FORM 10-K
           UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                       Washington, D.C. 20549
                           Annual Report
                           -------------
(Mark One)
[]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)

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

For the transition period from April 1, 1997 to December 31, 1997

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.)

           901 Yamato Road
         Boca Raton, Florida                             33431
(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. [X]

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

                            $42,140,785

Number of shares of Common Stock, $.01 par value, outstanding at
February 27, 1998.
                             12,221,050

                 Documents Incorporated by Reference

The information called for by Part III is incorporated by reference to
the Company's definitive Proxy Statement for its 1998 Annual Meeting
of Shareholders which will be filed pursuant to Regulation 14A not
later than April 30, 1998.

<PAGE>
                      The Panda Project, Inc.
                             Form 10-K
                               Index

                               Part I
                                                                       
Page

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                                                

<PAGE>
                               PART I
Item 1.  Business

The Panda Project, Inc. ("the Company") is a technology company
engaged in the development, manufacture and sale of computer systems,
including the Archistrat line of powerful, modular workstations and
the recently announced Rock City line of desktop computers ("the
Computer Systems"), and the Company's proprietary semiconductor
packaging and interconnect devices ("the Technology Products").  The
features and design of the Computer Systems and the Technology
Products, many of which are covered by United States and foreign
patents or patent applications, are intended to address the need for
greater bandwidth in electronics products.  According to Fleck
Research, a leading market research and consulting firm, the next ten
years could be described as the decade of bandwidth due to the need
for products and components that will accommodate the increased
operating speeds of more powerful and complex microprocessors.  The
Company believes that its products will satisfy the market's demand
for increased bandwidth in computer, telecommunications, automotive
and other electronics industries by facilitating the use of new
generations of these advanced microprocessors.

COMPUTER SYSTEMS

The Company manufactures and sells its computer systems under the
brand names Archistrat ("the Archistrat Computers") and Rock City
("the Rock City Computers").  Each product line makes use of one or
more of the Company's Technology Products in order to differentiate it
from competing products and to accelerate market acceptance of the
Technology Products by demonstrating their value in a specific
application. Currently, the Company incorporates its high density
interconnect device, the Compass Connector, into the Archistrat
Computers and incorporates both the Compass Connector and the
Company's semiconductor package, VSPA, into the Rock City Computers.  

The Company's Computer Systems have several design features which
differentiate them from competing products. The computers utilize a
patented 256-bit passive backplane (as opposed to the less powerful
64-bit and 128-bit designs available in competing products) and
feature pluggable daughterboards for memory, peripherals and
processors. By incorporating the high density Compass Connector and
the VSPA semiconductor package with their increased capacity to access
and transport increased volumes of data and dissipate heat more
efficiently, the Computer Systems are able to exploit the more
powerful 256-bit backplane architecture to achieve high performance
levels.  In addition, the pluggable nature of the Compass Connector
combined with its high density makes possible the unique modular
design, thereby permitting the separation of the traditional computer
motherboard into individual components containing the microprocessor,
the memory chips and peripheral devices while allowing for quicker and
more efficient transmission of data signals.  Also, certain future
models of the Rock City Computers are expected to make use of the
Company's proprietary multi-chip module SRAM memory chip packaged in
the VSPA semiconductor package to further enhance the performance of
the microprocessor.  This multi-chip module is mounted on the modular
processor card, thereby reducing the distance the electric signals are
required to travel.  All the Computer Systems are capable of
accommodating a variety of microprocessors, peripheral devices and
operating systems.

The innovative design and architecture of the Rock City Computers,
which represents an extension of the architecture of the Archistrat
Computers, was first displayed at the Comdex show in late 1997 as
Interfaced Optimized Architecture, or IO_A. The formal launch of the
first Rock City product is expected to occur in April 1998.  The
initial Rock City model will compete in the sub-$1,000 price category
but will offer buyers the unique appearance of a "computer in a cube",
better performance and more features than products in a comparable
price range.  Based on projections by Forrester Research, Inc., as
reported in the March 23, 1998 issue of Business Week, more than 60%
of U.S. households will have at least one personal computer by 2002,
up from about 45% in 1998.  According to this same research, the home
PC market is expected to reach 17.5 million units per year by 2002.  A
significant portion of this market is expected to be in the sub-$1,000
price range.

Future models of the Rock City Computers are expected to feature
higher performance processors, including the DEC Alpha processors, and
more extensive options, as well as permit processor and memory
upgrades and additions of more complex peripheral devices.  Some of
these models are expected to have performance capabilities that will
permit their use as high end workstations for use in CAD and animation
applications. Pricing of future models is expected to be competitive
with comparable models offered by competing manufacturers.

While the Company continues to produce and market certain of its
Archistrat Computers for use as servers, it is of the opinion that the
CAD and animation workstation markets are the most promising areas for
utilizing the high performance features of the Archistrat Computers
and for certain future models of the Rock City Computers.  The Company
believes, based on the results of independent tests of workstations
using comparable processors and operating systems, that the Company's
Computer Systems achieve higher performance levels than those of
competing suppliers.

The workstation market is currently estimated by Aberdeen Group to
approximate $20 billion and to be among the fastest growing markets
for computer systems.  According to Aberdeen Group, the animation
workstation market alone is estimated to approximate $20 billion by
the year 2000.

TECHNOLOGY PRODUCTS

The proliferation of increasingly comprehensive and sophisticated
computer operating systems and applications software, along with the
explosive growth in Internet usage, have created the need for
substantially more bandwidth in computer and other electronic devices. 
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 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: 

     HIGHER 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 than is required by
conventional semiconductor packages and interconnect devices to
accommodate the same number of leads.  This improves the performance
and portability of computers and other electronic equipment that use
such products.

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

     COMPATIBILITY; REDUCED COST OF MANUFACTURE.  The Technology
Products are intended to be compatible with existing industry
standards.  Thus, 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 computer manufacturing process, is no
smaller than that of conventional packages such as Plastic Quad Flat
Pack and Ball Grid Array packages.  In addition, use of VSPA in the
manufacture of microprocessors is compatible with standard die bonding
and wire bonding equipment and procedures.  Further, because the
integration of VSPA with microprocessors and other peripherals
requires fewer steps than conventional technologies, the Company
believes manufacturers utilizing the Technology Products will
experience reduced production cost.

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

Semiconductor packages are plastic or ceramic packages that house and
protect the small silicon components (each referred to as a die) which
are responsible for a computer's functions, such as the
microprocessor, memory, graphics or other devices that perform
specialized tasks.  They also provide conductive leads through which
electric signals containing data processed by the die can be accessed
at various contact points on the die.  Generally, the leads in
traditional semiconductor packages emerge from the package's perimeter
in a single layer ("peripherally-leaded packages") or they emerge and
extend perpendicularly from the bottom of the package in several rows
("pin-grid-array packages" or "PGAs").  The leads extending from
peripherally-leaded packages are usually mounted directly to the
surface layer of a printed circuit board ("PCB") using surface mounted
technology or "SMT".  The leads extending from PGA packages are either
plugged into a base mounted on the PCB or inserted directly into holes
drilled through each of the PCB's layers.

The Company has developed and patented two semiconductor packages:
VSPA, which is a form of peripherally-leaded package, and Compass PGA,
a pluggable pin-grid-array package.

VSPA is a plastic package designed for SMT use to extend the
capability of the Plastic Quad Flat Pack (PQFP) family of packages to
higher pin counts and more numerous configurations.  PQFPs are
currently the most widely used type of peripherally-leaded package. 
Based on the most recently-available data compiled by Tech Search
International, PQFPs represent approximately 83% of the semiconductor
package market, which is currently estimated to exceed $30 billion and
to be experiencing a compound annual growth rate of more than 20%. 
Generally, PQFP packages are available with a total number of leads
(or pin count) of less than 304.  VSPA, on the other hand, is designed
to accommodate a wide range of pin counts.

VSPA's higher pin counts are derived from its three-dimensional design
in which two or more rows of pins emerge from the perimeter.  This
patented design not only permits the package to house a significantly
higher number of leads which can be wire-bonded to the die, it also
allows for a more relaxed pitch (increased space between the leads)
providing increased performance and more efficient mounting to the
PCB.  By stacking the leads (providing for additional rows of leads
stacked and staggered above each other), the VSPA package can
significantly reduce the amount of space required on the PCB.

The Company believes VSPA offers the best features of PQFPs and
substrate Plastic Ball Grid Array (PBGA) with none of the penalties. 
It increases the package I/O and uses less space, yet still maintains
superior electrical and thermal performance.  The technology is
scalable both in I/O and thermal management, thus offering a wider
range of solutions to the chip designer seeking optimum integrated
chip performance.

The Company also believes that VSPA is the ideal package for multi-
chip module devices (MCMs), which are semiconductors that contain two
or more dies housed in a single package.  The Company believes, based
on available data, that the use of MCMs will increase significantly
over the next few years as silicon designers seek to achieve higher
performance from semiconductors.

In January 1997, the VSPA package received registered outline approval
from the Electronic Industries Association's JEDEC JC-11 Committee,
thereby establishing VSPA (or PQFP-B, as it is called in JEDEC
documents) as an industry standard outline to facilitate uniform
application on a worldwide basis.  JEDEC is the semiconductor
engineering standardization body of the Electronic Industries
Association, a national trade association that represents all areas of
the electronics industry.

In November 1997, the Company introduced its first MCM product, an
eight chip module housing 4 MB of SRAM in a 516 pin, three row VSPA
package measuring 1.647 inches by 1.478 inches. Included among the
eight chips are four proprietary silicon bridges designed by the
Company which reduce the inter-chip connections by more than 50% when
compared with single chip solutions.

Also in November 1997, the Company introduced its 480 pin three row
VSPA te (thermally enhanced) package which is designed for either
single or multi-chip module high power semiconductor applications. 
Preliminary tests performed in the Company's labs indicate the 480/3
VSPA te is currently capable of dissipating approximately 50 watts of
heat.

In January 1998, the Company received a production order for VSPA in
excess of $1 million.  The order is for VSPA parts that will be used
in an  identification device being produced by Veridicom, Inc. 
Shipment of the order is expected to begin in the second quarter of
1998.

The Company currently has approximately twelve active design projects
with current or potential customers for VSPA applications.  While the
Company believes that production orders may result from some or all of
these design projects, 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 package primarily
designed to package expensive microprocessing units in single or
multichip modules.  The Compass PGA employs multiple leads and
requires less surface area of a PCB to accommodate the same number of
leads than conventional PGA packages.  Additional design and
development work is required to commercialize this product.  If
successfully commercialized, it will significantly reduce the size and
weight of the traditional PGA package, increase the efficiency of the
chip and free additional PCB space on which other chips and devices
can be mounted.  The Company believes that one of the Compass PGA
versions being designed can provide up to 680 die contacts per square
inch, as compared to the 400 die contacts provided by the PGA package
used in the Intel Pentium Pro package.  In July 1996, the United
States Patent Office granted the Company a patent covering the Compass
PGA product.

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

The Company's interconnect product, the Compass Connector, is the
enabling technology of the Company's Computer Systems, leading to
their higher performance levels and permitting their modularity and
scalability.  The Compass design consists of insulator posts
constructed of a highly stable liquid crystal polymer surrounded by
four leads which are mated with related sockets mounted on a PCB. 
This configuration allows multiple leads to be connected in one area,
thereby enabling the design and construction of smaller electronic
devices.

While providing a strong electrical contact, the patented Compass
design is pluggable and compatible with SMT processes.  The Company
believes this will provide numerous benefits, such as ease of
manufacture and servicing, flexibility in configuring computer systems
and upgradeability.

The version of the Compass Connector currently in use in the
Archistrat Computers provides for 132 contacts per linear inch.  This
compares with less than 80 contacts per linear inch for traditional
connectors.  The most recent version of Compass (Compass V) is used in
the Rock City Computers.  Compass V is produced by one of the
Company's licensees of the Compass technology and provides 146
contacts per linear inch.  The Company believes that the Compass
design is capable of providing up to 368 contacts per linear inch,
several times the capabilities of connectors currently available.

MANUFACTURING

The Company is a party to an agreement with a contract manufacturer to
manufacture certain subassemblies and perform final assembly of the
Computer Systems and has identified certain other potential
manufacturers and suppliers for its subassembly and component needs.
In the opinion of the Company, it has the capability to assemble
sufficient quantities of Computer Systems to meet current orders and
the anticipated demand for the foreseeable future.

In the event the Computer Systems become more widely commercialized,
the Company believes it will be able to negotiate satisfactory
additional manufacturing and supply contracts.  The Company has
identified suppliers for its subassemblies and component needs related
to the manufacture of the Computer Systems and is currently able to
procure sufficient supply of these parts to meet its manufacturing
needs.  The Company believes it will be able to negotiate satisfactory
additional supply contracts, as necessary, to meet its future
manufacturing needs. However, the failure to do so could have a
material adverse effect on the Company.  While the Company believes
that the components for the Computer Systems are available from
multiple sources, the Company anticipates that it will obtain certain
of them from a single or limited number of sources of supply.  In the
event that certain of such suppliers are unable or unwilling to
provide the Company with components to be used in the Computer Systems
on commercially reasonable terms, or at all, delays in securing
alternative sources of supply would result and would have a material
adverse effect on the Company's operations.

The Company has developed the ability to manufacture the VSPA
semiconductor package in its own facility in Boca Raton, Florida,
using an automated machine designed and built by the Company.  The
machine has a wide range of flexibility in terms of the pin count of
the VSPA packages it will produce, and its 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, was operational in early 1998.  A third machine is currently
being built.  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 also developed the capacity to manufacture the Compass
Connectors required for its Archistrat Computers in its own facility
in Boca Raton, Florida.  In addition, the Company has contracted with
Sun Precision Co., an assembly company located in Bangalore, India,
for production of the male component used in the Compass Connector. 
The Company believes that these sources of supply are sufficient to
meet the demand for Compass Connectors used in the Archistrat
Computers for the foreseeable future.

The Company has an arrangement with LG Cable & Machinery, Ltd., a unit
of Korea-based LG Group and a licensee of the Company's Compass
technology, to acquire the Compass V Connectors for use in its Rock
City Computers and 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 the
Company to expand its manufacturing capacity for Compass V Connectors
or enter into additional licensing arrangements, joint ventures or
strategic alliances with respect to the manufacture of Compass
Connectors.  See "Marketing and Strategic Relationships".

MARKETING AND STRATEGIC RELATIONSHIPS

In June 1996, September 1996 and July 1997, respectively, the Company
licensed the VSPA semiconductor packaging technology to AMP,
Incorporated, Pantronix Corporation and LG Cable & Machinery, Ltd. 
Under the terms of each licensing agreement, the licensee has been
granted world-wide rights to manufacture VSPA for its own use and for
sale to third parties.  In addition, the agreement with AMP permits
AMP to have exclusive rights to use VSPA technology in ATM and Fast
Ethernet applications for a limited period of time.  Each agreement
provides for the payment to the Company of a royalty based on an
amount per pin which increases based on the size of the package in
accordance with a schedule in the agreement.  Except for the receipt
from LG Cable of a license fee in the amount of $250,000, the Company
has received no revenue under any of these arrangements and is unable
to predict the amount of sales revenue or royalty revenue, if any, 



that may be earned by the Company under these agreements, or when, if
ever, such revenue might be earned.

In October 1996, the Company and Stanford W. Crane, Jr., the Company's
President and Chairman, entered into an agreement with LG Cable &
Machinery Ltd. 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 of Compass V reached 250,000 parts per month
in January 1998 and is expected to reach 500,000 parts per month in
mid-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 expects to be entitled to receive
royalties under this agreement with respect to sales made by LG Cable
during the first quarter of 1998.

The Company markets its Technology Products through a combination of
direct sales personnel and independent manufacturer's representatives. 
At the present time, the Company has four employees directly engaged
in the sales and marketing of its Technology Products and is engaged
in recruiting additional personnel to supplement the activities of
these employees.  In addition, the Company has entered into sales
representation agreements with 12 separate independent sales
organizations to market the Company's Technology Products in certain
specific regions of the United States as well as in Taiwan and Europe.
The Company is also seeking additional independent manufacturer's
representatives in other identified regions of the United States.

The Company markets its Computer Systems through its own sales force,
which currently is comprised of 8 persons including field systems
engineers and sales support staff, through value added resellers (VAR)
and system integrators, and through independent sales representatives. 
The Company currently has 12 active VARs and four independent sales
representatives, and expects to enter into additional agreements
during the next 12 months.  In addition to the aforementioned
channels, the Company plans to market the Rock City Computers through
a dedicated web site on the Internet and through the use of an outside
telemarketing company.

BACKLOG

As of March 15, 1998, the Company's revenue backlog amounted to
approximately $1,630,000 including approximately $136,000 related to
the DARPA agreement, and $100,000 of licensing fees due from LG Cable,
but excluding an additional $200,000 of licensing fees due from LG
Cable in 1999 and 2000.  The Company expects to completely fill the
current backlog within the current fiscal year.  As of March 31, 1997,
the Company's revenue backlog consisted of the unearned portion of the
DARPA agreement of approximately $1,109,000, licensing fees of
$100,000 and Computer Systems of approximately $184,000.

RESEARCH AND DEVELOPMENT

The Company's principal research and development efforts to date have
been devoted to the design and development of VSPA, Compass PGA, the
Computer Systems and related technologies.  During the fiscal years
ended March 31, 1996 and 1997 and the nine months ended December 31,
1997, the Company spent $7,955,000, $5,723,000 and $3,255,000,
respectively, on research and development.

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 will contribute approximately $1.8 million to the project
over a period of 18 months.  The agreement requires the Company to
match the $1.8 million with $2.7 million of development costs
associated with the project.  During the year ended March 31, 1997 and
the nine months ended December 31, 1997, the Company incurred
development costs associated with this project of approximately $1.2
million and $2.1 million, respectively.

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, developing specific applications
of VSPA and the Compass Connector and continuing development related
to both the Archistrat Computers and the Rock City Computers.  The
Company believes that its spending on research and development in the
current fiscal year will approximate the amount spent during the
previous twelve months.

PATENTS; PROPRIETARY INFORMATION

As of December 31, 1997, the Company had obtained 11 United States
patents and an aggregate of 38 foreign patents.  In addition, the
Company had pending a total of 19 United States and 21 foreign patent
applications.  These patents and pending applications relate to VSPA,
Compass PGA, the design of both the Archistrat Computers and the Rock
City Computers, 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.  The failure of the
Company to obtain any patents for which applications are pending could
have a material adverse effect on the Company's ability to
successfully commercialize its technology and proposed products.

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.

The Company has registered four trademarks, including three related to
the Archistrat Computers, 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.

COMPETITION

The markets that the Company has entered and intends to enter with its
Computer Systems and Technology Products are characterized by intense
competition.  In marketing these products, the Company is and will be
competing with many well established companies with substantially
greater resources than the Company.

The Company's Computer Systems compete with various products produced
and marketed by a large number of companies.  The CAD and animation
workstation configuration of the Archistrat Computers, which the
Company believes to be the most promising area for utilizing the high
performance features of the Archistrat Computers, as well as certain
future models of the Rock City Computers, compete or are expected to
compete with products offered by companies such as Silicon Graphics,
Inc., Sun Microsystems, Inc., Digital Equipment Corp., Hewlett-Packard
Co. and Intergraph Corporation.  Other models of the Rock City
Computers, including the sub-$1,000 model expected to be launched late
in the first quarter of 1998, compete or are expected to compete with
products offered by companies such as Compaq Computer Corporation,
Dell Computer Corporation, Gateway 2000, Inc., Hewlett-Packard Co. and
International Business Machines Corporation.

Many of the Company's competitors for its Technology Products design,
manufacture and/or market semiconductor packages, interconnect devices
and other related components.  Some of these competitors offer
semiconductor packages, including peripherally-leaded SMT packages,
pin grid arrays and ball grid arrays which can be used as alternatives
to VSPA and Compass PGA. Although the Company believes that VSPA (and
Compass PGA, when fully developed) offer significant performance
advantages over currently available semiconductor packages, no
assurance can be given that the advantages anticipated by VSPA and
Compass PGA will be realized or, if realized, gain market acceptance.

Many of the Company's competitors, including those named above, have
substantially greater financial, technical, personnel and other
resources than the Company and have established reputations for
success in the development, licensing, sale and servicing of their
products and technology.  Certain of these competitors dominate their
industries and have the financial resources necessary to enable them
to withstand substantial price competition and downturns in the market
for computers, semiconductor packages and interconnect devices.  In
addition, certain companies may be developing technologies or products
of which the Company is unaware which may be functionally similar, or
superior, to some or all of those being developed by the Company.  The
markets for technology and products currently available from and being
developed by the Company are characterized by rapid changes and
evolving industry standards often resulting in product obsolescence or
short product life cycles.  Accordingly, the ability of the Company to
compete will depend on its ability to successfully market its existing
products in a timely and cost-competitive manner, to complete the
development and successfully introduce to the marketplace those
products that are currently under development, to continually enhance
and improve all its current and future products and technology and to
successfully develop and market new products and technology.  There
can be no assurance that the Company will be able to compete
successfully, that its competitors or future competitors will not
develop technologies or products that render the Company's products
and technology obsolete or less marketable or that the Company will be
able to successfully enhance its existing and proposed products or
technology or adapt them satisfactorily.

EMPLOYEES

At February 28, 1998, the Company had 68 full-time employees and one
part-time employee.  Mr. Crane divides his time between product
research, development and testing and general management.  The Company
considers it relations with its employees to be good.  None of the
Company's employees are represented by labor unions.

ITEM 2.  PROPERTIES

The Company leases its principal offices in Boca Raton, Florida,
totaling approximately 27,500 square feet which were used to house a
significant part of the Company's operations, including research and
development, administration and other operations during the nine
months ended December 31, 1997.  Under the terms of the lease, as
amended, the Company is required to make monthly rental payments of
approximately $34,000, increasing to approximately $37,000 during the
last year of the lease which expires on March 31, 2001.

The Company also leases three nearby facilities in Boca Raton, Florida
totaling approximately 11,000 square feet, which house the Company's
machining operations, the design and production of the automated
machines for producing VSPA parts and current VSPA production.  The
leases with respect to these facilities require total monthly rental
payments of approximately $7,300.

The Company also leases approximately 50,000 square feet in Hayward,
California, that houses the Company's Archistrat Computer assembly
operation, and certain administrative and sales and marketing
operations. The lease agreement is for a term of five years with
monthly rental fees of approximately $18,000 increasing to
approximately $24,000 in the fifth year of the lease.  Approximately
21,000 square feet of this facility has been subleased since October
1997 under the terms of a sublease agreement that provides for monthly
payments to the Company of approximately $8,600.  On March 3, 1998,
the sublessee notified the Company that, as permitted under the terms
of the sublease agreement, it was terminating the sublease as of April
1, 1998.

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 $4,394, increasing to $4,746 during the last year of the
lease.   Effective August 1, 1997, the Company entered into a sublease
agreement with a term ending in December 1999 and which calls for
monthly sublease payments to the Company of approximately $4,800.

The Company considers 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

In August 1996, Joseph Sarubbi, a former director of the Company,
filed a suit against the Company in the Circuit Court of the 15th
Judicial Circuit in Palm Beach County, Florida.  The suit alleges that
the Company breached an oral agreement to waive the exercise price on
certain options granted to Mr. Sarubbi during 1993 and 1994 and that
it failed to cause the Company's counsel to timely issue a Rule 144
letter which would have allowed him to sell the stock in a timely
manner.  The Company believes Mr. Sarubbi's claims are without merit
and intends to defend the suit vigorously.

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, 1997.

<PAGE>
                               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 on the
Nasdaq Stock Market under the symbol "PNDA."  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 on the Nasdaq Stock Market 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
----------------------                        -------      -------     

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

1996
----

December 31, 1996                             $ 8.50       $ 3.38
September 30, 1996                            $13.50       $ 7.13
June 30, 1996                                 $20.88       $11.75
March 31, 1996                                $23.50       $15.75

As of February 15, 1998, there were approximately 298 holders of
record of the Company's 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).

On each of October 6, 1997 and December 12, 1997, the Company issued
9,231 unregistered shares of its Common Stock to its current investor
relations firm pursuant to a consulting agreement. These securities
were issued pursuant to an exemption from registration under Section
4(2) of the Securities Act of 1933.

ITEM 6.  SELECTED FINANCIAL DATA

The following table sets forth selected financial data as of and for
each of the nine month periods ended December 31, 1997 and 1996, and
each of the years in the four year period ended March 31, 1997.  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 nine month period
ended December 31, 1997 and each of the years in the four year period
ended March 31, 1997 has been derived from audited financial
statements, including the balance sheets at December 31, 1997 and
March 31, 1997 and the related statements of operations and of cash
flows for the nine months ended December 31, 1997 and each of the two
years in the period ended March 31, 1997 and notes thereto appearing
elsewhere herein.  Results of operations for the nine months ended
December 31, 1997 and 1996 are not necessarily indicative of a full
year. 

<TABLE>
STATEMENT OF OPERATIONS DATA:
<CAPTION>
                        Nine Months Ended
                           December 31,                  Fiscal Year Ended March 31,
                     ------------------------  -------------------------------------------------
                        1997         1996         1997         1996         1995        1994
                                  (Unaudited)
<S>                  <C>          <C>          <C>         <C>          <C>          <C>
Net revenues         $2,246,795   $2,091,132   $2,382,019  $   870,658  $      -     $      -   
Research and
 development costs    3,255,335    4,786,838    5,722,717    7,954,924    3,494,260      887,318
Selling, general and 
  administrative
  expenses            6,113,255   10,830,976   13,142,099   15,810,701    3,744,914      934,487
Costs associated with
  asset impairments        -       1,471,025    2,056,025         -            -            -   
Net loss             (8,949,652) (17,217,703) (20,874,101) (23,894,426)  (6,931,346)  (1,800,340)
Basic and diluted
 loss per share          ($ .78)      ($1.79)      ($2.15)      ($3.07)      ($1.25)      ($0.63)
Weighted average
  shares outstanding 11,541,811    9,605,280    9,723,801    7,786,426    5,531,941    2,848,198
</TABLE>
<TABLE>
BALANCE SHEET DATA:
<CAPTION>
                            As of December 31,                  As of March 31,
                               -----------    --------------------------------------------------  
                                  1997            1997         1996         1995          1994
<S>                            <C>            <C>          <C>          <C>            <C>
Total assets                   $ 5,713,830    $ 7,337,320  $18,557,681  $10,245,133  $1,471,840
Total liabilities                3,616,126      2,524,445    3,690,090    1,069,810   1,709,735
Accumulated deficit            (62,865,553)   (53,915,901) (33,041,800)  (9,147,374) (2,216,028)
Stockholders' equity (deficit)
                               $ 2,097,704    $ 4,812,875  $14,867,591  $ 9,175,323 ($  237,895)
</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.  Basic and diluted loss per share data for the year ended March
31, 1994 has been restated to eliminate the effect of "cheap stock".

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

OVERVIEW

Statements in this Transition Report on Form 10-K that are not
historical 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 litigation, and the factors
detailed below under "Certain Factors That May Affect Future Results"
or set forth from time to time in the Company's periodic reports and
registration statements filed with the Securities and Exchange
Commission.

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.  The
current fiscal period is for the transition period April 1, 1997
through December 31, 1997.  For discussion and analysis purposes, the
nine months ended December 31, 1997 are compared to the unaudited nine
months ended December 31, 1996.

RESULTS OF OPERATIONS

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 $924,000 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 revenue 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 a 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 & Machinery
Ltd. ("LG") 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 nears 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 the 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 (see note 14 to the financial
statements appearing elsewhere herein).

During the nine months ended December 31, 1996, the Company determined
that, due to 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 impaired.  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 expense 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 (see note 8 to the financial
statements appearing elsewhere herein).

Fiscal Year Ended March 31, 1997 Compared to Fiscal Year Ended March
31, 1996

During the year ended March 31, 1997, the Company recognized net
revenues of approximately $2,382,000, including approximately
$1,548,000 of net sales of Archistrat Computers, $100,000 of licensing
fees, and approximately $734,000 of revenue associated with a
cooperative development agreement with the U.S. government.  In
comparison, net revenues during fiscal year 1996 amounted to
approximately $871,000 which was entirely comprised of sales of
Archistrat Computers.

In October 1996, the Company and Stanford W. Crane, Jr., the Company's
Chief Executive Officer, entered into a license agreement with LG
Cable & Machinery Ltd. ("LG") whereby LG was granted a license with
respect to the Compass Connector Technology owned by Mr. Crane and
certain enhanced Compass Connector Technology owned by the Company. 
The license granted to LG is non-exclusive except for certain limited
exclusive manufacturing rights with respect to specified Asian
countries.  The Company and Mr. Crane have agree that payments under
the agreement will be split equally between the Company and Mr. Crane. 
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 March 31, 1997 representing the first
payment received.  The remaining $400,000 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.

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 has agreed to contribute approximately $1.8 million to the
project over a period of 18 months.  The agreement, as amended,
requires the Company to match the $1.8 million with $2.7 million of
development costs associated with the project.  Revenue is recognized
over the term of the cooperative development agreement based on the
achievement of stated milestones.

During the year ended March 31, 1997, the Company sold certain
products to a software developer in exchange for certain licenses to
use the developer's software for internal purposes; consulting and
training; 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.  Revenues of approximately
$923,000 were recorded during the year ended March 31, 1997 as a
result of this transaction.

During the year ended March 31, 1997, research and development
expenses decreased from approximately $8.0 million to $5.7 million. 
The decrease is primarily associated with a lower level of spending
related to the design and development of VSPA as compared with the
prior year, including a lower amount of compensation and benefits
resulting from a reduced workforce (including engineering personnel).  

Selling, general and administrative expenses decreased approximately
$2.7 million or 17% during fiscal year 1997 to $13.1 million as
compared to $15.8 million during fiscal year 1996.  The most
significant changes were in the following categories:  compensation
and benefits decreased approximately $1.3 million resulting from the
execution of management's restructuring plans (employee head count
decreased from approximately 150 as of March 31, 1996 to approximately
50 as of March 31, 1997); consulting and contracted services decreased
approximately $1.6 million primarily as a result of the Company's cost
reduction efforts, including the elimination of essentially all
temporary  personnel;  and a reduction of sales and marketing expenses
of approximately $1.1 million related primarily to trade shows and
advertising.  Depreciation expense increased approximately $1.0
million to $1.6 million in fiscal year 1997 compared to approximately
$560,000 in fiscal year 1996.  This increase is primarily due to the
acquisition of $3.6 million of assets during fiscal year 1996 that
were not depreciated over the entire prior year, but did include a
full year of depreciation in fiscal year 1997.  Further, additional
assets were acquired during fiscal year 1997, including leasehold
improvements made to the Company's main facility.

During the year ended March 31, 1997, the Company determined that, due
to 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 impaired.  As a result, the Company recorded a charge of
approximately $2.1 million, the majority of which relates to assets
which will continue to be held and used in continuing operations.  Of
this total, approximately $1,040,000 relates to computer equipment and
software, approximately $467,000 relates to demonstration and
promotional equipment and approximately $520,000 relates to production
equipment and tooling.

Other one-time charges that were recognized during fiscal year 1997
included costs associated with the reduction of leased office space at
the Company's main facility in the amount of $480,000 and a charge of
$145,000 associated with the settlement of certain litigation.  

LIQUIDITY AND CAPITAL RESOURCES 

During the year ending December 31, 1998, the Company expects to
continue development of its Technology Products, commence the
commercial production and sale of its VSPA semiconductor package and
its new Rock City line of computer systems.  The Company anticipates
that sales of its VSPA semiconductor package and increased shipments
of its Computer Systems and the related revenue, as well as licensing
and royalty revenue, will provide additional resources to at least
partially fund its activities during 1998. However, there can be no
assurance that revenues from any or all of these sources will in fact
be realized on the timetable anticipated by the Company.  In addition,
revenues associated with the cooperative development agreement entered
into with the U.S. Government during the prior fiscal year will be
limited during 1998 as the agreement nears its end.

The Company has successfully implemented cost reduction plans and was
able to significantly decrease the amount of average monthly cash
consumption.  Cash flows used by operating activities decreased $8.8
million from $16.0 million used during fiscal year 1997 to $7.2
million used during the nine months ended December 31, 1997. The
Company will continue to focus on cost controls during 1998 and will
take further cost reduction actions as deemed necessary.  However,
there can be no assurances that such efforts will be successful or
that such plans will result in adequate cost reductions.

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 and Computer Systems, to
continue efforts that may lead to the commercialization of additional
products and technologies and to finance other working capital
requirements.

As of December 31, 1997, the Company had total current assets of $2.3
million and total current liabilities of $3.6 million.  However,
during February 1998, the Company raised $6.0 million from the
issuance of Series A Convertible Preferred Stock (see note 18 to the
financial statements appearing elsewhere herein).

In the event the Company's working capital, as augmented by proceeds
from any sales revenue, prove to be insufficient to fund operations
(due to unanticipated expenses, delays, problems, or otherwise), the
Company would be required to seek additional financing. Furthermore,
depending upon the Company's progress in the development of its
products and technology and manufacturing capabilities, acceptance of
its products and technology by third parties, and the state of the
capital markets, the Company may also determine that it is advisable
to raise additional equity capital. In addition, in the event that the
Company receives a larger than anticipated number of purchase orders
for its Computer Systems or VSPA semiconductor package, it may require
resources substantially greater than it currently has or than are
otherwise available to the Company, and the Company may be required to
raise additional capital or engage third parties (as to which
engagement there can be no assurance) to assist the Company in meeting
such orders. 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.

YEAR 2000 ISSUES

The Company has developed preliminary plans to address the possible
exposures related to the impact on its computer systems of the Year
2000.  Key financial, information and operational systems will be
assessed and plans will be developed to address required systems
modifications.  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.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

The following factors, among others, could cause actual results to
differ materially from those contained in forward looking statements
made in this Transition Report on Form 10-K and presented elsewhere by
management from time to time.

1. LIMITED PRODUCT DEVELOPMENT AND OPERATING HISTORY. The Company has
a limited operating history upon which an evaluation of its prospects
can be made. Such prospects must be considered in light of the risks,
expenses and difficulties frequently encountered in the establishment
of a new business in the evolving electronics industry, which is
characterized by an increasing number of market entrants and intense
competition, as well as those encountered in the shift from
development to commercialization of new products based on innovative
technologies. 

2. LIMITED REVENUES; HISTORY OF SIGNIFICANT LOSSES; ACCUMULATED
DEFICIT; ANTICIPATED FUTURE LOSSES. To date, the Company has generated
limited revenues from the sale of its Computer Systems, from licensing
fees and from the activities associated with its grant from the
Defense Advanced Research Projects Agency.  The Company does not
anticipate deriving larger revenues from operations until such time,
if ever, that greater numbers of its Computer Systems, semiconductor
packages and connectors can be sold, as to which there can be no
assurance. Since inception (April 8, 1992), the Company has incurred
significant net losses, including losses of $1,800,340, $6,931,346,
$23,894,426 and $20,874,101 during the fiscal years ended March 31,
1994, 1995, 1996 and 1997, respectively, and $8,949,652 during the
nine months ended December 31, 1997, resulting in an accumulated
deficit of $62,865,553 as of December 31, 1997. In addition, the
Company anticipates losses to continue at least through March 31,
1998.  Inasmuch as the Company expects to continue to incur operating
expenses totaling approximately $1,000,000 per month related to its
research and development and sales and marketing activities (including
salaries of executive, technical and research and development
personnel), the Company anticipates that such losses will continue
until such time, if ever, as the Company is able to generate
sufficient revenues to support its operations. There can be no
assurance that the Company will ever be able to generate sufficient
revenues to achieve profitable operations.

3. SIGNIFICANT CAPITAL REQUIREMENTS; POSSIBLE NEED FOR ADDITIONAL
FINANCING.  The Company's capital requirements in connection with its
operations and development activities have been significant, and such
requirements may continue to be significant if the Company receives
large numbers of purchase orders for its Computer Systems,
semiconductor packages and connectors.  The Company has been dependent
primarily upon the proceeds of sales of its securities to fund its
activities since inception. During the period from inception through
February 15, 1998, the Company raised approximately $69 million (after
deduction of underwriting discounts, commissions and other selling
costs) through the sale of Common Stock, Series A Convertible
Preferred Stock, warrants and subordinated debentures and from the
exercise of stock options and warrants. Since June 1996, the Company
has entered into five agreements to license its VSPA and Compass
Connector technologies and has begun to receive revenues under two of
these agreements.  In addition, the Company has taken actions to
significantly reduce its expenses in all areas, including compensation
and benefits, research and development and selling and administrative
expenses.

In February 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.  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 Company's  Common Stock to be listed 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 be obligated to redeem the outstanding Series A
Preferred.  Any requirement that the Company redeem a substantial
amount of Series A Preferred would have a material adverse impact on
the Company, including possibly requiring the Company to cease or
significantly curtail its operations.

In the event the Company's working capital, as augmented by proceeds
from any sales revenue, prove to be insufficient to fund operations
(due to unanticipated expenses, delays, problems, or otherwise), the
Company would be required to seek additional financing. Furthermore,
depending upon the Company's progress in the development of its
products and technology and manufacturing capabilities, acceptance of
its products and technology by third parties, and the state of the
capital markets, the Company may also determine that it is advisable
to raise additional equity capital. In addition, in the event that the
Company receives a larger than anticipated number of purchase orders
for its Computer Systems or VSPA semiconductor package, it may require
resources substantially greater than it currently has or than are
otherwise available to the Company, and the Company may be required to
raise additional capital or engage third parties (as to which
engagement there can be no assurance) to assist the Company in meeting
such orders. The Company has no current arrangements with respect to,
or sources of, additional financing, and 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. To the
extent that any future financing involves the sale of the Company's
equity securities, the Company's then existing stockholders may be
substantially diluted.

4. UNCERTAINTY OF MARKET ACCEPTANCE.  The products and technologies
currently being sold or developed by the Company utilize newly
developed designs. Although the Company believes that its existing and
proposed technology and products represent significant advancements in
semiconductor packaging and computer technology, demand for the
Company's existing and proposed products is subject to a high degree
of uncertainty, as is 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 key original
equipment manufacturers ("OEMs") and value-added resellers ("VARs")
and end users as to the distinctive characteristics and anticipated
benefits of the Company's proposed products and technologies. Many
OEMs and VARs manufacture and/or sell components and computers
competitive with those being developed by the Company and have
achieved significant market acceptance for their products.
Accordingly, due to their commitment to their own products, such
entities may be inhibited from doing business with the Company. In
addition, many OEMs and VARs may be reluctant to use or sell the
Company's products and technologies until a sufficient number of other
OEMs and VARs have already committed to do so. The Company has hired
sales and marketing personnel for its Computer Systems and for its
VSPA semiconductor package and Compass Connector, and it has
established a network of twelve independent sales organizations to
supplement the Company's internal sales force.  The Company's ability
to generate revenue from the sale of Computer Systems or the licensing
or sale of Computer Systems, VSPA semiconductor packages or Compass
Connectors will be dependent upon, among other things, its ability to
effectively use the internal sales force and its network of
independent sales organizations to market its products.  There can be
no assurance that the Company's marketing efforts will be successful.

5. 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 their
timely introduction into the marketplace. There can be no assurance
that the Company's products and technology will satisfactorily perform
the functions for which they are designed, that they will meet
applicable price or performance objectives or 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. The Company's success will also be dependent upon the
Company's ability to adapt its products to be compatible with the
products of third-party manufacturers of computer products. In
addition, the Company will be dependent on certain potential customers
redesigning or otherwise modifying their products to fully utilize the
Company's proposed products and technology. Although the Company
believes that potential customers will undertake such modifications to
take advantage of the anticipated performance advantages of the
Company's proposed products, the costs of making such adaptations
could prevent them from doing so on a timely basis, or at all. The
failure of the Company to adapt its products and technology to be
compatible with products of third-party manufacturers or the failure
of potential customers to make necessary modifications or to redesign
their products to accommodate the Company's products could have a
material adverse effect on the Company's ability to sell or license
its proposed products or technology.

6. COMPETITION; TECHNOLOGICAL OBSOLESCENCE.  The markets that the
Company intends to enter are characterized by intense competition. The
Company's Computer Systems compete with computers offered by such
companies as Silicon Graphics, Inc., Sun Microsystems, Inc., Dell
Computer Corporation, Compaq Computer Corporation, Gateway 2000,
Hewlett-Packard Co. and other smaller companies.  The Company's
Technology Products compete with semiconductor packages and connectors
offered by numerous manufacturers. Many of these companies have
substantially greater financial, technical, personnel and other
resources than the Company and have established reputations for
success in the development, licensing, sale and servicing of their
products and technology. Certain of these competitors dominate their
industries and have the financial resources necessary to enable them
to withstand substantial price competition or downturns in the market
for semiconductor packages, related technologies and/or computers. In
addition, certain companies may be developing technologies or products
of which the Company is unaware, which may be functionally similar, or
superior, to some or all of the Company's products and technologies. 
Accordingly, the ability of the Company to compete will depend on its
ability to complete development and introduce to the marketplace in a
timely and cost-competitive manner additional products and technology,
to continually enhance and improve its existing and proposed products,
to adapt its products to be compatible with specific products
manufactured by others, and to successfully develop and market new
products.  There can be no assurance that the Company will be able to
compete successfully, that its competitors or future competitors will
not develop technologies or products that render the Company's
products and technology obsolete or less marketable or that the
Company will be able to successfully enhance its products or
technology or adapt them satisfactorily.

7.  DEPENDENCE ON MANUFACTURERS AND SUPPLIERS; LACK OF MANUFACTURING
EXPERIENCE AND CAPABILITY.  The Company has developed the ability to
manufacture the VSPA semiconductor package in its own facility in Boca
Raton, Florida.  The automated machinery used in the manufacturing
process has been designed and built by the Company to produce VSPA
parts based on anticipated customer demand.  The machines have a wide
range of flexibility in terms of the pin count of the VSPA packages
they will produce, and expected production capacity ranges from
235,000 parts per month to 290,000 parts per month, depending upon the
pin count of the package.  Two automated machines have been produced
and a third is in production, and commercial scale production of the
VSPA product has recently commenced.  There can be no assurance that
the Company will be able to complete additional machines within a
reasonable period of time, or be capable of producing the quantities
of VSPA that are anticipated.  In the event the Company is unable to
produce VSPA in high volumes within a reasonable period of time, or at
all, delays in securing alternative manufacturing sources would result
and would have a material adverse effect on the Company's operations.

The Company has developed the capability to manufacture the Compass
Connector products required for its Computer Systems in its own
facility in Boca Raton, Florida. The Company has also entered into an
agreement with Sun Precision Works, Pvt. Ltd. for the production of
the male connector component of the Compass Connector. Although the
Company's supply of this component is currently adequate to meet its
needs, no assurance can be given that such supplier can produce such
component in sufficient quantities in the future.  The Company has an
arrangement with LG Cable & Machinery Ltd. to supply the Compass V
Connector which the Company expects to use in the certain models of
its Rock City computers.  Although the Company anticipates that it
will be able to obtain Compass V Connectors from LG Cable & Machinery
Ltd. under this arrangement, no assurance can be given that the supply
of such component will be in quantities sufficient to meet the
Company's needs.

The Company anticipates that it will be dependent on third parties for
the manufacture and/or assembly of printed circuit boards, chassis and
other subassemblies, as well as for the supply of various of the
components, incorporated into the Computer Systems, and for performing
the final assembly configuration, certain quality control testing and
delivery of such computers. Although the Company has an arrangement
with a contract manufacturer to manufacture certain subassemblies and
to assemble certain models of the Computer Systems, there can be no
assurance that such manufacturer will dedicate sufficient production
capacity to satisfy the Company's requirements within scheduled
delivery times or at all.  In addition, the failure or delay by the
Company's suppliers in fulfilling its anticipated component needs
would adversely affect the Company's ability to develop and market its
products and technology.  The Company believes that these components
are available from multiple sources, and the Company anticipates that
it will obtain certain of them from a single or limited number of
sources of supply.  In the event that certain of such suppliers are
unable or unwilling to provide the Company with components to be used
in the Computer Systems on commercially reasonable terms, or at all,
delays in securing alternative sources of supply could result in a
material adverse effect on the Company's operations.

At a future date, the Company may determine that the development of
manufacturing capabilities with respect to the Computer Systems
(and/or their subassemblies or components) is necessary or
appropriate.  The establishment of manufacturing and/or assembly
capabilities may result in significant expense and is subject to
numerous risks, including unanticipated technological problems and
delays. The failure of the Company to successfully manufacture its
Computer Systems would have a material adverse effect on the Company.

8. DEPENDENCE ON KEY PERSONNEL.  The success of the Company will be
dependent on the continued personal efforts of Stanford W. Crane, Jr.,
its Chairman, President and Chief Executive Officer and the principal
inventor of its proprietary products and technologies, and certain
other key personnel. Although Mr. Crane has entered into a five-year
employment agreement with the Company, the agreement provides that he
may resign by giving six months' notice at any time. The loss of his
services would have a material adverse effect on the Company. The
Company has obtained key-man insurance on Mr. Crane's life in the
amount of $2,000,000. The success of the Company also is dependent
upon its ability to hire and retain additional qualified executive,
scientific, production and marketing personnel. Although the Company
has been able to hire qualified personnel, there can be no assurance
that the Company will be able to hire additional qualified personnel
or retain such necessary personnel.

9. 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 31, 1997, the Company had obtained 11 United States patents
and an aggregate of 38 foreign patents.  In addition, the Company had
pending a total of 19 United States and 21 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 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.

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.

10. DEPENDENCE ON THE CRANE-PANDA LICENSING AGREEMENT; POTENTIAL
CONFLICTS OF INTEREST.  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 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. 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. 
Although 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, 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.

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. The 3M License
provides in certain circumstances for the payment of a royalty to Mr.
Crane. As of the date of this Transition Report on Form 10-K, Mr.
Crane had received no such payments.

11. SUBSTANTIAL CONTROL BY MANAGEMENT.  As of February 27, 1998,
officers and directors of the Company own of record and beneficially
approximately 34% of the issued and outstanding shares of Common Stock
and are thus able to exert substantial influence over the policies and
affairs of the Company.

12. RISKS RELATING TO POTENTIAL INTERNATIONAL OPERATIONS.  Although
the Company currently prices all of its international sales in U.S.
dollars, future sales or licensing of its products or technologies
outside the U.S. may be subject to the risks associated with
fluctuations in currency exchange rates. The Company may also be
subject to other risks associated with international operations,
including tariff regulations and requirements for export licenses,
particularly with respect to the export of certain technologies (which
licenses may on occasion be delayed or difficult to obtain),
unexpected changes in regulatory requirements, longer accounts
receivable requirements, difficulties in managing international
operations, potentially adverse tax consequences, economic and
political instability, restrictions on repatriation of earnings, and
the burdens of complying with a wide variety of foreign laws. In
addition, the laws of certain countries do not protect the Company's
products and intellectual property rights to the same extent as do the
laws of the United States. There can be no assurance that such factors
will not have a material adverse effect on the Company's future
international sales or licenses and, consequently, on the Company's
business and operations as a whole.

13. 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 trading price
of the Company's Common Stock 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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is incorporated by reference
from pages F-1 through F-26 of this Transition Report on Form 10-K.


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

None
<PAGE>
                                   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 1998 Annual Meeting of Shareholders to be
filed with the Securities and Exchange Commission not later than April
30, 1998.

     Set forth below are the names, ages as of March 1, 1998 and
business experience of the executive officers of the Company:

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

Stanford W. Crane, Jr.   47   President, Chief Executive Officer 
                                and Chairman of the Board of Directors
William E. Ahearn        60   Vice President and Chief Scientist
C. Daryl Hollis          54   Chief Financial Officer and Secretary
Melissa F. Crane         32   Vice President of Strategic Business

     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.

     WILLIAM E. AHEARN joined the Company in March 1996 and served as
President of the Company's Archistrat Systems Division from April 1996
through December 1996 and as Vice President of Technology from January
to September 1997.  In September 1997, he was named Vice President and
Chief Scientist.  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.

     C. DARYL HOLLIS has served as Chief Financial Officer of the
Company since June 1996.  From March 1993 through March 1996, Mr.
Hollis was Senior Vice President, Secretary and Treasurer of Pointe
Financial Corporation, a privately-held bank holding company.  From
1991 through February 1993, Mr. Hollis was an independent business
consultant. For more than 10 years prior to 1991, Mr. Hollis was a
partner with Ernst & Young.

    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.  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.

ITEM 11.  EXECUTIVE COMPENSATION

     The information required by this item is incorporated by
reference from the Registrant's definitive Proxy Statement for its
1998 Annual Meeting of Shareholders to be filed with the Securities
and Exchange Commission not later than April 30, 1998.


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
1998 Annual Meeting of Shareholders to be filed with the Securities
and Exchange Commission not later than April 30, 1998.


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
1998 Annual Meeting of Shareholders to be filed with the Securities
and Exchange Commission not later than April 30, 1998.

                                   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-25.

                  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).

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 Registrant s 
        Form 8-K filed February 11, 1998).

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 10.9  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).

21      Subsidiaries of the Company.

23.1    Consent of Price Waterhouse LLP.

27      Financial Data Schedule.

---------------
@ - Management contracts and compensatory plans and arrangements.


      (B)     REPORTS ON FORM 8-K:

              None

<PAGE>
                               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: March 25, 1998                  By:  /s/ Stanford W. Crane, Jr.
                                                
--------------------------
                                           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.

Signature                    Title                        Date
-----------------------   --------------------------   ---------------

/s/ Stanford W. Crane, Jr. President, Chief Executive   March 25, 1998
-------------------------- Officer and Chairman of the 
Stanford W. Crane, Jr.     Board (Principal Executive
                           Officer)

/s/ C. Daryl Hollis        Chief Financial              March 25, 1998
-------------------------- Officer and Secretary
C. Daryl Hollis            (Principal Financial and
                           Accounting Officer)

/s/ James T.A. Wooder      Director                     March 25, 1998
--------------------------
James T.A. Wooder

/s/ Claud L. Gingrich      Director                     March 25, 1998
--------------------------
Claud L. Gingrich

/s/ Rao R. Tummala         Director                     March 25, 1998
--------------------------
Dr. Rao R. Tummala

<PAGE>
Page F-1

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

                                                                  Page
                                                                  ----

Report of Independent Certified Public Accountants............    F-2

Balance Sheets as of December 31, 1997 and March 31, 1997 ....    F-3

Statements of Operations for the nine months ended 
December 31, 1997 and years ended March 31, 1997 and 1996 ....    F-4

Statements of Changes in Stockholders' Equity for the nine 
months ended December 31, 1997 and years ended March 31, 1997 
and 1996 .....................................................    F-5

Statements of Cash Flows for the nine months ended 
December 31, 1997 and years ended March 31, 1997 and 1996.....    F-6

Notes to Financial Statements...........................   F-7 - F-24

Report of Independent Certified Public Accountants on 
Financial Statement Schedule..................................   F-25

Schedule II - Valuation and Qualifying Accounts...............   F-26

<PAGE>
Page F-2

              Report of Independent Certified Public Accountants


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

In our opinion, the accompanying balance sheets and the related
statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial
position of The Panda Project, Inc. at December 31, 1997 and March 31,
1997, and the results of its operations and its cash flows for the
nine month period ended December 31, 1997 and each of the two years in
the period 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
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for the opinion expressed
above.

The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern.  As discussed in Note 2
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 are also described in Note 2.  The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.



/s/Price Waterhouse LLP
-----------------------
PRICE WATERHOUSE LLP

Fort Lauderdale, Florida
March 10, 1998

<PAGE>
Page F-3
The Panda Project, Inc.
Balance Sheets
----------------------------------------------------------------------
                                        December 31,      March 31,
                                           1997              1997
ASSETS
Current Assets:
  Cash and cash equivalents            $     619,683    $   3,243,505
  Accounts receivable (net of allowance 
   of $10,006 as of December 31, 1997 
   and $110,962 as of March 31, 1997)        224,851          165,093
  Inventory                                  965,199          822,309
  Other receivables                          105,825           18,905
  Prepaid expenses and other current 
   assets                                    378,242           98,963
                                       -------------    -------------
    Total current assets                   2,293,800        4,348,775
                                       -------------    -------------
Property and equipment, net                2,818,218        2,823,798
Restricted cash                              260,000          150,000
Debt issuance costs, net                     340,513             -
Other assets                                   1,299           14,747
                                       -------------    -------------
      Total assets                     $   5,713,830    $   7,337,320
                                       =============    =============
LIABILITIES AND STOCKHOLDERS' EQUITY 
Current Liabilities:
  Accounts payable                     $   1,651,540    $     852,388
  Notes payable                            1,000,000             -   
  Accrued compensation and employee 
    benefits                                   3,922           60,934
  Other current liabilities                  960,664        1,611,123
                                       -------------    -------------
    Total current liabilities              3,616,126        2,524,445
                                       -------------    -------------
COMMITMENTS AND CONTINGENCIES -- NOTE 17

STOCKHOLDERS' EQUITY
  Common stock, $.01 par value, 
    50,000,000 shares authorized;
    12,215,522 and 10,124,643 shares
    issued and outstanding at 
    December 31, 1997 and 
    March 31, 1997, respectively             122,155          101,247
  Additional paid-in capital              64,841,102       58,627,529
  Accumulated deficit                    (62,865,553)     (53,915,901)
                                       -------------    -------------
    Total stockholders' equity             2,097,704        4,812,875
                                       -------------    -------------
      Total liabilities and 
       stockholders' equity            $   5,713,830    $   7,337,320
                                       =============    =============
The accompanying notes are an integral part of these financial
statements.


Page F-4
The Panda Project, Inc.
Statements of Operations
---------------------------------------------------------------------
                             Nine Months
                                Ended              Year Ended
                             December 31,           March 31,
                                1997           1997          1996

Revenues:
 Product sales              $    923,792  $  1,547,896   $    870,658
 Licensing fees                  350,000       100,000           -
 Contract research and 
   development revenues          973,003       734,123           -
                            ------------  ------------   ------------
    Net revenues               2,246,795     2,382,019        870,658

Operating expenses:
 Cost of sales                 1,028,577     2,762,936      1,997,101
 Research and development      3,255,335     5,722,717      7,954,924
 Selling, general and 
  administrative               6,113,255    13,142,099     15,810,701
 Costs associated with asset
  impairments                       -        2,056,025           -
                            ------------  ------------   ------------
   Total operating expenses   10,397,167    23,683,777     25,762,726
                            ------------  ------------   ------------
Operating loss               ( 8,150,372)  (21,301,758)   (24,892,068)

Interest expense             (   955,014)         -              -   
Interest income                  144,449       427,657        953,962
Other income                      11,285          -            43,680
                            ------------  ------------   ------------
Net loss                    $( 8,949,652) $(20,874,101)  $(23,894,426)
                            ============  ============   ============
Basic and diluted
  loss per share            $      ( .78) $      (2.15)  $      (3.07)
                            ============  ============   ============
Weighted average shares 
  outstanding                 11,541,811     9,723,801      7,786,426
                            ============  ============   ============
  
The accompanying notes are an integral part of these financial
statements.

<PAGE>
Page F-5
<TABLE>

The Panda Project, Inc.
Statements of Changes in Stockholders  Equity
----------------------------------------------------------------------
<CAPTION>
                                 Common Stock        Additional                        Total
                             ---------------------     Paid-in      Accumulated    Stockholders'
                               Shares    Par Value     Capital        Deficit         Equity
                             ----------  ---------  -------------  ------------- ----------------
<S>                           <C>        <C>        <C>            <C>            <C>
                                                                                                
Balance at March 31, 1995     6,666,891  $  66,669  $  18,256,028  $  (9,147,374) $    9,175,323
                             ----------  ---------  -------------  -------------  --------------

Exercise of warrants             27,917        279        107,222           -            107,501
Exercise of stock options       788,053      7,881      1,039,201           -          1,047,082
Issuance of common stock      1,197,627     11,976     28,351,385           -         28,363,361
Issuance of options below
  fair market value                -          -            68,750           -             68,750

Net loss                           -          -              -       (23,894,426)    (23,894,426)
                             ----------  ---------  -------------  -------------  --------------
Balance at March 31, 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)
                             ----------  ---------  -------------   -------------  --------------
Balance at December 31, 1997 12,215,522  $ 122,155  $  64,841,102   $(62,865,553)  $   2,097,704
                             ==========  =========  =============   =============  ==============

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

<PAGE>
Page F-6
<TABLE>
The Panda Project, Inc.
Statements of Cash Flows
-----------------------------------------------------------------
<CAPTION>
                                     Nine Months Ended           Year Ended
                                        December 31,               March 31,
                                            1997             1997            1996
<S>                                      <C>             <C>             <C>
Cash flows from operating activities:
  Net loss                               $( 8,949,652)   $(20,874,101)   $(23,894,426)
Adjustments to reconcile net
 loss to net cash used 
 by operating activities:
   Depreciation and amortization            1,198,095       1,595,549         560,717
   Provision for doubtful accounts             60,905         236,303         171,943
   Cost associated with asset impairments        -          2,056,025            -
   Beneficial conversion feature related
     to convertible debentures                907,317            -               -
   Other noncash charges                      188,322         144,000            -
   Stock option compensation                     -               -             68,750
Changes in operating assets 
 and liabilities:
   Increase in accounts receivable           (120,663)        (90,021)       (483,318)
  (Increase) decrease in other
    receivables                               (86,920)        469,651        (488,556)
  (Increase) decrease in prepaid 
    expenses and other current assets        (279,279)        147,979          60,981
  (Increase) decrease in inventory           (142,890)        793,713      (1,442,362)
  (Increase) decrease in restricted cash     (110,000)        600,000        (750,000)
   Decrease (increase) in other assets         13,448          83,300         (98,047)
   Increase (decrease) in accounts 
     payable, accrued compensation and 
     employee benefits, and other 
     current liabilities                       91,681      (1,165,645)      2,620,280
                                         ------------    ------------    ------------
NET CASH USED BY OPERATING ACTIVITIES     ( 7,229,636)    (16,003,247)    (23,674,038)
                                         ------------    ------------    ------------
Cash flows from investing activities:
   Additions to property and equipment    ( 1,055,819)     (2,160,173)     (3,593,664)
                                         ------------    ------------    ------------
NET CASH USED BY INVESTING ACTIVITIES     ( 1,055,819)     (2,160,173)     (3,593,664)
                                         ------------    ------------    ------------
Cash flows from financing activities:
   Proceeds from issuance of 
     convertible debentures                 4,800,000            -               -   
   Debt issuance costs                       (269,500)           -               -   
   Proceeds from issuance of common stock     131,133      11,291,752      30,536,362
   Payment of stock issuance costs               -           (616,367)     (1,018,420)
   Proceeds from issuance of notes payable  1,000,000            -               -   
                                         ------------    ------------    ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES   5,661,633      10,675,385      29,517,942
                                         ------------    ------------    ------------
NET (DECREASE) INCREASE IN CASH 
   AND CASH EQUIVALENTS                    (2,623,822)     (7,488,035)      2,250,240
CASH AND CASH EQUIVALENTS AT BEGINNING
   OF PERIOD                                3,243,505      10,731,540       8,481,300
                                         ------------    ------------    ------------
CASH AND CASH EQUIVALENTS AT END 
   OF PERIOD                             $    619,683    $  3,243,505    $ 10,731,540
                                         ============    ============    ============
Supplemental disclosure of cash flow information:
-------------------------------------------------
Interest paid                            $      6,328    $      -        $       -
                                         ============    ============    ============
        The accompanying notes are an integral part of these financial statements.
/TABLE
<PAGE>
Page F-7 
The Panda Project, Inc.
Notes to Financial Statements
-----------------------------------------------------------------

1.  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, and designs, develops, manufactures, markets, services and
supports powerful, modular, universal platform computers, including
personal computers, servers and workstations. The Company markets its
Systems products and services under the Archistrat and Rock City brand
names through value-added resellers and directly to its customers. The
Company markets and sells its Technologies directly to end users as
well as through a network of independent sales representatives. 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 transition
period April 1, 1997 through December 31, 1997 and for the two years
ended March 31, 1997.  References to "fiscal 1997" relate to the year
ended March 31, 1997. 

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:


                           1997             1996
                                         (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)


2.  LIQUIDITY AND CAPITAL RESOURCES:

During the year ending December 31, 1998, the Company expects to
continue development of its Technology Products, commence the
commercial production and sale of its VSPA semiconductor package and
its new Rock City line of computer systems.  The Company anticipates
that sales of its VSPA semiconductor package and increased shipments
of its Computer Systems and the related revenue, as well as licensing
and royalty revenue, will provide additional resources to at least
partially fund its activities during 1998. However, there can be no
assurance that revenues from any or all of these sources will in fact
be realized on the timetable anticipated by the Company.  In addition,<PAGE>
Page F-8

revenues associated with the cooperative development agreement entered
into with the U.S. Government during the prior fiscal year will be
limited during 1998 as the agreement nears its end.

The Company has successfully implemented cost reduction plans and was
able to significantly decrease the amount of average monthly cash
consumption.  Cash flows used by operating activities decreased $8.8
million from $16.0 million used during fiscal year 1997 to $7.2
million used during the nine months ended December 31, 1997. The
Company will continue to focus on cost controls during 1998 and will
take further cost reduction actions as deemed necessary.  However,
there can be no assurances that such efforts will be successful or
that such plans will result in adequate cost reductions.

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 and Computer Systems, to
continue efforts that may lead to the commercialization of additional
products and technologies and to finance other working capital
requirements.

As of December 31, 1997, the Company had total current assets of $2.3
million and total current liabilities of $3.6 million.  However,
during February 1998, the Company raised $6.0 million from the
issuance of Series A Convertible Preferred stock (see note 18).

In the event the Company's working capital, as augmented by proceeds
from any sales revenue, prove to be insufficient to fund operations
(due to unanticipated expenses, delays, problems, or otherwise), the
Company would be required to seek additional financing. Furthermore,
depending upon the Company's progress in the development of its
products and technology and manufacturing capabilities, acceptance of
its products and technology by third parties, and the state of the
capital markets, the Company may also determine that it is advisable
to raise additional equity capital. In addition, in the event that the
Company receives a larger than anticipated number of purchase orders
for its Computer Systems or VSPA semiconductor package, it may require
resources substantially greater than it currently has or than are
otherwise available to the Company, and the Company may be required to
raise additional capital or engage third parties (as to which
engagement there can be no assurance) to assist the Company in meeting
such orders. 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.

3.  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 <PAGE>
Page F-9

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.

Accounts Receivable
-------------------
The Company has business activities with large corporate, and
government customers as well as a variety of small end-users.  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 as deemed 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 has adopted Statement of Financial Accounting Standards 
No. 128, "Earnings Per Share" (FAS 128), which establishes new
standards for computing and presenting earnings per share ("EPS")
effective for periods ending after December 15, 1997.  FAS 128
requires a dual presentation of basic and diluted EPS. Because of
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 in all periods presented.

Potential common shares in the amount of 2,341,492 for the nine months
ended December 31, 1997 and 2,246,916 and 1,823,331 for the years <PAGE>
Page F-10

ended March 31, 1997 and 1996, respectively, have been excluded from
the computation of diluted earnings per share as the effect of their
inclusion is antidilutive. 

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.

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 (see Note 12).

Debt Issuance Costs
-------------------
Deferred loan costs of approximately $404,000 incurred in connection
with debt financing are being amortized on a stright-line basis over
the life of the debt.  Amortization expense for the nine months ended
December 31, 1997 amounted to approximately $63,000.

Reclassifications
-----------------
Certain reclassifications have been made to the prior years  financial
statements to conform with the period ended December 31, 1997
presentation. 

4.  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.

5.  RESTRICTED CASH:

Restricted cash as of December 31, 1997 consists of cash in restricted
accounts to serve as collateral for an automated clearing house
agreement with the Company's bank and to secure a letter of credit
issued to one of the Company's landlords.<PAGE>
Page F-11

6.  INVENTORY:

Inventory, net of allowances for slow-moving and obsolete items,
consists of the following:


                                    December 31,    March 31,
                                         1997         1997

       Raw Materials                $   879,756   $   434,569
       Work in Process                   14,024        43,341
       Finished Goods                    71,419       344,399
                                    -----------   -----------
                                    $   965,199   $   822,309
                                    ===========   ===========

Inventory reserves totaled $600,000 and $250,000 at December 31, 1997
and March 31, 1997, respectively. Given the rapid pace of
technological development in the computer industry, these inventories
are at risk of becoming technologically obsolete.

7.  PROPERTY AND EQUIPMENT:

Property and equipment consists of the following:

                                Estimated    December 31,   March 31,
                               Useful Lives     1997          1997

Office furniture and equipment  3-10 years   $ 3,311,648  $ 3,149,374
Machinery and equipment         3-5 years        873,560      850,945
Trade show booth and exhibit     5 years         420,428      407,575
Motor vehicles                   5 years          54,535       54,402
Leasehold improvement            5 years         519,298      501,463
Construction in progress                         826,828         -
Less:  Accumulated depreciation               (3,188,079)  (2,139,961)
                                             -----------  -----------
     Total property and equipment, net       $ 2,818,218  $ 2,823,798
                                             ===========  ===========

Depreciation expense for the nine months ended December 31, 1997, and
for the fiscal years ended March 31, 1997 and 1996 totaled $1,061,399,
$1,595,549 and $560,717, respectively.

During the year ended March 31, 1997, the Company determined that, due
to 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 impaired.  As a result, the Company recorded charges
totaling approximately $2,056,000 during the year ended March 31,
1997.  Of this total, 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 charge using various valuation
techniques.<PAGE>
Page F-12
8.  SUBORDINATED CONVERTIBLE DEBENTURES:

During April 1997, the Company completed a private placement of $4.8
million of 4% subordinated convertible debentures.  The debentures
were due two years from the date of issuance and were convertible into
shares of common stock at the lower of $5.625 per share or 82% of the
average closing bid price of the Company's common stock for the five
consecutive trading days immediately preceding the date of conversion. 
During June and July, all of such debentures were converted into an
aggregate of 1,996,822 shares of the Company's common stock.

In connection with the transaction, the Company paid placement fees of
$384,000 of which $192,000 was paid in cash and the balance by
issuance of 30,918 shares ("Placement Shares") of the Company's common
stock.  In addition to the placement fees, the Company issued warrants
to two parties 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 $6.75 and $7.00
per share, respectively.  These warrants have been recorded at 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.  In addition, the Company has filed a
registration statement with the Securities and Exchange Commission
(the "SEC") to effect the registration of the Placement Shares. The
Company has also agreed to effect the registration of the shares
issuable upon conversion of the debentures in the event of certain
amendments to certain securities regulations and has granted certain
piggyback registration rights to the holders of the warrants.

The value of the beneficial conversion feature related to the
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.

9.  NOTES PAYABLE:

On December 19, 1997, the Company received a short-term loan in the
amount of $1,000,000 from Helix (PEI) Inc. ("Helix").  The loan is due
and payable on February 28, 1998 and is secured by the Company's
intellectual property.  Interest accrues at an annual rate equal to
the prime rate of interest payable by the Royal Bank of Canada on US
dollar advances plus 2% (10.26% as of December 31, 1997). The Company
also agreed to issue Helix warrants to purchase 200,000 shares of the
Company's common stock at an exercise price of $4.50 per share.  The
warrants have a term of two years.  Helix and its affiliates currently
hold approximately 12% of the Company's common stock.  James T. A.
Wooder, a director of the Company, is a Vice President of Helix's
parent, Helix Investments (Canada), Inc.<PAGE>
Page F-13

The warrants have been recorded as debt issuance costs at a value of 
approximately $404,000.  Total deferred issuance costs, including the
value of the warrants, are amortized as interest expense.

On January 12, 1998, the Company borrowed an additional $1,000,000
from Helix under the same terms as the first note with the exception
that the related warrants have an exercise price of $4.00 per share.

On February 27, 1998, the Company fully repaid both of these notes and
the related security interests were released.

10.  OTHER CURRENT LIABILITIES:

The components of other current liabilities are as follows:

                                  December 31,     March 31,
                                      1997           1997

       Provision for warranties   $   200,000    $   200,000
       Accrual for lease costs        176,867        323,448
       Other                          583,797      1,087,675
                                  -----------    -----------
                                  $   960,664    $ 1,611,123
                                  ===========    ===========
11.  COMMON STOCK:

In July 1995, the Company consummated a private placement to
accredited investors of 399,209 units at a purchase price of $73.60
per unit.  Each unit consisted of three shares of common stock and one
warrant to purchase one share of common stock at an exercise price of
$40.00 per share, exercisable beginning in July 1996 and expiring in
July 1998, resulting in the issuance by the Company of an aggregate of
1,197,627 shares and 399,209 warrants.  The Company received proceeds
of approximately $28.4 million from the private placement, net of
expenses of $1,018,420.

In July 1996, the Company completed the sale of 1,087,833 shares of
its common stock in a private placement to accredited investors.  The
Company received proceeds of approximately $9.2 million, net of
expenses of approximately $600,000.  In addition to the shares of
common stock purchased by each investor in the placement, such
investor received a warrant to purchase an equal number of shares of
common stock at an exercise price of $11 per share.  The warrants
expire in July 2001 and are callable by the Company when the Company's
common stock trades at a price of $26 or more for thirty consecutive
trading days.

During the annual meeting of shareholders held on August 12, 1997, an
amendment to the Company's Articles of Incorporation was approved
which  allows the Company to issue up to 2,000,000 shares of preferred
stock.<PAGE>
Page F-14

12.  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 nonqualified 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 nonqualified 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, 1997, there were 71,332, 
227,500 and 22,000 shares available for grant under the 1993 Plan, the
1995 Plan and the Director Plan, respectively.<PAGE>
Page F-15
<TABLE>
A summary of the Company's stock option activity and related information is
presented below:

<CAPTION>
                 Nine Months Ended                    Fiscal Year Ended
                 December 31, 1997         March 31, 1997            March 31, 1996
           ---------------------------------------------------------------------------
                        Weighted-                Weighted-                 Weighted-
                         Average                  Average                   Average
              Shares  Exercise Price   Shares  Exercise Price   Shares  Exercise Price
           ---------------------------------------------------------------------------
<S>            <C>         <C>          <C>         <C>        <C>          <C>
Outstanding, 
beginning of
year           586,900     $ 8.83       906,338     $17.66     1,387,660    $ 3.40

Granted        266,500       5.13       522,500       6.62       411,641     31.66
Exercised     (    100)      4.75      (305,487)      4.47      (788,053)     1.33
Forfeited     (198,850)      8.40      (536,451)     23.22      (104,910)    10.99
              --------     ------     ---------     ------     ----------
Outstanding, 
end of period  654,450     $ 7.45       586,900     $ 8.83       906,338    $17.66
              ========                =========                ==========
Exercisable 
at end of 
period         221,700
              ========
</TABLE>

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
                      Ended             Fiscal Year Ended
               December 31, 1997   March 31, 1997  March 31, 1996

Net loss:
    As reported  ($ 8,949,652)      ($20,874,101)   ($23,894,426)
    Pro forma    ($ 9,323,415)      ($21,315,572)   ($24,043,171)

Basic and diluted 
  loss per share:
    As reported        ($ .78)            ($2.15)          ($3.07)
    Pro forma          ($ .81)            ($2.19)          ($3.09)

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 nine months ended December 31,
1997 and fiscal years ended March 31, 1997 and 1996, respectively:
risk-free interest rates of 6.2%, 6.3% and 5.9%; dividend yields of 0%
in all periods; volatility factors of the expected market price of the
Company's common stock of 97%, 98% and 98%; and a weighted-average
expected life of the option of 4 years, 4 years and 1.9 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
models require the input of highly subjective assumptions including<PAGE>
Page F-16

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, 1997:

OUTSTANDING OPTIONS

                      Number         Weighted Average
                  Outstanding at        Remaining     Weighted Average
Exercise Prices  December 31, 1997   Contractual Life  Exercise Price
-------------------------------------------------------------------

$ 2.75 - $ 3.81        23,500          7.0 Years           $  3.29
$ 4.38 - $ 6.13       371,200          8.4 Years           $  5.27
$ 7.75 - $ 8.50       217,750          7.6 Years           $  7.93
$12.50 - $14.25        16,000          7.0 Years           $ 13.10
$28.25 - $44.25        26,000          7.4 Years           $ 34.89
                      -------          
                      654,450          8.0 Years           $  7.45
                      =======

OPTIONS EXERCISABLE
                              Number
                          Exercisable at          Weighted Average
Exercise Prices         December 31, 1997          Exercise Price
---------------------------------------------------------------------
$ 4.38 - $ 6.13               94,700                  $   5.06
$ 7.88 - $ 8.50               87,000                  $   7.93
$12.50 - $14.25               16,000                  $  13.10
$28.25 - $44.25               24,000                  $  34.85
                            --------
                             221,700                  $   9.99
                            ========
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.  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
and $127,000 for the years ended March 31, 1997 and 1996,<PAGE>
Page F-17

respectively.  The employer matching contribution was discontinued as
of October 1, 1996.

13.  COMMON STOCK WARRANTS:

During the nine months ended December 1997, the Company issued
warrants to purchase 270,096 shares of the Company's common stock. 
These warrants have been recorded at a value of approximately $567,000
(see Notes 8 and 9).

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.

14.  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 both the nine months ended December 31,
1997 and the year ended March 31, 1997 representing the first two
payments received.  The remaining $300,000 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, 1997.<PAGE>
Page F-18

In July 1997, the Company entered into another licensing agreement
with LG whereby LG 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 or its affiliates. No
royalties have been received under the agreement as of December 31,
1997.

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 will contribute approximately $1.8 million to the project
over a period of 18 months.  The agreement, as amended, requires the
Company to match the $1.8 million with $2.7 million of development
costs associated with the project.  Failure of either party to provide
its respective total contribution may result in a proportionate
reduction in funding for the other party.

Revenue is recognized over the term of the cooperative development
agreement based on the achievement of stated milestones.  For the nine
months ended December 31, 1997 and the year ended March 31, 1997, the
Company recognized revenue related to the agreement of approximately
$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 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 noncash exchange for certain products and
services. During the year ended March 31, 1997, the following products
and services were received from the software developer: 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.<PAGE>
Page F-19

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 fiscal
1997.  Sales of computer systems for the year ended March 31, 1996
include sales to two customers which represented 26% and 13% of total
revenues.  U.S. export sales of computer systems to a Brazilian
reseller represented an additional 23% of total revenues for the year
ended March 31, 1996. 

15.  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 equally 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 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<PAGE>
Page F-20

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.

16. INCOME TAXES:

As a result of tax losses incurred by the Company, no current tax
provision has been recorded for the nine months ended December 31,
1997 and the years ended March 31, 1997 and 1996.

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:
                                         December 31,      March 31,
                                            1997             1997  
Deferred tax assets:
  Net operating loss carryforwards    $   28,504,000   $   24,498,000
  Research and development credits           990,000          753,000
  Write down of property and equipment       475,000          794,000
  Inventory reserve                          367,000          328,000
  Other                                      129,000          346,000
                                      --------------   --------------
    Gross deferred tax asset              30,465,000       26,719,000

    Deferred tax asset valuation 
     allowance                           (30,113,000)     (26,386,000)
                                      --------------   --------------
    Net deferred tax asset            $      352,000   $      333,000
                                      ==============   ==============
Deferred tax liabilities:
  Tax depreciation and amortization 
   in excess of book                  $     (248,000)  $     (312,000)
  Other                                     (104,000)         (21,000)
                                      --------------   --------------
     Deferred tax liability           $     (352,000)  $     (333,000)
                                      ==============   ==============
     Net deferred taxes               $         -      $         -
                                      ==============   ==============

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, 1997, the Company has available approximately $73.8
million in net operating loss ("NOL") carryforwards available to
offset future taxable income, if any, for federal and state income tax
purposes.  This includes approximately $13.9 million of tax deductions
associated with the exercise of certain non-qualified stock options by
employees of the Company.  Additional paid-in capital will be credited<PAGE>
Page F-21
upon realization of these stock option tax deductions.  If unutilized,
these NOL carryforwards will expire at various times beginning in the
year 2009.

At December 31, 1997, unused credit carryforwards for increasing
research activities of approximately $990,000 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 subsequent
stock  offerings, 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.

17.  COMMITMENTS AND CONTINGENCIES:

Operating Leases
----------------
The Company leases various facilities and equipment under
noncancelable operating lease arrangements which expire at various
dates through year 2002.  Rent expense under all operating leases was
approximately $641,000, $1,035,000 and $383,000 for the nine months
ended December 31, 1997 and for the years ended March 31, 1997 and
1996, respectively.

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

                  December 31,
                     1998                 $   744,013
                     1999                     773,659
                     2000                     740,435
                     2001                     426,430
                     2002                     204,975
                                          -----------
               Total minimum future   
                 rental payments          $ 2,889,512
                                          ===========

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.

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<PAGE>
Page F-22

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.

Mr. Crane s employment is terminable at will by Mr. Crane upon six
months prior notice and is terminable by the Company for cause at any
time or in the event that Mr. Crane becomes disabled and, as a result,
is unable to perform his obligations under the agreement for three
consecutive months.  In the event that the agreement is terminated
other than as a result of Mr. Crane s death or disability or for
cause, Mr. Crane will be entitled to receive an amount equal to the
greater of $150,000 or his annual compensation for the preceding
calendar year.  In addition, Mr. Crane has agreed not to compete with
the Company for a period of two years after the termination of his
employment provided he receives payments during that period equal to
twice the greater of $150,000 or his salary at the time of such
termination, calculated on an annualized basis.

In connection with the private placement sale of units in January
1994, the Underwriter who acted as placement agent for the Company
with respect to such sale requested that the terms of Mr. Crane's
employment contract with the Company be modified to limit the
Company's obligation to cause registration of his then existing share
holdings to no more than 20% annually following the second anniversary
of the Company's proposed initial public offering.

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.

Consulting Agreement
--------------------
During May 1997, the Company entered into a three year consulting
agreement with a third-party to manage its information systems and
computer network applications.  In consideration of the services to be
provided by the consultant, the Company agreed to pay monthly fees of
$180,000 per year, bonuses based on the achievement of specific
objectives, and an additional hourly rate for out-of-scope services. 
The Company has agreed to terminate this agreement effective April 30,
1998.

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

During the nine months ended December 31, 1997, 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-23

aggregate commitment under these purchase orders is approximately $1.1
million as of December 31, 1997.

Litigation
----------
During February 1997, the Company settled a lawsuit filed by an entity
that was engaged to act as the Company's financing agent in its
capital raising efforts during 1993 and 1994.  In conjunction with the
settlement, the Company made a cash payment of $40,000 and issued
17,500 shares of its common stock.  The settlement agreement requires
the Company to file a registration statement with the Securities and
Exchange Commission for the common shares issued and the Company has
done so. As a result of this transaction, a charge of $145,000 is
reflected under the caption Selling, General and Administrative 
expenses in the accompanying Statements of Operation for the year
ended March 31, 1997.

There are various legal proceedings and claims pending against the
Company, including a dispute with a former director.  While it is not
possible to determine the ultimate outcome of these matters, it is the
opinion of management, based on advice from counsel, that the
resolution of such matters will not have an aggregate material adverse
effect on the Company's financial position.

18.  SUBSEQUENT EVENTS:

Convertible Preferred Stock Issuance
------------------------------------

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.  In connection with this transaction,
the Company also issued Common Stock Purchase Warrants ("Warrants") to
purchase an aggregate of 150,000 shares of Common Stock.

Holders of Series A Preferred are entitled to a dividend of 5% per
annum of the purchase price for the shares, payable 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.  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) $6.10 subject to adjustment in the event
of certain dilutive issuances 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 issuance of the Series A Preferred, or 90%, if conversion
occurs after 180 days from issuance of the Series A Preferred. No
conversion of Series A Preferred into shares of Common Stock may occur
during the period prior to 120 days after issuance except at the Fixed
Conversion Price.  The Company may require that all unconverted shares
of Series A Preferred be converted at any time if the closing bid
price of Common Stock is equal to or greater than $12.00 per share for
a period of twenty consecutive trading days. <PAGE>
Page F-24

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.

In the event certain conditions specified in the Subscription
Agreement are met, the Company has the right to cause the issuance of
an additional 400 shares of Series A Preferred for an aggregate
purchase price of $4,000,000.  In such event, the Company would be
required to issue the purchasers of Series A Preferred Warrants to
purchase an additional 100,000 shares of Common Stock.

The terms of the Series A Preferred provide that upon the occurrence
of certain events, the Company may be required to redeem the
outstanding Series A Preferred.

In connection with this transaction, the Company has agreed to file
and has filed a Registration Statement on Form S-3 with the Securities
and Exchange Commission to effect the registration for resale of the
Common Stock issuable upon conversion of the Series A Preferred and
upon exercise of the Warrants.  Such Registration Statement has not
been declared effective by the Securities and Exchange Commission.

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.  In
management's opinion, the fair market value of this inventory is at
least equal to the amount to be paid. 
<PAGE>
Page F-25

     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-2 of this Form 10-K of The Panda
Project, Inc.  also included an audit of the Financial Statement
Schedule listed in Item 14(a)(2) of this Form 10-K.  In our opinion,
this Financial Statement Schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction
with the related financial statements.



/s/ Price Waterhouse LLP
------------------------
PRICE WATERHOUSE LLP


Fort Lauderdale, Florida
March 10, 1998<PAGE>
Page F-26
<TABLE>
THE PANDA PROJECT, INC.

Schedule II - Valuation and Qualifying Accounts
<CAPTION>
Column A         Column B            Column C        Column D    Column E

                                    Additions
                             ---------------------
                   Balance at Charged to  Charged               Balance at
                   Beginning   Costs and  to Other                End of
Description        of Period   Expenses   Accounts   Deductions   Period
--------------------------------------------------------------------------
<S>                   <C>          <C>          <C>     <C>         <C>
YEAR ENDED 
MARCH 31, 1996:

Allowance for 
Doubtful Accounts          -        171,943      -         -         171,943

Inventory 
Obsolescence Reserve       -        128,412      -         -         128,412

Deferred Tax 
Asset Valuation 
Allowance             3,730,716   9,118,284      -         -      12,849,000

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, 1997:

Allowance for
Doubtful Accounts       110,962      60,911      -     (161,867)(1)   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

(1) - Write off of bad debts.
(2) - Primarily relates to the revaluation of specific inventory items to net
      realizable value.
</TABLE>