<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                            -------------------------

(MARK ONE)

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

                   FOR THE FISCAL YEAR ENDED: JANUARY 2, 1999

                                       OR

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

                    FOR THE TRANSITION PERIOD FROM N/A TO N/A

                         COMMISSION FILE NUMBER: 0-26472

                             SMARTFLEX SYSTEMS, INC.
                             -----------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                            -------------------------

             DELAWARE                                 33-0581151
  (STATE OR OTHER JURISDICTION OF                  (I.R.S. EMPLOYER
   INCORPORATION OR ORGANIZATION)                 IDENTIFICATION NO.)

       14312 FRANKLIN AVENUE, P.O. BOX 2085, TUSTIN, CALIFORNIA 92781-2085
       -------------------------------------------------------------------
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 838-8737

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                         COMMON STOCK, $.0025 PAR VALUE
                         ------------------------------
        RIGHTS TO PURCHASE SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
        ----------------------------------------------------------------
                                (TITLE OF CLASS)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

The aggregate market value of the Registrant's Common Stock held by
non-affiliates on March 18, 1999 (based on the last reported price of the Common
Stock on the Nasdaq Stock Market on such date) was $18,903,784.

The number of shares outstanding of the registrant's Common Stock as of March
18, 1999 was 6,453,541

                       DOCUMENTS INCORPORATED BY REFERENCE

The Registrant's Annual Report to Stockholders for the fiscal year ended
December 31, 1998, is incorporated by reference in this Form 10-K to the extent
stated herein. The Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on or about May 19, 1999, and to be filed
with the Commission no later than April 19, 1999, is incorporated by reference
in Part III of this Form 10-K to the extent stated herein.


<PAGE>   2



                             SMARTFLEX SYSTEMS, INC.
                          1998 FORM 10-K ANNUAL REPORT
                                TABLE OF CONTENTS

                                     PART I

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>       <C>                                                                <C>
ITEM 1.   BUSINESS                                                            3

ITEM 2.   PROPERTIES                                                         20

ITEM 3.   LEGAL PROCEEDINGS                                                  20

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                20

                                PART II

ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
            RELATED STOCKHOLDER MATTERS                                      21

ITEM 6.   SELECTED FINANCIAL DATA                                            21

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS                              21

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                        21

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
            ACCOUNTING AND FINANCIAL DISCLOSURE                              21

                               PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                 22

ITEM 11.  EXECUTIVE COMPENSATION                                             22

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
            AND MANAGEMENT                                                   22

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                     22

                                PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
            REPORTS ON FORM 8-K                                              23
</TABLE>


        The Company operates and reports financial results on a 52- or 53-week
year, ending on the Saturday nearest December 31 each year, and follows a
four-four-five week quarterly cycle. For clarity of presentation, the Company
has described all periods presented as if the fiscal year ended December 31.


<PAGE>   3



                                     PART I

ITEM 1. BUSINESS

        The information contained in this Annual Report on form 10-K, other than
historic information, is comprised of forward-looking statements relating to
future events or the future financial performance of the Company, and the
Company intends that such forward-looking statements be subject to the
safeharbors created within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. Readers are
cautioned that such forward-looking statements, which may be identified by words
such as "anticipates," believes," "intends," "estimates," "expects," and similar
expressions, are only predictions or estimations and are subject to known and
unknown risks and uncertainties. In evaluating such statements, readers should
consider the various factors identified in this Annual Report on Form 10-K,
including matters set forth in "Risk factors," which could cause actual events,
performance or results to differ materially from those indicated by such
statements.

                           DESCRIPTION OF THE COMPANY

        Smartflex Systems, Inc., ("Smartflex" or the "Company") is a technology
leader in electronics manufacturing services. The Company provides a diverse
range of services to customers to achieve their product realization needs. These
services include product, Application Specific Integrated Circuits ("ASIC"),
software and Radio Frequency ("RF") design; modeling, and package/enclosure
management; and the precision assembly of comprehensive advanced interconnect
solutions, utilizing precision surface mount and Direct-Chip-Attach ("DCA")
technologies. Prototype through high volume manufacturing of electronic circuit
board and box build services is provided through nine facilities worldwide for
customers in the Americas, Europe and Asia. The Company believes it is a leading
supplier of advanced surface mount technology ("SMT"), Chip-On-Flex ("COF"), and
Flip-Chip-On-Flex ("FCOF") assemblies to the hard disk drive ("HDD") and non-HDD
markets. The Company's principal HDD customers include International Business
Machines Corporation ("IBM"), Samsung Electronics Company Ltd. ("Samsung"),
Seagate Technology, Inc. ("Seagate") and Western Digital Corporation ("Western
Digital"). The Company's principal non-HDD customers include Iomega Corporation
("Iomega"), Hewlett-Packard Company ("H-P"), and Quantum Corporation
("Quantum"). The Company's net revenues have grown from $31 million in fiscal
1991 to $146 million in fiscal 1996, and ending the fiscal year 1998 at $108
million.

        The Company's principal manufacturing services have consisted of product
design and prototyping, materials procurement and management, high-volume
automated assembly and subassembly test. Smartflex utilizes complex assembly
techniques and believes it was one of the first to commercialize the COF and
FCOF process technologies for the computer industry. COF and FCOF technologies,
in which a bare silicon die (without the standard lead frame package) is mounted
directly on substrate material, enable improved performance, a greater density
of components and reduced size when compared with traditional assembly
technologies. Smartflex had previously (before acquisitions, described below)
served its customers from four locations, one in each of Tustin, California
("Tustin"); Singapore; Monterrey, Mexico ("Monterrey"); and Cebu, the
Philippines ("Cebu").

        The Company recently began to diversify its customer base by expanding
into additional markets. This expansion was achieved both internally and through
acquisitions. Late in 1998 and into early 1999, the Company acquired Logical
Services Incorporated, a design and engineering services firm; certain assets of
the Methuen, Massachusetts division of EA Industries, now owned by Smartflex New
England, Inc.; and certain assets of the Tanon subsidiary of EA Industries, now
owned, collectively, by Smartflex Fremont, Inc. and Smartflex New Jersey Inc. It
is believed that these acquisitions will provide a platform for diversification
into the automotive, RF communications, and medical marketplaces. Also see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 7 through 10 of the Company's Annual Report to the
Stockholders for the fiscal year ended December 31, 1998.




                                       3
<PAGE>   4
                               INDUSTRY BACKGROUND

        Manufacturers of electronic products, including computers, communication
devices and consumer electronics, are continually innovating and redesigning
these products to make them smaller and lighter, at lower cost and with higher
performance. Facilitating this process has required advances in integrated
circuits, increased use of miniaturized components and new packaging methods.
Development of new products in the HDD market has been enabled in part by
advances in flexible interconnect assemblies ("flex assemblies"), which provide
an intelligent interface between the read/write heads and the electronics in the
disk drive. Also see "Risk Factors."

        An electronic interconnect is used to provide electrical connections
between components in electronic systems. Substrates used for interconnects
include primarily rigid printed circuit boards and flexible circuits. Advances
in technology have enabled the placement of integrated circuits and other
components on a flexible substrate to create a flex assembly. Although only a
small percentage of the flexible circuits produced today are incorporated into
flexible assemblies, the Company believes that the forces which have driven the
use of flex assemblies in the HDD market, including the need for rapid product
development, miniaturization and increased performance, will create additional
opportunities for flex assemblies in other markets. Also see "Risk Factors."

        The outsourcing of flex assemblies is part of a larger trend in the
electronics industry toward the outsourcing of manufacturing services.
Electronics original equipment manufacturers ("OEMs") increasingly choose to
access leading manufacturing processes from third parties and focus on their
core competencies, such as product development and marketing. Also see "Risk
Factors." This allows the OEM to reduce capital investment and product costs,
while reducing time to market. The complex process of assembling integrated
circuits on flexible substrates requires special processes and skills due to the
flexibility and thinness of the substrate material and, in the case of COF and
FCOF, the delicate nature of the bare silicon die. These processes and skills
include advanced automation and tooling for surface mount assembly,
semiconductor assembly for COF and FCOF attachment, and semiconductor test
capabilities. The know-how required to master these assembly processes has
helped to establish companies, such as Smartflex, which specialize in providing
contract manufacturing services in this area.

        With the Company's recent acquisitions it is now engaged in providing
contract manufacturing services ranging from the design and assembly of printed
circuit boards to the complete procurement, production, assembly, test and
delivery of entire electronic products and systems.

                                    STRATEGY

        The Company's objective is to encompass all aspects of product
realization, from design and engineering to prototyping and manufacturing. Also
see "Risk Factors." The key elements of the Company's strategy are as follows:

Manufacturing Flexibility

        The Company focuses on providing a global diversified resource base for
manufacturing flexibility to its customers, and operates prototype, low volume
and automated, high volume production factories. The operations produce
precision interconnect assemblies, hard boards, backplanes, and box builds. A
key component of the flexibility is an integration of design expertise with
engineering and prototyping. The Company believes that through these resources,
it helps its customers reduce manufacturing costs and shorten delivery times,
resulting in efficient time-to-volume production for rapidly evolving industries
such as portable computer products, RF telecommunications, automotive and
medical electronics.

Expand in Growing Market Segments

        Smartflex has applied the technology and processes it developed for the
HDD industry to other storage devices, such as disk array storage systems,
removable personal storage, tape drives and optical drives, other computer
peripherals, scanners, portable computers and communications products. The
Company expects that the technological characteristics of its precision
assemblies will help accommodate the trend toward smaller, lighter



                                       4
<PAGE>   5

and more powerful electronics products. The Company plans to increase revenues
from these non-HDD products by following its traditional strategy of affiliating
with leading OEMs in its target markets. The Company believes that with the
product and market diversification achieved through recent acquisitions it will
be able to accelerate its participation in these expanded market segments across
multiple product lines.

Exploit Global Manufacturing Presence

        Smartflex currently has operations in California, New Jersey,
Massachusetts, Singapore, Monterrey and Guadalajara, Mexico, and Cebu,
Philippines. The Company believes its U.S. operations are strategically located
for high mix regional support while the high volume factories in Mexico and the
Philippines provide low cost, high volume international reach with ISO 9002
quality. The Company believes that its facilities in these diverse geographic
locations enable it to better address its customers' objectives regarding cost,
shipping location and frequency of interaction with manufacturing specialists,
as well as local content requirements of end-market countries. For example, in
the Company's flex-based precision business, the Tustin, California and
Singapore facilities are designated as the Regional Technology and Services
Centers for the regions they support (the Americas and Asia, respectively),
providing state-of-the-art prototype and low-volume production capabilities,
while, the Monterrey and Cebu facilities serve as major volume production
facilities in the Americas and Asia, respectively.

Continual Process Improvement

        The Company has traditionally focused on providing precision
manufacturing of high-volume precision assemblies on a turnkey basis. This
process involves the exact placement of miniaturized components on rigid and
flexible circuit boards and requires the design and effective implementation of
fine tooling, extensive automation and advanced vision systems capable of
reliable, high-volume throughput, and sophisticated semiconductor test
capabilities. The Company believes that focusing on precision, high-volume
requirements allows it to maximize value to the customer while achieving optimum
utilization of its equipment and facilities.

        Before a single product is approved for production, it undergoes a
comprehensive series of tests, including failure mode defects analysis (FMDA) to
fully functional subsystem testing, with products being examined to verify
design readiness, quality standards compliance, and performance criteria. The
Company's goal is to help the customer devise new procedures to certify quality
standards of visionary, next generation products, assemblies, components, and
manufacturing technologies. Also see "Patents."

                             MANUFACTURING SERVICES

        The Company's manufacturing services consist of design, procurement,
assembly and test.

        Design--Working interactively, Smartflex customers are assured that
every part of the process is focused on meeting market windows. The Company
utilizes a process, referred to as "Synchronized Manufacturing" in the product
introduction procedure, which emphasizes discipline at the start of design. It
begins with a unique, cross-functional planning process and extends through
every step of highly disciplined program management, to volume production. The
Company believes that the real-time integration between design and manufacturing
makes certain that optimal recommendations are relayed directly to its
customer's designers for quick approval or modification. This interdisciplinary
approach also relies on supply chain and resource management controls to
integrate all aspects of the process.

        The Company believes that customers rely on them for flexibility in
hardware and software design, RF design and test simulation, and conversion of
schematics and code into products with reliable functionality testing in
real-world environments.



                                       5
<PAGE>   6

        Procurement--Early involvement in the design process allows the Company
to assist in the selection of suppliers and components in order to enhance
manufacturability and logistical support of volume programs. As part of the
procurement process, the Company offers its customers material planning and
procurement, and inventory management and handling services. From time to time,
the Company's suppliers allocate components among their customers in response to
supply shortages. By assuming responsibility for procurement, the Company may be
required to bear the risks of fluctuations in component price and availability.
In certain cases, the Company can leverage its position as a manufacturing
partner to large OEMs to receive more favorable price and volume allocations
from its key suppliers.

        Assembly--To validate a design's manufacturability and to accelerate new
product development, the Company offers multiple levels of service, including
(1) circuit design verification and testing, (2) value engineering to improve
yields, reliability and cost, (3) quick turn prototyping, and (4) pre-production
to optimize the ramp-to-volume.

        The Company has historically been centered on precision assembly
involving the exact placement of miniaturized components on multiple substrate
types. The Company's current assembly techniques are highly automated and based
almost exclusively on advanced SMT and Direct-Chip-Attach ("DCA"). SMT is a
method of affixing electronic components, including integrated circuits, onto
the surface of the substrate. Components mounted in SMT assemblies can be of
relatively small size due to the use of fine lead-to-lead spacings ("pitch"),
which currently can be as small as 4 millimeters. The Company's SMT assembly
process has become increasingly complex because of these smaller dimensions and
tighter tolerances, and accordingly requires the use of expensive automated
assembly equipment and engineering expertise.

        Following a multi-year development program, the Company expanded COF
production in 1993. COF involves mounting a semiconductor die (which lacks the
standard lead frame package) directly onto the flex substrate. This is
accomplished by wire bonding directly from the silicon die onto conductors in
the flex. This elimination of the semiconductor package enables improved
performance and a greater density of components, thus reducing size.

        High-performance, high-capacity HDDs were the first products to benefit
from the use of COF assemblies. COF enables improved product performance while
simultaneously producing a much smaller design. This is particularly beneficial
for magnetoresistive ("MR") head technology, which requires twice as many leads
to the head as do competitive head technologies.

        COF has enjoyed significant customer acceptance. The Company has
increased its shipments of assemblies that include COF to more than 300,000
units, on average, per week. COF assemblies have been manufactured in volume for
certain of the Company's customers, including IBM, Seagate, and Western Digital.
Assemblies incorporating COF technology accounted for approximately 45%, 50%,
and 44% of net revenues in fiscal 1998, 1997, and 1996, respectively.

        As electronic designs require increasingly smaller circuitry, the
attachment of integrated circuits to flex substrates is expected to require
greater precision. The Company has invested in the development of advanced
integrated circuit assembly technologies that offer higher precision and thus
greater component densities. Also see "Risk Factors."

        The Company also utilizes the Chip-On-Ceramic ("COC") assembly process
in which one or more semiconductor die(s) without the standard lead frame
package is/are attached directly on to ceramic substrates.

        In 1997, Smartflex began volume production using the FCOF process.
Flip-Chip mounting eliminates wire bonding, permitting a smaller semiconductor
"footprint." FCOF uses the flex circuit as part of the integrated circuit
leadframe structure, thereby greatly reducing the surface area required on the
flex. This can also result in thinner cross section profiles of the flex
assemblies, which permits further reduction in package size.



                                       6
<PAGE>   7

        In addition to FCOF, these advanced integrated circuit assembly
technologies include Tape Automated Bonding ("TAB"), both on the flex
("TAB-on-Flex") and within the flex structure ("TAB-in-Flex"). TAB technology
utilizes a very thin gold lead frame attached directly to the flex, which
replaces the need for wire bonding.

        Test--Following prototyping and pre-production, production testing
becomes central. The Company's quality assurance processes range from
environmental stress to thermal property analysis, to in-circuit, x-ray, and
full parametric testing. Software debugging is also incorporated to ensure
unhindered ramp to production.

        Using sophisticated integrated circuit test systems, the Company tests
complex assemblies in order to assure that each assembly performs to customer
specifications. This is especially important in DCA technologies, because the
Company is essentially performing the final test of integrated circuits, a
process that is normally performed by the integrated circuit component supplier.
Also, the Company's investment in manufacturing defect analyzers enables
customers to specify a range of test options to meet their needs.

                     INTERNATIONAL MANUFACTURING CAPABILITY

        The Company presently serves its major markets from nine design,
manufacturing, and service facilities strategically located to support both U.S.
and international markets. In 1997, the Company realigned its flex-based
operations such that the California and Singapore facilities, where most of the
customer design activities take place, would operate as Regional Technology and
Services Centers, offering development, engineering and quick-turn manufacturing
capabilities to the two regions they support, namely, the Americas and Asia. As
soon as a customer's product is established in the marketplace and volume
production begins, the Company transfers manufacturing from Tustin and Singapore
to one of its international volume manufacturing facilities, located in
Monterrey, or Cebu.

        The Company's state-of-the-art facilities in Monterrey and Cebu, serve
as high-volume, lower-cost manufacturing centers supporting the Americas and
Asia. The Monterrey facility, with approximately 65,000 square feet of
manufacturing space, is capable of producing over 400,000 interconnect
assemblies per week. Similarly, the Cebu facility, with approximately 45,000
square feet of manufacturing space, is capable of producing 350,000 interconnect
assemblies per week.

        As a result of the Company's recent acquisitions, additional
manufacturing capability has been added in the United States. The Company's New
England location is approximately 35,000 square feet providing high-mix
electronic contract manufacturing assembly and test services for a wide range of
products, in support of telecommunications, medical, automotive, and aerospace
markets. The Company's Fremont and New Jersey locations will be approximately
50,000 square feet each (after appropriate sizing) providing contract
manufacturing services, for quick turn, prototype, and high-mix, intermediate
volume products to the telecommunications, industrial controls, performance
printing, and medical marketplaces. Also see "Risk Factors."

                                     MARKETS

        To date, the rapid advance of technology in HDDs has driven the market
for precision flex assemblies. High-performance flex assemblies have found the
most significant application in the small form factor (3.5" and smaller),
high-capacity portion of the HDD market. The Company believes that COF and FCOF
technology are the predominant interconnect technologies in this portion of the
HDD market. Also see "Risk Factors."

        Intense competition, relatively short product life cycles and rapid
technological change have characterized the HDD market in the recent past. As a
result, HDD manufacturers have been forced to aggressively pursue technologies,
which improve performance and cost. The Company has focused its efforts to meet
the needs of this demanding market. The Company is a leading supplier of
automated fine-pitch SMT flex assemblies and was one of the first to
commercialize the COF process as an enabling technology for high-end



                                       7
<PAGE>   8

drives. The Company is able to manufacture advanced flex assemblies at low cost
due to high manufacturing yields and the spread of the high capital costs
necessary to perform high-volume, precision manufacturing of these assemblies
across a large number of units. Also see "Risk Factors."

        At the end of 1997, the Company changed the way it classifies its
markets. The removable storage business, which was previously reported as HDD
business, will be reported as non-HDD business, combined with the tape and
optical storage business. Under this modified method of reporting, the Company's
HDD business represented 44%, 55%, and 50% of net revenues in fiscal 1998, 1997,
and 1996, respectively. In addition, sales to the HDD market have generally been
concentrated among a few large customers, including IBM, Maxtor Corporation,
Samsung, Seagate and Western Digital.

        The Company's core business primarily manufactures advanced flexible
assemblies for products with high-storage capacities. The Company's flex
assemblies' incorporate SMT techniques, and also utilize COF processes for the
highest capacity markets, particularly in drives incorporating emerging MR head
technology.

        Through the Company's recent acquisitions it has expanded its contract
electronic manufacturing services ranging from the assembly of printed circuit
boards to complete fulfillment, production, assembly, test, and delivery of
entire electronic products and systems. The new markets served include micro,
mini and mainframe computers, computer peripheral equipment, high quality
graphic equipment, and office equipment, medical, automotive,
telecommunications, and industrial products.

        Smartflex is qualified to manage the special certification procedures
required by U.S. and international standards and regulatory authorities. In the
field of telecommunications, the Company has knowledge in conformance testing
for FCC, European Union, and worldwide EMI/EMC qualifications to help streamline
approvals and ensure on-time new product introductions. Shortened approval times
are also afforded on medical products as the company has in-depth expertise with
FDA's QSR and CGMP requirements.

The following table lists the markets served by the Company, describes the
function of the corresponding assembly/service supplied by the Company to each
market and lists representative customers for each market.

<TABLE>
<CAPTION>
APPLICATION SEGMENT           ASSEMBLY/SERVICE FUNCTION        REPRESENTATIVE CUSTOMERS
-------------------           -------------------------        ------------------------
<S>                           <C>                              <C>
Hard Disk Drives              Read/write head assemblies on    IBM, Samsung, Seagate,
                              flexible substrate ("F.S.")      Western Digital

Removable Storage             Read/write head assemblies       Iomega
                              on F.S.

Disk Arrays                   SCSI interface assemblies        H-P, Sequent Computer
                              on F.S.                          Xyratex

Optical Drives                RF/Laser optics and carriage     H-P
                              assemblies on F.S.

Tape Drives                   Head preamp assemblies on F.S.   Quantum

Scanners                      Charge-coupled device (CCD)      H-P
                              control assemblies on F.S.

Printers                      Printhead  assemblies  on F.S.   Topaz, Rastergraphics,
                              backplanes, electromechanical    Iris Graphics
                              sub-assemblies, circuit boards,
                              box build
</TABLE>


                                       8
<PAGE>   9

<TABLE>
<S>                             <C>                                        <C>
Communications,                 Headset interconnect assemblies,           Motorola, Plantronics,
data communications             cellular battery and control panel         Hughes Network, VC.com
telecommunications              assemblies on F.S., fulfillment, box       Sierra Comm, Mitec, Rascom
                                builds, ISDN headset, design               P-Comm, Teledex, C.P.I.

Biomedical                      DNA analyzer cartridge on F.S.             Nanogen

Medical                         Design, circuit boards                     Vidamed, PhorMax,
                                                                           Eclipse, Radionics,
                                                                           Hybricon, Instr. Labs

Aerospace/Nuclear/Military      Avionics, box builds, control panels       GE Nuclear, Kollsman

Automotive                      Circuit Boards                             Textron

Industrial/Commercial Controls  Circuit Boards,  end product, box builds   Jandy

Portable Computing              Design                                     Micron
</TABLE>


                                  RISK FACTORS

Important Factors Related to Forward-Looking Statements and Associated Risks

        This Annual Report on Form 10-K and the Company's Annual Report to
Stockholders contain forward-looking statements that are based on current
expectations and involve a number of risks and uncertainties. Factors that may
materially affect revenues, expenses and operating results include, without
limitation, the impact of competitive products and pricing, the transition of
volume manufacturing operations from Singapore to the Philippines, efficient
utilization of manufacturing facilities, interruption of the flow of components
from a limited number of suppliers, subsequent changes in business strategy or
plan, timely qualification of, and commencement of volume production at the
Company's new facilities in Cebu and Monterrey, and structural and strategic
changes affecting certain of the Company's existing customers, suppliers and
competitors.

        The forward-looking statements included herein are based on current
assumptions that the Company will continue to develop, market, manufacture and
ship new products on a timely basis, that competitive conditions within the
Company's market will not change materially or adversely, that demand for the
Company's products and services will remain strong, that the market will accept
the Company's new products and services, that the Company will retain existing
key management personnel, that inventory risks due to shifts in market demand
will be minimized, that the Company's forecasts will accurately anticipate
market demand, and that there will be no material adverse change in the
Company's operations or business. Assumptions relating to the foregoing involve
judgments that are difficult to predict accurately and are subject to many
factors that can materially affect results. Budgeting and other management
decisions are subjective in many respects and thus susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause the Company to alter its marketing,
capital expenditure, or other budgets, which may in turn affect the Company's
results. In light of the factors that can materially affect the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.



                                       9
<PAGE>   10

        Because of these and other factors affecting the Company's operating
results, past financial performance should not be relied upon as an indicator of
future performance, and investors should not overly rely upon historical trends
to anticipate results or trends in future periods.

        The following factors also may materially affect results and therefore
should be considered. Also see "Backlog," "Patents," "Competition" and "Year
2000 Issue."

Limited Independent Operating History

        The Company was incorporated in September 1993 to acquire all of the
assets and business of Smartflex Systems, which was founded in November 1985 as
a general partnership (the "Smartflex Partnership") jointly owned by Silicon
Systems, Inc. ("Silicon Systems"), a supplier of mixed signal integrated
circuits to the HDD market, and Rogers Corporation ("Rogers"), a supplier of
flex circuits to the HDD market. Until its acquisition by the Company, the
Smartflex Partnership was provided with financial assistance and significant
support in sales and personnel functions by Silicon Systems and Rogers. Although
the business of the Company has been in existence since November 1985, the
Company has only a limited history as an independent operating company, and
there can be no assurance that the Company will not experience problems
associated with young, growing companies. Although the Company operated
profitably from 1990 through 1996 and 1998, it experienced operating losses in
fiscal 1997. There can be no assurance that the Company will be able to achieve
or improve its profitability in future periods. Also see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 7 through 10 of the Company's Annual Report to Stockholders for the fiscal
year ended December 31, 1998.

Substantial Fluctuations in Future Operating Results

        The Company has experienced substantial fluctuations in its annual and
quarterly operating results, and such fluctuations are expected to continue in
future periods. The Company's operating results are affected by a number of
factors, many of which are beyond the Company's control. All products
manufactured by the Company are custom designed and assembled for a specific
customer's requirement in anticipation of the receipt of volume production
orders from that customer, which may not always materialize. The Company
typically incurs significant start-up costs in the production of a particular
product, which costs are expensed as incurred. Accordingly, the Company's level
of experience in manufacturing a particular product and its efficiency in
minimizing start-up costs will affect the Company's operating results during the
periods in which production begins and ramp-up occurs. The efficiencies of the
Company in managing inventories and fixed assets, shortages of components or
labor, the degree of automation used in the assembly process, fluctuations in
material costs and the mix of materials, labor, manufacturing and overhead costs
are also significant factors affecting annual and quarterly operating results.
Other factors contributing to fluctuations in the Company's operating results
include price competition, the inability to pass on cost overruns, the timing of
expenditures in anticipation of increased sales, customer product delivery
requirements and the range of services provided. In addition, the amount and
timing of orders placed by a customer may vary due to a number of factors,
including inventory balancing, changes in manufacturing strategy and variation
in product demand attributable to, among other things, product life cycles,
competitive factors and general economic conditions. Any one of these factors,
or a combination thereof, could adversely affect the Company's annual and
quarterly results of operations. Also see "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on pages 7 through 10 of the
Company's Annual Report to Stockholders for the fiscal year ended December 31,
1998. Also see "Competition."

        The Company's customers generally require short delivery cycles, and a
substantial portion of the Company's backlog is typically scheduled for delivery
within 90 days. Quarterly sales and operating results therefore depend in large
part on the volume and timing of bookings received during the quarter, which are
difficult to forecast. The short lead-time for the Company's backlog also
affects its ability to accurately plan production and inventory levels. In
addition, a significant portion of the Company's operating expenses are
relatively fixed in nature and planned expenditures are based in part on
anticipated orders. Any inability to adjust



                                       10
<PAGE>   11

spending by a sufficient amount or quickly enough to compensate for any revenue
shortfall may magnify the adverse impact of such revenue shortfall on the
Company's results of operations.

Dependence on Hard Disk Drive Industry

        The Company's principal market has been the HDD industry, which is
characterized by intense competition, relatively short product life cycles,
rapid technological change, significant fluctuations in product demand and
significant pressure on vendors to reduce or minimize costs. The HDD industry is
also highly cyclical and has experienced periods of increased demand and rapid
growth followed by periods of oversupply and contraction. The impact of cyclical
trends on suppliers to this industry has been exacerbated by the tendency of HDD
manufacturers to order components in excess of their needs during growth
periods, followed by a sharp reduction in demand for components during periods
of contraction. The Company's operating results have been adversely affected
from time to time during HDD industry slowdowns and could be materially
adversely affected in the event of significant slowdowns in this industry now or
in the future. Although the Company is attempting to reduce its dependence on
the HDD industry, the Company expects revenues attributable to this market to
continue to represent a majority of its revenues for the foreseeable future.
Also see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 7 through 10 of the Company's Annual Report to
Stockholders for the fiscal year ended December 31, 1998 and "Markets."

Customer Concentration

        The Company's customer base is highly concentrated. During fiscal 1998
and 1997, the Company's five largest customers (which include, in some cases,
multiple divisions) accounted for approximately 94% and 90% of net revenue,
respectively. Although the Company is attempting to reduce its dependence on a
limited number of customers, the Company expects that sales to a relatively
small number of OEMs will continue to account for a substantial portion of net
revenues for the foreseeable future, and the loss of, or a decline in orders
from, one of the Company's key customers would have a material adverse effect on
the Company's financial and operating results.

Component Supply and Sources

        Substantially all of the Company's manufacturing services are provided
on a turnkey basis in which the Company, in addition to providing design,
assembly and testing services, is responsible for the procurement of the
components which are assembled by the Company for the customer. In certain
circumstances, the Company is required to bear the risk of component price
fluctuations, which could adversely affect the Company's gross margins. In
addition, in order to assure an adequate supply of certain key components which
have long procurement lead times, such as integrated circuits, the Company often
must order such components prior to receiving customer purchase orders for the
assemblies which require such components. Failure to accurately anticipate the
volume or timing of customer orders can result in component shortages or excess
component inventory, which in either case could adversely affect the Company's
financial and operating results.

        Some of the assemblies manufactured by the Company require one or more
components that are ordered from, or which may be available from, only one
source or a limited number of sources. In particular, the Company relies on the
timely supply of components from ADFlex Solutions, Inc. ("ADFlex"), IBM, Mektec
Corporation ("Mektec"), Texas Instruments, Inc. ("TI"), Silicon Systems, Inc. (a
wholly owned subsidiary of TI), and VTC, Inc. ADFlex is also one the Company's
competitors. During fiscal 1998, 1997 and 1996, the Company purchased a majority
of its flex components from either ADFlex or Mektec, a majority of its
integrated circuits from IBM, TI and VTC, Inc. Delivery problems relating to
components purchased and from any one of these or the Company's other key
suppliers could have a material adverse impact on the financial performance of
the Company. From time to time, the Company's suppliers allocate components
among their customers in response to supply shortages. In some cases, supply
shortages will substantially curtail production of all assemblies using a
particular component. In addition, at various times there have been
industry-wide shortages of electronic components, such as servo or read/write
circuits. The Company has experienced shortages of components in the recent
past. For example, in the first quarter of 1997, the Company experienced a
shortage of ceramic substrates for its COC program. During the second quarter of
1997 this issue was resolved since all three of the Company's



                                       11
<PAGE>   12

ceramic substrate suppliers were able to reach their planned production goals.
However, there can be no assurance that such shortages will not recur in the
future. Any such shortages could have a material adverse effect on the Company's
operating results. Also see "Manufacturing Services" and "Competition."

International Operations

        The Company maintains international operations in Singapore, Mexico, and
the Philippines. In September 1997, the Company announced a restructuring plan
to streamline worldwide operations. As part of this restructuring, the Company
is in the process of moving its volume manufacturing from Singapore to its
lower-cost manufacturing facility in Cebu. The Singapore operations are intended
to become the focal point of Smartflex customer support in Asia as the Company's
Far East Regional Services and Technology Center. In light of the continued
growth of offshore facilities on the part of the Company's customers, Smartflex
anticipates that it will be required to increase its presence overseas through
internal growth, acquisitions, or a combination of both. Manufacturing and sales
operations outside the United States are accompanied by a number of risks
inherent in international operations, including but not limited to imposition of
governmental controls, compliance with a wide variety of foreign and United
States export laws, currency fluctuations, unexpected changes in trade
restrictions, tariffs and barriers, political and economic instability, longer
payment cycles typically associated with foreign sales, difficulties in
administering business overseas, labor union issues and potentially adverse tax
consequences. The Company historically has denominated all export sales in
United States dollars, and accordingly, if the relative value of the U.S. dollar
in comparison to the currency of the Company's foreign customers or competitors
should increase, the resulting effective price increase of the Company's
products to such foreign customers could result in decreased sales. The
Company's production employees at the Monterrey, Mexico facility are represented
by a labor union and covered by a collective bargaining agreement that is
subject to revision annually under Mexican law. The current agreement is subject
to revision in February 2000. While the Company believes that it has established
good relationships with its labor force in Monterrey, there can be no assurance
that such relationships will continue in the future.

Variability of Customer Requirements and Customer Financing

        The level and timing of orders placed by customers vary due to the
customers' attempts to balance their inventory, changes in customers'
manufacturing strategies and variations in demand for the customers' products.
Due in part to these factors, most of the Company's customers do not commit to
firm production schedules for more than three months in advance of requirements.
The Company's inability to forecast the level of customer orders with certainty
makes it difficult to schedule production and optimize utilization of
manufacturing capacity. In the past, the Company has been required to increase
staffing and incur other expenses in order to meet the anticipated demand of its
customers. From time to time, anticipated orders from some of the Company's
customers have failed to materialize and delivery schedules have been deferred
as a result of changes in a customer's business needs, both of which have
adversely affected the Company's operating results. On other occasions,
customers have required rapid increases in production which have placed an
excessive burden on the Company's resources. Such customers' order fluctuations
and deferrals have had an adverse effect on the Company's operating results in
the past, and there can be no assurance that the Company will not experience
such effects in the future. In addition, the Company incurs significant accounts
receivable in connection with providing manufacturing services to its customers.
If one or more of the Company's principal customers were to become insolvent, or
otherwise were to fail to pay for the services and materials provided by the
Company, the Company's operating results and financial condition would be
adversely affected. Also see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 7 through 10 of the Company's
Annual Report to Stockholders for the fiscal year ended December 31, 1998.

Rapid Technological Change

        The Company and the Company's customer base competes in markets that are
characterized by rapid technological change and short product life cycles. In
particular, the HDD, computer and communications markets are prone to rapid
product obsolescence by new technologies. The flexible interconnect industry
could experience future competition from new or emerging technologies that
render existing technology less competitive or



                                       12
<PAGE>   13

obsolete. The inability of the Company to develop technologies to meet the
evolving market requirements of its customer base could have a material adverse
effect on the Company's business, financial condition and results of operations,
including the Company's ability to maintain its revenue base. Also see
"Competition," " Industry Background," "Manufacturing Services" and "Markets."

Management of Growth

        The Company has experienced certain periods of rapid growth which has
placed, and is expected to continue to place, a significant strain on the
Company's management, operational and financial resources. The Company expects
that continued growth would require the addition of new management personnel and
the development of additional expertise by existing management personnel. The
Company's ability to manage growth effectively, particularly given the
increasingly international scope of its operations, will require it to continue
to implement and improve its operational, financial and management information
systems as well as to develop the management skills of its managers and
supervisors and to train, motivate and manage its employees. The Company's
failure to effectively manage growth could have a material adverse effect on the
Company's results of operations. Also see "Management."

Integration of Acquisitions

        Effective October 1998, the Company made its first acquisition, and has
since made a total of three acquisitions through March 1999. The Company
believes that these acquisitions are an integral part of its diversification
strategy for both markets and customers. The Company's ability to effectively
integrate these acquisitions and control the costs associated with the
integration will be key to its future success. The Company's failure to
effectively manage these acquisitions could have a material adverse effect on
the Company's results of operations. Also see "Management."

Dependence on Key Employees

        The Company is highly dependent on its Chief Executive Officer, William
L. Healey, and other principal members of its management team, the loss of whose
services could have a material adverse effect upon the business and financial
condition of the Company, as well as the ability of the Company to achieve its
development objectives. None of such persons has an employment contract with the
Company. The Company is also dependent on other key personnel, and on its
ability to continue to attract, retain and motivate highly skilled personnel.
The competition for such employees is intense, and there can be no assurance
that the Company will be successful in attracting, retaining or motivating key
personnel or that personnel cost increases will not have an adverse effect on
the Company's net income or results of operations. Also see "Management."

Environmental Compliance

        The Company is subject to a variety of environmental regulations
relating to the use, storage, discharge and disposal of hazardous chemicals and
substances used in its manufacturing process. While the Company believes that it
is in material compliance with all existing applicable environmental statutes
and regulations, any failure by the Company to comply with statutes and
regulations presently existing or enacted in the future could subject it to
liabilities or the suspension of production. In addition, compliance with such
statutes and regulations could restrict the Company's ability to expand its
facilities or require the Company to acquire costly equipment or to incur other
significant expenses. Also see "Environmental Concerns."

Control by Existing Stockholders

        The Company's officers, directors and existing holders of more than 5%
of the Company's Common Stock, in the aggregate, own beneficially approximately
54% of the outstanding Common Stock as of March 18, 1999 including shares
subject to presently exercisable options or options that become exercisable
within 60 days of March 18, 1999. As a result, any substantial portion of these
stockholders, acting together, are able to effectively control most matters
requiring approval by the stockholders of the Company. Approximately 18% of the



                                       13
<PAGE>   14

Company's Common Stock is held by TDK U.S.A. Corporation ("TDK"), which holds
the shares formerly owned by Silicon Systems, Inc.

Anti-Takeover Provisions

        On July 17, 1996, the Board of Directors approved the adoption of a
Shareholder Rights Plan for the Company, which is intended to protect
stockholder interests in the event of an unsolicited attempt to acquire the
Company on terms that the Board of Directors determines are not in the best
interests of the stockholders. The Plan provides for a dividend of one Right for
each share of outstanding common stock. Each Right entitles the holder, on the
occurrence of certain events, to purchase shares of a newly created class of the
Company's preferred stock. The Company may redeem each Right, on terms spelled
out in the Plan, if approved by the Board of Directors.

        The Board of Directors has the authority to issue up to 5,000,000 shares
of Preferred Stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of those shares without any future vote
or action by the stockholders. The rights of the holders of the Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock could have the effect of making it more difficult for a third
party to acquire a majority of the outstanding voting stock of the Company,
thereby delaying, deferring or preventing a change in control of the Company.
Furthermore, such Preferred Stock may have other rights senior to the Common
Stock, which could have a material adverse effect on the market value of the
Common Stock. The Company has no present plans to issue shares of Preferred
Stock other than pursuant to the Rights Plan. In addition, Section 203 of the
General Corporation Law of Delaware restricts the Company from engaging in
certain business combinations with interested stockholders, as defined by
statute.

        These provisions may have the effect of delaying or preventing a change
in control of the Company and therefore could adversely affect the price of the
Company's Common Stock, or the ability of stockholders to receive a premium
price for their shares upon an acquisition.

                           SALES AND CUSTOMER SUPPORT

        The Company uses both field sales personnel and internal customer
service and marketing support personnel to facilitate its sales efforts. As of
December 31, 1998, the Company employed 37 sales, support and marketing
personnel. In addition, the Company has agreements with 15 sales representatives
who are assigned geographic territories within North America. The sales
activities of these representatives are managed by the Company's regional sales
managers, who also have some key direct account responsibilities. The Company
also uses sales representatives in Europe and Asia whose activities are managed
from the Company's Tustin headquarters.

        The Company's customer support function consists of both customer
service and program management. Employees in these functions form the nucleus of
customer account teams that deal with specific customer technical and order
activities. The customer account teams are multi-functional teams from program
management, customer service, materials planning, manufacturing engineering and
quality engineering, which provide focused attention to the key activities
concerning the customer's account. These teams are responsible for addressing
all customer issues to ensure continuity from program development through
distribution. This focused attention is designed to enable the Company to
respond rapidly and efficiently to each customer's specialized precision
manufacturing needs. Also see "Risk Factors."

                                     BACKLOG

        The Company's backlog was approximately $21 million and $53 million at
December 31, 1998 and 1997, respectively. The 1998 backlog numbers do not
include the go-forward business of Smartflex Fremont and Smartflex New Jersey,
estimated at $22 million at the time of the Company's purchase. The Company does
not have any long-term agreements with its customers that require the customers
to purchase products. Backlog



                                       14
<PAGE>   15

consists of purchase orders received by the Company for shipment within up to
180 days. Because customer orders generally require shipment within the
following 90 days and may be rescheduled or canceled by the customer, the
Company does not believe that backlog is a meaningful predictor of future
revenue performance.

                                     PATENTS

        The Company does not have, nor does it generally intend to apply for,
patent protection on any aspect of its technology. The Company believes that
patents require public disclosure of information that may otherwise be subject
to trade secret protection. The Company's reliance upon protection of some of
its technology as "trade secrets" will not necessarily protect the Company from
the use by other persons of its technology. No assurances can be made that the
Company will be able to maintain the confidentiality of its technology,
dissemination of which could have a materially adverse effect on the Company's
business. Also see "Risk Factors."

                             ENVIRONMENTAL CONCERNS

        In the past, electronic assembly specialists have typically used
chlorofluorocarbon ("CFC") cleaners, which are believed to contribute to
depletion of the ozone layer in the atmosphere. In 1992, the Company developed
an internal aqueous cleaning process which has completely eliminated the use of
CFC-based chemicals in its facilities worldwide.

        The Company uses various hazardous chemicals and substances in its
manufacturing processes. Although the amounts of these materials used by the
Company are not substantial, procedures have nevertheless been implemented to
facilitate compliance with all environmental laws and regulations relating to
the use, storage, discharge and disposal of these materials. The Company
believes that it is in material compliance with all environmental laws and
regulations to which it is subject. Also see "Risk Factors--Environmental
Compliance."

                                   COMPETITION

        The Company operates in a highly competitive industry and competes
against several domestic and foreign providers of electronics manufacturing
services. The principal competitors in the high-end segment of the flex assembly
market include Solectron Corporation, Parlex Corporation and ADFlex Solutions,
Inc. The Company also faces competition from the manufacturing operations of its
current and potential OEM customers, which the Company believes continue to
evaluate the merits of manufacturing flex assemblies internally, and from
offshore contract manufacturers, which, because of their lower labor rates,
enjoy a comparative advantage over the Company with respect to labor-intensive,
high-volume production. The Company has also experienced competition from head
stack assemblers, who primarily assemble products that attach to flex
assemblies. The Company expects to encounter future competition from other large
electronics manufacturers that currently provide or may begin to provide
contract-manufacturing services. A number of the Company's competitors have
substantially greater manufacturing, financial, technical, marketing and other
resources, and offer a broader line of services, than does the Company. In
addition, many of the Company's competitors have a broader scope and presence of
operations on a worldwide basis.

        Significant competitive factors in the high-end flexible assembly market
include quality, price, responsiveness, the ability to manufacture fine-pitch
assemblies in volume, and test capabilities. While the Company believes that it
currently competes favorably with respect to these factors, there can be no
assurance that the Company will be able to continue to do so in the future. The
trend toward increasingly shorter product life cycles, particularly in the HDD
industry, is expected to result in more intense competition as each new customer
program is generally open to bidding by the Company and its competitors.
Furthermore, the Company is often only one of two or more contract manufacturers
supplying a particular customer requirement and is, therefore ,subject to
continuing competition on existing programs. In order to remain competitive, the
Company must continually provide timely technologically advanced manufacturing
services, ensure the quality of its products and compete favorably with respect
to price. If the Company were to fail to compete favorably with respect to the
principal competitive factors in its industry, the Company's business and
operating results would be adversely affected.



                                       15
<PAGE>   16

        In relation to the Company's recent acquisitions competitors include
numerous domestic and offshore contract manufacturers as well as the in-house
manufacturing capabilities of certain of its existing and potential customers. A
number of these competitors have substantially greater manufacturing, financial,
technical, marketing and other resources, and offer a broader line of services,
than does the Company. In addition, many of the Company's competitors have a
broader scope and presence of operations on a worldwide basis.

                                 YEAR 2000 ISSUE

        The "Year 2000 issue," also known as "Y2K issue" or the "Millennium
Bug," arises out of the fact that many existing computer programs and other
devices use only two digits to identify a year in the date field and, if
uncorrected, would fail or create erroneous results as a result of the Year
2000.

        Early in 1997, the Company evaluated the Y2K issue and its impact on the
Company's operations. Currently, the Company uses certain IBM AS400
applications, which are not Y2K compliant, and various desktop applications,
which are Y2K compliant. So-called "embedded systems," that control certain
manufacturing equipment and other fixtures and equipment, have been identified
and have been determined to be Y2K compliant.

        A project to implement the latest versions of the IBM AS400 applications
was launched in late 1997. This project also addresses the Y2K issue. The
project team consists of both dedicated resources and key functional
participants. The project consists of five main steps or phases: the first phase
consisting of an assessment of viable alternatives from commercially available
applications; the second phase being the decision process as for which
applications to obtain; the third phase consisting of configuring the system to
run the Company's business; phase four being training, testing and piloting of
all applications; and the final phase consisting of Company-wide implementation.
The team has identified, and the Company has committed to implement, an
enterprise application that is Y2K compliant. Maintenance or modification costs
will be expensed as incurred, while the costs of new software will be
capitalized and amortized over the software's useful life. The Company has
completed phases one, two and three and is currently in the training process.
All user functions have or will be going through training, and all requirements
are being developed for immediate use upon implementation. The total project is
estimated to be completed by the middle of fiscal 1999 at a cost of
approximately $1,000,000, which has been or will be spent throughout the
duration of the project implementation. Costs to December 31, 1998 have been
approximately $700,000. Failure to execute successfully and complete this
project and each step thereof as scheduled could cause material disruption of
the Company's operations and have material adverse impacts on its competitive
posture, financial position and results of operations. Many of the Company's
customers, suppliers and lenders have required the Company to provide assurances
concerning the Company's Y2K issue, and any failure by or affecting the Company
in regard to those assurances could result in material demands or assertions of
liability by such third parties or others.

        The Company is in the process of contacting its major external
suppliers, customers and other business partners to estimate their compliance
with the Y2K issue and is presently evaluating inputs received from these
external relationships. Failure of any of the Company's major external suppliers
and customers to appropriately and timely address the Y2K issue could cause
material disruption of the Company's business and have material adverse impacts
on the Company's results of operations.

        The Company feels that it will successfully implement the Y2K compliant
applications, described above. However, a contingency plan has been developed
for the possibility that timely and successful implementation is not achieved.
The contingency plan is primarily to continue the implementation of the new
application and continue to use the Company's existing applications and manually
manipulate due dates until the implementation has been completed.

                                    PERSONNEL



                                       16
<PAGE>   17

        As of December 31, 1998 the Company had a total of 1,653 employees,
including 1,426 in manufacturing and operations support, 104 in engineering, 37
in marketing, sales and program management and 86 in administration. The Company
considers its relations with employees to be good. The Company's employees at
its Monterrey facility are represented by a labor union and are covered by a
collective bargaining agreement that is subject to annual revision under Mexican
law.

                                   MANAGEMENT

        The executive officers and key employees of the Company are as follows:

<TABLE>
<CAPTION>
        NAME                      AGE    POSITION
        ----                      ---    --------
<S>                               <C>    <C>
EXECUTIVE OFFICERS
William L. Healey                 54     President, Chief Executive Officer and
                                         Chairman of the Board of Directors
Anthony R.W. Richardson           54     Executive Vice President and
                                         Chief Operating Officer
John W. Hohener                   43     Vice President, Chief Financial Officer and
                                         Treasurer
Richard D. Bell                   54     Vice President of Worldwide Sales
James C. Cogan                    59     Vice President and General Manager of
                                         EMS Business Unit
Christopher J. Rollison           40     Vice President and General Manager of 
                                         Advanced Interconnect Business Unit
KEY EMPLOYEES
Marilyn A. Gosz                   50     Vice President of Marketing
Cheryl L. Moreno                  43     Vice President of Human Resources
Joe L. Pendergrass                44     Director of Logistics and
                                         Information Technology
Hal  Schoenberg                   46     Director of  Quality Assurance
Robert W. Ulrickson               61     President, Logical Services Incorporated
</TABLE>

EXECUTIVE OFFICERS

        William L. Healey has served as President and Chief Executive Officer of
the Company since July 1989, and as a director since its incorporation in
September 1993. In January 1996, Mr. Healey was elected Chairman of the Board.
Prior to joining Smartflex, Mr. Healey worked at Silicon Systems, Inc. ("Silicon
Systems"), a principal supplier of mixed signal integrated circuits to the
Company. While employed by Silicon Systems, Mr. Healey was responsible for all
manufacturing operations in California and Singapore, and held several senior
executive positions, including Senior Vice President of Operations, Vice
President of Manufacturing and Director of Wafer Fabrication Operations. Mr.
Healey also sits on the Board of Director of Publicly held Sypris Solutions
Inc., a diversified provider of specialized industrial products and technical
services.

        Anthony R.W. Richardson joined Smartflex in February 1998 as Executive
Vice President and Chief Operating Officer. Prior to joining Smartflex, Mr.
Richardson spent twenty-four years in senior management roles at Raychem
Corporation ("Raychem"), a material sciences company. Mr. Richardson's positions
at Raychem included Director of Operations, Director of Sales and Marketing, and
General Manager for businesses in Asia, North America, South America, Europe and
the Middle East.

        John W. Hohener has served as Vice President, Chief Financial Officer
and Treasurer since August 1997. From May 1988 through July 1997, Mr. Hohener
served as the Company's Corporate Controller and Treasurer.



                                       17
<PAGE>   18

Prior to joining Smartflex, Mr. Hohener spent eight years with Silicon Systems,
where he held numerous financial management positions, including Director of
Corporate Accounting. Mr. Hohener served as a member of the Board of Directors
during September and October 1993.

        Richard D. Bell joined Smartflex in January 1987, and has served as Vice
President of Worldwide Sales since June 1998. From March 1993 to June 1998, Mr.
Bell was Vice President of Marketing and Sales. Prior to joining Smartflex, Mr.
Bell spent nine years in senior technical marketing and sales management
positions with Scientific-Atlanta, Inc., a manufacturer of communications and
electronics equipment, and Rogers Corporation. Mr. Bell served as a member of
the Board of Directors during September and October 1993.

        James C. Cogan has served as Vice President and General Manager of the
Company's EMS Business Unit since February 1999. Prior to joining Smartflex, Mr.
Cogan spent twenty years in senior management roles with Tanon Manufacturing,
General Parametics Corporation, Wicat Systems and Datapoint Corporation. Mr.
Cogan's previous positions have included President of the West Coast Division of
Tanon Manufacturing, Chief Operating Officer and Senior Vice President of
General Parametrics Corporation, Vice President and General Manager of Wicat
Systems and Vice President and General Manager of Datapoint Corporation.

        Christopher J. Rollison has served as Vice President and General Manager
of Advanced Interconnect Business Unit since February 1999 and has served as
Vice President of Operations since July 1995. Mr. Rollison joined Smartflex at
its inception in August 1985 as a senior process engineer. Subsequently, he held
a series of positions of increasing responsibility including Director of
Operations of the Company from October 1992 to July 1995 culminating in his
current role as Vice President of Operations and General Manager of Advanced
Interconnect Business Unit.

KEY EMPLOYEES

        Marilyn A. Gosz joined Smartflex in June 1996 and has served as Vice
President of Marketing since June 1998. From June 1996 until June 1998 Ms. Gosz
served as the Company's Director of Strategic Marketing and Business
Development. Prior to joining the Company, Ms. Gosz performed technology
management and business planning projects on a contract basis for technology
clients for six years. From 1982 to 1989, Ms. Gosz held various management
positions in product marketing, program management and new business development
with Unisys Corporation, Burroughs Corporation and Fujitsu Corporation.

        Cheryl L. Moreno, joined Smartflex in November 1997 and has served as
Vice President of Human Resources since March 1999. From November 1997 until
March 1999, Ms. Moreno served as the Company's Director of Human Resource. Prior
to joining Smartflex, Ms. Moreno held senior level human resources positions at
Beckman Instruments, MAI Systems Corporation, and divisions of Ball Corporation
and Alps Electric, Ltd.

        Joe L. Pendergrass joined Smartflex as Director of Materials in May 1995
and was promoted to Director of Logistics and Information Technology in February
1998. From October 1993 until May 1995, Mr. Pendergrass was self-employed as a
materials logistics consultant. From January 1992 until October 1993, he was
Director of Materials at International Rectifier Corporation, a semiconductor
manufacturer. Prior to January 1992, Mr. Pendergrass held a variety of materials
management positions at Rockwell International Corporation for over twelve
years.

        Hal Schoenberg has served as Director of Quality Assurance of the
Company since June 1997. Prior to joining the Company, Mr. Schoenberg was a
quality management consultant and educator. Prior to 1995, Mr. Schoenberg was
Director of Quality and Customer Satisfaction for International Rectifier
Corporation, and Region Quality Manager for Hewlett-Packard Company.

        Robert W. Ulrickson has served as President and founder of Logical
Services Incorporated, since its founding in 1973. Mr. Ulrickson has served in
the same capacity since the Smartflex Systems, Inc. acquisition in



                                       18
<PAGE>   19

October 1998. Prior to founding Logical in 1973 Mr. Ulrickson held marketing,
applications, operations, and aerospace telemetry engineering positions at
Lockheed.



                                       19
<PAGE>   20


ITEM 2.  PROPERTIES

        The Company's Tustin, California facility comprises approximately 44,000
square feet, and is held under operating lease arrangements extending through
2002. The Company's Singapore facility comprises approximately 12,000 square
feet. The Mexico facility comprises approximately 65,000 square feet, which was
completed in 1997. The Singapore and Mexico facilities are held under lease
arrangements extending through 2002 and 2003, respectively. The Company's
manufacturing facility in Cebu, the Philippines, comprises approximately 45,000
square feet and is held under a lease agreement extending through 2003. The
Company's facilities in Fremont, California, West Long Branch, New Jersey, and
Hudson, New Hampshire (formerly Methuen, Massachusetts), comprise approximately
50,000, 50,000, and 31,400 square feet, respectively. These leases all extend to
the year 2004.

        The description under "Business - International Manufacturing
Capability" is incorporated herein by reference.


ITEM 3.  LEGAL PROCEEDINGS

        The Company from time to time is a party to ordinary routine litigation
incidental to the business.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.









                                       20
<PAGE>   21



                                           PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
         MATTERS

        The information required by Item 5 of Form 10-K is incorporated herein
by reference to the information contained in the section captioned "Common Stock
Data" on the inside back cover of the Company's Annual Report to Stockholders
for the fiscal year ended December 31, 1998.

ITEM 6.  SELECTED FINANCIAL DATA

        The information required by Item 6 of Form 10-K is incorporated herein
by reference to the information contained in the section captioned "Financial
Highlights" on page 1 of the Company's Annual Report to Stockholders for the
fiscal year ended December 31, 1998.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

        The information required by Item 7 of Form 10-K is incorporated herein
by reference to the information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 7 through 10 of the Company's Annual Report to Stockholders for the fiscal
year ended December 31, 1998.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The information required by Item 7a of Form 10-K is incorporated herein
by reference to the information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 7 through 10 of the Company's Annual Report to Stockholders for the fiscal
year ended December 31, 1998.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The information required by Item 8 of Form 10-K is incorporated herein
by reference to the Company's consolidated financial statements and related
notes thereto, and the report of the independent auditors, presented on pages 11
through 23 of the Company's Annual Report to Stockholders for the fiscal year
ended December 31, 1998.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

        None.









                                       21
<PAGE>   22



                                           PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The information appearing in the "Information Concerning Nominees"
section of the Company's Proxy Statement to be filed in connection with the
Annual Meeting of Stockholders to be held on or about May 19, 1999, is hereby
incorporated by reference. Information concerning the current executive officers
of the Company is contained in Item 1 of this Annual Report on Form 10-K.

ITEM 11.  EXECUTIVE COMPENSATION

        The information appearing in the "Executive Compensation," "Summary
Compensation Table," "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements," "Option Grants in Last Fiscal Year," "Aggregate
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values,"
sections of the Company's Proxy Statement to be filed in connection with the
Annual Meeting of Stockholders to be held on or about May 19, 1999, is hereby
incorporated by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The information appearing in the "Security Ownership of Management and
Certain Beneficial Owners" section of the Company's Proxy Statement to be filed
in connection with the Annual Meeting of Stockholders to be held on or about May
19, 1999, is hereby incorporated by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information appearing in the "Compensation Committee Interlocks and
Insider Participation" and "Certain Transactions" sections of the Company's
Proxy Statement to be filed in connection with the Annual Meeting of
Stockholders to be held on or about May 19, 1999, is hereby incorporated by
reference.









                                       22
<PAGE>   23



                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

        (a)    1.  FINANCIAL STATEMENTS.

               The financial statements listed in the accompanying Index to
               Consolidated Financial Statements are filed as part of this
               Annual Report on Form 10-K.

               2.  FINANCIAL STATEMENT SCHEDULES.

               The financial statement schedules listed in the accompanying
               Index to Consolidated Financial Statement Schedules are filed as
               part of this Annual Report on Form 10-K.

               3.  EXHIBITS.

               The exhibits listed in the accompanying Index to Exhibits are
               filed as part of this Annual Report on Form 10-K.

        (b)    CURRENT REPORTS ON FORM 8-K.

               A current report on Form 8-K, announcing under Item 5 the
               appointment of Anthony R.W. Richardson as the Executive Vice
               President and Chief Operating Officer was filed on March 20,
               1998.

               A current report on Form 8-K, announcing under Item 5 the
               acquisition of Logical Services Incorporated was filed on October
               7, 1998.








                                       23
<PAGE>   24

                                   SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Tustin,
State of California, on the 2nd day of April, 1999.

                                SMARTFLEX SYSTEMS, INC.
                                (Registrant)


                                By: /s/   William L. Healey
                                    --------------------------------------------
                                          William L. Healey
                                          President, Chief Executive Officer and
                                          Chairman of the Board

                                POWER OF ATTORNEY

        We, the undersigned directors and officers of Smartflex Systems, Inc. do
hereby constitute and appoint William L. Healey and John W. Hohener, or either
of them, our true and lawful attorneys and agents, to do any and all acts and
things in our name and behalf in our capacities as directors and officers and to
execute any and all instruments for us and in our names in the capacities
indicated below, which said attorneys and agents, or either of them, may deem
necessary or advisable to enable said corporation to comply with the Securities
Exchange Act of 1934, and any rules, regulations, and requirements of the
Securities and Exchange Commission, in connection with this Report, including
specifically, but without limitation, power and authority to sign any and all
amendments hereto; and we do hereby ratify and confirm all that the said
attorneys and agents, or either of them, shall do or cause to be done by virtue
hereof.

        Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
              SIGNATURE                           TITLE                             DATE
              ---------                           -----                             ----
<S>                                 <C>                                         <C>    

/s/ William L. Healey               President, Chief Executive                  April 2, 1999
-----------------------------       Officer and Chairman of the Board
William Healey                      (Principal Executive Officer)

/s/ John W. Hohener                 Vice President, Chief Financial             April 2, 1999
-----------------------------       Officer, Treasurer (Principal Financial
John W. Hohener                     and Accounting Officer)

/s/ William E. Bendush              Director                                    April 2, 1999
-----------------------------
William E. Bendush

/s/ Alan V. King                    Director                                    April 2, 1999
-----------------------------
Alan V. King

/s/ William A. Klein                Director                                    April 2, 1999
-----------------------------
William A. Klein

/s/ Gary E. Liebl                   Director                                    April 2, 1999
-----------------------------
Gary E. Liebl
</TABLE>




                                       24
<PAGE>   25



                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULES


        The following consolidated financial statements of Smartflex Systems,
Inc., included in the Company's Annual Report to Stockholders for the fiscal
year ended December 31, 1998, are incorporated by reference:


<TABLE>
<CAPTION>
                                                                  Annual Report
               Description                                       Page Reference
               -----------                                       --------------
<S>                                                                     <C>
Consolidated Statements of Operations for the years ended
  December 31, 1998, 1997 and 1996                                      11

Consolidated Balance Sheets as of December 31, 1998 and 1997            12

Consolidated Statements of  Stockholders' Equity
  for the years ended December 31, 1998, 1997 and 1996                  13

Consolidated Statements of Cash Flows for the years ended
  December 31, 1998, 1997 and 1996                                      14

Notes to Consolidated Financial Statements                              15-23

Report of Independent Auditors                                          24
</TABLE>


        The following consolidated financial statement schedule of Smartflex
Systems, Inc. and the Consent of Independent Auditors are included herein:

<TABLE>
<CAPTION>
               Description                                       Page Reference
               -----------                                       --------------
<S>                                                                     <C>
Schedule II - Valuation and Qualifying Accounts                         26
</TABLE>

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.

Consent of Independent Auditors                                    Exhibit 23.2







                                       25
<PAGE>   26

                             SMARTFLEX SYSTEMS, INC.

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS


<TABLE>
<CAPTION>
                                                                  Additions
                                                           ------------------------
                                            Balance at     Charged to    Charged to                Balance at
                                            Beginning of    costs and      other                     end of
              Description                      Period       expenses      accounts     Deductions    period
              -----------                   ------------   ----------    ----------    ----------  ----------
                                                                       (in thousands)
<S>                                            <C>           <C>           <C>           <C>         <C>   
Year ended December 31, 1996:
  Allowance for doubtful accounts              $  925        $   --        $  --         $  5(1)     $  920
  Reserve for excess and obsolete inventory     1,171          (115)          --          190(2)        866
                                               ------        ------        -----         ----        ------
      Total                                    $2,096        $ (115)       $  --         $ 195       $1,786
                                               ======        ======        =====         =====       ======
Year ended December 31, 1997:
  Allowance for doubtful accounts              $  920        $   11        $ 477         $ 24(1)     $1,384
  Reserve for excess and obsolete inventory       866           910           --          160(2)      1,616
                                               ------        ------        -----         ----        ------
      Total                                    $1,786        $  921        $ 477         $184        $3,000
                                               ======        ======        =====         ====        ======
Year ended December 31, 1998:
  Allowance for doubtful accounts              $1,384        $  162        $  --         $589(1)     $  957
  Reserve for excess and obsolete inventory     1,616         2,048           --          153(2)      3,511
                                               ------        ------        -----         ----        ------
      Total                                    $3,000        $2,210        $  --         $742        $4,468
                                               ======        ======        =====         ====        ======
</TABLE>

(1) Uncollectible accounts written off, net of recoveries.

(2) Inventory written off.


                                       26
<PAGE>   27

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
  No.                                  Description
  ---                                  -----------
<S>        <C>
3.3        Restated Certificate of Incorporation of the Registrant(1)
3.4        Bylaws of the Registrant(1)
4.1        Form of Founders Restricted Stock Purchase Agreement dated as of
           September 28, 1993, entered into between the Registrant and each of
           William L. Healey, John W. Hohener, Richard D. Bell, Christopher J.
           Rollison and Merle J. Ihrman(1)
4.2        Stock Purchase Agreement dated as of March 30, 1994, between the
           Registrant and AMP Incorporated(1)
4.3        Registration Rights Agreement dated as of March 30, 1994 among the Registrant, J.V.
           Acquisition Corporation, Silicon Systems, Inc. and AMP Incorporated(1)
4.4        Rights Agreement dated as of July 17, 1996 between the Registrant and
           The First National Bank of Boston, which includes as Exhibit A
           thereto a form of Certificate of Designation for the Preferred stock,
           as exhibit B thereto the Form of Rights Certificate and as Exhibit C
           thereto a Summary of Terms of Shareholders Rights Plan (6)
10.1+      Smartflex Systems, Inc. 1993 Equity Incentive Plan, as amended(1)
10.2+      Smartflex Systems, Inc. 1994 Equity Incentive Plan for Officers, Directors and
           Consultants(1)
10.3+      Smartflex Systems, Inc. 1995 Equity Incentive Plan(1)
10.4+      Smartflex Systems, Inc. 1995 Employee Stock Purchase Plan(1)
10.5+      Smartflex Systems, Inc. Amended and Restated Profit Sharing Bonus Plan(2)
10.9       Master Lease Agreement dated as of March 9, 1994 between the Registrant and General
           Electric Capital Corporation, and Addendum No. 1 thereto dated as of March 9, 1994(1)
10.10      Volume  Purchase  Agreement  dated  August 16, 1989 between  Registrant  and Silicon
           Systems, Inc.(1)
10.13      Facilities and Services  Agreement dated October 1, 1995, between Smartflex Systems
           Singapore Pte, Ltd. ("Smartflex Singapore") and Silicon Systems Singapore Pte,
           Ltd.(2)
10.14      Tenancy of Flatted Factory Unit made November 29, 1994, between Smartflex  Singapore
           and Jurong Town Corporation(1)
10.15      Standard Industrial Lease - Net, and addendum thereto, dated February 1, 1996
           between the Registrant and Roy G.G. Harris and Patricia S. Harris, as co-trustees
           of the Harris Family Trust dated November 2, 1979 and Glyn P. Harris and Ginger M.
           Harris, Husband and Wife (14312 Franklin)(2)
10.16      Standard Industrial Lease - Net, and addendum thereto, dated February 1, 1996
           between the Registrant and Roy G.G. Harris and Patricia S.
           Harris, as co-trustees of the Harris Family Trust dated November 2,
           1979 and Glyn P. Harris and Ginger M. Harris, Husband and Wife (14312
           Franklin - parking lot)(2)
10.17      Facilities and Services Agreement entered into on April 5, 1995 between the
           Registrant and Silicon Systems, Inc.(1)
10.18      Reorganization Agreement dated July 31, 1995 between the Registrant and J.V.
           Acquisition Corporation(1)
10.19+     Form of Indemnification Agreement for Officers and Directors of the Registrant(1)
10.20      Loan Agreement dated December 29, 1995 between Smartflex Singapore and GE Capital
           Services Pte. Ltd.(2)
10.21      Promissory Note dated October 11, 1996, from the Registrant in favor of Union Bank
           of California, N.A. (term loan)(4)
</TABLE>


                                       27
<PAGE>   28

                          INDEX TO EXHIBITS (continued)

<TABLE>
<CAPTION>
Exhibit
  No.                                  Description
  ---                                  -----------
<S>        <C>
10.22      Debenture dated March 13, 1996 between Smartflex Singapore and GE Capital Services
           Pte. Ltd.(2)
10.23+     First Amendment to Smartflex Systems, Inc. 1995 Employee Stock Purchase Plan(2)
10.24+     Executive Involuntary Termination Policy of the Registrant(2)
10.25      Corporate Guaranty dated December 29, 1995 between the Registrant and GE Capital
           Services Pte. Ltd.(2)
10.26      Contract of Lease dated May 24, 1996, between Smartflex Systems Philippines, Inc.
           ("Smartflex Philippines") and Joe & Larry Active Wears Co., Inc.(3)
10.27      Registration Agreement dated May 25, 1996 between Smartflex Philippines and
           Philippine Economic Zone Authority(3)
10.29      Lease Agreement entered into on November 17, 1996 between Inmobiliaria Nuevo
           Aeropuerto, S.A. de C.V. and Smartflex Systems de Mexico, S.A. de C.V.(5)
10.30      Amendment to the Facilities and Services Agreement dated February 28, 1997, between
           the Registrant and Silicon Systems, Inc.(5)
10.32+     Second Amendment to Smartflex Systems, Inc. 1995 Employee Stock Purchase Plan(8)
10.33      Restated Loan Agreement, dated September 26, 1997, amending and restating the Loan
           Agreement dated September 29, 1995 between the Registrant and Union Bank of
           California, N.A.(9)
10.34      Promissory note dated September 18, 1997, made by the Registrant in favor of Union
           Bank of California, N.A.(9)
10.35      Notice of Waiver dated January 26, 1998, addressed to the Registrant
           from Union Bank of California(10)
10.36      Stock Purchase Agreement dated as of October 7, 1998, among the Registrant, Logical
           Services Incorporated and each of the shareholders of Logical Services Incorporated(11)
10.37      Smartflex Systems, Inc. 1998 Acquisition Nonstatutory Stock Option Plan(11)
10.38      Agreement of Purchase and Sale dated as of December 2, 1998, between EA Industries,
           Inc. and Methuen Acquisition Corp., a wholly-owned subsidiary of the Registrant.(11)
10.39      Agreement of Purchase and Sale dated as of December 2, 1998, between Tanon
           Manufacturing, Inc. and the Registrant, as amended and restated as of January 28,
           1999.(11)
10.40      First Amendment, dated October 1, 1998, to the Amended and Restated Loan Agreement, dated
           September 26, 1997, between the Registrant and Union Bank of California, N. A.(11)
10.41      Second Amendment, dated November 17, 1998, to the Amended and Restated Loan
           Agreement, dated September 26, 1997, between the Registrant and Union Bank of
           California, N. A.(11)
10.42      Promissory Note, dated October 1, 1998, from the Registrant in favor of Union Bank
           of California, N. A.(11)
10.43      Promissory Note, dated November 6, 1998, from the Registrant in favor of Union Bank
           of California, N. A.(11)
10.44      Notice of Waiver, dated January 26, 1998, from Union Bank of California, N. A., in
           favor of the Registrant.(11)
10.45      Notice of Waiver, dated October 9, 1998, from Union Bank of California , N. A., in
           favor of the Registrant.(11)
10.46      Third Amendment and Waiver, dated March 30, 1999, to the Amended and Restated Loan
           Agreement, dated September 26, 1997, between the Registrant and Union Bank of
           California, N. A.(11)
10.47      Third Amendment and Waiver Letter, dated March 30, 1999, between the Registrant and
           Union Bank of California, N. A.(11)
13         Portions of the Company's Annual Report to Stockholders for the year ended
           December 31, 1998(11)
21.1       Subsidiaries of the Registrant(11)
23.2       Consent of Independent Auditors(11)
27.1       Financial Data Schedule. (Filed electronically)
</TABLE>

                                       28
<PAGE>   29

----------------

+ A management contract or compensatory plan or arrangement required to be filed
as an exhibit to this report pursuant to Item 14(c) of Form 10-K.

 (1) Incorporated herein by reference to the referenced exhibit number to the
     Registrant's Form S-1 Registration Statement Number 33-93426, dated July
     27, 1995.

 (2) Incorporated herein by reference to the referenced exhibit number to the
     Registrant's Annual Report on Form 10-K for the year ended December 31,
     1995.

 (3) Incorporated herein by reference to the Registrant's Quarterly Report on
     Form 10-Q for the quarter ended June 29, 1996

 (4) Incorporated herein by reference to the Registrant's Quarterly Report on
     Form 10-Q for the quarter ended September 28, 1996

 (5) Incorporated herein by reference to the referenced exhibit number to the
     Registrant's Annual Report on Form 10-K for the year ended December 31,
     1996

 (6) Incorporated herein by reference to exhibit 1 to Registrant's Registration
     Statement on Form S-4, dated July 24, 1996

 (7) Incorporated herein by reference to the Registrant's Quarterly report on
     Form 10-Q for the quarter ended March 29, 1997

 (8) Incorporated herein by reference to the Registrant's Quarterly report on
     Form 10-Q for the quarter ended June 28, 1997

 (9) Incorporated herein by reference to the Registrant's Quarterly report on
     Form 10-Q for the quarter ended September 27, 1997

(10) Incorporated herein by reference to the referenced exhibit number to the
     Registrant's Annual Report on Form 10-K for the year ended December 31, 
     1997

(11) Filed with this Form 10-K.


                                       29