<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549




                                    FORM 10-Q

(Mark One)

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

For the quarterly period ended March 28, 1999

                                       OR

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



                         Commission File Number: 0-24416


                             ADFLEX SOLUTIONS, INC.
             (Exact name of registrant as specified in its charter)

              DELAWARE                                 04-3186513
   (State or other jurisdiction of                  (I.R.S. Employer
   incorporation or organization)                  Identification No.)

                   2001 W. CHANDLER BLVD., CHANDLER, AZ 85224
                                 (602) 963-4584
               (Address, including zip code, and telephone number,
                      including area code, of registrant's
                          principal executive offices)

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 the filing requirements for the past 90 days.

Yes  [X]       No  [ ]

The number of shares outstanding of the issuer's common stock, as of March 31,
1999:

                 COMMON STOCK, $.01 PAR VALUE: 8,983,018 SHARES
<PAGE>   2
                             ADFLEX SOLUTIONS, INC.
                                      INDEX

<TABLE>
<CAPTION>
                                                                               Page
                                                                               ----
<S>                                                                            <C>
PART I  FINANCIAL INFORMATION

        Item 1.  Condensed Consolidated Financial Statements

         Condensed Consolidated Balance Sheets -
            March 28, 1999 and December 27, 1998............................    3

         Condensed Consolidated Statements of Operations -
            Three Months Ended March 28, 1999 and March 31, 1998............    4

         Condensed Consolidated Statements of Cash Flows -
            Three Months Ended March 28, 1999 and March 31, 1998............    5

         Notes to Condensed Consolidated Financial Statements...............    6

        Item 2.  Management's Discussion and Analysis of
              Financial Condition and Results of Operations.................    9


PART II OTHER INFORMATION

        Item 6.  Exhibits and Reports on Form 8-K...........................    18

SIGNATURES..................................................................    19
</TABLE>

EXHIBITS

Exhibit 10.59 Master lease agreement, dated February 11, 1999, between the
Registrant and Copelco Capital, Inc.


                                       2
<PAGE>   3
                          PART I. FINANCIAL INFORMATION

Item 1.   Condensed Consolidated Financial Statements

                             ADFlex Solutions, Inc.
                      Condensed Consolidated Balance Sheets
                                 (In thousands)


<TABLE>
<CAPTION>
                                                    March 28,          December 27,
                                                      1999                1998
                                                    --------            --------
<S>                                               <C>                 <C>
ASSETS                                            (Unaudited)
Current assets:
   Cash & cash equivalents                          $  3,473            $  5,325
   Accounts receivable, net                           22,607              24,747
   Other receivables                                     818               1,161
   Inventories                                        11,144               9,397
   Deferred tax assets                                    --               2,072
   Other current assets                                1,591               1,952
                                                    --------            --------
Total current assets                                  39,633              44,654
Property, plant & equipment, net                      50,643              55,351
Intangible assets                                      1,804               1,933
Deferred tax assets                                       --               6,326
Other assets                                              47                  40
                                                    ========            ========
                                                    $ 92,127            $108,304
                                                    ========            ========

LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
   Line of credit                                   $ 16,950            $ 13,000
   Notes payable                                          --                  63
   Accounts payable                                   21,219              15,927
   Accrued liabilities                                 8,634               7,183
   Current portion of long-term debt and              18,337              24,613
          capitalized leases
                                                    --------            --------
Total current liabilities                             65,140              60,786
Long-term debt and capitalized leases                    127                  69
Stockholders' equity                                  26,860              47,449
                                                    ========            ========
                                                    $ 92,127            $108,304
                                                    ========            ========
</TABLE>


      See accompanying notes to condensed consolidated financial statements


                                       3
<PAGE>   4
                             ADFlex Solutions, Inc.
                 Condensed Consolidated Statements of Operations
                    (In thousands, except per share amounts)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                         Three Months Ended
                                                   March 28,           March 31,
                                                   -----------------------------
                                                     1999                 1998
<S>                                                <C>                  <C>
Net sales                                          $ 28,638             $ 50,023
Cost of sales                                        29,016               39,505
                                                   --------             --------
    Gross profit (loss)                                (378)              10,518
Operating expenses:
    Engineering, research & development               1,364                2,121
    Selling, general & administrative                 2,593                3,898
    Restructuring charges                             6,903                   --
    Amortization of intangible assets                   129                  129
                                                   --------             --------
Total operating expenses                             10,989                6,148
                                                   --------             --------

    Operating income (loss)                         (11,367)               4,370
Interest income                                          36                   55
Interest expense                                       (879)                (586)
Other income (expense), net                             (66)                (186)
                                                   --------             --------
Income (loss) before income taxes                   (12,276)               3,653
Income taxes                                          8,874                1,022
                                                   --------             --------

Net income (loss)                                  $(21,150)            $  2,631
                                                   ========             ========

Net income (loss) per share:
     Basic                                         $  (2.36)            $   0.30
                                                   ========             ========
     Diluted                                       $  (2.36)            $   0.30
                                                   ========             ========
Number of shares used in computing
net income (loss) per share:
     Basic                                            8,966                8,805
                                                   ========             ========
     Diluted                                          8,966                8,923
                                                   ========             ========
</TABLE>


      See accompanying notes to condensed consolidated financial statements


                                       4
<PAGE>   5
                             ADFlex Solutions, Inc.
                 Condensed Consolidated Statements of Cash Flows
                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                            Three Months Ended
                                                                        March 28,           March 31,
                                                                       -----------------------------
                                                                         1999                 1998
                                                                       --------             --------
<S>                                                                    <C>                  <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net income (loss)                                                      $(21,150)            $  2,631
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
     Depreciation and amortization                                        2,556                2,025
     Net (gain) loss on sale of fixed assets                                 35                   --
     Restructuring charges                                                6,903                   --
     Deferred taxes                                                       8,399                  235
     Changes in operating assets and liabilities:
        Accounts receivable                                               2,140               (1,980)
        Other receivables                                                   343                  231
        Inventories                                                      (1,747)               1,516
        Other current assets                                                361                 (197)
        Accounts payable and accrued liabilities                          6,743               (3,227)
                                                                       --------             --------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                 4,583                1,234

CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Capital expenditures                                                     (4,658)              (8,926)
Increase in other assets                                                     (7)                   1
                                                                       --------             --------
NET CASH (USED IN) INVESTING ACTIVITIES                                  (4,665)              (8,925)

CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Net activity on line of credit                                            3,950               (4,000)
Payments on capitalized lease obligations                                   (36)                 (42)
Payments on note payable                                                    (63)                (687)
Issuance of debt                                                            100                5,000
Payments on long-term debt                                               (6,282)                  --
Issuance of common stock, net of expenses                                   561                  548
                                                                       --------             --------
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES                (1,770)                 819
                                                                       --------             --------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                (1,852)              (6,872)
Cash and cash equivalents at beginning of period                          5,325                9,092
                                                                       ========             ========
CASH AND CASH EQUIVALENTS AT END OF PERIOD                             $  3,473             $  2,220
                                                                       ========             ========
</TABLE>


      See accompanying notes to condensed consolidated financial statements


                                       5
<PAGE>   6
                             ADFLEX SOLUTIONS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



(1)   BASIS OF PRESENTATION

      The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Preparing financial statements requires the use
of estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results may differ from these
estimates. Operating results for the three month period ended March 28, 1999 are
not necessarily indicative of the results that may be expected for the year
ended January 2, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 27, 1998.

      The accompanying consolidated financial statements have been prepared on
the basis that the Company will continue as a going concern. The Company has
failed to meet certain provisions of its credit agreement during the three
months ended March 28, 1999. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying consolidated
financial statements for the period ended March 28, 1999 do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.

      Management is currently negotiating with funding sources to provide
additional capital to the Company. In addition, management of the Company has
met with the lenders in an attempt to restructure the credit facility, or
otherwise satisfactorily resolve the existing defaults. It is not possible,
however, to predict at this time the success of management's efforts. No
assurance can be given that the outcome of the Company's negotiating efforts
with the lenders will not adversely affect the Company's business, financial
condition, results of operations and cash flows.

      The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company and its subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.

(2)   ACCOUNTS RECEIVABLE, NET

      Accounts receivable consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                 March 28,           December 27,
                                                   1999                 1998
                                                 --------             --------
<S>                                              <C>                  <C>
            Accounts receivable trade            $ 23,983             $ 25,748

            Allowance for doubtful
              accounts and returns                 (1,376)              (1,001)
                                                 ========             ========
                                                 $ 22,607             $ 24,747
                                                 ========             ========
</TABLE>


                                       6
<PAGE>   7
(3)   INVENTORIES

      Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                       March 28,         December 27,
                                                         1999                 1998
                                                      --------             --------
<S>                                                   <C>                  <C>
            Raw materials                             $  8,059             $  7,437
            Work-in-process                              4,807                3,743
            Finished goods                               1,134                1,105
            Allowance for obsolescence and
            excess inventory                            (2,856)              (2,888)
                                                      --------             --------
                                                      $ 11,144             $  9,397
                                                      ========             ========
</TABLE>

(4)   ACCRUED LIABILITIES

      Accrued liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                               March 28,       December 27,
                                                 1999              1998
                                               ------            ------
<S>                                            <C>             <C>
            Salaries and benefits              $2,126            $1,987
            Accrued interest                      882               769
            Accrued severance costs                --               500
            Accrued income taxes                  542                --
            Accrued commissions                   451               304
            Accrued utilities                     430               223
            Accrued SAP costs                     662               917
            Other                               3,541             2,483
                                               ======            ======
                                               $8,634            $7,183
                                               ======            ======
</TABLE>

(5)   LINE OF CREDIT AND LONG-TERM DEBT

      Prior to October 30, 1998, the Company's credit facility consisted of a
$35.0 million term loan and a $25.0 million revolving line of credit arranged by
BankBoston N.A. and a group of other lenders, secured by the Company's assets
and 66-2/3% of the stock of its subsidiaries. On October 30, 1998, the Company
and the banks amended the credit facility to reduce the term loan to $30.0
million, change the amortization schedule of the term loan, reduce the revolver
to $20.0 million, and change the financial covenants. In addition, a required
$5.0 million principal reduction on the term loan was paid from the revolver, as
was a required $5.0 million principal payment due January 20, 1999 and a
required $0.8 million principal payment due March 31, 1999. Additional principal
payments of $0.8 million are due each quarter through September 30, 1999,
followed by quarterly principal payments of $1.3 million through maturity at
December 31, 2002. Borrowing under the revolver is limited to 80% of the
aggregate value of eligible domestic accounts receivable and 70% of the
aggregate value of eligible foreign accounts receivable. Outstanding balances on
the revolver bear interest at prime plus 0.5% or LIBOR plus an applicable margin
ranging from 1.5% to 2.25% based on the Company achieving certain financial
objectives at the end of each quarter. In order to obtain the amendment, the
Company granted the lenders a warrant to purchase an aggregate of 50,000 shares
of common stock at an exercise price of $5.00 per share. The warrant is now
fully vested and expires on December 29, 2002. The lenders have customary demand
and piggyback registration rights in connection with the warrant.

      As of March 28, 1999, the Company was in default under certain financial
covenants of the credit facility, giving the banks certain remedies, including
acceleration of maturity of the entire principal balance of the loans. In
accordance with Statement of Financial Accounting Standards No. 78,
Classification of Obligations that are


                                       7
<PAGE>   8
Callable by the Creditor, the Company has classified the entire outstanding
balance of the facility as a current liability. Further, the audit of the
Company's financial statements for the year ended December 27, 1998 included a
going-concern qualification from the Company's independent auditors.

      At March 28, 1999, $18.3 million was outstanding under the term loan (less
warrant discount of $0.2 million) and the Company had $12.7 million available
for borrowing based on collateral requirements under the revolving line of
credit with an outstanding balance of $17.0 million. The Company is in default
with its amended credit agreement by failing to comply with its obligation to
make a mandatory prepayment of such excess amount of revolver borrowings over
the borrowing base amount.

      The banks have not to date exercised their remedies, but have been
negotiating with Company management to restructure the facility or otherwise
satisfactorily resolve the defaults. While management believes that the best
interests of the Company and the banks would be served through a restructured
credit facility that allows the Company to work through current negative market
dynamics, there can be no assurance that the banks will ultimately agree or that
such a restructured facility will ultimately be consummated. In the meantime,
the Company has been aggressively seeking other sources of debt and equity
financing and exploring various strategic options, and has been taking steps to
conserve and manage its cash to allow operations to continue. If the Company
cannot address the concerns of the banks, through a restructured facility, new
financing, strategic option or otherwise, its ability to continue operations
will be jeopardized and it may be forced to seek protection from its creditors
under bankruptcy law.

(6)   RESTRUCTURING CHARGES

      During 1998 and through the first quarter of 1999, the Company experienced
a substantial decline in sales levels which decreased capacity utilization. In
April 1999, the Company's Board approved a reorganization plan which includes
closing the Company's U.K. facility, downsizing the Company's Mexico facility
and transferring programs from Mexico to the Company's new Thailand facility.
Because of this impairment event, the Company evaluated the ongoing value of the
plant and equipment associated with its Chandler and Mexico facilities as
required by Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
Based on this evaluation, the Company determined that assets with a carrying
amount of $10.9 million were impaired and wrote them down to their fair value,
as determined by an appraisal of the plant and equipment completed in March
1999. During the three month period ended March 28, 1999, the Company recorded
restructuring charges of $6.9 million related to the write-down of property,
plant and equipment as discussed above. The Company anticipates recording an
additional charge of $2.6 million during the three month period ending June 27,
1999 for employee termination costs and facility shut-down costs.

      During the year ended December 27, 1998, the Company implemented cost and
productivity improvement measures designed to address then prevailing adverse
industry trends such as intense price competition from Asian suppliers and
decreased demand by certain customers supplying the computer, hard disk drive
and communications segments. These actions included the consolidation of
administrative functions, a 27% reduction in staffing, the closing of two
manufacturing plants in Mexico and the transfer of selected manufacturing
programs from Mexico to Thailand. As a result, the Company incurred a special
charge of approximately $1.6 million: $1.0 million related to the workforce
reduction and $0.6 million related to employee severance and termination costs
associated with the closing of the two plants in Mexico. To date, the Company
paid and charged to the liability $0.7 million related to workforce reduction
and $0.6 million related to employee severance and lease termination costs
associated with the closing of the two plants in Mexico. In addition, the
Company determined that approximately $0.3 million of the workforce reduction
costs was not needed as previously anticipated and these costs were reversed
during the three month period ended March 28, 1999.


(7)   INCOME TAXES

      During the three month period ended March 28, 1999, the Company revised
its projection of future levels of income, and the anticipated jurisdictions in
which this income would be earned caused a reevaluation of the


                                       8
<PAGE>   9
criteria of future tax benefits. In the determination of management, it was no
longer more likely than not that the deferred tax assets could be fully utilized
during the carryforward period. Accordingly, the Company did not record an
income tax benefit for the three month period ended March 28, 1999 and the
Company established a valuation reserve for all its existing deferred tax assets
which totaled $8.9 million. The effective tax rate for the three month period
ended March 31, 1998 was 28%.

      The Internal Revenue Service (IRS) has concluded a field audit of the
Company's income tax returns for the tax year 1993. In connection with this
audit, the IRS issued a 90-day letter in January 1998 proposing adjustments to
the Company's income and tax credits for the year, which would result in an
additional assessment of $1.6 million, excluding interest. The major proposed
adjustment, which relates to the allocation of the purchase price of assets
obtained from Rogers Corporation (Rogers) pursuant to acquisition agreements
between the Company and Rogers, would extend the period over which the tax
benefit for the purchase price would be recovered. The Company and the IRS have
reached an agreement to settle all outstanding issues relating to this audit.
The terms of the agreement will require a payment of approximately $0.6 million,
excluding interest, most of which will be recoverable by amending subsequent
years' tax returns. The Company believes that the current tax provision is
adequate to cover this liability and the final disposition of these matters will
not have a material adverse effect on the Company's business, financial
condition, results of operations and cash flows.

Item 2.   Management's Discussion and Analysis of Financial Condition and
Results of Operations


RESULTS OF OPERATIONS

      Net Sales

      Net sales for the three month period ended March 28, 1999 decreased to
$28.6 million from $50.0 million during the same period in 1998, representing a
decrease of $21.4 million or 42.8%. The significant reduction in sales was
primarily attributable to soft demand and continued competitive pricing driven
by worldwide factory overcapacity in the flex industry. In addition, during the
three month period ended March 28, 1999, revenues were negatively impacted due
to internal technical difficulties experienced by two OEM customers and an
inventory adjustment made by a third customer.

      Gross Profit

      Gross profit as a percentage of net sales (gross margin) for the three
months ended March 28, 1999 was negative 1.3% compared to positive 21.0% for the
same period in 1998. The Company's gross margin for the three month period ended
March 28, 1999 was negatively impacted by underutilization of factories caused
by reduced demand and continued aggressive pricing competition.

      Operating Expenses

      Engineering, research & development expenses decreased approximately $0.8
million to $1.4 million for the three month period ended March 28, 1999 compared
to $2.1 million for the same period in 1998, representing a decrease of 35.7%.
The decrease stems from the reduction in sales activity as well as the
implementation of cost-containment efforts and workforce reduction. Selling,
general & administrative expenses were $2.6 million and $3.9 million for the
three month periods ended March 28, 1999 and March 31, 1998, respectively,
representing 9.1% and 7.8% of net sales for those same periods. The reduction in
selling, general & administrative expenses was due to a combination of factors
including workforce reduction, consolidation of administrative functions,
elimination of employee and manager bonuses and general cuts in discretionary
spending. In connection with the acquisition of Hana's 20% interest in ADFlex
Thailand Limited (ATL) in September 1997, the Company recorded goodwill which is
being amortized over its estimated useful life of five years. Amortization of
intangible assets was $0.1 million, or 0.5% of net sales, for the three month
period ended March 28, 1999.

      Interest and Other Income (Expense)

      For the three month period ended March 28, 1999, interest expense was $0.9
million related to borrowings under the line of credit, term loan and capital
lease obligations. Interest expense for the same period in 1998 was $0.6 million
related to borrowings under the line of credit and capital lease obligations.
Other income (expense) for


                                       9
<PAGE>   10
both periods represents the net impact of bank fees and exchange gains and
losses realized on the settlement of transactions associated with the Company's
foreign subsidiaries. Exchange gains and losses associated with short-term
forward foreign currency exchange contracts are also included in other income
(expense) for the three month periods ended March 28, 1999 and March 31, 1998.

      Restructuring Charges

      During 1998 and through the first quarter of 1999, the Company experienced
a substantial decline in sales levels which decreased capacity utilization. In
April 1999, the Company's Board approved a reorganization plan which includes
closing the Company's U.K. facility, downsizing the Company's Mexico facility
and transferring programs from Mexico to the Company's new Thailand facility.
Because of this impairment event, the Company evaluated the ongoing value of the
plant and equipment associated with its Chandler and Mexico facilities as
required by Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
Based on this evaluation, the Company determined that assets with a carrying
amount of $10.9 million were impaired and wrote them down to their fair value,
as determined by an appraisal of the plant and equipment completed in March
1999. During the three month period ended March 28, 1999, the Company recorded
restructuring charges of $6.9 million related to the write-down of property,
plant and equipment as discussed above. The Company anticipates recording an
additional charge of $2.6 million during the three month period ending June 27,
1999 for employee termination costs and facility shut-down costs.

      During the year ended December 27, 1998, the Company implemented cost and
productivity improvement measures designed to address then prevailing adverse
industry trends such as intense price competition from Asian suppliers and
decreased demand by certain customers supplying the computer, hard disk drive
and communications segments. These actions included the consolidation of
administrative functions, a 27% reduction in staffing, the closing of two
manufacturing plants in Mexico and the transfer of selected manufacturing
programs from Mexico to Thailand. As a result, the Company incurred a special
charge of approximately $1.6 million: $1.0 million related to the workforce
reduction and $0.6 million related to employee severance and termination costs
associated with the closing of the two plants in Mexico. To date, the Company
paid and charged to the liability $0.7 million related to workforce reduction
and $0.6 million related to employee severance and lease termination costs
associated with the closing of the two plants in Mexico. In addition, the
Company determined that approximately $0.3 million of the workforce reduction
costs was not needed as previously anticipated and these costs were reversed
during the three month period ended March 28, 1999.

      Fluctuations in Operating Results

      The Company has experienced substantial fluctuations in its quarterly and
annual operating results in the past, and the Company's future operating results
could vary substantially from quarter to quarter. The Company's operating
results for a particular quarter or longer periods can be materially and
adversely affected by numerous factors, such as the receipt and shipment of
large orders, or conversely the cancellation or delay of orders, plant
utilization, product mix, manufacturing process yields, the timing of
expenditures in anticipation of future sales, raw material availability, product
and price competition, the length of sales cycles and economic conditions in the
electronics industry. Variations in orders and in the mix of products sold by
the Company, together with increased price competition, overall reduced demand
and resulting factory overcapacity have significantly negatively impacted net
sales and gross profit. No assurances can be given that the reorganization plan
recently adopted by the Company will allow the Company to return to
profitability.

LIQUIDITY AND CAPITAL RESOURCES

      The Company has financed its liquidity needs to date primarily through
cash generated from operations, the use of bank credit lines and through
proceeds from the sale of its Common Stock. The primary uses of cash have been
for increased working capital, funding of capital expenditures, expansion of ATL
and funding operating losses. At March 28, 1999, cash and cash equivalents
totaled $3.5 million, compared with $5.3 million as of March 31, 1998.

      Prior to October 30, 1998, the Company's credit facility consisted of a
$35.0 million term loan and a $25.0 million revolving line of credit arranged by
BankBoston N.A. and a group of other lenders, secured by the


                                       10
<PAGE>   11
Company's assets and 66-2/3% of the stock of its subsidiaries. On October 30,
1998, the Company and the banks amended the credit facility to reduce the term
loan to $30.0 million, change the amortization schedule of the term loan, reduce
the revolver to $20.0 million, and change the financial covenants. In addition,
a required $5.0 million principal reduction on the term loan was paid from the
revolver, as was a required $5.0 million principal payment due January 20, 1999
and a required $0.8 million principal payment due March 31, 1999. Additional
principal payments of $0.8 million are due each quarter through September 30,
1999, followed by quarterly principal payments of $1.3 million through maturity
at December 31, 2002. Borrowing under the revolver is limited to 80% of the
aggregate value of eligible domestic accounts receivable and 70% of the
aggregate value of eligible foreign accounts receivable. Outstanding balances on
the revolver bear interest at prime plus 0.5% or LIBOR plus an applicable margin
ranging from 1.5% to 2.25% based on the Company achieving certain financial
objectives at the end of each quarter. In order to obtain the amendment, the
Company granted the lenders a warrant to purchase an aggregate of 50,000 shares
of common stock at an exercise price of $5.00 per share. The warrant is now
fully vested and expires on December 29, 2002. The lenders have customary demand
and piggyback registration rights in connection with the warrant.

      As of March 28, 1999, the Company was in default under certain financial
covenants of the credit facility, giving the banks certain remedies, including
acceleration of maturity of the entire principal balance of the loans. In
accordance with Statement of Financial Accounting Standards No. 78,
Classification of Obligations that are Callable by the Creditor, the Company has
classified the entire outstanding balance of the facility as a current
liability. Further, the audit of the Company's financial statements for the year
ended December 27, 1998 included a going-concern qualification from the
Company's independent auditors.

      At March 28, 1999, $18.3 million was outstanding under the term loan (less
warrant discount of $0.2 million) and the Company had $12.7 million available
for borrowing based on collateral requirements under the revolving line of
credit with an outstanding balance of $17.0 million. The Company is in default
with its amended credit agreement by failing to comply with its obligation to
make a mandatory prepayment of such excess amount of revolver borrowings over
the borrowing base amount.

      The banks have not to date exercised their remedies, but have been
negotiating with Company management to restructure the facility or otherwise
satisfactorily resolve the defaults. While management believes that the best
interests of the Company and the banks would be served through a restructured
credit facility that allows the Company to work through current negative market
dynamics, there can be no assurance that the banks will ultimately agree or that
such a restructured facility will ultimately be consummated. In the meantime,
the Company has been aggressively seeking other sources of debt and equity
financing and exploring various strategic options, and has been taking steps to
conserve and manage its cash to allow operations to continue. If the Company
cannot address the concerns of the banks, through a restructured facility, new
financing, strategic option or otherwise, its ability to continue operations
will be jeopardized and it may be forced to seek protection from its creditors
under bankruptcy law.

      Net cash provided by operating activities for the three month period ended
March 28, 1999 was $4.6 million compared with $1.2 million for the same period
in 1998. During these same periods net income (loss) was ($21.2) million and
$2.6 million, respectively. Decreased sales levels for the three month period
ended March 28, 1999 resulted in the Company maintaining a low level of working
capital, primarily a decreased level of accounts receivable which was offset by
an increase in current liabilities.

      Net cash used in investing activities was $4.7 million for the three
months ended March 28, 1999 compared with $8.9 million for the same period in
1998, which primarily stemmed from capital expenditures. During the three month
period ended March 28, 1999, the Company invested a total of $4.0 million to
complete construction of the new Thailand facility. To date, capital
expenditures total $7.0 million and the total estimated cost of the Thailand
facility is approximately $9.5 million. In addition, capital expenditures during
the three month period ended March 28, 1999 included $0.7 million related to
machinery and equipment additions. Capital expenditures during the periods were
financed from existing cash balances and from borrowings under the Company's
bank line of credit. The Company currently expects to record an additional $5.3
million in capital expenditures in 1999 to support


                                       11
<PAGE>   12
worldwide manufacturing operations, primarily for machinery and equipment
systems in North America and Thailand.

      Net cash used in financing activities for the three months ended March 28,
1999 was $1.8 million compared with cash provided by financing operations of
$0.8 million for the same period in 1998. The Company remitted $5.8 million of
principal payments on its term loan during the three month period ended March
28, 1999. Net borrowings on the Company's bank line of credit totaled $4.0
million during the three months ended March 28, 1999 compared to net repayments
of $4.0 million for the same period in 1998. The Company borrowed an additional
$5.0 million on its term loan during the three months ended March 31, 1998 of
which $4.0 million was used to pay down the Company's bank line of credit. The
Company generated $0.6 million and $0.5 million in the three months ended March
28, 1999 and March 31, 1998, respectively, through sales of its Common Stock.
During the year ended December 31, 1997, the Company paid $0.5 million at
closing and issued a note in the principal amount of $1.0 million and agreed to
pay $1.3 million at various dates through December 31, 1998 in connection with
the acquisition of Hana's 20% interest in ATL. The Company remitted the last
principal payment of the agreement of $0.1 million during the three month period
ended March 28, 1999. As required by the terms of the note, the Company remitted
$0.7 million during the three months ended March 31, 1998. Funding for these
payments came from the Company's line of credit. For the three months ended
March 28, 1999, non-cash financing activities included the following: $0.1
million of equipment acquired under capital lease obligations, $0.3 million
reversal of debt issuance costs and warrants vested March 14, 1999 in connection
with the third amendment to the credit agreement.

      Management believes that the level of working capital should continue to
grow at a rate generally consistent with the growth of the Company's operations.
As discussed above, the Company is aggressively seeking to restructure its
existing credit facility while at the same time pursuing alternate sources of
debt, equity capital and other strategic options. No assurances can be given
that such financing or capital will be available on terms acceptable to the
Company. The current stock price is adversely affecting the Company's ability to
obtain equity financing. If the Company is unable to restructure its existing
debt or obtain new financing, its ability to continue operations will be
jeopardized and the Company may be forced to seek protection from its creditors
under bankruptcy law.

OTHER MATTERS

      Foreign Operations

      The Company's primary finishing and assembly facilities are located in
Agua Prieta, Mexico and Lamphun, Thailand. While the Company believes that it
has established good relationships with its labor force and the local
governments, the spread of the manufacturing process over multiple countries
subjects the Company to risks inherent in international operations. While the
Company transacts business predominately in U.S. Dollars and most of its net
sales are collected in U.S. Dollars, a portion of its sales and expenses are
denominated in other currencies. Changes in the relation of other currencies to
the U.S. Dollar will affect the Company's cost of goods sold and operating
margins and could result in exchange gains or losses. In order to reduce the
impact of certain foreign currency fluctuations, the Company enters into
short-term forward foreign currency exchange contracts (hedges) in the regular
course of business to manage its exposure. The forward exchange contracts
generally require the Company to exchange U.S. Dollars for foreign currencies at
maturity, at rates agreed to at inception of the contracts. The gains or losses
on hedges of transaction exposure are included in income in the period in which
the exchange rates change. The gains and losses on unhedged foreign currency
transactions are included in income. No assurance can be given that the
Company's hedging strategies will prevent future currency fluctuations from
adversely affecting the Company's business, financial condition, results of
operations and cash flows.

      Expansion of Thailand Operations

      In February 1999, the qualification process was completed and production
began at the new Thailand facility. The facility provides 100,000 square feet of
manufacturing space - 65,000 feet for flex finishing and 35,000 feet for
assembly. The facility, which increased the total assembly area by nearly 50%,
includes state-of-the-art clean rooms and the production capability to process
up to 750,000 circuit assemblies per week. The new flex finishing area features
advanced surface finishing, laser processing and automated optical profiling
technologies.


                                       12
<PAGE>   13
The total estimated cost of the facility is approximately $9.5 million. The
Company anticipates that the new Thailand facility will enable it to attain
increased efficiencies, improved margins and significant cost reductions that
are crucial to mitigating competitive price pressures in Asia and help sustain
the Company's implementation of a complete flexible circuit interconnect
solution including design, fabrication, assembly and testing. No assurance can
be given that the Company's expansion strategies will result in the improvements
and cost reductions as anticipated.

      Environmental Regulations

      The Company is subject to a variety of environmental laws relating to the
storage, discharge, handling, emission, generation, manufacture, use and
disposal of chemicals, solid and hazardous waste and other toxic and hazardous
materials used to manufacture the Company's products. The Company has conducted
environmental studies of its facility in Chandler, Arizona, which revealed a
limited amount of soil contamination that may require remediation. Based on
these studies, the Company believes that the costs associated with remediation
will not have a material adverse effect on its operations or financial
condition. However, given the uncertainties associated with environmental
contamination, there can be no assurance that such costs will not have a
material adverse impact on the Company. Pursuant to the agreements governing the
Rogers Corporation (Rogers) acquisition, Rogers has retained all environmental
liabilities relating to the purchased assets prior to the closing date of the
acquisition. While Rogers currently has sufficient assets to fulfill its
obligations under the acquisition agreements, if environmental liabilities
requiring remediation are discovered and the Company was unable to enforce the
acquisition agreement against Rogers, the Company could become subject to costs
and damages relating to such environmental liabilities. Any such costs and
damages imposed on the Company could materially adversely affect the Company's
business, financial condition, results of operations and cash flows.

      In mid 1995, the Company acquired a manufacturing facility located in Agua
Prieta, Mexico. In connection with this acquisition, the Company conducted an
environmental study of the facility which indicated the contamination by
hazardous materials in the soil and groundwater. Pursuant to the purchase
agreement, the seller submitted a remediation plan to the appropriate Mexican
authorities, which was approved in May 1997. Subsequent remediation was
completed in December 1997. The seller is awaiting acknowledgement that the
remediation plan has been approved and no further action is required by the
Mexican authorities. The seller's obligation for cost of remediation is limited
to $2.5 million. A total of $1.0 million was originally held in escrow pending
the seller's performance of its environmental obligations under the agreement.
One third of the escrow balance was used to conduct the remediation, one third
was released to the seller according to the agreement and one third remains in
escrow and will be released to the seller upon closure of the issue by the
Mexican authorities with certification that no further action is required.

      The Company believes it has been operating its facilities in substantial
compliance in all material respects with existing environmental laws. However,
the Company cannot predict the nature, scope or effect of legislation or
regulatory requirements that could be imposed or how existing or future laws or
regulations will be administered or interpreted with respect to products or
activities to which they have not previously been applied. Compliance with more
stringent laws or regulations, or more vigorous enforcement policies of
regulatory agencies, could require substantial expenditures by the Company and
could adversely affect the Company's business, financial condition, results of
operations and cash flows.

      Dependence on Electronics Industry

      The Company's principal customers are electronics original equipment
manufacturers and contract manufacturers. The electronics industry as a whole is
characterized by intense competition, relatively short product life cycles and
significant fluctuations in product demand. In addition, the electronics
industry is generally subject to rapid technological change and product
obsolescence. Discontinuance of products or modifications developed in
connection with next generation products containing flexible circuit
interconnects manufactured by the Company has had and could continue to have a
material adverse effect on the Company's business, financial condition, results
of operations and cash flows. Further, various sectors of the electronics
industry are subject to economic cycles and have in the past experienced, and
are likely in the future to experience, periods of slowdown. A slowdown or any
other event leading to excess capacity or a downturn in the electronics industry
has resulted and may continue to result in intensified price competition,
reduced gross margins and a decrease in unit volume, all of which have had


                                       13
<PAGE>   14
and would continue to have a material adverse effect on the Company's business,
financial condition, results of operations and cash flows.

      Concentration Risk

      The Company provides flexible interconnect products to a diverse group of
markets. Through ongoing diversification and new market expansion efforts,
primarily directed toward the communications and consumer markets, the Company
is continuing its efforts to reduce its dependence on the hard disk drive (HDD)
market. Sales to the HDD market accounted for 28% of net sales compared to 34%
of net sales for the three month periods ended March 28, 1999 and March 31,
1998, respectively. This decrease was due, in part, to internal technical
problems experienced by two HDD customers as well as continued diversification
efforts. Though the Company is continuing its efforts to reduce its dependence
on the HDD industry, net sales attributable to this market are expected to
continue to represent the largest portion of net sales for the foreseeable
future and could return to a majority of the Company's net sales. The loss of
any HDD customer, or a substantial reduction in orders by any significant
customer, including reductions due to market, competitive or economic
conditions, have had and would continue to have a material adverse effect on the
Company's business, financial condition, results of operations and cash flows.

      Competition

      The flexible circuit interconnect market is differentiated by customers,
applications and geography, with each niche having its own combination of
complex packaging and interconnection requirements. The Company believes that it
competes principally on the basis of design capability, price, quality and
response time to design changes and technological advancements in underlying
applications and the ability to offer a total flexible circuit interconnect
solution. During periods of economic slowdown in the electronics industry and
other periods when excess capacity exists, electronic OEMs become more price
sensitive. During the year ended December 27, 1998 and the three month period
ended March 28, 1999, there was a worldwide slowdown in the electronics industry
and to maintain market share, many of the Company's primary foreign competitors
with lower cost structures decreased their prices to unprecedented levels. This
had a material adverse effect on the Company's pricing during those periods. The
Company believes that once a customer has selected a particular vendor to design
and manufacture a flexible circuit interconnect, the customer generally relies
upon that vendor's design for the life of that specific application and, to the
extent possible, subsequent generations of similar applications. Accordingly, it
is difficult to achieve significant sales to a particular customer with respect
to any application once another vendor has been selected to design and
manufacture the flexible circuit interconnect used in that application. While
this market paradigm may provide a barrier to the Company's competitors in the
markets served by the Company, it also may present an obstacle to the Company's
entry into other markets.

      The Company experiences competition worldwide from a number of leading
foreign and domestic providers, such as Nippon Mektron ("NOK"), Fujikura Ltd.
("Fujikura"), Multi-Fineline Electronix, Inc. ("M-Flex"), Sheldahl, Inc.
("Sheldahl"), Parlex Corporation ("Parlex"). NOK and Fujikura are Japan-based
suppliers substantially larger than the Company with greater financial and other
resources. M-Flex, Sheldahl and Parlex are U.S.-based flexible circuit
manufacturers that have lower sales of polyimide flexible circuits than the
Company and have historically targeted suppliers of computers, communication and
automotive services, and the military, respectively. Expansion of the Company's
existing products or services could expose the Company to new competition.
Moreover, new developments in the electronics industry could render existing
technology obsolete or less competitive and could potentially introduce new
competition into the market. There can be no assurance that the Company's
competitors will not develop enhancements to, or future generations of,
competitive products or services that will offer superior price or performance
features to those of the Company or that new competitors will not enter the
Company's markets. Finally, as many of the Company's competitors are based in
foreign countries, they have cost structures and prices based on foreign
currencies. Accordingly, currency fluctuations could cause the Company's
dollar-priced products to be less competitive than its competitors' products
priced in other currencies.

      The Company also competes in assembly matters with leading flexible
circuit assembly providers such as Smartflex Systems, Inc. and Solectron. The
Company believes that competition in assembly matters is primarily driven by
availability of assembly technology, price and cycle time. The Company believes
that it will compete favorably with these competitors because it offers its
customers a complete flexible circuit interconnect solution including design,
fabrication, assembly and testing (referred to as the one-stop shop strategy).


                                       14
<PAGE>   15
      The Company's competitors can be expected to continue to improve the
design and performance of their products and to introduce new products with
competitive price/performance characteristics. Competitive pressures often
necessitate price reductions which can adversely affect operating results. The
Company will be required to make a continued high level of investment in product
development and research, sales and marketing and ongoing customer service and
support to remain competitive. There can be no assurance that the Company will
have sufficient resources to continue to make such investments or that the
Company will be able to make the technological advances necessary to maintain
its competitive position in the flexible circuit interconnect market. There can
be no assurance that existing or future competitors will not be able to
duplicate the Company's strategies, that the Company will be able to compete
successfully in the future, or that competitive pressures faced by the Company
will not have a material adverse effect on the Company's business, financial
condition, results of operations and cash flows.

      Volatility of Stock Price

      The trading price of the Company's Common Stock is expected to continue to
be subject to wide fluctuations in response to quarter-to-quarter variations in
operating results, announcements of technological innovations or new products by
the Company's customers, general conditions in the disk drive and computer
industries, and other events or factors. In addition, stock markets have
experienced extreme price volatility in recent years. This volatility has had a
substantial effect on the market price of securities issued by many high
technology companies, in many cases for reasons unrelated to the operating
performance of the specific companies, and the Company's Common Stock has
experienced volatility not necessarily related to announcements of Company
performance. Broad market fluctuations may adversely affect the market price of
the Company's Common Stock.

      Income Taxes

      During the three month period ended March 28, 1999, the Company revised
its projection of future levels of income, and the anticipated jurisdictions in
which this income would be earned caused a reevaluation of the criteria of
future tax benefits. In the determination of management, it was no longer more
likely than not that the deferred tax assets could be fully utilized during the
carryforward period. Accordingly, the Company did not record an income tax
benefit for the three month period ended March 28, 1999 and the Company
established a valuation reserve for all its existing deferred tax assets which
totaled $8.9 million. The effective tax rate for the three month period ended
March 31, 1998 was 28%.

      The Internal Revenue Service (IRS) has concluded a field audit of the
Company's income tax returns for the tax year 1993. In connection with this
audit, the IRS issued a 90-day letter in January 1998 proposing adjustments to
the Company's income and tax credits for the year, which would result in an
additional assessment of $1.6 million, excluding interest. The major proposed
adjustment, which relates to the allocation of the purchase price of assets
obtained from Rogers Corporation (Rogers) pursuant to acquisition agreements
between the Company and Rogers, would extend the period over which the tax
benefit for the purchase price would be recovered. The Company and the IRS have
reached an agreement to settle all outstanding issues relating to this audit.
The terms of the agreement will require a payment of approximately $0.6 million,
excluding interest, most of which will be recoverable by amending subsequent
years' tax returns. The Company believes that the current tax provision is
adequate to cover this liability and the final disposition of these matters will
not have a material adverse effect on the Company's business, financial
condition, results of operations and cash flows.

      Impact of Year 2000

      The Year 2000 issue is a result of computer programs being written using
two digits rather than four to define the applicable year which, if left
uncorrected, could result in a system failure or miscalculations causing
disruptions of operations. With the complete implementation of the SAP R/3
software system in October 1998, the Company's manufacturing and cost control
system functions properly with respect to dates in the year 2000 and beyond. The
software replaced the Company's previous manufacturing and cost control system
and its implementation took place for a variety of reasons, not separately
identified as a Year 2000 remediation. Therefore, the Company does not consider
the implementation of the SAP R/3 system a direct Year 2000 remediation cost and
the direct costs associated with addressing the Company's Year 2000 issues have
been immaterial to date. In addition, the Company is in the process of
implementing a formal remediation plan to ensure the Company is


                                       15
<PAGE>   16
compliant with respect to Year 2000 issues. The plan includes five phases
representing a major Year 2000 activity or segment - awareness, assessment,
renovation, validation and implementation.

      Awareness. All Year 2000 projects with regard to internal systems are
approved at the Board of Directors level and evaluated and reviewed by a Senior
Management Steering Committee on a monthly basis. The Company's plan of action
applies to all geographic locations where products and services are provided to
customers and project managers have been assigned to each location to coordinate
Year 2000 projects worldwide.

      Assessment and Renovation. The Company has completed a detailed inventory
of processes, applications, hardware, operating systems and databases where Year
2000 issues may exist. To date, an assessment of all information technology
(IT)-related systems (e.g. hardware and software systems) has been fully carried
out. With the complete implementation of SAP finalized in October 1998, all
worldwide application-driven processes for the Company are Year 2000 compliant.
For example, processes required to support production and fulfillment of
customer orders (order entry, receiving/warehousing, procurement/materials,
manufacturing, product test, distribution/shipping and invoicing) are in
compliance with the Year 2000 issue after complete implementation of SAP in
October 1998. In addition, 97% of internal network hardware and software systems
are Year 2000 compliant to date. The scope of the Company's full assessment also
includes non-IT areas such as all facilities/plant equipment, manufacturing
process and testing equipment, lab equipment and telephone communications
systems which all have been assessed. The majority of the non-IT areas were in
compliance with the Year 2000 issue and items that were not in compliance
required only minor modifications with insignificant costs incurred. In
addition, the Company has implemented programs with outside suppliers to ensure
their readiness with respect to Year 2000 issues. The Company is currently
tracking and managing this through periodic questionnaires to suppliers. To
date, the Company has received and analyzed questionnaires related to 100% of
the critical suppliers of the Company and 85% of non-critical suppliers. Based
on the information provided, all critical suppliers are in compliance with the
Year 2000 issue.

      Validation. Upon completion of the SAP software implementation, the
Company began its validation phase by testing, verifying and validating the
performance, functionality, and integration of the SAP manufacturing and cost
control software system in an operational environment. The Company anticipates
this phase of IT-related systems to continue throughout 1999. During the three
month period ended March 28, 1999, the Company also began its validation phase
of all non-IT areas that will continue throughout 1999.

      Implementation. Upon completion of the validation phase of all IT as well
as non-IT areas for Year 2000 compliance, the Company plans to identify and
implement any necessary contingency plans and modify existing disaster recovery
plans throughout 1999.

      In addition, the Company has evaluated software and hardware systems
associated with IT areas as well as all equipment related to non-IT areas and
concluded that there are no identified risks that would have a material exposure
to contingencies related to the Year 2000 issue. There can be no assurances that
the systems of customer, suppliers and other companies on which the Company
relies will be timely converted and will not have an adverse effect on the
Company' systems or operations.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995

      This report contains forward-looking statements that involve risks and
uncertainties, including but not limited to, the risks of concentration of sales
in markets, and in particular the HDD market, and customers, which have caused
and in the future could cause materially adverse fluctuations in operating
results; the risks of being a supplier to the electronics industry in general,
which is characterized by rapid technological change, product obsolescence and
price competition, which have and could materially adversely affect operating
results; the risk of loss of market share through competition and pricing
pressures from competitors and/or customers; the risk that growth in demand for
products that use flex, and the corresponding demand for flex, will not continue
to increase as anticipated; the risk that the Company's fully integrated
one-stop shop strategy will not continue to be accepted by customers, and the
risk that competitors may seek to duplicate this strategy, which could
materially adversely affect operating results; the risk that the outcome of the
Company's negotiating efforts with the lenders and other sources


                                       16
<PAGE>   17
of debt and equity capital will not adversely affect the Company's business,
financial condition, results of operations and cash flows; the risk that the
Company's expansion of manufacturing facilities in Thailand will not result in
sustainable, increased efficiencies, cost savings or improved margins as
anticipated or at the time anticipated; general risks inherent in international
operations, including currency fluctuations and government-mandated wage
increases; general manufacturing risks, including environmental risks related to
manufacturing operations and clean-up of the Mexican manufacturing facility; the
risk that other computer systems on which the Company relies, such as suppliers
and customers, will function properly with respect to dates in the year 2000 and
thereafter; the risk that all of the foregoing factors or other factors could
cause fluctuations in the price of the Company's Common Stock; and other risks
detailed herein and in the Company's Annual Report on Form 10-K for the year
ended December 27, 1998 and other Securities and Exchange Commission filings.
Actual results in the future could differ materially from those described in
forward-looking statements as a result of such risks and uncertainties. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.


                                       17
<PAGE>   18
PART II.  OTHER INFORMATION

Item 1. Legal Proceedings

            None

Item 2. Changes in Securities

            None

Item 3. Defaults upon Senior Securities

            None

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

            None

Item 5. Other Information

            None

Item 6.  Exhibits and Reports on Form 8-K

      (a)   Exhibits.


      (10.59) Master lease agreement, dated February 11, 1999, between the
            Registrant and Copelco Capital, Inc.


      (b)   Reports on Form 8-K.

            The registrant did not file any reports on Form 8-K during the
            quarter ended March 28, 1999.


                                       18
<PAGE>   19
                                   SIGNATURES

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

                               ADFlex Solutions, Inc.


Date:  May 12, 1999            By   /s/ Donald E. Frederick
                                    --------------------------------------
                                    Donald E. Frederick
                                    Vice President Finance, Secretary and
                                    Chief Financial Officer
                                    (Duly Authorized Officer and
                                    Principal Financial and Accounting Officer)


                                       19
<PAGE>   20


                                EXHIBIT INDEX


Exhibit
  No.           Description
-------         -----------
 10.59          Master lease agreement, dated February 11, 1999, between the 
                Registrant and Copelco Capital, Inc.

 27             Financial Data Schedule