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

                            ----------------------
                                 Form 10-K
(Mark One)
[ x ]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
        THE SECURITIES EXCHANGE ACT OF 1934.

                 For the fiscal year ended December 31, 1998

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

                 For the transition period from         to
                                                -------    -----
                        Commission File Number 0-27712

                   INTEGRATED PACKAGING ASSEMBLY CORPORATION
             (Exact Name of Registrant as Specified in its Charter)

Delaware                                            77-03090372
(State or other jurisdiction of                     (I.R.S. Employer
incorporation or organization)                      Identification Number)

2221 Old Oakland Road                               
San Jose, California                                95131-1402
(Address of principal executive offices)            (Zip Code)

      Registrant's telephone number including area code: (408) 321-3600
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, .001 par value

     Indicate by check mark whether the registrant:  (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12  months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.
YES [ x ] NO [   ]

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

     The aggregate market value of the voting stock held by persons other than 
those who may be deemed affiliates of the Company as of March 5, 1999, was 
approximately $1,164,000.  Shares of Common Stock held by each executive 
officer and director and by each person who owns 5% or more of the outstanding 
Common Stock have been excluded in that such persons may under certain 
circumstances be deemed to be affiliates.  This determination of executive 
officer or affiliate status is not necessarily a conclusive determination for 
other purposes.

     The number of shares of the Registrant's Common Stock outstanding as of 
March 5, 1999 was 14,142,642.

                   DOCUMENT INCORPORATED BY REFERENCE

     Portions of the Proxy Statement for the Registrant's 1998 Annual Meeting 
of Stockholders are incorporated by reference in Part III of this Form 10-K.

                                     Page 1

<PAGE>

                             TABLE OF CONTENTS
<TABLE>
                                                                      Page
<S>                                                                   <C>
Part I

    Item 1.   Business...............................................   3
    Item 2.   Properties.............................................  11
    Item 3.   Legal Proceedings......................................  11
    Item 4.   Submission of Matters to a Vote of Security Holders....  12

Part II

    Item 5.   Market for Registrant's Common Equity and Related
              Stockholder Matters....................................  13
    Item 6.   Selected Financial Data................................  14
    Item 7.   Management's Discussion and Analysis of Financial
              Condition and Results of Operations....................  15
    Item 7a.  Quantitative and Qualitative Disclosures About Market
              Risk...................................................  23
    Item 8.   Financial Statements and Supplemental Data.............  24
    Item 9.   Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosure....................  48

Part III

    Item 10.  Directors and Executive Officers of the Registrant.....  49
    Item 11.  Executive Compensation.................................  49
    Item 12.  Security Ownership of Certain Beneficial Owners and
              Management.............................................  49
    Item 13.  Certain Relationships and Related Transactions.........  49

Part IV

    Item 14.  Exhibits, Financial Statement Schedules and Reports
              on Form 8-K............................................  49

SIGNATURES...........................................................  52

</TABLE>

                                     Page 2
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                                     PART I
                                     ------  

    This Report on Form 10-K contains forward-looking statements within the 
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the 
Securities Exchange Act of 1934.  Actual results could differ materially from 
those projected in the forward-looking statements as a result of the risk 
related factors set forth herein.

Item 1.  Business
-----------------   

     Integrated Packaging Assembly Corporation ("IPAC") is a leading 
independent North American semiconductor packaging foundry.  The Company 
receives wafers from its customers and assembles each integrated circuit in a 
protective plastic package.  The Company's packaging facilities are located in 
San Jose, California in close proximity to its customers and the end-users of 
its customers' products.  Due to intense competitive pressures in the 
electronics industry, semiconductor companies are faced with increasingly 
shorter product life cycles and therefore have a need to reduce the time it 
takes to bring a product to market.  The Company believes that its close 
proximity to its customers promotes quicker turnaround design, prototype 
production and final product delivery to its North American customers, 
compared to its principal competitors which are primarily located in Asia.

Manufacturing

Semiconductor Packaging Services

     The Company has focused on packages designed for assembly using Surface 
Mount Technology ("SMT") in which leads on integrated circuits are soldered to 
the surface of the printed circuit board.  Within the SMT market, the Company 
focuses on high pin-count packages, such as Quad Flat Packages ("QFPs") and 
Thin Quad Flat Packages ("TQFPs").  The Company offers twelve different QFP and 
TQFP families with body sizes ranging from 7x7 mm to 32x32 mm, and with the 
number of leads available in certain package families ranging from 44 to 376 
leads.  Integrated circuits packaged by the Company are used in the following 
applications: personal computers, modems, disk drives, automobiles, cameras 
and telecommunications, among others.  The Company also offers a limited 
number of packages for emerging packaging technologies, such as Ball Grid 
Array ("BGA") packages.  Since inception, QFPs and TQFPs have accounted for 
substantially all of the Company's packaging revenues.

     Packaging involves several manufacturing operations, which are highly 
automated to facilitate high volume production.  The assembly process begins 
with the mounting of a finished, tested wafer onto a carrier.  After a dicing 
saw cuts the wafer into individual die, the cut wafer is moved to a die bonder 
which picks each good die off the wafer and bonds it to a lead frame with 
epoxy resin.  A lead frame is a miniature sheet of metal, generally made of 
copper with selective silver plating on which the pattern of input/output 
(I/0) leads has been cut.  Next, very fine (typically 0.001 inches in 
diameter) gold wires are connected to the die and the leads through the use of 
automated machines known as wire bonders.  These wire leads provide the 
electrical path necessary for the device to function.  Each die is then 
encapsulated in a plastic casing and marked.  The leads protruding from the 
finished casing are then plated with a tin and lead composition to permit the 
leads to be connected to the printed circuit board.  At the end of the 
packaging process, the leads are trimmed and formed into requisite shapes.  
After this packaging process is complete, the devices undergo final inspection 
and are prepared for shipment.

     The Company has expended substantial resources to significantly expand 
its production capacity since inception.  The Company shipped approximately 
1.6 million devices in 1994, approximately 10.5 million devices in 1995, 
approximately 18.1 million devices in 1996, approximately 11.9 million devices 
in 1997 and approximately 19.8 million devices in 1998. Since the fourth 
quarter of 1996, the Company has had available 

                                     Page 3

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manufacturing capacity.  The Company's manufacturing capacity utilization is a 
function of the mix of different package types produced by the Company at any 
one time and the proportion of standard production runs compared to expedited 
production runs.  Thus, as the Company shifts its production among different 
package types or allocates a different amount of available capacity to 
standard production runs, the rate of the Company's capacity utilization 
changes, at times significantly.

     The Company has made substantial investments in expanding its 
manufacturing capacity during its operating history, in anticipation of 
increased future business.  Since early 1997, the Company has incurred net 
losses as revenues dropped substantially, while overhead and fixed costs 
increased, with the result that there was substantial underutilized 
manufacturing capacity.  The Company continues to operate with significant 
underutilized capacity.  There can be no assurance that the Company will 
receive orders from new or existing customers that will enable it to utilize 
such manufacturing capacity in a timely manner.

     The Company's inability to generate the additional revenues necessary to 
more fully utilize its capacity has had and will continue to have a material 
adverse effect on the Company's business, financial condition and results of 
operations.

     The Company believes that its competitive position depends on its ability 
to have sufficient capacity to meet anticipated customer demand.  Accordingly, 
although the Company currently has available manufacturing capacity, the 
Company will continue to selectively invest to expand such capacity, 
particularly through the acquisition of capital equipment, including equipment 
for new packages (e.g. BGA and CSP).  There can be no assurance that the 
Company will be able to utilize such capacity, that the cost of such expansion 
will not exceed management's current estimates or that such capacity will not 
exceed the demand for the Company's services.  In addition, expansion of the 
Company's manufacturing capacity will continue to significantly increase its 
fixed costs, and the future profitability of the Company will depend on its 
ability to utilize its manufacturing capacity in an effective manner.  The 
Company's inability to generate the additional production volume necessary to 
fully utilize its capacity had a material adverse effect on its business, 
financial and results of operation during 1997 and 1998 and would continue to 
have a material adverse effect on the Company's future business, financial 
condition and results of operations.

     The semiconductor packaging business is capital intensive and requires a 
substantial amount of highly automated, expensive capital equipment which is 
manufactured by a limited number of suppliers, many of which are located in 
Asia or Europe.  The Company's operations are significantly dependent upon the 
Company's ability to obtain capital equipment for its manufacturing operations 
in a timely manner.  In this regard, the Company spent $4.6 million, including 
$3.1 million under a capital lease, in 1998 and expects to spend up to $3.0 
million to purchase capital equipment in 1999.  The Company currently 
purchases capital equipment from a limited group of suppliers including Dai-
Ichi Seiko Co., Ltd., ESEC SA and Kaijo Corporation.  The Company has no long 
term agreement with any such supplier and acquires such equipment on a 
purchase order basis.  The market for capital equipment used in semiconductor 
packaging has at times been characterized by intense demand, limited supply 
and long delivery cycles.  The Company's dependence on such equipment 
suppliers poses substantial risks.  Should any of the Company's major 
suppliers be unable or unwilling to provide the Company with high quality 
capital equipment in amounts necessary to meet the Company's requirements, the 
Company would experience severe difficulty locating alternative suppliers in a 
timely fashion and its operations could be materially adversely affected.  In 
this regard, in the second half of 1996, the Company experienced problems with 
the performance of certain capital equipment which resulted in manufacturing 
inefficiencies.  These equipment problems had a material adverse effect on the 
Company's financial results in the fourth quarter of 1996.  Any further 
problems with such capital equipment or any prolonged delay in equipment 
shipments by key suppliers or an inability to locate alternative equipment 
suppliers could have a material adverse effect on the Company's business, 
financial condition and results of operations and could result in damage to 
customer relationships.  Moreover, increased levels of demand in the capital 
equipment market may cause an increase in the price of equipment, further 
lengthen delivery cycles and

                                     Page 4

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limit the ability of suppliers to adequately service equipment following 
delivery, any of which could have an adverse effect on the Company's business, 
financial condition or results of operations.  In addition, adverse 
fluctuations in foreign currency exchange rates, particularly the Japanese 
yen, could result in increased prices for capital equipment purchased by the 
Company, which could have a material adverse effect on the Company's business, 
financial condition and results of operations.

     The Company currently outsources some of its electroplating of the copper 
leads protruding from the plastic moldings with a tin and lead composition 
from International Lead Frame Corporation, a subsidiary of Mitsui High-Tec, 
Inc., and Hytek Finishes, Inc.  The Company has no long term agreement with 
either supplier and such services are provided on a purchase order basis.  
From time to time, the Company's plating subcontractors have experienced 
significant manufacturing problems. There can be no assurance that the 
Company's subcontractors will not experience manufacturing problems in the 
future or that such problems will not result in increased costs or production 
delays which could have a material adverse effect on the Company's business, 
financial condition and results of operations.  In 1998, the Company installed 
an advanced electroplating system at a leased facility in Milpitas, 
California, approximately 2 miles from the Company's main facility.  The 
Company currently plates approximately 70% of its devices at this facility.

Quality Control

     The Company believes that total quality management is a vital component 
of customer satisfaction and internal productivity.  The Company has 
established quality control systems, which are designed to maintain acceptable 
manufacturing yields at high volume production.  The Company has also 
developed a sophisticated proprietary software program for material resource 
planning, shop floor control, work in process tracking, statistical process 
control and product costing.  The Company obtained certification for its 
packaging operations pursuant to ISO 9002 in December 1996.

     As of December 31, 1998, the Company's quality control staff consisted of 
10 engineers, technicians and other employees who monitor the Company's design 
and production processes in order to ensure high quality.  These employees 
include line inspectors who work with members of the production staff to 
conduct examination, testing and fine-tuning of products during the production 
process.  Quality control personnel are involved from initial design to 
production.  The quality control staff also collects and analyzes data from 
various stages of the production process which is used by the Company for 
statistical process control.

     The semiconductor packaging process is complex and product quality and 
reliability is subject to a wide variety of factors.  Defective packaging can 
result from a number of factors, including the level of contaminants in the 
manufacturing environment, human error, equipment malfunction, use of 
defective raw materials, defective plating services and inadequate sample 
testing.  From time to time, the Company has experienced lower than 
anticipated production yields as a result of such factors.  The Company's 
failure to maintain high quality production standards or acceptable production 
yields would likely result in loss of customers, delays in shipments, 
increased costs, cancellation of orders and product returns for rework, any of 
which could have a material adverse effect on the Company's business, 
financial condition and results of operations.

Dependence on Raw Materials Suppliers

  	To maintain competitive manufacturing operations, the Company must 
obtain from its suppliers, in a timely manner, sufficient quantities of 
acceptable materials at expected prices.  The Company sources most of its raw 
materials, including critical materials such as lead frames and die attach 
compound, from a limited group of suppliers.  Substantially all molding 
compound, a critical raw material, is obtained from a single supplier.  From 
time to time, suppliers have extended lead times or limited the supply of 
required materials to the Company because of supplier capacity constraints 
and, consequently, the Company has experienced difficulty in obtaining 
acceptable raw materials on a timely basis.  In addition, from time to time, 
the

                                     Page 5

<PAGE>


Company has rejected materials from those suppliers that do not meet its 
specifications, resulting in declines in output or yield.  Any interruption in 
the availability of or reduction in the quality of materials from these 
suppliers would materially adversely affect the Company's business, financial 
condition and results of operations.  For example, in the second quarter of 
fiscal 1996, the Company's revenues were adversely affected by the rejection 
of a batch of key material.  The Company's ability to respond to increased 
orders would also be adversely affected if the Company is not able to obtain 
increased supplies of key raw materials.

     The Company purchases all of its materials on a purchase order basis and 
has no long term contracts with any of its suppliers.  There can be no 
assurance that the Company will be able to obtain sufficient quantities of raw 
materials and other supplies.  The Company's business, financial condition and 
results of operations would be materially adversely affected if it were unable 
to obtain sufficient quantities of raw materials and other supplies in a 
timely manner or if there were significant increases in the costs of raw 
materials that the Company could not pass on to its customers.

Marketing and Sales

     The Company's business is substantially affected by market conditions in 
the semiconductor industry, which is highly cyclical and, at various times, 
has been subject to significant economic downturns and characterized by 
reduced product demand, rapid erosion of average selling prices and production 
over capacity.  In addition, rapid technological change, evolving industry 
standards, intense competition and fluctuations in end user demand 
characterize the markets for integrated circuits.  Because the Company's 
business is entirely dependent on the requirements of semiconductor companies 
for independent packaging foundries, any downturn in the semiconductor 
industry is expected to have an adverse effect on the Company's business, 
financial condition and results of operations.   For example, delays or 
rescheduling of orders due to a downturn or anticipated downturn in the 
semiconductor industry have in the past and could in the future have a 
material adverse effect on the Company's business, operating results and 
financial condition.

     The semiconductor industry is comprised of different market segments 
based on device type and the end use of the device.  Accordingly, within the 
semiconductor industry, demand for production in a particular segment may be 
subject to more significant fluctuations than other segments.  If any of the 
Company's significant customers are in a segment which has experienced adverse 
market conditions, there would be an adverse effect on the Company's business, 
financial condition and operating results.  In this regard, the Company has 
experienced a significant decline in orders since 1996 which the Company 
attributes in part to reduced demand for semiconductors manufactured by 
certain of the Company's customers that serve, in particular, the personal 
computer market.  There can be no assurance that this reduced demand, or the 
general economic conditions underlying such demand, will not continue to 
adversely affect the Company's results of operations.   Furthermore, there can 
be no assurance that any such continuation or expansion of this reduced demand 
will not result in an additional and significant decline in the demand for the 
products produced by the Company's customers and a corresponding material 
adverse impact on the Company's business, operating results and financial 
condition.

     In addition, the Company has been substantially dependent on a relatively 
small number of customers within the semiconductor industry.  The high 
concentration of business with a limited number of customers has adversely 
affected the Company's operating results, when business volume dropped 
substantially for several customers.  There can be no assurance that such 
customers or any other customers will continue to place orders with the 
Company in the future at the same levels as in prior periods.  The Company's 
need for additional financing, and the uncertainty as to whether such 
financing can be obtained, has adversely affected the Company's ability to 
obtain new customers.  The loss of one or more of the Company's customers, or 
reduced orders by any of its key customers, would adversely affect the 
Company's business, financial condition and

                                     Page 6

<PAGE>


results of operations.

     The Company's marketing and sales efforts are focused on North American 
semiconductor companies that design or manufacture IC devices which are used 
in applications such as personal computers, modems, disk drives and 
telecommunication products.  Within such markets, the Company emphasizes 
packaging complex, high pin-count products.  The Company sells its services 
directly through its sales and customer support organization.  The Company 
assists its customers in evaluating designs with respect to manufacturability 
and when appropriate recommends design changes to reduce manufacturing costs 
and lead times.  The Company also offers lead frame design services for a fee.

     To date, the Company has been substantially dependent on a relatively 
small number of customers.  Specifically, Atmel, Cirrus Logic and Ford 
accounted for 39%, 11%, and 11%, respectively, of the Company's revenues in 
1998. Cirrus Logic, Intel Corporation and Atmel accounted for 17%, 16% and 
14%, respectively, of the Company's revenues in 1997.  Cirrus Logic, Tseng 
Laboratories, and Intel Corporation accounted for 32%, 17% and 14%, 
respectively, of the Company's revenues in 1996.  The Company anticipates that 
significant customer concentration will continue, although the companies which 
constitute the Company's largest customers may change from period to period.

     All of the Company's customers operate in the cyclical semiconductor 
business and their order levels may vary significantly from period to period.  
In addition, there can be no assurance that such customers or any other 
customers will continue to place orders with the Company in the future at the 
same levels as in prior periods.  In this regard, Ford recently announced that 
it will stop manufacturing the automotive components that the Company 
packages, by the end of 1999.  As a result, the Company does not expect any 
significant revenue from Ford during the second half of 1999.  There can be no 
assurance that adverse developments in the semiconductor industry will not 
adversely affect the Company's business, financial condition and results of 
operations.  The loss of one or more of the Company's customers, or reduced 
orders by any of its key customers, would adversely affect the Company's 
business, financial condition and results of operations.  The Company ships 
its products in accordance with customer purchase orders and upon receipt of 
semiconductor wafers from its customers.  The Company generally ships products 
within one to seven days after receiving the customer's wafers, and, 
accordingly, the Company has not, to date, had a material backlog of orders.  
The Company expects that revenues in any quarter will be substantially 
dependent upon orders received in that quarter.  The Company's expense levels 
are based in part on its expectations of future revenues and the Company may 
be unable to adjust costs in a timely manner to compensate for any revenue 
shortfall.

Competition; Decline in Average Selling Prices

     The semiconductor packaging industry is highly competitive.  The Company 
currently faces substantial competition from established packaging foundries 
located in Asia, such as Advanced Semiconductor Assembly Technology in Hong 
Kong, Advanced Semiconductor Engineering, Inc. in Taiwan, ANAM in Korea, PT 
Astra in Indonesia and Swire Technologies in Hong Kong.  Each of these 
companies has significantly greater manufacturing capacity, financial 
resources, research and development operations, marketing and other 
capabilities than the Company and has been operating for a significantly 
longer period of time than the Company.  Such companies have also established 
relationships with many large semiconductor companies which are current or 
potential customers of the Company.  The Company could face substantial 
competition from Asian packaging foundries should one or more of such 
companies decide to establish foundry operations in North America.  The 
Company also faces competition from other independent, North American 
packaging foundries.  The Company also competes against companies which have 
in-house packaging capabilities as current and prospective customers 
constantly evaluate the Company's capabilities against the merits of in-house 
packaging.  Many of the Company's customers are also customers of one or more 
of the Company's principal competitors.  The principal elements of competition 
in the semiconductor packaging market include delivery cycle times, price, 
product performance, quality, production yield, responsiveness and 
flexibility, reliability and

                                     Page 7

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the ability to design and incorporate product improvements.  The Company 
believes it principally competes on the basis of shorter delivery cycle times 
it can offer customers due to the close proximity of its manufacturing 
facility to its customers' operations and the end users of its customers' 
products.

     Since mid-1996, the Company has experienced a decline in the average 
selling prices for a number of its products.  The Company expects that average 
selling prices for its products will continue to decline in the future, 
principally due to intense competitive conditions.  A decline in average 
selling prices of the Company's products, if not offset by reductions in the 
cost of producing those products, would continue to decrease the Company's 
gross margins and materially and adversely affect the Company's business, 
financial condition and results of operations.  There can be no assurance that 
the Company will be able to reduce its cost per unit.

Research and Development

     The Company's research and development efforts are focused on improving 
the efficiency and capabilities of its production processes, and on developing 
new packages by making improvements upon commercially available materials and 
technology.  The Company's research and development efforts are focused on 
improving existing technology, such as developing thermally enhanced QFPs that 
result in better heat dissipation, and emerging packaging technologies, such 
as BGA packages that provide for an increased number of leads per device 
without increasing the size of the functional integrated circuit and Chip 
Scale Packaging ("CSP").  Although the Company did not ship significant 
quantities of BGA devices in 1998, it believes that the increased pin count 
made available by BGA technology is an important technology that will enable 
the Company to provide new packaging services to its customers.  The Company 
also works closely with the manufacturers of its packaging equipment in 
designing and modifying the equipment used in the Company's production 
process. 

     As of December 31, 1998, the Company employed 5 persons in research and 
development activities.  In addition, other management and operational 
personnel are involved in research and development activities.  The Company 
supplements its research and development efforts with alliances and technology 
licensing agreements. For example, the Company is a member of an ARPA-TRP 
consortium working to enhance cooperation and participation by United States 
companies in assembly and packaging technology.  In 1998, 1997 and 1996, the 
Company's research and development expenses were approximately $1,101,000, 
$1,276,000, and $1,053,000, respectively.  The Company expects to continue to 
invest significant resources in research and development.

     The Company has focused its manufacturing resources on plastic QFPs for 
use with SMT, and the Company has neither the capability nor the intent to 
provide services to other substantial segments of the semiconductor packaging 
market.  For example, the Company has no capacity to manufacture packages for 
use with PTH technology, nor does the Company presently intend to manufacture 
packages using materials other than plastic, such as ceramic.  BGA packaging 
currently represents a very small, but increasing, portion of the Company's 
overall revenues and a relatively small portion of the overall semiconductor 
packaging market.  Technological change in the semiconductor packaging 
industry is continuous and in the future semiconductor manufacturers are 
expected to require increased technological and manufacturing expertise.  The 
introduction of new packaging technologies, a reduction or shift away from 
QFP's, or the failure of the market for BGA packaging to develop would result 
in a material adverse effect on the Company's business, financial condition 
and results of operations.

Intellectual Property

     The Company's success depends in part on its ability to obtain patents 
and licenses and to preserve other intellectual property rights relating to 
its manufacturing processes.  As of December 31, 1998, the Company held ten 
U.S. patents, which expire, between 2012 and 2015, and four additional patent 
applications have been filed and are pending.  The Company expects to continue 
to file patent applications when appropriate to protect

                                     Page 8

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its proprietary technologies; however, the Company believes that its continued 
success depends primarily on factors such as the technological skills and 
innovation of its personnel rather than on its patents.  The process of 
seeking patent protection can be expensive and time consuming.  There can be 
no assurance that patents will issue from pending or future applications or 
that, if patents are issued, they will not be challenged, invalidated or 
circumvented, or that rights granted thereunder will provide meaningful 
protection or other commercial advantage to the Company.  Moreover, there can 
be no assurance that any patent rights will be upheld in the future or that 
the Company will be able to preserve any of its other intellectual property 
rights.

     As is typical in the semiconductor industry, the Company may receive 
communications from third parties asserting patents on certain of the 
Company's technologies.  The Company has received one such letter from a 
competitor. However, in this case and in the event any other third party were 
to make a valid claim and a license were not available on commercially 
reasonable terms, the Company's business, financial condition and results of 
operations could be materially and adversely affected.  Litigation, which 
could result in substantial cost to and diversion of resources of the Company, 
may also be necessary to enforce patents or other intellectual property rights 
of the Company or to defend the Company against claimed infringement of the 
rights of others.  The failure to obtain necessary licenses or the occurrence 
of litigation relating to patent infringement or other intellectual property 
matters could have a material adverse effect on the Company's business, 
financial condition and results of operations.

Environmental Matters

     The semiconductor packaging process involves a significant amount of 
chemicals and gases which are subject to extensive governmental regulations.  
For example, liquid waste is produced at the stage at which silicon wafers are 
diced into chips with the aid of diamond saws and cooled with running water.  
In addition, excess materials on leads and moldings are removed from packaged 
semiconductors in the trim and form process.  The Company has installed 
equipment to collect certain solvents used in connection with its 
manufacturing process and has contracted with independent waste disposal 
companies to remove such hazardous material.

     In 1998, the Company installed an advanced electroplating system at a 
leased facility in Milpitas, California.  This plating operation involves the 
use of significant quantities of certain hazardous substances.  Although the 
Company has designed procedures to ensure such materials are handled in 
compliance with applicable regulations, there can be no assurance that the 
operation of such facility will not expose the Company to additional costs in 
complying with environmental regulations or result in future liability to the 
Company.

     Federal, state and local regulations impose various controls on the 
storage, handling, discharge and disposal of chemicals used in the Company's 
manufacturing process and on the facility occupied by the Company.  The 
Company believes that its activities conform to present environmental and land 
use regulations applicable to its operations and its current facility.  
Increasing public attention has, however, been focused on the environmental 
impact of semiconductor manufacturing operations and the risk to neighbors of 
chemical releases from such operations.  There can be no assurance that 
applicable land use and environmental regulations will not in the future 
impose the need for additional capital equipment or other process requirements 
upon the Company or restrict the Company's ability to expand its operations.  
The adoption of new ordinances or similar measures or any failure by the 
Company to comply with applicable environment and land use regulations or to 
restrict the discharge of hazardous substances could subject the Company to 
future liability or cause its manufacturing operations to be curtailed or 
suspended.

Employees

     As of December 31, 1998, the Company had 245 full time employees, 218 of 
whom were engaged in manufacturing, 5 in research and development, 8 in sales 
and customer service and 14 in finance and 

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administration.  The Company's employees are not represented by any collective 
bargaining agreement, and the Company has never experienced a work stoppage.  
The Company believes that its employee relations are good. The success of the 
Company's future operations depends in large part on the Company's ability to 
attract and retain highly skilled technical, manufacturing and management 
personnel.  There can be no assurance that the Company will be successful in 
attracting and retaining key personnel.

Executive Officers

     The executive officers of the Company are as follows:

Name                       Age                Position(s)
------------------------  -----  -----------------------------------------
Patrick Verderico           55    President, Chief Executive Officer and
                                  Director
Ernest G. Barrieau II       43    Executive Vice President, Sales and
                                  Marketing
Gerald K. Fehr              61    Executive Vice President, Operations
                                  and Chief Technology Officer
Alfred V. Larrenaga         51    Executive Vice President, Finance and
                                  Chief Financial Officer

     Patrick Verderico joined the Company in April 1997 as its Chief Operating 
Officer and was appointed the Company's President and Chief Executive Officer 
and a Director in July 1997.  From 1996 to 1997, Mr. Verderico was Chief 
Operating Officer and Executive Vice President of Maxtor Corporation, a disk 
drive manufacturer.  From 1994 to 1996, Mr. Verderico was Chief Financial 
Officer and Vice President Finance and Administration of Creative Technology, 
a multi media products company.  From 1992 to 1994, Mr. Verderico was Chief 
Financial Officer and Vice President Finance and Administration of Cypress 
Semiconductor.  Prior to 1992, Mr. Verderico held various management positions 
in finance and operations with Coopers & Lybrand, Philips Semiconductors and 
National Semiconductor.  Mr. Verderico is also a Director of Catalyst 
Semiconductor and Micro Component Technology, Inc.

     Ernest G. Barrieau joined the Company in October 1997 as its Executive 
Vice President, Sales and Marketing.  From 1996 to 1997, Mr. Barrieau was Vice 
President North American Sales of Alphatec Group, a semiconductor packaging 
company.  From 1991 to 1996, Mr. Barrieau was Corporate Vice President World 
Wide Sales and Marketing, and Director of Thai Micro Systems, a semiconductor 
packaging company. Prior to 1991, Mr. Barrieau held various management 
positions in sales and operations with Amkor Electronics and Fairchild 
Semiconductor.

     Gerald K. Fehr is a co-founder of the Company and has served as Vice 
President, Technology of the Company since March 1993 and Executive Vice 
President, Operations and Chief Technology Officer since December 1997.  From 
January 1991 to March 1993, Dr. Fehr served as an independent consultant in 
the semiconductor packaging industry.  From March 1981 to January 1991, Dr. 
Fehr served as Director of Packaging and Assembly for LSI Logic, Inc., a 
semiconductor company.  From June 1978 to March 1981, Dr. Fehr served as 
Manager of Packaging Operations of Burroughs, a semiconductor company.  From 
May 1975 to June 1978, Dr. Fehr served as Manager of Packaging Operations of 
Fairchild, a semiconductor corporation.  From 1968 to 1975, Dr. Fehr served as 
Manager of Assembly and Packaging for Intel Corporation.

     Alfred V. Larrenaga joined the Company in August 1997 as Vice President, 
Finance and Chief Financial Officer and became Executive Vice President, 
Finance and Chief Financial Officer in April 1998.  From 1988 to 1997, Mr. 
Larrenaga was Senior Vice President and Chief Financial Officer of Southwall 
Technologies Inc., a thin film technology company.  Prior to 1988, Mr. 
Larrenaga held various management positions in finance with Asyst Technologies 
Inc., the Farinon Division of Harris Corporation and Arthur Andersen & Co. 
LLP.

                                     Page 10

<PAGE>


     The Company's success depends to a significant extent upon the continued 
service of its key management and technical personnel, each of whom would be 
difficult to replace.  The competition for qualified employees is intense, and 
the loss of the services of key personnel or the inability to attract, retain 
and motivate qualified new personnel could have a material adverse effect on 
the Company's business, financial condition and results of operations. 

     Officers serve at the discretion of the Board and are appointed annually.  
There are no family relationships between the directors or officers of the 
Company.

Item 2.  Properties
-------------------    

     In January 1998, the Company sold its facility, which consisted of land 
and two buildings comprising approximately 138,000 square feet, and entered 
into a lease, with a initial term of ten years, for the approximately 82,000 
square foot building which it occupies and it uses for its manufacturing 
operations, executive offices and product development.  In November 1997, the 
Company leased a separate 2,500 square foot building, approximately 2 miles 
from the Company's principal facility, for its advanced electroplating system. 
The Company believes its existing facilities are adequate to meet its needs 
for the foreseeable future.  Since the Company does not currently operate 
multiple facilities in different geographic areas, a disruption of the 
Company's manufacturing operations resulting from various factors, including 
sustained process abnormalities, human error, government intervention or a 
natural disaster such as fire, earthquake or flood, could cause the Company to 
cease or limit its manufacturing operations and consequently would have a 
material adverse effect on the Company's business, financial condition and 
results of operations.

Item 3.  Legal Proceedings
--------------------------    

     At the end of the second quarter of 1998, the Company ceased making 
scheduled repayments of its debt balance outstanding relating to its Equipment 
Notes Payable and its capital leases.  Certain of these debt facilities 
require that the Company maintain certain financial covenants.  The Company 
has been out of compliance with certain of these covenants since the second 
quarter of 1998.  As a result of the covenant noncompliance and failure to 
make scheduled repayments, the Company is in default under these agreements.

     On October 13, 1998, Comerica Bank commenced an action against the 
Company in Superior Court, Santa Clara County, California (Case #CV 777252).  
Comerica seeks monetary damages of approximately $2,000,000 and recovery of 
leased personal property.  The Company has stipulated to the entry of a Writ 
of Possession and Comerica Bank has agreed to forbear execution of the Writ 
until after May 31, 1999.

     On September 22, 1998, Heller Financial, Inc. commenced an action against 
the Company in Superior Court, Santa Clara County, California (Case # CV 
776830).  Heller Financial, Inc. seeks monetary damages of approximately 
$1,050,000 and recovery of leased personal property.  The Company has 
stipulated to the entry of a Writ of Possession and Heller Financial, Inc. has 
agreed to forbear an execution of the Writ until after May 31, 1999.

     On September 28, 1998, The CIT Group/Equipment Financing, Inc. commenced 
an action against the Company in Superior Court, Santa Clara County, 
California (Case # CV 776836).  The CIT Group/Equipment Financing, Inc. seeks 
monetary damages of approximately $1,250,000 and recovery of leased personal 
property.  The Company has stipulated to the entry of a Writ of Possession and 
the CIT Group/Equipment Financing, Inc. has agreed to forbear execution of the 
Writ until after May 31, 1999.

     On November 18, 1998, Transamerica Business Credit Corporation commenced 
an action against the Company in Superior Court, Santa Clara County, 
California, (Case # CV778142).  Transamerica seeks monetary damages of 
approximately $3,800,000 and recovery of leased personal property.  The 
Company has

                                     Page 11

<PAGE>


stipulated to the entry of a Writ of Possession and Transamerica has agreed to 
forbear execution of the Writ until after May 31, 1999.

     On November 24, 1998, Phoenix Leasing Incorporated commenced an action 
against the Company in Superior Court, San Francisco County, California (Case 
#CV999461).  Phoenix seeks monetary damages of approximately $240,000 and 
recovery of leased personal property.  The Company has stipulated to the entry 
of a Writ of Possession and Phoenix Leasing has agreed to forbear the 
execution of the Writ until after May 31, 1999.

     The Company has also entered into forbearance agreements through May 31, 
1999 with three other secured creditors who have not yet commenced litigation 
against the Company.

     The Company does not have any material defenses to these actions.  An 
adverse outcome in any of these actions would have a material adverse effect 
on the Company.  If the forbearance agreements with the creditors do not 
remain in effect, the Company will be forced to seek protection under the 
bankruptcy laws or cease operations.

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

     Not Applicable.

                                     Page 12

<PAGE>


                                     Part II
                                     -------    

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters
------------------------------------------------------------------------------ 

     The Company effected the initial public offering of its Common Stock on 
February 28, 1996.  As of February 11, 1999, there were approximately 1,500 
beneficial owners of the Company's Common Stock.  The Company's Common Stock 
was delisted from the Nasdaq Stock Market in November 1998.  The Company's 
Common Stock is listed for quotation on the OTC Bulletin Board under the 
Symbol "IPAC."  The following table sets forth for the periods indicated, the 
high and low prices of the Company's Common Stock. 


<TABLE>
<CAPTION>
                                           High       Low    
                                        ---------- ----------
                                                             
<S>                                     <C>        <C>       
Fiscal Year Ended December 31, 1997
 
  First Quarter.........................    $8.50      $3.50 
  Second Quarter........................     5.00       2.50 
  Third Quarter.........................     4.00       2.00 
  Fourth Quarter........................     2.50       0.50 
                                                             
Fiscal Year Ended December 31, 1998                          
                                                             
  First Quarter.........................    $1.59      $0.69 
  Second Quarter........................     1.37       0.50 
  Third Quarter.........................     1.00       0.13 
  Fourth Quarter........................     0.25       0.06 
                                                             
</TABLE>


     The trading price of the Company's Common Stock is expected to continue 
to be subject to wide fluctuations in response to quarter-to-quarter 
variations in operating results, announcements of technological innovations or 
new products by the Company or its competitors, general conditions in the 
semiconductor industry, changes in earnings estimates or recommendations by 
analysts, the failure of the Company to meet or exceed published earnings 
estimates or other events or factors.  In addition, the public stock markets 
have experienced extreme price and trading volume volatility in recent months.  
This volatility has significantly affected the market prices of securities of 
many high technology companies for reasons frequently unrelated to the 
operating performance of the specific companies.  These broad market 
fluctuations may adversely affect the market price of the Company's Common 
Stock.  

     The Company has not paid any cash dividends on its Common Stock and 
currently intends to retain any future earnings for use in its business.  
Accordingly, the Company does not anticipate that any cash dividends will be 
declared or paid on the Common Stock in the foreseeable future.

                                     Page 13

<PAGE>


Item 6.  Selected Financial Data
--------------------------------   

<TABLE>
<CAPTION>
                                          Year Ended December 31, (1)         
                                  -------- -------- -------- --------- ---------
                                    1994     1995     1996      1997      1998  
                                  -------- -------- -------- --------- ---------
                                     (In thousands, except per share data)    
<S>                               <C>      <C>      <C>      <C>       <C>     
 
Statement of Operations Data:                                                 
  Revenues........................ $3,451  $20,764  $36,402   $19,744   $23,281 
  Cost of revenue.................  3,438   15,627   28,840    24,089    29,114 
                                  -------- -------- -------- --------- ---------
  Gross profit (loss).............     13    5,137    7,562    (4,345)   (5,833)
  Operating expenses:                                                         
    Selling, general and                                                      
      administrative..............  1,309    2,229    3,488     5,167     4,068 
    Research and development......    170      694    1,053     1,276     1,101 
    Provision for impairment                                                  
     of assets....................     --       --       --     3,000    18,200 
                                  -------- -------- -------- --------- ---------
      Total operating expenses....  1,479    2,923    4,541     9,443    23,369 
                                  -------- -------- -------- --------- ---------
  Operating income (loss)......... (1,466)   2,214    3,021   (13,788)  (29,202)
  Interest and other income.......     54      551    1,210       971     1,209 
  Interest expense................   (674)  (1,074)  (1,384)   (2,185)   (1,783)
                                  -------- -------- -------- --------- ---------
  Income (loss) before income                                                 
    taxes......................... (2,086)   1,691    2,847   (15,002)  (29,776)
  Provision for income taxes......     --     (141)    (530)      --       -- 
                                  -------- -------- -------- --------- ---------
  Net income (loss)...............$(2,086)  $1,550   $2,317  $(15,002) $(29,776)
                                  ======== ======== ======== ========= =========
  Diluted net income (loss)                                                   
    per share (1)................. ($1.02)   $0.16    $0.16    ($1.08)   ($2.12)
                                  ======== ======== ======== ========= =========
  Number of shares used to                                                    
    compute diluted per share                                                 
    data (1)......................  2,051    9,603   14,157    13,898    14,046 
                                  ======== ======== ======== ========= =========
 

                                                                             
                                     1994     1995     1996     1997      1998 
                                  -------- -------- -------- --------- ---------
  Balance Sheet Data:                                                         
    Working capital............... $2,075   $4,773  $15,614   ($5,877) ($16,086)
    Total assets.................. 13,310   28,260   69,639    55,482    18,728 
    Long-term obligations /                                                   
      deferred gains..............  5,371    7,015   16,926    14,249     1,249 
    Mandatorily redeemable                                                    
      convertible preferred stock.  8,020   15,981       --        --        -- 
    Total shareholders' equity                                                
      (deficit)................... (2,764)    (918)  40,761    26,238    (3,207)
                                                                              
</TABLE>

(1) See Note 1 of Notes to Financial Statements for an explanation of the
method used to determine shares used in computing per share amounts.

                                     Page 14

<PAGE>


Item 7.  Management's Discussion and Analysis of Financial Condition and 
         Results of Operations
------------------------------------------------------------------------  

     This Management's Discussion and Analysis of Financial Condition and 
Results of Operations contains forward looking statements within the meaning 
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of 
the Securities Exchange Act of 1934, as amended.   The forward looking 
statements contained herein are subject to certain factors that could cause 
actual results to differ materially from those reflected in the forward 
looking statements.  Such factors include, but are not limited to, those 
discussed as follows and elsewhere in this Report on Form 10-K.

Overview

     As a result of a reduction in orders from the Company's customers, the 
Company has had significant excess production capacity since the first quarter 
of 1997.  The reduction in revenues and underutilization of capacity and 
resultant underabsorption of fixed costs resulted in operating losses that 
have continued throughout 1998. At the end of the second quarter of 1998, the 
Company ceased making scheduled repayments of its debt balance outstanding 
relating to its Equipment Notes Payable and its capital leases.  Certain of 
these debt facilities require that the Company maintain certain financial 
covenants.  The Company has been out of compliance with certain of these 
covenants since the second quarter of 1998.  As a result of the covenant 
noncompliance and failure to make scheduled repayments, the entire balance due 
has been classified as a current liability since June 1998. Certain of the 
Company's secured creditors commenced legal actions against the Company 
seeking monetary damages and recovery of the financed equipment.  In December 
1998 the Company entered into a $7 million bank line of credit that is 
guaranteed by a third party and the Company obtained forbearance agreements 
from its secured creditors through May 31, 1999.  The forbearance agreements 
require, among other things, that the Company make monthly payments through 
May 31, 1999. The Company does not have any material defenses against the 
legal actions brought by its secured creditors.  An adverse outcome in any of 
the actions would have a material adverse effect on the Company and if the 
forbearance agreements do not remain in effect for each of these lenders, the 
Company will be forced to seek protection under the bankruptcy laws or cease 
operations.  As a result of the operating losses and cost of capital 
additions, the Company is currently seeking immediate additional financing to 
meet its projected working capital and other cash requirements.  The Report of 
Independent Accountants included on page 25 contains a going concern 
statement.

     The Company's operating results are affected by a wide variety of factors 
that have in the past and could in the future materially and adversely affect 
revenues, gross profit and operating income.  These factors include the 
Company's ability to secure additional financing, the short-term nature of its 
customers' commitments, timing and volume of orders relative to the Company's 
production capacity, long lead times for the manufacturing equipment required 
by the Company, evolutions in the life cycles of customers' products, timing 
of expenditures in anticipation of future orders, lack of a meaningful 
backlog, effectiveness in managing production processes, changes in costs and 
availability of labor, raw materials and components, costs to obtain materials 
on an expedited basis, mix of orders filled, the impact of price competition 
on the Company's average selling prices and changes in economic conditions.  
Unfavorable changes in any of the preceding factors have in the past and may 
in the future adversely affect the Company's business, financial condition and 
results of operations.

     The Company's business is substantially affected by market conditions in 
the semiconductor industry, which is highly cyclical and, at various times, 
has been subject to significant economic downturns and characterized by 
reduced product demand, rapid erosion of average selling prices and excess 
production capacity.  In addition, rapid technological change, evolving 
industry standards, intense competition and fluctuations in end-user demand 
characterize the markets for integrated circuits.  Since the Company's 
business is entirely dependent on the requirements of semiconductor companies 
for independent packaging

                                     Page 15

<PAGE>


foundries, any future downturn in the semiconductor industry is expected to 
have an adverse effect on the Company's business, financial condition and 
results of operations.  In this regard, since late 1996, the Company's results 
of operations have been materially adversely affected by reduced orders from 
several major customers in the PC graphics segment of the semiconductor 
industry.

     To date, the Company has been substantially dependent on a relatively 
small number of customers.  Specifically Atmel, Cirrus Logic and Ford 
accounted for 39%, 11%, and 11%, respectively, of the Company's revenues in 
1998.  Cirrus Logic, Intel Corporation and Atmel accounted for 17%, 16% and 
14%, respectively, of the Company's revenues in 1997.  Cirrus Logic, Tseng 
Laboratories, and Intel Corporation account for 32%, 17%, and 14%, 
respectively, of the Company's revenues in 1996.  The Company anticipates 
significant customer concentration will continue, although the companies which 
constitute the Company's largest customer may change from period to period.  
In this regard, Ford recently announced that it will stop manufacturing the 
automotive component that the Company packages, by the end of 1999.  As a 
result, the Company does not expect any significant revenue from Ford during 
the second half of 1999.

     During the second quarter of 1998, the Company recorded charges related 
to the impairment of its manufacturing equipment of $18.2 million. These 
charges related to recording reserves against the carrying value of 
manufacturing equipment.  The impairment is a result of continued adverse 
conditions in the semiconductor industry, and historical as well as forecasted 
manufacturing equipment underutilization, resulting in the estimation that the 
value of the manufacturing equipment will not be fully recovered.  The fair 
value of manufacturing equipment was based upon an independent estimate of 
fair values.

     Since 1996, the Company has experienced a decline in the average selling 
prices for its services and expects that average-selling prices for its 
services will decline in the future, principally due to intense competitive 
conditions.  A decline in average selling prices of the Company's services, if 
not offset by reductions in the cost of performing those services, would 
decrease the Company's gross margins and materially and adversely affect the 
Company's business, financial condition and results of operations.  There can 
be no assurance that the Company will be able to reduce its cost per unit.

     The Company must continue to hire and train significant numbers of 
additional personnel to operate the highly complex capital equipment required 
by its manufacturing operations.  There can be no assurance that the Company 
will be able to hire and properly train sufficient numbers of qualified 
personnel or to effectively manage such growth and its failure to do so could 
have a material adverse effect on the Company's business, financial condition 
and results of operations.  Furthermore, since the Company's expense levels 
are based in part on anticipated future revenue levels, if revenue were to 
fall below anticipated levels, the Company's operating results would be 
materially adversely affected.

                                     Page 16

<PAGE>


Results of Operations

     The following table sets forth, for the periods indicated, certain items 
in the Company's statement of operations as a percentage of revenues:


<TABLE>
<CAPTION>
                                                Year Ended December 31,      
                                          ----------------------------------
                                             1996       1997        1998    
                                          ---------- ----------- -----------
<S>                                       <C>        <C>         <C>        
 
Revenues..................................    100.0%     100.0%      100.0%
Cost of revenues..........................     79.2      122.0       125.0 
                                          ---------- ----------- -----------
Gross profit (loss).......................     20.8      (22.0)      (25.0)
Operating expenses:                                                         
   Selling, general and administrative....      9.6       26.2        17.5 
   Research and development...............      2.9        6.4         4.7 
   Provision for impairment of assets.....       --       15.2        78.2 
                                          ---------- ----------- -----------
      Total operating expenses............     12.5       47.8       100.4 
                                          ---------- ----------- -----------
Operating income (loss)...................      8.3      (69.8)     (125.4)
Interest and other income.................      3.3        4.9         5.2 
Interest expense..........................     (3.8)     (11.1)       (7.7)
                                          ---------- ----------- -----------
Income (loss) before income taxes.........      7.8      (76.0)     (127.9)
Provision for income taxes................     (1.4)        --          -- 
                                          ---------- ----------- -----------
Net income (loss).........................      6.4%     (76.0)%    (127.9)%
                                          ========== =========== ===========
                                                                             
</TABLE>


Revenues

     The Company recognizes revenues upon shipment of products to its 
customers.  Revenues increased 18% to $23.3 million in 1998, from $19.7 
million in 1997.  Revenues decreased 46% to $19.7 million in 1997, from $36.4 
million in 1996.  The increase in revenues in 1998 was primarily due to 
increased orders offset in part by a reduction in average selling prices due 
to changes in product mix and a decline in selling prices. The decrease in 
1997 revenues was primarily due to lower orders from customers, coupled with 
operational problems in quality and delivery. 

     A substantial portion of the Company's net revenues in each quarter 
results from shipments during the last month of that quarter, and for that 
reason, among others, the Company's revenues are subject to significant 
quarterly fluctuations.  In addition, the Company establishes its targeted 
expenditure levels based on expected revenues.  If anticipated orders and 
shipments in any quarter do not occur when expected, expenditure levels could 
be disproportionately high and the Company's operating results for that 
quarter would be materially adversely affected.

Gross Profit (Loss)

     Cost of revenues includes materials, labor, depreciation and overhead 
costs associated with semiconductor packaging.  Gross (loss) increased to 
$(5.8) million in 1998 from ($4.3) million in 1997.  Gross profit was $7.6 
million in 1996. Gross profit (loss) as a percentage of revenues was (25.0%) 
in 1998, (22.0%) in 1997 and 20.8% in 1996.  These declines in gross profit 
were primarily the result of lower average selling prices, caused by changes 
in product mix and industry competition, and higher costs for depreciation, 
labor and manufacturing overhead and low capacity utilization. 

     Depreciation for certain production machinery and equipment acquired 
prior to 1997 is calculated using the units of production method, in which 
depreciation is calculated based upon the units produced in a given period

                                     Page 17

<PAGE>


divided by the estimate of total units to be produced over its life following 
commencement of use. Such estimate is reassessed when facts and circumstances 
suggest a revision may be necessary. Based upon reduced utilization of 
machinery and equipment in relation to plan, the estimate for total throughput 
was reduced in late 1996 causing the depreciation rate per unit to increase in 
late 1996.  Such higher depreciation rate continued into 1997 and 1998.  In 
all cases, the asset will be fully depreciated by the end of its estimated six 
year life.  Compared with straight line depreciation, the units of production 
method generally results in lower depreciation expense during the early life 
of the equipment and relatively higher depreciation expense once the equipment 
is in full production.  All machinery and equipment acquired after 1996 is 
depreciated using the straight line depreciation method.  After the write down 
of impaired assets (see "Write Down of Impaired Assets" on page 18) in June 
1998, depreciation expense for the second half of 1998 was significantly lower 
than the first half of 1998.

Selling, General and Administrative

     Selling, general and administrative expenses consist primarily of costs 
associated with sales, customer service, finance, administration and 
management personnel, as well as advertising, public relations, legal and 
facilities costs.  Selling, general and administrative expenses were $4.1 
million in 1998, $5.2 million in 1997 and $3.5 million in 1996.  The decrease 
in 1998, compared to 1997, was due primarily to reduced spending in 
administration and sales.  The increase in 1997, compared to 1996, was due 
primarily to increases in staff, marketing efforts, and facilities to support 
the Company's expansion.

     As a percentage of revenues, selling, general and administrative expenses 
decreased to 17.5% in 1998 compared to 26.2% in 1997.  In 1996, the percentage 
was 9.6%.  The fluctuation in percentages reflects the changes in absolute 
spending and revenue.

Research and Development

     Research and development expenses consist primarily of the costs 
associated with research and development personnel, the cost of related 
materials and services, and the depreciation of development equipment.  
Research and development expenses were $1.1 million in 1998, $1.3 million in 
1997, and $1.1 million in 1996. 

     As a percentage of revenues, research and development expenses were 4.7% 
in 1998, 6.4% in 1997 and 2.9% in 1996.  The changes in such expenses as a 
percentage of revenues reflected changes in absolute spending and revenue. 

Write Down of Impaired Assets

     During the second quarter of 1998, the Company recorded charges related 
to the impairment of its manufacturing equipment of $18.2 million. These 
adjustments related to recording reserves against the carrying value of 
manufacturing equipment.  The impairment is a result of continued adverse 
conditions in the semiconductor industry, and historical as well as forecasted 
manufacturing equipment underutilization, resulting in the estimation that the 
value of the manufacturing equipment will not be fully recovered.  The fair 
value of manufacturing equipment was based upon an independent estimate of 
fair values.

     During the second quarter of 1997, the Company took a $3 million charge 
for impaired assets.  This charge included a $2.4 million reserve related to 
equipment used for the production of certain products with limited future 
demand, and a $500,000 reserve for the cancellation of purchase orders for 
equipment which the Company has determined to be surplus in relation to 
current demand. 

                                     Page 18

<PAGE>


Interest and Other Income

     Interest income in 1998, 1997, and 1996 was $83,000, $573,000, and 
$982,000, respectively. The reductions were due to lower investment balances, 
which resulted from the losses from operations and capital expenditures. 
Interest income for 1996, was the result of interest earned on proceeds from 
the Company's initial public offering which was completed in February 1996. In 
1998, other income included a gain of $700,000 from the sale of the land and 
building not occupied by the Company.  See "Liquidity and Capital Resources".  
In 1997 and 1996, other income included $124,000 and $228,000, which was 
earned for development work with a semiconductor industry consortium.  In 
1997, other income also included approximately $270,000 from the sublease of a 
portion of the Company's facilities complex, which was sold in 1998.  

Interest Expense

     Interest expense consists primarily of interest payable on bank debt, and 
capital leases and term loans secured by equipment.  The Company has financed 
its manufacturing equipment primarily through capital leases and term loans 
secured by equipment with terms ranging from four to five years, and carrying 
imputed interest rates ranging from 7.5% to 15.5% per annum.   Interest 
expense for 1998, 1997, and 1996 was $1.8 million, $2.2 million and $1.4 
million, respectively.

Provision for Income Taxes

     In 1998 and 1997, due to the losses from operations, the Company recorded 
no tax provision. The Company's provision for taxes in 1996 was $530,000, 
representing an effective tax rate of approximately 19%.  The effective tax 
rate represents alternative minimum tax ("AMT") resulting from limits on the 
use of net operating loss carry forwards for AMT purposes and tax accelerated 
depreciation on all machinery and equipment. 

Liquidity and Capital Resources

     During 1998, the Company's net cash used in operations was $6.7 million. 
Net cash used in operations was comprised primarily of a net loss of $29.8 
million, partially offset by $7.0 million of non-cash charges for depreciation 
and amortization and write down of impaired assets of $18.2 million and a net 
decrease in working capital items of $2.1 million.  The net decrease in 
working capital items primarily reflected a $3.3 million reduction in accounts 
payable and the reclassification of long-term debt to current liabilities as a 
result of the covenant non-compliance and the failure to make scheduled 
payments, as discussed previously.  As of December 31, 1998, the Company had 
no cash balance and is operating under bank lines obtained in October and 
December 1998.

     The Company had capital expenditures of $4.6 million, including $3.1 
million under a capital lease, during 1998. The capital expenditures were 
incurred primarily for the purchase of production equipment and improvements 
to the Company's facilities. Most of the Company's production equipment has 
been funded either through capital leases or term loans secured by production 
equipment.  The production equipment acquired in 1995 and 1996 was funded 
through several term loans.  The Company borrowed $4.9 million and $9.8 
million on such term loans in 1995 and 1996, respectively.  During 1997, the 
Company borrowed $3.5 million on such term loans for the purchase of 
production equipment.

     In March 1997, the Company secured a mortgage loan with an insurance 
company, which provided the Company with a $6.7 million five year term loan.  
The loan was secured by the real estate and buildings purchased by the Company 
in December 1996.  The loan accrued interest at 8.5%, and was payable in equal 
monthly installments of $58,000, with a balloon payment of $5.9 million due 
after five years.  The proceeds of this mortgage loan were used to pay off and 
retire the $6.5 million real estate loan which was entered into

                                     Page 19

<PAGE>


in December 1996 to provide temporary financing for the acquisition of the 
Company's building complex.  The loan accrued interest at 2.25% over the rate 
for 30 day certificates of deposit and was collateralized by a certificate of 
deposit of equivalent value.  

     In December 1997, the Company entered into a line of credit agreement 
with a bank that provided, for borrowings up to the lesser of $5,000,000 or 
80% of eligible accounts receivable. Borrowings under the line of credit 
accrued interest at the bank's prime rate (8.5% per annum at December 31, 
1997) plus 1.25% and were collateralized by the assets of the Company.  The 
agreement requires the Company to maintain certain financial covenants, 
including a liquidity ratio, minimum tangible net worth, maximum debt to 
tangible net worth, quarterly profitability and prohibited the Company from 
the payment of dividends without prior approval by the bank.  Since July 5, 
1998, the Company has not been in compliance with such covenants.  This line 
was replaced with an accounts receivable factoring agreement in October 1998.

     On January 20, 1998, the Company completed the sale of its facilities, 
which consists of land and two buildings with a total of 138,336 square feet 
of building space, and agreed to lease back the 82,290 square foot building 
that it occupies.  Net proceeds from the sale were $7.3 million, net of the 
elimination of $6.6 million of mortgage debt, fees, commissions and closing 
costs.  The sale and lease back transaction resulted in a gain of $2,100,000, 
of which $700,000 from the sale of the land and building not occupied by the 
Company was recognized in the first quarter of 1998.  The remaining gain of 
approximately $1,400,000 will be amortized as a reduction of lease expense 
over the initial ten year term of the lease for the building that the Company 
occupies.

     In June 1998, the Company entered in a capital lease for approximately 
$3.1 million of production equipment.  The lease expires in 2002.  In 
conjunction with the lease, the Company issued warrants to purchase 171,428 
shares of common stock at $1.31 per share and are exercisable for seven years.  
The warrants were valued at $132,000 using a Black-Scholes valuation model.

     At December 31, 1998, the aggregate principal and interest amount 
outstanding under all equipment loans was $12.9 million.  Certain of the 
credit facilities require the Company to maintain certain financial covenants 
including minimum tangible net worth, a ratio of total liabilities to tangible 
net worth, and quarterly revenues and quarterly income before interest, taxes, 
depreciation and amortization (EBITDA).  At December 31, 1998, the Company was 
not in compliance with such covenants.

     At the end of the second quarter of 1998, the Company ceased making 
scheduled repayments of its debt balance outstanding relating to its Equipment 
Notes Payable and its capital leases. Certain of these debt facilities require 
that the Company maintain certain financial covenants.  The Company has been 
out of compliance with certain of these covenants since the second quarter of 
1998.  As a result of the covenant noncompliance and failure to make scheduled 
repayments, the entire balance due has been classified as a current liability 
since June 1998.

     In October 1998, the Company entered into an accounts receivable 
factoring agreement with its bank that replaced its bank line of credit.  The 
agreement was amended in December 1998, and provides, through June 1, 1999, 
for borrowings up to the lesser of $2.8 million or 80% of eligible accounts 
receivable.  The bank charges an administration fee of 0.5% of the gross 
accounts receivable factored and a monthly interest charge of 1.25% of the 
average balance owed.

     In December 1998, the Company obtained an additional $7 million bank line 
of credit.  This line, which is guaranteed by a third party, is available to 
finance operations and working capital needs through May 31, 1999.  The line 
provides for monthly borrowings and interest acquired at the bank's prime 
rate, (7 3/4% per annum at December 31, 1998).

                                     Page 20

<PAGE>


     Certain of the Company's secured creditors commenced legal actions 
against the Company seeking monetary damages and recovery of the financed 
equipment.  In connection with the December 1998 bank financing, the Company 
obtained forbearance agreements from the secured creditors through May 31, 
1999.  The forbearance agreements require, among other things, that the 
Company make monthly payments through May 31, 1999.

     The Company is currently seeking immediate additional financing, to 
address its working capital needs and to provide funding for capital 
expenditures.  There can be no assurance, however, that financing will be 
available on terms acceptable to the Company, if at all.  If additional funds 
are raised through the issuance of equity securities, the percentage ownership 
of the Company's stockholders will be substantially diluted and such equity 
securities may have rights, preference or privileges senior to those of the 
holders of the Company's Common Stock.  If adequate funds are not available on 
acceptable terms, the Company's business, financial condition and results of 
operations would be materially adversely affected.  In such event, the Company 
would be required to substantially curtail, cease or liquidate its operations 
and reorganize its indebtedness.  Although the Company is pursuing additional 
equity and debt financing, there can be no assurance that such financing will 
be obtained.  The Company is also evaluating the possible sale or merger of 
the Company, but there can be no assurance that such a transaction can be 
completed on terms acceptable to the Company, if at all.

Year 2000

     The information provided below constitutes a "Year 2000 Readiness 
Disclosure" for purposes of the Year 2000 Information and Readiness Disclosure 
Act.

     The Year 2000 ("Y2K") problem arises from the use of a two-digit field to 
identify years in computer programs, e.g., 85=1985, and the assumption of a 
single century, the 1900s.  Any program so created may read or attempt to 
read, "00" as the year 1900.  There are two other related issues which could 
also, lead to incorrect calculations or failure, such as (i) some systems' 
programming assigns special meaning to certain dates, such as 9/9/99 and (ii) 
the year 2000 is a leap year.  Accordingly, some computer hardware and 
software including programs embedded within machinery and parts will need to 
be modified prior to the year 2000 in order to remain functional.  To address 
the issue, the Company created an internal task force to assess its state of 
readiness for possible "Year 2000" issues and take the necessary actions to 
ensure Year 2000 compliance.  The task force has and continues to evaluate 
internal business systems, production equipment, software and other components 
which affect the Company's products, and the Company's vulnerability to 
possible "Year 2000" exposures due to suppliers' and other third parties' lack 
of preparedness for the year 2000.

     The Company is in the process of assessing its production equipment and 
its information system and does not anticipate any material Year 2000 issues 
from its equipment or its own information system, databases or programs.  
Certain software packages are currently being upgraded to compliant versions.  
The costs incurred to date and expected to be incurred in the future are not 
material to the Company's financial condition or result of operations.  In 
addition, the Company has been in contact with its suppliers and other third 
parties to determine the extent to which they may be vulnerable to "Year 2000" 
issues.  As this assessment progresses, matters may come to the Company's 
attention, which could give rise to the need for remedial measures which have 
not yet been identified.  As a contingency, the Company may replace the 
suppliers and third party vendors who cannot demonstrate to the Company that 
their products or services will be Year 2000 compliant.  The Company cannot 
currently predict the potential effect of third parties' "Year 2000" issues on 
its business.

                                     Page 21

<PAGE>


     The Company believes that its Year 2000 compliance project will be 
completed in advance of the Year 2000 date transition and will not have a 
material adverse effect on the Company's financial condition or overall trends 
in the results of operations.  However, there can be no assurance that 
unexpected delays or problems, including the failure to ensure Year 2000, 
compliance by systems or products supplied to the Company by a third party, 
will not have an adverse effect on the Company, its financial performance, or 
the competitiveness or customer acceptance of its products.

Certain Factors Affecting Operating Results

     The Company's operating results are affected by a wide variety of factors 
that could materially and adversely affect revenues, gross profit, operating 
income and liquidity.  These factors include the Company's ability to secure 
additional financing, the short term nature of its customers' commitments, the 
timing and volume of orders relative to the Company's production capacity, 
long lead times for the manufacturing equipment required by the Company, 
evolutions in the life cycles of customers' products, timing of expenditures 
in anticipation of future orders, lack of a meaningful backlog, effectiveness 
in managing production processes, changes in costs and availability of labor, 
raw materials and components, costs to obtain materials on an expedited basis, 
mix of orders filled, the impact of price competition on the Company's average 
selling prices and changes in economic conditions.  The occurrence or 
continuation of unfavorable changes in any of the preceding factors would 
adversely affect the Company's business, financial condition and results of 
operations. 

Default Upon Senior Securities; Need for Immediate Financing; Risks of 
Bankruptcy

     At the end of the second quarter of 1998, the Company ceased making 
scheduled repayments of its debt balance outstanding relating to its Equipment 
Notes Payable and its capital leases. Certain of these debt facilities require 
that the Company maintain certain financial covenants.  The Company has been 
out of compliance with certain of these covenants since the second quarter of 
1998.  As a result of the covenant noncompliance and failure to make scheduled 
repayments, the entire balance due has been classified as a current liability 
since June 1998.
	
     In October 1998, the Company entered into an accounts receivable 
factoring agreement with its bank that replaced its bank line of credit.  The 
agreement was amended in December 1998, and provides, through June 1, 1999, 
for borrowings up to the lesser of $2.8 million or 80% of eligible accounts 
receivable.

     In December 1998, the Company obtained an additional $7 million bank line 
of credit.  This line, which is guaranteed by a third party, is available to 
finance operations and working capital needs through May 31, 1999.

     All of the Company's secured creditors commenced legal actions against 
the Company seeking monetary damages and recovery of the financed equipment.  
In connection with the December 1998 bank financing, the Company obtained 
forbearance agreements from the secured creditors through May 31, 1999.  The 
forbearance agreements require, among other things, that the Company make 
monthly payments through May 31, 1999.

     The Company is currently seeking immediate additional financing, to 
address its working capital needs and to provide funding for capital 
expenditures.  There can be no assurance, however, that financing will be 
available on terms acceptable to the Company, if at all.  If additional funds 
are raised through the issuance of equity securities, the percentage ownership 
of the Company's stockholders will be substantially diluted and such equity 
securities may have rights, preference or privileges senior to those of the 
holders of the Company's Common Stock.  If adequate funds are not available on 
acceptable terms, the Company's business, financial condition and results of 
operations would be materially adversely affected.  In such event,

                                     Page 22

<PAGE>


the Company would be required to substantially curtail, cease or liquidate its 
operations and reorganize its indebtedness.  Although the Company is pursuing 
additional equity and debt financing, there can be no assurance that such 
financing will be obtained.  The Company is also evaluating the possible sale 
or merger of the Company, but there can be no assurance that such a 
transaction can be completed on terms acceptable to the Company, if at all.

Delisting of Common Stock on Nasdaq National Market

     In June 1998, the Company was notified by The Nasdaq Stock Market that 
its Common Stock did not comply with Nasdaq's $1.00 minimum bid price 
requirement and that the Company's Common Stock would be delisted.  Effective 
November 18, 1998, the Company's Common Stock was delisted from the Nasdaq 
Stock Market.  The Common Stock of the Company is currently traded on the OTC 
Bulletin Board.


Item 7a.  Quantitative and Qualitative Disclosures about Market Risk
--------------------------------------------------------------------   

	The Company has various debt instruments outstanding that mature by 
2002.  Certain of these instruments have interest rates that are based on 
associated rates that may fluctuate over time based on economic changes in the 
environment, such as the Prime Rate.  The Company is subject to interest rate 
risk, and could be subjected to increased interest payments if market interest 
rates fluctuate.  The Company estimates that a ten percent increase in 
interest rates would cause interest expense to increase by an immaterial 
amount.

                                     Page 23

<PAGE>

Item 8.  Financial Statements and Supplementary Data
----------------------------------------------------    

INDEX TO FINANCIAL STATEMENTS:
                                                                   Page
                                                                   ----

Report of Independent Accountants.................................  25

Balance Sheet as of December 31, 1997 and 1998....................  26

Statement of Operations for the Years Ended December 31, 1996,
          1997 and 1998...........................................  27

Statement of Shareholders' Equity for the Years Ended
          December 31, 1996, 1997 and 1998........................  28

Statement of Cash Flows for the Years Ended December 31, 1996,
          1997 and 1998...........................................  29

Notes to Financial Statements.....................................  30



Financial Statement Schedules:

     All schedules are omitted because they are not applicable or the required 
information is shown in the financial statements or notes thereto.

                                     Page 24

<PAGE>


                     REPORT OF INDEPENDENT ACCOUNTANTS


To The Board of Directors and Shareholders of 
Integrated Packaging Assembly Corporation

     In our opinion, the financial statements listed in the accompanying index 
on page 24 present fairly, in all material respects, the financial position of 
Integrated Packaging Assembly Corporation at December 31, 1997 and 1998, and 
the results of its operations and its cash flows for each of the three years 
in the period ended December 31, 1998, in conformity with generally accepted 
accounting principles.  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 of these 
statements in accordance with generally accepted auditing standards which 
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, assessing the accounting principles 
used and significant estimates made by management, and evaluating the overall 
financial statement presentation.  We believe that our audits provide a 
reasonable basis for the opinion expressed above.

     The accompanying financial statements have been prepared assuming that 
the Company will continue as a going concern.  As discussed in Note 1 to the 
financial statements, the Company has suffered recurring losses from 
operations and has a net capital deficiency that raise substantial doubt about 
its ability to continue as a going concern.  Management's plans in regard to 
these matters are also described in Note 1.  The financial statements do not 
include any adjustments that might result from the outcome of this 
uncertainty.



PricewaterhouseCoopers LLP
San Jose, California
February 8, 1999

                                     Page 25

<PAGE>

               Integrated Packaging Assembly Corporation
                             Balance Sheet
                   (In thousands, except share data)
<TABLE>
<CAPTION>
                                                        Year Ended      
                                                       December 31,     
                                                   -------------------- 
                                                      1997       1998   
                                                   ---------- ----------
<S>                                                <C>        <C>       
Assets                                                                  
  Current assets:                                                       
    Cash and cash equivalents......................   $2,928        $-- 
    Accounts receivable, net of allowance for                           
      doubtful accounts of $263 and $263...........    3,096      2,105 
    Inventory......................................    2,337      1,704 
    Prepaid expenses and other current assets......      757        792 
                                                   ---------- ----------
    Total current assets...........................    9,118      4,601 
                                                                        
  Property and equipment, net......................   46,127     13,930 
  Other assets.....................................      237        197 
                                                   ---------- ----------
    Total assets...................................  $55,482    $18,728 
                                                   ========== ==========
                                                                        
Liabilities and Shareholders' Equity                                    
  Current liabilities:                                                  
    Current portion of bank debt and notes payable.   $4,576    $11,399 
    Current portion of capital lease obligations...    1,972      4,324 
    Accounts payable...............................    5,478      2,155 
    Accrued expenses and other liabilities.........    2,969      2,808 
                                                   ---------- ----------
      Total current liabilities....................   14,995     20,686 
                                                   ---------- ----------
  Long term portion of notes payable...............   14,166         -- 
                                                   ---------- ----------
  Long term portion of capital leases obligations..       83         -- 
                                                   ---------- ----------
  Deferred gain on sale of facilities..............       --      1,249 
                                                   ---------- ----------
  Commitments and contingencies (notes 1,5 and 10)                      
  Shareholders' equity                                                  
    Common stock, $.001 par value; 75,000,000                           
      shares authorized; 13,828,348 and 14,090,794                      
      shares issued and outstanding................       14         14 
    Additional paid-in capital.....................   40,276     40,607 
    Accumulated earnings (deficit).................  (14,052)   (43,828)
                                                   ---------- ----------
      Total shareholders' equity (deficit).........   26,238     (3,207)
                                                   ---------- ----------
      Total liabilities and shareholders' equity...  $55,482    $18,728 
                                                   ========== ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.


                                     Page 26

<PAGE>

                  Integrated Packaging Assembly Corporation
                           Statement of Operations
                    (In thousands, except per share data)
<TABLE>
<CAPTION>
                                                Year Ended December 31,      
                                          -----------------------------------
                                             1996        1997        1998    
                                          ----------- ----------- -----------
<S>                                       <C>         <C>         <C>        
 
   Revenues...............................   $36,402     $19,744     $23,281 
   Cost of revenues.......................    28,840      24,089      29,114 
                                          ----------- ----------- -----------
  Gross profit (loss).....................     7,562      (4,345)     (5,833)
  Operating expenses:                                                        
    Selling, general & administrative.....     3,488       5,167       4,068 
    Research & development................     1,053       1,276       1,101 
    Provision for impairment of assets....        --       3,000      18,200 
                                          ----------- ----------- -----------
      Total operating expenses............     4,541       9,443      23,369 
                                          ----------- ----------- -----------
  Operating income (loss).................     3,021     (13,788)    (29,202)
  Interest & other income.................     1,210         971       1,209 
  Interest expense........................    (1,384)     (2,185)     (1,783)
                                          ----------- ----------- -----------
  Income (loss) before income taxes.......     2,847     (15,002)    (29,776)
  Provision for income taxes..............      (530)         --          -- 
                                          ----------- ----------- -----------
  Net income (loss).......................    $2,317    ($15,002)   ($29,776)
                                          =========== =========== ===========
  Per Share data:                                                            
    Net income (loss) per share                                              
      Basic...............................     $0.20      ($1.08)     ($2.12)
                                          =========== =========== ===========
      Diluted.............................     $0.16      ($1.08)     ($2.12)
                                          =========== =========== ===========
  Number of shares used to compute                                           
    per share data:                                                          
    Basic.................................    11,730      13,898      14,046 
                                          =========== =========== ===========
    Diluted...............................    14,157      13,898      14,046 
                                          =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.


                                     Page 27

<PAGE>

                 Integrated Packaging Assembly Corporation
                     Statement of Shareholder's Equity
                               (In thousands)
<TABLE>
<CAPTION>
                                                          Accumulated            
                                           Common Stock   Earnings
                                          Shares   Amount (Deficit)  Totals
                                         -------- -------- -------- --------
<S>                                      <C>      <C>      <C>      <C>     
 
Balance at December 31, 1995.............  2,530     $449  ($1,367)   ($918)
  Sales of common stock, net of issuance                                    
    cost of $935.........................  3,450   23,111       --   23,111 
  Conversion of Mandatorily Redeemable                                      
    Convertible Preferred Stock into                                        
    Common Stock.........................  7,862   15,981       --   15,981 
  Common stock issued under stock plans..     93      182       --      182 
  Common stock repurchased under stock                                      
    plans................................    (73)     (17)      --      (17)
  Issuance of warrants...................     --       57       --       57 
  Amortization of deferred compensation..     --       48       --       48 
  Net income.............................     --       --    2,317    2,317 
                                         -------- -------- -------- --------
Balance at December 31, 1996............. 13,862   39,811      950   40,761 
  Common stock issued under stock plans..    127      352       --      352 
  Common stock repurchased under stock                                      
    plans................................   (161)     (15)      --      (15)
  Issuance of warrants...................     --       94       --       94 
  Amortization of deferred compensation..     --       48       --       48 
  Net (loss).............................     --       --  (15,002) (15,002)
                                         -------- -------- -------- --------
Balance at December 31, 1997............. 13,828   40,290  (14,052)  26,238 
  Common stock repurchased under stock                                      
    plans................................    265      152       --      152 
  Common stock repurchased under stock                                      
    plans................................     (2)      (1)      --       (1)
  Issuance of warrants...................     --      132       --      132 
  Amortization of deferred compensation..     --       48       --       48 
  Net (loss).............................     --       --  (29,776) (29,776)
                                         -------- -------- -------- --------
Balance at December 31, 1998............. 14,091  $40,621  ($43,828) ($3,207)
                                         ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of the financial statements.


                                     Page 28

<PAGE>

                  Integrated Packaging Assembly Corporation
                           Statement of Cash Flows
                           Increase (Decrease) Cash
                                (In thousands)
<TABLE>
<CAPTION>
                                                    Year Ended December 31,   
                                                 -----------------------------
                                                   1996      1997      1998   
                                                 --------- --------- ---------
<S>                                              <C>       <C>       <C>      
 
Cash flows from Operating Activities:                                         
  Net income (loss)..............................   2,317   (15,002)  (29,776)
                                                                              
  Adjustments:                                                                
    Depreciation and amortization................   3,316     6,426     6,957 
    Write down of impaired assets................      --     3,000    18,200 
    Gain on sale of facilities, net..............      --        --      (827)
    Changes in assets and liabilities:                                        
      Accounts receivable........................  (3,238)    3,045       990 
      Inventory..................................     164      (360)      633 
      Prepaid expenses and other assets..........    (161)     (320)     (233)
      Accounts payable...........................     679     2,944    (3,323)
      Accrued expenses and other liabilities.....   1,921    (1,369)      633 
                                                 --------- --------- ---------
  Net cash provided by (used in) operating                                    
    activities...................................   4,998    (1,636)   (6,746)
                                                 --------- --------- ---------
Cash flows provided by (used in) investing                                    
activities:                                                                   
  Acquisition of property and equipment.......... (27,744)  (12,351)   (1,507)
  Purchase of short-term investments............. (25,025)       --        -- 
  Sales & redemption of short-term investments...  22,000     3,025        -- 
  Proceeds from sale of facilities, net..........      --        --     7,312 
                                                 --------- --------- ---------
    Net cash provided by (used in) investing                                  
      activities................................. (30,769)   (9,326)    5,805 
                                                 --------- --------- ---------
Cash flows provided by (used in) financing                                    
activities:                                                                   
  Payments under capital lease obligations.......  (1,593)   (1,958)     (990)
  Principal payments on note payable.............  (1,819)  (10,506)   (4,639)
  Proceeds from note payable.....................  16,300    10,200     3,490 
  Proceeds from issuance of common stock, net....  23,276       337       152 
                                                 --------- --------- ---------
    Net cash provided by (used in) financing                                  
      activities.................................  36,164    (1,927)   (1,987)
                                                 --------- --------- ---------
Net increase (decrease) in cash..................  10,393   (12,889)   (2,928)
Cash and cash equivalents at beginning of period.   5,424    15,817     2,928 
                                                 --------- --------- ---------
Cash and cash equivalents at end of period....... $15,817    $2,928       $-- 
                                                 ========= ========= =========
Supplemental disclosure of cash flow information                              
  Cash paid for interest.........................  $1,240    $2,074    $1,124 
Supplemental disclosure of noncash financing                                  
activities                                                                    
  Acquisition of equipment under capital leases..    $147       $--    $3,139 
  Issuance of warrants...........................     $57       $94      $132 
                                                                              
</TABLE>

The accompanying notes are an integral part of the financial statements.

                                     Page 29

<PAGE>

	
                 INTEGRATED PACKAGING ASSEMBLY CORPORATION

                       NOTES TO FINANCIAL STATEMENTS 


NOTE 1-THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 

     Integrated Packaging Assembly Corporation (the "Company"), an 
independent semiconductor packaging foundry, was incorporated in California on 
April 28, 1992 and reincorporated in Delaware on June 19, 1997. The Company 
assembles and packages integrated circuits from wafers consigned by its 
customers.  The Company's focus is on quad flat packages ("QFPs"), thin quad 
flat packages ("TQFPs"), ball grid array packages ("BGAs") and chip scale 
packaging ("CSPs"), which are used in complex integrated circuits with high 
pin-counts in the personal computer and telecommunications industries.  The 
Company's operations are considered a single business segment within the 
United States.

Basis of Presentation	

     As a result of a reduction in orders from the Company's customers, the 
Company has significant excess production capacity.  The reduction in revenues 
and underutilization of capacity and resultant underabsorption of fixed costs 
resulted in operating losses which have continued into 1999.  As a result of 
the operating losses and cost of capital additions, the Company believes that 
it will need additional financing to meet its projected working capital and 
other cash requirements through 1999.  While there can be no assurance that 
the Company can obtain such financing when needed, the Company has taken 
actions to improve liquidity.

     In June 1998, the Company was notified by the Nasdaq Stock Market that 
its common stock did not comply with Nasdaq's $1.00 minimum bid price 
requirement and that the Company's Common Stock would be delisted.  Effective 
November 18, 1998, the Company's Common Stock was delisted from the Nasdaq 
Stock Market.  The Common Stock of the Company is currently traded on the OTC 
Bulletin Board.

     At the end of the second quarter of 1998, the Company ceased making 
scheduled repayments of its debt balance outstanding relating to its Equipment 
Notes Payable and its capital leases. Certain of these debt facilities require 
that the Company maintain certain financial covenants.  The Company has been 
out of compliance with certain of these covenants since the second quarter of 
1998.  As a result of the covenant noncompliance and failure to make scheduled 
repayments, the entire balance due has been classified as a current liability 
since June 1998.

     In October 1998, the Company entered into an accounts receivable 
factoring agreement with its bank that replaced its bank line of credit.  The 
agreement was amended in December 1998, and provides, through June 1, 1999, 
for borrowings up to the lesser of $2.8 million or 80% of eligible accounts 
receivable.

     In December 1998, the Company obtained an additional $7 million bank line 
of credit.  This line, which is guaranteed by a third party, is available to 
finance operations and working capital needs through May 31, 1999.

     Certain of the Company's secured creditors commenced legal actions 
against the Company seeking monetary damages and recovery of the financed 
equipment.  In connection with the December 1998 bank financing, the Company 
obtained forbearance agreements from the secured creditors through May 31, 
1999.  The forbearance agreements require, among other things, that the 
Company make monthly payments through May 31, 1999.

                                     Page 30

<PAGE>


                INTEGRATED PACKAGING ASSEMBLY CORPORATION

                     NOTES TO FINANCIAL STATEMENTS

     The Company does not have any material defenses against these legal 
actions.  An adverse outcome in any of the actions would have a material 
adverse effect on the Company and if the Company forbearance agreements do not 
remain in effect for each of the lenders, the Company will be forced to seek 
protection under the bankruptcy laws or cease operations.

     The Company is in the process of determining compliance of its systems as 
part of a program to address the risks related to the Year 2000 problem.  The
ability of the Company to complete the program is dependant upon the 
availability of sufficient financial resources to address any issue that may 
arise.  An inability to address the Year 2000 problem may have a material 
adverse effect on the Company.

     The Company is currently seeking immediate additional financing, to 
address its working capital needs and to provide funding for capital 
expenditures.  There can be no assurance, however, that financing will be 
available on terms acceptable to the Company, if at all.  If additional funds 
are raised through the issuance of equity securities, the percentage ownership 
of the Company's stockholders will be substantially diluted and such equity 
securities may have rights, preference or privileges senior to those of the 
holders of the Company's Common Stock.  If adequate funds are not available on 
acceptable terms, the Company's business, financial condition and results of 
operations would be materially adversely affected.  In such event, the Company 
would be required to substantially curtail, cease or liquidate its operations 
and reorganize its indebtedness.  Although the Company is pursuing additional 
equity and debt financing, there can be no assurance that such financing will 
be obtained.  The Company is also evaluating the possible sale or merger of 
the Company, but there can be no assurance that such a transaction can be 
completed on terms acceptable to the Company, if at all.

     These financial statements have been prepared on a going concern basis 
and, therefore, do not include any adjustment that might result from these 
uncertainties.

Fiscal year

     In 1997, the Company changed its fiscal year end to December 31. Prior to 
1997, the Company's fiscal quarters and year ended on the Sunday nearest the 
calendar quarter end and December 31, respectively. For purposes of financial 
statement presentation, each fiscal year is presented as having ended on 
December 31 and each fiscal quarter is presented as having ended on the 
calendar quarter end.  Fiscal year 1996 consisted of 52 weeks or 364 days. 
Fiscal 1997 consisted of 367 days.  Fiscal 1998 consisted of 365 days.  The 
effect of the different number days in the fiscal years on revenues and net 
income (loss) was insignificant. 

Cash equivalents and short term investments

     The Company considers all highly liquid investments purchased with an 
initial maturity of 90 days or less to be cash equivalents, and investments 
with original maturities of greater than 90 days to be short term investments.  
As of December 31, 1997, $1.1 million of the Company's cash and cash 
equivalents were restricted as collateral for letters of credit issued during 
1997 for the purchase of equipment.  

Inventory 

     Inventory, which primarily consists of raw material supplies such as gold 
wire, lead frames and mold compound, is stated at the lower of cost, 
determined by the first-in, first-out basis, or market. The Company holds 
product on consignment from its customers while services are being performed. 

                                     Page 31

<PAGE>

                INTEGRATED PACKAGING ASSEMBLY CORPORATION

                     NOTES TO FINANCIAL STATEMENTS

Property and equipment 

     Property and equipment are recorded at cost. For certain production 
machinery and equipment acquired prior to 1997, depreciation is calculated 
using the units of production method, in which depreciation is calculated 
based upon the units produced in a given period divided by the estimate of 
total units to be produced over its life following commencement of use. Such 
estimate is reassessed when facts and circumstances suggest a revision may be 
necessary.  In all cases the asset will be fully depreciated by the end of its 
estimated six-year life.  In late 1996, due to lower than expected 
utilization, the Company reduced its estimates of the number of units to be 
produced over the useful equipment life.  Accordingly, the depreciation rate 
per unit was increased and was not material to 1996 results.  The higher rate 
continued into 1997 and will continue until the assets are fully depreciated.   
Depreciation for all other property and equipment and all production machinery 
and equipment acquired after 1996 is computed using the straight-line method 
over the estimated useful lives of the assets, generally 3 to 6 years.

     In December 1996, the Company acquired a real estate parcel and 
facilities, including the building that it had operated in since 1993, for 
$9.2 million.  The Company has allocated its purchase cost among land, 
buildings and improvements in proportion to fair market value.  The building 
was depreciated over 30 years, with building improvements depreciated over 5 
to 15 years.  In January 1998, the real estate parcel and buildings on the 
parcel were sold and the Company entered into a lease for the building that it 
occupies.  See Note 5.

Revenue recognition 

     Revenue is generally recognized upon shipment. A provision for estimated 
future returns is recorded at the time revenue is recognized.

Income taxes 

     The Company accounts for income taxes using the asset and liability 
approach which requires the recognition of deferred tax assets and liabilities 
for the expected future tax consequences of events that have been recognized
in the Company's financial statements or income tax returns.  In estimating
future tax consequences, the Company generally considers all expected future
events other than enactments of changes in the tax law or rates.

Stock options 

     The Company accounts for stock-based compensation in accordance with 
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to 
Employees".  Accordingly, compensation for stock options is generally measured 
as the excess, if any, of the quoted market price of the Company's stock at 
the date of the grant over the amount an employee must pay to acquire the 
stock.  The Company adopted the disclosure only requirements of SFAS 123.

                                     Page 32

<PAGE>


                INTEGRATED PACKAGING ASSEMBLY CORPORATION

                     NOTES TO FINANCIAL STATEMENTS

Net income (loss) per share 

     The Company adopted Statement of Financial Accounting Standards No. 128, 
"Earnings Per Share" ("SFAS 128") during the fourth quarter of 1997.  This 
statement simplifies the standards for computing earnings per share (EPS) 
previously defined in Accounting Principles Board Opinion No. 15, "Earnings 
Per Share." All prior-period earnings per share data has been restated in 
accordance with SFAS 128. SFAS 128 requires presentation of both Basic EPS and 
Diluted EPS on the face of the Statement of Operations. Basic EPS is computed 
by dividing net income (loss) available to common shareholders (numerator) by 
the weighted average number of common shares outstanding (denominator) during 
the period.  Diluted EPS gives effect to all dilutive potential common shares 
outstanding during the period including stock options and warrants, using the 
treasury stock method, and convertible preferred stock, using the if-converted 
method. In computing Diluted EPS, the average stock price for the period is 
used in determining the number of shares assumed to be purchased from the 
exercise of stock options and warrants.

                                     Page 33

<PAGE>


               INTEGRATED PACKAGING ASSEMBLY CORPORATION 

                    NOTES TO FINANCIAL STATEMENTS 

     Following is a reconciliation of the numerator and denominator of the 
basic and diluted earnings per share computations under SFAS 128:
                                        
<TABLE>
<CAPTION>

(In thousands, except per share amounts)         Year Ended December 31,
                                           -----------------------------------
                                              1996        1997        1998      
                                           ----------- ----------- -----------  
<S>                                        <C>         <C>         <C>          
Basic EPS Computation:                                                          
Net income (loss)..........................    $2,317    ($15,002)   ($29,776)  
                                           =========== =========== ===========  
Weighted-average common shares outstanding.    11,730      13,898      14,046   
                                           =========== =========== ===========  
Basic earnings (loss) per share............     $0.20      ($1.08)     ($2.12)  
                                           =========== =========== ===========  
Diluted EPS Computation:                                                        
Net income (loss)..........................    $2,317    ($15,002)   ($29,776)  
                                           =========== =========== ===========  
Weighted-average common shares outstanding.    11,730      13,898      14,046   
                                                                                
Plus shares from assumed conversions:                                           
  Convertible preferred stock..............     1,310          --          --   
  Effect of dilutive options and warrants..     1,117          --          --   
                                           ----------- ----------- -----------  
Weighted-average common shares used for                                         
  diluted earnings (loss) per share........    14,157      13,898      14,046   
                                           =========== =========== ===========  
Diluted earnings (loss) per share..........     $0.16      ($1.08)     ($2.12)  
                                           =========== =========== ===========  
                                                                                
Antidilutive Securities*                                                        
Options and warrants outstanding at end of                                      
  period...................................       216       2,186       2,501   
                                           =========== =========== ===========  
                                                                                
Weighted-average exercise price............     $9.49       $3.04       $1.43   
                                           =========== =========== ===========  
</TABLE>

*  Antidilutive securities consist of options and warrants not included in the
computation of dilutive earnings per share because i) the exercise price of
each of these options was greater that the average market price of the
Company's Common Stock during the period or ii) the Company incurred a net
loss during the period resulting in all options and warrants outstanding being
antidilutive.

Use of estimates

     The preparation of these financial statements in conformity with 
generally accepted accounting principles requires management to make estimates 
and assumptions that affect the reported amounts of assets and liabilities at 
the date of the financial statements and the reported amounts of revenues and 
expenses during the reporting period.  Actual results could vary from these 
estimates.

                                     Page 34

<PAGE>


               INTEGRATED PACKAGING ASSEMBLY CORPORATION 

                     NOTES TO FINANCIAL STATEMENTS 

Recently Issued Accounting  Standard:

     In June 1998, the Financial Accounting Standards Board issued Statement 
of Financial Accounting Standards No. 133, "Accounting for Derivative 
Instruments and Hedging Activities" ("SFAS 133").  SFAS 133 establishes a new 
model for accounting for derivatives and hedging activities and supercedes and 
amends a number of existing accounting standards.  SFAS 133 requires that all 
derivatives be recognized in the balance sheet at their fair market value, and 
the corresponding derivative gains or losses be either reported in the 
statement of operations or as a deferred item depending on the type of hedge 
relationship that exists with respect to such derivative.  Adopting the 
provisions of SFAS 133 are not expected to have a material effect on the 
Company's financial statements.  The standard is effective for the Company in 
fiscal 2000.

                                     Page 35

<PAGE>

                INTEGRATED PACKAGING ASSEMBLY CORPORATION 

                      NOTES TO FINANCIAL STATEMENTS 


NOTE 2 - BALANCE SHEET COMPONENTS:
         (In thousands)

<TABLE>
<CAPTION>
                                                  December 31,     
                                              --------------------- 
                                                 1997       1998   
                                              ---------- ----------
<S>                                           <C>        <C>       
Inventory                                                          
  Raw Materials...............................   $2,176     $1,509 
  Work in process.............................      161        195 
                                              ---------- ----------
                                                 $2,337     $1,704
                                              ========== ==========
                                                                   
Property and equipment                                             
  Land........................................   $3,827        $-- 
  Buildings and improvements..................    8,890        701 
  Machinery and equipment.....................   42,784     29,533 
  Office and computer equipment...............      793        705 
  Furniture and fixtures......................      312        257 
  Deposits on machinery and equipment.........      595         -- 
                                              ---------- ----------
                                                 57,201     31,196 
  Less: accumulated depreciation..............  (11,074)   (17,266)
                                              ---------- ----------
                                                $46,127    $13,930 
                                              ========== ==========
                                                                   
Property and equipment acquired under capital                      
leases included above                                              
  Machinery and equipment.....................   $7,819     $8,688 
  Office and computer equipment...............       36         36 
  Furniture and fixtures......................       57         57 
                                              ---------- ----------
                                                  7,912      8,781 
  Less: accumulated depreciation..............   (3,919)    (5,052)
                                              ---------- ----------
                                                 $3,993     $3,729 
                                              ========== ==========
                                                                   
Accrued expenses and other liabilities                             
  Accrued payroll and related expenses........     $762       $771 
  Accrued income tax..........................      456        456 
  Other accrued liabilities...................    1,751      1,581
                                              ---------- ----------
                                                 $2,969     $2,808
                                              ========== ==========
                                                                   
</TABLE>


                                     Page 36

<PAGE>


                INTEGRATED PACKAGING ASSEMBLY CORPORATION 

                      NOTES TO FINANCIAL STATEMENTS

NOTE 3-RESEARCH AND DEVELOPMENT ARRANGEMENT: 

     In February 1995, the Company joined a consortium (the "Consortium") of 
semiconductor companies which entered into a research and development contract 
with the Advance Research Projects Agency (ARPA), a United States Government 
agency. Under this agreement, ARPA will provide funds based on the completion 
of milestones approved by ARPA and the Consortium. The agreement expired in 
1997. Income generated from the research and development contract was 
recognized upon the completion of milestones, which approximates the 
percentage of completion method.  Accordingly, amounts totaling $228,000 and 
$123,500 were recognized under this agreement during 1996 and 1997, 
respectively, and included in interest and other income. Additionally during 
1996, the Company received $289,000 from ARPA which it used to reduce the cost 
of equipment acquired.  The Company is not obligated to repay funding 
regardless of the outcome of its development efforts; however, the agreement 
requires the Company to use its best efforts to achieve specified results as 
per the agreement. The Company retains ownership of the intellectual property 
developed under the contract. 

NOTE 4-EQUIPMENT IMPAIRMENT CHARGE:

     In March 1995, the FASB issued Statement of Financial Accounting 
Standards No. 121 "Accounting for the Impairment of Long-lived Assets and for 
Long-lived Assets to Be Disposed Of" (SFAS 121).  SFAS 121 requires that long-
lived assets held and used by the Company be reviewed for impairment whenever 
events or changes in circumstances indicate that the net book value of an 
asset will not be recovered through expected future cash flows (undiscounted 
and before interest) from use of the asset.  The amount of impairment loss is 
measured as the difference between the net book value of the assets and the 
estimated fair value of the related assets.

     During the second quarter of 1998, the Company recorded charges related 
to the impairment of its manufacturing equipment of $18.2 million.  These 
adjustments related to recording reserves against the carrying value of 
manufacturing equipment.  The impairment is a result of continued adverse 
conditions in the semiconductor industry, and historical as well as forecasted 
manufacturing equipment underutilization, resulting in an estimation that the 
value of the manufacturing equipment will not be fully recovered.  The fair 
value of manufacturing equipment was based upon an independent estimate of 
fair values.

     During the second quarter of 1997, the Company took a $3 million charge 
for impaired assets.  This charge included a $2.4 million reserve related to 
equipment used for the production of certain products with limited future 
demand, and a $500,000 reserve for the cancellation of purchase orders for 
equipment which the Company has determined to be surplus in relation to 
current demand.

NOTE 5-LEASING ARRANGEMENTS AND COMMITMENTS: 

     The Company leases certain machinery and equipment, office and computer 
equipment, and furniture and fixtures under long-term lease agreements which 
are reported as capital leases.  The terms of the leases range from three to 
five years, with options to purchase or release the equipment at the end of 
the respective lease terms. The Company intends to exercise such options.

     In June 1998, the Company entered in a capital lease for approximately 
$3.1 million of production equipment.  The lease expires in 2002.  In 
conjunction with the lease, the Company issued warrants to

                                     Page 37

<PAGE>

 
              INTEGRATED PACKAGING ASSEMBLY CORPORATION 

                    NOTES TO FINANCIAL STATEMENTS 

purchase 171,428 shares of common stock at $1.31 per share and are exercisable 
for seven years.  The warrants were valued at $132,000 using a Black-Scholes 
valuation model.

     At the end of the second quarter of 1998, the Company ceased making 
scheduled payments on its capital leases.  All of the lessors have commenced 
legal actions against the Company seeking monetary damages and recovery of the 
leased equipment.  In December 1998, the Company obtained forbearance 
agreements from the lessors through May 31, 1999.  All capital lease 
obligations, including purchase options, are classified as current liabilities 
as of December 31, 1998.

     The Company incurred rent expense under a noncancelable operating lease 
until December 1996 when the Company purchased the facility it had been 
leasing. In January 1998, in connection with the sale of its facility (see 
Note 5), the Company entered into a noncancelable operating lease for the 
82,390 square foot building on the facility that it occupies.  The lease is 
for ten years, with options to extend.  In November 1997, the Company entered 
into a noncancelable operating lease for a 2500 square foot portion of a 
building for its plating operations.  The lease is for five years, with an 
option to extend.  Rent expense was $216,000, $46,000 and $1,054,000 in 1996, 
1997 and 1998, respectively.   

     Future minimum lease payments over the next five years and thereafter 
under operating leases at December 31, 1998 are as follows (in thousands): 


<TABLE>
<CAPTION>
                                    Building 
                                     Leases  
                                   ----------
     <S>                           <C>       
 
     Year ending December 31:                
     1999..........................   $1,059 
     2000..........................    1,162 
     2001..........................    1,166 
     2002..........................    1,264 
     2003..........................    1,370 
     Thereafter....................    5,405 
                                   ----------
     Total minimum payments........  $11,426 
                                   ==========
                                        
</TABLE>

     In 1993, 1994, 1996, and 1998 in connection with arranging capital 
leases, the Company issued to the lessors warrants to purchase an aggregate of 
628,978 shares of common stock at exercise prices ranging from $0.77 to $8.00. 
The estimated value of these warrants at the time of issuance, as determined 
by the Company, is being amortized as interest expense over the period the 
leases are outstanding. The warrants are exercisable at any time prior to 2001 
(28,750 shares), 2003 (100,000 shares), 2004 (328,800 shares) and 2005 
(171,428 shares).  None of the warrants had been exercised at December 31, 
1998. 

                                     Page 38

<PAGE>

              INTEGRATED PACKAGING ASSEMBLY CORPORATION

                    NOTES TO FINANCIAL STATEMENTS 

NOTE 6-BANK DEBT and DEBT NOTES PAYABLE:

<TABLE>
<CAPTION>
                                 December 31,    
                              --------------------
                                1997      1998   
                              --------- ---------
<S>                           <C>       <C>      
 
  Bank debt...................     $--    $2,816 
  Bank term note payable......   2,375        -- 
  Equipment notes payable.....   9,766     8,583 
  Real estate loan............   6,601        -- 
                              --------- ---------
                                18,742    11,399 
  Less current portion........  (4,576)       -- 
                              --------- ---------
                               $14,166   $11,399 
                              ========= =========
                                                 
</TABLE>

Bank Debt

     In December 1997, the Company entered into a line of credit agreement 
with a bank, which provides, through December 1998, for borrowings up to the 
lesser of $5,000,000 or 80% of eligible accounts receivable.  At December 31, 
1997, no amounts were outstanding under this line of credit.  Borrowings under 
the line of credit accrued interest at the bank's prime rate (8.5% per annum 
at December 31, 1997) plus 1.25% and were collateralized by the assets of the 
Company.  The agreement required the Company to maintain certain financial 
covenants, including a liquidity ratio, minimum tangible net worth, maximum 
debt to tangible net worth, quarterly profitability and prohibits the Company 
from the payment of dividends without prior approval by the bank.  At December 
31, 1997, the Company was in compliance with such covenants.

     In October 1998, the Company entered into an accounts receivable 
factoring agreement with its bank that replaced its bank line of credit.  
Borrowings under the agreement are collateralized by the assets of the 
Company.  The agreement was amended in December 1998, and provides, through 
June 1, 1999, for borrowing up to the lesser of $2.8 million or 80% of 
eligible accounts receivable.  The bank charges an administration fee of 0.5% 
of the gross accounts receivable factored and a monthly interest charge of 
1.25% of the average balance owed.  As of December 31, 1998, the Company owed 
$1,461,000 under this agreement.

     In December 1998, the Company obtained an additional $7 million bank line 
of credit.  This line, which is guaranteed by a third party, is available to 
finance operations and working capital needs through May 31, 1999.  The line, 
which includes limits on monthly borrowings, accrues interest at the bank's 
prime rate (7 3/4% per annum at December 31, 1998).  As of December 31, 1998, 
$1,355,000 was outstanding under this line.

Bank Term Note Payable

     The Company was in default under certain of the required financial 
covenants at the end of the second quarter of 1998 and the loan was paid in 
full August 1998.

                                     Page 39

<PAGE>

                INTEGRATED PACKAGING ASSEMBLY CORPORATION

                      NOTES TO FINANCIAL STATEMENTS 

Equipment Notes Payable

     In 1995 and 1997, the Company entered into borrowing facilities with a 
number of lenders, allowing the Company to finance 70% to 80% of the cost of 
collateralized machinery and equipment.  Borrowings under these facilities 
accrued interest at rates ranging from 7.75% to 14.0% per annum with terms 
ranging from 36 to 48 months.  Certain of the credit facilities require the 
Company to maintain certain financial covenants including minimum tangible net 
worth, quarterly revenues and quarterly income before taxes, depreciation and 
amortization (EBITDA).

     At the end of the second quarter of 1998, the Company ceased making 
scheduled payments on the equipment notes and was in default under certain of 
the required financial covenants.  All of the note holders have commenced 
legal actions against the Company seeking monetary damages and recovery of 
financial equipment.  In connection with the December 1998 bank financing, the 
Company obtained forbearance agreements from the note holders through May 31, 
1999.  All equipment note obligations are classified as current liabilities as 
of December 31, 1998.

Real Estate Loans

     In December 1996, the Company borrowed $6.5 million from a bank to 
provide temporary financing for the acquisition of its facilities.  The loan 
accrued interest at 2.25% over the rate for 30 day certificates of deposit and 
was collateralized by a certificate of deposit of equivalent value.  The 
Company has classified this loan as long-term at December 31, 1996 based on 
the refinancing disclosed as follows.

     On March 25, 1997, the Company closed a mortgage loan with an insurance 
company, which provided the Company with a $6.7 million five year term loan.  
The loan was secured by the land, buildings and improvements purchased in 
December 1996.  The loan accrued interest at 8.5% and was payable in equal 
monthly installments of $58,000 with a balloon payment of $5.9 million due 
after five years.  The proceeds of this mortgage loan were used to pay off and 
retire the $6.5 million real estate loan.  In January 1998, the Company sold 
its facility that consisted of land and two buildings with approximately 
138,336 square space of building space.  Net proceeds from the sale of the 
facilities were $7.3 million, net of the elimination of $6.6 million of 
mortgage debt, fees, commissions and closing costs.

     The Company is now leasing the approximately 82,390 square foot building 
on the facility that it occupies.  See Note 5.

Warrants

     In connection with the bank debt and various loan agreements, the Company 
issued to the lenders warrants to purchase an aggregate of 202,483 shares of 
common stock at exercise prices ranging from $3.30 to $4.60.  The estimated 
value of these warrants at the time of issuance, as determined by the Company, 
is being amortized as interest expense over the terms of the loans.  The 
warrants are exercisable at any time prior to 2000 (21,740 shares), 2002 
(10,000 shares), 2004 (72,917 shares) and 2005 (97,826 shares).  None of the 
warrants had been exercised at December 31, 1998.

                                     Page 40

<PAGE>

               INTEGRATED PACKAGING ASSEMBLY CORPORATION

                     NOTES TO FINANCIAL STATEMENTS 

NOTE 7-STOCK PLANS: 

1993 Stock Option Plan

     In April 1993, the Board of Directors and shareholders adopted the 1993 
Stock Option Plan (the "Plan") which as amended, provides for the grant of
incentive stock options (ISOs) and nonqualified stock options (NSOs) to
purchase up to 2,514,921 shares of Common Stock.  ISOs may be granted to
employees and NSOs may be granted to either employees or consultants.  In
accordance with the Plan, the stated exercise price shall not be less than
100% and 85% of the estimated fair market value of Common Stock on the date
of grant for ISOs and NSOs, respectively, as determined by the Board of
Directors. The Plan provides that the options shall be exercisable over a
period not to exceed ten years and shall vest as determined by the Board of
Directors. Substantially all of the options vest 25% one year after the date
of grant and 1/48 each month thereafter.  Compensation expense of
approximately $200,000 was recognized on stock options granted between June
and November 1995, and is being amortized over the four year vesting period.

Director Stock Option Plan 

     In December 1995, the Company adopted a Director Stock Option Plan (the 
"Director Plan"). A total of 100,000 shares of Common Stock have been 
authorized for issuance under the Director Plan. The Director Plan provides 
for the grant of NSOs to non-employee directors of the Company. The Director 
Plan provides that each non-employee director who joins the Board will 
automatically be granted an NSO to purchase 20,000 shares of Common Stock on 
the date upon which such person first becomes a non-employee director (the 
"Initial Grant"). In addition, each non-employee director will automatically 
receive an NSO to purchase 5,000 shares of Common Stock upon such director's 
annual re-election to the Board, provided the director has been a member of 
the Board for at least six months upon the date of such re-election (the 
"Subsequent Grant"). The Initial Grant vests and becomes exercisable as to 25% 
of the shares one year after the date of grant and as to 1/48 of the shares 
each month thereafter, and each Subsequent Grant shall become exercisable as 
to 1/12 of the shares each month following the date of grant, both subject to 
the director's continuous service.  The exercise price of all stock options 
granted under the Director Plan is equal to the fair market value of the 
Company's Common Stock on the date of grant. Options granted under the 
Director Plan have a term of ten years. Unless terminated sooner, the Director 
Plan will terminate in 2006. Options for 20,000 shares were granted in 1997 
under the Director Plan.

1997 Non Statutory Stock Plan

     In October 1997, the Board of Directors adopted the 1997 Non-Statutory 
Stock Plan, which, as amended, provides for the grant of non-qualified stock 
options to purchase up to 750,000 share of Common Stock. The NSOs may only be 
granted to non-executive officer employees.  In accordance with the Plan, the 
stated exercise price shall not be less than 85% of the estimated fair market 
value of the Common Stock on the date of grant of the NSO. The options shall 
be exercisable over a period not to exceed ten years and shall vest 25% after 
the year of grant and 1/48 each month thereafter.  Options for 463,000 shares 
were granted in 1998 under this plan. 

                                     Page 41

<PAGE>


              INTEGRATED PACKAGING ASSEMBLY CORPORATION

                   NOTES TO FINANCIAL STATEMENTS 

Repricing of Employee Stock Options

     As approved by the Board of Directors on January 27, 1998 and effective 
as of January 30, 1998, the Company allowed all employee holders of 
outstanding stock options to exchange higher priced  options for new stock 
options at an exercise price of $1.06 per share, the fair market value of the 
Company's Common Stock at the close of trading on January 30, 1998. Those 
options vested at the time of the exchange would vest on January 31, 1999, and 
those options unvested at the time of the exchange would vest on the original 
option schedule, but would not be exercisable until January 31, 1999.  Options 
for 1,035,124 shares were exchanged.

Restricted Common Stock

     In September 1995, 398,333 shares of restricted Common Stock were sold to 
employees upon exercise of stock options then outstanding.  Each unvested 
share of this restricted Common Stock is subject to repurchase by the Company 
at the employees' exercise price if an employee terminates before such shares 
vest. In 1996 and 1997, respectively, 170,312 and 67,082 vested shares were 
converted into unrestricted shares, and 73,750 and 55,314 shares were 
repurchased by the Company from terminated employees. The remaining 31,875 
restricted shares outstanding were fully vested as of December 31, 1998.

1996 Employee Stock Purchase Plan

     The Company's 1996 Stock Purchase Plan (the "Purchase Plan") was adopted 
by the Company's Board of Directors and shareholders in December 1995, and 
became effective upon the closing of the Company's initial public offering on 
February 28, 1996.  Under the Purchase Plan, a total of 400,000 shares of 
Common Stock has been reserved for issuance to eligible employees.  The 
Purchase Plan allows employees to purchase shares through payroll deductions 
at 85% of the fair market value of the Common Stock at the beginning or the 
end of the applicable twelve-month purchase period. The Purchase Plan is 
intended to qualify as an "employee stock purchase plan" under Section 423 of 
the U.S. Internal Revenue Code. Unless terminated sooner, the Purchase Plan 
will terminate ten years from its effective date.   During 1996, 1997, and 
1998, respectively, 25,062, 59,656 and 155,051 shares, respectively, were 
issued under the Plan.

                                     Page 42

<PAGE>


               INTEGRATED PACKAGING ASSEMBLY CORPORATION 

                    NOTES TO FINANCIAL STATEMENTS

Summary of Option Activity

     The following table summarizes the Company's stock option activity and 
related weighted average exercise price within each category for each of the 
years ended December 31, 1996, 1997, and 1998.


<TABLE>
<CAPTION>
                            1996                1997                1998
                    ------------------- ------------------- --------------------
                               Weighted            Weighted             Weighted
                               Average             Average              Average 
                      Shares    Price     Shares    Price     Shares     Price  
                    ---------- -------- ---------- -------- ----------- --------
<S>                 <C>        <C>      <C>        <C>      <C>         <C>     
Options outstanding                                                             
  at Jan. 1.........  550,633    $1.04    890,200    $4.85   1,599,154    $3.18 
Options granted.....  484,848    $8.74  1,295,745    $3.03   1,498,124    $1.02 
Options canceled....  (68,126)   $0.33   (519,829)   $5.90  (1,307,386)   $3.76 
Options exercised...  (77,155)   $6.04    (66,962)   $1.35    (109,895)   $0.22 
                    ---------- -------- ---------- -------- ----------- --------
Options outstanding                                                             
  at Dec. 31........  890,200    $4.85  1,599,154    $3.18   1,679,997    $1.00 
                    ========== ======== ========== ======== =========== ========
Options exercisable                                                             
  at Dec. 31........  147,944    $0.88    219,400    $4.52     592,322    $0.91 
                    ========== ======== ========== ======== =========== ========
Available for grant                                                             
  at Dec. 31........  509,301             483,385              792,647          
                    ==========          ==========          ===========         
                                                                                
</TABLE>


     Significant option groups outstanding at December 31, 1998, after giving 
effect to the repricing discussed previously, and the related weighted average 
exercise price and remaining contractual life information are as follows:


<TABLE>
<CAPTION>
                                                    
                                                                Weighted
                                                                Average
                            Outstanding        Exercisable     Remaining
Options with exercise    ------------------ ------------------    Life
prices ranging from        Shares    Price    Shares    Price   (Years)
------------------------ ---------- ------- ---------- ------- ----------   
<S>                      <C>        <C>     <C>        <C>     <C>          
 
$0.10 - $0.97............  337,404   $0.51    146,525   $0.32          8    
$1.00 - $1.50............1,294,093   $1.06    436,806   $1.06          9    
$1.59 - $3.50............   48,000   $2.54      8,637   $3.06          9    
$9.50....................      500   $9.50        354   $9.50          7    
                         ---------- ------- ---------- ------- ----------   
Options outstanding                                                         
  at Dec. 31.............1,679,997   $1.00    592,322   $0.91          8    
                         ========== ======= ========== ======= ==========   
                                                                            
</TABLE>


Fair Value of Stock Options and Employee Purchase Rights

     The Company has four stock option plans, which reserve shares of Common 
Stock for issuance to employees, officers, directors and consultants.  The 
Company applies APB Opinion 25 and related interpretations in accounting for 
its plans.  Accordingly, no compensation cost has been recognized in the 
accompanying statement of operations for the stock option plans, except for 
$200,000 which was recognized on stock options granted between June and 
November 1995, and which is being amortized over a four year vesting period.  
In January 1996, The Company adopted the disclosure only provisions of 
Statement of Financial Accounting Standards No. 123, "Accounting for Stock 
Based Compensation".

                                     Page 43

<PAGE>


                INTEGRATED PACKAGING ASSEMBLY CORPORATION 

                     NOTES TO FINANCIAL STATEMENTS

     For the Stock Option Plan, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing model 
with the following weighted average assumptions used for grants in 1996, 1997 
and 1998 respectively: dividend yield of 0% in all three years; expected life 
of 4 years for each year; expected volatility of 57%, 65% and 65%; and risk-
free interest rates of 6.2%, 6.1% and 5.8%.   The weighted-average fair value 
of those stock options granted in 1996, 1997 and 1998 was $4.33, $1.72 and 
$0.55 per option, respectively.

     The fair value of the employees' purchase rights for the Purchase Plan, 
which was initiated on February 28, 1996, was estimated at the beginning of 
the offering period using the Black-Scholes option pricing model with the 
following assumptions used for 1996, 1997, and 1998, respectively: dividend 
yield of 0%; an expected life of six months; expected volatility of 56%, 65% 
and 65%; and risk-free interest rate of 5.3%. The weighted-average fair value 
of these purchase rights granted in 1996, 1997 and 1998 was $2.20, $3.12 and 
$0.64, respectively, per right.

     Had the Company recorded compensation costs based on the estimated grant 
date fair value, as defined by SFAS 123, for awards granted under its stock 
option plans and stock purchase plan, the Company's net income (loss) and 
income (loss) per share would have been reduced to the following pro forma 
amounts (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                           1996        1997        1998    
                                        ----------- ----------- -----------
<S>                                     <C>         <C>         <C>        
                                           
Net income (loss) as reported...........    $2,317    ($15,002)   ($29,776)
Net income (loss), pro forma............    $1,923    ($15,708)   ($30,633)
                                                                           
Net income (loss) per share as reported                                    

  Basic.................................     $0.20      ($1.08)     ($2.12)
  Diluted...............................     $0.16      ($1.08)     ($2.12)
Net income (loss) per share, pro forma                                     

  Basic.................................     $0.16      ($1.13)     ($2.18)
  Diluted...............................     $0.13      ($1.13)     ($2.18)
                                                                           
</TABLE>

     The pro forma amounts reflect compensation expense related to 1996, 1997 
and 1998 stock option grants and purchase rights only.  In future years, the 
annual pro forma compensation expense will increase relative to the fair value 
of stock options granted in those future years.

                                     Page 44

<PAGE>

               INTEGRATED PACKAGING ASSEMBLY CORPORATION

                    NOTES TO FINANCIAL STATEMENTS

NOTE 8-INCOME TAXES: 

     In 1997 and 1998, the Company incurred net operating losses and recorded 
no provision for income taxes. The tax provision for 1996 current taxes 
consists of the following (in thousands): 


<TABLE>
<CAPTION>
                                              December 31,
                                                 1996     
                                              ----------  
          <S>                                 <C>         
 
          Current:                                  
            Federal...........................      $13   
            State.............................      169   
                                              ----------  
                                                    182   
                                              ----------  
          Deferred:                                 
            Federal...........................      489   
            State.............................     (141)  
                                              ----------  
                                                    348   
                                              ----------  
                                                   $530   
                                              ==========  
</TABLE>

     The tax provision reconciles to the amount computed by multiplying income 
before tax by the U.S. statutory rate (34%) as follows (in thousands):


<TABLE>
<CAPTION>
                                                
                                              December 31,
                                                 1996     
                                              ----------  
          <S>                                 <C>         
 
          Provision at statutory rate.........     $968   
          Benefits of carryforwards...........      (68)  
          State taxes, net of federal benefit.      175   
          Use of valuation allowance..........     (475)  
          Other...............................      (70)  
                                              ----------  
                                                   $530   
                                              ==========  
</TABLE>

     Deferred income tax assets comprise the following (in thousands): 

<TABLE>
<CAPTION>
                                                December 31,     
                                              1997       1998   
                                           ---------- ----------
<S>                                        <C>        <C>       
 
Federal and state credit carryforwards.....   $1,689     $2,437 
Federal and state net operating loss                        
  carryforwards............................    8,631     14,282 
Provisions for impaired assets.............       --      7,568 
Leases, treated as operating for tax.......   (1,592)    (2,961)
Depreciation...............................   (3,165)    (4,154)
Reserves and accruals......................      587        763 
Other......................................     (201)       (16)
                                           ---------- ----------
Deferred tax assets (liability)............    5,949     17,919 
Less valuation allowance...................   (5,949)   (17,919)
                                           ---------- ----------
  Net deferred tax asset (liability).......      $--        $-- 
                                           ========== ==========
</TABLE>

                                     Page 45

<PAGE>

               INTEGRATED PACKAGING ASSEMBLY CORPORATION 

                     NOTES TO FINANCIAL STATEMENTS

     At December 31, 1998, the Company had federal and state net operating 
loss and tax credit carryforwards ("NOLs") of approximately $35,000,000 and 
$20,000,000, respectively, which can be used to reduce future taxable income.  
These NOLs expire through 2014, if not utilized.  The availability and timing 
of these carry forwards to offset the taxable income maybe limited due to the 
occurrence of certain events, including change of ownership.

     The Tax Reform Act of 1996 limits the use of NOLs in certain situations 
where changes occur in the stock ownership of a company.  The Company 
experienced such an ownership change as a result of the Company's initial 
public offering in 1996, resulting in a limitation of the annual utilization 
of the NOLs generated through the date of the initial public offering.

NOTE 9-CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS:

Concentration of credit risk

     The Company performs ongoing credit evaluations of its customers, which 
are semiconductor companies, and maintains reserves for estimated credit 
losses. Write-offs of accounts receivable were insignificant in all periods 
presented. At December 31, 1997, four customers accounted for 19%, 15%, 13% 
and 10%, respectively, of accounts receivable.   At December 31, 1998,  two 
customer accounted for 27% and 16%, respectively.

Significant customers

<TABLE>
<CAPTION>
                                               Year Ended December 31, 
                                              ------- ------- -------  
                                               1996    1997    1998    
                                              ------- ------- -------  
<S>                                           <C>     <C>     <C>      
Customers comprising 10% or more of the                                
Company's revenues for the periods indicated:                          
    A.........................................     2%     14%     39%  
    B.........................................    32%     17%     11%  
    C.........................................    --%      1%     11%  
    D.........................................    14%     16%      1%  
    E.........................................    17%      4%      1%  
                                                                       
</TABLE>


NOTE 10-LEGAL PROCEEDINGS:

     At the end of the second quarter of 1998, the Company ceased making 
scheduled repayments of its debt balance outstanding relating to its Equipment 
Notes Payable and its capital leases. Certain of these debt facilities require 
that the company maintain certain financial covenants.  The Company has been 
out of compliance with certain of these covenants since the second quarter of 
1998.  As a result of the covenant noncompliance and failure to make scheduled 
repayments, the entire balance due has been classified as a current liability 
since June 1998.

     Certain of the Company's secured creditors commenced legal actions 
against the Company seeking

                                     Page 46

<PAGE>
 
              INTEGRATED PACKAGING ASSEMBLY CORPORATION

                   NOTES TO FINANCIAL STATEMENTS

monetary damages and recovery of the financed equipment.  In connection with 
the December 1998 financing, the Company obtained forbearance agreements from 
the secured creditors through May 31, 1999.  The forbearance agreements 
require, among other things, that the Company make monthly payments through 
May 31, 1999.

     The Company does not have any material defenses against these legal 
actions.  An adverse outcome in any of the actions would have a material 
adverse effect on the Company and if the Company cannot obtain further 
extensions from all of these Plaintiffs, it will be forced to seek protection 
under the bankruptcy laws or cease operations.

NOTE 11-SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

Summarized quarterly financial data for 1997 and 1998 is as follows:

<TABLE>
<CAPTION>
                                                                   
                              First    Second     Third    Fourth  
                            --------- --------- --------- ---------
<S>                         <C>       <C>       <C>       <C>      
1997:                                                              
Net revenues................  $5,575    $3,953    $4,214    $6,002 
Gross profit (loss).........    (920)   (1,086)   (1,244)   (1,095)
Net income (loss)...........  (2,473)   (6,088)   (3,271)   (3,170)
Net income (loss) per share                                        
  Basic.....................   (0.18)    (0.44)    (0.23)    (0.23)
  Diluted...................   (0.18)    (0.44)    (0.23)    (0.23)
                                                                   
1998:                                                              
Net revenues................   6,965     5,759     5,816     4,741 
Gross profit (loss).........  (1,450)   (2,142)   (1,114)   (1,127)
Net income (loss)...........  (2,406)  (21,943)   (2,637)   (2,790)
Net income (loss) per share                                        
  Basic.....................   (0.17)    (1.57)    (0.19)    (0.20)
  Diluted...................   (0.17)    (1.57)    (0.19)    (0.20)
                                                                   
</TABLE>

Per share amounts, based on average shares outstanding and potential
dilutive shares each quarter, may not add to the total for the year.

                                     Page 47

<PAGE>


Item 9.  Changes in and Disagreement with Accountants on Accounting and 
Financial Disclosure
-----------------------------------------------------------------------  

     Not applicable.

                                     Page 48

<PAGE>

                                    PART III
                                    --------   

     Certain information required by Part III is omitted from this Report on 
Form 10-K in that the Registrant will file its definitive Proxy Statement for 
its Annual Meeting of Stockholders pursuant to Regulation 14A of the 
Securities Exchange Act of 1934, as amended (the "Proxy Statement"), not later 
than 120 days after the end of the fiscal year covered by this Report, and 
certain information included in the Proxy Statement is incorporated herein by 
reference.

Item 10.  Directors and Executive Officers of the Registrant
------------------------------------------------------------  

     (a)  Executive Officers - See the section entitled "Executive Officers
          in Part I, Item 1 hereof.

     (b)  Directors - The information required by this Item is incorporated
          by reference to the section entitled "Election of Directors" in
          the Proxy Statement.

     The disclosure required by Item 405 of Regulation S-K is incorporated by 
reference to the section entitled "Section 16(a) Beneficial Ownership 
Reporting Compliance" in the Proxy Statement.

Item 11.  Executive Compensation
--------------------------------  

     The information required by this Item is incorporated by reference to the 
sections entitled "Compensation of Executive Officers" and "Compensation of 
Directors" in the Proxy Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------  

     The information required by this Item is incorporated by reference to the 
sections entitled "Principal Share Ownership" and "Security Ownership of 
Management" in the Proxy Statement.

Item 13.  Certain Relationships and Related Transactions
--------------------------------------------------------  

     The information required by this Item is incorporated by reference to the 
section entitled "Certain Transactions" in the Proxy Statement.

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K
-------------------------------------------------------------------------  

14(a)  Exhibits
---------------  

Exhibit
Number       Description of Document
-------      -----------------------  

3.1!         Restated Articles of Incorporation.
3.4!         Bylaws, as amended.
10.1!        Form of Indemnification Agreement.
10.2!*       1993 Stock Option Plan and form of Stock Option Agreement.
10.3!*       1996 Employee Stock Purchase Plan and form of Subscription 
             Agreement.
10.4!*       1996 Director Stock Option Plan and form of Stock Option
             Agreement.
10.5!        Registration Rights Agreement dated March 24, 1993, as amended.
10.6!        Lease Agreement dated June 16, 1993 between the Company and 
             WVP Income Plus VI.
10.7!        Sublease Agreement dated July 15, 1995 between the Company and
             Peripheral Computer Support, Inc.
10.8!        Loan and Security Agreement dated September 15, 1995 between 
             the Company and The CIT Group/Equipment Financing, Inc.
10.9!        Warrant to Purchase Series A Preferred Stock, issued to MMC/
             GATX Partnership No. 1 as of October 7, 1993, as amended.
10.10!       Warrant to Purchase Series A Preferred Stock, issued to 
             Phoenix Leasing Incorporated as of October 7, 1993.
10.11!       Warrant to Purchase Series A Preferred Stock, issued to
             Comdisco, Inc. as of March 10, 1994.
10.12!       Warrant to Purchase Series A Preferred Stock, issued to Silicon
             Valley Bank as of July 10, 1995.
10.13!       Warrant to Purchase Series A Preferred Stock, issued to Silicon
             Valley Bank as of July 10, 1995.
10.14!       Warrant to Purchase Series A Preferred Stock, issued to CIT
             Group/Equipment Financing, Inc. as of September 15, 1995.
10.15!       Warrant to Purchase Series A Preferred Stock, issued to
             Comdisco, Inc. as of January 3, 1996.
10.16!!      Sublease Agreement between the Company and Peripheral Computer
             Support dated March 8, 1996.
10.17!!!     Warrant to Purchase Common Stock, issued to MMC/GATX
             Partnership No. 1, dated September 5, 1997.
10.18!!!     Amendment to Warrant to Purchase Series A Preferred Stock,
             issued to MMC/GATX Partnership No. 1, dated September 5, 1997.
10.19!!!     Amendment to Warrant to Purchase Series A Preferred Stock,
             issued to MMC/GATX Partnership No. 1, dated September 5, 1997.
10.20!!!     Lease Agreement dated November 1, 1997, between the Company and
             Jaswinder S. Saini and Surinder K. Saini.
10.21!!!!    Purchase and Sale Agreement dated November 20, 1997, between 
             the Company and Lincoln Property Company N.C., Inc.
10.22!!!!    Lease Agreement dated January 20, 1997, between the Company and
             Lincoln Property Company N.C., Inc.
10.23*       1997 Nonstatutory Stock Option Plan and form of Stock Option
             Agreement.
10.24!!!!!   Amended and Restated Loan and Security Agreement dated December
             31, 1997 between the Company and Silicon Valley Bank.
10.25!!!!!   Warrant to Purchase Stock, issued to Silicon Valley Bank as of
             December 31, 1997.
10.26        Accounts Receivable Purchase Agreement dated October 27, 1998,
             between the Company and Silicon Valley Bank.
10.27        Accounts Receivable Purchase Agreement Modification Agreement 
             dated December 8, 1998, between the Company and Silicon Valley
             Bank.
10.28        Accounts Receivable Purchase Agreement Modification dated 
             December 16, 1998, between the Company and Silicon Valley Bank.
10.29        Loan and Security Agreement dated as of December 16, 1998,
             between the Company and Silicon Valley Bank.
23.1         Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1         Power of Attorney (See page 51).
27.1         Financial Data Schedule.

!      Incorporated by reference from the Registrant's Registration
       Statement on Form SB-2 (file no. 333-326-LA), as amended, filed on
       January 17, 1996.
!!     Incorporated by reference from the Registrant's Quarterly Report on
       Form 10-Q for the quarter ended June 30, 1996.
!!!    Incorporated by reference from the Registrant's Quarterly Report on
       Form 10-Q for the quarter ended September 30, 1997.
!!!!   Incorporated by reference from the Registrant's Current Report on
       Form 8-K, filed on January 30, 1997.
!!!!!  Incorporated by reference from the Registrant's Annual Report on
       Form 10-K, for the year ended December 31, 1997.

                                     Page 50

<PAGE>


*      Management contract or compensatory plan or arrangement required to
       be filed as an exhibit to this form.
(b) Reports on Form 8-K.

    None		

(c) Exhibits.

    See Item 14(a) hereof.

(d) Financial Statement Schedules.

   All financial statement schedules have been omitted because they are not 
applicable or the required information is shown in the financial statements or 
the notes thereto.

                                     Page 51

<PAGE>

                                  SIGNATURES

   In accordance with Section 13 or 15(d) of the Securities Exchange Act of 
1934 (the "Exchange Act"), the Registrant caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
San Jose, State of California, on March 8, 1999.


                            INTEGRATED PACKAGING ASSEMBLY CORPORATION

                            By: /s/ ALFRED V. LARRENAGA
                                -------------------------------	
                                    Alfred V. Larrenaga
                                    Chief Financial Officer


                              POWER OF ATTORNEY

   KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature 
appears below hereby constitutes and appoints Patrick Verderico and Alfred V. 
Larrenaga, and each of them acting individually, as his attorney-in-fact, each 
with full power of substitution, for him in any and all capacities, to sign 
any and all amendments to this Report on Form 10-K, and to file the same, with 
exhibits thereto and other documents in connection therewith, with the 
Securities and Exchange Commission, hereby ratifying and confirming our 
signatures as they may be signed by our said attorney to any and all 
amendments to said Report.

   In accordance with the Exchange Act, this report has been signed below on 
March 8, 1999 by the following persons on behalf of the Registrant and in the 
capacities indicated.  



Signature                                 Title
---------------------------------- -------------------------------------

/s/ PATRICK VERDERICO              President and Chief Executive Officer
----------------------------------
    Patrick Verderico              (Principal Executive Officer)

/s/ ALFRED V. LARRENAGA            Chief Financial Officer
----------------------------------
    Alfred V. Larrenaga            (Principal Financial and 
                                    Accounting Officer)

/s/ PHILIP R. CHAPMAN              Director
----------------------------------
    Philip R. Chapman

/s/ GILL COGAN                     Director
----------------------------------
    Gill Cogan

/s/ ERIC A. YOUNG                  Director
----------------------------------
    Eric A. Young

                                     Page 52

<PAGE>