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                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                                    FORM 10-K

(Mark One)

/X/     Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
        Act of 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                                       or

/ /     Transition report pursuant to Section 13 or 15(d) of the Securities 
        Exchange Act of 1934

        For the transition period from _______________ to _______________
                         Commission file number 0-24416

                             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 WEST CHANDLER BOULEVARD, CHANDLER, ARIZONA 85224
               (Address of Principal Executive Offices, Zip Code)

                                 (602) 963-4584

              (Registrant's Telephone Number, Including Area Code)
        Securities registered pursuant to Section 12(b) of the Act: NONE

           Securities registered pursuant to Section 12(g) of the Act:
                          COMMON STOCK, $0.01 PAR VALUE

                      Name of exchange on which registered:

                             NASDAQ NATIONAL MARKET

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

     The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $120,169,592, based on the closing sale price
as reported by the Nasdaq National Market on March 13, 1998. 

     The number of outstanding shares of the registrant's $0.01 par value Common
Stock as of March 13,1998 was 8,821,263.

                       DOCUMENTS INCORPORATED BY REFERENCE

(1)  Portions of the ADFlex Solutions, Inc. 1997 Annual Report to Shareholders
     for the year ended December 31, 1997 are incorporated by reference into
     Part I and II.

(2)  Portions of the Proxy Statement dated March 26, 1998 in connection with the
     Annual Meeting of Stockholders to be held on April 28, 1998 are
     incorporated by reference into Part III.

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                                     PART I

ITEM 1.    BUSINESS.

OVERVIEW

         ADFlex Solutions, Inc. ("ADFlex" or the "Company") is a leading
worldwide provider of flexible circuit interconnect solutions to original
equipment manufacturers ("OEMs") in the electronics industry. The Company offers
a full range of customized flexible circuit applications and services from
initial design, development and prototype to fabrication, assembly and test on a
global basis. The Company targets high-volume markets where miniaturization,
form and weight are driving factors and flexible circuits are an enabling
technology. Applications for flexible circuits currently addressed by the
Company include notebook computers, portable communication devices such as
cellular telephones and pagers, data storage devices such as hard disk drives
("HDDs"), tape drives and arrays, and high-end consumer electronics products
such as compact disk players. The Company's principal customers include Compaq,
Digital Equipment, IBM, Iomega, Motorola, Nokia, Philips, Seagate, Storage
Technology and other leading electronic OEMs.

         Flexible circuits consist of copper conductive patterns on flexible
substrate materials, such as polyimide, and provide electrical connection
between components in electronic systems. Flexible circuit interconnects
frequently incorporate components such as integrated circuits ("ICs"),
connectors, stiffeners, resistors and capacitors mounted directly on a flexible
circuit. With the proliferation of electronic applications, electronic products
have become smaller, lighter and more portable. To meet the challenges
represented by the increased complexity of miniaturization, form and weight
requirements, OEMs have increasingly turned to flexible circuit interconnect
solutions because they minimize the weight and expense of connectors and other
packaging components, conform to contoured, ergonomic shapes or small spaces and
provide mechanical flexure.

         At the same time that the trend toward miniaturization and portability
increases product complexity, electronic OEMs face escalating time-to-market
requirements. In response, the Company acquired ADFlex U.K. in December 1995, as
discussed below, to accelerate its strategy of providing a "one-stop-shop"
solution to enable customers to meet time-to-market challenges. Time-to-market
and cost issues have also led OEMs to focus on global sourcing from a limited
number of qualified suppliers. As a result, the Company continues to migrate its
flexible circuit production and assembly operations to lower cost regions, such
as Mexico and Thailand, that have proximity to the Company's OEM customer base.
The Company believes its unique "one-stop-shop" offerings of flexible circuits
and assemblies will be a competitive advantage that will allow it to increase
its market share with existing customers and will create opportunities to
attract new customers. The Company believes it is a preferred supplier for the
majority of its customers' high-end and high-volume flexible circuit
interconnect requirements.

           The Company was organized under Delaware law in February 1993 to
acquire certain assets and assume certain liabilities of the flexible
interconnections division of Rogers Corporation ("Rogers"). The Rogers
acquisition was consummated on June 28, 1993. In December 1995, the Company
purchased ADFlex U.K., an advanced flexible circuit assembly company located in
Havant, England. The acquisition enabled the Company to offer its customers a
single source solution for their interconnect requirements that would shorten
their time to market and lower their costs. This acquisition also changed the
financial metrics of the Company because assembly businesses typically have
significantly lower gross margins than fabrication businesses.

           In an effort to increase its global sourcing opportunities and to
decrease its operating costs, the Company expanded its worldwide manufacturing
operations with the establishment of a joint venture located in Lamphun,
Thailand with Hana Microelectronics (Hana) in August 1996. The joint venture,
ADFlex Thailand Limited ("ATL"), targets the production and testing of advanced
chip-on-flex and other surface mount technologies for flexible circuit
assemblies. At inception, ATL was 80% owned by the Company and 20% owned by
Hana. The Company purchased the remaining 20% equity interest in ATL from Hana
in September 1997.

INDUSTRY OVERVIEW AND TRENDS

         Flexible circuit interconnects provide electrical connection between
components in electronic systems and are 


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increasingly used as a platform to support the attachment of electronic devices.
Flexible circuits offer several advantages over rigid printed circuit boards
("PCBs") and ceramic hybrid circuits, particularly for small, complex electronic
systems. Flexible circuits, due to their mechanical flexure and
three-dimensional shape, accommodate packaging contours and motion in a manner
that traditional two-dimensional rigid PCBs cannot. Flexible circuits also
provide improved thermal dissipation and signal propagation as compared to PCBs.
In addition, flexible circuits can reduce the size, weight and expense of: (i)
the primary substrate for component attachment when flexible circuits are used
in place of a PCB; (ii) connectors, cables and other interconnection schemes
when flexible circuits provide the connection to other substrates or subsystems
within the system; and (iii) individual IC die packages by bonding an IC
directly to a flexible chip carrier rather than a ceramic or plastic package.

         These capabilities enable flexible circuits to solve many of the
challenges faced by electronic OEMs who currently use traditional
interconnection devices. Products which currently use polyimide flexible circuit
interconnect assemblies include notebook computers, portable communication
devices such as cellular telephones, pagers and PDAs, printers, scanners and
data storage devices such as HDDs, tape drives and arrays, and high-end consumer
electronic products such as compact disk players, cameras and camcorders.
Possible new applications for polyimide flexible circuit interconnect assemblies
include high density interposers and other chip carrier packaging applications.

         The Company considers the following trends important in understanding
the electronic flexible circuit interconnect industry:

         MINIATURIZATION, PORTABILITY AND COMPLEXITY OF ELECTRONIC PRODUCTS.
Electronic OEMs continue to design and introduce more compact and portable
high-performance products with greater functionality. The complexity of these
new products requires smaller size, lighter weight, greater circuit and
component density, better thermal dissipation properties, higher frequencies and
increased reliability. These requirements necessitate greater sophistication in
flexible circuit interconnect manufacturing and process technologies. The trend
toward increasingly sophisticated products also requires greater engineering
expertise and investment in manufacturing and process technology for suppliers
to produce high-quality electronic interconnect products on-time, in volume, and
at acceptable cost.

         SHORTER PRODUCT LIFE CYCLES AND TIME TO MARKET. Rapid advances in
technology have significantly shortened the life cycle of complex electronic
products and placed increased pressure on OEMs to quickly develop and introduce
new products. These time-to-market challenges have in turn increased OEMs'
emphasis on the development, design engineering, prototype development and
ramp-to-volume capabilities of their suppliers. In addition, the importance of
being first to market with new products has heightened the emphasis on
shortening supply channels, reducing the number of suppliers and finding turnkey
sourcing capabilities that are supported by technologically advanced
manufacturing infrastructure.

         GLOBALIZATION AND REDUCTION OF MANUFACTURING COSTS. At the same time
that shorter product life cycles increase time-to-market pressures, users
continue to demand increased electronic performance at lower prices. Notable
product examples of this trend are notebook computers, desktop computers,
peripherals, portable communications and consumer electronics. Leading OEMs who
often manufacture products in multiple geographic regions are relying more on
suppliers with global sourcing capabilities who can help to shorten the OEMs'
supply chain and provide regionally competitive pricing. As part of global
sourcing, OEMs increasingly seek their suppliers to establish local
infrastructure to provide proximity to engineering, manufacturing and sales
support.

         OUTSOURCING AND "ONE-STOP-SHOP" SUPPLIERS. To avoid delays in new
product introductions, reduce manufacturing costs and avoid logistical
complexities, OEMs are increasingly turning to fewer suppliers which are capable
of producing electronic interconnect products from development, design,
quick-turn prototype and pre-production through volume production and assembly.
Many OEMs have accelerated this process by outsourcing their captive component,
subsystem and even system manufacturing to focus on their core competencies. The
accelerated time-to-market and time-to-volume needs of OEMs have resulted in
increased collaboration with qualified suppliers capable of providing a broad
and integrated offering. To meet their rapidly changing electronic interconnect
requirements, many OEMs have moved to limit their vendor base to a smaller
number of technically qualified, strategically located suppliers capable of
providing both quick-turn prototype and pre-production quantities as well as
cost-competitive volume production quantities.


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         PROLIFERATION OF ELECTRONICS AND CREATION OF NEW MARKETS. The markets
for electronic products are growing as a result of technological change,
increasing demands for a wider variety of electronic product features and more
powerful and less expensive electronic components. Due to this growth, new
markets have emerged in computing, data communications, telecommunications and
multimedia. Moreover, existing markets, such as computer networking and
peripherals, digital and mobile communications, video-on-demand, the Internet,
instrumentation and industrial controls, have significantly expanded product
applications.

STRATEGY

           The Company's objective is to become the preferred supplier of
flexible circuit interconnect solutions for electronics OEMs in targeted
markets. The Company's strategy to meet this objective includes the following
key elements:

           PROVIDE "ONE-STOP-SHOP" FOR FABRICATION AND ASSEMBLY. The Company
provides customers with complete, fully tested flexible circuit interconnects
from custom design through fabrication, assembly and complete functional
testing. Historically, the capital intensive nature of flexible circuit
production compelled companies to specialize in one of two major segments of the
flexible circuit production process, either design and fabrication or assembly
and testing. Prior to the ADFlex U.K. acquisition, a flexible circuit fabricated
by the Company often was sent elsewhere for assembly and testing before being
shipped to the end customer. The integration of expertise in state-of-the-art
assembly technology and processes with the Company's pre-existing fabrication
technology and high-volume production capabilities enables the Company to offer
significantly shorter cycle times, lower total costs and better quality for
customers. In addition, the Company believes that the integration of assembly
technology with manufacturing technology and high-volume production capabilities
will, over time, provide improvements in the Company's production costs through
higher product yields, faster production ramps, reduced inventories, shortened
production cycle times, improved account control and increased leverage over
expenses.

           PROVIDE DESIGN EXPERTISE AND PACKAGING TECHNOLOGY. The Company's
flexible circuit interconnects are designed specifically for each application,
requiring significant joint design activities between the Company and its
customer at the start of a new program. The Company encourages its customers to
outsource much of the flexible circuit design to ADFlex, which creates an
opportunity for the Company to function as an extension of its customers'
product development efforts. The Company assumes the responsibility, and invests
in support thereof, to maintain and advance flexible circuit technology at the
materials, fabrication and assembly levels. The Company believes that its
extensive involvement with customers at the design stage, coupled with its use
of technology designed to meet the evolving requirements of its customers, has
been a key competitive advantage.

         EXPAND SERVICE AND MANUFACTURING INFRASTRUCTURE. As OEMs increasingly
require suppliers to support their global operations, the Company is devoting
significant resources to enhance its worldwide service and support organization.
The Company has expanded worldwide by strategically locating manufacturing
facilities in the United States, Mexico and Thailand. In addition, the Company
maintains a technology and pilot production facility in the U.K. to support its
European customers. The Company believes that substantial growth opportunities
exist for sales of its products and services to both U.S. and foreign-based
customers for use in their production operations in Singapore, Korea, Taiwan and
Japan. In order to increase sales to customers with foreign manufacturing
operations, the Company has design centers in North America and Europe and has
initiated the establishment of design support capabilities with the Company's
own engineers and with third party independent contractors in Singapore, Korea,
Taiwan, and Japan. By increasing the scale and scope of the services offered in
each region, the Company believes that it can better address the needs of
leading OEMs and contract manufacturers that are increasingly seeking global
partners and lower costs in the high-volume production of advanced products.

         INCREASE SHARE WITH EXISTING CUSTOMERS. Once established as a supplier
for an application, the Company seeks to gain an increasing share of the
customer's interconnection requirements in two principal ways:

         -        INCREASE SHARE OF TOTAL REQUIREMENTS. The Company's strategy
                  is to become the preferred supplier on as many programs as
                  possible by outperforming its direct competition on the
                  critical factors of quality, cost, delivery, design,
                  responsiveness and overall customer service. The Company's


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                  objective is to obtain at least a 60% share of each of its
                  customer's high-end and high-volume flexible circuit
                  interconnect requirements, a position it believes that it
                  currently holds with a majority of its largest customers.

         -        LEVERAGE FABRICATION FOR ASSEMBLY OPPORTUNITIES. The Company
                  offers integrated flexible circuit fabrication and assembly
                  services. The Company seeks to capitalize on the growing trend
                  among electronics OEMs to reduce time to market as well as the
                  number of suppliers. By providing flexible circuit assembly as
                  an extension to existing fabrication services, the Company can
                  deliver savings on both time-to-market and cost for its
                  customers.

           TARGET HIGH VOLUME APPLICATIONS IN HIGH GROWTH MARKETS. The Company
targets applications for flexible circuit interconnects that have experienced
large volumes, high growth and rapid change such as notebook computers, cellular
telephones and pagers. In these markets, the Company can apply its superior
design skills, manufacturing efficiencies and ability to rapidly ramp to volume
production. Likewise, the Company believes it can leverage technology from its
existing markets into new and emerging markets and applications. Within its
selected markets, the Company targets OEMs (i) that have a market leadership
position; (ii) that need rapid response and value-added assembly; and (iii) who
will reward initiative with a preferred supplier position

THE "ONE-STOP-SHOP" ADFLEX APPROACH

         The Company provides its customers with an integrated, "one-stop-shop"
fabrication and assembly approach, incorporating superior engineering and
design, low cost/high volume circuit fabrication, flexible circuit assembly and
test along with dedicated customer support.

         SUPERIOR ENGINEERING AND DESIGN TECHNOLOGY. The flexible circuit
interconnects manufactured by the Company are designed specifically for each
application, requiring significant joint design activities between the Company
and the customer at the start of a project. The Company has developed design
methodologies that solve difficult interconnection problems that save the
customer time and money. The Company also designs and produces in volume
flexible circuits that range from high density, single-sided circuits to more
complex double-sided and multi-layer circuits. The Company is continually
investing in and improving its computer-based design tools to more quickly
design new flexible circuit interconnects, to enhance cooperative design and
communication with its customers and to more closely link designs to the
manufacturing process. The Company is recognized as a technology leader in
fine-line, single-sided flexible circuit technology and flexible circuit
assembly technology, including advanced chip on flex, flip-chip on flex and
high-density polyimide assembly technologies.

         CIRCUIT FABRICATION TECHNOLOGY. The Company has extensive experience in
fine-line polyimide flex and has pioneered manufacturing processes that deliver
high unit volumes at cost-effective yields. At the core of the process is
roll-to-roll subtractive fine line circuit processing. The starting materials
are flexible laminates composed of a thin dielectric film which is
adhesive-bonded to treated copper foil. Very accurate images (down to 0.003")
are produced in volume in photoresist. Circuit conductors are then formed by
chemically etching the underlying copper foil. Coverfilm materials with
pre-punched windows are laminated to the circuitry to provide an insulative
coating and to expose contact pads for surface metalization. The exposed
surfaces are then coated with solder for surface mount or bondable gold for
chip-on-flex applications. Laser processing is then used to create various
openings, to drill vias and cut contoured peripheries in substrate materials.

         The Company's key flexible circuit fabrication technologies include:

         -        FINE FEATURE ROLL-TO-ROLL IMAGING AND ETCHING. Allows the
                  fabrication of circuits with very fine line widths and spaces.
                  This is critical to meeting complex, space constrained,
                  interconnection needs. Processing wide web (24 inches) in a
                  continuous roll-to-roll format (as opposed to discrete panels)
                  allows fabrication of high circuit volumes with improved
                  material utilization, resulting in lower cost.

         -        LASER PROCESSING. Laser technology is used to produce low
                  cost, very fine openings, small vias and contoured shapes
                  which solve density problems while avoiding more expensive
                  traditional alternatives. Also, using a laser to cut the
                  periphery of parts allows prototypes and low volume 


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                  production parts to be built faster and without the cost of
                  a blanking die.

         -        BONDABLE GOLD PLATING. Prepare flexible circuits for
                  chip-on-flex bonding, a process which saves space and improves
                  electrical performance (access time) by wire bonding an IC die
                  directly to the flexible circuit.

         -        COVERFILM, LAY-UP AND LAMINATION. A process where
                  polyimide/adhesive based coverfilm materials are pre-punched,
                  then aligned with and laminated to an underlying circuit
                  pattern. This process allows accurate positioning of solder
                  plated pads to support fine pitch surface mount assembly to
                  the finished circuits.

         ASSEMBLY AND TEST TECHNOLOGY. The Company applies advanced assembly and
test technology to provide flexible circuit interconnect assemblies to its
customers. For many years, the Company has assembled passive electrical and
various mechanical components, including connectors, stiffeners, diodes, formed
metal parts and other devices, to its flexible circuits using primarily manual
processes in its plants in Mexico. With the U.K. acquisition, the Company
expanded its capability to include advanced direct die attach and assembly of
integrated circuit devices as well as the functional testing of these flexible
circuit assemblies. Assembling these components directly onto the flexible
circuit increases performance and reduces space, weight and cost.

         CUSTOMER SATISFACTION. A critical component of the Company's growth has
been dedicated customer support. The Company has achieved and maintained high
levels of customer satisfaction by focusing on continuous quality improvement,
reducing total manufacturing cycles, shortening its design and prototype cycles,
reducing its general costs of manufacturing through capacity utilization and
process improvement, and being responsive and working closely with its customers
on a day-to-day basis to quickly address their changing needs. The
responsibility for achieving and maintaining high levels of customer
satisfaction rests with specific business units, each of which consists of a
team of sales personnel; design, quality and manufacturing engineers; and
customer service representatives who are dedicated to a single customer or small
group of customers with similar requirements.

CURRENT PRODUCT APPLICATIONS

           The Company provides flexible circuit interconnect products to a
diverse group of markets. Historically, the HDD market has represented the
largest component of the Company's sales at 51%, 62% and 43% of total sales for
1995, 1996 and 1997, respectively. Through new market expansion efforts, the
Company is continuing its efforts to reduce the impact of the cyclicality of the
HDD industry on its business. However, net sales attributable to this market are
expected to continue to represent the largest component of total sales for the
foreseeable future. Accordingly, the occurrence of significant slowdowns or
changes in this industry would likely have a material adverse effect on the
Company's operating results

Current applications addressed by the Company include:

           HARD DISK DRIVES. The HDD market uses flexible circuits as the
interconnect between the read/write head and disk drive electronics. In HDD
applications, circuits need to mechanically flex hundreds of millions of times
through the life of the drive. Mounting an unpackaged die directly onto the
flexible circuit substrate, or chip on flex, is becoming the predominant
interconnect technology for these applications.

         DATA STORAGE. Large individual drive storage systems are being replaced
by arrays of less expensive disk drives or tape drives. The growth of personal
computer networks has generated a growth in small arrays for local area network
storage. In addition to the flexible circuit interconnects inside each of the
individual drives, controlled impedance flex interconnects are used to connect
the back of the drives to standard interface boards.

         PORTABLE COMMUNICATIONS. The use of polyimide flexible circuits in
portable communications devices is rapidly growing as the space, weight and
functionality challenges are becoming more difficult. In some cellular
telephones, flexible circuits replace rigid PCBs, connectors and cables and can
thereby reduce space, weight and cost. Combining the portable system unit growth
with expanded applications of flexible circuits should accelerate the growth of
this application.


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           NOTEBOOK COMPUTERS The number of flexible circuit interconnects per
notebook also is increasing. Early applications for flexible circuits in
notebooks were mainly as interconnects from the motherboard to the LCD and as
shielded jumpers. More recently, systems have used as many as ten flexible
circuit interconnects per notebook, including PCMCIA connector/flex jumpers,
LED/speaker flexible circuit assemblies, track ball/mouse button flexible
circuit assemblies and various other shielded jumpers. The combination of
growing notebook unit volumes and the increasing use of flexible circuits in
these applications should accelerate the sales growth of flexible circuits to
this segment.

           CONSUMER AND OTHER APPLICATIONS CD/DVD-ROMS are growing in consumer
applications where higher capacity and quicker access time, compared to tape
drives, are needed. These devices use flexible circuits as the interconnect
between the read/write had and CD/DVD-ROM drive electronics.

           Computer workstations, document scanners and printers also make use
of flexible circuit interconnects. Certain products and applications have
similar packaging and interconnection requirements and growth opportunities when
compared to the primary end-user markets served by the Company.

           EMERGING PRODUCT APPLICATIONS. Flexible circuit substrates are a
leading candidate for use in semiconductor packaging and as interposers for
high-density interconnect applications.

SALES AND SUPPORT

           The Company has organized its sales and support effort into five
business units based on the Company's end markets. Each unit is composed of
sales personnel; design, quality and manufacturing engineers; and customer
service representatives. From the time a customer submits a request for
prototype, the applicable business unit is responsible for developing and
expanding the Company's relationship with the customer with the goal of becoming
a preferred supplier. The design and manufacturing engineers of each business
unit work cooperatively with a customer's design engineers to arrive at
cost-effective flexible circuit interconnect solutions that meet the performance
and quality specifications of each product. The business unit then works with
the Company's manufacturing operations personnel to coordinate a timely and
effective integration of the product into the Company's production process from
prototype through the production ramp, assembly (if required) and functional
testing. If the program includes component assembly, the engineers and the
customer service representatives work with planning and purchasing to ensure
that all of the component specification, assembly and test standards and
delivery requirements are understood and properly integrated into the
manufacturing process.

           The Company's customer service representatives work with the
customer's purchasing or project representatives on an ongoing basis to
implement changes to the schedule or product specification. Each business unit
also directs research and development efforts that target existing customer
needs. Research currently includes various methods and applications of
screened-materials, direct attachment methods, laser processing, thinner and
lower cost substrate materials and improved processes that yield smaller lines
and spaces on circuitry. By organizing by end market rather than by function,
the Company believes that it can respond more quickly than the competition to
the needs of its customers.

         Historically, the Company has sold a substantial portion of its
flexible circuit interconnects to a limited number of customers. In 1995, 1996
and 1997, combined sales to Seagate Technology, Inc. ("Seagate") and IBM
Corporation ("IBM") accounted for 34%, 47% and 33% of the Company's net sales,
respectively. These sales were substantially in support of the HDD and notebook
computer markets.

          In order to facilitate their manufacturing processes, the Company's
customers often require that the Company sell finished interconnects to contract
assemblers for further assembly. In 1995, 1996 and 1997, shipments to contract
assemblers were 33%, 14% and 24% of net sales, respectively. Sales to a single
contract assembler, Smartflex Systems, Inc. ("Smartflex"), were 19%, 8% and 7%
of net sales in 1995, 1996 and 1997, respectively.

         Even though the Company's customer mix will likely change from period
to period in the future, the 


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Company expects that sales to relatively few customers, including contract
assemblers, will continue to account for a high percentage of its net sales in
the foreseeable future. The loss of a significant customer or a substantial
reduction in orders by any significant customer, including reductions due to
market, economic or competitive conditions in the computer, computer peripheral,
communications and high-end consumer markets, would have a material adverse
effect on the Company's business, financial condition, results of operations and
cash flows.

FOREIGN SALES AND OPERATIONS

         The Company's primary finishing and assembly facilities are located in
Agua Prieta, Mexico and Lamphun, Thailand and the Company maintains a technology
and pilot production facility in Portsmouth, England. 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 losses. In order to reduce the
impact of certain foreign currency fluctuations, the Company began entering into
short-term forward foreign currency exchange contracts (hedges) in December 1997
in the regular course of business to manage its exposure. To date, the Company's
hedging activity has been immaterial. 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.

         During 1997, the Thai Baht experienced significant devaluation in
relation to the U.S. Dollar. As the majority of the sales and expenses for the
Thailand operation are denominated in U.S. Dollars, the devaluation did not have
a significant impact on the results of operations of the Company for the year
ended December 31, 1997. No assurance can be given that future currency
fluctuations will not have a material adverse effect on the Company's business,
financial condition, results of operations and cash flows.

MANUFACTURING

           The Company has developed a manufacturing process that combines the
use of technology with the deployment of human resources in a geographic and
organizational manner that allows the Company to compete on a pure cost basis,
if necessary, with suppliers of similar products throughout the world. Quality
systems are in place that are certified to standards set by demanding customers
in the electronics industry. The Company received ISO 9001 certification of its
U.S. operations in 1996, received ISO 9002 certification of its Mexican
operations in early 1997, and received ISO 9002 certification of its Thailand
operations in late 1997.

           The Company believes that it enjoys a cost advantage based on a
manufacturing process designed to optimize the utilization of labor and capital,
the close proximity (approximately 200 miles) of its two North American
manufacturing locations, and a manufacturing process and technology with better
yield, material utilization and throughput relative to its competitors. In
addition, the Company believes that the integration of assembly technology with
manufacturing technology and high-volume production capabilities will over time
provide improvements in its production costs through higher product yields,
faster production ramps, reduced inventories, shortened production cycle times,
improved account control and increased leverage over expenses.

SUPPLIERS

           The Company purchases raw circuit materials, process chemicals and
various components from multiple outside sources. For components, the Company
typically makes short-term purchasing commitments to key suppliers for specific
customer programs. These commitments are usually made for three to six month
periods. These suppliers commit to providing cooperative engineering, as
required, and in some cases maintain a local inventory to provide shorter lead
times and reduced inventory levels for ADFlex. In most cases, suppliers are
approved, and are often dictated, by the Company's customers. For process
chemicals, the Company relies on a limited number of key suppliers. Alternate
chemical products are available from other sources, but process chemical changes
would often require requalification of the processes, which could take weeks or
months to complete. The Company has attempted to mitigate these risks by
identifying stable companies with leading technology and delivery positions.


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         The Company currently purchases a number of its components, process
chemicals and other materials from a single source. For example, the Company has
a supply agreement with Rogers for the supply of certain materials, including
laminates, films, bondply, copper foil and heat treated polyimide, used in the
Company's flexible circuit interconnects. In the United States, these products
are available only from a limited number of suppliers. The Company's agreement
with Rogers expires on December 31, 1998 and can be terminated prior to
expiration by mutual consent or for material breach upon 30 days' notice. Under
the supply agreement, ADFlex has agreed to purchase a percentage of its circuit
materials needs from Rogers, assuming that Rogers is able to meet the materials
specifications, performance requirements and delivery as required by the Company
and its customers.

           While viable alternate suppliers exist, because of the Company's
limited inventory of raw materials, tight manufacturing cycles and the
significant amount of time required to qualify new suppliers, single sourcing is
expected to continue. Consequently, any unanticipated interruption of material
supplies or components would have a short- term material adverse effect on the
Company.

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, including the ability to ramp rapidly up to and down from
volume production and to provide assembly and test services. In addition, during
periods of recession or economic slowdown in the electronics industry and other
periods when excess capacity exists, electronic OEMs become more price
sensitive, which could have a material adverse effect on interconnect pricing.
The Company believes that once an OEM has selected a particular vendor to design
and manufacture a flexible circuit interconnect, the OEM 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 has targeted several markets as areas for
its growth, but there can be no assurance that the Company will be able to
achieve significant sales in any of these new, targeted 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") and Parlex Corporation ("Parlex"). NOK and Fujikura are Japan-based
suppliers substantially larger than the Company with greater financial and other
resources. Although the Company believes that a significant portion of the sales
of these companies are in direct competition with the Company, the Company also
believes that both of these competitors derive a majority of their revenues from
Japan-based system manufacturers in the consumer goods market segment. 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.

         Since its December 1995 acquisition of ADFlex U.K., the Company
competes in assembly matters with leading flexible circuit assembly providers
such as Smartflex Systems, Inc. and Solectron Corp. The Company believes that
competition in assembly matters is primarily driven by availability of assembly
technology, price and 


                                       9
<PAGE>   10
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.

         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.

INTELLECTUAL PROPERTY

           The Company believes that, due to its customers' demands for rapid
technological advances and the resulting limited product life-cycles, the
success of its business depends more on the technical and engineering expertise,
creativity and marketing and service abilities of its employees than on patents,
trademarks and copyrights. Nevertheless, the Company owns patents and has a
policy of seeking patents when appropriate on inventions concerning new products
and improvements as part of its ongoing research, development and manufacturing
activities. The Company currently owns a number of United States patents. The
Company also owns a royalty-free license to use four IBM patents in exchange for
a cross license of certain Company patents. There can be no assurance that any
patents issued to the Company will provide a competitive advantage or will not
be challenged by third parties, or that the patents of others will not have an
adverse effect on the Company's ability to do business. Furthermore, there can
be no assurance that others will not independently develop similar products,
duplicate the Company's products or design around the patents issued to the
Company. In addition, there can be no assurance that foreign intellectual
property laws or the Company's agreements will protect the Company's
intellectual property rights in any foreign country. Any failure to protect the
Company's intellectual property rights could have a material adverse effect upon
the Company's business, financial condition, results of operations and cash
flows.

           The Company also has applied for United States and foreign
trademarks. In addition, Rogers and Xyratex have each granted to the Company a
nonexclusive, royalty-free license with respect to other intellectual property
used in the Company's business. The Company also relies upon trade secret
protections for its confidential and proprietary information. The Company
routinely enters into confidentiality agreements with its customers, vendors,
consultants and employees. There can be no assurance, however, that others will
not independently gain information and techniques or otherwise gain access to
the Company's trade secrets or that the Company can meaningfully protect its
trade secrets.

           No claims have been asserted against the Company for infringement of
the proprietary rights of third parties. There can be no assurance, however,
that third parties will not assert infringement claims against the Company in
the future. Any such claims, with or without merit, could be time-consuming,
result in costly litigation, cause product shipment delays or require the
Company to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company, or at all. If infringement were established, the Company could be
required to pay damages or be enjoined from making, using or selling the
infringing product. Likewise, there can be no assurance that a third party's
product, if infringing on the Company's proprietary rights, may be prevented
from doing so without litigation. Any of the foregoing could have a material
adverse effect upon the Company's business, financial condition, results of
operations and cash flows.

ENVIRONMENTAL CONTROLS

         Flexible circuit interconnect manufacturing requires the use of
chemicals. As a result, 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 believes that it has been operating its facilities in substantial
compliance in all 


                                       10
<PAGE>   11
material respects with existing environmental laws and regulations. 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.

         The Company has conducted environmental studies of its facility in
Chandler, Arizona, which revealed soil contamination that may require
remediation. Further studies including a site specific risk analysis were
conducted and a number of remediation options have been proposed. Based on these
studies, the Company believes that the costs associated with the investigation
and remediation of this situation will not have a material adverse impact on the
Company. Pursuant to the agreements governing the acquisition of the flexible
circuit fabrication operations of Rogers, Rogers has retained all environmental
liabilities existing prior to the date of that transaction. 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.

         During 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 there is 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 Company is now awaiting final closure of the
issue by the Mexican government. The seller's obligation for the costs of
remediation is limited to $2.5 million. A total of $1.0 million is being held in
escrow pending the seller's performance of their environmental obligations under
the agreement. The escrow balance will be refunded to the seller upon closure of
the issue by the Mexican authorities with certification that no future action is
required Given the uncertainties associated with environmental contamination,
including possible claims by third parties in the U.S., there can be no
assurance that future remedial costs or liabilities will not have a material
adverse impact on the Company.

         At this time, the Company does not anticipate any material amount of
environmental-related capital expenditures for 1998 or 1999.

BACKLOG AND SEASONALITY

         The Company's backlog at December 31, 1995, 1996 and 1997 was
approximately $16.7 million, $55.9 million and $44.8 million, respectively. The
Company includes in its backlog only those customer orders for which it has
accepted purchase orders and assigned shipment dates within six months. Because
the Company's sales are made pursuant to purchase orders rather than long term
contracts and are generally subject to cancellation or modification on short
notice and with little or no penalty, the Company does not believe that its
backlog at any particular date is indicative of sales or operating results for
any future periods.

         Since commencement of independent operations in June 1993, the Company
has experienced seasonal sequential net sales decreases in the fourth quarter of
each year except 1996, where the inclusion of net sales from its U.K. operations
masked the trend. During those same periods, the Company also experienced
reduced operating margins when compared to prior quarters. Variations in orders
and in the mix of products sold by the Company have significantly impacted net
sales and gross profit. Operating results generally also may be affected by
other factors, including the receipt and shipment of large 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. Many of these factors are outside the control of the
Company. Historically, the Company has encountered operating constraints in the
fourth quarter as typical product life cycles lead to volume production peak in
demand in the second and third quarters.

EMPLOYEES

           As of December 31, 1997, the Company had a total of 5,511 employees,
of which 5,409 were regular employees and 102 were temporary employees. Of the
regular employees, 882 were based at the Company's facilities 


                                       11
<PAGE>   12
in Chandler, Arizona; 3,903 were based in Agua Prieta, Mexico; 42 were based in
the United Kingdom; and 582 were based in Thailand.

            Certain of the Company's employees located in Mexico are represented
by a labor union and covered by a collective bargaining agreement that is
subject to revision annually under Mexican labor laws. The Company has not
experienced an employee-related work stoppage. The Company believes that its
relationship with its union and other employees is good, but there can be no
assurance that the Company will be able to successfully negotiate with the labor
union in Mexico in the future.

           The Company's future operating results depend in significant part
upon the continued contribution of its officers and other key management and
technical personnel, many of whom would be difficult to replace. None of such
persons has an employment contract with the Company. The loss of any of these
officers or key personnel could have a material adverse effect on the business,
financial condition and results of operations of the Company. In addition, the
Company's future operating results depend in part upon its ability to attract
and retain other qualified management, technical, manufacturing, sales and
support personnel for its operations. Competition for such personnel if intense
and there can be no assurance that the Company will be successful in attracting
or retaining such personnel. The failure to attract or retain such persons could
materially adversely affect the Company's business, financial condition, results
of operations and cash flows.


                                       12
<PAGE>   13
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 customers and markets, and in particular the HDD market and customers,
which has 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 could materially adversely affect
operating results; the risk that growth in demand for products that use flex,
and corresponding demand for flex, will not continue to increase as anticipated;
the risk that the Company's fully integrated one-stop-shop strategy will
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 Company's transition of manufacturing to Thailand
will not result in sustainable, increased efficiencies, cost savings or improved
margins as anticipated or at the time anticipated; the risk that margins will
continue to be negatively impacted by higher material content of flex products;
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 of turnover in
manufacturing employees, officers, key management and technical personnel; the
risk that the Company's intellectual property protections may not provide a
competitive advantage and may not preclude others from offering similar
products; the risk that third parties may assert proprietary rights infringement
claims against the Company; environmental risks; seasonality of operations; the
risk that all of the foregoing factors or other factors could cause fluctuations
in the price of the Company's Common Stock; the risk that the Company may not be
able to obtain additional capital when needed and on reasonable terms; and other
risks detailed herein and from time to time in the Company's other Securities
and Exchange Commission filings.

ITEM 2.    PROPERTIES.

         In total, the Company leases or owns approximately 412,000 square feet
of manufacturing and other space. The Company's significant facilities are as
follows:

<TABLE>
<CAPTION>
Functions                               Location (number of facilities)  Square Feet    Owned/Leased      Expiration
---------                               -------------------------------  -----------    ------------      ----------
<S>                                     <C>                              <C>            <C>               <C>   
Executive Offices;
  Research and Development;
  Sales and Support; Circuit            Chandler, Arizona (one)          150,000        Leased            June 2003
  Fabrication (1)

Circuit Finishing and Circuit           Agua Prieta, Mexico (three)      161,000        One owned         N/A
   Assembly                                                               64,000        Two Leased        January 2008

Circuit Finishing and Assembly;         Lamphun Thailand (one)            25,000        Leased            December 1998
  Sales and Support

Technology and Pilot Production;        Portsmouth, United Kingdom        12,000        Leased            September 2007
   Sales and Support                    (one)
</TABLE>

----------

(1) The lessor of the facility is an affiliate of Rogers. In connection with the
Rogers acquisition, the Company and its Mexican subsidiary guaranteed the
performance of the Company's obligations under the lease. As provided for in the
lease agreement, the Company exercised its option to renew the lease for an
additional five years in June 1997, twelve months prior to the lease expiration
date.

           The Company believes that its existing facilities in Arizona, Mexico,
and the U.K. are adequate to meet its current requirements, and that suitable
additional space or substitute space is readily available as needed.

           During 1997, the Company paid $2.5 million for the purchase of land
in Thailand to be used for future expansion scheduled for 1998 and 1999.


                                       13
<PAGE>   14
           ITEM 3.LEGAL PROCEEDINGS

           The Company is not currently a party to any material legal
proceedings.

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

           No matters were submitted during the fourth quarter of 1997 to a vote
of the Company's securities' holders.


                                       14
<PAGE>   15
                                     PART II

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

           The information required by this item is contained in the section
captioned "Securities Information," on page 33 of the ADFlex Solutions, Inc.
1997 Annual Report to Shareholders, and is incorporated herein by this
reference.

ITEM 6.    SELECTED FINANCIAL DATA.

           The information required by this item is contained in the section
captioned "Selected Financial Data," on page 31 of the ADFlex Solutions, Inc.
1997 Annual Report to Shareholders, and is incorporated herein by this
reference.

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

           The information required by this item is contained in the section
captioned "Management's Discussion and Analysis of Financial Condition and
Results of Operations," on pages 10-15 of the ADFlex Solutions, Inc. 1997 Annual
Report to Shareholders, and is incorporated herein by this reference.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

           Not applicable.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

           The information required by this item is contained on pages 16-30 of
the ADFlex Solutions, Inc. 1997 Annual Report to Shareholders, and is
incorporated herein by this reference.

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

           Not applicable.


                                       15
<PAGE>   16
                                    PART III

           Certain information required by Part III is omitted from this Report
by virtue of the fact that the Company has filed with the Securities and
Exchange Commission (the "SEC"), pursuant to Regulation 14A, within 120 days
after the end of the fiscal year covered by this Report, a definitive proxy
statement (the "Proxy Statement") relating to the Company's Annual Stockholders'
Meeting to be held April 28, 1998 Certain information included in the Proxy
Statement is incorporated herein by reference. The Company will disseminated the
Proxy Statement to stockholders on or about March 26,1998.

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

           The information concerning the Company's directors and executive
officers and compliance with Section 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), required by this item is contained in the
sections captioned "Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance" at pages 2-3 and page 19, respectively, of the
Proxy Statement, and is incorporated herein by reference.

ITEM 11.   EXECUTIVE COMPENSATION.

           The information required by this item is contained in the sections
captioned "Executive Compensation," "Compensation Committee Report on Executive
Compensation" and "Comparison of Stock Performance" at pages 7-16 of the Proxy
Statement and, except as noted below, is incorporated herein by reference.

           Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Exchange Act that might incorporate future filings, including this Report on
Form 10-K, the "Compensation Committee Report on Executive Compensation" and
"Comparison of Stock Performance" graph in the Proxy Statement shall not be
incorporated by reference into any such filings, and such information shall be
entitled to the benefits provided in Item 402(a)(9) of SEC Regulation S-K.

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

           The information required by this item is contained in the section
captioned "Security Ownership of Certain Beneficial Owners and Management," at
pages 4-6 of the Proxy Statement, and is incorporated herein by reference.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

           The information required by this item is contained in the section
captioned "Certain Relationships and Related Transactions," at pages 17-18 of
the Proxy Statement, and is incorporated herein by reference.


                                       16
<PAGE>   17
                                     PART IV

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

(a)        1. FINANCIAL STATEMENTS.

           The following financial statements are incorporated by reference into
this Report:

           (i)        Consolidated Balance Sheets - December 31, 1997 and 1996

           (ii)       Consolidated Statements of Operations - years ended
                      December 31, 1997, 1996 and 1995

           (iii)      Consolidated Statements of Equity - years ended December
                      31, 1997, 1996 and 1995

           (iv)       Consolidated Statements of Cash Flows - years ended
                      December 31, 1997, 1996 and 1995

           (v)        Notes to Consolidated Financial Statements

           (vi)       Report of Independent Auditors

           2.  FINANCIAL STATEMENT SCHEDULE.

           The following financial statement schedule of ADFlex Solutions, Inc.
           for the years ended December 31, 1997, 1996 and 1995 is filed as part
           of this Report and should be read in conjunction with the
           Consolidated Financial Statements.

           Independent Auditor's Report on Schedule

           Schedule  II - Valuation and Qualifying Accounts and Reserves....S-1

           Schedules not listed above have been omitted because they are not
           applicable or are not required or because the information required to
           be set forth therein is included in the Consolidated Financial
           Statements or Notes thereto.

           3. EXHIBITS.
              Number             Description
              ---------          -----------------------------------------------

                  2.1(1)            Asset Purchase Agreement between the
                                    Registrant and Rogers Corporation dated June
                                    28, 1993

                  2.2(1)            Asset Purchase Agreement between ADFlex
                                    Mexico S.A. de C.V. ("ADMex") and Rogers
                                    Mexicana, S.A. de C.V. dated June 28, 1993

                  2.3(2)            Share Sale and Purchase Agreement, dated
                                    January 7, 1996, between the Registrant and
                                    Havant International Holdings Limited

                  2.4(2)            Letter, dated January 7, 1996, constituting
                                    the Disclosure Letter under the Share Sale
                                    and Purchase Agreement included as Exhibit
                                    2.3

                  3.1(1)            Restated Certificate of Incorporation

                  3.2(1)            Bylaws

                  3.3(6)            Amendment to Bylaws Adopted January 31, 1996

                  4.1(1)            Specimen Common Stock Certificate

                  4.2(7)            Rights Agreement, dated as of July 10, 1996,
                                    between the Registrant and First National
                                    Bank of Boston, NA, including the
                                    Certificate of Designation of Rights,
                                    Preferences and Privileges of Series A
                                    Participating Preferred Stock, the form of
                                    Rights Certificate and the Summary of Rights
                                    attached thereto as 


                                       17
<PAGE>   18
                                    Exhibits A, B and C, respectively.

                  *10.1(1)          1993 Equity Incentive Plan

                  *10.2(1)          1994 Stock Incentive Plan

                  *10.3(3)          Amendment No. 1 to 1994 Stock Incentive
                                    Plan, effective as of April 18, 1995

                  *10.4             Amendment No. 2 to 1994 Stock Incentive
                                    Plan, effective August 26, 1996

                  *10.5(1)          401(k) Profit Sharing Plan

                  *10.6(1)          1994 Employee Stock Purchase Plan

                  *10.7(1)          Form of Indemnification Agreement entered
                                    into between the Registrant and its
                                    Directors

                  10.8(1)           Equipment Lease Agreement, dated February
                                    23, 1994, between the Registrant and Ally
                                    Capital Corporation

                  10.9(1)           Registration Rights Agreement, dated March
                                    31, 1994, among the Registrant, AMP
                                    Incorporated, Ampersand and Ampersand II

                  10.10(1)          Letter, dated June 15, 1994, between the
                                    Registrant and Rogers Corporation *10.12(1)
                                    Stock Option Agreement, dated June 2, 1994,
                                    between the Registrant and Steve Sanghi

                  10.12(1)          Stock Option Agreement, dated June 29,
                                    1995, between the Registrant and Steve 
                                    Sanghi 

              / / 10.14(4)          Supply Agreement, dated June 29, 1995, 
                                    between the Registrant and Rogers
                                    Corporation

                  10.15(1)          Lease, dated June 28, 1993, between the
                                    Registrant and TL Properties, Inc.

                  10.16(1)          Noncompetition and Nondisclosure Agreement,
                                    dated June 28, 1993, between the
                                    Registrant and Rogers Corporation

                  10.17(1)          FID Intellectual Property Assignment and
                                    License Agreement, dated June 28, 1993,
                                    between the Registrant and Rogers
                                    Corporation

                  10.18(1)          Joint and Several Guaranty, among the
                                    Registrant, ADFlex Mexico S.A. de C.V.,
                                    Rogers Corporation and TL Properties, Inc.

                  10.19(1)          Agreement, dated April 14, 1993, between
                                    ADMex and Manual Flores 10.20(1) Agreement,
                                    dated January 15, 1993, between ADMex and
                                    Inmobiliaria Pericles, S.A. de C.V.

                  10.21(1)          Agreement, dated January 15, 1993, between
                                    ADMex and Inmobiliaria Pericles, S.A. de
                                    C.V.

                  *10.22(1)         ADFlex Solutions, Inc. Profit Sharing Bonus
                                    Plan

                  *10.23(1)         ADFlex Solutions, Inc. Management Bonus Plan

                  10.25(1)          First Amendment to Lease, dated June 1994,
                                    between the Registrant and TL Properties,
                                    Inc.

                  10.26(2)          Deed of Tax Covenant, dated January 7, 1996,
                                    between the Registrant and Havant 
                                    International Holdings Limited

                  10.28(2)          Registration Rights and Standstill
                                    Agreement, dated January 7, 1996, between
                                    the Registrant and Havant International
                                    Holdings Limited

                  10.29(2)          License Agreement, dated January 8, 1996,
                                    between Havant International Limited and
                                    Polene Limited

                  10.30(2)          Supply Agreement, dated January 7, 1996

                  10.32(2)          Assignment of Intellectual Property, dated
                                    January 8, 1996, between Polene Limited and
                                    Havant International Limited

                  10.33(2)          Agreement for the Sale and Purchase of the
                                    Businesses and Assets of Havant
                                    International Limited, dated January 3,
                                    1996, between Havant International Limited
                                    and Polene Limited


                                       18
<PAGE>   19
                  10.34(2)          Agreement for the Sale of the Debtors and
                                    the Assumption of Certain of the Liabilities
                                    of Havant International Limited, dated
                                    January 4, 1996, between Havant
                                    International Limited and Polene Limited

                  10.37(2)          Corporate Guarantee, dated January 7, 1996,
                                    by the Registrant in favor of IBM United
                                    Kingdom Limited and International Business
                                    Machines Corporation

                  10.38(2)          Operating Confidentiality Agreement, dated
                                    January 3, 1996, between Havant
                                    International Limited and Polene Limited

                  10.39(2)          Deed of Assignment of UK Patent
                                    Applications, dated January 8, 1996, between
                                    Polene Limited and Havant International
                                    Limited

                  10.40(2)          Deed of Assignment of Non-UK Patent
                                    Applications, dated January 8, 198, between
                                    Polene Limited and Havant International
                                    Limited 

                  10.41(5)          Bilateral Purchase and Sale Agreement, dated
                                    August 31, 1995, among Telson, S.A. de C.V.,
                                    Zenith Electronics Corporation, ADFlex
                                    Mexico S.A. de C.V. and the Registrant

                  10.46(8)          Master Agreement, dated April 16, 1996,
                                    between the Registrant and Hana
                                    Microelectronics Public Co., Ltd. ("Hana")

                  10.49(9)          Credit Agreement dated June 5, 1997 among
                                    the Registrant, BankBoston, N.A. and
                                    BankBoston, N.A. as agent for Lenders

                  10.50(10)         Equity Purchase Agreement dated September
                                    26, 1997 between the Registrant and Hana
                                    Microelectronics Public Co., Ltd.

                  10.51(10)         Promissory Note dated September 30, 1997
                                    between the Registrant and Hana
                                    Microelectronics Public Co., Ltd.

                  10.52             First Amendment to Credit Agreement, dated
                                    February 9, 1998, among the Registrant,
                                    BankBoston, N.A. and BankBoston, N.A. as
                                    agent for Lenders

                  10.53             Collective Bargaining Contract dated
                                    December 10, 1997 (Translation)

                  *10.54            Compensatory Control Agreement dated January
                                    22, 1997 between ADFlex Solutions Inc. and 
                                    Rolando C. Esteverena.

                  11.1              Statement Regarding Computation of Earnings
                                    Per Share

                  13.1              Certain provisions of ADFlex Solutions, Inc.
                                    1997 Annual Report to Stockholders

                  16.1(1)           Letter from KPMG Peat Marwick

                  21.1              Subsidiaries of the Registrant

                  23.1              Consent of Ernst & Young LLP

(1)        Incorporated by reference from the Company's Registration Statement
           on Form S-1 (No. 33-80324) or amendments thereto, filed with the
           Securities and Exchange Commission on June 16, 1994.

(2)        Incorporated by reference from the Company's Current Report on Form
           8-K dated January 7, 1996.


                                       19
<PAGE>   20
(3)        Incorporated by reference from the Company's Form 10-Q for the
           quarter ended September 30, 1995.

(4)        Incorporated by reference from the Company's Form 10-Q for the
           quarter ended June 30, 1995.

(5)        Incorporated by reference from the Company's Form 10-Q for the
           quarter ended September 30, 1995.

(6)        Incorporated by reference from the Company's Form 10-K for the fiscal
           year ended December 31, 1995.

(7)        Incorporated by reference from the Company's Form 8-K dated July 10,
           1996.

(8)        Incorporated by reference from the Company's Form 10-K for the fiscal
           year ended December 31, 1996.

(9)        Incorporated by reference from the Company's Form 10-Q for the
           quarter ended June 30, 1997.

(10)       Incorporated by reference from the Company's Form 10-Q for the
           quarter ended September 30, 1997.

/ /        Confidential treatment granted for portions of the exhibit.

*          Constitutes a management contract or compensatory plan or 
           arrangement.

(b) REPORTS ON FORM 8-K.

           None.





                                       20
<PAGE>   21
                                   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.

                                            ADFLEX SOLUTIONS, INC.
                                                 (Registrant)

Date: March 26, 1998                        By  /s/ Rolando C. Esteverena
                                                -------------------------
                                                Rolando C. Esteverena
                                                President, Chief Executive 
                                                Officer and Director

           Pursuant to the requirements of the Securities and 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>
Name                                       Title                                           Date
---------------------------------------    --------------------------------------------    ----------------------
<S>                                        <C>                                             <C>    

 /s/ Rolando C. Esteverena                
---------------------------------------
Rolando C. Esteverena                      President, Chief Executive Officer and          March 26,1998
                                           Director (Principal Executive Officer)

 /s/ Donald E. Frederick                   Vice President, Chief Financial Officer,        March 26, 1998
---------------------------------------    Secretary  (Principal Financial Officer
Donald E. Frederick                        and Principal Accounting Officer)      
                                           

 /s/ Steve Sanghi
---------------------------------------
Steve Sanghi                               Director                                        March 26,1998


 /s/ Richard P. Clark                      Director                                        March 26, 1998
---------------------------------------
Richard P. Clark

/s/ Wade Meyercord                         Director                                        March 26,1998
---------------------------------------
Wade Meyercord
</TABLE>


                                       21
<PAGE>   22
                Report of Ernst & Young LLP, Independent Auditors

We have audited the consolidated financial statements of ADFlex Solutions, Inc.
as of December 31, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997, and have issued our report thereon dated January 19,
1998. Our audits also included the financial statement schedule listed in Item
14(a). This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Phoenix, Arizona
January 19, 1998
<PAGE>   23
                                   SCHEDULE II

                             ADFLEX SOLUTIONS, INC.

                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

                       THREE YEARS ENDED DECEMBER 31, 1997
                                 (in thousands)

<TABLE>
<CAPTION>
                                                   Beginning       Charges to                           Ending
                                                    Balance         Costs and        Deductions         Balance
---------------------------------------------------------------------------------------------------------------
<S>                                                <C>             <C>               <C>               <C>  
 1995
Allowance for Returns and Doubtful Accounts         $ 641            $ 154             $ 153             $ 642

 1996
Allowance for Returns and Doubtful Accounts           642            1,292             1,323               611

 1997
Allowance for Returns and Doubtful Accounts           611            1,817               678             1,750
Allowance for Obsolescence and Excess               1,401            1,956               522             2,835
Inventory (1)
</TABLE>

(1)  1995 and 1996 Allowance for Obsolescence and Excess Inventory balances are 
     not presented due to immateriality.
<PAGE>   24

                                  EXHIBIT INDEX

10.4       Amendment No. 2 to 1994 Stock Incentive Plan, effective 
           August 26, 1996.

10.52      First Amendment to Credit Agreement, dated February 9, 1998, among
           the Registrant, BankBoston, N.A. and BankBoston, N.A. as agent for
           Lenders

10.53      Collective Bargaining Contract dated December 10, 1997 (Translation)
           

10.54      Compensatory Control Agreement dated January 22, 1997 between ADFlex
           Solutions Inc. and Rolando C. Esteverena.

11.1       Statement Regarding Computation of Earnings per Share

13.1       Certain provisions of the ADFlex Solutions, Inc. 1997 Annual
           Report to Stockholders

21.1       Subsidiaries of the Registrant

23.1       Consent of Ernst & Young LLP

27.1       Financial Data Schedule for the years ended December 31, 1997 and
           1996

27.2       Financial Data Schedule for the interim period included in the year
           ended December 31, 1997

27.3       Financial Data Schedule for the interim period included in the year
           ended December 31, 1996