<PAGE>   1
                                                       Exhibit 13.1




Financial Highlights

<TABLE>

For Years Ended July 31,           1997      1996      1995      1994      1993
________________________________________________________________________________
(In thousands, except per share data)
<S>                           <C>      <C>       <C>       <C>       <C>    

Statement of Income Data      
Net sales                     $120,752 $108,362   $95,372   $80,218   $77,177
Income from operations          13,567   10,869    11,817     6,320     6,809
Net income                       8,022    6,283     6,654     3,059     2,322
Net income per share              1.08     0.85      0.99      0.48      0.37

Balance Sheet Data
Working capital               $ 14,016  $14,729    $ 8,695  $ 9,464   $ 2,982
Total assets                    82,859   59,586     54,482   47,648    44,226
Long-term debt, 
  less current portion          10,312    3,333      1,357   12,500    10,511
Shareholder's equity            52,244   44,032     37,736   21,635    18,373
</TABLE>     


                                                                         
                                                                               3

                                                                             
<PAGE>   2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS


     Continental Circuits Corp. is a leading manufacturer of complex multilayer,
surface mount circuit boards used in sophisticated electronic equipment in the
computer, communications, instrumentation and industrial controls industries.
The Company's circuit boards are used principally in workstations, desktop and
notebook computers, computer networking products, storage devices, medical
equipment, cellular telephones and pagers. The Company utilizes its advanced
manufacturing and engineering capability to assist OEMs in the early phases of
new product development, which allows Continental to maintain technological
leadership and provide prototype and volume manufacturing opportunities. Most of
the segments of the electronics industry served by the Company are characterized
by high growth rates, rapid technological advances and short product development
and market introduction times. The Company is committed to assisting its
customers in achieving the shortest possible time-to-market and time-to-volume
for new products.

     The electronics industry, including the segments served by the Company, is
subject to economic cycles and from time to time experiences recessionary
periods. During past recessionary periods, the competitive pressures on merchant
manufacturers were intensified by OEMs with captive operations which could
substantially reduce outsourcing in favor of maintaining adequate volume at
their captive manufacturers. This effect has been diminished significantly by a
continuing decrease in the overall captive manufacturing capacity and the fact
that there are fewer manufacturers capable of producing complex multilayer,
surface mount circuit boards. The Company believes that these factors contribute
to firmer price levels over time, although there is no assurance that price
levels will not fluctuate materially in the future.

     The Company is focusing on increasing manufacturing efficiency to achieve
continued improvement in profitability. This focus includes making capital
improvements, optimizing workflow and managing product mix in order to maximize
process yield and throughput.

     Set forth below is a table showing the portions of the Company's total net
sales attributable to the indicated markets for fiscal years 1995 through 1997.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,                 1997     1996     1995
-----------------------------------------------------------------
<S>                                        <C>      <C>      <C>
MARKETS
Computers                                    48%      49%      37%
Memory and storage devices                    8       14       29
Communications                               24       21       14
Instrumentation and industrial controls      12       13       11
Peripherals                                   8        3        9
-----------------------------------------------------------------
Totals                                      100%     100%     100%
</TABLE>



RESULTS OF OPERATIONS

   The following table sets forth operating results expressed as a percentage of
net sales for the periods indicated and the percentage change in such operating
results between periods. Results for any one or more periods are not necessarily
indicative of continuing trends.

                                                                               9
<PAGE>   3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS


<TABLE>
<CAPTION>
                                                        PERIOD TO PERIOD
                                                       INCREASE   (DECREASE)
                                                       ---------------------
                                                         1997       1996
PERCENTAGE OF NET SALES                                COMPARED   COMPARED
FISCAL YEAR ENDED JULY 31,     1997    1996    1995    TO 1996    TO 1995
------------------------------------------------------------------------
<S>                           <C>      <C>     <C>     <C>        <C>
Net Sales                     100.0%   100.0%  100.0%   11.4%      13.6%
Cost of products sold          81.8     82.6    79.9    10.3       17.5
                              ----------------------
Gross profit                   18.2     17.4    20.1    16.9       (1.8)
Selling, general and
   administrative expenses      7.0      7.4     7.7     6.2        8.3
                              ----------------------
Income from operations         11.2     10.0    12.4    24.8       (8.0)
Interest expense                0.3      0.4     0.9   (24.7)     (46.5)
Other expense                   0.3      0.1     0.0     NM          NM
                              ----------------------
Income before income taxes     10.6      9.5    11.5    25.0       (5.8)
Income taxes                    4.0      3.7     4.5    20.9       (6.3)
-----------------------------------------------------------------------
Net income                      6.6%     5.8%    7.0%   27.7%      (5.6%)
</TABLE>



COMPARISON OF FISCAL YEARS ENDED JULY 31, 1997 AND 1996

   Net sales increased 11.4% to $120.8 million in fiscal 1997 from $108.4
million in fiscal 1996. This increase was the result of a 19% increase in
volume, primarily for products supporting the peripherals and communications
markets and $0.9 million in net sales from the purchase of a division of Radian
International, LLC. in Austin, Texas. Average prices declined from 1996 to 1997
due to competitive pressures. However, the market continued to shift to more
complex, higher technology products.

   Gross profit as a percent of net sales increased to 18.2% in fiscal 1997 from
17.4% in fiscal 1996. This increase was driven primarily by volume growth
throughout 1997 and the favorable impact of lower fixed costs per unit of
production and productivity gains realized through equipment additions and
training efforts with the larger production workforce.

   Selling, general and administrative expenses increased 6.2% to $8.5 million
in fiscal 1997 from $8.0 million in fiscal 1996. This growth was driven
primarily by training for an expanded workforce, freight costs for increased
shipment volumes and technical costs to strengthen the Company's information
services.

   Income from operations of $13.6 million for fiscal 1997 increased to 11.2% of
net sales from $10.9 million, or 10.0% of net sales in fiscal 1996 as a result
of the above factors.

   Interest expense decreased 24.7% to $0.4 million in fiscal 1997 from $0.5
million in fiscal 1996 due to lower average indebtedness and favorable interest
rates.

   During 1997, income before income taxes was unfavorably impacted by an other
expense increase of $300,000 as a result of a one-time charge of legal and other
professional costs associated with the abandoned acquisition of Sigma Circuits,
Inc.

   Income taxes of $4.8 million in fiscal 1997 increased from $4.0 million in
fiscal 1996, consistent with the increase in pretax earnings. The 1997 effective
tax rate was reduced by 1.3 percentage points from 1996 to approximately 38% as
benefits associated with the Company's foreign sales corporation were realized.

COMPARISON OF FISCAL YEARS ENDED JULY 31, 1996 AND 1995

   Net sales increased 13.6% to $108.4 million in fiscal 1996 from $95.4 million
in fiscal 1995. This increase was the result of a 13% increase in volume,
primarily for products supporting the computer and communications markets, two
of the areas of focus of the marketing effort. Also, average prices increased
from 1995 to 1996. Product mix continued to shift toward more complex, higher
technology products.

10
<PAGE>   4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

   Gross profit as a percent of net sales decreased to 17.4% in fiscal 1996 from
20.1% in fiscal 1995. The decrease was driven primarily by a slowdown in the
second half of 1996 throughout the industry and the impact of fixed costs in
place to support higher sales being spread over a lower manufacturing volume.

   Selling, general and administrative expenses increased 8.3% to $8.0 million
in fiscal 1996 from $7.4 million in fiscal 1995. The growth was driven primarily
by increased marketing expenses and a provision for doubtful accounts for a
single customer that represented less than 1% of sales.

   Income from operations of $10.9 million for fiscal 1996 declined to 10.0% of
sales from $11.8 million, or 12.4% of sales in fiscal 1995 because of the above
factors.

   Interest expense decreased 46.5% to $0.5 million in fiscal 1996 from $0.9
million in fiscal 1995 as all of fiscal 1996 benefited from the prepayment of
approximately $9 million of long-term debt from the proceeds of the Company's
March 1995 initial public offering of Common Stock.

   Income taxes of $4.0 million in fiscal 1996 decreased from $4.3 million in
fiscal 1995, consistent with the reduced pretax earnings. The effective tax rate
was essentially unchanged at 39% for both periods.

LIQUIDITY AND CAPITAL RESOURCES

   The Company has historically financed its operations primarily through cash
generated from operations, although such funds have been supplemented by
borrowings under a line of credit and term notes as needed. The Company's
principal uses of cash historically have been to pay operating expenses, make
capital expenditures and service debt.

   Cash generated from operations totaled $13.2 million and $9.5 million in
fiscal years 1997 and 1996 respectively. Major cash uses in fiscal 1997 include
growth in accounts receivable and inventory of $6.3 million and $4.0 million
respectively. Cash was provided by increases in accounts payable of $7.5 million
and $1.1 million in accrued expenses. Both cash used and cash provided were
primarily a result of increasing sales levels. Additionally, $1.1 million was
provided by an increase in deferred taxes.

   Capital expenditures totaled $23.2 million and $8.7 million in fiscal years
1997 and 1996 respectively. The capital expenditures during fiscal 1997 include
the purchase of a division of Radian International, LLC. in Austin, Texas for
$2.6 million, expansion of manufacturing capacity in Phoenix and routine
replacements. Capital expenditures during 1996 completed the Company's $12
million 1995 manufacturing expansion program and routine replacements. These
capital expenditures were financed through cash generated from operations and
the Company's borrowing facility.

   On July 25, 1997, the Company completed the renegotiation of both the
outstanding $5 million long-term note payable and the $10 million long-term line
of credit agreement. The new long-term line of credit agreement expires October
31, 2000 and provides for maximum borrowings of $45 million. The line of credit
bears interest at LIBOR (London Interbank Offered Rate) plus a fixed rate
factor, as defined, and/or prime. Up to $25 million can be converted to a term
note at the Company's request. As of July 31, 1997, there was $9.3 million
outstanding under the line. The long-term debt agreement is collateralized by
substantially all available assets of the Company.

   The Company's borrowing agreement contains covenants which place various
restrictions on financial ratios, status and ownership of capital assets,
transactions with related parties, and the payment of dividends. In addition,
the borrowing agreement contains an event of default provision whereby all
outstanding amounts would be due and payable should there be any change in
control of the Company.

   The Company believes that funds generated from operations and borrowing
availability under the renegotiated line of credit agreement will be sufficient
to satisfy the Company's operating expenses and capital expenditures through
fiscal 1998.

                                                                              11
<PAGE>   5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS


SEASONALITY

   Historically, the Company's sales have not been subject to significant
seasonal fluctuations.

INFLATION

   The impact of inflation on the Company's operating results has been moderate
in recent years, reflecting generally lower rates of inflation in the economy
and relative stability in the Company's cost of sales. While inflation has not
had, and the Company does not expect that it will have, a material impact upon
operating results, there is no assurance that the Company's business will not be
affected by inflation in the future.

   The previous discussion should be read in conjunction with, and is qualified
in its entirety by, the Company's Financial Statements and the Notes thereto
included elsewhere herein. Historical results are not necessarily indicative of
trends in operation results for any future period.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

   In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share", which is required to be adopted by the Company in
the second quarter of fiscal year 1998. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating basic
earnings per share, the dilutive effect of stock options will be excluded. The
impact is expected to result in an increase in basic earnings per share for the
year ended July 31, 1997 of $0.03 to $1.11. The impact for the year ended July
31, 1996, is expected to increase $0.03 to $0.88 per share. The impact of
Statement No. 128 on the calculation of diluted earnings per share for the years
ended July 31, 1997 and 1996, is not expected to be material.

FORWARD-LOOKING STATEMENTS

   This Annual Report contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, and the Company
intends that such forward-looking statements be subject to the safe harbors
created thereby. These forward-looking statements relate to sufficiency of
funds, stability of prices, and the plans and objectives of management for
future operations of the Company, including improving productivity and enhancing
profitability.

   The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on assumptions regarding the market in
which the Company operates, the cost and amount of equipment required for
replacements and growth, and the success of productivity programs. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that the assumptions underlying the forward-looking statements, many of
which are beyond the control of the Company, are reasonable, any of the
assumptions could prove inaccurate and, therefore, there can be no assurance
that the results contemplated in forward-looking information will be realized.
Important factors which may cause actual results to differ materially from those
contemplated or implied by such forward-looking statements are discussed in more
detail in the Company's Form 10-K for the 1997 fiscal year. In light of the
significant uncertainties inherent in the forward-looking information included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved.


12
<PAGE>   6
CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
JULY 31                                                                        1997         1996
------------------------------------------------------------------------------------------------
(In thousands, except share data)
<S>                                                                         <C>          <C>
ASSETS
Current assets:
  Cash and cash equivalents                                                 $    85      $ 3,851
  Accounts receivable, less allowance of $152 in 1997 and $167 in 1996       21,431       15,114
  Inventories                                                                 8,805        4,796
  Refundable income taxes                                                       420          240
  Deferred income taxes                                                         125          714
  Prepaid expenses and other                                                    946          259
  ----------------------------------------------------------------------------------------------
Total current assets                                                         31,812       24,974

Property, plant, and equipment:
  Land                                                                        3,586        2,899
  Buildings and improvements                                                 22,760       18,353
  Machinery and equipment                                                    69,123       53,065
  Construction in progress                                                    1,917           --
                                                                              -----       ------
                                                                             97,386       74,317
  Accumulated depreciation                                                   46,422       40,200
                                                                             ------       ------
                                                                             50,964       34,117
Other assets                                                                     83          495
------------------------------------------------------------------------------------------------
Total assets                                                                $82,859      $59,586
------------------------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                          $14,665      $ 7,193
  Accrued vacation expense                                                      688          720
  Other accrued expenses                                                      2,443        1,332
  Current portion of long-term debt                                              --        1,000
                                                                            -------       ------
Total current liabilities                                                    17,796       10,245

Long-term debt, less current portion                                         10,312        3,333

Deferred income taxes                                                         2,507        1,976

Commitments and contingency

Shareholders' equity:
  Preferred stock, $.01 par value:
   Authorized shares -- 1,000,000
   Issued and outstanding shares -- none
  Common stock, $.01 par value:
   Authorized shares -- 20,000,000
   Issued and outstanding shares -- 7,252,000
   in 1997 and 7,194,000 in 1996                                                 73           72
  Additional paid-in capital                                                 10,266       10,077
  Retained earnings                                                          41,905       33,883
                                                                             ------       ------
Total shareholders' equity                                                   52,244       44,032
------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                  $82,859      $59,586
------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes.

                                                                              13
<PAGE>   7
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME


YEAR ENDED JULY 31                                          1997           1996       1995
------------------------------------------------------------------------------------------
(In thousands except earnings per share)

<S>                                                        <C>          <C>           <C>
Net sales                                                  $120,752     $108,362      $95,372
Cost of products sold                                        98,698       89,502       76,174
                                                           ----------------------------------
Gross profit                                                 22,054       18,860       19,198
Selling, general and administrative expenses                  8,487        7,991        7,381
                                                           ----------------------------------
Income from operations                                       13,567       10,869       11,817

Other expense:
  Interest                                                      354          470          878
  Other                                                         365          123           25
                                                           ----------------------------------
Income before income taxes                                   12,848       10,276       10,914
Income taxes                                                  4,826        3,993        4,260
---------------------------------------------------------------------------------------------
Net income                                                  $ 8,022      $ 6,283      $ 6,654

Earnings per share                                          $  1.08      $   .85      $   .99
---------------------------------------------------------------------------------------------
Weighted average common
and equivalent shares outstanding                             7,432        7,430        6,747
</TABLE>



See accompanying notes.


CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                      ADDITIONAL
                                                  COMMON STOCK         PAID-IN      RETAINED
                                               SHARES    AMOUNT        CAPITAL      EARNINGS       TOTAL
--------------------------------------------------------------------------------------------------------
(In thousands)

<S>                                            <C>         <C>        <C>           <C>          <C>
Balance at July 31, 1994                       6,133       $ 61       $   581       $20,993      $ 21,635
  Cash proceeds from issuance
   of common stock, net of
   share issuance costs                        1,000         10         9,396            --         9,406
  Shares issued in connection
   with options exercised                         10         --            98            --            98
  Shares repurchased and canceled                (13)        --           (10)          (47)          (57)
  Net income                                      --         --            --         6,654         6,654
                                               ----------------------------------------------------------
Balance at July 31, 1995                       7,130         71        10,065        27,600        37,736
  Shares issued in connection
   with options exercised                         64          1           199            --           200
  Share issuance costs                            --         --          (187)           --          (187)
  Net income                                      --         --            --         6,283         6,283
                                               ----------------------------------------------------------
Balance at July 31, 1996                       7,194         72        10,077        33,883        44,032
  Shares issued in connection
   with options exercised and
   for employee stock purchase plan               58          1           189            --           190
  Net income                                      --         --            --         8,022         8,022
  -------------------------------------------------------------------------------------------------------
Balance at July 31, 1997                       7,252       $ 73       $10,266       $41,905      $ 52,244
</TABLE>

See accompanying notes.


14
<PAGE>   8
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED JULY 31                                                1997                          1996                  1995
--------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S>                                                           <C>                           <C>                    <C>
OPERATING ACTIVITIES
Net income                                                    $  8,022                      $  6,283               $ 6,654
Adjustments to reconcile net income to net
  cash provided by operating activities:
   Depreciation                                                  6,292                         6,572                 5,612
   Loss on sale of property, plant, and equipment                    6                           139                    70
   Deferred income taxes                                         1,120                          (418)                  101
   Provision (recovery) for doubtful accounts                      (15)                          424                    24
   Changes in operating assets and liabilities:
     Accounts receivable                                        (6,302)                       (1,040)               (1,327)
     Inventories                                                (4,009)                          320                (1,129)
     Refundable income taxes                                      (180)                         (240)
     Prepaid expenses and other                                   (687)                          365                  (417)
     Other assets                                                  412                          (801)                   77
     Accounts payable                                            7,472                        (1,513)                1,135
     Accrued expenses                                            1,079                          (158)                  418
     Income taxes                                                   --                          (386)                  164
                                                                ----------------------------------------------------------
Net cash provided by operating activities                       13,210                         9,547                11,382

INVESTING ACTIVITIES
Purchases of property, plant, and equipment                    (20,562)                       (8,682)              (11,676)
Proceeds from disposal of property, plant, and equipment            17                           102                    31
Acquisition of a division of Radian International LLC           (2,600)                           --                    --
                                                                ----------------------------------------------------------
Net cash used in investing activities                          (23,145)                       (8,580)              (11,645)

FINANCING ACTIVITIES
Borrowings under line of credit agreement                        9,312                            --                    --
Principal payments on long-term debt                            (4,333)                       (4,167)              (11,143)
Borrowings under long-term debt                                  1,000                         5,000                    --
Proceeds from issuance of common stock,
  net of issuance cost                                             190                            13                 9,504
Payments to repurchase common stock                                 --                            --                   (57)
                                                                ----------------------------------------------------------
Net cash provided by (used in) financing activities              6,169                           846                (1,696)
                                                                ----------------------------------------------------------
Net increase (decrease) in cash and cash equivalents            (3,766)                        1,813                (1,959)
Cash and cash equivalents at beginning of year                   3,851                         2,038                 3,997
--------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                      $     85                      $  3,851               $ 2,038
</TABLE>



See accompanying notes.

                                                                              15
<PAGE>   9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

   The Company is in one line of business as a manufacturer of complex
multilayer, surface mount circuit boards used in sophisticated electronic
equipment in the computer, communications, instrumentation and industrial
controls industries. The Company sells its products primarily to leading
original equipment manufacturers and to contract assemblers in the United States
and abroad.

PRINCIPLES OF CONSOLIDATION

   The consolidated financial statements include the accounts of the Company and
its subsidiaries, which are wholly owned. Significant intercompany accounts and
transactions have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS

   Cash and cash equivalents consists of checking accounts and funds invested in
overnight repurchase agreements and is stated at cost, which approximates market
value. The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

INVENTORIES

   Inventories are carried at the lower of cost or market using the first-in,
first-out (FIFO) method.

PROPERTY, PLANT, AND EQUIPMENT

   Property, plant, and equipment is stated at cost. Depreciation is computed
using the double declining balance and the straight-line methods based on the
estimated useful lives of the related assets ranging from three to forty years.

FAIR VALUE OF FINANCIAL INSTRUMENTS

   Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments", requires that the Company disclose estimated
fair values of financial instruments. Cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities are carried at amounts that
reasonably approximate their fair values. The carrying amounts of the Company's
borrowings under its line of credit arrangement approximates its fair value
based on the variable nature of its interest rates.

REVENUE RECOGNITION

   Sales are recorded at the time individual items are shipped.

ADVERTISING COSTS

   Advertising costs are expensed as incurred. Advertising expense for the years
ended July 31, 1997, 1996, and 1995 were $47,000, $54,000 and $55,000,
respectively.

INCOME TAXES

   The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes".

16
<PAGE>   10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


EARNINGS PER SHARE AND SUPPLEMENTAL EARNINGS PER SHARE

   Earnings per share is computed using the weighted average number of shares of
common stock and common stock equivalents outstanding during the year. Dilutive
common equivalent shares are computed using the treasury stock method. Fully
diluted earnings per share are not presented since such amounts would not have a
material dilutive effect.

   Supplemental earnings per share, assuming the proceeds from the issuance of
922,000 common shares at the public offering of $10.50, net of issuance costs,
were used to repay $9.0 million of the Company's indebtedness as of August 1,
1994, would have reduced earnings per share from $0.99 to $0.94 in 1995.

STOCK BASED COMPENSATION

   The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants to employees in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to Employees", (APB 25)
and, accordingly, recognizes no compensation expense for the stock option
grants.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

   In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share", which is required to be adopted by the Company in
the second quarter of fiscal year 1998. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating basic
earnings per share, the dilutive effect of stock options will be excluded. The
impact is expected to result in an increase in basic earnings per share for the
year ended July 31, 1997 of $0.03 to $1.11. The impact for the year ended July
31, 1996, is expected to increase $0.03 to $0.88 per share. The impact of
Statement No. 128 on the calculation of diluted earnings per share for the years
ended July 31, 1997 and 1996, is not expected to be material.

USE OF ESTIMATES

   The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

2. ACQUISITION

   In April 1997, the Company acquired the assets and assumed certain
liabilities of a division of Radian International LLC (Radian) for $2,600,000.
The acquisition was accounted for as a purchase, and accordingly, the results of
its operations have been included in the consolidated results of operations
since the transaction date. The purchase price has been allocated to the assets
and liabilities acquired based on fair values at acquisition. The results of
operations of Radian were not significant in relation to the Company for periods
prior to the acquisition.

                                                                              17
<PAGE>   11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. INVENTORIES

   Inventories consisted of the following:

<TABLE>
<CAPTION>
JULY 31                                           1997     1996
---------------------------------------------------------------
(In thousands)
<S>                                            <C>      <C>
Raw materials                                   $2,117   $  649
Work-in-process                                  4,878    2,487
Finished goods                                   1,810    1,660
---------------------------------------------------------------
                                                $8,805   $4,796
</TABLE>


4. LONG-TERM DEBT

   On July 25, 1997, the Company entered into a $45,000,000 long-term line of
credit agreement with a bank. Up to $25,000,000 of the line of credit agreement
can be converted into a long-term note payable. At July 31, 1997 there were no
amounts converted to a long-term note. The line of credit bears interest at
LIBOR plus a fixed rate factor, as defined, and/or the prime rate, payable
monthly, and the interest rate can be converted by the Company to a fixed rate
when the Company draws above $2,000,000. The line of credit expires on October
31, 2000 and provides for maximum borrowings of the lessor of $45,000,000 less
any converted long-term note payable amounts. At July 31, 1997, amounts
available under the line of credit were approximately $34,700,000. The weighted
average interest rate under the line of credit was 8.5 percent in 1997. The
above long-term debt agreements are collateralized by substantially all
available assets of the Company.

   The line of credit agreement contains covenants which place various
restrictions on financial ratios, transactions with related parties, and
prohibits the payment of dividends. In addition, the line of credit agreement
contains an event of default provision whereby all outstanding amounts would be
due and payable should there be a change in ownership control.

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
JULY 31                                                                                1997        1996
-------------------------------------------------------------------------------------------------------
(In thousands)
<S>                                                                                 <C>          <C>
$45,000,000 long-term line of credit agreement with a bank, interest payable
  monthly at LIBOR plus a fixed rate factor, as defined, and/or the prime rate, 
  maturing October 31, 2000.                                                       $ 9,312      $   --


$1,000,000 long-term adjustable rate industrial development revenue bond,
  interest payable monthly at a variable rate until September 1, 2011 when all
  outstanding interest and principal is due and payable; secured by $1,000,000
  irrevocable letter of credit; bond is subject to certain optional and
  mandatory redemption, as defined.                                                   1,000          --

$5,000,000 long-term note payable to a bank, paid in full during 1997.                   --       4,333
                                                                                   --------------------
                                                                                     10,312       4,333
Less current portion                                                                     --       1,000
-------------------------------------------------------------------------------------------------------
                                                                                    $10,312      $3,333
</TABLE>


   Maturities of long-term debt for the five years succeeding July 31, 1997 are
as follows: July 31, 1998 $0, 1999 $0, 2000 $0, 2001 $9,312,000, 2002 $0, and
thereafter $1,000,000. Interest payments approximated interest expense during
the years ended July 31, 1997, 1996, and 1995.

18
<PAGE>   12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


5. STOCK OPTIONS

   The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation" (Statement 123), requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation is recognized.

   During 1987, the Company's stockholders adopted a stock option plan (the 1987
Plan) that provides for the granting of options to employees (including
officers) and non-employee directors at fair value at the date of the grant. The
1987 Plan provides for the issuance of options at fair value to purchase a
maximum of 750,000 shares of common stock. All options under the 1987 Plan are
exercisable cumulatively, beginning on the third anniversary of the date of
grant. Generally, after three years from the date of grant, the optionee may
purchase 40 percent of the shares granted; an additional 20 percent after four
years; an additional 20 percent after five years; and the final 20 percent after
six years. However, with respect to 200,000 options granted on August 25, 1994,
the options become exercisable at the rate of 15 percent a year. All options
expire between seven and ten years after the date of grant. The options granted
under the 1987 Plan become fully exercisable if the Company is dissolved,
liquidated, merged, consolidated, or undergoes a change in control as defined in
the Plan document.

   During 1996, the Company's stockholders adopted a second stock option plan
(the 1996 Plan) that provides for the granting of options to employees
(including officers) and non-employee directors at fair value at the date of the
grant. The 1996 plan provides for the issuance of options at fair value at the
date of the grant. The 1996 plan provides for the issuance of options at fair
value to purchase a maximum of 1,000,000 shares of common stock. All options
under the 1996 plan are exercisable cumulatively, beginning on the first
anniversary of the date of grant. Generally, after one year from the date of
grant, the optionee may purchase 20 percent of the shares granted; an additional
20 after two years; an additional 20 percent after three years; an additional 20
percent after four years; and the final 20 percent after five years. All options
expire ten years after the date of grant. The options granted under the 1996
Plan become fully exercisable if the Company is dissolved, liquidated, merged,
consolidated, or undergoes a change in control as defined in the Plan document.

   Pro forma information regarding net income and earnings per share is required
by Statement 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1996: risk-free interest rate of 5.5 percent, dividend
yield of zero percent, volatility factor of the expected market price of the
Company's common stock of .46, and a weighted-average expected life of the
option of 6.26 years and seven years, respectively.

   The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

                                                                              19
<PAGE>   13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


   Because Statement No. 123 is applicable to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until
approximately 2003. For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the option's vesting period.
The Company's pro forma information follows (in thousands except for earnings
per share information):


<TABLE>
<CAPTION>
JULY 31,                                                1997        1996
------------------------------------------------------------------------
(In thousands, except per share data)
<S>                                                   <C>         <C>
Net income, as reported                               $8,022      $6,283
Pro forma compensation expense for stock options         142          74
------------------------------------------------------------------------
Pro forma net income                                  $7,880      $6,209

Earnings per share, as reported                       $ 1.08      $ 0.85
Earnings per share, pro forma                         $ 1.06      $ 0.84
</TABLE>



   Information regarding stock options outstanding under the Plans are as
follows:

<TABLE>
<CAPTION>
                                                         WEIGHTED-AVERAGE
                                               SHARES     EXERCISE PRICE
-------------------------------------------------------------------------
<S>                                           <C>        <C>
Outstanding at July 31, 1994                  186,000            $3.11
  Granted                                     225,000             3.27
  Exercised                                    (9,600)            6.72
  Forfeited (canceled)                        (25,000)            3.10
                                              ------------------------
Outstanding at July 31, 1995                  376,400             3.11
  Granted                                     110,000            15.00
  Exercised                                   (64,040)            3.12
  Forfeited (canceled)                        (24,000)           12.50
                                              ------------------------
Outstanding at July 31, 1996                  398,360             5.69
  Granted                                     432,000            14.03
  Exercised                                   (40,960)            2.50
  Forfeited (canceled)                        (26,750)           12.85
                                              ------------------------
Outstanding at July 31, 1997                  762,650           $10.48
</TABLE>


<TABLE>
<CAPTION>
                                OPTIONS OUTSTANDING                           OPTIONS EXERCISABLE
--------------------------------------------------------------------    -------------------------------
                                WEIGHTED-AVERAGE
  RANGE OF         NUMBER          REMAINING        WEIGHTED-AVERAGE     NUMBER        WEIGHTED-AVERAGE
EXERCISE PRICE   OUTSTANDING    CONTRACTUAL LIFE    EXERCISE PRICE      EXERCISABLE    EXERCISE PRICE
-------------------------------------------------------------------------------------------------------

<S>              <C>            <C>                   <C>               <C>           <C>
$2.50 - $3.25     258,900        6.83 years            $3.14             15,100        $2.50
    $4.00           5,000        7.29 years            $4.00               --           --
$10.63 - $15      368,750        9.24 years           $12.85               --           --
   $18.00         130,000        9.99 years              $18               --           --
</TABLE>


   Exercise prices for options outstanding at July 31, 1997, range from $2.50 to
$18.00. The weighted-average fair value of options granted during 1997 and 1996
was $7.43 and $8.36, respectively.

20
<PAGE>   14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. INCOME TAXES

   Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
JULY 31                               1997        1996
-------------------------------------------------------
(In thousands)
<S>                                 <C>         <C>

Deferred tax liabilities:
Tax over book depreciation          $2,499      $1,970
Receivables adjustments                493          --
Other, net                              52          52
                                    ------------------
Total deferred tax liabilities       3,044       2,022
                                    ------------------

Deferred tax assets:
Receivables allowances                  61         227
Inventory allowances                   136         116
Accrued vacation                       220         227
Accrued expenses                        87          80
Unicap and other                       158         110
                                    ------------------
Total deferred tax assets              662         760
------------------------------------------------------
Net deferred taxes                  $2,382      $1,262
</TABLE>


   Significant components of the federal and state income tax expense are:

<TABLE>
<CAPTION>
YEAR ENDED JULY 31      1997         1996         1995
------------------------------------------------------
(In thousands)

Current:
<S>                    <C>         <C>           <C>
  Federal              $3,053      $ 3,486       $3,287
  State                   653          925          872
                       --------------------------------
   Total current        3,706        4,411        4,159
Deferred:
  Federal                 929         (347)          84
  State                   191          (71)          17
                       --------------------------------
   Total deferred       1,120         (418)         101
                       --------------------------------
                       $4,826      $ 3,993       $4,260
-------------------------------------------------------
</TABLE>



   Total income tax payments, net of any refunds received, during the years
ended July 31, 1997, 1996, and 1995, were approximately $3,997,000, $5,037,000
and $3,962,000, respectively.

   A reconciliation of the Company's effective income tax rate to the federal
statutory rate follows:

<TABLE>
<CAPTION>
YEAR ENDED JULY 31                       1997     1996     1995
---------------------------------------------------------------
<S>                                        <C>      <C>      <C>
Federal statutory rate                     34%      34%      34%
State tax net of federal benefit            7        7        7
Other                                      (3)      (2)      (2)
---------------------------------------------------------------
                                           38%      39%      39%
</TABLE>

                                                                              21
<PAGE>   15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. SIGNIFICANT CUSTOMERS AND EXPORT SALES

   The percentages of total sales to significant customers were as follows:


<TABLE>
<CAPTION>
YEAR ENDED JULY 31                         1997     1996     1995
-----------------------------------------------------------------
<S>                                       <C>      <C>      <C>
Customer A                                 15%       5%       0%
Customer B                                  7       11       15
Customer C                                 20       21       15
</TABLE>



   The amount of total export sales by geographic area was as follows:

<TABLE>
<CAPTION>
YEAR ENDED JULY 31                       1997    1996      1995
-----------------------------------------------------------------
(In thousands)
<S>                                <C>         <C>       <C>
Canada                             $    2,700  $ 3,800   $  3,500
Singapore                               5,800    6,900     10,800
United Kingdom and others              15,600    9,600     10,100
-----------------------------------------------------------------
Total export sales                 $   24,100  $20,300    $24,400
</TABLE>



   The Company performs ongoing credit risk evaluations of its customers'
financial conditions and generally does not require collateral. The Company's
significant customers are major, well-known businesses in the electronic
equipment industry. Credit losses have been provided for in the financial
statements and have been within management's expectations.

8. COMMITMENTS AND CONTINGENCY

   The Company leases certain equipment and buildings under noncancelable
operating leases that expire in various years through 2004. Total rental expense
for all operating leases was approximately $397,000, $357,000 and $122,000
during the years ended July 31, 1997, 1996 and 1995, respectively. Future
minimum payments under noncancelable operating leases with initial terms of one
year or more consisted of the following at July 31, 1997:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------
(In thousands)

<S>                                                           <C>
1998                                                          $   672,115
1999                                                              636,480
2000                                                              636,480
2001                                                              636,480
2002                                                              636,480
Thereafter                                                      1,092,624
-------------------------------------------------------------------------
                                                               $4,310,659
</TABLE>

   The Company is a party to certain litigation in the normal course of
business. Management does not anticipate any material adverse impact from the
resolution of such matters.


22
<PAGE>   16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


9. BENEFIT PLANS

   The Company has a 401(k) Retirement Plan (Plan) covering all employees who
reside in the United States, have completed six months of service, and have
attained age 21. Under the terms of the Plan, employees may contribute up to 15
percent of their annual compensation, subject to Internal Revenue Service
limitations. The Company matched 25 percent of employee contributions up to 6
percent of the employee's annual compensation. Additional contributions to the
Plan can be made at the discretion of the Board of Directors. Company
contributions to the Plan during the years ended July 31, 1997, 1996, and 1995,
were approximately $212,000, $198,000 and $164,000, respectively.

   During 1996, the Company adopted the Continental Circuits Corp. Employee
Stock Purchase Plan. All employees who are regularly scheduled to work at least
20 hours per week and have completed at least six (6) months of continuous
service with the Company are eligible to participate in the plan. Eligible
employees are entitled to purchase shares of common stock through payroll
deductions of up to 10 percent of their compensation. The price paid for the
common stock is equal to 85 percent of the fair market value of the Company's
common stock on the last business day of the quarterly investment period. At the
Company's option, common stock can either be purchased on the open market or
through new shares issued. Total shares reserved for issuance are 200,000, with
17,937 purchased through July 1997 at a market price ranging from $10.75 to
$13.88 per share.

10. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

   A summary of the quarterly results of operations for the years ended July 31,
1997 and 1996 follows:

<TABLE>
<CAPTION>
                                       1ST QUARTER   2ND QUARTER    3RD QUARTER      4TH QUARTER
------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)

1997:
<S>                                      <C>          <C>             <C>             <C>
Net sales                                $27,123      $29,562         $31,862         $32,205
Gross margin                              $4,463       $5,170          $6,148          $6,273
Net income                                $1,433       $1,817          $2,379          $2,393
Earnings per share                       $   .19      $   .24         $   .32          $  .32
Weighted average common
  and equivalent shares outstanding        7,424        7,432           7,457           7,497
</TABLE>


<TABLE>
<CAPTION>
                                       1ST QUARTER  2ND QUARTER   3RD QUARTER    4TH QUARTER
------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S>                                      <C>          <C>             <C>             <C>
1996:
Net sales                                $28,508      $28,860         $26,464         $24,530
Gross margin                              $5,733       $6,215          $4,406          $2,506
Net income                                $2,248       $2,305          $1,380           $ 350
Earnings per share                        $  .30        $ .31           $ .19           $ .05
Weighted average common
  and equivalent shares outstanding        7,430        7,431           7,413           7,420
</TABLE>


   The 1997 quarterly results for net earnings per share, when totaled, do not
equal the net earnings per share for the year ended July 31, 1997 due to
rounding.

                                                                              23
<PAGE>   17
REPORT OF INDEPENDENT AUDITORS


THE BOARD OF DIRECTORS AND SHAREHOLDERS
CONTINENTAL CIRCUITS CORP.

   We have audited the accompanying consolidated balance sheets of Continental
Circuits Corp. and subsidiaries as of July 31, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended July 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

   We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

   In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Continental
Circuits Corp. and subsidiaries at July 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended July 31, 1997 in conformity with generally accepted accounting
principles.


                                                           /s/ ERNST & YOUNG LLP
Phoenix, Arizona
August 22, 1997

24
<PAGE>   18
CORPORATE INFORMATION


BOARD OF DIRECTORS
Frederick G. McNamee, III
Chairman of the Board, President and Chief Executive Officer

Angelo A. DeCaro (4)
President, Chief Executive Officer, and Director,
XeTel Corporation

Michael O. Flatt  (3)
President, Michael O. Flatt, Ltd

Albert A. Irato (2)
President and Chief Executive Officer Hypercom, Inc.

Michael F. Jarko (1)
Retired;  Former Principal
of Jarko Associates

John Nance (4)
Retired; former manager of Large Systems Business Planning for Bull-HN Worldwide

David C. Wetmore (2)
Managing Director,
The Updata Group

1. Chairman of the Compensation Committee

2. Member of the Compensation Committee

3. Chairman of the Audit Committee

4. Member of the Audit Committee

Annual Meeting of Shareholders
Friday, December 12, 1997  8:00 a.m.
Phoenix Airport Hilton
2435 S. 47th St.
Phoenix, AZ 85034

FORM 10-K
A COPY OF CONTINENTAL CIRCUITS CORP.'S FORM 10-K ON FILE WITH THE SECURITIES AND
EXCHANGE COMMISSION (EXCLUDING EXHIBITS) WILL BE FURNISHED WITHOUT CHARGE UPON
WRITTEN REQUEST TO:

Joseph G. Andersen
Vice President of Finance and
Chief Financial Officer
Continental Circuits Corp.
3502 East Roeser Road
Phoenix, AZ  85040

Visit Continental Circuits' web site at: http://www.contcirc.com

OFFICERS
Frederick G. McNamee, III
Chairman of the Board,
President and Chief
Executive Officer

Joseph G. Andersen
Vice President of Finance, Chief
Financial Officer, Secretary and
Treasurer

John W. Maddux
Vice President-Quality and
Engineering

Steven N. Lach
Vice  President-
Manufacturing Operations

James Buchanan
Vice President-Sales and Marketing

Robert A. Kosciusko
Vice President-Human Resources

CORPORATE DATA
Corporate Offices
Continental Circuits Corp.
3502 East Roeser Road
Phoenix, AZ  85040
602.268.3461

LEGAL COUNSEL
Quarles & Brady
Phoenix, Arizona

INDEPENDENT AUDITORS
Ernst & Young LLP
Phoenix, Arizona

STOCK REGISTRAR & TRANSFER AGENT
Harris Trust and Savings Bank
Attn:  Shareholder Services
P.O. Box 755
Chicago, IL  60690
312.461.2288

INVESTOR RELATIONS
Silverman Heller Associates
1100 Glendon Avenue, Suite 1801
Los Angeles, CA  90024
310.208.2550


SECURITIES INFORMATION

   Continental Circuits Corp.'s common stock has traded on The Nasdaq National
Market under the symbol CCIR since the Company's initial public offering on
March 15, 1995. The high and low transaction prices for the Company's stock, as
reported on The Nasdaq National Market, for the quarters indicated are set forth
in the following table.

<TABLE>
<CAPTION>
---------------------------------------------------------------
FISCAL 1996                             HIGH          LOW
---------------------------------------------------------------
<S>                                     <C>        <C>
First Quarter (August 1-October 31)     $17 1/4    $13
Second Quarter (November 1-January 31)  $17 1/2    $13 3/16
Third Quarter (February 1-April 30)     $16 1/4    $10 1/4
Fourth Quarter (May 1-July 31)          $14 1/8    $ 9
</TABLE>

<TABLE>
<CAPTION>
---------------------------------------------------------------
FISCAL 1997                                HIGH      LOW
---------------------------------------------------------------
<S>                                     <C>        <C>
First Quarter (August 1-November 2)     $13 1/8    $10 1/4
Second Quarter (November 3-February 2)  $14 1/4    $10
Third Quarter (February 3-May 3)        $14 1/2    $11 1/2
Fourth Quarter (May 4-July 31)          $19 3/4    $11 7/8
</TABLE>



   As of September 30, 1997 there were approximately 94 shareholders of record
for Continental Circuits' common stock.

   The Company cannot currently pay a cash dividend on its common stock and
intends to retain earnings, if any, for use in the operation and expansion of
its business.

                                                                              25