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, 2000

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

                   For the transition period from __________to
                         Commission File Number 0-27712

                    INTEGRATED PACKAGING ASSEMBLY CORPORATION
             (Exact Name of Registrant as Specified in its Charter)

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

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 21,  2001,  was
approximately $1,455,000.  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 21, 2001 was  59,093,299.  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
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<S>           <C>                                                                              <C>

Part I

              Item 1    Business ...........................................................     3
              Item 2    Properties .........................................................    10
              Item 3    Legal Proceedings ..................................................    11
              Item 4    Submission of Matters to a Vote of Security Holders ................    11

Part II

              Item 5    Market for Registrant's Common Equity and Related Stockholder
                          Matters ..........................................................    12
              Item 6    Selected Financial Data ............................................    13
              Item 7    Management's Discussion and Analysis of Financial Condition and
                          Results of Operations ............................................    14
              Item 7a   Quantitative and Qualitative Disclosures About Market Data .........    21
              Item 8    Financial Statements and Supplemental Data .........................    22
              Item 9    Changes in and Disagreements with Accountants on Accounting and
                          Financial Disclosure .............................................    45

Part III

              Item 10   Directors and Executive Officers of the Registrant .................    46
              Item 11   Executive Compensation .............................................    46
              Item 12   Security Ownership of Certain Beneficial Owners and Management .....    46
              Item 13   Certain Relationships and Related Transactions .....................    46

Part IV

              Item 14   Exhibits, Financial Statement Schedules and Reports on Form 8-K ....    46

SIGNATURES .................................................................................    50
</TABLE>


                                       2
<PAGE>

                                     PART I

     This Report on Form 10-K  contains  forward-looking  statements  within the
meaning of Section  27A of the  Securities  Act of 1933 and  Section  21E of the
Securities  Exchange Act of 1934.  Actual results could differ  materially  from
those  projected  in the  forward-looking  statements  as a  result  of the risk
related factors set forth herein.

Item 1. Business

     Integrated  Packaging Assembly Corporation ("IPAC") is an independent North
American  semiconductor  packaging foundry. The Company receives wafers from its
customers and assembles each integrated circuit in a protective plastic package.
The Company's packaging facilities are located in San Jose,  California in close
proximity to its customers and the end-users of its customers' products.  Due to
intense  competitive  pressures  in  the  electronics  industry,   semiconductor
companies are faced with increasingly  shorter product life cycles and therefore
have a need to  reduce  the  time it takes to bring a  product  to  market.  The
Company  believes  that its close  proximity to its customers  promotes  quicker
turnaround design,  prototype production and final product delivery to its North
American  customers,  compared to its principal  competitors which are primarily
located in Asia.  The Company is also 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.
Revenues  are derived  from fees  received  on the sales of OSE's  semiconductor
assembly and test  services to customers  headquartered  in North  America.  The
Company  entered this market in October 1999 with the  acquisition  of 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 and 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.  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,  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 a 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.


                                       3
<PAGE>

     The  Company   shipped   approximately   19.8  million   devices  in  1998,
approximately  15.8  million  devices  in 1999 and  approximately  19.5  million
devices in 2000. Since the fourth quarter of 1996, the Company has had available
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'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 believes that its competitive  position depends on its ability
to have sufficient  capacity to meet anticipated  customer demand.  Accordingly,
although the Company currently has available manufacturing capacity, the Company
plans to continue to selectively  invest to expand such  capacity,  particularly
through  the  acquisition  of capital  equipment,  including  equipment  for new
packages (e.g.  Ball Grid Array ("BGA") and Chip Scale Package  ("CSP")).  There
can be no assurance that the Company will be able to utilize such capacity, that
the cost of such expansion  will not exceed  management's  current  estimates or
that such  capacity will not exceed the demand for the  Company's  services.  In
addition,  expansion of the  Company's  manufacturing  capacity will continue to
significantly  increase its fixed  costs,  and the future  profitability  of the
Company will depend on its ability to utilize its  manufacturing  capacity in an
effective manner. The Company's inability to generate the additional  production
volume  necessary to fully utilize its capacity had a material adverse effect on
its business,  financial condition and results of operation since 1997 and would
continue to have a material  adverse  effect on the Company's  future  business,
financial condition and results of operations.

      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
in 2000 and expects to continue  spending to purchase capital equipment in 2001.
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.  Any
problems  with  such  capital  equipment  or any  prolonged  delay in  equipment
shipments  by key  suppliers or an  inability  to locate  alternative  equipment
suppliers  could  have a  material  adverse  effect on the  Company's  business,
financial  condition  and results of  operations  and could  result in damage to
customer  relationships.  Moreover,  increased  levels of demand in the  capital
equipment  market  may


                                       4
<PAGE>

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

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 high volume 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 October 1999.

     As of December 31, 2000, the Company's quality control staff consisted of 6
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.

Dependence on Raw Materials 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  sources 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.

     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


                                       5
<PAGE>

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.

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  current times),  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 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.

     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 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.

     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 lead frame design services for a fee.

     To date, the Company has been substantially dependent on a relatively small
number of customers.  Specifically,  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,  Cirrus Logic and Ford  accounted for 39%, 9% and 11%,
respectively,  of the Company's  revenues in 1998. The Company  anticipates that
significant customer  concentration will continue,


                                       6
<PAGE>

although the companies  which  constitute  the Company's  largest  customers may
change from period to period.  In this  regard,  Ford  Microelectronics  stopped
manufacturing  the automotive  components that the Company  packaged in 1999 and
Atmel  Semiconductor has  significantly  reduced their  requirements  during the
second half of 2000.

     All of the  Company's  customers  operate  in  the  cyclical  semiconductor
business and their order levels may vary significantly from period to period. In
addition,  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.  There can be no assurance that adverse developments in the
semiconductor  industry  will  not  adversely  affect  the  Company's  business,
financial  condition and results of  operations.  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.  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.

Competition; Decline in Average Selling Prices

     The semiconductor  packaging  industry is highly  competitive.  The Company
currently faces  substantial  competition from established  packaging  foundries
located in Asia,  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  against  companies  which have
in-house packaging  capabilities as current and prospective customers constantly
evaluate the Company's  capabilities  against the merits of in-house  packaging.
Many  of the  Company's  customers  are  also  customers  of one or  more of the
Company's  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.  The Company  expects that
average  selling prices for its products will continue to decline in the future,
principally due to intense competitive conditions.  A decline in average selling
prices of the  Company's  products,  if not offset by  reductions in the cost of
producing those products, would continue to decrease the Company's gross margins
and materially and adversely affect the Company's business,  financial condition
and results of  operations.  There can be no assurance  that the Company will be
able to reduce its cost per unit.


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<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.  The  Company's  research  and  development  efforts  are focused on
improving existing  technology,  such as developing thermally enhanced QFPs that
result in better heat dissipation, and emerging packaging technologies,  such as
BGA packages  that provide for an increased  number of leads per device  without
increasing  the  size  of the  functional  integrated  circuit  and  Chip  Scale
Packaging ("CSP").  Although the Company did not ship significant  quantities of
BGA devices in 2000, it believes that the increased pin count made  available by
BGA  technology  is an  important  technology  that 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,  2000,  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  alliances  and  technology  licensing
agreements.  For  example,  the  Company is a member of an  ARPA-TRP  consortium
working to enhance  cooperation and  participation by United States companies in
assembly  and  packaging  technology.  In 2000,  1999 and  1998,  the  Company's
research and development expenses were approximately  $1,308,000,  $727,000, and
$1,101,000,  respectively. The Company expects to continue to invest significant
resources in research and development.

     The Company has focused its manufacturing resources on plastic QFPs 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.  BGA packaging  currently
represents  a very  small,  but  increasing,  portion of the  Company's  overall
revenues and a relatively small portion of the overall  semiconductor  packaging
market.  The Company has  recently  committed  to the  introduction  of an LFBGA
family which the Company believes to be an important new commercially attractive
package for its customers.  Technological change in the semiconductor  packaging
industry  is  continuous  and  in the  future  semiconductor  manufacturers  are
expected to require increased  technological and  manufacturing  expertise.  The
introduction  of new  packaging  technologies,  a  reduction  or shift away from
QFP's, or the failure of the market for BGA packaging to develop would result in
a material  adverse effect on the Company's  business,  financial  condition and
results of operations.

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, 2000, the Company held twelve U.S.
patents,  which  expire,  between  2012 and 2016,  and three  additional  patent
applications have been filed and are 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.

     As is  typical in the  semiconductor  industry,  the  Company  may  receive
communications  from third parties


                                       8
<PAGE>

asserting  patents on certain of the  Company's  technologies.  In the event any
third  party  were to make a valid  claim and a license  were 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, 2000 there was no
litigation relating to patent or other intellectual property matters.

Environmental Matters

     The  semiconductor  packaging  process  involves  a  significant  amount of
chemicals and gases which 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.

     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, 2000,  the Company had 171 full time  employees,  131 of
whom were engaged in manufacturing,  7 in research and development,  15 in sales
and  customer  service,  and 18 in finance  and  administration.  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.


                                       9
<PAGE>

Executive Officers

     The executive officers of the Company are as follows:

     Name                Age                    Position(s)
-------------------   ---------   --------------------------------------------
Edmond Tseng             54       Chairman of the Board of Directors, President,
                                  Chief Executive Officer and Director
Gerald K. Fehr           63       Executive Vice President, Chief Technology
                                  Officer
Vincent R. Lepore        61       Corporate Controller, and Chief Accounting
                                  Officer
Chris BK Ooi             46       Vice President, Operations


     Edmond Tseng has been President and Chief  Executive  Officer of IPAC 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.

     Vincent R. Lepore joined the Company in July 2000 as Corporate  Controller,
and Chief Accounting Officer.  From January 1994 to July 2000, Mr. Lepore served
as  Controller  of Center for Systems  Management,  Inc.,  a project  management
company.  From  October 1988 to January  1994,  Mr.  Lepore was Vice  President,
Finance and Chief  Financial  Officer of Dale  Seymour  Publications,  Inc.,  an
educational publisher.

     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.

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.  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


                                       10
<PAGE>

Phoenix,  Arizona.  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.


                                       11
<PAGE>

                                     Part II

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

     As of March 21, 2001, there were approximately 374 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  "IPAC." 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, 1999                               High      Low
------------------------------------------------------------     -----     -----
  First Quarter                                                  $0.52     $0.08
  Second Quarter                                                  0.59      0.23
  Third Quarter                                                   0.34      0.17
  Fourth Quarter                                                 $0.63     $0.13

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

     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 A and B Series  convertible  preferred
stocks.  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.  In
1999,  the  Company  paid  dividends  of  $90,700  on the  Series A  convertible
preferred stock by issuing 326,022 shares of Common Stock.

     The Company has Loan Agreements ("the  Agreements") with banks that require
the  Company to meet  certain  covenants  including  restrictions  on payment of
dividends.  The Company  cannot pay any dividends on the  Company's  stock other
than dividends  payable in the Company's stock and other than dividends  payable
on the Company's series A and B convertible preferred stock purchased by OSE.


                                       12
<PAGE>

Item 6. Selected Financial Data


<TABLE>
<CAPTION>
                                                                                           Year Ended December 31, (1)
                                                                             1996        1997        1998        1999        2000
                                                                           --------    --------    --------    --------    --------
<S>                                                                        <C>         <C>         <C>         <C>         <C>
(In thousands, except per share data)

  Statement of Operations Data:
   Revenues                                                                $ 36,402    $ 19,744    $ 23,281    $ 17,441    $ 24,167
   Cost of revenue                                                           28,840      24,089      29,114      23,500      23,117
                                                                           --------    --------    --------    --------    --------
  Gross profit (loss)                                                         7,562      (4,345)     (5,833)     (6,059)      1,050
                                                                           --------    --------    --------    --------    --------
  Operating expenses:
    Selling, general and administrative                                       3,488       5,167       4,068       3,651       7,215
    Research and development                                                  1,053       1,276       1,101         727       1,308
    Provision for impairment of assets                                         --         3,000      18,200        --         1,389
                                                                           --------    --------    --------    --------    --------
      Total operating expenses                                                4,541       9,443      23,369       4,378       9,912
                                                                           --------    --------    --------    --------    --------
  Operating income (loss)                                                     3,021     (13,788)    (29,202)    (10,437)     (8,862)
  Interest and other income                                                   1,210         971       1,209          72         159
  Interest expense                                                           (1,384)     (2,185)     (1,783)     (1,555)     (1,836)
                                                                           --------    --------    --------    --------    --------
  Income (loss) before income taxes and
    extraordinary gains                                                       2,847     (15,002)    (29,776)    (11,920)    (10,539)

  Provision for income taxes                                                   (530)       --          --          --          --
                                                                           --------    --------    --------    --------    --------
  Income (loss) before extraordinary gains                                    2,317     (15,002)    (29,776)    (11,920)    (10,539)
  Extraordinary gains                                                          --          --          --         2,047        --
                                                                           --------    --------    --------    --------    --------
  Net income (loss)                                                           2,317     (15,002)    (29,776)     (9,873)    (10,539)
  Preferred stock dividend                                                     --          --          --          (308)       (413)
  Deemed dividends on preferred stock                                          --          --          --        (6,800)       --
                                                                           --------    --------    --------    --------    --------
  Net income (loss) applicable to common
    stockholders                                                           $  2,317    ($15,002)   ($29,776)   ($16,981)   ($10,952)
                                                                           ========    ========    ========    ========    ========
  Net income (loss) per share (1):
    Basic                                                                  $   0.20    ($  1.08)   ($  2.12)   ($  0.68)   ($  0.20)
    Diluted                                                                $   0.16    ($  1.08)   ($  2.12)   ($  0.68)   ($  0.20)
  Number of shares used to compute per share data (1):
    Basic                                                                    11,730      13,898      14,046      24,957      55,676
    Diluted                                                                  14,157      13,898      14,046      24,957      55,676

<CAPTION>
                                                                             1996        1997        1998        1999        2000
                                                                           --------    --------    --------    --------    --------
<S>                                                                        <C>         <C>         <C>         <C>         <C>
  Balance Sheet Data:
    Working capital                                                        $ 15,614    ($ 5,877)   ($16,085)   ($16,687)   ($17,959)
    Total assets                                                             69,639      55,482      18,728      51,648      40,677
    Long-term obligations / deferred
      gains                                                                  16,926      14,249       1,249       1,111         973
    Mandatorily redeemable convertible
      preferred stock                                                          --          --          --         5,100      11,100
    Total stockholders' deficit                                            $ 40,761    $ 26,238    ($ 3,207)   ($ 6,723)   ($17,124)
</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.


                                       13
<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
resultant  underabsorption of fixed costs resulted in operating losses that have
continued  into  2000.  As  a  result  of  these  circumstances,  the  Company's
independent  accountants'  opinion on the Company's  December 31, 2000 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.

     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
reported consolidated results with OSEI since the acquisition date.

     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.

     The Company's  business is substantially  affected by market  conditions in
the semiconductor industry,  which is highly cyclical and, at various times, has
been subject to  significant  economic  downturns and  characterized  by reduced
product demand,  rapid erosion of average  selling prices and excess  production
capacity. In addition,  rapid technological change, evolving industry standards,
intense competition and fluctuations in end-user demand characterize the markets
for integrated  circuits.  Since the Company's business is entirely dependent on
the requirements of semiconductor companies for independent packaging foundries,
any future downturn in the semiconductor industry is expected to have an adverse
effect on the


                                       14
<PAGE>

Company's business, financial condition and results of operations.  Furthermore,
since the  Company's  expense  levels  are based in part on  anticipated  future
revenue levels, if revenue were to fall below anticipated  levels, the Company's
operating results would be materially adversely affected.

     In recent  years,  the  Company  has  experienced  a decline in the average
selling prices for its services and expects that average  selling prices for its
services  will  decline in the future,  principally  due to intense  competitive
conditions.  A decline in average selling prices of the Company's  services,  if
not  offset  by  reductions  in the cost of  performing  those  services,  would
decrease the Company's  gross margins and  materially  and adversely  affect the
Company's business,  financial condition and results of operations. There can be
no assurance that the Company will be able to reduce its cost per unit.

     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 Republic of China are  continuously  engaged in  political  disputes and
both countries have recently conducted military exercises in or near the other's
territorial  waters and airspace.  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  operations,  revenues,  operating results,  and
stock price.

     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.

Results of Operations For The Years Ended December 31, 1998, 1999 and 2000

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

                                         1998       1999       2000
                                        ------     ------     ------
Revenues                                 100.0%     100.0%     100.0%
Cost of revenues                         125.0      134.7       95.7
                                        ------     ------     ------
Gross profit (loss)                      (25.0)     (34.7)       4.3
                                        ------     ------     ------
Operating expenses:
  Selling, general and administrative     17.5       20.9       29.9
  Research and development                 4.7        4.2        5.4
  Provision for impairment of assets      78.2       --          5.7
                                        ------     ------     ------
    Total operating expenses             100.4       25.1       41.0
                                        ------     ------     ------
Operating loss                          (125.4)     (59.8)     (36.7)
Interest and other income                  5.2        0.4        0.7
Interest expense                          (7.7)      (8.9)      (7.6)
                                        ------     ------     ------
Loss before extraordinary
  gain and preferred stock dividends    (127.9)     (68.3)     (43.6)
Extraordinary gain                        --         11.7       --
                                        ------     ------     ------
Net loss before preferred stock
  dividends                             (127.9)%    (56.6)%    (43.6)%
                                        ======     ======     ======


                                       15
<PAGE>

Revenues

     The Company recognizes revenues upon shipment of products to its customers.
Revenues  increased  38.6% to $24.2 million in 2000, from $17.4 million in 1999.
The revenues in 2000 include $7.6 million  attributable to the new  distribution
segment  revenues  resulting from the  acquisition of OSEI.  Revenues  decreased
25.1% to $17.4  million in 1999,  from $23.3  million in 1998.  The  increase in
revenues in 2000 was  primarily  due to the  inclusion  of the new  distribution
segment  revenues of OSEI for the entire year.  The decrease in revenues in 1999
was primarily due to decreased  sales orders and a reduction in average  selling
prices due to changes in product mix and competitive pricing issues.

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

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  revenue.  Gross  profit  of $1.0  million  in 2000 was a $7.1
million  improvement  over the ($6.1)  million  gross  loss in 1999.  Gross loss
increased to $(6.1)  million in 1999 from ($5.8)  million in 1998.  Gross profit
(loss) as a  percentage  of  revenues  was 4.3% in 2000,  (34.7%)  in 1999,  and
(25.0%)  in 1998.  The  distribution  segment  recorded  a gross  profit of $7.6
million in 2000 and $1.2 million in 1999.  Excluding the  distribution  segment,
the gross loss of ($6.6) million in 2000 was a $0.7 million improvement over the
1999 gross loss of ($7.3) million, and 1999 was a $1.5 million increase over the
1998 gross loss. The decrease in gross loss for 2000 was due to the reduction in
employee work force as a result of the October company wide reorganization.  The
increase  in gross  loss in 1999 was  primarily  the result of  decreased  sales
orders and lower average  selling  prices,  caused by changes in product mix and
industry  competition  which  offset  the  reduction  in  material,  labor,  and
depreciation expenses.

     Depreciation for certain production  machinery and equipment acquired prior
to  1997  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. Based upon reduced utilization of machinery
and equipment in relation to plan, the estimate for total throughput was reduced
in late 1996  causing the  depreciation  rate per unit to increase in late 1996.
Such higher  depreciation  rate continued into 1997 and 1998. In all cases,  the
assets will be fully  depreciated  by the end of their  estimated six year life.
Compared  with  straight  line  depreciation,  the  units of  production  method
generally  results in lower  depreciation  expense  during the early life of the
equipment and relatively  higher  depreciation  expense once the equipment is in
full production.  All machinery and equipment acquired after 1996 is depreciated
using the straight line depreciation method.

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 $7.2 million in 2000,  $3.7
million  in  1999  and  $4.1  million  in  1998.   The   selling,   general  and
administrative expenses in 2000 and 1999 includes $4.1


                                       16
<PAGE>

million and $0.5 million,  respectively,  attributable to OSEI.  Excluding OSEI,
selling,  general and administrative  expenses decreased by $0.6 million in 2000
as compared to 1999 due to reduced spending.  The decrease in 1999,  compared to
1998, was due primarily to reduced spending in sales and administration.

     As a percentage of revenues,  selling,  general and administrative expenses
increased to 29.9% in 2000  compared to 20.9% in 1999 and to 17.5% in 1998.  The
fluctuation in percentages  reflects the changes  resulting from the acquisition
of OSEI.

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 2000,  $0.7 million in 1999 and $1.1
million in 1998.

     As a percentage of revenues, research and development expenses were 5.4% in
2000,  4.2% in  1999,  and 4.7% in  1998.  The  changes  in such  expenses  as a
percentage of revenues reflected changes in absolute spending and revenue.

Impairment of Assets

     In 1998 and 2000, the Company recorded charges to operations related to the
impairment  of its  manufacturing  equipment of $18.2  million and $1.4 million,
respectively.   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 the estimation that the
carrying value of the manufacturing equipment will not be fully recovered.

Interest and Other Income

     Interest  income  in 2000,  1999,  and 1998,  was  $147,000,  $58,000,  and
$83,000,  respectively.  The  increase  in 2000  were due to  higher  investment
balances  as a  result  of the  increase  in the  activity  of the  distribution
segment.  The reduction in 1999 as compared to 1998 was due to lower  investment
balances,   which   resulted  from  the  losses  from   operations  and  capital
expenditures. In 1998, other income included a gain of $700,000 from the sale of
the land and building not  occupied by the Company.  In 1998,  other income also
included  $124,000,  which was earned from development work with a semiconductor
industry  consortium and approximately  $158,000 from non-recurring  engineering
services.

Interest Expense

     Interest expense  consists  primarily of interest payable on bank debt, and
capital leases and term loans secured by equipment.  Interest  expense for 2000,
1999, and 1998 was $1.8 million, $1.6 million, and $1.8 million, respectively.

Provision for Income Taxes

     In 2000,  1999,  and 1998,  the Company did not  recognize any tax benefits
from net  operating  loss  carryforwards.  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.


                                       17
<PAGE>

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.

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 service 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
                                    ------------     ------------      ---------
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)

Recent Accounting Pronouncements

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial Accounting  Standards No. 133, as amended,  "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 established a new model
for accounting for derivative and hedging  activities.  The Company has reviewed
the  impact  of the  implementation  of SFAS 133 on the  consolidated  financial
statements of the Company and determined that the impact was not material.


                                       18
<PAGE>

Liquidity and Capital Resources

     During 2000,  the Company's  net cash used in operations  was $6.6 million.
Net cash  used in  operations  was  comprised  primarily  of a net loss of $10.5
million and a net decrease in working capital of $1.8 million  partially  offset
by $4.4  million and $1.4  million of  non-cash  charges  for  depreciation  and
amortization  and writedown of impaired  assets,  respectively.  The decrease in
working capital is primarily due to the acquisition of OSEI. The net decrease in
working  capital items  reflected a $7.2 million  decrease in accounts  payable,
which was partially offset by a $5.4 million decrease in accounts receivable. As
of December  31,  2000,  the Company had a cash  balance of $3.3  million and is
operating under bank lines obtained in July and September 1999.

     In  2000,  $2.6  million  was  used by  investing  activities  for  capital
expenditures  which were  incurred  primarily  for the  purchase  of  production
equipment.  Most of the Company's  production  equipment has  historically  been
funded  either  through  capital  leases or term  loans  secured  by  production
equipment and future  expenditure  is expected to be funded out of internal cash
flow.

     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 that 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
results for the first  quarter of 1998 include 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 will be amortized as a reduction of lease expense over
the  initial  ten year  term of the  lease  for the  building  that the  Company
occupies.

     In June 1998, the Company entered in a capital lease for approximately $3.1
million of production  equipment.  In  conjunction  with the lease,  the Company
issued  warrants to purchase  171,428  shares of common stock at $1.31 per share
and which are exercisable for seven years.  The warrants were valued at $132,000
using a Black-Scholes  valuation model.  These warrants were repriced in 1999 to
an exercise price of $0.1236 per share as part of a debt restructure. This lease
was paid in full in September 1999.

     In 2000, $7.1 million was provided in financing  activities.  This resulted
primarily  from net proceeds  from  issuance of preferred  stock to OSE for $6.0
million,  proceeds from borrowings of $1.0 million, and sale of common stock for
$0.1 million to employees.

     At the end of the  second  quarter  of  1998,  the  Company  ceased  making
scheduled  repayments of its debt balances outstanding relating to its Bank Term
Note Payable,  Equipment Notes Payable and Line of Credit as well as its capital
leases.  Certain of these debt  facilities  required  that the Company  maintain
certain financial covenants.  At July 5, 1998, the Company was out of compliance
with certain of these covenants.  As a result of the covenant  noncompliance and
failure to make scheduled repayments, the entire balance due as of July 5, 1998,
$12.0  million,  was classified as a current  liability.  At April 29, 1999, the
Company restructured this debt and was in compliance with the covenants.

    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.


                                       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.

     The Company had a $7 million bank line of credit that was guaranteed by OSE
and was  available  to finance  operations  and working  capital  needs  through
February 15, 2001.  Borrowings  under the line of credit accrue  interest at the
bank's prime rate (8.50% and 9.50% at December 31, 1999 and 2000,  respectively)
less 0.25%. In 1999, the Company used the proceeds of this line to terminate and
completely pay off an existing restructured $7 million line of credit.

     The  Company  also  had a line of  credit  agreement  with two  banks  that
provides  through February 15, 2001, for borrowing up to a total of $11 million.
Borrowings  under the line of credit  accrue  interest  at the bank  prime  rate
(8.50% and 9.50% at December 31, 1999 and 2000, respectively) plus 0.75% and are
collateralized by the assets of the Company. This agreement requires the Company
to  maintain  certain  financial  covenants  and  restricts  the payment of cash
dividends.  At December 31, 2000, the Company  borrowed the entire amount of the
$11 million credit facility.

     On September  29, 1999,  the Company paid off all the secured  creditors of
the debt  restructured  on April  29,  1999  using the  aforementioned  lines of
credit.

    On February  15,  2001,  the Company  entered into an amended line of credit
agreement  with two banks that  provides  for  advances  up to the lesser of $18
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.  This line of credit  expires on August 15,
2001.  Borrowings  under this line of credit accrue  interest at the banks prime
rate plus  0.50% and are  collateralized  by the assets of the  Company  and are
guaranteed by OSE.

     The Company believes that existing cash balances  together with the renewal
of existing finance  facilities will be sufficient to meet its projected working
capital and other cash requirements at least through the fourth quarter of 2001.
The Company  believes  that its existing  line of credit of $18.0  million which
expires on August 15, 2001 will be extended  because they are  guaranteed by the
Company's principal stockholder, OSE. There can be no assurances,  however, that
the bank lines will be renewed or that working  capital  requirements,  or other
events will not cause the Company to seek more capital,  or capital  sooner than
currently  expected.  There  can be no  assurance  that such  continuing  and or
additional  financing  will  available  when  needed or, if  available,  will be
available on satisfactory terms. As a result, this could have a material adverse
effect on the financial position and results of operations of the 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


                                       20
<PAGE>

unfavorable  changes in any of the preceding  factors would adversely affect the
Company's business, financial condition and results of operations.

Item 7a. Quantitative and Qualitative Disclosures about Market Risk

     The Company has various debt instruments  outstanding that mature in August
2001.  Certain  of these  instruments  have  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.


                                       21
<PAGE>

Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements:

                                                                          Page

Report of Independent Certified Public Accountants ......................  23

Consolidated Balance Sheets as of December 31, 1999 and 2000 ............  25

Consolidated Statements of Operations for the Years Ended
  December 31, 1998, 1999 and 2000 ......................................  26

Consolidated Statements of Stockholders' Deficit for the Years Ended
  December 31, 1998, 1999 and 2000 ......................................  27

Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1998, 1999 and 2000 ......................................  28

Notes to Consolidated Financial Statements ..............................  29

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.


                                       22
<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To The Board of Directors and Stockholders of
Integrated Packaging Assembly Corporation:

     We have audited the accompanying  consolidated  balance sheet of Integrated
Packaging  Assembly  Corporation (a Delaware  corporation)  and subsidiary as of
December  31,  2000,  and the related  consolidated  statements  of  operations,
stockholders'  deficit,  and cash flows for the year then ended. 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 in  accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  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 Integrated
Packaging  Assembly  Corporation and subsidiary as of December 31, 2000, and the
consolidated  results of their operations and their  consolidated cash flows for
the year then ended 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
$10,539,000  during the year ended December 31, 2000,  and, as of that date, the
Company's current liabilities exceeded its current assets by $17,959,000 and its
total liabilities exceeded its total assets by $6,024,000.  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

Grant Thornton LLP
San Jose, California
March 16, 2001


                                       23
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS


To The Board of Directors and Stockholders of
Integrated Packaging Assembly Corporation:

     In our opinion, the accompanying consolidated balance sheet and the related
consolidated  statements of  operations,  of  stockholders'  deficit and of cash
flows  present  fairly,  in all material  respects,  the  financial  position of
Integrated  Packaging  Assembly  Corporation  and its subsidiary at December 31,
1999,  and the results of their  operations and their cash flows for each of the
two years in the period 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 audits.  We conducted  our audits 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  audits  provide  a
reasonable basis for our opinion. We have not audited the consolidated financial
statements  of  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.

     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


                                       24
<PAGE>

                    Integrated Packaging Assembly Corporation
                           Consolidated Balance Sheets
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                December 31,
                                                                           -----------------------
                                                                             1999           2000
                                                                           --------       --------
<S>                                                                        <C>            <C>
Assets
  Current assets:
    Cash and cash equivalents                                              $  5,371       $  3,300
    Accounts receivable, net of allowance for
      doubtful accounts of $272 and $299, respectively                       28,295         22,867
    Inventory                                                                 1,204            839
    Prepaid expenses and other current assets                                   603            763
                                                                           --------       --------
    Total current assets                                                     35,473         27,769
  Property and equipment, net                                                10,498          7,969
  Intangible assets, net of accumulated amortization of $118 and
   $849, respectively                                                         5,659          4,928
  Other assets                                                                   18             11
                                                                           --------       --------
    Total assets                                                           $ 51,648       $ 40,677
                                                                           ========       ========

Liabilities, Mandatorily Redeemable Convertible Preferred Stock
  and Stockholders' Deficit
  Current liabilities:
    Bank debt                                                              $ 17,000       $ 18,000
    Accounts payable                                                          2,290            667
    Accounts payable - related party                                         29,801         24,189
    Accrued expenses and other liabilities                                    3,069          2,872
                                                                           --------       --------
      Total current liabilities                                              52,160         45,728
  Deferred gain on sale of facilities                                         1,111            973
                                                                           --------       --------
      Total liabilities                                                      53,271         46,701
                                                                           --------       --------
  Mandatorily redeemable convertible preferred stock                          5,100         11,100
                                                                           --------       --------
  Commitments and contingencies (note 5)
  Stockholders'  deficit
    Common stock, $.001 par value;
      200,000,000 shares authorized; 54,414,601 (1999)
      and 56,373,299 (2000) shares issued and outstanding                        54             56
    Additional paid-in capital                                               54,333         54,882
    Accumulated deficit                                                     (61,110)       (72,062)
                                                                           --------       --------
      Total stockholders' deficit                                            (6,723)       (17,124)
                                                                           --------       --------
      Total liabilities, mandatorily redeemable convertible preferred
         stock and stockholders' deficit                                   $ 51,648       $ 40,677
                                                                           ========       ========
</TABLE>

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


                                       25
<PAGE>

                    Integrated Packaging Assembly Corporation
                      Consolidated Statements of Operations
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                      --------------------------------------
                                                        1998           1999           2000
                                                      --------       --------       --------
<S>                                                   <C>            <C>            <C>
 Revenues                                             $ 23,281       $ 17,441       $ 24,167
 Cost of revenues                                       29,114         23,500         23,117
                                                      --------       --------       --------
Gross profit (loss)                                     (5,833)        (6,059)         1,050
                                                      --------       --------       --------
Operating expenses:
  Selling, general & administrative                      4,068          3,651          7,215
  Research & development                                 1,101            727          1,308
  Provision for impairment of assets                    18,200           --            1,389
                                                      --------       --------       --------
    Total operating expenses                            23,369          4,378          9,912
                                                      --------       --------       --------
Operating loss                                         (29,202)       (10,437)        (8,862)
Interest and other income                                1,209             72            159
Interest expense                                        (1,783)        (1,555)        (1,836)
                                                      --------       --------       --------
Loss before extraordinary
  gains and preferred dividends                        (29,776)       (11,920)       (10,539)
Extraordinary gains                                       --            2,047           --
                                                      --------       --------       --------
Net loss                                               (29,776)        (9,873)       (10,539)
Preferred stock dividend                                  --             (308)          (413)
Deemed dividend on preferred stock                        --           (6,800)          --
                                                      --------       --------       --------
Net loss applicable to
  common stockholders                                 ($29,776)      ($16,981)      ($10,952)
                                                      ========       ========       ========

Per share data:
  Net loss applicable to common stockholders
    before extraordinary gains per share -
    Basic and diluted                                 ($  2.12)      ($  0.76)      ($  0.20)
  Extraordinary gains per share -
    Basic and diluted                                     --             0.08           --
                                                      --------       --------       --------
  Net loss applicable to common stockholders
  per share -
    Basic and diluted                                 ($  2.12)      ($  0.68)      ($  0.20)
                                                      ========       ========       ========

Number of shares used to compute per share data:
  Basic and diluted                                     14,046         24,957         55,676
                                                      ========       ========       ========
</TABLE>

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


                                       26
<PAGE>

                    Integrated Packaging Assembly Corporation
                Consolidated Statements of Stockholders' Deficit
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                           Additional
                                                                          Common Stock       Paid-in       Accumulated
                                                                       Shares      Amount    Capital        Deficit         Totals
                                                                      -------       ---      --------       --------       --------
<S>                 <C> <C>                                            <C>          <C>      <C>            <C>            <C>
Balance at December 31, 1997                                           13,981       $14      $ 40,276       ($14,052)      $ 26,238

  Common stock issued under stock plans                                   265        --           152           --              152
  Common stock repurchased under stock plans                               (2)       --            (1)          --               (1)
  Issuance of warrants                                                   --          --           132           --              132
  Amortization of deferred compensation                                  --          --            48           --               48
  Net loss                                                               --          --          --          (29,776)       (29,776)
                                                                      -------       ---      --------       --------       --------
Balance at December 31, 1998                                           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)
                                                                      =======       ===      ========       ========       ========
</TABLE>

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


                                       27
<PAGE>

                    Integrated Packaging Assembly Corporation
                      Consolidated Statements of Cash Flows
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                                      Year Ended December 31,
                                                                                             --------------------------------------
                                                                                               1998           1999           2000
                                                                                             --------       --------       --------
<S>                                                                                          <C>            <C>            <C>
  Net loss                                                                                   ($29,776)      ($ 9,873)      ($10,539)
    Depreciation and amortization                                                               6,957          4,458          4,442
    Impairment of equipment                                                                    18,200           --            1,389
    Gain on sale of facilities, net                                                              (827)          (138)          (138)
    Loss on disposal of equipment                                                                --               96             12
    Extraordinary gains on debt restructure                                                      --           (2,047)          --
    Changes in assets and liabilities (in 1999, net of
      effects of acquisition):
      Accounts receivable                                                                         990         (4,018)         5,428
      Inventory                                                                                   633            500            365
      Prepaid expenses and other assets                                                          (233)           196           (153)
      Accounts payable and accounts payable- related party                                     (3,323)         6,097         (7,235)
      Accrued expenses and other liabilities                                                      633         (1,012)          (191)
                                                                                             --------       --------       --------
  Net cash used in operating activities                                                        (6,746)        (5,741)        (6,620)
                                                                                             --------       --------       --------
Cash flows provided by (used in) investing activities:
  Acquisition of property and equipment                                                        (1,507)          (608)        (2,583)
  Cash acquired                                                                                  --            1,346             --
  Proceeds from sale of facilities, net                                                         7,312           --               --
                                                                                             --------       --------       --------
    Net cash provided by (used in) investing activities                                         5,805            738         (2,583)
                                                                                             --------       --------       --------
Cash flows provided by (used in) financing activities:
  Payments under capital lease obligations                                                       (990)          (694)            --
  Proceeds from note payable                                                                    3,490          4,890             --
  Principal payments on note payable                                                           (4,639)        (9,629)            --
  Proceed from bank credit lines                                                                 --           27,617          1,000
  Payments under bank credit lines                                                               --          (18,328)            --
  Proceeds from issuance of mandatorily redeemable
    preferred stock, net of issuance costs                                                       --            6,499          6,000
  Proceeds from issuance of common stock                                                          152             19            132
                                                                                             --------       --------       --------
    Net cash provided by (used in) financing activities                                        (1,987)        10,374          7,132
                                                                                             --------       --------       --------
Net increase (decrease) in cash and cash equivalents                                           (2,928)         5,371         (2,071)
Cash and cash equivalents at beginning of year                                                  2,928           --            5,371
                                                                                             --------       --------       --------
Cash and cash equivalents at end of year                                                          $--       $  5,371       $  3,300
                                                                                             ========       ========       ========
Supplemental disclosure of cash flow information
  Cash paid for interest                                                                     $  1,124       $  2,070       $  1,836
Supplemental disclosure of noncash financing activities
  Acquisition of equipment under capital leases                                              $  3,139       $   --              $--
  Issuance and repricing of warrants                                                         $    132       $    790            $--
  Common stock issued for preferred stock dividend                                                $--       $     91           $419
  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


                                       28
<PAGE>

                    INTEGRATED PACKAGING ASSEMBLY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

     Integrated  Packaging Assembly Corporation (the "Company") was incorporated
in California on April 28, 1992 and reincorporated in Delaware on June 19, 1997.
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") 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 the  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 capacity and resultant  underabsorption of fixed costs
resulted in operating  losses which have continued into 2000. As a result of the
operating  losses and cost of capital  additions,  the Company  believes that it
will fund its projected working capital and other cash requirements through 2001
out of operating  activities and renewal of existing  financing  facilities as a
result of expected  ongoing  guarantees from OSE. There can be no assurance that
the Company can obtain additional financing when needed.

     At December 31, 2000, the Company has two lines of credit which provide for
borrowings  up  to  a  total  of  $18.0  million,  of  which  $18.0  million  is
outstanding. Both of the lines of credit expire on February 15, 2001.

     On February  15, 2001,  the Company  entered into an amended line of credit
agreement  with two banks  that  provide  for  advances  up to the lesser of $18
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.  This line of credit  expires on August 15,
2001.  Borrowings  under this line of credit accrue interest at the banks' prime
rate  plus  .50%,  are  collateralized  by the  assets of the  Company,  and are
guaranteed by OSE.

     The  Company  will  seek to renew its bank  lines of  credit.  The  Company
believes that it will be successful in renewing this line due to the  continuing
guarantee of OSE, its principal stockholder.  There can be no assurance that the
lines will be renewed, that OSE will continue to guarantee certain borrowings or
other  financing  will be  available  when  needed.  If  adequate  funds are not
available,  the  Company  may be required  to  substantially  curtail,  cease or
liquidate its operations and reorganize its indebtedness.

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


                                       29
<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 Republic of China are  continuously  engaged in  political  disputes and
both countries have recently conducted military exercises in or near the other's
territorial  waters and airspace.  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 operations, revenues and operating results.

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  purchased  with an
initial maturity of 90 days or less to be cash equivalents, and investments with
original maturities of greater than 90 days to be short term investments.

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 lines of credit are also  considered to  approximate  fair
values as the interest  rates on the  borrowings  adjust to the banks  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 the  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.

     The Company's buildings were being depreciated over 30 years, with building
improvements  depreciated  over 5 to 15 years.  In January 1998, the real estate
parcel and buildings were sold, and the Company entered into a lease to continue
to occupy such building. (See Note 5).


                                       30
<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

     Revenue is generally  recognized  upon shipment.  A provision for estimated
future  returns  and  sales  discounts  is  recorded  at  the  time  revenue  is
recognized.  As a result  of the  acquisition  of  OSEI,  the  Company  became a
distributor for 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.  From the date of acquisition  of OSEI through  December 31, 2000 the net
revenue recorded was $8.8 million, on gross billings of $183.2 million.

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.


                                       31
<PAGE>

Net loss per share

     Basic 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. In computing diluted EPS, the average stock price
for the  period  is used in  determining  the  number of  shares  assumed  to be
purchased from the exercise of stock options and warrants.

     Antidilutive securities consist of options and warrants not included in the
computation  of diluted  earnings per share  because the Company  incurred a net
loss  during the period  resulting  in all  options,  warrants  and  convertible
preferred stock outstanding being antidilutive.

<TABLE>
<CAPTION>
                                                                      Year Ended December 31, 2000
                                                             ---------------------------------------------
                                                                1998             1999              2000
                                                             ----------       ----------        ----------
<S>                                                          <C>             <C>               <C>
Antidilutive Securities:
Convertible preferred stock                                        --              3,000             6,023
                                                             ==========       ==========        ==========
Options and warrants outstanding at end of
  period                                                          2,501           11,478            12,739
                                                             ==========       ==========        ==========
Weighted-average exercise price of options and warrants      $     1.43       $     0.50        $     0.48
                                                             ==========       ==========        ==========
</TABLE>

Use of estimates

     The preparation of these financial  statements in conformity with generally
accepted  accounting  principles  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

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards No. 133 "Accounting for Derivative  Instruments
and  Hedging  Activities"  (SFAS  133).  SFAS 133  established  a new  model for
accounting for derivative  and hedging  activities.  In July 1999, the Financial
Accounting  Standards  Board  issued  SFAS No. 137  "Accounting  for  Derivative
Instruments  and Hedging  Activities  - Deferral of the  Effective  Date of FASB
Statement No. 133" (SFAS 137).  SFAS 137 deferred the effective date of SFAS 133
until the first fiscal quarter  beginning  after June 15, 2000;  January 1, 2001
for  calendar  year  companies.  The  Company  has  reviewed  the  impact of the
implementation  of SFAS  133 on the  consolidated  financial  statements  of the
Company and has determined that the impact was not material.


                                       32
<PAGE>


NOTE 2 - BALANCE SHEET COMPONENTS:
         (In thousands)
                                                              December 31,
                                                        -----------------------
                                                            1999           2000
                                                        --------       --------
Inventory
  Raw materials                                         $  2,201       $  2,088
  Work in process                                            132            120
                                                        --------       --------
    Subtotal                                            $  2,333       $  2,208
   Allowance for obsolescence                             (1,129)        (1,369)
                                                        --------       --------
     Total                                              $  1,204       $    839
                                                        ========       ========

Property and equipment
  Buildings and improvements                            $    709       $    697
  Machinery and equipment                                 29,924         30,983
  Office and computer equipment                            1,032          1,135
  Furniture and fixtures                                     276            289
                                                        --------       --------
                                                          31,941         33,104
  Less: accumulated depreciation and amortization        (21,443)       (25,135)
                                                        --------       --------
                                                        $ 10,498       $  7,969
                                                        ========       ========

Accrued expenses and other liabilities
  Accrued payroll and related expenses                  $  1,190       $    753
  Other accrued liabilities                                1,879          2,119
                                                        --------       --------
                                                        $  3,069       $  2,872
                                                        ========       ========


NOTE 3 - EQUIPMENT IMPAIRMENT CHARGE:

     In 1998 and 2000,  the Company  recorded  charges of $18.2 million and $1.4
million, respectively,  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.


                                       33
<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 IPAC 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.

                                                     1998           1999
                                                   --------       --------

     Net revenues                                   $25,352        $19,630
     Net loss                                      ($30,104)      ($11,972)
     Net loss per share - basic and diluted          ($0.75)        ($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.


                                       34
<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  noncancelable  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.

     The Company acquired a 3,805 square foot leased facility as a result of the
OSEI  acquisition.  The lease was canceled in 2000 at no cost to the Company and
the OSEI operations occupy the space in the Company's facility.

     Rent expense was  $1,054,000,  $1,529,000 and $1,549,000 in 1998,  1999 and
2000, respectively.

     Net future  minimum lease  payments over the next five years and thereafter
under operating leases at December 31, 2000 are as follows (in thousands):

                                  Lease           Sublease        Net Future
                                  Payment         Income      Min. Lease Payment
                                  -------         -------     ------------------
Year ending December 31:
2001                               $1,166         $  653             $  513
2002                                1,265            704                561
2003                                1,196            704                492
2004                                1,316            757                559
2005                                1,316            758                558
Thereafter                          2,895          1,637              1,258
                                   ------         ------             ------
Total minimum payments             $9,154         $5,213             $3,941
                                   ======         ======             ======

NOTE 6 - BANK DEBT

Bank debt

     The Company entered into a Business Loan Agreement and Promissory Note (the
Agreement).  Under the  Agreement  the Company has borrowed $7.0 million and the
borrowings under the Agreement are  collateralized  by the assets of the Company
and are  guaranteed  by OSE and  repayable  on  February  15,  2001.  Under  the
Agreement,   the  Company  is  required  to  meet  certain  covenants  including
restrictions on changes in ownership and payment of dividends.  Borrowings under
the  Agreement  accrue  interest at the bank's prime rate (9.50% at December 31,
2000) less 0.25%. Interest is payable monthly.

     The Company entered into a loan and security  agreement with two banks that
provides  through  February 15, 2001 for borrowings up to a total of $11,000,000
(the  Facility).  Borrowings  under the Facility  accrue  interest at the bank's
prime rate (9.50% at December 31, 2000) plus 0.75%. Interest is payable monthly.


                                       35
<PAGE>

Borrowing is  collateralized  by the assets of the Company and is  guaranteed by
OSE. The Facility  requires  the Company to meet  certain  financial  covenants,
including  certain net income/loss  levels,  restrictions on the payment of cash
dividends and  restrictions  on a change in control of the Company.  The Company
did not meet the  financial  covenant  conditions  for 2000,  and the banks have
given the Company a wavier for this non-compliance through February 15, 2001. At
December 31, 2000, the Company had drawn down the entire $11 million.

     On February  15, 2001,  the Company  entered into an amended line of credit
agreement  with the two banks that provides for advances up to the lesser of $18
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. The Company  estimates,  that as of February
28, 2001, the amount of the over advance is approximately $6 million.  This line
of credit  expires on August 15, 2001, and replaces the Company's $7 million and
$11 million  facilities,  which expired on February 15, 2001.  Borrowings  under
this line of credit accrue  interest at the banks' prime rate plus 0.50% and are
collateralized by the assets of the Company and are guaranteed by OSE.

Equipment Notes Payable

     During 1998,  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 Facility was obtained,  it was used 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 10,000,000 shares of preferred stock authorized at December
31, 2000.

     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 any liquidation, dissolution, or winding up of the Company.

                                       36
<PAGE>

     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.

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 2,514,921  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, 1999 and
2000.

     In 1999, the Plan was amended to increase the amount of options that may be
granted by 17,485,079 to an aggregate of 20,000,000.  In addition, the number of
shares that may be granted to any employee in any one fiscal year was  increased
from  250,000  shares to  2,000,000  shares and the number of shares that may be
granted to an employee upon initial employment was increased from 250,000 shares
to 2,000,000 shares.

Director Stock Option Plan

     The Company has a Director  Stock  Option Plan (the  "Director  Plan") that
authorizes for issuance a total of 100,000 shares of Common Stock.  The Director
Plan  provides for the grant of NSOs to  non-employee  directors of the Company.
The Director Plan provides that each  non-employee  director who joins the Board
will  automatically  be granted an NSO to purchase 20,000 shares of Common Stock
on the date upon which such person first  becomes a  non-employee  director (the
"Initial Grant").  In addition,  each non-employee  director will  automatically
receive an NSO to purchase  5,000  shares of Common  Stock upon such  director's
annual re-election to the Board,  provided the director has been a member of the
Board for at least six months upon the date of such re-election (the "Subsequent
Grant"). The Initial Grant vests and becomes exercisable as to 25% of the shares
one year  after  the  date of  grant  and as to 1/48 of the  shares  each  month
thereafter, and each Subsequent Grant shall become exercisable as to 1/12 of the
shares each month  following the date of grant,  both subject to the  director's
continuous  service.  The exercise price of all stock options  granted under the
Director Plan is equal to the fair market value of the Company's Common Stock on
the date of grant.  Options  granted  under the Director Plan have a term of ten
years.  Unless  terminated  sooner,  the Director  Plan will  terminate in 2006.
Options for 20,000  shares were  granted in 1997 under the Director  Plan.  This
Director  Stock  Option Plan is no longer  being used as it was  replaced by the
1999 Director Stock Option Plan.


                                       37
<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 for 400,000 and 300,000  shares
were  granted in 1999 and 2000,  respectively.  At December  31, 2000 there were
3,300,000 options available for grant.

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. The NSOs may only be granted to non-executive  officer  employees.
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 for 463,000 shares were granted in 1998 under this plan and
27,000 were granted in 1999.

Repricing of Employee Stock Options

     As approved by the Board of Directors on January 27, 1998 and  effective as
of January 30, 1998,  the Company  allowed all employee  holders of  outstanding
stock  options to exchange  higher  priced  options for new stock  options at an
exercise price of $1.06 per share, the fair market value of the Company's Common
Stock at the close of trading on January 30, 1998.  Those options  vested at the
time of the exchange would vest on January 31, 1999, and those options  unvested
at the time of the exchange  would vest on the  original  option  schedule,  but
would not be exercisable  until January 31, 1999.  Options for 1,035,124  shares
were exchanged.

Restricted Common Stock

     The Company sold  398,333  shares of  restricted  Common Stock to employees
upon exercise of stock  options then  outstanding.  Each unvested  share of this
restricted  Common  Stock  is  subject  to  repurchase  by  the  Company  at the
employees'  exercise price if an employee terminates before such shares vest. In
1997,  67,082 vested shares were converted into  unrestricted  shares and 55,314
shares were repurchased by the Company from terminated employees.  The remaining
31,875 restricted shares outstanding were fully vested as of December 31, 1998.

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 400,000 shares of Common Stock has
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


                                       38
<PAGE>

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  1998,  1999,  and 2000,
respectively,  155,051,  185,292 and 841,579 shares,  respectively,  were issued
under the Plan.

 On September 3, 1999,  the Purchase  Plan was amended to increase the number of
shares  available for issuance by 1,600,000  shares to an aggregate of 2,000,000
shares.

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, 1998, 1999 and 2000.

<TABLE>
<CAPTION>
                                   1998                        1999                       2000
                         -----------------------      ---------------------      ----------------------
                                        Weighted                   Weighted                    Weighted
                                        Average                    Average                     Average
                           Shares        Price          Shares      Price          Shares       Price
                         ----------      -----        ---------     -----        ----------     -----
<S>                       <C>            <C>          <C>           <C>           <C>            <C>
Options outstanding
  at Jan. 1               1,599,154      $3.18        1,679,997     $1.00         9,146,842     $0.44
Options granted           1,498,124      $1.02        7,957,376     $0.36         2,500,000      0.32
Options canceled         (1,307,386)     $3.76         (485,948)    $1.06        (1,199,437)     0.37
Options exercised          (109,895)     $0.22           (4,583)    $0.22           (17,667)     0.24
                         ----------      -----        ---------     -----        ----------     -----
Options outstanding
  at Dec. 31              1,679,997      $1.00        9,146,842     $0.44        10,429,738     $0.42
                         ==========      =====        =========     =====        ==========     =====
Options exercisable
  at Dec. 31                592,322      $0.91          809,841     $0.93         3,418,076     $0.51
                         ==========      =====        =========     =====        ==========     =====
Available for grant
  at Dec. 31                792,647                  14,908,048                  13,607,485
                         ==========                  ==========                  ==========
</TABLE>

     Significant  option groups  outstanding at December 31, 2000,  after giving
effect to the repricing discussed  previously,  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
Options with exercise                                  Exercise                              Exercise           Life
prices ranging from:              Shares                  Price        Shares                   Price          (Years)
--------------------------    ------------------   -------------    ---------------    ---------------     ----------------
<S>      <C>                        <C>                   <C>             <C>                   <C>               <C>
 $0.10 - $0.23                      1,396,228             $0.20           528,135               $0.23             8
  0.24 -  0.31                      4,754,876              0.26         1,372,845                0.26             9
  0.41 -  0.59                      3,325,385              0.56           691,633                0.54             9
  0.63 -  2.19                        949,749              1.04           822,349                1.04             6
  2.20                                    500              2.20               500                2.20             5
  3.00                                  1,500              3.00             1,218                3.00             7
  3.06                                  1,000              3.06               896                3.06             7
 $9.50                                    500              9.50               500                9.50             5
                              ------------------   -------------    ---------------    ---------------     ----------------
Options outstanding
  at Dec. 31, 2000                 10,429,738             $0.42         3,418,076               $0.51             8
                              ==================   =============    ===============    ===============     ================

</TABLE>


                                       39
<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. No compensation cost has been recognized in the accompanying statement of
operations for the stock option plans,  except for $200,000 which was recognized
on stock  options  granted  in 1995,  and which was  amortized  over a four year
vesting period.

     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 1998, 1999 and
2000, respectively:  dividend yield of 0% in all three years; expected life of 4
years for each year;  expected  volatility of 65%, 310% and 705%;  and risk-free
interest  rates of 5.8%,  5.75% and 4.74%.  The  weighted-average  fair value of
those stock options  granted in 1998,  1999 and 2000 was $0.55,  $0.40 and $0.27
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 1998, 1999 and 2000, respectively: dividend yield of 0%; an
expected life of six months;  expected  volatility  of 65%,  310% and 705%;  and
risk-free  interest  rate of 5.3% in 1998,  4.8% in 1999 and 4.63% in 2000.  The
weighted-average  fair value of these purchase  rights granted in 1998, 1999 and
2000 was $0.64, $0.15 and $0.20, 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>

                                                                       1998             1999             2000
                                                                 ----------------- ---------------- ---------------
<S>                                                                     <C>              <C>             <C>
Net loss applicable to common shareholders
  as reported (in thousands)                                            ($29,776)        ($16,981)       ($10,952)
Net loss applicable to common shareholders, pro forma                   ($30,633)        ($17,881)       ($12,827)

Net loss applicable to common shareholders
  per share as reported
  Basic and diluted                                                       ($2.12)          ($0.68)         ($0.20)
Net loss applicable to common shareholders
  per share, pro forma
  Basic and diluted                                                       ($2.18)          ($0.72)         ($0.23)
</TABLE>


                                       40
<PAGE>


NOTE 9 - WARRANTS:

     In 1993, 1994, 1996 and 1998, 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.

     In 1995 and 1997, 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.

     The outstanding  warrants are exercisable at any time prior to 2001 (28,450
shares),  2002 (10,000 shares),  2003 (100,000  shares),  2004 (401,717 shares),
2005 (269,254 shares) and 2006 (1,500,000 shares). None of the warrants had been
exercised at December 31, 2000.

NOTE 10 - INCOME TAXES:

     In 1998,  1999 and 2000,  the Company  incurred  net  operating  losses and
recorded no provision for income taxes.

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

<TABLE>
<CAPTION>

                                                                 December 31,
                                                            1999             2000
                                                       ---------------- ----------------

<S>                                                             <C>               <C>
Federal and state credit carryforwards                          $2,653           $ 2,676
Federal and state net operating loss
  carryforwards                                                  9,011            21,930
Provision for impaired assets                                    7,462             8,021
Leases, treated as operating for tax                            (2,907)           (2,396)
Depreciation                                                    (4,585)           (3,994)
Reserves and accruals                                              910             1,506
Other                                                             (359)             (320)
                                                       ---------------  ---------------
Deferred tax assets                                             12,185            27,423
Less valuation allowance                                       (12,185)          (27,423)
                                                       ---------------  ---------------
  Net deferred tax asset
                                                                $  --             $  --
                                                       ================ ===============
</TABLE>


     The  deferred  tax  assets  valuation  at  December  31,  1999  and 2000 is
attributable to federal and state deferred tax assets.  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

                                       41
<PAGE>

absence of objective  evidence,  management  is unable to assert that it is more
likely than not that the Company  will  generate  sufficient  taxable  income to
realize the Company's net deferred tax asssets.

     At December 31, 2000,  the Company had federal and state net operating loss
and tax credit forwards  ("NOLs") of approximately  $60,000,000 and $27,000,000,
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 charge
was experienced as a result of the issue 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, 1999, two customers accounted for 32% and 18%, respectively.  At
December 31, 2000, three customers accounted for 21%, 20% and 13%, respectively.

Significant customers
                                             Year Ended December 31,
                                       ----------------------------------------
                                           1998         1999          2000
                                       ------------- ------------ -------------
Customers  comprising  10% or
more of the Company's  revenues
for the  periods indicated:
    A                                      39%          30%           32%
    B                                       9%          15%            5%
    C                                      11%           3%            2%

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 the North American
sales,  marketing and technical  support  organization for OSE.  Commissions are
earned from the sales for the  semiconductor  assembly  and test service of OSE.
The customers are mainly US headquartered  manufacturers  of high-tech  products
such as video components, chip sets, graphics chips and logic components.


                                       42
<PAGE>


<TABLE>
<CAPTION>

(in thousands):                        Manufacturing      Distribution     Eliminations       Total
                                     ------------------- --------------- -------------------------------
<S>                                        <C>              <C>              <C>           <C>
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>

     Prior to the acquisition of OSEI, the Company's only  operations  consisted
of the manufacturing segment.

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 two debt agreements 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  assembly and test
services  provided  to  customers  in  OSEI's   distribution  area  of  entities
headquartered  in North  America.  For the year ended  December 31,  2000,  OSEI
purchased  $151.3  million in product and services from OSE and  affiliates  and
sold them to its customers for $158.9  million.  From the date of acquisition of
OSEI


                                       43
<PAGE>

through  December 31, 1999, OSEI purchased $23.1 million in product and services
from OSE and its  affiliates  and sold them to its customers for $24.3  million.
Accordingly,  OSEI recorded revenue of $1.2 million and $7.6 million in 1999 and
2000, respectively.  Under the distribution agreement, OSEI is required to remit
amounts collected from customers, less its commission to OSE. As of December 31,
2000  accouints  receivable  includes  approximately  $20.4  million,  that when
collected,  will be remitted 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.  Pursuant
to the amended line of credit  agreement (Note 6), payment from customers are to
be remitted directly to the lender.

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,
2000                                 First           Second           Third          Fourth          Total
----------------------------       ----------      ----------      -----------     ----------     ------------
<S>                                <C>             <C>              <C>            <C>             <C>
Revenues                             $7,075          $7,003           $5,794         $4,295          $24,167
Gross profit (loss)                     468             821             (220)           (19)           1,050
Net loss applicable to              ($2,006)        ($2,014)         ($3,923)       ($3,009)        ($10,952)
common shareholders
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

YEAR ENDED
DECEMBER 31,
1999
----------------------------
Revenues                             $3,775          $3,653           $4,408         $5,605          $17,441
Gross loss                           (1,716)         (1,894)          (1,593)          (856)          (6,059)
Net loss to applicable              ($3,425)        ($8,914)         ($2,437)       ($2,205)        ($16,981)
common shareholders
Net loss per common share            ($0.24)         ($0.62)          ($0.10)        ($0.04)          ($0.68)
Stock price
  High                                $0.52           $0.59            $0.34          $0.63            $0.63
  Low                                 $0.08           $0.23            $0.17          $0.13            $0.08
  Quarter end close                   $0.30           $0.28            $0.25          $0.55            $0.55
</TABLE>


                                       44
<PAGE>

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

     The Company  incorporates  herein by reference the  information  concerning
changes in and  disagreements  with  accountants  or  accounting  and  financial
disclosure contained in the November 20, 2000 Form 8-K.


                                       45
<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

<TABLE>
<CAPTION>
     Exhibit
     Number             Description of Document
     -------------------------------------------------------------------------------------------------------------
<S>                     <C>
     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.
</TABLE>
                                       46
<PAGE>
<TABLE>
<S>                     <C>
     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
                          Corporation, dated May 1, 1999.
</TABLE>

                                       47
<PAGE>
<TABLE>
<S>                     <C>
     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 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.
     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.
     !!!!               Incorporated   by  reference  from  the   Registrant's
                          Current Report on Form 8-K, filed on January 30, 1997.
</TABLE>

                                       48
<PAGE>
<TABLE>
<S>                     <C>
     !!!!!              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
                          10K, 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
                          10Q for the quarter * ended April 2, 2000.
</TABLE>


     (b)  Reports on Form 8-K.

           Acquisition of OSEI, filed on November 15, 1999

           Amendment to acquisition of OSEI, filed on January 14, 2000

           Change in independent accountants filed on November 20, 2000

     (c)  Exhibits.

           See Item 14(a) hereof.



                                       49
<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 30, 2001.

                                    INTEGRATED PACKAGING ASSEMBLY CORPORATION

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

                                    By: /s/ VINCENT R. LEPORE
                                        ----------------------
                                            Vincent R. Lepore
                                            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 Vincent R.
Lepore, 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 30, 2001 by the following  persons on behalf of the  Registrant and in the
capacities indicated.


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

/s/ VINCENT R. LEPORE                       Chief Accounting Officer
    Vincent R. Lepore                       (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


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