U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K


(Mark one)

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

      For the fiscal year ended December 31, 1997

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

                         Commission file number: 1-10938

                   SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
                 ----------------------------------------------
                 (Name of Small Business Issuer in Its Charter)


                Delaware                                        13-3584740      
                --------                                        ----------      
    (State or other jurisdiction of                          (I.R.S. Employer   
     incorporation or organization)                       Identification Number)
                                                                                
                                                                                
            1 Labriola Court                                          
            Armonk, New York                                      10504  
            ----------------                                      -----  
(Address of principal executive offices)                        (Zip Code)
                       


Issuer's telephone number, including area code:  (914) 273-5500

Securities registered pursuant to Section 12(b) of the Exchange Act:

                                                          Name of Each Exchange
Title of Each Class                                        on Which Registered
-------------------                                        -------------------
Common Stock, $.10 par value                              NASDAQ National Market

Securities registered pursuant to Section 12(g) of the Exchange Act:  None.

            Check 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
                                       ---

            Check 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 in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]


                     The Exhibit Index is located on page 20
<PAGE>


            At March 17, 1998 the aggregate market value of the voting stock of
the Registrant held by non-affiliates was approximately $38,436,189.

            At March 17, 1998 the Registrant had 6,075,616 shares of Common
Stock outstanding, $.10 par value ("Common Stock"). In addition, at such date,
the Registrant held 300,000 shares of Common Stock in treasury.



                      DOCUMENTS INCORPORATED BY REFERENCE:
                      ------------------------------------


                  DOCUMENT                         Parts Into Which Incorporated
                  --------                         -----------------------------




   Portions of the Definitive Proxy Statement            Part III. Item 9,10,11
   prepared in connection with the Company's               12
   1998 Annual Meeting of Stockholders which
   will be held on April 28, 1998.


                                      -ii-
<PAGE>


                                     PART I

Item 1. Business.

            (a) General. Semiconductor Packaging Materials Co., Inc. consists of
a Delaware corporation and its wholly owned and majority owned subsidiaries
(collectively the "Company"). In conjunction with its 1998 Annual Meeting, the
Company is recommending to its shareholders that the name of the Company be
changed to SEMX Corporation. The Company primarily provides specialty materials
and services to the microelectronic and semiconductor industries on a worldwide
basis.

            The Company's Materials Group consists of the parent company ("SPM")
and its subsidiaries, Polese Company, Inc.("Polese"), Retconn Incorporated
("Retconn") and its subsidiary, S.T. Electronics, Inc.("S.T.").The Materials
Group primarily designs, develops, manufactures and markets customized fine wire
and metal ribbon, precision metal stampings, powdered metal copper/tungsten heat
dissipation products, seal frames, RF coaxial contacts and connectors and cable
and cable harness assemblies which are used in the assembly of microelectronic
packages. Such products are incorporated into electronic components used for
industrial and commercial applications, primarily to conduct electrical currents
or signals, solder electronic circuitry, provide electrical interconnects, house
electronic components, mount components or dissipate heat. In 1997, the Company
entered the recreational products market by supplying a proprietary
copper/tungsten sole weight to Taylor Made Golf for use in its Titanium Bubble
2(TM) irons. The Company's products are sold through internal sales personnel
and a network of independent sales representatives, principally to manufacturers
and assemblers of electronic devices who service the aerospace, automotive,
communications, computer, medical, military and semiconductor industries.

            The Company's Services group consists of its American Silicon
Products, Inc. ("ASP") subsidiary and a jointly owned Singapore corporation,
International Semiconductor Products Pte Ltd ("ISP"). Each provide silicon wafer
polishing and reclaiming services to the semiconductor industry. Reclaimed
wafers are used in the evaluation and testing of equipment and processes in
semiconductor fabrication. ISP is 50.1% owned by the Company, 39.9% owned by a
holding company, Semiconductor Alliance Pte Ltd. and 10% owned by EDB Ventures 2
Pte ltd. ISP began operations in the third quarter of 1997.

            History. The registrant, Semiconductor Packaging Materials Co.,
Inc., is a Delaware corporation incorporated in 1988 as a successor to a company
started in 1981. In December 1991 the Company had a public offering of its
securities and became a public company.

            The Company has attained significant revenue growth over the last
several years. A substantial portion of that growth has been realized through
the acquisition of businesses and by applying monetary and management resources
to further the growth of the acquired companies.

            Acquisitions:
            -------------

            In 1993, the Company acquired Polese Company, Inc.. Polese
manufactures and markets seal frames and copper/tungsten heat dissipation
products for use in the manufacture of electronic components, and produces
sophisticated parts through the use of electrical discharge machines ("EDM") and
computer numerical control ("CNC") turning centers for customers in the medical
and aerospace industries. In addition, the Company acquired from Frank J. Polese
all of the rights, including, but not limited to, a pending patent application,
which was subsequently issued to Mr. Polese, for the development and application
of copper/tungsten powdered metal technology to the electronics industry.(See
Part II, Item 6, Management Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A"))


                                       1
<PAGE>


            In 1994, A/S Acquisition Company, Inc., a Rhode Island corporation
("ASAC") merged with and into the Company's wholly-owned subsidiary, American
Silicon Products, Inc., a Delaware corporation. ASAC had no operations of its
own, but simultaneously with the merger, acquired the assets of American Silicon
Products, Inc.("ASP"), a Rhode Island corporation. The ASP assets acquired
embodied a silicon wafer reclaiming and reconditioning business located in
Providence, Rhode Island.

            In 1996, the Company acquired Retconn Incorporated. Retconn
develops, designs and manufacturers subminiature coaxial contacts and connectors
which are sold principally to manufacturers in the communications and computer
industries.

            In 1996, the Company entered into a joint venture agreement to
develop a silicon wafer polishing and reclaiming facility in Singapore. The
jointly owned Singapore corporation, International Semiconductor Products Pte
Ltd, is 50.1% owned by the Company, 39.9% owned by a holding company,
Semiconductor Alliance Pte Ltd. and 10% owned by EDB Ventures 2 Pte Ltd.

            On January 23, 1997, the Company acquired certain assets and assumed
certain liabilities of Silicon Materials Service ("SMS") of Garland, Texas and
100% of the outstanding stock of Silicon Materials Service, B.V. ("SMSBV") of
Helmond, Netherlands for approximately $13,000,000 in cash. The SMS Texas
operation was merged into ASP and SMSBV was renamed American Silicon Products,
B.V. ("ASPBV").

            Effective July 30, 1997, Retconn, a wholly owned subsidiary of the
Company, acquired 100% of the outstanding stock of S.T. Electronics, Inc
("S.T.") , a company that manufactures and markets custom cable and cable
harness assemblies for $1,000,000 in cash and $2,000,000 in notes, subject to
adjustment, based on the closing net worth and adjusted EBIT delivered by S.T.
as of the closing date. In addition, Retconn acquired certain proprietary rights
from S.T. shareholders for $200,010. The notes are payable in twenty equal
quarterly installments beginning on November 1, 1997 at an interest rate of 7%
per annum on the unpaid principal.

            (b) Financial Information about Industry Segments - The Company has
operated in one industry segment during each of its last three years.

            (c) Narrative Description of Business

Products

            Wire and Metal Ribbon. The Company manufactures fine wire and metal
ribbon used to conduct electricity or signals between two points of a circuit.
Metal ribbon is wire which is flattened to specific height and width
specifications and is used primarily in microwave and selected industrial
applications to regulate electrical conductivity. Wire and metal ribbon are
manufactured using gold, aluminum, copper, nickel and various metal alloys, each
of which has a distinct characteristic for conducting electrical currents or
signals. These products are sometimes coated or plated.

            The Company manufactures various sizes of wire in dimensions as thin
as .0005 inches (less than the size of a human hair) for specific applications.
Ribbon is produced in sizes as small as .00025 X .002. The Company's products
must adhere to rigid OEM standards used in electronic applications, including
military specifications.

            Precision Metal Stampings. Precision metal stampings are parts
stamped out of metals that are used to solder or connect electronic circuitry,
package electronic circuitry, dissipate heat or provide an interface for an
electronic connection. Stampings manufactured


                                       2
<PAGE>


by the Company, in dimensions as small as .005 inches, include preforms, heat
sinks, jumper chips, bonding islands, connectors, frames, seals, bases, and
cans. The Company also produces rolled strip.

            Preforms are custom shaped stampings used to solder metal parts to a
substrate (a base on which the electronic circuitry rests). Preforms must
quickly change from a solid state to a molten state and back again to effectuate
an efficient bond. Heat sinks are specialized metal stampings used to dissipate
heat generated by electrical currents. Jumper chips, bonding islands and
connectors are metal stampings generally used to provide an interface for an
electrical connection. Rolled strip is metal, either in pure or alloy form, that
is flattened from an ingot to a specified thickness and slit to a width to meet
a customer's specification or matched to fit with a die in the Company's
manufacturing process.

            Stampings are produced from a variety of metals, including copper,
aluminum, gold and gold alloys, special metals such as molybdenum, and clad and
plated materials. Molybdenum is a metal used for its unique heat dissipating
properties. Clad materials, which are also used to manufacture precision
stampings, are pieces of two or more different metals laminated together, and
are generally used as an interface between aluminum and gold circuitry. The
Company also has stampings plated for enhanced soldering and brazability.

            Tape on Reel Products. The Company offers a number of packaging
options for its stamping products, including bulk packaging, parts supplied on
carrier strips and, for high volume parts, tape on reel packaging. Tape on reel
packaging is used to support surface mount assembly operations. The Company
offers its customers stampings packaged on contact or pocket tape. Since many of
the Company's stamped products are very small, the Company employs the use of
automated and manual tape on reel equipment to perform this packaging function.
The Company has constructed a class 10,000 clean room to facilitate the
packaging of die ("semiconductor chips") in tape on reel.

            Seal Frames. In electronic applications of high reliability
(military, medical and aerospace) where a circuit is exposed to severe
environmental conditions (oceanographic and automotive applications) an
electronic package is used to hermetically seal the circuit to insure its
reliability. To obtain hermeticity, a sealing frame is brazed (a process similar
to soldering) to either a ceramic or metal base and at a later point in the
production a lid is added to complete the protective environment.

            Powdered Metal Heat Dissipation and Recreational Products. Heat
dissipation products are used to conduct heat away from critical areas of
electronic circuits where it can be dissipated. Heat dissipation products are
primarily used to conduct heat in high power wireless communication devices and
high speed microprocessor packages. In 1991 with the financial and technical
support of one of its customers, Polese began the development of a powdered
copper/tungsten material with a more homogeneous copper and tungsten particle
distribution than similar copper/tungsten materials available in the
marketplace. In early 1995, the Company obtained a patent for a Method for
Making Heat-Dissipating Elements for Micro-Electronic Devices. Polese utilizes
this proprietary method to manufacture copper/tungsten heat dissipation
products. The Company has also developed a non-electronic use of its powdered
metal technology with the recent introduction of a copper/tungsten metal matrix
composite for a sole weight for Taylor Made Golf's Titanium Bubble 2 TM irons.
In addition in late 1997, Polese announced the development of a new material,
Nitral(TM). Nitral(TM) is a high dissipation substrate that can be tailored for
high thermal conductivity. Production is expected to begin in the second quarter
of 1998.

            Other EDM Products. As a result of Polese's successful EDM operation
in the manufacture of seal frames, a number of special products have been
brought to Polese for manufacture. At this time, Polese is manufacturing small
and complicated parts for the


                                       3
<PAGE>


medical supply and other industries.

            Silicon Wafer Polishing and Reclaiming Services. ASP, ASPBV and ISP
offer a variety of high tech, state-of-the-art wafer polishing and reclaiming
services to the semiconductor industry. ISP began offering these services in the
third quarter of 1997. Reclaimed wafers are used in the evaluation and testing
of equipment and processes in semiconductor fabrication.

            Coaxial Contacts and Connectors, Cable and Cable Harnesses. Retconn
manufactures RF coaxial contacts and connectors which are sold principally to
manufacturers in the wireless communication and computer industries. Retconn's
products include a full line of DM subminiature RF contacts and connectors,
including solder, solder/crimp, and crimp/crimp standard coaxial contacts. It
has a line of SMA, SMB, SMC and MCX connectors that meet military
specifications. In addition, Retconn and its wholly owned subsidiary, S.T.,
offers cable terminations, specials and cable assemblies.

Raw Materials and Principal Suppliers

            The Company in most cases utilizes two or more alternative sources
of supply for each of its raw materials. In certain instances, however, the
Company will use a single source of supply when directed by a customer or by
need. In order to ensure the quality of the Company's products, the Company has
instituted strict supplier evaluation and qualification procedures. Once a
supplier has been qualified to supply materials to the Company, they will be
included on the Company's preferred supplier list and will be evaluated and
rated on an ongoing basis. The Company considers several of its vendors as
principal suppliers. For precious metals the Company's vendors include Fleet
Precious Metals, Sigmund Cohen, Handy and Harmon and Degussa Metz Metallurgical
Corp.

            The parent company makes extensive use of precious metals, including
gold and, to a lesser extent, silver and platinum, as raw materials in the
manufacture of certain products. Precious metals, particularly gold, are
utilized based upon their reliability and conductivity. The prices at which the
Company purchases precious metals are based upon market prices at the time of
purchase. Such metals have historically been subject to significant price
fluctuations and subject to volatility as a result of numerous factors beyond
the control of the Company.

            Substantially all of the parent company's gold requirements are
currently purchased from Fleet Precious Metals ("Fleet") pursuant to a
consignment agreement. Under the agreement, Fleet has agreed to advance up to
the lesser of 6,000 troy ounces of gold or gold having a market value of
$2,700,000. The agreement provides that title to the gold remains with Fleet
until the finished material is shipped, at which time the parent company is
required to replace the gold. The prices paid by the parent company for its
purchases are generally based upon the Comex or the Second London gold price and
are fixed automatically on a first-order, first-priced basis. The parent company
pays for gold in cash as of the date of purchase and pays a fee computed daily,
currently at the rate of 3.25% per annum, based upon the value of gold consigned
to the parent company. The agreement with Fleet expires on December 23, 1998.
The Company believes that there are alternative sources of supply for the parent
company's gold requirements in the event that the agreement with Fleet is
terminated.

            Silver and platinum are currently purchased from various trading
companies. The Company has no agreements with such suppliers, but believes that
there are numerous alternative sources of supply for such metals.

            The Company purchases base metals, including aluminum, copper,
copper/tungsten, kovar, molybdenum ,solder and clad metals and specially shaped
materials from local metal


                                       4
<PAGE>


distributors, cladding companies, roll formers, or other specialized suppliers.
Principal suppliers for non-precious metals and outside processing services
include Osram Sylvania, Platronics, AEP, Fusco, Donham Craft, Technical
Materials and Clad Metal Specialties.

            The Company also purchases certain components used in the assembly
of coaxial contacts and connectors from such companies as MGB and Sorenson
Engineering.

            The Company's Services Group purchases packaging materials, gases
and chemicals and specialized equipment from various suppliers. These vendors
include, but are not limited to, Empak, Rodel and Hubbard Hall.

            The Company's decision to purchase certain raw materials is
generally based upon whether such material is available consistent with required
specifications at a cost lower than the Company's manufacturing costs. If the
Company does not have, or could not, at a reasonable cost, develop the
manufacturing capability for a specific material, it attempts to maintain at
least two suppliers for such materials. While the Company attempts to maintain
alternative sources for the Company's raw materials and believes that
alternative sources are currently available for most of such metals and
materials, the Company is subject to price fluctuations and periodic shortages
of raw materials. The Company has no supply agreements with its suppliers and,
accordingly, purchases raw materials pursuant to purchase orders placed from
time to time in the ordinary course of business. Failure or delay by such
suppliers in supplying required raw materials could adversely affect the
Company's ability to manufacture and deliver products on a timely and
competitive basis.


Production Process

            Products manufactured to customer specifications account for almost
all of the Company's total revenues.

            Wire and metal ribbon are manufactured by casting pure metals with
selected additives into cylindrical shapes which are then drawn through a series
of diamond dies to progressively reduce the metal to a finished size. Wire is
then either annealed in batches or strands. Metal ribbon is made by rolling wire
into a flat shape or by slitting strip into narrow widths. Annealing, spooling
and packaging are similar to those for wire.

            The manufacturing process for stamping consists of casting specific
metals or alloy combinations into ingots which are passed through a series of
rolling mills to meet specified thickness requirements, and then slit to
specified widths. The material is stamped in a press which contains the die for
the customer's part. Parts are then cleaned and packaged to suit customer
requirements. The Company ships stampings in bulk form or employs packaging
methods to integrate its stampings with automated manufacturing equipment
utilized by its customers.

            Seal Frames are manufactured by sawing tubing, primarily copper or
kovar (a nickel alloy of steel), or "burning" the frames out of stacked sheets
of kovar on EDM machines. The seal frames are lapped (ground flat), machined
when necessary, lapped again, cleaned, plated when necessary and inspected.

            Other EDM products are "burned" on EDM machines and finished on CNC
milling machines or in selected secondary operations.

            The manufacturing process for copper/tungsten heat dissipation and
recreational products consists of manufacturing a tool and die for the specific
part, pressing the powdered materials in a powdered metal press, sintering the
parts in a furnace, and machining


                                       5
<PAGE>


them to the customer's specifications. The parts are then cleaned, plated,
tested and packaged for shipment.

            Silicon wafer polishing and reclaiming services begin with incoming
inspection of customer wafers. The wafers are sorted for reclaim suitability and
conformance to customer specifications. A report is then sent to the customer
indicating which wafers are reclaimable. While the Company from time to time
procures its own wafers, the majority of the wafers it processes are owned by
its customers. The customer usually retains title to the reclaimable wafers
throughout the polishing and reclaiming process. The wafers are then processed
to remove all diffusions and deposited layers (i.e., polysilicon, metals,
nitrides, oxides, etc.). A two step polishing process, similar to that which is
utilized by silicon suppliers, is then performed. The wafers are then cleaned
with a front and back side scrubbing followed by rinsing, drying and further
removal of particles. All cleaning is done in certified clean rooms utilizing
deionized water. Product quality is assured through procedural discipline and
Statistical Process Controls. The Company has achieved the ability to
consistently process wafers with particles of less than .16 microns in size,
with extremely low trace metals. The Company believes that its processing
capability equals that of any reclaiming capability in the world.

            The manufacturing process for coaxial contacts and connectors begins
with the machining of a variety of metals including brass, stainless steel and
beryllium copper through the use of screw machines. Secondary operations are
then performed on lathes, milling and threading machines, the machined parts are
then cleaned, heat treated and if required, are gold or nickel plated. After
plating and inspection, the machined parts, along with other component parts,
are assembled to produce a contact or connector. Retconn currently sources
approximately 95% of its parts machining to a number of outside vendors and
assembles all of its contacts and connectors in-house.

            The Company currently utilizes third party manufacturers in
connection with certain packaging and manufacturing processes. Such
manufacturing processes include the screw machine operations and other secondary
operations performed to produce connectors and the application of certain
surface finishes, such as plating and cladding. Additionally, the Company from
time to time arranges for third party vendors to package stamped parts for
compatibility with automated manufacturing equipment.

            The parent company usually operates on an eight-hour daily shift
five days per week, with its tape on reel production and aluminum wire drawing
operating on a two or three shift basis, consistent with business requirements.
Polese usually operates seven days per week, with its various departments
running two to three shifts per day, consistent with business requirements. ASP
usually operates on a three shift basis five days per week. Retconn usually
operates on a two shift basis five to six days per week. Management believes
that the Company possesses sufficient capacity to expand production of its
existing products. The Company owns much of the equipment at its manufacturing
and processing facilities and when appropriate, leases certain equipment from
third parties.

Quality Control

            The Company utilizes extensive in-house statistical process quality
control procedures ("SPC") and employs 44 persons engaged full-time in quality
control functions.

            A substantial portion of the Company's customers require the Company
to qualify as an approved supplier utilizing SPC. Generally, this qualification
includes providing samples to the customer, passing preliminary evaluations and
usage testing, completing customer evaluations and checklists and undergoing
extensive in-plant inspections of the Company's personnel, manufacturing
processes, equipment and associated quality control


                                       6
<PAGE>


systems. The Company has undergone numerous inspections by various customers and
continues to undergo such inspections on a regular basis. Accordingly, the
Company's efforts are devoted to ensure that its capabilities and quality
control standards are adequate to satisfy specific customer requirements. The
Company receives quality control certifications each year from various
customers.

            The Company is certified ISO 9000 (an international quality standard
for the European community) at five of its operations and holds various quality
awards throughout the industries it serves. The Company believes that its ISO
9000 certifications are important in establishing the Company as a world class
supplier and will greatly aid the Company in penetrating markets for the
Company's products throughout the world. The Company is also designated as a
"Q-1" supplier by The Ford Motor Company.

Marketing and Sales

            The Company's domestic and foreign sales efforts are directed
towards customers in numerous industries where the Company's products have wide
application. The Company engages independent sales representatives in various
regions throughout the United States, Europe, South America, the Middle East and
the Far East for marketing to customers. These sales representatives are paid on
a commission basis. As of February 28, 1998, the Company had arrangements with
24 sales representatives in the United States and 16 sales representatives who
market the Company's products in Europe , the Middle East, Far East and South
America, including France, Germany, Italy, the United Kingdom, Sweden, Israel,
Singapore, Hong Kong, China, Taiwan, Korea, Malaysia, the Philippines, Mexico
and Brazil. The Company believes that the use of independent sales
organizations, which typically specialize in specific products and areas and,
accordingly, have specific knowledge of and contacts in particular markets,
enhance the scope of the Company's marketing and sales efforts. Pursuant to
agreements with independent sales representatives, such representatives are
prohibited from carrying a line of products competitive with the Company's
products. The Company continues to engage new sales representatives as needed.
The Company believes that additional sales representatives are available, if
required.

            The Company currently employs 26 inside sales and marketing
personnel, including two of its executive officers, who are responsible for
direct sales to the Company's customers. The Company's sales personnel also work
closely with customers to solicit future orders and to render technical
assistance and advice.

            Other marketing efforts include generation and distribution of the
Company's product catalogs and brochures and attendance at trade shows. The
Company also advertises in trade publications, primarily in the United States.

Product and Process Development

            The Company places significant emphasis on product and process
development and believes that such efforts are important to take advantage of
market trends and to maintain its competitive position. The Company's product
and process development activities include refinement of its manufacturing and
processing capabilities and improvement in the metallurgical composition,
durability and reliability of its products. The Company's technical personnel
and outside consultants conduct specific projects to enhance performance of the
Company's products and to meet specific customer requirements. In the past years
these efforts have led to the development of a new gold wire for flip chips, a
copper/tungsten metal matrix composite for a sole weight for Taylor Made Golf's
Titanium Bubble 2 TM irons, Nitral(TM), a high dissipation substrate that can be
tailored for high thermal conductivity, a packaging process for die in tape on
reel, a new 31 series coaxial connector and process improvements which enable
the Company's reclaiming facilities to produce wafers with


                                       7
<PAGE>


particles of less than .16 microns and extremely low levels of trace metals.

            The Company has expanded its product lines and processing
capabilities through various acquisitions and a joint venture, including the
Company's acquisition of Polese in 1993, ASP in 1994 and Retconn in 1996, the
ISP joint venture in 1996 and the SMS and S.T. acquisitions in 1997 and will
continue to seek to expand through acquisitions and other strategic alliances.

Customers

            The Company's products are sold principally to customers servicing
the computer, automotive, aerospace, military, medical, semiconductor and
communications industries. The Company's customers include Kyocera America,
Motorola, IBM, Texas Instruments, National Semiconductor, Hewlett Packard,
Advanced Micro Devices, Berg Electronics, Hi-Tech Assemblies, Ford Motor
Company, Delco Electronics, SGS-Thompson, Northern Telecom, Cardiac Pacemakers,
Medtronics/Micro-Rel and Wafernet.

            For the years ended December 31, 1997 and 1996, sales of the
Company's products, to the Company's five largest customers accounted for
approximately 32% and 36%, respectively, of the Company's revenues. For the
years ended December 31, 1997 and 1996, one customer accounted for approximately
11% of the Company's total revenues.

            The Company does not maintain contracts with many of its customers
and generally sells its products pursuant to customer purchase orders. Certain
of the customers purchase orders provide for annual requirements of a particular
product. A substantial portion of the Company's orders for products which
include precious metals provide that the initial price quotation is adjusted to
reflect any changes in the price of precious metals at the time of shipment.
Customer purchase orders are generally filled within two to six weeks and
shipped to customers by common carrier.

            To date, the Company has relied upon foreign markets, including
Europe and the Far East, for a portion of its revenues. For the years ended
December 31, 1997 and 1996, direct sales of the Company's products into foreign
markets accounted for approximately 15% and 10%, respectively, of the Company's
consolidated revenues. Sales of the Company's products to foreign customers are
made through 16 foreign manufacturer's representatives. The Company believes
that a portion of its revenues will continue to be derived from the sale of its
products in foreign markets, which will result in the Company's being subject to
risks associated with foreign sales, including economic or political
instability, shipping delays, fluctuations in foreign currency exchange rates,
custom duties and export quotas and other trade restrictions. The Company is not
aware of any foreign tariffs with respect to products marketed by the Company.
Although export sales are subject to certain governmental restrictions, the
Company has not experienced any difficulties with foreign or domestic trade
restrictions.


Backlog

            The Company manufactures standard and custom products pursuant to
customer purchase orders. Backlog is comprised of orders for products which have
a scheduled shipment date within the next 12 months. Certain orders in the
backlog may be canceled under certain conditions without significant penalty to
the customer. At January 2, 1998 and 1997, the Company's backlog of orders
believed to be firm was approximately $20,643,000 and $10,067,000, respectively.
The January 2, 1997 backlog amount does not include any backlog associated with
SMS, which was acquired by the Company on January 23, 1997 or S.T. Electronics
which was acquired on July 30, 1997. The Company believes that the majority of


                                       8
<PAGE>


the Company's backlog of orders existing as of January 2, 1998 will be shipped
over the next twelve months.

Competition

            The market for the Company's products is highly competitive. The
Company competes with numerous well-established foreign and domestic companies,
many of which possess substantially greater financial, marketing, personnel and
other resources than the Company and have established reputations for success in
the development, sale and service of products. Such companies include Kulicke &
Soffa Industries, Inc., Tanaka, Heraeus, Polymetallurgical Corporation, Coining
Corp., Williams Advanced Materials, Climax Specialty Metals, Inc., Johnson
Matthey, A.T. Wall, Exsil, Sumitomo Corporation, Phoenix Electronics Company of
Chicago, Inc., Radiall, Inc., Huber and Suhner, Inc. and Amphenol Corporation.
The Company believes that it is one of a limited number of manufacturers of all
of its primary products and services: fine wire and metal ribbon, precision
metal stampings, seal frames, other EDM products, powdered metal heat
dissipation and recreational products, coaxial contacts and connectors, cable
assemblies and harnesses and polishing and reclaiming of silicon wafers. The
Company believes that this capability provides an advantage in marketing
products to customers which seek to limit the number of their suppliers.

            The ability of the Company to compete successfully will depend in
large measure on its ability to maintain development capabilities in connection
with upgrading its products and quality control procedures and to adapt to
technological changes and advances in the electronics industry, including
ensuring continuing compatibility with evolving generations of electronic
components and manufacturing equipment.


Patents and Proprietary Information

            The Company's ability to compete effectively may be materially
dependent upon the proprietary nature of its technologies. The Company has been
issued a patent for a Method for Making Heat-Dissipating Elements for
Micro-Electronic Devices. Polese Company utilizes this proprietary method to
manufacture copper/tungsten heat dissipation products. The Company believes that
this patent significantly improves its position in the marketplace. The powdered
metal technology covered by this patent was acquired by the Company in
connection with the Polese Company acquisition. In addition, Polese Co. has
applied for a patent covering its newly developed material, Nitral(TM). Few of
the Company's other manufacturing processes or products are protected by
patents.

            The Company relies on proprietary know-how and employs various
methods to protect its processes, concepts, ideas and documentation associated
with its proprietary products. However, such methods may not afford complete
protection and there can be no assurance that others will not independently
develop such processes, concepts, ideas and documentation. Although the Company
has and expects to have confidentiality agreements with its employees, there can
be no assurance that such arrangements will adequately protect the Company's
trade secrets.


Government Regulation

            The Company is subject to regulations administered by the United
States Environmental Protection Agency, the Occupational Safety and Health
Administration, various state agencies and county and local authorities. Among
other things, these regulatory bodies impose restrictions to control air, soil
and water pollution and dictate safety in the workplace. The extensive
regulatory framework imposes significant compliance burdens and


                                       9
<PAGE>


risks on the Company. Governmental authorities have the power to enforce
compliance with these regulations and to obtain injunctions and/or impose civil
and criminal fines or sanctions in the case of violations.

            The Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA"), imposes strict, joint and several liability
on the present and former owners and operators of facilities which release
hazardous substances into the environment. The Resource Conservation and
Recovery Act of 1976, as amended ("RCRA"), regulates the generation,
transportation, treatment, storage and disposal of hazardous waste. The Company
is also subject to various state and local laws which are the counterparts of
CERCLA and/or RCRA in the jurisdictions where the Company maintains facilities
(New York, California, Connecticut, Rhode Island and Texas). The Company
believes that it is in substantial compliance with all material federal and
state laws and regulations governing its operations. The Company continually
evaluates its environmental and safety practices with respect to such
requirements and maintains all required licenses or permits.

            Various laws and regulations relating to safe working conditions,
including the Occupational Safety and Health Act, are also applicable to the
Company. The Company believes it is currently in substantial compliance with all
material federal, state and local laws and regulations regarding safe working
conditions. The Company believes that the cost of compliance with such
government and environmental regulations is not material.


Executive Corporate Officers of the Company

            Gilbert D. Raker, 54, President since December 31, 1995; Chairman of
the Board and Chief Executive Officer of the Company since May 1990; Vice
President of the Company from November 1988 until May 1990.

            Frank J. Polese, 41, Vice Chairman of the Company since January 1996
and a Director of the Company since July 1993. Mr. Polese also served as
President of the Company from January 1994 through December 1995. From August
1991 until November 1996 and again since March 1997, Mr. Polese has served as
President of Polese Company, which was acquired by the Company on May 27, 1993,
prior to which Mr. Polese was its sole shareholder. Prior to August 1991, Mr.
Polese was a manufacturer's representative specializing in products incorporated
into microelectronic packages for the electronics industry.

            Kenneth J. Huth, 59, Executive Vice President of the Company since
January 1994, President of the Company from January 1990 to December 1993. From
1972 until December 1989, Mr. Huth served as President of Kenneth J. Huth, Inc.,
a manufacturer's representative specializing in precision stampings and related
products for the electronics industry.

            Andrew A. Lozyniak, 40, Executive Vice President since January 1995,
Treasurer, Secretary and Chief Financial Officer of the Company since February
1992.

Employees

            As of February 28, 1998, the Company employed approximately 885
persons. All manufacturing personnel are paid on an hourly basis. All employees
are employed full-time except for twenty-one part-time employees. None of the
Company's employees are covered by a collective bargaining agreement. The
Company considers its relationship with its employees to be good.


                                       10
<PAGE>


Item 2. Properties.

            The Company's executive offices and the parent's manufacturing
facility are located in a 43,700 square foot building in Armonk, New York. The
Company owns the building and had an outstanding mortgage of $1,569,000 at
December 31, 1997. The Company's Armonk facility is suitable for the Company's
current needs and is estimated to be currently operating at approximately 50% of
its productive capacity. The property is well maintained and in good condition.

            Polese entered into an agreement to lease approximately 24,211
square feet of industrial space at 10103 Carroll Canyon Road and 34,615 at 10111
Carroll Canyon Road, San Diego, California. The lease term will commence on
March 31, 1998 and expires on March 31, 2004 and calls for an initial monthly
rental of $29,833 for the first eight months, increasing to $35,296 for the next
4 months, with a 3% annual rent increase in the second through sixth years. The
performance of Polese Company's obligations under the lease is guaranteed by the
Company. Polese Company also leases approximately 10,600 square feet at 8680
Mirilani Drive, San Diego, California. The lease term commenced on May 1, 1997
and expires on December 31, 1999 and calls for a monthly rental of $5,760 with
an increase of 4% effective January 1, 1998. The facilities are suitable for the
Company's current needs and are currently operating at approximately 80% of
their productive capacity. The properties are well maintained and are in good
condition.

            ASP owns a 28,000 square foot facility in Providence, Rhode Island.
The facility is suitable for the Company's current needs and is currently
operating at approximately 50% of its productive capacity. The property is well
maintained and is in good condition. ASP also leases two facilities in Garland,
Texas. ASP leases a 26,590 square foot facility at 2985 Market Street ("Market
Street"), and a 16,600 square foot facility at 2613 Industrial Lane ("Industrial
Lane"). The lease on Market Street commenced on January 23, 1997 and continues
until January 31, 1999 with a one year extension option. Rents during the period
beginning January 23, 1997 and ending on July 31, 1997 were at an amount equal
to the real estate taxes on the premises which amount to approximately $4338 per
month. During the remaining term of the lease, ASP pays real estate taxes on the
premises plus rent equal to $10,000 per month. ASP also has an option to
purchase the premises for $1,000,000 until the expiration of the lease. The
lease on Industrial Lane commenced on January 23, 1997 and continues until
January 31, 1999 with a one year extension option. Rents during the period
beginning January 23, 1997 and ending on July 31, 1997 were at an amount equal
to the real estate taxes on the premises which amount to approximately $908 per
month. During the remaining term of the lease, ASP pays real estate taxes on the
premises plus rent equal to $5,000 per month. ASP also has an option to purchase
the premises for $500,000 until the expiration of the lease. The Texas
facilities are suitable for the Company's current needs and are currently
operating at approximately 40% of their productive capacity. The facilities are
well maintained and are in good condition. American Silicon Products, B.V.'s
operations are located in a facility of approximately 25,800 square feet at
Achterdijk 8, 5705 CB, Helmond, Netherlands. This facility was purchased on
December 1, 1997 by ASP. The Helmond facility is suitable for the Company's
current needs and is currently operating at approximately 70% of its productive
capacity. The facility consists of production, office and warehouse space and is
well maintained and in good condition.

            Retconn's primary operations are located in a 12,000 square foot
facility in Torrington, Connecticut. The lease on the facility expired on
January 1, 1998 and is currently occupied on a month to month basis with
annualized lease payments of $56,525. Retconn also leases a 6,360 square foot
facility near its main facility to house its cable assembly operation. This
lease expires in on October 31, 1998 and calls for monthly rentals of $3,000.
The facilities are suitable for the Company's current needs and are currently
operating at approximately 90% of their productive capacity. Retconn is
currently in the


                                       11
<PAGE>


process of identifying a larger facility to meet its future growth needs. The
properties are well maintained and are in good condition.

            S.T. Electronics operations are housed in three separate
manufacturing "suites" totaling approximately 6030 square feet, located in
Rancho Cordova, CA. The current lease is for a three year period, which
commenced on July 30, 1997 with a monthly lease payment of $4,500 per month. The
facility is suitable for the Company's current needs and is currently operating
at approximately 70% of its productive capacity. The properties are well
maintained and in good condition.


Item 3. Legal Proceedings.

            The Company is subject to claims and suits in the ordinary course of
business. Management believes that the ultimate resolution of such proceedings
will not have a material adverse effect on the Company. The Registrant received
notice, on January 5, 1998, that a shareholder class action was filed against
it, its Chief Executive Officer and its Chief Financial Officer, in the United
States District Court for the Eastern District of Pennsylvania on November 18,
1997, for an indeterminate amount of damages, (Blum et.al. v. Semiconductor
Packaging Materials Co., Inc., et. al. (97CV 7078)).The complaint alleges
various claims arising under Sections 10(b), 20(a) and 20A(a) of the Exchange
Act of 1934 and Rule 10b-5 thereunder. The complaint alleges, among other
things, that the Registrant, intentionally or recklessly, failed to disclose
adverse material financial information regarding its silicon wafer business in
the fourth quarter of 1996. The management of the Registrant believes the action
is without merit and intends vigorously to defend.

            Separately, the Northeast Regional Office of the Securities and
Exchange Commission is conducting a private investigation pursuant to a formal
order, captioned "In the Matter of Trading in the Securities of Semiconductor
Packaging Materials Co., Inc.", to determine whether any persons may have
violated the federal securities laws in connection with the purchase or sale of
the Registrant's securities prior to the December 30, 1996 announcement relating
to its anticipated financial results for the fourth quarter of fiscal 1996. As a
general matter, the Commission takes the position that its investigation should
not be construed as an indication that any violations of law have occurred or as
an adverse reflection upon any person or security. The Registrant is cooperating
fully with the Commission in its investigation.


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

            No matter was submitted to a vote of security holders during the
quarter ended December 31, 1997.


PART II


                                       12
<PAGE>


Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

            Since April 8, 1996, the Company's Common Stock has traded on the
NASDAQ National Market (Ticker Symbol: SEMX). Prior thereto, the Company's
Common Stock was traded on the American Stock Exchange (Ticker Symbol: SEM).

            The prices of the Company's Common Stock for each quarter during
1997 and 1996 were as follows:


                                             1997                   1996
                                             ----                   ----
                                       High        Low        High        Low
                                      ------      -----      ------      -----
  1st Quarter                         12-1/4      7-5/8      10-5/8      7-1/4
  2nd Quarter                         10-1/8          7      13-1/4      8-1/2

  3rd Quarter                         14-1/2      8-1/2      11-1/2      8-3/4
  4th Quarter                         14-1/2      6-7/8      17-7/8      9-1/4

As of March 17, 1998 (the "record date") there were approximately 87 holders of
record of the Company's Common Stock and approximately 3,315 beneficial holders.
On March 17, 1998, the high and low bid price of the common stock was $8.25 and
$8.00 per share, respectively. The Company paid no dividends on its Common Stock
in 1997 or 1996.




                                       13
<PAGE>


Item 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 
                       OF OPERATIONS RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain financial
data as a percentage of net sales:      

  Fiscal Year Ended

  December 31                                 1997          1996          1995
                                              ----          ----          ----

  Net Sales                                  100.0         100.0         100.0
  Cost of Sales                               71.3          66.7          63.0
  Gross Profit                                28.7          33.3          37.0
  Selling, General and
    Administrative Expenses                   16.9          17.8          21.9
  Operating Income                            11.8          15.4          15.1
  Interest Expense (Net)                       3.7           2.0           3.5
  Income before Income Taxes                   8.1          13.4          11.6
  Provision for Income Taxes                   3.1           5.3           2.6
  Net Income                                   5.3           8.3           9.0


RESULTS OF OPERATIONS (1997 compared to 1996)

Total revenue for 1997 increased $25,049,000, or 54%, over the comparable 1996
period. Sales by the Company's Materials Group increased $14,889,000 or 45% over
the 1996 period. The sales growth was due to a $8,704,000, or 89% increase at
Polese Company, an increase of $5,276,000, or 48% at Retconn, which includes
revenue of $1,944,000 from S.T. Electronics, Inc., which was acquired on July
30, 1997 and in increase at the parent company of $909,000 or 7% from prior year
levels. In 1997, the sales increase in the Materials Group was primarily due to
increased sales to the growing communications and computer marketplace. Service
revenue generated by the Company's Service Group increased $10,160,000 or 79%
over the comparable period. This increase included a $9,416,000, or 73% increase
in revenue at ASP, which includes revenue of $10,451,000 from the January 23,
1997 acquisition of Silicon Materials Service and Silicon Materials Service,
B.V. and revenue of $744,000 from International Semiconductor Products Pte Ltd.
While revenues increased in the 1997 period, the Services Group revenue growth
has been impacted by the slowdown in the semiconductor industry. For 1997 and
1996, direct sales of the Company's products into foreign markets accounted for
slightly less than 15% and 10%, respectively, of consolidated revenue. The
Company currently maintains foreign manufacturing operations in Singapore and in
the Netherlands. In 1997, the Company derived $3,912,000 or 6% of its
consolidated revenue from its foreign manufacturing operations. Foreign sales
are made through sixteen foreign manufacturer's representatives and are priced
and paid for in both local currencies (Dutch Florins and Singapore Dollars)and
in US Dollars. The Company believes that its revenue has been, and will be,
affected by the cyclical nature of the industries it serves. The SMS
acquisition, and the Company's joint venture in Singapore, further increase the
Company's reliance on the semiconductor industry. During the 1997 period, the
Company has not experienced any significant impact on revenue or earnings from
the economic instability being experienced in Asia.


                                       14
<PAGE>


Gross profit for 1997 increased $5,067,000, or 33%, from the comparable 1996
period. In the Materials Group, the increase was primarily due to a $2,738,000,
or 133% increase at Polese, gross profit of $2,051,000, or 63% increase at
Retconn and a $468,000, or 11% increase at the parent company. In the Services
Group, ASP's gross profit increased $104,000, or 2% and ISP had a gross profit
loss of ($293,000). While gross margin in the Materials Group increased to 31%
in the 1997 period from 29% in the 1996 period, consolidated gross margin for
the Company decreased to 29% in 1997 from 33% in the comparable 1996 period. The
decrease in consolidated gross margin was caused by a decrease in the Services
Group gross margin which decreased from 44% in the 1996 period to 24% in the
1997 period, due to the acquisition of SMS, which has gross margins
significantly below those of ASP, a gross profit loss at ISP and increased
depreciation and manufacturing costs at ASP's Rhode Island operation.

Selling, general and administrative ("SG&A") expenses in 1997 increased
$3,789,000, or 46% over the comparable 1996 period. The increase was primarily
due to the inclusion of $1,344,000 of SMS's SG&A costs with the Company's and
the increase in the sales and marketing activities throughout the Company. The
Company's 1997 SG&A expenses also include $265,000 of expenses generated by its
Singapore joint venture. SG&A expenses as a percentage of revenue decreased to
17% in the 1997 period from 18% in the comparable 1996 period.

Net interest expense for the 1997 period increased $1,681,000 from the
comparable 1996 period primarily due to increased interest costs associated with
debt incurred with the SMS and ST acquisitions, the ISP startup and increased
capital lease obligations.

A provision of $2,214,000 for income taxes has been made for the 1997 period as
compared to a $2,445,000 provision in the comparable 1996 period. In the 1997
period, the Company's earnings were taxed at an effective tax rate of 38% as
compared to an effective tax rate of 40% in the comparable 1996 period.

In the 1997 period, the Company has included a $677,000 loss before income taxes
and minority interest, as compared to $128,000 in the 1996 period, associated
with its Singapore joint venture in its income before minority interest in loss
of consolidated subsidiary. The Company has a 50.1% interest in the joint
venture and has accordingly excluded $223,000, net of tax, as compared to
$64,000 in 1996, or 49.9% of such loss from its consolidated net income.

As a result of the foregoing, net income decreased $13,000 in 1997 from the
comparable 1996 period. In 1997, all of the Company's operations were profitable
except for ISP.

Year 2000

The Company is currently addressing the potential problems associated with Year
2000 computer compliance(some computers and software are unable to "read" the
year 2000), and has designed a program, under the direction of the Information
Technology (IT) Manager, to address compliance with Year 2000 both internally,
including all subsidiaries, and externally, including critical suppliers and
customers. All aspects of computer hardware and software are being reviewed and
upgraded as required to meet the demands of Year 2000. Based on preliminary
information, the cost of addressing the potential problem will not have an
impact on future revenue and earnings growth. However, if the Company, its
suppliers or customers are unable to address and resolve the problem within set
time constraints, it could result in a material impact on the Company's results
of operations.


RESULTS OF OPERATIONS (1996 compared to 1995)

            Total revenue for 1996 increased $17,963,000, or 64%, over the
comparable 1995


                                       15
<PAGE>


period. The increase was primarily due to the inclusion of $11,059,000 of
revenue from Retconn Incorporated ("Retconn"), which was acquired by the Company
as of January 2, 1996, a $4,746,000, or 58% increase in revenue at American
Silicon Products ("ASP"), primarily as a result of ASP's increased capacity
enabling it to meet demand for its services; and a $2,015,000, or 26% increase
in revenue at Polese Company, due to increased sales of its copper/tungsten heat
dissipation products. Revenues at the parent company ("SPM") increased $143,000,
or 1% from prior year levels. For 1996 and 1995, direct sales of the Company's
products into foreign markets accounted for slightly less than 10% and 5.0%,
respectively, of consolidated revenue. The Company currently maintains foreign
manufacturing operations in Singapore and in the Netherlands. In 1996, the
Company did not derive any revenue from its foreign manufacturing operations.
Foreign sales are made through seventeen foreign manufacturer's representatives
and are priced and paid for in U.S. dollars. The Company believes that its
revenue has been, and will be, affected by the cyclical nature of the industries
it serves. Effective August 28, 1996, the Company entered into a joint venture
agreement to develop a silicon wafer polishing and reclaiming facility in
Singapore. On January 23, 1997, ASP acquired a competitor in the silicon wafer
reclaiming business, Silicon Materials Service and Silicon Materials Service,
B.V. (collectively "SMS"). The SMS acquisition, and the Company's joint venture
in Singapore, will further increase the Company's reliance on the semiconductor
industry and its future revenues could be impacted by the cyclical nature of the
semiconductor industry.

            Gross profit for 1996 increased $4,927,000, or 47%, from the
comparable 1995 period. The increase was primarily due to the inclusion of
$3,248,000 of Retconn gross profit and a $1,321,000 increase in ASP's gross
profit from prior year levels. ASP's gross profit increased 30%, Polese
Company's gross profit increased 21% and SPM's gross profit did not change from
the comparable 1995 period. As a result of lower gross margin at ASP and the
inclusion of Retconn's operations in the 1996 period, (gross margin at Retconn
is lower than the historical margins of the Company) gross margin decreased to
33% in 1996 from 37% in the comparable 1995 period. ASP's gross margin decreased
primarily due to increased depreciation and manufacturing costs associated with
its capacity expansion.

            Selling, general and administrative ("SG&A") expenses in 1996
increased $2,057,000, or 33% over the comparable 1995 period. The increase was
primarily due to the inclusion of $1,819,000 of Retconn's SG&A costs with the
Company's in the 1996 period. The Company's 1996 SG&A expenses also include
$120,000 of expenses generated by its Singapore joint venture. SG&A expenses as
a percentage of revenue decreased to 18% in the 1996 period from 22% in the
comparable 1995 period.

            Net interest expense for the 1996 period decreased $69,000 from the
comparable 1995 period. Increased interest costs in the 1996 period associated
with term debt incurred in conjunction with the Retconn acquisition was more
than offset by a reduction in interest costs at ASP in 1996. Debt incurred in
the ASP acquisition was retired using a portion of the proceeds from the
Company's July 1995 public offering.

            A provision of $2,445,000 for income taxes has been made for the
1996 period as compared to a $722,000 provision in the comparable 1995 period.
In the 1996 period, the Company's earnings were taxed at an effective tax rate
of 39.5% as compared to an effective tax rate of 22.2% in the comparable 1995
period. The effective tax rate in the 1995 period was lower than the effective
tax rate in the 1996 period due to the utilization of consolidated net operating
loss carry forwards in the 1995 period. This loss carry forward was fully used
in the 1995 period. In the 1996 period, the Company has included a $128,000 loss
associated with its Singapore joint venture in its income before minority
interest in loss of consolidated subsidiary. The Company has a 50.1% interest in
the joint venture and has accordingly, excluded $64,000, or 49.9% of such loss
from its consolidated net income.


                                       16
<PAGE>


            As a result of the foregoing, net income increased $1,280,000, or
51% in 1996 over the comparable 1995 period. In 1996, all of the Company's
operations were profitable except for Polese Company which recorded a $109,000
after tax loss. It is anticipated that Polese Company's profitability will
continue to improve as it increases sales of its copper/tungsten heat
dissipation products and improves its productivity.

                         LIQUIDITY AND CAPITAL RESOURCES

            The Company has financed its capital needs through the proceeds of
its public offerings, its revolving credit facility, term loans from First Union
Bank (the "Bank") and cash flow from operations.

            At December 31, 1997, the Company had cash and cash equivalents of
$2,260,000 and an available balance on its revolving credit facility of
$4,525,000 as compared to $3,531,000 and $5,000,000 respectively at December 31,
1996.

            Net cash provided by operating activities in 1997 amounted to
$6,397,000 as compared to $6,214,000 in the comparable 1996 period. While
depreciation and amortization of property and equipment and other amortization
increased $1,998,000 and accounts payable increased $3,210,000 in the 1997
period compared to the 1996 period, accounts receivable and inventory increased
$3,195,000 and $2,297,000, respectively, in the 1997 period over the 1996. The
increases in the Company's accounts receivable and inventories were made to
support the growth of the Company.

            To support the Company's growth and enhance its profitability, in
1997 and 1996, the Company invested $13,119,000 and $7,943,000, respectively, in
property and equipment. This investment excludes $4,271,000 and $3,523,000,
respectively, in the 1997 and 1996 periods for equipment acquired under capital
leases. The majority of capital lease arrangements which the Company has entered
into have lease terms of five years and provide for a bargain purchase when the
lease term expires. At December 31, 1997, the Company had capital commitments of
approximately $953,000 for the ongoing upgrade of the Company's manufacturing
equipment. The Company believes that the lease financing available to it for
certain equipment together with cash flow from operations will be sufficient to
fund its capital needs.

            In conjunction with the ASP acquisition in 1994, certain of the
former stockholders of ASP were to receive one-third of ASP's adjusted earnings
before interest and taxes in excess of $650,000 per fiscal quarter, (the
"Consulting Agreements"), through December 31, 1999. In the fourth quarter of
1995, the Company bought out the remaining four years of payments due under the
Consulting Agreements for $725,000 in cash, notes, and 52,500 shares of its
common stock, the remaining $625,000 of which was paid in 1996.

            Effective January 2, 1996, the Company acquired all of the common
stock of Retconn, a manufacturer of coaxial contacts and connectors, for
$5,933,000 in cash. In addition, the Company incurred approximately $1,132,000
in costs associated with the Retconn acquisition. This business combination was
accounted for as a purchase. In connection with the Retconn acquisition, on
January 4, 1996, the Company entered into a term loan with the Bank in the
principal amount of $6,000,000. The loan was subsequently refinanced in
conjunction with the SMS acquisition described below.

            Effective August 28, 1996, the Company entered into a joint venture
agreement to develop a silicon wafer polishing and reclaiming facility in
Singapore. The jointly owned Singapore corporation, International Semiconductor
Products Pte Ltd, is 50.1% owned by the Company and 49.9% owned by a holding
company, Semiconductor Alliance Pte Ltd. In 1996, the Company and its joint
venture partner made a total of $4,000,000 in equity


                                       17
<PAGE>


contributions into ISP, which were contributed on a pro-rata basis. The
Company's Bank, on behalf of the Company, has maintained a standby letter in the
amount of $3,600,000 to assist ISP in obtaining local financing.

            On January 23, 1997, ASP completed the acquisition of the assets of
Silicon Materials Service of Garland, Texas, and acquired 100% of the
outstanding stock of Silicon Materials Service, B.V. of Helmond Netherlands. The
purchase price of approximately $12,972,000 was paid in cash. In addition, the
Company incurred approximately $2,000,000 in costs associated with the SMS
acquisition. This business combination was accounted for as a purchase.
Concurrent with the acquisition, the Company entered into a $21,000,000 five
year term loan with First Union Bank (the "Bank"). Fleet National Bank is also
participating in the term loan facility and the line of credit described below.
The $21,000,000 term loan was principally used to finance the SMS acquisition
and to refinance the Retconn term loan. The principal amount is payable in 60
consecutive installments of $350,000 which commenced on March 1, 1997. The loan
bears interest at a Eurodollar rate plus 2.25%. In conjunction with the term
loan agreement, the Company also entered into a $15,000,000 line of credit with
the Bank which is described below. Pursuant to the term loan and line of credit
agreements, the Bank has a first priority security interest in substantially all
of the Company's assets. The loan agreements provide, among other things, that
the Company maintain certain financial ratios. The Company is also subject to
restrictions relating to incurring additional indebtedness, additional liens and
security interests, capital expenditures and the payment of dividends.

            On July 30, 1997, Retconn acquired 100% of the outstanding stock of
S.T. Electronics for $1,000,000 in cash plus approximately $54,000 based on
S.T.'s closing net worth and $2,000,000 in notes. In addition, Retconn acquired
certain proprietary rights from S.T. shareholders for $200,100. The notes are
payable in twenty equal quarterly payments that began on November 1, 1997 at a
7% interest rate on the unpaid balance. In addition, the Company incurred
approximately $300,000 in costs associated with the acquisition of S.T.. This
business combination was accounted for as a purchase.

            As a result of the above in 1997 and 1996, $29,053,000 and
$14,335,000, respectively, of cash was used in investing activities.

            In 1997 and 1996, the Company received $131,000 and $627,000,
respectively, from the exercise of stock options.

            On February 8, 1994, the Company registered 698,625 shares of common
stock purchasable pursuant to the exercise of redeemable warrants. The
redeemable warrants were distributed without cost as a distribution to the
Company's stockholders of record as of February 8, 1994. On January 24, 1995,
the Company called the warrants for redemption. As of the redemption date,
February 23, 1995, all but 98,918 of the warrants were exercised. On December
20, 1996, all remaining solicitation agent warrants were canceled by the
Company.

            On July 27, 1995 the Company completed a public offering of its
Common Stock. The Company used the proceeds of the offering to repay the
majority of it's outstanding bank indebtedness. The Company used the balance of
the proceeds to improve its new ASP facility, to purchase equipment for its
operations and for general corporate and working capital purposes

            On December 20, 1995, the Company entered into a $7,500,000
revolving credit facility line of credit with the Bank. The maturity date of the
facility was September 30, 1997. At December 31, 1996 and 1995, the Company had
not borrowed under its revolving credit facility. Concurrent with the Company's
new line of credit described below, this


                                       18
<PAGE>


facility was terminated.

            On January 23, 1997, the Company entered into a new $15,000,000 line
of credit with the Bank which expires in February 1999. This credit line
includes a standby letter of credit for ISP in the amount of $3,600,000.
Interest is payable monthly at the lower of the Bank's loan pricing rate or a
Eurodollar rate plus 2.25%. As of December 31, 1997, the Company had borrowings
of $6,875,000 under the line.

            In conjunction with the Company's acquisition of Polese Company on
May 27, 1993, the Company acquired from Frank J. Polese, the former sole
shareholder of Polese Company, all of the rights, including a subsequently
issued patent, for certain powdered metal technology and its application to the
electronics industry for $250,000 in cash and $750,000 in notes, as modified,
including interest at 7% per annum. The note was paid in full in 1995. For a
period of ten years, Mr. Polese has the right to receive 10% of (I) the pre-tax
profit from the copper tungsten product line, after allocating operating costs
and (ii) the proceeds of the sale, if any, by the Company of the powdered metal
technology. Through December 31, 1997, no amounts have been charged to
operations pursuant to this agreement.

            On December 18, 1997, the Board of Directors authorized the Company
to repurchase up to $2,000,000 of SEMX common stock on the open market.
Repurchased shares will be held as Treasury shares and may be reissued in the
future or may be reissued pursuant to the Company's stock option programs. As of
December 31, 1997, the Company had not repurchased any of its shares.

            The Company has, and expects to be able to continue to, meet its
obligations to the Bank from cash generated from operations. As at December 31,
1997, the Company was in compliance with all of the covenants contained in its
loan agreements.

            As a result of the above, in 1997 and 1996, $21,469,000 and
$7,408,000, respectively, of cash was provided by the Company's financing
activities. As a result of the Company's operations and equity financing
activities, shareholders' equity increased $3,518,000 in 1997 over the
comparable 1996 period.

            The Company continually seeks to broaden its product lines by
various means, including through acquisitions. The Company intends to pursue
only those acquisitions for which it will be able to arrange the necessary
financing by means of the issuance of additional equity, the use of its cash or,
through bank or other debt financing.

            The Company believes that it has the capacity for growth and that
its working capital and internally generated funds, combined with its bank line
of credit, the proceeds it has received from its public offerings, and from
other sources of financing, will be sufficient to satisfy the Company's
currently anticipated cash requirements on both a short-term and long-term
basis.

Forward Looking Statements

Except for historical information contained herein, this Form 10-K contains
forward looking statements which are based on the Company's current expectations
and assumptions. Various factors could cause actual results to differ materially
from those set forth in such statements. These factors include, but are not
limited to, general economic conditions, increased competition, changes in
government regulations, dependence on critical suppliers, increased operating
costs, the cyclical nature of the semiconductor and microelectronics industries
and the impact of the instability currently being experienced in Asia on the
U.S. economy.


                                       19
<PAGE>


Item 7.  Financial Statements.

Filed herein as Part IV, Item 13.

Item 7(a)Quantitative and Qualitative Disclosure About Market Risk
Not applicable.

Item 8.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure.
None.


                                    PART III


Item 9, 10, 11 and 12. Directors and Executive Officers of the Registrant,
Executive Compensation, Security Ownership of Certain Beneficial Owners and
Management, and Certain Relationships and Related Transactions.

      The information required by these Items is omitted because the Company
will file a definitive proxy statement pursuant to Regulation 14A with the
Commission, not later than 120 days after the end of the fiscal year, which
information is herein incorporated by reference as if set out in full.


                                     PART IV

Item 13.    Exhibits, Financial Statement Schedules and Reports on Form 8-K.

      The following is an index of the financial statements of the Company which
are incorporated herein.


(a) (1) Financial Statements:

            Report of Independent Auditors.................................. F-1
                                                                             
            Consolidated Balance Sheet as of December 31, 1997 and 1996..... F-2
                                                                             
            Consolidated Statement of Income for the Years                   
            Ended December 31, 1997, 1996 and 1995.......................... F-3
                                                                             
            Consolidated Statement of Shareholders' Equity for the Years     
            Ended December 31, 1997, 1996 and 1995.......................... F-4
                                                                             
            Consolidated Statement of Cash Flows for the Years               
            Ended December 31, 1997, 1996 and 1995.......................... F-5
                                                                            
            Notes to Consolidated Financial Statements................ F-6 -F-17


                                       20
<PAGE>


    (a) (2) Financial Statement Schedules:

              All schedules have been omitted because of the absence of
              conditions under which they are required or because the required
              information is given in the above financial statements or the
              notes thereto included in this report.


    (b) Reports on Form 8-K

            No form 8-K reports have been filed by the Registrant during the
            last quarter of the period covered by this Report.


    (a) (3) Exhibits:

3.1         Certificate of Incorporation of the Company (1)

3.2         Amendment to Certificate of Incorporation (1)

3.3         Bylaws of the Company (1)

4.1(a)      Underwriter's Warrant Agreement, dated as of December 20 , 1991,
            between the Company and the Underwriter (2)

4.1(b)      Amendment No. 1 to the Underwriter's Warrant Agreement, dated as
            of April 27, 1993 (6)

10.1        Gold Lease Agreement between the Company and Republic National
            Bank of New York dated May 17, 1989 (1)

10.3(a)     Amended and Restated Non-Competition Agreement by and between the
            Company and Rudolf Hanau and dated as of May 23, 1990 (1)

10.3(b)     Amended and Restated Non-Competition Agreement by and between the
            Company and Richard Gordon and dated as of May 23, 1990 (1)

10.5(a)     Termination Agreement between the Company and Rudolf Hanau dated
            October 30, 1991 (1)

10.5(b)     Termination Agreement between the Company and Richard Gordon dated
            October 30, 1991 (1)

10.6        Employment Agreement between the Company and Richard Gordon dated
            October 30, 1991 (1)

10.7        Employment Agreement between the Company and Rudolf Hanau dated
            October 30, 1991 (1)

10.8        Non-Competition Agreement between the Company and Richard Gordon
            dated as of November 30, 1988 (3)

10.9        Non-Competition Agreement between the Company and Rudolf Hanau
            dated as of November 30, 1988 (3)

10.10(a)    Company's Employee Stock Option Plan (4)


                                       21
<PAGE>


10.10(b)    Company's Amended Employee Stock Option Plan (6)

10.12(a)    Stock Purchase Agreement dated April 30, 1993 by and between
            Registrant and Frank J. Polese (5)

10.12(b)    Asset Purchase Agreement dated April 30, 1993 by and between the
            Registrant and Frank J. Polese (5)

10.13(a)    Term Loan and Security Agreement dated May 27, 1993, between the
            Registrant and Union Trust Company (5)

10.13(c)    Promissory Note dated May 27, 1993 from the Registrant to Union
            Trust Company (5)

10.13(d)    Guaranty and Security Agreement between Polese Company, Inc. and
            Union Trust Company (5)

10.15       Lease Agreement dated as of October 22, 1993 between Transamerica
            Occidental Life Insurance Company and Polese Company, Inc. (6)

10.16       Form of Warrant Agreement between the Company, Continental Stock
            Transfer & Trust Company and Sands Brother & Co., Ltd. (6)

10.17       Form of Agreement to Contribute Redeemable Warrants to Company.
            (6)

10.18       Promissory Note dated May 27,1993 payable to Frank J. Polese. (6)

10.19       Documents related to Secured Loan from Union Trust Company dated
            December 16, 1993

            (a)   Loan and Security Agreement (6)

            (b)   Promissory Note (6)

            (c)   Subordination and Intercreditor Agreement (6)

            (d)   Guaranty and Security Agreement (6)

            (e)   Loan Modification Agreement to Loan and Security Agreement
                  dated May 27, 1993 (6)

            (f)   Assignment of Patents (6)

10.20       Documents related to Revolving Loan Agreement from Union Trust
            Company dated June 16, 1994

            (a)   Revolving Credit Agreement (8)

            (b)   Revolving Credit Note (8)

            (c)   Subordination and Pledge Agreement (8)

            (d)   Guaranty and Security Agreement of Parent (8)

            (e)   Guaranty and Suretyship Agreement of Polese Company, Inc. (8)


                                       22
<PAGE>


            (f) Assignment of Patents (8)

10.21       Loan Modification Agreement dated November 23, 1994 to Revolving
            Credit Agreement between the Registrant and Union Trust Company (8)

10.22       Form of Modification of Gold Lease Agreement between the Registrant
            and Republic National Bank of New York dated December 6, 1994 (8)

10.23(a)    Employment Agreement dated as of December 15, 1994 between the
            Company and Gilbert D. Raker (8)

10.23(b)    Modification of Employment Agreement dated as of December 15, 1994
            between Polese Company, Inc and Frank J. Polese (8)

10.23(c)    Employment Agreement dated as of December 15, 1994 between the
            Company and Kenneth J. Huth (8)

10.23(d)    Employment Agreement dated as of December 15, 1994 between the
            Company and Andrew A. Lozyniak (8)

10.24       Lease Extension Agreement dated December 1, 1994 between the Company
            and R&R Associates (8)

10.25       Lease Agreement dated as of June 1, 1994 between Nobbs Family Trust
            and Polese Company, Inc. (8)

10.26       Lease Agreement dated as of January 1, 1995 between W. Ralph Byrne
            and American Silicon Products, Inc. (8)

10.27       Lease Agreement dated as of January 19, 1995 between Thomas A.
            Langton and David T. Kearns, Jr. d/b/a Alak Associates, and American
            Silicon Products, Inc. (8)

10.28       Documents related to the ASAC merger and the acquisition of the
            assets of American Silicon Products, Inc., a Rhode Island
            corporation

            (a)   Asset Purchase Agreement dated as of September 28, 1994, as
                  amended, among Peter Vessella, ASPI and ASAC. (7)

            (b)   Merger Agreement dated as of November 18, 1994 by and among
                  the Registrant, Newco, ASAC and the stockholders of ASAC. (7)

            (c)   Consulting Agreement dated as of December 15, 1994 by and
                  between the Registrant and Peter J. Hurley. (7)

            (d)   Term Loan Agreement (Bridge Loan) dated December 15, 1994 by
                  and between the Registrant and UTC. (7)

            (e)   Term Loan Agreement dated December 15, 1994 by and between the
                  Registrant and UTC. (7)

            (f)   Promissory Note in the principal amount of


                                       23
<PAGE>


                  $8,250,000, dated December 15, 1994 from the Registrant to
                  UTC. (7)

10.29       Documents related to Revolving Loan Agreement from First Fidelity
            Bank dated December 20, 1995.

            (a)   Revolving Loan and Security Agreement

            (b)   Revolving Promissory Note

10.30       Documents related to Term Loan Agreement from First Union Bank of
            Connecticut dated January 4, 1996.

            (a)   Term Loan Agreement

            (b)   Term Promissory Note

10.31(a)    Termination Agreement dated as of October 27, 1995 between the
            Company and John P. Holmes, III.

10.31(b)    Termination Agreement dated as of October 27, 1995 between the
            Company and J. Francis Lavelle.

10.31(c)    Termination Agreement dated as of October 27, 1995 between the
            Company and Rolf E. Soderstrom.

10.31(d)    Termination Agreement dated as of October 27, 1995 among the Company
            Peter J. Hurley, Harrison Hurley & Co., Inc and Harrison Hurley &
            Co. II, Inc.

10.49       1994 Amendment to Employees' Incentive Stock Option Plan. (9)

10.50       1995 Amendment to Employees' Incentive Stock Option Plan. (9)

10.51       Commercial Grid Note dated May 31, 1995 in the amount of $1,250,000
            from the Company to Union Trust Company. (9)

10.55       Stock Purchase Agreement dated as of December 20, 1995 by and among
            Retconn Acquisition, Inc. and Daniel A. LeDonne, The Richard C.
            Ashworth 1993 Trust, Richard C. Ashworth individually, William
            S.White and Retconn Incorporated.(10)

10.56       Employment Agreement dated January 4, 1996 between Retconn
            Incorporated and Daniel A. LeDonne. (10)

10.57       Closing Date Agreement dated January 4, 1996 among Retconn
            Acquisition, Inc., Daniel A. LeDonne, The Richard C. Ashworth 1993
            Trust, Richard C. Ashworth individually, William G. White and
            Retconn Incorporated. (10)

10.58       Joint Venture Agreement dated August 28, 1996 between Semiconductor
            Alliance Pte Ltd., the Company and International Semiconductor
            Products Pte Ltd.(11)

10.59       Intellectual Property License Agreement dated August 28, 1996
            between American Silicon Products, Inc. and International
            Semiconductor Products Pte Ltd.(11)

10.60       Purchase Agreement dated as of January 16, 1997 between American
            Silicon Products, Inc. and Air Products & Chemicals, Inc.(12)


                                       24
<PAGE>


10.61       Credit Agreement dated as of January 23, 1997 between the Company
            and First Union Bank of Connecticut. (12)

10.62       Stock Purchase Agreement dated as of July 30, 1997 by and among
            Retconn Incorporated, Semiconductor Packaging Materials Co., Inc.,
            Niwatana Chaimongkol, Somnuk Thongkumthamachart and S.T.
            Electronics, Inc.

22          List of Subsidiaries of the Company

23.1        The Consent of Goldstein Golub Kessler & Company, P.C., the
            Company's independent certified pubic accountants, to incorporation
            by reference to Registration Statement on Form S-8 of their report
            dated January 31, 1998.

            (1)   Incorporated herein by reference to the Company's Registration
                  Statement No. 33-43640-NY on Form S-18, filed with the
                  Securities and Exchange Commission on November 1, 1991.

            (2)   Incorporated herein by reference to the Company's Annual
                  Report for the year ended December 31, 1991, filed with the
                  Securities and Exchange Commission on March 31, 1992.

            (3)   Incorporated herein by reference to Amendment No. 1 to the
                  Company's Registration Statement No. 33-43640-NY on Form S-18,
                  filed with the Securities and Exchange Commission on December
                  6, 1991.

            (4)   Incorporated herein by reference to Amendment No. 2 to the
                  Company's Registration Statement No. 33-43640-NY on Form S-18,
                  filed with the Securities and Exchange Commission on December
                  20, 1991.

            (5)   Incorporated herein by reference to Current Report on Form 8-K
                  filed with the SEC on June 11, 1993, as amended by Form 8-K/A.

            (6)   Incorporated herein by reference to the Company's Registration
                  Statement No. 33-70876 on Form S-3 filed, with the Securities
                  and Exchange on October 28, 1993 and as amended on December
                  30, 1993, January 20, 1994 and February 7, 1994.

            (7)   Incorporated herein by reference to Current Report on Form 8-K
                  filed with the SEC on December 29, 1994.

            (8)   Incorporated herein by reference to the Company's Annual
                  Report for the year ended December 31, 1995, filed with the
                  SEC for March 31, 1995.

            (9)   Incorporated herein by reference to the Company's Registration
                  Statement No. 33-93502 on Form SB-2 filed, with the Securities
                  and Exchange on June 16, 1995 and as amended on July 19, 1995
                  and July 26, 1995.

            (10)  Incorporated by reference to the Company's Form 8-K filed
                  January 4, 1996.


                                       25
<PAGE>


            (11)  Incorporated by reference to the Company's 10-QSB filed for
                  the quarter ended September 30, 1996.

            (12)  Incorporated by reference to the Company's Form 8-K filed
                  February 4, 1997 and amended by Form 8-K/A.


                                       26


<PAGE>

                                     SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
                                                                AND SUBSIDIARIES


                                                   INDEX TO FINANCIAL STATEMENTS
================================================================================



Report of Independent Auditors                                           F-1

Consolidated Balance Sheet as of December 31, 1997 and 1996              F-2

Consolidated Statement of Income for the Years Ended
 December 31, 1997, 1996 and 1995                                        F-3

Consolidated Statement of Shareholders' Equity for the Years Ended
 December 31, 1997, 1996 and 1995                                        F-4

Consolidated Statement of Cash Flows for the Years Ended
 December 31, 1997, 1996 and 1995                                        F-5

Notes to Consolidated Financial Statements                            F-6 - F-17
<PAGE>


REPORT OF INDEPENDENT AUDITORS



To the Board of Directors
Semiconductor Packaging Materials Co., Inc.


We have audited the accompanying consolidated balance sheets of Semiconductor
Packaging Materials Co., Inc. and Subsidiaries as of December 31, 1997 and 1996
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Semiconductor
Packaging Materials Co., Inc. and Subsidiaries as of December 31, 1997 and 1996
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.


/s/ GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.

GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York

January 31, 1998
<PAGE>

                                     SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
                                                                AND SUBSIDIARIES

                                                      CONSOLIDATED BALANCE SHEET
================================================================================
<TABLE>
<CAPTION>
December 31,                                                                                   1997               1996
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>                <C>         
ASSETS (Note 6)

Current Assets:
  Cash and cash equivalents (Note 1)                                                   $  2,260,427       $  3,531,099
  Accounts receivable, less allowance for doubtful accounts of $181,000
   and $143,000, respectively (Note 14)                                                  10,788,224          5,637,158
  Inventories (Notes 1 and 3)                                                            12,369,443          9,078,471
  Prepaid expenses and other current assets                                               2,078,718            885,644
----------------------------------------------------------------------------------------------------------------------
      Total current assets                                                               27,496,812         19,132,372
----------------------------------------------------------------------------------------------------------------------
Property and Equipment - at cost, net of accumulated depreciation and
 amortization of $10,163,430 and $6,444,253, respectively (Notes 1, 4 and 7)             42,030,917         20,700,573
----------------------------------------------------------------------------------------------------------------------
Other Assets:
  Goodwill (Notes 1 and 2)                                                               19,788,249         14,816,454
  Technology rights and intellectual property (Note 1)                                    1,077,389            749,523
  Other                                                                                   1,471,719          1,090,403
----------------------------------------------------------------------------------------------------------------------
      Total other assets                                                                 22,337,357         16,656,380
----------------------------------------------------------------------------------------------------------------------
      Total Assets                                                                      $91,865,086        $56,489,325
======================================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
  Accounts payable                                                                     $  7,322,131       $  3,462,227
  Accrued expenses                                                                        2,601,902            856,810
  Income taxes payable                                                                           --          1,143,518
  Current portion of short-term borrowings and long-term debt (Note 6)                    5,943,937          1,416,000
  Current portion of obligations under capital leases (Notes 4 and 7)                     2,142,363          1,306,763
----------------------------------------------------------------------------------------------------------------------
      Total current liabilities                                                          18,010,333          8,185,318
Deferred Income Taxes (Note 8)                                                            2,143,031          1,470,460
Long-term Debt (Note 6)                                                                  26,669,870          6,719,333
Obligations under Capital Leases (Notes 4 and 7)                                          6,046,892          4,242,415
----------------------------------------------------------------------------------------------------------------------
      Total liabilities                                                                  52,870,126         20,617,526
----------------------------------------------------------------------------------------------------------------------
Commitments and Contingency (Notes 2 and 9)
Minority Interest in Subsidiary (Note 2)                                                  1,537,047          1,932,171
----------------------------------------------------------------------------------------------------------------------
Shareholders' Equity (Notes 1 and 10):
  Preferred stock - $.10 par value; authorized 1,000,000 shares, none issued
  Common stock - $.10 par value; authorized 20,000,000 shares, issued
   6,375,616 shares and 6,355,516 shares, respectively                                      637,562            635,552
  Additional paid-in capital                                                             28,199,221         28,070,464
  Foreign currency translation adjustment (Note 1)                                         (405,304)             - 0 -
  Retained earnings                                                                       9,026,434          5,233,612
----------------------------------------------------------------------------------------------------------------------
                                                                                         37,457,913         33,939,628
  Less treasury stock: 300,000 shares at cost                                                 - 0 -              - 0 -
----------------------------------------------------------------------------------------------------------------------
      Shareholders' equity                                                               37,457,913         33,939,628
======================================================================================================================
      Total Liabilities and Shareholders' Equity                                        $91,865,086        $56,489,325
======================================================================================================================
</TABLE>

                 The accompanying notes are an integral part of these statements


                                      F-2
<PAGE>

                                     SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
                                                                AND SUBSIDIARIES

                                                CONSOLIDATED STATEMENT OF INCOME
================================================================================
<TABLE>
<CAPTION>

Year ended December 31,                                                        1997             1996              1995
----------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>              <C>               <C>        
Revenue (Notes 1, 11 and 12):
  Net sales                                                             $48,029,342      $33,140,074       $19,923,436
  Service revenue                                                        23,046,580       12,887,129         8,140,791

----------------------------------------------------------------------------------------------------------------------
                                                                         71,075,922       46,027,203        28,064,227
----------------------------------------------------------------------------------------------------------------------

Cost of goods sold and services performed:
  Cost of goods sold                                                     33,184,533       23,551,851        13,941,243
  Cost of services performed                                             17,514,025        7,165,232         3,739,544

----------------------------------------------------------------------------------------------------------------------
                                                                         50,698,558       30,717,083        17,680,787
----------------------------------------------------------------------------------------------------------------------

Gross profit                                                             20,377,364       15,310,120        10,383,440

Selling, general and administrative expenses (Note 9)                    11,991,979        8,203,114         6,145,868
----------------------------------------------------------------------------------------------------------------------

Operating income                                                          8,385,385        7,107,006         4,237,572

Interest expense - net of interest income of $49,001, $129,970
 and $103,450, respectively (Notes 4, 6 and 7)                            2,601,367          920,379           989,264
----------------------------------------------------------------------------------------------------------------------

Income before provision for income taxes and minority
 interest in loss of consolidated subsidiary                              5,784,018        6,186,627         3,248,308

Provision for income taxes (Note 8)                                       2,213,792        2,445,000           722,488
----------------------------------------------------------------------------------------------------------------------

Income before minority interest in loss of consolidated
 subsidiary                                                               3,570,226        3,741,627         2,525,820

Minority interest in loss of consolidated subsidiary (Note 2)               222,596           63,828            --

======================================================================================================================
Net income                                                              $ 3,792,822      $ 3,805,455       $ 2,525,820
======================================================================================================================
                                                                                                          
Earnings per common share (Note 1):                                                                       
  Basic                                                                 $       .62      $       .64       $       .53
  Diluted                                                               $       .61      $       .62       $       .50
======================================================================================================================
                                                                                                          
Shares used in computing earnings per common share (Note 1):                                              
  Basic                                                                   6,069,954        5,967,987         4,784,402
  Diluted                                                                 6,232,490        6,169,734         5,064,299
======================================================================================================================
</TABLE>

                 The accompanying notes are an integral part of these statements


                                      F-3
<PAGE>

                                     SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
                                                                AND SUBSIDIARIES

                                  CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
                                                                                            Foreign        Retained
                                                                            Additional     Currency        Earnings        Total
                                                      Common Stock           Paid-in      Translation    (Accumulated  Shareholders'
                                                  Shares       Amount        Capital      Adjustment        Deficit)      Equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>           <C>          <C>             <C>            <C>            <C>        
Balance at January 1, 1995 (Note 10)            3,785,177     $378,518     $ 8,425,642            --     $(1,097,663)   $ 7,706,497

Net proceeds from sale of stock                 1,654,500      165,450      16,766,165            --              --     16,931,615

Net proceeds from exercise of stock warrants      591,389       59,139       1,070,978            --              --      1,130,117

Proceeds from exercise of stock options           106,500       10,650         369,562            --              --        380,212

Tax benefit related to incentive stock
  option plan (Note 8)                                 --           --          62,000            --              --         62,000

Issuance of common stock                           52,500        5,250         519,750            --              --        525,000

Net income                                             --           --              --            --       2,525,820      2,525,820
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 (Note 10)          6,190,066      619,007      27,214,097            --       1,428,157     29,261,261

Net proceeds from exercise of stock warrants        1,200          120           2,280            --              --          2,400

Proceeds from exercise of stock options           149,250       14,925         612,337            --              --        627,262

Tax benefit related to incentive stock
  option plan (Note 8)                                 --           --          97,000            --              --         97,000

Issuance of common stock (Note 2)                  15,000        1,500         144,750            --              --        146,250

Net income                                             --           --              --            --       3,805,455      3,805,455
------------------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1996 (Note 10)          6,355,516      635,552      28,070,464            --       5,233,612     33,939,628

Proceeds from exercise of stock options            20,100        2,010         128,757            --              --        130,767

Aggregate translation adjustment -
 net of deferred taxes of $385,221                     --           --              --     $(405,304)             --       (405,304)

Net income                                             --           --              --            --       3,792,822      3,792,822

------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997                    6,375,616     $637,562     $28,199,221     $(405,304)     $9,026,434    $37,457,913
====================================================================================================================================
</TABLE>

                 The accompanying notes are an integral part of these statements


                                      F-4
<PAGE>

                                     SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
                                                                AND SUBSIDIARIES

                                            CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
==================================================================================================================================
Year ended December 31,                                                                  1997             1996           1995
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>              <C>              <C>        
Cash flows from operating activities:
  Net income                                                                         $ 3,792,822      $ 3,805,455      $ 2,525,820
  Adjustments to reconcile net income to net cash provided by operating
   activities:
    Gain on sale of property and equipment                                               (56,069)              --               --
    Depreciation and amortization of property and equipment                            4,072,127        2,239,755        1,636,311
    Other amortization                                                                   855,139          689,364          449,917
    Deferred income taxes                                                              1,057,792          907,000          563,460
    Minority interest in subsidiary loss                                                (222,596)         (63,828)              --
    Changes in operating assets and liabilities:
      Increase in accounts receivable                                                 (3,195,004)        (950,563)        (487,959)
      Increase in inventories                                                         (2,297,476)      (2,784,192)      (1,542,898)
      (Increase) decrease in prepaid expenses and other current assets                  (322,095)        (321,484)         121,963
      Increase (decrease) in accounts payable                                          3,209,572        1,209,351         (346,297)
      Increase in accrued expenses                                                       999,639          297,783          124,026
      (Decrease) increase in income taxes payable                                     (1,497,292)       1,185,518           55,000

----------------------------------------------------------------------------------------------------------------------------------
       Net cash provided by operating activities                                       6,396,559        6,214,159        3,099,343
----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Purchase of property and equipment                                                 (13,118,642)      (7,943,314)      (4,784,136)
  Payments for acquisition of subsidiaries, net of cash acquired                     (14,938,640)      (8,111,149)        (880,214)
  Payment for technology rights                                                         (399,864)              --               --
  Proceeds from sale of property and equipment                                           277,500               --               --
  Increase in other assets                                                              (872,899)        (276,735)        (248,903)
  Investment in joint venture by minority interest (Note 2)                                   --        1,996,000               --
----------------------------------------------------------------------------------------------------------------------------------
       Net cash used in investing activities                                         (29,052,545)     (14,335,198)      (5,913,253)
----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
  Proceeds from exercise of warrants                                                          --            2,400        1,182,778
  Proceeds from exercise of stock options                                                130,767          627,262          380,212
  Proceeds from sale of stock                                                                 --               --       19,233,563
  Payment of stock offering costs                                                             --               --       (2,301,948)
  Decrease in amount due to shareholders                                                      --               --         (500,887)
  Net proceeds (payments) under revolving credit                                       6,875,000               --       (1,565,000)
  Payments under capital leases                                                       (1,616,888)        (937,214)        (393,082)
  Payments under long-term debt                                                       (4,263,159)        (720,834)      (9,492,704)
  Proceeds from long-term debt                                                        20,343,727        7,760,000               --
  Payment of warrant offering costs                                                           --               --          (52,661)
  Cash received from equipment financing                                                      --          676,449               --
----------------------------------------------------------------------------------------------------------------------------------
       Net cash provided by financing activities                                      21,469,447        7,408,063        6,490,271
----------------------------------------------------------------------------------------------------------------------------------
Effect of foreign translation on cash                                                    (84,133)              --               --
----------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents                                             (1,270,672)        (712,976)       3,676,361
Cash and cash equivalents at beginning of year                                         3,531,099        4,244,075          567,714
==================================================================================================================================
Cash and cash equivalents at end of year                                             $ 2,260,427      $ 3,531,099      $ 4,244,075
==================================================================================================================================
Supplemental disclosures of cash flow information:
  Cash paid during the year for:
    Interest                                                                         $ 2,654,318      $   934,883      $ 1,089,536
==================================================================================================================================
    Income taxes                                                                     $ 2,849,218      $   307,377      $    51,030
==================================================================================================================================
Supplemental schedule of noncash investing and financing activities:
  Machinery and equipment, net of trade-in, acquired under capital lease             $ 4,271,242      $ 3,523,264      $   972,560
==================================================================================================================================
  Issuance of common stock in connection with the acquisition of a
   subsidiary                                                                                 --      $   146,250      $   525,000
==================================================================================================================================
  Accrued amounts relating to acquisition of subsidiary                              $   621,248               --      $   625,000
==================================================================================================================================
  Notes payable in connection with the acquisition of a subsidiary                   $ 2,000,000               --               --
==================================================================================================================================
</TABLE>

                 The accompanying notes are an integral part of these statements


                                      F-5
<PAGE>

                                     SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

1. PRINCIPAL         The accompanying consolidated financial statements include 
   BUSINESS          the accounts of Semiconductor Packaging Materials Co., Inc.
   ACTIVITIES AND    ("SPM") and its wholly owned and majority-owned            
   SUMMARY OF        subsidiaries (collectively the "Company"). All significant 
   SIGNIFICANT       intercompany transactions and balances have been           
   ACCOUNTING        eliminated. As further described in Note 2, on January 2,  
   POLICIES:         1996, the Company acquired Retconn Incorporated            
                     ("Retconn"). Additionally, as described in Note 2, on      
                     August 28, 1996 the Company established International      
                     Semiconductor Products Pte Ltd. ("ISP"), a joint venture   
                     with an unrelated third party. As further described in Note
                     2, on January 23, 1997 the Company acquired certain assets 
                     and assumed certain liabilities of Silicon Materials       
                     Service and the common stock of Silicon Materials Service, 
                     B.V. (collectively "SMS") and on July 30, 1997, the Company
                     acquired S.T. Electronics Inc. ("ST"). The results of
                     operations of Retconn, SMS and ST are included in the
                     Company's consolidated financial statements from the dates
                     of acquisition and the results of operations of ISP are
                     included in the Company's consolidated financial statements
                     from the date operations commenced.

                     The Company primarily provides specialty materials and
                     services to the microelectronic and semiconductor
                     industries.

                     Revenue from the sale of products is generally recognized
                     at the date of shipment to customers. Service revenue is
                     recognized when the services are performed.

                     The Company considers all investments purchased with an
                     original maturity of three months or less to be cash
                     equivalents.

                     The Company maintains cash in bank accounts which, at
                     times, may exceed federally insured limits. The Company has
                     not experienced any loss on these accounts.

                     The financial position and results of operations of the
                     Company's foreign subsidiaries are measured using local
                     currency as the functional currency. Assets and liabilities
                     of these subsidiaries have been translated at current
                     exchange rates, and related revenue and expenses have been
                     translated at average monthly exchange rates. The aggregate
                     effect of translation adjustments net of deferred taxes is
                     reflected as a separate component of stockholder's equity
                     until there is a sale or liquidation of the underlying
                     foreign investment.

                     Inventories, which consist principally of work-in-process
                     inventory, include raw materials, labor and manufacturing
                     expenses and are stated at the lower of cost, determined by
                     the first-in, first-out method, or market.

                     Deferred income taxes arise from differences in bases
                     between tax reporting and financial reporting (see Note 8).

                     Depreciation and amortization of property and equipment is
                     provided for by the straight-line method over the estimated
                     useful lives of the related assets.

                     The preparation of financial statements in conformity with
                     generally accepted accounting principles requires the use
                     of estimates by management affecting the reported amounts
                     of assets and liabilities and revenue and expenses and the
                     disclosure of contingent assets and liabilities. Actual
                     results could differ from those estimates.

                     The excess of cost over fair value of net assets acquired
                     (goodwill), amounting to approximately $21,615,000 and
                     $15,903,000, at December 31, 1997 and 1996, respectively,
                     is being amortized over periods ranging from 25 to 40 years
                     using the


                                                                             F-6
<PAGE>

                                     SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                     straight-line method (see Note 2). Accumulated amortization
                     at December 31, 1997 and 1996 was approximately $1,827,000
                     and $1,087,000, respectively. The Company reviews the
                     carrying value of goodwill for impairment, periodically or
                     whenever events or changes in circumstances indicate that
                     the amounts may not be recoverable. The review for
                     recoverability includes an estimate by the Company of the
                     future undiscounted cash flows expected to result from the
                     use of the assets acquired and their eventual disposition.
                     An impairment will be recognized if the carrying value of
                     the assets exceeds the estimated future undiscounted cash
                     flows of those assets.

                     Certain technology rights, proprietary rights and
                     intellectual property, amounting to approximately
                     $1,350,000 and $950,000 at December 31, 1997 and 1996,
                     respectively, are being amortized over periods ranging from
                     11 to 17 years using the straight-line method. Accumulated
                     amortization at December 31, 1997 and 1996 was
                     approximately $273,000 and $200,000, respectively.

                     The Company elected to measure compensation cost using APB
                     Opinion No. 25 as is permitted by Statement of Financial
                     Accounting Standards ("SFAS") No. 123, Accounting for
                     Stock-Based Compensation, and has elected to comply with
                     other provisions and the disclosure-only requirements of
                     SFAS No. 123 (see Note 10).

                     The Company adopted SFAS No. 128, Earnings per Share,
                     beginning with the Company's fourth quarter of 1997.
                     Earnings per share data for all prior years have been
                     restated to conform to the provisions of this statement.
                     Basic earnings per common share is computed using the
                     weighted average number of shares outstanding. Diluted
                     earnings per common share is computed using the weighted
                     average number of shares outstanding adjusted for the
                     incremental shares attributed to outstanding options and
                     warrants to purchase common stock. Incremental shares of
                     162,536, 201,747 and 279,897 in 1997, 1996 and 1995,
                     respectively, were used in the calculation of diluted
                     earnings per common share.

                     In June 1997, the Financial Accounting Standards Board
                     issued SFAS No. 130, Reporting Comprehensive Income, and
                     SFAS No. 131, Disclosures about Segments of an Enterprise
                     and Related Information. The adoption of these statements,
                     which are effective for fiscal years beginning after
                     December 15, 1997, is not expected to have a material
                     effect on the Company's consolidated financial statements.


2.  ACQUISITIONS     In connection with the Company's acquisition of Polese in 
    AND              1993, for a period of 10 years from the date of           
    INVESTMENTS:     acquisition, the former sole shareholder of Polese is     
                     entitled to receive 10% of (1) the pretax profit from the 
                     Company's copper/tungsten product line after allocating    
                     operating costs, and (2) the proceeds of the sale, if any, 
                     by the Company of the powdered metal technology. Amounts   
                     due pursuant to this agreement will be charged to          
                     operations as incurred. Through December 31, 1997, no      
                     amounts have been charged to operations pursuant to this   
                     agreement.                                                 
                     
                     Effective January 2, 1996, the Company acquired all of the
                     common stock of Retconn for $5,933,000 in cash. This
                     business combination was accounted for as a purchase. In
                     addition, the Company incurred approximately $1,132,000 in
                     costs associated with the acquisition of Retconn, which
                     included the issuance of 15,000 shares of the Company's
                     common stock. The fair value of assets acquired, including
                     approximately $4,696,000 allocated to goodwill, amounted to
                     approximately $8,033,000 and liabilities assumed amounted
                     to approximately $968,000.


                                                                             F-7
<PAGE>

                                     SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                     On August 28, 1996, the Company invested $2,004,000 in ISP,
                     a joint venture located in Singapore, for a 50.1% ownership
                     interest.

                     Effective January 23, 1997, the Company acquired SMS for
                     approximately $10,400,000 in cash plus the working capital
                     of SMS as of January 23, 1997, approximating $2,572,000, in
                     a business combination accounted for as a purchase. In
                     addition, the Company incurred approximately $2,000,000 in
                     costs in connection with the acquisition of SMS. The fair
                     value of assets acquired, including approximately
                     $2,923,000 allocated to goodwill, which is being amortized
                     over 25 years, amounted to approximately $15,609,000 and
                     liabilities assumed amounted to approximately $637,000. SMS
                     provides silicon wafer polishing and reclamation services
                     to the semiconductor industry.

                     On July 30, 1997, the Company acquired ST for $1,000,000 in
                     cash plus approximately $54,000 based on ST's closing net
                     worth and $2,000,000 in interest-bearing notes payable to
                     the former shareholders of ST (see Note 6), in a business
                     combination accounted for as a purchase. In addition, the
                     Company incurred approximately $300,000 in costs associated
                     with the acquisition of ST. The fair value of assets
                     acquired, including approximately $2,788,000 allocated to
                     goodwill, amounted to approximately $4,231,000 and
                     liabilities assumed amounted to $877,000.


3.  INVENTORIES:     The components of inventories are as follows:

                     December 31,                        1997              1996
                     ----------------------------------------------------------
                                                                  
                     Precious metals              $ 1,675,850        $1,635,275
                     Non-precious metals           10,693,593         7,443,196
                                                                  
                     ==========================================================
                                                  $12,369,443        $9,078,471
                     ==========================================================
                                                                      
                     The Company has a consignment arrangement with a bank, as
                     described in Note 9, which provides for the leasing of
                     precious metals by the Company. The Company pays for these
                     precious metals based on actual usage.


4. PROPERTY AND      Property and equipment, at cost, consist of the following:
   EQUIPMENT:        

                                                                       Estimated
December 31,                           1997              1996        Useful Life
--------------------------------------------------------------------------------
Land                            $   642,280       $   642,280
Building and improvements         6,956,837         4,568,518     15 to 39 years
Machinery and equipment          37,108,060        17,027,786      4 to 15 years
Leasehold improvements            1,093,574           861,553     1.5 to 7 years
Furniture, fixtures and
  office equipment                1,798,819           875,509       4 to 7 years
Automobiles                         224,934            44,062            3 years
Construction-in-progress          4,369,843         3,125,118

--------------------------------------------------------------------------------
                                $52,194,347       $27,144,826
================================================================================


                                                                             F-8
<PAGE>

                                     SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                     Included in machinery and equipment and
                     construction-in-progress is approximately $44,000 and
                     $200,000, respectively, of capitalized interest for the
                     year ended December 31, 1997.

                     Included in machinery and equipment and furniture, fixtures
                     and office equipment are approximately $11,537,000 and
                     $50,000, respectively, at December 31, 1997 and
                     approximately $7,275,000 and $50,000, respectively, at
                     December 31, 1996 of property acquired under capital
                     leases. Amortization of these assets is included in
                     depreciation and amortization expense. Accumulated
                     amortization of these assets amounted to approximately
                     $2,340,000 and $1,294,000 at December 31, 1997 and 1996,
                     respectively. The property held under these leases is
                     collateral for the related capital lease obligations
                     described in Note 7.


5. ACCRUED           Accrued expenses consist of the following:
   EXPENSES:        

December 31,                                            1997                1996
--------------------------------------------------------------------------------

Accrued payroll bonuses and vacations             $1,062,280            $586,508
Other (all amounts are less than 5% of
 current liabilities)                              1,539,622             270,302
--------------------------------------------------------------------------------
                                                  $2,601,902            $856,810
================================================================================

6. SHORT-TERM        Short-term borrowings and long-term debt consist of the 
   BORROWINGS        following:    
   AND LONG-TERM 
   DEBT:

December 31,                                             1997               1996
--------------------------------------------------------------------------------
Term loan (a)                                     $17,500,000 (g)     $6,000,000
Line of credit (b)                                  6,875,000 (g)             --
Term loan (c)                                       2,410,974 (h)             --
Term loan (d)                                       1,900,000 (h)             --
Term loan (e)                                       1,629,344 (h)             --
Term loan (f)                                       1,569,333 (g)      1,745,333
Other                                                 729,156 (h)        390,000

--------------------------------------------------------------------------------
Total short-term borrowings and long-term debt     32,613,807          8,135,333
Less current maturities                             5,943,937          1,416,000
--------------------------------------------------------------------------------
      Long-term debt                              $26,669,870         $6,719,333
================================================================================

                     (a) In conjunction with the acquisition of Retconn (see
                         Note 2), the Company entered into a term loan with a
                         bank (the "Bank") on January 4, 1996 in the principal
                         amount of $6,000,000. Through December 31, 1996, no
                         principal payments were due and interest was payable
                         monthly at the Bank's loan pricing rate. This loan was
                         refinanced on January 23, 1997 when, in conjunction
                         with the acquisition of SMS (see Note 2), the Company
                         entered into a new term loan with the Bank in the
                         principal amount of $21,000,000. The loan bears
                         interest at the Eurodollar rate (5.9% at 


                                                                             F-9
<PAGE>

                                     SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                         December 31, 1997) plus 2.25% and is payable in 60
                         consecutive monthly installments of $350,000, plus
                         interest, which commenced on March 1, 1997.

                     (b) On January 23, 1997, the Company entered into a
                         $15,000,000 line of credit with the Bank. The line of
                         credit expires in February 1999 and includes a standby
                         letter of credit for ISP in the amount of $3,600,000.
                         Interest is payable monthly at the lower of the
                         Eurodollar rate plus 2.25% or the Bank's loan pricing
                         rate (8.5% at December 31, 1997).

                     (c) In connection with the acquisition of machinery and
                         equipment, the Company entered into two term loans with
                         a foreign bank in 1997 in the aggregate principle
                         amounts of approximately $2,411,000. These loans bear
                         interest at interest rates of 3.5% and 6.75% and each
                         are payable in 60 equal monthly installments commencing
                         March 1998.

                     (d) As described in Note 2, the Company issued notes
                         payable to the former shareholders of ST. The notes
                         bear interest, payable quarterly, at 7% per annum. The
                         principal on the notes is payable in 20 consecutive
                         quarterly installments of $100,000, which commenced
                         November 1, 1997.

                     (e) In connection with the acquisition of a building, the
                         Company entered into a term loan with a foreign bank in
                         1997 in the principal amount of approximately
                         $1,629,000. The loan bears interest at 6.75% and is
                         payable in 108 equal monthly installments commencing
                         January 1998.

                     (f) In conjunction with the acquisition of a building, the
                         Company entered into a term loan with the Bank on
                         November 4, 1996 in the principal amount of $1,760,000.
                         The loan bears interest at the Bank's loan pricing rate
                         and is payable in 120 consecutive monthly installments
                         of $14,667, plus interest, which commenced on December
                         1, 1996.

                     (g) Because the interest rates will change with changes in
                         the prime rate and the Eurodollar rate, the fair value
                         of the bank debt is equal to the carrying amount.

                     (h) Based on market rates currently available to the
                         Company for loans with similar terms and maturities,
                         the fair value of the long-term debt does not vary
                         significantly from the carrying amount.

                     Maturities of long-term debt are as follows:

                     Year ending December 31,

                                1998                                 $ 5,943,937
                                1999                                  12,458,326
                                2000                                   5,439,237
                                2001                                   5,439,237
                                2002                                   1,839,237
                             Thereafter                                1,493,833
                     -----------------------------------------------------------
                                                                     $32,613,807
                     ===========================================================


                                                                            F-10
<PAGE>

                                     SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                     The above bank loan agreements provide, among other things,
                     that the Company is subject to restrictions related to the
                     issuance of additional indebtedness, additional liens and
                     security interests, capital expenditures and the payment of
                     dividends. In addition, the above loans are collateralized
                     by a blanket lien on substantially all the Company's
                     assets.


7. OBLIGATIONS       The Company is the lessee of property and equipment     
   UNDER CAPITAL     acquired under capital leases expiring in various years 
   LEASES:           through 2002.                                           

                     Future lease payments under capital leases are as follows:

                     Year ending December 31,

                                1998                                  $2,732,256
                                1999                                   2,468,661
                                2000                                   2,283,786
                                2001                                   1,597,960
                                2002                                     625,019
                     -----------------------------------------------------------
                                                                       9,707,682
                     Less amount representing interest                 1,518,427
                     -----------------------------------------------------------

                                                                       8,189,255
                     Less current portion                              2,142,363

                     ===========================================================
                                                                      $6,046,892
                     ===========================================================


                     Interest rates on these capital leases average 9% per
                     annum.


8. INCOME TAXES:     The provision for income taxes for the years ended December
                     31, 1997, 1996 and 1995 consists of the following
                     components:

                     Year ended December 31,    1997          1996          1995
                     -----------------------------------------------------------

                     Current:
                       Federal           $   907,000     $1,348,000    $  82,681
                       State                 249,000        190,000       76,347

                     Deferred:
                       Federal               947,792        742,500      548,807
                       State                 210,000        164,500       14,653
                       Foreign              (100,000)            --           --

                     ===========================================================
                                          $2,213,792     $2,445,000     $722,488
                     ===========================================================


                                                                            F-11
<PAGE>

                                     SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


                     The provision for income taxes for the years ended December
                     31, 1997, 1996 and 1995 differs from the amount computed
                     using the federal statutory rate of 34% as a result of the
                     following:

Year ended December 31,                            1997        1996        1995
--------------------------------------------------------------------------------
                                                 
Tax at federal statutory rate                      34.0%       34.0%       34.0%
State income taxes, net of federal tax benefit      5.0         3.8         1.8
Effect of permanent differences                     1.4         1.1          --
Effect of net operating loss carryforward            --          --       (13.6)
Other                                              (2.1)          .6          --
                                                 
================================================================================
                                                   38.3%       39.5%       22.2%
================================================================================
                                               

                     The tax effects of temporary differences that give rise to
                     the net long-term deferred tax liability are presented
                     below:

December 31,                                                  1997          1996
--------------------------------------------------------------------------------

Accelerated depreciation                                $1,674,000    $  613,000
Basis differences in amortization of intangibles           954,252       857,460
Undistributed earnings (loss) in foreign subsidiaries     (100,000)           --
Accumulated translation adjustment                        (385,221)           --

================================================================================
                                                        $2,143,031    $1,470,460
================================================================================


                     The Company files a consolidated federal income tax return
                     which includes the results for all its domestic
                     subsidiaries and separate state and local income tax
                     returns.

                     For the years ended December 31, 1996 and 1995, the Company
                     recognized for income tax purposes a tax benefit of $97,000
                     and $62,000, respectively, for compensation expense related
                     to its incentive stock option plan for which no
                     corresponding charge to operations has been recorded. Such
                     amounts have been added to additional paid-in capital for
                     the years ended December 31, 1996 and 1995. No tax benefit
                     was recorded for the year ended December 31, 1997.


9. COMMITMENTS,      The Company has noncancelable operating leases expiring    
   CONTINGENCIES     through 2004 for the rental of office and manufacturing    
   AND RELATED       facilities. The leases also require payments for real      
   PARTY             estate taxes and other operating costs. The Company also   
   TRANSACTIONS:     leases land at one of its foreign subsidiaries. This lease 
                     expires in January 2026 with an option to renew for an     
                     additional 29 years.                                       


                                                                            F-12
<PAGE>

                                     SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                     Approximate minimum future rental payments, exclusive of
                     payments for real estate taxes and other operating costs
                     under these leases, are as follows:

                     Year ending December 31,

                            1998                                      $  706,000
                            1999                                         627,000
                            2000                                         527,000
                            2001                                         509,000
                            2002                                         523,000
                         Thereafter                                    2,028,000
                     -----------------------------------------------------------
                                                                      $4,920,000
                     ===========================================================

                     Rent expense charged to operations for the years ended
                     December 31, 1997, 1996 and 1995 amounted to approximately
                     $669,000, $466,000 and $440,000, respectively.

                     During 1997, a company owned by the former sole shareholder
                     of Polese acquired machinery and equipment from the Company
                     for $254,000. The Company recognized a $46,000 gain on this
                     sale.

                     The Company has employment agreements with five
                     shareholders (the "Shareholders"), and six other employees,
                     expiring in various years through 2000. The approximate
                     aggregate commitment for future salaries, excluding
                     bonuses, under these employment agreements is as follows:

                     Year ending December 31,

                            1998                                      $1,385,000
                            1999                                       1,105,000
                            2000                                         386,000
                                                                   
                     -----------------------------------------------------------
                                                                      $2,876,000
                     ===========================================================


                     The Shareholders have agreed not to engage in a business
                     that is competitive with the Company during the term of
                     their agreement and for a period of one year thereafter.

                     On December 23, 1996, the Company entered into a
                     consignment agreement (the "Consignment Agreement") with a
                     bank which expires December 23, 1998. Under the Consignment
                     Agreement, the Company purchases gold used in its
                     manufacturing of materials. The Consignment Agreement
                     provides for gold on consignment not to exceed the lesser
                     of 6,000 troy ounces of gold or gold having a market value
                     of $2,700,000. At December 31, 1997, the Company's
                     obligation under the Consignment Agreement was
                     approximately 4,502 troy ounces of gold valued at
                     approximately $1,302,000. The Consignment Agreement
                     requires the Company to pay a consignment fee of 3.25% per
                     annum based upon the value of all gold consigned to the
                     Company.

                     The Company has capital commitments at December 31, 1997 of
                     approximately $953,000 for the acquisition of machinery and
                     equipment.


                                                                            F-13
<PAGE>

                                     SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                     The Company received notice on January 5, 1998 that a
                     shareholder class action was filed during 1997 against the
                     Company, its Chief Executive Officer and its Chief
                     Financial Officer. The complaint alleges, among other
                     things, that the Company, intentionally or recklessly,
                     failed to disclose adverse material financial information
                     regarding its business in the fourth quarter of 1996. The
                     management of the Company believes the action is without
                     merit and intends to defend it vigorously.

                     Separately, the Securities and Exchange Commission (the
                     "SEC") is conducting a private investigation pursuant to a
                     formal order to determine whether any persons may have
                     violated the federal securities laws in connection with the
                     purchase or sale of the Company's securities prior to the
                     December 30, 1996 announcement relating to its anticipated
                     financial results for the fourth quarter of fiscal 1996. As
                     a general matter, the SEC takes the position that its
                     investigation should not be construed as an indication that
                     any violations of law have occurred or as an adverse
                     reflection upon any person or security. The Company is
                     cooperating fully with the SEC in its investigation.


10. CAPITAL          The Company has an incentive stock option plan (the        
    TRANSACTIONS:    "Incentive Plan"), as amended, in which 600,000 common     
                     shares have been reserved for future issuance. The         
                     Incentive Plan provides for the sale of shares to employees
                     of the Company at a price not less than the fair market    
                     value of the shares on the date of the option grant,
                     provided that the exercise price of any option granted to
                     an employee owning more than 10% of the outstanding common
                     shares of the Company may not be less than 110% of the fair
                     market value of the shares on the date of the option grant.
                     The term of each option and the manner of exercise is
                     determined by the board of directors, but in no case can
                     the options be exercisable in excess of 10 years beyond the
                     date of grant. In May 1995, the Company adopted a
                     nonqualified stock option plan (the "Nonqualified Plan")
                     under which 100,000 shares have been reserved for future
                     issuance.

                     At December 31, 1997, options to purchase 590,800 and
                     50,000 shares, respectively, of common stock (excluding
                     lapsed shares) have been granted under the Incentive Plan
                     and the Nonqualified Plan since the inception of both
                     plans. In addition, at December 31, 1997, options to
                     purchase 280,000 shares of common stock have been granted
                     outside the Incentive Plan and the Nonqualified Plan at a
                     price equal to the fair market value of the shares at the
                     date of grant.


                                                                            F-14
<PAGE>

                                     SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

A summary of the status of the Company's options as of December 31, 1997, 1996
and 1995, and changes during the years then ended is presented below:

December 31,               1997                1996                   1995
--------------------------------------------------------------------------------

                              Weighted-           Weighted-            Weighted-
                               Average             Average              Average
                              Exercise            Exercise             Exercise
                     Shares     Price    Shares     Price    Shares      Price
--------------------------------------------------------------------------------

Outstanding at
 beginning of year   510,000    $7.00    408,000    $4.86     415,500     $3.65
Canceled             (23,000)    8.06     (5,500)    7.84     (14,000)     4.70
Granted              178,050     9.55    256,750     8.81     113,000      8.04
Exercised            (20,100)    6.37   (149,250)    4.22    (106,500)     3.53

================================================================================
Outstanding at end
 of year             644,950    $7.69    510,000    $7.00     408,000     $4.86
================================================================================

Options exercisable
 at year-end         499,900             332,250              323,000
================================================================================

Weighted-average
 fair value of 
 options granted 
 during the year       $4.88               $4.39                $4.08
================================================================================

The following table summarizes information about fixed stock options outstanding
at December 31, 1997:

                             Options Outstanding           Options Exercisable
                   ------------------------------------  -----------------------
                      Number     Weighted-                  Number
                    Outstanding    Average    Weighted-   Exercisable  Weighted-
                        at        Remaining    Average        at        Average
   Range of        December 31,  Contractual  Exercise   December 31,  Exercise
Exercise Prices        1997         Life        Price        1997        Price
--------------------------------------------------------------------------------
$  1.85 - $  3.88      39,750        2.5       $ 3.29        39,750     $ 3.29 
$  4.26 - $  6.25     150,000        1.8         4.74       150,000       4.74 
$  7.69 - $  8.46     249,400        7.2         8.11       156,650       8.18 
$  8.88 - $ 10.63     150,500        6.5         9.42       128,500       9.42 
$ 11.38 - $ 13.50      55,300        7.5        12.20        25,000      12.56 
                                                                               
================================================================================
$  1.85 - $13.50      644,950        5.5       $ 7.69       499,900     $ 7.30 
================================================================================


The Company has elected, in accordance with the provisions of SFAS No. 123, to
apply the current accounting rules under APB Opinion No. 25 and related
interpretations in accounting for its stock options and, accordingly, has
presented the disclosure-only


                                                                            F-15
<PAGE>

                                     SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                     information as required by SFAS No. 123. If the Company had
                     elected to recognize compensation cost based on the fair
                     value of the options granted at the grant date as
                     prescribed by SFAS No. 123, the Company's net income and
                     earnings per common share for the years ended December 31,
                     1997, 1996 and 1995 would approximate the pro forma amounts
                     indicated in the table below.

Year ended December 31,                    1997             1996            1995
--------------------------------------------------------------------------------

Net income - as reported             $3,792,822       $3,805,455      $2,525,820
================================================================================

Net income - pro forma               $3,244,697       $3,117,371      $2,250,564
================================================================================

Earnings per share - as reported:
  Basic                              $      .62       $      .64      $      .53
  Diluted                            $      .61       $      .62      $      .50
================================================================================
                                                                      
Earnings per share - pro forma:                                       
  Basic                              $      .53       $      .52      $      .47
  Diluted                            $      .52       $      .51      $      .44
================================================================================
                                                                      
                     The fair value of each option grant is estimated on the
                     date of grant using the Black-Scholes option-pricing model
                     with the following weighted-average assumptions used for
                     the years ended December 31, 1997, 1996 and 1995,
                     respectively: expected volatility of 57%, 56.9% and 61.1%,
                     respectively; risk-free interest rate of 6.3%, 5.8% and
                     6.4%, respectively; and expected lives of 3.5 years, 4.2
                     years and 4.2 years, respectively.

                     In January 1995, the Company notified all registered
                     holders of its redeemable warrants, registered by the
                     Company in February 1994, that the expiration date of the
                     warrants would be accelerated from February 7, 1997 to
                     February 23, 1995. The proceeds received were used for
                     general corporate and working capital purposes.

                     On July 27, 1995, the Company completed a registration
                     statement on Form SB-2 and received net proceeds of
                     approximately $16,932,000 after deducting underwriting
                     discounts and expenses of the offering of approximately
                     $2,302,000.


11. MAJOR            For the years ended December 31, 1997 and 1996,            
    CUSTOMERS:       respectively, one customer accounted for approximately 11% 
                     of the Company's total revenue. For the year ended December
                     31, 1995, two customers accounted for approximately 16% and
                     11%, respectively, of the Company's total revenue.         


12. EXPORT           For the years ended December 31, 1997 and 1996,        
    REVENUE:         respectively, export revenue to unaffiliated customers     
                     amounted to approximately 15% and 10% of the Company's 
                     total revenue. 


                                                                            F-16
<PAGE>

                                     SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

13. PRO FORMA        The following summarized pro forma consolidated statement 
    FINANCIAL        of income (unaudited) assumes the acquisition of the      
    INFORMATION      business of SMS as if it had occurred on January 1, 1996: 
    (unaudited):     


                     Revenue                                         $61,532,776
                     ===========================================================

                     Net income                                      $ 3,980,853
                     ===========================================================
                                                                   
                     Earnings per common share:                    
                       Basic                                         $       .67
                       Diluted                                       $       .65
                     ===========================================================
                                                                  
                     Shares used in computing earnings per 
                       common share:


                       Basic                                           5,967,987
                       Diluted                                         6,169,734
                     ===========================================================

                     This pro forma financial information is presented for
                     informational purposes only and is not necessarily
                     indicative of the operating results that would have
                     occurred had the acquisition been consummated as of the
                     assumed date, nor is it necessarily indicative of future
                     operating results.

                     The effect of the operations of ST from January 1 to
                     December 31, 1996 and of the operations of SMS and ST from
                     January 1, 1997 to the dates of acquisition on the
                     Company's results of operations for the years ended
                     December 31, 1996 and 1997, respectively, were not
                     material. Accordingly, the related pro forma information
                     has not been presented.


14. ALLOWANCE        Information relating to the allowance for doubtful accounts
    FOR DOUBTFUL     is as follows:                                             
    ACCOUNTS:        


                              Balance at   Charged to                  Balance
                               Beginning    Costs and                   at End
Description                     of Year     Expenses    Deductions     of Year
-------------------------------------------------------------------------------

Allowance for
 doubtful accounts:
  Year ended December 31,

           1995                 $ 83,000    $ 55,000     $52,000 (a)    $ 86,000
================================================================================
                                                         
           1996                 $ 86,000    $ 66,000     $ 9,000 (a)    $143,000
================================================================================
                                                         
           1997                 $143,000    $103,000     $65,000 (a)    $181,000
================================================================================


                     (a) Write-off of uncollectible accounts receivable.


                                                                            F-17


<PAGE>


                                   SIGNATURES
                                   ----------


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


                                    SEMICONDUCTOR PACKAGING MATERIALS CO., INC. 
                                    (Registrant)
                                    
                                    
                                By: /s/ Gilbert D. Raker
                                    ---------------------------------
                                    Gilbert D. Raker, Chief Executive
                                    Officer, President, Chairman of the Board of
                                    Directors and Director



Dated:  March 20th, 1998

      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 Company
and in the capacities and on the date indicated.


 /s/ Gilbert D. Raker                                           March 20, 1998
---------------------------------
Gilbert D. Raker, Chief Executive
Officer, President, Chairman of
the Board of Directors and Director

 /s/ Frank J. Polese                                            March 20, 1998
---------------------------------
Frank J. Polese, Vice Chairman

and Director

 /s/ Kenneth J. Huth                                            March 20, 1998
---------------------------------
Kenneth J. Huth, Executive Vice
President

 /s/ Andrew A. Lozyniak                                         March 20, 1998
---------------------------------
Andrew A. Lozyniak, Executive Vice
President, Treasurer and Secretary

 /s/ Mark A. Pinto                                              March 20, 1998
---------------------------------
Mark A. Pinto, Director

 /s/ John U. Moorhead, II                                       March 20, 1998
---------------------------------
John U. Moorhead, II, Director

 /s/ Steven B. Sands                                            March 20, 1998
---------------------------------
Steven B. Sands, Director

 /s/ Richard D. Fain                                            March 20, 1998
---------------------------------
Richard D. Fain, Director


                                       27
<PAGE>


Exhibit 22 - List of Subsidiaries of the Company


Polese Company, Inc

Type III, Inc.

American Silicon Products, Inc.

Retconn Incorporated

S.T. Electronics, Inc.

SPM Holdings Corporation

American Silicon Products, B. V.

International Semiconductor Products Pte Ltd.


                                       28