<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                                  ___________                             

                                   FORM 10-Q


          [x]  Quarterly Report Pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934

               For the Quarterly Period Ended September 30, 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)

          Massachusetts                                       04-2777507
          -------------                                       ----------
(State or other jurisdiction of                         (IRS Employer ID. No.)
 incorporation or organization)

          2 Cabot Road                                             01749
     Hudson, Massachusetts                                         ----- 
     ---------------------                                       (Zip code)
     (Address of principal
       executive offices)

Registrant's telephone number, including area code:   (978) 567-4000

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes   x    No
    -----     -----   

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

          Common Stock                                9,058,500 Shares
          ------------                                ----------------
            (Class)                          (Outstanding on November 9, 1998)
                        
<PAGE>
 
                            ACT MANUFACTURING, INC.

                               INDEX TO FORM 10-Q

PART I.   FINANCIAL INFORMATION
 
ITEM 1 -- Financial Statements:
Condensed Consolidated Statements of Operations for the three months ended 
  September 30, 1998 and 1997 and the nine months ended September 30, 1998
  and 1997.................................................................   3
Condensed Consolidated Balance Sheets as of September 30, 1998 and 
  December 31, 1997........................................................   4
Condensed Consolidated Statements of Cash Flows for the nine months 
  ended September 30, 1998 and 1997........................................   5
Notes to Condensed Consolidated Financial Statements.......................   6
 
ITEM 2 -- Management's Discussion and Analysis of Financial Condition and
          Results of Operations............................................   9
 
PART II.   OTHER INFORMATION
 
ITEM 6 -- Exhibits and Reports on Form 8-K.................................  19
 
Signatures.................................................................  20
 
Exhibit Index..............................................................  21
 
 

                                     - 2 -
<PAGE>
 
                        PART I.   FINANCIAL INFORMATION

                            ACT MANUFACTURING, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               (UNAUDITED--IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED SEPTEMBER 30,
                                                  ---------------------------------------------
                                                          1998                    1997
                                                  ---------------------  ----------------------
<S>                                               <C>                    <C>

Net sales......................................        $   78,887               $   62,306
Cost of goods sold.............................            73,066                   58,916
                                                       ----------               ----------
Gross profit...................................             5,821                    3,390
 
Selling, general and administrative expenses...             3,985                    3,915
                                                       ----------               ----------

Operating income (loss)........................             1,836                     (525)
 
Interest and other (income) expense, net.......               509                      507
                                                       ----------               ----------
 
Income (loss) before provision for 
  income taxes.................................             1,327                   (1,032)
  
Provision (benefit) for income taxes...........               531                     (412)
                                                       ----------               ----------
 
Net income (loss)..............................        $      796               $     (620)
                                                       ==========               ==========
 
Basic net income (loss) per common share.......        $     0.09               $    (0.07)
                                                       ==========               ==========
Diluted net income (loss) per common share.....        $     0.09               $    (0.07)
                                                       ==========               ==========
Weighted average shares outstanding--basic.....         9,062,946                9,049,613
                                                       ==========               ==========
Weighted average shares outstanding--diluted...         9,156,061                9,049,613
                                                       ==========               ==========

<CAPTION>
                                                         NINE MONTHS ENDED SEPTEMBER 30,
                                                  ---------------------------------------------
                                                          1998                    1997
                                                  ---------------------  ---------------------- 
                                                   
Net sales......................................        $  214,003               $  204,919
Cost of goods sold.............................           202,224                  182,992
                                                       ----------               ----------
Gross profit...................................            11,779                   21,927
 
Selling, general and administrative expenses...            10,442                    9,728
                                                       ----------               ----------
Operating income...............................             1,337                   12,199
                                                       ----------               ----------
 
Interest and other (income) expense, net.......             1,744                    1,577
                                                       ----------               ----------
 
Income (loss) before provision for 
  income taxes.................................              (407)                  10,622
 
Provision (benefit) for income taxes...........              (163)                   4,249
                                                       ----------               ----------
Net income (loss)..............................        $     (244)              $    6,373
                                                       ==========               ==========
 
Basic net income (loss) per common share.......        $    (0.03)              $     0.72
                                                       ==========               ==========
Diluted  net income (loss) per common share....        $    (0.03)              $     0.69
                                                       ==========               ==========
Weighted average shares outstanding--basic.....         9,062,946                8,852,659
                                                       ==========               ==========
Weighted average shares outstanding--diluted...         9,062,946                9,175,430
                                                       ==========               ==========
</TABLE> 
 
  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.

                                     - 3 -
<PAGE>
 
                            ACT MANUFACTURING, INC.

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               UNAUDITED
                                                           SEPTEMBER 30, 1998       DECEMBER 31, 1997
                                                        ------------------------  ----------------------
ASSETS
CURRENT ASSETS:
<S>                                                     <C>                       <C>
  Cash and cash equivalents...........................          $  5,735                 $  5,165
  Accounts receivable, net............................            68,271                   42,362
  Inventory...........................................            48,076                   39,951
  Prepaid expenses and other assets...................             2,551                    1,195
  Income taxes refundable.............................               300                    8,417
  Deferred taxes......................................             1,729                    1,509
                                                                --------                 --------
 
     Total current assets.............................           126,662                   98,599
 
PROPERTY AND EQUIPMENT--Net...........................            12,720                    8,006
GOODWILL--Net.........................................             5,688                    6,129
OTHER ASSETS --Net....................................               817                      805
                                                                --------                 --------
 
TOTAL.................................................          $145,887                 $113,539
                                                                ========                 ========
 
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Note payable bank...................................          $     --                 $ 40,206
  Current portion of long-term debt...................               404                      442
  Accounts payable....................................            59,954                   18,557
  Accrued compensation and related taxes..............             2,598                    1,657
  Accrued expenses....................................             2,757                    2,689
                                                                --------                 --------
 
     Total current liabilities........................            65,713                   63,551
                                                                --------                 --------
 
LONG-TERM DEBT--Less current portion..................               530                      730
                                                                --------                 --------
 
NOTE PAYABLE BANK                                                 30,728                       --
                                                                --------                 --------
 
STOCKHOLDERS' EQUITY:
  Common stock........................................                91                       91
  Additional paid-in capital..........................            39,327                   39,327
  Accumulated other comprehensive income..............               (94)                       4
  Retained earnings...................................             9,592                    9,836
                                                                --------                 --------
 
     Total stockholders' equity.......................            48,916                   49,258
                                                                --------                 --------
 
TOTAL.................................................          $145,887                 $113,539
                                                                ========                 ========
</TABLE> 
 
  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.

                                     - 4 -
<PAGE>
 
                            ACT MANUFACTURING, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (UNAUDITED, IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                               NINE MONTHS
                                                                                   ------------------------------------
                                                                                           ENDED SEPTEMBER 30,
                                                                                   ------------------------------------
                                                                                         1998               1997
                                                                                   -----------------  -----------------
<S>                                                                                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income  (loss)...............................................................      $    (244)         $   6,373
                                                                                       ---------          ---------
Adjustments to reconcile net income to net cash provided by (used for) operating
 activities:
   Deferred taxes................................................................           (220)               148
   Depreciation and amortization.................................................          2,186              1,404
   Increase (decrease) in cash from:
    Accounts receivable--trade...................................................        (25,909)            (5,030)
    Inventory....................................................................         (8,125)            (5,683)
    Prepaid expenses and other assets............................................         (1,619)            (1,288)
    Accounts payable.............................................................         41,397              5,765
    Accrued expenses.............................................................          1,009             (2,780)
    Income tax refundable........................................................          8,117                 --
                                                                                       ---------          ---------
     Total adjustments...........................................................         16,836             (7,464)
                                                                                       ---------          ---------
 
Net cash provided by (used for) operating activities.............................         16,592             (1,091)
                                                                                       ---------          ---------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of property and equipment..........................................         (6,196)            (1,691)
  Acquisitions, net of cash acquired.............................................             --             (1,529)
  Increase (decrease) in other assets............................................            (12)              (208)
                                                                                       ---------          ---------
 
  Net cash used for investing activities.........................................         (6,208)            (3,428)
                                                                                       ---------          ---------
 
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings under line-of-credit agreements.....................................        176,526            187,408
  Repayments under line-of-credit agreements.....................................       (186,004)          (181,104)
  Repayments of long-term debt...................................................           (238)            (1,157)
  Net proceeds from sale of stock................................................             --                479
                                                                                       ---------          ---------
 
 Net cash provided by (used for) financing activities............................         (9,716)             5,626
                                                                                       ---------          ---------
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS..........................            (98)               (46)
                                                                                       ---------          ---------
 
NET INCREASE IN CASH AND CASH EQUIVALENTS........................................            570              1,061
 
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.....................................          5,165              5,054
                                                                                       ---------          ---------
 
CASH AND CASH EQUIVALENTS, END OF PERIOD.........................................      $   5,735          $   6,115
                                                                                       =========          =========
</TABLE>

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

                                     - 5 -
<PAGE>
 
                            ACT MANUFACTURING, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1. SIGNIFICANT ACCOUNTING POLICIES

  The unaudited interim condensed consolidated financial statements furnished
herein reflect all adjustments, which in the opinion of management are of a
normal recurring nature, necessary to fairly state the Company's financial
position, cash flows and the results of operations for the periods presented and
have been prepared on a basis substantially consistent with the audited
financial statements.

  The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the fiscal year.
These interim condensed consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the period ending
December 31, 1997 filed with the Securities and Exchange Commission.


2. INVENTORIES

  Inventories consisted of the following at:

                            SEPTEMBER 30, 1998     DECEMBER 31, 1997
                           --------------------  ----------------------
                                          (IN THOUSANDS)
  Raw material............       $38,578                 $27,904
  Work in process.........         9,154                  11,370
  Finished goods..........           344                     677
                                 -------                 -------
     Total................       $48,076                 $39,951
                                 =======                 =======
                                                                                

3.  NET INCOME (LOSS) PER COMMON SHARE

  In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings per
Share."  This Statement requires dual presentation of net income per common
share-basic and diluted.  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 as if common equivalent shares outstanding
(common stock options) were exercised and converted into common stock.  1997
figures have been restated to conform to SFAS No. 128.


4. NEW FINANCIAL ACCOUNTING STANDARDS

  In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130") and Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS No. 131").  SFAS
No. 130 establishes standards for reporting comprehensive income and its
components in the consolidated financial statements.  SFAS No. 131 establishes
standards for reporting information on operating segments in interim and annual
financial statements.  The Company adopted SFAS No. 130 during the first quarter
of 1998 and will adopt the disclosure requirements of SFAS 131 in its year end
financial statements.  The comprehensive income for the three months ended
September 30, 1998 was $695,000 and the comprehensive loss for the nine months
ended September 30, 1998 was $342,000.

                                     - 6 -
<PAGE>
 
5. INDEBTEDNESS

   On October 16, 1998, the Company announced that it had executed a new $55
million Senior Secured Credit Facility ("Credit Facility") to replace the
Company's $50 million loan and security agreement outstanding on September 30,
1998.  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.  Interest is payable monthly.  Through
December 31, 1998, the Company may choose an interest rate of either (i) 0.25%
above the prime rate as announced by the bank or (ii) 2.25% above the prevailing
Eurodollar rate. Commencing January 1, 1999, the Company may choose an interest
rate which will range from (i) 0 to 0.75% above the prime rate as announced by
the bank or (ii) 1.50% to 2.75% above the prevailing Eurodollar rate depending
upon the average borrowing base availability of the Company. The Credit Facility
requires the Company to maintain certain levels of minimum availability and to
maintain certain minimum fixed charge coverage ratios 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 leases certain equipment used in its manufacturing operations
under a Master Lease Agreement dated October 27, 1992 between the Company and
BancBoston Leasing, Inc. ("BancBoston Leasing"), as amended from time to time
(the "Equipment Lease"). Since the execution of the Equipment Lease, BancBoson
Leasing has sold and assigned to Citizens Leasing Corporation ("Citizens
Leasing") a portion of the equipment leased to the Company under the Equipment
Lease.  The Company has been in default under the Equipment Lease as of
September 30, 1997 because of the default position under its then loan and 
security agreement.

   On October 14, 1998, the Company entered into a Forbearance Agreement with
BancBoston Leasing pursuant to which the Company has agreed to: (i) provide
additional security for the Equipment Lease; (ii) repay all amounts owed to
BancBoston Leasing under the Equipment Lease on or before February 28, 1999; and
(iii) pay to BancBoston Leasing a forbearance fee in the amount of $25,000.

   On October 14, 1998, the Company entered into an Extension and Master Lease
Amendment Agreement with Citizens Leasing pursuant to which the Company has
agreed to: (i) repay all amounts owed to Citizens Leasing under the Equipment
Lease on or before March 1, 1999; and (ii) pay to Citizens Leasing a
forbearance fee in the amount of $75,000.

   The Company entered into a $17 million interest rate swap agreement on
October 15, 1998 simultaneous with the execution of the Credit Facility.  The
swap agreement provides for payment by the Company of a fixed rate of interest
of 6.32% and matures on October 19, 2001.

   The Company had operating losses for the first quarter of 1998 and the third
and fourth quarters of 1997.  As a result of such losses, the Company was in
default as of  December 31, 1997 and September 30, 1998 with certain financial
covenants under its then 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.   As the Company
entered into a new Credit Facility on October 15, 1998 the Company classified
all the Credit Facility liability of  $30.7 million as a long term liability.


6. CONTINGENCIES

   On February 27, 1998 the Company and certain of the Company's officers and
directors were named in a purported securities class action lawsuit filed in the
United States District Court for the District of Massachusetts (the "Class
Action").  On October 16, 1998 an amended complaint was filed in the Class
Action.  Like the original complaint, the amended complaint alleges that the
defendants knowingly made misstatements to the investing public about the
Company's inventory and the accuracy of its accounting practices.  The amended
complaint claims that those alleged misstatements were made during the period
April 17, 1997 through March 31, 1998.  The Company believes the allegations in
the amended complaint are without merit and intends to vigorously contest

                                     - 7 -
<PAGE>
 
them. 

   Although the Company denies all material allegations in the amended complaint
and intends to vigorously defend against all claims brought against it, the
ultimate outcome, including amount of possible loss, if any, of litigation
cannot be determined at this time.  No provision for any liability that may
result from this litigation has been made in the Condensed Consolidated
Financial Statements.  While the Company does not believe that this litigation
will have a material adverse affect on the Company's business and results of
operations, given the preliminary stages of the litigation there can be no
assurance as to the ultimate outcome of  these matters.

                                     - 8 -
<PAGE>
 
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

   Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the accompanying condensed
consolidated financial statements for the periods specified and the associated
notes. Further reference should be made to the Company's Annual Report on Form
10-K for the period ending December 31, 1997.


OVERVIEW

   ACT Manufacturing, Inc. provides value-added electronics manufacturing
services for original equipment manufacturers ("OEMs") in the networking,
computer, telecommunications, 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 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 provides electronics manufacturing services primarily
consisting of cable and harness assembly. The operating results of the acquired
businesses are included in the Company's Condensed Consolidated Statement of
Operations since dates of acquisition.

   The Company manufactures at six leased facilities having an aggregate of
258,000 square feet.  Four of the facilities are located in Massachusetts.  In
the first quarter of 1998, the Company occupied and began manufacturing in a
45,000 square foot addition to its Hudson, Massachusetts facilities.  In the
second quarter of 1997, the Company acquired operations with leased facilities
in Norcross, Georgia, and Dublin, Ireland.  In the second quarter of 1998, the
Company 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.  In the fourth quarter of 1998, the Company expects to
occupy and begin manufacturing in a new 66,000 square foot leased facility in
Norcross, Georgia, and consolidate operations from the existing Norcross
facility into the new plant.

   As of September 30, 1998, the Company had 1,035 employees, up from 985
employees at December 31, 1997.

   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.

                                     - 9 -
<PAGE>
 
RESULTS OF OPERATIONS--THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

   Net sales increased 26.6% to $78.9 million for the three month period ended
September 30, 1998 compared with $62.3 million for the same period in 1997.  The
increase was attributable principally to increased sales from the cable and
harness and printed circuit board operations primarily due to additional sales
volume with existing customers and new business development.

   Gross profit increased 71.7% to $5.8 million for the three months ended
September 30, 1998 compared with $3.4 million for the same period in 1997.  The
gross margin was 7.4% and 5.4% for the three months ended September 30, 1998 and
1997, respectively.  This increase was attributable to a higher absorption of
manufacturing overhead, the positive impact of the Company's cost management
programs and a favorable product mix.

   Selling, general and administrative ("SG&A") expenses increased 1.8% to $4.0
million, or 5.1% of net sales, for the three months ended September 30, 1998
compared with $3.9 million, or 6.3% of net sales, for the three months ended
September 30, 1997.  SG&A as a percent of sales for the three months ended
September 30, 1998 was lower than the corresponding period in 1997 reflecting
the fact that SG&A expense for the two periods remained relatively constant due
to the Company's cost management programs, while net sales increased in the
three months ended September 30, 1998 for the reasons set forth above.

   Operating income increased to $1.8 million or 2.3% of net sales, for the
three months ended September 30, 1998 compared with an operating loss of
$525,000 for the same period in 1997 as a result of the above factors.

   Interest and other expense of $509,000 and $507,000 remained essentially the
same for the three months ended September 30, 1998 and 1997, respectively.

RESULTS OF OPERATIONS--NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

   Net sales increased 4.4% to $214.0 million for the nine month period ended
September 30, 1998 from $204.9 million for the same period in 1997.  The
increase was attributable principally to increased sales from the cable and
harness and printed circuit board operations due to additional sales volume with
existing customers and new business development.

   Gross profit decreased 46.3% to $11.8 million for the nine months ended
September 30, 1998 compared with $21.9 million for the same period in 1997.  The
gross margin was 5.5% and 10.7% for the nine months ended September 30, 1998 and
1997, respectively.  This decrease was attributable to a change in product mix
with shipments of lower margin products higher than anticipated and lower than
anticipated shipments both in the first half of 1998 resulting in manufacturing
overhead absorption issues, and higher than normal manufacturing efficiency
variances.

   Selling, general and administrative ("SG&A") expenses increased 7.3% to $10.4
million, or 4.9% of net sales, for the nine months ended September 30, 1998
compared with $9.7 million, or 4.7% of net sales, for the nine months ended
September 30, 1997. The increase in SG&A expenses as a percentage of net sales
for the nine months ended September 30, 1998 compared with the same period in
1997 reflects the additional investment in the sales and marketing programs at
the Company and increased charges related to banking, legal, audit and
consulting fees.

   Operating income decreased to $1.3 million for the nine months ended
September 30, 1998 compared with operating income of $12.2 million for the same
period in 1997 as a result of the above factors.

   Interest and other expense of $1.7 million and $1.6 million remained
relatively constant for the nine months ended September 30, 1998 and 1997,
respectively.

                                     - 10 -

<PAGE>
 
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

   The Company had working capital of $60.9 million at September 30, 1998
compared with $35.0 million at December 31, 1997.  The increase in working
capital at September 30, 1998 is essentially due to the reclassification of the
$30.7 million note payable from short term  to long term as a result of the
execution of a new $55 million Senior Secured Credit Facility ("Credit
Facility").  Operating activities provided $16.6 million of cash for the first
nine months of 1998 compared with a use of  $1.1 million for the comparable
period in 1997.  Net cash provided by operating activities for the first nine
months of 1998 consisted principally of increases in accounts payable and income
tax refundable, offset by increases in accounts receivable and inventory and the
net loss for the period.  Cash provided from operating activities in the first
nine months of 1998 was used primarily to purchase equipment and leasehold
improvements of $6.2 million, principally at the Company's new Dublin, Ireland,
facility and to pay down net $9.5 million of the Company's bank line of credit
prior to executing the new Credit Facility.

   On a consolidated basis, the Company had secured revolving credit facilities
of $50.0 million at September 30, 1998, of which $30.7 million was then utilized
and an additional $14.0 million would have been available for use as of
September 30, 1998 based upon the applicable borrowing base, subject, however,
to the covenant default as of September 30, 1998 under such credit facility. In
addition, at September 30, 1998 the Company's equipment lease line of $20.0
million had $4.1 million available for use and $15.9 million utilized for
outstanding commitments. 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 September 30, 1998, approximately $4.9 million had
been utilized for outstanding commitments.

   On October 16, 1998, the Company announced that it had executed a new $55 
million Senior Secured Credit Facility ("Credit Facility") to replace the
Company's $50 million loan and security agreement outstanding on September 30,
1998. 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. Interest is payable monthly. Through December 31, 1998,
the Company may choose an interest rate of either (i) 0.25% above the prime rate
as announced by the bank or (ii) 2.25% above the prevailing Eurodollar rate.
Commencing January 1, 1999, the Company may choose an interest rate which will
range from (i) 0% to 0.75% above the prime rate as announced by the bank or (ii)
1.50% to 2.75% above the prevailing Eurodollar rate depending upon the average
borrowing base availability of the Company. The Credit Facility requires the
Company to maintain certain levels of minimum availability and to maintain
certain minimum fixed charge coverage ratios 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 leases certain equipment used in its manufacturing operations
under a Master Lease Agreement dated October 27, 1992 between the Company and
BancBoston Leasing, Inc. ("BancBoston Leasing"), as amended from time to time
(the "Equipment Lease"). Since the execution of the Equipment Lease, BancBoston
Leasing has sold and assigned to Citizens Leasing Corporation ("Citizens
Leasing") a portion of the equipment leased to the Company under the Equipment
Lease. The Company has been in default under the Equipment Lease as of 
September 30, 1997 because of the default position under its then loan and 
security agreement.

   On October 14, 1998, the Company entered into a Forbearance Agreement with 
BancBoston Leasing pursuant to which the Company has agreed to: (i) provide 
additional security for the Equipment Lease; (ii) repay all amounts owed to 
BancBoston Leasing under the Equipment Lease on or before February 28, 1999; and
(iii) pay to BancBoston Leasing a forbearance fee in the amount of $25,000.

   On October 14, 1998, the Company entered into an Extension and Master Lease 
Amendment Agreement with Citizens Leasing pursuant to which the Company has 
agreed to: (i) repay all amounts owed to Citizens Leasing under the Equipment 
Lease on or before March 1, 1999; and (ii) pay to Citizens Leasing a forbearance
fee in the amount of $75,000.
 
   The Company entered into a $17 million interest rate swap agreement on
October 15, 1998, simultaneous with the execution of the Credit Facility. The
swap agreement provides for payment by the Company of a fixed rate of interest
of 6.32% and matures on October 19, 2001.

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 a 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.
                                     - 11 -
<PAGE>
 
   To address these issues the Company has undertaken an extensive project to
assess and remediate 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 stage of the project is (i)
to determine the extent of the Company's Year 2000 problem by reviewing all of
the Company's software and embedded technology to determine if any of this
software and technology use the two-digit shorthand 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 will be to correct
or replace and test all such software and 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 is near completion of the assessment stage of the project and
will commence the remediation stage promptly upon its completion. 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 could cause a material disruption in the
Company's operations. The Company expects to complete the assessment phase of
its own Year 2000 issues in the fourth quarter of 1998 and will continue to
assess and monitor the Year 2000 readiness of its customers and suppliers.

   Based on its review to date, the Company expects the total cost of its Year
2000 assessment and remediation project to range from approximately $400,000 -
$600,000, of which approximately $100,000 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 make the Company Year
2000 compliant on a timely basis. The source of the funds for the Company's Year
2000 project is operating cash flow and 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.

   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.


NEW FINANCIAL ACCOUNTING STANDARDS

   In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive
Income" and "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 130" and "SFAS 131," respectively).  SFAS 130 provides
standards for reporting items considered to be comprehensive income and uses the
term "other comprehensive income" to refer to revenues, expenses, gains and
losses that under generally accepted accounting principles are included in
comprehensive income but excluded from net income.  SFAS 131 requires new
standards for reporting information about operating segments.  The Company
adopted SFAS No. 130 during the first quarter of 1998 and will adopt the
disclosure requirements of SFAS 131 in its year end financial statements.

                                     - 12 -
<PAGE>
 
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 Quarterly Report on Form 10-Q 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
and costs, 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 cost effectively manage 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 Quarterly Report on Form 10-Q 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 the nine months ended September 30, 1998, the Company's six largest
customers accounted for approximately 73% of the Company's net sales. Sales to
Ascend, EMC and Bay Networks were approximately 19%, 18% and 16%, respectively,
of the Company's net sales for such period. For the first nine months of 1997,
the Company's five largest customers accounted for approximately 75% of the
Company's net sales. Sales to Bay Networks, Ascend, EMC and 3Com were
approximately 32%, 12%, 12%and 12%, respectively, of the Company's net sales for
the same period in 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. For example,
during the second half of 1997 the Company experienced a reduction in, and then
a termination of, business with 3Com. 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 segment accounted for over 50% of the Company's net sales
in each of 1996, 1997 and and the first nine months of 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 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. 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.

                                     - 13 -
<PAGE>
 
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
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' announcement and introduction 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 cost 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 its level of inventory
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.

                                     - 14 -
<PAGE>
 
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 trend
in consolidation 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.


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 an 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 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 function as
expected or 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 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Cautionary Statements--Acquisitions and Geographic
Expansion."


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

                                     - 15 -
<PAGE>
 
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 Company's lease for its Norcross, Georgia, facility expired in
June 1998.  The Company has extended the lease term on this facility until the
operation is relocated to a new 66,000 square foot leased facility in Norcross,
Georgia, currently under construction.  In the fourth quarter of 1998, the
Company expects to occupy and begin manufacturing in this new facility.  There
can be no assurance that such relocation will be successfully completed on time,
within the Company's expected expense budgets or without disruption to its
operation.  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 and will continue to
significantly increase 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.


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 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 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.

                                     - 16 -
<PAGE>
 
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 which 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
2. 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 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.


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 in a purported securities class action lawsuit filed in the
United States District Court for the District of Massachusetts (the "Class
Action").  On October 16, 1998 an amended complaint was filed in the Class
Action.  Like the original complaint, the amended complaint alleges that the
defendants knowingly made misstatements to the investing public about the
Company's inventory and the accuracy of its accounting practices.  The amended
complaint claims that those alleged misstatements were made during the period
April 17, 1997 through March 31, 1998.  The Company believes the allegations in
the amended complaint are without merit and intends to vigorously contest

                                     - 17 -
<PAGE>

them.
 
   Although the Company denies all material allegations in the amended complaint
and intends to vigorously defend against all claims brought against it, the
ultimate outcome, including amount of possible loss, if any, of litigation
cannot be determined at this time.  No provision for any liability that may
result from this litigation has been made in the Condensed Consolidated
Financial Statements.  While the Company does not believe that this litigation
will have a material adverse affect on the Company's business and results of
operations, given the preliminary stages of the litigation 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.


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.

                                     - 18 -
<PAGE>
 
                         PART II.   OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits:
 
EXHIBIT              DESCRIPTION
-------------------  -----------
10.1                 Credit Agreement dated October 14, 1998 between the 
                     Company, ACT Manufacturing Securities Corporation and 
                     The Chase Manhattan Bank, as agent.
10.2                 Revolving Credit Note from the Company in favor of The 
                     Chase Manhattan Bank.
10.3                 Revolving Credit Note from the Company in favor of
                     National Bank of Canada.
10.4                 Security Agreement dated October 14, 1998 between the 
                     Company, ACT Manufacturing Securities Corporation and 
                     The Chase Manhattan Bank, as agent.
10.5                 Pledge Agreement dated October 14, 1998 between the 
                     Company and The Chase Manhattan Bank, as agent.
10.6                 Share Pledge Agreement dated October 14, 1998 between the
                     Company and The Chase Manhattan Bank, as agent.
10.7                 ISDA Master Agreement dated October 14, 1998 between the
                     Company and The Chase Manhattan Bank.
10.8                 Stock Purchase Agreement dated October 13, 1998 between 
                     the Company and Advanced Component Technologies Limited.
10.9                 Subordinated Loan Agreement dated October 13, 1998
                     between the Company and Advanced Component Technologies 
                     Limited.
10.10                Restated Second Amendment to Agreement of Lease dated 
                     November 6, 1998 between the Company and John A. Pino,
                     Trustee of Re-Act Realty Trust.
10.11                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.
10.12                Letter Agreement dated October 14, 1998 between the 
                     Company and BancBoston Leasing.
10.13                Letter Agreement dated October 14, 1998 between the 
                     Company and Citizens Leasing.

11.                  Computation of Net Income (Loss) Per Common Share

27.                  Financial Data Schedule


(b) Reports on Form 8-K
   
    The Registrant did not file any reports on Form 8-K during the quarter ended
September 30, 1998.

                                     - 19 -
<PAGE>
 
                                  SIGNATURES

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

November 16, 1998                 ACT MANUFACTURING, INC.
                                  -----------------------------------
                                  /s/ Douglass C. Greenlaw
                                  -----------------------------------
                                  Douglass C. Greenlaw
                                  Vice President of Finance and Administration
                                  and Chief Financial Officer
                                  (Principal Financial and Accounting Officer)

                                     - 20 -
<PAGE>
 
                                 EXHIBIT INDEX



EXHIBIT              DESCRIPTION
-------------------  -----------
10.1                 Credit Agreement dated October 14, 1998 between the 
                     Company, ACT Manufacturing Securities Corporation and 
                     The Chase Manhattan Bank, as agent.
10.2                 Revolving Credit Note from the Company in favor of The 
                     Chase Manhattan Bank.
10.3                 Revolving Credit Note from the Company in favor of
                     National Bank of Canada.
10.4                 Security Agreement dated October 14, 1998 between the 
                     Company, ACT Manufacturing Securities Corporation and 
                     The Chase Manhattan Bank, as agent.
10.5                 Pledge Agreement dated October 14, 1998 between the 
                     Company and The Chase Manhattan Bank, as agent.
10.6                 Share Pledge Agreement dated October 14, 1998 between the
                     Company and The Chase Manhattan Bank, as agent.
10.7                 ISDA Master Agreement dated October 14, 1998 between the
                     Company and The Chase Manhattan Bank.
10.8                 Stock Purchase Agreement dated October 13, 1998 between 
                     the Company and Advanced Component Technologies Limited.
10.9                 Subordinated Loan Agreement dated October 13, 1998
                     between the Company and Advanced Component Technologies 
                     Limited.
10.10                Restated Second Amendment to Agreement of Lease dated 
                     November 6, 1998 between the Company and John A. Pino,
                     Trustee of Re-Act Realty Trust.
10.11                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.
10.12                Letter Agreement dated October 14, 1998 between the 
                     Company and BancBoston Leasing.
10.13                Letter Agreement dated October 14, 1998 between the 
                     Company and Citizens Leasing.

11.                  Computation of Net Income (Loss) Per Common Share

27.                  Financial Data Schedule