<PAGE>
 
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549




                                   FORM 10-QSB





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




                  For the quarterly period ended March 31, 1999
                  ---------------------------------------------
                         Commission file number 1-12230

      [ ] Transition report under section 13 or 15(d) of the Exchange Act.

                     ADVANCED DEPOSITION TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)



             Delaware                                   04-2865714
--------------------------------------------------------------------------------
 (State or other jurisdiction of                     (I.R.S. Employer
  incorporation or organization)                    Identification No.)



        580 Myles Standish Industrial Park, Taunton, Massachusetts 02780
--------------------------------------------------------------------------------
                    (Address of principal executive offices)



                                 (508) 823-0707
--------------------------------------------------------------------------------
                           (Issuer's telephone number)



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

                             YES [X]     NO [ ]

         As of May 11, 1999, there were 4,278,919 shares of Common Stock, $0.01
par value, of the issuer outstanding.
<PAGE>
 
                     ADVANCED DEPOSITION TECHNOLOGIES, INC.

                                      INDEX


PART I. FINANCIAL INFORMATION                                        PAGE NUMBER

         Item 1. Financial Statements

                 Condensed and Consolidated Balance Sheets (unaudited):   
                 March 31, 1999 and December 31, 1998                      1-2 

                 Condensed and Consolidated Statements of Operations        
                 (unaudited): for the Three Months ended March 31, 1999
                  and March 31, 1998                                         3 

                 Condensed and Consolidated Statements of Cash Flows        
                 (unaudited): for the Three Months ended March 31, 1999
                  and March 31, 1998                                         4

                 Notes to Condensed and Consolidated Financial            
                 Statements                                                5-8

         Item 2. Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                      9-15

PART II. OTHER INFORMATION

         Item 6. Exhibits and Reports filed on Form 8-K                     16
<PAGE>
 
                     ADVANCED DEPOSITION TECHNOLOGIES, INC.

              CONDENSED AND CONSOLIDATED BALANCE SHEETS (UNAUDITED)

                                 (in thousands)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                       March 31,  December 31,
                                                                         1999         1998
                                                                       -------      -------
<S>                                                                    <C>          <C>    
CURRENT ASSETS
     Cash and cash equivalents                                         $   285      $   411
     Investment in marketable securities                                    27           43
     Accounts receivable, net of reserve for doubtful accounts of
         $452,000 and $460,000 at March 31, 1999 and
         December 31, 1998, respectively                                 7,543        5,868
     Inventories                                                         4,155        4,252
     Prepaid expenses and other current assets                             472          274
                                                                       -------      -------

              Total current assets                                      12,482       10,848
                                                                       -------      -------

PROPERTY AND EQUIPMENT, net of accumulated depreciation                  7,582        7,676

OTHER ASSETS, net of accumulated amortization                            4,782        5,426
                                                                       -------      -------

               Total assets                                            $24,846      $23,950
                                                                       =======      =======
</TABLE>


The Condensed and Consolidated Balance Sheet at December 31, 1998, has been
derived from the audited financial statements of the Company at that date.

          See Notes to Condensed and Consolidated Financial Statements




                                       1
<PAGE>
 
                     ADVANCED DEPOSITION TECHNOLOGIES, INC.

              CONDENSED AND CONSOLIDATED BALANCE SHEETS (UNAUDITED)

                      (in thousands, except share amounts)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                      March 31,    December 31,
                                                                        1999           1998
                                                                      --------       --------

<S>                                                                   <C>            <C>     
CURRENT LIABILITIES
     Due to financing institutions                                    $  3,817       $  3,589
     Accounts payable                                                    5,014          4,347
     Accrued expenses                                                      762            643
     Current maturities of long-term obligations                         1,764          1,764
                                                                      --------       --------

               Total current liabilities                                11,357         10,343
                                                                      --------       --------


LONG-TERM OBLIGATIONS
     Revolving line of credit                                            1,336          1,136
     Long-term obligations, net of current maturities                    3,715          4,010
                                                                      --------       --------

               Total liabilities                                        16,408         15,489
                                                                      --------       --------

MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY                             1,047          1,078
                                                                      --------       --------


STOCKHOLDERS' EQUITY;
     Preferred stock, $0.01 par value
          1,000,000 shares authorized, none issued                        --             --
     Common stock, $0.01 par value,
          10,000,000 shares authorized, 4,296,560 shares issued,
          4,254,950 and 4,253,950 shares outstanding at
          March 31, 1999 and December 31, 1998, respectively                43             43
     Additional paid-in capital                                         11,275         11,177
     Accumulated deficit                                                (3,811)        (3,848)
     Accumulated other comprehensive income (loss)                         (17)            95
                                                                      --------       --------

                                                                         7,490          7,467
     Less treasury stock, 41,610 and 32,610 shares at cost at
          March 31, 1999 and December 31, 1998, respectively               (99)           (84)
                                                                      --------       --------

               Total stockholders' equity                                7,391          7,383
                                                                      --------       --------

               Total liabilities and stockholders' equity             $ 24,846       $ 23,950
                                                                      ========       ========
</TABLE>


The Condensed and Consolidated Balance Sheet at December 31, 1998, has been
derived from the audited financial statements of the Company at that date.

          See Notes to Condensed and Consolidated Financial Statements


                                       2
<PAGE>
 
                     ADVANCED DEPOSITION TECHNOLOGIES, INC.

         CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

               (in thousands, except share and per share amounts)



<TABLE>
<CAPTION>
                                                          Three Months ended
                                                                March 31,
                                                         1999              1998
                                                     -----------       -----------

<S>                                                  <C>               <C>        
REVENUES:
     Product sales                                   $     6,138       $     5,954
     Royalties, license fees and other                       106              --
                                                     -----------       -----------
                                                           6,244             5,954

COST OF REVENUES                                           4,781             4,788
                                                     -----------       -----------

     Gross Profit                                          1,463             1,166

SELLING, GENERAL AND
     ADMINISTRATIVE EXPENSES                                 917               974

RESEARCH AND DEVELOPMENT EXPENSES                             75                79

AMORTIZATION EXPENSE                                          54                72
                                                     -----------       -----------

          Operating income (loss)                            417                41

INTEREST EXPENSE, NET OF
      INTEREST INCOME                                       (222)             (179)

OTHER INCOME (EXPENSE)                                      (146)              (54)
                                                     -----------       -----------

          Income (loss) before income taxes and        
               minority Interest                              49              (192)

INCOME TAXES                                                  13              --

MINORITY INTEREST IN NET INCOME OF
     CONSOLIDATED SUBSIDIARY                                  (1)             --
                                                     -----------       -----------

          Net income (loss)                          $        37       $      (192)
                                                     ===========       ===========


BASIC AND FULLY DILUTED NET INCOME (LOSS) PER
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING           $      0.01       $     (0.04)
                                                     ===========       ===========


WEIGHTED AVERAGE COMMON SHARES OUTSTANDING             4,249,483         4,268,852
                                                     ===========       ===========
</TABLE>



          See Notes to Condensed and Consolidated Financial Statements



                                       3
<PAGE>
 
                     ADVANCED DEPOSITION TECHNOLOGIES, INC.

         CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

                                 (in thousands)

<TABLE>
<CAPTION>
                                                              Three months ended March  31,
                                                                     1999        1998
                                                                     -----       -----


<S>                                                                  <C>         <C>   
CASH FLOWS FROM OPERATING ACTIVITIES:

          Net gain (loss)                                            $  37       $(192)


          Other cash provided by (used in) operating activities       (882)       (300)
                                                                     -----       -----
          Net cash provided by (used in) operating activities        $(845)      $(492)
                                                                     -----       -----


CASH FLOWS FROM INVESTING ACTIVITIES

     Purchases of property and equipment                              (234)       (474)
     Decrease (increase) in investment in marketable securities         16          (2)
     (Increase) decrease in other assets                               627         334
                                                                     -----       -----

          Net cash used in investing activities                        409        (142)
                                                                     -----       -----


CASH FLOWS FROM FINANCING ACTIVITIES

     Net (repayment) borrowings under revolving line of credit         402         694
     Net repayments to financial institutions                          195        (305)
     Repayment of long term obligations                               (273)       (139)
     Purchase of treasury stock                                        (16)       --
     Exercise of stock options                                          20          11
                                                                     -----       -----

          Net cash provided by financing activities                    328         261
                                                                     -----       -----

          Net effect of exchange rates on cash and
              cash equivalents                                         (18)        (12)
                                                                     -----       -----


NET DECREASE IN CASH                                                  (126)       (385)

CASH AND CASH EQUIVALENTS, beginning of period                         411         919
                                                                     -----       -----

CASH AND CASH EQUIVALENTS, end of period                             $ 285       $ 534
                                                                     =====       =====
</TABLE>


          See Notes to Condensed and Consolidated Financial Statements


                                       4
<PAGE>
 
                     ADVANCED DEPOSITION TECHNOLOGIES, INC.

      NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

                                 March 31, 1999

1.)      General

         The accompanying unaudited condensed and consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial reporting and with the instructions to Form
10-QSB and Item 310 (b) of Regulation S-B. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. Reference should be made to the
financial statements and related notes included in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1998, which was filed with the
Securities and Exchange Commission on April 15, 1999.

         In the opinion of the management of the Company, the accompanying
financial statements reflect all adjustments that were of a normal recurring
nature necessary for a fair presentation of the Company's results of operations
and changes in financial position for the three months ended March 31, 1999 and
March 31, 1998. Operating results for the three month period ended March 31,
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999.

2.)      Significant Accounting Policies

         The accompanying condensed and consolidated financial statements
reflect the application of certain significant accounting policies, including
those described below.

         a.       Principals of consolidation

         The accompanying condensed and consolidated financial statements
include the Company and its majority owned and wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.

         b.       Revenue recognition

         The Company recognizes revenues on its product sales upon shipment and
royalties and license fees as earned.

         c.       Inventories

         Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following (in thousands):
<TABLE> 
<CAPTION> 
                                          March 31,        December 31,
                                            1999              1998
                                           ------            ------
<S>                                       <C>              <C>  
Raw materials                              $2,437            $2,760
Work in process                               558               303
Finished goods                              1,876             1,905
                                           ------            ------
                                            4,871             4,968
Less: Reserves for obsolescence               716               716
                                           ------            ------
          Total                            $4,155            $4,252
                                           ======            ======
</TABLE> 

                                       5
<PAGE>
 
         d.       Net Income (Loss) Per Common Share

         Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). The new
accounting standard established standards for computing and presenting earnings
per share.

         e.       Reclassifications

         Certain balances in the 1998 financial statements have been
reclassified to conform to the 1999 presentation.

         f.       Comprehensive income

         Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"),
which requires that all components of comprehensive and total comprehensive
income be reported on one of the following: a statement of income and
comprehensive income, a statement of comprehensive income or a statement of
stockholders equity. Comprehensive income is comprised of net income and all
changes to stockholders' equity except those due to investment by owners
(changes in paid in capital) and distributions to owners (dividends). For
interim reporting purposes, SFAS 130 requires disclosure of total comprehensive
income.

         Total accumulated comprehensive income (unaudited) is as follows (in
thousands):

<TABLE> 
<CAPTION> 
                                                 Three Months ended
                                                      March 31,
                                                 1999          1998
                                                 ----          ----
<S>                                             <C>           <C>  
Foreign currency translation adjustments         $ (1)         $(12)
Unrealized losses on investments in
  marketable securities                           (16)          --
                                                 ----          ----
Accumulated Comprehensive Income                 $(17)         $(12)
                                                 ====          ====
</TABLE> 


         g.       Industry and geographic segments

         The Company's operations are classified into two business segments:
food packaging applications and electronic capacitor operations.

         The following table shows sales, operating income (loss) and other
unaudited financial information by industry segment as of and for the three
months ended March 31, 1999 (in thousands):


                                       6
<PAGE>
 
<TABLE>
<CAPTION>
INDUSTRY SEGMENTS                                      Food         Capacitor
-----------------                                 Packaging      Applications                           Consolidated
                                           --------------------------------------------------------------------------
<S>                                        <C>               <C>                                    <C>     
March 31, 1999

Sales                                               $ 1,433           $ 4,811                               $  6,244
                                           --------------------------------------------------------------------------

Operating income (loss) before corporate
expenses, interest and taxes                         $  229            $  188                                    417
                                           -------------------------------------------------        -----------------

Corporate expenses                                                                                              (146)
Interest                                                                                                        (222)
                                                                                                    -----------------

                                                                                                            $     49
Income before taxes
                                           ==================================================       =================

Identifiable assets at March 31, 1999              $  3,468          $ 20,208                               $ 23,676
Corporate assets                                                                                               1,170
                                                                                                    -----------------

                                                                                                   
Total assets at March 31, 1999                                                                              $ 24,846
                                           ==================================================       =================
</TABLE>




         Geographic information for the following table shows sales, operating
income (loss) and other financial information by industry segment as of and for
the three months ended March 31, 1999 (in thousands):

<TABLE>
<CAPTION>
GEOGRAPHIC SEGMENTS
-------------------                           United States             Spain           Malaysia         Consolidated
                                           --------------------------------------------------------------------------
<S>                                        <C>                 <C>                <C>               <C>     
March 31, 1999

Sales                                             $   2,331          $  3,706        $ 207                  $   6,244
                                           --------------------------------------------------------------------------

Operating income (loss) before corporate
expenses, interest and taxes                      $     (26)         $    466        $ (23)                       417
                                           --------------------------------------------------------------------------

Corporate expenses                                                                                               (146)
Interest                                                                                                         (222)
                                                                                                     -----------------

                                                                                                            $      49
Income before taxes
                                           -------------------------------------------------        -----------------

Identifiable assets at March 31, 1999             $  12,666          $ 11,534        $ 646                  $  24,846
                                           =================================================        =================
</TABLE>


3.)      Cash and Cash Equivalents

         The Company considers all investments purchased with original
maturities of less than three months to be cash equivalents. Cash and cash
equivalents consist of the following (in thousands):


                                       7
<PAGE>
<TABLE> 
<CAPTION> 
 
                          March 31,     December 31,
                            1999            1998
                       -------------    ------------
<S>                    <C>              <C> 
Cash                     $    285        $    411
</TABLE> 

4.)      Investment in Marketable Securities

         The Company adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Investments" ("SFAS
115"), effective January 1, 1994. As of March 31, 1999 and December 31, 1998,
investments in marketable securities that are classified as available-for-sale
and are recorded at fair value, consisted of the following (in thousands):

<TABLE> 
<CAPTION> 


                                March 31,     December 31,
                                  1999            1998
                             -------------    ------------
<S>                          <C>              <C> 

Marketable Securities          $    27          $    43
</TABLE> 

5.)      Common Stock Purchase Warrants

         The Company's Class B Redeemable Common Stock Purchase Warrants (the
"IPO Warrants") expired on July 31, 1998.


6.)      Acquisitions

         In December 1997, the Company purchased 65% of the capital stock of
DNA-ADTECH S.A. (formerly Alexander Boxall, S.A.) ("DNA"). The Company purchased
50% of the capital stock of DNA from Pedro Nunez-Barranco Guembe and the
remaining 15% from Alexander Peter Boxall. The remaining 35% of DNA stock is
owned by Mr. Boxall. As part of the purchase price for his shares, Mr.
Nunez-Barrance Guembe received a $990,000 note from the Company that is payable
in December 1999. If the Company fails to pay Mr. Nunez-Barranco Guembe in 1999,
Mr. Nunez-Barranco Guembe has the option to receive (i) the return of his 50%
interest in DNA, provided he returns $2,800,000 in cash to the Company, less
(ii) liquidated damages of $340,000. Upon the closing of the DNA Acquisition,
Mr. Boxall became a director of the Company and Managing Director of DNA. For
further pertinent information see section "Recent Developments".

         Effective October 1, 1998, the Company, through DNA, acquired 80% of
the outstanding common stock of Kidamai SDN, a capacitor assembler and
distributor located in Kuala Lumpur, Malaysia, for approximately $370,000 in the
form of the cancellation of amounts due DNA for product sales. During 1998 the
name of Kidamai SDN was changed to DNA-AD TECH (Asia) Sdn Bhd ("DNA (Asia)").

         During the first quarter, the Company established a joint venture with
Trykko Pack of Denmark and currently owns 82% equity position in a newly formed
company called MICROTECH A/S of Denmark. MICROTECH A/S will be managed by Steen
Pedersen, managing director of Trykko Pack. MICROTECH A/S has one employee and a
salesman located in England. The purpose of the company will be to: (1) manage a
technology licensing program for Europe of the Company's patented Safety
Susceptor product, (2) educate the European market on the Company's microwave
film products, (3) work with our licensees in Europe and (4) establish Safety
Susceptor as a European standard.



                                       8


<PAGE>
 
ITEM 2:  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations
         ---------------------
 
General

         Advanced Deposition Technologies, Inc. (the "Company" or "A. D. TECH"),
is a technology leader in developing and manufacturing high-resolution,
patterned, vacuum-metalized coatings for a variety of energy management
applications for use in industrial, commercial and consumer products. Included
among these are product offerings for electronic capacitors, microwave and
standard food packaging, security holograms, retroreflective films, barrier
packaging, electronic article surveillance (EAS) and electric static discharge
(ESD). In December, 1997, the Company acquired 65% of the common stock of
Alexander Boxall, S.A. of Madrid, Spain ("ABSA"), a manufacturer of electronic
capacitors used for lighting and motor run applications. ABSA was renamed DNA-AD
TECH S.A. ("DNA"). On October 1, 1998, the Company, through DNA, acquired 80% of
the outstanding common stock of Kidamai, SDN of Kuala Lumpur, Malaysia ("DNA
(Asia)"). DNA (Asia) is a capacitor assembler and distributor. During first
quarter, the Company established a joint venture with Trykko Pack of Denmark and
currently owns 82% equity position in newly formed company called MICROTECH A/S
of Denmark.

         The Company's revenue to date has been primarily from sales to the
capacitor and microwave packaging markets.

Recent Developments

     On March 23, 1999, the Company entered into an agreement to purchase an
additional 16% of the equity of DNA of Madrid, Spain (the "Purchase Agreement"),
bringing the Company's total equity ownership to 81%. The purchase price was
based upon a similar valuation used in December 1997 when the Company purchased
65% of ABSA. The Company will pay for this additional 16% equity position by
issuing 598,198 shares of Common Stock. This transaction is subject to the
approval of the Company's stockholders and will be submitted for approval at the
Company's annual meeting.

     On March 23, 1999, the Company entered into an agreement with Mr. Boxall to
guarantee the debt of the Company to Mr. Guembe, in exchange for the right to
convert whatever amount Mr. Boxall pays to Mr. Guembe, into shares of the Common
Stock. If the Company determines that it will be unable to repay the $990,000
due on or before December 19, 1999, the Company shall give written notice of
such determination to Mr. Boxall and Mr. Boxall agreed to pay to Mr. Guembe any
remaining amount outstanding with any accumulated outstanding interest. If Mr.
Boxall is required to make any payment to Mr. Guembe, the debt shall bear
interest at the thirty day London Interbank Offered Rate, plus 2%, compounded
monthly, based on such rate as of the last day of such month and shall be due
and payable on March 1, 2001. If on January 1, 2001, there exists any
outstanding balance of the debt due Mr. Boxall, Mr. Boxall shall have the right
at any time after January 1, 2001 through March 1, 2001, to convert all or part
of the outstanding balance of such debt into shares of common stock at a
purchase price per share equal to the fair market value of the Common Stock on
the conversion date, but in no event less than $3.50 per share. The guarantee
agreement with Mr. Boxall is subject to the closing of the Purchase Agreement.

         The Company has received a notice of patent allowance from the United
States Patent office for its "High Energy Density Films and Capacitors Thereof"
and has received a favorable response to its European patent application for the
same. We continue to anticipate UL approvals for these new films and capacitor
before the end of 1999. We expect installation of new production capacity in the
third quarter. This will support demand for the Company's standard capacitor
films, microwave films and new HED films. The Company has also established a
filter division in Madrid, Spain. A new patent application for a microwave
vented package was applied for and these products are now being sold in Europe.


                                       9
<PAGE>
 
Results of Operations
---------------------

Three months ended March 31, 1999 compared to Three months ended March 31, 1998

         Revenues. Revenues increased to $6,244,000 for the three months ended
March 31, 1999, as compared to $5,954,000 for the three months ended March 31,
1998, an increase of 4.87%. The increase was primarily due to stronger film
sales in the United States, consolidation of revenues from the Malaysia
subsidiary that took place in the fourth quarter of 1998 and initial sales from
MICROTECH A/S in Denmark. Sales of microwave browning and crisping bags were
$11,000 in the first quarter of 1998 and were not major in this comparison.

         Cost of Revenues. Cost of revenues decreased slightly to $4,781,000
(77.9% of product sales) for the three months ended March 31, 1999, compared to
$4,788,000 (80.4% of product sales) for the three months ended March 31, 1998.
Higher costs associated with the increase in revenue were more than offset by
reduced manufacturing expenses and reductions in raw material costs.

         Gross Profit. Gross profit increased to $1,463,000 (23.8% of product
sales) for the three months ended March 31, 1999, compared to $1,166,000 (19.6%
of product sales) for the three months ended March 31, 1998. The increase in
gross profit was due to reduced production costs, initial technology licensing
fees from our MICROTECH A/S acquisition, and contribution from our Malaysia
operation.

         Selling, General and Administrative. Selling, general and
administrative expenses decreased to $917,000 (14.9% of product sales) for the
three months ended March 31, 1999, compared to $974,000 (16.4% of product sales)
for the three months ended March 31, 1998. Staffing and related expense
reductions made in the last half of 1998 in U.S. operations were factors to the
lower expenses noted.

         Research and Development. Research and development expenses decreased
modestly to $75,000 for the three months ended March 31, 1999, compared to
$79,000 for the three months ended March 31, 1998.

         Amortization. Amortization expenses decreased to $54,000 during the
three months ended March 31, 1999, compared to $72,000 for the three months
ended March 31, 1998. The change was primarily due to the impairment of the
license with Fort James in the fourth quarter of 1998; this resulted in the
elimination of amortization in the first quarter of 1999 for that long-lived
asset.

         Operating Income (Loss). The Company generated operating income of
$49,000 for the three months ended March 31, 1999, compared to operating loss of
$192,000 for the three months ended March 31, 1998. The increase in operating
income was the result of stronger sales, elimination of amortization expense
associated with the Fort James license and general reductions in spending.

         Net Interest Expense. Net interest expense increased to $222,000 for
the three months ended March 31, 1999, compared to $179,000 for the three months
ended March 31, 1998. The increase was due to increases in debt balances due to
financial institutions.

         Other Income (Expense). Other expense totaled $146,000 during the three
months ended March 31, 1999, compared to other expense of $54,000 for the three
months ended March 31, 1998.


                                       10
<PAGE>
 
         Income Taxes. Income taxes increased to $13,000 for the three months
ended March 31, 1999, compared to an insignificant amount for the three months
ended March 31, 1998. Income tax expense was attributable to the profits
generated by DNA.

         Minority Interest. Minority interest was $1,000 unfavorable for the
quarter ending March 31, 1999. There was no reported minority interest for the
first quarter of 1998.

         Net Income (Loss). The Company generated net income of $37,000 during
the three months ended March 31, 1999, as compared to net loss of $192,000 for
the three months ended March 31, 1998 as a result of the factors discussed
above.


Liquidity and Capital Resources
-------------------------------

         The Company had working capital of approximately $1,125,000 at March
31, 1999, compared to working capital of $505,000 at December 31, 1998. The
increase in working capital primarily reflects stronger sales.

         Cash used in operating activities of $845,000 for the three months
ended March 31, 1999, compared to cash used of $492,000 during the three months
ended March 31, 1998. Cash used in operations activities for the three months
ended March 31, 1999 resulted primarily from increases in accounts receivable,
partially offset by non-cash charges to income and increases in accounts
payable.

         The Company used $234,000 in cash for investing activities during the
three month period ended March 31, 1999, primarily to purchase property and
equipment to add manufacturing capacity and to increase the efficiency of
existing equipment at DNA. At present, the Company has purchase commitments
approximating $975,000 for a new metallizer scheduled to be delivered in the
second quarter of 1999 for the United States operation. The Company expects to
finance this equipment purchase primarily through the M&E Loan described below.

         On July 24, 1998, the Company and its principal lender entered into an
amended Credit Agreement (the "Amended Credit Agreement") that restructured the
terms of the Company's existing line-of-credit facility and two term loan
facilities and waived certain defaults thereunder. The Amended Credit Agreement
provides for a line-of-credit facility of up to $2,000,000, based on percentages
of its eligible accounts receivable, raw materials and finished goods
inventories (the "Line of Credit"), as well as term loans in the aggregate
principal amount of $3,750,000 (the "Term Loans"). Each of these facilities
matures on July 24, 2001.

         The Company uses the Line of Credit for working capital. Borrowings
under the Line of Credit bear interest at a rate per annum equal to the bank's
prime lending rate plus 1%. The Line of Credit was unchanged from the period
ending December 31, 1998 at $1,335,704. The Term Loans are being repaid in
monthly payments of $62,500, commencing January 1999 with a balloon payment of
$1,875,000 in July 2001. Through March 31, 1999, the Company has paid down
$187,500 of the Term Loans. Interest is payable monthly at the bank's prime rate
plus 1.25%.

         On September 24, 1998, the Company closed on a line of credit with its
principal lender for the purchase of machinery and equipment (the "M&E Loan").
The M&E Loan allows the Company to borrow up to $2,000,000 for the purchase of
machinery and equipment. Interest is payable monthly at the bank's prime rate
plus 1.25%. The M&E Loan is to be repaid over 60 equal monthly installments
commencing on October 1999. The Company had drawn down $480,000 of the M&E Loan
as of March 31, 1999. This 

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<PAGE>
 
equipment has met initial testing requirements and is anticipated to ship
at the end of June, 1999 to begin production in August, 1999.

         Following the reporting of the first quarter, the Company will be
meeting with the primary lending institution to redefine the financial covenants
pertaining to fixed loan agreements and the revolving line of credit agreement.
At year-end 1998, the primary lending institution agreed to waive the events of
default relating to financial covenants until January 1, 2000.

         Management believes that the Company's cash, cash equivalents together
with its credit facilities and expected cash flows from operations, will provide
sufficient funds to meet the Company's current and future cash requirements and
allow the Company to continue its marketing and development efforts. There can
be no assurance that cash flows will improve in an amount sufficient to allow
the Company to fund its current obligations and operating expense.

Seasonal Revenues

         Historically, the Company has experienced lower sales to the electronic
capacitor market during the third quarter, particularly in July. Based on market
research conducted by the Company, it believes that demand for the Company's
other products, including microwave food packaging, does not experience
similarly timed seasonal variations and could, in the future, offset lower third
quarter sales in the electronic capacitor market.

Inflation

         During 1998 and the first quarter of 1999, the Company did not
experience any inflation for raw materials and unit selling prices.

Impact of the Year 2000 Issue
-----------------------------

         The Year 2000 Issue refers to potential problems with computer systems
or any equipment with computer chips or software that use dates where the date
has been stored as just two digits (e.g. 98 for 1998). On January 1, 2000, any
clock or date recording mechanism incorporating date sensitive software that
uses only two digits to represent the year may recognize a date using 00 as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar business activities.

         The Company has addressed the Year 2000 Issue by conducting a review of
its information technology and non-information technology systems to determine
the extent of any Year 2000 problems. As a result of that review, the Company
has determined that its information technology systems as installed, including
its primary operating, manufacturing, procurement and accounting systems,
correctly define the Year 2000. The Company has also determined that several
non-information technology systems do not correctly define the Year 2000. Both
determinations have been independently verified by outside consultants who have
employed standard testing devices.

         The Company is currently investigating insurance coverage in connection
with potential problems as a result of the Year 2000 Issue.

         The Company has projected the cost to rectify the existing
non-compliant systems to be approximately $25,000, representing approximately
10% of the Company's Information Technology budget for 1999. The Company
anticipates that these systems will be Year 2000 compliant by July 1999. 



                                       12
<PAGE>
 
No other Information Technology projects have been deferred as a result of the
Year 2000 project. At this time, the Company cannot accurately assess the risks
associated with the non-compliance of its non-information technology systems.
While it is understood by the Company that such non- compliance could have a
material effect on the Company's business, results of operations or financial
condition, at this time management has not determined the entire potential level
of risk.

         In addition, the Company has developed a strategic plan to estimate the
potential risks related to third parties with whom it has relationships. The
third parties include suppliers and customers. The Company has distributed
inquiry letters to its major suppliers and customers, which will be followed by
subsequent internal evaluations of the responses received. Upon learning that
certain third parties are not Year 2000 compliant, the Company may be required
to replace any suppliers who are not able to correct their systems before the
Year 2000. Management does not currently have a plan for dealing with its
customers whose systems are not Year 2000 compliant.

         While the Company cannot predict what impact the Year 2000 problem may
have on third parties, it does not currently believe that it will incur material
costs in resolving potential Year 2000 problems with its customers and
suppliers.

         Until the Company's plan has been completed, the Company cannot
accurately assess the potential risks associated with non-compliance of its
external third parties. While it is understood by the Company that the potential
effect could have a material adverse effect on the Company's business, results
of operations or financial condition, at this time management has not determined
the entire potential level of risk.

         At the present time, the Company has not developed a contingency plan.
The Company will continue to monitor the need for a contingency plan based on
the results of its Year 2000 compliance strategic plan.


Business Factors
----------------

         This report may contain certain forward-looking statements that are
subject to certain risks and uncertainties. These statements include statements
regarding (i) the Company's liquidity; (ii) the Company's Year 2000 readiness;
(iii) the supply and prices of raw materials; (iv) the Company's future cash
requirements; (v) the ability of the Company to redefine its financial covenants
with its existing lender (vi) financing future purchases of equipment. Such
statements are based on management's current expectations and are subject to a
number of factors and uncertainties that could cause actual results to differ
materially from those described in the forward-looking statements. The Company
cautions investors that there can be no assurance that actual results or
business conditions will not differ materially from those projected or suggested
in such forward-looking statements as a result of various factors, including,
but not limited to, the following: uncertainties regarding the performance
advantages of the Company's PMP products and products in development, market
responses to pricing actions, continued competitive factors and pricing
pressures, the timely acceptance of new products, inventory risk due to shifts
in market demand, the development of competing or superior technologies or
products from other manufacturers, many of which have substantially greater
financial, technical and other resources than the Company, dependence on key
personnel, the variation in the Company's operating results, technological
change, the Company's ability to develop and protect proprietary products and
technologies, the availability of additional capital on acceptable terms, if at
all, to fund expansion, and general economic conditions. For further
information, refer to the more specific risks and uncertainties discussed
throughout this report.



                                       13
<PAGE>
 
                           PART II - OTHER INFORMATION

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

         (a)      See Exhibit Index

         (b)      On March 23, 1999 the registrant filed a Form 8-K with the
                  Securities and Exchange Commission in connection with its
                  announcement that it had entered into an agreement to purchase
                  an additional 16% of the equity in DNA-AD TECH S.A. of Madrid,
                  Spain, a majority owned subsidiary of the registrant.



                                       14
<PAGE>
 
                                   Signatures
                                   ----------

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

                                  Advanced Deposition Technologies, Inc.
                                  --------------------------------------
                                  Registrant


May 15, 1999                                       /s/ Glenn J. Walters   
------------------                         -------------------------------------
                                           Glenn J. Walters
                                           Chief Executive Officer
                                           And Treasurer

May 15, 1999                                         /s/ Joseph P. Keller    
------------------                         -------------------------------------
                                           Joseph P. Keller
                                           Controller (principal financial and 
                                           accounting officer)




                                       15
<PAGE>
 
                                  Exhibit Index



        Exhibit                   Description
        -------                   -----------

         10.1     Exchange Agreement, dated March 23, 1999 among the registrant,
                  DNA Export S.A. and Alexander Boxall.

         10.2     Repayment Agreement, dated March 23, 1999 by and between the
                  registrant and Alexander Boxall.

         27.1     Financial Data Schedule



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