============================================================================

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, DC. 20549

                          -----------------------

                                FORM 10-QSB

(Mark One) 
[X]  Quarterly report pursuant to Section 13 or 15(d) of the Securities 
     Exchange Act of 1934 for the quarterly period ended September 30, 1998 
     or

[ ]  Transition report pursuant to Section 13 or 15(d) of the Securities 
Exchange Act of 1934 for the transition period from         to           
                                                   ---------  -----------

                      Commission File Number 0-23841
                          -----------------------

                     INTEGRATED SENSOR SOLUTIONS, INC.
          (Exact name of registrant as specified in its charter)


           DELAWARE                                        77-0212047
(State or other jurisdiction of                         (I.R.S. Employer
Incorporation or organization)                         Identification No.)

             625 River Oaks Parkway, San Jose, California 95134
          (Address of principal executive offices)      (Zip code)
                               (408) 324-1044
            (Registrant's telephone number, including area code)

                           ------------------------

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 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 [ ]

Outstanding shares of registrant's common stock, $.001 par value, as of 
November 11, 1998: 7,628,060

This Report on Form 10-QSB includes 34 pages with the Index to Exhibits 
located on pages 19 to 20.

<PAGE>    1


                         INTEGRATED SENSOR SOLUTIONS, INC.
                               REPORT ON FORM 10-QSB
                       FOR QUARTER ENDED SEPTEMBER 30, 1998
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                     Page
                                                                     ----

<S>                                                                   <C>
PART I.     FINANCIAL INFORMATION

   Item 1.  Financial Statements:

            Condensed Consolidated Balance Sheets - September 30,
              1998 and March 31, 1998................................  3

            Condensed Consolidated Statements of Operations - Three
              and Six Months Ended September 30, 1998 and 1997.......  4

            Condensed Consolidated Statements of Cash Flows - Six
              Months Ended September 30, 1998 and 1997...............  5

            Notes to Condensed Consolidated Financial Statements.....  6

   Item 2.  Management's Discussion and Analysis of Financial 
              Condition and Results of Operations....................  10


PART II.     OTHER INFORMATION

   Item 1.  Legal Proceedings........................................  18

   Item 4.  Submission of Matters to a Vote of Security Holders......  18

   Item 5.  Other Information........................................  19

   Item 6.  Exhibits and Reports on Form 8-K.........................  19


            Signature................................................  21
</TABLE>

                                      2

<PAGE>    2





ITEM 1.    FINANCIAL STATEMENTS

                        INTEGRATED SENSOR SOLUTIONS, INC.

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                (in thousands)

<TABLE>
<CAPTION>

                                              September 30,    March 31,
                                                  1998          1998 (1)
                                              -------------   -----------
                                               (Unaudited)
<S>                                            <C>            <C>

ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                    $   3,920      $  17,610
   Short-term investments                           9,137             --
   Accounts receivable, net                         3,561          3,720
   Accounts receivable from related parties         1,561            802
   Inventories                                      4,612          3,120
   Prepaid expenses and other current assets        1,034            255
                                                ---------      ---------
     Total current assets                          23,825         25,507

PROPERTY AND EQUIPMENT, NET                         4,008          2,254
                                                ---------      ---------

TOTAL ASSETS                                    $  27,833      $  27,761
                                                =========      =========


LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Line of credit                               $     400      $     900
   Accounts payable-trade                           1,632          3,279
   Accounts payable to related parties                916          1,144
   Current portion of capital lease obligations       244            358
   Other current liabilities                          951            659
                                                ---------      ---------

     Total current liabilities                      4,143          6,340

LONG-TERM PORTION OF CAPITAL LEASE OBLIGATIONS        221            108
MINORITY INTEREST IN SUBSIDIARY                        64             78

STOCKHOLDERS' EQUITY:

   Common stock                                         8              7
   Additional paid-in capital                      33,838         31,064
   Accumulated deficit                            (10,237)        (9,429)
   Cumulative translation adjustment                  110            (32)
   Deferred compensation                             (314)          (375)
                                                ---------      ---------

     Total stockholders' equity                    23,405         21,235
                                                ---------      ---------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY      $  27,833      $  27,761
                                                =========      ========= 


(1)   Derived from the March 31, 1998 audited balance sheet included in
      the 1998 Annual Report on Form 10-KSB of Integrated Sensor Solutions,
      Inc.

</TABLE>

           See notes to condensed consolidated financial statements.


                                      3

<PAGE>    3





                         INTEGRATED SENSOR SOLUTIONS, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                     Three Months Ended   Six Months Ended 
                                        September 30,       September 30,  
                                       1998       1997      1998      1997 
                                     -------    -------   -------   -------
<S>                                  <C>       <C>       <C>      <C>
REVENUES:
  Product revenue                     $ 4,881   $ 2,415   $ 9,241  $ 4,968
  Contract revenue                        777     1,095     1,281    2,043
                                      -------   -------   -------  -------
    Total revenues (related party
      revenues of $2,567, $1,873, $373
      and $765 for the three and six
      months ended September 30, 1998
      and 1997, respectively)           5,658     3,510    10,522    7,011
                                      -------   -------   -------  -------
COST OF REVENUES:
  Cost of product revenue               3,501     1,607     6,854    3,445
  Cost of contract revenue                913       889     1,505    1,578
                                      -------   -------   -------  -------
    Total cost of revenues              4,414     2,496     8,359    5,033
                                      -------   -------   -------  -------

GROSS PROFIT                            1,244     1,014     2,163    1,978
                                      -------   -------   -------  -------

OPERATING EXPENSES:
  Research and development              1,007       484     2,031      839
  Sales, general, and administrative      789       496     1,420      934
                                      -------   -------   -------  -------

    Total operating expenses            1,796       980     3,451    1,773
                                      -------   -------   -------  -------

      INCOME (LOSS) FROM OPERATIONS      (552)       34    (1,288)     205

INTEREST EXPENSE                          (29)      (51)      (74)    (105)
INTEREST INCOME                           183        --       394       --
OTHER INCOME                              176        61       146       65
MINORITY INTEREST IN NET (INCOME)
  LOSS OF CONSOLIDATED SUBSIDIARY          (3)      (31)       14      (61)
                                      -------   -------   -------  -------

NET INCOME (LOSS)                     $  (225)  $    13   $  (808) $   104
                                      =======   =======   =======  =======

Basic and diluted net income (loss)
  per share (pro forma for 1997)      $ (0.03)  $  0.00   $ (0.11) $  0.02
                                      =======   =======   =======  =======

Shares used in computing basic net
  income (loss) per share (pro forma
  for 1997)                             7,601     4,556     7,580    4,526
                                      =======   =======   =======  =======

Shares used in computing diluted net
  income (loss) per share (pro forma
  for 1997)                             7,601     4,882     7,580    4,842
                                      =======   =======   =======  =======

</TABLE>

     See notes to condensed consolidated financial statements.


                                      4


<PAGE>    4



                           INTEGRATED SENSOR SOLUTIONS, INC.

                  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (Unaudited)
                                   (in thousands)
<TABLE>
<CAPTION>

                                                     Six Months Ended 
                                                      September  30,             
                                                   --------------------
                                                     1998        1997    
                                                   --------    --------
<S>                                               <C>         <C>
Operating activities
Net income (loss)                                  $   (808)   $    104
Adjustments to reconcile net income (loss)
  to net cash used in operating activities:
    Depreciation and amortization                       606         419
    Amortization of deferred compensation                62          56
    Minority interest in net income of subsidiary        14          61
    Foreign currency gains                             (239)        (35)

    Changes in operating assets and liabilities:
      Accounts receivable, net                         (389)       (533)
      Inventories                                    (1,477)       (885)
      Prepaid expenses                                 (575)       (191)
      Accounts payable                               (2,070)        (60)
      Accrued payroll and related expenses               75          (3)
        Other accrued liabilities                       292         186
                                                   --------    --------
    Net cash used in operating activities            (4,509)       (881)

Investing activities
Purchases of short-term investments                  (9,137)         --
Purchase of property and equipment                   (2,242)       (354)
Proceeds from sale of property and equipment             --          46
                                                   --------    --------
    Net cash used in investing activities           (11,379)       (308)

Financing activities
Payments on line of credit                             (500)         --
Payments of principal on notes payable                   --        (432)
Payments of principal on capital lease obligations      (86)        (96)
Net proceeds from issuance of common stock            2,784          36
                                                   --------    --------
    Net cash provided by (used in) financing
      activities                                      2,198        (492)
                                                   --------    --------

Decrease in cash and cash equivalents               (13,690)     (1,681)
Cash and cash equivalents at beginning of period     17,610       2,059
                                                   --------    --------

Cash and cash equivalents at end of period         $  3,920    $    378
                                                   ========    ========

Supplemental disclosure of cash flow information
Interest paid                                      $     74    $     64
                                                   ========    ========

Schedule of noncash financing activities  
Equipment acquired under capital leases            $     86    $     41
                                                   ========    ========
Accounts payable converted to capital leases       $     79    $     --
                                                   ========    ========

Issuance of preferred stock for payment of
  notes payable                                    $     --    $    400
                                                   ========    ========

Issuance of preferred stock for payment of
  interest on notes payable                        $     --    $     37
                                                   ========    ========

</TABLE>

       See notes to condensed consolidated financial statements

                                      5

<PAGE>    5

                     INTEGRATED SENSOR SOLUTIONS, INC.
           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              (Unaudited)


1.     SIGNIFICANT  ACCOUNTING  POLICIES 

Interim Financial Information

     The accompanying condensed consolidated financial statements of 
Integrated Sensor Solutions, Inc. and its majority-owned subsidiary ("ISS" 
or the "Company") as of September 30, 1998 and for the three and six months 
ended September 30, 1998 and 1997 are unaudited. In the opinion of 
management, the condensed consolidated financial statements include all 
adjustments (consisting only of normal recurring accruals) that management 
considers necessary for a fair presentation of its financial position, 
operating results and cash flows for the interim periods presented. 
Operating results and cash flows for interim periods are not necessarily 
indicative of results for the entire year.

     The preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and 
assumptions that affect the amounts reported in the financial statements and 
accompanying notes. Actual results could differ from those estimates. 

     This financial data should be read in conjunction with the audited 
consolidated financial statements and notes thereto included in the 
Company's Annual Report on Form 10-KSB for the year ended March 31, 1998.

Net Income (Loss) Per Share

     In 1997, the Financial Accounting Standards Board issued Statement No. 
128, Earnings Per Share. Statement No. 128 replaced the calculation of 
primary and fully diluted earnings per share with basic and diluted earnings 
per share. Unlike primary earnings per share, basic earnings per share 
excludes any dilutive effects of options, warrants and convertible 
securities. Diluted earnings per share is very similar to the previously 
reported fully diluted earnings per share. In February 1998 the Securities 
and Exchange Commission issued Staff Accounting Bulletin No. 98, Earnings 
Per Share. Staff Accounting Bulletin No. 98 affected the treatment of 
certain stock and warrants ("cheap stock") issued within a one-year period 
prior to an initial public offering. Earnings per share amounts presented 
have been restated to conform to requirements of Statement No. 128 and Staff 
Accounting Bulletin No. 98. 

Pro Forma Net Loss Per Share

     Pro forma net loss per share has been computed as described above and 
also gives effect even if antidilutive to the conversion of convertible 
preferred shares not included above that automatically converted upon 
completion of the Company's initial public offering (using the if-converted 
method) from the original date of issuance. 

Major Customers and Concentration of Credit Risks

     Many of the Company's customers are primarily involved in the 
automotive market. The Company performs ongoing credit evaluations of its 
customers and generally does not require collateral. The Company maintains 
reserves for potential credit losses, and such losses have been within 
management's expectations. 

     Significant customers accounted for the following percentages of 
revenues: 

<TABLE>
<CAPTION>
                                                          Six Months
                                                      Ended September 30,    
                                                    ----------------------
                                                       1998         1997  
                                                    ---------    ---------
          <S>                                        <C>         <C>
          Robert Bosch GmbH                            45.2%        26.4%
          Nagano Keiki Co., Ltd.                       17.4%        10.9%
          Echlin Corporation                           14.7%          --%
          Masco Tech                                     --%        23.6%


</TABLE>
                                      6


<PAGE>    6

                      INTEGRATED SENSOR SOLUTIONS, INC.
           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              (Unaudited)

2.     INVENTORIES
    Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>

                                               September 30,     March 31,
                                                   1998            1998      
                                                -----------    -----------

       <S>                                     <C>             <C>
        Finished goods                          $     425       $     310
        Work-in-process                             1,279           1,166
        Raw materials                               2,908           1,644
                                                ---------       ---------
                                                $   4,612       $   3,120
                                                =========       =========

</TABLE>

3.     LINE OF CREDIT/TERM LOAN

     The Company has a bank line of credit agreement, which was renewed on 
August 21, 1998, and expires on August 20, 1999.  The line allows the 
Company to borrow the lesser of $3,500,000 or 80% of eligible accounts 
receivable. Eligible accounts receivable are defined as those outstanding 
less than 90 days from date of invoice. Borrowings under the line of credit 
bear interest at the bank's prime rate plus 0.75% (9.00% at September 30, 
1998) and are secured by the assets of the Company. As of September 30 and 
March 31, 1998, the Company had borrowings outstanding totaling $400,000 and 
$900,000, respectively, under the line of credit. The Company also has a 
$1,500,000 term loan facility for equipment that bears interest at the 
bank's prime rate plus 1.50% (9.75% at September 30, 1998). As of September 
30, 1998, the Company had borrowings outstanding of approximately $296,000 
on its term loan which are included with capital leases on the balance 
sheet. These agreements require the Company to maintain certain financial 
covenants on a quarterly basis.  At September 30, 1998, the Company was in 
compliance with these convenants.


4.     COMPREHENSIVE INCOME 

     Effective April 1, 1998, the Company adopted Statement of Financial 
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." 
SFAS No. 130 requires an enterprise to report, by major components and as a 
single total, the change in net assets during the period from non-owner 
sources. Comprehensive income includes all changes in equity during a period 
except those resulting from investments by and distributions to the 
Company's stockholders. For the three and six months ended September 30, 
1998 and 1997, comprehensive income, which was comprised of the Company's 
net income (loss) for the periods and cumulative translation adjustment, was 
approximately ($170,000) and ($666,000), respectively. For the comparable 
periods in 1997, comprehensive income was approximately $18,000 and 
$254,000, respectively. 


5.     GEOGRAPHIC AND SEGMENT INFORMATION

     The Company operates in one business segment, which is to design, 
manufacture, and sell end-market specific integrated subsystems and perform 
nonrecurring engineering projects for the sensor control applications 
market. The following table summarizes the Company's operations in different 
geographic areas (in thousands):
<TABLE>
<CAPTION>

                                  Six Months ended September 30, 1998       
                         ---------------------------------------------------
                                                  Adjustments/
                         United States  Germany   Eliminations  Consolidated
                         -------------  -------   ------------  ------------
<S>                       <C>          <C>         <C>           <C>
Revenues to unaffiliated
  customers                $  4,918     $ 5,604     $     --      $  10,522
Transfers between
  geographic areas            1,644         722       (2,365)            -- 
                           --------     -------     --------      ---------
Total net revenues         $  6,561     $ 6,326     $ (2,365)     $  10,522
                           ========     =======     ========      =========
Loss from operations       $ (1,244)    $   (48)    $      4      $  (1,288)
                           ========     =======     ========      =========
Identifiable assets        $ 26,639     $ 7,399     $ (6,205)     $  27,833 
                           ========     =======     ========      =========

</TABLE>

                                      7

<PAGE>    7


                      INTEGRATED SENSOR SOLUTIONS, INC.
           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              (Unaudited)

<TABLE>
<CAPTION>

                                 Six Months ended September 30, 1997        
                         ---------------------------------------------------
                                                  Adjustments/
                         United States  Germany   Eliminations  Consolidated
                         -------------  -------   ------------  ------------

<S>                       <C>          <C>         <C>           <C>
Revenues to unaffiliated
  Customers                $  4,810     $ 2,201     $     --      $   7,011
Transfers between
  geographic areas              677         282         (959)            --
                           --------     -------     --------      ---------
Total net revenues         $  5,487     $ 2,483     $  ( 959)     $   7,011
                           ========     =======     ========      =========
Income from operations     $    322     $   (39)    $    (78)     $     205
                           ========     =======     ========      =========
Identifiable assets        $  8,277     $ 2,783     $ (2,317)     $   8,743
                           ========     =======     ========      =========

</TABLE>

     Export revenues consisting of sales from the Company's U.S. operations 
to nonaffiliated customers were as follows (in thousands): 
<TABLE>
<CAPTION>

                                    Three Months           Six Months
                                 Ended September 30,   Ended September 30,
                                 -------------------   -------------------
                                   1998       1997       1998       1997   
                                 --------   --------   --------   --------
<S>                             <C>        <C>        <C>        <C>
Canada                           $     88   $     45   $    161   $    241
Japan and Korea                       353        730      1,977      1,188
                                 --------   --------   --------   --------
Total                            $    441   $    775   $  2,138   $  1,429
                                 ========   ========   ========   ========
</TABLE>


6.     STOCKHOLDERS' EQUITY

     On March 13, 1998, the Company completed its initial public offering of 
stock through the issuance of 2,500,000 shares of common stock at a price of 
$8.00 per share, resulting in net proceeds to the Company of $17,661,000. On 
April 8, 1998, the Company's underwriters exercised their over-allotment 
option in full by purchasing 375,000 shares at $8.00 per share resulting in 
net proceeds to the Company of $2,790,000. 


7.     NET INCOME (LOSS) PER SHARE
     The following table sets forth the computation of basic and diluted net 
income (loss) per share (in thousands, except per share data): 

<TABLE>
<CAPTION>
                                    Three Months           Six Months
                                 Ended September 30,   Ended September 30,
                                 -------------------   -------------------
                                   1998       1997       1998       1997   
                                 --------   --------   --------   --------

<S>                              <C>       <C>         <C>       <C>
Numerator for basic and diluted:
  net income (loss)               $  (225)  $    13     $ ( 808)  $    104
Denominator:
  Weighted average common
    shares outstanding              7,601     3,138       7,580      3,114
  Conversion of weighted average
    preferred stock outstanding
    (pro forma)                        --     1,418          --      1,412
                                  -------   -------     -------    ------- 
Denominator for basic net income
  (loss) per share (pro forma
  for 1997)                         7,601     4,556       7,580      4,526
                                  =======   =======     =======    =======
Effective dilutive securities:
  employee stock options               --       326          --        316
                                  =======   =======     =======    =======
Denominator for diluted net
  income (loss) per share           7,601     4,882       7,580      4,842
                                  =======   =======     =======    =======
Basic and diluted net income
 (loss) per share (pro forma
 for 1997)                        $ (0.03)  $  0.00     $ (0.11)   $  0.02
                                  =======   =======     =======    =======

</TABLE>

                                      8

<PAGE>    8



                     INTEGRATED SENSOR SOLUTIONS, INC.
           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              (Unaudited)

     Options to purchase 534,653 shares of common stock at prices ranging 
from $1.125 to $8.313 and warrants to purchase 58,566 shares of common stock 
at prices ranging from $6.125 to $6.375 were outstanding as of September 30, 
1998, but were not included in the computation of diluted earnings (loss) 
per share for the three and six months ended September 30, 1998 because to 
do so would have been anti-dilutive. 


                                      9

<PAGE>    9

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

     This Management's Discussion and Analysis includes a number of forward-
looking statements which reflect the Company's current views with respect to 
future events and financial performance. These forward-looking statements 
are subject to certain risks and uncertainties, including those discussed in 
the "Factors that May Affect Operating Results" section of this Item 2 and 
elsewhere in this Form 10-QSB that could cause actual results to differ 
materially from historical results or those anticipated. In this report, the 
words "anticipates," "believes," "expects," "future," "intends," and similar 
expressions identify forward-looking statements. Readers are cautioned not 
to place undue reliance on these forward-looking statements, which speak 
only as of the date hereof.

Overview 

     ISS designs, manufactures and markets high performance, intelligent 
sensor products that are used in electronic control systems by customers in 
the automotive and industrial markets. The Company was incorporated in March 
1989 and was principally engaged in research and development through fiscal 
1993. In fiscal 1991, the Company shipped its first product, an application 
specific integrated circuit ("ASIC") designed for use with a very low-
pressure sensor used in industrial flow measurements. In fiscal 1992, the 
Company introduced its first integrated sensor device ("ISD"), an 
aftermarket product for manifold absolute pressure ("MAP") sensor 
applications for General Motors automobile engines. The Company subsequently 
developed and introduced a variety of other ASICs and ISDs. Principally as a 
result of an increase in product sales, the Company's total revenues have 
increased to $5.7 million and $10.5 million for the three and six months 
ended September 30, 1998 from approximately $3.5 million and $7.0 million 
for the comparable periods in 1997, respectively. The Company has 
experienced operating losses in each year since its inception and had an 
accumulated deficit of $10.2 million as of September 30, 1998. 


Results of Operations 

     The following table sets forth for the periods indicated selected 
consolidated statements of operations data as a percentage of total 
revenues: 
<TABLE>
<CAPTION>

                                    Three Months           Six Months
                                 Ended September 30,   Ended September 30,
                                 -------------------   -------------------
                                   1998       1997       1998       1997   
                                 --------   --------   --------   --------
<S>                               <C>        <C>        <C>        <C>
Revenues:
  Product revenue                   86.3%      68.8%       87.8%      70.9%
  Contract revenue                  13.7       31.2        12.2       29.1
                                  ------     ------      ------     ------
    Total revenues                 100.0      100.0       100.0      100.0
Cost of revenues: 
  Cost of product revenue           61.9       45.8        65.1       49.3
  Cost of contract revenue          16.1       25.3        14.3       22.5
                                  ------     ------      ------     ------
    Total cost of revenues          78.0       71.1        79.4       71.8
                                  ------     ------      ------     ------
    Gross profit                    22.0       28.9        20.6       28.2
Operating expenses:
  Research and development          17.8       13.8        19.3       12.0
  Sales, general and
    administration                  13.9       14.1        13.5       13.3
                                  ------     ------      ------     ------
    Total operating expenses        31.7       27.9        32.8       25.3
                                  ------     ------      ------     ------
Income (loss) from operations       (9.7)       1.0       (12.2)       2.9
Interest expense                    (0.5)      (1.5)       (0.7)      (1.5)
Interest income                      3.2         --         3.7         --
Other income                         3.1        1.8         1.4        0.9
Minority interest in net (income)
  loss of consolidated subsidiary   (0.1)      (0.9)        0.1       (0.8)
                                  ------     ------      ------     ------
Net income (loss)                   (4.0)%      0.4%       (7.7)%      1.5%
                                  ======     ======      ======     ======

</TABLE>
                                      10

<PAGE>    10


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


Comparison of Three and Six Months Ended September 30, 1998 and 1997
     
Revenues

     The Company derives its revenues from sales of ASICs and ISDs and from 
fees earned under product development contracts.  The Company recognizes 
revenues from product sales upon shipment.  Contract revenues are recognized 
only when applicable customer milestones, including deliverables, have been 
met, but not in excess of the amount that would be recognized using the 
percentage of completion method.  

     Total revenues increased for the three and six months ended September 
30, 1998 as compared to the similar periods in 1997.  Total revenues were 
$5.7 million and $10.5 million for the quarter and six months ended 
September 30, 1998, respectively, increases of 61.2% and 50.1% over revenues 
of $3.5 million and $7.0 million for the comparable 1997 periods. The growth 
in total revenues on a quarterly and year-to-date basis is due to higher 
product revenue. 

     Product Revenue:  Product revenue was $4.9 million for the three months 
ended September 30, 1998 which represented an increase of $2.5 million or 
102.1% over the $2.4 million recognized for the comparable period in 1997. 
For the six months ended September 30, 1998 product revenue was $9.2 million 
which represented an increase of approximately $4.2 million or 86.0% over 
the $5.0 million for the comparable 1997 period. These increases resulted 
from continued growth in the Company's product offerings, which were 
principally due to increased shipments of ISDs for Common Rail Diesel 
Injection and Vehicle Stability Control Systems. Reflecting the Company's 
long-term strategy, product revenue increased to 86.3% and 87.8% of total 
revenues for the three and six months ended September 30, 1998 from 68.8% 
and 70.9% for the comparable periods in the prior year.  The Company 
believes that product revenue is likely to increase as a percent of total 
revenue. 

     Contract Revenue:  Contract revenue decreased to approximately $800,000
and $1.3 million for the three and six months ended September 30, 1998 from
$1.1 million and $2.0 million for the comparable periods in 1997.  This 
decrease was primarily due to the completion of fewer contractual milestones
during the three months and six months ended September 30, 1998 as compared to
the same periods in 1997.  Contract revenue as a percentage of total revenues 
for the three and six months ended September 30, 1998 decreased to 13.7% from 
31.2% and to 12.2% from 29.1% for the similar periods in 1997, respectively. 
The Company expects contract revenue to continue to decrease as a percentage
of total revenues. 

     International revenues (export revenues and revenues of the Company's 
majority-owned subsidiary, ISS-Nagano GmbH, ("ISS-Nagano")) for the three 
and six months ended September 30, 1998 were $3.9 million and $7.7 million, 
increases of $1.7 million or 77.3% and $3.6 million or 85.8% over the three 
and six months ended September 30, 1997.  As a percentage of total revenues, 
international sales increased to 69.9% from 61.7% and to 73.6% from 59.5% 
for the three and six months ended September 30, 1998 compared to 1997, 
respectively.  These increases were primarily the result of increased sales 
of media compatible ISDs in Germany and increased sales of ASICs to Japan.   
All of the Company's sales in Europe are denominated in Deutsche Marks.  
Accordingly, a portion of the Company's international revenues is subject to 
foreign currency fluctuation risks.  

Cost of Revenues

     Cost of Product Revenue:  The Company's product revenue gross margin 
decreased 5.2% to 28.3% for the three months ended September 30, 1998 from 
33.5% for the similar period in 1997. For the six months ended September 30, 
1998, the Company's product gross margin decreased 4.9% to 25.8% from 30.7% 
for the similar period in 1997. These decreases primarily were due to yield 
problems associated with the production ramp-up of its HVP and FDR media-
compatible ISDs, which materially adversely affected gross margin and 
operating results during the three and six months ended September 30, 1998.

     Cost of Contract Revenue:  The Company's contract revenue gross margin 
decreased to (17.5%) for the three and six months ended September 30, 1998 
from 18.8% and 22.8% for the similar periods in 1997. Cost of contract 
revenue remained stable at approximately $900,000 and $1.5 million for 
the three and six months ended September 30, 1998 and 1997, respectively,
while contract revenue declined to approximately $800,000 and $1.3 million
from $1.1 million and 

                                     11

<PAGE>    11


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


$2.0 million for the comparable periods in 1997. The decrease in contract 
revenue margins was primarily  due to the completion of fewer contractual 
milestones in the three and six months ending September 30, 1998 compared to
the similar periods in 1997.  Expenses related to contracts are recorded as 
incurred, while recognition of revenues occurs when contractual milestones
are reached. The Company does not anticipate that the gross margin on contract
revenues will grow or even be positive in future periods.

Operating Expenses

     Research and Development:  Research and development expense consists 
primarily of personnel expenses, including salary and benefits, and other 
product development related engineering expenses not associated with contract 
revenue.  Research and development expenses were $1.0 million and $2.0 million
for the three and six months ended September 30, 1998 as compared to 
approximately $500,000 and $800,000 for the similar periods in 1997, 
respectively.  This higher level of expenses for the three months and six
months reflects an overall increase in resources at the operations of ISS-
Nagano and in its ASIC product test development department to support future 
production.  Research and development expenses as a percentage of total
revenues increased to 17.8% and 19.3% percent for the three and six months 
ended September 30, 1998 from 13.8% and 12.0% for the similar periods in the 
prior year, respectively. The Company believes that research and development
is essential to the Company's ability to increase revenues.  Accordingly, the
Company expects research and development expenses to increase in absolute 
dollars but expects such expenses to decrease as a percentage of total revenues.

     Sales, General and Administrative:  Sales, general and administrative
expense consists primarily of personnel expenses, including salary and 
benefits, and professional fees.  Sales, general and administrative expenses 
were approximately $800,000 and $1.4 million for the three and six months ended
September 30, 1998 as compared to approximately $500,000 and $900,000 for the
similar 1997 periods, respectively.  This higher level of expense reflects an 
increase in personnel and professional fees necessary to manage the financial, 
legal and administrative aspects of operating as a public company.  Sales, 
general and administrative expense remained relatively stable at 13.9% and 
13.5% as a percentage of total revenues for the three and six months ended 
September 30, 1998 as compared to 14.1% and 13.3% in the year earlier period. 
The Company expects sales, general and administrative expenses to increase in 
absolute dollars, reflecting growth in operations and costs associated with 
being a public entity, but to be stable or decline as a percentage of total 
revenues.   


Interest Expense

     Interest expense decreased to $29,000 and $74,000 for the three and six 
months ended September 30, 1998 from $51,000 and $105,000 for the comparable 
periods in 1997, respectively, due to lower average borrowings resulting 
from the conversion and repayment of debt.  

Interest Income

     Interest income was $183,000 and $394,000 for the three and six months 
ended September 30, 1998. The Company recorded no interest income during the 
three and six months ended September 30, 1997. The increase in interest 
income was the result of higher interest-bearing cash balances resulting 
from the Company's initial public offering in March of 1998.  

Other Income

     Other income increased to $176,000 and $146,000 for the three and six 
months ended September 30, 1998 from $61,000 and $65,000 for the comparable 
periods in 1997. Other income increased primarily due to foreign currency 
exchange gains of  $227,000 and $239,000 for the three and six months ended 
September 30, 1998.

Minority Interest in Net (Income) Loss of ISS-Nagano

     Minority interest in net income of ISS-Nagano for the three months 
ended September 30, 1998 was $3,000 compared to  $31,000 of minority 
interest in net income of ISS-Nagano for three months ended September 30, 
1997. 

                                      12

<PAGE>    12


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

Minority interest in net loss of ISS-Nagano for the six months ended 
September 30, 1998 was $13,000 compared to $61,000 of minority interest in 
net income of ISS-Nagano for six months ended September 30, 1997.     

Liquidity and Capital Resources

     Since inception, the Company has financed its operations principally 
through sales of equity securities, product revenues and contract revenues. 
At September 30, 1998, the Company had cash, cash equivalents and short-term 
investments of $13.1 million and working capital of $19.7 million.  The 
Company also had available a $3.5 million bank line of credit agreement 
secured by the assets of the Company that permits borrowings of the lesser 
of $3.5 million or 80% of eligible accounts receivable for each of these 
periods.  Eligible accounts receivable are defined as those outstanding less 
than 90 days from date of invoice. Borrowings under the line of credit bear 
interest at the bank's prime rate plus 0.75%. At September 30, 1998, the 
Company also had available a $1,500,000 term loan facility for capital 
equipment that bears interest at the bank's prime rate plus 1.50%.  The bank 
line of credit agreement and term loan facility, which were renewed on 
August 21, 1998, have an expiration date of August 21, 1999. At September 
30, 1998, the Company had outstanding borrowings of $400,000 under the line 
of credit agreement and $296,000 under various capital equipment lease 
financing arrangements. 

     Net cash used in operating activities was approximately $4.5 million and
$900,000 in the six months ended September 30, 1998 and 1997, respectively. For
the six months ended September 30, 1998, net cash used in operations was 
primarily attributable to a decrease in accounts payable, an increase in 
inventory levels in anticipation of higher sales demand, and an increase in 
prepaid expenses, and the Company's net loss. For the six months ended 
September 30, 1997, net cash used in operations was primarily attributable to
an increase in inventory levels and an increase in accounts receivable. 


     Net cash used in investing activities was $11.4 million and $308,000 in 
the six months ended September 30, 1998 and 1997, respectively. Cash used in 
investing activities for the six months ended September 30, 1998 was  
related to the Company's purchase of $9.1 million in short-term investments 
and $2.2 million in purchases of equipment. Cash used in investing 
activities for the six months ended September 30, 1997 was entirely due to 
the purchase of equipment.

     Net cash provided by financing activities was $2.2 million and $492,000 
for the six months ended September 30, 1998 and 1997, respectively.  Cash 
provided by financing activities was primarily due to the sale of common 
stock upon exercise of the over allotment option held by the underwriters of 
the Company's initial public offering.  The Company also repaid $500,000 
outstanding under its line of credit.  For the six months ended September 
30, 1997 the Company repaid $432,000 in notes payable. 

     To date, the Company has not invested in derivative securities or any 
other financial instruments that involve a high degree of risk.  The Company 
expects that, in the future, cash in excess of current requirements will be 
invested in short-term, investment grade, interest-bearing securities.

     The Company plans to finance its working capital and other capital 
resource needs with its current cash and cash equivalents, and cash 
generated from future operations, if any.  The Company believes that these 
resources will be sufficient to satisfy its working capital and other 
capital needs for at least the next 24 months. 


Factors That May Affect Operating Results

     The statements contained in this Report on Form 10-QSB that are not 
purely historical are forward looking statements within the meaning of 
Section 27A of the Securities Act of 1933 and Section 21E of the Securities 
Exchange Act of 1934, including statements regarding the Company's 
expectations, hopes, intentions or strategies regarding the future. Forward-
looking statements include but are not limited to: statements regarding 
future products or product development; statements regarding future research 
and development spending and the Company's product development strategy; 
statements regarding the levels of international sales; and statements 
regarding future expenditures. All forward-looking statements included in 
this document are based on information available to the Company on the date 




                                     13

<PAGE>


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

hereof, and the Company assumes no obligation to update any such forward-
looking statements. It is important to note that the Company's actual 
results could differ materially from those in such forward-looking 
statements. Some of the factors that could cause actual results to differ 
materially are set forth  below.  In addition to the other information in this
Form 10-QSB, the following factors should be considered carefully in evaluating
the Company and its business.

     Limited Profitability; History of Operating Losses.  The Company was 
founded in 1989 and commenced shipments of its initial product in 1990. The 
Company has never achieved profitability on an annual basis. There can be no 
assurance that the Company will be profitable in the future on a quarterly 
basis or that it will achieve profitability on an annual basis. As of 
September 30, 1998, the Company had an accumulated deficit of approximately 
$10.2 million. 

     Dependence on Customer Specific Products; Lengthy Sales and Development 
Cycle.  A substantial portion of the Company's products is designed to 
address the specific needs of individual customers. As a result, the sales 
and development cycle for these products can be lengthy, with the 
development cycle alone ranging up to thirty months for new products in new 
applications in the automotive industry and up to eighteen months for new 
products in new applications in the industrial market. Because customer 
specific products are developed for particular customers' applications, some 
of the Company's current and future customer specific products may never be 
produced in high volume, or at all, due to the Company's inability to 
introduce custom products in a timely manner, delays in the introduction of 
the Company's customers' products, the failure of the Company's customers' 
products to achieve and sustain commercial success or the discontinuation of 
a customer's product line. Any of these occurrences could have a material 
adverse effect on the Company's business, financial condition or operating 
results. 

     Fluctuations in Operating Results.  The Company's revenues and 
operating results have varied on a quarterly and an annual basis in the past 
and may vary significantly in the future. The Company's revenues and 
operating results are difficult to forecast and could be materially 
adversely affected by many factors, some of which are outside the control of 
the Company, including, among others, fluctuations in yields, the relatively 
long sales and development cycle for the Company's products, the ability to 
obtain product development contracts and the amount and timing of 
recognition of product development contract revenue and expense associated 
with such contracts, the Company's ability to introduce new products and 
technologies on a timely basis, market acceptance of the Company's and its 
customers' products, the timing, deferral or cancellation of customer orders 
and related shipments, competitive pressures on selling prices, availability 
of foundry capacity, availability of raw materials, changes in product mix, 
changes in the lead time required to ship products after receipt of an 
order, introduction of products and technologies by the Company's 
competitors and customers, quality control of products sold, personnel 
changes and difficulties in attracting and retaining qualified technical 
personnel, foreign currency exchange rates and economic conditions generally 
and in the automotive and industrial markets. 

     Variability of Manufacturing Yields.  Manufacturing yields of the 
Company's ASICs and ISDs may vary significantly depending on a variety of 
factors. ASIC yields can be adversely affected by the level of contaminants 
in the manufacturing environment, impurities in the materials used and the 
performance of fabrication personnel and equipment, all of which are outside 
the control of the Company. ISD yields can be adversely affected by 
defective sensing elements, component quality and performance of assembly 
personnel and equipment. Historically, the Company has experienced 
fluctuations in yields of its products, particularly during initial 
production of new products, which have adversely affected product gross 
margin.

     Significant Customer Concentration. Historically, a relatively small 
number of customers have accounted for a significant percentage of the 
Company's total revenues, and the Company expects that this trend will 
continue. In the six months ended September 30, 1998, the Company had three 
customers which accounted for 45.2%, 17.4% and 14.7% of total revenues, 
respectively. In the six months ended September 30, 1997, the Company had 
three customers which accounted for 26.4%, 23.6%, and 10.9% of total 
revenues, respectively. As a result, any cancellation, reduction, 
rescheduling or delay in orders by or shipments to any customer or the 
discontinuation or redesign by any customer of its products which currently 
incorporate one or more of the Company's products would have a material 
adverse effect on the Company's business, financial condition or operating 
results.

     Dependence on Automotive Industry; Need to Penetrate New Markets. The 
Company has historically derived approximately 88% of its total revenues 
from products sold for applications in the automotive industry. Accordingly, 
improvement in the Company's future operating results will depend in part on 
its ability to increase its market share in the 


                                      14

<PAGE>    14


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

automotive industry and to penetrate new markets. Further, the Company
believes that its operating results may be affected by the cyclical nature of
the automotive industry. Any downturn in any customer's business or the economy
in general maycause purchases of the Company's products to be deferred, reduced
or canceled resulting in a material adverse effect on the Company's business,
financial condition or operating results. If the Company were unable to 
successfully penetrate new markets or to expand its penetration of the 
automotive market, its business, financial condition or operating results 
would be materially adversely affected.

     Declining Average Selling Prices. The Company sells a substantial 
portion of its products pursuant to exclusive contracts which typically 
contain volume-pricing provisions that require the Company to reduce its per 
unit price as certain volume levels are achieved. If the Company is unable 
to make corresponding product cost reductions, the resulting decline in the 
average selling prices of the products sold pursuant to such contracts may 
reduce the Company's product gross margin. If the Company is unable to 
sufficiently reduce its costs on existing products or introduce new products 
with higher margins in a timely manner, the Company's business, financial 
condition or operating results will be materially adversely affected.

     Dependence on Sensing Element Suppliers.  The Company is currently 
dependent upon a small number of third party vendors for substantially all 
of the sensing elements incorporated into its ISDs. For example, the Company 
currently purchases a pressure-sensing element incorporated in certain of 
its ISDs from a single source, Nagano Keiki Co., Ltd. ("Nagano"). The 
Company believes that Nagano is currently the only high volume supplier of 
this type of sensing element.  Any failure of the Company to maintain its 
existing relationships with sensing element suppliers or to identify and 
work with new sensing element suppliers could have a material adverse effect 
on the Company's business, financial condition or operating results. 

     Narrow Product Base.  The Company currently depends upon the sale and 
success of a limited number of product lines. Because the Company's primary 
source of revenue is dependent upon a narrow product base, any interruption 
or reduction in these sales due to production problems, lack of adequate 
demand, replacement by new technologies or other internal or external 
problems resulting in the failure of such product lines to win broad 
acceptance in the marketplace would have a material adverse effect on the 
Company's business, financial condition or operating results. 

     Rapid Technological Change; Need to Develop New Products.  The markets 
for the Company's products are characterized by rapid technological change 
as well as evolving industry standards that may render existing products 
obsolete. As a result, the success of new products depends on a variety of 
factors, including effective definition of products that meet evolving 
market needs, successful and timely completion of development and 
introduction of these products, successful design wins in new systems and 
the ability to offer products at competitive prices. A failure in any of 
these areas could have a material adverse effect on the Company's business, 
financial condition or operating results. 

     Competition.  The markets in which the Company competes are highly 
competitive and characterized by diverse industry requirements and severe 
pricing pressure in many applications. In the ASIC market, the Company 
competes with analog and mixed signal semiconductor companies such as 
Motorola, Inc. ("Motorola"), Texas Instruments Incorporated ("TI") and 
Analog Devices, Inc. The Company's products also compete indirectly with 
conventional hybrid circuits and standard analog and mixed signal ICs. In 
the ISD market, the Company competes with Delco, a subsidiary of General 
Motors ("GM"), Motorola, TI, Kavlico and Denso Corporation ("Denso"). These 
companies all have substantially greater financial, technical, 
manufacturing, marketing, distribution, personnel and other resources than 
the Company. 

     The Company also anticipates that additional competitors may enter the 
Company's markets, resulting in even greater competition. Many of the 
Company's current or prospective competitors own or have investments in 
wafer foundries, which provide dedicated capacity to these competitors and 
enable them to influence or control costs more effectively than the Company. 
There can be no assurance that the Company will be able to compete 
successfully with existing or new competitors. Increased competition could 
result in significant price reductions or the loss of current or potential 
customers or design wins which could materially adversely affect the 
Company's business, financial condition or operating results. 

     Dependence on Key Personnel; Need for Additional Technical Personnel.  
The Company is substantially dependent upon the services of its executive 
officers. The Company's future success depends on the continued 
contributions 


                                      15

<PAGE>    15


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

of such officers, including the maintenance, enhancement and establishment of
key customer relationships and the management of operations. The loss of the
services of any of these officers by the Company could have a material adverse
effect on the Company's business, financial condition or operating results. 
Such officers have not entered into employment agreements with the Company. 
The Company believes that its future success will be heavily dependent upon 
its ability to attract and retain qualified design, technical and management 
personnel. There can be no assurance that the Company will be able to 
continue to attract and retain these personnel, and the failure to do so 
could have a material adverse effect on the Company's business, financial 
condition or operating results.

     Dependence on Sole Source Suppliers. Certain components of the 
Company's current products, such as fabricated wafers, sensing elements, 
packages and PC boards, are acquired from single source suppliers. The 
Company purchases these components on a purchase order basis and may not 
carry significant inventories. The Company currently has no supply contracts 
with any of its assembly contractors. 

     The Company's reliance on independent contractors to assemble and 
package its products involves significant risks, including reduced control 
over quality and delivery schedules, the potential lack of adequate capacity 
and discontinuance or phase-out of such contractors' assembly processes. 
Historically, due to a lack of significant volumes, the Company has 
experienced difficulty ensuring that independent assembly contractors would 
continue to assemble or package the Company's products and that alternative 
independent assembly contractors would be available in such instances. 

     Dependence on Independent Wafer Suppliers.  The Company relies on a 
small number of independent foundries for the manufacture of all of its 
ASICs, including those incorporated into its ISDs. Although the Company has 
initiated efforts to qualify second sources for certain of its key 
components, none of the Company's ASICs is currently fabricated by more than 
one foundry. Although processed wafer capacity in the semiconductor industry 
is currently widely available, there can be no assurance that the Company's 
foundries will continue to provide the Company an adequate supply of wafers 
to meet its customers' demands. 

     The Company believes that as a result of fluctuations in demand and 
changing technologies, processed wafer capacity may become limited from time 
to time, resulting in greater difficulty in obtaining adequate supplies of 
wafers, increased prices and increased lead times. Any increase in the 
demand for processed wafers over expected levels or any failure of processed 
wafer supply in the industry to grow at anticipated rates will magnify these 
shortages. There can be no assurance that the Company will be able to 
complete qualification of products fabricated by Symbios, or any other new 
wafer supplier, in a timely manner or at all, and any such failure could 
have a material adverse effect on the Company's business, financial 
condition or operating results. 

     The use of independent wafer foundries entails certain other risks, 
including reduced control over manufacturing yields and production costs. 
The Company has from time to time experienced lower than anticipated 
manufacturing yields in connection with the introduction of new products. 
For instance, the Company encountered a substantial yield problem with 
certain of its ISD products during the quarter ended March 31, 1998 due to a 
limitation of an ASIC design with respect to a particular variation in the 
foundry wafer process. These yield losses had a material adverse effect on 
the Company's operating results. There can be no assurance that the 
Company's wafer foundries will not produce wafers with lower than expected 
manufacturing yields in the future, which could materially adversely affect 
the Company's business, financial condition or operating results. 

     Dependence on Patents and Proprietary Rights.  The Company relies on a 
combination of patents, maskwork rights, trade secret laws, copyrights, 
trademarks and employee and third party non-disclosure agreements to protect 
its intellectual property rights. The Company has been issued four patents 
and has filed two additional patent applications in the United States and 
one foreign patent application relating to ASIC designs. In addition, the 
Company has filed one patent application in the United States relating to 
package design. There can be no assurance that any patents will issue from 
any of the Company's pending applications or that claims allowed from 
pending applications will be of sufficient scope or strength, or be issued 
in all countries where the Company's products can be sold, to provide 
meaningful protection or any commercial advantage to the Company. 

     The semiconductor industry is characterized by vigorous protection and 
pursuit of intellectual property rights or positions which have resulted in 
significant and often protracted and expensive litigation. Although there is 
currently no 

                                      16

<PAGE>    16


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

pending intellectual property litigation against the Company, the Company may 
from time to time be notified of claims that the Company may be infringing 
patents or other intellectual property rights owned by third parties. If it
is necessary or desirable, the Company may seek licenses under such patents or
other intellectual property rights. However, there can be no assurance that 
licenses will be offered or that the terms of any licenses will be 
acceptable to the Company. A failure to obtain a license from a third party 
for technology used by the Company could cause the Company to incur 
substantial liabilities and to suspend the manufacture of products requiring 
the technology. 

     Dependence on International Sales and Suppliers. The Company's sales to 
customers outside the United States are subject to a variety of risks, 
including those arising from fluctuations in currency exchange rates, 
tariffs, import restrictions and other trade barriers, unexpected changes in 
regulatory and governmental licensing requirements, longer accounts 
receivable payment cycles and potentially adverse tax consequences. Because 
a significant portion of the Company's international sales and in particular 
its European sales have to date been made through its German subsidiary and 
have been denominated in Deutsche Marks, fluctuations in the value of the 
Deutsche Mark relative to the U.S. Dollar or other currencies could 
adversely affect the pricing of the Company's products in foreign markets 
and make the Company's products relatively more expensive. In addition, 
fluctuations in the Deutsche Mark could adversely affect the profitability 
of sales made in Europe and therefore materially adversely affect the 
Company's business, financial condition or operating results. 

     Several Asian countries including South Korea, Japan and Thailand, have 
recently experienced significant economic downturns and significant declines 
in the value of their currencies relative to the U.S. dollar. Due to these 
conditions, it is possible that certain of the Company's customers will 
delay, reschedule or cancel significant current or future orders for the 
Company's products. If any such orders are delayed, rescheduled or canceled, 
the Company's business, financial condition and results of operations would 
be adversely affected. 


Year 2000 Compliance

     Many computer systems were not designed to properly handle dates beyond 
the year 1999.  Additionally, these systems may not properly handle certain 
dates in 1999.  Failure to process dates properly could result in failure or 
disruption of the Company's information systems and/or processing equipment.  
To be Year 2000 ("Y2K") compliant, computer systems must correctly process 
dates before and after the year 2000, recognize the year 2000 as a leap 
year, accept and display dates unambiguously and correctly process dates for 
non-date functions such as archiving.  Disruptions to the Company's 
operations may also occur if key suppliers or customers experience 
disruptions in their ability to purchase, supply or transact with the 
Company due to Y2K issues.  The Company's global operations rely heavily on 
the infrastructures within the countries in which it does business.  The Y2K 
readiness within infrastructure suppliers (utilities, government agencies 
such as customs, and shipping organizations) will be critical to the 
Company's ability to avoid disruption of its operations.  The Company is 
currently assessing its systems, equipment, facilities and processing to 
determine its Y2K readiness and has committed personnel and resources to 
resolve potential Y2K issues.  Further, the Company is in the process of 
contacting its critical suppliers to determine that the suppliers' 
operations and the products and services they provide are Y2K compliant.  
The Company also is working with industry trade associations to evaluate  
the Y2K readiness of infrastructure suppliers.  In the event that suppliers 
are not Y2K compliant, it could have a material adverse effect on the 
Company's results or financial condition.  The Company plans to complete the 
assessment of its Y2K readiness by the end of the first quarter of 1999.  

     The Company will perform remediation procedures concurrent with its 
assessment planning.  The Company currently believes that the remediation 
costs of the Y2K issue will not be material to the Company's results of 
operations or financial position.  Cumulatively through September 30, 1998 
the Company has incurred remediation expenses of less the $10,000.  While 
the Company currently expects that the Y2K issue will not pose significant 
operational problems, delays in adequately addressing Y2K issues, or a 
failure to fully identify all Y2K dependencies in the Company's systems and 
in the systems of its suppliers, customers and financial institutions, it 
could have material adverse consequences, including delays in the 
productions, delivery or sale of products.  Therefore, the Company is 
developing contingency plans for continuing operations in the event such 
problems arise.  The Company intends to complete the contingency planning 
phase of its Y2K readiness in the first half of 1999.  

                                      17

<PAGE>    17



PART II.   OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     As of the date hereof, to the Company's knowledge, there are no legal 
proceedings in which the Company is involved or litigation pending against 
the Company. 


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

     On August 14, 1998, the Annual Meeting of Stockholders of the Company was
held in San Jose, California.  Three matters were submitted to the 
stockholders for action or approval.

Matter No. 1

     The stockholders elected two (2) Class I directors to hold office for a 
three-year term and until their respective successors are elected and qualified.
The votes for the Class I directors are set forth below.

<TABLE>
<CAPTION>
                        Total Vote For          Total Vote Withheld 
        Name             Each Director           From Each Director 
        ----             -------------           ------------------ 
  <S>                     <C>                        <C>
   Manher D. Naik          6,140,034                  145,099
   Vinod K. Sood           6,141,034                  144,099

</TABLE>

     These terms of office of the following four directors in Classes II and 
III continued after the meeting:

                              Gerald F. Taylor
                                  Y. S. Fu
                               Stuart D. Boyd
                             Shigeru Miyashita


     Other matters voted upon and approved by the stockholders at the 
meeting, and the number of votes cast with respect to each such matter, were 
as follows:


Matter No. 2

     The stockholders approved a proposal to amend the Company's 1997 Stock 
Plan to increase the maximum number of shares of Common Stock of the Company 
authorized for issuance thereunder from 800,000 shares to 1,150,000 shares, 
to provide for automatic annual increases in the number of shares reserved 
for issuance thereunder and to establish a limit on the number of shares 
which may be granted to any employee during a fiscal year.

<TABLE>
<CAPTION>


         For         Against        Abstain         No Vote
         ---         -------        -------         -------
     <S>           <C>             <C>             <C>

      4,991,168     1,129,115       164,850            --  

</TABLE>

Matter No. 3

     The stockholders approved a proposal to ratify the appointment of Ernst 
& Young LLP as the Company's independent public accountants for the year 
ending March 31, 1999.

<TABLE>
<CAPTION>

        For        Against          Abstain         No Vote
        ---        -------          -------         -------
   <S>            <C>              <C>             <C>

    6,281,683      1,100             2,350             --  

</TABLE>

                                     18

<PAGE>    18


ITEM 5.  OTHER INFORMATION

Use of Proceeds

     The net proceeds to the Company from the sale of the 2,875,000 shares 
of Common Stock in the Company's initial public offering (Registration 
Statement No. 333-41351 and No. 333-47885), effective March 13, 1998, 
including the underwriter's exercise of their over-allotment on April 8, 
1998, were approximately $20,451,000 after deducting underwriting discounts 
and commissions, the Representatives' non-accountable expense allowance and 
other offering expenses. From the date of the closing of the initial public 
offering through September 30, 1998, the Company applied the net proceeds as 
follows: $766,347 was used to pay indebtedness to a related party, 
approximately $2,489,000 was used to purchase capital equipment, $801,275 
was used to pay indebtedness to another related party, $500,000 was used to 
pay down the line of credit at the bank, approximately $13.3 million was used 
for operating expenses and the balance has been invested in short-term 
interest bearing securities. 

Stockholder Proposals

     Proposals of stockholders intended to be presented at the next Annual 
Meeting of the Stockholders of the Company (other than proposals made under 
Rule 14a-8 of the Securities Exchange Act of 1934, as amended) must be 
received by the Company at its principal executive offices at 625 River Oaks 
Parkway, San Jose, California by March 25, 1999. 


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>


(a)     Exhibits.

  Exhibit
  Number                   Description         
  ------   ---------------------------------------------
 <S>     <C>
   3.1    Restated Certificate of Incorporation of Registrant dated October 26,
          1998.
   3.2**  Bylaws of Registrant.
   4.1*   Restated Registration Rights Agreement.
  10.1*   1989 Stock Option Plan and form of option agreement thereunder.
  10.2*   1997 Stock Option Plan and form of option agreement thereunder.
  10.3*** 1997 Employee Stock Purchase Plan and form of subscription agreement
          thereunder.
  10.4**  Form of Indemnity Agreement for Officers and Directors.
  10.5+** Development Agreement between ISS-GmbH and Robert Bosch GmbH dated
          May 25, 1995.
  10.6+** Development Agreement among ISS-Nagano GmbH, Integrated Sensor
          Solutions, Inc. and Robert Bosch GmbH dated May 17, 1996.
  10.7+** Supply Agreement between Integrated Sensor Solutions, Inc. 
          ISS-Nagano GmbH and Robert Bosch GmbH dated November 18, 1996.
  10.8**  Lease between Montague Oaks Associates Phase III and Integrated
          Sensor Solutions, Inc. dated June 2, 1994, as amended.
  10.9**  Continuous Sales and Purchase Agreement by and between Nagano Keiki
          Seisakusho, Ltd. and Integrated Sensor Solutions, Inc. dated
          December 1, 1996.
  10.10** Continuous Sales and Purchase Agreement by and between Nagano Keiki
          Seisakusho, Ltd. and Integrated Sensor Solutions, Inc. dated June 1,
          1997.
  10.11** Security Agreement by and between Integrated Sensor Solutions, Inc.
          and Silicon Systems, Inc. dated December 1, 1995.
  10.12** Credit Agreement between Integrated Sensor Solutions, Inc. and
          Silicon Systems, Inc. dated December 1, 1995.
  10.13** Loan and Security Agreement by and between Silicon Valley Bank and
          Integrated Sensor Solutions, Inc. dated July 10, 1996, as amended.
  10.14   Loan Modification Agreement by and between the Registrant and Silicon
          Valley Bank dated August 21, 1998 amending the Loan and Security 
          Agreement dated July 10, 1996, as amended.


                                      19

<PAGE>    19


  10.15** Lease Agreement between Geschaftsraum-Mietvertrag and ISS-Integrated
          Sensor Solutions GmbH dated September 12, 1994.
  10.16*  Agreement relating to change in equity ownership of ISS-Nagano GmbH
          dated July 30, 1997.
  21.1**  List of Subsidiaries of the Registrant.
  24.1**  Power of Attorney (see page II-5).
  27.1    Financial Data Schedule.

-------------

  *   Filed as an exhibit to Amendment No. 1 to Registration Statement on
       Form SB-2 (File No. 333-41351) on February 5, 1998.

  **  Filed as an exhibit to Registration Statement on Form SB-2 (File No. 333-
      41351) on December 2, 1997.

  *** Filed as an exhibit to Annual Report on Form 10-KSB on June 30, 1998.

  +   Certain information in this exhibit has been omitted and filed separately
      with the Securities and Exchange Commission pursuant to orders for 
      confidential treatment under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 
      230.46.


</TABLE>


     (b) Reports on Form 8-K. The Company did not file any Reports on Form
         8-K during the quarter ended September 30, 1998.


                                      20

<PAGE>    20



                                  SIGNATURE

Pursuant to the requirements 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.



                                        INTEGRATED SENSOR SOLUTIONS, INC.
                                        ---------------------------------
                                                   (Registrant)



Date: November 16, 1998               By: /s/   DAVID SATTERFIELD          
                                        ---------------------------------
                                                David Satterfield
                                    Vice President Finance & Administration,
                                              Corporate Secretary
                                         (Authorized Officer and 
                                 Principal Financial and Accounting Officer)



                                      21



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