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

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

                                    Form 10-K
(Mark One)
[x]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
             THE SECURITIES EXCHANGE ACT OF 1934.

                   For the fiscal year ended December 31, 2001

[ ]  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

      OSE USA, Inc. (Exact Name of Registrant as Specified in its Charter)

           Delaware                                  77-0309372
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

2221 Old Oakland Road                                95131-1402
San Jose, California                                 (Zip Code)
(Address of principal executive offices)

        Registrant's telephone number including area code: (408) 321-3600
      Securities registered pursuant to Section 12(g) of the Exchange Act:
                         Common Stock, $.001 par value

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

     Indicate by check mark if disclosure  of  delinquent  filers in response 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. [ X ]

     The  aggregate  market value of the voting stock held by persons other than
those who may be deemed  affiliates  of the  Company as of March 19,  2002,  was
approximately  $360,000.  Shares of Common Stock held by each executive  officer
and  director and by each person who owns 5% or more of the  outstanding  Common
Stock have been excluded in that such persons may under certain circumstances be
deemed to be affiliates.  This  determination of executive  officer or affiliate
status is not necessarily a conclusive determination for other purposes.

     The number of shares of the  Registrant's  Common Stock  outstanding  as of
March 19, 2002 was  82,279,607.  The  Registrant  also had 3,000,000  shares and
3,023,225  shares  of  Series  A  Convertible   Preferred  Stock  and  Series  B
Convertible  Preferred  Stock,  respectively,  outstanding on such date which is
convertible  at any time by the holder  into  41,246,312  shares and  41,565,626
shares, respectively, of Common Stock.

                       DOCUMENT INCORPORATED BY REFERENCE

     Portions of the Proxy Statement for the Registrant's 2001 Annual Meeting of
Stockholders are incorporated by reference in Part III of this Form 10-K.


<PAGE>


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                              Page
<S>                    <C>                                                                      <C>
Part I

           Item 1.     Business................................................................  3
           Item 2.     Properties.............................................................. 12
           Item 3.     Legal Proceedings....................................................... 12
           Item 4.     Submission of Matters to a Vote of Security Holders..................... 12

Part II

           Item 5.     Market for Registrant's Common Equity and Related Stockholder Matters... 13
           Item 6.     Selected Financial Data................................................. 14
           Item 7.     Management's Discussion and Analysis of Financial Condition and
                         Results of Operations................................................. 15
           Item 7a.    Quantitative and Qualitative Disclosures About Market Data.............. 23
           Item 8.     Financial Statements and Supplemental Data.............................. 24
           Item 9.     Changes in and Disagreements with Accountants on Accounting and
                         Financial Disclosure.................................................. 48

Part III

           Item 10.    Directors and Executive Officers of the Registrant...................... 49
           Item 11.    Executive Compensation.................................................. 49
           Item 12.    Security Ownership of Certain Beneficial Owners and Management.......... 49
           Item 13.    Certain Relationships and Related Transactions.......................... 49

Part IV.

           Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K......... 49

SIGNATURES..................................................................................... 53
</TABLE>


                                       2
<PAGE>


                                     PART I

This  Annual  Report  of  OSE  USA,  Inc.  Form  10-K  contains  forward-looking
statements,   particularly  those  identified  with  the  words,  "anticipates,"
"believes,"  "expects,"  "plans,"  and  similar  expressions.  These  statements
reflect management's best judgment based on factors known to them at the time of
such statements. The reader may find discussions containing such forward-looking
statements  in the  material set forth under "Risk  Factors"  and  "Management's
Discussion  and Analysis of Financial  Condition and Results of  Operations"  as
well as elsewhere in this Annual  Report on Form 10-K.  Actual events or results
may differ materially from those discussed  herein.  The reader should carefully
consider the risk factors  discussed  under "Risk  Factors,"  among  others,  in
evaluating the Company's prospects and future financial performance.


Item 1.  Business

     OSE USA,  Inc.  ("The  Company")  formerly  Integrated  Packaging  Assembly
Corporation, was incorporated in California on April 28, 1992 and reincorporated
in  Delaware on June 19,  1997.  The Company  has two  operating  segments:  (1)
manufacturing and (2) distribution.

     The manufacturing  segment assembles and packages  integrated circuits from
wafers consigned by its customers.  The Company's focus is on quad flat packages
("QFPs"), thin quad flat packages ("TQFPs"),  ball grid array packages ("BGAs"),
flip  chips,  and chip  scale  packaging  ("CSPs"),  which  are used in  complex
integrated   circuits  with  high  pin-counts  in  the  personal   computer  and
telecommunications industries.

     The  distribution  segment  is  the  exclusive  North  American  sales  and
marketing  organization for Orient  Semiconductor  Electronics,  Ltd. ("OSE") of
Taiwan, a public Taiwanese company and the Company's principal stockholder.  The
Company is also the exclusive  North American  sales and marketing  organization
for  affiliated  company  Orient  Semiconductor  Electronics  Philippines,  Inc.
("OSEP").  Revenues are derived from fees  received on the sales of OSE and OSEP
semiconductor  assemblies and test services to customers  headquartered in North
America. The Company's distribution  operations are conducted through its wholly
owned subsidiary OSE Inc. ("OSEI")

Manufacturing

Semiconductor Packaging Services

     The Company has focused on packages  designed  for assembly  using  Surface
Mount Technology  ("SMT") in which leads on integrated  circuits are soldered to
the surface of the printed  circuit  board.  Within the SMT market,  the Company
focuses on high pin-count packages, such as Quad Flat Packages ("QFPs") and Thin
Quad Flat Packages  ("TQFPs").  The Company offers eight  different QFP and TQFP
families with body sizes ranging from 7x7 mm to 32x32 mm and lead counts from 32
to 256 leads,  two Plastic Ball Grid Array ("PBGA")/ Cavity Down Ball Grid Array
("CDBGA")  families with body sizes of 27x27 and 35x35 with ball counts from 225
to 532 balls,  three Low  Profile  Fine  Pitch  Ball Grid  Array  ("LFBGA")/Thin
Profile Fine Pitch Ball Grid Array ("TFBGA")  families with ball counts from 144
to 196 balls and  several  Micro Lead  Frame  package  (MLP or QFN).  Integrated
circuits  packaged  by the  Company  are  used  in the  following  applications:
personal   computers,   modems,   disk   drives,   automobiles,    cameras   and
telecommunications, among others. Since inception, QFPs and TQFPs have accounted
for substantially all of the Company's packaging revenues.

     Packaging  involves  several  manufacturing  operations,  which are  highly
automated to facilitate high volume production. The assembly process begins with
the mounting of a finished, tested wafer onto a carrier. After a dicing saw cuts
the wafer into  individual  die,  the cut wafer is moved to a die  bonder  which
picks each good die off the wafer and bonds it to a lead frame with epoxy resin.
A lead  frame is a  miniature  sheet of metal,


                                       3
<PAGE>


generally made of copper with selective  silver-plating  on which the pattern of
input/output  (I/0) leads has been cut. Next, very fine (typically  0.001 inches
in diameter)  gold wires are  connected to the die and the leads through the use
of  automated  machines  known as wire  bonders.  These wire leads  provide  the
electrical  path  necessary  for  the  device  to  function.  Each  die is  then
encapsulated  in a plastic  casing and  marked.  The leads  protruding  from the
finished  casing are then  plated  with tin and lead  composition  to permit the
leads to be connected to the printed  circuit board. At the end of the packaging
process,  the leads are  trimmed and formed into  requisite  shapes.  After this
packaging  process is complete,  the devices  undergo final  inspection  and are
prepared for shipment.

     The  Company   shipped   approximately   15.8  million   devices  in  1999,
approximately 19.5 million devices in 2000 and approximately 5.3 million devices
in  2001.  Since  the  fourth  quarter  of  1996,  the  Company  has had  excess
manufacturing  capacity.  The Company's  manufacturing capacity utilization is a
function of the mix of different  package  types  produced by the Company at any
one time and the  proportion of standard  production  runs compared to expedited
production  runs.  Thus, as the Company  shifts its production  among  different
package types or allocates a different amount of available  capacity to standard
production  runs, the rate of the Company's  capacity  utilization  changes,  at
times significantly.

     The Company has made substantial investments in expanding its manufacturing
capacity  during its operating  history,  in  anticipation  of increased  future
business.  Since early 1997,  the  Company has  incurred  net losses as revenues
dropped substantially, while overhead and fixed costs increased, with the result
that there was substantial  underutilized  manufacturing  capacity.  The Company
continues to operate with significant  underutilized  capacity.  There can be no
assurance  that the Company will receive  orders from new or existing  customers
that will enable it to utilize such  manufacturing  capacity in a timely manner.
The Company is  developing  a plan to reduce its excess  production  capacity by
either  transferring  excess  equipment  to OSE  and/or  looking  for buyers for
certain equipment.

     The Company's  inability to generate the additional  revenues  necessary to
more fully  utilize its  capacity  has had and will  continue to have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.

     The  Company  intends to focus more of its  operations  on  quick-turn  and
engineering  lot assemblies to improve its  profitability,  due to the fact that
quick-turn and  engineering  lot assemblies  provide higher profit  margins.  To
achieve this objective,  the Company  recently  restructured  its internal sales
force and  increased  the  frequency of customer  contacts.  The Company is also
working on using outside sales  representatives  in promoting the Company to new
customers throughout the United States.

     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  Company's  operations  are  significantly  dependent  upon the
Company's ability to obtain capital  equipment for its manufacturing  operations
in a timely manner. In this regard, the Company spent approximately $2.6 million
and $290,000 in 2000 and 2001,  respectively and expects to continue spending to
purchase  capital  equipment  in 2002 in  order  to  continue  to meet  industry
manufacturing  requirements.  The Company currently  purchases capital equipment
from a limited group of suppliers  including  Dai-Ichi Seiko Co., Ltd.,  ESEC SA
and Kaijo  Corporation.  The Company has no  long-term  agreement  with any such
supplier and acquires such equipment on a purchase  order basis.  The market for
capital   equipment   used  in   semiconductor   packaging  has  at  times  been
characterized by intense demand,  limited supply and long delivery  cycles.  The
Company's dependence on such equipment suppliers poses 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 operations could be materially
adversely affected.


                                       4
<PAGE>


Quality Control

     The Company believes that total quality  management is a vital component of
customer  satisfaction  and internal  productivity.  The Company has established
quality control systems, which are designed to maintain acceptable manufacturing
yields at quick turn  engineering lots and small scale  production.  The Company
has also developed a  sophisticated  proprietary  software  program for material
resource  planning,  shop floor control,  work in process tracking,  statistical
process control and product costing. The Company obtained  certification for its
packaging  operations  pursuant to ISO 9002 in December 1996 and recertification
in March 2002.

     As of December 31, 2001, the Company's  quality  control staff consisted of
engineers,  technicians and other employees who monitor the Company's design and
production  processes in order to ensure high quality.  These employees  include
line  inspectors  who work  with  members  of the  production  staff to  conduct
examination,  testing and fine-tuning of products during the production process.
Quality  control  personnel are involved from initial design to production.  The
quality control staff also collects and analyzes data from various stages of the
production  process,  which  is  used by the  Company  for  statistical  process
control.

     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 has  experienced  lower than  anticipated  production
yields as a result of such  factors.  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.

Marketing and Sales

     The Company's  business is substantially  affected by market  conditions in
the  semiconductor  industry,  which is highly  cyclical  and, at various  times
(including  currently),  has been subject to significant  economic downturns and
characterized by reduced product demand, rapid erosion of average selling prices
and production over capacity. In addition,  rapid technological change, evolving
industry  standards,  intense  competition  and  fluctuations in end user demand
characterize the markets for integrated circuits. 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
have in the past and could in the future have a material  adverse  effect on the
Company's business,  operating results and financial condition. The trend in the
industry is that most high volume  production  will  continue  moving to the low
manufacturing cost areas and the local manufacturers will serve the market where
manufacturing  offshore  is  restricted  or not cost  effective;  or where  fast
turn-around  is required.  The Company  believes that it can serve both of these
markets by transferring  the high volume  production to its parent in Taiwan and
while maintaining  appropriate  manufacturing capacity in the U.S. for the quick
turn and small volume production market.

     In addition,  the Company has been substantially  dependent on a relatively
small  number  of  customers  within  the  semiconductor   industry.   The  high
concentration  of business  with a limited  number of  customers  has  adversely
affected  the  Company's   operating  results,   when  business  volume  dropped
substantially  for  several  customers.  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.  In recent  years,  the
Company's need for additional financing,  and the uncertainty as to whether such
financing could be obtained,  adversely affected the


                                       5
<PAGE>


Company's  ability  to  obtain  new  customers.  The  loss of one or more of the
Company's  customers,  or  reduced  orders  by any of its key  customers,  would
adversely  affect the  Company's  business,  financial  condition and results of
operations.  In order to deal with this,  the Company  intends to diversify  its
customer base by adding more new customers into its portfolio.  By restructuring
its sales force and using outside sales representatives, the Company believes it
will mitigate the impact of customer concentration. In 2001, Atmel Semiconductor
and ATI  Technologies,  Ltd.  accounted  for 14%  and 6%,  respectively,  of the
Company's revenues.  Atmel  Semiconductor and Orbit Semiconductor  accounted for
32% and 5%,  respectively,  of the Company's  revenues in 2000.  Atmel and Orbit
accounted  for 30% and 15%,  respectively,  of the  Company's  revenues in 1999.
Atmel Semiconductor significantly reduced their orders during the second half of
2000. The Company ships its products in accordance with customer purchase orders
and upon  receipt  of  semiconductor  wafers  from its  customers.  The  Company
generally ships products within one to seven days after receiving the customer's
wafers, and accordingly, the Company has not, to date, had a material backlog of
orders.  The Company expects that revenues in any quarter will be  substantially
dependent upon orders received in that quarter. The Company's expense levels are
based in part on its  expectations  of future  revenues  and the  Company may be
unable  to  adjust  costs in a  timely  manner  to  compensate  for any  revenue
shortfall.

The  Company's  marketing  and  sales  efforts  are  focused  on North  American
semiconductor  companies that design or manufacture IC devices which are used in
applications   such   as   personal   computers,   modems,   disk   drives   and
telecommunication   products.   Within  such  markets,  the  Company  emphasizes
packaging  complex,  high  pin-count  products.  The Company  sells its services
directly  through  its sales and  customer  support  organization.  The  Company
assists its  customers in evaluating  designs with respect to  manufacturability
and when appropriate recommends design changes to reduce manufacturing costs and
lead times. The Company also offers design services for a fee.

Risk factors

Risk of dependence on raw material suppliers

     To maintain competitive manufacturing  operations,  the Company must obtain
from its  suppliers,  in a timely  manner,  sufficient  quantities of acceptable
materials at expected  prices.  The Company  obtains most of its raw  materials,
including critical materials such as lead frames and die attach compound, from a
limited group of suppliers.  Substantially all molding compound,  a critical raw
material, is obtained from a single supplier.  From time to time, suppliers have
extended  lead times or limited the supply of required  materials to the Company
because of supplier  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 has rejected  materials from those
suppliers 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's ability
to respond to increased  orders would also be adversely  affected if the Company
is not able to obtain increased supplies of key raw materials.

Risk of no long-term contracts with suppliers

     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.


                                       6
<PAGE>


Risk related to high fluctuation in the semiconductor industry

     The Company's business is highly related to the semiconductor industry. The
semiconductor industry is comprised of different market segments based on device
type  and the end  use of the  device.  Accordingly,  within  the  semiconductor
industry,  demand for production in a particular  segment may be subject to more
significant   fluctuations  than  other  segments.   If  any  of  the  Company's
significant  customers are in a segment,  which has  experienced  adverse market
conditions,  there  would  be an  adverse  effect  on  the  Company's  business,
financial  condition  and  operating  results.  There can be no  assurance  that
reduced demand, or the general economic conditions  underlying such demand, will
not  continue  to  adversely   affect  the  Company's   results  of  operations.
Furthermore,  there can be no assurance that any such  continuation or expansion
of this reduced demand will not result in an additional and significant  decline
in the  demand  for the  products  produced  by the  Company's  customers  and a
corresponding  material  adverse  impact on the  Company's  business,  operating
results and financial condition.

Risk of losing technological and manufacturing expertise

     The  semiconductor   packaging   industry  is  continuously  going  through
technological changes, which requires increased  technological and manufacturing
expertise.  If the Company is lagging in developing the required expertise,  the
introduction  of new packaging  technologies,  or a reduction or shift away from
the packages under  development,  this would result in a material adverse effect
on the Company's business, financial condition and results of operations.

Risk related to patent infringement

     As is  typical in the  semiconductor  industry,  the  Company  may  receive
communications  from third parties asserting patents on certain of the Company's
technologies.  In the  event any  third  party  was to make a valid  claim and a
license was not  available  on  commercially  reasonable  terms,  the  Company's
business,  financial condition and results of operations could be materially and
adversely  affected.  Litigation,  which could result in substantial cost to and
diversion of resources of the Company,  may also be necessary to enforce patents
or other  intellectual  property  rights of the Company or to defend the Company
against  claimed  infringement  of the rights of others.  The  failure to obtain
necessary   licenses  or  the  occurrence  of  litigation   relating  to  patent
infringement  or other  intellectual  property  matters  could  have a  material
adverse  effect on the Company's  business,  financial  condition and results of
operations.  At December 31, 2001, the Company was not a party to any litigation
relating to patent or other intellectual property matters.

Risk related to the short- term nature of customer orders and product cycle

The Company's  operating  results are affected by a wide variety of factors that
have in the past  and  could  in the  future  materially  and  adversely  affect
revenues,  gross profit,  operating income and liquidity.  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, the Company's ability
to secure additional financing and changes in economic  conditions.  Unfavorable
changes in any of the  preceding  factors have in the past and may in the future
adversely  affect the  Company's  business,  financial  condition and results of
operations.


                                       7
<PAGE>


Risk related to political, economic, and military conditions in Taiwan

     The Company may be  significantly  impacted by the political,  economic and
military  conditions in Taiwan due to the Company's  subsidiary,  OSEI,  being a
distributor for OSE whose operations are principally  located in Taiwan.  Taiwan
and the  People's  Republic  of China  are  continuously  engaged  in  political
disputes.  Such disputes may continue and even  escalate,  resulting in economic
embargo,  a  disruption  in shipping or even  military  hostilities.  This could
severely harm OSEI's business by interrupting or delaying production or shipment
of products OSEI distributes. Any kind of activity of this nature or even rumors
of such activity could severely and negatively  impact the Company's  results of
operations and financial position.

Risk related to geographical location

The Company's facilities are located in California near major earthquake faults.
In  addition,  some of the  Company's  suppliers  are  located  near  earthquake
sensitive  areas. In the event of a major  earthquake or other natural  disaster
near its facilities,  the Company's  operations  could be harmed.  Similarly,  a
major  earthquake or other natural disaster near the Company's  suppliers,  like
the one that occurred in Taiwan in September 1999,  could disrupt the operations
of those  suppliers,  which could  limit the  availability  of products  for the
Company to distribute and harm the Company's business.

Competition

     The semiconductor  packaging  industry is highly  competitive.  The Company
currently faces  substantial  competition from established  packaging  foundries
located in Asia,  such as Advanced  Semiconductor  Assembly  Technology  in Hong
Kong, Advanced Semiconductor Engineering,  Inc. and Siliconware in Taiwan, Amkor
Technology and ChipPAC in Korea, and other subcontractors in Singapore,  Taiwan,
Malaysia  and  Indonesia.  Each of these  companies  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  have also  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  also faces  competition  from other  independent,  North  American
packaging  foundries.  The Company also  competes with  companies  with 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 principal
competitors.   The  principal  elements  of  competition  in  the  semiconductor
packaging  market include  delivery  cycle times,  price,  product  performance,
quality, production yield,  responsiveness and flexibility,  reliability and the
ability to design and incorporate product improvements.  The Company believes it
principally  competes on the basis of shorter  delivery cycle times it can offer
customers  due to the  close  proximity  of its  manufacturing  facility  to its
customers' operations and the end users of its customers' products.

     For the past several  years,  the Company has  experienced a decline in the
average  selling  prices  for  a  number  of  its  products.   During  2001  the
manufacturing  segment of the Company shifted its focus to lower volume,  faster
turnaround  production,  which  generates  higher average  selling  prices.  The
Company  expects that average  selling  prices for its products will increase in
the future due to this change in business strategy.  The distribution segment of
the Company will continue to follow the pricing  guidelines  set by OSE in order
to compete in the global market.


                                       8
<PAGE>


Research and Development

     The Company's research and development efforts are focused on improving the
efficiency and capabilities of its production  processes,  and on developing new
packages  by making  improvements  upon  commercially  available  materials  and
technology. Particular emphasis is on developing new packages and processes that
will offer a wider range of services to its  customers.  BGA (ball grid  array),
LFBGA (low  profile fine pitch ball grid  array),  QFN, and Flip Chip  processes
were placed into service in 2001.  Developments for 2002 are expected to include
enhancements  to the Flip Chip  process  along with  development  of stacked die
processes,  flip  chip/wire  bond hybrid  package and Systems in a Package (SIP)
capability.  These developments will enable the Company to provide new packaging
services to its customers. The Company also works closely with the manufacturers
of its packaging  equipment in designing and modifying the equipment used in the
Company's production process.

     As of December  31,  2001,  the Company  employed 7 persons in research and
development activities.  In addition, other management and operational personnel
are involved in research and development activities. The Company supplements its
research and development efforts with business and technological  alliances.  In
1999,  2000,  and 2001,  the Company's  research and  development  expenses were
approximately $727,000,  $1,308,000, and $1,285,000,  respectively.  The Company
expects to continue to invest significant resources in research and development.

     The  Company  has  focused its  manufacturing  resources  on plastic  QFPs,
LFBGAs, QFN and Flip Chip packages for use with SMT, and the Company has neither
the capability nor the intent to provide services to other substantial  segments
of the semiconductor  packaging market. For example, the Company has no capacity
to  manufacture  packages  for use with  PTH  technology,  nor does the  Company
presently  intend to manufacture  packages using  materials  other than plastic,
such as ceramic. Technological change in the semiconductor packaging industry is
continuous and in the future semiconductor manufacturers are expected to require
increased  technological and manufacturing  expertise.  OSE provides the Company
manufacturing and research and development support through providing engineering
staff and engineering advice.

Intellectual Property

     The Company's  success depends in part on its ability to obtain patents and
licenses and to preserve  other  intellectual  property  rights  relating to its
manufacturing processes. As of December 31, 2001, the Company held thirteen U.S.
patents,   which  expire  between  2012  and  2017,  and  an  additional  patent
application,  which has been  filed  and is  pending.  The  Company  expects  to
continue to file patent applications when appropriate to protect its proprietary
technologies;  however,  the Company believes that its continued success depends
primarily  on factors such as the  technological  skills and  innovation  of its
personnel rather than on its patents.  The process of seeking patent  protection
can be expensive and time consuming. There can be no assurance that patents will
be issued from pending or future  applications  or that,  if patents are issued,
they will not be challenged, invalidated or circumvented, or that rights granted
thereunder will provide meaningful  protection or other commercial  advantage to
the Company.  Moreover, there can be no assurance that any patent rights will be
upheld in the future or that the  Company  will be able to  preserve  any of its
other intellectual property rights.

Environmental Matters

     The  semiconductor  packaging  process  involves  a  significant  amount of
chemicals and gases that are subject to extensive governmental regulations.  For
example, liquid waste is produced at the stage at which silicon wafers are diced
into chips  with the aid of  diamond  saws and cooled  with  running  water.  In
addition,  excess  materials on leads and  moldings  are removed  from  packaged
semiconductors in the trim and form process. The Company has installed equipment
to collect certain  solvents used in connection with its  manufacturing  process
and has contracted  with  independent  waste  disposal  companies to remove such
hazardous material.


                                       9
<PAGE>


     The  Company  installed  an  advanced  electroplating  system  at a  leased
facility in Milpitas,  California and substantially all of the Company's plating
is  performed  at such  facility.  This  plating  operation  involves the use of
significant quantities of certain hazardous substances. Although the Company has
designed  procedures to ensure such  materials  are handled in  compliance  with
applicable  regulations,  there can be no assurance  that the  operation of such
facility  will not expose the  Company to  additional  costs in  complying  with
environmental regulations or result in future liability to the Company.

     Federal,  state  and  local  regulations  impose  various  controls  on the
storage,  handling,  discharge  and disposal of chemicals  used in the Company's
manufacturing  process and on the facility occupied by the Company.  The Company
believes  that its  activities  conform  to present  environmental  and land use
regulations  applicable to its operations and its current  facility.  Increasing
public  attention  has,  however,  been focused on the  environmental  impact of
semiconductor  manufacturing  operations  and the risk to  neighbors of chemical
releases from such  operations.  There can be no assurance that  applicable land
use and  environmental  regulations  will not in the future  impose the need for
additional  capital equipment or other process  requirements upon the Company or
restrict the  Company's  ability to expand its  operations.  The adoption of new
ordinances  or similar  measures  or any  failure by the  Company to comply with
applicable  environment and land use regulations or to restrict the discharge of
hazardous  substances could subject the Company to future liability or cause its
manufacturing operations to be curtailed or suspended.

     The Company's OSEI subsidiary is not involved in manufacturing.

Employees

     As of December 31, 2001,  the Company had 146 full time  employees,  108 of
whom were engaged in manufacturing,  7 in research and development,  15 in sales
and  customer  service,  and 16 in  finance  and  administration.  Among the 146
employees,  124 were working for the  manufacturing  segment and 22 were working
for the distribution segment. The Company's employees are not represented by any
collective  bargaining  agreement,  and the Company has never experienced a work
stoppage. The Company believes that its employee relations are good. The success
of the  Company's  future  operations  depends  in large  part on the  Company's
ability to attract  and  retain  highly  skilled  technical,  manufacturing  and
management  personnel.  There  can be no  assurance  that  the  Company  will be
successful in attracting and retaining key personnel.



                                       10
<PAGE>


Executive Officers

     The executive officers of the Company are as follows:

     Name          Age                         Position(s)
---------------   -----     ----------------------------------------------------
Edmond Tseng       55       Chairman of the Board of Directors, President, Chief
                            Executive Officer and Director
Gerald K. Fehr     64       Executive Vice President, Chief Technology Officer
Elton Li           40       Corporate Controller, Chief Accounting Officer
Chris BK Ooi       47       Vice President, Operations

     Edmond Tseng has been President and Chief Executive Officer of OSE USA Inc.
since November 2000 and President and Chief Executive Officer of OSE, Inc. since
1990. Mr. Tseng has been a Director and Chairman of the Board of Directors since
April 1999.  From June 1985 to December  1989,  Mr.  Tseng served as Director of
Packaging Technology at Condata, Incorporated.

     Gerald  K.  Fehr is a  Co-Founder  of the  Company  and has  served as Vice
President,  Technology  of the  Company  since  March  1993 and  Executive  Vice
President,  Chief  Technology  Officer since December 1997. From January 1991 to
March 1993,  Dr. Fehr served as an independent  consultant in the  semiconductor
packaging industry. Prior to 1991, Dr. Fehr held various management positions in
operations with LSI Logic, Inc., Burroughs Corporation,  Fairchild Semiconductor
Corporation and Intel Corporation.

     Elton Li joined the Company in December 2001 as Corporate  Controller,  and
Chief  Accounting  Officer.  From April 1995 to November  2001, Mr. Li served as
Controller of A-Plus  Manufacturing  Corporation,  an  electronic  manufacturing
service (EMS) company.  Prior to that, Mr. Li held various accounting  positions
in leading firms in the public accounting and hospitality industries.

     Chris BK Ooi joined the Company in February 1996 as Director of Engineering
and was appointed the Company's Vice President of Operations in June 1999.  From
1994 to 1996,  Mr. Ooi was  Co-Founder  and  Executive  Vice  President of Ampac
Enterprises, a semiconductor sales and marketing company. Prior to 1994, Mr. Ooi
held various positions with National Semiconductor Corporation.

     The Company's  success  depends to a significant  extent upon the continued
service of its key  management  and technical  personnel,  each of whom would be
difficult to replace.  The competition for qualified  employees is intense,  and
the loss of the services of key  personnel or the  inability to attract,  retain
and motivate qualified new personnel could have a material adverse effect on the
Company's business, financial condition and results of operations.

     Officers serve at the  discretion of the Board and are appointed  annually.
There are no  family  relationships  among  the  directors  or  officers  of the
Company.


                                       11
<PAGE>


Item 2.  Properties

     The Company's principal  operations are located in an approximately  82,000
square foot building, which it occupies under a ten-year lease, which expires in
January 2008. The Company leases a separate 2,500 square foot building,  with an
initial term of five years,  approximately 2 miles from the Company's  principal
facility, for its advanced  electroplating system. The Company also leases space
for the sales  offices of OSEI  located in Boston,  Massachusetts  and  Phoenix,
Arizona.  On November 14, 2000,  the Company  entered into a sublease  agreement
with a subsidiary of OSE for the lease of 16,480  square feet of building  space
through  January 19, 2008.  The Company  believes its  existing  facilities  are
adequate to meet its needs for the  foreseeable  future.  Since 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.

Item 3.  Legal Proceedings

     None

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

     No matters were  submitted  during the fourth quarter to a vote of security
holders.




                                       12
<PAGE>


                                     Part II

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

     As of March 19, 2001, there were approximately 318 beneficial owners of the
Company's  Common Stock.  The Company's  Common Stock is listed for quotation on
the OTC Bulletin Board under the Symbol "OSEE".  The following  table sets forth
for the  periods  indicated,  the high and low  prices of the  Company's  Common
Stock.

Fiscal Year Ended December 31, 2000                  High         Low
-------------------------------------------        -------      -------
  First Quarter                                     $0.66        $0.37
  Second Quarter                                    $0.58        $0.21
  Third Quarter                                     $0.47        $0.16
  Fourth Quarter                                    $0.37        $0.06

Fiscal Year Ended December 31, 2001                  High         Low
-------------------------------------------        -------      -------
  First Quarter                                     $0.16        $0.05
  Second Quarter                                    $0.13        $0.04
  Third Quarter                                     $0.12        $0.02
  Fourth Quarter                                    $0.05        $0.02

     The trading price of the Company's  Common Stock is expected to continue to
be subject to wide fluctuations in response to quarter-to-quarter  variations in
operating results, announcements of technological innovations or new products by
the  Company  or  its  competitors,  general  conditions  in  the  semiconductor
industry,  changes in earnings  estimates or  recommendations  by analysts,  the
failure of the Company to meet or exceed published  earnings  estimates or other
events or factors.  In  addition,  the public  stock  markets  have  experienced
extreme price and trading volume  volatility in recent months.  This  volatility
has  significantly  affected  the  market  prices  of  securities  of many  high
technology   companies  for  reasons  frequently   unrelated  to  the  operating
performance  of the  specific  companies.  These broad market  fluctuations  may
adversely affect the market price of the Company's Common Stock.

     The  Company  has not paid any  cash  dividends  on its  Common  Stock  and
currently  intends  to  retain  any  future  earnings  for use in its  business.
Accordingly,  the Company does not  anticipate  that any cash  dividends will be
declared or paid on the Common Stock in the foreseeable future. In addition, the
Company's  bank line of credit does not permit the payment of dividends,  except
for  certain  dividends  on the  Company's  Series A and  Series  B  Convertible
Preferred  shares.  In 2001,  Company paid dividends of $408,000 on the Series A
Convertible Preferred Stock by issuing 6,010,323 shares of Common Stock and paid
dividends  of $246,000 on the Series B  Convertible  Preferred  Stock by issuing
3,956,983  shares of Common  Stock.  In 2000,  the  Company  paid  dividends  of
$419,000 on the Series A convertible Preferred Stock by issuing 1,251,063 shares
of Common  Stock.  Dividends  payable of  $444,000  at  December  31,  2001 were
satisfied via issuance of 14,800,000 shares of common stock in 2002.


                                       13
<PAGE>


Item 6.  Selected Financial Data

Information listed below was derived from the audited financial statements of
the respective years.

<TABLE>
<CAPTION>
                                                                         Year Ended December 31, (1)
                                                           1997        1998        1999        2000        2001
                                                         --------    --------    --------    --------    --------
<S>                                                      <C>         <C>         <C>         <C>         <C>
(In thousands, except per share data)
Statement of Operations Data:
   Revenues ..........................................   $ 19,744    $ 23,281    $ 17,441    $ 24,167    $ 11,765
   Cost of revenue ...................................     24,089      29,114      23,500      23,117      12,727
                                                         --------    --------    --------    --------    --------
  Gross profit (loss) ................................     (4,345)     (5,833)     (6,059)      1,050        (962)
                                                         --------    --------    --------    --------    --------
  Operating expenses:
    Selling, general and administrative ..............      5,167       4,068       3,651       7,215       5,199
    Research and development .........................      1,276       1,101         727       1,308       1,285
    Provision for impairment of assets ...............      3,000      18,200          --       1,389          --
                                                         --------    --------    --------    --------    --------
      Total operating expenses .......................      9,443      23,369       4,378       9,912       6,484
                                                         --------    --------    --------    --------    --------
  Operating loss .....................................    (13,788)    (29,202)    (10,437)     (8,862)     (7,446)
  Interest and other income ..........................        971       1,209          72         159         193
  Interest expense ...................................     (2,185)     (1,783)     (1,555)     (1,836)     (1,272)
                                                         --------    --------    --------    --------    --------
  Loss before income taxes and
    extraordinary gains ..............................    (15,002)    (29,776)    (11,920)    (10,539)     (8,525)
  Tax benefit ........................................         --          --          --          --        (426)
                                                         --------    --------    --------    --------    --------
  Loss before extraordinary gains ....................    (15,002)    (29,776)    (11,920)    (10,539)     (8,099)
  Extraordinary gains ................................         --          --       2,047          --          --
                                                         --------    --------    --------    --------    --------
  Net loss ...........................................    (15,002)    (29,776)     (9,873)    (10,539)     (8,099)
  Preferred stock dividend ...........................         --          --        (308)       (413)       (889)
  Deemed dividends on preferred stock ................         --          --      (6,800)         --          --
                                                         --------    --------    --------    --------    --------
  Net loss applicable to common
    stockholders .....................................   ($15,002)   ($29,776)   ($16,981)   ($10,952)     (8,988)
                                                         ========    ========    ========    ========    ========
  Net loss per share (1):
    Basic ............................................     ($1.08)   ($  2.12)   ($  0.68)   ($  0.20)   ($  0.15)
    Diluted ..........................................     ($1.08)   ($  2.12)   ($  0.68)   ($  0.20)   ($  0.15)
  Number of shares used to compute
  per share data (1):
    Basic ............................................     13,898      14,046      24,957      55,676      60,865
    Diluted ..........................................     13,898      14,046      24,957      55,676      60,865


<CAPTION>
                                                           1997        1998        1999        2000        2001
                                                         --------    --------    --------    --------    --------
<S>                                                      <C>         <C>         <C>         <C>         <C>
  Balance Sheet Data:
    Working deficit ..................................    ($5,877)   ($16,085)   ($16,687)   ($17,959)   ($23,106)
    Total assets .....................................     55,482      18,728      51,648      40,677      28,672
    Long-term obligations / deferred
      gains ..........................................     14,249       1,249       1,111         973         836
     Redeemable convertible

      preferred stock ................................         --          --       5,100      11,100      11,100
    Total stockholders' equity (deficit) .............    $26,238    ($ 3,207)   ($ 6,723)   ($17,124)   ($25,387)
</TABLE>

(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine shares used in computing per share amounts.


                                       14
<PAGE>


Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

     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, as amended,  and Section 21E of the
Securities  Exchange Act of 1934,  as amended.  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 as follows and
elsewhere in this Report on Form 10-K.

Overview

     As a result of a reduction  in orders  from the  Company's  customers,  the
Company has had significant  excess production  capacity since the first quarter
of 1997.  The  reduction  in revenues and  underutilization  of capacity and the
resulting  underabsorption  of fixed  costs  resulted in  operating  losses that
continued in 2001. As a result of these circumstances, the Company's independent
accountants'  opinion on the Company's  December 31, 2001  financial  statements
includes  an  explanatory   paragraph   indicating   that  these  matters  raise
substantial doubt about the Company's ability to continue as a going concern.

     In April 1999, Orient Semiconductor Electronics,  Limited ("OSE") purchased
4,000,000  shares  of  the  Company's  Series  A  Convertible  Preferred  Stock,
convertible into  approximately  55,000,000 shares of the Company's Common Stock
for $6.8 million.  As part of this transaction,  the Company's secured creditors
agreed to terminate their legal actions and restructured  the Company's  secured
debt.  On  August  4,  1999,  OSE  converted  1,000,000  preferred  shares  into
13,748,771 shares of common stock. On December 26, 2000, OSE purchased 3,023,225
shares of the Company's Series B Convertible  Preferred Stock,  convertible into
approximately 42,000,000 shares of the Company's Common Stock for $6.0 million.

     OSEI was a privately held  corporation  that serves as the exclusive  North
American  distributor  of OSE,  a public  Taiwanese  company  and the  Company's
principal stockholder.  OSEI derives its revenues exclusively from fees received
on the sales of OSE's  semiconductor  assembly  and test  services to  customers
headquartered  in North America.  On October 29, 1999, the Company acquired OSEI
in a  stock  for  stock  exchange  valued  at  approximately  $4.7  million.  In
connection with the acquisition,  the Company issued 25,910,090 shares of Common
Stock to the OSEI shareholders. As a result of the transaction, the distributor,
OSEI, is being operated as a wholly owned subsidiary of the Company. The Company
has reported consolidated results with OSEI since the acquisition date.


                                       15
<PAGE>


Results of Operations For The Years Ended December 31, 1999, 2000, and 2001

     The following table sets forth, for the periods indicated, certain items in
the Company's statement of operations as a percentage of revenues:

                                                    1999       2000       2001
                                                   -----      -----      -----
Revenues ......................................    100.0%     100.0%     100.0%
Cost of revenues ..............................    134.7       95.7      108.2
                                                   -----      -----      -----
Gross profit (loss) ...........................    (34.7)       4.3       (8.2)
                                                   -----      -----      -----
Operating expenses:
  Selling, general and administrative .........     20.9       29.9       44.2
  Research and development ....................      4.2        5.4       10.9

  Provision for impairment of assets ..........       --        5.7         --
                                                   -----      -----      -----
    Total operating expenses ..................     25.1       41.0       55.1
                                                   -----      -----      -----
Operating loss ................................    (59.8)     (36.7)     (63.3)
Interest and other income .....................      0.4        0.7        1.7
Interest expense ..............................     (8.9)      (7.6)     (10.8)
                                                   -----      -----      -----
Loss before extraordinary
  gain and preferred stock dividends ..........    (68.3)     (43.6)     (72.4)

Extraordinary gain ............................     11.7         --         --
 Tax Benefit ..................................       --         --       (3.6)
                                                   -----      -----      -----
Net loss before preferred stock dividends .....    (56.6)%    (43.6)%    (68.8)%
                                                   =====      =====      =====

Revenues

     The Company's  manufacturing operating segment generally recognizes revenue
upon shipment of its products.  The distribution segment earns revenue through a
distributor  agreement with OSE. Total revenues decreased 51.2% to $11.8 million
in 2001, from $24.2 million in 2000. Revenue increased 39.1% to $24.2 million in
2000, from $17.4 million in 1999. The decrease in revenues in 2001 was primarily
due to the  weakness  in the overall  semiconductor  industry.  The  increase in
revenue  in 2000 was  primarily  due to the  inclusion  of the new  distribution
segment  revenues of OSEI for the entire year.  The revenues in 2001,  2000, and
1999 include $4.6 million,  $7.6 million,  and $1.2 million  attributable to the
distribution segment.

Gross Profit (Loss)

     Cost of revenues includes materials, labor, depreciation and overhead costs
associated with semiconductor packaging.  There is no cost of service related to
the distribution revenues.  Gross loss of approximately $1.0 million in 2001 was
a $2.0 million decrease from the $1.0 million gross profit in 2000. Gross profit
of $1.0  million in 2000 was a $7.1  million  improvement  over the $6.1 million
gross loss in 1999.  The  distribution  segment  recorded a gross profit of $4.6
million in 2001,  $7.6 million in 2000 and $1.2 million in 1999.  Excluding  the
distribution  segment, the gross loss of $5.6 million in 2001 was a $1.0 million
improvement  over the 2000 gross loss of $6.6  million.  The $6.6 million  gross
loss in 2000 was a $0.7  million  improvement  over the 1999  gross loss of $7.3
million.  The  decrease  in 2000 and 2001  gross  loss,  excluding  distribution
segment,  was due to a work force  reduction  in October  2000,  in  response to
continued weak demand.


                                       16
<PAGE>


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 were $5.2 million in 2001,  $7.2
million in 2000, and $3.7 million in 1999.  Selling,  general and administrative
expenses in 2001,  2000 and 1999 included  $4.1  million,  $4.1 million and $0.5
million,  respectively,  attributable to OSEI. Excluding OSEI, selling,  general
and  administrative  expenses decreased by $2.0 million in 2001, $0.1 million in
2000 as compared to 1999 due to reduced  spending.  The spending  reduction  was
achieved mainly through the work force reduction.

     As a percentage of revenues,  selling,  general and administrative expenses
increased  to 44.2% in 2001  compared  to 29.9% in 2000 and  20.9% in 1999.  The
fluctuation from 1999 to 2000 in percentages reflects the changes resulting from
the  acquisition of OSEI. The  fluctuation  from 2000 to 2001 in percentages was
mainly caused by the 51.2% revenue decrease in 2001.

Research and Development

     Research and development expenses consist primarily of the costs associated
with  research and  development  personnel,  the cost of related  materials  and
services,   and  the  depreciation  of  development   equipment.   Research  and
development  expenses were $1.3 million in 2001,  $1.3 million in 2000, and $0.7
million in 1999.

     As a percentage of revenues,  research and development  expenses were 10.9%
in  2001,  5.4% in  2000,  and  4.2% in  1999.  The  increase  in  research  and
development  expenses as a percentage of revenue from 2000 to 2001 resulted from
the decrease in revenue in 2001, as there was no increase in absolute spending.

Impairment of Assets

     In 2000,  the  Company  recorded  a charge  to  operations  related  to the
impairment of its manufacturing  equipment of $1.4 million. The impairment was a
result of continued adverse economic  conditions in the semiconductor  industry,
and historical as well as forecasted  manufacturing equipment  underutilization,
resulting  in the  estimation  that  the  carrying  value  of the  manufacturing
equipment will not be fully recovered.

     In 2001,  management  prepared a preliminary  fair value  analysis for OSEI
using the discounted cash flows method for the purpose of determining the effect
of adopting SFAS 142,  Goodwill and Intangible  Assets.  Although the Company is
still reviewing the ultimate effect of adopting this statement,  the preliminary
analysis  indicated  that an  impairment  of  goodwill  might exist based on the
provisions of SFAS 142. A charge was not recorded in the year ended December 31,
2001 because the analysis  indicated  that an impairment did not exist under the
provisions of SFAS 121,  Accounting for the Impairment of Long-Lived  Assets and
for  Long-Lived  Assets to Be Disposed  Of. SFAS 142 is  effective on January 1,
2002 and the Company  intends to complete  its  analysis  by June 30,  2002.  At
December 31,  2001,  the net book value of goodwill,  including  workforce,  was
approximately $1,400,000.

Interest and Other Income

     Interest  income  in 2001,  2000,  and 1999,  was  $86,000,  $147,000,  and
$58,000,  respectively. The decrease in 2001 was due to lower interest rates and
lower  investment  balances,  which  resulted from the loss from  operations and
capital expenditures. The increase in 2000 was due to higher investment balances
as a result of the increase in the activity of the distribution  segment,  which
was  acquired in October of 1999.  Other  income in 2001,  2000,  and 1999,  was
$107,000,  $12,000, and $14,000,  respectively.  Other income was primarily from
gains on disposal of equipment.


                                       17
<PAGE>


Interest Expense

     Interest  expense  consists  primarily  of  interest  payable on bank debt,
capital leases, and term loans secured by equipment.  Interest expense for 2001,
2000, and 1999 was $1.3 million,  $1.8 million,  and $1.6 million  respectively.
The decrease in 2001 was due to lower debt balances,  lower interest rates,  and
expiration of all of the Company's capital leases.  The increase in 2000 was due
to higher debt balances, as a result of operating losses.

Provision for Income Taxes

     In 2001,  2000,  and 1999,  the Company did not  recognize any tax benefits
from net operating loss carryforwards. The income tax benefit for the year ended
December  31, 2001,  represents  the reversal of an over accrual of income taxes
resulting from a change in accounting estimate.  The Company recognizes deferred
tax assets if  realization  of such assets is more  likely than not.  Based upon
available data, which includes the Company's  historical  operating  performance
and the reported  cumulative net losses in prior years, the Company has provided
a full valuation  allowance against the Company's net deferred tax assets as the
future realization of the tax benefit is not sufficiently assured.

Extraordinary Gain

     In April 1999, the Company's  secured  creditors  agreed to restructure the
Company's  secured debt,  including debt forgiveness.  As a result,  the Company
recorded an extraordinary gain of $1,487,000.

     In September 1999, the Company  entered into a loan and security  agreement
with Far East National Bank and Bank SinoPac,  Los Angeles Branch.  As a result,
the liabilities  subject to the April 1999  restructuring  were settled for less
than  recorded   amounts.   Accordingly,   this   transaction   resulted  in  an
extraordinary gain of $560,000.

Deemed Dividends on Preferred Stock

     In 1999, the Company  recorded a deemed dividend on preferred stock of $6.8
million.   The  deemed  dividend  results  from  the  conversion  price  of  the
convertible  preferred  stock  issued to OSE being less than the market price of
the common stock on the date of the transaction.  The deemed dividend related to
the  transaction  has been  recognized as a result of the preferred  stock being
immediately convertible at the discretion of the holder.


                                       18
<PAGE>


Segment Reporting

     The Company has two segments: manufacturing and distribution. Manufacturing
comprises the semiconductor packaging services of packages designed for assembly
using Surface Mount Technology ("SMT") in which leads on integrated circuits are
soldered to the surface of the printed circuit board. Within the SMT market, the
Company focuses on high pin-count  packages,  such as Quad Flat packages ("QFP")
and thin Quad Flat packages ("TQFPs"). Distribution comprises the North American
sales,  marketing and technical  support  organization for OSE.  Commissions are
earned  from  the  direct  sales  efforts  in  the  "direct   channel"  for  the
semiconductor  assembly and test  services of OSE. The  customers  are mainly US
headquartered manufacturers of high-tech products such as video components, chip
sets, graphics chips and logic components.

                                      Manufacturing   Distribution       Total
                                      -------------   ------------     ---------
2001:
Revenues .......................        $  7,150         $4,615        $ 11,765
Net profit (loss) ..............        $ (9,855)        $1,756        $ (8,099)

2000:
Revenues .......................        $ 16,521         $7,646        $ 24,167
Net profit (loss) ..............        $(14,704)        $4,165        $(10,539)

1999:
Revenues .......................        $ 16,227         $1,214        $ 17,441
Net profit (loss) ..............        $(10,627)        $  754        $ (9,873)


Liquidity and Capital Resources

     During  2001,  the  Company's  net cash  provided  by  operations  was $5.1
million.  Net cash provided by operations was comprised  primarily of a net loss
of $8.1 million and a net increase in working capital of $9.7 million, partially
offset by $3.5 million of non-cash charges for  depreciation  and  amortization.
The net increase in working capital items  reflected a $3.7 million  increase in
accounts  payable and a $6.9  million  decrease in  accounts  receivable.  As of
December  31,  2001,  the  Company  had a cash  balance of $1.8  million and was
operating under a bank line of credit expiring on August 15, 2002.

     In 2001, $175,000 was used by investing activities for capital expenditures
of $290,000  offset by $115,000 in proceeds from the sale of equipment.  Most of
the Company's  production  equipment has historically been funded either through
capital leases or term loans.  Future expenditures are expected to be funded out
of internal cash flow.

     In 2001,  $6.4  million was used in  financing  activities.  This  resulted
primarily from $6.4 million paydown on the bank credit lines.

     In April 1999,  OSE purchased  4,000,000  shares of the Company's  Series A
Redeemable Preferred Stock,  convertible into approximately 55,000,000 shares of
the Company's Common Stock for $6.8 million.  As part of this  transaction,  the
Company's  secured  creditors  agreed to terminate  their legal actions and have
restructured the Company's secured debt,  including debt forgiveness.  On August
4, 1999, OSE converted  1,000,000  preferred  shares into  13,748,771  shares of
common  stock.  On December  26, 2000,  OSE  purchased  3,023,225  shares of the
Company's Series B Redeemable  Preferred Stock  convertible  into  approximately
42,000,000  shares of the Company's Common Stock for $6.0 million.  The proceeds
were used to reduce the payable to OSE.


                                       19
<PAGE>


     As part of the restructuring of secured debt, certain creditors were issued
warrants to purchase a total of approximately 1.5 million shares of common stock
at a price of $0.1236 per share.  In  addition,  warrants to purchase a total of
244,345  shares of common stock held by secured  creditors  were  repriced  from
exercise prices ranging from $0.77 to $3.30 per share of common stock to $0.1236
per share. The fair value as determined using a Black-Scholes valuation model of
the  warrants  issued and the  incremental  value of the  repriced  warrants was
$790,000.

     As of December 31, 2001, the Company has a line of credit, as amended, with
the two banks  that  provides  for  advances  up to the  lesser  of $15  million
(committed revolving credit line) or the advance rate against qualified accounts
receivable  (as defined).  Over advances  under this  agreement are  immediately
payable to the lender.  Borrowings  under this line of credit accrue interest at
the  banks'  prime  rate  (4.75%  at  December   31,   2001)  plus  0.50%,   are
collateralized  by the assets of the Company and are guaranteed by OSE.  Amounts
outstanding  under this line of credit were $11,557,000 at December 31, 2001. On
March 27, 2002, the Company extended this line of credit until August 15, 2002.

     The Company  intends to continue  renewing  its $15 million  line of credit
with the guarantee of OSE. The Company does not believe this line of credit will
be increased before the Company shows positive operating results. However, based
on the  Company's  strategy of focusing  on the quick turn and  engineering  lot
business, continuing to attract small to medium size volume production, and with
the recovery of the  semiconductor  industry,  the Company expects that in 2002,
the operation will generate enough working capital to support  operating  needs.
However,  the Company still  requires  continued  financial  support from OSE to
fulfill operating cash requirements.

     As of  December  31,  2001,  the  Company  has  the  following  contractual
obligations and commercial commitments:

<TABLE>
<CAPTION>
                                                 Payment due by period (In Thousands)
                                     --------------------------------------------------------
                                                  Less
                                                 than 1                               After 5
Contractual obligations:               Total     1 year    1-3 years     4-5 years     years
                                     -------    -------    ----------    ----------   -------
<S>                                  <C>        <C>         <C>           <C>          <C>
Operating lease (net of sublease)    $ 3,642    $   720     $ 1,105       $ 1,188      $ 629
                                     -------    -------    ----------    ----------    ------
Total contractual cash obligation    $ 3,642    $   720     $ 1,105       $ 1,188      $ 629
                                     =======    =======    ==========    ==========    ======

<CAPTION>
                                     Amount of commercial expiration per period (In Thousands)
                                    ----------------------------------------------------------
                                      Total      Less
                                     amounts     than                                  After 5
Other commercial commitments:       committed   1 year     1-3 years     4-5 years      years
                                    ---------   -------    ----------    ----------    ------
<S>                                  <C>        <C>         <C>           <C>          <C>
Line of credit interest              $15,000    $15,000     $    --       $    --      $  --
                                     -------    -------    ----------    ----------    ------
Total commercial commitments         $15,000    $15,000     $    --       $    --      $  --
                                     =======    =======    ==========    ==========    ======
</TABLE>


                                       20
<PAGE>


Critical Accounting Policies

Our  discussion  and analysis of our financial  condition and the results of our
operations  are based upon our  consolidated  financial  statements and the data
used to prepare them. The Company's  financial  statements have been prepared in
accordance with accounting  principles  generally accepted in the United States.
On an ongoing basis we re-evaluate  our judgments and estimates  including those
related to bad debts, inventories,  and long-lived assets. We base our estimates
and judgments on our historical experience,  knowledge of current conditions and
our beliefs of what could occur in the future considering available information.
Actual results may differ from these estimates  under  different  assumptions or
conditions.  Our  estimates  are  guided by  observing  the  following  critical
accounting policies.

Revenue recognition

The Company's  revenues come from the manufacturing  and distribution  segments.
Revenue from the manufacturing  segment is recognized upon shipment of products.
Revenue from the distribution  segment is recognized,  on a net basis,  based on
the  Company's   distribution   agreement  with  OSE.  Distribution  revenue  is
recognized when the Company is informed by OSE that products have been shipped.

Sales returns have been  immaterial in the past. As a result,  sales returns are
recognized as they occur and are recorded as a reduction to revenue.

The Company  maintains  an allowance  for doubtful  accounts for losses that the
Company  estimates  will  arise  from  customers'  inability  to  make  required
payments.  The  Company  makes  its  estimates  of the  uncollectability  of its
accounts  receivable by analyzing the accounts receivable aging. At December 31,
2001 and 2000,  the allowance  for doubtful  accounts was $307,000 and $299,000,
respectively.

Valuation of inventory

The Company  maintains  an allowance  for  inventory  obsolescence  for probable
losses that arise from estimated obsolescence or unmarketable  inventory,  equal
to the difference  between the cost of inventory and the estimated  market value
based  upon  assumptions   about  future  demand,   selling  prices  and  market
conditions.  Our  inventories  include raw material  supplies such as gold wire,
lead  frames  and mold  compound.  Inventory  is  stated  at the  lower of cost,
determined by the first-in,  first-out  basis,  or market.  At The allowance for
obsolete  inventory  was $985,000 and  $1,369,000 at December 31, 2001 and 2000,
respectively.

Valuation of long-lived assets

The Company's  business  requires heavy investment in  manufacturing  facilities
that  are  technologically   advanced  but  can  quickly  become   significantly
underutilized or rendered obsolete by rapid changes in demand for semiconductors
produced in those  facilities.  We estimate the useful life of our manufacturing
equipment,  which is the largest  component of our long-lived  assets, to be six
years.  We base  our  estimate  on our  experience  with  acquiring,  using  and
disposing of equipment over time. Depreciation expense is a major element of our
manufacturing cost structure.  We begin depreciation on new equipment when it is
put into  use for  production.  Whenever  events  or  changes  in  circumstances
indicate that the carrying  amount of long-lived  assets may not be recoverable,
the Company  estimates the future cash flows,  undiscounted and without interest
charges, expected to result from the use of those assets and their eventual cash
position. If the sum of the expected future cash flows is less than the carrying
amount of those assets,  the Company  recognizes an impairment loss based on the
excess of the carrying  amount over the fair value of the assets.  In 2000,  the
Company   recorded  an  impairment   charge  of  $1.4  million  related  to  its
manufacturing  equipment.  In 2001, management prepared a preliminary fair value
analysis for OSEI using the discounted cash flows method for


                                       21
<PAGE>


the  purpose  of  determining  the effect of  adopting  SFAS 142,  Goodwill  and
Intangible  Assets.  Although the Company is still reviewing the ultimate effect
of  adopting  this  statement,   the  preliminary  analysis  indicated  that  an
impairment of goodwill might exist based on the provisions of SFAS 142. A charge
was not  recorded  in the year ended  December  31, 2001  because  the  analysis
indicated  that an  impairment  did not exist under the  provisions of SFAS 121,
Accounting for the Impairment of Long-Lived  Assets and for Long-Lived Assets to
Be Disposed Of. SFAS 142 is effective on January 1, 2002 and the Company intends
to complete its analysis by June 30,  2002.  At December 31, 2001,  the net book
value of goodwill, including workforce, was approximately $1,400,000.

Related parties transactions

     As  disclosed  in Note 13 in the  accompanying  financial  statements,  the
Company  is a  member  of a  group  of  affiliated  companies  owned  by  Orient
Semiconductor Electronics,  Ltd. of Taiwan ("OSE") and is a party to a number of
significant  related  party  transactions  with  OSE  and its  affiliates.  Such
transactions include:

o    OSE is guarantor of the Company's bank debt;

o    OSE was a significant  shareholder in OSEI.  Accordingly,  when the Company
     acquired  OSEI,  OSE  received  approximately  4.9  million  shares  of the
     Company's  common stock for its shares in OSEI. OSE also owns 3,000,000 and
     3,023,225  shares of the  Company's  Series A and B  convertible  preferred
     stock, respectively

o    All the revenue of the distribution  segment is earned as a result of being
     a  distributor  for OSE. The revenue  under the  distribution  agreement is
     based on a fixed percentage of the value of the semiconductor  assembly and
     test services provided to customers in OSEI's distribution area of entities
     headquartered in North America. Under the distribution  agreement,  OSEI is
     required to remit amounts collected from customers, less its commission, to
     OSE.  Pursuant to the amended line of credit  agreement  however,  payments
     from customers are to be remitted  directly to a lender. As of December 31,
     2001, accounts receivable includes  approximately $28.0 million,  that when
     collected, is due to OSE pursuant to the distribution agreement. While OSEI
     is  responsible  for  the  collection  of  accounts   receivable  from  its
     customers, it has obtained certain guarantees from OSE, which reduce OSEI's
     exposure to credit risk.  OSEI normally makes payments to OSE for purchases
     after OSEI has collected the related accounts receivable from its customer.

o    The Company has a sublease with an affiliate Company.

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,  operating
income and  liquidity.  These factors  include the  Company's  ability to secure
additional financing,  the short term nature of its customers' commitments,  the
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.   The  occurrence  or
continuation  of  unfavorable  changes  in any of the  preceding  factors  would
adversely  affect the  Company's  business,  financial  condition and results of
operations.


                                       22
<PAGE>


Item 7a.  Quantitative and Qualitative Disclosures about Market Risk

     The Company has a bank line of credit  outstanding  that  matures in August
2002. This line of credit has interest rates that are based on associated  rates
that may fluctuate over time based on economic changes in the environment,  such
as the Prime Rate.  The Company is subject to interest  rate risk,  and could be
subjected to increased interest payments if market interest rates fluctuate. The
Company  estimates  that a ten percent  increase  in interest  rates would cause
interest expense to increase by an immaterial amount.


                                       23
<PAGE>


Item 8.    Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements:

                                                                            Page

Report of Independent Certified Public Accountants.......................... 25

Consolidated Balance Sheets as of December 31, 2000 and 2001................ 27

Consolidated Statements of Operations for the Years Ended
  December 31, 1999, 2000 and 2001.......................................... 28

Consolidated Statement of Stockholders' Deficit for the Years Ended
  December 31, 1999, 2000 and 2001.......................................... 29

Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1999, 2000 and 2001.......................................... 30

Notes to Consolidated Financial Statements.................................. 31

Financial Statement Schedules:

     All schedules are omitted  because they are not  applicable or the required
information is shown in the financial statements or notes thereto.




                                       24
<PAGE>


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders of OSE USA, Inc.


     We have audited the  accompanying  consolidated  balance sheets of OSE USA,
Inc.  (Formerly   Integrated   Packaging   Assembly   Corporation)  (a  Delaware
corporation)  and  subsidiary as of December 31, 2000 and 2001,  and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the two years in the period ended December 31, 2001. 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  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and  perform  the  audits 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 financial statements referred to above present fairly,
in all material respects,  the consolidated  financial position of OSE USA, Inc.
(Formerly  Integrated  Packaging  Assembly  Corporation)  and  subsidiary  as of
December 31, 2000 and 2001, and the consolidated results of their operations and
their consolidated cash flows for the two years in the period ended December 31,
2001 in conformity with accounting  principles  generally accepted in the United
States of America.

     The  accompanying  consolidated  financial  statements  have been  prepared
assuming  that the Company  will  continue as a going  concern.  As shown in the
consolidated financial statements, the Company incurred a net loss of $8,099,000
during the year ended  December 31, 2001,  and, as of that date,  the  Company's
current  liabilities  exceeded its current assets by  $23,106,000  and its total
liabilities  exceeded  its total assets by  $14,287,000.  These  factors,  among
others, as discussed in Note 1 to the consolidated financial statements,  raised
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 1. The
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.

/s/ GRANT THORNTON LLP

San Jose, California
February 15, 2002




                                       25
<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of OSE USA, Inc.


     In our opinion, the accompanying  consolidated statements of operations, of
stockholders'  deficit  and of  cash  flows  present  fairly,  in  all  material
respects,  the results of operations  and cash flows of OSE USA. Inc.  (Formerly
Integrated Packaging Assembly Corporation) and its subsidiary for the year ended
December 31, 1999, in conformity with accounting  principles  generally accepted
in  the  United  States  of  America.   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 auditing standards  generally accepted in
the United  States of America,  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 our  opinion.  We have not  audited the
consolidated   financial  statements  of  OSE  USA,  Inc.  (Formerly  Integrated
Packaging Assembly Corporation) for any period subsequent to December 31, 1999.

     The accompanying  financial statements have been prepared assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial statements,  the Company has suffered recurring losses from operations
and has a net capital  deficiency that raise substantial doubt about its ability
to continue as a going  concern.  Management's  plans in regard to these matters
are also  described  in Note 1. The  financial  statements  do not  include  any
adjustments that might result from the outcome of this uncertainty.

     OSE USA, Inc. (Formerly  Integrated  Packaging  Assembly  Corporation) is a
member  of a  group  of  affiliated  companies  owned  by  Orient  Semiconductor
Electronics,  Ltd  of  Taiwan  ("OSE")  and,  as  disclosed  in  Note  13 to the
consolidated  financial  statements,  OSE is guarantor  of certain  debts of the
Company, and the Company had certain other transactions with OSE. It is possible
that the terms of these transactions are not the same as those that would result
from transactions among wholly unrelated parties.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP
San Jose, California
March 9, 2000




                                       26
<PAGE>


                                  OSE USA, Inc.
                           Consolidated Balance Sheets
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                           December 31,
                                                                     ----------------------
                                                                       2000          2001
                                                                     --------      --------
<S>                                                                  <C>           <C>
Assets
  Current assets:
  Cash and cash equivalents                                          $  3,300      $  1,844
    Accounts receivable, net of allowance for
      doubtful accounts of $299 and $307, respectively                 22,867        15,987
    Inventory                                                             839           855
    Prepaid expenses and other current assets                             763           331
                                                                     --------      --------
    Total current assets                                               27,769        19,017
  Property and equipment, net                                           7,969         5,448
  Intangible assets, net of accumulated amortization of $849 and
   $1,577, respectively                                                 4,928         4,198
  Other assets                                                             11             9
                                                                     --------      --------
    Total assets                                                     $ 40,677      $ 28,672
                                                                     ========      ========
Liabilities and Stockholders' Deficit
  Current liabilities:
    Bank debt                                                        $ 18,000      $ 11,557
    Accounts payable                                                      667           630
    Accounts payable - related party                                   24,189        27,958
    Accrued expenses and other liabilities                              2,872         1,978
                                                                     --------      --------
      Total current liabilities                                        45,728        42,123
  Deferred gain on sale of facilities                                     973           836
                                                                     --------      --------
      Total liabilities                                                46,701        42,959
                                                                     --------      --------
  Redeemable convertible preferred stock, $.001 par value;
  20,000,000 shares authorized; 6,023,225 (Series A: 3,000,000
  shares, Series B: 3,023,225 shares) issued and outstanding;
  redemption value: Series A: $1.70 per share, Series B: $1.98
  per share                                                            11,100        11,100
                                                                     --------      --------
  Commitments and contingencies (note 5)                                   --            --
  Stockholders' deficit:
    Common stock, $.001 par value;
      300,000,000 shares authorized;
      56,373,299 (2000) and 67,153,375 (2001) shares issued and
      outstanding                                                          56            67
    Additional paid-in capital                                         54,882        55,596
    Accumulated deficit                                               (72,062)      (81,050)
                                                                     --------      --------
      Total stockholders' deficit                                     (17,124)      (25,387)
                                                                     --------      --------
    Total liabilities and stockholders' deficit                      $ 40,677      $ 28,672
                                                                     ========      ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                       27
<PAGE>


                                  OSE USA, Inc.
                      Consolidated Statements of Operations
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                     ------------------------------------
                                                       1999          2000          2001
                                                     --------      --------      --------
<S>                                                  <C>           <C>           <C>
 Revenues                                            $ 17,441      $ 24,167      $ 11,765
 Cost of revenues                                      23,500        23,117        12,727
                                                     --------      --------      --------
  Gross profit (loss)                                  (6,059)        1,050          (962)
                                                     --------      --------      --------
Operating expenses:
  Selling, general & administrative                     3,651         7,215         5,199
  Research & development                                  727         1,308         1,285
  Provision for impairment of assets                       --         1,389            --
                                                     --------      --------      --------
    Total operating expenses                            4,378         9,912         6,484
                                                     --------      --------      --------
Operating loss                                        (10,437)       (8,862)       (7,446)
Interest and other income                                  72           159           193
Interest expense                                       (1,555)       (1,836)       (1,272)
                                                     --------      --------      --------
Loss before extraordinary gains, income taxes,
and preferred dividends                               (11,920)      (10,539)       (8,525)
Extraordinary gains                                     2,047            --            --
Tax benefit                                                --            --          (426)
                                                     --------      --------      --------
Net loss                                               (9,873)      (10,539)       (8,099)
Preferred stock dividend                                 (308)         (413)         (889)
Deemed dividend on preferred stock                     (6,800)           --            --
                                                     --------      --------      --------
Net loss applicable to common stockholders           ($16,981)     ($10,952)     ($ 8,988)
                                                     ========      ========      ========
Per share data:
   Net loss applicable to common stockholders
   before extraordinary gains per share -
    Basic and diluted                                ($  0.76)     ($  0.20)     ($  0.15)
  Extraordinary gains per share -
    Basic and diluted                                    0.08            --            --
                                                     --------      --------      --------
  Net loss applicable to common stockholders
   per share -
    Basic and diluted                                ($  0.68)     ($  0.20)     ($  0.15)
                                                     --------      --------      --------
Number of shares used to compute per share data:
  Basic and diluted                                    24,957        55,676        60,865
                                                     ========      ========      ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                       28
<PAGE>


                                  OSE USA, Inc.
                 Consolidated Statement of Stockholders' Deficit
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                Additional
                                                Common Stock     Paid-in    Accumulated
                                             Shares     Amount   Capital      Deficit      Totals
                                             -------     ---    --------     --------     --------
<S>                                           <C>        <C>    <C>          <C>          <C>
Balance at January 1, 1999                    14,244     $14    $ 40,607     $(43,828)    $ (3,207)
  Common stock issued under stock plans          190      --          20           --           20
  Common stock repurchased under stock
    Plans                                         (4)     --          (1)          --           (1)
  Issuance and repricing of warrants              --      --         790           --          790
  Beneficial conversion feature on
    redeemable preferred stock                    --      --       6,800           --        6,800
  Accretion of redeemable preferred stock         --      --          --       (7,101)      (7,101)
  Preferred stock dividend                       326      --          91           --           91
  Conversion of preferred stock               13,749      14       1,686           --        1,700
  Acquisition of OSE, Inc.                    25,910      26       4,292           --        4,318
  Amortization of deferred compensation           --      --          48           --           48
   Preferred dividends                            --      --          --         (308)        (308)
  Net loss                                        --      --          --       (9,873)      (9,873)
                                             -------     ---    --------     --------     --------
Balance at December 31, 1999                  54,415      54      54,333      (61,110)      (6,723)
  Common stock issued under stock plans          707       1         131           --          132
  Preferred dividends declared                    --      --          --         (413)        (413)
  Preferred dividends paid in stock            1,251       1         418           --          419
  Net loss                                        --      --          --      (10,539)     (10,539)
                                             -------     ---    --------     --------     --------
Balance at December 31, 2000                  56,373     $56    $ 54,882     ($72,062)    ($17,124)
  Common stock issued under stock plans          813       1          70           --           71
  Preferred dividends declared                    --      --          --         (889)        (889)
  Preferred dividends paid in stock            9,967      10         644           --          654
  Net loss                                        --      --          --       (8,099)      (8,099)
                                             -------     ---    --------     --------     --------
Balance at December 31, 2001                  67,153     $67    $ 55,596     ($81,050)    ($25,387)
                                             =======     ===    ========     ========     ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                       29
<PAGE>


                                  OSE USA, Inc.
                      Consolidated Statements of Cash Flows
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                                           ---------------------------------
                                                             1999         2000         2001
                                                           --------     --------     -------
<S>                                                        <C>          <C>          <C>
Cash flows from operating activities:
  Net loss                                                 ($ 9,873)    ($10,539)    ($8,099)
  Adjustments:
    Depreciation and amortization                             4,458        4,442       3,533
    Impairment of equipment                                      --        1,389          --
    Gain on sale of facilities, net                            (138)        (138)       (138)
    Loss (Gain) on disposal of equipment                         96           12        (107)
    Extraordinary gains on debt restructure                  (2,047)          --          --
    Changes in assets and liabilities (in 1999, net of
      effects of acquisition):
      Accounts receivable                                    (4,018)       5,428       6,881
      Inventory                                                 500          365         (16)
      Prepaid expenses and other assets                         196         (153)        433
      Accounts payable and accounts payable- related
      party                                                   6,097       (7,235)      3,732
      Accrued expenses and other liabilities                 (1,012)        (191)     (1,128)
                                                           --------     --------     -------
  Net cash provided by (used in) in operating
    activities                                               (5,741)      (6,620)      5,091
                                                           --------     --------     -------
Cash flows from investing activities:
  Acquisition of property and equipment                        (608)      (2,583)       (290)
  Cash acquired                                               1,346           --          --
  Proceeds from sale of equipment                                --           --         115
                                                           --------     --------     -------
    Net cash provided by (used in) investing activities         738       (2,583)       (175)
                                                           --------     --------     -------
Cash flows from financing activities:
  Payments under capital lease obligations                     (694)          --          --
  Proceeds from note payable                                  4,890           --          --
  Principal payments on note payable                         (9,629)          --          --
  Proceeds from bank credit lines                            27,617        1,000          --
  Payments under bank credit lines                          (18,328)          --      (6,443)
  Proceeds from issuance of redeemable
    preferred stock, net of issuance costs                    6,499        6,000          --
  Proceeds from issuance of common stock                         19          132          71
                                                           --------     --------     -------
    Net cash provided by (used in) financing activities      10,374        7,132      (6,372)
                                                           --------     --------     -------
 Net increase (decrease) in cash and cash equivalents         5,371       (2,071)     (1,456)

Cash and cash equivalents at beginning of year                   --        5,371       3,300
                                                           --------     --------     -------
Cash and cash equivalents at end of year                   $  5,371     $  3,300     $ 1,844
                                                           ========     ========     =======
Supplemental disclosure of cash flow information:
  Cash paid for interest                                   $  2,070     $  1,836     $ 1,315
Supplemental disclosure of noncash financing
activities:
  Issuance and repricing of warrants                       $    790     $     --     $    --
  Common stock issued for preferred stock dividend         $     91     $    419     $   654
  Deemed dividend on preferred stock                       $  6,800     $     --     $    --
  Issuance of common stock on OSE, Inc acquisition         $  4,318     $     --     $    --
  Conversion of preferred stock to common stock            $  1,700     $     --     $    --
  Accretion of redeemable preferred stock                  $  7,101     $     --     $    --
</TABLE>

   The accompanying notes are an integral part of these consolidated financial
                                   statements


                                       30
<PAGE>


                                  OSE USA, Inc.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     OSE, USA, Inc (Formerly  Integrated  Packaging  Assembly  Corporation) (the
"Company") was  incorporated in California on April 28, 1992 and  reincorporated
in Delaware on June 19,  1997.  The Company  changed its name on June 6, 2001 in
connection with the Company's  strategic  reorganization.  The Company  operates
within two segments of the  semiconductor  industry:  (1)  manufacturing and (2)
distribution.

     Within  manufacturing,   the  Company  assembles  and  packages  integrated
circuits from wafers consigned by its customers.  The Company's focus is on quad
flat  packages  ("QFPs"),  thin quad flat  packages  ("TQFPs"),  ball grid array
packages ("BGAs"), Flip Chips, and chip scale packaging ("CSPs"), which are used
in complex integrated circuits with high pin-counts in the personal computer and
telecommunications industries.

     Within distribution,  the Company is the exclusive North American sales and
marketing  organization for Orient  Semiconductor  Electronics,  Ltd. ("OSE") of
Taiwan, a public Taiwanese  company and the Company's  controlling  stockholder.
Revenues  are  derived  exclusively  from  fees  received  on the sales of OSE's
semiconductor  assembly and test  services to customers  headquartered  in North
America in accordance  with a distribution  agreement.  The Company entered this
segment  of the  market  in  October  1999  with its  acquisition  of OSE,  Inc.
("OSEI").

Basis of Presentation

     As a result of a reduction  in orders  from the  Company's  customers,  the
Company has significant  excess production  capacity.  The reduction in revenues
and  underutilization  of production  capacity and resultant  underabsorption of
fixed costs resulted in operating  losses for the years ended December 31, 2001,
2000,  and 1999.  The Company  believes that it will fund its projected  working
capital  and other cash  requirements  through  January  1, 2003 from  operating
activities and renewed financing facilities.

     At December 31, 2001, the Company has a line of credit,  which provides for
borrowings  up  to  a  total  of  $15.0  million,  of  which  $11.6  million  is
outstanding.  On March 27, 2002, the Company extended the line of credit through
August 15, 2002.

     Based on a newly adopted  strategic plan, the Company intends to focus more
of its  operations on quick-turn and  engineering  lot assemblies to improve its
profitability,  due to the fact that  quick-turn and  engineering lot assemblies
provide higher profit margins.  To achieve this objective,  the Company recently
restructured  its internal  sales force and  increased the frequency of customer
contacts.  The  Company  also  plans to use  outside  sales  representatives  in
promoting the Company to new customers throughout the United States.

     These financial statements have been prepared on a going concern basis and,
therefore,  do  not  include  any  adjustments  that  might  result  from  these
uncertainties.


                                       31
<PAGE>


Risks and uncertainties

     The Company may be  significantly  impacted by the political,  economic and
military  conditions in Taiwan due to the Company's  subsidiary,  OSEI,  being a
distributor for OSE whose operations are principally  located in Taiwan.  Taiwan
and the  People's  of Republic of China are  continuously  engaged in  political
disputes.  Such disputes may continue and even  escalate,  resulting in economic
embargo,  a  disruption  in shipping or even  military  hostilities.  This could
severely harm OSEI's business by interrupting or delaying production or shipment
of products OSEI distributes. Any kind of activity of this nature or even rumors
of such activity could severely and negatively  impact the Company's  results of
operations and financial position.

Basis of consolidation

     The consolidated  financial  statements include the accounts of the Company
and its wholly owned subsidiary after  elimination of intercompany  balances and
transactions.

Cash equivalents

     The  Company  considers  all  highly  liquid   investments  with  purchased
maturities of 90 days or less to be cash equivalents.

Financial instruments

     The  carrying  amounts  reported  for cash and cash  equivalents,  accounts
receivable and accounts  payable are considered to approximate fair values based
upon the short maturities of these financial instruments. The carrying amount of
borrowings  under the line of credit are also  considered  to  approximate  fair
values as the interest  rates on the borrowings  adjust to the bank's  reference
rate.

Inventory

     Inventory,  which primarily  consists of raw material supplies such as gold
wire, lead frames and mold compound,  is stated at the lower of cost, determined
by  first-in,   first-out  basis,  or  market.  The  Company  holds  product  on
consignment from its customers while services are being performed.

Property and equipment

     Property  and  equipment  are  recorded  at cost.  For  certain  production
machinery and equipment acquired prior to 1997, depreciation is calculated using
the units of production  method, in which  depreciation is calculated based upon
the units  produced in a given period  divided by the estimate of total units to
be  produced  over its life  following  commencement  of use.  Such  estimate is
reassessed when facts and circumstances suggest a revision may be necessary.  In
all  cases,  the asset  will be fully  depreciated  by the end of its  estimated
six-year  life.  Depreciation  for all  other  property  and  equipment  and all
production  machinery and equipment  acquired  after 1996 is computed  using the
straight-line method over the estimated useful lives of the assets,  generally 3
to 6 years.  Leasehold improvements are amortized using the straight-line method
over  the  lives  of  the  respective   leases  or  the  service  lives  of  the
improvements, whichever is shorter.


                                       32
<PAGE>


Long-lived assets

     Long-lived  assets include  property and equipment and  intangible  assets.
Whenever events or changes in circumstances indicate that the carrying amount of
long-lived assets may not be recoverable,  the Company estimates the future cash
flows,  undiscounted and without interest  charges,  expected to result from the
use of those assets and their eventual cash position. If the sum of the expected
future cash flows is less than the carrying amount of those assets,  the Company
recognizes  an impairment  loss based on the excess of the carrying  amount over
the fair value of the assets.

Revenue recognition

     The  manufacturing  operating  segment  generally  recognizes  revenue upon
shipment of its products.  The  distribution  segment  earns  revenue  through a
distributor  agreement with OSE. The nature of the  distributor  transactions is
such that the Company  does not bear the risks and rewards of  ownership  of the
product  being  distributed  and  is  compensated  in  a  manner  similar  to  a
commission.   Accordingly,   revenue  relating  to  the  Company's  distribution
agreement  is  recognized  on  a  net  basis.  Net  revenues   recorded  by  the
distribution segment were $1.2 million, $7.6 million, and $4.6 million, on gross
billings of $23.1 million, $158.9 million, and $96.2 million for the years ended
December 31, 1999, 2000, and 2001, respectively.

Income taxes

     The  Company  accounts  for  income  taxes  using the  asset and  liability
approach,  which requires the recognition of deferred tax assets and liabilities
for the expected future tax  consequences of events that have been recognized in
the Company's  financial  statements or income tax returns. In estimating future
tax  consequences,  the Company  generally  considers all expected future events
other than enactments of changes in the tax law or rates.

Stock based compensation

     The Company  accounts  for  stock-based  compensation  in  accordance  with
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees". Accordingly, compensation for stock options is generally measured as
the excess,  if any, of the quoted  market price of the  Company's  stock at the
date of the grant over the amount an employee must pay to acquire the stock. The
Company adopted the disclosure only requirements of SFAS 123.

Comprehensive income

     There  was no  difference  between  the  Company's  net loss and its  total
comprehensive loss for the periods reported in these financial statements.


                                       33
<PAGE>


Net loss per share

     Basic loss per share ("EPS") is computed by dividing net loss  available to
common stockholders  (numerator) by the weighted average number of common shares
outstanding  (denominator)  during the period.  Diluted EPS gives  effect to all
dilutive  potential common shares  outstanding during the period including stock
options and warrants, using the treasury stock method, and convertible preferred
stock, using the if-converted method. The Company incurred a net loss during the
period  resulting  in all  options,  warrants and  convertible  preferred  stock
outstanding being antidilutive and therefore, excluded from the calculations.

<TABLE>
<CAPTION>
                                                          Year Ended December 31, 2001
                                                          ----------------------------
                                                            1999      2000      2001
                                                           ------    ------    ------
<S>                                                        <C>       <C>       <C>
Antidilutive Securities:
------------------------
Convertible preferred stock                                 3,000     6,023     6,023
                                                           ======    ======    ======
Options and warrants outstanding                           11,478    12,739    11,040
                                                           ======    ======    ======
Weighted-average exercise price of options and warrants    $ 0.50    $ 0.48    $ 0.44
                                                           ======    ======    ======
</TABLE>

Use of estimates

     The preparation of these financial statements in conformity with accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the reported amounts of
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 vary from these estimates.

Recent Accounting Pronouncements

     On July 20, 2001, the Financial  Accounting  Standards  Board (FASB) issued
Statement of Financial Accounting  Standards (SFAS) 141, Business  Combinations,
and SFAS 142,  Goodwill and  Intangible  Assets.  SFAS 141 is effective  for all
business  combinations  completed after June 30, 2001. SFAS 142 is effective for
fiscal years beginning after December 15, 2001;  however,  certain provisions of
this Statement apply to goodwill and other  intangible  assets acquired  between
July 1, 2001 and the  effective  date of SFAS  142.  Major  provisions  of these
Statements and their effective dates for the Company are as follows:

     o    All business  combinations  initiated after June 30, 2001 must use the
          purchase  method of  accounting.  The  pooling of  interest  method of
          accounting is prohibited except for transactions initiated before July
          1, 2001.

     o    Intangible assets acquired in a business  combination must be recorded
          separately from goodwill if they arise from contractual or other legal
          rights or are  separable  from the  acquired  entity  and can be sold,
          transferred,  licensed, rented or exchanged, either individually or as
          part of a related contract, asset or liability.

     o    Goodwill, as well as intangible assets with indefinite lives, acquired
          after June 30, 2001, will not be amortized. Effective January 1, 2002,
          all  previously   recognized   goodwill  and  intangible  assets  with
          indefinite lives would no longer be subject to amortization.

     o    Effective  January  1,  2002,  goodwill  and  intangible  assets  with
          indefinite  lives will be tested for impairment  annually and whenever
          there is an impairment indicator.

     o    All acquired goodwill must be assigned to reporting units for purposes
          of impairment testing and segment reporting.  The Company's  reporting
          unit is OSEI, its distribution segment.

The Company will continue to amortize  goodwill and intangible assets recognized
prior to July 1, 2001,  under its current method until January 1, 2002, at which
time annual and quarterly goodwill amortization of


                                       34
<PAGE>


$370,500 and $92,625, respectively,  will no longer be recognized. As of January
1, 2002,  goodwill will include amounts previously assigned to both goodwill and
workforce. In connection with this adoption, the Company is also reassessing the
useful life of OSEI's distributor  contract,  which is currently being amortized
over 10  years.  By  December  31,  2002,  the  Company  will have  completed  a
transitional  fair value based impairment test of the carrying value of goodwill
as  of  January  1,  2002.   Impairment  losses,  if  any,  resulting  from  the
transitional  testing will be  recognized in the first quarter of the year ended
December 31, 2002, as a cumulative effect of a change in accounting principle.

Although it is still  reviewing  the effect of adopting  SFAS 142,  management's
preliminary  assessment is that this Statement may have a material impact on the
Company's  financial  position or results of operations.  Management  prepared a
preliminary fair value analysis for OSEI using the discounted cash flows method.
Though the analysis  indicated that an impairment of goodwill may exist based on
the provisions of SFAS 142, a charge was not recorded in the year ended December
31, 2001,  because the analysis indicated that an impairment did not exist under
the provisions of SFAS 121,  Accounting for the Impairment of Long-Lived  Assets
and for Long-Lived  Assets to Be Disposed Of. At December 31, 2001, the net book
value of goodwill, including workforce, was approximated $1,400,000.

In 2001, the FASB issued SFAS 143, Accounting for Asset Retirement  Obligations.
SFAS 143 applies to all entities that have legal obligations associated with the
retirement of a tangible  long-lived  asset.  SFAS 143 requires that a liability
for an asset  retirement  obligation be recognized if the  obligation  meets the
definition  of a liability in FASB  Concepts  Statement 6, Elements of Financial
Statements, and if the amount of the liability can be reasonably estimated. SFAS
143 is effective  for fiscal years  beginning  after June 15, 2002,  but earlier
application is encouraged.  The Company does not expect this Statement to have a
material effect on its financial statements.

In 2001, the FASB issued SFAS 144,  Accounting for the Impairment or Disposal of
Long-Lived Assets.  SFAS 144 supersedes SFAS 121,  Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of, as well as the
provisions  of Opinion 30,  Reporting  the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business,  and Extraordinary,  Unusual and
Infrequently  Occurring Events and Transactions,  that address the disposal of a
business.  SFAS 144 also amends ARB 51, Consolidated  Financial  Statements,  to
eliminate the exception to  consolidate a subsidiary for which control is likely
to  be  temporary.  SFAS  144  carries  over  the  recognition  and  measurement
provisions  of SFAS 121, but differs from SFAS 121 in that it provides  guidance
in estimating future cash flows to test  recoverability.  SFAS 144 also includes
criteria  that have to be met for an entity to  classify a  long-lived  asset or
asset  group as held for sale,  and  extends the  presentation  of  discontinued
operations  permitted  by Opinion 30 to include  disposals  of a component of an
entity.  SFAS 144 is effective  for fiscal years  beginning  after  December 15,
2001, except for the disposal provisions,  which are immediately effective.  The
Company  does  not  expect  this  Statement  to have a  material  effect  on its
financial statements.


                                       35
<PAGE>


NOTE 2 - BALANCE SHEET COMPONENTS:
         (In thousands)
                                                               December 31,
                                                          ---------------------
                                                            2000         2001
                                                          --------     --------
Inventory
  Raw materials                                           $  2,088     $  1,816
  Work in process                                              120           24
                                                          --------     --------
    Subtotal                                              $  2,208     $  1,840
   Allowance for obsolescence                               (1,369)        (985)
                                                          --------     --------
     Total                                                $    839     $    855
                                                          ========     ========

Property and equipment
  Buildings and improvements                              $    697     $    697
  Machinery and equipment                                   30,983       30,249
  Office and computer equipment                              1,135        1,132
  Furniture and fixtures                                       289          290
                                                          --------     --------
                                                            33,104       32,367
  Less: accumulated depreciation and amortization          (25,135)     (26,919)
                                                          --------     --------
                                                          $  7,969     $  5,448
                                                          ========     ========

Accrued expenses and other liabilities
  Accrued payroll and related expenses                    $    753     $    482
  Other accrued liabilities (Deferred rent, dividends
  payable, and other)                                        2,119        1,496
                                                          --------     --------
                                                          $  2,872     $  1,978
                                                          ========     ========


NOTE 3 - EQUIPMENT IMPAIRMENT CHARGE:

     In 2000,  the  Company  recorded  charges  of $1.4  million  related to the
impairment of its manufacturing equipment and accordingly,  reduced the carrying
value of such manufacturing  equipment.  The impairment is a result of continued
adverse economic  conditions in the  semiconductor  industry,  and historical as
well as forecasted  manufacturing  equipment  underutilization,  resulting in an
estimation  that the carrying value of the  manufacturing  equipment will not be
fully  recovered.  The fair value of  manufacturing  equipment was based upon an
independent estimate of fair values.


                                       36
<PAGE>


NOTE 4 - ACQUISITION OF THE NORTH AMERICAN DISTRIBUTOR OF ORIENT
         SEMICONDUCTOR ELECTRONICS, LTD.

     On October 29, 1999, the Company acquired the North American distributor of
OSE in a stock for stock  exchange  valued at  approximately  $4.7  million.  In
connection with the  acquisition,  the Company issued  25,910,090  shares of its
Common  Stock  with a fair  market  value of $4.3  million.  As a result  of the
transaction, the distributor, OSEI, operates as a wholly owned subsidiary of the
Company.

     OSEI was a privately held  corporation  that serves as the exclusive  North
American  distributor  of OSE,  a public  Taiwanese  company  and the  Company's
principal  stockholder.  OSEI derives its revenues from fees earned  exclusively
from the sales of OSE's  semiconductor  assembly and test  services to customers
headquartered in North America.  The Company reported  consolidated results with
OSEI since the acquisition date.

     The purchase  price of $4.7 million,  which includes  acquisition  costs of
$0.4 million,  was accounted for using the purchase method of accounting,  which
means  that  the  purchase  price  was  allocated  to the  assets  acquired  and
liabilities  assumed  based  on the  estimated  fair  values  at the date of the
acquisition.  The  fair  value  of the  assets  of  OSEI  and a  summary  of the
consideration exchanged for these assets is as follows (in thousands):

Assets acquired:
Tangible assets, primarily cash and
  accounts receivable                                        $23,642
Distributor contract                                           3,557
Workforce                                                        280
Goodwill                                                       1,940
Liabilities assumed                                        (24,711)
                                                         -----------
Total purchase price                                          $4,708
                                                         ===========

     The amount  allocated  to the  distributor  contract  and the  workforce is
amortized on a straight-line basis over ten years and three years, respectively.
The goodwill  recorded on the acquisition is amortized over its expected life of
seven years.

     Summarized  below are the  unaudited  pro forma  results of the  Company as
though OSEI had been acquired at the beginning of periods presented. Adjustments
have  been made for the  estimated  increases  in  amortization  related  to the
purchase  of  the  distributor  contract,  workforce  and  goodwill,  and  other
appropriate pro forma adjustments. Non-recurring transactions have been excluded
from the results of both periods presented.

                                                             1999
                                                          ---------
Net revenues                                               $19,630
Net loss                                                  ($11,972)
Net loss per share - basic and diluted                      ($0.26)

     The above amounts are based on certain  assumptions  and estimates which we
believe are  reasonable  and do not reflect any benefit from  economies of scale
which  might be  achieved  from  combined  operations.  The pro forma  financial
information presented above is not necessarily  indicative of either the results
of operations  that would have occurred had the  acquisition  taken place at the
beginning of the periods  presented,  or of future  results of operations of the
combined companies.


                                       37
<PAGE>


NOTE 5 - LEASING ARRANGEMENTS AND COMMITMENTS:

     On January 20,  1998,  the Company  completed  the sale of its  facilities,
which  consists of land and two buildings with a total of 138,336 square feet of
building  space,  and agreed to lease back the 82,290  square  foot  building it
occupies.  Net proceeds from the sale were $7.3 million,  net of the elimination
of $6.6 million of mortgage  debt,  fees,  commissions  and closing  costs.  The
Company recognized a gain of $700,000 from the sale of the land and building not
occupied by the Company. The remaining gain of approximately $1,400,000 is being
amortized as a reduction of lease expense over the initial  ten-year term of the
lease for the building that the Company occupies.

     On November 14, 2000, the Company entered into a sublease  agreement with a
subsidiary of OSE for the lease of 16,480 square feet of building  space through
January 19, 2008.

     The Company has a  non-cancelable  operating  lease for a 2,500 square foot
portion of a building for its plating  operations.  The lease is for five years,
with an option to extend.

     Rent expense was $1,529,000,  $1,549,000, and $1,654,000 in 1999, 2000, and
2001, respectively.

     Net future  minimum lease  payments over the next five years and thereafter
under operating leases at December 31, 2001 are as follows (in thousands):

                                                                Net Future
                                     Lease        Sublease      Min. Lease
                                    Payment        Income         Payment
                                    -------       --------      ----------
Year ending December 31:
2002                                $1,373           $653           $720
2003                                 1,250            704            546
2004                                 1,316            757            559
2005                                 1,316            757            559
2006                                 1,448            819            629
Thereafter                           1,448            819            629
                                    ------         ------         ------
Total minimum payments              $8,151         $4,509         $3,642
                                    ======         ======         ======

NOTE 6 - BANK DEBT

Bank debt

     The  Company  has a line of  credit,  as  amended,  with the two banks that
provides  for  advances  up to the lesser of $15  million  (committed  revolving
credit line) or the advance  rate  against  qualified  accounts  receivable  (as
defined). The amount of $15 million was an amendment from the $18 million in the
February 2001 line of credit  agreement.  Over advances under this agreement are
immediately  payable to the lender.  Borrowings under this line of credit accrue
interest at the banks' prime rate (4.75% at December  31, 2001) plus 0.50%,  are
collateralized  by the assets of the Company and are guaranteed by OSE.  Amounts
outstanding  under  this line of credit  were  $18,000,000  and  $11,557,000  at
December 31, 2000 and 2001, respectively.

     On March 27, 2002, the Company  renewed the $15 million line of credit with
the banks. This line of credit expires on August 15, 2002.


                                       38
<PAGE>


Equipment Notes Payable

     Prior to 1999, due to covenant  noncompliance and failure to make scheduled
repayments, the Company defaulted on its equipment notes payable. As part of the
April 1999 transaction outlined in Note 7, under which the Company issued Series
A mandatorily  redeemable  convertible  preferred stock,  the Company's  secured
creditors  agreed to restructure the secured debt,  including debt  forgiveness,
extended payment terms and terminate  related legal actions.  As a result of the
April  debt  restructuring,  the  Company  recorded  an  extraordinary  gain  of
$1,487,000.

     In September 1999, when the Company obtained a new borrowing facility,  the
Company used it to settle amounts due to secured  creditors that were subject to
the April  1999 debt  restructuring  for less than the  recorded  amounts.  This
transaction resulted in an extraordinary gain of $560,000.

NOTE 7 - PREFERRED STOCK:

     The Company has 20,000,000 shares of preferred stock authorized at December
31, 2001.

     During 1999 and 2000, the Board of Directors  designated  4,000,000  shares
and 3,023,225 shares of the preferred  stock, as Series A convertible  preferred
stock and Series B convertible preferred stock, respectively with a par value of
$.001.

     The Company  issued  4,000,000  shares of Series A  mandatorily  redeemable
convertible  preferred  stock  (Series A Preferred) to OSE on April 29, 1999 for
proceeds of $6,499,000,  net of issuance costs of $301,000. Each share of Series
A Preferred is initially  convertible  into  13.7487705  shares of the Company's
common  stock at the  option of the  holder.  On August 4, 1999,  OSE  converted
1,000,000  shares  of  Series  A  Preferred  with a  value  of  $1,700,000  into
13,748,771 shares of the Company's common stock.

     The Company  issued  3,023,225  shares of Series B  mandatorily  redeemable
convertible preferred stock (Series B Preferred) to OSE on December 26, 2000 for
proceeds  of  $6,000,000.   Each  share  of  Series  B  Preferred  is  initially
convertible  into 13.7487705  shares of the Company's common stock at the option
of the holder. The proceeds were used to reduce the accounts payable to OSE.

     The  holders of shares of Series A  Preferred  and Series B  Preferred  are
entitled to dividends at the rate of $0.136 and $0.159, respectively,  per annum
per share payable  semiannually on July 1 and January 1 each year. The dividends
on Series A and Series B Preferred  are payable in cash,  shares of common stock
or any  combination  of cash and  shares of Common  Stock,  at the option of the
holders of Series A and Series B Preferred.  The Series A Preferred and Series B
Preferred are mandatorily redeemable for $1.70 and $1.98 respectively, per share
in the event of a transaction  whereby the existing  shareholders of the Company
own  less  than a 50%  equity  interest  subsequent  to the  transaction  or any
liquidation, dissolution, or winding up of the Company.

     In 1999, the Company recorded a deemed dividend on Series A Preferred stock
of $6.8  million.  This is the result of the effective  conversion  price of the
convertible preferred stock issued to OSE during the quarter being less than the
market  price of the  common  stock on the date of the  transaction.  The deemed
dividend  related  to the  transaction  has been  recognized  during  the second
quarter as a result of the preferred stock being immediately  convertible at the
discretion of the holder.  The conversion  price of the Series B Preferred stock
issued to OSE in 2000 was not less than the market  price of the common stock on
the date of the transaction and, accordingly, no deemed dividend was recorded.


                                       39
<PAGE>


     Included in accrued  expenses  and other  liabilities  on the  accompanying
balance  sheets are dividends  payable  amounting to $209,000 and  $444,000,  at
December 31, 2000 and 2001,  respectively.  The  $444,000  owing at December 31,
2001 was  satisfied  via the  issuance of  14,800,000  shares of common stock in
2002.

NOTE 8 - STOCK PLANS:

Stock Option Plan

     The  Company  has a Stock  Option  Plan  (the  "Plan"),  which as  amended,
provides for the grant of incentive stock options (ISOs) and nonqualified  stock
options (NSOs) to purchase up to 20,000,000  shares of Common Stock. ISOs may be
granted to employees and NSOs may be granted to either employees or consultants.
In accordance  with the Plan,  the stated  exercise price shall not be less than
100% and 85% of the  estimated  fair market value of Common Stock on the date of
grant for ISOs and NSOs, respectively,  as determined by the Board of Directors.
The Plan  provides that the options  shall be  exercisable  over a period not to
exceed  ten years  and  shall  vest as  determined  by the  Board of  Directors.
Substantially  all of the options  vest 25% one year after the date of grant and
1/48  each  month  thereafter.  There is no  deferred  compensation  balance  at
December 31, 2000 and 2001.

     Options outstanding under this plan at December 31, 2000 and 2001 amount to
9,404,000 and 7,526,019 shares, respectively.




                                       40
<PAGE>


1999 Director Option Plan

     In September  1999, the Company  adopted the 1999 Director Option Plan (the
"1999  Director  Plan").  A total of 4,000,000  shares of Common Stock have been
authorized  for issuance  under the 1999 Director  Plan.  The 1999 Director Plan
provides for the grant of NSOs to  non-employee  directors  of the Company.  The
1999 Director Plan provides that each non-employee  director who joins the Board
will  automatically be granted an NSO to purchase 100,000 shares of Common Stock
on the date upon which such person first  becomes a  non-employee  director.  In
addition,  each  non-employee  director  will  automatically  receive  an NSO to
purchase 100,000 shares of Common Stock upon such directors'  annual  reelection
to the Board if the  director has served on the Board for at least six months as
of the date of the reelection.  All options granted under the 1999 Director Plan
will have an exercise  price equal to the fair value of the Common  Stock on the
date of grant and will be fully vested and exercisable on the date of grant. The
options will have a term of ten years.

     Options outstanding under this plan at December 31, 2000 and 2001 amount to
700,000 and 1,000,000 shares, respectively.

Non-Statutory Stock Plan

     The Company has a Non-Statutory Stock Plan, which, as amended, provides for
the grant of  non-qualified  stock  options to purchase  up to 750,000  share of
Common Stock.  In accordance  with the Plan, the stated exercise price shall not
be less than 85% of the  estimated  fair market value of the Common Stock on the
date of grant of the NSO. The options shall be exercisable  over a period not to
exceed  ten years and shall  vest 25% one year  after the year of grant and 1/48
each month thereafter.

     Options outstanding under this plan at December 31, 2000 and 2001 amount to
324,938 and 304,438 shares, respectively.

Employee Stock Purchase Plan

     The Company's Stock Purchase Plan (the "Purchase  Plan") was adopted by the
Company's  Board of Directors  and  stockholders  in December  1995,  and became
effective upon the closing of the Company's  initial public offering on February
28, 1996.  Under the Purchase Plan, a total of 5,000,000  shares of Common Stock
have been reserved for issuance to eligible employees.  The Purchase Plan allows
employees  to purchase  shares  through  payroll  deductions  at 85% of the fair
market value of the Common Stock at the  beginning or the end of the  applicable
twelve-month  purchase  period.  The Purchase  Plan is intended to qualify as an
"employee  stock purchase plan" under Section 423 of the U.S.  Internal  Revenue
Code. Unless terminated  sooner, the Purchase Plan will terminate ten years from
its effective date. During, 1999, 2000, and 2001 respectively, 185,292, 841,579,
and 812,770 shares, respectively, were issued under the Plan.


                                       41
<PAGE>


Summary of Option Activity

     The following  table  summarizes  the Company's  stock option  activity and
related  weighted  average  exercise  price within each category for each of the
years ended December 31, 1999, 2000 and 2001.

<TABLE>
<CAPTION>
                                                1999                   2000                    2001
                                      ----------------------  -----------------------  -----------------------
                                                    Weighted                 Weighted                 Weighted
                                                    Average                  Average                  Average
                                         Shares      Price       Shares       Price       Shares       Price
                                      ----------    --------  -----------    --------  -----------    --------
<S>                                    <C>           <C>       <C>            <C>       <C>            <C>
Options outstanding at January 1       1,679,997     $1.00      9,146,842     $0.44     10,429,738     $0.42
Options granted                        7,957,376     $0.36      2,500,000     $0.32      1,408,500     $0.07
Options canceled                        (485,948)    $1.06     (1,199,437)    $0.37     (3,007,781)    $0.37
Options exercised                         (4,583)    $0.22        (17,667)    $0.24             --        --
                                      ----------     -----    -----------     -----    -----------     -----
Options outstanding at December 31     9,146,842     $0.44     10,429,738     $0.42      8,830,457     $0.38
                                      ==========     =====    ===========     =====    ===========     =====
Options exercisable at December 31       809,841     $0.93      3,418,076     $0.51      4,601,918     $0.42
                                      ==========     =====    ===========     =====    ===========     =====
Available for grant at December 31    14,908,048               13,607,485               15,206,766
                                      ==========              ===========              ===========
</TABLE>

     Significant option groups outstanding at December 31, 2001, and the related
weighted average  exercise price and remaining  contractual life information are
as follows:

<TABLE>
<CAPTION>
                                                          Outstanding              Exercisable        Weighted
                                                                 Weighted                  Weighted    Average
                                                                  Average                  Average    Remaining
                                                                 Exercise                  Exercise     Life
Options with exercise prices ranging from:          Shares         Price        Shares      Price      (Years)
------------------------------------------        ---------      --------    ---------     --------   ---------
<C>                                               <C>              <C>       <C>            <C>           <C>
$0.03 -- $0.06                                      908,000        $0.05       400,000      $0.05         8
 0.09 --  0.22                                      824,656         0.15       183,594       0.18         9
 0.221--  0.23                                      554,364         0.23       516,864       0.23         3
 0.24                                             2,343,876         0.24     1,166,690       0.24         8
 0.25 --  0.52                                    1,042,812         0.38       513,352       0.35         7
 0.54 --  0.56                                       96,500         0.54        34,125       0.54         8
 0.59                                             2,532,000         0.59     1,266,000       0.59         8
 0.63 --  3.00                                      526,749         1.03       519,793       1.04         6
 3.06                                                 1,000         3.06         1,000       3.06         6
 9.50                                                   500         9.50           500       9.50         4
                                                  ---------       ------     ---------      -----        --
  Options outstanding at December 31, 2001        8,830,457         0.38     4,601,918       0.42         7
                                                  =========       ======     =========      =====        ==
</TABLE>


                                       42
<PAGE>


Fair Value of Stock Options and Employee Purchase Rights

     The Company has four stock option  plans,  which  reserve  shares of common
stock for issuance to  employees,  officers,  directors,  and  consultants.  The
Company applies APB Opinion 25 and related interpretations in accounting for its
plans.

     For the  Stock  Option  Plans,  the  fair  value  of each  option  grant is
estimated on the date of grant using the Black-Scholes option pricing model with
the following  weighted  average  assumptions used for grants in 1999, 2000, and
2001, respectively:  dividend yield of 0% in all three years; expected life of 4
years for each year;  expected volatility of 310%, 705%, and 342%; and risk-free
interest  rates  of  5.75%,   4.74%,   and  4.34%  for  1999,  2000,  and  2001,
respectively.  The weighted-average fair value of those stock options granted in
1999, 2000, and 2001 was $0.40, $0.27, and $0.07 per option, respectively.

     The fair value of the  employees'  purchase  rights for the Purchase  Plan,
which was initiated on February 28, 1996,  was estimated at the beginning of the
offering period using the Black-Scholes  option pricing model with the following
assumptions used for 1999, 2000 and 2001, respectively: dividend yield of 0%; an
expected life of six months;  expected  volatility of 310%,  705%, and 342%; and
risk-free  interest rate of 4.8% in 1999, 4.63% in 2000, and 4.06% for 2001. The
weighted-average  fair value of these purchase rights granted in 1999, 2000, and
2001 was $0.15, $0.20, and $0.08, respectively, per right.

     Had the Company  recorded  compensation  costs based on the estimated grant
date fair  value,  as defined by SFAS 123,  for awards  granted  under its stock
option plans and stock  purchase plan, the Company's net loss and loss per share
would have been  increased to the  following  pro forma  amounts (in  thousands,
except per share amounts):

<TABLE>
<CAPTION>
                                                                             1999        2000         2001
                                                                           --------    --------     -------
<S>                                                                        <C>         <C>          <C>
Net loss applicable to common stockholders, as reported (in thousands)     ($16,981)   ($10,952)    ($8,988)
Net loss applicable to common stockholders, pro forma                      ($17,881)   ($12,827)    ($9,656)
Net loss applicable to common stockholders, per share as reported
  Basic and diluted                                                          ($0.68)     ($0.20)     ($0.15)
Net loss applicable to common stockholders, per share, pro forma
  Basic and diluted                                                          ($0.72)     ($0.23)     ($0.16)
</TABLE>


                                       43
<PAGE>


NOTE 9 - WARRANTS:

     Prior to 1999, in connection with acquiring equipment under capital leases,
the Company  issued  warrants to the lessors to purchase an aggregate of 628,978
shares of common stock at exercise prices ranging from $0.77 to $8.00 per share.
The estimated value of these warrants at the time of issuance,  as determined by
the Company,  was amortized as interest  expense over the period the leases were
outstanding.

     Prior to 1999,  in connection  with bank debt and various loan  agreements,
the Company  issued  warrants to the lenders to purchase an aggregate of 202,483
shares of common  stock at  exercise  prices  ranging  from $3.30 to $4.60.  The
estimated value of these warrants at the time of issuance,  as determined by the
Company, was amortized as interest expense over the terms of the loans.

     As part of the April 1999  restructuring of secured debt, certain creditors
were issued warrants to purchase a total of 1,500,000  shares of common stock at
a price of $0.1236  per share.  In  addition,  warrants  to  purchase a total of
244,345  shares of common stock held by secured  creditors  were  repriced  from
exercise prices ranging from $0.77 to $3.30 per share of common stock to $0.1236
per share. The fair value as determined using a Black-Scholes valuation model of
the  warrants  issued and the  incremental  value of the  repriced  warrants was
$790,000.  The  value of the  warrants  and  incremental  value of the  repriced
warrants was offset against the outstanding debt.

     Outstanding   warrants  total  2,331,461   shares,  of  which  150,490  are
exercisable  at December 31, 2001.  The remaining  warrants  become  exercisable
during 2002 (10,000 shares),  2003 (100,000 shares), 2004 (401,717 shares), 2005
(269,254 shares) and 2006 (1,400,000 shares).

NOTE 10 - INCOME TAXES:

     In 1999,  2000 and 2001,  the Company  incurred  net  operating  losses and
recorded  no  provision  for income  taxes.  The income tax benefit for the year
ended  December 31, 2001,  represents  the reversal of an over accrual of income
taxes resulting from a change in accounting estimate.

     Deferred income tax assets comprise the following (in thousands):

                                                               December 31,
                                                          ---------------------
                                                            2000         2001
                                                          --------     --------
Federal and state credit carryforwards                    $  2,676     $  2,676
Federal and state net operating loss carryforwards          21,930       26,106
Provision for impaired assets                                8,021        8,017
Leases, treated as operating for tax                        (2,396)      (2,396)
Depreciation                                                (3,994)        (209)
Reserves and accruals                                        1,506        1,379
Other                                                         (320)           2
                                                          --------     --------
Deferred tax assets                                         27,423       35,575
Less valuation allowance                                   (27,423)     (35,575)
                                                          --------     --------
  Net deferred tax asset                                  $     --     $     --
                                                          ========     ========

     Management  believes that sufficient  uncertainty exists with regard to the
realizability  of these tax  assets  such  that a full  valuation  allowance  is
necessary. These factors include the lack of a significant history of consistent
profits and a lack of carryback  capacity to realize these assets.  Based on the
absence of objective  evidence,  management  is unable to assert that it is more
likely than not that the Company will generate


                                       44
<PAGE>


sufficient  taxable income to realize the Company's net deferred tax assets. The
valuation  allowance  increased by $15,238,000  and $8,152,000 in 2000 and 2001,
respectively.

     At December 31, 2001,  the Company had federal and state net operating loss
and tax credit forwards  ("NOLs") of approximately  $71,000,000 and $31,000,000,
respectively,  which can be used to reduce future  taxable  income.  The federal
NOLs,  state NOLs and federal and state credits  expire  through 2020,  2010 and
2019 respectively,  if not utilized.  The availability and timing of these carry
forwards to offset the taxable  income maybe  limited due to the  occurrence  of
certain events, including change of ownership.

     The Tax  Reform Act of 1996  limits  the use of NOLs in certain  situations
where changes occur in the stock ownership of a company. The Company experienced
such an ownership change as a result of the Company's initial public offering in
1996,  resulting in a limitation of the annual utilization of the NOLs generated
through the date of the initial public  offering.  Another such ownership change
was  experienced  as a result  of the  issuance  of  Series A and B  convertible
preferred  stock  in 1999  and  2000  (Note  7),  respectively,  resulting  in a
limitation of the annual  utilization of the NOLs generated  through the date of
issuance of Series A and Series B convertible preferred stock.

NOTE 11 - CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS:

Concentration of credit risk

     The Company performs ongoing credit evaluations of its customers, which are
semiconductor  companies,  and maintains  reserves for estimated  credit losses.
Write-offs of accounts  receivable were  insignificant in all periods presented.
At  December  31,  2000,  three  customers  accounted  for  21%,  20%  and  13%,
respectively of total accounts receivable. At December 31, 2001, three customers
accounted for 24%, 10%, and 9%, respectively of total accounts  receivable.  For
the year ended  December 31, 1999, the Company had two major  customers  account
for 30% and 15% of its revenue,  respectively. In 2000 and 2001, the Company had
one major customer account for 32% and 14% of its revenue, respectively.

NOTE 12 - SEGMENTS

     The Company has two segments: manufacturing and distribution. Manufacturing
comprises the semiconductor packaging services of packages designed for assembly
using Surface Mount Technology ("SMT") in which leads on integrated circuits are
soldered to the surface of the printed circuit board. Within the SMT market, the
Company focuses on high pin-count  packages,  such as Quad Flat packages ("QFP")
and thin Quad  Flat  packages  ("TQFPs").  Distribution  comprises  of the North
American  sales,   marketing  and  technical   support   organization  for  OSE.
Commissions  are earned from the sales for the  semiconductor  assembly and test
services of OSE. The  customers  are mainly US  headquartered  manufacturers  of
high-tech products such as video components, chip sets, graphics chips and logic
components.


                                       45
<PAGE>

<TABLE>
<CAPTION>
                                                   Manufacturing   Distribution   Eliminations        Total
                                                   -------------   ------------   ------------      --------
<S>                                                  <C>              <C>                           <C>
2001
Revenues                                             $  7,150         $ 4,615            --         $ 11,765
Interest income                                             1           1,198        (1,113)              86
Interest expense                                       (2,385)                        1,113           (1,272)
Depreciation and amortization                           2,780             753            --            3,533
Net income (loss)                                      (9,855)          1,756            --           (8,099)
Accounts receivable, net                                  808          15,179            --           15,987
Total assets                                           12,194          21,186        (4,708)          28,672
Expenditures for additions to long-lived assets      $    276         $    14            --         $    290

2000:
Revenues                                             $ 16,521         $ 7,646            --         $ 24,167
Interest income                                            12             591          (456)             147
Interest expense                                       (2,292)             --           456           (1,836)
Depreciation and amortization                           3,691             751            --            4,442
Net income (loss)                                     (14,704)          4,165            --          (10,539)
Accounts receivable, net                                1,446          21,421            --           22,867
Total assets                                           16,072          34,090        (9,485)          40,677
Expenditures for additions to long-lived assets      $  2,518         $    45            --         $  2,563

1999:
Revenues                                             $ 16,227         $ 1,214            --         $ 17,441
Interest income                                            60              12            --               72
Interest expense                                       (1,555)             --            --           (1,555)
Depreciation and amortization                           4,355             123            --            4,478
Extraordinary gain                                      2,047              --            --            2,047
Net income (loss)                                     (10,627)            754            --           (9,873)
Accounts receivable, net                                2,701          25,594            --           28,295
Total assets                                           20,446          35,910        (4,708)          51,648
Expenditures for additions to long-lived assets      $    606         $     2            --         $    608

</TABLE>

NOTE 13 - RELATED PARTY TRANSACTIONS

     The Company is a member of a group of affiliated  companies owned by Orient
Semiconductor  Electronics,  Ltd of Taiwan  ("OSE").  Significant  related party
transactions with OSE and its affiliates are as follows:

Guarantor of Debt

     OSE is guarantor for a debt agreement outlined in Note 6.

Acquisition of OSEI

     OSE was a significant  shareholder in OSEI.  Accordingly,  when the Company
acquired  OSEI,  as outlined in Note 4, OSE received  approximately  4.9 million
shares of the Company's common stock for its shares in OSEI.

Distributor

     All the revenue of OSEI, the Company's subsidiary, is earned as a result of
being a  distributor  for OSE. The revenue under the  distribution  agreement is
based on a fixed percentage of the value of the semiconductor


                                       46
<PAGE>


assembly and test services provided to customers in OSEI's  distribution area of
entities  headquartered in North America. For the years ended December 31, 1999,
2000, and 2001,  OSEI  distributed  $23.1  million,  $151.3  million,  and $96.2
million in product and services for OSE and  affiliates  and sold such  products
and services to its  customers for $24.3  million,  $158.9  million,  and $100.8
million, respectively.  Accordingly, OSEI recorded revenue of $1.2 million, $7.6
million,  and $4.6  million in 1999,  2000,  and 2001,  respectively.  Under the
distribution  agreement,  OSEI is  required  to  remit  amounts  collected  from
customers,  less its commission,  to OSE. Pursuant to the amended line of credit
agreement (Note 6), however, payments from customers are to be remitted directly
to  the  lender.  As  of  December  31,  2001,   accounts   receivable  includes
approximately $28.0 million, that when collected,  is due to OSE pursuant to the
distribution agreement. While OSEI is responsible for the collection of accounts
receivable  from its customers,  it has obtained  certain  guarantees  from OSE,
which reduce OSEI's exposure to credit risk. OSEI normally makes payments to OSE
for purchases after OSEI has collected the related accounts  receivable from its
customer.

Sublease With Affiliate

The Company has a sublease with an affiliate Company as outlined in Note 5.

Preferred Series A and Series B Stock

The Company sold Series A and Series B stock to OSE as outlined in Note 7.

NOTE 14 - QUARTERLY INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 2001                       First            Second          Third           Fourth           Total
------------------------------------------      -----------       -----------     ----------     -----------      -----------
<S>                                                <C>               <C>            <C>             <C>              <C>
Revenues                                            $3,614            $3,152         $2,670          $2,329          $11,765
Gross profit (loss)                                   $121             ($380)         ($577)          ($126)           ($962)
Net loss applicable to common shareholders         ($2,239)          ($2,375)       ($2,472)        ($1,902)         ($8,988)
Net loss per common share                           ($0.04)           ($0.04)        ($0.04)         ($0.03)          ($0.15)
Stock price
  High                                               $0.16             $0.13          $0.12           $0.05            $0.16
  Low                                                $0.05             $0.04          $0.02           $0.02            $0.02
  Quarter end close                                  $0.06             $0.05          $0.05           $0.03            $0.03

YEAR ENDED DECEMBER 31, 2000
------------------------------------------
Revenues                                            $7,075            $7,003         $5,794          $4,295          $24,167
Gross profit (loss)                                    468               821           (220)            (19)           1,050
Net loss applicable to common shareholders         ($2,006)          ($2,014)       ($3,923)        ($3,009)        ($10,952)
Net loss per common share                           ($0.04)           ($0.04)        ($0.07)         ($0.05)          ($0.20)
Stock price
   High                                              $0.66             $0.58          $0.47           $0.37            $0.66
   Low                                               $0.37             $0.21          $0.16           $0.06            $0.06
   Quarter end close                                 $0.37             $0.23          $0.27           $0.08            $0.08
</TABLE>


                                       47
<PAGE>


Item 9.  Changes in and Disagreement with Accountants on Accounting and
         Financial Disclosure

     None




                                       48
<PAGE>


PART III

     Certain  information  required  by Part III is omitted  from this Report on
Form 10-K in that the Registrant  will file its definitive  Proxy  Statement for
its Annual Meeting of Stockholders  pursuant to Regulation 14A of the Securities
Exchange  Act of 1934,  as amended (the "Proxy  Statement"),  not later than 120
days  after the end of the  fiscal  year  covered by this  Report,  and  certain
information included in the Proxy Statement is incorporated herein by reference.

Item 10.  Directors and Executive Officers of the Registrant

     (a)  Executive Officers - See the section entitled "Executive  Officers" in
          Part I, Item 1 hereof.

     (b)  Directors - The  information  required by this Item is incorporated by
          reference to the section entitled "Election of Directors" in the Proxy
          Statement.

     The disclosure  required by Item 405 of Regulation S-K is  incorporated  by
reference to the section entitled "Section 16(a) Beneficial  Ownership Reporting
Compliance" in the Proxy Statement.

Item 11.  Executive Compensation

     The  information  required by this Item is incorporated by reference to the
sections  entitled  "Compensation  of Executive  Officers" and  "Compensation of
Directors" in the Proxy Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

     The  information  required by this Item is incorporated by reference to the
sections  entitled  "Principal  Share  Ownership"  and  "Security  Ownership  of
Management" in the Proxy Statement.

Item 13.  Certain Relationships and Related Transactions

     The  information  required by this Item is incorporated by reference to the
section entitled "Certain Transactions" in the Proxy Statement.

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

     14(a)  Exhibits

Exhibit
Number          Description of Document
------------    ----------------------------------------------------------------
3.1!            Restated Articles of Incorporation.
3.4!            Bylaws, as amended.
10.1!           Form of Indemnification Agreement
10.2!*          1993 Stock Option Plan and form of Stock Option Agreement.
10.3!*          1996  Employee  Stock  Purchase  Plan and  form of  Subscription
                Agreement.
10.4!*          1996  Director  Stock  Option  Plan  and  form of  Stock  Option
                Agreement.
10.5!           Registration Rights Agreement dated March 24, 1993, as amended.


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<PAGE>


10.6!          Warrant to Purchase Series A Preferred Stock, issued to MMC/GATX
                Partnership No. 1 as of October 7, 1993, as amended.
10.7!          Warrant to Purchase Series A Preferred Stock,  issued to Phoenix
                Leasing Incorporated as of October 7, 1993.
10.8!          Warrant  to  Purchase  Series  A  Preferred  Stock,   issued  to
                Comdisco, Inc. as of March 10, 1994.
10.9!          Warrant to Purchase Series A Preferred Stock,  issued to Silicon
                Valley Bank as of July 10, 1995.
10.10!         Warrant to Purchase Series A Preferred Stock,  issued to Silicon
                Valley Bank as of July 10, 1995.
10.11!         Warrant to Purchase Series A Preferred Stock,  issued to The CIT
                Group/Equipment Financing, Inc. as of September 15, 1995.
10.12!         Warrant  to  Purchase  Series  A  Preferred  Stock,   issued  to
                Comdisco, Inc. as of January 3, 1996.
10.13!!!       Warrant to Purchase Common Stock, issued to MMC/GATX Partnership
                No. 1, dated September 5, 1997.
10.14!!!       Amendment  to  Warrant to  Purchase  Series A  Preferred  Stock,
                issued to MMC/GATX Partnership No. 1, dated September 5, 1997.
10.15!!!       Amendment  to  Warrant to  Purchase  Series A  Preferred  Stock,
                issued to MMC/GATX Partnership No. 1, dated September 5, 1997.
10.16!!!       Lease Agreement dated November 1, 1997,  between the Company and
                Jaswinder S. Saini and Surinder K. Saini.
10.17!!!!      Purchase and Sale Agreement dated November 20, 1997, between the
                Company and Lincoln Property Company N.C., Inc.
10.18!!!!      Lease Agreement dated January 20, 1997,  between the Company and
                Lincoln Property Company N.C., Inc.
10.19*         1997  Nonstatutory  Stock  Options Plan and form of Stock Option
                Agreement.
10.20!!!!!     Warrant to Purchase  Stock,  issued to Silicon Valley Bank as of
                December 31, 1997.
10.21!!!!!!!   Promissory  Note dated July 23,  1999,  between  the Company and
                Bank SinoPac
10.22!!!!!!!!  Loan and  Security  Agreement  dated as of  September  17, 1999,
                between the Company and Bank SinoPac and Far East National Bank.
10.23**        Exclusive  Sales  Distributor  Agreement  between OSE,  Inc. and
                Orient Semiconductor Electronics Limited dated as of October 29,
                1999.
10.24!!!!!!!!  Amendment to Loan and Security  Agreement  dated as of September
                17,  1999  between the  Company  and Bank  SinoPac,  Los Angeles
                Branch and Far East National Bank.
10.25!!!!!!!!  Amendment to Business Loan Agreement and  Promissory  Note dated
                as of November 8, 1999 between the Company and Bank SinoPac.
10.26***       Amendment  to  Warrant  to  Purchase  Common  Stock,  issued  to
                Transamerica Business Credit Corporation, dated May 1, 1999.
10.27***        Warrant  to  Purchase  Common  Stock,   issued  to  Transamerica
                Business Credit


                                      50
<PAGE>


               Corporation, dated May 1, 1999.
10.28***        Amendment  to  Warrant to  Purchase  Series A  Preferred  Stock,
               issued to MMC/GATX Partnership No. 1, dated May 1, 1999.
10.29***        Amendment  to  Warrant to  Purchase  Series A  Preferred  Stock,
               issued to MMC/GATX Partnership No. 1, dated May 1, 1999.
10.30***        Amendment  to  Warrant  to  Purchase  Common  Stock,  issued  to
               MMC/GATX Partnership No. 1, dated May 1, 1999.
10.31***        Warrant to Purchase Common Stock, issued to MMC/GATX Partnership
               No. 1, dated May 1, 1999.
10.32****       Certificate of Designation for the Company's Series A Stock
10.33*****     Business Loan  Agreement and  Promissory  Note,  dated March 23,
                2000 between the Company and Bank Sino Pac, Los Angeles Branch
10.34*****     Amendment to Business Loan Agreement and Promissory  Note, dated
                March 23, 2000  between  the  Company and Sino Pac,  Los Angeles
                Branch
10.35*****     Acquisition of OSEI, filed on May 11, 2000
10.36          Change in Terms  Agreement,  dated  July 26,  2000  between  the
                Company and Bank Sino Pac, Los Angeles Branch.
10.37          Change in Terms Agreement,  dated September 21, 2000 between the
                Company and Bank Sino Pac, Los Angeles Branch.
10.38          Change in Terms Agreement,  dated September 29, 2000 between the
                Company and Far East National Bank.
10.39          Change in Terms  Agreement,  dated  October 29, 2000 between the
                Company and Bank Sino Pac, Los Angeles Branch.
10.40          Change in Terms  Agreement,  dated  October 31, 2000 between the
                Company and Far East National Bank.
10.41          Amended and Restated Loan and Security  Agreement dated December
                1, 2000  between  the 1 Company  and Bank Sino Pac,  Los Angeles
                Branch and Far East National Bank.
10.42          Business  Loan  Agreement,  dated  November 29, 2000 between the
                Company and Bank Sino Pac, Los Angeles Branch
10.43           Certificate  of  Designation,  dated  December  21, 2000 for the
                Company's Series B Convertible Preferred Stock.
10.44          Amendment to loan and security  agreement  dated August 15, 2001
                between the Company  and Bank Sino Pac,  Los Angeles  Branch and
                Far East National Bank.
10.45          Letter  dated  march 27,  2002 from Bank Sino Pac,  Los  Angeles
                Branch substantiating the renewal of the line of credit.
23.1           Consent of Grant Thornton LLP, Independent Accountants.
23.2           Consent of PricewaterhouseCoopers LLP, Independent Accountants
24.1           Power of Attorney.
-------------  ----------------------------------------------------------------
!              Incorporated  by reference  from the  Registrant's  Registration
                Statement on Form SB-2 (file no. 333-326-LA),  as amended, filed
                on January 17,1996.
!!             Incorporated by reference from the Registrant's Quarterly Report
                on Form 10-Q for the quarter ended June 30, 1996.
!!!            Incorporated by reference from the Registrant's Quarterly Report
                on Form 10-Q for the quarter ended September 30, 1997.


                                       51
<PAGE>


!!!!            Incorporated by reference from the  Registrant's  Current Report
                 on Form 8-K, filed on January 30, 1997.
!!!!!           Incorporated by reference from the Registrant's Annual Report on
                 Form 10-K, for the year ended December 31, 1997.
!!!!!!          Incorporated by reference from the Registrant's Annual Report on
                 Form 10-K, for the year ended December 31, 1998.
!!!!!!!         Incorporated by reference from the Registrant's Quarterly Report
                 on Form 10-Q for the quarter ended July 4, 1999.
!!!!!!!!        Incorporated by reference from the Registrant's Quarterly Report
                 on Form 10-Q for the quarter ended October 3, 1999.
*               Management contract or compensatory plan or arrangement required
                 to be filed as an exhibit to this form.

**              Incorporated  by reference to the  Company's  Current  Report on
                 Form 8-K filed on November 15, 1999.

***             Incorporated by reference from the Registrant's Annual Report on
                 Form 10-K, for the year  ended December 31, 1999.

****            Incorporated by reference from the  Registrant's  Current Report
                 on Form 8-KA, filed on May 7, 1999

*****           Incorporated by reference from the Registrant's Quarterly Report
                 on 10-Q for the quarter ended April 2, 2000.

(b)  Reports on Form 8-K.

     None.

(c)  Exhibits.

     See Item 14(a) hereof.




                                       52
<PAGE>


                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the  Securities  Exchange Act of
1934 (the "Exchange Act"), the Registrant caused this Report to be signed on its
behalf by the undersigned,  thereunto duly authorized,  in the City of San Jose,
State of California, on March 29, 2002.

                            OSE USA, Inc.

                            By: /s/ EDMONG TSENG
                                ----------------
                                    Edmond Tseng
                                    Chairman, President, Chief Executive Officer
                                    and Director

                            By: /s/ ELTON LI
                                ------------
                                    Elton Li
                                    Chief Accounting Officer


                                POWER OF ATTORNEY

     KNOW ALL  PERSONS  BY THESE  PRESENTS,  that each  person  whose  signature
appears  below hereby  constitutes  and appoints  Edmond Tseng and Elton Li, and
each of them acting individually, as his attorney-in-fact,  each with full power
of  substitution,  for  him in any  and  all  capacities,  to  sign  any and all
amendments  to this  Report on Form 10-K,  and to file the same,  with  exhibits
thereto and other  documents in connection  therewith,  with the  Securities and
Exchange Commission,  hereby ratifying and confirming our signatures as they may
be signed by our said attorney to any and all amendments to said Report.

     In  accordance  with the Exchange Act, this report has been signed below on
March 15, 2002 by the following  persons on behalf of the  Registrant and in the
capacities indicated.


/s/ EDMOND TSENG                   Chairman, President, Chief Executive Officer,
    Edmond Tseng                   and Director
                                   (Principal Executive Officer)

/s/ ELTON LI                       Chief Accounting Officer
    Elton Li                       (Principal Accounting Officer)

/s/ DONALD W.  BROOKS              Director
    Donald W. Brooks

/s/ EDWARD S. DUH                  Director
    Edward S. Duh

/s/ CALVIN LEE                     Director
    Calvin Lee

/s/ PATRICK VERDERICO              Director
    Patrick Verderico




                                       53