<PAGE>
 
                      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 [FEE REQUIRED]
For the fiscal year ended   December 31, 1996
                            -----------------

                                      OR
[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from_______________________ to________________________
                       Commission file number:  0-23562

                        MICROELECTRONIC PACKAGING, INC.
            (Exact name of Registrant as specified in its charter)
            California                             94-3142624

     (State of Incorporation)        (I.R.S. Employer Identification No.)
                 9350 Trade Place, San Diego, California 92126

         (Address of principal executive offices, including zip code)

      Registrant's telephone number, including area code:  (619) 530-1660

--------------------------------------------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

          Title of each class     Name of each exchange on which registered
          -------------------     -----------------------------------------
                 None                                None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:  Common Stock, no
par value.

     Indicate by check mark whether the registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes   X     No 
                                        -----      -----

     Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [_]

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant, as of April 10, 1997 was approximately $2,769,526 (based upon
the closing price for shares of the Registrant's Common Stock as reported by the
Nasdaq Electronic Bulletin Board for the last trading date prior to that date).
Shares of Common Stock held by each officer, director and holder of 5% or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.

     On April 14, 1997, approximately 10,793,280 shares of the Registrant's
Common Stock, no par value, were outstanding.

                     DOCUMENTS INCORPORATED BY REFERENCE.

     None.
<PAGE>
 
                                    PART I
                                    ------

ITEM 1.   BUSINESS

     The following Business section contains forward-looking statements which
involve substantial risks and uncertainties. The Company's actual results could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Annual Report on Form 10-K.

     Microelectronic Packaging, Inc. ("MPI") and its wholly-owned subsidiaries
(collectively, the "Company") is an electronic interconnect solutions company
with design, manufacturing, and sales services to support the requirements of
electronic systems and integrated circuit manufacturers ("IC" or "semiconductor"
manufacturers). The Company develops, manufactures, markets and sells multichip
modules ("MCMs") and pressed ceramic packages to customers in the IC,
telecommunications, automatic test equipment and other electronics related
industries.

     The Company maintains product development, manufacturing and sales
facilities in San Diego, California and Singapore. The Company develops and
manufactures a variety of electronic packages that are used to enclose and
protect ICs from corrosion, humidity, shock, handling and other contaminants.
The Company produces MCMs, electronic subsystems comprised of integrated
circuits and passive components mounted on a printed circuit board or ceramic
substrate, and ceramic dual-in-line packages ("CERDIPs"), special CERDIPs used
to house erasable programmable read only memory chips ("EPROM CERDIPs"), cerquad
and quad flat packages for various applications. The Company's principal
customers as of December 31,1996 included Schlumberger Ltd. ("Schlumberger"),
SGS-Thomson Microelectronics, Inc. ("SGS-Thomson"), Texas Instruments
Incorporated ("TI"), National Semiconductor Corp. ("NSC"), Palomar Products,
Inc., Alphatec Electronics Co. Ltd. and NS Electronics Bangkok Ltd. ("NSEB").
Subsequent to the end of fiscal year 1996, SGS-Thomson notified the Company that
it was no longer a customer of the Company.

     MPI is primarily a holding company with five wholly-owned consolidated
subsidiaries: CTM Electronics, Inc. ("CTM"), Microelectronic Packaging (S) Pte.,
Ltd. ("MPS"), MPC (S) Pte., Ltd. ("MPC"), Microelectronic Packaging America
("MPA") and MPM (S) Pte., Ltd. ("MPM") (MPM is currently being managed by a
receiver as described below). CTM, a California corporation was acquired by MPI
in June 1993 and manufactures and sells MCMs. MPS, a Singapore company,
manufactures and sells CERDIPs and EPROM CERDIPs and is currently in the process
of being restructured. MPC is a Singapore company organized to manufacture and
sell packaging products utilizing aluminum nitride components ("AlNs") to The
Carborundum Company ("Carborundum"). MPA, a California corporation, is the
successor-in-interest to the business of the West Coast division of Cabot
Ceramics, Inc., which was acquired by MPA in 1991, and manufactured advanced IC
packaging products. Most of MPA's assets were sold to Advanced Packaging
Concepts, Inc. ("APC"), a California corporation, on or about September 30,
1996.  MPM is a Singapore company which was formed as a result of a license
obtained from IBM in 1994 to manufacture multilayer ceramic packaging using
"flip-chip" technology.  This specific new packaging was to be produced at the 
MPM facility for which specialized equipment was purchased and a separate
management team and workforce was hired.  The manufacturing process for this
product line differs significantly from the existing processes performed by the
Company at its other locations. The Company, however, announced on March 3,
1997, the cessation of the development of the Company's multilayer ceramic
operations and the liquidation of MPM's assets. MPM is currently in receivership
as defined under the laws of Singapore. The 1996 loss from multilayer ceramic
discontinued operations was $1.2 million and the estimated loss on disposal was
$29.3 million. On March 3, 1997, the Company also announced the restructuring of
MPS which may include liquidation of MPS's assets. See "License and Other
Significant Agreements" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Future Operating Results -- Repayment of
Debt Obligations by MPM-- Adverse Impact of MPM Liquidation on MPS -- Repayment
of Bank Obligations by MPS -- High Leverage."

INDUSTRY OVERVIEW

     In recent years, advances in interconnection technology has allowed
semiconductor companies and systems designers to increase the speed and
complexity and reduce the size, power and prices of their products. Until
recently, interconnection technology has not been considered a limiting factor
in systems design and development. However, emerging electronic products such as
semiconductor related automatic test equipment and military aerospace
telecommunications equipment require designs that cannot always be done with
conventional interconnection technology. Recent developments in MCMs have
allowed the packaging and interconnect industry to become an enabling rather
than a limiting factor in both price and performance for advanced electronic
products.

     The increased reliance by IC and systems designers on interconnection
solutions has created a new 
<PAGE>
 
challenge and opportunity for the electronic packaging and interconnection
industry to develop products that can effectively respond to customers' new
requirements.  Today's IC and system designers work together with
interconnection designers and manufacturers in the early stages of product
development.  These products must accommodate constant reductions in size,
increases in speed and complexity and the ability to handle the increased heat
generated by more powerful systems.

     Today's conventional electronic systems are comprised of printed circuit
boards ("PCBs") and single chip packages. The size, weight and speed of the
electronic system is a function of the size, weight and performance of the fully
assembled PCB. The PCB and the IC packages generally account for the majority of
the size, weight and the limitations on speed of the system. Efforts to develop
smaller, lighter and faster electronic assemblies have recently focused on
improvements in IC packaging and interconnection technology.

     Conventional system architecture utilizing single chip packages and PCBs is
being replaced by MCMs for more advanced systems. MCMs can be used to
interconnect ICs for more advanced systems without the need for single chip
packages. With MCMs, multiple ICs are interconnected on a single high density
substrate. The substrate with the mounted ICs can be utilized as a replacement
for the PCB or the substrate can be enclosed in a high pin count package and
mounted onto a PCB. The advantage of MCMs is generally believed to be their
ability to interconnect ICs, which allows for much closer spacing between ICs.
Closer spacing between ICs facilitates smaller, lighter and faster overall
circuitry.

     Manufacturers in the interconnection industry are evaluating technologies
to support market driven requirements for reduced size and increased
performance. Improvements in semiconductor and electronic interconnection
technologies enable this continued reduction in size and cost with increasing
performance for electronic systems.

THE MPI SOLUTION

     The Company offers a broad range of products and services to support the
electronic interconnection market, including MCMs, pressed ceramic packages and
contract manufacturing and design services. The Company's MCMs are designed to
provide the higher density interconnection that in turn facilitates smaller,
lighter and faster overall circuitry. The Company's pressed ceramic packages
provide enclosure, protection, thermal management and the interconnection
between an IC and the PCB upon which it is mounted for purposes of forming an
electronic system. The Company's design services consist of system packaging and
interconnection design on a turnkey basis.

     Multichip Modules.  The Company provides MCMs to both the IC and electronic
systems markets. The Company designs and manufactures MCMs that replace entire
PCBs to reduce overall system size and increase performance. The Company also
designs and manufactures MCMs to interconnect multiple ICs, which the Company
encloses in an advanced IC package. The advanced IC package with the enclosed
MCM is then mounted onto a PCB. All of the Company's MCM products are designed
to provide its customers with increased speed and performance and decreased size
and weight. The Company believes that MCMs bridge the gap between conventional
PCB assembly technology, which is not adequate for many of today's advanced
design requirements, and silicon integration, which is currently too expensive
or not currently available for many systems. By densely packaging multiple die
onto a substrate, distances between components are reduced, which generally
increases performance since signals do not have as far to travel between
components and results in cost savings through reduced materials requirements.

     Pressed Ceramics.  During the last 13 years, the Company has provided
pressed ceramic products to the IC industry. The Company's pressed ceramic
products are utilized to enclose, protect and interconnect specific types of ICs
to PCBs. The Company sells aluminum nitride microelectronic packages to
Carborundum through MPC.

     Contract Manufacturing and Design Services.  The Company offers design
services for both single chip packages and MCMs and can provide a complete
turnkey solution for interconnection of electronic systems. These services
provide customers with a cost-effective alternative to existing product design
processes.

IMPLEMENTATION OF THE MPI SOLUTION

                                       2
<PAGE>
 
     The Company's strategy is to provide electronic interconnection products
and services that meet the performance, time to market and low cost needs of IC
and systems designers. The key elements of the Company's strategy include:

     Performance.  The Company's MCM products are designed to provide size,
weight and speed advantages as compared to conventional PCB interconnect
solutions. The Company's IC package products provide customers with protective
enclosure, speed, power dissipation and increased pin counts necessary for
today's complex ICs.

     Time to Market.  To assist its customers in meeting time to market demands,
the Company provides design, prototyping and quick turn-around production of
MCMs at its San Diego, California facilities. Through its design expertise and
the close proximity of its design and prototype production facilities to the
design facilities of its primary customers located principally in California,
the Company is able to offer quick turn-around design and prototype production
of its MCM products.

     Low Cost Supply.  The Company believes that it is able to offer lower cost,
higher volume production through its Singapore operations because of the
availability of relatively low cost labor in Singapore. In addition, Innoventure
(S) Pte. Ltd.'s ("Innoventure," which has been succeeded by PTI as described
below) manufacturing facility located in Indonesia currently provides the
Company with low cost labor for certain processes for its pressed ceramic
products. The Company utilizes subcontract manufacturing services where
beneficial to the Company and its customers. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Future Operating
Results -- Future Capital Needs; Need for Additional Financing -- New
Manufacturing Facilities in Indonesia; Transition of Existing Singapore
Operations; New Manufacturing Facilities in Indonesia and Singapore."

PRODUCTS AND SERVICES

     The Company's products and services include MCMs, pressed ceramic packages
and contract manufacturing and design services.

     Multichip Modules.  The Company believes that MCMs bridge the gap between
conventional PCB assembly technology, which is not adequate for many of today's
advanced design requirements, and silicon integration, which is currently too
expensive or not currently available for many systems. By densely packaging
multiple die onto a substrate, distances between components are reduced, which
generally increases performance since signals do not have as far to travel
between components and results in cost savings through reduced materials
requirements.

     Through internal development programs and its acquisition of CTM, the
Company is able to provide its customers with MCM products and services. The
Company believes that CTM was one of the first users of dense, high speed,
multichip wire bonding and chip-on-board assembly. The Company believes that its
MCM designs offer the heat dissipation, circuit density, and electrical
characteristics that permit VLSI, VHSIC, ASIC and other high performance
integrated circuits to operate at their highest rated specifications. CTM also
offers programs for the design and manufacture of MCMs that meet military
specifications.

     Typical MCM products include commercial electronic products, such as
automatic test equipment ("ATE") products, and consumer electronic products,
such as video camcorders, cellular telephones and personal computers. Sales of
MCMs accounted for approximately 19%, 21% and 30% of the Company's net sales in
1994, 1995 and 1996, respectively. Sales of MCMs to Schlumberger accounted for
substantially all of the Company's net sales of MCMs in 1994, 1995 and 1996 and
is expected to account for a greater percentage in 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Future Operating Results -- Technological Change; Importance of Timely Product
Introduction; Uncertainty of Market Acceptance and Emerging Markets."

                                       3
<PAGE>
 
     Pressed Ceramic Packages.  Through the use of a patented ceramic bonding
process, Super Seal/TM/, the Company has become a primary supplier of CERDIPs to
SGS-Thomson (as of February 1997, the Company is no longer a supplier of CERDIPs
to SGS-Thomson), TI and NSC. The Company also currently provides other pressed
ceramic products such as ceramic lids and cerquads for various applications.
Sales of pressed ceramic products accounted for approximately 70% or
$29,564,000, 73% or $42,076,000 and 59% or $33,367,000 of the Company's net
sales in 1994, 1995 and 1996, respectively. The Company intends to focus its
future growth efforts on the development and expansion of its MCM products and
the Company anticipates that its pressed ceramic business will substantially
decrease for the foreseeable future. The pressed ceramics business is conducted
principally through MPS and MPS's restructuring may materially adversely affect
the Company's pressed ceramics business. The Company continues to sell aluminum
nitride microelectronic packages to Carborundum through MPC. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition --
Future Operating Results -- Mature Market; Dependence on Semiconductor and
Personal Computer Industries."

     Contract Manufacturing and Design Services.  The Company offers design
services for both single chip packages and MCMs and can provide a complete turn
key solution for interconnection of electronic systems.  These services provide
customers with a cost-effective alternative to existing product design
processes. 

CUSTOMERS, APPLICATIONS AND MARKETS

     Certain of the Company's customers, the products provided to such customers
and the customers' applications for such products are listed below:
<TABLE>
<CAPTION>

CUSTOMER                                    PRODUCT             APPLICATION
--------                                    -------             -----------
<S>                                         <C>                 <C>
SGS-Thomson (no longer a customer as of     CERDIPs             EPROMs
 February 1997)
NSC                                         CERDIPs             CERDIPs
NSEB                                        CERDIPs             EPROMs
TI                                          CERDIPs             EPROMs
Schlumberger                                 MCMs               ATE
</TABLE>

     Sales to SGS-Thomson accounted for 29%, 24% and 20% of the Company's net
sales in 1994, 1995 and 1996, respectively.  Sales to Schlumberger accounted for
18%, 20% and 29% of the Company's net sales in 1994, 1995 and 1996,
respectively.  Sales to NSC (and NSEB) accounted for 17%, 16% and 5% of the
Company's net sales in 1994, 1995 and 1996, respectively.  Sales to TI accounted
for 13%, 22% and 16% of net sales in 1994, 1995 and 1996, respectively. Amounts 
due from the Company's three major customers accounted for 71% and 75% of 
accounts receivable at December 31, 1995 and December 31, 1996, respectively.

     SGS-Thomson has ceased being a customer as of February 1997.  The
anticipated decrease in revenue, represented by the loss of sales to SGS-
Thomson, if not offset by other revenue sources, would have a material adverse
effect on the Company's financial condition and results of operations.  The
further loss or reduction of sales by any of the other customers would
materially adversely affect the Company's business, financial condition and
results of operations.  See "Management's Discussion and Analysis -- Future
Operating Results -- Significant Customer Concentration."

     To date, most of the Company's revenues have been derived from sales of
pressed ceramic products to customers in the semiconductor industry. The market
for pressed ceramic products is relatively mature and demand for pressed ceramic
products will decline in the future in dollar amounts and as a percentage of
overall Net Sales. See "Management's Discussion and Analysis -- Future Operating
Results -- Mature Market; Dependence on Semiconductor and Personal Computer
Industries -- International Operations."

     During 1994, 1995 and 1996 the Company had foreign net sales of
$31,890,000, $42,815,000 and $36,944,000, respectively. The majority of such
foreign sales were made to customers primarily located in Southeast Asia, Korea
and India. See Note 15 of Notes to Consolidated Financial Statements.

     The Company currently sells its products through a combination of six
direct sales and five independent sales representatives. The Company can provide
engineering, design and technical support to its sales staff and 

                                       4
<PAGE>
 
potential customers.

LICENSE AND OTHER SIGNIFICANT AGREEMENTS

     The Company seeks to obtain licenses to technologies that complement and
expand the current technologies that the Company owns.

     Samsung Corning.  Pursuant to the terms of a Sale and Purchase Agreement
for CERDIP Manufacturing and Alumina Powder Equipment (the "Purchase Agreement")
that was executed on December 19, 1994 by Samsung Corning and MPS, MPS purchased
in stages certain CERDIP manufacturing equipment and alumina powder equipment,
including production supplies and spare parts (collectively, the "Equipment"),
from Samsung Corning Co., Ltd. ("Samsung Corning"). In connection with the
consummation of this transaction, the Company paid to Samsung Corning in
installments purchase price consideration totaling $5,746,000. In addition, the
Company paid approximately $434,000 in ancillary costs to certain third parties.
Upon each shipment of Equipment by Samsung Corning, MPS transferred to Samsung
Corning that portion of the aggregate purchase price that was applicable to the
transferred Equipment. The purchase price of the Equipment was determined in
arms-length negotiations between MPS and Samsung Corning and was based on the
fair market value of the Equipment. Some of the CERDIP manufacturing equipment
purchased by MPS from Samsung Corning has been relocated to the facility
operated by Innoventure in Indonesia and MPS' Singapore facilities.  A portion
of the equipment is being utilized to manufacture CERDIPs. By late 1995, the
equipment purchased, combined with equipment previously owned by MPS, provided
MPS with approximately double the manufacturing capacity MPS had available
before the purchase. MPS has since written down the value of the equipment
comprising this excess capacity by $6.2 million as of December 31, 1996.
MPS may need to obtain the consent of various creditors if MPS chooses to 
dispose of the Samsung Corning equipment.

     MPS obtained $12,000,000 principal amount of financing to consummate its
obligations under the Purchase Agreement and to provide for its related working
capital requirements from a consortium of customers consisting of SGS-Thomson,
TI, NSEB, Motorola, Inc. ("Motorola") and Samsung Corning.

     MPS borrowed $4,000,000 from SGS-Thompson at an interest rate of 7.25% per
annum.  The principal on the note is repayable in eight equal quarterly
installments that began in August 1996.  While MPS has made all interest
payments due under the note, no principal payments have been made.  MPS is
currently attempting to renegotiate the repayment terms of this note, which is
secured by the CERDIP manufacturing equipment and fully guaranteed by MPI.

     MPS borrowed $3,500,000 from TI at an interest rate of 7.25% per annum and
the principal on the note is repayable in eight quarterly installments that
began in November 1996.  While MPS has made all interest payments due under the
note, no principal payments have been made.  The note is fully guaranteed by MPI
and is secured by certain CERDIP manufacturing equipment.  On April 2, 1997, MPS
entered into an Amended Loan and Security Agreement with TI pursuant to which TI
agreed to (i) waive its right to pursue a default remedy under the original loan
agreement, (ii) a lower interest rate on the outstanding balance of 3.5% per
annum on the outstanding balance and (iii) a revised (and extended) payment
schedule for the outstanding balance owed by MPS.

     MPI borrowed $1,500,000 from NSEB at an interest rate of 14% per annum and
the principal is repayable in six quarterly installments that began in September
1996.  The Company has made no principal payments since September 1996, although
it has continued to make interest payments as due.  The NSEB note is secured by
all of MPI's domestic equipment and trade receivables that are not subject to
liens or other encumbrances existing prior to May 30, 1995.  In March 1997, the
Company entered into an Amended Loan and Security Agreement and a Second Secured
Promissory Note with NSEB pursuant to which NSEB agreed to waive any breach of
the covenants, terms and conditions of the original Loan and Security Agreement
and the original Secured Promissory Note (both dated May 30, 1995) and agreed to
a revised (and extended) payment schedule.  The interest rate on the outstanding
balance, however, was raised from 14% per annum to 18% per annum.

     MPS borrowed $2,000,000 from Citibank N.A. at an interest rate of 7% per
annum and the principal is repayable in twelve quarterly installments commencing
in March 1997. The loan has been guaranteed by Motorola. MPI, MPS, MPA and CTM
have agreed to indemnify and defend Motorola in any action taken by Citibank to
enforce its guarantee against Motorola. The obligation of indemnification is
secured by all of the MPI, CTM and MPA assets not

                                       5
<PAGE>
 
previously pledged to NSEB, as well as all capital stock of MPS, CTM and MPA.
The first principal payment was not made when due in March 1997 and MPS is
currently attempting to renegotiate the repayment terms of the loan and to
obtain a waiver for failure to make payments when due but such waiver has not
been obtained in writing.

     MPS borrowed $1,000,000 from The Development Bank of Singapore ("DBS") at
the Singapore Interbank offer interest rate plus 1.5%, repayable in twelve
monthly installments beginning in November 1996.  The loan has been guaranteed
by Samsung Corning, whose guarantee is fully guaranteed by MPI.  MPI is
currently attempting to renegotiate the terms of the note, although all
principal and interest payments have been classified as current. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations --Liquidity and Capital Resources -- Future Operating Results -- New
Manufacturing Facilities in Indonesia and -- Transition of Existing Singapore
Operations; New Manufacturing Facilities in Singapore and Indonesia; Sole or
Limited Source of Supply."

     Carborundum.  In January 1993, MPC entered into exclusive manufacturing
(the "Manufacturing Agreement"), technology information exchange (the
"Technology Agreement"), option (the "Option Agreement") and certain other
agreements (collectively, the "Carborundum Agreements") with Carborundum,
pursuant to which MPC manufactures aluminum nitride microelectronic packages
("AlNs") exclusively for Carborundum. Under the terms of the Manufacturing and
Technology Agreements, Carborundum supplies MPC with the AlN pills necessary for
the manufacture of the AlN packages and provides MPC with access to technology
that Carborundum, in its discretion, deems necessary for MPC to manufacture the
AlNs. Carborundum is obligated to pay MPC an amount equivalent to MPC's
manufacturing fees (as defined in the Manufacturing Agreement) for the AlNs that
MPC manufactures for Carborundum during the term of the Manufacturing Agreement.
Carborundum, at its cost, installed the processing and manufacturing equipment
necessary to manufacture the AlNs. Pursuant to the Manufacturing Agreement, MPC
manufactures the AlNs in space located at one of the Company's Singapore
facilities that is devoted exclusively to the manufacture of AlNs for supply to
Carborundum. MPC is obligated to exclusively sell to Carborundum the AlNs that
are manufactured under the Manufacturing Agreements; provided, however, in the
event Carborundum purchases less than 80% of MPC's capacity in any quarter, MPC
may, in such quarter, manufacture certain other products for sale to third
parties with the prior written consent of Carborundum. Carborundum is obligated
to purchase annually the lesser of 4,000,000 parts or fifty percent of its
requirements for its radio frequency brazed AlNs; provided, however, that
Carborundum may purchase these products from any other party without regard to
the foregoing purchase requirement if it determines in good faith that such
third party is more attractive than MPC on an economic, quality or risk basis.
Any manufacturing capacity at MPC not required to meet any Carborundum purchase
order demand may with Carborundum's approval be used by MPC for the manufacture
of aluminum oxide microelectronic components for sale to other parties. In the
event Carborundum consents to such sales, it shall be entitled to a fee
calculated based on the manufacturing cost of such components. The Company
commenced limited production under the Carborundum Agreements in the second
quarter of 1994 and production commenced in late 1996. There can be no assurance
that such production will be maintained or increased. On April 5, 1997, a fire 
at the Company's MPC facility caused damage to the building and some equipment 
(the building was promptly evacuated and no personnel sustained injuries). 
Although the extent of the damage is still being investigated, the building has 
been preliminarily estimated in excess of $3.0 million, however, the Company is 
totally insured (less a $5,000 deductible). The Manufacturing and Technology
Agreements were to expire on December 31, 1996. On October 1, 1996, MPC and
Carborundum agreed to amend and extend the terms of the Manufacturing Agreement
for an additional two years. The amendment permitted MPC to increase its profit
margin on sales to Carborundum by 3.5% in 1997 and by 7% in 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Future Operating Results -- Potential Divestiture of MPC (S) Pte.
Ltd. Aluminum Nitride Subsidiary; Obligation to Purchase Products."

     Under the Option Agreement, the Company originally granted to Carborundum
an irrevocable option, exercisable at any time through December 31, 1996, to
acquire for an agreed-upon price (as set forth in the Carborundum Agreements) up
to 75% of the ownership of MPC (the "75% Option"). On October 1, 1996, the
Option Agreement was amended to permit Carborundum to acquire up to 49%
ownership in MPC through December 31, 1997, and to acquire an aggregate of 75%
ownership in MPC between January 1, 1998 and December 31, 1998 (inclusive of any
ownership obtained prior to January 1, 1998). Carborundum also received a right
to acquire for an agreed-upon price (as set forth in the Carborundum Agreements)
up to 100% of the ownership of MPC (the "100% Option") in the event that
competitors of Carborundum's microelectronics business acquire more than 10% of
the ownership of MPI or gain access to any confidential information of either
MPC or the Company relating to Carborundum's microelectronics business or
Carborundum can also acquire 100% of MPC in the event of a default which
includes a filing of bankruptcy by either MPI or MPC or if either MPI or MPC
should make an assignment of assets for the general benefit of creditors. The
100% Option shall terminate upon termination of the Option Agreement on January
1, 1999; provided, however, that if Carborundum timely exercises

                                       6
<PAGE>
 
the 75% Option, in part or in full, the 100% Option and the Option Agreement
shall continue in effect for the maximum period of time permitted by applicable
law.  In addition, Carborundum has a right of first refusal with respect to
issuances of equity securities by MPC, including securities convertible into or
exchangeable for such securities ("MPC Securities").  Further, in the event of a
change in the majority ownership or control of the Company, Carborundum has a
right of first refusal with respect to the MPC Securities then held by the
Company at the aggregate price that is the lower of (i) the fair market value of
such shares as determined in good faith by the Company and Carborundum and (ii)
the portion of the consideration paid for such change in majority ownership or
control that is attributable to the MPC Securities then held by the Company.
Carborundum's right of first refusal shall terminate upon the expiration of the
Carborundum Agreements, as amended; provided, however, that if Carborundum
timely exercises the 75% Option, in full or in part, Carborundum's right of
first refusal shall remain in effect for the maximum period of time permitted by
law.  In addition, while it continues to own at least twenty-five percent of the
outstanding shares of MPC, after the exercise by Carborundum of its first
option, the Company shall have a right of first refusal with respect to sales of
MPC Securities by Carborundum, other than sales to successors or affiliated
entities.  The Company believes that the parent company of Carborundum has
entered into discussions with a third party regarding the possible sale of
Carborundum.  The Company is unable to determine at this time what effect, if
any, the sale of Carborundum might have on the results of operations and
financial condition of MPC.

     Innoventure.  In July 1993, MPI entered into a preliminary subcontract
manufacturing agreement (the "Innoventure Agreement") with Innoventure pursuant
to which Innoventure established a manufacturing facility in Indonesia to
manufacture certain of MPI's pressed ceramic products presently being
manufactured by MPS in the Company's Singapore facilities. Under the terms of
the Innoventure Agreement, MPI provides technical assistance, grants Innoventure
a fully paid up, non-exclusive license to technology relating to the manufacture
of certain of its pressed ceramic products and provides certain raw materials,
production supplies and equipment. MPI also agreed to purchase the entire output
of the facility subject to certain terms and conditions that are determined on
an annual basis. Innoventure agreed to finance the construction and operation of
the facility, and made a one-time non-refundable technology license fee payment
of $500,000 in December 1993. Innoventure is entitled to the first $4.5 million
of defined profits to be generated by the manufacturing facility within the
first five years after project start-up (as of December 31, 1996, profits have
not exceeded $4.5 million). Thereafter, any profits will be shared equally by
Innoventure and MPI. Partial processing of pressed ceramic products commenced in
the second quarter of 1995. In 1995, MPI and Innoventure entered into a Novation
Agreement pursuant to which MPS was substituted for MPI as the real party in
interest to the original subcontract agreement and PT Ironside ("PTI") was
similarly substituted for Innoventure. MPS and PTI then entered into another
Subcontract Manufacturing Agreement on September 5, 1995 (the "PTI Agreement"),
pursuant to which MPS agreed to provide equipment to PTI free of charge so that
PTI could manufacture various pressed ceramic products, including CERDIPs, for
MPS. Under the PTI Agreement, PTI would be responsible for the entire cost of
production. PTI will also be entitled to the first $4.5 million in defined
profits generated by the manufacturing facility from January 1, 1995, to January
1, 2000. During the third quarter of 1995, MPS located certain CERDIP
manufacturing equipment acquired from Samsung Corning in the PTI facility.
Pressed ceramic products that are partially processed in the Indonesian facility
are then completed in MPS's Singapore facilities. MPS currently anticipates that
the facility may be able to process and produce pressed ceramic products at the
earliest by the end of 1997. PTI is not subject to any written contractual
obligation to continue operating such facility, MPS is not subject to any
written contractual obligation to continue work with PTI. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Future Operating Results -- Future Capital Needs; Need for Additional Financing
and -- New Manufacturing Facility in Indonesia; Transition of Singapore
Operations."

     International Business Machines Corporation.  In August 1994, the Company
entered into a multilayer technology transfer and licensing agreement with IBM
(the "IBM Agreement") pursuant to which the Company was granted a license to
specific technology developed by IBM for the manufacture of multilayer ceramic
products.  Under the terms of the IBM Agreement, the Company and MPM acquired a
nonexclusive, nontransferable right to use the licensed technology to
manufacture and sell certain specified products on a worldwide basis. In
exchange for the license, the Company paid an up-front non-refundable royalty of
$2,000,000, and was obligated to pay additional royalties based on sales of
products incorporating the licensed technology during the term of the IBM
Agreement, which was to remain in effect for a period of ten years from the date
of execution and thereafter from year to year unless terminated by either party.
Commencing in August 1996, the IBM Agreement was to be terminable by either
party without cause upon six months prior written notice.  Pursuant to an option
agreement (the "IBM Option 

                                       7
<PAGE>
 
Agreement"), IBM was also issued an option to purchase up to 51% of the capital
stock of MPM, which option was to be exercisable from and after the achievement
of certain production milestones by MPM as set forth in the IBM Option
Agreement.  The term of the option, as well as the purchase price, are defined
in the IBM Option Agreement.  MPM is also currently in possession of certain
inventory that MPM had ordered from IBM.  IBM has not yet been paid for such
inventory.  The outstanding debt from the inventory is less than $150,000.  In
connection with the IBM transaction, MPM obtained a $3.2 million line of credit
from DBS, which was fully utilized during 1995 to finance equipment purchases.

     In March 1997, the Board of Directors of the Company decided to cease its
multilayer ceramic operations and liquidate MPM's assets.  Changing market
demand for multilayer ceramic products and IBM's unwillingness to renegotiate
the terms of the IBM Agreement or to commit to purchasing multilayer ceramic 
products from the Company were the principal reasons that the Board decided to
liquidate MPM.  All of MPM's Singapore employees have since been terminated and
the two remaining expatriate employees of MPM will be terminated in mid-April of
1997.  MPM is currently in receivership, as defined under the laws of Singapore.
The receiver for MPM has asked the Company to assist him in selling off all of
the remaining tangible assets of MPM.  The proceeds from the sale of MPM's
assets will be used to retire a portion of MPM's debts. The Company anticipates
that the liquidation of MPM will be completed by July 1997. IBM was never a
customer of MPM.

     Transpac.  On March 27, 1996, the Company and MPM consummated a financing
(the "Transpac Financing") with Transpac Capital Pte. Ltd. and other related
investors (collectively, "Transpac") pursuant to which the Company issued
842,013 shares of its Common Stock to Transpac for the aggregate purchase price
of $2,000,000 and MPM issued a debenture (the "Debenture") to Transpac in the
principal amount of $9.0 million. The Debenture has a term of five years and
bears interest at the rate of 8.5% per annum and is guaranteed by MPI. Accrued
and unpaid interest is due and payable in annual installments at the end of each
year of the term of the Debenture. The principal outstanding under the Debenture
will be due and payable in full at the end of the five year term, however, from
and after April 23, 1997 and through the term of the Debenture, the Debenture
will be convertible at Transpac's option into shares of common stock of MPM or
common stock of MPI. The Company has not made any payments under the Debenture.
On March 7, 1997, the Company and Transpac entered into a non-binding memorandum
of understanding, pursuant to which the Company and Transpac agreed to convert
the outstanding principal and interest totaling approximately $9.7 million (the
"Outstanding Debt") owed to Transpac into a combination of shares of the
Company's Common Stock and shares of the Company's convertible Preferred Stock
(to be offered to the shareholders for approval at the 1997 Annual Meeting of
the Shareholders). $5.5 million of the Outstanding Debt would be converted into
5,500,000 shares of the Company's Common Stock and the remaining $4.2 million of
the Outstanding Debt would be converted into a certain number of shares of the
Company's convertible Preferred Stock at a conversion rate that is proportional
to the fair market value of the Company's Common Stock. In addition, the Company
agreed to issue to Transpac a warrant to purchase one million shares of the
Company's Common Stock at an exercise price of $1.75 per share. The parties have
not yet entered into a definitive, binding agreement pursuant to which the
Outstanding Debt would be converted into MPI stock or that they would waive a
variety of defaults by the Company under such agreements. There can be no
assurance that the Company and Transpac will ultimately be able to agree on the
terms of such conversion, nor can there be any assurance that such conversion,
if agreed upon, will be on terms favorable to the Company. In addition, were the
Company and Transpac to agree to a conversion, such conversion would
significantly dilute any earnings per share amounts and significantly dilute the
ownership interest of MPI's existing shareholders. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Future Operating Results -- Future Capital Needs; Need for
Additional Funding -- Repayment of Debt Obligations by MPM -- Adverse Impact of
MPM Liquidation on MPS -- High Leverage -- Status as a Going Concern."

ENGINEERING AND PRODUCT DEVELOPMENT

     The Company is a member of SEMI/SEMATECH, a consortium of United States
companies working to enhance cooperation and participation by United States
companies in assembly and packaging technology.   The Company's strategy is to
develop new interconnection products in an evolutionary manner, progressively
upgrading from one level of technology to the next by making improvements upon
commercially available materials and technology. The Company works closely with
its customers to define new products and to develop new capabilities in a timely
and cost effective manner. The Company also uses outside services, such as ASIC
design, to supplement its internal capabilities. Engineering and product
development expenditures were approximately $1.7 million, $2.2 

                                       8
<PAGE>
 
million and $2.7 million in 1994, 1995 and 1996, respectively.

MANUFACTURING, SUPPLIERS AND TOTAL QUALITY PROGRAM

     The Company believes that its ability to manufacture its products in a
timely and cost effective manner at the highest quality level is essential in
order to remain competitive in its markets and achieve its growth objectives.
The Company's manufacturing facilities in San Diego, California include design
and prototype facilities and a production capability. The Company intends to
support high volume requirements for its MCM products partially through offshore
subcontract manufacturing and assembly agreements. The Company's high volume
CERDIP manufacturing operations are located at its MPS subsidiary in Singapore.
In the recent past, the Company automated its Singapore CERDIP manufacturing
operations and trained its manufacturing personnel in statistical process
control to improve the quality of its products. The Company's CERDIP
manufacturing plant at its MPS subsidiary in Singapore has been certified for
ISO 9002, the current accepted international standard for manufacturing quality.

     The Company believes that total quality management is a vital component of
customer satisfaction and internal productivity. As such, the Company has
established relationships with key suppliers and customers in each of the
Company's markets. In addition, the Company maintains a system of quality
control and documentation with respect to each of its manufacturing processes.

     The Company maintains a supplier quality program that includes
qualification, performance measurement and corrective action requirements. The
Company chooses its suppliers based on quality, delivery, service and price.
Certain raw materials essential for the manufacture of the Company's products
are obtained from a sole supplier or a limited group of suppliers.  In
particular, MCMs that are provided to Schlumberger contain components which are
provided solely by Schlumberger to the Company.  Under the Company's current
arrangement with Schlumberger, the Company would be unable to supply
Schlumberger with MCMs if Schlumberger were to cease supplying the Company with
such components. In such event, the Company's ability to continue as a going
concern would be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Future Operating
Results -- Sole or Limited Sources of Supply."

     The Company is subject to a variety of local, state, federal and foreign
governmental regulations relating to the storage, discharge, handling, emission,
generation, manufacture and disposal of toxic or other hazardous substances used
to manufacture the Company's products. The Company believes that it is currently
in compliance in all material respects with such regulations and that it has
obtained all necessary environmental permits to conduct its business. To date,
compliance with such regulations has not had a material adverse effect on the
Company's capital expenditures or results of operations. The Company is
currently a party to certain ongoing environmental matters. See "Legal
Proceedings" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Future Operating Results -- Environmental
Regulations."

BACKLOG

     The Company negotiates annual purchase agreements with some of its largest
customers and regularly obtains scheduled releases by product type for shipments
that have been assigned shipment dates. These scheduled releases with assigned
shipment dates are considered backlog by the Company. As of December 31, 1996,
the Company's backlog was approximately $13.1 million compared with
approximately $11.3 million as of December 31, 1995. The increase of backlog in
1996 as compared to 1995 was primarily due to increased backlog at CTM during
1996. All product orders are subject to cancellation or rescheduling by the
customer with limited or no penalties. Because the Company generally ships
products within 60 to 120 days of receipt of the order, and because of possible
changes in delivery schedules, cancellations or rescheduling of orders and
potential delays in product shipments, the Company's backlog at any particular
date is not representative of actual sales for any succeeding period.

                                       9
<PAGE>
 
COMPETITION

     The MCM market is highly competitive, and the Company faces intense
competition from a number of worldwide competitors. The Company's primary
competitors in North America are Maxtech, Raytheon, Hewlett-Packard, APTA and
Micro-Module Systems. All of these competitors have significantly greater
resources and production, marketing and other capabilities than the Company with
which to develop, manufacture, market and sell MCMs. The principal elements of
competition in the MCM market are design expertise, performance, size and cost.
Although the Company believes that it competes favorably with respect to each of
these factors, product improvements, technological advancements and new product
introductions by the Company's competitors or customers of the Company's
competitors could cause a decline in sales of the Company's MCM products or
prevent the Company from increasing its market share of the MCM market. See
"Management's Discussion and Analysis -- Future Operating Results -- Highly
Competitive Industry; Significant Price Competition."

     The Company currently faces substantial competition worldwide with respect
to pressed ceramic packages from Kyocera and Sumitomo Metals. The market for
sales of the Company's pressed ceramic products is highly concentrated to these
two competitors, each of which provides intense competition for the Company and
they have significantly greater financial resources and production, marketing
and other capabilities than the Company with which to develop, manufacture,
market and sell pressed ceramic products. The principal elements of competition
in the Company's pressed ceramic packaging market include price, product
performance, quality and reliability and the ability to design and incorporate
product improvements. Technological advancements and new product introductions
by the Company's competitors or the customers of the Company's competitors could
cause a decline in sales or loss of market acceptance of the Company's pressed
ceramic products. The Company has experienced and will continue to experience
substantial price based competition for sales of these products.

INTELLECTUAL PROPERTY RIGHTS

     The Company believes that the success of its business depends more on the
technical competence, creativity and marketing abilities of its employees,
rather than on patents, trademarks and other intellectual property rights.
Nevertheless, the Company has a policy of seeking patents as appropriate on
inventions resulting from its ongoing engineering and product development
activities. In addition, the Company has acquired intellectual property rights
through business acquisitions and technology licenses. The Company owns five
United States patents, which expire beginning in February 2005 through July
2010. In addition, the Company owns three foreign patents, which expire
beginning in May 1999 through March 2009, and eleven foreign patent applications
are currently pending. The Company owns one registered United States trademark.

     There can be no assurance that any of the Company's issued patents will
provide it with competitive advantages or will not be challenged by third
parties, or that the patents of others will not have an adverse effect on the
Company's ability to do business. Furthermore, there can be no assurance that
others will not independently develop similar products, duplicate the Company's
products or design around the patents issued to the Company. In addition, the
Company also relies upon trade secret protection for its confidential and
proprietary information. There can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets or disclose
such technology or that the Company can meaningfully protect its trade secrets.

EMPLOYEES

     As of December 31, 1996, the Company had a total of 632 employees,
including 538 engaged in manufacturing, 48 in engineering and product
development, and 46 in sales, marketing and administration (including its
executive officers). Of the Company's 632 employees, 541 are located in
Singapore and 91 are located in the United States. None of the Company's
employees are represented by a labor union, and the Company has not experienced
any work stoppages. The Company considers its employee relations to be good.

                                       10
<PAGE>
 
ITEM 2.   PROPERTIES.

     The Company maintains its corporate headquarters in San Diego, California.
This leased facility totals approximately 13,500 square feet and is used for
corporate administration, design, engineering, manufacturing and sales
operations. The lease on this facility expires in August 1997 and the Company
has an option to renew for either one or two years at the then fair market rent.
The Company also leases one other facility in San Diego, California aggregating
approximately 17,500 square feet. The Company is currently subleasing
approximately 15,000 square feet of this facility to APC but this lease expired
on March 31, 1997. APC attempted to negotiate a new lease with the landlord with
respect to this facility but the landlord rejected APC's lease application and
then the landlord initiated eviction proceedings against MPA. The Company
anticipates that MPA will vacate such facility by June 1, 1997. Until such time,
the Company is obligated to pay the landlord a monthly premium on the rent due
and payable on such facility.

      In addition to its facilities in the United States, the Company
owns or leases facilities totaling 173,000 square feet in Singapore. The Company
is using these facilities for the design, manufacture and sale of certain of the
Company's products, including pressed ceramic packages. The Company owns two
facilities of 48,000 square feet, which are subject to mortgages in favor of
DBS, located on public land in Tuas, Singapore, which the Company is leasing
from a government agency under lease agreements that expire in December 2014 and
December 2024, respectively. On Saturday, April 5, 1997, a fire destroyed one of
the Company's Tuas facilities. The insurance adjusters estimate the damage to be
over $3 million. The Company also leases two facilities, located in Bukit Merah,
Singapore, under leases that expire in October 1998 and three facilities,
located in Tuas, Singapore, occupied by MPM, under leases that expire between
October 1997 and April 1998. Although the Company has notified the landlord of
its intention to abandon the three MPM facilities pursuant to the cessation of
the Company's multilayer ceramic operations and the liquidation of MPM's assets
and, although the Company is not a guarantor to the three MPM facilities, the
Company may ultimately be responsible for the outstanding balance due under
these leases to facilitate the liquidation of MPM's assets. The Company pays an
aggregate of approximately $201,000 per month under the foregoing mortgage and
leases with respect to its facilities in the United States and Singapore. The
Company believes that its existing facilities are adequate to meet current and
foreseeable requirements and that suitable additional or substitute space will
be available if needed. See "Business -- License and Other Significant
Agreements" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

ITEM 3.   LEGAL PROCEEDINGS

     The Company previously shipped quantities of hazardous waste to a Whittier,
California hazardous waste treatment facility for recycling. The owner of that
facility allegedly failed to recycle or dispose of the various wastes shipped to
the site and has now filed for bankruptcy. The Company is one of more than four
thousand generators, including numerous Fortune 500 corporations, identified by
the State of California as having responsibility for cleanup at the site, and it
is not ranked as one of the generators that has shipped a significant amount of
hazardous waste. In May 1995, the United States Environmental Protection Agency
("EPA") issued written notice that it considers the Company to be a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("CERCLA"). The EPA determined that there may be an
imminent and substantial endangerment to the public health, welfare, and
environment because of a release and/or threat of a release of hazardous
substances from the site located in Whittier, California. The notice requires
the Company to take immediate actions to contain and prevent any further release
of hazardous substances at the site. In response to the EPA notice, the Company
and approximately 100 of the other named generators provided the necessary
funding to effect the removal and destruction of the hazardous wastes stored at
this site.  In addition, the Company and such generators have provided certain
funding to test the soil and groundwater at this site, which testing is
currently ongoing. Although the cost incurred by the Company to date of removing
and destroying the hazardous waste stored at this facility was not significant,
this effort does not address the cleanup of potential soil and/or ground-water
contamination present at this site. There can be no assurance, therefore, that
the costs and expenses associated with this action will not increase in the
future to a level that would have a material adverse effect upon the Company's
business, financial condition or results of operations.

                                       11
<PAGE>
 
     The Company also previously shipped small quantities of hazardous waste for
recycling to a San Diego hazardous waste treatment facility operated by a third
party operator ("Operator"). The owner of the facility and the State of
California have filed suits against the Operator and two of its officers and the
owner of the facility has obtained a mandatory injunction to compel the removal
of hazardous waste on site. If the Operator does not comply, it is possible that
the property owner or a government agency could also sue or bring enforcement
proceedings against approximately 100 hazardous waste generators, including the
Company, that shipped such wastes to the facility to pay for the removal and to
participate in site cleanup if any contamination is discovered. Based on its
limited investigation to date, the Company is unable to determine whether
this matter, if resolved adversely to the Company, would have a material adverse
effect on the Company's business or results of operations.

     Numerous creditors have filed or threatened lawsuits against MPI and its
subsidiaries for their respective various defaults and violations of certain
agreements entered into by MPI and its various subsidiaries. If such creditors
choose to enforce their claims and are successful in doing so, the Company may
be forced to seek protection under Chapter 7 or 11 of Title 11 the United States
Code or under similar bankruptcy laws in Singapore.

     As discussed earlier, pursuant to the Company's decision to cease its
multilayer ceramic operations and to liquidate MPM's assets, MPM is currently in
receivership in Singapore.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

     None.

                                       12
<PAGE>
 
                                    PART II
                                    -------

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

     The Company's Common Stock was traded on the Nasdaq National Market under
the symbol MPIX from April 21, 1994 until March 12, 1997. On March 13, 1997, the
Company was delisted from the Nasdaq National Market; subsequently, the
Company's Common Stock commenced trading on the Nasdaq Electronic Bulletin
Board. The following table sets forth the range of high and low per share bid
information, as reported on the Nasdaq National Market for each quarter for the
last two years through March 31, 1997. On April 7, 1997, the Company had 129
holders of record of its Common Stock and 10,793,280 shares outstanding.
<TABLE>
<CAPTION>
 
               Quarter Ended                      High          Low  
               -------------                      ----          ---  
               <S>                               <C>            <C>   
                                                                        
            March 31, 1995                       $3.375         $1.25 
            June 30, 1995                        $2.75          $1.125    
            September 30, 1995                   $2.875         $1.875    
            December 31, 1995                    $2.6875        $1.875    
                                                                          
            March 31, 1996                       $4.375         $2    
            June 30, 1996                        $5.625         $2.75    
            September 30, 1996                   $4.75          $3.25    
            December 31, 1996                    $3.625         $0.6875    
                                                                          
            March 31, 1997                       $1.25          $0.28    
</TABLE>

     During the past year, the Company did not declare or pay any cash dividends
on its Common Stock. The Company currently plans to retain all of its earnings
to support the development and expansion of its business and has no present
intention of paying any dividends on the Common Stock in the foreseeable future.
The Company is prohibited by certain agreements from paying cash dividends. MPS
is a party to a line of credit facility with DBS that requires MPS to obtain the
consent of DBS prior to declaring dividends, repaying creditors or transferring
funds to MPI. In addition, an agreement relating to the guarantee by Motorola of
a bank loan to MPS grants Motorola the right to prohibit payment of dividends on
the stock of MPI, CTM and MPA.  The Transpac agreements also contain similar
restrictions.

ITEM 6.   SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
 
                                                               Fiscal Year Ended December 31,
                                               --------------------------------------------------------------
                                                 1992        1993           1994          1995        1996
                                               ---------   ---------   --------------   ---------   ---------
                                                          (In thousands, except per share amounts)
<S>                                            <C>         <C>         <C>              <C>         <C>
Consolidated Statements
  of Operations Data:
Net sales...................................   $ 28,108    $ 34,691         $ 42,288    $ 57,996    $ 55,988
Cost of goods sold..........................     24,361      29,671           37,659      46,410      48,778
                                               --------    --------         --------    --------    --------
Gross profit................................      3,747       5,020            4,629      11,586       7,210
Selling, general
  and administrative........................      3,025       3,483            4,991       7,626       8,260
Impairment of long-lived assets.............         --          --               --          --       6,163
Engineering and
  product development.......................      1,530       1,494            1,734       2,152       2,717
 
Income (loss) from operations...............       (808)         43           (2,096)      1,808      (9,930)
Other income (expense):
 Foreign exchange gain (loss)...............       (118)       (447)          (1,009)     (1,233)        292
 Interest expense...........................       (417)       (490)            (443)     (1,123)     (2,032)
 Royalty revenue............................        181         114              153          --          --
 Other income...............................         71         634              496         614         369
                                               --------    --------         --------    --------    --------
</TABLE> 

                                       13
<PAGE>
 
<TABLE> 
<S>                                            <C>         <C>         <C>              <C>         <C>
Income (loss) from continuing operations
 before income taxes and the cumulative
 effect of change in accounting principle...     (1,091)       (146)          (2,899)        (66)    (11,301)
                                               --------    --------         --------    --------    --------
Discontinued operations.....................         --          --              (40)     (1,452)    (30,541)
 
Net income (loss) (1)(4)....................   $ (1,091)   $   (146)        $ (2,939)   $ (1,386)    (41,842)
                                               ========    ========         ========    ========    ========
 
Net loss per common share:(2)
 Historical.................................               $     --         $     --    $   0.01    $  (2.07)
 Pro forma before change in accounting
   principle (unaudited - Note 1)...........                   (.16)           (0.69)         --          --
 Pro forma cumulative effect of change
   in accounting principle..................                    .11               --          --          --
 Discontinued operations....................                     --            (0.01)      (0.31)      (5.61)
                                                           --------         --------    --------    --------
 Net (loss).................................               $   (.05)        $   (.70)   $   (.30)   $  (7.68)
                                                           ========         ========    ========    ========
Shares used in pro forma
 per share calculation......................                  3,076            4,174       4,660    $  5,445
                                                           ========         ========    ========    ========
 
<CAPTION> 
                                                                       December 31,
                                                 -------------------------------------------------------------
                                                   1992        1993             1994        1995        1996
                                                 --------    --------         --------    --------    --------
                                                                            (In thousands)
<S>                                            <C>         <C>              <C>         <C>         <C> 
Consolidated Balance
 Sheet Data:
Working capital (deficiency)................   $   (811)   $ (1,461)        $   (368)   $ (4,883)   $(30,015)
Total assets................................     18,222      21,825           27,635      42,427      24,894
Current liabilities.........................     11,687      14,836           16,603      25,438      50,726
Long-term debt, less current portion........        554       1,154            2,230       9,573       4,782
Accumulated deficit (3).....................    (22,439)    (22,585)         (25,524)    (26,910)    (68,752)
Total shareholders'
 equity (deficit)...........................      5,981       5,835            8,802       7,416     (30,614)
</TABLE>

------------
(1)  See discussion of effects of income taxes in Note 10 to Notes to
     Consolidated Financial Statements.
(2)  Historical net income (loss) per share has been omitted for 1992 through
     1994 since it is not considered meaningful due to the automatic conversion
     of all of the Company's outstanding shares of Preferred Stock into shares
     of Common Stock upon the closing of the Company's initial public offering
     in April 1994. The calculation of the number of shares used in computing
     pro forma net income per share in 1993 and 1994 includes the effect of the
     conversion of all Series A and B Preferred Stock into 1,774,808 shares of
     Common Stock upon the closing of the Company's initial public offering as
     if such Preferred Stock had been converted into Common Stock on January 1,
     1993. See Note 1 to Notes to Consolidated Financial Statements.
(3)  Includes stock dividends of $6,234,000 issued to the Company's preferred
     shareholders in 1993. See Note 11 to Notes to Consolidated Financial
     Statements.
(4)  See discussion of discontinued operations in Note 17 to Notes to
     Consolidated Financial Statements.

                                       14
<PAGE>
 
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS.

     Management's Discussion and Analysis of Financial Conditions and Results of
Operations contains forward-looking statements which involve substantial risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth in this section and elsewhere in this Annual
Report on Form 10-K.


RESULTS OF OPERATIONS

     The following table sets forth certain consolidated statements of
operations data of the Company expressed as a percentage of net sales for the
periods indicated:
<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                            -----------------------------------
                                             1994           1995         1996
                                            -------        ------       -------
<S>                                         <C>            <C>          <C>
Net sales...............................     100.0%        100.0%       100.0%
Cost of goods sold......................      89.1          80.0         87.1 
                                             -----         -----        -----
Gross profit............................      10.9          20.0         12.9 
Selling, general and administrative.....      11.8          13.2         14.8 
Impairment of long-lived assets.........        --            --         11.0 
Engineering and product development.....       4.1           3.7          4.8 
                                             -----         -----        -----
Income (loss) from operations...........      (5.0)          3.1        (17.7)
Other income (expense):                                                       
 Interest expense.......................      (1.1)         (1.9)        (3.6)
 Foreign exchange gain (loss)...........      (2.4)         (2.2)         0.5 
 Royalty revenue........................       0.4            --           -- 
 Other income...........................       1.2           1.1          0.6 
                                             -----         -----        -----
Income (loss) from continuing                                                 
 operations.............................      (6.9)          0.1        (20.2)
 Loss from discontinued operations......        --          (2.5)       (54.5)
                                             -----         -----        -----
Net (loss)..............................      (6.9)         (2.4)       (74.7)
                                             -----         -----        -----
</TABLE>

YEARS ENDED 1994, 1995 AND 1996

     Net sales.  The Company's net sales increased by 37.1% from $42.3 million
in 1994 to $58.0 million in 1995 and decreased 3.6% to $56.0 million in 1996.
The increase in net sales from 1994 to 1995 is primarily attributable to
increases in revenues from sales of pressed ceramics products at the Company's
MPS subsidiary, and a $4.6 million increase in revenues from the sales of MCM
products at the Company's CTM subsidiary.  The increase in sales of pressed
ceramic products reflects both an increase in units sold and a general price
increase implemented by MPS in the second quarter of 1995.  The increase in
revenue from the sale of MCMs was due to both an increase in units sold and a
change in the product components sold to CTM's primary customer.  Beginning in
March 1994, CTM began purchasing a component of the end product from its primary
customer and in turn increasing the sales price for the increase in cost. Prior
to March 1994, the customer had provided the component for use in the products
it was purchasing from CTM. The effect of this change was to increase both sales
and cost of goods sold by $5.9 million during 1995 and $11.0 in 1996.  The
decrease in net sales during 1996 was primarily attributable to a $6.6 million
reduction in revenues from sales of pressed ceramics products at the Company's
MPS subsidiary, which was partially offset by a $4.7 million increase in
revenues from the sale of MCM products at the Company's CTM subsidiary.  The
decrease in sales of pressed ceramic products is due primarily to a decrease in
units sold.  The increase in revenue from the sale of MCMs was due to both an
increase in units sold and higher selling prices on new components being
produced, which corresponds to a higher raw material cost for these new
components.

                                       15
<PAGE>
 
     Net sales in 1994 also includes $1.2 million derived from the transfer of
certain production equipment and related production supplies to a third party
pursuant to an equipment resale arrangement.  There were no such revenues during
1995.  Net sales in 1996 also includes $1.8 million derived from the transfer of
certain production equipment and related production supplies to a third party
pursuant to an equipment and technology resale arrangement.

     Cost of goods sold.  The Company's cost of goods sold increased from $37.7
million in 1994 to $46.4 million in 1995 and to $48.8 million in 1996.  The
increases were primarily the result of increased sales during these periods. The
cost associated with the inclusion by CTM in its furnished MCM products of
components that, in previous years, were purchased by CTM's customers from third
party suppliers and provided to CTM, accounted for $5.9 million of cost of goods
sold in 1995 and $11.0 million in 1996.  As discussed in more detail under
Foreign Exchange Loss, cost of goods sold has also been materially adversely
affected by exchange rate fluctuations during 1994 and 1995.  The appreciation
of the Japanese yen and the Singapore dollar relative to the United States
dollar during those periods increased the Company's cost of goods sold and
decreased its margins on products sold.  Such fluctuations in exchange rates
resulted in increases in the Company's cost of goods sold of $1,545,000 and
$875,000 in 1994 and 1995, respectively.  Cost of goods sold as a percentage of
net sales decreased from 89.1% in 1994 to 80.0% in 1995 primarily due to a
lesser impact of exchange rate fluctuations on the gross margins generated by
the Company's Singapore operations (as discussed under Foreign Exchange Loss)
and an improvement in overhead absorption at MPA due to higher product sales.
Cost of goods sold as a percentage of net sales increased to 87.1% in 1996 due
primarily to the reduction in sales volume during 1996.  During 1995, gross
margin from sales in percentage terms increased as the impact of improved
pricing at MPS and improved overhead absorption at MPS, CTM and MPA due to
improved shipping volumes offset increases in the costs of certain of the
Company's raw materials and the impact of exchange rate fluctuations on gross
margins generated by the Company's Singapore operations.  However, during 1996,
gross margin in percentage terms decreased due primarily to a decrease in sales
volume. In addition, gross margin declined due to lower overall margins at CTM
and increased gross margin degradation at MPA.

     Selling, General and Administrative.  Selling, general and administrative
expenses increased from $5.0 million in 1994 to $7.6 million in 1995 to $8.3
million in 1996.  The increase of approximately $2.6 million or 52.0% in 1995 is
attributable to several factors, including the expenses associated with
establishing a reserve relating to certain uncollectible notes, the costs
associated with certain litigation, an increase in sales commissions at CTM as a
result of the increase in sales of MCM products, additional personnel and other
selling costs associated with the Company's operating as a sales representative
for IBM, and an increase in legal, personnel and other administrative costs.  An
increase of less than $1.0 million in 1996 is attributable primarily to the
Company's delay in responding to decreasing sales at its MPS facility.

     Impairment of Long-Lived Assets.  As of December 31, 1996, the Company 
decided to dispose of its excess equipment located in Singapore and Indonesia. 
This equipment is used to manufacture pressed ceramic products and represents 
excess capacity that the Company has determined it will not need due to market 
turns to other packaging materials. The Company has written off the remaining 
net book value for specifically-identified assets in the amount of $6.36
million, net of salvage value. Of this amount, $3.0 million is for assets held
in Singapore and $3.36 million is for assets in Indonesia.

     Engineering and Product Development.  Engineering and product development
costs increased from $1.7 million in 1994 to $2.2 million in 1995 and to $2.7
million in 1996. The increases in 1995 and 1996 primarily reflect an increase in
personnel costs and expenditures on materials used in product development at the
Company's MPS and CTM facilities. These increases were offset by a reduction in
engineering and product development expenses at MPA due to the sale of most of
its assets effective as of September 30, 1996. The Company currently anticipates
that engineering and product development costs will remain the same or decrease
in absolute dollars in the 1997. More of the Company's engineering and product
development costs will be directed towards the production of MCMs in 1997. See
"--Future Operating Results--Highly Competitive Industry; Significant Price
Competition."

     Discontinued Operations.  In July 1995, the Company's Board of Directors
directed management to undertake the sale of the Company's MPM subsidiary
(multilayer ceramic operations) and certain other related assets. In connection
with this decision, the Company recorded a write down of $1.0 million during the
second quarter of 1995 for the revaluation of this subsidiary to its net
realizable value and the establishment of a reserve for certain exit costs to be
incurred during the anticipated phase-out period. In January 1996, the Company's
Board of Directors elected to continue the Company's development program
associated with multilayer ceramic operations. In March 1996, the Company
consummated the Transpac financing and thereby obtained additional funds to
continue equipping the MPM production facility. The reserve for exit costs
established during the second quarter of 1995 was completely utilized by the end
of 1995.

     In March 1997, the Board of Directors of the Company decided to discontinue
the multilayer ceramic operations and has recorded the effect of this decision 
as of December 31, 1996. Changing market demand for multilayer ceramic products 
and IBM's unwillingness to renegotiate the terms of the IBM Agreement or to 
commit to purchase products from the Company were the main reasons that the
Board decided to discontinue the multilayer ceramic operations. All of MPM's
Singapore employees have since been terminated and the two remaining expatriate
employees of MPM will be terminated in April 1997. MPM is currently in
receivership as defined under the laws of Singapore. The receiver for MPM has
asked the Company to assist him in selling off all of the remaining tangible
assets for MPM. The proceeds from the sale of MPM assets will be used to retire
a portion of MPM's debts. The Company anticipates that the liquidation of the
multilayer ceramic operations will be completed by July 1997.

     As of December 31, 1996, the Company reduced the carrying value of its 
multilayer ceramic operation's property, plant and equipment by approximately 
$14.8 million, wrote-off deferred preproduction costs of $8.9 million, prepaid 
royalties of $2.0 million, accrued $1.5 million of costs associated with the 
discontinuation of this operation and accrued estimated losses through the date 
of disposal of $2.1 million.

                                       16
<PAGE>
 
     Foreign Exchange Loss.  During 1994 and 1995, the Company's results of
operations were materially adversely affected by the declining value of the
United States dollar compared to the Japanese yen and the Singapore dollar.
During this time period, the Japanese yen exchange rate declined from 112
Japanese yen to 1 US dollar to as low as 83.1 Japanese yen to 1 US dollar, and
the Singapore dollar exchange rate declined from 1.60 Singapore dollars to 1 US
dollar to as low as 1.39 Singapore dollars to 1 US dollar. In 1996, the Japanese
yen exchange rate rebounded from 1995's low of 83.1 Japanese yen to 1 US dollar
to 115.85 Japanese yen to 1 US dollar, while the Singapore exchange rate
stabilized during 1996, only ranging from a high of $1.4215 to a low of $1.3975
Singapore dollars to 1US dollar.  The fluctuations in the relative value of
these currencies from their relative values at the beginning of each respective
fiscal year resulted in the Company's experiencing additional costs of
$2,552,000 and $2,129,000 in 1994 and 1995, respectively.  The fluctuations in
the relative value of these currencies from their relative values at the
beginning of fiscal year 1996 resulted in the Company's experiencing a gain of
$1,388,000.  For financial reporting purposes, a portion of these additional
costs and gains is included in cost of goods sold, while the remainder is
recorded in the caption foreign exchange loss/gain.  Such fluctuations in
exchange rates have resulted in reductions of the Company's gross profit on
product sales of $1,545,000 and $875,000 in 1994 and 1995, respectively, and an
increase in the Company's gross profit on product sales of $1,096,000 in 1996.
During 1994 and 1995, the Company reported foreign exchange transaction losses
of $1,009,000 and $1,233,000, respectively, with discontinued operations
including a $2,000 gain and $21,000 loss on foreign exchange transactions,
respectively. During 1996, the Company reported foreign exchange transaction
gains of $292,000.

     Fluctuations in foreign exchange rates have a significant impact on the
Company's results of operations. Certain of the Company's raw material purchases
and other costs of production and administration are denominated in Japanese yen
and Singapore dollars, while all of the Company's sales are denominated in U.S.
dollars.  Consequently, a change in exchange rates between the U.S. dollar and
the Japanese yen or the Singapore dollar can affect the Company's cost of goods
sold or its selling, general and administrative expenses, resulting in gains or
losses that are included in the Company's results of operations.  Exchange rate
fluctuations also impact the carrying value of certain of the Company's
obligations, resulting in foreign currency transaction gains or losses that are
likewise included in the Company's results of operations.  Fluctuations in
exchange rates also subject the Company to gains or losses on its outstanding
forward foreign currency contracts.  For financial reporting purposes, the gain
or loss arising from exchange rate fluctuations between the transaction date for
a transaction denominated in a foreign currency and that transaction's
settlement date, or reporting date for transactions which have not settled, is
characterized as a foreign exchange gain or loss, as is the gain or loss
suffered on outstanding forward foreign currency contracts.

     In an effort to minimize the impact of foreign exchange rate movements on
the Company's operating results, and subject to financing from and the consent
of DBS, the Company has entered into forward foreign currency contracts to hedge
foreign currency transactions such as purchases of raw materials denominated in
Japanese yen.  The terms of the forward contracts generally involve the exchange
of U.S. dollars for either Japanese yen or Singapore dollars at a future date,
with maturities generally ranging from one to nine months from the execution
date of the forward contract.  At contract maturity, the Company makes net
settlements of U.S. dollars for foreign currencies at forward rates that were
agreed to at the execution date of the forward contracts.  The Company utilizes
its S$30,000,000 (US$21,436,000 at December 31, 1996) foreign exchange line of
credit with DBS to finance the purchase of forward foreign currency contracts
with maturities of up to 12 months.  Advances under this line of credit are
guaranteed by MPI and are secured by all of the assets of MPS, including a
second mortgage on MPS's leasehold land and buildings.  The Company's ability to
utilize this line is subject to significant limitations imposed by DBS. Another
factor which restricts the Company's hedging activities is the available
borrowing capacity of the foreign exchange line of credit.  In addition, the
Company generally enters into forward contracts only when it anticipates future
weakening of the U.S. dollar relative to the Singapore dollar or Japanese yen.
As a result of these and other factors, the Company's hedging measures have been
and may continue to be severely limited in their effectiveness.

                                       17
<PAGE>
 
     The Company's operating results have been and will continue to be
materially adversely affected by any weakening in the U.S. dollar relative to
either the Japanese yen or the Singapore dollar.  During the first half of 1995,
both the Japanese yen and the Singapore dollar appreciated in value against the
U.S. dollar.  The appreciation of these currencies had the effect of increasing
the Company's cost of goods sold and selling, general and administrative
expenses and decreasing the margins of the Company's products.  During the
second half of 1995, although the value of the U.S. dollar rebounded against
both the Japanese yen and the Singapore dollar, the Company incurred additional
foreign exchange losses due to its obligations under its outstanding forward
foreign currency contracts, which required the Company to purchase Japanese yen
and Singapore dollars at contract rates that were below prevailing market rates
at the date of settlement.  In 1996, the US dollar appreciated in value against
the Japanese yen and did not fluctuate significantly against the Singapore
dollar.  Any future weakening of the US dollar relative to either the Singapore
dollar or the Japanese yen will have a material adverse effect upon the
Company's business, financial condition and results of operations.  To mitigate
the effects of the weaker US dollar, the Company increased sales prices of
certain of its products during the second quarter of 1995.  In the second half
of 1996, the Company, under pressure from customer reaction to the weakening
Japanese yen, reduced  prices by approximately half of the 1995 price increase.
The Company will attempt to further minimize the potential material adverse
effect of a weaker US dollar by qualifying non-Japanese sources of key
materials.  There can be no assurance that such measures will offset the impact
of the weaker US dollar on the Company's operating results.

     Interest expense. Interest expense increased from $443,000 in 1994 to
$1,123,000 in 1995 to $2,032,000 in 1996. The increase of $680,000 in 1995 is
primarily due to additional borrowings by the Company under its borrowing
arrangements with DBS Bank (see Liquidity and Capital Resources), and the
additional borrowings associated with the program to acquire equipment from SSC
(see Notes 4 and 8 of Notes to Consolidated Financial Statements). The increase
of $909,000 in 1996 is primarily due to the discount and interest on the
convertible debentures issued to offshore investors and the effect of borrowings
to acquire equipment. The Company is negotiating with Transpac Capital Pte. Ltd.
in an effort to convert the Company's entire indebtedness of $9.0 million plus
accrued interest owed to Transpac into the Company's equity. If successful, the
Company's future interest expense will be reduced by a significant amount.

     Other income.  Other income was $496,000, $614,000 and $369,000 in 1994,
1995 and 1996, respectively. Other income in 1994 reflects primarily the
inclusion of $100,000 of interest income and approximately $136,000 of non-
recurring technology and training fees billed to a third party.  The majority of
other income arising in 1995 reflects the receipt during the first quarter of
1995 of a $375,000 payment from an insurance policy (net of legal fees) covering
product losses incurred in 1988 due to the contamination of products during the
manufacturing process.  The Company believes this will be the final payment
relating to any insurance recovery relating to this loss.  The majority of other
income in 1996 represents interest income and the sale of scrap (which is
generated during normal operations).

     Effects of income taxes.  During 1996 and 1994, the Company's foreign and
domestic operations generated operating losses for both financial reporting and
income tax purposes.  During 1995, taxable income at the Company's domestic and
foreign operations was offset by the utilization of net operating loss and other
carryforwards.  As of December 31, 1996, the Company had net operating loss
carryforwards of $11.8 million for federal income tax purposes and approximately
$0.8 million for California tax purposes.  In addition, at December 31, 1996,
the Company had $0.4 million in federal research and development credits and
$31,000 in investment tax credits available for United States income tax
purposes.  The Company believes it has incurred an ownership change pursuant to
Section 382 of the Internal Revenue Code and, as a result, the Company believes
that its ability to utilize its current net operating loss and credit
carryforwards in subsequent periods will be subject to annual limitations.  As
of December 31, 1996, the Company had capital allowance carryforwards of
approximately $5.7 million for Singapore income tax purposes.

     The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, which requires recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements or tax returns.
Under this method, deferred tax assets and liabilities are determined based upon
the difference between the financial statement and tax 

                                       18
<PAGE>
 
bases of assets and liabilities using enacted tax rates in effect for the
year(s) in which the differences are expected to reverse.

     A valuation allowance is provided when it is more likely than not that some
portion of all of the deferred tax assets will not be realized. As a result of 
the Company's significant losses in 1996 and prior years and uncertainties 
surrounding the realization of the net operating loss carryforward which was 
generated during 1996 and prior years, management has determined that the 
realization of deferred tax assets is not more likely than not. Accordingly, a 
100% valuation allowance has been recorded as of December 31, 1995 and December 
31, 1996 in the amounts of $5.59 million and $7.36 million, respectively.

LIQUIDITY AND CAPITAL RESOURCES

     During 1994, 1995 and 1996, the Company financed its operations through a
combination of cash flow from operations, bank and other borrowings, equipment
lease financings and certain other debt and equity financings. During 1996,
operating activities of continuing operations provided $2.5 million of cash,
while discontinued operations used $6.7 million. Investing activities, primarily
consisting of acquisitions of fixed assets, used $9.5 million and financing
activities provided net cash of $13.7 million during the same period. At
December 31, 1996, the Company had a working capital deficiency of $30,015,000
and an accumulated deficit of $68,752,000. During 1996, the Company completed an
equity financing of $2,000,000 with Transpac and the Company also issued to
Transpac $9,000,000 of convertible debentures. In October 1996, the Company
raised an additional $2,800,000 by issuing a series of convertible debentures to
various investors. Such convertible debentures were not registered under the
Securities Act of 1933, as amended, pursuant to the exemption provided by
Regulation S promulgated thereunder.  During 1996, MPM financed approximately
$1.8 million of equipment purchases with lease financing. MPS borrowed
$1,000,000 from DBS in October 1996 under a one-year loan guaranteed by Samsung-
Corning.

     The Company's principal sources of liquidity at December 31, 1996 consisted
of $2,954,000 of cash, and very limited available borrowing capacity with DBS.
MPS has a $6,788,000 borrowing arrangement with DBS, guaranteed by MPI,
consisting of a working capital line of credit facility and an overdraft
facility. Borrowings under this arrangement are due on demand and are secured by
substantially all of the assets of MPS. Borrowings under the working capital
line and the overdraft facility bear interest at the Singapore prime rate plus
1/2% and plus  3/4%, respectively. At December 31, 1996, MPS had outstanding
borrowings under this arrangement of $5,062,000.  In addition, MPS had loans
from, or guaranteed by, customers totaling $10,333,000.

     MPC has a $357,000 borrowing arrangement with DBS, guaranteed by both MPI
and MPS, consisting of a working capital line of credit facility and an
overdraft facility. Borrowings under this arrangement are due on demand and are
secured by all of the assets of MPC. Borrowings under the working capital line
of credit facility and the overdraft facility bear interest at the Singapore
prime rate plus  1/2% and plus  3/4%, respectively. At December 31, 1996, MPC
had outstanding borrowings under this arrangement of $139,000.

     MPM has a $3,500,000 borrowing facility with DBS. The facility, which is
guaranteed by both MPI and MPS, consists of a $3.2 million short-term advance
facility and a $300,000 import/export bills facility.  Advances under this
credit facility bear interest at the bank's prime lending rate plus 2.5% and
cannot remain outstanding for more than 30 days.  The facility does permit
rolling over of existing outstanding balances.  This credit facility matured in
May 1996, but has not been converted into a term loan, which is at the election
of DBS. This facility automatically terminates in the event of the termination
of the Company's technology transfer agreement with IBM.  At December 31, 1996,
MPM had outstanding borrowings under this arrangement of $3,298,000.  Borrowings
under this arrangement are secured by substantially all of the assets of MPM and
have been guaranteed by MPS and MPI. On April 10, 1997, DBS sent to MPS a
written demand for payment of the outstanding debt owed to DBS by MPM. In
addition to demanding payment, DBS imposed the default interest rate (additional
3% interest rate) on the outstanding debt (as discussed below).

     The MPS borrowing agreements include affirmative and negative covenants
with respect to MPS, including the maintenance of certain financial statement
ratios, balances, earnings levels and limitations on payment of dividends,
transfers of funds and incurrence of additional debt.  The MPM and MPC
agreements also contain restrictive provisions.  As of December 31, 1996, MPS
was in violation of certain covenants set forth in its agreements with DBS. As a
result of the cross default provisions, the borrowing agreements between DBS and
MPC and MPM are in default. These borrowing agreements permit DBS to charge an
increased rate of interest (the "default interest rate"), which is equal to the
interest rate stated above plus 3%, or such other rate as may be determined by
DBS, while the borrowing agreements are in default.  The Company is attempting
to renegotiate the covenants of the borrowing agreements between MPS and DBS. As
of April 11, 1997, the Company has been unable to obtain a waiver of compliance
from DBS with respect to the MPS borrowing agreements; however, DBS has not
declared a default with respect to the MPS borrowing agreements and has
continued to permit MPS and MPC to utilize the 

                                       19
<PAGE>
 
credit facilities within the previously established limits.  Also, if DBS
appoints a receiver for MPS, any liquidation of MPS would not provide sufficient
resources to repay the loan obligations of MPS, which, as described previously,
could result in the foreclosure of assets of CTM, MPA and MPI pledged as
security, and perfection of the guarantees by MPI.  Additionally, the receiver
would demand payment of accounts receivable from CTM ($1,326,000).  Since the
original terms of these borrowing agreements call for the balances to be due on
demand, the Company continues to report the balances due as current liabilities
on the Consolidated Balance Sheet as of December 31, 1996.  The Company
anticipates that the industry-wide depressed market for pressed ceramics will
continue into 1997.  Should this softening market continue, the Company will
continue to have difficulty in meeting its covenants with DBS.  The Company is
in regular communication with DBS, providing DBS with data on the Company and
the industry.  No assurances can be made that the Company will receive a waiver
of compliance with these covenants.  Failure to receive these waivers would
materially adversely affect the Company's results of operations, financial
position and prospects for raising additional capital and continued viability.

     At December 31, 1996, the Company also had borrowings of $9.0 million under
the Transpac debenture (see Note 17 of Notes to Consolidated Financial
Statements), $1.3 million under a note payable to a customer bearing interest at
14.0% (see Note 8 of Notes to Consolidated Financial Statements), $1.3 million
under mortgage notes bearing interest at rates of 7.5% and 7.75%, $80,000 under
a term loan bearing interest at 12.2%, and $2.0 million under capital lease
obligations, consisting of various machinery and equipment financing agreements,
bearing interest at various rates. Borrowings under the above arrangements are
secured by various assets of the Company.  The Company also incurred certain
non-interest bearing obligations in connection with the CTM acquisition that
have been discounted to their net present value of $291,000 at December 31,
1996. As of December 31, 1996, approximately $600,000 of accrued interest was
due and payable under the Transpac debenture.  As of April 11, 1997, this
accrued interest remains unpaid. The Transpac debenture, mortgage notes and two
of the customer loans contain cross default provisions. In the event of default,
the interest rate on the Transpac debenture may increase from 8.5% to 9% per
annum, and interest on the mortgage notes may increase by 3% over their rates of
7.5% and 7.75%.  As of April 11, 1997, no demand for acceleration of the
principal has been made on any of these debt instruments under their respective
cross default provisions, nor has the Company been informed that the interest
rate penalties discussed above have been implemented by any of these creditors.
As a result, the Company reports the entire balance of debt obligations with
cross default provisions as current liabilities on the Consolidated Balance
Sheet as of December 31, 1996.

     The Company is currently in default on substantially all of its debt
obligations and numerous trade and other creditors are requesting repayment of
their amounts due.

     MPS has failed to make timely principal payments under its loan obligations
to TI and SGS-Thomson, as of December 31, 1996.  Additionally, MPS has failed,
as of March 1997, to make timely principal payments to Citibank N.A. under a
note guaranteed by Motorola. Remedies available to the note holders include
acceleration of the principal balance of the notes, attachment and/or
foreclosure of assets of MPS, CTM, MPA and MPI pledged as security, and
perfection of guarantees issued by MPI. No lender to date has either declared a
default or has exercised any such remedies under these notes. MPS entered into
an Amended Loan and Security Agreement with TI on April 2, 1997 pursuant to
which TI agreed to (i) waive its right to pursue a default remedy under the
original loan agreement, (ii) a lower interest rate on the outstanding balance
of 3.5% per annum on the outstanding balance and (iii) a revised (and extended)
payment schedule for the outstanding balance owed by MPS. The Company is
currently attempting to renegotiate the terms and conditions of its note with
SGS-Thomson and Citibank to cure any current defaults and to restructure the
note to be more favorable to the Company. There can be no assurance that the
Company will be successful in these negotiations or that the lenders will not
avail themselves of the remedies available to them.

     MPI has failed to make timely principal payments under a note with NSEB
which was due on January 2, 1997. Remedies available to NSEB include
acceleration of the balance of the note and attachment and/or foreclosure of
certain MPI assets and receivables. In March 1997, the Company entered into an
Amended Loan and Security Agreement and a Second Secured Promissory Note with
NSEB pursuant to which NSEB agreed to waive any breach of the covenants, terms
and conditions of the original Loan and Security Agreement and the original
Secured Promissory Note (both dated May 30, 1995) and agreed to a revised (and
extended) payment schedule. The interest rate on the outstanding balance,
however, was raised from 14% per annum to 18% per annum.

                                       20
<PAGE>
 
     The Company informed DBS in March 1997 that MPM would be unable to repay
its borrowings with DBS as part of the liquidation of the Company. DBS has
informed MPM that it intends to demand immediate payment of the entire
$3,298,000 currently due under the MPM loan. Since MPM has insufficient
resources to repay DBS, DBS has appointed a receiver to dispose of the assets of
MPM which comprise part of DBS's security. MPM has additionally ceased lease
payments due in February 1997 to lessors for certain equipment in the MPM
facility. MPM owes approximately $2.0 million on these equipment leases. The
Company believes that the disposal of MPM's assets will be insufficient to fully
repay the debt obligations of MPM. These obligations have been fully guaranteed
by MPI. The Company is currently attempting to negotiate repayment terms with
DBS and with the leasing companies for the anticipated shortfall. On April 10,
1997, DBS sent to MPS a written demand for payment of the outstanding debt owed
to DBS by MPM. In addition to demanding payment, DBS imposed the default
interest rate (additional 3% interest rate) on the outstanding debt (as
discussed above).

     The Company anticipates that the liquidation of MPM will not provide
sufficient resources to repay the trade creditors of MPM. Indebtedness to IBM
for equipment rental totaling $704,000 is a direct obligation of MPI, and
accordingly would not be discharged by the liquidation of MPM. Additionally,
certain vendors of MPM provided goods or services to MPM under purchase orders
issued by MPS. Under Singapore law, these obligations, totaling $2.3 million may
also be obligations of MPS and may not be discharged by the liquidation of MPM.
The Company has reflected these anticipated obligations in its Consolidated
Balance Sheet as of December 31, 1996.

     The financial resources of MPS are insufficient for it to immediately repay
the MPM trade creditors. MPS may need to be reorganized under Judicial
Management, as that term is defined under Singapore law or under Chapters 7 or
11 of Title 11 of the United States Code, or DBS may appoint a receiver over MPS
to protect its primary secured creditor position from actions brought against
MPS by the MPM trade creditors. The trade creditors of MPS or MPM may seek to
liquidate MPS. There can be no assurance that, if MPS is placed under Judicial
Management or under Chapter 11 of Title 11 of the United States Code, any
reorganization of MPS's debt obligations can be successfully completed. There
can be no assurance that if DBS appoints a receiver for MPS or the trade
creditors of MPS or MPM successfully petition for the liquidation of MPS, that
the receiver will not liquidate all or a portion of MPS's assets to repay
obligations owed to DBS. If such action were taken by the receiver, MPS would be
unable to manufacture its pressed ceramic products and would produce no revenue.

     In October 1996, the Company issued $2,800,000 of convertible debentures at
a per annum interest rate of 8% to a group of offshore investors. This offering
was not registered under the Securities Act of 1933, as amended, pursuant to the
exemption provided by Regulation S promulgated thereunder. The Company also
issued to one of the offshore investors a warrant to purchase 75,421 shares of
the Company's Common Stock. The exercise price of the warrant is the lesser of
the average price at which the debentures are converted ($0.55 per share) or
110% of the closing bid price of the Company's Common Stock as reported by
Nasdaq National Market on October 23, 1996 (which was $2.75 per share). The
warrant became exercisable 45 days after October 23, 1996 and will remain
exercisable until October 23, 1997. The debentures were converted beginning
December 13, 1996 and completely converted on February 20, 1997. The offshore
investors were issued an aggregate of 5,108,783 shares of the Company's Common
Stock. The conversion of these debentures significantly diluted any earnings per
share amount and significantly diluted the ownership interests of MPI's
shareholders.

     The Company's inventory levels were significantly higher as of December 31,
1996 than in prior years.  One of the Company's customers, Schlumberger, is a
supplier of raw materials to the Company and such materials are used by the
Company to manufacture products sold to Schlumberger.  In late 1996,
Schlumberger had difficulty delivering the proper mix of raw materials needed by
the Company to fully produce products for Schlumberger.  Schlumberger's
inability to deliver the missing raw materials, while continuing to deliver
other components, resulted in an unanticipated increase in the Company's
inventory levels.  The Company expects these inventory levels to return to lower
levels in mid-1997.  There can be no assurance, however, that Schlumberger will
able to provide in the future an adequate supply of raw materials in the proper
mix; if not, then the Company may again be required to carry significantly
higher than historical inventory levels, thereby affecting the Company's
liquidity and scarce working capital.

                                       21
<PAGE>
 
     Since the execution of the IBM Agreement, expenditures associated with the
establishment by MPM of a production facility in Singapore to manufacture
products incorporating the technology licensed from IBM under the IBM Agreement
have totaled over $25,000,000. During the same period, the Company also paid an
additional $2,000,000 of up-front nonrefundable royalties to IBM. These
expenditures, which have been partially funded through bank and lease financing,
have had a material adverse effect on the Company's cash flow conditions,
business, operations and capital resources.

TRADE ACCOUNTS PAYABLE

     The Company's trade accounts payable increased from $9.3 million in 1995 to
$12.5 million in 1996 due mostly to the purchase of raw materials from
Schlumberger, such purchase corresponding to an increase in inventory.

FUTURE OPERATIONS

     Status as a Going Concern.  The Company's independent certified public
accountants have included an explanatory paragraph in their audit report with
respect to the Company's 1994, 1995 and 1996 consolidated financial statements
related to a substantial doubt with respect to the Company's ability to continue
as a going concern. There can be no assurance that the Company will operate
profitably in the future and that the Company will not continue to sustain
losses. Absent outside debt or equity financing, and excluding significant
expenditures required for the Company's major projects and assuming the Company
is successful in restructuring its debt, the Company currently anticipates that
cash on hand and anticipated cash flow from operations may be adequate to fund
its operations in the ordinary course throughout 1997. Any significant increase
in planned capital expenditures or other costs or any decrease in or elimination
of anticipated sources of revenue or the inability of the Company to restructure
its debt could cause the Company to restrict its business and product
development efforts. There can be no assurance that the Company will be
successful in restructuring its debt on acceptable terms, or at all. If adequate
revenues are not available, the Company will be unable to execute its business
development efforts and will be required to delay, scale back or eliminate
programs such as the transition of the Singapore operations to Indonesia and may
be unable to continue as a going concern. There can be no assurance that the
Company's future consolidated financial statements will not include another
going concern explanatory paragraph if the Company is unable to restructure its
debt and become profitable. The factors leading to and the existence of the
explanatory paragraph will have a material adverse effect on the Company's
ability to obtain additional financing. See "Future Capital Needs; Need for
Additional Financing -- Liquidity and Capital Resources -- Consolidated
Financial Statements."

     Risk of Bankruptcy.  The Company may need to be reorganized under Chapter
11 of Title 11 of the United States Code or placed under Judicial Management, as
that term is defined under Singapore law or liquidated under Chapter 7 of Title
11 of the United States Code or similar laws of Singapore.  There can be no
assurance that if the Company decides to reorganize under the applicable laws
of the United States and/or Singapore that such reorganizational efforts would
be successful or that shareholders would receive any distribution on account of
their ownership of shares of the Company's stock.  Similarly, there can be no
assurances that if the Company decides to liquidate under the applicable laws of
the United States and/or Singapore that such liquidation would result in the
shareholders receiving any distribution on account of their ownership of shares
of the Company's stock.  In fact, if the Company were to be reorganized or
liquidated under the applicable laws of either the United States or Singapore,
the bankruptcy laws of both countries would require (with limited exceptions)
that the creditors of the Company be paid before any distribution is made to the
shareholders.

     Future Capital Needs; Need for Additional Financing.  The Company's future
capital requirements will depend upon many factors, including the extent and
timing of acceptance of the Company's products in the market, requirements to
restructure and retire its substantial debt, requirements to construct,
transition and maintain existing or new manufacturing facilities, commitments to
third parties to develop, manufacture, license and sell products, the progress
of the Company's research and development efforts, the Company's operating
results and the status of competitive products. If the Company is successful in
restructuring its debt obligations, absent debt or equity financing and
excluding significant expenditures required for the Company's major projects,
the Company anticipates that cash on hand and anticipated cash flow from
operations may be adequate to fund its operations through 1997. There can be no
assurance, however, that the Company will not require additional financing prior
to such date to fund its operations. In addition, the Company may require
substantial additional financing to fund its operations in the ordinary course,
particularly if the Company is unable to restructure its debt obligations.
Furthermore, the Company may require additional financing to fund the
acquisition of selected assets needed in its production facilities and to
complete certain programs, such as the provision of production supplies to a
third party supplier in Indonesia and the consolidation of MPS's Singapore
operations. There can be no assurance that the Company will be able to obtain
such additional financing on terms acceptable to the Company, or at all.

     Pursuant to a 1993 subcontract manufacturing agreement between MPI and
Innoventure, Innoventure established a manufacturing facility in Indonesia that
partially processes pressed ceramic products on behalf of MPI. Partial
processing of pressed ceramic products commenced in the second quarter of 1995.
Pressed ceramic products that are partially processed in the Indonesian facility
are completed in the Company's Singapore facility. The Company currently
anticipates that the Indonesian facility may be able to fully process and
produce pressed ceramic products at the earliest by the end of 1997. Equipping
such facility to fully process and produce pressed ceramic products is subject
to a number of conditions, including, but not limited to, additional transfers
of pressed ceramic manufacturing equipment from Singapore, and there can be no
assurance that such facility will be so equipped. Pursuant to the terms of the
Innoventure Agreement (succeeded by the PTI Agreement), MPI agreed to provide
Innoventure with raw materials and other production supplies necessary for the
commencement of production in this facility. This obligation to provide raw
materials and production supplies was subsequently modified by both parties in
1995 such that MPS, successor to MPI, is now purchasing these items from its
suppliers on behalf of PTI, successor to Innoventure. PTI currently owes MPS
approximately $2.0 million related to the supply of such raw
                                       22
<PAGE>
 
materials and related production supplies, and MPS anticipates that it will
continue to purchase such items on PTI's behalf for the foreseeable future.  The
foregoing amount is to be repaid to MPS on terms to be agreed upon by both
parties.  There can be no assurance, however, that PTI will be able to
manufacture pressed ceramic products on a timely basis, in sufficient quantities
or at all.  PTI's inability to manufacture products would have a material
adverse effect on its ability to repay its debt obligations to MPS.  In
addition, there can be no assurance that PTI's need for raw materials and
production supplies will not increase in the future or that MPS will be able to
meet such increased demand.  Under the PTI Agreement, MPS also agreed to lease
certain production equipment to PTI.  To date, the parties have not finalized
the terms of this leasing arrangement.  In the interim, MPS moved certain of its
production equipment from its Singapore facilities and certain of the equipment
purchased from Samsung Corning to the PTI facility.  There can be no assurance
that MPS will not be required to replace such equipment in MPS's Singapore
facilities or incur additional costs as a result of replacing such equipment.
There can be no assurance that DBS will approve the transfer of any additional
production equipment from MPS to PTI, which approval is required under the terms
of the collateral agreements relating to certain loans with MPS.  Additionally,
there can be no assurance that MPS's customers will qualify the remainder of the
PTI facility.  Production of the remaining portion of the process cannot
commence at the PTI facility without production qualification by customers.
Finally, should MPS choose to retain the remaining portion of the production
process and not transfer that process to PTI, under the terms of the PTI
Agreement, PTI may choose to cease production of the portion of the production
process now performed by them in Indonesia, necessitating the return of those
processes to MPS in Singapore.

     Although limited processing of pressed ceramic products commenced in
Indonesia during the second quarter of 1995, the full transition of MPS's
pressed ceramic production operations from Singapore to Indonesia has not yet
been completed and such operations are still primarily located at its Singapore
facility. Upon the completion of the transfer of its pressed ceramic production
operations to the facility in Indonesia, the Company may consolidate the MPS
Singapore operations, which currently occupy two facilities, into one facility.
Such consolidation, if undertaken by the Company, would require significant
expenditures and such consolidation may not be complete until the end of 1997.
The Company does not currently have the resources to consolidate MPS's Singapore
facilities. In the event that the Company requires additional funds to finance
the consolidation of MPS's facilities, the Company will seek additional
financing through subsequent sales of its debt or equity securities or through
bank or lessor financing alternatives, if available. There can be no assurance
that the Company will not incur additional costs with respect to the
establishment of the manufacturing facility in Indonesia or the consolidation,
if any, of MPS's Singapore operations.

     The DBS line of credit available to MPS, which is guaranteed by MPI,
contains numerous restrictive covenants on the ability of such subsidiary to
provide funds to MPI or to other subsidiaries and on the use of proceeds. The
credit facilities at MPC and MPM and the Transpac agreements also contain
similar restrictions. The Company is in breach of each of such agreements and is
in default under each of such agreements. If the Company cannot reach an
agreement with its creditors to repay its obligations, the Company will not be
able to continue as an ongoing concern. The Company's high level of outstanding
indebtedness and the numerous restrictive covenants set forth in the agreements
covering this indebtedness and its default position prohibit the Company from
obtaining additional bank lines of credit and from raising funds through the
issuance of debt or other securities without the prior consent of DBS and
Transpac. The Company is currently in default on their guarantee and loan
obligations to DBS as a result of the Company's decision to cease its multilayer
operations, liquidate MPM's assets and restructure MPS. The liquidation of MPM
and the restructuring of MPS may have also resulted in the Company's default
under a number of other agreements, and certain creditors have informed the
Company they intend to accelerate outstanding payments due to them under various
credit agreements because of such alleged defaults. There can be no assurance
that other creditors of the Company will not also choose to accelerate the
Company's debt obligations and the Company will not able to repay such
accelerated obligations as they become due and immediately payable. If either a
sufficient number of creditors or any of the substantial creditors choose to
accelerate payments or to place MPI or one or more of its subsidiaries under
judicial reorganization, the Company may be forced to seek protection under
Chapter 11 of Title 11 of the United States Code or similar bankruptcy laws of
Singapore. See "Liquidity and Capital Resources." If the Company were to seek
additional financing, it is not likely that additional financing will be
available to the Company on acceptable terms, or at all. If additional funds are
raised by issuing equity or convertible securities, further dilution to the
existing shareholders will result. Since adequate funds are not currently
available, the Company has been required to delay, scale back or eliminate
programs such as the consolidation of MPS's Singapore facility, which could
continue to have a material adverse effect on the Company's business, prospects,
financial condition and

                                       23
<PAGE>
 
results of operations. In addition, the Company has been forced to delay,
downsize or eliminate other research and development, manufacturing,
construction or transitioning programs or alliances or obtain funds through
arrangements with third parties pursuant to which the Company has been forced to
relinquish rights to certain of its technologies or to other assets that the
Company would not otherwise relinquish. The delay, scaling back or elimination
of any such programs or the relinquishment of any such rights could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.

     Future Operating Results.  The Company's operating results have fluctuated
significantly in the past and will continue to fluctuate significantly in the
future depending upon a variety of factors, including foreign currency losses,
corporate and debt restructurings, creditor relationships, conversions of
significant amounts of debt into a significant amount of equity, downward
pressure in gross margins, continued losses due to low shipping volume, delayed
market acceptance, if any, of new and enhanced versions of the Company's
products, delays, cancellations or reschedulings of orders, delays in product
development, defects in products, integration of acquired businesses, political
and economic instability, natural disasters, outbreaks of hostilities,
variations in manufacturing yields, changes in manufacturing capacity and
variations in the utilization of such capacity, changes in the length of the
design-to-production cycle, relationships with and conditions of customers,
subcontractors, and suppliers, receipt of raw materials, including consigned
materials, customer concentration, price competition, cyclicality in the
semiconductor industry and conditions in the pressed ceramic and personal
computer industries. In addition, operating results will fluctuate significantly
based upon several other factors, including the Company's ability to attract new
customers, changes in pricing by the Company, its competitors, subcontractors,
customers or suppliers, the conversion, if any, of existing Singapore
facilities, and fluctuations in manufacturing yields at the Singapore and
Indonesian facilities. The absence of significant backlog for an extended period
of time will also limit the Company's ability to plan production and inventory
levels, which could lead to substantial fluctuations in operating results.
Accordingly, the failure to receive anticipated orders or delays in shipments
due, for example, to unanticipated shipment reschedulings or defects or to
cancellations by customers, or to unexpected manufacturing problems may cause
net sales in a particular quarter to fall significantly below the Company's
expectations, which would materially adversely affect the Company's operating
results for such quarter. The impact of these and other factors on the Company's
net sales and operating results in any future period cannot be forecasted with
certainty. In addition, the significant fixed overhead costs at the Company's
facilities, the need for continued expenditures for research and development,
capital equipment and other commitments of the Company, among other factors,
will make it difficult for the Company to reduce its expenses in a particular
period if the Company's sales goals for such period are not met. A large portion
of the Company's operating expenses are fixed and are difficult to reduce or
modify should revenues not meet the Company's expectations, thus magnifying the
material adverse impact of any such revenue shortfall. Accordingly, there can be
no assurance that the Company will not continue to sustain losses in the future
or that such losses will not have a material adverse effect on the Company's
business, financial condition and results of operations.

     Repayment of Debt Obligations by MPM.  As of December 31, 1996, MPM had
outstanding borrowings of approximately $3,298,000 under its borrowing
arrangement with DBS. MPM informed DBS in March 1997 that it would be unable to
repay its outstanding debts. DBS subsequently accelerated the entire amount of
the borrowings currently due and appointed a receiver for MPM to liquidate MPM's
assets, which were pledged to DBS as security. DBS's receiver has since
requested the Company's assistance in the liquidation of MPM's assets. The
Company currently anticipates that the proceeds from the liquidation of the
assets will be insufficient to fully repay its outstanding debt. Since the
borrowings have been guaranteed by MPI, the Company is currently attempting to
negotiate terms with DBS for the repayment of the remaining indebtedness. On
April 10, 1997, DBS sent to MPS a written demand for payment of the outstanding
debt owed to DBS by MPM.  In addition to demanding payment, DBS imposed the
default interest rate (additional 3% interest rate) on the outstanding debt (as
discussed above).  The failure by the Company to obtain favorable repayment
terms would materially adversely affect the Company's financial condition.

     As of December 31, 1996, MPM had equipment lease obligations totaling $2.0
million, principally with one lessor. MPM failed to make lease payments due in
February 1997, and the lessors have declared the leases to be in default. MPM
anticipates that the lessors will liquidate the leased equipment. However, the
Company believes that the proceeds therefrom will be insufficient to fully repay
the lease obligations. Since the lease obligations have been guaranteed by MPI,
the Company is currently attempting to negotiate terms with the lessors for the
anticipated 

                                       24
<PAGE>
 
remaining indebtedness.  The failure by the Company to obtain favorable
repayment terms would materially and adversely affect the Company's financial
condition and ability to continue as an ongoing concern.  MPM is also currently
in possession of certain inventory that MPM had ordered from IBM.  IBM has not
yet been paid for such inventory.  The outstanding debt from the inventory is
less than $150,000.

     MPM is obligated, pursuant to its real property lease in Singapore with
Jurong Town Corporation ("JTC"), to return the facilities which it has been
leasing to their original state before returning the facilities to JTC.
Returning the facilities to their original state would require the expenditure
of a substantial amount of money. There can be no assurance that JTC will not
enforce this lease provision. If MPM were forced to return the facilities to
their original state or pay the overdue lease payments, such actions could
materially adversely affect any plans to restructure MPM's debt obligations. MPM
is currently delinquent on lease payments due under the real property lease.
DBS has guaranteed the payment of MPM's lease obligation to JTC through June
1997.

     In addition, the Company is attempting to convert the Transpac debentures
into equity of the Company. The conversion, if successful, would significantly
dilute any earnings per share amounts and significantly dilute the ownership
interests of MPI's current shareholders. If the Company is unsuccessful in
converting the debentures into equity, the Company would not be able to repay
the amounts outstanding under the debentures as required by its guarantee. This
failure would materially adversely affect the Company's financial condition and
ability to continue as a going concern, and could, as is the case with other
debt defaults and failures to repay, require that the Company seek bankruptcy
protection under Chapter 11 or Chapter 7 of Title 11 of the United States Code
or similar bankruptcy laws of Singapore for MPI and its U.S. subsidiaries.

     Adverse Impact of MPM Liquidation on MPS.  Approximately $2.3 million of
invoices from MPM's trade creditors were incurred under purchase orders issued
by MPS. Under Singapore law, MPS may be liable for these invoices. MPS may be
currently unable to fully repay these MPM invoices. In order to protect itself
from creditors, MPS may need to seek protection under Judicial Management, as
that term is defined under Singapore law or under Chapter 7 or 11 of Title 11 of
the United States Code. DBS, as the primary secured creditor of MPS, may elect
to appoint a receiver over MPS if MPS chooses to appoint a judicial manager.
MPM's and/or MPS's trade creditors may also seek to have MPS liquidated under
the laws of Singapore. There can be no assurance that MPS will be successful in
reorganizing itself if it is placed into judicial management. There can also be
no assurance that the receiver, if appointed by DBS or MPM's and/or MPS's trade
creditors, would not liquidate all of MPS's assets currently pledged as security
to DBS. Should DBS appoint a receiver or should MPM's and/or MPS's trade
creditors successfully petition for the appointment of a receiver, and should
that receiver liquidate MPS's assets, MPS would be unable to continue its
operations.  Additionally, if the liquidation of MPS assets were to generate
proceeds less than the outstanding obligations due, MPI may be forced to repay
any outstanding debt because of its role as guarantor of such debts. If MPI were
unable to repay these debts, the Company may be forced to seek bankruptcy
protection under Chapter 11 or Chapter 7 of Title 11 of the United States Code
or similar bankruptcy laws of Singapore for MPI and its subsidiaries.

     Repayment of Bank Obligations by MPS. At December 31, 1996, MPS had
outstanding borrowings of approximately $5.1 million with DBS and had borrowed
an aggregate of approximately $10.5 million from a consortium of customers (the
"Consortium") to fund its purchase of certain CERDIP manufacturing and alumina
powder equipment from Samsung Corning. MPM's defaults on its obligations under
its DBS facility agreement has resulted in a demand by DBS that MPS pay MPM's
outstanding debts . DBS's action may result in defaults under MPS's loan
agreements pursuant to which it borrowed funds from the Consortium, among other
lenders. Such accelerations will materially adversely affect the Company's
ability to continue as an ongoing concern and may force the Company to seek
bankruptcy protection under Chapter 7 or Chapter 11 of Title 11 of the United
States Code or similar bankruptcy laws of Singapore. As a part of the
Consortium, Motorola guaranteed MPS' repayment of $2.0 million in borrowings
from a certain bank lender. Under the terms of the agreement relating to
Motorola's guarantee, MPI granted Motorola a security interest in all of the
issued and outstanding capital stock of MPS, CTM and MPA. In the event that MPS
defaults under its obligations to this bank lender and while such event of
default continues, Motorola may have the right to vote and give consents with
respect to all of the issued and outstanding capital of MPS, CTM and MPA (the
"Subsidiary Voting Rights"). As a result, during the continuation of any such
event of default, MPI may be unable to control at the shareholder level the
direction of the subsidiaries that generate substantially all of the Company's
revenues and hold substantially all of the Company's assets. Any such loss of

                                       25
<PAGE>
 
control would have a material adverse effect on the Company's business,
prospects, financial condition, results of operations and status as an ongoing
concern and could force the Company to seek protection under Chapter 7 or
Chapter 11 of Title 11 of the United States Code or similar bankruptcy laws of
Singapore. Furthermore, the acquisition by Motorola of the Subsidiary Voting
Rights would constitute an event of default under the Manufacturing and
Technology Agreements with Carborundum, thereby giving Carborundum the right to
terminate the Manufacturing and Technology Agreements. Upon such a termination
by Carborundum, the Company may lose the rights to the technology that it has
licensed from such entity. The Company's loss of these rights would preclude the
Company from manufacturing and selling products based on such technology and
could have a material adverse effect on the Company's business, financial
condition and results of operations. The agreements covering the Transpac
Financing, including the convertible debenture and MPI's guarantee of such MPM
indebtedness, contain numerous restrictions and events of default that have been
triggered by the aforementioned actions and would, if they became effective and
operative, materially adversely affect the Company's business, prospects,
results of operations, condition and status as an ongoing concern and could
force the Company to seek protection under Chapter 7 or Chapter 11 of Title 11
of the United States Code or similar bankruptcy laws of Singapore.

     High Leverage.  The Company is highly leveraged and has substantial debt
service requirements. The Company has $34.9 million in debt obligations as of
December 31, 1996. On December 31, 1996, the Company had a total shareholders'
deficit of approximately $30.6 million. The Company's ability to meet its debt
service requirements will be dependent upon the Company's future performance,
which will be subject to financial, business and other factors affecting the
operation of the Company, many of which are beyond its control and on the
willingness of the Company's creditors to participate in restructuring the
Company's debt. There can be no assurance that the Company will be able to meet
the capital requirements described above or, if the Company is able to meet such
requirements, that the terms available will be favorable to the Company.

     Highly Competitive Industry; Significant Price Competition.  The electronic
interconnection technology industry is intensely competitive. The Company
experiences intense competition worldwide from a number of manufacturers,
including Maxtek Components Corporation, Raytheon Electronic Systems, Hewlett-
Packard Company, Advanced Packaging Technology of America, Kyocera Corporation,
Sumitomo Metal Industries, Ltd. and MicroModule Systems, all of which have
substantially greater financial resources and production, marketing and other
capabilities than the Company with which to develop, manufacture, market and
sell their products. The market for sales of the Company's pressed ceramic
products is highly concentrated with a few competitors, all of which provide
intense competition and have substantially greater financial resources and
production, marketing and other capabilities than the Company with which to
develop, manufacture, market and sell pressed ceramic products. The Company
faces competition from certain of its customers that have the internal
capability to produce products competitive with the Company's products and may
face competition from new market entrants in the future. In addition,
corporations with which the Company has agreements are conducting independent
research and 

                                       26
<PAGE>
 
development efforts in areas which are or may be competitive with the Company.
The Company expects its competitors to continue to improve the performance of
their current products and to introduce new products or new technologies that
provide improved performance characteristics.  New product introductions by the
Company's competitors could cause a significant decline in sales or loss of
market acceptance of the Company's existing products which could materially
adversely affect the Company's business, financial condition and results of
operations.  Moreover, the Company has historically experienced significant
price competition in the sale of its pressed ceramic products, which has
materially adversely affected the prices and gross margins of such products and
the Company's business, financial condition and results of operations.  The
Company is also experiencing significant price competition, which may materially
adversely affect the Company's business, financial condition and results of
operations.  The Company believes that to remain competitive in the future it
will need to continue to develop new products and to invest significant
financial resources in new product development.  There can be no assurance that
such new products will be developed or that sales of such new products will be
achieved.  There can be no assurance that the Company will be able to compete
successfully in the future.

     Foreign Currency Fluctuations.  Although the Company's sales are
denominated in United States dollars, a substantial portion of the Company's
operating expenditures are made in other currencies, namely Japanese yen and
Singapore dollars. As a result, the Company's operating results have been and
will continue to be materially adversely affected by any weakening of the United
States dollar relative to these currencies. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Any appreciation of
such currencies relative to the United States dollar would result in exchange
losses for the Company and could have the effect of increasing the Company's
costs of goods and general and administrative expenses and decreasing its
margins or in making the prices of the Company's products less competitive.
Accordingly, such effects have had and will continue to have a material adverse
effect upon the business, financial condition and results of operations of the
Company. Although the Company seeks to mitigate its currency exposure through
hedging measures, these measures have been and may in the future be
significantly limited in their effectiveness. In the future, the Company's
operating results will also be materially adversely affected by any weakening of
the United States dollar relative to Indonesia's currency.  See "New
Manufacturing Facilities in Indonesia; Transition of Existing Singapore
Operations; New Manufacturing Facilities in Indonesia and Singapore."

     New Manufacturing Facilities in Indonesia; Transition of Existing Singapore
Operations; New Manufacturing Facilities in Indonesia and Singapore.  In 1993,
MPI entered into a subcontract manufacturing agreement with Innoventure pursuant
to which Innoventure designed and constructed a new manufacturing facility in
Indonesia. This agreement was succeeded by an agreement between MPS and PTI
dated September 5, 1995.  The Company currently anticipates that it may move its
pressed ceramic production operations presently located in MPS's facilities in
Singapore to Indonesia. In connection with such move, the Company may
consolidate MPS's Singapore operations, which currently occupy two facilities,
into one facility. Such consolidation, if undertaken by the Company, will
require significant expenditures and such consolidation would be completed no
earlier than the end of 1997. To date, the transition of the Company's pressed
ceramic production operations from Singapore to Indonesia has not yet been
completed and the majority of such operations are still located at its Singapore
facility. The operation of the Indonesia facility by PTI is designed to increase
MPS's manufacturing capacity and to lower costs of production. Partial
processing of pressed ceramic products, which are completed in MPS's Singapore
facility, commenced in the second quarter of 1995. The Company currently
anticipates that it will be increasingly dependent on the Indonesian facility to
conduct the initial processing of its pressed ceramic products in future
periods. MPS's increasing reliance on PTI as a subcontractor involves certain
risks, including reduced control over delivery schedules, quality assurance,
manufacturing yields and cost. Although MPS has not experienced material
disruptions in supply from PTI to date, there can be no assurance that
manufacturing problems will not occur in the future.  Any such material
disruption could have a material adverse effect on the Company's business,
financial condition and results of operations.  The complete equipping and
operation of the facility in Indonesia could take several years to accomplish.
PTI is not under any obligation to fully equip such facility and there are a
number of other conditions that must be satisfied before such Indonesian
facilities can be fully equipped.  There can be no assurance, therefore, that
the Indonesian facility will be fully completed.  PTI is also not subject to any
written contractual obligation to continue operating such facility.  Thus, there
can be no assurance that the agreement with PTI is enforceable or that any
judgment secured by MPS, whether in Singapore or elsewhere, upon a breach of
such agreement will be upheld by Singapore courts. MPS is also under no
obligation to continue its business relationship with PTI.  PTI is entitled to
the first $4.5 million in defined profits generated by the Indonesian facility
within five years of project start-up. In

                                       27
<PAGE>
 
addition, pursuant to the Innoventure Agreement, MPI agreed to provide
Innoventure with raw materials and production supplies necessary for the
commencement of production in the Indonesian facility.  This obligation to
provide raw materials and production supplies has subsequently been modified by
both parties such that MPS is now purchasing these items from its suppliers on
behalf of PTI As of December 31, 1996, PTI owed the MPS approximately $2.0
million related to the supply of such raw materials and related production
supplies, and MPS anticipates that it will continue to purchase such items on
PTI's behalf for the foreseeable future.  It is anticipated that the foregoing
amount will be repaid to MPS by PTI with the form and timing of such payments
being agreed to by both parties.  There can be no assurance that amounts of raw
materials and production supplies being provided to PTI will not increase in the
future, however, or that such amounts will be repaid by PTI in a timely fashion,
or at all.  There can also be no assurance that MPS will have adequate funds to
provide such materials and production supplies to PTI.  During the third quarter
of 1995, the Company located certain CERDIP manufacturing equipment acquired
from Samsung Corning in the PTI facility.  Pressed ceramic products that are
partially processed in the Indonesian facility are then completed in MPS's
Singapore facilities.  The Company currently anticipates but there can be no
assurances that the facility may be able to fully process and produce pressed
ceramic products at the earliest by the end of 1997. See "Future Capital Needs;
Need for Additional Financing."

     If the Company's revenues do not increase commensurate with the anticipated
increase in capacity in Indonesia, the Company's results of operations could be
materially adversely affected. As is typical in the semiconductor industry, new
manufacturing facilities initially experience low production yields. Any
inability on the Company's or PTI's part to obtain adequate production yields or
to maintain such yields in the future could delay shipments of products. No
assurance can be given that the facility in Indonesia will not experience
production yield problems or delays in completing product testing required by a
customer to qualify the Company as a vendor, either of which, given that such
facilities will be manufacturing pressed ceramic products could materially
adversely affect the Company's business, financial condition and results of
operations.

     Significant Customer Concentration.  Historically, the Company has sold its
products to a very limited number of customers. Recently, certain of the
Company's key customers have decreased or terminated (in the case of SGS-
Thompson) their product purchase orders with the Company. Any further reduction
in orders by any of these customers, including reductions due to market,
economic or competitive conditions in the semiconductor, personal computer or
electronic industries or in other industries that manufacture products utilizing
semiconductors or MCMs, could materially adversely affect the Company's
business, financial condition and results of operations. Sales to one customer,
Schlumberger, accounted for 29% of the Company's net sales in 1996 and is 
expected to continue to account for substantially all of the Company's MCM 
sales. Given the Company's anticipated continued increasing reliance on its MCM
business as a percentage of overall net sales, the failure to meet
Schlumberger's requirements will materially adversely affect the Company's
ability to continue as an ongoing concern. The supply agreements with certain of
the Company's customers do not obligate them to purchase products from the
Company. The Company's ability to increase its sales in the future will also
depend in part upon its ability to obtain orders from new customers. There can
be no assurance that the Company's sales will increase in the future or that the
Company will be able to retain existing customers or to attract new ones. There
can also be no assurance that any of the Company's subsidiaries will be able to
diversify or enhance its customer base. Failure to develop new customer
relationships could materially adversely affect each such subsidiary's results
of operations and would materially adversely affect the Company's business,
financial condition and results of operations.

     Mature Market; Dependence on Semiconductor and Personal Computer
Industries.  To date, a significant portion of the Company's revenues have been
derived from sales of pressed ceramic products to customers in the semiconductor
industry. The market for the pressed ceramic product is relatively mature and
demand for pressed ceramic products has been declining and may continue to
decline in the future. Accordingly, the Company believes that sales of its
pressed ceramic products will decrease in the future and, as a result, the
Company's business, financial condition and results of operations may be
materially adversely affected.

     The financial performance of the Company is dependent in large part upon
the current and anticipated market demand for semiconductors and products such
as personal computers that incorporate semiconductors. The semiconductor
industry is highly cyclical and historically has experienced recurring periods
of oversupply, resulting in significantly reduced demand for the Company's
pressed ceramic products. The Company believes that the markets for new
generations of semiconductors will also be subject to similar fluctuations. The
semiconductor industry has already been is currently experiencing rapid growth
but lately has demonstrated a slowdown in demand. There can be no assurance that
such growth will return and that the slowdown will not continue. A reduced rate
of growth in the demand for semiconductor component parts due, for example, to
competitive factors, technological change or otherwise, may materially adversely
affect the markets for the Company's products. From time to time, the

                                       28
<PAGE>
 
personal computer industry, like the semiconductor industry, has experienced
significant downturns, often in connection with, or in anticipation of, declines
in general economic conditions.  Accordingly, any factor adversely affecting the
semiconductor or the personal computer industry or particular segments within
the semiconductor or personal computer industry may materially adversely affect
the Company's business, financial condition and results of operations.  There
can be no assurance that the Company's net sales and results of operations will
not be materially adversely affected if downturns or slowdowns in the
semiconductor, personal computer industry or other industries utilizing the
Company's products continue or again occur in the future.

     Technological Change; Importance of Timely Product Introduction;
Uncertainty of Market Acceptance and Emerging Markets. The markets for the
Company's products are subject to technological change and new product
introductions and enhancements. Customers in the Company's markets require
products embodying increasingly advanced electronics interconnection technology.
Accordingly, the Company must anticipate changes in technology and define,
develop and manufacture or acquire new products that meet its customers' needs
on a timely basis. The Company anticipates that technological changes, advances
in plastic materials technology and other semiconductor devices that may be more
cost effectively assembled into plastic packages and that do not require the
protection characteristics of the Company's ceramic packages, could cause the
Company's net sales to decline in the future. There can be no assurance that the
Company will be able to identify, develop, manufacture, market, support or
acquire new products successfully, that any such new products will gain market
acceptance, or that the Company will be able to respond effectively to
technological changes. If the Company is unable for technological or other
reasons to develop products in a timely manner in response to changes in
technology, the Company's business, financial condition and results of
operations will be materially adversely affected. There can be no assurance that
the Company will not encounter technical or other difficulties that could in the
future delay the introduction of new products or product enhancements. In
addition, new product introductions by the Company's competitors could cause a
decline in sales or loss of market acceptance of the Company's products, which
could materially adversely affect the Company's business, financial condition
and results of operations. Even if the Company develops and introduces new
products, such products must gain market acceptance and significant sales in
order for the Company to achieve its growth objectives. Furthermore, it is
essential that the Company develop business relationships with and supply
products to customers whose end-user products achieve and sustain market
penetration. There can be no assurance that the Company's products will achieve
widespread market acceptance or that the Company will successfully develop such
customer relationships. Failure by the Company to develop products that gain
widespread market acceptance and significant sales or to develop relationships
with customers whose end-user products achieve and sustain market penetration
will materially adversely affect the Company's business, financial condition and
results of operations. The Company's financial performance will depend in
significant part on the continued development of new and emerging markets such
as the market for MCMs. The Company is unable to predict with any certainty any
growth rate and potential size of emerging markets. Accordingly, there can be no
assurance that emerging markets targeted by the Company, such as the market for
MCMs, will develop or that the Company's products will achieve market acceptance
in such markets. The failure of emerging markets targeted by the Company to
develop or the failure by the Company's products to achieve acceptance in such
markets could materially adversely affect the Company's business, financial
condition and results of operations.

     International Operations.  Most of the Company's net sales to date have
been made to foreign subsidiaries of European and United States corporations.
The Company anticipates that sales to foreign subsidiaries of European and U.S.
corporations will continue to account for a significant but declining portion of
its net sales in the foreseeable future. As a result, a significant portion of
the Company's sales will continue to be subject to certain risks, including
changes in regulatory requirements, tariffs and other barriers, political and
economic instability, difficulties in staffing and managing foreign subsidiary
and branch operations, difficulties in managing contract manufacturers and
customers that are provided with contract manufacturing, potentially adverse tax
consequences, extended payment terms, and difficulty in accounts receivable
collection. The Company is also subject to the risks associated with the
imposition of legislation and regulations relating to the import or export of
products. The Company cannot predict whether quotas, duties, taxes or other
charges or restrictions will be implemented by the United States or any other
country upon the importation or exportation of the Company's products in the
future. Protectionist trade legislation in either the United States or foreign
countries, such as a change in the current tariff structures, export compliance
laws or other trade policies, could materially adversely affect the Company's
ability to manufacture or sell in foreign markets. There can be no assurance
that any of these factors or the adoption of restrictive policies will not have
a material adverse effect on the Company's business, financial condition and
results 

                                       29
<PAGE>
 
of operations.  Furthermore, if the Company transfers additional production
equipment to the facility in Indonesia, the Company will be increasingly subject
to the risks associated with conducting business in Indonesia, including
economic conditions in Indonesia, the burdens of complying with Indonesian laws,
particularly with respect to private enterprise and commercial activities, and,
possibly, political instability.  If the Company increases the amount of its
assets in Indonesia, there can be no assurance that changes in economic and
political conditions in Indonesia will not have a material adverse effect on the
Company's business, financial condition and results of operations.  Enforcement
of existing and future laws and private contracts is uncertain, and the
implementation and interpretation thereof may be inconsistent.  See "New
Manufacturing Facilities in Indonesia; Transition of Existing Singapore
Operations; New Manufacturing Facilities in Indonesia and Singapore."

     Sole or Limited Sources of Supply.  Certain raw materials essential for the
manufacture of the Company's products are obtained from a sole supplier or a
limited group of suppliers. In the production of its CERDIP products the Company
has one supplier for its alumina powder, two suppliers for its ultraviolet
lenses and one supplier of certain sealing glasses. The Company also has one
supplier of the ICs that are sold with the Company's packaging products. In
addition, there are a limited number of qualified suppliers of laminate
substrates which are of critical importance to the production of the Company's
MCM products. In the manufacturing process, the Company also utilizes consigned
materials supplied by certain of its customers. The Company's reliance on sole
or a limited group of suppliers and certain customers for consigned materials
involves several risks, including a potential inability to obtain an adequate
supply of required materials and reduced control over the price, timely
delivery, and quality of raw materials. There can be no assurance that problems
with respect to yield and quality of such materials and timeliness of deliveries
will not continue to occur. Disruption or termination of these sources could
delay shipments of the Company's products and could have a material adverse
effect on the Company's business, financial condition and operating results.
Such delays could also damage relationships with current and prospective
customers, including customers that supply consigned materials.

     Product Quality and Reliability; Need to Increase Production.  The
Company's customers establish demanding and time-consuming specifications for
quality and reliability that must be met by the Company's products. From initial
customer contact to actual qualification for production, which may take as long
as three years, the Company typically expends significant resources. Although
the Company has generally met its customers' quality and reliability product
specifications, the Company has in the past experienced and is currently
experiencing difficulties in meeting some of these standards. Although the
recent Company has addressed past concerns and has resolved a number of quality
and reliability problems, there can be no assurance that such problems will not
continue or recur in the future. If such problems did continue or recur, the
Company could experience delays in shipments, increased costs, delays in or
cancellation of orders and product returns, any of which would have a material
adverse effect on the Company's business, financial condition or results of
operations. In addition, the contract manufacturing of pressed ceramic products
in Indonesia and commencement of operations in such new facility and conversion
of its existing facilities in Singapore for new products will increase the
probability of many such risks. The manufacture of the Company's products is
complex and subject to a wide variety of factors, including the level of
contaminants in the manufacturing environment and the materials used and the
performance of personnel and equipment. The Company has in the past experienced
lower than anticipated production yields and written off defective inventory as
a result of such factors. The Company must also successfully increase production
to support anticipated sales volumes. There can be no assurance that the Company
will be able to do so or that it will not experience problems in increasing
production in the future. The Company's failure to adequately increase
production or to maintain high quality production standards would have a
material adverse effect on the Company's business, financial condition and
results of operations.

     Expansion of Operations.  In order to be competitive, the Company must
implement a variety of systems, procedures and controls and greatly improve its
communications between its U.S. and Singapore and Indonesian operations. The
Company expects its operating expenses to continue to increase. If orders
received by the Company do not result in sales or if the Company is unable to
sustain net sales at anticipated levels, the Company's operating results will be
materially adversely affected until operating expenses can be reduced. The
Company's expansion will also continue to cause a significant strain on the
Company's management, financial and other resources. If the Company is to grow,
it must expand its accounting and other internal management systems and greatly
improve its communications between its U.S. and Singapore and Indonesian
operations, and there can be no assurance that the Company will be successful in
effecting such expansion. Any failure to expand these areas in an efficient
manner at a pace consistent with the Company's business could have a material
adverse effect on the Company's results of operations. Moreover, there can

                                       30
<PAGE>
 
be no assurance that net sales will increase or remain at or above recent levels
or that the Company's systems, procedures and controls will be adequate to
support the Company's operations.  The Company's financial performance will
depend in part on its ability to continue to improve its systems, procedures and
controls.

     Intellectual Property Matters.  Although the Company attempts to protect
its intellectual property rights through patents, trade secrets and other
measures, it believes that its financial performance will depend more upon the
innovation, technological expertise, manufacturing efficiency and marketing and
sales abilities of its employees. There can be no assurance that others will not
independently develop similar proprietary information and techniques or gain
access to the Company's intellectual property rights or disclose such technology
or that the Company can meaningfully protect its intellectual property rights.
There can be no assurance that any patent owned by the Company will not be
invalidated, circumvented or challenged, that the rights granted thereunder will
provide competitive advantages to the Company or that any of the Company's
pending or future patent applications will be issued with the scope of the
claims sought by the Company, if at all. Furthermore, there can be no assurance
that others will not develop similar products, duplicate the Company's products
or design around the patents owned by the Company, or that third parties will
not assert intellectual property infringement claims against the Company. In
addition there can be no assurance that foreign intellectual property laws will
protect the Company's intellectual property rights.

     Litigation is becoming necessary to enforce the Company's patents and other
intellectual property rights, to protect the Company's trade secrets, to
determine the validity of and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity. Such litigation could
result in substantial costs and diversion of resources and could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company has not conducted any patent searches or obtained an
opinion of counsel with respect to its proprietary rights. Although no claims or
litigation related to any intellectual property matter are currently pending
against the Company, there can be no assurance that infringement or invalidity
claims by third parties or claims for indemnification resulting from
infringement claims will not be asserted in the future or that such assertions,
if proven to be true, will not materially adversely affect the Company's
business, financial condition and results of operations. If any claims or
actions are asserted against the Company, the Company may seek to obtain a
license under a third party's intellectual property rights. There can be no
assurance, however, that a license will be available under reasonable terms or
at all. In addition, the Company could decide to litigate such claims, which
could be extremely expensive and time-consuming and could materially adversely
affect the Company's business, financial condition and results of operations.

     Potential Divestiture of MPC (S) Pte. Ltd. Aluminum Nitride Subsidiary;
Obligation to Purchase Products.  In connection with the agreements with
Carborundum for the manufacture of microelectronic packages fabricated with
aluminum nitride compounds, the Company originally granted to Carborundum an
irrevocable option, exercisable at any time through December 31, 1996, to
acquire for an agreed-upon price set forth in the agreements up to 75% of the
ownership of MPC, a subsidiary of the Company organized to manufacture and sell
products only to Carborundum. In addition, Carborundum has a right to acquire
for an agreed-upon price set forth in the agreements up to 100% of the ownership
of MPC in the event that competitors of Carborundum's microelectronics business
acquire more than 10% of the ownership of MPI or gain access to any confidential
information of either MPC or MPI relating to Carborundum's microelectronics
business. In either event, MPI would lose control of the management and
direction of MPC and, in the event of a total divestiture, the right to
participate in the profits, if any, of MPC. The exercise of either such option
could materially adversely affect the Company's business, financial condition
and results of operations. In addition, although Carborundum is obligated to
purchase certain specified quantities of products from MPC, Carborundum may
purchase such products from any other party without regard to such purchase
requirements if Carborundum determines in good faith that such third party is
more attractive to Carborundum than MPC on an economic, quality or risk basis.
The Manufacturing Agreement and Technology Agreement were to expire on December
31, 1996. On October 1, 1996, MPC and Carborundum agreed to amend and extend the
terms of the Manufacturing Agreement for an additional two years. The amendment
permitted MPC to increase its profit margin on sales to Carborundum by 3.5% in
1997 and by 7% in 1998.  On April 5, 1997, a fire at the Company's MPC facility 
caused damage to the building and some equipment.  Although the extent of the 
damage is still being investigated, the damage is sufficient for the building to
be declared unsafe for use. The Company believes that the parent company of
Carborundum has entered into discussions with a third party regarding the
possible sale of Carborundum. The Company is unable to determine what impact, if
any, such announcement or sale will have on the Company's agreements with
Carborundum.

                                       31
<PAGE>
 
     Environmental Regulations.  The Company is subject to a variety of local,
state, federal and foreign governmental regulations relating to the storage,
discharge, handling, emission, generation, manufacture and disposal of toxic or
other hazardous substances used to manufacture the Company's products. The
Company believes that it is currently in compliance in all material respects
with such regulations and that it has obtained all necessary environmental
permits to conduct its business. Nevertheless, the failure to comply with
current or future regulations could result in the imposition of substantial
fines on the Company, suspension of production, alteration of its manufacturing
processes or cessation of operations. Compliance with such regulations could
require the Company to acquire expensive remediation equipment or to incur
substantial expenses. Any failure by the Company to control the use, disposal,
removal or storage of, or to adequately restrict the discharge of, or assist in
the cleanup of, hazardous or toxic substances, could subject to the Company to
significant liabilities, including joint and several liability under certain
statutes. The imposition of such liabilities could materially adversely affect
the Company's business, financial condition or results of operations. See "Legal
Proceedings."

     Growth Strategy Through Acquisitions.  As part of its growth strategy, the
Company has in the past sought and may in the future continue to seek to
increase sales and achieve growth through the acquisition of comparable or
complementary businesses or technologies. The implementation of this strategy
will depend on many factors, including the availability of acquisitions at
attractive prices and the ability of the Company to make acquisitions, the
integration of acquired businesses into existing operations, the expansion of
the Company's customer base and the availability of required capital.
Acquisitions by the Company may result in dilutive issuances of equity
securities, and in the incurrence of debt and the amortization of goodwill and
other intangible assets that could adversely affect the Company's profitability.
Any inability to control and manage growth effectively could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that the Company will successfully expand
or that growth and expansion will result in profitability or that the Company's
growth plans through acquisitions will not be inhibited by the Company's current
lack of resources.

     Dependence on Key Personnel.  The Company's financial performance depends
in part upon its ability to attract and retain qualified management, technical,
and sales and support personnel for its operations. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting or retaining such personnel. The loss of any key
employee, the failure of any key employee to perform in his current position or
the Company's inability to attract and retain skilled employees, as needed,
could materially adversely affect the Company's business, financial condition
and results of operations.

     Nasdaq Electronic Bulletin Board Listing Requirements.  The Company was
delisted from the Nasdaq National Market on March 13, 1997, at which date the
Company's Common Stock began trading on the Nasdaq Electronic Bulletin Board.
The Company will be subject to continuing requirements to be listed on the
Nasdaq Electronic Bulletin Board. There can be no assurance that the Company can
continue to meet such requirements. The price and liquidity of the Common Stock
may be materially adversely affected if the Company is unable to meet such
requirements in the future.  There can be no assurance that the Company will be
able to requalify for listing on the Nasdaq National Market.

     Volatility of Stock Price.  The Company believes that factors such as
announcements of developments related to the Company's business, fluctuations in
the Company's financial results, general conditions or developments in the
semiconductor and personal computer industry and the general economy, sales of
the Company's Common Stock into the marketplace, the ability of the Company to
sell its stock on an exchange or over-the-counter, an outbreak of hostilities,
natural disasters, announcements of technological innovations or new products or
enhancements by the Company or its competitors, developments in the Company's
relationships with its customers and suppliers, or a shortfall or changes in
revenue, gross margins or earnings or other financial results from analysts'
expectations could cause the price of the Company's Common Stock to fluctuate,
perhaps substantially. In recent years the stock market in general, and the
market for shares of small capitalization stocks in particular, including the
Company, have experienced extreme price fluctuations, which have often been
unrelated to the operating performance of affected companies. There can be no
assurance that the market price of the Company's Common Stock will not continue
to experience significant fluctuations in the future, including fluctuations
that are unrelated to the Company's performance.

                                       32
<PAGE>
 
     Net Operating Loss.  The Company's decision to discontinue its multilayer
ceramic operations was the factor contributing to its 1996 net loss of $41.8
million.  The discontinuation of this operation resulted in a write-off of $8.98
million of preproduction costs, $2.0 million of prepaid royalties, a reduction
in the carrying amount of property, plant and equipment by $14.9 million and the
accrual of certain costs and estimated losses to be incurred through the
disposal date aggregating $3.5 million.  Other factors contributing to the
Company's 1996 loss were (i) a $6.2 million reduction in the carrying amounts of
pressed ceramic equipment at the MPS facility in Singapore and in Indonesia,
(ii) a $1.6 million allowance against MPS's receivables for inventory advanced
to the Company's joint venture partner in Indonesia and (iii) a significant
decline in sales of pressed ceramic products by MPS, due to an industry-wide
over-supply of pressed ceramic products.  On December 31, 1996, the Company had
a working capital deficiency of $30.0 million, which included $5.2 million line
of credit borrowings that were due on demand, the then-current portion of long-
term debt of $10.6 million, plus the net current liabilities of discontinued
operations of $19.3 million.

ITEM 8.   FINANCIAL STATEMENTS

     See Item 14(a) for an index to the financial statements and supplementary
financial information which are attached hereto.

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

     In 1995, the Board of Directors appointed the firm of BDO Seidman LLP
("BDO"), independent accountants, to audit the financial statements of the
Company. 

     Prior to November 21, 1995, the Company's independent accountants were
Price Waterhouse LLP ("Price Waterhouse").  Price Waterhouse had audited the
Company's financial statements annually from 1984 through fiscal year 1994.  
Effective November 21, 1995, the Company dismissed Price Waterhouse as the
Company's independent accountants. The decision to dismiss Price Waterhouse was
approved by the Company's Board of Directors and Audit Committee on November 20,
1995.  The Company retained BDO as the Company's independent certified
accountants effective November 21, 1995.  The decision to retain BDO was
approved by the Company's Board of Directors and Audit Committee on November 20,
1995.  Prior to November 21, 1995, the Company did not consult with BDO
regarding any matters relating to accounting principles or practices, financial
statement disclosure, the type of opinion that might be rendered on the
Company's financial statements, or on any matter that was either the subject of
a disagreement or a reportable event with Price Waterhouse.

     Prior to its dismissal, Price Waterhouse delivered to the Company Reports
of Independent Accountants dated March 1, 1994 and April 11, 1995, on the
Company's financial statements for the two fiscal years ended December 31, 1993
and December 31, 1994.  Neither of these reports contained an adverse opinion or
a disclaimer of opinion and neither of such reports was qualified or modified as
to uncertainty, audit scope, or accounting principles, except that each of such
reports contained an explanatory paragraph regarding the Company's ability to
continue as a going concern.

     In connection with the audits for the fiscal years ended December 31, 1993,
December 31, 1994 and through November 21, 1995 (the date of dismissal), there
were no disagreements with Price Waterhouse over any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Price
Waterhouse, would have caused Price Waterhouse to make reference thereto in
their reports on the financial statements for such years.

                                       33
<PAGE>
 
     In connection with its audit of the Company's financial statements for the
fiscal year ended December 31, 1994, Price Waterhouse reported to the Audit
Committee of the Company's Board of Directors that the Company's accounting
treatment for foreign currency transactions represented a material weakness in
the Company's internal controls.
<PAGE>
 
                                   PART III
                                   --------

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

DIRECTORS OF THE REGISTRANT

     Set forth below is information regarding the nominees, including
information furnished by them as to principal occupations, certain other
directorships held by them, any arrangements pursuant to which they were
selected as directors or nominees, current committee memberships and their ages
as of April 10, 1997.
<TABLE>
<CAPTION>
 
            NAME                  AGE       POSITIONS HELD WITH THE COMPANY 
            ----                  ---       -------------------------------
<S>                               <C>       <C>                                         
Lewis Solomon(1)(2)(4)             63       Chairman of the Board of Directors      
Anthony J.A. Bryan(1)              74       Director                   
William R. Thompson(2)(3)          62       Director                   
Frank Howland(1)(3)(4)             70       Director                   
Timothy da Silva                   61       Director, Former President and Chief
                                            Executive Officer
</TABLE>

_______________

(1)  Member of Compensation Committee
(2)  Member of Audit Committee
(3)  Member of Stock Option Plan Administration Committee
(4)  Member of Technology Committee

BUSINESS EXPERIENCE OF DIRECTORS

     The principal occupations of each current director of the Company for at
least the last five years are as follows:

     Lewis Solomon has served on the Board of Directors of the Company and as a 
consultant to the Company since November 1996.  Since 1988, Mr. Solomon has been
employed by G&L Investments, a strategic business consulting firm. Mr. Solomon
previously served on the Board of Directors of the Company from January 1984 to
February 1995. From October 1983 to February 1987, Mr. Solomon was Executive
Vice President with Alan Patricof & Associates, an international venture capital
fund. From 1969 to October 1983, Mr. Solomon worked at General Instruments
Corporation, a semiconductor and electronics manufacturing company. Mr. Solomon
also serves on the Boards of Directors of Anacomp, Inc. a manufacturer of
magnetic products, Anadigics, Inc., a manufacturer of gallium arsenide
semiconductors, and Computer Products, Inc., a communications company. Mr.
Solomon holds a B.S. degree in physics from St. Joseph's College and an M.S. in
industrial engineering from Temple University.

     Anthony J.A. Bryan has served on the Company's Board of Directors since
November 1996.  Since March 1996, Mr. Bryan has been Senior Managing Director of
The Watley Group, LLC, a firm that specializes in corporate restructurings,
management consulting, merchant banking and mergers and acquisitions.  From
December 1987 to December 1995, Mr. Bryan was Chairman of the Executive
Committee of Hospital Corporation International, a hospital management and
health care company.  From March 1988 to February 1991, Mr. Bryan was Chairman
and Chief Executive Officer of Oceanics Group, a company specializing in
offshore surveying and positioning services.  Mr. Bryan has served on the boards
of directors of several industrial, charitable and educational institutions,
including Federal Express, Chrysler Corporation, Pittsburgh National Corporation
and Imetal (Paris). Mr. Bryan holds a Masters Degree in Business Administration
from Harvard University.

     Frank L. Howland has served on the Company's Board of Directors since June
1994.  Since March 1989, Dr. Howland has been President of Frank L. Howland
Inc., a consulting company specializing in the area of assembly and packaging of
electronic components.  From 1955 to 1989, Dr. Howland was a manager in the
Electronic Component Research and Development divisions of Bell Laboratories
Inc.  Dr. Howland holds a B.S. degree in civil engineering from Rutgers
University and an M.S. and Ph.D. in civil/structural engineering from the
University of Illinois.

                                       35
<PAGE>
 
     William R. Thompson joined the Company's Board of Directors in November
1995.  Mr. Thompson retired from Cabot Corporation in March 1995, a holding
company with high technology operating units involved in the chemical and
advanced materials industries, where he was Vice President-Corporate Controller
from 1989 to March 1995.  Prior to such time, Mr. Thompson was President of
Kurzweil Music Systems, Inc., a manufacturer of computer-based music
synthesizers.  Mr. Thompson's business experience also includes several
executive positions at Digital Equipment Corp., a manufacturer of networked
computer systems, peripherals and software, including Vice President-Corporate
Controller, Vice President-External Resources and Manager of Strategic Planning.
Mr. Thompson holds a B.S. degree in business administration from Colby College
and an M.B.A. degree from the University of Massachusetts.

     Timothy da Silva was President and Chief Executive Officer of the Company
from May 1989 to December 1996 and has served as a member of the Board of
Directors since May 1989. Currently, Mr. da Silva is President and Chief
Executive Officer of Liveworks, Inc. Prior to joining the Company, from July
1985 to May 1989, Mr. da Silva was the founder and served as President and Chief
Executive Officer and a director of Sigmatron Nova, Inc., a manufacturer of flat
panel displays. From January 1984 to July 1985, Mr. da Silva was President,
Chief Executive Officer and a director of Panelvision Corporation, a
manufacturer of flat panel displays. Prior to that, Mr. da Silva had twenty-five
(25) years of semiconductor industry experience. Mr. da Silva holds a B.S.
degree in electrical engineering from the University of Michigan.

     There are no family relationships among executive officers or directors of
the Company.

EXECUTIVE OFFICERS OF THE REGISTRANT

     The executive officers of the Company, their ages as of April 10, 1997, and
their positions are as follows:
<TABLE>
<CAPTION>
            NAME                  AGE                  POSITION
            ----                  ---                  --------
<S>                               <C>  <C>
Alfred Jay Moran, Jr.........      53  President and Chief Executive Officer
Denis J. Trafecanty..........      54  Senior Vice President,
                                       Chief Financial Officer and Secretary
Ernest J. Joly...............      57  Senior Vice President and General Manager
                                       of MPA
Charles F. Wheatley..........      62  Executive Vice President
Jee Fook Pak.................      49  Senior Vice President of MPS and Managing
                                       Director for CERDIPs
</TABLE>

BACKGROUND

     The principal occupations of each executive officer of the Company for at
least the last five years are as follows:

     Alfred Jay Moran, Jr. joined the Company as a Consultant to the Company and
as acting President and Chief Executive Officer in November 1996. On January 1,
1997, Mr. Moran became President and Chief Executive Officer of the Company.
Since March 1996, Mr. Moran has been Senior Managing Director of The Watley
Group, LLC, a firm that specializes in corporate restructurings, management
consulting, merchant banking and mergers and acquisitions. From November 1992 to
February 1996, Mr. Moran was Chairman, President and Chief Executive Officer of
SeraCare, Inc., a hyperimmune plasma company (formerly known as American Blood
Institute). From April 1993 to February 1996, Mr. Moran was Chairman, President
and Chief Executive Officer of Gerant Companies, Inc., a holding company for
turnaround companies (now known as Xplorer, Inc.). From August 1990 to August
1992, Mr. Moran was President and Chief Operating Officer of Web Enterprises,
Inc., an international water feature design engineering and installation
company. From March 1988 to October 1992, Mr. Moran was a senior consultant at
Kibel, Green, Inc., a crisis management consulting firm. Mr. Moran holds a B.A.
Degree in Philosophy from the University of North Carolina at Chapel Hill and a
Master Degree in Business Administration from Harvard University.

     Denis J. Trafecanty joined the Company in August 1996 as its Vice President
and Chief
                                       36
<PAGE>
 
Financial Officer and Secretary.  In March 1997, he was promoted to Senior Vice
President, Chief Financial Officer and Secretary.  Prior to joining the Company,
Mr. Trafecanty was the Vice President and Chief Financial Officer for Tandon
Magnetics/Tandon USA, a manufacturer and distributor of personal computers and a
distributor of computer hard disk drives, from September 1995 to August 1996.
From December 1984 to August 1995, he was Vice President and Chief Financial
Officer for Tandon Corporation (renamed TSL Holdings, Inc. in 1993), a
manufacturer and distributor of personal computers and peripheral equipment.

     Ernest J. Joly was Senior Vice President and General Manager of MPA from
January 1994 until December 1996. Mr. Joly served as Product Development Manager
with Diacon, Inc., a ceramic packaging company, from May 1993 to December 1993.
From January 1990 to April 1993, Mr. Joly was Product Engineering Manager for
Alcoa Electronics Packaging, Inc. Prior to his tenure with Alcoa, Mr. Joly
served as Vice President/General Manager for Cabot Ceramics, Inc. from 1985 to
December 1989. Mr. Joly has approximately 30 years of advanced ceramic packaging
experience. Mr. Joly holds a B.S. degree in business management from Bryant
College.

     Charles F. Wheatley has been Senior Vice President, Sales and Marketing
of MPI since January 1994. In March 1997, he was promoted to Executive Vice
President.  Prior to joining the Company, from May 1988 to January 1994, Mr.
Wheatley served as a financial planning independent contractor for IDS/American
Express Corp., a personal and business financial planning company. Mr. Wheatley
also has 23 years of electronics industry experience in a variety of
manufacturing, marketing and general management positions with several
companies. Mr. Wheatley holds a B.A. degree in political science from Boston
University.

     Jee Fook Pak has been the Senior Vice President of MPS and Managing
Director for CERDIPs since January 1993. Mr. Pak joined the Company as Operation
Manager for CERDIPs in 1984. Mr. Pak holds a B.S. degree in mathematics and
chemistry from the National University of Singapore.

     To the Company's knowledge, based solely upon representations from its
shareholders, each beneficial owner of more than ten percent of the Company's
capital stock and all officers and directors filed all reports and reported all
transactions on a timely basis with the Securities and Exchange Commission (the
"Commission"), the NASD and the Company, except for Mr. Lewis Solomon.  Mr.
Lewis Solomon filed an amended Form 3 on February 14, 1997 indicating that he
beneficially owned 616 shares of the Company's Common Stock.  Such ownership was
not reported on Mr. Solomon's initial Form 3 filed on or about November 21,
1996.

                                       37
<PAGE>
 
ITEM 11.  EXECUTIVE COMPENSATION

DIRECTOR REMUNERATION

     Directors are reimbursed for expenses incurred in connection with attending
Board and Committee meetings.  Commencing with the first Board of Directors'
meeting subsequent to the Company's initial public offering through November 6,
1996, each non-employee Board member received a fee of $1,000 for each meeting
attended. Effective as of November 7, 1996, each non-employee Director began to
receive a fee of $1,500 for each meeting attended, $750 for each Board committee
meeting that does not occur on the date of a Board meeting and a fee of $1,000
for each month of Board service as a Director.

     Assuming shareholder approval of certain amendments to the Company's 1993
Stock Option/Stock Issuance Plan (the "Plan") at the upcoming 1997 annual
shareholders' meeting (the "1997 Annual Meeting"), each individual who first
joins the Board as a non-employee director at any time after November 21, 1996
or who is a member of the Board of Directors on November 21, 1996, will receive
an option grant for 15,000 shares of Common Stock under the Automatic Option
Grant Program in effect for non-employee Board members under the amended Plan.
In addition, at each annual shareholders' meeting, beginning with the 1997
Annual Meeting, each individual who is to continue to serve as a non-employee
Board member, whether or not he is standing for re-election at that particular
meeting, will receive an option grant for 10,000 shares of Common Stock. Each
grant under the Automatic Option Grant Program will have an exercise price per
share equal to the fair market value per share of the Common Stock on the grant
date and will have a maximum term of ten years, subject to earlier termination
should the optionee cease to serve as a Board member. Each option granted under
the Automatic Option Grant Program becomes exercisable in four successive equal
annual installments over the optionee's period of continued Board service,
measured from the grant date. However, the shares subject to each outstanding
option under the Automatic Option Grant Program will immediately vest in full
upon (i) an acquisition of the Company by merger or asset sale, (ii) a hostile
takeover of the Company or (ii) the optionee's death or disability while
continuing to serve as a Board member.

     Under the Automatic Option Grant Program, a stock option for 900 shares of
Common Stock was granted on May 29, 1996 to Mr. Smith and Dr. Bottoms (who are
no longer Directors of the Company) and to each of Mr. Howland and Mr. Thompson,
who continued to serve as non-employee Board members following the annual
shareholders meeting held on that date. Each option has an exercise price of
$4.188 per share.

     Each individual serving as a non-employee Board member on November 21, 1996
(Mr. Howland and Mr. Thompson), and each non-employee director appointed on such
date (Mr. Solomon and Mr. Bryan), received a stock option grant under the
Automatic Option Grant Program on such date for 15,000 shares of Common Stock.
Each such option has an exercise price of $1.91 per share, the fair market value
of the Common Stock on the date of grant.

     On November 21, 1996, each of Messrs. Solomon, Bryan, Thompson and Howland
was also granted an option under the Discretionary Option Grant Program of the
1993 Plan to purchase shares of Common Stock at an exercise price of $1.91 per
share, the fair market value of the Common Stock on such date. The number of
shares subject to each such grant was as follows: Mr. Solomon - 187,500; Mr.
Bryan - 125,000; Mr. Thompson - 100,000; Mr. Howland - 100,000 and Mr. da Silva
- 15,000. With respect to the options granted to Mr. Solomon and Mr. Bryan, such
options were immediately vested as to 150,000 and 100,000 of the option shares,
respectively, and the remaining option shares are to become vested upon the
provision of six (6) full years of continuous service to the Company, subject to
acceleration of vesting upon the provision of six (6) full years of continuous
service to the Company per person, subject to acceleration of vesting upon the
consummation by the Company of a Board-approved financing plan for up to $15
million at a price per share of not less than $1.875. With respect to these
options granted to Messrs. Thompson, Howland and da Silva, vesting of all of the
option shares was also conditional upon the provision of six (6) full years of 
continuous service to the Company per person, subject to acceleration of vesting
upon the consummation of a Board-approved financing plan for up to $15 million
at a price per share of not less than $1.875. In addition, the Board of
Directors agreed to grant additional options to Messrs. Bryan (75,000) and
Solomon (112,500) at the then fair market value of the Company's Common Stock
effective upon the earlier of (i) two full business days after the public
announcement of the execution of Board-approved term sheet for a financing plan
as described in this paragraph or (ii) July 1, 1997. The vesting on such shares
shall be identical to the first set of option grants to such two individuals as
set forth above. Such options vest in full on a change of control.

    The Company intends to cancel and regrant substantially all existing options
(other than options granted pursuant to the Automatic Option Grant Program),
including the options described in this section after the 1997 Annual Meeting.
Based in part upon the delisting of the Company's Common Stock from the Nasdaq
NMS, the financial condition of the Company, the stock price, the probable lack
of a request for a $15 million financing, the desire to avoid any compensation
expense in the Company's financial statements and the necessity of retaining its
employees, the Company believes that this program would be in the best interests
of the shareholders. As such, the Board of Directors and the Stock Option Plan
Administration Committee currently intends to cancel and regrant all options
outstanding under the Discretionary Option Grant Program of the Plan (and grant
additional options to persons who have received options under the Automatic
Option Grant Program) with an exercise price in excess of the fair market value
of the Common Stock of the Company as traded on the Nasdaq Electronic Bulletin
Board on the Grant Date. Pursuant to such program, each such outstanding option
will

                                       38
<PAGE>
 
be cancelled and a new replacement option will be granted for the same number of
shares, with an exercise price based on the fair market value of the Common
Stock on the new grant date, and with a new vesting schedule measured from such
date. In addition, on the new grant date, each of the non-employee directors
will be granted an additional option under the Discretionary Option Grant
Program of the 1993 Plan to purchase shares of Common Stock.

     For options granted to consultants on November 21, 1996, on
the new grant date, it is currently anticipated that such options shall be
immediately vested with respect to 50% of the option shares and will become
vested for the remaining option shares in a series of equal annual installments
over the consultant's two-year period of service with the Company measured from
new grant date. It is presently anticipated that new non-consultant director
grants shall vest in full on such new grant date. In addition, it is currently
anticipated that the additional options to be granted under certain future
events to Messrs. Solomon (112,500) and Bryan (75,000) will be granted to such
persons on such new grant date with the fair market value on the new date of
grant and the same vesting schedule as set forth in the sentence preceding the
previous sentence. Vesting of the option shares will be subject to acceleration
in the event of a change in control of the Company. These options will have a
maximum term of ten years, subject to earlier termination should the optionee
cease to serve as a Board member. The options granted to the directors and
consultants on November 21, 1996 and subsequently cancelled and regranted on the
grant date will be subject to approval by the shareholders of the amendments to
the 1993 Plan.

     During 1996, the Company paid Dr. Howland $6,840 for fees and expenses
incurred in connection with consulting services provided to the Company.

     In November 1996, the Company entered into an agreement for consulting
services with G&L Investments, which establishes a consulting relationship with,
among others, Lewis Solomon (Chairman of the Board of Directors). In exchange
for consulting services, G&L Investments receives $15,000 plus reasonable
expenses for each month that G&L Investments provides services to the Company.
In January 1997, the Company agreed to pay an additional aggregate sum of
$50,000 to G&L Investments over the six month period starting in January 1997.
In November 1996, the Company also entered into an agreement for consulting
services with The Watley Group, LLC which employs Mr. Moran (the President and
Chief Executive Officer) and Mr. Anthony Bryan (a Director), among others,
pursuant to which The Watley Group, LLC receives $15,000 plus reasonable
expenses for each month that it provides services to the Company. In January
1997, the Company agreed to pay The Watley Group, LLC an additional aggregate
sum of $50,000 over the six month period starting in January 1997. Starting in
January 1997, the Company also retained Mr. Moran as a full-time employee and
will pay Mr. Moran the prevailing minimum wage (which prevailing wage shall be
deducted from the additional $50,000 fee).

                                       39
<PAGE>
 
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION FOR EXECUTIVE OFFICERS

     The following table provides certain summary information concerning
compensation earned, for services rendered in all capacities to the Company and
its subsidiaries, for the fiscal years ending December 31, 1994, 1995 and 1996,
respectively, by the Company's Chief Executive Officer and each of the other
most highly compensated executive officers of the Company who earned more than
$100,000 in compensation for the 1996 fiscal year (hereafter referred to as the
Named Executive Officers).


                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
 
                                                                                       Long
                                                                                       Term
                                                                                     Compen-
                                                                                      sation
                                           Annual Compensation                        Awards
                            ---------------------------------------------------      --------
                                                                        Other      Securities
         Name and                                                       Annual     Underlying     All Other
         Principal                                                     Compen-      Options       Compensa- 
         Position              Year     Salary ($)(1)     Bonus($)     sation($)      (#)         tion($)(2)
         ---------             ----     -------------     --------     ---------   ----------     ----------
<S>                           <C>       <C>              <C>         <C>            <C>          <C>
 
Alfred Jay Moran, Jr.            1996           --(6)           --           --(6)        --            --
 President and Chief             1995           --              --           --           --            --
 Executive Officer               1994           --              --           --           --            --
 
Timothy da Silva (3)             1996      196,309              --           --       15,000        20,473
 Former President and            1995      180,000              --           --       97,471        19,691
 Chief Executive Officer         1994      169,730              --           --       76,500        17,363
 
Jee Fook Pak                     1996      175,186              --       36,857(4)        --        26,744
 Senior Vice                     1995      161,810              --       34,371(4)    16,396        18,617
 President - MPS                 1994      139,130              --       20,426(4)     6,396        20,673
 
Charles F. Wheatley              1996      120,000           6,670           --           --         3,330
 Executive Vice President        1995      120,000              --       77,348(5)    10,661         3,046
                                 1994      108,460              --       60,028(5)    10,661         3,600
 
Ernest J. Joly                   1996      100,000              --           --           --         2,712
 Senior Vice                     1995      100,006              --           --        7,996         2,423
 President and                   1994       98,083              --           --       15,992         2,250
 General
 Manager - MPA
</TABLE>

(1)  Includes pre-tax contributions by the Named Executive Officers to the
Company's 401(k) Plan or, in the case of Mr. Pak, the Central Provident Fund.

(2)  All other compensation is comprised of (i) the Company's matching
contributions to its 401(k) Plan or, in the case of Mr. Pak, to the Central
Provident Fund, and (ii) annual premiums paid for whole life insurance policies
maintained for Messrs. da Silva and Pak.  Under such policies, Messrs. da Silva
and Pak may designate the beneficiary of the insurance proceeds payable upon
death.  In addition, Messrs. da Silva and Pak will be entitled to the cash
surrender value of the policy should such individual continue in the Company's
employ through the year 2002.  The amounts of the Company's matching
contribution to its 401(k) Plan and the life insurance premiums are set forth
below:

                                       40
<PAGE>
 
<TABLE>
<CAPTION>
 
                                  Matching 401(k)   Life Insurance
                                   Contribution        Premium
                                  ---------------   --------------
<S>                        <C>    <C>               <C>
 Alfred Jay Moran, Jr.     1996        $    --(6)          $    --
                           1995             --                  --
                           1994             --                  --
 
 Timothy da Silva          1996          4,500              15,973
                           1995          4,569              15,122
                           1994          4,470              12,893
 
 Jee Fook Pak              1996         20,557               6,187
                           1995         12,496               6,121
                           1994         15,008               5,665
 
 Charles F. Wheatley       1996          3,330                  --
                           1995          3,046                  --
                           1994          3,600                  --
 
 Ernest J. Joly            1996          2,712                  --
                           1995          2,423                  --
                           1994          2,250                  --
</TABLE>

(3)  Mr. da Silva resigned as President and Chief Executive Officer effective
December 31, 1996, although Mr. da Silva remained an employee until February 14,
1997.

(4)  The Company provided Mr. Pak with a 1990 Toyota Corona for his use during
1994,1995 and 1996, the value of which in Singapore is estimated to be $20,426
for 1994, $34,371 for 1995 and $36,857 for 1996.

(5)  For 1995, Other Annual Compensation is comprised of housing reimbursement
of $31,280 and the value of the use of a 1989 Toyota Corona estimated to be
$34,371, as well as other payments in connection with Mr. Wheatley's overseas
assignment.  For 1994, Other Annual Compensation is comprised of the value of
the use of a 1989 Toyota Corona provided to Mr. Wheatley by the Company
estimated to be $20,426 and $22,832 of living expenses, as well as other
payments in connection with his overseas assignment.

(6)  Although Mr. Moran was not paid a salary in 1996, Mr. Moran is a member of
The Watley Group, LLC, which is being paid a monthly fee by the Company of
$15,000 starting in October 1996. Starting in January 1997, The Watley Group,
LLC will be paid an aggregate of $50,000 additionally for the six month period
beginning in January 1997. In addition, starting in January 1997, Mr. Moran will
be paid the prevailing minimum wage (which prevailing wage shall be deducted
from the additional $50,000 fee).

OPTION GRANTS IN LAST FISCAL YEAR

     The following table contains information concerning stock option grants
made to the Company's Chief Executive Officer and each of the other Named
Executive Officers during the fiscal year ended December 31, 1996.  No stock
appreciation rights were granted or exercised during such fiscal year.

                                       41
<PAGE>
 
<TABLE>
<CAPTION>
 
                                                                               POTENTIAL REALIZABLE VALUE AT
                                                                                  ASSUMED ANNUAL RATES OF  
                                                                                 STOCK PRICE APPRECIATION   
                            INDIVIDUAL GRANTS                                        FOR OPTION TERM
-------------------------------------------------------------------------   -------------------------------------
NAME                      NUMBER OF
----                      SECURITIES       % OF TOTAL                                    
                          UNDERLYING        OPTIONS        EXERCISE 
                           OPTIONS         GRANTED TO         OR     
                           GRANTED        EMPLOYEES IN    BASE PRICE        EXPIRATION
                             (#)          FISCAL YEAR      ($/SH)(2)           DATE      5% ($) (3)       10% ($) (3)
                          ----------      ------------    -----------       ----------   ---------     ---------
<S>                       <C>             <C>             <C>               <C>          <C>          <C>
Alfred J. Moran, Jr.         125,000(4)           11.2%        1.9063         11/21/06     149,858       379,769
Timothy da Silva              15,000(1)           1.34%        1.9063         11/21/06      18,056        45,572
Jee Fook Pak                      --                --             --               --          --            --
Charles F. Wheatley               --                --             --               --          --            --
Ernest J. Joly                    --                --             --               --          --            --
</TABLE>

(1)  Mr. da Silva's option grant was awarded on November 21, 1996 at an exercise
price of $1.91 per share, the fair market value of the Common Stock on such
date, and is subject to shareholder approval at the 1997 Annual Meeting of the
4,000,000-share increase to the number of shares reserved for issuance under the
1993 Plan. Mr. da Silva's option would have vested upon the provision of six(6)
full years of continuous service to the Company, subject to acceleration of
vesting upon the consummation of a Board-approved financing plan for up to $15
million at a price per share of not less than $1.875. The option will become
immediately exercisable for all the option shares in the event of a change in
control of the Company. The option has a maximum term of ten years, subject to
earlier termination in the event of Mr. da Silva's cessation of service with the
Company or one of its subsidiaries. Mr. da Silva continued to be employed by the
Company until February 14, 1997.

(2)  The exercise price may be paid in cash or in shares of Common Stock valued
at fair market value on the exercise date.  The plan administrator of the 1993
Plan ("Plan Administrator") may also permit the optionee to pay the exercise
price in installments over a period of years.  The Plan Administrator has the
discretionary authority to reprice outstanding options through the cancellation
of those options and the grant of replacement options with an exercise price
equal to the fair market value of the option shares on the regrant date.

(3)  The 5% and 10% rates of appreciation are mandated by the rules of the
Securities and Exchange Commission and do not represent the Company's estimates
or projections of future Common Stock prices.  There can be no assurance
provided to any executive officer or any other holder of the Company's
securities that the actual stock price appreciation over the ten (10)-year
option term will be at the assumed 5% and 10% levels or at any other defined
level.

(4)  It is presently anticipated that Mr. Moran's stock options will be
cancelled and a new option granted in its place after the 1997 Annual Meeting.
See "Director Remuneration."

AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES

     The following table sets forth information concerning option exercises and
option holdings for the fiscal year ended December 31, 1996 with respect to the
Company's Chief Executive Officer and each of the other Named Executive
Officers. The fair market value of the Common Stock at fiscal year-end was
$0.96875 per share, based on the closing selling price on The Nasdaq National
Market.  The exercise price of all of the outstanding options held by the Chief
Executive Officer and the other Named Executive Officers as of December 31,
1996, was in excess of the fair market value on such date.  No stock
appreciation rights were exercised or outstanding during such fiscal year.

                                       42
<PAGE>
 
<TABLE>
<CAPTION>
                                       NUMBER OF SECURITIES UNDERLYING             VALUE OF UNEXERCISED 
                                        UNEXERCISED OPTIONS AT FISCAL              IN-THE-MONEY OPTIONS
                                                YEAR-END (#)                        AT FISCAL YEAR END
          NAME                         ---------------------------------        --------------------------
------------------------               EXERCISABLE         UNEXERCISABLE        EXERCISABLE  UNEXERCISABLE
                                       -----------         -------------        -----------  -------------
<S>                                    <C>                 <C>                  <C>          <C>
Alfred Jay Moran, Jr.                   100,000              25,000                    0            0
Timothy da Silva                        196,905             101,985                    0            0
Jee Fook Pak                             18,790              10,930                    0            0
Charles F. Wheatley                      10,662              10,660                    0            0
Ernest J. Joly                            7,996               7,996                    0            0
</TABLE>

     The Company presently intends to cancel and regrant substantially all
existing options (other than options granted pursuant to the Automatic Option
Grant Program), including the options described in this section after the 1997
Annual Meeting. Based in part upon the delisting of the Company's Common Stock
from the Nasdaq NMS, the financial condition of the Company, the stock price,
the probable lack of a request for a $15 million financing, desire to avoid any
compensation expense in the Company's financial statements and the necessity of
retaining its employees, the Company believes that this program would be in the
best interests of the shareholders. As such, the Board of Directors and the
Stock Option Plan Administration Committee currently intends to cancel and
regrant substantially all options outstanding under the Discretionary Option
Grant Program of the Plan (and grant additional options to persons who have
received options under the Automatic Option Grant Program) with an exercise
price in excess of the fair market value of the Common Stock of the Company as
traded on the Nasdaq Electronic Bulletin Board on the Grant Date. Pursuant to
such program, each such outstanding option will be cancelled and a new
replacement option will be granted for the same number of shares, with an
exercise price based on the fair market value of the Common Stock on the new
grant date.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The individuals who served on the Compensation Committee of the Company's
Board of Directors during the fiscal year ended December 31, 1996 were Mr.
Bryan, the Chairman, Mr. Thompson, Dr. Howland and Mr. Solomon. None of these
individuals were at any time during such fiscal year, or at any other time, an
officer or employee of the Company.

     The Company has entered into an indemnification agreement with each of its
directors.

     The Company and certain of its shareholders entered into a registration
rights agreement pursuant to which entities that may be deemed affiliated with a
greater than five percent shareholder were granted certain registration rights.
Such agreement provides for indemnification by the Company for such persons.
See "Certain Relationships and Related Transactions."

     The Company entered into consulting agreements with G & L Investments 
which agreement establishes a consulting relationship with, among others, Lewis 
Solomon; and the Watley Group, LLL, which agreement establishes a consulting 
relationship with, among others, Messrs. Anthony Bryan and Alfred Moran. See 
"Director Remuneration."

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS

Employment Agreement with Timothy da Silva

     In January 1994, the Company entered into a three (3)-year employment
agreement with Timothy da Silva. Under the terms of such agreement, Mr. da Silva
was entitled to a salary of not less than his then current salary of $150,000
per year, the exact amount of which was determined by the Board of Directors on
an annual basis. Mr. da Silva was also entitled to receive monthly payments, in
the amount of at least $599 per month, to be applied to costs related to his
automobile plus payment of automobile insurance and maintenance costs. The
employment agreement also included provision for an annual bonus to be awarded
to Mr. da Silva by the Board of Directors based upon his performance during the
applicable past year.  However, no such bonus was awarded over the period of the
employment agreement.  Mr. da Silva participated in all of the Company's
employee benefit plans and the Company was obligated to provide him with life
and disability insurance premium payments. In the event of his termination other
than for cause, Mr. da Silva was entitled to a severance payment equal to six
(6) months of his then current salary plus six (6) months additional coverage
under the Company's health, medical and dental plans.  Mr. da Silva resigned as
Chief Executive Officer of the Company effective December 31, 1996 but he has
continued to serve as a 

                                       43
<PAGE>
 
Director since such date, and stayed as an employee of the Company until
February 14, 1997.

Change in Control Arrangements

     The Compensation Committee of the Board of Directors has the authority as
Plan Administrator of the 1993 Plan to provide for the accelerated vesting of
the shares of Common Stock subject to outstanding options held by the Chief
Executive Officer and the Company's other executive officers under that plan in
the event their employment were to be terminated (whether involuntarily or
through a forced resignation) following an acquisition of the Company by merger
or asset sale.  In connection with a hostile change in control of the Company
effected through a successful tender offer for more than 50% of the Company's
outstanding voting stock or through a proxy contest for the election of Board
members, the Plan Administrator has the discretionary authority to provide for
automatic acceleration of outstanding options under the Discretionary Option
Grant Program of the 1993 Plan and the automatic vesting of outstanding shares
under the Stock Issuance Program.

                         COMPENSATION COMMITTEE REPORT

     For the 1996 fiscal year, the Compensation Committee of the Board of
Directors was responsible for establishing the base salary and incentive cash
bonus programs for the Company's executive officers and other key employees and
administering certain other compensation programs for such individuals, subject
in each instance to review by the full Board.  The Compensation Committee also
had the exclusive responsibility during such year for the administration of the
Company's 1993 Plan under which grants may be made to executive officers and
other key employees.

     General Compensation Policy.  The fundamental policy of the Compensation
Committee is to provide the Company's executive officers and other key employees
with compensation opportunities based upon their contribution to the financial
success of the Company and their personal performance.  It is the Compensation
Committee's objective to have a substantial portion of each officer's
compensation contingent upon the Company's performance as well as upon his own
level of performance.  Accordingly, the compensation package for each executive
officer and key employee is comprised of three elements:  (i) base salary which
reflects individual performance, (ii) annual variable performance awards payable
in cash and tied to the Company's achievement of financial performance targets,
and (iii) long-term stock-based incentive awards which strengthen the mutuality
of interests between the executive officers and the Company's shareholders.  As
an executive officer's level of responsibility increases, it is the intent of
the Compensation Committee to have a greater portion of his total compensation
be dependent upon Company performance and stock price appreciation rather than
base salary.

     Factors.  For Timothy da Silva, the Compensation Committee followed the
terms of his employment agreement with the Company in determining his
compensation for 1996.  That agreement specified the compensation, subject to
Board adjustment, that was paid to Mr. da Silva during 1996.  Several of the
more important factors which the Compensation Committee considered in
establishing the components of the compensation packages for executive officers
who do not have an employment agreement with the Company for the 1996 fiscal
year are summarized below.  Additional factors were also taken into account, and
the Compensation Committee may in its discretion apply entirely different
factors, particularly different measures of financial performance, in setting
executive compensation for future fiscal years.

     Base Salary.  The base salary for each officer who does not have an
employment agreement with the Company is determined on the basis of the
following factors:  experience, personal performance and internal comparability
considerations.  The weight given to each of these factors differs from
individual to individual, as the Compensation Committee deems appropriate.

     Annual Incentive Compensation.  Annual bonuses are earned by each executive
officer primarily on the basis of the Company's achievement of certain corporate
financial performance targets established for each fiscal year.  For fiscal year
1996, as the Company's results did not meet the established targets, no bonuses
were paid.

     Long-Term Incentive Compensation.  Long-term incentives are provided
through stock option grants.  The grants are designed to align the interests of
each executive officer with those of the shareholders and provide each

                                       44
<PAGE>
 
individual with a significant incentive to manage the Company from the
perspective of an owner with an equity stake in the business.  Each grant allows
the individual to acquire shares of the Common Stock at a fixed price per share
(the market price on the grant date) over a specified period of time (up to ten
(10) years).  Each option generally becomes exercisable in installments over a
two (2) or three (3)-year period, contingent upon the executive officer's
continued employment with the Company or a subsidiary.  Accordingly, the option
will provide a return to the executive officer only if the executive officer
remains employed by the Company during the two (2) or three (3)-year vesting
period, and then only if the market price of the underlying shares appreciates
over the option term.

     The number of shares subject to each option grant is set at a level
intended to create a meaningful opportunity for stock ownership based on the
officer's current position with the Company, the base salary associated with
that position, the size of comparable awards made to individuals in similar
positions within the industry, the individual's potential for increased
responsibility and promotion over the option term, and the individual's personal
performance in recent periods.  The Compensation Committee also takes into
account the number of vested and unvested options held by the executive officer
in order to maintain an appropriate level of equity incentive for that
individual.  However, the Compensation Committee does not adhere to any specific
guidelines as to the relative option holdings of the Company's executive
officers.  In 1996, only one executive officer, Mr. da Silva, received an option
grant. Such option is described in the Summary Compensation Table, in the column
entitled "Long Term Compensation Awards--Securities Underlying Options" and in
the "Option Grants in Last Fiscal Year" Table.

     CEO Compensation.  In setting the compensation payable to the Company's
Chief Executive Officer, Mr. da Silva, the Compensation Committee followed the
terms of the employment agreement that was previously negotiated between Mr. da
Silva and the Company.  In accordance with the terms of his employment
agreement, as adjusted by the Board, Mr. da Silva received a base salary of
$196,309 in 1996.

     No cash bonus was paid to Mr. da Silva for the 1996 fiscal year.  In 1996,
Mr. da Silva was granted an option to purchase 15,000 shares of Common Stock to
make a portion of his total compensation contingent on increased value for the
Company's shareholders; the option will have no value unless there is
appreciation in the value of the Company's Common Stock over the option term and
the option may not be exercised unless and until the shareholders approve a
4,000,000-share increase to the 1993 Plan.

     Compliance with Internal Revenue Code Section 162(m).  As a result of
Section 162(m) of the Internal Revenue Code, the Company will not be allowed a
federal income tax deduction for compensation paid to certain executive
officers, to the extent that compensation exceeds $1 million per officer in any
one (1) year.  This limitation applies to all compensation paid to the covered
executive officers which is not considered to be performance based.
Compensation which does qualify as performance-based compensation will not have
to be taken into account for purposes of this limitation.  The 1993 Plan is
designed to assure that any compensation deemed paid in connection with the
exercise of stock options granted under such plan with an exercise price equal
to the market price of the option shares on the grant date will qualify as
performance-based compensation.


Dated as of April 10, 1997
                                       Mr. Anthony J.A. Bryan
                                       Mr. William R. Thompson               
                                       Dr. Frank L. Howland
                                       Mr. Lewis Solomon

                                       45
<PAGE>
 
                       COMPARISON OF SHAREHOLDER RETURN

     The graph below reflects a comparison of the cumulative total return
(change in stock price plus reinvestment dividends) of the Company's Common
Stock price with the cumulative total returns of the Nasdaq Market Index and the
Company's Peer Group consisting of Altron, Inc., Ceramics Process Systems
Corporation, Dense-Pac Microsystems, Inc., Irvine Sensors Corporation, and
Microsemi Corp.
<TABLE> 
<CAPTION> 
     COMPANY:                     MICROELECTRONIC                    BROAD 
                                       PACK           PEER GROUP     MARKET
                                  ---------------     ----------     ------
<S>                               <C>                 <C>            <C> 
      BASE:                       100.00              100.00         100.00
FISCAL YEAR ENDING: 06/30/1994     97.62               98.6           98.29
                    09/30/1994     88.1               112.83         103.52
                    12/30/1994     57.14              114.18         101.44
                    03/31/1995     33.33              116.84         104.44
                    06/30/1995     45.24              164.48         114.25
                    09/29/1995     45.24              216.68         127.3
                    12/29/1995     38.1               196.3          126.28
                    03/29/1996     78.57              185.08         132.11
                    06/28/1996     83.33              174.74         141.9
                    09/30/1996     64.29              124.56         145.81
                    12/31/1996     18.45              156.62         152.67
                    12/30/1994     57.14              114.18         101.44
                    03/31/1995     33.33              116.84         104.44
                    06/30/1995     45.24              164.48         114.25
                    09/29/1995     45.24              216.68         127.3
                    12/29/1995     38.1               196.3          126.28
                    03/29/1996     78.57              185.08         132.11
                    06/28/1996     83.33              174.74         141.9
                    09/30/1996     64.29              124.56         145.81
                    12/31/1996     18.45              156.62         152.67
</TABLE> 
____________
(1)  The graph covers the period from April 21, 1994, the date the Company's
     initial public offering commenced, through the fiscal year ended December
     31, 1996.
(2)  The graph assumes that $100 was invested on April 21, 1994 in the Company's
     Common Stock and in each index and that all dividends were reinvested.  No
     cash dividends have been declared on the Company's Common Stock.
(3)  Shareholder returns over the indicated period should not be considered
     indicative of future shareholder returns.
(4)  The performance graph and all of the material in the Compensation Committee
     Report is not deemed filed with the Securities and Exchange Commission, and
     is not incorporated by reference to any filing of the Company under the
     Securities Act of 1933, as amended or the Securities Exchange Act of 1934,
     whether made before or after the date of this Proxy Statement and
     irrespective of any general incorporation language in any such filing.


     COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than ten percent of
the Company's Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC").  Executive
officers, directors and greater than ten percent shareholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.

     Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Form 5s were
required for such persons, the Company believes that it complied with all filing
requirements applicable to its officers, directors, and greater than ten-percent
beneficial owners during the period from January 1, 1996 to December 31, 1996,
with the exception of Mr. Lewis Solomon.  Mr. Lewis Solomon 

                                       46
<PAGE>
 
filed an amended Form 3 on February 14, 1997 indicating that he beneficially
owned 616 shares of the Company's Common Stock.  Such ownership was not reported
on Mr. Solomon's initial Form 3 filed on or about November 21, 1996.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table sets forth information known to the Company regarding
the ownership of the Company's Common Stock as of March 31, 1997 for (i) each
Director and nominee who owns Common Stock, (ii) all persons or entities who
were known by the Company to be beneficial owners of five percent (5%) or more
of the Company's Common Stock, (iii) the Chief Executive Officer and the other
executive officers whose compensation for 1996 were each in excess of $100,000
and (iv) all executive officers and Directors of the Company as a group.
<TABLE>
<CAPTION>
                                                             Number of Shares           Percent of Total Shares     
Name and Address of Beneficial Owner                       Beneficially Owned(1)    Outstanding Beneficially Owned  
------------------------------------                       ---------------------    -------------------------------  
<S>                                                        <C>                      <C>
Entities that may be deemed to be affiliated with
Transpac Capital Ptc. Ltd.
6 Shenton Way
#2D-09 DBS Building
Tower Two
Singapore 068809 (2)................................                 842,013                              7.8%

Entities that may be deemed to be affiliated with
Patricof & Co. Ventures, Inc.
2100 Geng Road, Suite 220
Palo Alto, CA 94303 (3).............................                 733,997                              6.8%
 
Cabot Ceramics, Inc.
c/o Cabot Corporation
75 State Street
Boston, MA 02119-1806 (4)...........................                 656,992                             6.09%
 
Timothy da Silva (5)................................                 197,905                              1.8%
 
Lewis Solomon (6)...................................                 150,000                              1.4%
 
Anthony J.A. Bryan (6)..............................                 100,000                                *
 
William R. Thompson (7).............................                   3,250                                *
 
Frank Howland (6)...................................                   4,725                                *
 
Alfred Jay Moran, Jr. (6)...........................                 100,000                                *
 
Jee Fook Pak (6)....................................                  18,790                                *
 
Charles F. Wheatley (6).............................                  10,662                                *
 
Ernest J. Joly (6)..................................                   7,996                                *
 
All directors and executive officers
as a group (10 persons) (8).........................                 592,328                              5.5%
</TABLE>
-----------
*    Less than 1%

                                       47
<PAGE>
 
(1)  Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities.  Percentage beneficially owned is based on a
total of 10,793,280 shares of Common Stock issued and outstanding as of March
31, 1997.  Shares of Common Stock subject to options or warrants currently
exercisable or convertible, or exercisable or convertible within 60 days of
March 31, 1997 are deemed outstanding for computing the percentage of the person
holding such options or warrants but are not outstanding for computing the
percentage of any other person.  Except as indicated in the footnotes to this
table and pursuant to applicable community property laws, the persons named in
the table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned.

(2)  The Transpac entities include Transpac Capital Pte Ltd (the "Manager"), a 
Singapore private limited company; Transpac Industrial Holdings Limited ("TIH"),
a Singapore private limited company; Regional Investment Company Limited 
("Regional"), a Singapore public limited company; Transpac Equity Fund ("TEF"), 
a British Virgin Islands trust; Transpac Venture Partnership II ("TVP"), a 
collective investment scheme; Transpac Manager's Fund ("TMP"), a British Virgin 
Islands international business company; and NatSteel Equity III Pte Ltd 
("NatSteel"), a Singapore private limited company. The Manager does not have any
direct ownership interest in the Company's Common Stock. The Manager has, in its
capacity as investment adviser to each of TIH, Regional, TEF and TVP, the power 
to control the voting and disposition of the 765,466 shares of Common Stock held
in the aggregate by TIH, Regional, TEF and TVP and, therefore, may be deemed to 
be a beneficial owner of such shares. Such shares constitute approximately 13.90
percent of the outstanding Common Stock. TIH has direct beneficial ownership of 
334,069 shares (approximately 6.1%) of the Common Stock. TIH shares the power to
control the voting and disposition of such 334,069 shares of Common Stock with 
the Manager. TIH disclaims beneficial ownership of any shares of Common Stock 
held by any other Transpac entity. Regional has direct beneficial ownership of 
92,066 shares (approximately 1.79%) of the Common Stock. Regional shares the 
power to control the voting and disposition of such 92,066 shares of Common 
Stock with the Manager. Regional disclaims beneficial ownership of any shares of
Common Stock held by any other Transpac entity. TEF has direct beneficial 
ownership of 197,285 shares (approximately 1.79%) of the Common Stock. TEF 
shares the power to control the voting and disposition of such 197,285 shares of
Common Stock with the Manager. TEF disclaims beneficial ownership of any shares 
of Common Stock held by any other Transpac entity. TVP has direct beneficial 
ownership of 139,415 shares (approximately 2.5%) of the Common Stock. TVP shares
the power to control the voting and disposition of such 139,415 shares of Common
Stock with the Manager. TVP disclaims beneficial ownership of any shares of
Common Stock held by any other Transpac entity. TMF has direct beneficial
ownership of 2,631 shares (approximately 0.05%) of the Common Stock. NatSteel
has direct beneficial ownership of 75,547 shares (approximately 1.4%) of the
Common Stock. NatSteel and the Manager have no formal relationship, advisory or
otherwise, in respect of the shares of Common Stock held by NatSteel. However,
NatSteel anticipates that it may rely upon the advice of Transpac in connection
with the voting and disposition of the shares of Common Stock held by it.
NatSteel disclaims beneficial ownership of the shares of Common Stock held by
any other Transpac entity. The preceding information was obtained from a
Schedule 13D filed with the Securities and Exchange Commission on or about April
3, 1996. Mr. Steven Koo is Vice President of Transpac Capital Pte Ltd, and as
such may be deemed to share voting and investment power with respect to the
Transpac entities' shares. Mr. Koo disclaims beneficial ownership of such shares
except to the extent of his pecuniary interest therein.  Amount does not include
any shares that may be issued upon conversion of the Transpac Debenture.

(3)  Includes 202,736, 353,600, 90,466 and 87,195 shares owned by APA Excelsior
Fund, APA Excelsior II, Coutts & Co. (Jersey) Ltd., Custodian for APA Excelsior
Venture Capital Holding (Jersey) Ltd., and APA Venture Capital Fund,
respectively, and 1,148, 1,143, 1,173 and zero shares, respectively, in the form
of immediately exercisable warrants owned by such entities.

(4)  Includes 654,236 shares owned by Cabot Ceramics, Inc. and 2,666 shares
issuable upon exercise of a warrant.  Cabot Ceramics, Inc. is a corporation
wholly-owned by Cabot Corporation.  The executive management of Cabot
Corporation has voting and investment power over such shares and may be deemed
to beneficially own such shares.

(5)  Includes 1,000 shares registered in the name of Barbara da Silva, Mr. da
Silva's spouse. All other shares beneficially owned by Mr. da Silva are in the
form of stock options exercisable within sixty (60) days of March 31, 1997.

(6)  All shares in the form of stock options exercisable within 60 days of March
31, 1997.

(7)  Includes 1,000 shares owned by Mr. Thompson.  All other shares beneficially
owned by Mr. Thompson are in the form of stock options exercisable within sixty
(60) days of March 31, 1997.

(8)  See Notes 4 and 5 above.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     In November 1996, the Company entered into an agreement for consulting
services with G&L Investments, which employs, among others, Lewis Solomon
(Chairman of the Board of Directors).  In exchange for consulting services, G&L
Investments receives $15,000 plus reasonable expenses for each month that G&L
Investments provides services to the Company. In January 1997, the Company
agreed to pay an additional aggregate sum of $50,000 to G&L Investments over the
six month period starting in January 1997. In November 1996, the Company also
entered into an agreement for consulting services with The Watley Group, LLC
which employs Mr. Moran (the President and Chief Executive Officer) and Mr.
Anthony Bryan (a Director), among others, pursuant to which The Watley Group,
LLC receives $15,000 plus reasonable expenses for each month that it provides
services to the Company. In January 1997, the Company agreed to pay The Watley
Group, LLC an additional aggregate of $50,000 over the six month period starting
in January 1997. Starting in January 1997, the Company also retained Mr. Moran
as a full-time employee and paid Mr. Moran the prevailing minimum wage (which
shall be deducted from such $50,000 payment).

     In March 1996, pursuant to a subscription agreement, the Company 
consummated the sale and issuance of 842,013 shares of Common Stock (the 
"Transpac Shares") to Transpac Capital Pte. Ltd. and a group of related 
investors (collectively, "Transpac"), at the purchase price of $2.37526 per 
share, for a total purchase price of $2,000,000 (the "Transpac Financing"). The 
Transpac Shares represented approximately 7.8% of the Common Stock issued and 
outstanding on March 31, 1997. In conjunction with the Transpac Financing, MPM
(S) Pte., Ltd. ("MPM"), a wholly-owned subsidiary of the Company, issued a
debenture ("Debenture") to Transpac in the principal amount of $9,000,000. From
and after April 23, 1997, the Debenture can be converted into shares of MPM's
Common Stock provided MPM is then a publicly traded company, or can be repaid in
cash. In addition, the Debenture will also be convertible, at Transpac's option,
into shares of the Company's Common Stock. Under its terms, the Debenture may be
convertible into up to the number of shares of the Company's Common Stock that,
when combined with the number of shares of Common Stock then issued to Transpac
upon the closing of the Transpac Financing or otherwise, will equal 49.0% of the
Company's then outstanding capitalization. The Debenture will also be
convertible into the number of shares of MPM common stock that is equivalent to
up to 45% of MPM's then outstanding capitalization at the time of conversion.
Transpac has board observer rights and the right in the future to appoint a
representative of Transpac to the Company's Board of Directors. The Company
guaranteed the repayment of the Debenture. The Company and Transpac are
currently negotiating an equity conversion of such debt.

                                       48
<PAGE>
 
                                    PART IV
                                    -------

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

(a)  1.   Index to Consolidated Financial Statements.
                                                                     Form 10K
                                                                     Page Number
                                                                     -----------

     Report of Independent Certified Public Accountants............      F-1

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

     Consolidated Balance Sheets as of
      December 31, 1996 and 1995...................................      F-3

     Consolidated Statements of Operations
      for the three-year period ended
      December 31, 1996............................................      F-4

     Consolidated Statements of Cash Flows for
      the three-year period ended
      December 31, 1996............................................      F-5

     Consolidated Statements of Shareholders'
      Equity (Deficit) for the three-year period
      ended December 31, 1996......................................      F-6

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


     2.   Consolidated Financial Statement Schedules.

          The following financial statement schedules of Microelectronic
Packaging, Inc. and its subsidiaries are included in this annual report on Form
10-K.

                                                                     Form 10-K
                                                                     Page Number
                                                                     -----------

     Report of Independent Certified Public Accountants on 
       Financial Statement Schedules...............................     F-24
     Schedule I --  Condensed Financial Information of
                      Microelectronic Packaging, Inc...............     F-25
     Schedule II -- Valuation and Qualifying Accounts and 
                      Reserves.....................................     F-30


     Schedules other than those listed above have been omitted since they are
     either not required, are not applicable, or the required information is
     shown in the financial statements or related notes.

(b)  Reports on Form 8-K

     During the fourth quarter ended December 31, 1996, the Company filed a
     Current Report on Form 8-K with the Securities and Exchange Commission on
     October 28, 1996.

                                       49
<PAGE>
 
(c)  Exhibits -- See Exhibit List below.


NUMBER              DESCRIPTION

 2.1(1)    Agreement and Plan of Merger, dated July 19, 1991, among the Company,
           Cabot Ceramics, Inc. and Cabot Acquisition Corporation.

 2.2(1)    Installment Stock Purchase Agreement dated June 15, 1993 among the 
           Company, Mr. Waldemar Heeb and Mrs. Ikuko Mayeda.

 2.3(1)+   License Agreement dated July 27, 1992 among the Company and Micro
           Substrates, Inc. and Micro Substrates, L.P.

 3.1(10)   Amended and Restated Articles of Incorporation of the Company filed 
           May 31, 1996.

 3.2(1)    Amended and Restated Articles of Incorporation of the Company filed
           January 18, 1994.

 3.3(1)    Form of Amended and Restated Articles of Incorporation of the Company
           filed on the closing of the offering made pursuant to the Company's
           Registration Statement of Form S-1.

 3.4       Amended and Restated Bylaws of the Company.

 3.5(1)    Amended and Restated Articles of Incorporation of the Company filed 
           before the closing of the offering made pursuant to the Company's
           Registration Statement on Form S-1.

 4.1(1)    Specimen Certificate of Common Stock.

 4.2(1)    Form of Warrant to purchase 160,000 shares of Common Stock of the
           Company issued by the Company to Thomas James Associates, Inc.
           entered into upon the closing of the offering made pursuant to the
           Company's Registration Statement on Form S-1.

 4.3(1)    Form of Warrant issued by the Company to Silicon Valley Bank to 
           purchase shares of Common Stock of the Company.

 4.4(1)    Form of Convertible Promissory Note dated August 31, 1993 issued
           by the Company to certain investors, as amended by that certain
           Letter of Extension of Due Date of Convertible Promissory Notes
           dated February 11, 1994 issued by the Company to certain investors.

 4.5(1)    Form of Amended and Restated Promissory Note issued by the Company to
           certain investors prior to the closing of the offering made under
           the Company's Registration Statement on Form S-1.

 4.6(1)    Form of Warrant to Purchase Common Stock dated August 31, 1993 issued
           by the Company to certain investors.

 4.7(1)    Form of Warrant to Purchase Series B Preferred Stock, dated August 8,
           1989, issued by the Company to certain investors, as amended by that 
           certain Series B Preferred Stock Purchase Warrant Consent and 
           Amendment, dated August 30, 1991, and as amended by that certain
           Series B Preferred Stock Purchase Warrant, Second Consent and
           Amendment, entered into by the Company.

 4.8(1)    Letter of Extension of Due Date of Convertible Promissory Notes
           dated February 11, 1994 issued by the Company to certain investors.

 4.9(1)    Amended and Restated Microelectronic Packaging, Inc. Convertible
           Promissory Note due April 30, 1994 dated February 28, 1994 between
           the Company and Cabot Ceramics, Inc.

 5.1(1)    Opinion of Brobeck, Phleger & Harrison LLP.

10.1(1)    Second Amended and Restated Registration Rights Agreement, Waiver
           Agreement and Conversion Agreement entered into among the Company and
           certain investors named therein.

10.2(1)    Employment Agreement dated June 15, 1993 between CTM Electronics, 
           Inc. and Mr. Waldemar Heeb.

10.3(1)    Installment Insurance Agreement dated June 15, 1993 between the
           Company and Mr. Waldemar Heeb.

10.4(1)    Settlement and Release Agreement dated April 30, 1993 among the
           Company, CTM Electronics, Inc., Mr. Waldemar Heeb and Mr. Tadashi
           Murakami.

10.5(1)    Secured Promissory Note dated May 30, 1993 in the principal amount of
           $150,000 issued by the Company in favor of Mr. Tadashi Murakami.

10.6(1)    Settlement and Mutual Release Agreement dated April 30, 1993 among
           the Company, CTM Electronics, Inc., Mr. Waldemar Heeb and Mr. Paul
           Koo.

10.7(1)    Settlement and Mutual Release Agreement dated April 30, 1993 among
           the Company, CTM Electronics, Inc., Mr. Waldemar Heeb and Mr.
           Shigenobu Koyabu.

10.8(1)    1993 Stock Option/Stock Issuance Plan.

10.9(1)    Form of Director Automatic Option Grant Agreement.

10.10(1)   Option Agreement between the Company and Mr. Timothy da Silva.

10.11(1)   Employment Agreement between the Company and Mr. Timothy da Silva.

10.12(1)   Loan and Security Agreement dated October 24, 1991 between
           Microelectronic Packaging America and Silicon Valley Bank, as amended
           by that Amendment to Loan Agreement dated May 26, 1992, as amended by
           that Amendment to Loan Agreement dated December 23, 1992, and as
           amended by that Amendment to Loan Agreement dated June 25, 1993.

10.13(1)   Factoring Agreement dated June 18, 1993 between Microelectronic
           Packaging America and Silicon Valley Financial Services.

10.14(1)   Continuing Guaranty dated October 24, 1991 between the Company and 
           Silicon Valley Bank.

10.15(1)   Letter Agreement for General Banking Facilities dated October 9, 1993
           between Microelectronic Packaging (S) Pte. Ltd., a Singapore company
           ("MPS"), and Development Bank of Singapore, as revised by Letter
           Agreement dated November 19, 1993.

10.16(1)   Guaranty dated August 24, 1990 between the Company and Development
           Bank of Singapore, as confirmed by Letter of Confirmation dated
           April 29, 1992.

10.17(1)   Term Loan between MPS and Development Bank of Singapore.

10.18(1)   Mortgages dated August 16, 1989 among MPS, DBS Finance Limited, a
           Singapore company, and Development Bank of Singapore.

10.19(1)   Promissory Note dated September 1, 1993 between the Company and
           Scripps Bank, a California bank in the principal amount of $166,001
           maturing May 1, 1995.

10.20(1)   Promissory Note dated September 13, 1993 between the Company and
           Scripps Bank in the principal amount of $100,000 maturing September
           15, 1994.

10.21(1)   Corporate Guarantee dated September 13, 1993 in the amount of
           $100,000 maturing September 15, 1994, between the Company and Scripps
           Bank.

10.22(1)   Corporate Guarantee dated September 1, 1993 in the amount of $166,001
           maturing May 1, 1995, between the Company and Scripps Bank.

10.23(1)   Escrow Agreement dated October 11, 1993 between the Company and
           Innoventure (S) Pte. Ltd., a Singapore company.

10.24(1)   Collaborative Manufacturing Agreement dated July 29, 1993 between the
           Company and Innoventure (S) Pte. Ltd., a Singapore company.

10.25(1)   Technical Information Agreement dated January 19, 1993 between The 
           Carborundum Company and MPC (S) Pte. Ltd., a Singapore company.

10.26(1)+  Option Agreement dated January 19, 1992 among the Company, The 
           Carborundum Company and MPC (S) Pte. Ltd, a Singapore company.

10.27(1)+  Technical License Agreement dated September 14, 1987 between the 
           Company and Samsung Corning Co. Ltd., a Korean company ("Samsung").

10.28(1)   Agreement dated September 14, 1987 between the Company and Samsung.

10.29(1)   Alumina Powder Agreement dated December 17, 1987 between the Company 
           and Samsung.

10.30(1)   Investment Agreement dated September 14, 1987 between the Company and
           Samsung.

10.31(1)   Lease Agreement dated September 10, 1990, as amended February 20,
           1991, between CTM Electronics, Inc. and Judd/King No. 1, a
           California general partnership, for the San Diego office and
           industrial center at 9350 Trade Place, Suite A.

10.32(1)   Lease Agreement dated February 6, 1991 between Microelectronic
           Packaging (S) Pte. Ltd., a Singapore company, and Jurong Town
           Corporation for the industrial premises at 31 Tuas Avenue 8, Jurong
           Town, Singapore, as renewed by a Lease Renewal Letter dated August
           26, 1993.

10.33(1)   Lease Agreement dated February 11, 1993 between Microelectronic
           Packaging (S) Pte. Ltd., a Singapore company, and Jurong Town
           Corporation for a portion of the premises at 1003 Bukit Merah
           Central, Singapore.

10.34(1)   Lease Agreement dated November 21, 1984 between Microelectronic
           Packaging (S) Pte. Ltd., a Singapore company, and Jurong Town
           Corporation for the premises at 28 Tuss, Jurong Town, Singapore.

10.35(1)   Form of Indemnification Agreement between the Company and each of its
           officers and directors.

10.36(1)   Amendment to Settlement and Release Agreement dated December 22, 1993
           among the Company, CTM Electronics, Inc., Mr. Waldemar Heeb and Mr.
           Tadashi Murakami.

10.37(1)   Note Amendment Agreement dated December 22, 1993 issued by the 
           Company in favor of Mr. Tadashi Murakami.

10.38(1)   Amendment to Settlement and Release Agreement dated December 22, 1993
           among the Company, CTM Electronics, Inc., Mr. Waldemar Heeb and Mr.
           Paul Koo.

10.39(1)   Amendment to Settlement and Release Agreement dated December 22, 1993
           among the Company, CTM Electronics, Inc., Mr. Waldemar Heeb and Mr.
           Shigenobu Koyabu.

10.40(1)   Letter Agreement dated December 21, 1993, by and between the Company 
           and Samsung.

10.41(1)   Letter Agreement, dated December 16, 1993, by and between the Company
           and Samsung.

10.42(1)  Letter of Intent to Reach Cooperation Agreement dated February 7,
          1994 between the Company and Schott Glaswerice, a Germany
          corporation.
         
10.43(1)  Secondary Agreement dated January 7, 1994 between MPS and Schott
          Glass Singapore Pte. Ltd., a Singapore company.
         
10.44(1)  Tenancy dated January 7, 1994 between MPS and Schott Glass
          Singapore, Pte. Ltd.
         
10.45(1)  Agreement to Lease dated December 13, 1993 between MPS and Schott 
          Glass Singapore Pte, Ltd.
         
10.46(1)  Amendment to Loan Agreement dated January 27, 1994 between 
          Microelectronic Packaging America and Silicon Valley Bank.
         
10.47(1)  Amendment to Loan Agreement dated February 23, 1994 between 
          Microelectronic Packaging America and Silicon Valley Bank.
         
10.48(1)  Consent to Certain Corporate Actions dated February 11, 1994 
          between the Company and Development bank of Singapore.
         
10.49(1)  Consulting Agreement, dated January 1, 1993, between the Company
          and S&N Corporation
         
10.50(1)  Amendment to Loan Agreement dated April 13, 1994 between 
          Microelectronic Packaging America and Silicon Valley Bank.
         
10.51(1)  Option Agreement between the Company and Ernest J. Joly.
         
10.52(1)  Compensation Agreement between the Company and Ernest J. Joly.
         
10.53(1)  Option Agreement the Company and Charles F. Wheatley.
         
10.54(1)  Compensation Agreement between the Company and Charles F. Wheatley.
         
10.55(1)  Consent to Certain Corporate Actions dated April 12, 1994 between 
          the Company and Development Bank of Singapore.
         
10.56(3)  Letter Agreement, dated May 27, 1994, by and between the Company 
          and Development Bank of Singapore.

10.57(4)/+/  Purchase Option Agreement dated August 4, 1994 by and between
             International Business Machines ("IBM") and the Company. 

10.58(4)/+/  Multilayer Technology Transfer and Licensing Agreement, dated
             August 4, 1994, by and between the Company and IBM.

10.59(4)  Form of Promissory Note Issued by Contact International Corporation
          in favor of the Company.
         
10.60(4)  Form of Common Stock Option issued by CIC Holding, Inc. to the   
          Company.
         
10.61(4)  Form of Common Stock Warrant issued by CIC Holding, Inc. to the  
          Company.
         
10.62(4)  Form of Common Stock Warrant issued by CIC Holding, Inc. to the   
          Company.
         
10.63(4)  Form of Option to purchase the Common Stock of CIC Holding, Inc.   
          issued by D.G.D. Bucci to the Company.
         
10.64(5)  Tenancy Agreement relating to Private Lot A14698 at 9 Tuas Basin
          Link between Jurong Town Corporation and MPM Singapore Pte Ltd
          dated November 18, 1994.
         
10.65(5)  Offer of Tenancy for an Extended C8 Type Factory Building on Lot
          A14698(A) at 5 Tuas Basin Link, Jurong Industrial Estate, Singapore
          2263 from Jurong Town Corporation dated December 2, 1994.
         
10.66(5)  Offer of Tenancy for an Extended C8 Type Factory Building on Lot
          A14698(B) at 7 Tuas Basin Link, Jurong Industrial Estate, Singapore
          2263 from Jurong Town Corporation dated January 26, 1995.
         
10.67(5)  Offer Letter from DBS Bank of Term Loan/Short Term Advances 
          Facilities dated December 15, 1994.
         
10.68(5)  Sale and Purchase Agreement for CERDIP Manufacturing Equipment and
          Alumina Powder Equipment between the Company and Samsung Corning
          Company, Ltd., dated December 19, 1994.
         
10.69(5)  Letter dated march 31, 1995 from Development Bank of Singapore.
         
10.70(7)  Loan and Security Agreement, dated May 16, 1995, between the 
          Company, MPS and Texas Instruments.
         
10.71(7)  Loan and Security Agreement, dated May 30, 1995, between the 
          Company, and NSEB.
         
10.72(9)  Supply Guarantee and Preferred Allocation Agreement dated August
          17, 1995 between Registrant, MPS and SGS-Thomson Microelectronics
          Pte. Ltd. (the "Supply Guarantee").
         
10.73(11) Agreement Relating to Guarantee among Registrant, MPA, CTM, MPS and
          Motorola.
         
10.74(11) Supplemental Agreement to the Supply Guarantee dated October 19,   
          1995.
         
10.75(11) $1,000,000 Term Loan Financing between Citibank N.A. and MPS.      
         
10.76(14) Subscription Agreement by and among MPI, Transpac Capital Pte Ltd,
          Transpac Industrial Holdings Ltd., Regional Investment Company Ltd
          and Natsteel Equity III Pte Ltd.
         
10.77(14) Convertible Loan Agreement by and among MPI, MPM, Transpac Capital
          Pte Ltd, Transpac Industrial Holdings Ltd, Regional Investment
          Company Ltd and Natsteel Equity III Pte Ltd.
         
10.78(14) Guarantee issued by MPI.
         
10.80(12) Form of Offshore Securities Subscription Agreement dated October
          22, 1996 by and among MPI, Purchaser and Loselle Greenawalt Kaplan
          Blair & Adler.
         
10.81(12) Form of 8% Convertible Debenture issued to the Purchasers.
         
10.82(12) Form of Common Stock Purchase Warrant dated October 22, 1995 issued
          by MPI to Dussledorf Securities Limited.
         
10.84(13) Form of Amendment to 8% Convertible Debenture.

10.85     Novation Agreement between Microelectronic Packaging, Inc. and 
          Innoventure (S) Pte. Ltd.

10.86     Agreement for Subcontract Manufacturing between Microelectronic
          Packaging (S) Pte. Ltd. and PT Ironhill dated September 5, 1995.
         
10.87     Sub-Contract Manufacturing Agreement between Microelectronic
          Packaging, Inc. and Innoventure (S) Pte. Ltd. dated July 29, 1993.

10.88     Sub-Contract Manufacturing Agreement between Microelectronic 
          Packaging, Inc. and PT Ironhill Micro Electronic Packaging Co. Ltd.
          dated July 29, 1993. 

10.89     Amended Loan and Security Agreement dated January 2, 1997 by and
          between NS Electronics Bangkok (1993) Ltd. and Microelectronic
          Packaging, Inc.
   
10.90     Second Secured Promissory Note dated January 2, 1997 by and between
          NS Electronics Bangkok (1993) Ltd. and Microelectronic Packaging,
          Inc.
         
10.91     Amended Loan and Security Agreement dated February 16, 1997 by and
          between Texas Instruments Singapore (Pte) Limited and
          Microelectronic Packaging (S) Pte. Ltd.
         
10.92     Consulting Agreement dated November 21, 1996, as amended, by and
          between the Company and The Watley Group, LLC.
         
10.93     Consulting Agreement dated November 21, 1996, as amended, by and 
          between the Company and G&L Investments.

16.1(10)  Letter dated November 27, 1995 from Price, Waterhouse LLP to 
          Registrant. 

21.1(5)   Subsidiaries of the Company.
         
23.1      Consent of Price Waterhouse LLP, Independent Accountants.
         
23.2      Consent of BDO Seldman LLP.
         
24.1      Power of Attorney (see page 52).

27.1      Financial Data Schedule
          
99.1(2)   1993 Stock Options/Stock Issuance Plan.
         
99.2(2)   Form of Notice of Grant of Stock Option and Stock Option Agreement.

99.3(2)   Addendum to Stock Option Agreement (Special Tax Elections).

99.4(2)   Addendum to Stock Option Agreement (Financial Assistance).

99.5(2)   Form of Notice of Grant of Stock Option with Stock Option Agreement 
          (Non-Employee Director Automatic Grant), 

99.6(2)   Form of Stock Issuance Agreement.

99.7(2)   Compensation Agreement between Timothy da Silva and the Company dated
          April 12, 1994.

99.8(2)   Stock Option Agreement between Timothy da Silva and the Company dated
          October 22, 1992.

99.9(2)   Compensation Agreement between Ernest J. Joly and the Company dated 
          April 12, 1994.

99.10(2)  Stock Option Agreement between Ernest J. Joly and the Company dated 
          February 16, 1994.

99.11(2)  Compensation Agreement between Charles F. Wheatley and the Company
          dated April 12, 1994.

99.12(2)  Stock Option Agreement between Charles F. Wheatley and the Company
          dated February 16, 1994.
---------------------

(1)  Incorporated by reference from an exhibit filed with the Company's
     Registration Statement on Form S-1 (File No. 33-72890) declared effective
     by the Securities and Exchange Commission on April 21, 1994.

(2)  Incorporated by reference from an exhibit filed with the Company's
     Registration Statement on Form S-8 (File No. 33-78452) filed with the
     Securities and Exchange Commission on April 29, 1994.

(3)  Incorporated by reference from an exhibit filed with the Company's
     Quarterly Report on Form 10-Q (File No. 0-23562) filed with the Securities
     and Exchange Commission on August 15, 1994.

(4)  Incorporated by reference from an exhibit filed with the Company's
     Quarterly Report on Form 10-Q (File No. 0-23562) filed with the Securities
     and Exchange Commission on November 14, 1994.

(5)  Incorporated by reference from an exhibit filed with the Company's Annual
     Report on Form 10-K (File No. 0-23562) filed with the Securities and
     Exchange Commission on April 17, 1995 as amended.

(6)  Incorporated by reference from an exhibit filed with the Company's
     Current Report on Form 8-K (File No. 0-23562) filed with the Securities
     and Exchange Commission on February 2, 1995.

(7)  Incorporated by reference from an exhibit filed with the Company's
     Quarterly Report on Form 10-Q (File No. 0-23562) filed with the Securities
     and Exchange Commission on August 21, 1995.

(8)  Incorporated by reference from an exhibit filed with the Company's
     Current Report on Form 8-K (File No. 0-23562) filed with the Securities
     and Exchange Commission on September 12, 1995.

(9)  Incorporated by reference from an exhibit filed with the Company's
     Quarterly Report on Form 10-Q (File No. 0-23562) filed with the Securities
     and Exchange Commission on November 14, 1995.

(10) Incorporated by reference from an exhibit filed with the Company's
     Quarterly Report on Form 10-Q (File No. 0-23562) filed with the Securities
     and Exchange Commission for the period ended June 30, 1996.

(11) Incorporated by reference from an exhibit filed with the Company's Annual
     Report on Form 10-K (File No. 0-23562) for the 1995 fiscal year filed with
     the Securities and Exchange Commission.

(12) Incorporated by reference from an exhibit filed with the Company's Current
     Report on Form 8-K (File No. 0-23562) filed with the Securities and
     Exchange Commission on October 28, 1996.

(13) Incorporated by reference from an exhibit filed with the Company's Current
     Report on Form 8-K File No. 0-23562) filed with the Securities and Exchange
     Commission on January 15, 1997.

(14) Incorporated by reference from an exhibit filed with the Company's current 
     report on Form 8-K (File No. 0-23562) dated March 27, 1996 and filed with
     the Securities and Exchange Commission on April 5, 1996.

+  Confidential Treatment has been granted for the deleted portions of this 
   document.

<PAGE>
 
                                  SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on April 10, 1997.

                                  MICROELECTRONIC PACKAGING, INC.



Date:  April 10, 1997             By:/s/ ALFRED J. MORAN, JR.
                                     -------------------------------------
                                     Alfred J. Moran, Jr.
                                     President and Chief Executive Officer

                                       51
<PAGE>
 
                               POWER OF ATTORNEY
                               -----------------

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Alfred J. Moran, Jr. and Denis
Trafecanty, and each of them, as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Report on Form 10-K, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

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


Date:  April 10, 1997             By: /s/ ALFRED J. MORAN, JR.
                                      --------------------------------------
                                      Alfred J. Moran, Jr.
                                      President and Chief Executive Officer


Date:  April 10, 1997             By: /s/ DENIS TRAFECANTY
                                      --------------------------------------
                                      Denis Trafecanty
                                      Chief Financial Officer and Secretary


Date:  April 10, 1997             By: /s/ LEWIS SOLOMON
                                      --------------------------------------
                                      Lewis Solomon
                                      Chairman of the Board of Directors of 
                                      the Company


Date:  April 10, 1997             By: /s/ FRANK HOWLAND
                                      -------------------------------------
                                      Frank Howland
                                      Director of the Company


Date:  April 10, 1997             By: /s/ ANTHONY J.A. BRYAN
                                      -------------------------------------
                                      Anthony J.A. Bryan
                                      Director of the Company


Date:  April 10, 1997             By: /s/ WILLIAM R. THOMPSON
                                      ------------------------------------
                                      William R. Thompson
                                      Director of the Company


Date:  April 10, 1997             By: /s/ TIMOTHY DA SILVA
                                      -----------------------------------
                                      Timothy da Silva
                                      Director of the Company

                                       52
<PAGE>
 
              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
Microelectronic Packaging, Inc.
San Diego, California

We have audited the accompanying consolidated balance sheets of Microelectronic
Packaging, Inc. as of December 31, 1996 and 1995 and the related consolidated
statements of operations, shareholders' equity (deficit), and cash flows for the
years ended December 31, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits 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 Microelectronic
Packaging, Inc. at December 31, 1996 and 1995 and the results of its operations
and its cash flows for the years ended December 31, 1996 and 1995 in conformity
with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company suffered a loss from operations
in the amount of $11,301,000 and a loss from disposal of multilayer ceramics
operations of $30,541,000 in 1996, has a working capital deficiency of
$30,015,000 and an accumulated deficiency of $68,752,000 as of December 31,
1996, is not in compliance with certain loan agreements, has received a demand
letter from one of its lenders, is economically dependent on a limited number of
customers, has a foreign subsidiary in receivership under Singapore law and has 
various claims and lawsuits filed against the Company and its subsidiaries and 
may be forced to seek protection for the Company and certain subsidiaries under 
United States bankruptcy or similar bankruptcy laws in Singapore. These matters
raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 2. In the event a plan of reorganization is accepted for the 
subsidiary, continuation of the Company thereafter is dependent on the 
Company's ability to negotiate payment arrangements with other creditors and 
achieve sufficient cash flow to meet its restructured debt obligations.  The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

As discussed in Note 1 to the consolidated financial statements, in 1996 the
Company changed its method of accounting for the impairment of long-lived assets
and for long-lived assets to be disposed of to conform with Statement of
Financial Accounting Standards No. 121.


                                    BDO SEIDMAN, LLP


Costa Mesa, California March 26, 1997,
except for Note 17 paragraph 8 which
is as of April 5, 1997, and Note 9
paragraph 11 which is as of April 10, 1997.

                                      F-1
<PAGE>


                       REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Shareholders of
Microelectronic Packaging, Inc.


In our opinion, the 1994 consolidated financial statements listed in the index
appearing under item 14(a)(1) and (2) present fairly, in all material respects,
the results of operations and cash flows of Microelectronic Packaging, Inc. 
and its subsidiaries for the year ended December 31, 1994, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above. We have not audited the 
consolidated financial statements of Microelectronic Packaging, Inc. and its 
subsidiaries for any period subsequent to December 31, 1994.

The aforementioned financial statements have been prepared assuming that the
Company will continue as a going concern. The Company incurred a net loss of
approximately $2.9 million during 1994 and has a working capital deficiency as 
of December 31, 1994. In addition, the Company has embarked on
a significant business development effort and will require significant
additional capital resources to maintain its operations and business development
efforts. These matters raise substantial doubts about the Company's ability to
continue as a going concern. Management's plans in regards to these matters are
described in Note 2. The aforementioned financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

PRICE WATERHOUSE LLP

San Diego, California
April 11, 1995

                                      F-2

<PAGE>
 
 
                        MICROELECTRONIC PACKAGING, INC.
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,                                                                   1996            1995
-------------------------------------------------------------------------------------------------------
<S>                                                                        <C>             <C>
 
ASSETS
CURRENT ASSETS
 Cash                                                                      $  2,954,000    $  2,923,000
 Accounts receivable, net                                                     5,849,000       6,815,000
 Inventories                                                                 10,072,000       7,158,000
 Other current assets                                                         1,836,000       3,659,000
-------------------------------------------------------------------------------------------------------
 
TOTAL CURRENT ASSETS                                                         20,711,000      20,555,000
-------------------------------------------------------------------------------------------------------
 
Property, plant and equipment, net                                            3,479,000      16,943,000
Other non-current assets                                                        704,000       4,929,000
-------------------------------------------------------------------------------------------------------
 
                                                                           $ 24,894,000    $ 42,427,000
=======================================================================================================
 
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
 Line of credit borrowings, due on demand                                  $  5,201,000    $  9,245,000
 Debt in default, due on demand                                               8,084,000               -
 Current portion of long-term debt                                            2,527,000       3,316,000
 Accounts payable                                                            12,522,000       9,292,000
 Accrued liabilities                                                          2,626,000       3,013,000
 Deferred revenue                                                               503,000         572,000
 Current liabilities of discontinued operations, net                         19,263,000              --
-------------------------------------------------------------------------------------------------------
 
TOTAL CURRENT LIABILITIES                                                    50,726,000      25,438,000
-------------------------------------------------------------------------------------------------------
 
Long-term debt, less current portion                                          4,782,000       9,573,000
COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS
-------------------------------------------------------------------------------------------------------
 
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value:
     Authorized shares - 15,000,000 at 1996 and 10,000,000 at 1995
     Issued and outstanding - 6,991,493 at 1996 and 4,660,093 at 1995        38,138,000      34,326,000
 Accumulated deficit                                                        (68,752,000)    (26,910,000)
-------------------------------------------------------------------------------------------------------
 
                                                                            (30,614,000)      7,416,000
-------------------------------------------------------------------------------------------------------
 
                                                                           $ 24,894,000    $ 42,427,000
=======================================================================================================
</TABLE>
                    See accompanying notes to consolidated financial statements.

                                      F-3


<PAGE>
 

                        MICROELECTRONIC PACKAGING, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Year ended December 31,                                                1996             1995             1994
----------------------------------------------------------------------------------------------------------------
<S>                                                               <C>               <C>              <C>
                                                                                                 
Net Sales                                                                                        
 Product sales                                                    $ 54,203,000      $57,996,000      $41,115,000
 Other sales                                                         1,785,000                -        1,173,000
----------------------------------------------------------------------------------------------------------------
                                                                    55,988,000       57,996,000       42,288,000
Cost of goods sold                                                                                    
 Product sales                                                      47,255,000       46,410,000       36,589,000
 Other sales                                                         1,523,000                -        1,070,000
----------------------------------------------------------------------------------------------------------------
                                                                    48,778,000       46,410,000       37,659,000
----------------------------------------------------------------------------------------------------------------
Gross profit                                                         7,210,000       11,586,000        4,629,000
Selling, general and administrative                                  8,260,000        7,626,000        4,991,000
Impairment of long-lived assets                                      6,163,000                -                -
Engineering and product development                                  2,717,000        2,152,000        1,734,000
----------------------------------------------------------------------------------------------------------------
Income (loss) from operations                                       (9,930,000)       1,808,000       (2,096,000)
----------------------------------------------------------------------------------------------------------------
                                                                                                      
Other income (expense):                                                                               
 Interest expense                                                   (2,032,000)      (1,123,000)        (443,000)
 Foreign exchange gain (loss)                                          292,000       (1,233,000)      (1,009,000)
 Royalty revenue                                                             -                -          153,000
 Other income, net                                                     369,000          614,000          496,000
----------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations                           (11,301,000)          66,000       (2,899,000)
Discontinued operations:                                                                              
 Loss from operations                                               (1,196,000)      (1,452,000)         (40,000)
 Estimated loss on disposal of                                                                        
  multilayer ceramics operations,                                                                     
  including provision of $1,580,000                                                             
  for operating losses through disposal date                       (29,345,000)               -                -
----------------------------------------------------------------------------------------------------------------

Net loss                                                          $(41,842,000)    $ (1,386,000)     $(2,939,000)
================================================================================================================

Weighted average number of shares outstanding                        5,445,000        4,660,000        4,174,000
================================================================================================================
                                                                                                 
Net loss per common share (1996 and 1995 historical, and
 1994 pro forma):                        
  Loss from continuing operations                                 $      (2.07)    $       0.01      $     (0.69)
  Discontinued operations                                                (5.61)           (0.31)           (0.01)
----------------------------------------------------------------------------------------------------------------
Net loss per share                                                $      (7.68)    $      (0.30)     $     (0.70)
================================================================================================================
</TABLE> 
 
         See accompanying notes to consolidated financial statements.

                                      F-4

<PAGE>

                        MICROELECTRONIC PACKAGING, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE> 
<CAPTION> 
INCREASE (DECREASE) IN CASH
Year ended December 31,                                                 1996               1995               1994
----------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                 <C>                 <C> 
Cash flows from operating activities:                                          
Net loss                                                          $(41,842,000)       $ (1,386,000)       $(2,939,000)
Adjustments to reconcile net loss to net cash                                  
 provided by (used in) operating activities:                                   
  Depreciation and amortization                                      2,607,000           2,521,000          2,346,000
  Discontinued operations                                           30,541,000                   -                  -
  Provision for revaluation of long-lived assets                     6,163,000                   -                  -
  Non-employee stock-based compensation                                332,000                   -                  -
  Discount on conversion of debentures                                 700,000                   -                  -
  Loss on sale of fixed assets                                          12,000                   -              2,000
  Write down for revaluation of subsidiary                                   -           1,000,000                  -
  Unrealized loss on borrowings denominated in                                           
   foreign currency and from forward foreign currency                                            
   contracts                                                                 -             903,000            649,000
  Realized benefit from forward foreign currency contracts            (292,000)           (358,000)          (239,000)
Changes in assets and liabilities, net of effects                                           
 of discontinuance in 1996:                                                    
  Accounts receivable                                                  966,000             642,000         (1,600,000)
  Inventories                                                       (3,354,000)         (2,148,000)          (173,000)
  Other current assets                                               1,731,000          (1,236,000)          (789,000)
  Other non-current assets                                           1,303,000          (1,801,000)        (1,508,000)
  Accounts payable, accrued liabilities and deferred revenue         3,641,000           2,162,000          1,259,000
---------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities of:                           
  Continuing operations                                              2,508,000             299,000         (2,992,000)
  Discontinued operations                                           (6,665,000)                  -                  -
---------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities                    (4,157,000)            299,000         (2,992,000)
---------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:                                                                                               
 Acquisition of fixed assets                                                                                
  continuing operations                                             (1,284,000)        (12,163,000)        (2,443,000)
  discontinued operations                                           (8,852,000)                  -                  -
 Proceeds from sale of fixed assets                                    310,000                   -             26,000
 Advances under notes receivable                                             -             (30,000)          (940,000)
 Realized benefit from forward foreign currency contracts              292,000             358,000            239,000
---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                               (9,534,000)        (11,835,000)        (3,118,000)
---------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:                                                                                               

 Increase (decrease) in short-term notes payable                                                                                  
  Continuing operations                                               (847,000)          3,405,000            538,000
  Discontinued operations                                              101,000                   -                  -
 Borrowings under long-term debt and promissory notes
  Continuing operations                                              5,128,000          10,599,000          1,507,000
  Discontinued operations                                            9,000,000                   -                  -
 Principal payments on long-term debt and promissory notes                      
  Continuing operations                                             (1,200,000)           (891,000)        (1,543,000)
  Discontinued operations                                             (340,000)                  -                  -
 Issuance of common stock, net                                       1,880,000                   -          5,906,000
---------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                           13,722,000          13,113,000          6,408,000
---------------------------------------------------------------------------------------------------------------------
Net increase in cash                                                    31,000           1,577,000            298,000
Cash at beginning of year                                            2,923,000           1,346,000          1,048,000
---------------------------------------------------------------------------------------------------------------------
Cash at end of year                                               $  2,954,000        $  2,923,000        $ 1,346,000
=====================================================================================================================
</TABLE> 

                        MICROELECTRONIC PACKAGING, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
         See accompanying notes to consolidated financial statements.

                                      F-5
 
<PAGE>

                        MICROELECTRONIC PACKAGING, INC.
     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT)


<TABLE> 
<CAPTION> 
                           Preferred Stock A         Preferred Stock B             Common Stock              
                         ----------------------   ------------------------   ------------------------   Accumulated
                          Shares      Amount       Shares        Amount       Shares        Amount        Deficit         Total
-----------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>       <C>            <C>         <C>           <C>         <C>            <C>            <C> 
BALANCE                                                                                                               
 January 1, 1994          239,251   $ 9,401,000    1,231,123   $ 7,018,000   1,285,264   $ 12,001,000   $(22,585,000)  $  5,835,000

Common stock issued             -             -            -             -   1,600,021      5,906,000              -      5,906,000

Conversion of                                                                                                         
  preferred stock        (239,251)   (9,401,000)  (1,231,123)   (7,018,000)  1,774,808     16,419,000              -              -

Net loss                        -             -            -             -           -              -     (2,939,000)    (2,939,000)

-----------------------------------------------------------------------------------------------------------------------------------
BALANCE,                                                                                                              
 December 31, 1994              -             -            -             -   4,660,093     34,326,000    (25,524,000)     8,802,000

Net loss                        -             -            -             -           -              -     (1,386,000)    (1,386,000)

-----------------------------------------------------------------------------------------------------------------------------------
BALANCE,                                                                                                              
 December 31, 1995              -             -            -             -   4,660,093     34,326,000    (26,910,000)     7,416,000

Common stock issued             -             -            -             -   2,331,400      3,480,000              -      3,480,000

Non-employee                                                                                                          
  stock compensation            -             -            -             -           -        332,000              -        332,000

Net loss                        -             -            -             -           -              -    (41,842,000)   (41,842,000)

-----------------------------------------------------------------------------------------------------------------------------------
BALANCE,                                                                                                              
 December 31, 1996              -   $         -            -   $        -    6,991,493   $ 38,138,000   $(68,752,000)  $(30,614,000)

===================================================================================================================================
</TABLE>
                    See accompanying notes to consolidated financial statements.

                                      F-6


<PAGE>


                        MICROELECTRONIC PACKAGING, INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1  -  DESCRIPTION OF COMPANY AND SUMMARY OF ACCOUNTING POLICIES

Microelectronic Packaging, Inc. ("MPI" or the "Company") is an electronic
interconnect solutions company with design, manufacturing and sales services to
support the requirements of electronic systems and integrated circuit ("IC" or
"semiconductor") manufacturers.  The Company develops, manufactures, markets and
sells multichip modules ("MCMs") and pressed ceramic packages to customers in
the IC, telecommunications, automatic test equipment and other electronics
related industries.

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of MPI and its wholly-owned subsidiaries, Microelectronic Packaging (S)
Pte. Ltd. ("MPS") (including its wholly-owned subsidiary Furnace Technology (S)
Pte. Ltd.), Microelectronic Packaging America ("MPA"), MPC (S) Pte. Ltd.
("MPC"), CTM Electronics, Inc. ("CTM"), MPM (S) Pte. Ltd. ("MPM") and Verro
Printing Screens Pte. Ltd. ("VPS").  VPS had been dormant since August 1984 and
was dissolved in March 1994.  All significant intercompany accounts,
transactions and profits have been eliminated.

CASH AND CASH EQUIVALENTS - For the purpose of the statement of cash flows, the
Company considers all highly liquid investments with original maturities of
three months or less to be cash and cash equivalents.

INVENTORIES - Inventories are stated at the lower of cost (determined using the
first-in, first-out method) or market.

PRODUCTION SUPPLIES - Production supplies, principally comprising printing
fixtures, pressing and graphite tools, and furnace refractories are stated at
cost and are charged to cost of goods sold as utilized in the production
process.  Amounts expected to be utilized within the next year are included in
other current assets in the accompanying consolidated financial statements.

PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at
cost, less accumulated depreciation. Depreciation is computed using the
straight-line method over estimated useful lives generally ranging from three to
thirty years. Leasehold improvements and assets under capital leases are
amortized over the shorter of the estimated useful lives of the assets or the
life of the lease.

IMPAIRMENT OF LONG-LIVED ASSETS - As of January 1, 1996, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(Note 18). SFAS No. 121 prescribes that an impairment loss is recognized in the
event that facts and circumstances indicate that the carrying amount of an asset
may not be recoverable, and an estimate of future undiscounted cash flows is
less than the carrying amount of the asset. Impairment is recorded based on an
estimate of future discounted cash flows. Adoption of SFAS No. 121 did not have
a material impact on the Company's financial statements.

LONG-TERM PREPAID AND INTANGIBLE ASSETS - Long-term prepaid and intangible
assets are comprised of prepaid royalties, deferred facility start-up costs and
certain other intangible assets.  The amortization of such amounts is included
in the operating results of the period of expected benefit.  The Company
periodically assesses the recoverability of these assets and records an
impairment of such assets when the projected gross cash flows are no longer
estimated to be sufficient to recover such assets.

     Prepaid Royalties - Under the terms of its technology transfer and
     licensing agreement with International Business Machines Corporation
     ("IBM") (see Note 4), the Company agreed to pay an up-front minimum royalty
     of $2,000,000. This up-front royalty was included in other non-current
     assets for 1995, which was expensed in 1996 as a result of the
     discontinuance of the multilayer ceramics operations.

     Deferred Facility Start-up Costs - The Company has incurred costs
     associated with establishing a production facility to manufacture product
     utilizing the technology licensed from IBM (see Note 4). Such deferred
     facility start-up costs primarily consisted of direct incremental employee
     and employee related costs and pre-operating rent for new facilities which
     were included in other non-current assets at December 31, 1995.  These
     costs, which totaled $8,921,000, were expensed in 1996 as a result of the
     discontinuance of the multilayer ceramics operations.

     Intangible Assets - Intangible assets consist of an acquired customer base
     and purchased technology licenses and are classified as other non-current
     assets.  Intangible assets are amortized using the straight-line method
     over estimated 

                                      F-7

<PAGE>

                        MICROELECTRONIC PACKAGING, INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


     useful lives of 7 years. In 1996, the Company determined that the purchased
     technology is of no further benefit to the Company, and wrote-off the
     remaining net book value in 1996.

REVENUE RECOGNITION - The Company recognizes revenue from product sales at the
time of shipment. Non-refundable license fees are recognized as revenue when the
Company has no material remaining performance obligations under the associated
license agreement.  Other sales in 1994 and 1996 include the revenue arising
from the resale of certain production equipment and related production supplies.
The equipment and supplies were purchased by the Company on behalf of, and sold
to, a third party pursuant to purchase orders. Revenues from these transactions
were recognized at the time the Company had satisfied all of its significant
performance obligations.

INCOME TAXES - The domestic parent Company and its U.S. subsidiaries file
consolidated returns for U.S. federal income tax purposes.  For California
income tax purposes, the domestic parent company files on a unitary basis with
all foreign and domestic subsidiaries.  The Singapore subsidiaries file income
tax returns in Singapore based upon their separate taxable income.

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109. SFAS 109 requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the Company's financial statements or tax returns.
Under this method, deferred tax assets and liabilities are determined based upon
the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year(s) in which the
differences are expected to reverse. This requires that the Company record a
deferred tax asset related to the future income tax benefits associated with tax
loss and credit carryforwards, and certain temporary differences for which tax
benefits have not previously been recognized.  Deferred tax assets are to be
reduced by a valuation allowance when it is more likely than not that a portion
or all of the deferred tax asset will not be realized.  In addition, under SFAS
109, the tax benefit associated with the utilization of operating loss
carryforwards is included in the regular provision for income taxes.

STOCK-BASED COMPENSATION - The Company applies APB Opinion 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
stock-based compensation plans.  Accordingly, no compensation cost is recognized
for its employee stock option plans, unless the exercise price of options
granted is less than fair market value on the date of grant.  The Company has
adopted the disclosure provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (see Note 13).

FOREIGN CURRENCY TRANSACTIONS - The accounts of the Company's Singapore
subsidiaries are maintained in U.S. dollars and the U.S. dollar is considered to
be the functional currency of all consolidated subsidiaries.  Transaction
gains/(losses) resulting from transactions denominated in foreign currencies
(primarily related to certain raw material purchases denominated in Japanese yen
and other costs of production and administration denominated in Singapore
dollars) are included in the results of operations for the period in which the
exchange rates change.

FORWARD FOREIGN CURRENCY CONTRACTS - Subject to bank financing and consent, the
Company enters into forward foreign currency contracts to minimize the short-
term impacts of exchange rate fluctuations related to certain raw material
purchases denominated in Japanese yen and other costs of production and
administration denominated in Singapore dollars.  The cost of the contracts and
any resulting gains and losses on the contracts are included in the results of
operations in the period in which the exchange rates change.

FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount of cash, accounts
receivable, accounts payable and accrued expenses are reasonable estimates of
their fair value because of the short maturity of these items.  The carrying
amounts of the Company's short-term credit facilities and mortgage notes
approximate fair value because the interest rates on these instruments are
subject to change with market interest rates. As the majority of the Company's
long-term obligations are classified as current liabilities (due on demand, due
to defaults under debt covenants), the Company believes that their carrying
amounts approximate their fair value.

ENGINEERING AND PRODUCT DEVELOPMENT COST - Engineering and product development
costs are expensed as incurred.

                                      F-8

<PAGE>

                        MICROELECTRONIC PACKAGING, INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


HISTORICAL AND PRO FORMA (UNAUDITED) NET INCOME (LOSS) PER COMMON SHARE - Prior
to April 1994, the Company's historical capital structure was not indicative of
its prospective structure due to the conversion of all shares of convertible
preferred stock into common shares concurrent with the closing of the Company's
initial public offering in April 1994. Accordingly, historical net loss per
common share was not considered meaningful and was not presented for 1994.
Earnings per share calculations presented in the financial statements are
computed on a pro forma basis for 1994 and on a historical basis for 1995 and
1996.

The calculation of the shares used in computing pro forma net income per share
for 1994 includes the effect of the conversion of all shares of Series A and B
Convertible Preferred Stock into 1,774,808 shares of Common Stock in connection
with the Company's initial public offering as if they were converted into common
shares on January 1, 1994, and accordingly, net income used in computing pro
forma net loss per share has not been reduced by historical preferred dividend
requirements of $813,000 in 1994.

Computations of net loss per common share, on a proforma and historical basis,
are based on the weighted average number of common shares and common stock
equivalents outstanding.  Common stock equivalents related to stock options and
warrants are determined using the treasury stock method.  Pursuant to the
requirements of the Securities and Exchange Commission (SEC) Staff Accounting
Bulletin No. 83, all common shares issued and stock options granted within one
year prior to the Company's initial public offering at prices below the initial
public offering price have been included in the calculation of the shares used
in computing pro forma net income (loss) per common share as if they were
outstanding for the period presented (using the treasury stock method).  Stock
options and warrants are not included in the computations of pro forma and
historical net loss per common share as they would be anti-dilutive.

USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, including the
inventory obsolescence provision, liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.  Actual results
could differ from those estimates.

RECLASSIFICATIONS - Certain prior year amounts have been reclassified to conform
to the current year presentation.

NOTE 2  -  OPERATING RESULTS, CAPITAL RESOURCES AND GOING CONCERN

The Company's decision to discontinue its multilayer ceramics operations was the
leading cause of the 1996 net loss of $41.8 million. The discontinuation of
this operation resulted in the write-off of $8.9 million of preproduction costs,
$2.0 million of prepaid royalties, a reduction in the carrying amount of
property, plant and equipment by $14.9 million, the accrual of certain
miscellaneous costs of $1.9 million, and the accrual of estimated losses to be
incurred through the disposal date totaling $1.6 million. Other factors
contributing to the Company's 1996 loss were: (1) a $6.2 million reduction in
the carrying amount of pressed ceramic equipment at the MPS facility in
Singapore and in Indonesia, and a $1.6 million allowance against MPS's
receivable for inventory advanced to the Company's joint venture partner in
Indonesia and (2) a significant decline in sales of pressed ceramic products by
MPS, due to an industry-wide over-supply of pressed ceramic products. As of
December 31, 1996, the Company has a working capital deficiency of $30.0
million, which includes $5.2 million of line of credit borrowings that are due
on demand, $8.1 million of debt in default which is due on demand, the current
portion of long-term debt of $2.5 million, plus net current liabilities of
discontinued operations of $19.3 million.

On March 18, 1997, a receiver was appointed to handle the liquidation of the
multilayer ceramics operations. Certain other factors, including, but not
limited to, portions of the Company's debt which is currently in default, cross
default provisions specified in most of the Company's borrowing arrangements,
various claims and lawsuits filed against the Company and its subsidiaries,
dependence on a limited number of customers, the high debt service costs of the
Company, and the Company's scarcity of working capital have the potential to
have a material adverse effect on the Company's business, financial condition,
results of operations and cash flows.

The accompanying financial statements have been prepared assuming the Company
(including subsidiaries except MPM) will continue as a going concern. A number
of factors, including the Company's history of significant losses, the debt
service costs 

                                      F-9
<PAGE>

                        MICROELECTRONIC PACKAGING, INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

associated with the Company's high level of existing indebtedness, the need to
restructure debt which is currently in default, various claims and lawsuits,
and MPM in receivership raise substantial doubts about the Company's ability to
continue as a going concern. The Company currently has $8.1 million of
indebtedness in default and thereby due upon demand, as well as $5.2 million of
line of credit borrowings that are also due upon demand. The Company does not
possess sufficient cash resources to repay these obligations, and the Company
would be unable to repay these loans in the event that such demand was made by
the Company's creditors (see Note 17).

As a result of the events described above, the new executive management team is
restructuring the Company's remaining operations with the goal of producing
profits and positive cash flow. Management has been successful in restructuring
two of its customer loans; principal will be repaid over three to four years
with the commencement of principal payments deferred until 1998. The Company
believes that it may be able to restructure the majority of its remaining
customer loans on similar terms.

NOTE 3  -  COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

<TABLE> 
<CAPTION> 
December 31,                                          1996                 1995
-----------------------------------------------------------------------------------
<S>                                             <C>                <C> 
Accounts receivable consist of:
  Trade receivables.............................  $  6,147,000       $  7,014,000
  Allowance for doubtful accounts...............      (298,000)          (199,000)
                                                  ------------       ------------
                                                  $  5,849,000       $  6,815,000
                                                  ============       ============
Inventories consist of: 
  Raw materials.................................  $  5,797,000       $  4,105,000
  Work-in-progress..............................     2,977,000          1,790,000
  Finished goods................................     2,622,000          2,293,000
  Obsolescence reserve..........................    (1,324,000)        (1,030,000)
                                                  ------------       ------------
                                                  $ 10,072,000       $  7,158,000
                                                  ============       ============
Other current assets consist of:
  Production supplies...........................  $    775,000       $  1,538,000
  Other receivables.............................       737,000          1,793,000
  Prepaid expenses and other....................       324,000            328,000
                                                  ------------       ------------
                                                  $  1,836,000       $  3,659,000
                                                  ============       ============
Property, plant and equipment consist of:
  Machinery and equipment.......................  $ 14,098,000       $ 25,419,000
  Leasehold improvements........................     1,701,000          1,780,000
  Building......................................     1,782,000          1,782,000
  Furniture and fixtures........................       242,000            221,000
                                                  ------------       ------------
                                                    17,823,000         29,202,000
Accumulated depreciation........................   (14,344,000)       (12,259,000)
                                                  ------------       ------------
                                                  $  3,479,000       $ 16,943,000
                                                  ============       ============
</TABLE> 

                                      F-10
   



<PAGE>
                        MICROELECTRONIC PACKAGING, INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


<TABLE> 
<CAPTION> 
December 31,                                     1996            1995
-------------------------------------------------------------------------
<S>                                          <C>             <C>
Other non-current assets consist of:
  Prepaid royalty.........................   $          -    $  2,000,000
  Deferred facility start-up costs........              -       1,922,000
  Customer base, net of accumulated                          
    amortization of $387,000 and $279,000.        369,000         477,000
  Deposits and other......................        335,000         530,000
                                             ------------    ------------
                                             $    704,000    $  4,929,000
                                             ============    ============
Accrued liabilities consist of:                              
  Accrued employee compensation...........   $  1,150,000    $  1,965,000
  Other...................................      1,476,000       1,048,000
                                             ------------    ------------
                                             $  2,626,000    $  3,013,000
                                             ============    ============
</TABLE>

NOTE 4  -  SIGNIFICANT AGREEMENTS

SAMSUNG CORNING - In 1987, the Company entered into several agreements with
Samsung Corning Co., Ltd., ("SSC") including a licensing arrangement under which
SSC agreed to pay royalties to the Company based on sales of product
incorporating the licensed technology.  SSC's obligation to pay royalties to the
Company terminated in the first quarter of 1994.  Royalty revenues were last
paid by SSC to the Company under this licensing arrangement were $153,000 in
1994.

In December 1994, the Company's MPS subsidiary entered into an agreement to
acquire certain production equipment, spare parts and production supplies from
SSC.  In connection with the consummation of this transaction, MPS paid to SSC
in installments throughout 1995 a purchase price consideration totaling
$5,746,000.  MPS paid an additional $434,000 in ancillary costs to certain third
parties.  The funding for the foregoing transaction was obtained via a series of
term loans from certain of the Company's customers (see Note 8).

MPC (S) PTE. LTD. - In January 1993, the Company formed a wholly-owned Singapore
subsidiary (MPC) to manufacture microelectronic packaging for the Carborundum
Company ("Carborundum"), a producer of products incorporating Aluminum Nitride
("AIN") and other thermal management materials.  In connection with the
formation of MPC, MPC entered into agreements to purchase certain raw materials
from Carborundum and agreed to sell a predetermined number of parts per year to
Carborundum at an agreed-upon price which will include the cost of the parts
sold plus a defined profit margin.  Pursuant to the agreements, Carborundum will
share (but will continue to own) with MPC certain proprietary technical
knowledge related to the manufacture of AIN packaging.  Under an "Option
Agreement," the Company granted to Carborundum an irrevocable option,
exercisable at any time through December 31, 1996, to acquire for an agreed-upon
price (as set forth in the Option Agreement) up to 75% of the ownership of MPC
(the "75% Option").  On October 1, 1996, the Option Agreement was amended to
permit Carborundum to acquire up to 49% ownership in MPC through December 31,
1997, and to acquire an aggregate of 75% ownership in MPC between January 1,
1998 and December 31, 1998 (inclusive of any ownership obtained prior to January
1, 1998).  Carborundum also received a right to acquire for an agreed-upon price
(as set forth in the Option Agreement) up to 100% of the ownership of MPC in the
event that competitors of Carborundum's microelectronics business acquire more
than 10% of the ownership of the Company or gain access to any confidential
information of either MPC or the Company relating to Carborundum's
microelectronics business, or if an event of default occurs (which includes MPC
or MPI filing a petition of insolvency or should either entity make an
assignment of assets for the general benefit of creditors).  The 100% Option
shall terminate upon termination of the Option Agreement on January 1, 1999;
provided, however, that if Carborundum timely exercises the 75% Option, in part
or in full, the 100% Option and the Option Agreement shall continue in effect
for the maximum period of time permitted by applicable law.  The manufacturing
and technology agreements between MPC and Carborundum were to expire on December
31, 1996.  On October 1, 1996, MPC and Carborundum agreed to amend and extend
the terms of the Manufacturing Agreement for an additional two years. The
amendment permits MPC to increase its profit margin on sales to Carborundum by
3.5% in 1997 and by 7% in 1998 (see Note 17).

                                      F-11
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



INNOVENTURE AGREEMENT - In July 1993, the Company entered into an agreement with
Innoventure (S) Pte. Ltd., a Singapore company ("Innoventure") whereby
Innoventure agreed to establish a manufacturing facility in Indonesia in order
to manufacture certain pressed ceramic packages on a sub-contract basis for
purchase solely by MPI.  Pursuant to the agreement, Innoventure entered into a
commitment to finance the construction and operations of the facility, while MPI
agreed to grant to Innoventure a non-exclusive technology license, agreed to
lease certain production equipment to Innoventure, and committed to purchase the
entire output of the facility subject to certain terms and conditions that are
determined on an annual basis. The volume of MPI's future purchases from
Innoventure will also be determined on an ongoing basis by MPI based upon its
estimated sales requirements of pressed ceramic products. Partial processing of
pressed ceramic products commenced at the Innoventure facility in the second
quarter of 1995. Under the agreement, Innoventure will be entitled to the first
$4.5 million of defined profits to be generated by the manufacturing facility
within five years after January 1, 1995. Thereafter, any profits are to be
shared equally by Innoventure and MPI. As of December 31, 1996, profits have not
exceeded $4.5 million. In addition, the agreement calls for the Company to enter
into a lease agreement covering the lease of certain manufacturing equipment to
Innoventure. The parties have yet to finalize the terms of this leasing
arrangement. In the interim, the Company moved certain of its production
equipment from its Singapore facility and certain of the equipment purchased
from SSC to the Innoventure facility.

The Company purchases certain raw materials, equipment and production supplies
on behalf of Innoventure. As of December 31, 1996 Innoventure owed the Company
$400,000 net of reserves related to the supply of such items (see Note 2). Such
amount has been included in other current assets in the consolidated balance
sheet.

In December 1993, Innoventure paid the Company $500,000, representing the non-
refundable up-front license fee stipulated by the agreement.  This license fee,
net of certain related costs, was deferred and is being recognized over a five
year period corresponding to the expected initial term of an underlying
subcontract manufacturing agreement. As of December 31, 1996, the unamortized
balance is $312,000 and is included in deferred revenue in the consolidated
balance sheet. (See Note 18.)

INTERNATIONAL BUSINESS MACHINES CORPORATION - In August 1994, the Company
entered into a technology transfer and licensing agreement (the "IBM Agreement")
with International Business Machines Corporation ("IBM") pursuant to which the
Company was granted a license to specific technology developed by IBM for the
manufacture of multilayer ceramic products. Under the terms of the IBM
Agreement, the Company and its wholly-owned subsidiary, MPM, acquired a
nonexclusive, nontransferable right to use the licensed technology to
manufacture and sell certain specified products on a worldwide basis.  In
exchange for the license, the Company paid an up-front non-refundable royalty of
$2,000,000, and is obligated to pay additional royalties based on sales of
products incorporating the licensed technology during the term of the IBM
Agreement, which shall remain in effect for a period of ten years from the date
of execution and thereafter from year to year unless terminated by either party.
The technology agreement also requires the Company to reach certain specified
production levels at specified dates. In the event the Company fails to achieve
these specified milestones, IBM has the right to terminate the technology
agreement. Commencing in August 1996, the IBM Agreement was terminable by either
party without cause upon six months prior written notice. Pursuant to an option
agreement (the "IBM Option Agreement"), IBM was also issued an option to
purchase up to 51% of the capital stock of MPM, which option is exercisable from
and after the achievement of certain production milestones by MPM as set forth
in the IBM Option Agreement.  The term of the option, as well as the purchase
price, are defined in the IBM Option Agreement. The option was determined to
have an immaterial value at the time of issuance. MPM is also currently in
possession of certain inventory that MPM had ordered from IBM. IBM has not yet
been paid for such inventory.  The outstanding debt from the inventory is less
than $150,000. In connection with the IBM transaction, MPM obtained a $3.2
million line of credit from DBS, which was fully utilized during 1995 to finance
equipment purchases.

In March 1997, the Board of Directors of the Company decided to discontinue the
multilayer ceramics operations. Changing market demand for multilayer ceramic
products and IBM's unwillingness to renegotiate the terms of the IBM Agreement
or to commit to purchasing multilayer ceramic products from the Company were the
main reasons that the Board decided to discontinue the multilayer ceramics
operations. All Singapore employees working on the multilayer ceramics
operations have since been terminated and the two remaining ex-patriot employees
will be terminated in mid-April of 1997. MPM is currently in receivership, as
defined under the laws of Singapore. The receiver for MPM has asked the Company
to assist him in selling off all of the remaining tangible assets of MPM. The
proceeds from the sale of MPM's assets will be used to retire a portion 

                                      F-12
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



of MPM's debts (it is unlikely that the proceeds will be sufficient to retire
all outstanding MPM debt). The Company anticipates that the liquidation of MPM
will be completed by July 1997 (see Note 17).

NOTE 5  -  CONCENTRATIONS OF CREDIT RISK AND SALES TO MAJOR CUSTOMERS

The Company operates in one reportable business segment with multiple product
lines within that segment, and primarily sells to a limited number of
semiconductor manufacturers and related suppliers which results in concentrated
credit risk with respect to the Company's accounts receivable. The Company
performs ongoing credit evaluations of its customers but does not require
collateral for credit purchases. The Company maintains allowances for potential
credit losses, and such losses have been within management's expectations.

During 1996, three major customers (customers accounting for 10% or more of
total sales) accounted for 29%, 20% and 16% of the Company's total sales,
respectively.  During 1995, four major customers accounted for 24%, 22%, 20% and
16% of the Company's total sales, respectively.  During 1994, four major
customers accounted for 29%, 18%, 17% and 13% of the Company's total sales,
respectively.  Amounts due from these customers comprised 71% and 75% of
accounts receivable at December 31, 1996 and 1995, respectively.

In February 1997, one of these customers ceased business with the Company. The
anticipated decrease in revenue, represented by the loss of sales to that
customer, if not offset by other revenue sources, would have a material adverse
effect on the Company's financial condition and results of operations. The
further loss or reduction of sales by any of the other customers would
materially adversely affect the Company's business, financial condition and
results of operations.

In March 1994, the Company's CTM subsidiary began purchasing a significant
portion of the components of its end-products from its major customer. Purchases
of raw materials from this customer totaled $11,003,000, $5,853,000 and
$3,911,000 in 1996, 1995 and 1994, respectively.

The Company has a foreign exchange line of credit with the Development Bank of
Singapore ("DBS") under which it may enter into forward currency contracts of up
to S$30,000,000 (U.S. $21,436,000 at December 31, 1996) for contracts with a
maturity of up to twelve months.  Advances under the line of credit are
guaranteed by MPI and secured by all the assets of MPS, including a second
mortgage on MPS's leasehold land and facility.  Subject to bank financing and
consent, the Company enters into forward foreign currency contracts to
economically hedge foreign currency transactions on a continuing basis for
periods consistent with the underlying exposures, generally ranging from one-to-
nine months in duration.  The Company does not engage in foreign currency
speculation; however, the Company's use of forward foreign currency contracts
does not qualify for hedge accounting treatment in accordance with Statement of
Financial Accounting Standards No. 52, "Foreign Currency Translation."  The
Company's objective in entering into forward contracts is to minimize on a
continuing basis the impact of foreign exchange rate movements on the Company's
operating results.

As of December 31, 1996 and 1995, the Company had approximately $90,000 and
$7,681,000 of forward foreign currency contracts outstanding, denominated in
Japanese yen and Singapore dollars.  At contract maturity, the Company makes net
settlements of U.S. dollars for foreign currencies at forward rates agreed to at
the inception of the contracts.  The Company's risk that counterparties to these
contracts may be unable to perform is minimized by the Company's policy of
limiting the counterparties to major financial institutions.  The Company has
not experienced any losses as a result of counterparty default.

NOTE 6  -  NOTES RECEIVABLE

As of December 31, 1995, the Company had loaned an aggregate of $880,000 to
Contact International Corporation ("CIC"), a manufacturer of etched lead frames,
in the form of short-and long-term notes receivable. The notes receivable are
secured by certain assets of CIC and bear interest at the prime rate plus 2%.
During the fourth quarter of 1994, CIC defaulted on the above notes by failing
to make required principal and interest payments.

In August 1995, CIC filed a voluntary petition for bankruptcy protection under
Chapter 11 of the U.S. Bankruptcy Code. During the fourth quarter of 1995, the
Company fully-reserved this receivable. In 1996, the Company was permitted by
the Court to take possession of the equipment that CIC had provided as security
for the notes described above. In March 1997, the Company received $195,000 from
the sale of the equipment, net of fees and expenses necessary for the sale of
the equipment.

NOTE 7  -  LINE OF CREDIT FACILITIES AND SHORT-TERM BORROWINGS

At December 31, 1996 and 1995, MPS had borrowings of $5,062,000 (S$7,084,000)
and $6,045,000 (S$8,548,000), respectively, under a $6,788,000 (S$9,500,000)
borrowing arrangement with DBS. Borrowings under this arrangement, which 

                                      F-13
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


is comprised of a working capital line of credit facility and an overdraft
facility, are due on demand and are secured by substantially all of the assets
of MPS, excluding assets securing senior debt instruments as discussed in Note
8. Borrowings under this arrangement are guaranteed by MPI. Outstanding
borrowings under the line of credit facility bear interest at the prime-lending
rate of the bank plus 1/2% (6.5% at December 31, 1996 and 1995); the maximum
balance outstanding at any month end was $5,366,000 and the average balance
outstanding was $4,674,000 during 1996. Outstanding borrowings under the bank
overdraft facility bear interest at the bank's prime lending rate plus 3/4%
(6.75% at December 31, 1996 and 1995); the maximum balance outstanding at any
month end was $1,850,000 and the average balance outstanding was $1,441,000
during 1996. This loan agreement significantly restricts the ability of MPS to
transfer funds to MPI in the form of dividends, loans, or otherwise and all such
transfers of funds to MPI required prior approval from the bank.

At December 31, 1996 and 1995, MPC had borrowings of $139,000 (S$195,000) and
$3,000 (S$4,000), respectively, under a $357,000 (S$500,000) borrowing
arrangement with DBS. Borrowings under this arrangement, which is comprised of a
working capital line of credit and an overdraft facility, are due on demand and
are secured by all of the assets of MPC. Borrowings under this arrangement are
guaranteed by both MPI and MPS. Outstanding borrowings under the line of credit
facility bear interest at the bank's prime lending rate plus 1/2% (6.5% as of
December 31, 1996 and 1995). Outstanding borrowings under the bank overdraft
facility bear interest at the bank's prime lending rate plus 3/4% (6.75% as of
December 31, 1996 and 1995).

Certain of the above obligations are payable in Singapore dollars and have been
translated at the exchange rate at December 31, 1996 (U.S. $1.00 = S $1.3995).
Accordingly, actual settlement amounts of such obligations are subject to
variances caused by changes in foreign exchange rates.

The MPS borrowing agreement includes affirmative and negative covenants with
respect to MPS, including the maintenance of certain financial ratios, balances,
earnings levels and limitations on payment of dividends, transfers of funds and
incurrence of additional debt. The MPM and MPC borrowing agreements also contain
restrictive provisions. As of December 31, 1996, each of MPS, MPM and MPC were
in violation of the financial covenants set forth in their respective loan
agreements with DBS. Although the Company is working with DBS, such violations
have not been waived by DBS. Based on the terms of the borrowing agreements,
these obligations are due on demand, and thus classified as current liabilities.

NOTE 8  -  LONG-TERM DEBT

<TABLE>
<CAPTION>
December 31,                                                                                   1996           1995
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>            <C>
Long-term debt consists of:

Term notes to, or guaranteed by, certain customers, bearing interest at rates
ranging from 3.5% to 18%, payable in quarterly installments commencing in March
1997, principal due in quarterly installments over a four-year term commencing
in March 1998, secured by various assets including certain MPS production
equipment, all of the domestic assets of MPI, MPA and CTM and all of the
outstanding common stock of MPA, MPS and CTM                                               $ 4,750,000    $ 6,000,000 
 
Term notes to, or guaranteed by, certain customers, which are currently in
default, due on demand and accordingly included in the current portion of long-
term debt, originally payable in various quarterly installments commencing in
the second quarter of 1996, plus interest at rates ranging from 7.0% to 7.25%,
secured by various assets including certain MPS production equipment, maturing
at various dates between 1998 and 2001                                                       6,833,000      4,000,000

8% convertible debentures, due October 1997, unsecured, subsequently converted
in the first quarter of 1997                                                                 1,900,000              -
</TABLE> 

                                      F-14
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
December 31,                                                                                   1996           1995
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>            <C>

Mortgage notes - due January 2000 and January 2005, payable in monthly
installments of S$22,000 (U.S. $16,000) plus interest, with interest at variable
rates (currently 7.5% to 10.75%), secured by MPS building and improvements,
guaranteed by MPI                                                                            1,251,000      1,424,000

Capital lease obligations, consisting of various machinery and equipment
financing agreements, payable in monthly installments of $10,000, including
interest at rates ranging from 4% to 6%, guaranteed by MPI                                     289,000        864,000

Non interest bearing obligations, originally payable in quarterly installments
of $36,300 through December 1998, discounted at 7.7%, principal has been
accelerated by holders, as a result of the change in MPI's Chairman and CEO,
balance to be paid over seven months ending July, 1997, secured by 121,372
shares of MPI common stock                                                                     291,000        394,000

Term notes - maturing in October 1997, payable in monthly installments of
$13,000, including interest at 12.2%, secured by various CTM and MPA production
equipment, balance of note secured by MPA equipment paid in October 1996
following sale of assets, guaranteed by MPI                                                     79,000        207,000
                                                                                           -----------    -----------
                                                                                            15,393,000     12,889,000
Debt in default, due on demand                                                              (8,084,000)             -
Current portion of long-term debt                                                           (2,527,000)    (3,316,000)
                                                                                           -----------    -----------
Long-term debt, less current portion                                                       $ 4,782,000    $ 9,573,000
                                                                                           ===========    ===========
</TABLE>

Maturities of principal balances are (1997 includes the balance of long-term
debt obligations which are in default) $10,611,000, $1,423,000, $1,473,000,
$1,469,000 and $338,000 in 1997 through 2001, respectively. Payments due
thereafter are $79,000. See Note 17 for discontinued operations debt which is in
default. Certain of the above obligations are payable in Singapore dollars and
have been translated at the exchange rate at December 31, 1996. Accordingly,
actual settlement amounts of such obligations are subject to variances caused by
changes in foreign exchange rates.

MPA and CTM are prohibited from paying dividends to MPI under the provisions of
a term note that has been guaranteed by one of the Company's significant
customers.

MPI is directly liable, or is contingently liable based on guarantees of
repayment provided, for certain of the above obligations with outstanding
principal balances totaling $14,142,000 as of December 31, 1996.

In connection with a 1993 acquisition, the Company entered into installment
insurance agreements with two of the selling shareholders. Under the terms of
the agreements, the Company was obligated to make payments either directly to
the individuals or in the form of quarterly insurance premium payments under
certain annuity insurance policies through 1998. In February 1997, the selling
shareholders elected to accelerate the balance of the quarterly insurance
premium payments, as permitted by their agreements, based on the resignation of
the Company's former Chairman and CEO. The Company has provided for the
acceleration in 1996.

Two of the term notes to, or guaranteed by, certain customers (outstanding
principal of $5,000,000 as of December 31, 1996) contain provisions which would
result in the acceleration of repayment in the event of a default by the Company
under any other credit arrangement. As of December 31, 1996, the Company was in 
default under these note agreements. Balances due have been classified as 
current.

The mortgage notes discussed above contain similar provisions which have
resulted in their classification as current liabilities.

                                      F-15
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


In October 1996, the Company issued $2.8 million in 8% convertible debentures to
a group of offshore investors (collectively "Purchasers"). Accrued and unpaid
interest on the debentures is due and payable in cash in quarterly installments
on the first day of each fiscal quarter of the Company during the one-year term
of the debentures. The outstanding principal under the debentures will be due
and payable in full at the end of the one-year term; however, subject to certain
limitations set forth below, from and after 45 days from October 23, 1996, the
outstanding principal under the debentures may be converted at each Purchaser's
option into shares of the Company's Common Stock. The number of shares of the
Company's Common Stock issuable to the Purchasers upon such conversion will be
the amount of principal outstanding divided by the lesser of 80% of the average
of the closing bid price of the Company's Common Stock as reported by Nasdaq
National Market for the three consecutive trading days immediately preceding the
date of conversion or 110% of the closing bid price of the Company's Common
Stock as reported by Nasdaq National Market on October 23, 1996. The discount
which results from the application of these conversion provisions is $700,000
and has been recorded as additional interest expense by the Company in the
fourth quarter of 1996, since the debentures were available for conversion prior
to December 31, 1996. MPI also issued a warrant (the "Warrant") to one of the
Purchasers to purchase 75,421 shares of the Company's Common Stock. The exercise
price of the Warrant is the lesser of the average price at which the debentures
are converted into the Company's Common Stock, or 110% of the closing bid price
of the Company's Common Stock as reported by Nasdaq National Market on October
23, 1996. The Warrant is exercisable commencing 45 days after October 23, 1996,
and remains exercisable until October 23, 1997 (see Note 13). In addition, the
Company paid one of the Purchasers $322,000 as a placement fee. Under current
Securities and Exchange Commission ("SEC") regulations, such shares of the
Company's Common Stock may be offered and sold in the United States trading
markets, at the earliest, 40 days after the issuance of the debentures and the
Warrant.  As of December 31, 1996, $900,000 of these debentures had been
converted.  As of February 20, 1997, holders of the remaining $1.9 million of
debentures had elected to convert, resulting in the issuance of an additional
3,801,787 shares.(see Note 11).

NOTE 9  -  COMMITMENTS AND CONTINGENCIES

Following is a schedule by year of estimated future minimum lease payments under
capital and operating lease agreements.

<TABLE>
<CAPTION>
YEAR ENDED                                            CAPITAL    OPERATING
DECEMBER 31,                                           LEASES      LEASES
---------------------------------------------------------------------------
<S>                                                   <C>        <C>
 
     1997                                             $141,000   $1,056,000
     1998                                               77,000      748,000
     1999                                               46,000      155,000
     2000                                               40,000      151,000
     2001                                               29,000      150,000
     Thereafter                                          3,000    2,753,000
---------------------------------------------------------------------------
     Total minimum lease payments                      336,000   $5,013,000
                                                                 ==========
     Amount representing interest                       47,000
---------------------------------------------------------------------------
     Present value of net minimum lease payments       289,000
     Current portion                                   123,000
---------------------------------------------------------------------------
     Long-term portion                                $166,000
===========================================================================
</TABLE>

A significant portion of the above lease commitments are payable in Singapore
dollars and have been translated at the exchange rate at December 31, 1996.
Accordingly, actual settlement amounts of such commitments are subject to
variances caused by changes in foreign currency exchange rates.

Certain machinery and equipment are subject to leases which are classified as
capital leases for financial reporting purposes.  At December 31, 1996 and 1995
$706,000 ($357,000 net) and $1,135,000 ($604,000, net) of such leased equipment
are included in property, plant and equipment. Amortization expense related to
assets under capital leases, for continuing operations was $55,000, $243,000,
and $313,000, in 1996, 1995 and 1994, respectively.

                                      F-16
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


The Company is also committed under noncancelable operating agreements for the
lease of buildings, machinery and equipment. Rent expense for continuing
operations in 1996, 1995 and 1994 was approximately $1,238,000, $1,128,000, and
$1,151,000, respectively.

Certain of the Company's shareholders have been granted certain registration
rights; the costs of any such offering, exclusive of any underwriting discount,
would be borne by the Company.

The Company previously shipped quantities of hazardous waste to a Whittier,
California, hazardous waste treatment facility for recycling.  The owner of that
facility allegedly failed to recycle or dispose of the various wastes shipped to
the site and has now filed for bankruptcy. The Company is one of more than four
thousand generators, including numerous Fortune 500 corporations, identified by
the State of California as having responsibility for cleanup at the site, and it
is not ranked as one of the generators that has shipped a significant amount of
hazardous waste.  In May 1995, the United States Environmental Protection Agency
("EPA") issued written notice that it considers the Company to be a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("CERCLA").  The EPA determined that there may be an
imminent and substantial endangerment to the public health, welfare, and
environment because of a release and/or threat of a release of hazardous
substances from the site located in Whittier, California.  The notice requires
the Company to take immediate actions to contain and prevent any further release
of hazardous substances at the site.  In response to the EPA notice, the Company
and approximately 100 of the other named generators provided the necessary
funding to effect the removal and destruction of the hazardous wastes stored at
this site.  In addition, the Company and such generators have provided the
necessary funding to test the soil and ground water at this site, which testing
is currently ongoing. Although the cost incurred by the Company to date of
removing and destroying the hazardous waste stored at this facility was not
significant, this effort does not address the cleanup of potential soil and/or
ground-water contamination present at this site.  There can be no assurance,
therefore, that the costs and expenses associated with this action will not
increase in the future to a level that would have material adverse effect upon
the Company's operations.  Based upon the Company's investigation to date, the
Company is not able to determine whether this matter, if resolved adversely to
the Company, would have a material adverse effect upon the Company's financial
position, results of operations or cash flows.

The Company has also previously shipped small quantities of hazardous waste for
recycling to a San Diego hazardous waste treatment facility operated by a third
party operator ("Operator").  The owner of the property and the State of
California have filed suits against the Operator and two of its officers and the
owner of the property has obtained a mandatory injunction to compel the removal
of hazardous waste on site.  If the Operator does not comply, it is possible
that the property owner or a government agency could also sue or bring
enforcement proceedings against approximately 100 hazardous waste generators,
including the Company, that shipped such wastes to the facility to pay for the
removal and to participate in site cleanup if any contamination is discovered.
Based upon the Company's investigation to date, the Company is not able to
determine whether this matter, if resolved adversely to the Company, would have
a material adverse effect upon the Company's financial position, results of
operations or cash flows.

In November 1995, the Company reached an agreement to settle a consolidated
class action lawsuit in exchange for $950,000. The settlement required the
Company to contribute $525,000, with the remainder paid by the Company's
insurance carrier. Final approval was received in May 1996, by the U.S. District
Court for the Southern District of California. The Company provided for the full
cost of the settlement of such litigation during 1995.

Pursuant to the Company's decision to cease its multilayer ceramic operations 
and to liquidate MPM's assets, MPM is currently in receivership in Singapore.

Numerous creditors have filed or threatened lawsuits against MPI or its
subsidiaries for various defaults and violations of certain agreements entered
into by MPI and its various subsidiaries. If such creditors choose to enforce
their claims and are successful in doing so, MPI or its subsidiaries may be
forced to seek protection under Chapter 7 or 11 of Title 11 the United States
Code or under similar bankruptcy laws in Singapore.

On April 10, 1997, DBS sent to MPS a written demand for payment of the
outstanding debt owed to DBS by MPM. In addition to demanding payment, DBS
imposed the default interest rate (an additional 3% interest rate) on the
outstanding debt, which has been accrued through December 31, 1996.

The Company is involved in various other claims arising in the ordinary course
of business; none of these other claims, in the opinion of management, is
expected to have a material adverse impact on the financial position, cash flows
or overall trends in the results of operations of the Company.

                                      F-17
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10  -  INCOME TAXES

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under the
SFAS 109 asset and liability method, deferred tax assets and liabilities are
determined based upon the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the
year(s) in which the differences are expected to reverse.

Net loss is comprised of the following:

<TABLE>
<CAPTION>
Year ended December 31,                                                 1996            1995           1994
--------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>             <C>            <C>
                                                                    
Domestic operations                                                 $ (1,631,000)   $(1,640,000)   $(1,428,000)
Singapore operations                                                 (40,211,000)       254,000     (1,511,000)
--------------------------------------------------------------------------------------------------------------
   Total                                                            $(41,842,000)   $(1,386,000)   $(2,939,000)
==============================================================================================================
</TABLE>

A reconciliation of the provision for income taxes to the amount computed by
applying the statutory Federal income tax rate to income before income taxes
follows:

<TABLE>
<CAPTION>
Year ended December 31,                                                  1996            1995           1994
--------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>             <C>            <C>
 
Amounts computed at Federal statutory rate                          $(14,295,000)   $  (485,000)   $(1,029,000)
Taxes below the Federal rate on undistributed foreign earnings         2,829,000         20,000        125,000
Amortization of non-deductible intangible assets                          38,000         43,000         38,000
Non-deductible expenses                                                  247,000        184,000              -
Losses for which no current benefits are available                       271,000        223,000        859,000
Foreign losses with no benefit                                        10,910,000         15,000          7,000
--------------------------------------------------------------------------------------------------------------
Provision for income taxes                                          $          -    $         -    $         -
==============================================================================================================
</TABLE> 
 
The components of deferred income taxes:

<TABLE>
<CAPTION>
Year ended December 31,                                                  1996            1995  
--------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>             <C>      
 
Deferred tax assets:
 Net operating loss carryforwards                                   $ 4,077,000     $ 3,827,000
 Tax credit carryforwards                                               466,000         435,000
 Accrued liabilities and reserves                                     2,644,000       1,004,000
 Unrealized foreign exchange loss                                        29,000         185,000
 Deferred income                                                        166,000         230,000
--------------------------------------------------------------------------------------------------------------
                                                                      7,382,000       5,681,000
Deferred tax liabilities:                                                            
 Book and tax depreciation differences                                  (27,000)        (87,000)
--------------------------------------------------------------------------------------------------------------
                                                                      7,355,000       5,594,000
Valuation allowance                                                  (7,355,000)     (5,594,000)
--------------------------------------------------------------------------------------------------------------
Deferred taxes                                                      $         -     $         -
==============================================================================================================
</TABLE>

At December 31, 1996 and 1995, a 100% valuation allowance has been provided on
the total deferred income tax assets as they are not more likely than not to be
realized.

                                      F-18
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


The Company has not recorded provisions for any United States income taxes in
1996, 1995 and 1994. During 1995, taxable income at the Company's domestic
operations was offset by the utilization of net operating loss carryforwards. In
1994, the domestic operations generated operating losses for both Federal and
state income tax purposes. At December 31, 1996, the Company had Federal net
operating loss carryforwards of approximately $11,840,000 for Federal tax
reporting purposes and approximately $836,000 for California tax purposes. The
net operating loss carryforwards for tax purposes expire between 2000 and 2011.

As of December 31, 1996, the Company also has approximately $398,000 and $37,000
in Federal and state research and development credit carryforwards,
respectively. These credits expire between 2000 to 2008. Additionally, the
Company has approximately $31,000 of investment tax credits which expire in
2001. The Company believes that it has incurred an ownership change pursuant to
Section 382 of the Internal Revenue Code and, as a result, the Company believes
that its ability to utilize its current net operating loss and credit
carryforwards in subsequent periods will be subject to annual limitations.

During 1996 and 1994, the Company's Singapore operations generated operating
losses for both financial reporting and income tax purposes. During 1995,
taxable income at the Company's Singapore operations was offset by the
utilization of net operating loss and capital allowance carryforwards. At
December 31, 1996, the Company had capital allowance carryforwards of
approximately $5,700,000. The Company would forfeit its ability to utilize these
tax loss carryforwards in the event of a significant change in its ownership as
defined by the laws of Singapore as they relate to income taxes.

NOTE 11  -  SHAREHOLDERS' EQUITY

In October 1996, the Company issued $2.8 million of convertible debentures (see
Note 8). As of December 31, 1996, holders of $900,000 of these debentures had
elected to convert, under the terms of the debentures, into 1,306,996 shares of
common stock.  As of February 20, 1997, holders of the remaining $1.9 million of
debentures had elected to convert, resulting in the issuance of an additional
3,801,787 shares.

Under the terms of two non-interest bearing obligations, the Company was
required to issue and place into escrow 121,372 shares of common stock as
collateral to ensure the Company's performance under those obligations (see Note
8).  Upon the Company's successful performance under those obligations, the
shares are to be returned to the Company.

During the year, employees exercised options to purchase 61,019 shares of the
Company's common stock.

In March 1996, the Company and MPM consummated the Transpac Financing, in which
the Company issued 842,013 shares of its Common Stock for $2,000,000.

In order to provide for the convertibility of the Transpac Debenture, the
Shareholders approved an amendment to the Company's Amended and Restated
Articles of Incorporation to increase the authorized shares of Common Stock from
10 million shares to 15 million shares at a Special Meeting on May 29, 1996.

In April 1994, the Company received net proceeds of approximately $7.1 million
in connection with the consummation of the Company's initial public offering
("IPO") of 1,600,000 shares of common stock. The Company used approximately
$833,000 of the IPO proceeds to retire the principal and accrued interest
outstanding under various credit facilities.  In addition, the Company used
approximately $1.2 million of the net proceeds to pay offering costs associated
with the IPO.

Concurrent with the closing of the Company's IPO discussed above, all the
outstanding shares of Series A and B Convertible Preferred Stock were converted
into 1,774,808 shares of common stock.

NOTE 12  -  EMPLOYEE BENEFIT PLAN

The Company maintains a defined contribution retirement savings plan which is
intended to qualify under section 401(k) of the Internal Revenue Code. The Plan
covers substantially all full-time U.S. employees.  Participants may contribute
a percentage of their salaries subject to statutory annual limitations.  The
Company matches a percentage of the employee contributions as specified in the
plan agreement. Contributions by the Company totaled $65,000, $54,000, and
$42,000 in 1996, 1995 and 1994, respectively.

                                      F-19
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13  -  STOCK OPTION/STOCK ISSUANCE PLAN AND STOCK PURCHASE WARRANTS

Stock Option/Stock Issuance Plan - The Company maintains a stock option/stock
issuance plan under which incentive stock options may be granted to employees of
the Company and nonqualified stock options may be granted to consultants and
non-employee directors of the Company. Under the terms of the plan, non-
transferable options may be granted for terms of up to 10 years and are
generally exercisable at the rate of 33% per year, although vesting terms are
determined at the discretion of the Board of Directors. Options are generally
granted with an exercise price not less than the fair market value of the common
stock shares at the date of grant. A total of 690,632 shares of common stock
have been reserved for issuance under the plan. The plan expires in December
2000.

The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees," 
and related Interpretations in accounting for this plan. Under APB Opinion 25, 
because the exercise price of options granted under the Company's plan equals 
the market price of the underlying stock on the date of grant, no compensation 
cost is recognized.

Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation," requires the Company to provide pro forma
information regarding net income and earnings per share as if such compensation
cost for the Company's stock option and issuance plans had been determined in
accordance with the fair value based method prescribed in SFAS 123.  The Company
estimates the fair value of each stock option at the grant date by using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: 0% dividend yield;
expected volatility of 16% and 11%,  risk free interest rates of 6.10% and
5.85%; and expected lives of 3 to 6 years (determined on an option-by-option
basis).

Under the accounting provisions of SFAS 123, the Company's net loss and net loss
per share would have been increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                               1996            1995
-----------------------------------------------------------------------------------------------------
<S>                                                        <C>             <C>
                                                          
   Net loss:                                              
     As reported                                           $(41,842,000)   $(1,386,000)
     Proforma                                              $(41,858,000)    (1,392,000)
   Net loss per share:                                    
     As reported                                           $      (7.68)   $     (0.30)
     Proforma                                              $      (7.69)   $     (0.30)
-----------------------------------------------------------------------------------------------------
</TABLE>

                                      F-20
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A summary of the status of the Company's stock option plan as of December 31,
1995 and 1996, and changes during the years ending on those dates is presented
below:

<TABLE> 
<CAPTION> 
                                                 December 31, 1995             December 31, 1996
                                               -------------------------   ---------------------------
                                                            Weighted-                     Weighted-
                                                             Average                       Average
                                                Shares    Exercise Price      Shares    Exercise Price
                                                -------   --------------    ---------   --------------
<S>                                             <C>       <C>               <C>         <C> 
Outstanding at beginning of year                386,119       $3.30           550,684       $2.62
Granted                                         187,921        1.87         1,116,700        2.03
Exercised                                          -            -             (60,995)       1.35
Forfeited                                       (23,356)       7.90           (59,212)       3.28
Outstanding at end of year                      550,684        2.62         1,547,177        2.22
Options exercisable at year-end                 255,279        2.23           866,542        2.14
Weighted-average fair value of options       
 granted during the year                          $0.21                         $0.53
</TABLE> 

The following table summarizes information about fixed stock options outstanding
at December 31, 1996.

<TABLE> 
<CAPTION> 
                                              Options Outstanding                               Options Exercisable
                        -----------------------------------------------------------    ---------------------------------------
                            Number           Weighted-Average
Range of Exercise       Outstanding at          Remaining          Weighted-Average    Number Exercisable     Weighted-Average
     Prices                12/31/96          Contractual Life       Exercise Price         at 12/31/96         Exercise Price
==============================================================================================================================
<S>                     <C>                  <C>                   <C>                 <C>                    <C> 
  $1.31 - $5.13            1,547,177            9.1 Years              $2.22                866,542                $2.14
</TABLE> 

Stock Purchase Warrants - The Company issued 17,693 common stock purchase
warrants at an exercise price of $5.63 per share in August 1993. These warrants
expire in August 1998. In connection with its IPO (see Note 11), the Company
issued 160,000 common stock purchase warrants to its underwriter at an exercise
price of $6.50. These warrants, which were exercisable upon issuance, expire in
April 1999. In connection with the issuance of $2.8 million of convertible
debentures on October 23, 1996 (See Note 8) the Company issued 75,421 common
stock purchase warrants to the lead investor at an exercise price of $0.55 (the
average conversion price of the debentures). These warrants, which were
exercisable 45 days after issuance, expire on October 23, 1997. No stock
purchase warrants have been exercised during the three years ended December 31,
1996.

NOTE 14  -  SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS

Cash paid for interest during 1996, 1995 and 1994 totaled $1,731,000, $1,034,000
and $542,000, respectively.  In 1996, the Company entered into capital lease
obligations to acquire property, plant and equipment totaling $1,784,000. As 
discussed in Notes 8 and 11, holders of $900,000 of convertible debentures had 
elected to convert their debentures into 1,306,926 shares of common stock, as of
December 31, 1996.

NOTE 15  -  GEOGRAPHIC INFORMATION

<TABLE> 
<CAPTION> 
Year ended December 31,                                       1996            1995           1994
-----------------------------------------------------------------------------------------------------
<S>                                                        <C>             <C>            <C>
 
Net sales to unaffiliated customers:
   United States                                           $ 19,044,000    $15,181,000    $10,398,000
   Singapore                                                 36,944,000     42,815,000     31,890,000
-----------------------------------------------------------------------------------------------------
Net sales as reported in the
   accompanying consolidated statements of operations      $ 55,988,000    $57,996,000    $42,288,000
===================================================================================================== 
Income (loss) from operations:
   United States                                           $ (1,029,000)   $(1,888,000)   $(1,750,000)
   Singapore                                                 (8,901,000)     3,696,000       (346,000)
-----------------------------------------------------------------------------------------------------
Income (loss) from operations as reported in the
   accompanying consolidated statements of operations      $ (9,930,000)   $ 1,808,000    $(2,096,000)
===================================================================================================== 
</TABLE>
 
<TABLE> 
<CAPTION>  
December 31,                                                   1996           1995
-----------------------------------------------------------------------------------------------------
<S>                                                        <C>             <C>
Identifiable assets:
   United States                                            $ 9,640,000    $ 7,209,000
   Singapore and Indonesia                                   15,254,000     35,218,000
-----------------------------------------------------------------------------------------------------
Total assets as reported in the
   accompanying consolidated balance sheets                 $24,894,000    $42,427,000
===================================================================================================== 
Identifiable liabilities:
   United States                                            $11,912,000    $ 5,414,000
   Singapore                                                 43,596,000     29,597,000
-----------------------------------------------------------------------------------------------------
Total liabilities as reported in the
   accompanying consolidated balance sheets                 $55,508,000    $35,011,000
===================================================================================================== 
</TABLE>

                                      F-21
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 16  -  RELATED PARTY TRANSACTIONS

In exchange for marketing, advisory, strategic planning and technical services,
the Company paid $91,000 and $80,000 in 1996 and 1994, to entities which are
affiliated with three of the Company's Board members.

NOTE 17  -  SUBSEQUENT EVENTS

DISCONTINUED OPERATIONS - In March 1997, the Board of Directors of the Company
decided to discontinue the multilayer ceramic operations, and has recorded the
effect of this decision as of December 31, 1996. Changing market demand for
multilayer ceramic products and IBM's unwillingness to renegotiate the terms of
the IBM Agreement or purchase products from the Company were the main reasons
that the Board decided to discontinue the multilayer ceramic operations. All of
MPM's Singapore employees have since been terminated and the two remaining ex-
patriate employees of MPM will be terminated in Mid-April of 1997. MPM is
currently in receivership, as defined under the laws of Singapore. The receiver
for MPM has asked the Company to assist him in selling off all of the remaining
tangible assets of MPM. The proceeds from the sale of MPM's assets will be used
to retire a portion of MPM's debts. The Company anticipates that the liquidation
of the multilayer ceramic operations will be completed by July 1997.

Discontinued operations include management's best estimates of the amounts
expected to be realized on the sale of its assets associated with the multilayer
ceramic operation and the expenses to be incurred through the disposal date. The
amounts the Company will ultimately realize and incur could differ materially in
the near term from the amounts assumed in arriving at the loss on disposal of
the discontinued operation.

Condensed financial information for "Current liabilities of discontinued
operations, net" as of December 31, 1996 are shown below. The corresponding
amounts for 1995 are shown below for comparative purposes; the 1995 amounts are
included in their respective financial statement captions in the consolidated
balance sheets.

<TABLE>
<CAPTION>
December 31,                                                             1996           1995
-----------------------------------------------------------------------------------------------
<S>                                                                  <C>             <C>
   Cash                                                              $    391,000    $   47,000
   Other current assets                                                   225,000       532,000
   Property, net                                                        1,500,000     5,656,000
   Other non-current assets                                                     -     2,922,000
-----------------------------------------------------------------------------------------------
     Total assets                                                       2,116,000     9,157,000
-----------------------------------------------------------------------------------------------
   Line of credit, due on demand                                        3,298,000     3,197,000
   Accounts payable and accrued liabilities                             7,113,000       867,000
   Capital leases (guaranteed by MPS and MPI)                           1,968,000       524,000
   Convertible debentures (guaranteed by MPI)                           9,000,000             -
-----------------------------------------------------------------------------------------------
     Total liabilities                                                 21,379,000     4,588,000
-----------------------------------------------------------------------------------------------
   Current assets (liabilities) of discontinued operations, net      $(19,263,000)   $4,569,000
===============================================================================================
</TABLE>

MPM has a $3,500,000 borrowing facility with DBS which is in default and is
guaranteed by both MPI and MPS. This facility consists of a $3.2 million short-
term advance facility and a $300,000 import/export bills facility. Advances
under this credit facility are secured by substantially all of the assets of
MPM, bear interest at the bank's prime lending rate plus 2.5% (8.5% at December
31, 1996) and cannot remain outstanding for more than 30 days. The facility does
permit rolling over of existing outstanding balances. This credit facility
matured in May 1996, but has not been converted into a term loan, which is at
the election of DBS. This facility automatically terminates in the event of the
termination of the Company's technology transfer agreement with IBM. At December
31, 1996, MPM had outstanding borrowings under this arrangement of $3,298,000.
This debt is guaranteed by MPS and MPI. On April 10, 1997, DBS sent to MPS a
written demand for payment of the outstanding debt owed to DBS by MPM. In
addition to demanding payment, DBS imposed the default interest rate (additional
3% interest rate) on the outstanding debt.

                                      F-22
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


In March 1996, the Company and MPM consummated a financing (the "Transpac
Financing") with Transpac Capital Pte. Ltd. and certain other affiliated
investors (collectively, "Transpac") in which the Company issued 842,013 shares
of its Common Stock to Transpac for the aggregate purchase price of $2,000,000
(see Note 11) and MPM issued a debenture (the "Debenture") to Transpac in the
principal amount of $9.0 million. The Debenture, repayment of which has been
guaranteed by MPI, has a term of five years and bears interest at the rate of
8.5% per annum. Accrued and unpaid interest is due and payable in annual
installments at the end of each year of the term of the Debenture. The principal
outstanding under the Debenture will be due and payable in full at the end of
the five-year term; however, from and after April 23, 1997, and through the term
of the Debenture, the Debenture is convertible at Transpac's option into the
number of shares of MPM capital stock that is equivalent to up to 45% of MPM's
outstanding capitalization at the time of conversion, or into the number of
shares of MPI capital stock that, when combined with the shares discussed above,
will not exceed 49% of the Company's outstanding capitalization at the time of
any such conversion.

The Company is attempting to convert the Transpac debentures into equity of the
Company. The conversion, if successful, would significantly dilute any earnings
per share amounts and significantly dilute the ownership interests of MPI's
current shareholders. If the Company is unsuccessful in converting the
debentures into equity, the Company would not be able to repay the amounts
outstanding under the debentures as required by its guarantee. This failure
would materially adversely affect the Company's financial condition and ability
to continue as a going concern, and could, as is the case with other debt
defaults and failure to repay, require that the Company seek bankruptcy
protection under Chapter 11 or Chapter 7 of Title 11 of the United States Code
or similar bankruptcy laws of Singapore for MPI and its U.S. subsidiaries. The
Company anticipates conversion by June 30, 1997, and interest expense has been
accrued through that date.

As of December 31, 1996, the Company's MPM subsidiary had $1,700,000 of capital
expenditure purchase commitments outstanding.

MPC FIRE - On April 5, 1997, a fire started at the Company's MPC facility,
causing damage to the building and some equipment (the building was promptly
evacuated of all personnel, without injury). The extent of the damage is still
being reviewed, however, the damage is sufficient for the building to be
declared unsafe for use. The amount of the loss has been preliminarily estimated
in excess of $3 million, however the Company is insured (less a $5,000
deductible).

NOTE 18  -  IMPAIRMENT OF LONG-LIVED ASSETS

The Company has adopted SFAS No. 121 as of the beginning of 1996. As of December
31, 1996, the Board of Directors of the Company decided to dispose of its excess
equipment located in Singapore and Indonesia. This equipment is used in the
manufacture of pressed ceramic products and represents excess capacity that the
Company has determined it will not need, due to market competition and a
reduction in demand for pressed ceramic products as the market turns to other
packaging materials. The Company has written off the remaining net book value
for specifically-identified assets in the amount of $6,163,000, net of salvage
value, in accordance with SFAS No. 121. Of this amount, $3,002,000 is for assets
held in Singapore and $3,161,000 for assets in Indonesia. This reduction is
included in the caption "Impairment of long-lived assets" in the
consolidated statement of operations. The Company expects the equipment to be
disposed of by December 31, 1997.

NOTE 19 - FOURTH QUARTER ADJUSTMENTS

During the fourth quarter of 1996, the Company recorded certain non-recurring 
adjustments, the most significant of which was the discontinuance of the 
Company's multilayer ceramics operations. Recorded fourth quarter adjustments 
for the discontinued multilayer ceramics operations included: write-off of $8.9 
million of preproduction costs, $2.0 million of prepaid royalties, reduction in 
the carrying amount of property, plant and equipment by $14.9 million and the 
accrual of certain costs, $1.9 million of miscellaneous items and estimated
losses to be incurred through the disposal date totaling $1.6 million.
Additional fourth quarter adjustments included: $6.2 million reduction in the
carrying amounts of equipment at the MPS facility in Singapore and in Indonesia
and a $1.6 million allowance for receivable from the Company's joint venture
partner in Indonesia. These fourth quarter adjustments were the result of
changing market demand for the multilayer ceramics products, IBM's unwillingness
to renegotiate the terms of the IBM Agreement or purchase products from the
Company, reduced demand for pressed ceramic products and a change in the
Company's strategic direction by new management which joined the Company in the
fourth quarter of 1996.

                                      F-23
<PAGE>
 
             REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
                         FINANCIAL STATEMENTS SCHEDULES

Board of Directors
Microelectronic Packaging, Inc.
San Diego, California

The audits referred to in our report dated March 26, 1997, except for Note 17
paragraph 8 which is as of April 5, 1997 and Note 9 paragraph 11, which is as of
April 10, 1997, relating to the consolidated financial statements of
Microelectronic Packaging, Inc., which is contained in Item 8 of this Form 10-K
included the audits of the 1996 and 1995 consolidated financial statement
schedules listed in the accompanying index. The 1996 and 1995 financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based upon our audits.

In our opinion, such 1996 and 1995 consolidated financial statement schedules
present fairly, in all material respects, the information set forth therein.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company suffered a loss from operations
in the amount of $11,301,000 and a loss from disposal of multilayer ceramics
operations of $30,541,000 in 1996, has a working capital deficiency of
$30,015,000 and an accumulated deficiency of $68,752,000 as of December 31,
1996, is not in compliance with certain loan agreements, has received a demand
letter from one of its lenders, is economically dependent on a limited number of
customers, has a foreign subsidiary in receivership under Singapore law and has 
various claims and lawsuits filed against the Company and its subsidiaries and 
may be forced to seek protection for the Company and certain subsidiaries under 
United States bankruptcy or similar bankruptcy laws in Singapore. These matters
raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 2. In the event a plan of reorganization is accepted for the 
subsidiary, continuation of the Company thereafter is dependent on the 
Company's ability to negotiate payment arrangements with other creditors and 
achieve sufficient cash flow to meet its restructured debt obligations.  The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.


                                        BDO SEIDMAN, LLP
Costa Mesa, California
March 26, 1997

                                      F-24
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.
      CONDENSED FINANCIAL INFORMATION OF MICROELECTRONIC PACKAGING, INC.
                            CONDENSED BALANCE SHEET
                                  SCHEDULE I
 

<TABLE> 
<CAPTION> 
December 31,                                                          1996             1995
----------------------------------------------------------------------------------------------
<S>                                                                <C>            <C> 
ASSETS                                                         
Current assets:                                                
   Cash                                                           $  1,896,000    $    587,000
   Other current assets                                                274,000         256,000
----------------------------------------------------------------------------------------------
     Total current assets                                            2,170,000         843,000
----------------------------------------------------------------------------------------------
Investments in and net advances to/(from) subsidiaries                       -       7,544,000
Prepaid royalty                                                              -       2,000,000
Other non-current assets                                                 6,000         109,000
----------------------------------------------------------------------------------------------
                                                                  $  2,176,000    $ 10,496,000
==============================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)                 
Current liabilities:                                           
   Accounts payable and accrued liabilities                       $    694,000    $    614,000
   Deferred revenue                                                    312,000         572,000
   Current portion of long-term debt                                 2,191,000         372,000
----------------------------------------------------------------------------------------------
     Total current liabilities                                       3,197,000       1,558,000
----------------------------------------------------------------------------------------------
Long-term debt                                                       1,250,000       1,522,000

Investments, net of cumulative losses in,                      
   and net advances from, subsidiaries                              28,343,000               -

Commitments, contingent liabilities and subsequent events                 

Shareholders' equity (deficit):                                
   Common stock                                                     38,138,000      34,326,000
   Accumulated deficit                                             (68,752,000)    (26,910,000)
----------------------------------------------------------------------------------------------
                                                                   (30,614,000)      7,416,000
----------------------------------------------------------------------------------------------
                                                                  $  2,176,000    $ 10,496,000
============================================================================================== 
</TABLE> 
   The accompanying notes are an integral part of these condensed financial 
                                  statements.

                                      F-25
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.
      CONDENSED FINANCIAL INFORMATION OF MICROELECTRONIC PACKAGING, INC.
                       CONDENSED STATEMENT OF OPERATIONS
                                  SCHEDULE I
 

<TABLE> 
<CAPTION> 
Year ended December 31,                                               1996             1995            1994
--------------------------------------------------------------------------------------------------------------
<S>                                                                <C>            <C> 
Revenues:
   Net sales                                                       $         -    $          -    $  1,173,000
   Management fees from subsidiary                                     720,000         720,000         720,000
--------------------------------------------------------------------------------------------------------------
                                                                       720,000         720,000       1,893,000
Expenses:                                                                          
   Cost of goods sold                                                        -               -       1,070,000
   Selling, general and administrative                               2,711,000       3,752,000       1,874,000
--------------------------------------------------------------------------------------------------------------
                                                                     2,711,000       3,752,000       2,944,000
Other income (expense):
Equity in earnings (losses) of unconsolidated subsidiaries         (39,236,000)      1,351,000     (2,201,000)
   Royalty revenue                                                           -               -         153,000
   Other, net                                                         (615,000)        295,000         160,000
--------------------------------------------------------------------------------------------------------------
                                                                   (39,851,000)      1,646,000      (1,888,000)
--------------------------------------------------------------------------------------------------------------
Net loss                                                          $(41,842,000)   $ (1,386,000)   $ (2,939,000)
==============================================================================================================
</TABLE> 
 
   The accompanying notes are an integral part of these condensed financial
                                  statements.

                                      F-26
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.
      CONDENSED FINANCIAL INFORMATION OF MICROELECTRONIC PACKAGING, INC.
                       CONDENSED STATEMENT OF CASH FLOWS
                                  SCHEDULE I
 

<TABLE> 
<CAPTION> 
Year ended December 31,                                               1996             1995            1994
--------------------------------------------------------------------------------------------------------------
<S>                                                                <C>            <C>             <C> 

Net cash used by operating activities                              $(1,627,000)    $(2,602,000)    $(1,167,000)

Cash flows from investing activities:                                               
   Acquisition of fixed assets                                               -          (5,000)        (11,000)
   Advances under notes receivable                                           -         (30,000)       (940,000)
--------------------------------------------------------------------------------------------------------------

Net cash used by investing activities                               (1,627,000)        (35,000)       (951,000)
--------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:                                               
   Intercompany advances (repayments)                               (1,349,000)      1,891,000      (3,349,000)
   Repayments under convertible promissory notes                          
     to shareholders                                                         -               -        (462,000)
   Borrowing under long-term debt                                    2,800,000       1,500,000               -
   Repayments under long-term debt                                    (395,000)       (195,000)       (172,000)
   Issuance of common stock                                          1,880,000               -       5,906,000
--------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                            2,936,000       3,196,000       1,923,000
--------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash                                      1,309,000         559,000        (195,000)
Cash at beginning of year                                              587,000          28,000         223,000
--------------------------------------------------------------------------------------------------------------
Cash at end of year                                                $ 1,896,000     $   587,000     $    28,000
==============================================================================================================
</TABLE>
   The accompanying notes are an integral part of these condensed financial
                                  statements.

                                      F-27
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.
      CONDENSED FINANCIAL INFORMATION OF MICROELECTRONIC PACKAGING, INC.
                    NOTES TO CONDENSED FINANCIAL STATEMENTS
                      OF MICROELECTRONIC PACKAGING, INC.
                                  SCHEDULE I


NOTE 1 - STATEMENT OF ACCOUNTING POLICY

Statement of accounting policy - The accompanying condensed financial
information has been prepared by Microelectronic Packaging, Inc. ("MPI")
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations. It is
therefore suggested that this condensed financial information be read in
conjunction with the Consolidated Financial Statements and notes thereto.

Reclassifications - Certain prior year amounts have been reclassified to conform
to the current year presentation.

NOTE 2 - CAPITAL RESOURCES - MPI has limited revenues (comprised primarily of
management fees received from MPS, as discussed below) to fund its operations
and must rely on cash on hand, cash generated by its subsidiaries, borrowings,
and certain proprietary technology in order to fund future operations.

The various loan agreements of MPI's individual subsidiaries significantly
restrict their ability to transfer cash to MPI in the form of dividends, loans,
or otherwise.  During 1996, 1995 and 1994, MPI received management fees from MPS
in the amount of $720,000 in each year (such amounts are included as revenues in
the accompanying Condensed Financial Information, but have been eliminated in
the consolidated financial statements).

The accompanying financial statements have been prepared assuming the Company 
(including subsidiaries except MPM) will continue as a going concern. A number 
of factors, including the Company's history of significant losses, cross default
provisions specified in most of the Company's borrowing arrangements, various 
claims and lawsuits filed against the Company and its subsidiaries, that the 
Company may be forced to seek protection under United States bankruptcy or 
similar bankruptcy laws of Singapore, dependence on a limited number of
customers, MPM being in receivership, the Company's scarcity of working capital,
the debt service costs associated with the Company's high level of existing
indebtedness, and the need to restructure debt which is currently in default
raise substantial doubts about the Company's ability to continue as a going
concern (see Note 2 to the Consolidated Financial Statements).

Numerous creditors have threatened or filed lawsuits against MPS for its
various defaults and violations of certain agreements entered into by MPI and
its various subsidiaries. If such creditors choose to enforce their claims and
are successful in doing so, the Company may be forced to seek protection under
Chapter 7 or 11 of Title 11 the United States Code or under similar bankruptcy
laws in Singapore.

NOTE 3 - INVESTMENTS - MPI accounts for its investments in majority-owned
subsidiaries using the equity method.  Under the equity method, investments are
carried at cost adjusted for MPI's proportionate share of the subsidiaries'
undistributed earnings and losses.

Investment in, net of advances to/(from) subsidiaries comprise the following:

<TABLE>
<CAPTION>
December 31,                                                             1996           1995     
-----------------------------------------------------------------------------------------------  
<S>                                                                   <C>             <C>         
MPS common ownership interest, net of advances                        $ (5,020,000)   $7,207,000  
MPA common ownership interest, net of advances                          (3,097,000)     (696,000) 
CTM common ownership interest, net of advances                           2,298,000     1,951,000  
MPC common ownership interest, net of advances                            (300,000)       35,000  
MPM common ownership interest, net of advances (in receivership)       (22,224,000)     (953,000) 
-----------------------------------------------------------------------------------------------   
                                                                     $(28,343,000)   $7,544,000
===============================================================================================
</TABLE>

Pursuant to the Company's decision to cease its multilayer ceramic 
operations and to liquidate MPM's assets, MPM is currently in receivership in 
Singapore. See Notes 17 and 19 of the Notes to the Consolidated Financial 
Statements.

NOTE 4 - Notes Receivable - See Note 6 to Notes to Consolidated Financial
Statements.

                                      F-28
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.
      CONDENSED FINANCIAL INFORMATION OF MICROELECTRONIC PACKAGING, INC.
                    NOTES TO CONDENSED FINANCIAL STATEMENTS
                      OF MICROELECTRONIC PACKAGING, INC.
                                  SCHEDULE I

NOTE 5 - PREPAID ROYALTIES - Under the terms of its technology transfer and
licensing agreement with International Business Machines Corporation ("IBM")
(see Note 4 to the Consolidated Financial Statements), the Company paid an up-
front minimum royalty of $2,000,000.  This up-front royalty was included in
other non-current assets in 1995, and was transferred to the Company's MPM
subsidiary in 1996.  This amount was written-off in 1996 due to the Board of
Director's decision to discontinue the multilayer ceramics operations.

NOTE 6 - COMMITMENTS - Commitments, contingent liabilities and subsequent events
are described in Note 9 to the Consolidated Financial Statements.

NOTE 7 - LONG-TERM DEBT

<TABLE> 
<CAPTION> 
December 31,                                                                                  1996           1995
------------------------------------------------------------------------------------------------------------------- 
<S>                                                                                       <C>            <C>
Long-term debt consists of:

Term note due to a customer of a subsidiary, bearing interest at 18%, payable in
quarterly installments commencing in March 1997, principal due in quarterly
installments over a four-year term commencing in March 1998, secured by various
assets of MPA and CTM                                                                     $1,250,000     $1,500,000

8% convertible debentures, due October 1997, unsecured, subsequently converted
in the first quarter of 1997                                                               1,900,000              -

Non interest bearing obligations, originally payable in quarterly installments
of $36,300 through December 1998, discounted at 7.7%, principal has been
accelerated by holders, as a result of the change in MPI's Chairman and CEO,
balance to be paid over seven months ending July, 1997, secured by 121,372
shares of MPI common stock                                                                   291,000        394,000
------------------------------------------------------------------------------------------------------------------- 
                                                                                           3,441,000      1,894,000
 
Current portion of long-term debt                                                          2,191,000       (372,000)
------------------------------------------------------------------------------------------------------------------- 
                                                                                          $1,250,000     $1,522,000
===================================================================================================================
</TABLE>

Annual principal repayments are $2,191,000, $234,000, $313,000, $313,000 and
$313,000 in 1997 through 2001, respectively. Amounts due thereafter total
$77,000. In addition, MPI has guaranteed payment of certain obligations of
certain of its subsidiaries - see Notes 5, 7 and 8 to Notes to Consolidated
Financial Statements.

On April 10, 1997, DBS sent to MPS a written demand for payment of the 
outstanding debt owed to DBS by MPM.  In addition to demanding payment, DBS 
imposed the default interest rate (additional 3% interest rate) on the 
outstanding debt.

NOTE 8  -  SUBSEQUENT EVENTS

See Note 17 to Notes to Consolidated Financial Statements.

The Company's subsidiaries are currently in default on substantially all of 
their debt obligations and numerous trade and other creditors are requesting
repayment of their amounts due. The Company guarantees most of its subsidiaries'
debt. See Note 8 to the Consolidated Financial Statements.

NOTE 9  -  SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS

Cash paid for interest during 1996, 1995 and 1994 totaled $106,000, $160,000 and
$72,000, respectively. As discussed in Notes 8 and 11 to the Consolidated 
Financial Statements, holders of $900,000 of convertible debentures had elected 
to convert their debentures into 1,306,996 shares of common stock, as of 
December 31, 1996.

                                      F-29
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.
                VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1996
                                  SCHEDULE II
 
<TABLE>
<CAPTION>
                                                    ADDITIONS     ADDITIONS
                                      BALANCE AT   CHARGED TO       CHARGED
                                       BEGINNING    COSTS AND      TO OTHER                    BALANCE AT
                                       OF PERIOD     EXPENSES      ACCOUNTS   DEDUCTIONS    END OF PERIOD
---------------------------------------------------------------------------------------------------------
<S>                                   <C>          <C>            <C>         <C>           <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:

YEAR ENDED DECEMBER 31, 1994          $  111,000     $    25,000                              $   136,000
YEAR ENDED DECEMBER 31, 1995          $  136,000     $    77,000               $ (14,000)     $   199,000
YEAR ENDED DECEMBER 31, 1996          $  199,000     $    99,000                              $   298,000

INVENTORY VALUATION RESERVES:

YEAR ENDED DECEMBER 31, 1994          $  382,000     $   310,000               $ (29,000)     $   663,000
YEAR ENDED DECEMBER 31, 1995          $  663,000     $   460,000               $ (93,000)     $ 1,030,000
YEAR ENDED DECEMBER 31, 1996          $1,030,000     $   606,000               $(312,000)     $ 1,324,000

OTHER VALUATION RESERVES (1):

YEAR ENDED DECEMBER 31, 1994                         $   157,000                              $   157,000
YEAR ENDED DECEMBER 31, 1995          $  157,000     $   916,000               $ (90,000)     $   983,000
YEAR ENDED DECEMBER 31, 1996          $  983,000     $ 1,817,000                              $ 2,800,000

PROPERTY, PLANT AND EQUIPMENT -
 CONTINUING OPERATIONS:

YEAR ENDED DECEMBER 31, 1996                         $ 6,163,000                              $ 6,163,000


PROPERTY, PLANT AND EQUIPMENT -
 DISCONTINUED OPERATIONS:

YEAR ENDED DECEMBER 31, 1996                         $14,943,000                              $14,943,000
</TABLE>

(1)  PERTAINS TO OTHER RECEIVABLES, INCLUDING INNOVENTURE RECEIVABLE.

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