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


                                  FORM 10-QSB
                                        


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


 
                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
                         COMMISSION FILE NUMBER 1-12230
                                        


                     ADVANCED DEPOSITION TECHNOLOGIES, INC.
       (Exact name of Small Business Issuer as Specified in its Charter)
                                        


       DELAWARE                                        04-2865714
(State of Organization)                             (I.R.S. Employer
                                                 Identification Number)



        580 MYLES STANDISH INDUSTRIAL PARK, TAUNTON, MASSACHUSETTS 02780
               (Address of Principal Executive Offices, Zip Code)



                                 (508) 823-0707
                (Issuer's Telephone Number, Including Area Code)
                                        


     Indicate by check mark wether the issuers (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. YES  X  NO 
                                       ---    ---

     As of May 11, 1998, there were 4,268,950 shares of Common Stock, $0.01 par
value, of the issuer outstanding.
<PAGE>
 
                    ADVANCED DEPOSITION TECHNOLOGIES, INC.

                                     INDEX

<TABLE> 
<CAPTION> 
PART I. FINANCIAL INFORMATION                                    PAGE NUMBER
<S>                                                                <C> 
  Item 1. Financial Statements
 
     Condensed and Consolidated Balance Sheets (unaudited):           1-2
     March 31, 1998 and December 31, 1997
 
     Condensed and Consolidated Statements of Operations              3
     (unaudited): for the Three Months ended March 31, 1998
     and March 31, 1997
 
     Condensed and Consolidated Statements of Cash Flows              4
     (unaudited): for the Three Months ended March 31, 1998
     and March 31, 1997
 
     Notes to Condensed and Consolidated Financial                    5-7
     Statements
 
     Item 2. Management's Discussion and Analysis of Financial
     Condition and Results of Operations                              7-10
 
PART II. OTHER INFORMATION
 
     Item 2. Changes in Securities and Use of Proceeds                11
 
     Item 6. Exhibits and Reports on Form 8-K                         11
</TABLE>
<PAGE>
 
                     ADVANCED DEPOSITION TECHNOLOGIES, INC.

             CONDENSED AND CONSOLIDATED BALANCE SHEETS (UNAUDITED)

                      (in thousands, except share amounts)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                 MARCH 31,             DECEMBER 31, 
                                                                                   1998                   1997
                                                                             --------------          ---------------
<S>                                                                           <C>                    <C>
CURRENT ASSETS
     Cash and cash equivalents                                                 $       534            $        919
     Investment in marketable securities                                               157                     155
     Accounts receivable, net of reserve for doubtful accounts of $378 and    
           $380 at March 31, 1998 and  December 31, 1997 respectively                7,140                   7,084
     Inventories                                                                     3,395                   3,347
     Prepaid expenses and other current assets                                         109                      69
                                                                               -----------            ------------
              Total current assets                                                  11,335                  11,574
                                                                              
PROPERTY AND EQUIPMENT, net of accumulated depreciation                              6,577                   6,331
                                                                              
OTHER ASSETS, net of accumulated amortization                                        5,628                   6,038
                                                                              ------------            ------------
               Total assets                                                   $     23,540            $     23,943
                                                                              ============            ============
</TABLE>

The Condensed and Consolidated Balance Sheet at December 31, 1997, 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, 
                                                                                       1998                     1997
                                                                                  -------------             -------------- 
<S>                                                                             <C>                          <C>
CURRENT LIABILITIES
     Bridge financing                                                              $      1,000                $    1,000
     Due to financial institutions                                                        3,404                     3,709
     Accounts payable                                                                     3,601                     4,092
     Accrued liabilities                                                                    568                       543
     Current maturities of long-term debt                                                   526                       525
                                                                                   ------------                ----------
               Total current liabilities                                                  9,099                     9,869
                                                                                                              
LONG-TERM OBLIGATIONS                                                                                         
     Revolving line of credit                                                             1,667                       974
     Long-term obligations, net of current maturities                                     2,184                     2,324
                                                                                   ------------               -----------
               Total liabilities                                                         12,950                    13,167
                                                                                                              
MINORITY INTEREST IN  CONSOLIDATED SUBSIDIARY                                               802                       795
                                                                                   ------------               -----------
                                                                                                              
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, 4,286,560 shares issued,                                              
          4,268,950 and 4,262,950 shares outstanding at                                                       
          March 31, 1998 and December 31, 1997, respectively                                 43                        43
     Common stock purchase warrants                                                       1,671                     1,594
     Additional paid-in capital                                                           9,515                     9,581
     Retained deficit                                                                    (1,345)                   (1,153)
     Foreign currency translation adjustment                                                (31)                      (19)
                                                                                   ------------                ----------
                                                                                          9,853                    10,046
     Less treasury stock, 17,610 shares at cost                                             (65)                      (65)
                                                                                   ------------                ----------
               Total stockholders' equity                                                 9,788                     9,981
                                                                                   ------------                ----------
                                                                                   $     23,540                $   23,943
                                                                                   ============                ==========
</TABLE>

The Condensed and Consolidated Balance Sheet at December 31, 1997, 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             THREE MONTHS ENDED
                                                                        MARCH 31, 1998                 MARCH 31, 1997
                                                                     --------------------       ------------------------
<S>                                                                <C>                              <C>
REVENUES                                                               $        5,954                   $       3,126
                                                                                                        
COST OF REVENUES                                                                4,788                           2,302
                                                                       --------------                   -------------
               Gross profit                                                     1,166                             824
                                                                                                        
SELLING, GENERAL AND ADMINISTRATIVE                                                                     
     EXPENSES                                                                     974                             385
                                                                                                        
RESEARCH AND DEVELOPMENT EXPENSES                                                  79                             126
                                                                                                        
AMORTIZATION EXPENSE                                                               72                              37
                                                                       --------------                   -------------
               Operating income                                                    41                             276
                                                                                                        
INTEREST EXPENSE, NET                                                            (179)                            (32)
                                                                                                        
OTHER EXPENSE                                                                     (54)                            (14)
                                                                       --------------                   -------------
               Net income (loss)                                       $        (192)                   $         230
                                                                       ==============                   =============
NET INCOME (LOSS) PER SHARE                                                                             
     Basic                                                             $       (0.04)                   $        0.06
                                                                       ==============                   =============
     Diluted                                                           $       (0.04)                   $        0.06
                                                                       ==============                   =============
WEIGHTED AVERAGE COMMON SHARES                                                                          
     OUTSTANDING                                                            4,268,852                       4,142,899
                                                                       ==============                   =============
</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,
                                                                            --------------------------------
                                                                              1998                   1997
                                                                           -----------            ----------
<S>                                                                      <C>                       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
          Net cash used in operating activities                             $  (492)                 $  (233)
                                                                            -------                  -------

CASH FLOWS FROM INVESTING ACTIVITIES                                                                 
     Purchases of property and equipment                                       (474)                    (104)
     Increase in investment in marketable securities                             (2)                    (114)
     (Increase) decrease in other assets                                        334                       (5)
                                                                            -------                  -------
          Net cash used in investing activities                                (142)                    (223)
                                                                            -------                  -------

CASH FLOWS FROM FINANCING ACTIVITIES                                                                 
     Net borrowings under revolving line of credit                              694                      162
     Net repayment to financial institutions                                   (305)                      --
     Repayment of long term obligations                                        (139)                    (132)
     Proceeds from redemption of common stock purchase warrants                  --                      183
     Exercise of stock options                                                   11                       --
                                                                            -------                  -------
           Net cash provided by financing activities                            261                      213
                                                                            -------                  -------
           Net effect of exchange rates on cash and cash equivalents            (12)                      --
                                                                            -------                  -------
NET DECREASE IN CASH                                                           (385)                    (243)

CASH AND CASH EQUIVALENTS, beginning of period                                  919                    1,170
                                                                            -------                  -------
CASH AND CASH EQUIVALENTS, end of period                                    $   534                  $   927
                                                                            =======                  =======
</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, 1998
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 SB-2. 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, which was filed with the Securities and Exchange Commission on April 6,
1998.

     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 month periods ended March 31, 1998
and March 31, 1997. Operating results for the three month period ended March 31,
1998 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998.

2.)  SIGNIFICANT ACCOUNTING POLICIES

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

     a.  Principals of consolidation

     The accompanying consolidated financial statements include the Company and
its wholly owned and majority 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, 1998      December 31, 1997
                                         -----------------    -----------------
<S>                                      <C>                  <C>
Raw materials                                 $ 1,760             $ 1,812
Work in process and finished goods              2,013               1,913
                                              -------             -------
                                                3,773               3,725
Less: Reserves for obsolescence                   378                 378
                                              -------             -------
          Total                               $ 3,395             $ 3,347
                                              =======             =======
</TABLE>

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

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

     e.    Reclassifications

     Certain balances in the 1997 financial statements have been reclassified to
conform to the 1998 presentation.

     f.    Comprehensive Income

     Effective January 1, 1998, the Company adopted Statement of Financial
Standards No. 130, "Reporting Comprehensive Income", ("SFAS 130"), which
requires that all components of comprehensive income 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 comprehensive income is as follows: (in thousands):

<TABLE> 
<CAPTION> 
                                         For the three months ended
                                                  March 31,
                                             1998           1997
                                         -----------    -----------
<S>                                      <C>            <C> 
Net income                               $      (192)   $       230
Foreign currency translation adjustment          (12)           --
                                         -----------    -----------
Comprehensive income                     $      (204)   $       230
                                         ===========    ===========
</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):

<TABLE>
<CAPTION>
                                          March 31, 1998      December 31, 1997
                                          --------------      -----------------
<S>                                       <C>                  <C>
Cash                                          $ 534                $ 919
                                              -----                -----
         Total                                $ 534                $ 919
                                              =====                =====
</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 No
115) effective January 1, 1994. As of March 31, 1998 and December 31, 1997,
investments in marketable securities, that are classified available-for-sale and
recorded at fair value which approximates costs, consisted of the following (in
thousands):
 
<TABLE>
<CAPTION>
                                        March 31, 1998      December 31, 1997
                                        --------------      -----------------
<S>                                   <C>                  <C>
Equity instruments                           $ 157                $ 155
                                             -----                -----
         Total                               $ 157                $ 155
                                             =====                =====
</TABLE>


5.)  COMMON STOCK PURCHASE WARRANTS

     The Company's Redeemable Common Stock Purchase Warrants (the "IPO
Warrants") expired on March 8, 1997. Approximately 76,000 IPO Warrants were
exercised during the first quarter of 1997 resulting in net proceeds of
approximately $183,000.

     In May 1998, the Company reduced the conversion price of the Class B Common
Stock Redeemable Warrants (the "B Warrants)") from $5.00 per share to $3.75 per
share. In addition, the Company extended the expiration date of the B Warrants
from May 12, 1998 to July 31, 1998 and increased the number of warrants required
to purchase one share of Common Stock from one B Warrant to two B Warrants.

6.)  ACQUISITION

     In December 1997, the Company acquired 65% of the outstanding common stock
of Alexander Boxall, S.A., located in Madrid, Spain ("ABSA"), for $2,884,688 in
cash, a secured note of $990,000 and 280,000 shares of the Company's common
stock with a fair value of $1,034,000.  The acquisition was recorded under the
purchase method whereby the net assets acquired were recorded at their fair
market values and the excess of cost over the fair value of the net assets
acquired of approximately $3,415,000 was allocated to goodwill and is being
amortized over 25 years.

                                       6
<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-metallized 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 non-microwave 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. ("ABSA"), a manufacturer of electronic capacitors used for lighting and
motor run applications. The Company's revenue to date has been primarily from
sales to the capacitor and microwave packaging markets.

RECENT DEVELOPMENTS
-------------------

     The results of operations of the Company for the quarter ended March 31,
1998 contains a full three months of consolidated operations of ABSA, which had
a significantly favorable impact on sales and net income.

     During the first quarter of 1998, the Company incurred higher manufacturing
costs as it increased some production wages in order to attract more experienced
production workers to fill positions created by attrition and additional
product demand. The Company believes that this, in combination with other
measures, will overcome production delays and reduce the abnormally high scrap
rates that constrained first quarter shipments.

     During the first quarter of 1998, the Company experienced a significant
and unexpected decrease in sales of BROWN & CRISP bags, which accounts for much
of the decline in reported profitability. As of May 1998, the Company does not
expect that sales of BROWN & CRISP bags during 1998 will match the amount sold
in 1997. The Company believes that sales of metalized film to the standard
microwave and capacitor markets will increase during 1998. Metalized film sales
generate a much lower margin than BROWN & CRISP bags, so that the net effect on
profitability from these two trends is expected to be unfavorable.

     The Company continued to manufacture and sell High Energy Density ("HED")
films to capacitor manufacturers during the first quarter of 1998. HED films,
which are designed to provide capacitor manufacturers with the ability to
produce smaller, lighter and more efficient capacitors, have been incorporated
into certain customers' new products.

     The Company also executed purchase documents for its acquisition of the
majority of the capital stock of Kidamai SDN ("Kidamai"), a Malaysia capacitor
assembly company with 1997 sales of less than $1,000,000. The Company expects
that the acquisition will be consummated by the end of the second quarter.

     The Company also received Patent no. 5,742,411, "Security Hologram with
Covert Message" issued in April 1998.




RESULTS OF OPERATIONS
---------------------

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997

                                       7
<PAGE>
 
     Revenue. Net revenue increased to $5,954,000 for the three months ended
March 31, 1998, as compared to $3,126,000 for the three months ended March 31,
1997, an increase of 90%. This increase is due to the effect of the
consolidation of the sales of ABSA. Excluding the effect of the consolidation of
ABSA, sales for the three months ended March 31, 1997 of metalized film and
retail microwave products, including sales of BROWN & CRISP bags, declined by
28% as a result of lower sales of BROWN & CRISP bags. Metalized film sales
increased by 18% primarily as a result of higher standard microwave film sales
and to a lesser extent, higher sales of metalized film to the capacitor market,
partially offset by lower sales of film to the packaging market.

     Cost of Revenues. Cost of revenues totaled $4,788,000 (80.4% of product
sales) for the three months ended March 31, 1998, compared to $2,302,000 (73.6%
of product sales) for the three months ended March 31, 1997. The increase in
cost of revenues is due primarily to the effect of the consolidation of ABSA.
Excluding the effect of the consolidation of ABSA, cost of revenues for the
three months ended March 31, 1998 decreased due to the reduced sales of BROWN &
CRISP bags, partially offset by higher material costs associated with higher
sales of metalized film and by higher manufacturing costs associated with the
hiring and training of additional production staff. Cost of revenues as a
percentage of product sales decreased as a result of decreased shipments of
relatively higher-margin BROWN & CRISP products partially offset by the higher
gross margins associated with ABSA capacitor sales.

     Gross Profit. Gross profit increased to $1,166,000 (19.6% of product
sales) for the three months ended March 31, 1998, compared to $824,000 (26.4% of
product sales) for the three months ended March 31, 1997. The increase in gross
profit is due to the effect of the consolidation of ABSA and higher sales of
metalized film products, partially offset by decreased sales of BROWN & CRISP
bags. The decrease in gross profit as a percentage of product sales is a result
of decreased sales of relatively higher-margin BROWN & CRISP products partially
offset by the effect of ABSA capacitor sales.

     Selling, General and Administrative. Selling, general and administrative
expenses increased to $974,000 for the three months ended March 31, 1998, (16.4%
of product sales) from approximately $385,000 for the three months ended March
31, 1997, (12.3% of product sales). The effect of the consolidation of ABSA and
higher payroll expenses were the primary reasons for the increase.

     Research and Development. Research and development costs decreased to
$78,000 for the three months ended March 31, 1998, from approximately $126,000
for the three months ended March 31, 1997. Research and development expenditures
continue to be directed primarily at improving the Company's technical capacity
to produce higher resolution metallized patterns at higher volumes for existing
and new applications

     Amortization. Amortization expense increased to $72,000 for the three
months ended March 31, 1998, from $37,000 for the three months ended March 31,
1997 as a result of the amortization of goodwill associated with the ABSA
acquisition.

     Operating Income.  The Company generated operating income of $41,000 for
the three months ended March 31, 1998, compared to operating income of $276,000
for the three months ended March 31, 1997. The decrease in operating income was
due primarily to lower sales of BROWN & CRISP bags partially offset by the
effect of the consolidation of ABSA and higher sales of metalized film products.

     Net Interest Expense. Net interest expense increased to $179,000 for the
three-month period ended March 31, 1998, from $32,000 for the three-month period
ended March 31, 1997. The increase is due to increased borrowings and the effect
of the consolidation of ABSA

                                       8
<PAGE>
 
     Other Expense. Other expense was $54,000 during the three months ended
March 31, 1998, compared to $14,000 for the three months ended March 31, 1997.
Other expense includes the amortization of costs associated with the financing
agreements entered into with the Company's primary lender.

     Net Income (Loss). The Company generated a net loss of $192,000 for the
three months ended March 31, 1998 compared to net income of $230,000 for the
three months ended March 31, 1997, primarily as a result of the unexpected lack
of demand for BROWN & CRISP bags which reduced planned net income by
approximately $500,000, for partially offset by the effect of the consolidation
of ABSA.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

     The Company had working capital of approximately $2,236,000 at March 31,
1998, compared to working capital of $1,705,000 at December 31, 1997.  The
increase in working capital is primarily due to additional borrowings under the
Company's revolving line of credit.

     Cash used in operating activities for the three months ended March 31,
1998, was approximately $492,000 compared to cash used in operating activities
during the three months ended March 31, 1997, of $233,000. Negative cash flow
from operations was the result of a reduction in accounts payable and operating
losses.

     In the three-month period ending March 31, 1998, the Company expended
$474,000 in capital investments for expansion of its capacity to produce
metalized films. At present, the Company has purchase commitments totaling
$1,800,000 for capital equipment scheduled for delivery primarily in the first
quarter of 1999, which the Company expects will be financed primarily through
additional bank debt.
 
     In December 1997, the Company acquired 65% of the capital stock of ABSA
from two shareholders of ABSA. The ABSA Acquisition was financed with
approximately $1,800,000 in cash; a $1,000,000 bridge loan (the "Bridge Loan");
a $990,000 note payable and 280,000 shares of the Company's Common Stock. The
ABSA Acquisition was accounted for under the purchase method. The Bridge Loan is
from the Company's principal lender and bears interest at the bank's prime
lending rate plus 1.25% per annum and is due, with all unpaid interest, on June
18, 1998. The note payable to a former shareholder of ABSA bears interest at
5.39% per annum and is due, with all unpaid interest, on December 19, 1999.
Under Spanish law and according to the terms of the note, if the Company fails
to pay this note, such shareholder has the option to receive his 50% interest in
ABSA, provided he returns the $2,800,000 in cash he received from the Company,
or liquidated damages of $340,000.

     On July 14, 1997, the Company refinanced its existing revolving term debt
and line of credit with another bank. The new financing agreement provided the
Company with a term debt facility of $2,600,000 to be repaid in 35 monthly
installments of approximately $43,000, plus interest at the bank's prime rate of
interest plus 1%, with a balloon payment of approximately $1,083,000 due in July
1999, and is secured by substantially all of the assets of the Company. As of
March 31, 1998, the term loan had a balance of approximately $1,715,000 and bore
interest at 9.5% per annum. The revolving line of credit allows the Company to
borrow up to $3,000,000 based on percentages of its eligible accounts
receivable, raw materials and finished goods inventories and is secured by
substantially all of the assets of the Company. Borrowings under the line of
credit bear interest at the bank's prime rate of interest plus 3/4%. As of March
31, 1998, the revolving line of credit had a balance of approximately $1,667,000
and bore interest at 9.75%. In connection with the ABSA acquisitions, the
Company received a Bridge Loan which is secured by the ABSA shares owned by the
Company. As of March 31, 1998, the Bridge Loan bore interest at 9.75% per annum.
The Company's replacement term debt and revolving line of credit financing
agreements require the Company to maintain certain financial ratios and tangible
net worth levels, among others. At March 31, 1998, the Company was not in
compliance with certain of the financial covenants of the bank loans. The bank
has agreed to waive the events of default relating to those covenants until
January 1, 1999.

     Management is currently involved with discussions with its bank to
restructure the Bridge Loan and its term debt. Management does not believe that
cash flow from operations, together with its current reserves of cash and its
working capital facility, will be sufficient to pay all amounts due under the
Bridge Loan due June 18, 1998 and also to meet the Company's other cash
requirements.

                                       9
<PAGE>
 
SEASONAL REVENUES
-----------------

     Historically, the Company has experienced lower sales to the electronic
capacitor market during the third quarter, particularly in July. However, due to
changes in production and in customer demand, the Company believes that the
seasonal third-quarter down-turn in sales will be less pronounced this year. In
addition, based on market research conducted by the Company, it believes that
demand for the Company's other products, including microwave food packaging and
electronic capacitors products, do not experience similarly timed seasonal
variations and could, in the future, offset lower third quarter sales in the
electronic capacitor market.

INFLATION
---------

     During 1997 and 1998, supplies of raw materials used by the Company have
been adequate to meet demand and prices for these raw materials have softened
slightly. The Company does not foresee any near-term changes in either the
supply or prices of its raw materials.

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 conducted a review of its internal information systems to
determine the extent of any Year 2000 problem. Based on such a review, the
Company does not currently believe that it has material exposure to the Year
2000 Issue with respect to its own information systems, since its existing
systems correctly define the Year 2000.

     The Company is in the process of contacting its major suppliers and
customers in an effort to determine the extent to which the Company may be
vulnerable to these parties' failures to timely correct their own Year 2000
problems. To date, the Company is unaware of any situations of noncompliance
that would materially adversely affect its operations or financial condition.
There can be no assurances, however, that instances of noncompliance that would
have a materially adverse effect on the Company's operations or financial
condition will not be identified; that the systems of other companies with which
the Company transacts business will not be corrected on a timely basis; or that
a failure by such entities to correct a Year 2000 problem or a correction that
is incompatible with the Company's information systems would not have a material
adverse effect on the Company's operations or financial condition.

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 expected effects of the ABSA acquisition by the Company; (ii)
the Company's ability to realize economies of scale and to expand its sales and
production capacity; (iii) the possibility and the expected effect of the
Kidamai acquisition; and (iv) the Company's liquidity. 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
statement 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, the Company's ability to close the Kidamai acquisition on favorable
terms; 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.

                                      10
<PAGE>
 
                          PART II - OTHER INFORMATION


Item 2. Changes in Securities and Use of Proceeds

     In May 1998, the Company reduced the conversion price of the Class B Common
Stock Redeemable Warrants (the "B Warrants)") from $5.00 per share to $3.75 per
share. In addition, the Company extended the expiration date of the B Warrants
from May 12, 1998 to July 31, 1998 and increased the number of B Warrants
required to purchase one share of Common Stock from one B Warrant to two B
Warrants.

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

(a)  See Exhibit Index

(b)  Reports on Form 8-K. On January 5, 1998 the Company filed a Form 8-K with
     respect to its acquisition of 65% of the capital stock of Alexander Boxall,
     S.A.

                                       11
<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, 1998                          /s/ Glenn J. Walters
------------                          ---------------------------------
                                      Glenn J. Walters
                                      President

May 15, 1998                          /s/ Mark R. Thomas  
------------                          ---------------------------------
                                      Mark R. Thomas
                                      Chief Financial Officer

                                       12
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------

Exhibit        Description
-------        -----------
  10.1         Lease between MARAP, S.A. and Alexander Boxall, S.A. dated
               December 15, 1996

  27.1         Financial Data Schedule