INTEGRATED PACKAGING ASSEMBLY CORP
10-Q, 1996-05-15
SEMICONDUCTORS & RELATED DEVICES
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<PAGE>
 
                                 UNITED STATES
                        SECURITIES & EXCHANGE COMMISSION
                             Washington, D.C. 20549
                          __________________________

                                   FORM 10-Q
                                        
(Mark One)
[  X  ]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the quarterly period ended  March 31, 1996

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

For the transition period from __________________ to ______________________


Commission file number:  0-27712

                          __________________________


                   INTEGRATED PACKAGING ASSEMBLY CORPORATION
             (Exact name of registrant as specified in its charter)


CALIFORNIA                                            77-0309372
(State or other jurisdiction of incorporation)        (I.R.S. Employer
                                                      Identification No.)

2221 OLD OAKLAND ROAD
SAN JOSE, CA                                          95131-1402
(Address of principal executive offices)              (Zip Code)

                                 (408) 321-3600
              (Registrant's telephone number, including area code)

                          __________________________


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                  Yes  X   No
                      ----    ----

Number of shares of common stock outstanding as of MAY 14, 1996:   13,843,039
<PAGE>
 
Part I.  Financial Information

Item 1.  Financial Statements

                   Integrated Packaging Assembly Corporation
                            Condensed Balance Sheet
                       (In thousands, except share data)
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                        MARCH 31,     DEC. 31,
                                                          1996          1995
                                                        ---------     --------
<S>                                                     <C>           <C>
ASSETS
     Current assets:
         Cash and cash equivalents                      $20,713        $ 5,424
         Short term investments                           5,043              0
         Accounts receivable, net                         4,038          2,903
         Inventory                                        2,348          2,141
         Prepaid expenses and other current assets          633            487
                                                        -------        -------
              Total currrent assets                      32,775         10,955
 
     Property and equipment, net                         20,204         17,050
     Other assets                                           266            255
                                                        -------        -------
 
             Total assets                               $53,245        $28,260
                                                        =======        =======
 
 LIABILITIES AND SHAREHOLDERS' EQUITY
     Current liabilities:
         Current portion of long term debt              $ 3,063        $ 2,948
         Accounts payable                                 2,716          1,855
         Accrued expenses and other liabilities           2,206          1,379
                                                        -------        -------
                Total current liabilities                 7,985          6,182
                                                        -------        -------
    
     Long term debt                                       6,352          7,015
                                                        -------        -------
 
     Mandatorily Redeemable Convertible
         Preferred Stock                                      0         15,981
                                                        -------        -------
 
     Shareholders' equity (deficit)
         Common Stock                                    39,663            449
         Accumulated deficit                               (755)        (1,367)
                                                        -------        -------

                Total shareholders' equity (deficit)     38,908           (918)
                                                        -------        -------

              Total liabilities and shareholders' 
               equity                                   $53,245        $28,260
                                                        =======        =======

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

                                                                          Page 2

<PAGE>
 
                   Integrated Packaging Assembly Corporation
                       Condensed Statement of Operations
                     (In thousands, except per share data)
                                  (Unaudited)

<TABLE> 
<CAPTION> 
                                                    FISCAL QUARTER ENDED
                                                  -------------------------
                                                   MARCH 31,      MARCH 31,
                                                    1996           1995
                                                  ---------       ---------
<S>                                                <C>            <C> 
Revenues                                           $8,057         $3,006
Cost of revenues                                    6,060          2,113
                                                   ------         ------
 
Gross profit                                        1,997            893
Operating expenses
  Selling, general & administrative                   762            385
  Research & development                              209            135
                                                   ------         ------
 
    Total operating expenses                          971            520
Operating income                                    1,026            373
 
Interest & other income (expense)                    (114)          (220)
                                                   ------         ------
 
Income before income taxes                            912            153
 
Provision for income taxes                           (300)           (11)
                                                   ------         ------
 
Net income                                         $  612         $  142
                                                   ======         ======
Net income per share                               $ 0.05         $ 0.01
                                                   ======         ======


Weighted average common shares and equivalents     12,407         11,286
                                                   ======         ======

</TABLE> 

   The accompanying notes are an integral part of these financial statements

                                                                          Page 3

<PAGE>
 
                   Integrated Packaging Assembly Corporation
                       Condensed Statement of Cash Flows
                           Increase (Decrease) Cash
                                (In thousands)
                                  (Unaudited)
<TABLE> 
<CAPTION> 
                                                    FISCAL QUARTER ENDED
                                                    ---------------------
                                                    MARCH 31,   MARCH 31,
                                                      1996        1995
                                                    ---------   ---------
<S>                                                 <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                      $   612       $ 142
    ADJUSTMENTS:
       Depreciation and amortization                    629         205
       Changes in assets and liabilities:
          Accounts receivable                        (1,135)       (523)
          Inventory                                    (207)         96
          Prepaid expenses and other assets            (157)         (6)
          Accounts payable                              860         (35)
          Accrued expenses & other liabilities          827         172
                                                    -------       -----

          Net cash provided by operating activities   1,429          51
                                                    -------       -----


CASH FLOWS USED IN INVESTING ACTIVITIES:
    Acquisition of property and equipment            (3,602)       (409)
    Net investment in short term investments         (5,043)          
                                                    -------       -----

          Net cash used in investing activities      (8,645)       (409)
                                                    -------       -----


CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
    Payments under capital lease obligations           (376)       (322)
    Principal payments on note payable                 (342)
    Proceeds from issuance of Common Stock           23,223           1
                                                    -------       -----
       Net cash provided by (used in) 
        investing activities                         22,505        (321)
                                                    -------       -----

NET INCREASE (DECREASE) IN CASH                      15,289        (679)
Cash and cash equivalents at beginning of period      5,424       3,030
                                                    -------       -----

CASH AND CASH EQUIVALENTS AT END OF PERIOD          $20,713      $2,351
                                                    =======      ======


SUPPLEMENTAL DISCLOSURE OF NONCASH 
 FINANCING ACTIVITIES
    Acquisition of equipment under capital leases      $147         $40
                                                    =======      ======

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

                                                                          Page 4

<PAGE>
 
                   INTEGRATED PACKAGING ASSEMBLY CORPORATION
                         NOTES TO FINANCIAL STATEMENTS


NOTE 1.    THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Integrated Packaging Assembly Corporation (the "Company") packages integrated
circuits for companies in the semiconductor industry.

The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Regulation S-X.  Accordingly, they do
not have the information and footnotes required by generally accepted accounting
principles for complete financial statements.  In the opinion or management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included.

The financial statements should be read in conjunction with the audited
financial statements for the years ended December 31, 1995  included in the
Company's Registration Statement on Form SB-2 dated February 28, 1996.

The results of operations for the three months ended March 31, 1996 are not
necessarily indicative of results of that may be expected for the entire year
ending December 31, 1996.



FISCAL YEAR

The Company's fiscal quarters and year end on the Sunday nearest the calendar
quarter end and December 31, respectively.   For purposes of financial statement
presentation, each fiscal year is presented as having ended on December 31 and
each fiscal quarter is presented as having ended on the calendar quarter end.
Fiscal 1994 consisted of 53 weeks;  1995 and 1996 each consist of 52 weeks.

NOTE 2.  BALANCE SHEET COMPONENTS
         (IN THOUSANDS)
<TABLE> 
<CAPTION> 
                            MARCH 31,      DEC. 31,
                             1996            1995
                            --------       --------
<S>                         <C>            <C> 
 INVENTORY
  Raw materials              $2,222         $1,906
  Work in process               126            235
                             ------         ------
                             $2,348         $2,141
                             ======         ======
</TABLE> 

                                                                          Page 5

<PAGE>
 
NOTE 3.   COMMON STOCK

Common Stock as of March 31, 1996 reflects the sale of 3,450,000 shares of
Common Stock issued in the Company's initial public offering completed February
28, 1996.   Net proceeds to the Company were $23.2 million as a result of the
initial public offering.   In addition, Common Stock also reflects the
conversion of all the Mandatorily Redeemable Convertible Preferred Stock
outstanding into an aggregate of 7,862,130 shares of Common Stock.



NOTE 4.   INCOME TAXES

The provision for income taxes reflects the estimated annualized effective tax
rate applied to earnings for the interim period.  The effective tax rate differs
from the statutory rate primarily due to use of federal and state net operating
loss carryforwards (NOLs).



NOTE 5.   NET INCOME PER SHARE

Net income per share is computed using the weighted average number of common and
common equivalent shares outstanding during the period.  Common equivalent
shares consist of Common Stock issuable upon the conversion of the Company's
Mandatorily Redeemable Convertible Preferred Stock using the as if converted
method and the exercise of stock options and warrants using the treasury stock
method.  Pursuant to the requirements of the Securities and Exchange Commission,
common stock equivalent shares relating to stock options and warrants, using the
treasury stock method, and the Mandatorily Redeemable Convertible Preferred
Stock, even where antidilutive, using the as if-converted method, issued
subsequent to December 31, 1994 are included in the computation of net income
per share through February 28, 1996, the effective date of the initial public
offering.


                                                                          Page 6

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

In addition to historical information contained herein, this Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
The forward-looking statements contained herein are subject to certain factors
that could cause actual results to differ materially from those reflected in the
forward-looking statements.  Such factors include, but are not limited to, those
discussed below and elsewhere in this Report on Form 10-Q.


OVERVIEW

Integrated Packaging Assembly Corporation is an independent North American
semiconductor packaging foundry.  The Company receives wafers from its customers
and assembles each integrated circuit in a protective plastic package.  The
Company commenced commercial production in the quarter ended March 31, 1994.
Since then, the Company has been engaged in a continual program to expand its
manufacturing capacity, and the Company believes that its competitive position
depends substantially on its ability to successfully continue such expansion.
The expansion of the Company's manufacturing capacity is highly dependent on the
ability of the Company (i) to obtain certain critical capital equipment which is
manufactured for the Company by a limited number of suppliers and (ii) to
identify, hire, and train qualified personnel.   See "Certain Factors Affecting
Operating Results".

REVENUES

The Company recognizes revenues upon shipment of products to its customers.
Revenue increased 168% to $8.1 in the quarter ended March 31, 1996 from $3.8
million in the quarter ended March 31, 1995.  The increase in revenues reflects
both a growth in unit volume from existing customers as well as the addition of
a number of major new customers.

Future revenue growth is dependent on the Company receiving increased orders
from current customers and/or new customers and the Company increasing its
manufacturing capacity.  In order to increase its manufacturing capacity, the
Company must obtain additional, critical capital equipment and identify, hire,
and train qualified personnel.  The Company has experienced delays in the
delivery of two molding and encapsulation systems that were scheduled for
receipt during March and April 1996.  The Company is working closely with the
equipment manufacturers in an attempt to take delivery of this equipment during
the quarter ending June 30, 1996; however, there can be no assurance that this
equipment will be received by the Company prior to June 30, 1996.  In the event
this equipment is not received on a timely basis or is not fully functional when
received, the Company may experience delays in its ability to satisfy customer
orders, which in turn could have a material adverse affect on the Company's
results of operations for the quarter ending June 30, 1996 and for subsequent
fiscal quarters.

A substantial portion of the Company's net revenues in each quarter results from
shipments during the last month of that quarter, and for that reason, among
others, the Company's revenues are subject to significant quarterly
fluctuations.  In addition, the Company establishes its targeted expenditure
levels based on expected revenues.  If anticipated orders and shipments in any
quarter do not occur when expected, expenditure levels could be
disproportionately high and the Company's operating results for that quarter
could be adversely affected.


                                                                          Page 7

<PAGE>
 
GROSS PROFIT

Cost of revenues includes materials, labor, depreciation and overhead costs
associated with semiconductor packaging.   Gross profit for the quarter ended
March 31, 1996 increased 124% to $2.0 million from $0.9 million for the quarter
ended March 31, 1995.  Gross profit as a percentage of revenues, or gross
margin, decreased to 24.8% for the first quarter of 1996 compared to 29.7% for
the first quarter of 1995.  Gross margin in the first quarter of 1995 reflected
a relatively high proportion of low volume prototype orders which carry
significantly higher unit prices compared to high volume production orders.
Over the past year, an increasing percentage of the Company's revenues have been
generated from high volume production orders.  Currently, low volume prototype
orders constitute only a small percentage of overall volume, and the Company
believes that any further decline in such orders as a percentage of overall
revenues would not have a material impact on future financial results.



SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses consist primarily of costs
associated with sales, customer service, finance, administration and management
personnel, as well as advertising, public relations, legal and facilities costs.
Selling, general and administrative expenses increased 98% to $762,000 for the
quarter ended March 31, 1996, from $385,000 for the quarter ended March 31,
1995. This increase was due primarily to increases in staff, marketing efforts
and facilities to support the Company's expansion.

As a percentage of revenues, selling, general and administrative expenses
decreased from 12.8% in the 1995 quarter to 9.5% in the 1996 quarter.   The
decrease in such expenses as a percentage of revenues was a result of spreading
fixed costs over a larger revenue base.  The Company anticipates that its
selling, general and administrative expenses will continue to increase in
absolute dollars in future periods, although such expenses may fluctuate as a
percentage of revenues.


RESEARCH AND DEVELOPMENT

Research and development expenses consist primarily of the costs associated with
research and development personnel, the depreciation of development equipment
and the cost of related materials and services.  Research and development
expenses increased 55% to $209,000 for the quarter ended March 31, 1996, from
$135,000 for the quarter ended March 31, 1995. This increase was due primarily
to the Company's expanded efforts in ongoing product development.

As a percentage of revenues, research and development expenses decreased from
4.4% in the 1995 quarter to 2.6% in the 1996 quarter.   The decrease in such
expenses as a percentage of revenues reflects a higher revenue level in the 1996
quarter. The Company anticipates that its research and development expenses will
continue to increase in absolute dollars in future periods, although such
expenses may fluctuate as a percentage of revenues.



INTEREST AND OTHER INCOME (EXPENSE)

Interest and other expense decreased 48% to $114,000 in the quarter ended March
31, 1996 from $220,000 in the quarter ended March 31, 1995, primarily due to
interest income earned on proceeds obtained in the Company's initial public
offering which was completed in March, 1996.


                                                                          Page 8

<PAGE>
 
PROVISION FOR INCOME TAXES

The Company increased its provision for income taxes for the quarter ended March
31, 1996 to an expected rate of 33%, as compared to a rate of 8% for the
comparable period in the prior year, reflecting the anticipated depletion of its
remaining tax loss carryforward in 1996.  The Company expects to provide for
income taxes in future years at a rate of approximately 40%.


LIQUIDITY AND CAPITAL RESOURCES

During the quarter ended March 31, 1996, the Company's principal sources of
liquidity were net proceeds of approximately $23.2 million from its initial
public offering, and cash flow from operations of $1.4 million.  During the
first quarter of 1996, cash flow from operations was comprised primarily of net
income of $0.6 million, depreciation and amortization in the amount of $0.6
million and an increase in accounts payable and accrued liabilities of $1.7
million, offset by an increase in accounts receivable of $1.1 million and an
increase in inventory and other assets of  $0.4 million.  As of March 31, 1996,
the Company's principal sources of liquidity included cash and cash equivalents
of $20.7 million and short term investments of $5.0 million.

The Company incurred capital expenditures of $3.6 million during the first
quarter of 1996, primarily for the purchase of production equipment.   The
Company expects to spend approximately $18 million of capital expenditures
during the remainder of 1996, primarily for the acquisition of production
equipment.  Most of the Company's production equipment has been funded either
through capital leases or term loans secured by capital equipment.  The Company
acquired $3.7 million and $4.0 million of production equipment through capital
leases in 1993 and 1994 respectively, which leases expire from December 1997 to
January 1999.  The production equipment acquired in 1995 was funded through two
term loans, with a total amount of $4.9 million, secured by the equipment.

The Company has accepted preliminary proposals from several lenders to provide
up to $17 million of equipment financing in the form of secured term loans,
available through March 31, 1997.

The Company has a $2.0 million revolving credit line, secured by substantially
all of the Company's assets which expires on May 15, 1996.  The Company has
accepted a preliminary proposal for the renewal of this credit facility through
May 15, 1997 with interest charged at the lending bank's prime rate.   As of
March 31, 1996, no money had been borrowed against this line; however, $617,000
of this line had been utilized to secure outstanding commercial letters of
credit.

The Company believes that existing cash and short term investment balances along
with anticipated cash from operations and equipment  financing will be
sufficient to meet its projected working capital and other cash requirements at
least through 1996.   There can be no assurance, however, that lower than
expected revenues, increased expenses, increased costs associated with the
purchase or maintenance of capital equipment, or other events will not cause the
Company to seek more capital, or capital sooner than currently expected.  The
timing and amount of the Company's actual capital requirements will depend on a
number of factors, including demand for the Company's services, availability of
capital equipment, adverse fluctuations in foreign currency exchange rates,
changes in semiconductor industry conditions and competitive factors.  There can
be no assurance that such financing will be available when needed or, if
available, will be available on satisfactory terms.


                                                                          Page 9

<PAGE>
 
CERTAIN FACTORS AFFECTING OPERATING RESULTS

The Company's operating results are affected by a wide variety of factors that
could materially and adversely affect revenues, gross profit and operating
income.  These factors include the short term nature of its customers'
commitments, timing and volume of orders relative to the Company's production
capacity, long lead times for the manufacturing equipment required by the
Company, evolutions in the life cycles of customers' products, timing of
expenditures in anticipation of future orders, lack of a meaningful backlog,
effectiveness in managing production processes, changes in costs and
availability of labor, raw materials and components, costs to obtain materials
on an expedited basis, mix of orders filled, the impact of price competition on
the Company's average selling prices and changes in economic conditions.
Unfavorable changes in any of the above factors would adversely affect the
Company's business, financial condition and results of operations.
 

DEPENDENCE ON A LIMITED NUMBER OF EQUIPMENT SUPPLIERS

The semiconductor packaging business is capital intensive and requires a
substantial amount of highly automated, expensive capital equipment which is
manufactured by a limited number of suppliers, many of which are located in Asia
or Europe.  The market for capital equipment used in semiconductor packaging has
been and is expected to continue to be characterized by intense demand, limited
supply and long delivery cycles.  As the Company attempts to expand its
production capacity, it will be necessary for the Company to obtain a
substantial amount of this capital equipment.  Accordingly, the Company's
operations and expansion plans are highly dependent on its ability to obtain a
significant amount of this capital equipment from a limited number of suppliers.
The Company has no long term agreement with any such supplier and acquires such
equipment on a purchase order basis.  This dependence creates substantial risks.
Should any of the Company's major suppliers be unable or unwilling to provide
the Company with high quality capital equipment in amounts necessary to meet the
Company's requirements, the Company would experience severe difficulty locating
alternative suppliers in a timely fashion and its ability to achieve its
expansion plans would be materially adversely affected.  A prolonged delay in
equipment shipments by key suppliers or an inability to locate alternative
equipment suppliers would have a material adverse effect on the Company's
business, financial condition and results of operations and could result in
damage to customer relationships.

In this regard, the Company has not yet received two molding systems previously
scheduled for delivery in  March and April 1996.  Even if such equipment were to
arrive prior to the end of the second fiscal quarter of 1996, there can be no
assurance that such equipment will be fully integrated into the Company's
manufacturing operations during such fiscal quarter.  In the event such
equipment is not received and integrated into the Company's operations prior to
such time, the Company may experience delays in its ability to satisfy customer
orders, which could result in the loss of orders and, in certain cases, in the
loss of customers which could have a material adverse effect on the Company's
operating results.

Moreover, increased levels of demand in the capital equipment market may cause
an increase in the price of equipment, further lengthen delivery cycles and
limit the ability of suppliers to adequately service equipment following
delivery, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations.  In addition, adverse
fluctuations in foreign currency exchange rates, particularly the Japanese yen,
could result in increased prices for the equipment purchased by the Company,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.


                                                                         Page 10

<PAGE>
 
DEPENDENCE ON THE SEMICONDUCTOR INDUSTRY

The Company's business is substantially affected by market conditions in the
semiconductor industry, which is highly cyclical and, at various times, has been
subject to significant economic downturns and characterized by reduced product
demand, rapid erosion of average selling prices and production overcapacity.  In
addition, the markets for integrated circuits are characterized by rapid
technological change, evolving industry standards, intense competition and
fluctuations in endures demand.  Because the Company's business is entirely
dependent on the requirements of semiconductor companies for independent
packaging foundries, any downturn in the semiconductor industry is expected to
have an adverse effect on the Company's business, financial condition and
results of operations.   For example, delays or rescheduling of orders due to a
downturn or anticipated downturn in the semiconductor industry could have a
material adverse effect on the Company's business, operating results and
financial condition.

In this regard, the Company experienced significant rescheduling of orders
during March, 1996 which the Company attributes to reduced demand for
semiconductors manufactured by certain of the Company's customers that serve, in
particular, the personal computer market.  There can be no assurance that this
recent downturn in the computer industry, or the general economic conditions
underlying this downturn, will not continue into the second,  third, and fourth
quarters of 1996.   Furthermore, there can be no assurance that any such
continuation or expansion of this downturn will not result in additional,
significant reschedulings by the Company's customers or, in the event of any
such reschedulings, that the Company's business, operating results and financial
condition will not be materially and adversely affected.

Moreover, the Company has been substantially dependent on a relatively small
number of customers within the semiconductor industry.  The Company anticipates
that significant customer concentration will continue at least through fiscal
year 1996.   There can be no assurance that such customers or any other
customers will continue to place orders with the Company in the future at the
same levels as in prior periods.  The loss of one or more of the Company's
customers, or reduced orders by any of its key customers, could adversely affect
the Company's business, financial condition and results of operations.



EXPANSION OF MANUFACTURING CAPACITY

The Company believes that its competitive position depends substantially on its
ability to expand its manufacturing capacity.  The Company is continuing to make
significant investments to expand such capacity, particularly through the
acquisition of capital equipment and the training of new personnel.  There can
be no assurance that the Company will be able to utilize such capacity or expand
its manufacturing capacity in a timely manner, that the cost of such expansion
will not exceed management's current estimates or that such capacity will not
exceed the demand for the Company's services.  In addition, expansion of the
Company's manufacturing capacity will continue to significantly increase its
fixed costs, and the future profitability of the Company will depend on its
ability to utilize its manufacturing capacity in an effective manner.  The
Company's inability to generate the additional revenues necessary to fully
utilize its capacity would have a material adverse effect on the Company's
business, financial condition and results of operations.


                                                                         Page 11

<PAGE>
 
MANAGEMENT OF GROWTH

The Company has recently experienced and may continue to experience substantial
growth in the number of its employees and the scope of its operations.  This
growth is expected to continue to strain the Company's managerial, financial,
manufacturing and other resources.  In addition, in order to manage its growth,
the Company must not only improve its existing operational, financial and
management systems, it must continue to implement additional operating and
financial controls and hire and train additional personnel.  Any failure to
improve the Company's operational, financial and management systems could have a
material adverse effect on the Company's business, financial condition and
results of operations.  Because the Company's expense levels are based in part
on anticipated future revenue levels, if revenue were to fall below projected
levels, the Company's operating results would be materially adversely affected.

In addition, the Company must hire and train significant numbers of additional
personnel to operate the highly complex capital equipment required by its
manufacturing operations.  There can be no assurance that the Company will be
able to hire and properly train sufficient numbers of qualified personnel or to
effectively manage such growth and its failure to do so could have a material
adverse effect on the Company's business, financial condition and results of
operations.



PRODUCT QUALITY AND RELIABILITY; PRODUCTION YIELDS

The semiconductor packaging process is complex and product quality and
reliability is subject to a wide variety of factors.  Defective packaging can
result from a number of factors, including the level of contaminants in the
manufacturing environment, human error, equipment malfunction, use of defective
raw materials, defective plating services and inadequate sample testing.  From
time to time, the Company expects to experience lower than anticipated
production yields as a result of such factors.  For example, in the second and
third quarters of 1995, the Company experienced inefficiencies due to rework of
subcontracted plating services which required the Company to reschedule planned
new production and resulted in lower gross profit during such periods.  The
Company's failure to maintain high quality production standards or acceptable
production yields would likely result in loss of customers, delays in shipments,
increased costs, cancellation of orders and product returns for rework, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations.



DEPENDENCE ON RAW MATERIALS SUPPLIERS AND SUBCONTRACTORS

To maintain competitive manufacturing operations, the Company must obtain from
its vendors, in a timely manner, sufficient quantities of acceptable materials
at expected prices.  The Company sources most of its raw materials, including
critical materials such as lead frames and die attach compound, from a limited
group of suppliers.  Molding compound, a critical raw material, is obtained from
a single supplier.  From time to time, vendors have extended lead times or
limited the supply of required materials to the Company because of vendor
capacity constraints and, consequently, the Company has experienced difficulty
in obtaining acceptable raw materials on a timely basis.  In addition, from time
to time, the Company may reject materials from those vendors that do not meet
its specifications, resulting in declines in output or yield.  Any interruption
in the availability of or reduction in the quality of materials from these
suppliers would materially adversely affect the Company's business, financial
condition and results of operations.  The Company purchases all of its materials
on a purchase order basis and has no long term contracts with any of its
suppliers.  There can be no assurance that the Company will be able to obtain
sufficient quantities of raw materials and other supplies.  The Company's
business, financial condition and results of operations would be materially
adversely affected if it were unable to obtain sufficient quantities of raw
materials and other supplies in a timely manner or if there were significant
increases in the costs of raw materials that the Company could not pass on to
its customers.

                                                                         Page 12
<PAGE>
 
The Company also relies on subcontractors to perform certain manufacturing
operations such as plating.  From time to time, the Company's plating
subcontractors have experienced significant manufacturing problems.  In
particular, such problems resulted in delayed customer shipments by, and
increased costs to, the Company during the second and third quarters of 1995.
There can be no assurance that the Company's subcontractors will not experience
manufacturing problems in the future or that such problems will not result in
increased costs or production delays which could have a material adverse effect
on the Company's business, financial condition and results of operations.



DEPENDENCE ON SINGLE MANUFACTURING FACILITY

The Company's current manufacturing operations are located in a single facility
in San Jose, California.  Because the Company does not currently operate
multiple facilities in different geographic areas, a disruption of the Company's
manufacturing operations resulting from various factors, including sustained
process abnormalities, human error, government intervention or a natural
disaster such as fire, earthquake or flood, could cause the Company to cease or
limit its manufacturing operations and consequently would have a material
adverse effect on the Company's business, financial condition and results of
operations.



COMPETITION; POTENTIAL DECLINE IN AVERAGE SELLING PRICES

The semiconductor packaging industry is highly competitive.  The Company
currently faces substantial competition from established packaging foundries
located in Asia.  Each of these competitors has significantly greater
manufacturing capacity, financial resources, research and development
operations, marketing and other capabilities than the Company, and has been
operating for a significantly longer period of time than the Company.  Such
companies also have established relationships with many large semiconductor
companies which are current or potential customers of the Company.  The Company
could face substantial competition from Asian packaging foundries should one or
more of such companies decide to establish foundry operations in North America.
The Company could also face competition from emerging independent North American
packaging foundries.  The Company also competes against companies which have in
house packaging capabilities as current and prospective customers constantly
evaluate the Company's capabilities against the merits of in house packaging.
Many of the Company's customers are also customers of one or more of the
Company's competitors.  In addition, the Company expects that average selling
prices for its products may decline in the future, principally due to intense
competitive conditions.  A decline in average selling prices of the Company's
products, if not offset by reductions in the cost of producing those products,
would decrease the Company's gross margins and could materially and adversely
affect the Company's business, financial condition and results of operations.
There can be no assurance that the Company will be able to reduce its cost per
unit.

                                                                         Page 13
<PAGE>
 
PART II     OTHER INFORMATION

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K



  (a)  Exhibits

       11.1 Statement Regarding Computation of Earnings Per Share

 
  (b)  Reports on Form 8-K
 
       None


  (c)  27 Financial Data Schedule


                                                                         Page 14
<PAGE>
 
                                   SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                            INTEGRATED PACKAGING ASSEMBLY CORPORATION


Date:  May 14, 1996           /s/  Victor Batinovich


                             ______________________________
                             Victor Batinovich
                             Chairman and Chief Executive Officer



Date:  May 14, 1996          /s/  Tony Lin


                             ______________________________
                             Tony Lin
                             Vice President, Finance and Chief Financial Officer


                                                                         Page 15

<PAGE>
 
                                                                   EXHIBIT  11.1

                   INTEGRATED PACKAGING ASSEMLBY CORPORATION
                       COMPUTATION OF EARNINGS PER SHARE
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  (UNAUDITED)
<TABLE> 
<CAPTION> 
                                                                   FISCAL QUARTER ENDED
                                                                   --------------------
                                                                   MARCH 31,   MARCH 31,
                                                                     1996        1995
                                                                   ---------   ---------
<S>                                                                <C>             <C> 
Weighted average common shares outstanding                         6,303           2,111

Common equivalent shares from options, warrants and convertible
  preferred stock (1)                                                  0           2,347

Weighted average common equivalent shares from convertible
  preferred stock calculated using if-converted method             5,242           6,123

Weighted average common stock equivalents calculated by the
  treasury stock method applied to options and warrants              862             705
                                                                  ------          ------
Weighted average common shares and equivalents                    12,407          11,286
                                                                  ======          ======
Net income                                                          $612            $142
                                                                  ======          ======

Net income per share                                               $0.05           $0.01
                                                                  ======          ======

</TABLE> 

(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletins,
    common and common equivalent shares and options issued by the Company during
    the 12 month period prior to the initial public offering of the Company's
    common stock have been included as if they were outstanding for all periods
    presented

<TABLE> <S> <C>

<PAGE>
 
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED STATEMENT OF OPERATIONS, THE CONDENSED BALANCE SHEET AND THE
ACCOMPANYING NOTES TO THE CONDENSED FINANCIAL STATEMENTS, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH
</LEGEND>
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-1996
<PERIOD-START>                              JAN-1-1996
<PERIOD-END>                               MAR-31-1996
<CASH>                                          20,713
<SECURITIES>                                     5,043
<RECEIVABLES>                                    4,098
<ALLOWANCES>                                        60
<INVENTORY>                                      2,348
<CURRENT-ASSETS>                                32,775
<PP&E>                                          22,615
<DEPRECIATION>                                   2,411
<TOTAL-ASSETS>                                  53,245
<CURRENT-LIABILITIES>                            7,985
<BONDS>                                              0
                                0
                                          0
<COMMON>                                        39,663
<OTHER-SE>                                       (775)
<TOTAL-LIABILITY-AND-EQUITY>                    53,245
<SALES>                                          8,057
<TOTAL-REVENUES>                                 8,057
<CGS>                                            6,060
<TOTAL-COSTS>                                    6,060
<OTHER-EXPENSES>                                   971
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                 318
<INCOME-PRETAX>                                    912
<INCOME-TAX>                                       300
<INCOME-CONTINUING>                                612
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                       612
<EPS-PRIMARY>                                     0.05
<EPS-DILUTED>                                     0.05
        

</TABLE>


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