<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


                                   FORM 10-Q


               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934


               For The Quarterly Period Ended September 30, 1998


                            Commission File Number:
                                   000-29194


                            NEXAR TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)


            DELAWARE                                     04-3268334
   (State or other jurisdiction             (I.R.S. Employer Identification No.)
of incorporation or organization)


                               257 TURNPIKE ROAD
                       SOUTHBOROUGH, MASSACHUSETTS 01772
                   (Address of principal executive offices)
                                (508) 485-7900
                              (Telephone number)


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 [    ]


The number of shares of the registrant's Common Stock, $ 0.01 par value,
outstanding as of November 12, 1998 was 12,265,125.
<PAGE>
 
INDEX
<TABLE> 
<CAPTION> 
Item Number                                                                           Page

<S>                                                                                   <C>  
Part I:   Introduction                                                                  3
 
          Financial Condition                                                           3
 
          Financial Information
 
          Item 1.  Financial Statements
 
                   Condensed Consolidated Balance Sheets as of
                   December 31, 1997 and September 30, 1998 (Unaudited)                 4
 
                   Condensed Consolidated Statements of Operations
                   (Unaudited) for the three months and nine months ended 
                   September 30, 1997 and September 30, 1998                            5
 
                   Condensed Consolidated Statements of Cash Flows
                   (Unaudited) for the nine months ended September 30,1997
                   and September 30, 1998                                               6
 
                   Notes to Condensed Consolidated Financial Statements                7-8
 
 
          Item 2.  Management's Discussion and Analysis of
                   Financial Condition and Results of Operations                       9-12
 
          Item 3.  Quantitative and Qualitative Disclosure About Market Risk            12
 
Part II:  Other Information
 
          Item 1.  Legal Proceedings                                                    13
          Item 2.  Changes in Securities and Use of Proceeds                            14
          Item 3.  Defaults Upon Senior Securities                                      14
          Item 4.  Submission of Matters to a Vote of Security Holders                  14
          Item 5.  Other Information                                                    14
          Item 6.  Exhibits and Reports on Form 8-K                                     14

          Signatures                                                                    15

</TABLE> 

                                       2




<PAGE>
 
Introduction

     This quarterly report, future filings of the Company, press releases of the
Company, and oral statements made with the approval of an authorized executive
officer of the Company, contain or may contain forward-looking statements.  For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," and
similar expressions are intended to identify forward-looking statements. There
are a number of factors that could cause the Company's actual results to differ
materially from those indicated by such forward-looking statements. These
factors include, without limitation, those set forth below under the captions
"Financial Condition," "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Liquidity," "--Certain Factors that May
Affect Future Results" and "Litigation."

Financial Condition

     Recent litigation filed by and concern among the Company's creditors may
soon force the Company to seek protection under insolvency laws.  Despite
restructuring efforts, the Company has been unable to obtain sufficient new
financing.  Certain of the Company's trade creditors have recently filed
lawsuits through the date of this report seeking payment of an aggregate of
approximately $1.5 million claimed to be owed to such creditors for goods and
services supplied to the Company.  In addition, holders of 26,461 shares of the
Company's Series B Convertible Preferred Stock have exercised their right of
redemption of such shares at an aggregate redemption price of approximately $3.3
million.  The Company does not have the funds to pay such redemption price,
which is currently due and accrues interest at 11% per annum until paid.  Even
if the Company is able to obtain the funds needed to continue its business
operations, continuing concern among the Company's customers and suppliers about
the Company's future viability could force the Company to seek protection
under insolvency laws.  On November 6, 1998, the Company announced that it had
closed its California manufacturing facility pursuant to an early termination of
its lease with the landlord as part of its attempt to restructure its
operations.   The Company also recently signed an agreement with a contract
manufacturer to produce the Company's proprietary XPA (Cross Processor
Architecture) PCs.  The Company has obtained limited short-term financing that
enabled it to fund only a limited amount of production by the third party
contract manufacturer.  The Company has reduced its workforce to 26 employees; a
reduction of 56 since June 30, 1998. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity" and "Litigation"
below.

                                       3









<PAGE>
 
PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

                    NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                     (In Thousands, Except Share Amounts)

<TABLE> 
<CAPTION> 
                                                                   (UNAUDITED)
                                               DECEMBER 31,       SEPTEMBER 30,
                                                  1997                1998
                                               -----------        ------------
<S>                                            <C>                <C> 
ASSETS
Current Assets:
  Cash and cash equivalents                      $  1,814            $    691
  Accounts receivable, net                          8,832               2,925
  Inventories                                       4,973               1,593
  Prepaid expenses and other current assets         2,191               1,777
                                                 --------            --------
    Total current assets                           17,810               6,986

  Property and equipment, net                         810                 602
  Purchased technology, net                           917                 573
  Other assets                                        372                 335
                                                 --------            --------
                                                 $ 19,909            $  8,496
                                                 ========            ========

LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
Current liabilities:
  Accounts payable                                  6,177               4,486
  Accrued expenses                                  1,189               1,392
  Accrued preferred stock dividends                     -                 952
  Due to related parties                              462                 462
  Current maturities of obligations under
   capital lease                                       58                  64
                                                 --------            --------
    Total current liabilities                       7,886               7,356

Deferred compensation                                 750               1,313
Obligations under capital lease, less 
 current maturities                                   134                  85
                                                 --------            --------
    Total liabilities                               8,770               8,754
                                                 --------            --------

Stockholders' equity (deficit):
  Preferred stock, $0.01 par value,
   10,000,000 shares authorized; 45,684 
   and 72,145 shares issued and outstanding 
   at December 31, 1997 and September 30, 1998, 
   stated at liquidation preference value           4,568               7,215

  Common stock, $0.01 par value, 30,000,000 
   shares authorized; 9,488,715 and 
   12,265,125 shares issued and outstanding 
   at December 31, 1997 and September 30, 1998
   respectively                                        95                 123

Additional paid in capital                         29,594              30,164
Accumulated deficit                               (23,118)            (37,760)
                                                 --------            --------
    Total stockholders' equity (deficit)           11,139                (258)
                                                 --------            --------
                                                 $ 19,909            $  8,496
                                                 ========            ========
</TABLE> 
See accompanying notes to condensed consolidated financial statements. 
 
                                       4

<PAGE>
 
                           NEXAR TECHNOLOGIES, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                (In Thousands, Except Share and Per Share Data)
                                  (Unaudited)
<TABLE> 
<CAPTION> 
                                              THREE MONTHS ENDED           NINE MONTHS ENDED
                                            SEP 30,        SEP 30,       SEP 30,       SEP 30,
                                             1997           1998          1997          1998
                                         ------------   ------------  ------------  ------------
<S>                                      <C>            <C>           <C>           <C> 
Net Revenues                             $     4,403    $     2,517   $    22,399   $     9,969
Cost of revenues                               6,119          4,556        22,769        12,931
                                         ------------   ------------  ------------  ------------
Gross loss                                    (1,716)        (2,039)         (370)       (2,962)
                                         ------------   ------------  ------------  ------------

Operating expenses:

Research and development                         464            253         1,184           921
Selling and marketing                          1,692            955         5,612         3,098
General and administrative                     1,646          3,487         3,170         6,540
                                         ------------   ------------  ------------  ------------
Total operating expenses                       3,802          4,695         9,966        10,559
                                         ------------   ------------  ------------  ------------

Net loss before interest income          $    (5,518)   $    (6,734)  $   (10,336)  $   (13,521)

Interest income (expense), net                    64             (1)          151            16
                                         ------------   ------------  ------------  ------------

Net loss                                      (5,454)        (6,735)      (10,185)      (13,505)
Preferred stock dividends                          -            (33)            -        (1,137)
                                         ------------   ------------  ------------  ------------
Net loss applicable to common stock      $    (5,454)   $    (6,768)  $   (10,185)  $   (14,642)
                                         ============   ============  ============  ============

Net loss per common share
  Basic                                  $     (0.68)   $     (0.68)  $     (1.48)  $     (1.58)
                                         ============   ============  ============  ============
  Diluted                                $     (0.50)   $     (0.57)  $     (1.29)  $     (1.33)
                                         ============   ============  ============  ============

Weighted average common shares
  Basic                                    8,030,949      9,997,650     6,861,419     9,248,258
                                         ============   ============  ============  ============
  Diluted                                 10,883,229     11,779,615     7,885,314    11,030,223
                                         ============   ============  ============  ============

</TABLE> 

See accompanying notes to condensed consolidated financial statements.


                                       5

<PAGE>
 

                           NEXAR TECHNOLOGIES, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE> 
<CAPTION> 
                                                            NINE MONTHS ENDED
                                                         ----------------------
                                                         SEPT. 30,     SEPT. 30,
                                                           1997          1998
                                                         --------      --------
<S>                                                      <C>           <C> 
Cash flows from operating activies:
  Net loss                                               $(10,185)     $(13,505)
  Adjustments to reconcile net loss to net 
   cash used in operating activities:
    Depreciation and amortization                             444           501
    Provision for doubtful accounts                           785           431
    Deferred compensation                                       -           563
    Changes in current assets and liabilities: 
      Accounts receivable                                  (4,477)        5,476
      Inventories                                            (585)        3,380
      Prepaid expenses and other current assets              (968)          421
      Accounts payable                                      1,429        (1,692)
      Accrued expenses                                       (117)          162
      Due to related parties                                 (545)            -
      Deferred revenue                                      1,908             -
                                                         --------       -------
        Net cash used in operating activities             (12,311)       (4,263)

Cash flows from investing activities:
  Increase in short term investments                     $   (997)            -
  Purchases of property and equipment                        (370)          (19)
  Retirements of property and equipment                         -           100
  Decrease in other assets                                    686             -
                                                         --------       -------
    Net cash used in investing activities                    (681)           81
    
Cash flows from financing activities:
  Payments made to related parties                       $ (7,704)            -
  Net proceeds from issuance of common stock               19,687            34
  Net proceeds from issuance of preferred stock                 -         3,025
                                                         --------       -------
    Net cash provided by financing activities            $ 11,983         3,059
                                                         --------       -------

Net decrease in cash and cash equivalents                  (1,009)       (1,123)
Cash and cash equivalents, beginning of period              2,739         1,814
                                                         --------       -------
Cash and cash equivalents, end of period                 $  1,730           691
                                                         ========       =======

Supplemental disclosure of noncash investing and 
 financing activities:
  Conversion of amounts due to related parties to 
   preferred stock                                       $  4,568             -
  Conversion of amounts due to related parties to 
   common stock                                          $ 10,000             -
  Accrued preferred stock dividends                             -           952
  Interest paid during the period                               2            17
</TABLE> 

See accompanying notes to condensed consolidated financial statements. 

                                       6
<PAGE>
 
Nexar Technologies, Inc. and Subsidiary
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been
prepared by Nexar Technologies, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission regarding interim
financial reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 1997 included in
the Company's Form 10-K. The accompanying condensed consolidated financial
statements reflect all adjustments (consisting of normal, recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
results for the interim periods presented. The results of operations for the
nine-month period ended September 30, 1998 are not necessarily indicative of the
results to be expected for the full year.

Recent litigation filed by and concern among the Company's creditors may soon
force the Company to seek protection under insolvency laws. Despite
restructuring efforts, the Company has been unable to obtain sufficient new
financing.  A short-term secured financing arrangement pursuant to which the
Company was able to borrow up to $850,000 was duly terminated in October 1998.
Although the Company has obtained limited short-term financing since then to
finance the manufacture of its products by a third-party contract manufacturer,
there can be no assurance that the Company can obtain any further funds in order
to continue operations.  Even if the Company is able to obtain the funds needed
to continue its business operations, continuing concern among the Company's
customers and suppliers about the Company's future viability could force
the Company to seek protection under insolvency laws.

The Company's condensed consolidated financial statements have been presented on
the basis that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.

The financial statements do not include any adjustments relating to the
recoverability and classification of asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.

2.)   Principles of Consolidation

The accompanying condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, Intelesys Corporation
(a Delaware corporation), which is inactive. All significant intercompany
balances and transactions have been eliminated in consolidation.

                                       7
<PAGE>
 
3.) Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
<TABLE>
<CAPTION>
 
                                                         December 31,  September 30,
(In Thousands)                                               1997          1998
                                                             ----          ----      
<S>                                                        <C>            <C>          
 
Raw materials .......................................        $4,519         $1,375
Work-in-process .....................................           110            181
Finished goods ......................................           344             37
                                                             ------         ------
                                                             $4,973         $1,593
                                                             ======         ======
</TABLE>


     Work-in-process and finished goods inventories consist of material, labor
and manufacturing overhead.

4.)  Concentration of Credit Risk

Statement of Financial Accounting Standards (SFAS) No. 105, Disclosure of
Information About Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk, requires disclosures
of any significant off-balance-sheet and credit risk concentrations. The Company
has no significant off-balance-sheet concentrations of credit risk such as
foreign currency exchange contracts, options contracts or other foreign hedging
arrangements. Financial instruments that subject the Company to credit risk
consist primarily of cash and trade accounts receivable. The Company places its
cash in highly rated financial institutions. The Company's accounts receivable
includes two customers, who represented approximately $ 487,875 and $249,516,
respectively, of accounts receivable at September 30, 1998. To reduce risk, the
Company routinely assesses the financial strength of its customers and, as a
consequence, believes that its accounts receivable credit risk exposure is
limited.

5.)  Initial Public Offering

The Company completed the initial public offering of 2,500,000 shares at $9.00
per share on April 14, 1997. Net proceeds to the Company amounted to $19.7
million. The Company's condensed statements of cash flows for the period ended
September 30, 1997 contains the effect of this transaction.

                                       8
<PAGE>
 
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Results of Operations

     Nexar Technologies, Inc. (the "Company") was organized and commenced
operations in March of 1995. Initially the Company focused on developing its
products and its marketing and distribution strategies and did not generate
material revenues until April 1996 when it began shipping its proprietary
personal computers (PCs). The Company develops, manufactures and markets high-
performance desktop PCs based upon patented and patent pending technologies.

     The table below presents the statement of operations items for the three
months and nine months ended September 30, 1997 and September 30, 1998 as a
percentage of net revenues and provides the percentage increase in absolute
dollars of such items comparing the interim periods ended September 30, 1998 to
the corresponding period from the prior fiscal period.

<TABLE> 
<CAPTION> 
                                            THREE MONTHS ENDED         % CHANGE OF          NINE MONTHS ENDED         % CHANGE OF
                                           SEPT 30,    SEPT 30,      DOLLAR INCREASE/     SEPT 30,     SEPT 30,     DOLLAR INCREASE/
                                             1997        1998          (DECREASE)           1997         1998          (DECREASE)
                                           --------    --------     -----------------     --------     --------     ----------------
<S>                                        <C>         <C>          <C>                   <C>          <C>          <C> 
Net revenues                                100.0 %     100.0 %          (42.8)%           100.0 %      100.0 %          (55.5)%
Cost of revenues                            139.0 %     181.0 %          (25.5)%           101.7 %      129.7 %          (43.2)%
                                           --------    --------     -----------------     --------     --------     ----------------
Gross loss                                  (39.0)%     (81.0)%          (18.8)%            (1.7)%      (29.7)%         (700.5)%

Operating expenses:

Research and development                     10.5 %      10.1 %          (45.5)%             5.3 %        9.2 %          (22.2)%
Selling and marketing                        38.4 %      37.9 %          (43.6)%            25.1 %       31.1 %          (44.8)%
General and administrative                   37.4 %     138.5 %          111.8 %            14.2 %       65.6 %          106.3 %
                                           --------    --------     -----------------     --------     --------     ----------------
Total operating expenses                     86.3 %     186.5 %           23.5 %            44.6 %      105.0 %            6.0 %

Net loss before interest income            (125.3)%    (267.5)%          (22.0)%           (46.3)%     (135.6)%          (30.8)%

Interest income                               1.5 %         -           (101.6)%             0.7 %        0.2 %          (90.1)%
                                           --------    --------     -----------------     --------     --------     ----------------

Net loss                                   (123.8)%    (267.5)%          (23.5)%           (45.6)%     (135.5)%          (32.6)%
Preferred stock dividends                       -        (1.3)%         (100.0)%               -        (11.4)%         (100.0)%
                                           --------    --------     -----------------     --------     --------     ----------------
Net loss applicable to common stock        (123.8)%    (268.8)%          (24.1)%           (45.6)%     (146.9)%          (43.8)%
                                           --------    --------     -----------------     --------     --------     ----------------
</TABLE> 


Net Revenues

     Net revenues for the third quarter ended September 30, 1998 were $2.5
million as compared to $4.4 million during the same period a year ago. For the
nine months ended September 30, 1998 net revenues decreased to $10.0 million as
compared to $22.4 million in the comparable period of 1997. The decline in
revenues was due to concern among some of the Company's potential customers
about 

                                       9
<PAGE>
 
the Company's future viability and the Company's continued cash flow
constraints, which adversely affected the ability of the Company to generate
orders and rendered the Company unable to procure the necessary components to
fulfill some of the orders it did receive.

Gross Loss

     The Company recorded a gross loss of $2.0 million in the third quarter of
1998 as compared to a gross loss of $1.7 million for the same period in the
previous year. For the nine months ended September 30, 1998 the gross loss was
$3.0 million as compared to a gross loss of $0.4 million for the same period a
year ago. The increase in gross loss for the comparable periods was primarily
due to unabsorbed fixed factory costs, as a result of the decreased shipments
for the three months and nine months ended September 30, 1998. The Company also
revalued its inventory down to its fair market value at September 30, 1998.

Operating Expenses

     Research and development expenses in the third quarter and the nine months
ended September 30, 1998 decreased 46% and 22%, respectively as compared to the
same period(s) in the prior year. This lower spending was primarily due to the
Company's limited cash availability.

     Selling and marketing expenses decreased 44% in the third quarter of 1998
as compared to the third quarter of 1997. For the nine months ended September
30, 1998 selling and marketing expenses decreased 45% as compared to a year ago.
The decrease in both the three months and nine months periods were attributable
to lower spending in the current year due to reduced financial resources and a
change in marketing efforts.

     General and administrative expenses increased to $3.5 million in the third
quarter of 1998 as compared to $1.6 million for the same period a year ago. For
the nine months ended September 30, 1998 these expenses amounted to $6.5 million
as compared to $3.2 million for the same period of 1997. The increase in general
and administrative expenses for the three months and nine months periods of 1998
was primarily due to increased legal, outside consulting, rent, directors and
officers insurance, and deferred compensation charges. The Company also
increased its allowance for bad debt expense in connection with numerous
customer accounts which have been placed for collection and/or litigation.


Liquidity and Capital Resources.

Recent litigation filed by and concern among the Company's creditors may soon
force the Company to seek protection under insolvency laws. Despite
restructuring efforts, the Company has been unable to obtain sufficient new
financing.  Certain of the Company's trade creditors have recently filed
lawsuits through the date of this report seeking payment of an aggregate of
approximately $1.5 million claimed to be owed to such creditors for goods and
services supplied to the Company. In addition, holders of 26,461 shares of the
Company's Series B Convertible Preferred Stock have exercised their right of
redemption of such shares at an aggregate redemption price of approximately $3.3
million.  The Company is unable to pay such redemption price, which is currently
due and accrues interest at 11% per annum until paid.  A short-term secured
financing arrangement with Porter Capital Corporation pursuant to which the
Company was able to borrow up to $850,000 was duly terminated in October 1998.
Although the Company has obtained limited short-term financing since then to
finance the

                                       10
<PAGE>
 
manufacture of its products by a third-party contract manufacturer, there can be
no assurance that the Company can obtain any further funds in order to continue
operations. Even if the Company is able to obtain the funds needed to continue
its business operations, continuing concern among the Company's customers and
suppliers about the Company's future viability could force the Company to seek
protection under insolvency laws.

Certain Factors that May Affect Future Results

  There are a number of factors that could cause the Company's actual results to
differ materially from those indicated by forward-looking statements contained
in this report, in future filings of the Company, press releases of the Company,
and oral statements made with the approval of an authorized executive officer of
the Company.  These factors include those set forth above under the captions "--
Financial Condition," and "--Liquidity" and below under the captions "Nasdaq
Delisting of Common Stock" and "Litigation."   Additional factors that may cause
or contribute to such differences include, but are not limited to, risks
discussed in the Company's Form 10-K for the period ended December 31, 1997 and
from time to time in the Company's other filings with the Securities and
Exchange Commission (the "Commission") (File No. 0-29194), including, without
limitation, the following, (a) the possibility that the Company may need to seek
protection from its creditors under insolvency laws, (b) the uncertainty of the
availability of additional capital to fund the Company's operations, (c)
dependence on substantial customers, (d) uncertainty of market acceptance of the
Company's products, (e) dependence on third party resellers and distributors,
(f) intense competition, (g) risks associated with international expansion, (h)
risks associated with rapid growth, and (i) reliance on suppliers.

  As a result of the foregoing and other factors, the Company may experience
material fluctuations in future operating results on a quarterly or annual basis
which could materially and adversely affect its business, financial condition,
operating results and stock price.


Nasdaq Delisting of Common Stock

  By letter dated July 16, 1998, The Nasdaq Stock Market ("Nasdaq") informed the
Company that the Company was not in compliance with a Nasdaq National Market
listing requirement that the market value of shares of the Company's common
stock held by the public (i.e., publicly traded shares not held by its executive
officers, directors or greater than 10% stockholders) be at least $5 million.
Nasdaq advised the Company that it had until October 16, 1998 to demonstrate
compliance with such requirement by attaining a $5 million market value for such
shares for ten consecutive trading days.  Nasdaq further advised the Company
that if it were unable to so comply and obtained no other relief pursuant to
Nasdaq procedural remedies, the Company's common stock would be delisted from
the Nasdaq National Market on October 20, 1998.  The Company received a similar
letter from Nasdaq dated August 7, 1998 regarding the failure of the Company's
common stock to maintain a required minimum $1 per share bid price and informing
the Company that it must demonstrate compliance with such per share price
requirement for ten consecutive trading days by November 9, 1998 (in addition to
meeting its other compliance requirements, including those applicable to the
market value of its non-affiliated publicly traded shares described above) in
order to avoid delisting of its shares of common stock from the Nasdaq National
Market on November 11, 1998.  The Company did not comply with either such ten
day trading requirement.  On October 16, 1998, the Company requested a hearing
with respect to the potential delisting to Nasdaq's Listing and Hearing Review
Committee and Nasdaq stayed the delisting of the Company's common stock during
the pendancy of such appeal scheduled to be heard on December 11, 1998.  Given
the Company's financial condition (see "Financial Condition" and "Management's
Discussion and Analysis of Financial Condition and Results of Operation--

                                       11
<PAGE>
 
Liquidity" above), the Company cannot ensure that it will be able to maintain
the Nasdaq National Market listing for the Company's common stock.  The Company
anticipates that the absence of the Nasdaq National Market listing for the
Company's common stock will have an adverse effect on the market for and the
market price of the Company's common stock. If the Company's common stock is
delisted from the Nasdaq National Market, brokers may continue to make a market
in the Company's common stock on the OTC Bulletin Board.

Year 2000

     The Year 2000 issue presents concerns for business and consumer computing. 
The consequences of this issue may include systems failures and business process
interruption. It may also include additional business and competitive 
differentiation. Aside from the well-known calculation problems with the use of 
2-digit date formats as the year changes from 1999 to 2000, the Year 2000 is a 
special case leap year and in many organizations using older technology, dates 
were used for special programmatic functions.

     The problem exists for many kinds of software and hardware, including 
mainframes, mini-computers, PCs, and embedded systems. During the last twelve 
months, the Company has been addressing Year 2000 changeover issues with a 
program targeted at updating the Company's internal business systems as well as 
the products that it sells. In 1998, the Company began updating the computer 
systems and software used for its internal business. The network based software 
used by the Company to transact daily business has been identified by the 
Company either as being Year 2000 compliant, or as being readily capable of 
being upgraded to Year 2000 compliant prior to January 1, 2000. In addition to 
software compliance for Year 2000, desktop computers and server systems at the 
Company have been tested for Year 2000 compliance and upgraded as necessary. The
Company tested all computer hardware with a nationally recognized Year 2000 
compliance test obtained from National Software Test Laboratories ("NSTL") of 
Conshohocken, Pennsylvania. This NSTL test checks a computer system basic input 
output system ("BIOS") for proper support of real time clock roll-over from 
December 31, 1999 to January 1, 2000 and support for recognition of leap years 
thereafter.

     As the Year 2000 approaches, the Company has taken certain steps designed 
to ensure that the personal computer products that it sells are Year 2000 
compliant. The changeover to Year 2000 is an issue that needs to be addressed 
both in terms of hardware and bundled software, including the operating system 
and related applications. With respect to hardware, the Company has incorporated
a system BIOS that fully supports the Year 2000 changeover in all XPA PC systems
and certain models of the previously sold ISPA systems. For systems that contain
older BIOS that do not fully support Year 2000 changeover, the Company has 
provided support for BIOS "Flash" upgrades (an update of the entire code in a 
BIOS chip contained in the Company hardware) which can be accomplished through 
the download area of the Company's web-site.

     All organizations dealing with the Year 2000 must address the effect this 
issue will have on their third-party supply chain. With respect to Year 2000 
compliance of operating systems and other applications bundled on the Company's 
hardware systems, the Company recommends users of the Company's hardware systems
used to access such operating systems and other applications refer to the 
appropriate vendors web-sites to determine the extent Year 2000 is supported in 
the software.

     The Company believes that the updated system BIOS, now used in all the 
Company's personal computer products provides adequate support for the critical 
Year 2000 issues including, rollover, leap year support, century changeover, 
computation support, and transfer support to and from Year 2000 compliant 
products. To verify support for proper Year 2000 rollover, the Company submitted
its computer products to NSTL of Conshohocken, Pennsylvania for testing the Year
2000 compliance. Using their industry recognized YMARK2000 test, NSTL has 
certified and listed the appropriate Nexar computer products as Year 2000 
compliant. Passing the YMARK2000 test indicates:

     . Proper system real time clock is in operation
     . Recognition of century change support is in real time clock memory
     . Progression from 12/31/99 to 1/1/2000 occurs via the BIOS without user
       intervention or rebooting the system
     . Ability to manually set the century via the BIOS should real time 
       progression fail
     . Recognition of leap year, when appropriate
 
     Resolving Year 2000 issues is a worldwide phenomenon that will likely 
absorb a substantial portion of information technology budgets and attention in 
the near term. The Company believes that it has pursued and obtained Year 2000 
compliance in most of the areas described above.


Item 3  Quantitative and Qualitative Disclosure About Market Risk

  Not applicable

                                       12
<PAGE>
 
PART II - OTHER INFORMATION


Item 1. Legal Proceedings

     On July 7, 1998, First International Computer, Inc. ("FIC"), a Taiwanese
corporation and the Company's sole supplier of its proprietary motherboards,
filed a lawsuit against the Company in the Superior Court of Alameda County,
California.  FIC's complaint seeks damages of $4,150,210 based on its
allegations that the Company has failed to order shipment of goods manufactured
by FIC that FIC alleges it manufactured pursuant to purchase orders submitted by
the Company.  The Company believes that the allegations are without merit and
that FIC is attempting to force the Company to pay for finished goods
manufactured by FIC (and surplus component parts acquired by FIC) that were not
subject to firm purchase orders by the Company and for which the Company has no
obligation of payment.  The parties have agreed that FIC will continue to supply
the Company with its proprietary motherboards as needed on a cash-on-delivery
basis while the parties attempt to resolve the dispute.  On September 14, 1998,
the Company filed an answer to FIC's complaint in which the Company denied FIC's
allegations. The Company and FIC continue to engage in discussions seeking to
resolve the matter.  Failing such a resolution, the company intends to defend
against FIC's allegations to the extent it is financially able to do so. See
"Financial Condition" and "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Liquidity" above.  If the Company is unable
to resolve the dispute, there can be no assurance that the Company will be able
to obtain its proprietary motherboards from FIC.  The Company does not currently
have an alternative supplier of these component parts and any sustained
interruption in the supply of these parts would have a material adverse effect
on the Company.

     The following trade creditors of the Company have filed lawsuits as
indicated below seeking payment of the respective amounts (exclusive of claims
for costs and interest) such creditors claim is due for goods or services
supplied to the Company:

<TABLE>
<CAPTION>
PLAINTIFF                       COURT                         DATE SUIT FILED            Amount Claimed
----------                      -----                         ---------------            -------------
<S>                          <C>                             <C>                         <C>
Bell Microproducts,          District Court                  November 9, 1998               $241,572
Inc.                         Westborough, MA                                              

Janus World                  Superior Court                  October 23, 1998                138,450
Trade, Inc.                  Santa Clara County, CA                                       

Gates-Arrow                  Superior Court                  October 8, 1998                 127,264
Distributing, Inc.           Worcester County, MA                                         

L.A. Commercial              Superior Court                  September 29, 1998              456,040
Group, Inc.                  Alameda County, CA                                           

Wyle Electronics             Superior Court                  June 22, 1998                   309,132
                             Worcester County, MA
</TABLE>



  As of the date of this report five other trade creditors of the Company had
filed similar separate suits in either Massachusetts or California seeking
payments of amounts in an aggregate total of $220,349 (exclusive of interests
and costs).

                                       13
<PAGE>
 
Item 2. Changes in Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

Holders of 26,461 shares of the Company's Series B Convertible Preferred Stock
have exercised their right of redemption of such shares at an aggregate
redemption price of approximately $3.3 million.  The Company does not have the
funds to pay such redemption price, which is currently due and accrues interest
at 11% per annum until paid.


Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

Exhibit 11.1 - Computation of Earnings Per Common Share
Exhibit 27 - Financial Data Schedule

No reports on Form 8-K were filed by the Company during the quarter ended
September 30, 1998.

                                       14
<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.


                                 NEXAR TECHNOLOGIES, INC.

Date:  November 12, 1998         By /s/ Albert J. Agbay
                                 -----------------------------------
                                 Albert J. Agbay
                                 Chairman, Chief Executive Officer
                                 and President
                                 (as authorized officer)


                                 By  /s/ Gerald Y. Hattori
                                 -----------------------------------
                                 Gerald Y. Hattori
                                 Vice President, Finance , Chief Financial
                                 Officer and Treasurer
                                 (as authorized officer and as principal
                                 financial officer)


                                      15