U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                           ---------------------------
                                    Form 10-K/A
(Mark One) 
|x|    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
       THE SECURITIES EXCHANGE ACT OF 1934.

                   For the fiscal year ended December 31, 1997

|_|   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)

         California                                          77-0309372
(State or other jurisdiction of                           (I.R.S Employer    
 incorporation or organization)                        Identification Number) 

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

        Registrant's telephone number including area code: (408) 321-3600
      Securities registered pursuant to Section 12(g) of the Exchange Act:
                           Common Stock, no 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 19, 1998, was
approximately $11,200,000. 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 19, 1998 was 14,068,920.








<PAGE>

                                TABLE OF CONTENTS
<TABLE>
                                                                          Page
                                                                          ----
PART I
     <S>                                                                   <C>
     Item 1.  Business....................................................   3
     Item 2.  Properties..................................................  11
     Item 3.  Legal Proceedings...........................................  11
     Item 4.  Submission of Matters to a Vote of Security Holders.........  11

PART II

     Item 5.  Market for Registrant's Common Equity and Related
               Stockholder Matters........................................  12
     Item 6.  Selected Financial Data.....................................  13
     Item 7.  Management's Discussion and Analysis of Financial
               Condition and Results of Operations........................  14
     Item 8.  Financial Statements and Supplementary Data.................  19
     Item 9.  Changes in and Disagreement with Accountants on Accounting
               and Financial Disclosure...................................  41

PART III

     Item 10.  Directors and Executive Officers of the Registrant.........  42
     Item 11.  Executive Compensation.....................................  43
     Item 12.  Security Ownership of Certain Beneficial Owners and
               Management.................................................  47
     Item 13.  Certain Relationships and Related Transactions.............  48

PART IV

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

SIGNATURES................................................................  51

</TABLE>

                                 Page 2

<PAGE>
                                     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 close proximity to its 
customers and the end-users of its customers' products allows it to 
provide quick turnaround design and prototype production and timely 
delivery of products in high volume.  

Industry Background

Semiconductor Manufacturing Process

        The manufacture of semiconductors requires complex and precise 
steps which can be broadly characterized as wafer fabrication, packaging 
and testing.  Wafer fabrication begins with raw silicon wafers and ends 
with devices in the form of die on wafers.  Since the die must be 
packaged to protect them and facilitate their use in electronic systems, 
the fabricated wafers are transferred to packaging facilities.  The 
packaging facility dices the wafer into individual die, and through a 
series of processes connects wire leads to the die and encapsulates the 
die in a protective casing.  The packaged semiconductor die must then be 
tested to ensure functionality before shipment for use.

        Semiconductor companies in North America utilize various business 
models for the design and manufacture of semiconductors.  Certain 
vertically integrated companies perform all stages of the manufacturing 
process.  Other companies outsource certain aspects of the manufacturing 
process, including wafer fabrication and packaging.  Wafers fabricated by 
or for North American semiconductor companies are often tested in North 
America and then shipped for packaging to captive or independent 
packaging foundries in Asia.  The packaged semiconductors are often 
returned to North America for final test and distribution to customers.  
The shipment to and from Asia for packaging can lengthen the 
semiconductor manufacturing process significantly.

Semiconductor Packaging Market

        The growth in the worldwide semiconductor market has created a 
significant demand for semiconductor packaging capacity.  Different types 
of devices such as microprocessors, logic devices and memory devices 
require different packaging solutions to accommodate different 
requirements for heat dissipation and signal propagation.  Semiconductor 
packages are categorized largely by the technology employed to 
interconnect the packaged circuits to printed circuit boards.  Surface 
mount technology ("SMT"), in which the leads on integrated circuits are 
soldered to the surface of the printed circuit board, is a newer and more 
advanced technology than pin through hole ("PTH") technology, in which 
the leads are inserted into holes in the printed circuit board.  SMT 
allows components to be placed on both sides of the board, which permits 
a higher degree of system integration, increases system performance and 
reduces system cost.

        The package types used to accommodate SMT include small outline 
("SO") packages, quad flat packages ("QFP"), thin quad flat packages 
("TQFP") and ball grid array ("BGA") packages.  QFPs and TQFPs are 
primarily used for logic devices, such as field programmable gate arrays 
("FPGAs") and application specific integrated circuits ("ASICs"), which 
have lead counts of up to 376 leads per device, while SO packages are 
primarily used for memory and analog devices that have much lower lead 
counts.  BGA is an emerging packaging technology that can accommodate up 
to 1,000 leads per device.

        To meet their packaging requirements, semiconductor companies have 
relied on captive or independent packaging foundries, principally located 
in Asia.  These packaging foundries were initially located in Asia in the 
1970s to take advantage of low labor costs.  Competition among 
independent packaging foundries during this period was based largely on 
price and the availability of capacity because the large feature sizes of 
the semiconductors did not present significant technological challenges 

                                  Page 3
<PAGE>

or opportunities for differentiation among packaging techniques.  During 
the 1980s, semiconductor packaging commenced a transition from a labor 
intensive operation to a capital intensive, technologically advanced 
operation as packaging facilities were forced to automate to accommodate 
significantly more complex devices while achieving consistency, quality 
and reliability.  These trends accelerated in the 1990s at the same time 
that intense competition among semiconductor companies shortened product 
life cycles for many devices.  As a result, cycle time has become a 
critical factor in the semiconductor packaging industry.

        The Company believes that the use of independent packaging 
foundries enables semiconductor companies to reduce costs and shorten 
production cycles.  By packaging a greater volume of semiconductors than 
a given semiconductor company is likely to do internally, an independent 
packaging foundry can reduce costs by employing technically advanced 
equipment and by procuring raw materials more cost effectively.  The use 
of independent packaging foundries also enables semiconductor companies 
to avoid the high cost of capital equipment required for advanced 
semiconductor packaging.  In addition, semiconductor companies are 
realizing that the expertise of independent packaging foundries can be a 
source for advanced packaging technologies that can satisfy their 
requirements for miniaturization, high lead counts and thermal and 
electrical performance.

Strategy

        The Company's objective is to be the leading independent 
semiconductor packaging foundry in North America.  The principle elements 
of the Company's strategy are set forth below.

Locate Facilities in North America Near Customers and End-Users

        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 all currently 
located in Asia.

Provide High Quality Customer Service

        The Company believes that the principle components of quality 
customer service are time to market, reliability and quality.  Since the 
product life cycles of integrated circuits continue to contract, IPAC 
offers short packaging cycles as a principal benefit to its customers.  
In addition, the Company has established a quality control system that is 
designed to enable it to maintain reliable services, high product quality 
and high production yields.  The Company also maintains a flexible 
production capability which enables it to react quickly to changes in 
customer requirements as well as industry developments.

Focus on Selected High Growth Markets

        The Company focuses on QFPs, TQFPs and BGA packages which are used 
for complex, high pin-count products, such as FPGAs and ASICS.  The 
Company expects QFPs, TQFPs and BGAs to be growth areas of the packaging 
market, and generally command higher margins than most other packages.

Manufacturing

Semiconductor Packaging Services

        The Company has focused on packages designed for assembly using 
SMT.  Within the SMT market, the Company focuses on high pin-count 
packages, such as QFPs and 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 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 

                                 Page 4

<PAGE>

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 and 
approximately 11.9 million devices in 1997. Since the fourth quarter of 
1996, the Company has had available 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 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 is continuing to make significant investments to 
expand such capacity, particularly through the acquisition of capital 
equipment, including equipment for new packages (e.g. BGA) and an 
advanced electroplating system and the training of new personnel.  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 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 $12.4 million in 1997 and expects to spend up 
to $10.0 million to purchase capital equipment in 1998.  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 been and is expected to 
continue to be 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 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.

                                  Page 5

<PAGE>

        The Company currently outsources 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.  In particular, such 
problems resulted in delayed customer shipments by, and increased costs 
to, the Company during the second and third quarters of 1995.  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.  The Company has purchased an advanced 
electroplating system which has been installed at a leased facility in 
Milpitas, California, approximately 2 miles from the Company's main 
facility, which will be operated by the Company.  The Company currently 
expects its plating facility to be in operation in the second quarter of 
1998, although there can be no assurance that equipment delivery delays 
or other factors will not adversely impact such schedule.

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 and was recertified in 1997.

        As of December 31, 1997, 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.   For example, in the second half of 1996, the Company 
identified a problem with certain elements of the manufacturing process 
for lead frames which resulted in reduced yields for the affected 
products and substantially reduced orders from a major customer which 
adversely impacted the Company's operating results.  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.

Raw Materials and Suppliers

        The Company's packaging operations depend upon obtaining adequate 
supplies of raw materials on a timely basis.  The principal raw materials 
used in the Company's packaging process are lead frames, gold wire and 
molding compound.  The semiconductors used by the Company are supplied by 
its customer or the customer's wafer foundry; consequently, the Company 
incurs no inventory costs relating to the silicon wafers used in its 
packaging process.  The Company does not maintain large inventories of 
lead frames, gold wire or molding compound, and has from time to time 
experienced difficulty in obtaining acceptable materials on a timely 
basis.

        The Company maintains a supplier quality program that includes 
qualification, performance measurement and corrective action 
requirements.  The Company chooses its suppliers based on quality, 
delivery, service and price.  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, including Sumitomo 
Metal Mining Co., Ltd., Dai Nippon Printing, Acqutek International and 
Tokyo Printing Ink Manufacturing Co., Ltd.  Molding compound, a critical 
raw material, is obtained from Sumitomo Bakelite Co., Ltd., a sole source 
supplier.  From time to time, vendors have extended lead times or limited 
the supply of required materials to the Company because of vendor 
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 Company may reject materials from those 

                                 Page 6

<PAGE>

vendors that do not meet its specifications, resulting in declines in 
output or yield.  Any interruption in the availability or quality of 
materials from these suppliers would materially adversely affect the 
Company's business, financial condition and results of operations.  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 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, Cirrus Logic, Intel 
Corporation and Atmel accounted for 17%, 16% and 14% 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. Cirrus Logic and Sierra Semiconductor accounted for 29% and 20%, 
respectively, of the Company's revenues in 1995. 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.  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

        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 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' 

                                 Page 7

<PAGE>

operations and the end users of its customers' products.

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.  Although the 
Company did not ship commercial quantities of BGA devices in 1997, 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, 1997, the Company employed 8 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 1997, 1996 and 1995, the Company's research and 
development expenses were approximately $1,276,000, $1,053,000 and 
$694,000, 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, 1997, the 
Company held five U.S. patents which expire between 2012 and 2014, and 
six additional patent applications have been filed and are pending.  The 
Company expects to continue to file patent applications when appropriate 
to protect 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.

                                 Page 8

<PAGE>

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.

        The Company has purchased an advanced electroplating system which 
it installed at a leased facility in Milpitas, California which will be 
operated by the Company.  This plating operation will involve 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, 1997, the Company had 215 full time employees, 
180 of whom were engaged in manufacturing, 8 in research and development, 
8 in sales and customer service and 19 in finance and 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.

                                  Page 9

<PAGE>

Executive Officers

        The executive officers of the Company are as follows:

            Name              Age                 Position
---------------------------- ----- ---------------------------------------
Patrick Verderico............  54  President, Chief Executive Officer
                                     and Director
Ernest G. Barrieau II.......   42  Executive Vice President, Sales and
                                     Marketing
Gerald K. Fehr..............   60  Executive Vice President, Operations and
                                     Chief Technology Officer
Alfred V. Larrenaga.........   50  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 had 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.  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..

        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.

                                  Page 10

<PAGE>

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 October 1997, the Company leased a separate 2,500 square 
foot building, approximately 2 miles from the Company's main 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

        None.

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

        Not Applicable.

                                  Page 11

<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 March 19, 1998, there were 
approximately 1,500 beneficial owners of the Company's Common Stock.  The 
Company's Common Stock is listed for quotation in the Nasdaq National 
Market under the Symbol "IPAC."  The following table sets forth for the 
periods indicated, the high and low prices of the Company's Common Stock 
as quoted in the Nasdaq National Market.  

                                               High      Low
                                             --------  --------
Fiscal Year Ended December 31, 1996:

First Quarter (from February 28, 1996)....   $10 1/8   $7 1/2
Second Quarter............................    14 1/2    5 1/2
Third Quarter.............................    10 1/4    7
Fourth Quarter............................    10 1/4    7 1/2

Fiscal Year Ended December 31, 1997:

First Quarter.............................   $ 8 1/2   $3 1/2
Second Quarter............................     5        2 1/2
Third Quarter.............................     4        2
Fourth Quarter............................     2 1/2      1/2


        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 12

<PAGE>

Item 6.  Selected Financial Data

(In thousands, except per share data)
<TABLE>
<CAPTION>

                                           Years Ended December 31, (1)
                              --------------------------------------------
                                 1993    1994     1995     1996     1997
                              -------- -------- -------- -------- --------
                                 (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
Cost of revenues...........        --    3,438   15,627   28,840   24,089
                              -------- -------- -------- -------- --------
Gross profit (loss)........        --       13    5,137    7,562   (4,345)
Operating expenses:........
 Selling, general and
   administrative..........       777    1,309    2,229    3,488    5,167
 Research and development..        77      170      694    1,053    1,276
 Provision for impairment
   of assets...............        --       --       --       --    3,000
                              -------- -------- -------- -------- --------
    Total operating expense       854    1,479    2,923    4,541    9,443
                              -------- -------- -------- -------- --------
 Operating income (loss)...      (854)  (1,466)   2,214    3,021  (13,788)
 Interest and other income.        65       54      551    1,210      971
 Interest expense..........       (42)    (674)  (1,074)  (1,384)  (2,185)
                              -------- -------- -------- -------- --------
Income (loss) before income
  taxes....................      (831)  (2,086)   1,691    2,847  (15,002)
Provision for income taxes.        --       --     (141)    (530)      --
                              -------- -------- -------- -------- --------
Net income (loss)..........     ($831) ($2,086)  $1,550   $2,317 $(15,002)
                              ======== ======== ======== ======== ========
Diluted net income (loss)
  per share (1)............    ($0.34)  ($1.02)   $0.16    $0.16   ($1.08)
                              ======== ======== ======== ======== ========
Number of shares used to 
  compute diluted per share
  data (1).................     2,476    2,051    9,603   14,157   13,898
                              ======== ======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
                                        Years Ended December 31, (2)
                                              (In thousands)
                           -----------------------------------------------------
                                                                          Pro
                                                                         Forma
                              1993    1994     1995     1996     1997    1997
                                                                     (Unaudited)
                           -------- -------- -------- -------- -------- --------
<S>                        <C>      <C>      <C>     <C>       <C>     <C>
Balance Sheet Data:
  Working capital.......    $2,325   $2,075   $4,773  $15,614  ($5,877) $1,854
  Total assets..........     7,476   13,310   28,260   69,639   55,482  50,631
  Long-term obligations.     3,074    5,371    7,015   16,926   14,249   7,789
  Mandatorily redeemable
    convertible preferred
    stock...............     4,360    8,020   15,981      --       --      --
  Total shareholders'
    equity (deficit)....      (809)  (2,764)    (918)  40,761   26,238  26,238
</TABLE>

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

(2)  The Pro Forma Unaudited Balance Sheet Data as of December 31, 1997 
reflects the sale of the Company's facilities on January 20, 1998, as 
if the transaction had occurred on  December 31, 1997,  See Note 5 of 
Notes to Financial Statements.

                                  Page 13

<PAGE>

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

Overview

        Founded in 1992, the Company commenced commercial production and 
recognized its initial revenues in the quarter ended March 31, 1994.  The 
Company has derived substantially all of its revenues to date from QFPs. 
The Company made significant investments in capital equipment and 
facilities improvements in 1995, 1996 and 1997 by acquiring equipment 
with a cost of $10.1 million, $18.5 million and $12.4 million, 
respectively.  In 1996, the Company spent an additional $9.2 million to 
acquire the building complex in which it has operated since 1993.  In 
January 1998, the Company sold this complex (see Note 5 of Notes to 
Financial Statements). The Company's capital expenditures in 1997 
included equipment for new package types (e.g. BGA) and to establish an 
advanced electroplating system.

        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 cost resulted in operating losses which have continued into 
1998.  As a result of the operating losses and cost of capital additions, 
the Company believes that in addition to existing cash balances, it will 
need additional financing in the second quarter of 1998 to meet its 
projected working capital and other cash requirements through 1998.  The
Report of Independent Accountants on page 20 contains a going concern
statement.

        The Company's operating results are affected by a wide variety of 
factors that could materially and adversely affect revenues, gross profit 
and operating income.  These factors include 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 above 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 production over capacity.  In addition, the markets for 
integrated circuits are characterized by rapid technological change, 
evolving industry standards, intense competition and fluctuations in end-
user demand.  Since the Company' s business is entirely dependent on the 
requirements of semiconductor companies for independent packaging 
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, in 1997, the Company's 
results of operations were materially adversely effected by reduced 
orders from several major customers in the P.C. graphics segment of the 
semiconductor industry due to decreased demand for such products.

        The Company has recently experienced a decline in the average 
selling prices for its services and expects that average selling prices 
for its services may 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 could 
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 14

<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>
                                              Years Ended December 31,
                                          -------------------------------
                                            1995       1996       1997
                                          ---------  ---------  ---------
<S>                                         <C>        <C>        <C>
Revenues................................     100.0%     100.0%     100.0%
Cost of revenues........................      75.3       79.2      122.0
                                          ---------  ---------  ---------
Gross profit (loss).....................      24.7       20.8      (22.0)

Operating expenses:
  Selling, general and administrative...      10.7        9.6       26.2
  Research and development..............       3.3        2.9        6.4
  Provision for impairment of assets....        --         --       15.2
                                          ---------  ---------  ---------
    Total operating expenses............      14.0       12.5       47.8
                                          ---------  ---------  ---------
Operating income (loss).................      10.7        8.3      (69.8)

Interest and other income...............       2.7        3.3        4.9
Interest expense........................      (5.2)      (3.8)     (11.1)
                                          ---------  ---------  ---------
Income (loss) before income taxes.......       8.2        7.8      (76.0)
Provision for income taxes..............      (0.7)      (1.4)        --
                                          ---------  ---------  ---------
Net income (loss).......................       7.5%       6.4%     (76.0)%
                                          =========  =========  =========
</TABLE>

Revenues

        The Company recognizes revenues upon shipment of products to its 
customers.  Revenues decreased 46% to $19.7 million in 1997, from $36.4 
million in 1996. Revenues increased 75% to $36.4 million in 1996, from 
$20.8 million in 1995.  In 1996, six customers accounted for 
approximately 75% of the Company's revenues. The decrease in 1997 
revenues was primarily due to lower orders from four of these customers, 
coupled with operational problems in quality and delivery. Revenues by 
quarter for 1997 were $5.6 million in the first quarter, $4.0 million in 
the second quarter, $4.2 million in the third quarter and $6.0 million in 
the fourth quarter. The growth in 1996 revenues reflected increased order 
levels from the Company's three largest customers and revenues earned 
from the Company's thermally enhanced packages.  The largest portion of 
the 1996 revenue growth occurred during the first three quarters and 
revenues declined in the fourth quarter as a result of reduced orders 
from one of the Company's largest customers, and from quality problems 
with respect to certain raw materials and capital equipment.

Gross Profit (Loss)

        Cost of revenues includes materials, labor, depreciation and 
overhead costs associated with semiconductor packaging.  Gross profit 
(loss) decreased to $(4.3) million in 1997. Gross profit (loss) increased 
to $7.6 million in 1996, from $5.1 million in 1995.  Gross profit (loss) 
as a percentage of revenues, or gross margin, was (22.0%) in 1997 
compared to 20.8% in 1996 and 24.7% in 1995.

        In 1997, as a result in the reduction in orders from major 
customers, the Company had significant excess production capacity 
throughout the year.  This underutilization and resultant underabsorption 
of fixed costs, along with a decrease in average selling prices, resulted 
in a negative gross profit margin in 1997.  In 1996, the Company incurred 
higher labor and manufacturing overhead expenses from adding 
manufacturing personnel and infrastructure, which reduced its gross 
margin.  In the fourth quarter of 1996, gross margins were also adversely 
affected by a drop in average selling prices, caused by industry 
competition.

        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 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 

                                 Page 15

<PAGE>

depreciation rate continued into 1997 and will continue until the assets 
are fully depreciated.  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.  

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 
$5.2 million in 1997, $3.5 million in 1996, and $2.2 million in 1995.  
These increases were 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 increased to 26.2% in 1997 compared to 9.6% in 1996 and 10.7% in 
1995.  The fluctuation in percentages reflects  the increase in absolute 
spending and the reduced revenue base. The Company anticipates that its 
selling, general and administrative expenses will continue to increase in 
absolute dollars in future periods, although such expenses may fluctuate 
as a percentage of revenues.

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 $1.3 million in 1997, $1.1 million 
in 1996 and $0.7 million in 1995. The increases in 1997 and 1996 were due 
primarily to the Company's expanded efforts in developing BGA, chip scale 
and thermally enhanced packages.  

        As a percentage of revenues, research and development expenses 
increased to 6.4% in 1997 compared  to 2.9% in 1996 and 3.3% in 1995.  
The changes in such expenses as a percentage of revenues reflected, 
primarily, the reduced revenue base.

Provision for Impairment of Assets

        For the quarter ended June 30, 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.

Interest and Other Income

        Interest income in 1997, 1996, and 1995 was  $573,000, $982,000 and 
$209,000, respectively. The reduction in interest income for 1997 was due 
to lower investment balances, which resulted from the loss from 
operations and capital expenditures.  The increase in 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 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.  In 1995, other income 
consisted of $342,000 earned for development work, of which $318,000 was 
earned from participation in a semiconductor industry consortium.     

Interest Expense

        Interest expense consists primarily of interest payable on 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 1997, 1996, and 1995 was $2.2 million, $1.4 million 
and $1.1 million,  respectively.

                                 Page 16

<PAGE>

Provision for Income Taxes

        In 1997, due to the loss 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.  The Company's 
provision for taxes in 1995 was $141,000, representing an effective tax 
rate of approximately 8%.  

Liquidity and Capital Resources

        Prior to its initial public offering in February 1996, the Company 
satisfied its liquidity needs principally from the sale of Preferred 
Stock, equipment financing through leases and equipment secured term 
loans, and to a lesser extent, cash flow from operations.  Prior to its 
initial public offering, the Company raised approximately $16 million 
from issuance of Preferred Stock, $7.8 million from equipment financing, 
and $4.9 million from term loans.  The Company completed its initial 
public offering in February 1996.  Net proceeds from this offering were 
$23.1 million and were the primary source of the Company's liquidity for 
1996 and 1997.

        In 1997, 1996 and 1995, 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% with terms ranging from 36 to 48 months.  The Company borrowed an 
aggregate of $3.5 million, $9.8 million and $4.9 million through these 
facilities in 1997, 1996 and 1995, respectively.  At December 31, 1997, 
the aggregate principal amount outstanding under all equipment loans was 
$12.1 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, 1997 and 1996, the Company was in 
compliance with such covenants.

        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 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 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 accrue interest at 
the bank's prime  rate (8.5% at December 31, 1997) plus 1.25% and are 
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 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 January 1998, the Company sold its facility, which consisted of 
land and two buildings totaling approximately 138,000 square feet and 
leased the 82,390 square foot building that it occupies.  This sale 
netted the Company $7.3 million in cash and eliminated $6.6 million of 
mortgage debt.  The effect of this transaction as if it had occurred on 
December 31, 1997, is shown as "Pro Forma 1997 (Unaudited)" on the 
Balance Sheet. See Note 5 of Notes to Financial Statements.

        Capital additions totaled approximately $12.4 million, 
$27.7 million and $10.1 million in 1997, 1996, and 1995, respectively.  
The $27.7 million of capital additions in 1996 was comprised of 
$9.2 million for the acquisition of the building complex the Company 
acquired in December 1996, and $18.5 million for equipment and facilities 
improvements.  The building complex was sold in January 1998. The Company 
currently expects to spend up to $10 million for production equipment and 
facilities improvements in 1998, of which the Company currently has 
commitments for approximately $6.1 million.  The Company currently plans 
to borrow approximately $7 to $10 million through equipment secured 
borrowings to finance 1998 acquisitions.  However, the Company currently 
does not have commitments with respect to such financing and there can be 
no assurance that such financing will be available on terms acceptable to 
the Company, if at all.  Further, it is unlikely that the Company will be 
able to secure substantial additional equipment financing prior to 
infusion of equity capital.

                                 Page 17

<PAGE>

        The Company is currently seeking additional equity financing to 
address its working capital needs and to provide funding for capital 
expenditures.  There can be no assurances, 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 diluted 
and such equity securities may have rights, preferences or privileges 
senior to those of the holders of the Company's Common Stock.  There can 
be no assurance that additional financing will be available or that, if 
available, such financing will include terms favorable to the Company or 
its shareholders.  If adequate funds are not available on acceptable 
terms, the Company's business, financial condition and results of 
operations would be materially adversely effected.  In such event, the 
Company would be required to substantially curtail its operations and 
reorganize its current indebtedness.

        The Company is subject to certain financial covenants under its 
borrowing facilities including minimum revenues and EBITDA, on a 
quarterly basis.  In the event future revenue and income levels do not 
increase, it is likely that the Company would be out of compliance with 
certain of its financial covenants during 1998.  In this event, the 
Company anticipates receipt of a waivers of the covenants in default from 
the respective financial institutions. If the waivers were not received, 
certain debt would become currently due and payable and the line of 
credit would no longer be available for use.

Year 2000 Issue

        There is a risk to the Company from unforeseen problems related to 
the "Year 2000 issue".  The "Year 2000 issue" arises because most 
computer systems and programs were designed to handle only a two-digit 
year, not a four-digit year.  When Year 2000 begins, these computers may 
interpret "00" as the year 1900 and could either stop processing date-
related computations or could process them incorrectly.  The Company has 
recently performed an initial assessment of its information systems and 
does not anticipate any internal Year 2000 issues from its own 
information systems, databases or programs.  However, the Company could 
be adversely impacted by Year 2000 issues faced by major suppliers, 
customers, vendors, and financial service organizations with which the 
Company interacts.  The Company is in the process of developing a plan to 
determine the impact that third parties who are not Year 2000 compliant 
may have on the operations of the Company.

Market Risk

        Interest Rate Risk - The Company does not use derivative financial 
instruments in its investment portfolio.  At December 31, 1997, the 
Company's investment portfolio is comprised of highly liquid securities 
that mature within 90 days.  The Company places investments in 
instruments that meet high credit quality standards.  These securities 
are subject to interest rate risk, and could decline in value if interest 
rates fluctuate.  Due to the short duration and conservative nature of 
the Company's investment portfolio, the Company does not expect any 
material loss with respect to its investment portfolio.

        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 LIBOR and 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 does 
not expect any changes in such interest rates to have a material adverse 
effect on the Company's results from operations.

                                 Page 18

<PAGE>

Item 8.    Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

Financial Statements:
                                                                   Page
                                                                   ----
 <S>                                                               <C>
  Report of Independent Accountants...............................  20

  Balance Sheet as of December 31, 1996 and 1997..................  21

  Statement of Operations for the Years Ended December 31, 1995,
    1996 and 1997.................................................  22

  Statement of Shareholders' Equity for the Years Ended
    December 31, 1995, 1996 and 1997..............................  23

  Statement of Cash Flows for the Years Ended December 31, 1995,
    1996 and 1997.................................................  24

  Notes to Financial Statements...................................  25

</TABLE>

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 19

<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 19 present fairly, in all material respects, the financial 
position of Integrated Packaging Assembly Corporation at December 31, 
1996 and 1997, and the results of its operations and its cash flows for 
each of the three years in the period ended December 31, 1997, 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 recent losses from 
operations and cash and available financing facilities may not be 
sufficient to fund the Company's operations, capital commitments and 
debt service requirements for the next year.  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 uncertainity.



Price Waterhouse LLP
San Jose, California
January 27, 1998

                                  Page 20

<PAGE>

                   INTEGRATED PACKAGING ASSEMBLY CORPORATION
                                 BALANCE SHEET
                       (IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                                           December 31,
                                                 -----------------------------
                                                                     Pro Forma
                                                                    (Unaudited)
                                                   1996      1997      1997
                                                 --------- --------- ---------
<S>                                              <C>       <C>       <C>
ASSETS
  Current assets:
    Cash and cash equivalents..................   $15,817    $2,928   $10,240
    Short term investments.....................     3,025      --        --
    Accounts receivable, net of allowance
     for doubtful accounts of $145 and $263....     6,141     3,096     3,096
    Inventory..................................     1,977     2,337     2,337
    Prepaid expenses and other current assets..       606       757       757
                                                 --------- --------- ---------
      Total current assets.....................    27,566     9,118    16,430

  Property and equipment, net..................    41,776    46,127    34,110
  Other assets.................................       297       237        91
                                                 --------- --------- ---------
    Total assets...............................   $69,639   $55,482   $50,631
                                                 ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
   Current liabilities:
    Current portion of notes payable...........    $3,893    $4,576    $4,435
    Current portion of capital lease
     obligations...............................     2,225     1,972     1,972
    Accounts payable...........................     2,534     5,478     5,478
    Accrued expenses and other liabilities.....     3,300     2,969     2,691
                                                 --------- --------- ---------
      Total current liabilities................    11,952    14,995    14,576
                                                 --------- --------- ---------
  Long term portion of notes payable...........    15,155    14,166     7,706
                                                 --------- --------- ---------
  Long term portion of capital lease
   obligations.................................     1,771        83        83
                                                 --------- --------- ---------
  Deferred gain on sale of facilities..........      --        --       2,028
  Commitments and contingencies                  --------- --------- ---------
    (notes 4, 5 and 10)

  Shareholders' equity
    Common Stock, no par value, 75,000,000
     shares authorized; 13,862,342 and
     13,828,348 shares issued and
     outstanding...............................    39,811    40,290    40,290
  Accumulated earnings (deficit)...............       950   (14,052)  (14,052)
                                                 --------- --------- ---------
  Total shareholders' equity ..................    40,761    26,238    26,238
                                                 --------- --------- ---------
  Total liabilities and shareholders'
     equity ...................................   $69,639   $55,482   $50,631
                                                 ========= ========= =========
</TABLE>
 The accompanying notes are an integral part of these financial statements.

                                 Page 21

<PAGE>
                   INTEGRATED PACKAGING ASSEMBLY CORPORATION
                            STATEMENT OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
                                              Years Ended December 31,
                                          -------------------------------
                                            1995       1996       1997
                                          ---------  ---------  ---------
<S>                                       <C>        <C>        <C>
Revenues................................   $20,764    $36,402    $19,744
Cost of revenues........................    15,627     28,840     24,089
                                          ---------  ---------  ---------
Gross profit (loss).....................     5,137      7,562     (4,345)
                                          ---------  ---------  ---------
Operating expenses:
  Selling, general and administrative...     2,229      3,488      5,167
  Research and development..............       694      1,053      1,276
  Provision for impairment of assets....        --         --      3,000
                                          ---------  ---------  ---------
    Total operating expenses............     2,923      4,541      9,443
                                          ---------  ---------  ---------
Operating income (loss).................     2,214      3,021    (13,788)

Interest and other income...............       551      1,210        971
Interest expense........................    (1,074)    (1,384)    (2,185)
                                          ---------  ---------  ---------
Income (loss) before income taxes.......     1,691      2,847    (15,002)
Provision for income taxes..............      (141)      (530)        --
                                          ---------  ---------  ---------
Net income (loss).......................    $1,550     $2,317   ($15,002)
                                          =========  =========  =========
Per share data:
  Net income (loss) per share
    Basic...............................     $0.77      $0.20     ($1.08)
                                          =========  =========  =========
    Diluted.............................     $0.16      $0.16     ($1.08)
                                          =========  =========  =========
Number of shares used to compute per 
  share data                                 2,018     11,730     13,898
  Basic.................................  =========  =========  =========
  Diluted...............................     9,603     14,157     13,898
                                          =========  =========  =========
</TABLE>
The accompanying notes are an integral part of these financial statements.

                                 Page 22

<PAGE>
                   INTEGRATED PACKAGING ASSEMBLY CORPORATION
                       STATEMENT OF SHAREHOLDERS' EQUITY
                                (IN THOUSANDS)
<TABLE>
<CAPTION>
                                    Common Stock      Accumulated 
                                ---------------------  Earnings  
                                  Shares     Amount   (Deficit)    Totals
                                ---------- ---------- ---------- ----------
<S>                                <C>       <C>        <C>        <C>
BALANCE AT DECEMBER 31, 1994...     1,933       $153    ($2,917)   ($2,764)
Common stock issued under
  stock plans..................       597        125         --        125
Issuance of warrants...........        --        144         --        144
Amortization of deferred
  compensation.................        --         27         --         27
Net income.....................        --         --      1,550      1,550
                                ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1995...     2,530        449     (1,367)      (918)
Sale of common stock, net of
  issuance costs 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 income (loss)..............        --         --    (15,002)   (15,002)
                                ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1997...    13,828    $40,290   ($14,052)   $26,238
                                ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.

                                 Page 23

<PAGE>

                   INTEGRATED PACKAGING ASSEMBLY CORPORATION
                            STATEMENT OF CASH FLOWS
                           INCREASE (DECREASE) CASH
                                (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                     Years Ended December 31,
                                                 -----------------------------
                                                   1995      1996      1997
                                                 --------- --------- ---------
<S>                                              <C>       <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...............................   $1,550    $2,317  ($15,002)
ADJUSTMENTS:
Depreciation and amortization...................    1,541     3,316     6,426
Write down of impaired assets...................       --        --     3,000
Changes in assets and liabilities:
  Accounts receivable...........................   (2,061)   (3,238)    3,045
  Inventory.....................................   (1,382)      164      (360)
  Prepaid expenses and other assets.............     (415)     (161)     (320)
  Accounts payable..............................      953       679     2,944
  Accrued expenses and other liabilities........      950     1,921    (1,369)

  Net cash provided by (used in) operating       --------- --------- ---------
    activities..................................    1,136     4,998    (1,636)
                                                 --------- --------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:

Acquisition of property and equipment...........  (10,126)  (27,744)  (12,351)
Purchase of short-term investments..............       --   (25,025)       --
Sale & redemption of short-term investments.....       --    22,000     3,025
                                                 --------- --------- ---------
  Net cash used in investing activities.........  (10,126)  (30,769)   (9,326)
                                                 --------- --------- ---------
CASH FLOWS PROVIDED BY (USED IN) FINANCING
ACTIVITIES:

Payments under capital lease obligations........   (1,358)   (1,593)   (1,958)
Principal payments on note payable..............     (234)   (1,819)  (10,506)
Proceeds from note payable......................    4,890    16,300    10,200
Proceeds from issuance of Mandatorily
  Redeemable Convertible Preferred Stock.........   7,961       --        --
Proceeds from issuance of common stock, net.....      125    23,276       337
                                                 --------- --------- ---------
  Net cash provided by (used in) financing
    activities..................................   11,384    36,164    (1,927)
                                                 --------- --------- ---------
NET INCREASE (DECREASE) IN CASH.................    2,394    10,393   (12,889)
Cash and cash equivalents at beginning of 
  period........................................    3,030     5,424    15,817
                                                 --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......   $5,424   $15,817    $2,928
                                                 ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for interest..........................   $1,008    $1,240    $2,074

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
ACTIVITIES

Acquisition of equipment under capital leases...      $40      $147       --
Issuance of warrants............................     $144       $57       $94

</TABLE>
  The accompanying notes are an integral part of these financial statements.

                                 Page 24

<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 ("QFP's"), thin quad flat packages ("TQFP's"), and ball grid 
array packages ("BGA's"), which are used in complex integrated circuits 
with high pin-counts in the personal computer and telecommunications 
industries.

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 
1998.  As a result of the operating losses and cost of capital 
additions, the Company believes that in addition to existing cash 
balances, it will need additional financing to meet its projected 
working capital and other cash requirements through 1998.  While there 
can be no assurance that the Company can obtain such financing when 
needed, the Company has taken actions to improve liquidity.

In December 1997, the Company entered into a Line of Credit Agreement 
with a bank which could provide up to $5 million of additional borrowing 
availability to the Company.  See Note 5.

In January 1998, the Company sold its facility which consisted of land 
and two buildings.  Net proceeds from the sale of the facility were $7.3 
million, net of the elimination of $6.6 million of mortgage debt, fees, 
commissions and closing costs.

However, due to anticipated cash requirements during the first quarter 
of 1998, including capital expenditures, debt service costs and an 
expected loss from operations, the Company needs to secure additional 
financing in the second quarter to fund continuing operations.

The Company is attempting to secure additional financing that would 
provide incremental borrowing.  Additionally, the Company is reviewing 
various proposals to maximize stockholder value, including potential 
equity infusions and other financing transactions.  The Company is 
conducting discussions with interested parties.  However, no definitive 
agreements, terms or structures have been reached, and there are no 
assurances that any transactions will be consummated.  Further, it is 
unlikely that the Company will be able to secure substantial additional 
equipment financing prior to the infusion of equity capital.  If the 
Company is unable to secure additional financial resources and operating 
losses continue, there could be a material adverse impact on the 
Company's financial position and results of operations, and the Company 
would be required to substantially curtail its operations and reorganize 
its current indebtedness.

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

                                 Page 25

<PAGE>

             INTEGRATED PACKAGING ASSEMBLY CORPORATION 

                 NOTES TO FINANCIAL STATEMENTS 

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 years 1995 
and 1996 each consisted of 52 weeks or 364 days.  Fiscal 1997 consisted 
of 367 days.  The effect of these three additional days in 1997 on
revenues and net loss was insignificant.

Pro Forma Unaudited Balance Sheet as of December 31, 1997

        In January 1998, the Company sold its facilities and entered into a 
lease for the building that it occupies. The Pro Forma 1997 Unaudited 
Balance Sheet reflects this transaction as if it had occurred on 
December 31, 1997.  See Note 5. 

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.  As 
of December 31, 1996, the Company had short term investments primarily 
comprised of fixed maturity securities of  $3.0 million all of which 
have been classified as available for sale and have contractual 
maturities of less than one year.  These securities are stated at fair 
market value.  Unrealized gains and losses were immaterial at December 
31, 1996.

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. 

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.

                                 Page 26

<PAGE>

            INTEGRATED PACKAGING ASSEMBLY CORPORATION 

                NOTES TO FINANCIAL STATEMENTS

        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 between 
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.  In January 1996, the Company adopted the 
disclosure only requirements of SFAS 123.


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 for the period is used in determining the number of shares 
assumed to be purchased from the exercise of stock options and warrants. 

                                 Page 27

<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 data)         Year Ended December 31, 
                                          -------------------------------
                                            1995       1996       1997
                                          ---------  ---------  ---------
<S>                                       <C>        <C>        <C>
Basic EPS Computation:
Net income (loss).........................  $1,550     $2,317   ($15,002)
                                          =========  =========  =========
Weighted-average common shares outstanding   2,018     11,730     13,898
                                          =========  =========  =========
Basic earnings (loss) per share...........   $0.77      $0.20     ($1.08)
                                          =========  =========  =========
</TABLE>

<TABLE>
<CAPTION>
                                          -------------------------------
                                            1995       1996       1997
                                          ---------  ---------  ---------
<S>                                       <C>        <C>        <C>
Diluted EPS Computation:
Net income (loss).........................  $1,550     $2,317   ($15,002)
                                          =========  =========  =========
Weighted-average common shares outstanding   2,018     11,730     13,898

Plus shares from assumed conversions:
  Convertible preferred stock.............   6,993      1,310         --
  Effect of dilutive options and warrants.     592      1,117         --
                                          ---------  ---------  ---------
Weighted-average common shares used for
  diluted earnings (loss) per share.......   9,603     14,157     13,898
                                          =========  =========  =========

Diluted earnings (loss) per share            $0.16      $0.16     ($1.08)
                                          =========  =========  =========
Antidilutive Securities*
  Options and warrants outstanding at
    end of period.........................     202        216      2,186
                                          =========  =========  =========
Weighted-average exercise price...........   $4.57      $9.49      $3.04
                                          =========  =========  =========
</TABLE>

*Antidilutive securities consist of options and warrants not included in 
the computation of diluted earnings per share because i) the exercise 
price of each of these options was greater than 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 28

<PAGE>

            INTEGRATED PACKAGING ASSEMBLY CORPORATION 

                NOTES TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
NOTE 2--BALANCE SHEET COMPONENTS:
        (In thousands)
                                                  December 31,
                                      -----------------------------------
                                                               Pro Forma
                                                                 1997
                                         1996        1997     (Unaudited)
                                      ----------- ----------- -----------
<S>                                   <C>         <C>         <C>
Inventory                                                     
    Raw materials..................       $1,839      $2,176      $2,176
    Work in progress...............          138         161         161
                                      ----------- ----------- -----------
                                          $1,977      $2,337      $2,337
                                      =========== =========== ===========
Property and equipment                                        
    Land...........................       $3,827      $3,827          --
    Buildings and improvements.....        7,175       8,890         288
    Machinery and equipment........       34,624      42,784      42,784
    Office and computer equipment..          613         793         793
    Furniture and fixtures.........          268         312         312
    Deposits on machinery and
      equipment....................          250         595         595
                                      ----------- ----------- -----------
                                          46,757      57,201      44,772

    Less accumulated depreciation..       (4,981)    (11,074)    (10,662)
                                      ----------- ----------- -----------
                                         $41,776     $46,127     $34,110
                                      =========== =========== ===========

Property and equipment acquired under                         
  capital leases included above                               
    Machinery and equipment........       $7,819      $7,819      $7,819
    Office and computer equipment..           36          36          36
    Furniture and fixtures.........           57          57          57
                                      ----------- ----------- -----------
                                           7,912       7,912       7,912

    Less accumulated depreciation..       (2,699)     (3,919)     (3,919)
                                      ----------- ----------- -----------
                                          $5,213      $3,993      $3,993
                                      =========== =========== ===========

Accrued expenses and other liabilities                        
    Accrued payroll and related
      expenses.....................         $642        $762        $762
    Accrued income tax.............          621         456         456
    Other accrued liabilities......        2,037       1,751       1,473
                                      ----------- ----------- -----------
                                          $3,300      $2,969      $2,691
                                      =========== =========== ===========
</TABLE>

                                 Page 29

<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 $318,000, $228,000 and 
$123,500 were recognized under this agreement during 1995, 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-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. If it exercises its purchase option, the 
Company would pay approximately $800,000 in 1998.

        The Company incurred rent expense under a noncancelable operating 
lease until December 1996 when the Company purchased the facility it had 
been leasing.  Rent expense was $180,000, $216,000, and $46,000 in 1995, 
1996, and 1997, respectively.   

        In January 1998, in connection with the sale of its facility (see 
Note 5), the Company entered into a noncancelabe 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, with an initial lease rate of 
$82,390 per month subject to price increases during the term of the 
lease.

Future minimum lease payments over the next five years and thereafter 
under capital and operating leases, including capitalized purchase 
options at December 31, 1997 for capital leases are as follows (in 
thousands): 

<TABLE>
<CAPTION>
                                                    Capital    Building
                                                    Leases      Leases
                                                  ----------- -----------
<S>                                                  <C>         <C>
Year ending December 31:                                      
  1998..........................................      $1,972      $1,002
  1999..........................................         135       1,059
  2000..........................................          --       1,162
  2001..........................................          --       1,166
  2002..........................................          --       1,264
  Thereafter....................................          --       6,775
                                                  ----------- -----------
  Total minimum payments........................       2,107      12,428
                                                              ===========
  Less imputed interest and unamortized charges.         (52)
                                                  -----------
  Present value of payments under capital leases       2,055
  Less current portion..........................      (1,972)
                                                  -----------
  Long-term lease obligations...................         $83
                                                  ===========
</TABLE>

                                 Page 30

<PAGE>

            INTEGRATED PACKAGING ASSEMBLY CORPORATION 

                NOTES TO FINANCIAL STATEMENTS

        In 1993, 1994 and 1996, in connection with arranging capital leases, 
the Company issued to the lessors warrants to purchase an aggregate of 
457,550 shares of Series A Mandatorily Redeemable Convertible Preferred 
Stock at exercise prices ranging from $1.50 to $8.00.  As a result of 
the Company's initial public offering in 1996, the warrants are now 
exercisable to purchase the same number of shares of Common Stock at the 
same exercise price.   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 2003 (200,000 shares) and 
2004 (257,550 shares).  None of the warrants had been exercised at 
December 31, 1997. 

<TABLE>
<CAPTION>
NOTE 5--NOTES PAYABLE:
                                                  December 31,
                                      -----------------------------------
                                                               Pro Forma
                                                                 1997
                                         1996        1977     (Unaudited)
                                      ----------- ----------- -----------
    <S>                                 <C>         <C>         <C>
     Notes payable (in thousands):                       
       Bank term note payable.....        $3,375      $2,375      $2,375
       Equipment notes payable....         9,173       9,766       9,766
       Real estate loan...........         6,500       6,601          --
                                      ----------- ----------- -----------
       Total notes payable........        19,048      18,742      12,141
       Less current portion......         (3,893)     (4,576)     (4,435)
                                      ----------- ----------- -----------
                                         $15,155     $14,166      $7,706
                                      =========== =========== ===========
</TABLE>

Bank Term Note Payable 

        The Company fully utilized a borrowing facility by borrowing $2.0 
million in 1995 and an additional $2.0 million in 1996.  The facility 
provides financing for up to the lesser of $4.0 million or 80% of the 
cost of collaterized machinery and equipment.  The loans accrue interest 
at the London Interbank Bank Rate (LIBOR) plus 2.5% and requires 48 equal  
monthly principal payments.  The agreement requires the Company to
maintain certain financial covenants, including a minimum liquidity ratio
and a debt service coverage ratio, and prohibits the payment of dividends
without prior approval by the bank.  At December 31, 1997, the Company
was in compliance with such covenants.

        In conjunction with the Company's utilization of this borrowing 
facility in 1995, the Company issued a warrant to purchase 21,740 shares 
of the Company's Series A Mandatorily Redeemable Convertible Preferred 
Stock at an exercise price of $4.60 per share.   As a result of the 

                                 Page 31

<PAGE>

               INTEGRATED PACKAGING ASSEMBLY CORPORATION 

                    NOTES TO FINANCIAL STATEMENTS 

Company's initial public offering in 1996, this warrant can be exercised 
to purchase the same number of shares of Common Stock at the same 
exercise price.   The $26,000 estimated value of this warrant at the 
time of issuance, as determined by the Company and supported by an 
independent appraisal, is being amortized as interest expense over the 
period the note is outstanding. The warrant is exercisable at any time 
prior to July 2000.  The warrant had not been exercised at December 31, 
1997. 

Equipment Notes Payable 

        In 1995, 1996 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 collaterized 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 December 31, 1996 and 1997, the Company was in compliance with such 
covenants.  In accordance with the borrowing facility agreement entered 
in 1995, the Company issued a warrant to purchase 97,826 shares of the 
Company's Series A Mandatorily Redeemable Convertible Preferred Stock at 
an exercise price of $4.60 per share.   As a result of the Company's 
initial public offering in 1996, this warrant can be exercised  to 
purchase the same number of shares of Common Stock at the same exercise 
price. The $118,000 value of this warrant at the time of issuance, as 
determined by the Company and supported by an independent appraisal, is 
being amortized as interest expense over the period the notes are 
outstanding. The warrant is exercisable at any time prior to 2005.  The 
warrant had not been exercised at December 31, 1997.

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 accrues 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 below.

        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 is secured by the land, buildings and 
improvements purchased in December 1996.  The loan accrues interest at 
8.5%, and is 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 which 
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 Pro Forma (Unaudited) 
Balance Sheet  and Balance Sheet Information in the Footnotes reflects 
this transaction as if it had occurred on December 31, 1997. 

        The Company is now leasing the approximately 82,390 square foot 
building on the facility that it occupies.  See Note 4

                                 Page 32

<PAGE>

               INTEGRATED PACKAGING ASSEMBLY CORPORATION 

                     NOTES TO FINANCIAL STATEMENTS

Maturities of Loans and Notes Payable

The aggregate maturities of notes payable at December 31, 1997 are as 
follows (in thousands): 

<TABLE>
<CAPTION>
                                                   Pro Forma
                                                     1997
                                         1997     (Unaudited)
                                      ----------- -----------
      <S>                             <C>         <C>
      1998......................          $4,576      $4,435
      1999......................           3,763       3,608
      2000......................           3,142       2,975
      2001......................           1,403       1,218
      2002......................           5,953         --
                                      ----------- -----------
      Total.....................          18,837      12,236
      Less unamortized charges..             (95)        (95)
      Less current portion......          (4,576)     (4,435)
                                      ----------- -----------
      Long-term borrowings......         $14,166      $7,706
                                      =========== ===========
</TABLE>

Line of Credit 

        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 accrue interest at 
the bank's prime rate (8.5% at December 31, 1997) plus 1.25% and are 
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 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 conjunction with the line of credit agreement, the Company issued 
a warrant to purchase 10,000 shares of the Company's Common Stock at an 
exercise price of $0.90 per share.  At the time of issuance, the value 
of the warrants was determined to be negligible.  The warrant is 
exercisable at any time prior to 2002.  The warrant has not been 
exercised as of December 31, 1997.

NOTE 6-COMMON STOCK AND MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED 
STOCK: 

        On February 28, 1996, the Company issued 3,000,000 shares of Common 
Stock at $7.50 per share in the Company's initial public offering 
("IPO").  In addition, the underwriters exercised their over allotment 
option to purchase 450,000 shares of Common Stock. Proceeds net of 
discounts, commissions and offering expenses, total approximately $23.1 
million.

        Mandatorily Redeemable Convertible Preferred Stock, no par value, of 
7,862,000 shares and an amount of $15,981,000 were converted into the 
same number of common shares at the Company's IPO.  

                                 Page 33

<PAGE>

              INTEGRATED PACKAGING ASSEMBLY CORPORATION 

                    NOTES TO FINANCIAL STATEMENTS

NOTE 7-STOCK OPTIONS: 

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 connection with the IPO, 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 provides for the grant of non-qualified
stock options to purchase up to 250,000 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. No options were granted in 1997 
under this plan. 

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 

                                 Page 34

<PAGE>

                INTEGRATED PACKAGING ASSEMBLY CORPORATION 

                      NOTES TO FINANCIAL STATEMENTS

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; vesting occurs over the same period 
as the former options. 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. Of the remaining 31,875 restricted shares outstanding, 18,960 
were vested.

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 and 1997, respectively, 
25,062 and 59,656 shares were issued under the Plan.

                                 Page 35

<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, 1995, 1996, and 1997.

<TABLE> 
<CAPTION> 
                             1995               1996               1997
                      ----------------   ----------------  -----------------
                                Average            Average            Average
(Shares in thousands)  Shares   Price     Shares   Price     Shares   Price
--------------------- --------- ------   --------- ------  ---------- ------
<S>                   <C>      <C>       <C>      <C>     <C>        <C>
Options outstanding
  at Jan. 1........... 612,500  $0.18     550,633  $1.04     890,200  $4.85
Options granted....... 615,000  $0.98     484,848  $8.74   1,295,745  $3.03
Options canceled......(547,294) $0.21     (68,126) $0.33    (519,829) $5.90
Options exercised.....(129,573) $0.20     (77,155) $6.04     (66,962) $1.35
                      --------- ------   --------- ------  ---------- ------
Options outstanding
  at Dec. 31.......... 550,633  $1.04     890,200  $4.85   1,599,154  $3.18
                      ========= ======   ========= ======  ========== ======
Options exercisable
  at Dec. 31..........  17,043  $0.24     147,944  $0.88     219,400  $4.52
                      ========= ======   ========= ======  ========== ======
Available for grant
  at Dec. 31.......... 916,944            509,301            253,385   
                      =========          =========         ==========  
</TABLE>

        Significant option groups outstanding at December 31, 1997, after 
giving effect to the repricing discussed above, and the related weighted 
average exercise price and remaining contractual life information are as 
follows:

<TABLE>
<CAPTION>
  Options with          Outstanding            Exercisable       Remaining
 exercise prices     --------------------  --------------------    Life
  ranging from         Shares     Price      Shares     Price    (Years)
-----------------    ----------- --------  ----------- --------  --------
<S>                  <C>          <C>        <C>        <C>         <C>
$ 0.10 to $ 0.46..      272,298    $0.24      186,407    $0.16         7
$ 1.00 to $ 1.50..    1,180,499     1.06        5,646     1.50        10
$ 2.00 to $ 3.50..       94,000     2.96          552     2.20         9
$ 7.00 to $ 9.50..       52,357     7.45       26,795     7.58         8
                     ----------- -------   ----------- -------   --------
Options outstanding
  at Dec. 31          1,599,154    $1.74      219,400    $4.52         9
                     =========== =======   =========== =======   ========
</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 36

<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 
1995, 1996 and 1997 respectively:   dividend yield of 0% in all three 
years;  expected life of 3 years for each year; expected volatility of 56%, 
57% and 65% and risk-free interest rates of 6.4%, 6.2% and 6.1%.  The
weighted-average fair value of those stock options granted in 1995, 1996
and 1997 was $0.54, $4.33 and $1.72 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 and 1997 
respectively:  dividend yield of 0%;  an expected life of six months;  
expected volatility of 56% and 65%;  and risk-free interest rate of 5.3% 
and 5.3%.  The weighted-average fair value of these purchase rights 
granted in 1996 and 1997 was $2.20 and $3.12, 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 pro 
forma amounts below for the years ended December 31, 1995, 1996 and 
1997:

<TABLE>
<CAPTION>
                                             1995      1996      1997
                                           --------- --------- ---------
      <S>                                   <C>       <C>     <C>       
      Net income (loss) as reported (in
       thousands).......................     $1,550    $2,317  ($15,002)
      Net income (loss), pro forma......     $1,521    $1,923  ($15,708)

      Net income (loss) per share as reported
        Basic...........................      $0.77     $0.20    ($1.08)
        Diluted.........................      $0.16     $0.16    ($1.08)

      Net income (loss) per share, pro forma
        Basic...........................      $0.75     $0.16    ($1.13)
        Diluted.........................      $0.16     $0.13    ($1.13)
</TABLE>

        The pro forma amounts reflect compensation expense related to 1995, 
1996 and 1997 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 37

<PAGE>

              INTEGRATED PACKAGING ASSEMBLY CORPORATION 

                    NOTES TO FINANCIAL STATEMENTS

NOTE 8-INCOME TAXES: 

        Through December 31, 1994 and in 1997, the Company incurred net 
operating losses and recorded no provision for income taxes. The tax 
provision for 1995 and 1996 current taxes consists of the following (in 
thousands): 

<TABLE>
<CAPTION>
                                           December 31,
                                       --------------------
                                         1995       1996
                                       ---------  ---------
     <S>                                 <C>        <C>
       Current:
           Federal................          $48        $13
           State..................           93        169
                                       ---------  ---------
                                            141        182
                                       ---------  ---------
       Deferred:
           Federal................           --        489
           State..................           --       (141)
                                       ---------  ---------
                                             --        348
                                       ---------  ---------
                                           $141       $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,
                                           --------------------
                                             1995       1996
                                           ---------  ---------
    <S>                                     <C>        <C>
     Provision at statutory rate...........    $575       $968
     Benefits of carryforwards.............    (527)       (68)
     State taxes, net of federal benefit...      93        175
     Use of valuation allowance............      --       (475)
     Other................................       --        (70)
                                           ---------  ---------
                                               $141       $530
                                           =========  =========
</TABLE>

        Deferred income tax assets comprise the following (in thousands): 
<TABLE>
<CAPTION>
                                                      December 31,
                                                  --------------------
                                                    1996       1997
                                                  ---------  ---------
    <S>                                            <C>        <C>
     Federal and state credit
      carryforwards.........................          $397     $1,689
     Federal and state net operating
      loss carryforwards....................         1,575      8,631
     Leases, treated as operating for tax...        (1,111)    (1,592)
     Depreciation...........................        (1,961)    (3,165)
     Reserves and accruals..................           476        587
     Other..................................           246       (201)
                                                  ---------  ---------
     Deferred tax assets (liability)....              (378)     5,949
     Less valuation allowance...........                --     (5,949)
                                                  ---------  ---------
        Net deferred tax asset
        (liability)....................              ($378)      $ --
                                                  =========  =========
</TABLE>

                                 Page 38

<PAGE>

              INTEGRATED PACKAGING ASSEMBLY CORPORATION 

                    NOTES TO FINANCIAL STATEMENTS

        At December 31, 1997, the Company had federal and state net operating 
loss and tax credit carryforwards ("NOL's") of approximately $23,000,000 and 
$8,000,000, respectively, which can be used to reduce future taxable income. 
These NOL's expire through 2012, if not utilized.

        The Tax Reform Act of 1996 limits the use of NOL's 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 
IPO in 1996, resulting in a limitation of the annual utilization of the NOL's 
generated through the date of the IPO.  Despite the limitation, the company 
may be able to utilize the entire amount of NOL's prior to expiration. 

NOTE 9-CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS:

Concentration of credit risk

        Financial instruments which potentially subject the Company to 
concentrations of credit risk consist principally of cash in money 
market accounts, certificates of deposit, investments in financial 
instruments with a maturity of less than one year, and accounts 
receivable. At December 31, 1996 and 1997, the Company had $5.2 million 
and $1.9 million invested in money market accounts with a bank.  At 
December 31, 1996, the Company had a certificate of deposit of $6.5 
million invested with a bank, and other investments in short term 
financial instruments of $3.0 million invested with a sercurities  
firm.

        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, 1996, two customers accounted 
for 51% and 16%, respectively, of accounts receivable. At December 31, 
1997, four customers accounted for 19%, 15%, 13% and 10%, respectively, 
of accounts receivable                          .

Significant customers

<TABLE>
<CAPTION>
                                          Years Ended December 31,
                                       -------------------------------
                                         1995       1996       1997
                                       ---------  ---------  ---------
<S>                                     <C>        <C>        <C>
Customers comprising 10% or more of the
  Company's revenues for the periods
  indicated:                 
        A.........................           29%        32%        17%
        B.........................            3%        14%        16%
        C.........................            1%         2%        14%
        D.........................            8%        17%         4%
        E.........................           20%         4%        --%
</TABLE>

                                 Page 39

<PAGE>

              INTEGRATED PACKAGING ASSEMBLY CORPORATION 

                    NOTES TO FINANCIAL STATEMENTS

NOTE 10-SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

Summarized quarterly financial data for 1996 and 1997 is as follows:

<TABLE>
<CAPTION>
                                   First     Second     Third      Fourth
                                ---------- ---------- ---------- ----------
<S>                             <C>        <C>        <C>        <C>
1996:
Net revenues....................  $8,057     $8,469    $10,385     $9,491
Gross profit (loss).............   1,997      1,752      2,323      1,490
Net income (loss) ..............     612        567      1,021        117
Net income (loss) per share:
  Basic.........................    0.06       0.05       0.08       0.01
  Diluted.......................    0.05       0.04       0.07       0.01

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)
</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 40

<PAGE>

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

        Not applicable.

                                 Page 41

<PAGE>

                                PART III


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 Company's Board of Directors consists of the following five 
(5) individuals:

Name                       Age   Principal Occupation

Patrick Verderico           54   Chief Executive Officer and President
                                 of the Company
Philip R. Chapman           36   General Partner, Adler & Company
Gill Cogan                  46   General Partner, Weiss, Peck & Greer
Paul R. Low                 65   President, P.R.L. Associates
Eric A. Young               42   General Partner, Canaan Partners

        Except as set forth below, each director has been engaged in his 
principal occupation described above during the past five (5) years.  
There is no family relationship among any directors or executive 
officers of the Company.

        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 August 1996 to 
April 1997, Mr. Verderico was an independent business consultant.  From 
April 1996 to July 1996, Mr. Verderico was Chief Operating Officer and 
Executive Vice President of Maxtor Corporation, a disk drive 
manufacturer.   From January 1994 to March 1996, Mr. Verderico was Chief 
Financial Officer and Vice President Finance and Administration of 
Creative Technology, a multi-media company.  From October 1992 to 
January 1994, Mr. Verderico was Chief Financial Officer and Vice 
President Finance and Administration of Cypress Semiconductor, Inc., a 
manufacturer of integrated circuits.  Prior to 1992, Mr. Verderico had 
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.

        Philip Chapman has been a director of the Company since March 
1993.  Mr. Chapman has been a principal of Adler & Company, a venture 
capital management firm, since September 1991 and became a general 
partner of Adler & Company in January 1995.  From September 1989 to 
May 1991, Mr. Chapman was a senior consultant with Booz Allen & Hamilton 
International, a management consultant company.  Mr. Chapman is also a 
director of Global Pharmaceutical Corporation and Shells Seafood 
Restaurants.

       Gill Cogan has been a director of the Company since March 1993.  
Mr. Cogan, a managing director of Weiss, Peck & Greer, L.L.C and a general 
partner of Weiss, Peck & Greer Venture Partners, L.P., has over 14 years 
of venture capital experience in computer software, communications and 
semiconductors.  From 1986 to 1990, he served as a partner of Adler & 
Company, a venture capital group handling technology-related 
investments.  From 1983 to 1985, Mr. Cogan was chief executive officer 
of Formtek, Inc., an imaging and data management computer company.  He 
is also a director of Electronics for Imaging, Inc., P-Com Inc. and 
several privately held companies.

        Paul Low has been a director of the Company since March 1993.  
Since June 1992, Dr. Low has been President of P.R.L. Associates, a 
consulting firm, and serves as a consultant to a number of technology 
companies.  From 1957 to 1992, Dr. Low worked for IBM Corporation and 
held senior management and executive positions, including President, 
General Technology Division and IBM Corporate Vice President; President; 
President of General Products Division; General Manager, Technology 
Products business line; and member of IBM's corporate management board. 
Dr. Low also serves as a director of Applied Materials, Inc., Network 
Computing Devices, Inc., Solectron Corporation, VLSI Technology, Inc., 
Xionics Document Technologies, Inc. and several privately held 
companies.

        Eric Young has been a director of the Company since June 1995.  
Mr. Young was a co-founder of Canaan Partners, a venture capital 
investment firm, and has served as general partner since its inception 
in 1987.  From 1979 to 1987, Mr. Young held various management positions 
with General Electric Co. and G.E. Venture Capital, a venture capital 
investment firm and subsidiary of General Electric.  Mr. Young is also a 
director of Spectrian Corporation, Visigenic Software, Inc. and several 
privately held companies.

                                 Page 42

<PAGE>

       (c)     Section 16(a) Beneficial Ownership Reporting Compliance

       Based solely on its review of copies of filings under Section 16(a)
of the Securities Exchange Act of 1934, as amended, received by it, or 
written representations from certain reporting persons, the Company 
believes that during fiscal 1997 all Section 16 filing requirements were 
met.

Item 11.  Executive Compensation


       (a)      Compensation of Directors

        Directors receive no cash remuneration for serving on the Board of 
Directors.  Non-employee directors participate in the Company's Director 
Stock Option Plan (the "Director Plan").  The Director Plan provides for 
the grant of nonstatutory stock options to non-employee directors.  A 
total of 100,000 shares of Common Stock has been authorized for issuance 
under the Director Plan.  Each non-employee director who joins the Board 
will automatically be granted a nonstatutory option to purchase 20,000 
shares of Common Stock on the date upon which such person first becomes 
a director (the "Initial Grant").  In addition, each non-employee 
director will automatically receive a nonstatutory option 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 exercise price of each option granted under the Director 
Plan must be equal to the fair market value of the Common Stock on the 
date of grant.  The Initial Grant vests over a four-year period, with 
25% of the shares subject to the Initial Grant vesting on the first 
anniversary of the Initial Grant and the remainder vesting monthly 
thereafter, and the Subsequent Grant vests monthly over a 12 month 
period, in each case unless terminated sooner upon termination of the 
optionee's status as a director or otherwise pursuant to the Director 
Plan. In the event of a merger of the Company with or into another 
corporation or a consolidation, acquisition of assets or other change in 
control transaction involving the Company, each option becomes 
exercisable in full or will be assumed or an equivalent option 
substituted by the successor corporation. Unless terminated sooner, the 
Director Plan will terminate in 2006.  The Director Plan is currently 
administered by the Board of Directors. The Board has authority to amend 
or terminate the Director Plan, provided that no such action may impair 
the rights of any optionee without the optionee's consent.  Under the 
Director Plan, on June 17, 1997, each of Messrs. Chapman, Cogan, Low and 
Young were granted an option to purchase 5,000 shares of Common Stock at 
an exercise price of $3.375 per share.

       (a)      Compensation of Executive Officers

       The following table sets forth information concerning compensation 
paid to the Named Executive Officers during the Company's last three 
fiscal years.

<TABLE>
<CAPTION>
                        Summary Compensation Table

                                                           Long-term
                                                       Compensation Award
                                       Annual         Securities Underlying
                                    Compensation(1)        All Other
                           Year    Salary     Bonus      Compensation
<S>                        <C>    <C>        <C>            <C>   
Patrick Verderico(2)       1997   $214,617   $ 50,000       400,000
 Chief Executive Officer
 and President

Gerald K. Fehr             1997    183,996      6,000           -
 Vice President,           1996    143,000     25,000        10,000
 Technology                1995    134,712     15,000           -

Victor A. Batinovich(3)    1997    203,269        -             -
 Former Chief Executive    1996    200,000     50,000        20,000
 Officer and President     1995    139,616     35,000           -

Tony Lin(4)                1997    146,337        -             -
 Former Chief Financial    1996    122,000     25,000        10,000
 Officer                   1995    105,000     15,000        70,000

Joel Camarda(5)            1997    143,241        -             -
 Former Vice President,    1996    137,000        -          10,000
 Operations                1995    130,000     17,500        25,000
----------------------
</TABLE>

(1) Excludes perquisites and other personal benefits which for each 
Named Executive Officer did not exceed the lesser of $50,000 or 10% of 
the annual salary and bonus for such officer during any fiscal year.

                                 Page 43

<PAGE>

(2) Mr. Verderico joined the Company in April 1997.

(3) Mr. Batinovich left the Company in July 1997.

(4) Mr. Lin left the Company in November 1997.

(5) Mr. Camarda left the Company in December 1997.


Option Information

        The following tables set forth information regarding stock options 
granted to the Named Executive Officers during fiscal 1997, as well as 
options held by such officers as of December 31, 1997.

<TABLE>
<CAPTION>
                          Option Grants in Last Fiscal Year

                             Individual Grants(1)                 Potential Realizable Values at
                                % of                              Assumed Annual Return Rates of
                               Total                               Stock Price Appreciation
                     Option   Options    Exercise     Expiration  (Through Expiration Date)(2)  
Name                 Grants   Granted   Price ($/sh)     Date     5% per Year   10% per Year   
<S>                 <C>       <C>       <C>           <C>         <C>           <C>

Patrick Verderico    300,000    23%      $1.0625       04/28/07     $200,460      $508,005

Patrick Verderico    100,000     8%      $1.0625       08/05/07      $66,820      $169,335
---------------

</TABLE>

(1)     Each of these options was granted pursuant to the Option Plan and 
is subject to the terms of such plan .  These options were granted at an 
exercise price equal to the fair market value of the Company's Common 
Stock as determined by the Board of Directors of the Company on the date 
of grant and, as long as the optionee maintains continuous employment with 
the Company, vest over a four year period at a rate of 25% of the shares 
subject to the option on the first anniversary of the date of grant and 
an additional 1/48th of the shares subject to the option at the end of  
each one-month period thereafter.  In January 1998, all outstanding options 
were exchanged for new options with an exercise price of $1.0625 per share, 
which represented the fair market value of the Common Stock on the date 
of approval for such repricing.  All information in the table reflects  
this option exchange.

(2)     Potential gains are net of the exercise price but before taxes 
associated with the exercise.  Amounts represent hypothetical gains that 
could be achieved for the respective options if they were exercised at 
the end of the option term.  The assumed 5% and 10% rates of stock 
appreciation are based on appreciation from the exercise price per 
share.  These rates are provided in accordance with the rules of the 
Securities and Exchange Commission and do not represent the Company's 
estimate or projection of the future Common Stock price.  Actual gains, 
if any, on stock option exercises are dependent on the future financial 
performance of the Company, overall stock market conditions and the 
option holders' continued employment through the vesting period.

         Aggregated Option Exercises in Last Fiscal Year And
                Fiscal Year-End Option Values

<TABLE>
<CAPTION>

                                                                   Value of     
                                                                  Unexercised
                     Shares                    Number of            Options
                    Acquired              Unexercised Options   at Fiscal Year
                      on       Value      at Fiscal Year End         End(1)
Name                Exercise   Realized    Vested   Unvested    Vested  Unvested
<S>                 <C>        <C>         <C>      <C>         <C>     <C>
Patrick Verderico        -           -         -     400,000        -         -

Gerald K. Fehr           -           -      3,542      6,458        -         -
-------------

</TABLE>


(1)     Represents the difference between the exercise price of the 
options and the closing price of the Company's Common Stock on 
December 31, 1997 of $0.625 per share.  As of such date, the exercise 
price of such options was less than the fair market value of the Common 
Stock .  In January 1998, all outstanding options were exchanged for 
new options with an exercise price of $1.0625 per share, which 
represented the fair market value of the Common Stock on the date of 
approval for such repricing.

                                 Page 44

<PAGE>

Compensation Committee Interlocks and Insider Participation

        The Compensation Committee of the Board of Directors consists of 
Messrs. Chapman and Cogan, neither of whom is an officer or employee of 
the Company.  No member of the Compensation Committee or executive 
officer of the Company has a relationship that would constitute an 
interlocking relationship with executive officers or directors of 
another entity.

Report of the Compensation Committee of the Board of Directors

        The Compensation Committee (the "Committee") is comprised of 
Messrs. Chapman and Cogan, each of whom is a non-employee director. The 
Committee sets, reviews and administers the Company's executive 
compensation program. The role of the Committee is to establish and 
recommend salaries and other compensation paid to executive officers of 
the Company and to administer the Company's stock option plan and 
employee stock purchase plan. The Committee approves all stock option 
grants to executive officers, all executive officer base salaries and 
any cash bonus payments to executive officers and reviews all stock 
option grants to employees.

        The Company's executive pay programs are designed to attract and 
retain executives who will contribute to the Company's long-term 
success, to mesh executive and stockholder interests through stock 
option based plans and to provide a compensation package that recognizes 
individual contributions and Company performance.

        The Committee has determined that the most effective means of 
compensation are base salaries, incentive bonuses and long-term 
incentives through the Company's stock option programs.

        Base Salary.  The base salaries of executive officers are 
initially determined by evaluating the responsibilities of the position 
held and the experience and performance of the individual, with 
reference to the competitive marketplace for executive talent, including 
a comparison to base salaries for comparable positions in high growth, 
technology-based companies of reasonably similar size.  The Committee 
reviews executive salaries annually and adjusts them as appropriate to 
reflect changes in the market conditions and individual performance and 
responsibility.  During fiscal 1997, salaries for executive officers 
were increased by 0% to 23%.  The Chief Executive Officer joined the 
Company in April 1997 and his current annual base salary is $325,000.

        Bonus.  The Company maintains a bonus plan for executive officers 
which provides for bonuses based on achievement of individual and 
company performance goals.  Specifically, each executive officer can 
earn from 50% to 63% of his annual base salary in the form of incentive 
bonus payments if all company and individual performance goals are 
satisfied. The target Bonus factor for the Chief Executive Officers is 
63%.  The bonus is based 50% upon achievement of individual performance 
goals and 50% upon achievement of company performance goals.  This bonus 
program reflects the Committee's view that bonuses should only be paid 
when the Company and the individual executive achieve predetermined 
performance goals.

        Stock Options.  Under the Company's Option Plan, stock options may 
be granted to executive officers and other employees of the Company.  
Upon joining the Company, an individual's initial option grant is based 
on the individual's responsibilities and position.  The size of any 
annual stock option awards is based primarily on an individual's 
performance and responsibilities.  The Committee believes stock option 
grants are an effective method of ensuring that the executive is taking 
a longer term view of the Company's performance and that the executive's 
and the stockholder's interests are in alignment.

        The options granted to the Company's executive officers include a 
provision that provides that the options shall become fully vested and 
exercisable in the event of a change in control of the Company.  

        In January 1998, the Company's Board of Directors approved the 
repricing of options for all employees that held options with exercise 
prices in excess of $1.0625 per share and such employees were offered 
the opportunity to exchange such options for new options at $1.0625 per 
share, which was the fair market value of the Common Stock on the date 
of the approval.  In order to participate in the option exchange 
program, employees were required to not exercise their options until 
January 30, 1999.  The Board undertook this action in light of the 
reduction in the trading price of the Company's Common Stock and in 
consideration of the importance to the Company of retaining its 
employees by offering them appropriate equity incentives.  The Board 
also considered the highly competitive environment for obtaining and 

                                 Page 45

<PAGE>

retaining qualified employees and the overall benefit to the Company's 
stockholders from a highly motivated group of employees.

        Other.  Other elements of executive compensation include 
Company-wide medical and life insurance benefits and the ability to 
defer compensation pursuant to a 401(k) plan.  The Company does not 
currently match contributions under the 401(k) plan.

        The Company's Chief Executive Officer does not receive any other 
special or additional compensation other than as described above.

        The Committee has considered the potential impact of Section 
162(m) of the Internal Revenue Code and the regulations thereunder (the
"Section").  The Section disallows a tax deduction for any publicly-held
corporation for individual compensation exceeding $1 million in any 
taxable year for any of the Named Executive Officers, unless such 
compensation is performance-based.  Since the cash compensation of each 
of the Named Executive Officers is below the $1 million threshold and 
the Committee believes that any options granted under the Option Plan 
will meet the requirements of being performance-based, the Committee 
believes that the Section will not reduce the tax deduction available to 
the Company.  The Company's policy is to qualify, to the extent 
reasonable, its executive officers' compensation for deductibility under 
applicable tax laws.  However, the Committee believes that its primary 
responsibility is to provide a compensation program that will attract, 
retain and reward the executive talent necessary to the Company's 
success.  Consequently, the Committee recognizes that the loss of a tax 
deduction could be necessary in some circumstances.

                  Compensation Committee of the Board of Directors

                  Philip R. Chapman
                  Gill Cogan


Comparison of Total Cumulative Stockholder Return

        The following table sets forth the Company's total cumulative 
stockholder return as compared to the Standard & Poor's 500 Index and 
the Philadelphia Semiconductor Index for the period February 28, 1996 
(the date of the Company's initial public offering) through December 31, 
1997.  Total stockholder return assumes $100 invested at the beginning 
of the period in the Common Stock of the Company, the stocks represented 
in the Standard & Poor's 500 Index and the stocks represented in the 
Philadelphia Semiconductor Index, respectively.  Total return also 
assumes reinvestment of dividends; the Company has paid no dividends on 
its Common Stock.

        Historical stock price performance should not be relied upon as 
indicative of future stock price performance.

<TABLE>
<CAPTION>

                         2/28/96  3/29/96   6/28/96   9/30/96  12/31/96
<S>                      <C>      <C>       <C>       <C>      <C>
IPAC                       7.500    9.500     9.375     9.250    8.0781

S & P 500                 644.75   645.50    670.63    687.31    740.74

Philadelphia
Semiconductor Index       196.45   175.99    174.71    187.46    240.30


                         3/31/97  6/30/97   9/30/97  12/31/97

IPAC                       4.250    3.500     2.375     0.625

S & P 500                 757.12   885.14    947.28    970.43

Philadelphia
Semiconductor Index       268.85   305.74    381.60    263.63

</TABLE>

                                 Page 46

<PAGE>

Item 12.  Security Ownership of Certain Beneficial Owners and Management

Principal Share Ownership

        As of April 20, 1998, the following persons were known by the Company
to be the beneficial owners of more than 5% of the Company's Common Stock:

<TABLE>
<CAPTION>

Name                                                        Number     Percent
<S>                                                       <C>          <C>

Weiss, Peck & Greer Venture Partners(1)                   2,524,009     18.0%
Gill Cogan
   555 California Street, Suite 4760
   San Francisco, California 94104

Entities Affiliated with Frederick R. Adler(2)            1,310,768      9.4
   1520 South Ocean Boulevard
   Palm Beach, Florida 33480

Canaan Partners(3)                                          786,358      5.6
Eric A. Young
   2884 Sand Hill Road
   Building 1, Suite 115
   Menlo Park, California 94025

Bank America Ventures(4)                                    778,705      5.6
   950 Tower Lane, Suite 700
   Foster City, California 94404

The Equitable Companies Incorporated                        764,641      5.5
   1290 Avenue of the Americas
   New York, New York 10104
-------------------

</TABLE>


(1)     Includes 1,338,308 shares held by WPG Enterprise Fund, L.P.
("Enterprise Fund"), 967,228 shares held by Weiss, Peck & Greer Venture
Associates II, L.P. ("VA II"), 206,975 shares held by Weiss, Peck & Greer 
Venture Associates II (Overseas) Ltd. ("Overseas") and 11,498 shares held 
directly by Mr. Cogan.  Weiss, Peck & Greer Venture Partners II, L.P. 
("VP II") is the general partner of Enterprise Fund, VA II and WPG Venture.

(2)    Includes 732,180 shares held by Euro-America-I, L.P. ("Euro-America"), 
108,774 shares held by 1520 Partners, Ltd. ("1520 Partners"), 448,849 shares
held directly by Mr. Adler and 20,965 shares held by Catherine Adler, 
Mr. Adler's wife, as trustee for the benefit of Mr. Adler's minor children.
Mr. Adler disclaims beneficial ownership of the shares held by Euro-America
and 1520 Partners, except to the extent that he derives a monetary benefit
therefrom.  Mr. Chapman, a director of the Company, serves as a venture
manager for Euro-America.  Mr. Chapman holds no voting or dispositive control
over shares held by Euro-America, and he disclaims beneficial ownership of
such shares.  Mr. Chapman performs no services for and has no beneficial 
ownership of shares held by 1520 Partners.

(3) Includes 391,304 shares held by Canaan S.B.I.C., L.P. ("SBIC"), 349,434 
shares held by Canaan Capital Offshore Limited Partnership C.V. ("Offshore"), 
41,870 shares held by Canaan Capital Limited Partnership ("CCLP") and 3,750 
shares directly held by Mr. Young.  Mr. Young is a director of the Company
and is a general partner of each of SBIC, Offshore and CCLP.

(4)     Includes 697,865 shares held by Bank America Ventures, 77,540 shares
held by BA Venture Partners I and 3,300 shares held by BancAmerica Robertson
Stephens.

Security Ownership of Management

        The following table sets forth the beneficial ownership of the
Company's Common Stock as of April 20, 1998 (i) by each director of the 
Company, (ii) by the Company's Chief Executive Officer, the Company's former 
Chief Executive Officer and the three other most highly compensated executive
officers of the Company for fiscal year 1997 (such officers are collectively
referred to as the "Named Executive Officers"), and (iii) by all current 
directors and executive officers as a group:

                                 Page 47

<PAGE>

<TABLE>
<CAPTION>

Name                                                   Number of    Percent of
                                                        Shares        Total
<S>                                                    <C>          <C>
Gill Cogan(1)                                          2,529,009      18.0
Eric A. Young(2)                                         791,358       5.7
Gerald K. Fehr                                           662,825       4.7
Philip R. Chapman(3)                                      80,577         *
Paul R. Low(4)                                            20,710         *
Victor A. Batinovich(5)                                  429,525       3.1
Joel Camarda(6)                                           28,078         *
Patrick Verderico                                             -          -
Tony Lin(7)                                                   -          -
All executive officers and directors as a
  group (9 persons)(8)                                 4,552,082      32.5
------------------
*  Less than 1%

</TABLE>

(1)     Includes shares held by funds affiliated with Weiss, Peck & Greer.  
Mr. Cogan disclaims beneficial ownership of all such shares, except as to the 
pecuniary interest therein arising from his interest in such funds.  See 
"Principal Share Ownership."    Also includes 5,000 shares issuable upon 
exercise of options to purchase Common Stock which are exercisable within 
60 days of April 20, 1998.

(2)     Includes shares held by funds affiliated with Canaan Partners.  Mr.
Young disclaims beneficial ownership of all such shares, except as to the
pecuniary interest therein arising from his interest in such funds.  See
"Principal Share Ownership."    Also includes 5,000 shares issuable upon
exercise of options to purchase Common Stock which are exercisable within 
60 days of April 20, 1998.

(3)     Includes 63,027 shares held directly by Mr. Chapman and 12,550 shares
held by Susan Chapman, Mr. Chapman's wife, in her name and as trustee for the
benefit of Mr. Chapman's children.  Also includes 5,000 shares issuable upon
exercise of options to purchase Common Stock which are exercisable within
60 days of April 20, 1998.

(4)     Includes 5,000 shares issuable upon exercise of options to purchase
Common Stock which are exercisable within 60 days of April 20, 1998.

(5)     Includes 422,700 shares held by Mr. Batinovich, 4,000 shares held
by Mr. Batinovich as custodian for his son and 2,825 shares held by Mr. 
Batinovich's wife.  Mr. Batinovich left the Company in July 1997.

(6)     Mr. Camarda left the Company in December 1997.

(7)     Mr. Lin left the Company in November 1997.

(8)     Includes 20,000 shares issuable upon exercise of options to purchase
Common Stock which are exercisable within 60 days of April 20, 1998. Also
includes 2,512,505 shares held by funds affiliated with Weiss, Peck & Greer
and 782,608 shares held by funds affiliated with Canaan Partners. See notes
(1) and (2) above.

Item 13.  Certain Relationships and Related Transactions

       None

                                 Page 48

<PAGE>

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 The CIT
              Group/Engineering 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.
23.1          Consent of Price Waterhouse LLP, Independent Accoutants.
24.**         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 ammended, filed
         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.
**       Previously filed.

                                 Page 49

<PAGE>


(b)     Reports on Form 8-K.

        Change in Fiscal Year, filed December 11, 1997.

        Sale of Facilities, filed January 30, 1998.             

(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 50

<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 on Form 10-K/A
to be signed on its behalf by the undersigned, thereunto duly authorized, in 
the City of San Jose, State of California, on April 27, 1998.

                                 INTEGRATED PACKAGING ASSEMBLY CORPORATION 


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

        In accordance with the Exchange Act, this report has been signed 
below on April 27, 1998 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/ PAUL R. LOW *                 Director
------------------------
    Paul R. Low

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

*  By:  /s/  ALFRED V. LARRENAGA
        ----------------------------
             Alfred V. Larrenaga
             Attorney-in-fact

                                  Page 51
<PAGE>