996.
    Consolidated Statements of Cash Flows for the years ended December 31,
  1998, 1997 and 1996.
    Notes to Consolidated Financial Statements.
 
(a)(2) Index to Consolidated Financial Statement Schedules
 
  The following Consolidated Financial Statement Schedule of the Registrant is
filed as part of this report:
 
<TABLE>
<CAPTION>
                                                                    Page
                                                                    ----
     <S>                                                            <C>
     Schedule II -- Valuation and Qualifying Accounts and Reserves  S-1
</TABLE>
 
  Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
accompanying consolidated financial statements or Notes thereto.
 
(a)(3) Index to Exhibits
 
<TABLE>
<CAPTION>
   Exhibit No.                            Description
   -----------                            -----------
   <C>         <S>
     3.1(1)    --Second Restated Articles of Organization of the Company.
     3.2(2)    --Amended and Restated By-Laws of the Company.
     3.3(5)    --Articles of Amendment to the Second Restated Articles of
                Organization of the Company.
     4.1(2)    --Specimen certificate representing the Common Stock.
     4.2       --Second Restated Articles of Organization of the Company (see
                Exhibit 3.1).
     4.3       --Amended and Restated By-Laws of the Company (see Exhibit 3.2).
     4.4       --Articles of Amendment to the Second Restated Articles of
                Organization of the Company (see Exhibit 3.3).
    10.1(2)#   --1995 Stock Plan.
    10.2(2)#   --1995 Non-Employee Director Stock Option Plan.
    10.3(2)#   --Stock Option Plan dated April 15, 1993.
    10.4(2)#   --Stock Option Plan of Automated Component Technologies, Inc.
                dated April 15, 1993.
    10.5(2)    --Registration Rights Agreement dated February 8, 1995 by and
                among the Company, John A. Pino and certain other stockholders
                named therein.
    10.6(2)    --Lease dated April 1, 1985 between Re-Act Realty Trust and the
                Company, as amended by the First Amendment thereto dated
                October 25, 1988, the Second Amendment thereto dated August 4,
                1993 and the Third Amendment thereto dated February 7, 1995.
    10.7(2)    --Lease dated October 1, 1988 between Re-Act Realty Trust, as
                amended by the First Amendment thereto dated August 4, 1993 and
                the Second Amendment thereto dated February 7, 1995.
</TABLE>
 
                                      40
<PAGE>
 
<TABLE>
<CAPTION>
   Exhibit No.                            Description
   -----------                            -----------
   <C>         <S>
    10.8(2)    --Lease dated July 16, 1993 between Kane Industrial Trust and
                Automated Component Technologies, Inc.
    10.9(2)    --Master Lease Agreement dated October 27, 1992 between
                BancBoston Leasing Inc. and the Company, Rider No. 1 to Master
                Lease Agreement between BancBoston Leasing Inc. and the Company
                and Rider No. 2 to Master Lease Agreement dated December 16,
                1994 between BancBoston Leasing Inc. and the Company.
    10.10(2)   --Master Lease Agreement dated October 27, 1992 between
                BancBoston Leasing Inc. and Automated Component Technologies,
                Inc., Rider No. 1 to Master Lease Agreement between BancBoston
                Leasing Inc. and Automated Component Technologies, Inc., Rider
                Agreement dated December 16, 1994 between BancBoston Leasing
                Inc. and the Company, and Assumption Agreement dated December
                15, 1994 between BancBoston Leasing Inc., the Company and
                Automated Component Technologies, Inc.
    10.11(2)   --Notice and Acknowledgment of Assignment for Automated
                Component Technologies, Inc. Lease Schedules Nos. 1-6 dated
                June 20, 1994 between BancBoston Leasing Inc., ICON Cash Flow
                Partners L.P., Series E and Automated Component Technologies,
                Inc.
    10.12(2)   --Notice and Acknowledgment of Assignment for Automated
                Component Technologies, Inc. Lease Schedules Nos. 7-9, 11 and
                12 dated December 30, 1994 between BancBoston Leasing Inc.,
                Citizens Leasing Corporation and the Company.
    10.13(2)   --Subordinated Security Agreement dated January 12, 1995 between
                BancBoston Leasing Inc. and the Company.
    10.14(2)   --Stock Purchase Agreement dated as of January 1, 1993 between
                Donald G. Polich, John A. Pino, the Company and Automated
                Component Technologies, Inc., as amended by the First Amendment
                dated February 8, 1995.
    10.15(2)   --Consulting Agreement dated as of August 4, 1993 between the
                Company and Re-Act Consulting as amended by the First Amendment
                thereto dated February 8, 1995.
    10.16(2)   --Consulting Agreement dated as of August 4, 1993 between
                Automated Component Technologies, Inc. and Re-Act Consulting as
                amended by the First Amendment thereto dated February 8, 1995.
    10.17(2)   --Noncompetition Agreement dated as of January 1, 1993 between
                the Company, John A. Pino and Donald G. Polich.
    10.18(2)   --Noncompetition Agreement dated as of January 1, 1993 between
                Automated Component Technologies, Inc., John A. Pino and Donald
                G. Polich as amended by the First Amendment thereto dated
                February 8, 1995.
    10.19(2)   --Letter Agreement dated as of January 1, 1993 from the Company
                and Automated Component Technologies, Inc. to Donald G. Polich,
                as amended by the First Amendment thereto dated February 8,
                1995.
    10.20(3)   --Lease dated January 31, 1996 between Mansfield/Forbes Ltd.
                Partnership and the Company.
    10.21(4)   --Split-Dollar Life Insurance Agreement Dated September 5, 1996
                by and between the John A. Pino and Janet M. Pino Family
                Maintenance Trust and the Company.
    10.22(6)   --Lease Agreement dated May 26, 1998 between Highwoods/Forsyth
                Limited Partnership and ACT Manufacturing, Inc.
    10.23(7)   --Credit Agreement dated October 14, 1998 between the Company,
                ACT Manufacturing Securities Corporation and The Chase
                Manhattan Bank, as agent.
    10.24(7)   --Revolving Credit Note from the Company in favor of The Chase
                Manhattan Bank.
    10.25(7)   --Revolving Credit Note from the Company in favor of National
                Bank of Canada.
</TABLE>
 
                                       41
<PAGE>
 
<TABLE>
<CAPTION>
   Exhibit No.                            Description
   -----------                            -----------
   <C>         <S>
    10.26(7)   --Security Agreement dated October 14, 1998 between the Company,
                ACT Manufacturing Securities Corporation and The Chase
                Manhattan Bank, as agent.
    10.27(7)   --Pledge Agreement dated October 14, 1998 between the Company
                and The Chase Manhattan Bank, as agent.
    10.28(7)   --Share Pledge Agreement dated October 14, 1998 between the
                Company and The Chase Manhattan Bank, as agent.
    10.29(7)   --ISDA Master Agreement dated October 14, 1998 between the
                Company and The Chase Manhattan Bank.
    10.30(7)   --Stock Purchase Agreement dated October 13, 1998 between the
                Company and Advanced Component Technologies Limited.
    10.31(7)   --Subordinated Loan Agreement dated October 13, 1998 between the
                Company and Advanced Component Technologies Limited.
    10.32(7)   --Restated Second Amendment to Agreement of Lease dated November
                6, 1998 between the Company and John A. Pino, Trustee of Re-Act
                Realty Trust.
    10.33(7)   --Restated Lease Amendment and Third Amendment to Agreement of
                Lease dated November 6, 1998 between the Company and John A.
                Pino, Trustee of Re-Act Realty Trust.
    10.34(7)   --Letter Agreement dated October 14, 1998 between the Company
                and BancBoston Leasing.
    10.35(7)   --Letter Agreement dated October 14, 1998 between the Company
                and Citizens Leasing.
    10.36*     --Development Agreement dated August 18, 1997 between Citiwest
                Limited, SignMax Limited and ACT Manufacturing, Inc.
    10.37*     --Option Agreement dated August 18, 1997 between Citiwest
                Limited, SignMax Limited and ACT Manufacturing, Inc.
    10.38*     --Lease Agreement dated August 18, 1997 between Irish Life
                Assurance PLC, SignMax Limited and ACT Manufacturing, Inc.
    10.39*     --Agreement dated May 25, 1998 between Industrial Development
                Agency (Ireland) and Advanced Component Technologies Limited.
    10.40*     --Master Lease Agreement dated February 22, 1999 between Heller
                Financial Leasing, Inc. and the Company.
    10.41*     --Lease Agreement dated February 26, 1999 between Amplicon, Inc.
                and the Company.
    11.1*      --Statement re: computation of earnings per share.
    21.1*      --Subsidiaries of Registrant.
    23.1*      --Consent of Deloitte & Touche LLP.
    24.1       --Power of Attorney (see Page 44 of this Form 10-K).
    27.1*      --Financial Data Schedule--Fiscal Year 1998.
</TABLE>
--------
(1) Incorporated herein by reference to the exhibits to the Company's Annual
    Report on Form 10-K for the year ended December 31, 1995.
(2) Incorporated herein by reference to the exhibits to the Company's
    Registration Statement on Form S-1 (File No. 33-89532), as amended.
(3) Incorporated herein by reference to the exhibits to the Company's
    Quarterly Report on Form 10-Q for the period ended June 30, 1996.
(4) Incorporated herein by reference to the exhibits to the Company's
    Quarterly Report on Form 10-Q for the period ended September 30, 1996.
(5) Incorporated herein by reference to the exhibits to the Company's
    Quarterly Report on Form 10-Q for the period ended June 30, 1997.
 
                                      42
<PAGE>
 
(6) Incorporated herein by reference to the exhibits to the Company's
    Quarterly Report on Form 10-Q for the period ended June 30, 1998.
(7) Incorporated herein by reference to the exhibits to the Company's
    Quarterly Report on Form 10-Q for the period ended September 30, 1998.
 * Filed herewith.
(#) Indicates a management contract or any compensatory plan, contract or
    arrangement.
 
  (b) REPORTS ON FORM 8-K
 
  Not applicable.
 
  (c) EXHIBITS
 
  The Company hereby files as part of this Annual Report on Form 10-K the
exhibits listed in Item 14(a)(3) above. Exhibits which are incorporated herein
by reference can be inspected and copied at the public reference facilities
maintained by the Commission, 450 Fifth Street, NW, Room 1024, Washington,
D.C. and at the Commission's regional offices at 219 South Dearborn Street,
Room 1204, Chicago, Illinois; 26 Federal Plaza, Room 1102, New York, New York
and 5757 Wilshire Boulevard, Suite 1710, Los Angeles, California. Copies of
such material can also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, NW, Washington, D.C. 20549, at prescribed rates.
 
  (d) FINANCIAL STATEMENT SCHEDULES
 
  The Company hereby files as part of this Annual Report on Form 10-K the
consolidated financial statement schedules listed in Item 14(a)(2) above.
 
                                      43
<PAGE>
 
                                  SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) 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.
 
                                          ACT Manufacturing, Inc.
 
Date:  March 30, 1999                               /s/ John A. Pino
                                          By: _________________________________
                                                      John A. Pino
                                              President and Chief Executive
                                                         Officer
 
                               POWER OF ATTORNEY
 
  KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John A. Pino and Jeffrey B. Lavin, jointly and
severally, his attorney-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to this Annual Report on
Form 10-K and to file same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
 
  Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
              Signature                          Title                      Date
              ---------                          -----                      ----
<S>                                    <C>                        <C>
           /s/ John A. Pino            President, Chief Executive      March 30, 1999
 _____________________________________  Officer and Director
             John A. Pino               (Principal Executive
                                        Officer)
         /s/ Jeffrey B. Lavin          Vice President of Finance       March 30, 1999
 _____________________________________  and Chief Financial
           Jeffrey B. Lavin             Officer (Principal
                                        Financial and Accounting
                                        Officer)
         /s/ Edward T. Cuddy           Director                        March 30, 1999
 _____________________________________
            Edward T. Cuddy
         /s/ Bruce R. Gardner          Director                        March 30, 1999
 _____________________________________
           Bruce R. Gardner
         /s/ Donald G. Polich          Director                        March 30, 1999
 _____________________________________
           Donald G. Polich
</TABLE>
 
                                      44
<PAGE>
 
                                  SCHEDULE II
 
                            ACT MANUFACTURING, INC.
 
                       Valuation and Qualifying Accounts
              For the years ended December 31, 1998, 1997 and 1996
 
<TABLE>
<CAPTION>
                                               Additions
                                    Balance    Charged to             Balance
                                  at Beginning Costs and              at End
                                   of Period    Expenses  Deductions of Period
                                  ------------ ---------- ---------- ---------
<S>                               <C>          <C>        <C>        <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
For the year ended December 31,
 1996............................  $ 225,000   $  23,169  $  23,169  $ 225,000
For the year ended December 31,
 1997............................    225,000   1,805,000        --   2,030,000
For the year ended December 31,
 1998............................  2,030,000   1,925,000  2,804,000  1,151,000
 
INVENTORY RESERVE:
For the year ended December 31,
 1996............................    581,320   2,648,541    325,744  2,904,117
For the year ended December 31,
 1997............................  2,904,117     685,000  2,904,117    685,000
For the year ended December 31,
 1998............................    685,000         --     223,000    462,000
</TABLE>
 
                                       1