<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC  20549


                                 FORM 10-Q/A-1
(MARK ONE)

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

For the quarterly period ended September 30, 1996

                                       OR
                                        
______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 0-20470

                   Integrated Process Equipment Corp.
        ______________________________________________________________
             (Exact name of registrant as specified in its charter)

       Delaware                                             77-0296222
       ________                                             __________
(State or other jurisdiction of                        (I.R.S. employer
 incorporation or organization)                      identification no.)

       911 Bern Court,  San Jose, California                 95112
       _____________________________________                 _____
(Address of principal executive offices)

Registrant's telephone number, including area code  (408) 436-2170
                                                   _______________

 ___________________________________________________________________________
   Former name, former address and former fiscal year, if changed since last
                                    report.
                                   

     Indicate by  (X)  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
                                                 _____     _____

     As of November 11, 1996, 521,650 shares of Class A Common Stock and
14,354,511 shares of Common Stock of the registrant were outstanding.
 

                                   Page 1 of 23
<PAGE>
 
                       PART I.    FINANCIAL INFORMATION


 
ITEM 1.  FINANCIAL STATEMENTS
                                                 
 
              INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                     (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
 
                                                                                       JUNE 30,    SEPTEMBER 30,
                          ASSETS                                                         1996          1996
                                                                                      ---------    -------------
                                                                                                    (Unaudited)
<S>                                                                                   <C>          <C>
Current assets:
 Cash and cash equivalents                                                             $ 11,681     $  7,304
 Accounts receivable                                                                     44,079       39,510
 Inventories                                                                             31,681       41,539
 Prepaid expenses                                                                         1,590        1,812
 Deferred income taxes                                                                    5,175        5,175
                                                                                       --------     --------
    Total current assets                                                                 94,206       95,340
                                                                                       --------     --------
 
Property, plant and equipment, net                                                       52,655       50,830
Intangible assets, net                                                                   28,046       27,085
Deferred income taxes                                                                    13,175       15,245
Other assets                                                                              3,602        3,405
                                                                                       --------     --------
                                                                                       $191,684     $191,905
                                                                                       ========     ========
                              LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
 Notes payable                                                                         $  2,056     $  1,046
 Current portion of long-term debt                                                        2,124        2,244
 Accounts payable                                                                        15,176       16,226
 Accrued liabilities                                                                     21,150       21,911
                                                                                       --------     --------
    Total current liabilities                                                            40,506       41,427
                                                     
Long-term debt, less current portion                                                     22,841       24,372
                                                                                       --------     --------
   Total liabilities                                                                     63,347       65,799
                                                                                       --------     --------
 
Stockholders' equity:
Preferred stock, $ .01 par value per share. Nonvoting, authorized
 2,000,000 shares:
 Series B-1 cumulative preferred stock.  Authorized 21,478 shares,
  issued and outstanding 20,941 shares at June 30, 1996, 15,572
  shares at September 30, 1996.  Liquidation preference of $1,450.                            -           -
 Series B-2 cumulative preferred stock.  Authorized 21,478 shares,
  issued and outstanding 20,941shares.  Liquidation preference of $1,950.                     -           -
 Series B-3 cumulative preferred stock.  Authorized 21,478 shares,
  issued and outstanding 21,210 shares.  Liquidation preference of $1,975.                    -           -
Common stock, $.01 par value per share.  Authorized 50,000,000 shares;
 one vote per share; issued and outstanding.
 14,238,406 shares at June 30, 1996 and 14,354,272 at September 30, 1996.                   142          143
Class A common stock, $.01 par value per share.  Authorized 3,500,000
 shares, four votes per share; issued and outstanding 521,650 shares.                         5            5  
Additional paid-in capital                                                              151,730      153,256
Accumulated deficit                                                                     (23,546)     (27,319)
Foreign currency translation adjustment                                                       6           21
                                                                                       --------     --------
    Total stockholders' equity                                                          128,337      126,106
                                                                                       --------     --------
                                                                                       $191,684     $ 191,905
                                                                                       ========     =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.

                                       2
<PAGE>
 
              INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED
                                                         SEPTEMBER 30,
                                                     --------------------
                                                        1995       1996
                                                     --------     -------
<S>                                                  <C>        <C>
Revenue                                              $ 38,012    $ 32,017

Cost of goods sold                                     22,304      21,766
                                                     --------    --------
            Gross margin                               15,708      10,251
                                                     ========    ========
 
Operating expenses:
    Research and development                            3,698       7,271
    Selling, general and administrative                 7,072       8,027
                                                     --------    --------
            Total operating expenses                   10,770      15,298
                                                     --------    --------
 
            Operating income (loss)                     4,938      (5,047)
 
Other income (expense):
    Interest income                                       840         115
    Interest expense                                     (178)       (582)
    Other, net                                             64          67
                                                     --------    --------
            Total other income (expense)                  726        (400)
 
            Income (loss) before income taxes           5,664      (5,447)
 
Income tax expense (benefit)                            2,152      (2,070)
                                                     --------    --------
 
            Net income (loss)                           3,512      (3,377)
 
Cumulative dividend on preferred stock                   (309)        (81)
                                                     --------    --------
            Net income (loss) attributable to
              common stockholders                    $  3,203    $ (3,458)
                                                     ========    ========
 
Net income (loss) per share                          $    .20    $   (.23)
                                                     ========    ========
Shares used in per share calculation                   16,280      14,785
                                                     ========    ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>
 
              INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
      CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1996
                     (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                  (UNAUDITED)
<TABLE> 
<CAPTION>                                                                                              
                                                                                             
                                     Series B                                 Class A                                     Foreign   
                                   Preferred Stock       Common Stock        Common Stock     Additional                  Currency  
                                  -------------------   ------------------    ---------------   Paid-In    Accumulated  Translation 
                                   Shares      Amount   Shares      Amount    Shares   Amount   Capital       Deficit    Adjustment 
                                  --------    -------   -------     ------    ------   ------ ----------   -----------  -----------
<S>                               <C>         <C>       <C>         <C>       <C>      <C>      <C>         <C>           <C> 
Balance -
  June 30, 1996                     63,092     $    -   14,238,406  $  142     521,650  $   5   $  151,730   $  (23,546)   $    6
 
Net loss                                 -          -            -       -           -      -            -       (3,377)        -
 
Retirement of Series B-1
   Preferred Stock                  (5,369)         -            -       -           -      -         (500)           -         -
 
Issuance of Warrants                     -          -            -       -           -      -          657            -         -
 
Exercise of Stock Options
 (including tax benefits of        
 $265,000)                               -          -      115,866       1           -      -        1,369            -         - 
Cumulative translation adjustment        -          -            -       -           -      -            -            -        15

Dividends Paid                           -          -            -       -           -      -            -         (396)        -
                                   -------     ------  -----------  ------    --------  -----   ----------   ----------    ------
Balance -
   September 30, 1996              $57,723     $    0  $14,354,272  $  143    $521,650  $   5   $  153,256   $  (27,319)   $   21
                                   =======     ======  ===========  ======    ========  =====   ==========   ==========    ======
</TABLE> 

See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>
 
              INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
                                (in thousands)
                                  (Unaudited)
<TABLE> 
<CAPTION> 
                                                               THREE MONTHS ENDED  
                                                                 SEPTEMBER 30,     
                                                              ---------------------
Cash flows from operating activities:                           1995        1996   
                                                              --------     --------
<S>                                                           <C>          <C> 
   Net income (loss)                                          $  3,512     $  3,377 
   Adjustments to reconcile net income (loss) to net
     cash provided by (used in) operating activities:
        Depreciation and amortization                            1,160        2,830
        Deferred tax benefit                                      (118)      (1,806)
        Acquisition adjustments                                      -         (865)
        Costs of warrants issued                                     -          657
        Changes in operating assets and liabilities:
           (Increase) decrease in accounts receivable           (3,397)       4,486
           (Increase) decrease in inventories                      459       (9,858)
           (Increase) in prepaid expenses and other assets        (647)         (25)
           Increase (decrease) in accounts payable                (164)       1,050
           Increase in accrued liabilities                       4,128          761
                                                              --------     --------
              Net cash provided by (used in) operating
               activities                                        4,933       (6,147)
                                                              --------     --------

Cash flows from investing activities:
    Purchases of property and equipment                        (11,087)        (116)
    Proceeds from sale of property and equipment                     -          745
                                                              --------     --------
             Net cash provided by (used in) investing
              activities                                       (11,087)         629
                                                              --------     --------
Cash flows from financing activities:
    Proceeds from long-term debt                                     -        1,407
    Repayment of long-term debt                                   (361)        (409)
    Repayment of notes payable                                       -         (434)
    Repayment of capital leases                                    (73)        (147)
    Payment of preferred stock dividends                          (351)        (396)
    Net proceeds from issuance of common stock
      and warrants                                               1,945        1,105
                                                              --------     --------
              Net cash provided by financing activities          1,160        1,126
                                                              --------     --------
Effect of exchange rate changes on cash                              -           15
                                                              --------     --------
Net decrease in cash and cash equivalents                       (4,994)      (4,377)

Cash and cash equivalents, beginning of period                  66,007       11,681
                                                              --------     --------

Cash and cash equivalents, end of period                      $ 61,013     $  7,304
                                                              ========     ========

     Cash paid for interest during the period                 $    178     $    735
                                                              ========     ========
Supplemental disclosure of noncash activities:
    Release from escrow (retirement) of Class B 6%
    cumulative convertible preferred stock issued
    for the Westech acquisition                               $  2,000     $   (500)
                                                              ========     ========
</TABLE> 
See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>
 
             INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 (UNAUDITED)

BASIS OF PREPARATION:
-------------------- 

     The accompanying condensed consolidated financial statements at September
30, 1996 and for the three month periods ended September 30, 1995 and September
30, 1996 are unaudited; however, in the opinion of the management of Integrated
Process Equipment Corp. ("IPEC") and subsidiaries (the "Company"), such
statements include all adjustments (consisting solely of normal recurring
accruals) necessary for the fair statement of the information presented therein.
The condensed consolidated balance sheet as of June 30, 1996 was derived from
the audited financial statements at such date.

     Pursuant to accounting requirements of the Securities and Exchange
Commission applicable to quarterly reports on Form 10-Q, the accompanying
condensed consolidated financial statements and these notes do not include all
disclosures required by generally accepted accounting principles for complete
financial statements.  Accordingly, these statements should be read in
conjunction with the Company's annual financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended June 30,
1996.

     Results of operations for interim periods are not necessarily indicative of
those to be achieved for full fiscal years.

ESTIMATES IN FINANCIAL STATEMENTS
---------------------------------

     The preparation of 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,
disclosure of contingent 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 differ from those estimates.

ORGANIZATION:
-------------

Westech Systems, Inc.:
----------------------

     On September 3, 1993, IPEC acquired Westech Systems, Inc. ("Westech"), a
privately owned company engaged in manufacturing chemical mechanical
planarization ("CMP") equipment for the semiconductor industry.  The name of
Westech has subsequently been changed to IPEC Planar Phoenix, Inc.

Acquisition of Athens Corp.:
----------------------------

     On November 22, 1994, the Company acquired approximately 94% of the
outstanding common stock of Athens Corp. ("Athens"), a privately owned company
engaged in manufacturing wet process reprocessing systems for the semiconductor
industry.  The purchase price consisted of 1,095,695 shares of the Company's
common stock.  The Company acquired the remaining 6% in the first quarter of
fiscal

                                      6
<PAGE>
 
             INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 (UNAUDITED)

1996 in exchange for 211,670 shares of the Company's common stock.  The
name of Athens has subsequently been changed to IPEC Clean, Inc.

Acquisition of GAARD Automation, Inc.:
--------------------------------------

     On October 30, 1995, the Company acquired all of the outstanding common
stock of GAARD Automation, Inc. ("GAARD"), a privately owned company that has
developed and sells an advanced high throughput CMP system for metal
planarization.  GAARD also designs and manufactures custom flexible automation
systems used outside the semiconductor industry.  The name of GAARD has
subsequently been changed to IPEC Planar Portland, Inc.

Acquisition of Precision Materials:
-----------------------------------

     On December 29, 1995, the Company's subsidiary IPEC Precision, Inc.
("Precision") acquired substantially all of the assets constituting the
Precision Materials Operation of Hughes Danbury Optical Systems, Inc.  (HDOS).
Precision is engaged in the design, manufacture, and sale of precision
equipment, based on proprietary plasma assisted chemical etching and metrology
technologies, for use in the production of advanced semiconductor wafers and
devices, and provides wafer processing services that use such proprietary
technology and equipment.
 
     The aforementioned acquisitions have all been accounted for as purchases
and, accordingly, the condensed consolidated financial statements include the
results of operations from the respective dates of acquisition.

Pro forma financial information:
--------------------------------
 
     Pro forma summary of consolidated operations (excluding charges for
purchased in-process research and development), assuming the acquisitions of
GAARD and Precision had taken place on July 1, 1995 is as follows (in
thousands):
<TABLE>
<CAPTION>
                                           Three Months Ended
                                           September 30, 1995
                                           ------------------
<S>                                        <C>
          Revenues                                    $44,150
          Net income                                  $ 3,161
          Net income per common share                 $   .19
</TABLE>

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------ 

Income (loss) per share of common stock:
--------------------------------------- 

     Net income (loss) per common share is computed by dividing net income
(loss) less dividends on convertible preferred stock by the weighted average
number of common shares outstanding during the 

                                      7
<PAGE>
 
             INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 (UNAUDITED)

period plus, when their effect is dilutive, common stock equivalents 
consisting of certain shares subject to stock options and warrants.

Inventories:
----------- 

     Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
 
                                         June 30, 1996    September 30, 1996
                                         --------------   -------------------
                                                             (Unaudited)
<S>                                      <C>              <C>
 
   Raw materials                               $20,781               $28,359
   Work in process                              10,559                14,128
   Finished goods                                2,302                 2,265
                                               -------               -------
                                                33,642                44,752
                                               -------               -------
   Less inventory obsolescence reserve          (1,961)               (3,213)
                                               -------               -------
 
                                                31,681               $41,539
                                               =======               =======
</TABLE>

RELATED PARTY TRANSACTIONS:
-------------------------- 

     During the three months ended September 30, 1996, the Company had purchases
of  services and raw materials of approximately $1.3 million from the business
entities of a stockholder and director of the Company.

PREFERRED STOCK:
--------------- 

     During the three months ended September 30, 1996, 5,370 shares of B-1
Preferred Stock were released from escrow to the selling shareholders of Westech
(including a director) upon settlement of the purchase price of Westech, now
known as IPEC Planar Phoenix.  In accordance with the escrow settlement, the
remaining 5,369 shares of the B-1 preferred stock held in escrow were retired.

LOAN AGREEMENT:
-------------- 

     The Company entered into a loan agreement in April 1996 with a bank.  Under
the terms of the agreement, the Company received a $10 million term loan and a
$30 million revolving loan facility to provide working capital for general
corporate purposes.  The borrowing base for the revolving loan facility consists
of eighty percent of eligible accounts receivable as defined by the agreement.

     The loans bear interest at the Company's option at the prime rate or LIBOR
plus 2.75%.  The term loan matures in October 1997.  The revolving loan facility
matures in April 1997 with options to renew the facility annually for a two year
period which the Bank must approve.  If the revolving credit facility expires,
the Company is obligated to repay the outstanding balance in eight equal
quarterly 

                                      8
<PAGE>
 
             INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 (UNAUDITED)

payments of principal plus interest.  The term loan and revolving loan
facility are secured by a blanket first lien on all assets of the Company and
its subsidiaries.

     The terms of the loan agreement include various covenants, which, among
others, limits the amount of dividends that can be paid to common stockholders
and purchase of the Company's stock.  At September 30, 1996 the Company was in
compliance with all covenants of the agreement.

CONTINGENCIES AND COMMITMENTS:
----------------------------- 

Concentration of credit risk:
---------------------------- 

     The Company extends credit to domestic and international customers in the
semiconductor industry.  Cash is held in banks and at times, such amounts may be
in excess of the FDIC limit.

NEW ACCOUNTING STANDARDS:
-------------------------

     In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount.  The Company has adopted
Statement 121 in the first quarter of 1997, and the impact of adoption was not
material.

     In October 1995, the FASB issued Statement No. 123, "Accounting for Stock
Based Compensation" (SFAS 123).  Under the provisions of SFAS 123, companies can
elect to account for stock-based compensation plans using a fair-value based
method or continue measuring compensation expense for those plans using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."  SFAS 123 requires that companies
electing to continue using the intrinsic value method must make pro forma
disclosures of net income and earnings per share as if the fair value method had
been applied.  The  Company  has continued to account for stock-based
compensation using the intrinsic value method which will not have an impact on
the Company's results of operations or financial position.

                                      9
<PAGE>
 
                        PART I -- FINANCIAL INFORMATION


ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS

     The following information should be read in conjunction with the condensed
consolidated financial statements and notes thereto included in this Quarterly
Report and in the audited Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's Annual Report on Form 10-K for the year ended June 30, 1996.

     IPEC is a Delaware corporation organized in December 1991 and is the
successor by merger to a California corporation of the same name that was
incorporated in October 1989.  The Company is primarily engaged in designing,
manufacturing, marketing and servicing equipment for the semiconductor
manufacturing industry.

     In connection with the acquisitions described in the notes to financial
statements under "Organization," in the second quarter of fiscal 1996, the
Company reorganized its business into three divisions.  IPEC Planar, the
Company's CMP division, consists of the Company's IPEC Planar Phoenix operation,
(formerly named Westech) and the IPEC Planar Portland operation (formerly named
GAARD).  IPEC Clean consists of the former Athens operation and produces on site
wet ultra high purity chemical reprocessing systems, chemical distribution
systems and cleaning systems that can be marketed as stand alone products or
clustered with Planar's CMP systems.  IPEC Precision consists of the Precision
Materials Operation acquired from HDOS and is engaged in manufacturing of
advanced plasma assisted chemical etching equipment and metrology equipment for
use primarily in manufacturing of silicon wafers and semiconductor devices.

     The Company's revenue is derived from the sale of products, related spare
parts and service.  In accordance with generally accepted accounting principles,
the Company recognizes revenue when a product is shipped.  Revenue from spare
part sales or service is recognized when shipped or upon completion of service.

     The Company's gross margins may vary due to many factors, and are
especially dependent on direct versus indirect sales, product mix and domestic
versus international sales.  The Company sells directly in the United States and
such sales have higher gross margins than indirect international sales.  Thus,
gross margins in any period may not be indicative of margins for future periods.
See  "Factors Affecting Operating Results--International Sales."

     This report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, which are subject to the
"safe harbor" created by that section.  These forward-looking statements
include, but are not limited to, statements concerning future revenues;
operating margins; expenses and income; dividend and tax rates; and access to
equity or debt financing.  The Company's actual future results could differ
materially from those projected in the forward-looking statements.  Some factors
which could cause future actual results to differ materially from the Company's
recent results or those projected in the forward-looking statements are
described in "Factors Affecting

                                     10

<PAGE>
 
Operating Results" below. The Company assumes no obligation to update the
forward-looking statements or such factors.


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

     The following table represents the results of operations for the Company on
a percentage basis for the three month periods ending September 30, 1995 and
1996.
<TABLE>
<CAPTION>
 
                                                          THREE MONTHS
                                                              ENDED
                                                          SEPTEMBER 30,
                                                     ---------------------------
                                                        1995              1996       
                                                     ----------         ---------- 
<S>                                                  <C>             <C>           
Revenue                                                 100.0 %           100.0 %   
Cost of goods sold                                       58.7 %            68.0 %   
                                                      ---------         ----------  
       Gross margin                                      41.3 %            32.0 %   
                                                      ---------         ----------  
                                                                                    
Operating expenses:                                                                 
       Research and development                           9.7 %            22.7 %   
       Selling, general and administrative               18.6 %            25.1 %   
                                                      ---------         ----------  
          Total operating expense                        28.3 %            47.8 %   
                                                      ---------         ----------  
                                                                                    
Operating income (loss)                                  13.0 %           (15.8)%   
                                                                                    
Interest income                                           2.2 %             0.4 %   
Interest expense                                         (0.5)%            (1.8)%   
Other, net                                                0.2 %             0.2 %   
                                                      ---------         ----------  
Income (loss) before income taxes                        14.9 %           (17.0)%   
Income tax expense (benefit)                              5.7 %            (6.5)%   
                                                      ---------         ----------  
Net income (loss)                                         9.2 %           (10.5)%   
Cumulative dividend on preferred stock                   (0.8)%            (0.3)%   
                                                      ---------         ----------  
Net income (loss) attributable to common                                            
 stockholders                                             8.4 %           (10.8)%   
                                                      =========         ==========  
</TABLE>

     Revenue for the first fiscal quarter ended September 30, 1996 decreased 16%
to $32 million compared to $38 million in the quarter ended September 30, 1995.
This decrease was primarily attributable to a shortfall in revenues from
sulfuric acid reprocessors and Plasma Jet systems.  Due to the current industry
slowdown, backlog at September 30, 1996 was approximately $45 million, and if
the current slowdown continues the Company expects that revenue for all of
fiscal 1997 will be below the $184.5 million of revenue recorded for all of
fiscal 1996.

     Gross margin for the first quarter for fiscal 1997 was 32% compared to
gross margin of 41% in the first quarter of fiscal 1996.  This decrease is
primarily attributable to the allocation of higher levels of customer service
expenditures across lower revenue, costs associated with the repositioning of
the Avanti 672, and a higher percentage of sales through international
distributors.

     Gross margin during the first quarter of fiscal 1997 was also adversely
affected by a $657,000 increase in cost of goods sold related to warrants issued
to a major customer in connection with an 

                                     11
<PAGE>
 
agreement permitting the Company to accelerate certain deliveries in the
first, second and third quarters of fiscal 1997. This arrangement is intended
to achieve manufacturing efficiencies by more fully utilizing IPEC Planar
Phoenix employees, currently trained to manufacture older CMP machines
scheduled for delivery to the client in fiscal 1997 and 1998, until the
Company begins manufacturing the AvantGAARD 676 in Phoenix. During the first
quarter of fiscal 1997 the customer accelerated orders which accounted for
approximately 20% of revenue in the first quarter. The Company is committed to
issue during the first three quarters of fiscal 1997 warrants to purchase an
aggregate minimum of 155,000 shares of Common Stock (of which warrants to
purchase 60,000 shares have been issued) and an aggregate maximum of 250,000
shares. The number of warrant shares to be issued depends on the extent to
which IPEC accelerates shipments to the customer. The first quarter $657,000
charge was based on the market value of the minimum 155,000 warrant shares on
the date the agreement was signed. To the extent IPEC accelerates these
shipments during fiscal 1997, this will reduce shipments anticipated for
fiscal 1998 if additional replacement orders are not received, and will result
in a charge for warrants issued in excess of 155,000 warrant shares based on
the price of IPEC Common Stock on the date the original agreement was signed.
There can be no assurance that the Company can obtain additional orders from
other customers for shipments in fiscal 1998 to replace orders shifted to
fiscal 1997.

     Research and development expense increased to $7.3 million in the first
quarter of fiscal 1997 from $3.7 million in the first quarter of fiscal 1996.
Increased research and development costs resulted primarily from costs incurred
to develop the Company's Avanti 672 and AvantGAARD 676 high-throughput CMP
tools.  Additional incremental costs were incurred at IPEC Precision, which was
acquired in December 1995, for the development of CMP metrology technology.

     Selling, general and administrative expenses increased to $8 million in the
first quarter of fiscal 1997 from $7.1 million in the first quarter of fiscal
1996.  This increase is primarily due to additional depreciation, amortization
and higher overhead resulting from acquisitions in the first half of fiscal
1996.  Selling, general and administrative expenses for the first quarter of
fiscal 1997 were offset in part by an $865,000 benefit resulting from
adjustments for both the fiscal 1994 Westech and fiscal 1996 GAARD acquisitions.

     As part of its focus on its core CMP business, which accounted for
approximately 88% of revenue in the first quarter of fiscal 1997, the Company in
October 1996 initiated a work force reduction, primarily at its non-CMP related
subsidiaries and in product development.  The first quarter results reflect a
reserve for these reductions which will be completed by the end of the Company's
second fiscal quarter ending December 31, 1996.  As a result of these work force
reductions, it is estimated that salary expense will be reduced by approximately
$400,000 per quarter in comparison to salary expense in the first quarter of
1997.

     Interest income decreased from $.8 million for the quarter ending September
30, 1995 to $.1 million for the quarter ending September 30, 1996 as a result of
lower cash and cash equivalent balances in the first quarter of fiscal 1997.
Higher balances resulted from the exercise of the Company's Class B warrants in
the fourth quarter of fiscal 1995 that realized proceeds of $63.2 million.
Interest expense increased from $.2 million in the first quarter of fiscal 1996
to $.6 million in the first quarter of fiscal 1997 as a result of increased
borrowings.

                                     12

<PAGE>
 
     The operating loss in the first quarter of fiscal 1997 was $5 million
compared to operating income of $4.9 million in the first quarter of fiscal
1996.  The net loss attributable to common stockholders in the first quarter of
fiscal 1997 was $3.5 million, or  $.23 per share, on 14.8 million weighted
average shares outstanding.  This compares to net income attributable to common
stockholders in the first quarter of fiscal 1996 of $3.2 million, or $.20 per
share, on 16.3 million primary shares outstanding.  While the Company is
reducing its operating expenses, due to industry conditions there can be no
assurance that the Company will be profitable in the second quarter.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's principal sources of liquidity include cash and cash
equivalents of $7.3 million at September 30, 1996.  At September 30, 1996, $11.2
million was outstanding under the revolving loan facility.  It is estimated that
an additional $6.3 million was available under the revolving loan facility for
borrowings at September 30, 1996 based on eligible accounts receivable which can
be used to collateralize such borrowings.  In addition, the Company has entered
into a letter of intent to raise net proceeds of approximately $8 million in a
sale/leaseback transaction for its Phoenix facility.  There can be no assurance
at this time whether a binding agreement will be signed for this transaction, or
if a binding agreement is signed, whether this transaction will occur.

     The Company believes that its cash and cash equivalents will need to be
supplemented during the second quarter of fiscal 1997 by additional equity or
debt financing to fund the Company's operations.  The Company's ability to
finance its operations at the current level and to fund working capital
requirements will be adversely impacted if it is unable to complete an equity or
debt financing during the second quarter of fiscal 1997.  There can be no
assurance that such additional financing will be available when needed or if
available, will be on satisfactory terms.  In order to raise capital, the
Company may issue debt or equity securities senior to the outstanding Common
Stock and may incur substantial dilution.  The failure to obtain additional
financing when needed on satisfactory terms would also hinder the Company's
ability to make continued capital investments, which could materially adversely
affect the Company's competitive position and results of operations.

     Although management is attempting to raise additional cash, a financing is
not assured.  If management determines during the second quarter of fiscal 1997
that additional capital will not be provided in a timely manner, then management
will take actions to preserve available cash and operations.  These actions
could adversely affect operating results for the second fiscal quarter and
subsequent quarters.  If the Company does not obtain additional financing during
the second fiscal quarter, the Company may lose the ability to borrow additional
funds under its line of credit, and due to a failure to meet certain financial
covenants under its bank loan agreements be considered in default under those
bank loan agreements, requiring negotiations with the bank to modify those
covenants in an effort to avoid outstanding debt immediately coming due.  There
can be no assurance that negotiations with vendors, customers or the bank would
be successful.

FACTORS AFFECTING OPERATING RESULTS

     History of Losses.  Prior to the Company's acquisition of Westech in fiscal
     -----------------
1994, the Company did not have significant revenue.  The Company had a net loss
in fiscal 1994 and fiscal 1996 of $8.9 million and  $10.7 million, respectively.
The Company had a $3.4 million net loss in the first quarter of 

                                     13

<PAGE>
 
fiscal 1997. Operating results for future periods are subject to numerous
uncertainties, and there can be no assurance that the Company will be
profitable in fiscal 1997 or on a quarterly basis.

     Fluctuations in Operating Results.  The Company's operating results are
     ---------------------------------    
subject to quarterly fluctuations due to a variety of factors, including
industry-wide changes in the demand for semiconductors or for semiconductor
production equipment; the timing of significant shipments and delays or
postponements of orders; acceptance of the Company's products; the gain or loss
of significant customers; competitive pressures; availability and costs of
components from the Company's suppliers; the timing of product announcements and
introductions by the Company, its customers or its competitors; the timing and
structure of acquisitions and dispositions or spin-offs; changes in the mix of
products sold; the level of international sales, which have lower margins than
domestic sales; delayed or canceled construction of wafer fabrication facilities
by customers; research and development expenses associated with new product
introductions; market acceptance of new or enhanced versions of the Company's
and its customers' products; reductions in personnel and the sufficiency of
capital resources to support operations at current levels.  The Company cannot
assure that it will be able to anticipate or respond timely to changes in any of
the factors listed above, which could adversely affect operating results in one
or more fiscal quarters.  For example, the Company's results in fiscal 1994 were
adversely impacted by an engineering redesign of its 372M CMP product.  In the
second quarters of fiscal 1995 and 1996, the Company had losses due to
nonrecurring charges associated with the Athens, GAARD and HDOS acquisitions.
The Company had a loss in the first quarter of fiscal 1997, primarily because
the Company incurred operating expenses based on sales plans which were not
achieved, and to a lesser degree due to increased cost of goods sold arising
from warrants issued to a major customer as described below.  While the Company
is reducing its operating expenses, there can be no assurance that the Company
will be profitable in the second quarter.  The Company intends to move IPEC
Clean's bulk chemical distribution and cleaning systems operations to Phoenix,
Arizona during fiscal 1997 in an effort to improve gross margins in the long
term.  This move may adversely affect margins during the quarter in which the
move occurs and in following quarters.  If current industry conditions continue,
the Company expects that revenue for fiscal 1997 will be below the $184.5
million of revenue recorded in fiscal 1996.

     The Company derives most of its revenue from the sale of products in a
price range from $100,000 to $1,300,000 per unit and the sale of a clustered
system can be priced much higher.  As a result, the timing of individual
shipments can have a significant impact on the Company's results of operations
for a particular period.  The Company has previously experienced order and
delivery delays and cancellations which caused the Company to miss its quarterly
revenue and profit projections and there can be no assurance that the Company
can avoid such order and delivery delays in the future.  IPEC Clean does not
have significant backlog, and bookings in any quarter may vary.  Significant
shipments by IPEC Precision are not expected before the fourth quarter of fiscal
1997.  A significant portion of the Company's operating expenses are relatively
fixed in nature and planned expenditures are based in part on anticipated
orders.  Ongoing expenditures for product development and engineering make it
difficult to reduce expenses in a particular quarter if the Company's sales
goals for the quarter are not met.  Any inability to reduce spending quickly
enough to mitigate any revenue shortfall would magnify the adverse impact of the
revenue shortfall on the Company's results of operations.

     The Company's fiscal 1997 operating results will also be affected by the
Company's exercise of its right to cause a significant customer to accelerate
planned orders and the issuance to the customer of additional warrants to
purchase IPEC Common Stock. During the first quarter of fiscal 1997 the

                                     14

<PAGE>
 
customer accelerated orders which accounted for approximately 20% of revenue
in the first quarter. The Company is committed to issue during the first three
quarters of fiscal 1997 warrants to purchase an aggregate minimum of 155,000
shares of Common Stock (of which warrants to purchase 60,000 shares have been
issued) and an aggregate maximum of 250,000 shares. The number of warrant
shares to be issued depends on the extent to which IPEC accelerates shipments
to the customer. The first quarter $657,000 charge was based on the market
value of the minimum 155,000 warrant shares on the date the agreement was
signed. To the extent IPEC accelerates these shipments during fiscal 1997,
this will reduce shipments anticipated for fiscal 1998 if additional
replacement orders are not received, and will result in a charge for warrants
issued in excess of 155,000 warrant shares based on the price of IPEC Common
Stock on the date the original agreement was signed. There can be no assurance
that the Company can obtain additional orders from other customers for
shipments in fiscal 1998 to replace orders shifted to fiscal 1997.

     Results of operations in any period should not be considered indicative of
the results to be expected for future periods.  Fluctuations in operating
results may also result in fluctuations in the price of the Company's Common
Stock.

     Dependence on Major Customers.  A small number of customers account for a
     -----------------------------
significant percentage of the Company's sales volume and revenue.  In fiscal
1995, Intel, IBM and Motorola represented 18%, 20% and 14%, respectively, of the
Company's revenue.  In fiscal 1996, Intel represented 29% of the Company's
revenue.  In the first quarter of fiscal 1997, Intel represented 48% of the
Company's revenue.  The Company anticipates that its revenue will continue to
depend on major customers, although the companies considered major customers and
the percentage of the Company's revenue represented by each major customer may
vary from quarter to quarter.  The loss of a major customer or any material
reduction in orders by such customers, including reductions due to market or
competitive conditions, would have a material adverse effect on the Company's
business, financial condition and results of operations.  The Company's future
success depends in part upon its ability to obtain orders from new customers, as
well as the financial condition of its customers and the general economy.  Sales
of certain of the Company's products generally depend on new facility
construction projects and facility upgrades and there can be no assurance that
the Company's current customers will make significant purchases of the Company's
products in the future.  See "MD&A--Results of Operations."

     Product Concentration; Dependence on New Products and Technologies.  In
     ------------------------------------------------------------------
fiscal 1996, the Company derived approximately 78% of its revenue from sales by
IPEC Planar and approximately 20% of its revenue from sales by IPEC Clean.  In
the first quarter of fiscal 1997, sales by IPEC Planar were 88% of the Company's
revenue.  Semiconductor manufacturing equipment and processes are subject to
rapid technological changes and product obsolescence.  The Company's strategy
depends in part on developing and introducing products which lower the
semiconductor manufacturer's cost of ownership, which involves a number of
factors, including product acquisition and operating expenses, throughput,
reliability, footprint and wafer yields.  The Company believes that its future
success will depend in part upon its ability to develop and enhance its existing
products and develop new products to meet such anticipated technological
changes.  The Company's future results are highly dependent on market acceptance
of the Company's AvantGAARD 676, which is designed to be a high-throughput metal
and oxide CMP tool, but is now qualified only for metal processing.  While the
Company has developed an oxide process for the AvantGAARD 676, this process is
being qualified and has not yet been

                                     15
<PAGE>
 
commercially adopted by any customer. The Company has also been developing its
Avanti 672 to integrate CMP processing and water cleaning, and its Plasma Jet
wafer etching tool. The Company is attempting to market product bays and, with
other companies, to develop "performance optimized production systems"
("POPS"). Semiconductor equipment companies often experience delays in
completing advanced products. The Company has experienced delays in developing
new CMP tools and processes, cleaning and reprocessing products and the Plasma
Jet tool and the Company cannot assure that any product in development will be
completed as scheduled or that completed products will be commercially
adopted. If any of the Company's products are not commercialized in a timely
manner, the Company could be required to write off inventory and other assets
related to the development project. To the extent products developed by the
Company are based upon anticipated changes in semiconductor production
technologies, sales for such products may be adversely affected if other
technology becomes accepted in the industry.

     Competition.  The semiconductor equipment industry is an intensely
     -----------
competitive market.  The Company believes that domestic and international
competition in CMP polisher systems, clustered CMP polisher and cleaning
systems, and chemical reprocessing systems is likely to increase substantially.
The Company is aware of a number of companies currently marketing CMP systems
that directly compete with the Company's systems.  Competition is increasing
significantly in the market for high throughput planarization systems.  In
addition, in December 1995, Applied Materials, Inc. announced a CMP system for
oxide that has not yet been commercially accepted, but which would compete
directly with the Company's CMP product offerings.  The Company is aware that
other capital equipment manufacturers not currently involved in the development
of CMP systems may also attempt to enter and develop products for this market or
to develop alternative technologies which, if successful, would reduce the need
for the Company's products.  The Company is aware of several companies that
market chemical reprocessing systems similar to those sold by the Company.  The
trend towards consolidation in the semiconductor equipment industry has made it
increasingly important to have the financial resources necessary to compete
effectively across a broad range of product offerings, to fund customer service
and support on a world-wide basis and to invest in both product and process
research and development.  Certain current and potential competitors have
substantially greater financial resources, name recognition and more extensive
engineering, manufacturing, marketing and customer service and support
capabilities than the Company.  The Company expects its current competitors to
continue to improve the design and performance of their existing products and
processes, and to introduce new products and processes with improved price and
performance characteristics.  New product introductions or product announcements
by the Company's competitors could cause a decline in sales or loss of market
acceptance of the Company's existing products.  Moreover, increased competitive
pressure could lead to intensified price based competition, which could have a
materially adverse effect on the Company's business, financial condition and
results of operations.

     International Sales.  International sales accounted for approximately 24%
     -------------------
and 34% of the Company's revenue in fiscal 1995 and 1996, respectively.
International sales were approximately 37% of revenue in the first quarter of
fiscal 1997.  International sales carry lower gross margins than domestic sales.
The Company expects that international sales will continue to account for a
significant portion of its revenue in future periods.  International sales are
subject to certain inherent risks including tariffs, embargoes and other trade
barriers, staffing and operating foreign sales and service operations, managing
distributors and collecting accounts receivable.  The Company is also subject to
risks associated with regulations relating to the import and export of high
technology products.  The export of the Company's 

                                     16
<PAGE>
 
products to certain countries is limited by law. The Company cannot predict
whether quotas, duties, taxes or other charges or restrictions upon the
importation or exportation of the Company's products in the future will be
implemented by the United States or any other country. Fluctuations in
currency exchange rates could cause the Company's products to become
relatively more expensive to customers in a particular country, leading to a
reduction in sales or profitability in that country. While the Company's sales
are currently denominated only in U.S. dollars, future international activity
may result in foreign currency denominated sales. Gains and losses on the
conversion to U.S. dollars of accounts receivable and accounts payable arising
from international operations may contribute to fluctuations in the Company's
results of operations. There can be no assurance that any of these factors
will not have a material adverse effect on the Company's business, financial
condition and results of operations.

     Asian Market.  The Company believes that its future success will depend in
     ------------
part upon continued acceptance of its products by Asian semiconductor
manufacturers.  This market segment is large, represents a substantial
percentage of the worldwide semiconductor manufacturing capacity, and is
difficult for foreign companies to penetrate.  Asian manufacturers may develop
alternative techniques, or may enhance existing techniques such as spin-on glass
and deposited glass, to achieve acceptable yields for DRAMs and other integrated
circuits involving three or more metal layers and line widths at or below 0.5
micron.  The Company believes that increased penetration of the Asian markets is
critical to its financial results and intends to continue to invest significant
resources in such markets in order to meet this objective.  The Company
currently sells its products in Asian countries through distributors.  If the
Company determines to develop a direct presence in these markets, particularly
Japan, such decision would require the allocation of substantial management and
financial resources, may adversely affect the Company's relationship with its
current distributors, and would increase a number of risks related to
international sales as described above.  There can be no assurance that the
Company will achieve acceptance of its products in this market.

     Cyclicality of Semiconductor Industry.  The Company's business depends upon
     -------------------------------------
capital expenditures by manufacturers of semiconductor devices, primarily for
the opening of new or expansion of existing fabrication facilities which, in
turn, depends upon the current and anticipated market demand for semiconductor
devices and products utilizing such devices.  The semiconductor industry is
highly cyclical and has experienced significant overall growth in recent years,
which has resulted in growth in the semiconductor capital equipment industry.
However, the semiconductor industry is currently experiencing a downturn, which
could have a severe adverse effect on the industry's demand for semiconductor
processing equipment.  In certain instances, industry downturns have lasted for
extended periods of time.  There can be no assurance that past growth in the
semiconductor and semiconductor capital equipment industries, or the resulting
growth in the Company's business, can be sustained in the future or that the
recent downturn in the market will not continue.  The Company's planned
operations assume that a significant portion of new orders will result from
demand from semiconductor manufacturers building or expanding fabrication
facilities for advanced multi-level semiconductor devices with design
requirements of 0.5 micron and below, and there can be no assurance that such
demand will exist.  The Company's business, financial condition and results of
operations would be materially adversely affected if semiconductor manufacturers
do not increase their capacity to produce these advanced semiconductor devices,
or if there is a slowing of growth or a decline in production by the
semiconductor industry.

                                     17
<PAGE>
 
     Recent Acquisitions.  The Company's growth in annual revenues from fiscal
     -------------------
1994 through fiscal 1996 has resulted not only from expansion of its core CMP
business, but also from acquisitions in fiscal 1994, 1995 and 1996.  The
companies acquired had not operated profitably before their acquisition by IPEC.
IPEC Clean's financial performance has declined in recent periods and IPEC
Precision has not yet achieved significant revenue from shipments of production
equipment.  The Company's expansion through acquisitions has resulted in
significantly higher operating expenses, particularly because the Company's
strategy has been to initially operate each acquired business independently,
resulting in separate marketing, customer support and administrative functions.
The Company is currently in the process of consolidating these functions.  There
can be no assurance that the Company will be able to improve the revenue or
operating results of these acquired businesses.

     Future Acquisitions and Dispositions.  The Company's strategy is to obtain
     ------------------------------------
additional wafer fabrication technologies and may involve, in part, acquisitions
of products, technologies or businesses from third parties.  In addition, the
Company may make additional acquisitions to obtain additional distribution
capacity in specified geographic markets.  An acquisition could absorb
substantial cash resources, require the Company to incur or assume debt
obligations, or involve the issuance of additional Common Stock which could
dilute the Company's outstanding Common Stock.  An acquisition which is
accounted for as a purchase, like the acquisitions of Westech, Athens, GAARD or
the Precision Materials Operation of HDOS, could involve significant one-time
non-cash write-offs, or could involve the amortization of goodwill over a number
of years, which would adversely affect earnings in those years.  An acquired
entity may have unknown liabilities, and its business may not achieve the
results anticipated at the time of the acquisition.  The Company may dispose of
or spin off portions of its businesses which the Company determines are not
complementary to its strategy.  Any acquisition, disposition or spin off would
absorb significant management time and could adversely affect the Company's
business, financial condition and results of operations.

     Industry Acceptance of Products.  The CMP process is in an early stage of
     -------------------------------
implementation and has not yet been broadly adopted by semiconductor
manufacturers for volume production.  Most major semiconductor manufacturers are
beginning to introduce the CMP process only for pilot line production of
integrated circuits with three or more metal layers and line widths at or less
than 0.5 micron.  Only a limited number of semiconductor manufacturers are
producing commercial quantities of integrated circuits with these
characteristics using CMP machines.  To date, the Company's products have been
used primarily in the manufacture of advanced semiconductor logic and memory
devices.  There can be no assurance that the CMP process will be broadly adopted
or that alternative processes will not be used to achieve planarity in the
manufacture of advanced semiconductor devices.  If the CMP process is not
accepted in the market, or if alternatives to the CMP process emerge, or if
other planarization technologies improve to serve the industry's planarity
requirements, then the Company's business, financial condition and results of
operations would be materially adversely affected.

     IPEC Clean's revenue prior to its acquisition primarily consisted of
chemical reprocessing systems and related products which were sold to a small
number of leading semiconductor manufacturers.  IPEC Clean's future results
depend largely upon broader acceptance of its chemical reprocessing systems,
upon acceptance of the Company as a provider of chemical distribution systems,
and upon successful integration of IPEC Clean's cleaners with the Company's CMP
products.  Similarly, IPEC Precision's products are based on technologies which
have not been adopted by the semiconductor manufacturing industry, and there can
be no assurance that customers will accept these products, or that these
products 

                                     18
<PAGE>
 
can be sold profitably or in volume.  The failure of the semiconductor
industry to accept the Company's systems and products could have a material
adverse effect on the Company's business, financial condition and results of
operations.

     Future Capital Needs.  The Company believes that its cash and cash
     --------------------
equivalents will need to be supplemented by additional equity or debt financing
during the second quarter of fiscal 1997 to finance the Company's operations.
The Company's ability to finance its operations at the current level and to fund
working capital requirements will be adversely impacted if it is unable to
complete an equity or debt financing during the second quarter of fiscal 1997.
There can be no assurance that such additional financing will be available when
needed or, if available, will be on satisfactory terms.  In order to raise
capital, the Company may issue debt or equity securities senior to the
outstanding Common Stock, and may incur substantial dilution.  The failure to
obtain additional financing when needed on satisfactory terms would also hinder
the Company's ability to make continued capital investments, which could
materially adversely affect the Company's competitive position and results of
operations.

     Although management is attempting to raise additional cash, a financing is
not assured.  If management determines during the second quarter of fiscal 1997
that additional capital will not be provided in a timely manner, then management
will take actions to preserve available cash and operations.  These actions
could adversely affect operating results for the second fiscal quarter and
subsequent quarters.  If the Company does not obtain additional financing during
the second fiscal quarter, the Company may lose the ability to borrow additional
funds under its line of credit, and due to a failure to meet certain financial
covenants under its bank loan agreements be considered in default under those
bank loan agreements, requiring negotiations with the bank to modify those
covenants in an effort to avoid outstanding debt immediately coming due.  There
can be no assurance that negotiations with vendors, customers or the bank would
be successful.

     Dependence on Third Party Manufacturers and on Single Source Suppliers.
     ----------------------------------------------------------------------
The Company relies on a limited number of independent manufacturers to provide
certain components in assemblies made to the Company's specifications and use in
the Company's products.  In the event that the Company's subcontractors were to
experience financial, operational, production or quality assurance difficulties
that resulted in the reduction or interruption of supply to the Company, the
Company's business, financial condition and results of operations would be
materially adversely affected.  In addition, the Company purchases certain key
components from qualified vendors for which alternative qualified sources are
not currently available.  Any prolonged inability to obtain adequate amounts of
qualified components would have a material adverse effect on the Company's
business, financial condition and results of operations.

     Intellectual Property.  The Company's success depends in significant part
     ---------------------
on the proprietary nature of its technology.  There can be no assurance that the
patents issued to the Company will provide the Company with meaningful
advantages, or that any patent issued to the Company will not be challenged.
The two initial patents relating to the Company's single wafer planarization
system products are scheduled to expire in 1997.  In 1993, the technology
covered by these patents currently forming the basis of the CMP process and used
in the Company's primary products was licensed on a royalty-free basis to a
competitor pursuant to a settlement arrangement in which the Company also
incurred settlement obligations aggregating $1.4 million, of which $150,000
remained outstanding at September 30, 1996.  The Company currently has no
patents with respect to its acid reprocessing technology outside the United
States.  To the extent that a competitor of the Company is able to

                                     19
<PAGE>

reproduce or otherwise capitalize on the Company's technology prior to the
issuance of a patent, it may be difficult or impossible for the Company to
obtain necessary intellectual property protection in the United States or
other countries where such competitor conducts its operations. Moreover, the
laws of foreign countries may not protect the Company's intellectual property
to the same extent as do the laws of the United States. There can be no
assurance that the steps taken by the Company to protect its proprietary
technology will be adequate or that its competitors will not be able to
develop similar or functionally equivalent technology. There has been
substantial litigation regarding patent and other intellectual property rights
in semiconductor related industries.

     In the future the Company may receive notice of claims of infringement of
other parties' proprietary rights, and there can be no assurance that a claim
for infringement, invalidity or indemnification will not be asserted against the
Company or that any such assertions will not have a material adverse effect on
the Company's business, financial condition and results of operations.  If any
Company equipment is found to infringe a patent, a court may grant an injunction
to prevent making, selling or using the equipment in the applicable country.
Irrespective of the validity or success of such claims, the Company could incur
significant costs with respect to the defense thereof, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.  If infringement claims are asserted against the Company,
the Company may seek to obtain a license of such third party's intellectual
property rights, which may not be available under reasonable terms or at all.
Litigation may be necessary to enforce patents issued to the Company, to protect
trade secrets or know-how owned by the Company, to defend the Company against
claimed infringement of the rights of others and to determine the scope and
validity of proprietary rights of others.  The Company also relies on trade
secrets and proprietary technology that it seeks to protect, in part, through
confidentiality agreements with employees and other parties.  There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach or that the Company's trade secrets will not
otherwise become known to or independently developed by others.

     The Company also has entered into significant agreements that provide for
the escrow, licensing and royalty payment of the Company's technology to various
third parties.  The Company manufactures the AvantGAARD 676 under a license from
a volume manufacturer of advanced microprocessors.  The Company has escrowed
technical data sufficient to permit such manufacturer to manufacture the
Company's AvantGAARD 676, for release if the Company does not meet certain
criteria regarding product or spare part delivery schedules to the manufacturer.
If the data is released from escrow, the manufacturer could manufacture the
AvantGAARD 676 or have the AvantGAARD 676 manufactured by others for its use.
The escrow terminates in October 1998.

     Product Liability and Environmental Regulations.  The nature of the
     -----------------------------------------------
Company's business exposes it to product liability claims, as well as the risk
that harmful substances will escape into the workplace and the environment and
cause damage or injuries.  For example, in June 1995 and again in July 1996, an
acid reprocessor malfunctioned and caused sulfuric acid to escape from its
quartz cylinder container.  In these instances no acid escaped from the
compartment containing the quartz cylinder and no damage to the manufacturing
facility resulted; however, there can be no assurance that the Company's
products will not malfunction in the future or that damage to a customer's
facilities will not result.  The Company and its customers are subject to
stringent federal, state and local regulations governing the storage, use,
discharge and disposal of toxic, volatile or otherwise hazardous chemicals used
in their manufacturing operations.  Current or future regulations could require
the Company or its customers to

                                     20
<PAGE>
 
make substantial expenditures for preventive or remedial action, reduction of
chemical exposure or waste treatment or disposal. To the extent that the
Company's strategy to provide integrated on-site wet chemical management
services to its customers is successful, the Company faces increased risks
with respect to environmental and occupational health and safety liabilities.

     Effect of Certain Anti-Takeover Provisions.  The Company's Certificate of
     ------------------------------------------
Incorporation authorizes the Company's Board of Directors to issue preferred
stock in one or more series and to fix the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued shares of preferred
stock and to fix the number of shares constituting any series and the
designation of such series, without further vote or action by its stockholders.
The voting power held by the Company's officers and directors may give those
individuals substantial influence over any corporate action submitted to the
Company's shareholders.  Pursuant to Delaware corporate law, the approval of the
outstanding Preferred Stock may be required for certain corporate actions.  Any
series of Preferred Stock which the Company may issue in the future would
participate in these class voting rights and may have additional independent
rights to approve certain actions.  The Company is subject to Section 203 of the
Delaware General Corporate Law.  The voting power held by officers and
directors, outstanding rights to elect members of the Company's Board of
Directors, the voting rights of outstanding Preferred Stock and Preferred Stock
which may be issued in the future and the application of Delaware General
Corporate Law Section 203 could discourage certain types of transactions
involving an actual or potential change in control of the Company, including
transactions in which the holders of Common Stock who are not officers and
directors might otherwise receive a premium for their shares over then current
prices, and may limit the ability of such stockholders to cause or approve
transactions which they may deem to be in their best interests.

     Dependence on Key Personnel.  The Company's future success is dependent
     ---------------------------
upon its ability to attract and retain qualified management, technical, sales
and support personnel.  The competition for such personnel is intense.  The loss
of certain key people or the Company's inability to attract and retain new key
employees could have a material adverse effect on the Company's business,
financial condition and results of operations.  During July and October 1996 the
Company effected reductions in its work force to reduce its expenses and may do
so in the future.  Repeated layoffs could adversely affect the retention of
employees, and could adversely affect the Company's ability to hire new
personnel if industry conditions improve and the Company's volume of production
increases. Personnel terminations included technical personnel, who could be
difficult to replace if IPEC successfully markets its products and requires
additional engineering staff to support customers.

     Volatility of Stock Price.  The Company's Common Stock has experienced
     -------------------------
substantial price volatility and such volatility may occur in the future,
particularly as a result of quarter to quarter variations in the actual or
anticipated financial results of the Company or of other companies in the
semiconductor industry, or in the markets served by the Company, or
announcements by the Company or its competitors regarding new product
introductions.  In addition, the stock market has experienced extreme price and
volume fluctuations that have affected the market price of many technology
companies' stocks in particular and that have often been unrelated or
disproportionate to the operating performance of these companies.  These factors
may adversely affect the market price of the Common Stock.

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<PAGE>
 
ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits

          10.1 Warrant Purchase Agreement with Intel Corporation, dated October
               2, 1996. Incorporated by reference to Exhibit 10.1 of the
               Company's Quarterly Report on Form 10-Q for the quarter ended
               September 30, 1996, filed on November 14, 1996
               (the "September 1996 Quarterly Report")

          10.2 Warrant to purchase 60,000 shares of common stock of Integrated
               Process Equipment Corp., dated October 2, 1996. 
               Incorporated by reference to Exhibit 10.2 of the Company's
               September 1996 Quarterly Report.

          10.3 Notice of Settlement of Indemnification Claims under Westech
               Agreement and Plan of Merger and Related Escrow
               Agreement, dated September 19, 1996. Incorporated by 
               reference to Exhibit 10.3 of the Company's September 1996
               Quarterly Report.


     (b)  Reports on Form 8-K:

          None.

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<PAGE>
 
SIGNATURES



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


Date: January 16, 1997              INTEGRATED PROCESS EQUIPMENT CORP.
                                    AND SUBSIDIARIES

 
                                    By: /s/ John S. Hodgson
                                        -------------------                
                                        John S. Hodgson
                                        Vice President
                                         and Chief Financial Officer

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