FORM 10-K
             UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 20549
                             Annual Report
                             -------------

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)

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

Commission file number  0-24030

                       THE PANDA PROJECT, INC.
       (Exact name of registrant as specified in its charter)

           Florida                                     65-0323354
(State or other jurisdiction of                    (I.R.S. Employer  
 incorporation or organization)                    Identification No.)

       951 Broken Sound Parkway 
         Boca Raton, Florida                             33487
(Address of principal executive offices)              (Zip Code)

                           (561) 994-2300
       (Registrant's telephone number, including area code)
                      -----------------------
    Securities registered pursuant to Section 12(b) of the Act:
                                NONE
     Securities registered pursuant to Section 12(g) of the Act:
                   COMMON STOCK, $.01 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 pursuant 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 to Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]

Aggregate market value of the voting stock held by nonaffiliates of
the Registrant based on the last sale price for such stock at February
27, 1998.

                                $7,404,219

21,154,910 shares of Common Stock, $.01 par value, outstanding at
April 14, 1999.

                                21,154,910

                    Documents Incorporated by Reference

The information called for by Part III is incorporated by reference to
the Company's definitive Proxy Statement for its 1999 Annual Meeting
of Shareholders which will be filed pursuant to Regulation 14A not
later than April 30, 1999.

                         The Panda Project, Inc.
                             Form 10-K
                               Index

                               Part I

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

                              Part II

Item 5.  Market for Registrant's Common Equity and Related
         Stockholder Matters                                       
Item 6.  Selected Financial Data                                   
Item 7.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                       
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.  Financial Statements and Supplementary Data               
Item 9.  Changes in and Disagreements With Accountants on
         Accounting and Financial Disclosure                       

                             Part III

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

                             Part IV

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

         Signatures

         Forward-looking statements in this release, including
        statements concerning production and sale of the VSPA product,
        are based on information available to the Company as of the
        date hereof and involve and number of risks and uncertainties. 
        Among the important factors that could cause actual results to
        differ materially from those indicated by such forward-looking
        statements are delays in product development, competitive
        pressures, general economic conditions, risks of intellectual
        property litigation, and the risk factors detailed from time
        to time in the Company's periodic reports and registration
        statements filed with the Securities and Exchange Commission.  

                          PART I
Item 1.  Business

The Panda Project, Inc. ("the Company") is a technology company
engaged in the development, manufacture and sale of the Company's
proprietary semiconductor packaging and interconnect devices (the
 Technology Products").  The Company also has been engaged in the
design and manufacturing of modular workstations and desk top
computers ("Systems").  The features and design of the Technology
Products, many of which are protected by United States and foreign
patents or patent applications, are intended to address the need for
greater bandwidth in electronics products. The Company believes that
its products will satisfy the market's demand for increased bandwidth
in computer, telecommunications, automotive and other electronics
industries by enhancing the performance of new generations of high
speed semiconductors.

TECHNOLOGY PRODUCTS

The proliferation of increasingly sophisticated semiconductors for
computer operating systems and other electronic applications, along
with the explosive growth in Internet usage, have created the need for
substantially greater bandwidth in products ranging from the
semiconductor to the printed circuit board. Bandwidth refers to the
capacity for transmitting data inside the electronic device as well as
between two or more devices.  In recent years, improvements in the
speed at which microprocessors and other integrated circuits can
process data have far outpaced the data transmission capacity of other
electronic components and of the connectors and lines which link the
devices. The resulting bandwidth bottlenecks have effectively negated
some of the improvement in processing speed attributable to the
enhanced microprocessors.  The Company's Technology Products include
semiconductor packages and interconnect devices which incorporate
designs which the Company believes enable these products to
effectively address the bandwidth bottlenecks.  In addition, these
products, which are protected by a variety of patents which have
either been issued or for which applications are currently pending,
have significant advantages over currently available products,
including:

     DENSITY OF ELECTRICAL CONNECTIONS.  The Technology Products
embody proprietary geometrics that allow the placement of a greater
number of conductive leads than is possible with conventional designs. 
This permits the access and transport of an increased volume of data.

     REDUCED SIZE.  Due to their higher contact density, the
Technology Products require less surface area and routing layers than
is required by conventional semiconductor packages and interconnect
devices to accommodate the same number of leads.  This improves the
performance and, lowers the cost of using the products in electronic
applications.

     SUPERIOR ELECTRICAL AND THERMAL CHARACTERISTICS.  The Technology
Products are designed to provide faster electrical connections while
minimizing the interference (parasitics) which can occur in a high
density electrical environment.  The materials, used in the Technology
Products, are also constructed in such a way to dissipate heat better
than conventional designs. The Company believes that its Technology
Products will withstand the rigors of environmentally stressful
applications such as automotive and other high-temperature
applications.

     COMPATIBILITY; REDUCED COST OF MANUFACTURE.  The Technology
Products are intended to be compatible with existing industry
standards.  For example, while one of the Company's semiconductor
packages (VSPA) incorporates a proprietary array of electrical leads,
the space (pitch) between the leads, which is of critical importance
in the surface mount manufacturing process, is no smaller than that of
conventional packages such as Plastic Quad Flat Pack("PQFP"), and Ball
Grid Array packages, ("BGA").  In addition, use of VSPA in an assembly
environment, requires only minor modifications to be compatible with
standard die attachment and wire bonding equipment such as the ESEC
3008 and K&S 8020 wirebonders.  Additionally, test sockets for
electrical testing, post assembly, and complete manufacturing
procedures are available for customers. The Company believes that
customers housing their silicon devices in the Technology Products
will experience reduced overall production cost in high volume.

SEMICONDUCTOR PACKAGES
----------------------

Semiconductor Companies are facing ever increasing demands for greater
lead counts, improved thermal performance, miniaturization and lower
packaging costs in Semiconductor packages. As a result of the trend in
semiconductors, there has been increasing strains on the packaging. 
Semiconductor companies have turned to independent packaging companies
for technology development and innovation.

Semiconductor companies are striving to shorten the time to market for
new products.  Having a flexible packaging technology, quick turn
programs and capacity available are critical in attracting new
customers.

Another trend in the semiconductor market is in the "fabless" segment
of the market. These companies have a core competency in the silicon
design process. This market segment relies solely on independent
companies for their packaging of their semiconductors.

There is a broad range of semiconductor packages available in the
market today for both commodity and custom products.  These products
are broken into three categories: Leadframe, BGA and PGA.  Samples of
leadframe products include SOIC, QFP and PLCC.  These packages
generally range from 8 leads to 304 leads.  BGA or laminate products
include the BGA family of products like the PBGA, MicroBGA and
FlipChip products.  These packages range in lead counts from 8-600. 
Another market segment are the PGA's which are pluggable packages
which traditionally have been used for microprocessor applications.

Leadframe products are the most widely recognizable package types in
the marketplace.  The chip is encapsulated in a plastic mold compound
with metal leads extending peripherally from the perimeter. Laminate
products have been gaining market acceptance.  The BGA uses a
laminate, usually plastic or tape substrate rather than a leadframe
substrate. Tiny balls are attached in an array to the bottom.  PGA's
are made from plastic or ceramic and have pins extend perpendicularly
from the bottom of the package arranged in several rows.

The Company has developed and patented 2 semiconductor packages: VSPA,
which a peripherally leaded package with one or multiple tiers, and
Compass PGA, a pluggable pin grid array. Both packages are made from
similar materials. 

VSPA has been designed to address the increasing demands on bandwidth
from the silicon to the PCB. VSPA is a low cost surface mount
semiconductor package that provides higher I/O in less space with
improved electrical and thermal performance as compared to other
packages on the market today. VSPA, also called PQFP-B, is registered
with JEDEC JC-11 committee under MO-198 and has passed Military
Standard 883D.  The qualification testing from the VSPA was performed
by independent companies including ISE/IQL Labs, Inc., Lockheed Martin
and the Georgia Tech Packaging Research Center.

VSPA is based on a three-dimensional architecture that utilizes
multiple rows of pins that are tiered to achieve a greater density
within a smaller area. The VSPA is scalable in X, Y, and Z axes being
either square or rectangular in shape. By using individual, pre-
stamped, pins the VSPA package does away with a traditional lead frame
and many of the labor intensive molding steps. As a result, it allows
leads to be interleaved and arranged in several tiers. The number of
tiers depends upon the target die size and necessary number of I/O.
VSPA can be configured with one to six tiers, allowing packages up to
and over 1,000 pins. This allows the package to shrink and grow
depending on the customer's chip application.
VSPA is also available in both 'cavity down' and 'cavity up' versions.
With VSPA's wide range of I/O's and variable package dimensions,
multichip modules (MCMs) are also possible with the VSPA. This
scalability allows silicon designers considerable flexibility in
choosing a VSPA package that will best suit their specific package
requirements.

This minimum lead length yields low package parasitic and inductance
by keeping pins a constant size for each tier and a common part number
for each package size.  These parameters remain constant for each
package size since only the frame is scaled to accommodate different
die sizes.  This cannot be  achieved in PQFP or BGA packages. The
electrical characteristics of VSPA allow it to perform with faster
rise times and the ability to support high performance applications at
much higher frequencies. VSPA has tested resonance free to 3.5GHz with
the next generation projected for a 10GHz range.

In 1998, the Company introduced several versions of the VSPA package
including the thermally enhanced and super thermally enhanced versions
to address market demands.  The Company shipped pre-production parts
of the VSPA TE and submitted several designs using the VSPA STE.

In January 1998, the Company received its first production order for 1
million units for a customized version of the VSPA package from
Veridcom.  As of March 5, 1999, the Company shipped in excess of
115,000 units to Veridicom.  Additionally the Company has delivered
prototype and pre-production parts to Lucent Technologies, Motorola,
EG&G Heimann, Honeywell SSEC, Samsung, SEEQ Technologies, National
Semiconductor, Kaiser Electronics and several other companies.  While
the Company believes that production orders may materialize from the
initial orders received, there can be no assurance that any of these
activities will result in sales of the VSPA product.

Compass PGA is a high density PGA semiconductor product primarily
designed to address the high density chipscale segment of the
packaging market.  The Compass PGA employs multiple leads and requires
less surface area of the PCB to accommodate the same number of leads
in traditional PGA packages.  Additional design and qualification work
must be done prior to commercialization of this product.  The Compass
PGA can be used with existing wirebond and Flipchip technologies.  The
Company believes that densities in excess of 1,100 can be achieved. 
In July 1996, the Company received a patent covering the Compass PGA
product.

INTERCONNECT PRODUCTS
---------------------

The Company has been granted a license to the Compass interconnect
product by Stanford W. Crane, Jr., its inventor.  The Company has
produced the Compass II version in a 152 position right angle female,
and 152 position vertical male connector.  Currently the Company
purchases and resells the Compass V version from LG Cable & Machinery
( LG Cable ), part of the LG Group in Korea, and a licensee of the
Compass technology.  The Compass V is a 196 position connector
available in both straight and right angle female versions, and
vertical male versions.

Compass V is the most dense interconnect currently in production.  On
the edge of a printed circuit board it delivers 146 contacts per
linear inch when used in a double-sided arrangement.  This compares
with 80 contacts per linear inch in the most widely used products used
in high density applications.  LG Cable contracted for Bellcore
testing of the Compass V with Contech, an independent testing group. 
The Compass V connector received Bellcore approval in 1998. Compass
uses a patented arrangement of contacts and is actually capable of
delivering over 300 contacts per linear inch on the edge of a printed
circuit board, and over 1100 in a parallel configuration in one square
inch.

Compass also forms the basic platform for Compass PGA (pin grid
array).  Compass PGA utilizes the design of Compass to connect
semiconductors in a pluggable fashion to another substrate, such as a
printed circuit board.       

MANUFACTURING
-------------

The Company has developed the ability to manufacture the VSPA
semiconductor package in its own facility in Boca Raton, Florida,
using two automated machines designed and built by the Company.  The
machines have a wide range of flexibility in terms of the pin count of
the VSPA packages it will produce, and their production capacity
ranges from 235,000 parts per month to 290,000 parts per month,
depending upon the pin count of the package (i.e., the higher the pin
count, the lower the monthly production capacity).  The first machine
became operational in late September 1997 and the second machine,
after undergoing refinements based on data derived from operating the
first machine, became operational in 1998. Although these machines
have been designed and developed by the Company, most of the
components from which they are built are available from multiple
suppliers.  The Company believes these machines can be readily
replicated to increase manufacturing capacity as demand for VSPA
increases.  If the Company is successful in commercializing VSPA, such
commercialization will require the Company to expand its manufacturing
capacity for VSPA parts or enter into additional licensing
arrangements, joint ventures or strategic alliances with respect to
the manufacture of VSPA parts.  See Marketing and Strategic
Relationships.

The Company has an arrangement with LG Cable ("LG Cable"), a unit of
Korea-based LG Group and a licensee of the Company's Compass
technology, to acquire the Compass V Connectors for distribution as
discrete parts to customers.  The Company believes that this source of
supply is sufficient to meet the demand for Compass V Connectors for
the foreseeable future.  If the Company is successful in
commercializing the Compass V Connector for use by third parties, such
commercialization may require its strategic partners to expand their
manufacturing capacity for Compass V Connectors or for the Company to
enter into additional licensing arrangements, joint ventures or
strategic alliances with respect to the manufacture of Compass
Connectors.   See Marketing and Strategic Relationships .

The Company has also subcontracted with LG Cable for the manufacturing
of the VSPA 80/1 package for Veridicom.  In  addition to the single
row production machines the Company added internally, LG has built a
fully automated assembly line with capacity of 350,000 units per
month.

In 1998, the Company contracted with Possehl Hong Kong Machinery
limited ("PBE") for the production of the VSPA 360 and 240 products. 
PBE specializes in providing leadframe and other raw materials for the
semiconductor packaging market. PBE has 16 factories in 12 countries
located in Europe, Asia and the U.S.  The 360 and 240 have the same
body size and have an interchangeable footprint on the PCB.  In March
1999, the machine at PBE was being qualified for production. PBE will
be responsible for all VSPA high volume production for these products.

MARKETING AND STRATEGIC RELATIONSHIPS
-------------------------------------

In June 1996, September 1996, July 1997 and January 1999, the Company
licensed the VSPA semiconductor packaging technology to AMP
Incorporated, Pantronix Corporation, LG Cable and Samtec, Inc.,
respectively.  Under the terms of each licensing agreement, the
licensee has been granted worldwide rights to manufacture and sell
VSPA.  The Company currently has only received up-front licensing fees
and is unable to predict the amount of sales revenue or royalty
revenue, if any, that may be earned in the future under these
agreements.

In October 1996, the Company and Stanford W. Crane, Jr., the Company's
President and Chairman, entered into an agreement with LG Cable, under
which LG Cable was granted a license to the Compass technology.  The
license granted to LG Cable is non-exclusive except for certain
limited exclusive manufacturing rights with respect to specified Asian
countries.  LG Cable has built a production facility in Korea for
production of Compass V, an enhanced version of the Compass Connector. 
Based on information supplied to the Company by LG Cable, production
capability of the Compass V reached 250,000 parts per month in January
1998.  Under the terms of the agreement, LG Cable is to pay the
Company and Mr. Crane a royalty based on the sales price of each
Compass Connector produced and sold.   See Patents; Proprietary
Information .  Such royalties are to be divided equally between the
Company and Mr. Crane.

The Company has also established relationships with semiconductor
assemblers for the back-end assembly process for VSPA which includes
mounting the chip, wirebonding, encapsulation and marking of the
finished product.  These relationships include Gateway Semiconductor,
ATEC and ASE Malaysia.  Other companies such as STATs, have
qualification underway.  These relationships are needed for the
Company's customers to utilize the VSPA package.  Additionally, the
Company has worked closely with ESEC, a Swiss manufacturer of die
attachment and wirebonding equipment, to optimize their equipment for
the VSPA package.

The Company markets it products through a direct sales force and a
network of independent sales representatives.  At the present time the
Company has four salespeople engaged in the sales and marketing of its
VSPA product.  The Company is engaged in recruiting additional
personnel for various geographic locations and positions.

BACKLOG
-------

As of March 15, 1999, the Company's revenue backlog amounted to
approximately  $966,000.  The Company expects to completely fill the
current backlog within the current fiscal year.  As of March 15, 1999,
the backlog consisted of product to be shipped to SEEQ and Veridicom
under their respective original purchase orders.

RESEARCH AND DEVELOPMENT
------------------------

In early 1998, the Company's principal research and development
efforts were devoted to the design and development of VSPA and Rock
City.  The Rock City development included new upgradable boards as
well as a new chassis design.  Since September 1998, all research and
development was for the VSPA product and specific customer
applications. In 1998, the Company spent approximately $3,400,000 on
research and development. For the nine months ending December 31,1997,
the Company spent approximately $3,300,000 on research and
development. There will be no further development related to the
Systems business.

The Company currently anticipates that its research and development
activities over the next year will focus on enhancements to the
automated machine for producing VSPA, and developing specific
applications for VSPA and the Compass Connector.  The Company believes
that its spending on research and development in the current fiscal
year will be approximately the same amount as it was during the
previous twelve months.

Patents And Proprietary Information
----------------------------------- 

The Company's success will depend on its ability to obtain patents,
protect trade secrets, and operate without infringing on the
proprietary rights of others.  As of December 18, 1998, the Company
had obtained 18 United States patents and an aggregate of 41 foreign
patents.  In addition, the Company had pending a total of 18 United
States and 29 foreign patent applications.  These patents and pending
applications relate to VSPA, Compass PGA, various designs of the
Computer Systems, the use of the Compass Connector in Compass PGA and
in the Computer Systems, and a PCB manufacturing technology known as
"Well Tech PCB".  The Company's foreign patent filings have been made
in selected countries, including the Republic of China (Taiwan),
Germany, the United Kingdom, Ireland and France.  The Company will
continue to file applications in certain foreign jurisdictions to
secure protection in those jurisdictions in accordance with the Patent
Cooperation Treaty and the Paris Convention for the Production of
Industrial Property (which allows such filings to relate back to the
original filing date in the United States) covering the Company's
technology and proposed products.  To the extent possible, the Company
also intends to file patent applications with respect to products and
technology that it may develop in the future.

There can be no assurance that any of the Company's pending patent
applications will ultimately result in an issued patent.  Moreover,
the patent laws of other countries may differ from those of the United
States as to the patentability of the Company's products or
technology, and the degree of protection afforded by foreign patents
may be different from that in the United States.  The failure by the
Company to obtain patents for which applications are currently pending
could have a material adverse effect on the Company's ability to
commercialize successfully its proposed technology and products.  Even
if the Company is able to obtain such patents, there can be no
assurance that any such patents will afford the Company commercially
significant protection for its technology or products. In addition,
other companies may independently develop equivalent or superior
technologies or products and may obtain patent or similar rights with
respect to them.  Although the Company believes that its technology
has been independently developed and that its technology does not
infringe on the patents or violate the proprietary rights of others,
there can be no assurance that any of the Company's technology or
products, will not be determined to infringe upon the patents or
proprietary rights of others, or that patents or proprietary rights of
others will not have an adverse effect on the ability of the Company
to do business.  If the Company's technology or products were
determined to infringe on the patents, trademarks or proprietary
rights of others, the Company could, under certain circumstances,
become liable for damages, which also could have a material adverse
effect on the Company.  Moreover, in the event that the Company's
technology or proposed products were deemed to infringe upon the
rights of others, the Company would be required to obtain licenses to
utilize such technology.  There can be no assurance that the Company
would be able to obtain such licenses in a timely manner or on
acceptable terms and conditions, and the failure to do so could have a
material adverse effect on the Company.  If the Company were unable to
obtain such licenses, it could encounter significant delays in product
market introductions while it attempted to design around the infringed
upon patents or rights, or could find the development, manufacture or
sale of products requiring such licenses to be foreclosed.  In
addition, patent disputes are common in the computer industry and
there can be no assurance that the Company will have the financial
resources to enforce or defend a patent infringement or proprietary
rights action.

The Company has registered the Archistrat, VSPA and Rock City
trademarks with the U.S. Patent and Trademark Office and has applied
for appropriate trademark, copyright and other legal protection for
its product names, logos and other identifications.  There can be no
assurance that the Company will not be precluded by others from using
any of such identifications or creating proprietary rights with
respect to them.

Pursuant to a license agreement entered into in January 1996 between
the Company and Mr. Crane (the "Crane-Panda License"), Mr. Crane has
granted the Company the nonexclusive right to utilize the Compass
Connector, a key component in the commercialization of the Company's
Archistrat Computers and the development and commercialization of
Compass PGA. The Crane-Panda License was executed in connection with
the conversion to a nonexclusive license of the 3M License described
below and supersedes an earlier license agreement between Mr. Crane
and the Company relating to the Compass Connector.   See  Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Certain Factors That May Affect Future Results -
Dependence On The Crane-Panda License Agreement; Potential Conflicts
Of Interest . Under the Crane-Panda License, the Company is required
to pay Mr. Crane a royalty on any sales of Compass Connectors as
discrete parts in the amount of 5% of the net sales price for the
first five years of the term of the agreement, 2.5% of the net sales
price for the next five years of the term of the agreement and 2% of
the net sales price thereafter, provided that no royalty is payable
until aggregate net sales of the Compass Connector as discrete parts
exceed $100,000. The royalty rate will be reduced after the fifth
anniversary of the agreement if no patent remains in effect with
respect to the Compass Connector. No royalty is payable on sales of
the Compass Connector as incorporated in the Archistrat Computers or
other computer system or assembly. The Company may grant sublicenses
under the Crane-Panda License, but only for the use of products as
incorporated in the Archistrat Computers or other computer system or
assembly. To date, there have been no sales requiring the payment of
royalties to Mr. Crane under the Crane-Panda License. The Crane-Panda
License obligates the Company to maintain proprietary information
relating to the Compass Connector on a confidential basis, notify Mr.
Crane of any evidence of infringement with respect to the Compass
Connector and related technology, and cooperate with Mr. Crane to
contest any such infringement. In the event that the Company becomes
bankrupt or insolvent or defaults in any of its material obligations
under the Crane-Panda License and fails to cure any such defaults
within specified cure periods, Mr. Crane may terminate the Crane-Panda
License. The Company is substantially dependent upon the Crane-Panda
License. The termination of the agreement under any circumstances
would have a material adverse effect on the Company. There can be no
assurance that conflicts of interest will not arise with respect to
the Crane-Panda License or that such conflicts will be resolved in a
manner favorable to the Company. In addition, Mr. Crane retains
ownership of the Compass Connector technology, and has the right to
grant licenses to or otherwise transfer rights to the Compass
Connector technology to third parties.

The Company relies on confidentiality and nondisclosure arrangements
with its employees, consultants and others involved with the Company's
product and technological development efforts.  There can be no
assurance that these agreements will provide meaningful protection to
the Company or that other companies will not acquire information which
the Company considers proprietary.  Moreover, there can be no
assurance that other companies will not independently develop know-how
comparable or superior to that of the Company.

COMPETITION
-----------

The Company competes with many large corporations for sales on
semiconductor packages and interconnect devices.  These corporations
all have significantly greater financial resources than the Company.
In semiconductor packaging, companies such as IBM, Motorola and Amkor
have significant future development efforts and financial strength to
develop new semiconductor packages.  VSPA competes against well
established products such as QFP's, BGA's and PGA's.  The Company also
depends on third party subcontractors for volume production and may
have difficulties getting supply from time to time.

In the connector market, Compass competes with AMP's Mictor Lines and
the Teradynes VHDM connectors.  These companies have significant
resources, not only financially, but also in manufacturing and sales
and marketing.

EMPLOYEES
---------

On March 18, 1999 the Company had 29 full-time employees and one
part-time employee.  Mr. Crane divides his time between product
research, manufacturing, and general management.  The Company
considers its relations with its employees to be good.  None of the
Company's employees are represented by labor unions.

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

On December 15, 1998, the Company reduced the exercise price of
certain common stock purchase warrants if the warrant holders
accelerate the expiration date of their warrants from July 11, 2001 to
January 5, 1999.  The exercise price was reduced from $11.00 to $0.75
per share. In January 1999, warrants representing 553,333 shares were
exercised at this reduced price, and the Company received net proceeds
of $415,000 upon such exercise.

On March 18, 1999 William Ahearn, a former officer of the Panda
Project, Inc., was elected to the Board of Directors replacing Mr.
Wooder.  Additionally on March 18, 1999, Dr. Rao Tummala and Mr. Claud
Gingrich resigned from the Board of Directors.  

On April 14, 1999, the Company received a Notice of Default on the
Settlement Agreement between Joseph A. Sarubbi and The Panda Project,
Inc. dated December 11, 1998.  Mr. Sarubbi claimed that his inability
to sell the stock that he received in the settlement creates a breach
under the settlement agreement.  The Company believes that it is in
full compliance with the agreement and that no breach exists.

ITEM 2.  PROPERTIES

The Company leases its principal offices in Boca Raton, Florida.  The
total space is approximately 11,230 square feet. This facility has
housed the Company's operations since November 1, 1998.  The Company
previously moved from its 27,500 square foot facility and reduced its
monthly rent obligation from $34,000 to $12,894 monthly for a savings
of approximately $21,000 monthly.

The Company leases two additional facilities in Boca Raton, Florida
totaling approximately 7,200 square feet and uses these facilities for
the Company's machining operations, the production of the automated
machines for producing VSPA parts and current VSPA production.  The
leases for these two facilities total approximately $5,000 in monthly
rental payments.

The Company also leases 10,547 square feet in Fremont, California and
uses this facility for sales & marketing and application engineering. 
The lease is for a term of five years with monthly rental fees of
approximately $22,000 escalating to approximately $24,000 in 2003.

In addition to the facility in Fremont, the Company also leases a
facility in San Jose, California, which was previously used to house
the Company's Advanced Design Group, manufacturing administrative
personnel and certain sales personnel.  The lease term is through
December 1999 and calls for monthly lease payments of $4,746. 
Effective August 1, 1997, the Company entered into a sublease
agreement with a term ending in December 1999 and which called for
monthly sublease payments to the Company of approximately $4,800.

The Company has terminated its lease in Hayward, California for 50,000
square feet, the original lease agreement had a term of 5 years with
monthly rental fees of approximately $18,000.  The Company was
required to secure lease payments through June 1999 with a $80,000
Certificate of Deposit held at the Silicon Valley Bank.

The Company believes that its properties are generally in good
condition, are well maintained and are generally suitable and adequate
to carry on the Company's current business.

ITEM 3.  LEGAL PROCEEDINGS

On October 16, 1998, a complaint was filed against the Company in the
United States District Court for the Southern District of New York by
Promethean Investment Group, L.L. C.  The complaint alleges breach of
contract by the Company for failing to proceed with a financing
transaction and seeks damages in an unspecified amount in excess of
$270,000 or a declaration that the Company is required to proceed with
the financing transaction.  The Company has not yet filed an answer to
the complaint and the outcome is both immeasurable and undeterminable. 
There can be no assurance that the Company will be successful in
defending this litigation.

On December 11, 1998, the Company and Joseph A. Sarubbi ("Sarubbi")
entered into a settlement agreement (the "Settlement Agreement")
relating to litigation in which Sarubbi has obtained a judgment
against the Company in the amount of $1,227,041.  Under the Settlement
Agreement, the Company has agreed to pay Sarubbi total consideration
worth $1,000,000 of which $240,000 has been paid in cash in December
1998 and the remainder is to be satisfied upon the sale of shares of
the Company's common stock which have been delivered to Sarubbi by the
Company.  The Company has registered 1,775,000 shares for Sarubbi
pursuant to the S-2 Registration Statement, declared effective on
February 5, 1999. The parties have agreed to petition the Florida
Court of Appeals for the Fourth District to dismiss the litigation
within five business days after the Company's obligations in the
Settlement Agreement have been completed.  If such obligations are not
completed, the judgment will remain in effect.  This settlement amount
was recorded as a charge against Company earnings for the quarter
ended December 31, 1998.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Company's security holders
during the quarter ended December 31, 1998.

                               PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's Common Stock has been traded since May 1994 to December
16, 1998 on the NASDAQ National Stock Market under the symbol "PNDA." 
The stock currently trades on the OTC Bulletin Board.  Prior to that
time, there was no public market for the Common Stock.  The following
table sets forth the range of high and low closing sale prices for the
Common Stock as reported during each of the quarters presented.  The
quotations set forth below are inter-dealer quotations, without retail
mark-ups, mark-downs or commissions and do not necessarily represent
actual transactions.

                                                 Common Stock
                                                 ------------
Quarterly Period Ended                         High          Low
----------------------                        -------      -------     

1998
----
December 31, 1998                             $ 1.50       $  .19
September 30, 1998                            $ 3.44       $  .19
June 30, 1998                                 $ 6.25       $ 3.13
March 31, 1998                                $ 6.25       $ 3.88

1997
----
December 31, 1997                             $ 9.38       $ 3.81
September 30, 1997                            $ 7.31       $ 2.50
June 30, 1997                                 $ 6.00       $ 2.63
March 31, 1997                                $ 9.25       $ 3.75

As of March 26, 1999, there were approximately 276 holders of record
of the Company's common stock ("Common Stock").  This number does not
include beneficial owners of the Common Stock whose shares are held in
the names of various dealers, clearing agencies, banks, brokers and
other fiduciaries.

The Company has never declared or paid any cash dividends.  The
Company currently intends to retain any future earnings to finance the
growth and development of its business and future operations, and
therefore does not anticipate paying any cash dividends in the
foreseeable future.  In addition, in February 1998, the Company issued
shares of Series A Preferred Stock, the terms of which prohibit the
Company from paying any dividends on Common Stock or other shares
junior in rank to the Series A Preferred Stock unless all dividends
for all past quarterly periods have been paid or declared and a sum of
cash or amount of shares sufficient for the payment thereof set apart.
Further, the terms of the Series A Preferred Stock allow for the
redemption of any outstanding shares of Series A Preferred in the
event the Company declares a dividend (other than a dividend payable
in Common Stock).

ITEM 6.  SELECTED FINANCIAL DATA

The following table sets forth selected financial data as of and for
the twelve months ended December 31, 1998, the nine months ended
December 31, 1997 and 1996 (unaudited) and the twelve months ended
March 31, 1997, 1996 and 1995.  This information is qualified in its
entirety by, and should be read in conjunction with, the financial
statements and the notes thereto and  Management's Discussion and
Analysis of Financial Condition and Results of Operations which are
included elsewhere in this report.  The following data insofar as it
relates to the twelve month period ended December 31, 1998, the nine
months ended December 31,1997 and each of the years in the three year
period ended March 31, 1997 has been derived from audited financial
statements.

STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>

                    Year
                    Ended           Nine Months Ended
                    December 31,      December 31,         Fiscal Year Ended March 31,
                    ---------   ------------------------  ------------------------------------
                       1998        1997          1996         1997          1996        1995
                                              (unaudited)
<S>                <C>          <C>          <C>           <C>          <C>          <C>
Net revenues       $  822,580   $2,246,795   $2,091,132    $2,382,019   $   870,658  $     -
Research and 
 development costs  3,395,577    3,255,335    4,786,838     5,722,717     7,954,924   3,494,260
Selling, general 
 and administrative
 expenses           9,263,283    6,113,255   10,830,976    13,142,099    15,810,701   3,744,914
Costs associated
 with asset
 impairments          125,038         -       1,471,025     2,056,025          -           -
Net loss          (17,474,696)  (8,949,652) (17,217,703) (20,874,101)  (23,894,426) (6,931,346)
Basic and diluted
 loss per share       ($ 1.33)       ($.78)       (1.79)      ($2.15)       ($3.07)     ($1.25)
Weighted average
  shares 
  outstanding      13,732,936   11,541,811    9,605,280    9,723,801     7,786,426    5,531,941
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet
                           December 31                           March 31 
                   --------------------------    ----------------------------------------
                      1998            1997          1997           1996          1995
                   -----------    -----------    -----------    -----------   -----------
<S>                <C>            <C>            <C>            <C>           <C>
Total Assets       $ 2,837,837    $ 5,713,830    $ 7,337,320    $18,557,681   $10,245,133
Total Liabilities  $ 4,563,731    $ 3,616,126    $ 2,524,445    $ 3,690,090   $ 1,069,810
Accumulated
  Deficit          (80,340,249)   (62,865,553)   (53,915,901)   (33,041,800)   (9,147,374)
Stockholders'
  Equity
  (deficit)        $(1,725,894)   $ 2,097,704    $ 4,812,875    $14,867,591   $ 9,175,323
</TABLE>

The Company computes per share data in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share". Due to
losses from continuing operations, the effect of stock options and
warrants is antidilutive. Accordingly, the Company's presentation of
diluted earnings per share is the same as that of basic earnings per
share. 

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

OVERVIEW 

Statements in this Report on Form 10-K, that are not statements of
historical fact, are to be regarded as forward-looking statements
which are based on information available to the Company as of the date
hereof and involve a number of risks and uncertainties.  Among the
important factors that could cause actual results to differ materially
from those indicated by such forward-looking statements are delays in
product development, competitive pressures, general economic
conditions, risks of intellectual property and other litigation, and
the factors detailed below under "Certain Factors That May Affect
Future Results" or elsewhere herein or set forth from time to time in
the Company's periodic reports and registration statements filed with
the Securities and Exchange Commission.

The Company is a technology company engaged in the design,
development, manufacture, licensing and sale of interconnect solutions
to generate greater throughput from silicon to board to system.  These
technologies are embodied in VSPA, a three-dimensional semiconductor
package, and the Compass Connector, a board-to-board interconnect
solution (collectively the "Technology Products").  VSPA has received
JEDEC JC-11 Committee designation and has passed Mil Std. 883.  In
addition, in September 1998, the Compass Connector received Bellcore
approval.

In September 1998, the Company announced a streamlining of operations
that included a significant reduction of operations related to the
development of the Archistrat line of computers and the Rock City line
of desktop computers (collectively the "Systems") and any upgradable
mother board development related to the Systems.  Due to further cash
constraints in November 1998, the Company elected to exit its Systems
business entirely.  The Company continues to focus its efforts on the
Technology Products.

The Company has firm purchase commitments for prototype, pre-
production and production orders of its Technology Products from
Veridicom, EG&G, SEEQ Technologies Incorporated, Motorola, Kaiser
Aerospace & Electronics, Honeywell, Tamarack Microelectronics Inc.,
Lucent Technology, SAA Dynamics and National Semiconductor.  The
Company anticipates that these purchase commitments will result in
increased revenues.  However, there can be no assurance that such
anticipated revenues will materialize.  Several of these customers
have notified the Company that the VSPA parts have passed Mil Std. 883
level of qualification for their specific application (see
 Semiconductor packages ).

CHANGE IN FISCAL YEAR END

During September 1997, the Company decided to change its fiscal year
from April 1 through March 31 to January 1 through December 31.  For
discussion and analysis purposes, the twelve months ended December 31,
1998 are compared to the audited nine months ended December 31, 1997.

RESULTS OF OPERATIONS

Twelve Months Ended December 31, 1998 Compared to Nine Months Ended
December 31, 1997

Net revenues decreased to approximately $823,000 during the twelve
month period ended December 31, 1998 from $2,247,000 for the nine
month period ended December 31, 1997.  Net revenues were significantly
lower as a result of the completion of the development agreement with
the U.S. Government.  Related revenues recorded were $135,673 for the
twelve month period ending December 31,1998 versus $973,003 for the
nine month period ending December 31, 1997.  The Company completed all
of the milestones set forth in its cooperative development agreement
with the Defense Advanced Research Projects Agency (DARPA) during
April 1998.  In September 1998, the Company streamlined operations
related to the System business including both the Archistrat and Rock
City products. In November 1998, the Company ceased all operations
related to the Systems business.

Research and development (R&D) expenses increased to approximately
$3,400,000 for the twelve month period ending December 31,1998 as
compared to approximately $3,300,000 for the nine month period ending
December 31,1997.  However on a monthly basis comparative spending on
R&D decreased approximately $83,000 per month.  R&D efforts in 1998
were focused on new custom VSPA designs for specific customer
applications, the refinement of the existing VSPA Flex automation. In
addition, the Company also designed the IO-A architecture that was
going to be used in the Rock City line of computers.  The Company 
believes that although its level of R&D spending is appropriate to
support current operations, it will need to increase future R&D
spending to enhance further development of VSPA, Compass Connectors,
Compass PGA and other derivative technologies as resources are
available.  Management is currently evaluating the appropriate R&D
expense relative to the current level of activity in its Technology
Products.

Selling, general and administrative ("S,G&A")expenses increased to
approximately $9,300,000 for the twelve month period ending December
31, 1998 from $6,100,000 during the nine months ended December 31,
1997.  However, on a monthly basis comparative spending on S,G&A
increased approximately $97,000 per month.  During 1998, the Company
significantly reduced the number of employees resulting in decreased
compensation and benefit cost.  These reductions are related to the
streamlining and exiting of the Systems business.  The Company would
have experienced further benefits except that it recognized charges
related to a legal settlement ( see Legal Proceedings )of $1,000,000,
and reserved certain receivables associated with the Systems business
in the amount of $285,000.

During the twelve months ending December 31, 1998, the Company
determined that, due to various events and changes in circumstances
associated with exiting the Systems Business, certain long-lived
assets were impaired.  As a result, the Company recorded a charge of
approximately $125,000.  The Company also recorded an inventory write
down of approximately $1,178,836 related to its decision to exit its
Systems business in November 1998.

During the twelve months ended December 31, 1998, the Company recorded
interest expense of approximately $3,881,000 representing the
amortization of the debt issuance and interest costs related to the
Helix loans.  This is a significant increase from approximately
$955,000 recorded for the nine month period ending December 31, 1997. 
This expense represents a non-cash charge.

Nine Months Ended December 31, 1997 Compared to Nine Months Ended
December 31, 1996

Net revenues increased to approximately $2,247,000 during the nine
months ended December 31, 1997 from $2,091,000 for the nine month
period ended December 31, 1996.  Net revenues for the respective
periods include approximately $294,000 and $1,422,000 of net sales of
Archistrat Computers, $350,000 and $100,000 of licensing fees, and
approximately $973,000 and $569,000 of revenues associated with a
cooperative development agreement with the U.S. government.  Computer
systems revenues of approximately $924,000 were recorded during the
nine months ended December 31, 1996 as a result of a barter
transaction with ta software developer.  Other sales of Archistrat
computers increased 85% during the nine months ended December 31, 1997
compared to the same period of 1996 as the Company refocused its
selling efforts on certain niche markets.  In July 1997, the Company
entered into a second licensing agreement with LG Cable whereby LG was
granted a license with respect to a semiconductor package product.  In
connection with this agreement, the Company was entitled to a non-
refundable license fee of $250,000 that became immediately vested upon
signing the agreement and has been recorded as revenue during the nine
months ended December 31, 1997.  The Company accomplished a majority
of the milestones set forth in its cooperative development agreement
with the Defense Advanced Research Projects Agency (DARPA) during the
nine months ended December 31, 1997 which accounts for the 71%
increase in the related revenue compared to the same period of 1996. 
Revenues associated with this agreement will be limited during 1998 as
the agreement near its end.

During the nine months ended December 31, 1997 as compared to the same
period of the prior year, research and development expenses decreased
32% from approximately $4.8 million to $3.3 million.  Development
activities associated with Archistrat 4s server were substantially
completed during the period ended December 31, 1996 which resulted in
the overall decrease.  Spending related to the design and development
of automated manufacturing equipment for the Company's VSPA product
line as well as various new Archistrat computer systems increased
during the nine months ended December 31, 1997 as compared to the same
period of the prior year.

Selling, general and administrative expenses decreased approximately
$4.7 million or 44% to $6.1 million during the nine months ended
December 31, 1997 as compared to $10.8 million during the comparable
period of 1996.  The most significant changes were in the following
categories: compensation and benefits decreased approximately $3.1
million resulting from a decrease in the average employee head count
from approximately 118 during the nine months ended December 31, 1996
to approximately 60 for the same period of the current year; legal
fees decreased 48% or $580,000 as a result of management's efforts to
reduce such costs; office rent expense decreased approximately
$440,000 resulting from certain lease termination costs incurred
during 1996; sales and marketing expenses were reduced approximately
$700,000 as a result of streamlining certain of the Company's
advertising and promotional campaigns, as well as the reduction of
product marketing expenses associated with the barter agreement
entered into in the prior fiscal year.

During the nine months ended December 31, 1996, the Company determined
that, due tp various events and changes in circumstances (including
efforts to streamline operations and to increase the use of strategic
alliances to manufacture and market the Company's products), certain
long-lived assets were imparted.  As a result, the Company recorded a
charge of approximately $1.5 million.  No such charges were deemed
necessary during the nine months ended December 31, 1997.
During the nine months ended December 31, 1997, the Company recorded
interest expenses of approximately $900,000 representing the
beneficial conversion feature associated with the convertible
debentures issued in April 1997.  This expense represents a non-cash
charge with no net effect on total shareholders' equity.

LIQUIDITY AND CAPITAL RESOURCES 

During February 1998, the Company completed a private placement of
$6.0 million of Series A Preferred Stock and received net proceeds of 
approximately $5.8 million.  The shares of preferred stock are
convertible into common stock at the lower of $3.50 per share (in
accordance with the revised terms effective July 2, 1998) or a
floating conversion price.  Through December 31, 1998, 180 shares of
preferred stock were converted into an aggregate of 2,234,363 shares
of the Company's common stock. As of March 31, 1999, 354 preferred
shares are outstanding.

The Company may require that all unconverted shares of Series A
Preferred Stock be converted at any time if the closing bid price of
the Company's common stock is equal to or greater than $12.00 per
share for a period of twenty consecutive trading days.  In addition,
on February 11, 2003, the Company may, at its option, require the
holders to convert the Series A Preferred shares which remain
outstanding on such date (plus accrued and unpaid dividends) or redeem
such shares of Series A Preferred Stock.  The terms of the Series A
Preferred Stock, as revised on July 2, 1998, provide that upon the
occurrence of certain Triggering Events, as defined, the Company may
be required to pay the holders $100,000 per month until such time that
the Triggering Event has been remedied.  Any requirement that the
Company pay such amounts could have a material adverse impact on the
Company in the event the Triggering Event causing such payment is not
remedied on a timely basis.  On December 16, 1998, a triggering event
occurred related to the delisting of the Company's common stock from
the Nasdaq National Market to the OTC Bulletin Board.  As of April 14,
1999, no payments have been made to the Holders.

On August 14, 1998, the Company completed the sale of 2,254,602 shares
of its Common Stock and warrants in a private placement to accredited
investors with gross proceeds of $3.675 million. Upon exercise of
certain warrants, the investors may elect to receive a reduced number
of shares of common stock in lieu of tendering the warrant exercise
price in cash.  The warrants have a term of five years. The Company is
required to issue approximately 4,400,000 additional shares associated
with the fill-up provision. 

During May, June and July 1998, the Company borrowed an aggregate of
$2 million from Helix PEI Inc. ("Helix").  The loans are secured by
the Company's intellectual property and were due August 7, 1998.  
During August 1998, Helix agreed to extend the maturity date of all
the outstanding loans payable to February 15, 1999, from their
original due date in August 1998, in exchange for the issuance of a
warrant to purchase up to 2,000,000 shares of the Company's common
stock at an exercise price equal to the fair market value of the
Company's common stock at the date of issuance ($2.125).  The loans
bear interest at the Royal Bank of Canada prime rate plus 2 percentage
points per annum (9.40% at December 31, 1998) payable monthly.  The
warrant has a term of two years.  The Company is currently in default
on the Helix Loans since the Company did not repay the loan in
February 1999.  The Company is currently attempting to renegotiate the
loan, however, there can be no assurance that the negotiations will be
successful and the Company's inability to renegotiate the loan would
have a material adverse impact on the Company.

In January 1999, the Company received approximately $415,000 from the
exercise of warrants related to the 1996 private placement.  In
February 1999, the Company received $1,000,000 from Samtec, Inc. which
includes a non-refundable upfront license fee related to VSPA and, a
purchase of certain shares of the Company's common stock.

The  Company's current working capital is insufficient to operate the
Company.  The Company is currently seeking additional financing,
however, in the event that the Company cannot obtain additional
financing it will be forced to cease operations.

The Company is dependent upon the success of the efforts discussed
above to expand its marketing activities in order to obtain additional
orders for its VSPA semiconductor package to continue efforts that may
lead to the commercialization of additional products and technologies
and to finance other working capital requirements.  There can be no
assurance that additional financing will be available to the Company
when needed on commercially reasonable terms or at all. The inability
of the Company to obtain additional financing when needed would have a
material adverse effect on the Company, including possibly requiring
the Company to significantly curtail or cease its operations.  Any
financing could also result in substantial dilution to existing
investors in the Company.

YEAR 2000 ISSUES 

Like many other companies, Year 2000 computer issues create certain
risks for the Company.  If our financial, operational and information
systems do not correctly recognize the process date information beyond
the year 1999, it could have a significant adverse impact on the
Company's ability to process information, which could create
significant potential liability for the Company.  To address potential
Year 2000 issues with its internal systems, we have evaluated these
systems.  The initial assessment indicated that certain internal
systems should be upgraded or replaced as part of a solution to the
Year 2000 problem.  The costs incurred to date related to these
programs have not been material.  The estimated cost to be incurred by
us in the future is not expected to exceed $20,000.  These estimates
do not include potential costs related to any customer or other claims
or the cost of internal software and hardware replaced in the normal
course of business. These estimates are based on our current
assessment of the projects and may change as the project progresses.

We are also working with key suppliers of products and services to
monitor their progress toward Year 2000 compliance.  The failure of a
major supplier to become Year 2000 compliant on a timely basis could
have a material adverse affect on our business, financial condition
and operating results.

We have begun internal discussions concerning contingency planning to
address potential problem areas with internal systems and with
suppliers and other third parties.  We expect assessment, remediation
and contingency planning activities to continue throughout the year
1999 with the goal of resolving all material internal and external
systems and third-party issues. While the Company has not completed
its detail plans with regards to this uncertainty, management
believes, based on discussions with vendors of its major business
applications and Year 2000 Compliance certificates received from the
related software developers, that the financial impact of making the
required systems changes, if any, will not be material to the
Company's financial position, results of operations or cash flows.

We deem "Year 2000 Compliant" to mean software that can individually,
and in combination with all other systems, products or processes with
which the software is designed to interface, continue to operate
successfully (both in functionality and performance in all material
respects) over the transition into the twenty-first century when used
in accordance with the documentation relating to such software.  Year
2000 Compliance includes being able to, before, on and after January
1, 2000, substantially conform to the following:

-    use logic pertaining to dates which allow users to identify
     and/or use the century portion of any date fields without special
     processing;

-    respond to all date elements and date input to resolve any
     ambiguity as to century in a disclosed, defined and pre-
     determined manner; and

-    provide date information in ways which are unambiguous as to
     century.

This may be achieved by permitting or requiring the century to be
specified or where the date element is represented without a century,
the correct century be unambiguous for all manipulations involving
that element.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS  

HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES

We have incurred losses in each year since our inception in 1992.  As
of December 31, 1998, we had an accumulated deficit of approximately
$80 million.  We expect to continue to experience substantial losses
for the next few years until the Company is able to generate
sufficient revenues to support its operations.  We are unable to
predict the extent of any future losses or the time required to
achieve profitability.

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING

We require substantial working capital to fund our business.  We have
had significant operating losses and negative cash flow from
operations since inception and expect to continue to do so for the
foreseeable future.  We have depended upon proceeds of sales of our
securities to fund our operations since our inception.  Our capital
requirements depend on several factors, including the rate of market
acceptance of our products, the ability to expand our client base, the
growth of sales and marketing, and other factors.  If capital
requirements vary materially from those currently planned, we may
require additional financing sooner than anticipated.  If additional
funds are raised through the issuance of equity securities, the
percentage ownership of the shareholders of the Company will be
reduced, shareholders may experience additional dilution, or such
equity securities may have rights, preferences or privileges senior to
those of the holders of the Common Stock.  Additional financing for
the Company may not be available when needed on favorable terms or it
may not be available at all.  We may be unable to develop or enhance
our products, take advantage of future opportunities or respond to
competitive pressures without additional funding.  These limitations
placed on the Company due to our inability to secure additional
funding could have a material adverse affect the Company's business,
financial condition and operating results.

POTENTIAL FOR DILUTION; REGISTRATION RIGHTS; OUTSTANDING OPTIONS AND
WARRANTS

As of March 31, 1999, the Company had issued 3,650,228 shares of
Common Stock upon conversion of 246 shares of the Series A-3
Convertible Preferred Stock ("Series A Preferred"); 354 shares of
Series A Preferred remain outstanding.  In the event certain
conditions are met, the Company has the right to issue an additional
400 shares of Series A Preferred.  Shares of Series A Preferred are
convertible into shares of Common Stock pursuant to a formula whereby
the purchase price of the shares to be converted ($10,000 per share)
plus any accrued dividends are divided by a conversion price based on
the lesser of a fixed conversion price or a floating conversion price
based on the market price of the Common Stock.  The number of shares
issuable upon conversion of Series A Preferred could prove to be
significantly greater in the event of a decrease in the trading price
of the Common Stock.  Purchasers of Common Stock could experience
substantial dilution upon conversion of the Series A Preferred.  In
addition, an increase in the amount of Common Stock in the public
market as a result of such conversion could reduce the market price of
the Common Stock.  Additionally, the terms of the Series A Preferred
provide that, upon the occurrence of certain "Triggering Events,"
including suspension of sales under the Registration Statement,
failure of the Common Stock to be listed, or the suspension of trading
in the Company's Common Stock, on the NASDAQ National Market or the
NASDAQ SmallCap Market, or failure of the Company to convert shares of
Series A Preferred as required, the Company shall pay the holders
$100,000 on the first day of each month until the Triggering Events
have been remedied.  Certain Triggering Events have occurred and have
not been remedied as of the date hereof.

In connection with a private placement completed on August 14, 1998,
the Company agreed to register for sale 2,346,626 shares of Common
Stock and 2,346,626 shares of Common Stock issuable upon exercise of
Common Stock Purchase Warrants.  The Company's failure to register
such Common Stock within 90 days of such sale could subject the
Company to penalty payments to these investors.  As of March 31, 1999,
the registration statement relating to these shares of Common Stock
had not been declared effective and the Company could be subject to
such penalty payments.  The Company also agreed that in the event of
decreases in the average closing bid price of the Common Stock for the
twenty trading days immediately preceding the six-month and/or one-
year anniversaries of the closing of the private placement, the
Company would, with shareholder approval, issue to investors in the
private placement a number of Fill-Up Shares.  These Fill-Up Shares
would in effect cause the investors to have acquired the number of
shares of Common Stock which they would have purchased had the
purchase price paid by investors in the private placement as of the
closing date been the same as the twenty-day average closing bid price
of the Common Stock as of such anniversary dates. The number of Fill-
Up Shares to be issued could be substantial if the market price of the
Common Stock decreases significantly.  Such an increase in the amount
of Common Stock in the public market could reduce the market price of
the Common Stock and possibly result in a change in control of the
Company.  As of March 31, 1999, no Fill-Up Shares had been issued.  If
Fill-Up Shares had been issued, the number of Fill-Up Shares which the
Company would have been required to issue on March 31, 1999, totaled
approximately 4,400,000.  In the event (I) the Common Stock is
delisted or suspended from trading on NASDAQ, (ii) the Fill-Up Shares
and shares issuable upon exercise of the Private Placement Warrants
are not issuable or are not listed with NASDAQ or (iii) the Company
fails to issue Fill-Up Shares as required, then the Company shall pay
to the initial investors in the private placement $100,000 for each
full 30-day period that the condition continues.  As of March 31,
1999, no such required payments have been made.

On December 15, 1998, the Company reduced the exercise price of
certain common stock purchase warrants if the warrant holders
accelerate the expiration date of their warrants from July 11, 2001 to
January 5, 1999.  The exercise price was reduced from $11.00 to $0.75. 
Prior to January 5, 1999, warrants representing 553,333 shares were
exercised at this reduced price, and the Company received net proceeds
of $415,000 upon such exercise.

The Company has reserved 7,366,738 shares of Common Stock, including
150,000 shares subject to warrants issued in connection with the sale
of the Series A Preferred, 2,346,626 shares subject to the Private
Placement Warrants and 2,850,000 shares subject to the Helix Warrants,
for issuance upon the exercise of warrants.  In the event the 400
additional shares of Series A Preferred described above are issued,
the Company would be required to issue Warrants to purchase an
additional 100,000 shares of Common Stock.  In addition, the Company
has reserved 745,100 shares of Common Stock for issuance to employees,
officers, directors and consultants under its 1995 Employee Stock
Incentive Plan, 1993 Performance Incentive Plan and Non-Employee
Director Stock Option Plan.  The price which the Company may receive
for the Common Stock issuable upon exercise of such warrants and
options will, in all likelihood, be less than the market price of the
Common Stock at the time of such exercise.  Consequently, for the life
of such warrants and options, the holders thereof may have been given,
at nominal cost, the opportunity to profit from a rise in the market
price of the Common Stock.  The exercise of all of the previously
mentioned securities may also adversely affect the terms under which
the Company could obtain additional equity capital.  If a significant
number of these securities is exercised, the resulting increase in the
amount of the Common Stock in the public market may reduce the market
price of the Common Stock.

OUTSTANDING INDEBTEDNESS

The Company has outstanding loans from Helix in the aggregate
principal amount of $2,000,000.  Such loans bear interest at an annual
rate equal to the prime rate of interest payable by the Royal Bank of
Canada plus 2%, are secured by the Company's intellectual property and
were due and payable on February 15, 1999.  As of April 14, 1999, this
principal amount due Helix has not been repaid and is in default.  The
inability of the Company to repay the Helix loans when due may have a
material adverse effect on the Company, including possible loss of
rights to its intellectual property through foreclosure which would
cause the Company to cease its operations.  In connection with the
Helix loans, the Company has issued to Helix warrants to purchase an
aggregate of 2,850,000 shares of Common Stock at exercise prices
ranging from $1.63 to $2.125 per share (collectively, the "Helix
Warrants").  The Helix Warrants have expiration dates ranging from
December 19, 1999 to August 7, 2000.  These warrants have been valued
at an aggregate of approximately $4,324,000.  A total of $4,324,000
has been charged to amortization expense for these warrants through
February 15, 1999.  This accounting treatment has no impact on the
Company's cash balance.  As of March 30, 1999, Helix and its
affiliates hold approximately 5.7% of the Company's outstanding Common
Stock (not including shares issuable upon exercise of warrants).

UNCERTAINTY OF MARKET ACCEPTANCE
The products and technologies currently being sold or developed by the
Company utilize newly developed designs.  We believe that our existing
and proposed technology and products represent significant
advancements in semiconductor packaging technology.  Demand for the
Company's existing and proposed products, however, is subject to a
high degree of uncertainty.  Such high degrees of uncertainty are
typical in the case of newly developed products.  Achieving marketing
acceptance for the Company's technology and existing and proposed
products will require substantial marketing efforts and expenditure of
significant funds to educate potential purchasers as to the
distinctive characteristics and anticipated benefits of the Company's
proposed products and technologies.  Potential purchasers may be
inhibited from doing business with the Company due to their commitment
to their existing products.  In addition, many potential purchasers
may be reluctant to use the Company's products and technologies until
a sufficient number of other potential purchasers have already
committed to do so.  We have hired sales and marketing personnel for
VSPA semiconductor package and Compass Connector products.  The
Company's marketing efforts may not be successful.  If we are unable
to market our products successfully, our business, financial condition
and operating results will be materially adversely affected.

UNCERTAINTY OF PRODUCT AND TECHNOLOGY DEVELOPMENT; TECHNOLOGICAL
FACTORS; DEPENDENCE ON THIRD-PARTY PRODUCT DESIGN CHANGES

The Company's success will depend in part upon its products and
technology meeting acceptable cost and performance criteria, and upon
timely introduction of our products and technology into the
marketplace.  There can be no assurance (1) that the Company's
products and technology will satisfactorily perform the functions for
which they are designed, (2) that they will meet applicable price or
performance objectives or (3) that unanticipated technical or other
problems will not occur which would result in increased costs or
material delays in their development or commercialization.  In
addition, technology as complex as that which will be incorporated
into the Company's proposed products may contain errors which become
apparent subsequent to widespread commercial use.  Remedying such
errors could delay the Company's plans and cause it to incur
additional costs which would have a material adverse effect on the
Company.

COMPETITION

The Company operates in markets that are subject to intense
competitive pressures that could affect prices or demand for the
Company's products and services.  The effect of competition on prices
and demand may result in reduced profit margins and/or loss of market
opportunity.   Certain competitors of the Company dominate their
industries and have the financial resources to enable them to
withstand substantial price competition or downturns in the market for
semiconductor packages, related technologies and/or computers.  The
Company faces the possibility (1) that we will not be able to compete
successfully, (2) that our competitors or future competitors will
develop technologies or products that render the Company's products
and technology obsolete or less marketable or (3) that we will not be
able to successfully enhance our products or technology or adapt them
satisfactorily.

DEPENDENCE ON MANUFACTURERS AND SUPPLIERS; LACK OF MANUFACTURING
EXPERIENCE AND CAPABILITY

The Company has developed the ability to manufacture the VSPA
semiconductor package.  We have also made arrangements with third-
party manufacturers to produce certain versions of the VSPA
semiconductor package.  Despite these existing production
arrangements, the Company may not be able to produce sufficient
quantities of VSPA to meet demand.  Any inability to meet the demand
for our products would have a material adverse effect on the Company's
business, financial conditions and operating results. 

The Company has an arrangement with LG Cable to supply the Compass V
Connector and VSPA parts for Veridicom.  The Company anticipates that
it will be able to obtain Compass V Connectors and VSPA parts from LG
Cable & Machinery Ltd. under this arrangement.   The Company also has
an arrangement with PBE for the VSPA 360 and 240.   If the supply of
such component is not delivered in quantities sufficient to meet the
customer demand, our business, financial condition and operating
results will be materially adversely affected. 

DEPENDENCE ON KEY PERSONNEL

Because of the specialized technical nature of our business, we are
highly dependent upon qualified scientific, technical and managerial
personnel.  The competition for qualified personnel in the technology
field is intense. We may not be able to attract and retain the
qualified personnel necessary for the development of our business. 
The loss of the services of existing personnel, as well as the failure
to recruit additional key scientific, technical and managerial
personnel in a timely manner, would be detrimental to our research and
development programs and to our business.  The Company may not be able
to continue to hire additional qualified personnel or retain such
necessary personnel.  The failure to attract and retain the necessary
personnel could materially adversely affect our business, financial
condition and operating results.  We maintain "key man" life insurance
on Mr. Crane's life in the amount of $2,000,000. 

INTELLECTUAL PROPERTY

Trademarks, patents, copyrights, trade secrets and other intellectual
property are critical to our success, and we rely on trademark, trade
secret protection and confidentiality and/or license agreements with
our employees, clients, partners and others to protect our proprietary
rights.  We seek to protect our proprietary position by, among other
methods, filing United States and foreign patent applications related
to our proprietary technology, inventions and improvements that are
important to the development of our business.  Proprietary rights
relating to our technologies will be protected from unauthorized use
by third parties only to the extent that they are covered by valid and
enforceable patents or copyrights or are effectively maintained as
trade secrets.  As of March 31, 1999, the Company had obtained 18
United States patents and an aggregate of 41 foreign patents pending. 
We currently have a total of 18 patent applications pending in the
United States and 29 foreign patent applications.  Pending patent
applications may not result in patents being issued.  In addition, the
laws of some foreign countries do not protect our intellectual
property rights to the same extent as do the laws of the United
States.  The patent position of high technology companies involves
complex legal and factual questions and, therefore, we cannot predict
their validity and enforceability with certainty.  Even if issued, our
patent applications may be challenged, invalidated, held unenforceable
or circumvented.  Further, rights granted under future patents may not
provide proprietary protection or competitive advantages to us against
competitors with similar technology.  Others may independently develop
similar technologies or duplicate technologies developed by us. 
Effective trademark and trade secret protection may not be available
in every country in which our products and services are made available
online.  The steps we have taken to protect our proprietary rights may
not be adequate, and third parties may infringe upon or misappropriate
our trade secrets, trademarks, trade dress and similar proprietary
rights.  Others may independently develop substantially equivalent
intellectual property.  Any significant failure to protect our
intellectual property in a meaningful manner could materially
adversely affect our business, financial condition and operating
results.  In addition, litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets
or to determine the validity and scope of the proprietary rights of
others.  Such litigation could result in substantial costs and
diversion of management and technical resources, which could
materially adversely affect our business, financial condition and
operating results.

DEPENDENCE ON THE CRANE-PANDA LICENSING AGREEMENT; POTENTIAL CONFLICTS
OF INTEREST

Under a license agreement entered into in January 1996 between the
Company and Mr. Crane (the "Crane-Panda License"), Mr. Crane has
granted the Company the nonexclusive right to utilize the Compass
Connector, a key component in the commercialization of the Company's
Computer Systems and the development and commercialization of Compass
PGA. The Crane-Panda License was executed in connection with the
conversion to a nonexclusive license of the 3M License described below
and supersedes an earlier license agreement between Mr. Crane and the
Company relating to the Compass Connector. Under the Crane-Panda
License, the Company is required to pay Mr. Crane a royalty on any
sales of Compass Connectors as discrete parts in the amount of 5% of
the net sales price for the first five years of the term of the
agreement, 2.5% of the net sales price for the next five years of the
term of the agreement and 2% of the net sales price thereafter,
provided that no royalty is payable until aggregate net sales of the
Compass Connector as discrete parts exceed $100,000. The royalty rate
will be reduced after the fifth anniversary of the agreement if no
patent remains in effect with respect to the Compass Connector.  No
royalty is payable on sales of the Compass Connector as incorporated
in the Computer Systems or other computer system or assembly.  The
Company may grant sublicenses under the Crane-Panda License, but only
for the use of products as incorporated in the Computer Systems or
other computer system or assembly.  No sales requiring the payment of
royalties to Mr. Crane under the Crane-Panda License have occurred to
date.  The Crane-Panda License obligates the Company to maintain
proprietary information relating to the Compass Connector on a
confidential basis, notify Mr. Crane of any evidence of infringement
with respect to the Compass Connector and related technology, and
cooperate with Mr. Crane to contest any such infringement. In the
event that the Company becomes bankrupt or insolvent or defaults in
any of its material obligations under the Crane-Panda License and
fails to cure any such defaults within specified cure periods, Mr.
Crane may terminate the Crane-Panda License.  The Company is
substantially dependent upon the Crane-Panda License.  The termination
of the agreement under any circumstances would materially adversely
affect the Company's business, financial condition and operating
results.  The actions of the Company with respect to the Crane-Panda
License must be authorized by a majority of the Company's independent
directors, and the Company and Mr. Crane would be represented by
separate counsel in the event of a dispute concerning the Crane-Panda
License.  Despite these procedural safeguards, a conflict of interest
may arise with respect to the Crane-Panda License and such conflict
may not be resolved in a manner favorable to the Company.  In
addition, Mr. Crane retains ownership of the Compass Connector
technology, and has the right to grant licenses to or otherwise
transfer rights to the Compass Connector technology to third parties.  

In September 1992, Mr. Crane granted an exclusive license (the "3M
License") to Minnesota Mining and Manufacturing Co. ("3M") to develop,
manufacture, use and sell the Compass Connector other than as part of
a computer system. In February 1996, Mr. Crane and 3M agreed to
convert the 3M License to a nonexclusive license. In certain
circumstances, the 3M License provides for the payment of a royalty to
Mr. Crane. As of the date of this prospectus, Mr. Crane had received
no such payments.  
  
DELISTING FROM NASDAQ NATIONAL MARKET; "PENNY STOCK" REGULATIONS

The Company was delisted from the NASDAQ National Market, effective
December 16, 1998, due to its inability to sustain compliance with the
Net Tangible Asset requirement of $4 million and because the Company
was not currently in compliance with the minimum bid price of $1.00
per share.  On December 17, 1998, the Company began trading on the
NASD OTC Electronic Bulletin Board system or in what is commonly
referred to as the "pink sheets." As a result, an investor may find it
more difficult to dispose of the Company's securities or to obtain
accurate quotations as to the price of, such securities.  In addition,
delisting may affect our ability to issue additional securities or to
secure additional financing.

The Company's delisting on the NASDAQ National Market will cause
trading in the Common Stock to be subject to additional rules under
the Exchange Act.  These rules require additional disclosure by
broker-dealers in connection with any trades involving a stock defined
as a penny stock.  A 'penny stock' is defined to include any over-the-
counter equity security that has a market price of less than $5.00 per
share, subject to certain exceptions.  The rules require the delivery,
prior to any transaction in a penny stock, of a disclosure schedule
prescribed by the Commission relating to the penny stock market,
subject to certain exemptions.  In addition, such regulations impose
various sales practice requirements on broker-dealers who sell penny
stocks to persons other than established customers and accredited
investors (generally institutions).  For these types of transactions,
the broker-dealer must make a special suitability determination for
the purchaser and have received the purchaser's written consent to the
transaction prior to sale.  The additional burdens imposed upon
broker-dealers by such requirements may discourage broker-dealers from
effecting transactions in the Common Stock, which could severely limit
the market liquidity of the Common Stock and the ability of purchasers
in this offering to sell the Common Stock in the secondary market.

NEGATIVE EFFECT OF FUTURE SALES OF STOCK ON MARKET PRICE AND ABILITY
TO RAISE CAPITAL

Future sales of substantial amounts of Common Stock in the public
market after this offering or the perception that such sales could
occur could materially adversely affect the market price on the Common
Stock and our future ability to raise capital through the sale of
equity securities.  Virtually all of the outstanding Common Stock is
freely tradable in the public markets without restriction, subject in
some cases to the volume limitations imposed by Rule 144 under the
Securities Act.

RISK OF INTERNATIONAL SALES

Conducting business outside of the United States is subject to certain
risks, including:

     -     changes in regulatory requirements and tariffs;

     -     reduced protection of intellectual property rights;

     -     difficulties in distribution;

     -     the burden of complying with a variety of foreign laws; and
     -     political or economic constraints on international trade or
           instability.

In addition, all of our international sales are currently priced in
U.S. dollars, but future sales or licensing of our products or
technologies outside the United States may be subject to the risks
associated with fluctuations in currency exchange rates.

ANTI-TAKEOVER STATUTES

Certain provisions of our Amended and Restated Articles of
Incorporation and Florida law could make a merger, tender offer or
proxy context involving the Company more difficult, even if such
events could be beneficial to the interests of the shareholders.  Such
provisions could limit the price that certain investors might be
willing to pay in the future for shares of the common stock.

GENERAL

Because of factors discussed above and other factors, past financial
performance should not be considered an indicator of future
performance.  Investors should not use historical trends to anticipate
future results and should be aware that the Company's financial
condition may be subject to wide fluctuations in response to quarter-
to-quarter variations in operating results, general conditions in the
semiconductor packaging and computer industries, changes in earnings
estimates and recommendations by analysts and other events.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued Statement of Financial Accounting
Standards (FAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities."  FAS No. 133 establishes standards for accounting
and reporting for derivative instruments, and conforms the
requirements for treatment of different types of hedging activities. 
This statement is effective for all fixed quarters of years beginning
after June 1999.  Management does not expect this standard to have a
significant impact on the Company's operations.

In 1998, the AICPA issued Statement of Position (SOP) 98-5, "Reporting
on the Costs of Start-Up Activities."  SOP 98-5 provides guidance on
accounting for start-up costs and organization costs, which must be
expensed as incurred.  This Statement is effective for financial
statements for fiscal years beginning after December 15, 1998. 
Management does not expect this Statement to have a material impact on
the Company's financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's major market risk exposure is subject to changing
interest rates.  The Company's policy is to manage interest rate risk
through the use of floating rate debt instruments.
The Company has loans with an unrelated lender totaling two million at
December 31, 1998.  The interest rate on these loans is the Royal
Canadian prime rate plus 2%.  An immediate increase of 10% in interest
rates would increase the Company's annual interest expense by $18,800.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is incorporated by reference
from pages F-1 through F-31.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

The Company filed a Form 8-K on October 28, 1998.

                                  PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this item regarding directors of the
Company is incorporated by reference from the Registrant's definitive
Proxy Statement for its 1999 Annual Meeting of Shareholders to be
filed with the Securities and Exchange Commission not later than April
30, 1999.

     Set forth below are the names, ages as of March 31, 1999 and
business experience of the executive officers of the Company:

Name                     Age  Position
----                     ---  --------

Stanford W. Crane, Jr.   49   President, Chief Executive Officer 
                                and Chairman of the Board of Directors
Melissa F. Crane         34   Acting Chief Financial Officer 

William E. Ahearn        61   Board Member

     STANFORD W. CRANE, JR. has served as President, Chief Executive
Officer and Chairman of the Board of Directors of the Company since
its inception in April 1992 and, since November 1993, as Senior Vice
President - Product Design and Development.  From May 1990 to April
1992, Mr. Crane was self-employed, principally engaged in the
development of the Compass Connector.  From 1984 to April 1990, Mr.
Crane was president of Crane Electronics, Inc., which supplied
advanced interconnection technology for military and commercial
products.  From 1980 until 1984, Mr. Crane was an executive at Molex
Corporation, a publicly-held corporation manufacturing and selling
electronic interconnect devices, and served from 1982 to 1984 on the
Chairman's staff for the Advanced Development Committee and assisted
in marketing and strategic planning for domestic and international
operations.  From 1976 to 1980, Mr. Crane served as a sales executive
for AMP Incorporated, a manufacturer of electronic components.
   MELISSA F. CRANE joined the Company in August 1997 and served as
Director, Strategic Business from August 1997 until November 1997. 
Since November 1997, she has served as Vice President of Strategic
Business of the Company. In October 1998, the Board of Directors
appointed Ms. Crane as the acting Chief Financial Officer.  From
September 1995 through July 1997, she was an independent financial
consultant and the principal of Watch Hill Group, a privately-owned
investment banking firm.  From 1991 through August 1995, she was a
vice president of Prudential Securities, Inc.  Ms. Crane is the spouse
of Stanford W. Crane, Jr., Chairman of the Board, President and Chief
Executive Officer of the Company.

     WILLIAM E. AHEARN was elected to the Board of Directors in
November 1998. Prior to that, from March 1996 he served in various
management positions.  From 1993 to 1996, he was Director of
Multimedia Products at AMP Incorporated.  From 1964 to 1993, Mr.
Ahearn served in a variety of positions at International Business
Machines Corporation ("IBM"), including Product Manager for Digital
Video Interactive and Collaborative Work Products IBM Europe, Product
and Project Manager for Input/Output Technology Entry Systems and
Electro-Optical Technologies at IBM Corporate Headquarters, and as
staff member of IBM's T.J. Watson Research Center.  From 1984 to 1989,
Mr. Ahearn was a visiting scholar at the MIT Media Lab.

ITEM 11.  EXECUTIVE COMPENSATION

     The information required by this item is incorporated by
reference from the Registrant's definitive Proxy Statement for its
1999 Annual Meeting of Shareholders to be filed with the Securities
and Exchange Commission not later than April 30, 1999.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

     The information required by this item is incorporated by
reference from the Registrant's definitive Proxy Statement for its
1999 Annual Meeting of Shareholders to be filed with the Securities
and Exchange Commission not later than April 30, 1999.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is incorporated by
reference from the Registrant's definitive Proxy Statement for its
1999 Annual Meeting of Shareholders to be filed with the Securities
and Exchange Commission not later than April 30, 1999.

                                   PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K

      (A)     THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS
REPORT:
             (1)  FINANCIAL STATEMENTS

                  The financial statements filed as part of this
report are listed on the Index to Financial Statements on page F-1 of
this report.

             (2)  FINANCIAL STATEMENT SCHEDULES

                  Schedule II--Valuation and Qualifying Accounts on
page F-30.

                  All other schedules are omitted as the information
required is inapplicable or the information is presented in the
financial statements or related notes.

             (3)  EXHIBITS

EXHIBIT
NUMBER   DESCRIPTION
------   -----------

3.1     Amended and Restated Articles of Incorporation of the Company,
        as amended (incorporated herein by reference to Exhibit 3.1 to 
        the Company's Registration Statement on Form S-3 filed
        November 3, 1997 (File No. 333-39287) (the "Form S-3, File No.
        333-39287")).

3.2     Amended and Restated By-Laws of the Company (incorporated
        herein by reference to Exhibit 3.2 to the Form S-3, File No.
        333-39287).

3.3     Fourth Articles of Amendment of Amended Restated Articles of
        Incorporation (incorporated herein by reference to Exhibit 4.1
        to the Company's Current Report on Form 8-K filed February 23,
        1998).

3.4     Fifth Articles of Amendment of Amended Restated Articles of
        Incorporation (filed as Exhibit 3.1 to the Company's Quarterly
        Report of Form 10-Q for the period ended March 31, 1998)

3.5     Sixth Articles of Amendment of Amended Restated Articles of
        Incorporation (filed as Exhibit 3.2 to the Company's amended
        Quarterly Report of Form 10-Q for the period ended March 31,
        1998 filed July 2, 1998)

3.6     Seventh Articles of Amendment of Amended Restated Articles of
        Incorporation (filed as Exhibit 3.5 to the Registrant's 
        Quarterly Report of Form 10-Q for the period ended June 30,
        1998)

4.1     Warrant Agreement dated May 16, 1994 between the Company and
        Whale Securities Co., L.P. (incorporated herein by reference
        to Exhibit 4.4 to Amendment No. 1 to the Company's
        Registration Statement on Form SB-2 (File No. 33-76694-A) (the
        "Form SB-2")).

4.2     Form of Warrant issued in Private Placement Financing
        (incorporated herein by reference to Exhibit 99.3,
        filed as part of the Company's Registration Statement on
        Form S-3 (File No. 333-14931) (the "Form S-3, File No. 333-
        14931")).

4.3     Form of SRP Warrant (incorporated herein by reference to
        Exhibit 99.4, filed as part of the Form S-3, File No. 333-
        14931).

4.4     Form of 4% Subordinated Convertible Debentures of the Company
        (incorporated herein by reference to Exhibit 4.1, filed as
        part of the Registrant's Form 8-K filed April 21, 1997).

4.5     Form of Common Stock Purchase Warrant Issued to Dusseldorf
        Securities LTD (incorporated herein by reference to Exhibit
        4.2, filed as part of the Registrant's Form 8-K filed April
        21, 1997).

4.6     Form of Common Stock Purchase Warrant (incorporated herein by 
        reference to Exhibit 99.2, filed as part of the Registrants 
        Form 8-K filed February 11, 1998).

4.7     Form of Common Stock Purchase Securities Agreement
        (incorporated herein by reference).

4.8     Form of Common Stock Purchase Warrant (incorporated herein by
        reference).

10.1    Amended and Restated Employment Agreement between the Company
        and Stanford W. Crane, Jr., dated February 22, 1994
        (incorporated herein by reference to Exhibit 10.1 filed as
        part of the Form SB-2).@

10.2    1993 Performance Incentive Plan, dated December 29, 1993
        (incorporated herein by reference to Exhibit 10.6 filed as
        part of the Form SB-2).@

10.3    Amended and Restated Nonemployee Director Stock Option Plan
        (incorporated herein by reference to Exhibit 99.1 filed as
        part of the Registrant's Quarterly Report on Form 10-Q filed
        for the quarter ended September 30, 1997).@

10.4    1995 Employee Stock Incentive Plan, dated November 2, 1995
        (incorporated herein by reference to Exhibit 4.4 filed as part
        of the Company's Registration Statement on Form S-8 filed with
        the Securities and Exchange Commission on November 7, 1995
        (Registration No. 33-99058)).@

10.5(a) Lease Agreement between the Company and Fairfax Boca '92 L.P.,
        dated March 2, 1994 (incorporated herein by reference to
        Exhibit 10.9(a) filed as part of the Form SB-2).

10.5(b) Amendment dated April 1, 1995, to Lease Agreement dated March
        2, 1994, between the Company and Fairfax Boca '92, L.P.
        (incorporated herein by reference to Exhibit 10.5(b) filed as
        part of the Registrant's Form 10-K for the year ended March
        31, 1996).

10.5(c) Amendment dated as of July 1, 1995, to Lease Agreement dated
        March 2, 1994, between the Company and Fairfax Boca '92, L.P.
        (incorporated herein by reference to Exhibit 10.98 filed as
        part of the Registrant's Form 10-KSB for the year ended March
        31, 1995 (Commission File No. 0-24030)).

10.5(d) Lease Agreement dated October 24, 1995, between the Company
        and Fairfax Boca '92, L.P. (incorporated herein by reference
        to Exhibit 10.5(d) filed as part of the Registrant's Annual
        Report on Form 10-K for the year ended March 31, 1996 filed on
        June 27, 1996).

10.5(e) Fourth Amendment dated as of November 27, 1996, to Lease
        Agreement dated October 24, 1995, between the Company and
        Fairfax Boca '92, L.P. (incorporated herein by reference to
        Exhibit 10.5(e) filed as part of the Registrant's Annual
        Report on Form 10-K for the year ended March 31, 1997).

10.5(f) Fifth Amendment dated as of March 13, 1997, to Lease Agreement
        dated October 24, 1995, between the Company and Fairfax Boca
        '92, L.P. (incorporated herein by reference to Exhibit 10.5(f)
        filed as part of the Registrant's Annual Report on Form 10-K
        for the year ended March 31, 1997).

10.6    Form of Indemnification Agreement between the Company and its
        directors, dated December 29, 1993 (incorporated herein by
        reference to Exhibit 10.10 filed as part of the Form SB-2).

10.7    Offshore Securities Subscription Agreement dated April 2, 1997
        (incorporated herein by reference to Exhibit 99.1, filed as
        part of the Registrant's Form 8-K filed April 21, 1997).

10.8    License Agreement, dated as of August 17, 1996, among Stanford
        W. Crane, Jr., the Company and Sun Precision Works, Pvt. Ltd.
        (incorporated herein by reference to Exhibit 99.5 filed as
        part of the Form S-3, File No. 333-14931).

10.9    Registration Rights Agreement dated February 11, 1998
        (incorporated herein by reference to Exhibit 99.2, filed as
        part of the Registrant's Form 8-K filed February 11, 1998).

10.10   Warrant dated September 10, 1996 issued by the Company to
        Mallory Factor (incorporated herein by reference to Exhibit
        99.7 filed as part of the Form S-3, File No. 333-14931).

10.11   License Agreement, dated as of August 18, 1996, between the
        Company and Pantronix Corporation (incorporated herein by
        reference to Exhibit 99.8 filed as part of the Form S-3, File
        No. 333-14931).

10.12   License Agreement, dated as of September 30, 1996, among
        Stanford W. Crane, Jr., the Company and LG Cable & Machinery
        Ltd. (incorporated herein by reference to Exhibit 99.9 filed
        as part of the Form S-3, File No. 333-14931).

10.13   Registration Rights Agreement, dated as of July, 1996, among
        the Company and the Purchasers named therein (incorporated
        herein by reference to Exhibit 10.1 filed as part of the
        Registrant's Quarterly Report on Form 10-Q filed for the
        quarter ended June 30, 1996).

10.14   License Agreement dated January 19, 1996 between the Company
        and Stanford W. Crane, Jr. (incorporated herein by reference   
        to Exhibit 10.1 filed as part of the Registrant's Quarterly
        Report on Form 10-Q filed on February 14, 1996).

10.15   Agreement dated March 25, 1996, between the Company and
        Parametric Technology Corporation. (incorporated herein  by
        reference to Exhibit 10.15 filed as part of the Registrant's
        Annual Report on Form 10-K filed for the fiscal year ended
        March 31, 1997).

10.16   License Agreement dated June 7, 1996 among the Company, AMP
        Incorporated, The Whitaker Corporation and Connectware Inc.
        (incorporated herein  by reference to Exhibit 10.16 filed as 
        part of the Registrant's Annual Report on Form 10-K filed for 
        the fiscal year ended March 31, 1997).

10.17   Cooperative Agreement, dated October 22, 1996, between the
        Company and the United States of America, U.S. Air Force, Air
        Force Material Command (incorporated herein by reference to
        Exhibit 99.10 filed as part of the Form S-3).

10.18   Reseller Agreement, dated November 1996, between the Company
        and Siemens Nixdorf Information Systems, Inc. (incorporated
        herein by reference to Exhibit 99.11 filed as part of the Form
        S-3).

10.19   License Agreement, executed as of July 15, 1997, between the
        Company and LG Cable & Machinery Ltd. (incorporated herein by
        reference to Exhibit 10.1 filed as part of the Registrant's
        Quarterly Report on Form 10-Q filed for the quarter ended June
        30, 1997).

10.20   Standard Industrial Lease Agreement, dated as of July 16,
        1997, between the Company and IBG Huntwood Associates
        (incorporated herein by reference to Exhibit 10.2 filed as
        part of the Registrant's Quarterly Report on Form 10-Q filed
        for the quarter ended June 30, 1997).

10.21   Secured Promissory Note dated December 19, 1997 issued to
        Helix (PEI) Inc. (incorporated herein by reference to Exhibit
        10.1, filed as part of the Registrant's Form 8-K filed January
        14, 1998).

10.22   Secured Promissory Note dated January 12, 1998 issued to Helix
        (PEI) Inc. (incorporated herein by reference to Exhibit 10.1,
        filed as part of the Registrant's Form 8-K filed January 14,
        1998).

10.23   Subscription Agreement dated February 11, 1998 with purchasers
        of Series A Preferred (incorporated herein by reference to
        Exhibit 99.1, filed as part of the Registrant's Form 8-K filed
        February 11, 1998).

10.24   Secured Promissory notes dated May 28, 1998, June 28, 1998 and
        July 17, 1998 issued to Helix.

10.25   Registration Rights Agreement, dated as of February 6, 1998.

21      Subsidiaries of the Company.

27      Financial Data Schedule.

@ - Management contracts and compensatory plans and arrangements.

      (B)     REPORTS ON FORM 8-K:

Date of Filing      Items Reported


January 14, 1998    On January 13, 1998, the Panda Project, Inc (the
                    Company) announced it had loans aggregating
                    $2,000,000.00 from Helix (PEI) Inc. (Helix).

February 11, 1998   On February 11, 1998, the Company issued 600
                    shares of its Series A Convertible Preferred Stock
                    ("Series A Preferred") for an aggregate purchase
                    price of $6,000,000.

July 30, 1998       On July 17, 1998, the Company borrowed $250,000
                    from Helix (PEI) Inc. ("Helix").
August 25, 1998     On August 20, 1998, the Company received a letter
                    from the Nasdaq Stock Market stating that
                    continued listing of the Common Stock on the
                    Nasdaq National Market was no longer warranted.

September 15, 1998  On September 9, 1998, The Panda Project, Inc. (the
                    "Company") was notified that a judgement in the
                    amount of $1,227, 041.09 had been entered into the
                    Circuit Court for the 15th Judicial Circuit,
                    Palm Beach County, Florida, against the Company in
                    favor of plaintiff Joseph A. Sarubbi, a former
                    director of the Company.

October 8, 1998     Effective September 30, 1998, Kevin J. Calhoun 
                    resigned as Chief Financial Officer of The Panda
                    Project, Inc. (the "Company").  Melissa Crane has
                    been appointed to serve as Acting Chief Financial
                    Officer of the Company.

October 28, 1998    By letter dated October 21, 1998, the registrant,
                    The Panda Project, Inc. (the "Company") received
                    notice that PricewaterhouseCoopers LLP had
                    terminated their client-auditor relationship.

November 10, 1998   The Panda Project, Inc. (the "Company") has
                    entered into a letter of intent with Round Stone
                    Holdings Ltd., a UK-based company ("Round Stone"),
                    providing for the grant by the Company to Round
                    Stone of exclusive manufacturing, marketing and
                    sales rights with respect to the Company's Rock
                    City and Archistrat computers (the "Systems
                    Division") and the sale to Round Stone of all
                    Systems Division inventory.

December 15, 1998   On December 11, 1998, The Panda Project, Inc. 
                    (the "Company"), and Joseph A. Sarubbi
                    ("Sarubbi"), entered into a Settlement Agreement
                    relating to litigation in which Sarubbi has
                    obtained a judgement against the Company in the
                    amount of $1,227,041.

December 23, 1998   On December 17, 1998, The Panda Project, Inc.(the
                    "Company") issued a press release concerning the
                    delisting of its Common Stock from The NASDAQ
                    National Market.

January 4, 1999     The Panda Project, Inc. (the "Company") has
                    engaged Grant Thornton LLP as the Company's
                    independent accountants to audit the Company's
                    financial statements. The engagement is
                    effective as of January 4, 1999.

                               SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.

THE PANDA PROJECT, INC.
                                      ___________________________
                                          (Registrant)
Date: April 14, 1999                 By:  /s/ Stanford W. Crane, Jr.   
                                          Chairman of the Board  
                                          President and Chief 
                                          Executive Officer 

     Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.

_________________________                            April 14, 1999
/s/ Stanford W. Crane, Jr.
President and Chief Executive Officer
Chairman of the Board
(Principal Executive Officer)

--------------------------                           April 14, 1999
/s/ Melissa F. Crane
Acting Chief Financial Officer
and Secretary (Principal Financial
Accounting Officer)

_________________________                            April 14, 1999
/s/ William E. Ahearn
Director

<PAGE>
The Panda Project, Inc.
Index to the Financial Statements
-------------------------------------------------------------------


                                                               Page

Reports of Independent Certified Public Accountants....... F-2 to F-3

Financial Statements

    Balance Sheets........................................ F-4

    Statements of Operations.............................. F-5

    Statements of Changes in Stockholders' 
     (Deficit) Equity..................................... F-6 to F-7

    Statements of Cash Flows.............................. F-8 to F-9

    Notes to Financial Statements......................... F-9 to F-31


<PAGE>
Page F-2

                REPORT OF INDEPENDENT CERTIFIED 
                      PUBLIC ACCOUNTANTS

Board of Directors
The Panda Project, Inc.

We have audited the accompanying balance sheet of Panda Project, Inc.
As of December 31, 1998, and the related consolidated statements of
operations, changes in stockholders' (deficit) equity, and cash flows
for the year then ended.  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 audit.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The Panda
Project, Inc. as of December 31, 1998, and the results of its
operations and its cash flows for the year then ended, in conformity
with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern.  As shown in the
financial statements, the Company incurred a net loss of $17,474,696
during the year ended December 31, 1998, and, as of that date, the
Company's current liabilities exceeded its current assets by
$3,734,373 and its total liabilities exceeded its total assets by
$1,725,894.  In addition, the Company is in default on $2,000,000 of
its notes payable.  These factors, as discussed in Note B to the
financial statements, raise substantial doubt about the Company's
ability to continue as a going concern.  Management's plans in regard
to these matters are also described in Note B.  The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.

We have also audited Schedule II of The Panda Project, Inc. for the
year ended December 31, 1998.  In our opinion, this schedule presents
fairly, in all material respects, the information required to be set
forth therein.

Grant Thornton LLP
Weston, Florida
March 18, 1999 (except for Note U,
as to which the date is April 14, 1999)

<PAGE>
Page F-3

           Report of Independent Certified Public Accountants


To The Board of Directors and Stockholders of 
The Panda Project, Inc.

In our opinion, the balance sheet and related statements of
operations, of changes in stockholders equity and of cash flows as of
December 31, 1997 and for the nine months ended December 31, 1997 and
year ended March 31, 1997 appearing on pages F4-F9 of this Annual
Report on Form 10-K present fairly, in all material respects, the
financial position, results of operations and cash flows of The Panda
Project, Inc. as of December 31, 1997 and for the nine months ended
December 31, 1997 and the year ended March 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 principals 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.  We have not audited the financial
statements of The Panda Project, Inc. for any period subsequent to
December 31, 1997.

The financial statements referred to above have been prepared assuming
that the Company will continue as a going concern.  As discussed in
Note B to the financial statements, the Company's recurring losses
from operations and limited capital resources raise substantial doubt
about the Company's ability to continue as a going concern. 
Management s plans in regard to these matters is also described in
Note B.  The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

PricewaterhouseCoopers LLP




Fort Lauderdale, Florida
March 10, 1998


<PAGE>
Page F-4
The Panda Project, Inc. - Balance Sheets
---------------------------------------------------------------------
                       The Panda Project, Inc.
                           BALANCE SHEETS
                            December 31,
ASSETS
                                                 1998         1997
Current assets
  Cash and cash equivalents                 $    60,613   $   619,683
  Accounts receivable (net of allowance
   of $295,292 at December 31, 1998 and
     $10,006 at December 31, 1997)               64,206       224,851
  Inventory                                      47,319       965,199
  Other receivables                              19,273       105,825
  Prepaid expenses and other current assets     637,947       378,242
                                            -----------   -----------
     Total current assets                       829,358     2,293,800
Property and equipment, net                   1,845,939     2,818,218
Restricted cash                                  80,000       260,000
Debt issuance costs, net                           -          340,513
Other assets                                     82,540         1,299
                                            -----------   -----------
     Total assets                           $ 2,837,837   $ 5,713,830
                                            ===========   ===========

            LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

Current liabilities
  Accounts payable                          $ 1,207,662   $ 1,651,540
  Notes payable                               2,000,000     1,000,000
  Other current liabilities                   1,356,069       964,586
                                            -----------   -----------
     Total current liabilities                4,563,731     3,616,126

Commitments and contingencies                      -             -

Stockholders' (deficit) equity
  Preferred Stock, $.01 par value, 2,000,000
   shares authorized; 420 shares outstanding
   at December 31, 1998                       3,967,057          -
  Common stock, $.01 par value, 50,000,000
   shares authorized; 16,744,088 and
   12,215,522 shares issued and outstanding
   at December 31, 1998 and 1997, respectively  167,441       122,155
   
  Additional paid-in capital                 74,479,857    64,841,102
  Accumulated deficit                       (80,340,249)  (62,865,553)
                                            -----------   -----------
     Total stockholders' (deficit) equity    (1,725,894)    2,097,704
                                            -----------   -----------
     Total liabilities and stockholders'
      (deficit) equity                      $ 2,837,837   $ 5,713,830
                                            ===========   ===========
The accompanying notes are an integral part of these statements.

<PAGE>
PAGE F-5
                          The Panda Project, Inc.
                         STATEMENTS OF OPERATIONS

                                          Nine Months       Year
                             Year Ended      Ended          Ended   
                            December 31,  December 31,     March 31,
                                1998         1997            1997
                            ------------  ------------  ------------
Revenues
  Product sales             $    586,907  $    923,792  $  1,547,896
  Licensing fees                 100,000       350,000       100,000
  Contract research and
   development revenues          135,673       973,003       734,123
                            ------------  ------------  ------------
     Net revenues                822,580     2,246,795     2,382,019
Other expenses
  Cost of sales                1,739,418     1,028,577     2,762,936
  Research and development     3,395,577     3,255,335     5,722,717
  Selling, general and
    administrative             9,263,283     6,113,255    13,142,099
  Cost associated with asset
   impairments                   125,038          -        2,056,025
                            ------------  ------------  ------------
     Total operating expenses 14,523,316    10,397,167    23,683,777
                            ------------  ------------  ------------
     Operating loss          (13,700,736)   (8,150,372)  (21,301,758)
Interest expense              (3,881,406)     (955,014)         -
Interest income                   72,345       144,449       427,657
Other income                      35,101        11,285          -
                            ------------  ------------  ------------
     Net loss               $(17,474,696) $ (8,949,652) $(20,874,101)
                            ============  ============  ============
Dividends and amort-
 ization of beneficial
 conversion feature 
 related to convertible
 preferred stock                (741,886)         -             -
                            ------------  ------------  ------------
     Net loss applicable
      to common stock       $(18,216,582) $ (8,949,652) $(20,874,101)
                            ============  ============  ============
Basic and diluted loss
 per share                  $      (1.33) $       (.78) $      (2.15)
                            ============  ============  ============
Weighted average
 shares outstanding           13,732,936    11,541,811     9,723,801
                            ============  ============  ============
The accompanying notes are an integral part of these statements.


<PAGE>
PAGE F-6
<TABLE>
                        The Panda Project, Inc.
        STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
 Year Ended December 31, 1998, Nine Months Ended December 31, 1997
                    and Year Ended March 31, 1997
<CAPTION>
                     Preferred           Common                                        Total
                       Stock              Stock            Addition-                   Stock
              --------------------- ------------------     al Paid-     Accumul-       holders'
                                                 Par       in           ated           Equity
              Shares        Value   Shares      Value     Capital      Deficit        (Deficit)
              ----------  --------- ----------- --------  -----------  ------------  ------------
<S>           <C>          <C>       <C>         <C>       <C>          <C>           <C>
Balance at
April 1, 1996      -          -      8,680,488 $ 86,805  $47,822,586  $(33,041,800) $ 14,867,591

Issuance of
 common stock      -          -      1,087,833   10,878    9,163,252          -        9,174,130
Exercise of
 stock options     -          -        305,487    3,056    1,373,193          -        1,376,249
Exercise of
 warrants          -          -         33,335      333      124,673          -          125,006
Warrants issued
 for services
 received          -          -           -        -          39,000          -           39,000
Issuance of
 common stock
 in connection
 with legal
 settlement        -          -         17,500      175      104,825          -          105,000
Net loss           -          -           -        -            -      (20,874,101)  (20,874,101)
              ----------  --------- ----------- --------  -----------  ------------  ------------
Balance at
March 31, 1997     -          -     10,124,643  101,247   58,627,529   (53,915,901)    4,812,875

Conversion of
 debentures        -          -      1,996,822   19,968    4,780,032          -        4,800,000
Beneficial
 conversion
 feature related
 to convertible
 debentures        -          -           -        -         907,317          -          907,317
Deferred
 issuance costs 
 related to
 converted
 debentures        -          -           -        -        (550,943)         -         (550,943)
Issuance of
 stock in 
 payment of
 interest          -          -         13,592      136       35,374          -           35,510
Warrants
 issued
 related to
 debt
 issuance          -          -            -        -        566,651          -          566,651
Issuance of
 common stock
 under 401(k)
 Plan              -          -         16,985       170      69,738          -           69,908
Issuance of
 stock for
 services
 rendered          -          -         54,380       543     305,270          -          305,813
Exercise of
 stock options     -          -            100         1         474          -              475
Exercise of
 warrants          -          -          9,000        90      60,660          -           60,750
Warrants issued
 for services
 received          -          -           -         -         39,000          -           39,000

Net loss           -          -           -         -           -       (8,949,652)   (8,949,652)
              ----------  --------- ----------- --------  -----------  ------------  ------------
<PAGE>
Page F-7

Balance at
December 31,
 1997              -          -     12,215,522  122,155   64,841,102   (62,865,553)    2,097,704
Preferred Stock
 offering, net      600  5,390,399        -        -            -             -        5,390,399
Preferred Stock
 dividends         -       231,041        -        -        (231,041)         -             -
Warrants issued
 related to
 Preferred stock
 offering, net     -          -           -        -         396,374          -          396,374
Private
 Placement of
 common Stock,
 net               -          -      2,254,602   22,546    3,460,635          -        3,483,181
Issuance of
 common stock      -          -         23,462      234       94,742          -           94,976
Warrants issued
 related to
 debt issuance     -          -           -        -       3,920,000          -        3,920,000
Warrants issued
 for Services
 received          -          -           -        -         299,534          -          299,534
Exercise of
 stock options     -          -          3,000       30       12,220          -           12,250
Conversion of
 preferred
 stock to
 common stock     (180) (1,654,383)  2,234,363   22,344    1,632,039          -             -
Issuance of
 common stock
 under 401(k)
 Plan              -          -         13,139    132       54,252            -           54,384
Net Loss           -          -           -      -            -        (17,474,696)  (17,474,696)
              ----------  --------- ----------- --------  -----------  ------------  ------------
Balance at
December 31,
 1998              420   3,967,057  16,744,088  167,441   74,479,857   (80,340,249)   (1,725,894)
</TABLE>


<PAGE>
Page F-8
The Panda Project, Inc.- STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                     Nine Months
                                                     Year Ended       Ended       Year Ended
                                                     December 31,  December 31,    March 31,
                                                         1998          1997            1997
                                                    ------------   ------------   ------------
<S>                                                 <C>            <C>            <C>
Cash flows from operating
 activities:
   Net loss                                         $(17,474,696)  $ (8,949,652)  $(20,874,101)
    Adjustments to reconcile net loss to net
     cash used in operating activities:
       Depreciation and amortization                   4,908,548      1,198,095      1,595,549
       Provision for obsolete inventory                1,178,837           -              -
       Provision for doubtful accounts                   285,286         60,905        236,303
       Cost associated with asset impairments            125,038           -         2,056,025
       Beneficial conversion feature related to
        convertible debentures                              -           907,317           -
       Other noncash charges                                -           188,322        144,000
       Stock option compensation                         298,130           -              -
       Changes in operating assets and liabilities 
        (Increase) in accounts receivable               (124,641)      (120,663)       (90,021)
         (Increase) decrease in other receivables         86,552        (86,920)       469,651
         (Increase) decrease in prepaid expenses and
           other current assets                          265,295       (279,279)       147,979
         (Increase) decrease in inventory               (260,958)      (142,890)       793,713
         (Increase) decrease in restricted cash          180,000       (110,000)       600,000
         Decrease (increase) in other assets             (81,244)        13,448         83,300
         Increase (decrease) in accounts payable, 
           and other current liabilities                 (52,394)        91,681     (1,165,645)
                                                    ------------   ------------   ------------
             Net cash used in operating activities   (10,666,247)    (7,229,636)   (16,003,247)
Cash flows from investing activities:
  Additions to property and equipment                   (331,126)    (1,055,819)    (2,160,173)
                                                    ------------   ------------   ------------
             Net cash used in investing activities      (331,126)    (1,055,819)    (2,160,173)
Cash flows from financing activities:
  Proceeds from issuance of convertible debentures          -         4,800,000           -
  Proceeds from issuance of preferred stock            6,000,000           -              -
  Payment of costs related to issuance of
    preferred stock                                     (206,486)          -              -
  Debt issuance costs                                       -          (269,500)          -
  Proceeds from issuance of common stock                 161,608        131,133     11,291,752
  Proceeds from common stock private placement         3,674,500           -              -
  Payment of stock issuance costs                       (191,319)          -          (616,367)
  Payment of notes payable                            (2,000,000)          -              -
  Proceeds from issuance of notes payable              3,000,000      1,000,000           -
                                                    ------------   ------------   ------------
             Net cash provided by financing
               activities                             10,438,303      5,661,633     10,675,385
                                                    ------------   ------------   ------------
Net (decrease) in cash and cash equivalents             (559,070)    (2,623,822)    (7,488,035)
Cash and cash equivalents at beginning of period         619,683      3,243,505     10,731,540
                                                    ------------   ------------   ------------

Cash and cash equivalents at end of period          $     60,613   $    619,683   $  3,243,505
                                                    ============   ============   ============

Supplemental disclosure of cash flow information:
    Interest paid                                   $    138,798   $      6,328   $       -
                                                    ============   ============   ============
    Taxes paid                                      $       -      $       -      $       -
                                                    ============   ============   ============
</TABLE>
<PAGE>
Page F-9

Supplemental schedule of noncash investing and financing activities:

   In 1998, the Company issued warrants to Helix (PEI) Inc. in
   conjunction with its notes payable. The Company capitalized the
   $3,920,000 fair market value of these warrants as part of deferred
   issuance costs.

   In 1998, approximately 180 shares of the Company's convertible
   preferred stock was converted into 2,234,363 shares of the
   Company's common stock.

   In 1998, The Company paid Preferred Stock dividends of $231,041 in
   the form of Preferred Stock.

   The accompanying notes are an integral part of these statements.


                         The Panda Project, Inc.

                      NOTES TO FINANCIAL STATEMENTS

     Year Ended December 31, 1998, Nine Months Ended December 31, 1997
                       and Year Ended March 31, 1997

NOTE A - DESCRIPTION OF BUSINESS

The Panda Project, Inc. (the "Company") designs, develops,
manufactures, markets and licenses various products incorporating the
Company's proprietary semiconductor packaging and interconnect
technology ("Technology").  The Company markets and sells its
Technologies directly to end users as well as through a network of
sales representatives. Through October 1998, the Company designed,
developed, manufactured, and marketed powerful modular universal
platform computers, including personal computers, servers and
workstations ("Systems").  The Company continues to service and
support its Systems but elected to discontinue all other aspects of
the Systems business. The decision to continue only with the
Technologies business was based on the Company's limited capital
resources and other business and market factors. Based in Boca Raton,
Florida the Company conducts operations worldwide and has an inactive
wholly owned subsidiary, Archistrat Corporation, a Delaware
corporation.  

Change in Fiscal Year
---------------------

     During September 1997, the Company decided to change its fiscal
year from April 1 through March 31 to January 1 through December 31. 
The accompanying audited financial statements are for the year ended
December 31, 1998, the transition period April 1, 1997 through
December 31, 1997 and for the year ended March 31, 1997. 

<PAGE>
Page F-10

     The following table sets forth the results of operations for the
transition period ended December 31, 1997 and the unaudited results of
operations for the nine months ended December 31, 1996.  

                                                       1996
                                        1997       (Unaudited)
                                   -------------   ------------
Net revenues                       $   2,246,795   $  2,091,132
Net loss                           $  (8,949,652)  $(17,217,703)
Basic and diluted loss per share   $       (0.78)  $     (1.79)

NOTE B - GOING CONCERN

     The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern.  The
Company's working capital is not sufficient to meet its obligations. 
The Company is currently seeking additional financing, however, in the
event that the Company cannot obtain additional financing it will be
forced to cease operations.  In addition, the Company did not repay
its notes to Helix (PEI) Inc. as of their due dates and is currently
in default. The negotiations are ongoing and the ultimate outcome
cannot be predicted.  Should the Company be unable to renegotiate the
terms of the Notes, the Company may have to cease operations.

In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts shown
in the accompanying balance sheet is dependent upon continued
operations of the Company, which in turn is dependent upon the
Company s ability to meet its financing requirements on a continuing
basis, to maintain present financing, and to succeed in its future
operations.  The financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets
amounts or amounts and classification of liabilities that might be
necessary should the Company be unable to continue in existence.

NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates
----------------

     The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities
at year end and the reported amounts of revenues and expenses during
the year.  Actual results could differ from those estimates. 

Cash and Cash Equivalents
-------------------------

     The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents.  <PAGE>
Page F-11

Accounts Receivable
-------------------

     The Company has business activities with both large and small
corporations. The Company has adopted credit policies and standards
intended to accommodate industry growth and inherent risk. Management
believes that credit risks are moderated by the diversity of its
customers and geographic sales areas. The company performs ongoing
credit evaluations of its customers' financial condition and requires
collateral when it deems necessary. There can be no assurance that the
credit quality of the customers with which the Company transacts
business will be stable or that efforts to diversify receivables will
prevent the Company from incurring material losses.

Inventory
---------

     Inventory is stated at the lower of cost using a first-in, first-
out basis, or market.  Reserves are provided for excess and obsolete
inventory.  
        
Property and Equipment
----------------------

     Property and equipment are recorded at cost and depreciated using
the straight-line method over their estimated useful lives, which
range from three to ten years.  Maintenance and repair costs are
expensed as incurred.  

Revenue Recognition
-------------------

     The Company recognizes revenue from product sales at the time of
shipment.  Licensing fees are recognized as received.  Contract
research and development revenue are recorded upon the achievement of 
stated milestones.

Per Share Data
--------------

     The Company's earnings per share is computed in accordance with
FAS No. 128 " Earnings Per Share".  FAS 128 requires the presentation
of both basic and diluted EPS.  Due to losses from continuing
operations, the effect of stock options and warrants is antidilutive.
Accordingly, the Company's presentation of diluted earnings per share
is the same as that of basic earnings per share for all periods
presented.

     Potential common shares in the amount of approximately 16,350,000
for the year ended December 31, 1998, 2,341,492 for the nine months
ended December 31, 1997 and 2,246,916 for the year ended March 31,
1997, respectively have been excluded from the computation of diluted
earnings per share as the effect of their inclusion is antidilutive. <PAGE>
Page F-12

The exercise price of the warrants to acquire approximately 5,750,000
common shares range from $2.125 to $11.00. There is  potentially
substantial dilution from the convertible preferred stock if it were
to be converted under current market conditions.  Using the formula
approximately 10,158,730 would be issued which is calculated using 
90% of the five day average closing price on the date of conversion. 
The discounted price is assumed to be  $.375.(the price per common
share on March 22,1999).  The Company is also required to issue an
additional 4,400,000 "Fill-Up" shares in connection with the August
1998 private placement of its common stock (Note M).  During February
1999, the Company registered 1,775,000 common shares in connection
with the litigation settlement described in Note S.  Additionally, in
February 1999, 666,667 shares of the Company's common stock were
issued to Samtec, Inc.

Income taxes
------------

     The Company records deferred income taxes using the liability
method. Under the liability method, deferred tax assets and
liabilities are recognized for the expected future tax consequences of
temporary differences between the financial statement and income tax
bases of the Company's assets and liabilities. An allowance is
recorded, based on currently available information, when it is more
likely than not that any or all of a deferred tax asset will not be
realized. The provision for income taxes includes taxes currently
payable, if any, plus the net change during the period presented in
deferred tax assets and liabilities recorded by the Company.

Long-Lived Assets
-----------------

     The Company reviews long-lived assets and reserves for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. 

New Accounting Pronouncements
----------------------------

In June 1998, the FASB issued Statement of Financial Accounting
Standards (FAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities."  FAS No. 133 establishes standards for accounting
and reporting for derivative instruments, and conforms the
requirements for treatment of different types of hedging activities. 
This statement is effective for all fixed quarters of years beginning
after June 1999.  Management does not expect this standard to have a
significant impact on the Company's operations.

In 1998, the AICPA issued Statement of Position (SOP) 98-5, "Reporting
on the Costs of Start-Up Activities."  SOP 98-5 provides guidance on
accounting for start-up costs and organization costs, which must be
expensed as incurred.  This Statement is effective for financial
statements for fiscal years beginning after December 15, 1998. 
Management does not expect this Statement to have a material impact on
the Company's financial statements.
<PAGE>
Page F-13

Stock-Based Compensation
------------------------
        
     The Company's employee stock option plans are accounted for using
the intrinsic value method. The Company also provides disclosures of
certain pro forma information as if the fair value-based method had
been applied in measuring compensation expense (Note N).

Debt Issuance Costs
-------------------

     Deferred loan costs of approximately $3,920,000 incurred in
connection with debt financing (Note I) are being amortized on a
straight-line basis over the life of the debt.  As of December 31,
1998, the Company had $525,000 of deferred debt costs net of
accumulated amortization of $3,395,000, which is included in prepaid
expenses and other current assets.  As of December 31, 1997, the
Company had $340,513 of deferred debt costs, net of accumulated
amortization of $63,487.

NOTE D - FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying amount of cash, accounts receivable, notes payable,
accounts payable, and accrued compensation and employee benefits
approximates fair value due to the relatively short-term maturity of
these instruments.  

NOTE E - RESTRICTED CASH

     Restricted cash as of December 31, 1998 was $80,000, which was
held in a restricted account to serve as security for a letter of
credit issued to one of the Company's landlords.

NOTE F - INVENTORY

     As discussed in Note A the Company elected to exit its System
business as of November 1998. This decision, coupled with the rapid
technological development in the computer industry resulted in the
recognition of a write-down of substantially all of its Systems
inventory of $1,178,837.  The inventory as of December 31,1998 is
comprised of the Company's VSPA raw materials and finished goods of
$22,319 and the net realizable value of the Systems inventory of
$25,000.  The inventory at December 31, 1997 net of reserves of
$600,000 consists of the following:

Raw Materials            $   879,756
Work in Process               14,024
Finished Goods                71,419
                         -----------
                         $   965,199
                         ===========

<PAGE>
Page F-14

NOTE G - PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

                              Estimated     December 31, December 31,
                              Useful Lives       1998         1997
                              ------------   -----------   ----------
Office furniture and
 equipment                    3 - 10 years   $ 3,180,103   $3,311,648
Machinery and equipment        3 - 5 years     1,889,458      873,560
Trade show booth and exhibit       5 years       420,428      420,428
Motor vehicles                     5 years        54,535       54,535
Leasehold improvement              5 years        13,173      519,298
Construction in progress                         281,915      826,828
Less:  accumulated depreciation               (3,993,673)  (3,188,079)
                                             -----------   ----------
Total property and equipment, net            $ 1,845,939   $2,818,218
                                             ===========   ==========

     Depreciation expense for the year ended December 31, 1998, the
nine months ended December 31, 1997, and for the year ended March 31,
1997 totaled $1,178,427, $1,061,399, and $1,595,549, respectively. 

     During the years ended December 31, 1998 and March 31, 1997, the
Company determined  that certain long-lived assets were impaired. 
During the year ended December 31, 1998 the impairment occurred when
the Company continued the downsizing of its  operations. In the year
ended March 31, 1997, the impairment was the result of various events
and changes in circumstances (including efforts to streamline
operations and to increase the use of strategic alliances to
manufacture and market the Company's products). As a result, the
Company recorded charges totaling approximately $125,000 and 
$2,056,000 during the years ended December 31, 1998 and March 31,
1997, respectively. The impairment recognized in 1998 was attributable
to Systems sales equipment. During the 1997 period, approximately
$1,040,000 related to computer equipment and software, approximately
$467,000 related to demonstration and promotional equipment and
approximately $520,000 related to production equipment and tooling. 
The Company determined the amount of the asset impairment charges
using various valuation techniques.

NOTE H - SUBORDINATED CONVERTIBLE DEBENTURES

     During April 1997, the Company completed a private placement of
$4.8 million of 4% subordinated convertible debentures.  As of July
1997, all of such debentures had been converted into an aggregate of
1,996,822 shares of the Company's common stock.  In connection with
such transaction, the Company paid placement fees of $384,000 of which
$192,000 was paid in cash and the balance was paid by issuing 30,918
shares of the Company's common stock.  The Company also issued
warrants to two parties in connection with the transaction to purchase
70,096 shares of the Company's common stock.   Warrants to purchase
42,667 shares and 27,429 shares are exercisable through April 2002 at
an exercise price of

<PAGE>
Page F-15

$6.75 and $7.00 per share, respectively.  These warrants have been
recorded with a value of approximately $163,000.  Total deferred
issuance costs, including the placement fees, and the value of the
warrants were amortized as interest expense.  Upon conversion of the
related debentures, the pro rata portion of any unamortized deferred
issuance costs was charged to additional paid-in capital.

     The value of the beneficial conversion feature related to the
1997 Subordinated Convertible Debentures of $907,317 was calculated at
the date of issuance as the difference between the conversion price
and the fair market value of the Company's common stock into which the
debentures are convertible, multiplied by the number of shares into
which the debentures are convertible.  The debentures were fully
convertible into shares of the Company's common stock prior to June
30, 1997 and as such, a non-cash charge to interest expense and an
increase to additional paid-in capital was recorded in the amount of
$907,317 during the nine months ended December 31, 1997.  The
accounting for this transaction has no effect on total stockholders'
equity.

NOTE I - NOTES PAYABLE

     During December 1997 and January 1998, the Company entered into
two $1,000,000 short-term loans with Helix (PEI) Inc. ("Helix"). In
connection with these loans the Company issued to Helix warrants to
purchase 400,000 shares of the Company's common stock at exercise
prices ranging from $4.00 to $4.50 per share.  The warrants have a
term of two years and were recorded as debt issuance costs at an
aggregate value of approximately $872,000 which was fully amortized
upon the repayment of the loans in February 1998. The loans accrued 
interest at an annual rate equal to the prime rate of interest payable
by the Royal Bank of Canada on US dollar advances plus 2%. Such
interest was paid when the loans were settled. The Company repaid
these loans in part from the proceeds from the issuance of Preferred
Stock (Note J).

     During May, June, and July 1998, Helix made additional short-term
loans to the Company under three notes ("Notes") totaling $2,000,000.
The Notes accrue interest at an annual rate equal to the prime rate of
interest payable by the Royal Bank of Canada on US dollar advances
plus 2% (9.4% as of December 31, 1998). Interest is payable monthly.
The Notes are secured by the Company's intellectual property. In
connection with issuance of these Notes, the Company issued warrants
to Helix to purchase an aggregate of 450,000 shares of the Company's
common stock at exercise prices ranging from $1.63 to $2.125 per
share, as adjusted. The warrants have a term of two years. The total
value of these warrants is approximately $932,000 and has been
recognized as debt issue costs and was fully amortized as of August
1998, the original due date of the Notes.

     On August 7, 1998, Helix agreed to extend the maturity date of
the Notes to February 15, 1999 in exchange for the issuance of a
warrant to purchase up to 2,000,000 shares of the Company's common
stock at an exercise price of $2.125, the fair market value on the

<PAGE>
Page F-16

date of issuance. The Warrant has a term of two years and has been
valued at $2,520,000, which has been recognized as deferred loan
costs. As of December 31, 1998 the Company has amortized $1,995,000 of
the loan costs. The Company did not repay the notes as of their due
dates and is currently in default.  The negotiations are ongoing and
the ultimate outcome cannot be predicted. Should the Company be unable
to re-negotiate the terms of the Notes, the Company may have to cease
its operations.

     Helix and its affiliates currently hold approximately 5.7% as of
March 30, 1999 of the Company's common stock. At the time the above
transactions occurred James T. A. Wooder, a former director of the
Company, was a Vice President of Helix's parent, Helix Investments
(Canada), Inc.

NOTE J - CONVERTIBLE PREFERRED STOCK
        
     On February 11, 1998, the Company issued 600 shares of its Series
A Convertible Preferred Stock ("Series A Preferred") and Common Stock
Purchase Warrants("Warrants") to purchase an aggregate of 150,000
shares of common stock for an aggregate purchase price of $6,000,000.
The purchase price allocated to the Series A Preferred and Warrants
was $5,589,000 and $411,000, respectively.  The Warrants have a term
of five years and an exercise price, subject to adjustment for stock
splits and similar events, of $6.10 per share.  The Company incurred
$213,000 of issuance costs in connection with this transaction.
Holders of Series A Preferred are entitled to a dividend of 5% per
annum of the purchase price for the shares, payable quarterly, at the
option of the Company either in cash or as an accrual to the purchase
price utilized in computing the number of shares of Series A Preferred
issuable upon conversion.  So long as any Series A Preferred is
outstanding, no dividend may be paid nor shall any distributions be
made on Common Stock or other shares junior in rank to the Series A
Preferred ("Junior Shares") unless all dividends for all past
quarterly dividend periods have been paid or declared and a sum of
cash or amount of shares sufficient for the payment thereof set apart.
For the year ended December 31, 1998 $231,041 of dividends payable
have been accrued and added to the purchase price in lieu of cash
payment.

     The terms of the Series A Preferred which permit the conversion
of the Series A Preferred at a discount to market is considered a
beneficial conversation feature (the "Beneficial Conversion Feature").
The Beneficial Conversion feature at the date of issuance of the
Series A Preferred was recognized as a dividend to the holders of the
Series A Preferred.  Based upon the terms of the preferred stock
agreement and the market value of the Company's common stock, on the
date of issue, the Company valued the undiscounted Beneficial
Conversion Feature of the Series A Preferred at approximately $511,000
and recorded the amortization of the Beneficial Conversion Feature of
the same amount during the year ended December 31, 1998, as part of
preferred stock dividends.  The beneficial dividend does not effect
the number Series A Preferred shares outstanding or the number of <PAGE>
Page F-17

common shares issuable upon conversion of the Series A Preferred or
require any additional payments or compensation to the holders of the
Series A Preferred.

     In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of Series A
Preferred are entitled to receive in cash from assets of the Company,
before any amount shall be paid to holders of Junior Shares, an amount
per share of Series A preferred equal to the sum of (i) the purchase
price for such share and (ii) any accrued but unpaid dividends
thereon. If the amounts available for distribution are insufficient to
pay the full amount due to holders of Series A Preferred, and shares
of other classes or series of preferred stock of the Company that are
of equal rank to the Series A Preferred then each holder of Series A
Preferred stock  and such other shares shall receive a percentage of
amounts available for distribution ratably in proportion to the
respective amounts of such assets to which they would otherwise be
entitled.

     Holders of the Series A Preferred  have no voting rights except
as required by law or as specified in the Articles of amendment, the
affirmative vote of the holders of at least two-thirds of the
outstanding shares of Series A Preferred is required for (I) any
amendment to the Company's Articles of Incorporation which would alter
the rights and preferences of the Series A preferred or otherwise
impair the rights of the holders of Series A Preferred relative to the
holders of the Common Stock or the holders of any other class of
capital stock or (ii) any issuance of more than 1000 shares of Series
A Preferred. In addition, without the prior written approval of the
holders of 66 2/3% of the Series A preferred shares, the Company shall
not (1) consolidate or merge with another corporation or other entity
or person, whereby the shareholders of the Company own in the
aggregate less than 50% of the ultimate parent or surviving entity,
(2) transfer all or substantially all of the Company's assets to
another corporation or other entity or person or (3) fix a record date
for the declaration of a distribution or dividend, whether payable in
cash, securities or assets (other than shares of common stock).     

     Shares of Series A Preferred are convertible into shares of
Common Stock pursuant to a formula whereby the purchase price of the
shares to be converted plus any such dividends is divided by a
conversion price defined as the lower of (i) $3.50 subject to
adjustment in the event of certain dilutive issuance's of securities
by the Company or for stock splits or similar events("the Fixed
Conversion Price") or (ii) a percentage of the average closing bid
price of the Common Stock for the five days immediately preceding
conversion equal to 92%, if conversion occurs in the period beginning 
120 days and ending 180 days after of the Series A Preferred, or 90%,
if conversion occurs after 180 days from issuance of the Series A
Preferred. All outstanding Series A Preferred will automatically
convert into Common Stock at the then applicable conversion price, on
the fifth anniversary of issuance. In addition, the Company has the
right to require that all unconverted shares of Series A Preferred be
converted at any time if the closing bid price of Common Stock is <PAGE>
Page F-18

equal to or greater than $12.00 per share for a period of twenty
consecutive trading days.  For the year ended December 31,1998 180
shares of  Series A Preferred were converted into an aggregate
2,234,363 shares of the Company's common stock. 

     The terms of the Series A Preferred, provide that upon the
occurrence of certain "Triggering Events" as defined by the agreement
including suspension of sales under the Registration Statement,
Failure of the Common Stock to be listed, or the suspension of trading
in the Company's common stock, on Nasdaq National or Nasdaq Small Cap
Market, or failure of the Company to convert shares of Series A
Preferred as required,  the Company is required to pay the holders
$100,000 on the first day of each month until the Triggering Events
have been remedied. A Triggering Event occurred on December 16, 1998
when the Company's stock was delisted from the Nasdaq National Market.
This event has not been remedied and the Company has recognized a
$50,000 penalty in the Statement of Operations for the year ended
December 31, 1998. The Company commenced and continues to re-negotiate
with the Series A Preferred stock holders to modify the terms of the
Agreement. The outcome of such negotiations is not known. Should the
Company be unable to re-negotiate the terms of the Agreement along
with the re-negotiations discussed in Notes I and M individually or
together they could have a substantial detrimental effect on the
ability of the Company to continue its operations.        

NOTE K - SETTLEMENT WITH CONTRACT MANUFACTURER

     The agreement between the Company and a third-party for the
manufacture and assembly of the Company's computer systems expired in
September 1996.  A dispute arose regarding liability for certain
inventory allegedly purchased on behalf of the Company.  During
February 1998, the Company settled this dispute by purchasing
inventory from the contract manufacturer for $520,000. 

NOTE L - OTHER CURRENT LIABILITIES

     The components of other current liabilities are as follows:
        
                                       December 31,       December 31,
                                          1998              1997
                                       ----------        ----------
Sarubbi Settlement liability (Note S)  $  760,000        $     -
Provision for warranties                  200,000           200,000
Accrual for lease costs                      -              176,867
Accrual for professional fees             152,682              -
Other                                     243,387           587,719
                                       ----------        ----------
                                       $1,356,069        $  964,586
                                       ==========        ==========

<PAGE>
Page F-19

NOTE M - COMMON STOCK

     In August 1998, the Company completed the sale of  2,254,602
shares of its Common Stock in a private placement to accredited
investors with gross proceeds of approximately $3,675,000 (the
"Private Placement").  Costs related to the Private  Placement were
approximately $191,000.   In addition to the shares of Common Stock
purchased by each investor in the Private Placement, such investor
received a warrant (the "Private Placement Warrants") to purchase an
equal number of shares of Common Stock (the "Private Placement Warrant
Shares"), subject to adjustment for stock splits and similar events,
at an exercise price of $2.55 per share. Upon the exercise of the
Private Placement Warrants, an investor may elect to receive a reduced
number of shares of Common Stock in lieu of tendering the warrant
exercise price in cash. The Private Placement Warrants have a term of
five years expiring August 13, 2003.

     Under the terms of the Securities Purchase Agreement relating to
the Private Placement, if on either the six-month or the one-year
anniversary of the date of closing of the Private Placement (each 
"Anniversary Date"), the average closing bid price of the Common Stock
for the twenty-trading day period ending on the trading day
immediately prior to the applicable Anniversary Date (the "Anniversary
Price") is less than the Closing Price ($2.0375), or the prior
Anniversary Price in the event the six-month Anniversary Price is less
than the Closing Price, respectively, the Company is required to issue
a number of shares of Common Stock within ten days after the
Anniversary Date equal to the product of (i) (x) the difference
between the Closing Price (or if the measurement date is the one-year
Anniversary Date, the six-month Anniversary Price if the six-month
Anniversary Price is less than the Closing Price) and the applicable
Anniversary Price, multiplied by .85, multiplied by (y) the number of
shares of Common Stock purchased by the investors in the Private
Placement and not sold or assigned to non-affiliated third parties,
divided by (ii) (x) the applicable Anniversary Price multiplied by (y)
 .85.  The shares issuable pursuant to this formula are referred to as
the "Fill-Up Shares".

     In the event (i) the Common Stock is delisted or suspended from
trading on NASDAQ, (ii) the Fill-Up Shares or the Private Placement
Warrant Shares are not issuable or are not listed with NASDAQ. Or
(iii) the Company fails to issue Fill-Up Shares as required, then the
Company shall pay to the initial investors $100,000 for each full 30-
day period that the condition continues. The Company's common stock
was delisted from NASDAQ on December 16, 1998 and as a result the
Company has recognized liquidating damages of $50,000 in the Statement
of Operations for the year ended December 31, 1998.  The Company
continues to incur the liquidated damages.

     The Company has filed a Registration Statement with respect to
the shares of Common Stock issuable in the Private Placement.  Such
registration statement has not yet been declared effective. As a
result of the non-effectiveness  the Company could be liable for
penalties of up to $36,000 until the Registration Statement is
declared effective.<PAGE>
Page F-20

     In January 1999 the Company sold 666,667 shares of its common
stock without registration rights to Samtec, Inc. ("Samtec") for
$500,000. Simultaneous with this transaction the Company and Samtec,
entered into a license agreement for the Company's VSPA semiconductor
technology for $500,000. Under the terms of the agreement the Company
is entitled to a royalty related to each VSPA sale for a term that
continues until the expiration of the last to expire of the patents
covered by the agreement.  The license granted to Samtec is non-
exclusive.

NOTE N - EMPLOYEE BENEFIT PLANS

Stock Incentive Plans
---------------------

     The Company maintains three stock option plans as follows: 1993
Performance Incentive Plan ("1993 Plan"), Non-Employee Director Stock
Option Plan ("Director Plan"), and the 1995 Employee Stock Incentive
Plan ("1995 Plan").  Under the 1993 Plan and the 1995 Plan both
incentive options and non-qualified options may be granted.  In
addition, stock appreciation rights and restricted stock may also be
granted under the Plans; however, no stock appreciation rights or
restricted stock have been granted to date.  

     The exercise price for incentive options under the 1993 Plan, the
1995 Plan and non-qualified options under the Director Plan is the
fair market value of the Company's common stock as of the date of
grant.  Each stock option expires ten years from the grant date under
the 1993 Plan and the 1995 Plan, and five years under the Director
Plan.

     Options granted pursuant to the 1993 Plan cannot be exercised
prior to the expiration of six months from the date of grant while
vesting of options granted under the 1995 Plan is determined at the
discretion of the Company's Stock Option Committee.   Options granted
under the Director Plan vest 25% annually beginning on the first
anniversary of the grant date.

     The maximum number of shares of common stock with respect to
which options may be granted under the 1993 Plan is 5% of the
outstanding shares, not to exceed 1,000,000 shares.  Under the 1995
Plan and the Director Plan, options to purchase up to 500,000 and
50,000 shares may be granted, respectively.  As of December 31, 1998,
there were 558,554; 468,800, and 10,000 shares available for grant
under the 1993 Plan, the 1995 Plan and the Director Plan,
respectively.

     In 1998, the Company issued options to outside consultants to
purchase up to 625,000 of the Company's common stock.  The options
were issued with an exercise price that was equal to the market price
on the date of the grants.  The total fair value of the options, as
determined by FAS 123, was 384,500 which is to be amortized over the
vesting period of the options.  In 1998, the total expense associated
with nonemployee stock options total 298,130.  The weighted average
fair value of options granted in 1998 was $.62.<PAGE>
Page F-21

     A summary of the Company's stock option activity and related
information is presented below:

                         Year Ended            Nine Months Ended
                         December 31,             December 31,
                            1998                     1997
                   -----------------------   -------------------------
                                 Weighted -                 Weighted - 
                                 Average                    Average
                                 Exercise                   Exercise
                    Shares       Price        Shares        Price      
                   --------      -----       --------       -----
Outstanding,
beginning of year   654,450      $7.45        586,900       $8.83   
Granted             568,500      $2.26        266,500       $5.13
Exercised            (3,000)     $4.08           (100)      $4.75
Forfeited          (404,050)     $7.00       (198,850)      $8.40
                   --------      -----       --------       -----
Outstanding at
end of year         815,900      $4.32        654,450       $7.45
                    =======      =====       ========       =====
Exercisable at
end of year         257,350                   221,700
                    =======                  ========

     Had compensation expense for the Company's stock option plans
been determined based on the fair value of the underlying common stock
at the grant dates, consistent with Statement of Financial Accounting
Standards No. 123,  Accounting for Stock Based Compensation, the
Company's net loss and net loss per share would have been as follows:

                                        Nine Months
                         Year Ended        Ended     Year Ended
                         December 31,  December 31,   March 31,
                            1998           1997         1997
                        ------------   -----------  ------------
Net loss:
  As reported           $(18,216,582)  $(8,949,652) $(20,874,101)
  Pro forma             $(18,480,641)  $(9,323,415) $(21,315,572)
Basic and diluted loss
 per share:
  As reported           $      (1.33)  $      (.78) $      (2.15)
  Pro forma             $      (1.35)  $      (.81) $      (2.19)

     The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for the year ended December 31, 1998,
nine months ended December 31, 1997 and year ended March 31, 1997,
respectively.  Risk-free interest rates of 5.5%, 6.2% and 6.3%;
dividend yields of 0% in all periods; volatility factors of the
expected market price of the Company's common stock ranging from 107%
to 119%, 97% and 98% and a weighted-average expected life of the
option of 4 years.
     The Black-Scholes option pricing model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable.  In addition, option pricing<PAGE>
Page F-22

models require the input of highly subjective assumptions including
the expected stock price volatility.  Because the Company's employee
stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock
options.

     The following tables summarize information about outstanding and
exercisable stock options as of December 31, 1998:

                    Options Outstanding        Options Exercisable
              -------------------------------  -------------------
                        Weighted - 
                        Average      Weighted-            Weighted-
                        Remaining    Average              Average
Exercise                Contractual  Exercise             Exercise
Prices         Shares   Life (years) Price      Shares    Price
-----------   -------   -----------  --------  -------    ---------
$.78          375,000    9.5 years   $  .78       -      $  -
$2.75-$3.81    20,500   6.26 years   $ 3.57      6,500   $ 3.28
$4.25-$6.13   301,650   8.53 years   $ 5.20    168,350   $ 5.32
$7.75-$8.50    82,250   6.60 years   $ 7.92     53,000   $ 7.87
$12.50-$14.25  16,000   6.00 years   $13.10     14,000   $13.15
$28.25-$44.25  20,000   6.40 years   $36.62     15,500   $31.63        
               -------   ----         -----    -------    -----
              815,900   8.62 years   $ 4.32    257,350   $ 7.80

Employee Savings Plan
---------------------

     The Company has a defined contribution retirement plan ("Savings
Plan") that qualifies as a deferred salary arrangement under Section
401(k) of the Internal Revenue Code.  Eligibility for participation
commences six months from the date of hire.  Under the Plan,
participating  employees may defer a portion of their pretax earnings,
up to the Internal Revenue Service annual contribution limit or 15% of
pretax earnings.  Through September 30, 1996, the Company matched 75%
of employee contributions, up to a maximum of 6% of the employee's
earnings.  Contributions are invested at the direction of the employee
in one or more funds.  Beginning April 1, 1997, employees were given
the choice to invest their contributions in common stock of the
Company.  Employer contributions vest over five years.  The Company's
matching contributions to the Savings Plan amounted to approximately
$73,000 for the year ended March 31, 1997.  The employer matching
contribution was discontinued as of October 1, 1996.

<PAGE>
Page F-23

NOTE O - COMMON STOCK WARRANTS

     For the year ended December 31, 1998, the Company entered into
various consulting agreements.  Under these agreements, the Company
issued 625,000 warrants ranging in price from $.219 to $2.51 per
share.  The issuance of these warrants have been recorded based on the
fair market value of the warrants issued.  The Company has determined
that the value of these warrants to be $384,500 which was recorded as
S,G&A expense in the statement of operations for the year ended
December 31,1998.

     During the nine months ended December 1997, the Company issued
warrants to purchase 270,096 shares of the Company's common stock. 
These warrants were recorded at a value of approximately $567,000.
        
     In September 1996, the Company entered into an agreement with a
consulting firm, which served as an investor relations counsel to the
Company.  The agreement provides for a minimum monthly fee of $3,500
plus payment of expenses for the term of one year.  In connection with
this agreement, the Company granted the principal of the consulting
firm, a warrant to purchase 400,000 shares of the Company's common
stock at an exercise price of $8.00 per share.  The warrant has a term
of 10 years and is exercisable (i) as to 100,000 shares at any time
during the term of the warrant, and (ii) as to the remaining shares,
upon attainment of certain milestones specified in the warrant, none
of which have been achieved.

     The issuance of these warrants has been recorded based on the
fair market value of the services to be received over the term of the
agreement.  The Company has determined the value of these services to
be $78,000 of which $39,000 was expensed during the nine months ended
December 31, 1997 and $39,000 was expensed during the year ended March
31, 1997.

NOTE P - REVENUE
        
LG Cable & Machinery Ltd.
-------------------------

     In October 1996, the Company and Stanford W. Crane, Jr., the
Company's Chief Executive Officer and founder, entered into a
licensing agreement with LG Cable & Machinery Ltd. ("LG") with respect
to the Compass Connector Technology owned by Mr. Crane and certain
enhanced Compass Connector Technology owned by the Company whereby LG
was granted a license, for a term of ten years or until the expiration
of the last to expire of the patents covered by the agreement,
whichever is later.  The license granted to LG is non-exclusive except
for certain limited exclusive manufacturing rights with respect to
specified Asian countries.  In connection with this agreement, the
Company's portion of the license fee ($500,000) was immediately vested
upon signing the agreement and is payable as follows: $100,000 within
15 days after execution of the agreement and $100,000 on each of the
first four anniversaries of the agreement. Licensing fee revenue of
$100,000 was recorded during the year ended December 31,1998, the nine
months ended December 31, 1997 and the year ended March 31, 1997<PAGE>
Page F-24

representing the first three payments received.  The remaining
$200,000 will be recognized as payments are received.  In addition,
the Company is entitled to receive royalties on sales of the Compass
Connector products by LG or its affiliates.  No royalties have been
received under the agreement as of December 31, 1998.

     In July 1997, the Company entered into another licensing
agreement with LG Cable whereby LG Cable was granted a license with
respect to a semiconductor package product owned by the Company, for a
term that continues until the expiration of the last to expire of the
patents covered by the agreement.  The license granted to LG is non-
exclusive except for certain limited exclusive manufacturing rights
with respect to specified Asian countries.  In connection with this
agreement, the Company was entitled to a non-refundable license fee of
$250,000 that became immediately vested upon signing the agreement and
has been recorded as revenue during the nine months ended December 31,
1997.  In addition, the Company is entitled to receive royalties on
sales of the semiconductor package products by LG Cable or its
affiliates. No royalties have been received under the agreement as of
December 31, 1998.
        
Defense Advanced Research Projects Agency
-----------------------------------------

     In October 1996, the Company entered into a cooperative
development agreement with the Defense Advanced Research Projects
Agency (DARPA) to develop the Company's VSPA electronic package
whereby the government contributed approximately $1.8 million to the
project over a period of 18 months.  The agreement, as amended,
required the Company to match the $1.8 million with $2.7 million of
development costs associated with the project. The project was
successfully completed in April 1998.

     Revenue was recognized over the term of the cooperative
development agreement based on the achievement of stated milestones. 
For the  year ended December 31,1998, the nine months ended December
31, 1997 and the year ended March 31, 1997, the Company recognized
revenue related to the agreement of approximately $135,000, $973,000
and $684,000, respectively. Costs associated with the cooperative
agreement have not been separately disclosed on the face of the
Statement of Operations as such costs would have been incurred by the
Company regardless of the agreement.  Of the $2.1 million and $1.2
million of expenses incurred during the nine months ended December 31,
1997 and year ended March 31, 1997, approximately  $1,032,000 and
$610,000 are reflected in research and development and the balance is
included in selling, general and administrative expenses in the
Statement of Operations, respectively.

Other Revenue
-------------

     During fiscal 1997, the Company agreed to sell certain products
to a software developer in a non-cash exchange for certain products
and services. During the year ended March 31, 1997, the following
products and services were received from the software developer:<PAGE>
Page F-25

licenses to use the developer's software for internal purposes valued
at approximately $326,000 (recorded in property and equipment);
consulting and training services valued at $100,000 (recorded in
research and development expenses); and services associated with the
certification of the Company's 4s server to use the software
developer's CAD program and porting the software onto the 4s product. 
These services were valued at approximately $570,000 and are reflected
equally between research and development expense and selling, general
and administrative expenses for the year ended March 31, 1997.

     Revenues of approximately $923,000 were recorded during the year
ended March 31, 1997 as a result of this transaction. During the nine
months ended December 31, 1997, the Company shipped additional
computer systems to the software developer and recognized $37,000 of
revenue associated with this agreement.  

     Sales of computer systems to one customer accounted for 14% of
total revenue for the nine months ended December 31, 1997.  No
individual customers accounted for more than 10% of total revenue for
the year ended December 31, 1998 and fiscal 1997.

NOTE Q - RELATED PARTY TRANSACTIONS

     In January 1996,  Mr. Crane entered into a license agreement
("the Crane/Panda License") with the Company with respect to the
Compass Connector which supersedes the prior agreements between Mr.
Crane and the Company with respect thereto.  Pursuant to the
Crane/Panda License, the Company continues to have the right, on a
nonexclusive and royalty-free basis, to use and/or sell the Compass
Connector as a component in its computers or other higher level
assemblies or systems.  The Company may also sublicense the Compass
Connector technology as part of a license of the Company's proprietary
technology provided that any royalty attributable to such sublicense
is to be shared  by the Company and Mr. Crane.

     In addition, Mr. Crane has granted the Company a nonexclusive
license to sell, lease, or transfer the Compass Connector as loose or
discrete components for specified royalties based on net sales of the
Compass Connectors, commencing when the accumulated net sales of the
Compass Connectors reaches $100,000 (the "Royalty Date").  For the
five year period following the Royalty Date, the Company is obligated
to pay to Mr. Crane royalties equal to 5% of the net sales price of
such Compass Connectors, including any such Compass Connectors sold
prior to the Royalty Date.  The royalty decreases to 2.5% after five
years and 2.0% after ten years.  The royalty decreases to 1.0% for any
period during which no valid patent exists anywhere with respect to
the Compass Connector.  The royalty is also subject to reduction if
Mr. Crane grants a third party a license with respect to Compass
Connectors as loose or discrete components at a lower royalty than
that charged to the Company.  To date, Mr. Crane has received no
royalties pursuant to the Crane/Panda License.

     In August 1997, the Company hired Melissa Crane, wife of Stanford
W. Crane, Jr., as Director of Strategic Business at an annual salary
of $100,000 per year.  In September 1997, Ms. Crane was granted an<PAGE>
Page F-26

option to purchase 50,000 shares of Common Stock of the Company at an
exercise price of $6.13 per share.  Such options expire on September
19, 2007.  Options to purchase 10,000 of these shares of Common Stock
are exercisable six months from the date of grant and the remainder
become exercisable  in equal annual installments on the first, second,
third and fourth anniversaries of grant.  In October 1997, the Board
of Directors approved the payment of a bonus of $25,000 to Ms. Crane
in connection with the achievement of certain marketing objectives. 
In November 1997, the Board of Directors elected Ms. Crane Vice
President of Strategic Business and authorized an increase in her
annual salary to $125,000 per year.  In October 1998, the Board of
Directors appointed Ms. Crane as the acting Chief Financial Officer.  

NOTE R - INCOME TAXES

     As a result of tax losses incurred by the Company, no current tax
provision has been recorded for the year ended December 31, 1998, nine
months ended December 31, 1997 and the year ended March 31, 1997. 
        
     Deferred tax assets and deferred tax liabilities reflect the tax
effect of net operating loss carryforwards and differences between
financial statement carrying amounts and tax bases of assets and
liabilities as follows:

                                                         Nine Months
                                             Year Ended     Ended
                                            December 31,  December 31,
                                               1998          1997
                                           ------------  -----------
Deferred tax assets:
   Net operating loss carryforwards        $ 34,767,000  $28,504,000
   Research and development credits           1,221,000      990,000
   Write down of property and equipment         523,000      475,000
   Inventory reserve                            687,000      367,000
   Allowance for doubtful accounts              114,000        4,000
   Other                                        125,000      125,000
                                           ------------  -----------
      Gross deferred tax asset               37,437,000   30,465,000

      Deferred tax asset valuation
       allowance                            (37,085,000) (30,113,000)
                                           ------------  -----------
      Net deferred tax asset               $    352,000  $   352,000
                                           ============  ===========
Deferred tax liabilities:
   Tax depreciation and amortization
     in excess of book                     $   (248,000) $  (248,000)
   Other                                       (104,000)    (104,000)
                                           ------------  -----------
       Deferred tax liability              $   (352,000) $  (352,000)
                                           ============  ===========
       Net deferred taxes                  $       -     $      -
                                           ============  ===========
<PAGE>
Page F-27

     A valuation allowance reducing the asset recognized must be
recorded if it is determined that it is more likely than not that the
asset will not be realized.  Because of the uncertainty surrounding
realizability of future benefits due to cumulative losses, a valuation
allowance in the full amount of the net deferred tax asset has been
provided for financial reporting purposes.

     At December 31, 1998, the Company has available approximately
$90.1 million in net operating loss ("NOL") carryforwards available to
offset future taxable income, if any, for federal and state income tax
purposes.  If unutilized, these NOL carryforwards will expire at
various times beginning in the year 2009.

     At December 31, 1998, unused credit carryforwards for increasing
research activities of approximately $1,221,000 are also available. 
The credit carryovers will expire at various times beginning in the
year 2010.

     Due to the change of control effected by the initial public
offering of the Company's common stock on May 24, 1994, as well as
certain stock offerings, exercise of stock options, warrants, and
conversion of preferred stock into common stock, the amount of future
taxable income that can be offset by the Company's net operating
losses incurred prior to the dates of the stock offerings, as well as
the amount of tax liability that can be offset by research and
development credit, may be limited.

NOTE S - COMMITMENTS AND CONTINGENCIES
        
Operating Leases
----------------

     The Company leases various facilities and equipment under
noncancelable operating lease arrangements which expire at various
dates through year 2003.  Rent expense under all operating leases was
approximately $831,500, $641,000, and $1,035,000 for the year ended
December 31, 1998, the nine months ended December 31, 1997 and for the
year ended March 31, 1997, respectively.

     Minimum future rental payments under non-cancelable operating
leases with remaining lease terms in excess of one year are as
follows:
        
                  December 31,

                     1999        $  483,254
                     2000           439,024
                     2001           447,348
                     2002           460,880
                     2003           295,564
                                 ----------
        Total minimum future
          rental payments        $2,126,070
                                 ==========
<PAGE>
Page F-28

     During the year ended March 31, 1997, the Company entered into
certain agreements with its landlord related to its primary facility
whereby the Company was released from portions of the leased space. 
As consideration for the release, the Company agreed to make certain
lump-sum payments to the landlord and agreed to make additional
payments for the unused space.  As a result, a charge of approximately
$480,000 was recognized and is included under the caption, selling,
general and administrative expenses in the Statement of Operations for
the year ended March 31, 1997.  In 1998, The Company was released from
the lease of its prior corporate headquarters as well as the facility
in Hayward California. 

Year 2000
---------

     The Year 2000 issue relates to limitations in computer systems
and applications that may prevent proper recognition of the Year 2000. 
The potential effect of the Year 2000 issue on the Company and its
business partners will not be fully determinable until the Year 2000
and thereafter.  If the Year 2000 modifications are not properly
completed either by the Company or entities with which the Company
conducts business, the Company's revenues and financial condition
could be adversely impacted.

Employment Agreements
---------------------

     Under the terms of an employment agreement with Mr. Crane entered
into in November 1993, he serves as the Senior Vice President, Product
Design and Development, and at the discretion of the Board of
Directors, as the Chairman of the Board and the Company's President
and Chief Executive Officer.  Mr. Crane's agreement has a base annual
salary with salary increases and bonuses available to him based on the
attainment of specified objectives established at the discretion of
the Company's Board of Directors.  The term of the agreement extends
to January 1999.  As of April 14, 1999 the contract had not been
renewed. For the years ended December 31,1997 and December 31,1998,
Mr. Crane s salary was $150,000 in each year.

     Pursuant to the terms of the agreement, Mr. Crane has assigned to
the Company the rights to all improvements or related discoveries or
inventions developed or conceived by him during the term of the
agreement which relate to the technology developed by him and
previously assigned to the Company.  The employment agreement also
provides that Mr. Crane may develop additional products or
technologies unrelated to the products currently being developed by
the Company.

Commitments
-----------        

     During the year ended December 31, 1998, the Company issued
significant purchase orders to three suppliers to provide materials
for the production of the Company's VSPA semiconductor package.  The
<PAGE>
Page F-29

aggregate commitment under these purchase orders is approximately $1.1
million as of December 31, 1998.
        
Litigation
----------

     The Company is involved in various lawsuits from time to time of
the type routinely encountered in the ordinary course of business. 
Management aggressively defends these lawsuits and believes that the
ultimate outcome of these lawsuits will not have a material adverse
impact on the Company's financial statements.  Following are
litigation matters that management considers to be material in nature
such that disclosure is appropriate.

     On December 11, 1998, the Company and  Joseph Sarubbi, (a former
director of the Company) entered into a settlement agreement related
to litigation in which Sarubbi had obtained a judgment against the
Company  in the amount of $1,227,041. Under the Settlement Agreement,
the Company paid Sarubbi total consideration worth $1,000,000 of which
$240,000 was paid in cash in December 1998 and the remaining $760,000
was paid via the issuance of 1,775,000 shares of the Company's common
stock. Under the Settlement Agreement the common  stock was registered
in a registration statement filed in February 1999. The Company
recorded a $1,000,000 charge to selling general and administrative
expenses in December 1998.  In the event that the 1,775,000 shares
does not generate sufficient precedes, the Company would have the
option to pay the difference in cash or additional shares of common
stock.

     On October 16, 1998 a complaint was filed against the Company in
the United States District Court for the Southern District of New York
by Promethean Investment Group, L.L.C. The complaint alleges breach of
contract by the Company for failing to proceed with a financing
transaction and seeks damages in an unspecified amount in excess of
$270,000 or a declaration that the Company is to proceed with the
financing transaction. The outcome of this matter is both
undeterminable and immeasurable. Even if the Company is successful in
defending itself in this litigation, of which there is no assurance,
the diversion of critical resources involved in defending and settling
these actions could have a substantial material adverse effect on the
Company.

NOTE T - BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION

In 1998, the Company adopted SFAS No. 131., "Disclosures about
Segments of an Enterprise and Related Information", which changed the
way Company s have reported information about operating segments. 
With the Company's decision to discontinue all aspects of the Systems
business, the Company has one single reporting segment.  The Company
markets and sells its Technologies directly to end users. The
Company's revenues are primarily derived from customers located in the
United States and all of the Company's long lived assets are located
in the United States.

<PAGE>
Page F-30

NOTE U - SUBSEQUENT EVENTS

On December 15, 1998, the Company reduced the exercise price of
certain common stock purchase warrants if the warrant holders
accelerate the expiration date of their warrants from July 11, 2001 to
January 5, 1999.  The exercise price was reduced from $11.00 to $0.75
per share. In January 1999, warrants representing 553,333 shares were
exercised at this reduced price, and the Company received net proceeds
of $415,000 upon such exercise.

On April 14, 1999, the Company received a Notice of Default on the
Settlement Agreement between Joseph A. Sarubbi and The Panda Project,
Inc. dated December 11, 1998.  Mr. Sarubbi claimed that his inability
to sell the stock that he received in the settlement creates a breach
under the settlement agreement.  The Company believes that it is in
full compliance with the agreement and that no breach exists.  In the
event that the 1,775,000 shares does not generate sufficient proceeds
in accordance with the Settlement Agreement, the Company would have
the option to pay the difference in cash or additional shares of
common stock.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>         
                                                Additions
                                           ---------------------
                            Balance at     Charged to    Charged                     Balance at 
                            Beginning      Costs and     to Other                    End of 
                            Of Period      Expenses      Accounts      Deductions    Period
<S>                         <C>           <C>            <C>           <C>           <C>
Year ended 
 March 31, 1997
  Allowance for 
   doubtful accounts        $  171,943    $   236,303    $      -      $ (297,284)(1)$   110,962
                            ===========   ===========    ==========    ==========    ===========
  Inventory obsolescence
   reserve                  $  128,412    $ 1,030,335    $      -      $ (908,747)(2)$   250,000
                            ===========   ===========    ==========    ==========    ===========
  Deferred tax asset
   Valuation allowance      $12,849,000   $13,537,000    $      -      $     -       $26,386,000  
                            ===========   ===========    ==========    ==========    ===========
Nine months ended
 December 31, 1987
  Allowance for 
   doubtful accounts        $   110,962  $    60,911    $      -      $ (161,867)   $    10,006
                            ===========  ===========    ==========    ==========    ===========
  Inventory obsolescence
   reserve                  $   250,000  $   350,000    $      -      $     -       $   600,000
                            ===========  ===========    ==========    ==========    ===========
  Deferred tax asset
   Valuation allowance      $26,386,000  $ 3,727,000    $      -      $     -       $30,113,000
                            ===========  ===========    ==========    ==========    ===========
Year ended
 December 31, 1998
  Allowance for 
   doubtful accounts        $    10,006    $  285,286   $      -      $     -       $   295,292
                            ===========    ==========   ==========    ==========    ===========
  Inventory obsolescence
   reserve                  $   600,000    $1,178,837   $      -      $     -       $ 1,778,837 
                            ===========    ==========    ==========    ==========    ===========
<PAGE>
Page F-31

  Deferred tax asset
   Valuation allowance      $30,113,000    $7,692,000    $     -       $     -       $37,085,000
                            ===========    ==========    ==========    ==========    ===========
(1) Write off of bad debts.
(2) Primarily relates to the revaluation of specific inventory items to net realizable value.
</TABLE>



       Report of Independent Certified Public Accountants
                 on Financial Statement Schedule

To the Board of Directors of 
The Panda Project, Inc.

Our audits of the financial statements referred to in our report dated
March 10, 1998, appearing on page F-3 of this Form 10-K of The Panda
Project, Inc. also included an audit of the information contained in
the Financial Statement Schedule appearing on page F-30 of this Form
10-K for the nine month period ended December 31, 1997 and the year
ended March 31, 1997.  In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the information
set forth therein for the nine months ended December 31, 1997 and the
year ended March 31, 1997 when read in conjunction with the related
financial statements.  We have not audited the financial statements of
The Panda Project, Inc. for any period subsequent to December 31,
1997.


PricewaterhouseCoopers  LLP
Fort Lauderdale





March 10, 1998