<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                   FORM 20-F/A

(Mark One)

[ ]  Registration statement pursuant to Section 12(b) or 12(g) of the
     Securities Exchange Act of 1934

                                       or

[x]  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

     For the fiscal year ended December 31, 2003

                                       or

[ ]  Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

     Commission file number: 0-30910

                         O2 MICRO INTERNATIONAL LIMITED
             (Exact Name of Registrant as Specified in Its Charter)

                               The Cayman Islands

                (Jurisdiction of Incorporation or Organization)

                 Grand Pavilion Commercial Centre, West Bay Road
                         P.O. Box 32331 SMB, George Town
                          Grand Cayman, Cayman Islands
                    (Address of Principal Executive Offices)

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

                                      None
                                (Title of Class)

Securities registered or to be registered pursuant to Section 12(g) of the Act:

                                                  Name of Each Exchange On Which
            Title of Each Class                             Registered
            -------------------                   ------------------------------
Ordinary Shares, par value $0.001 per share           Nasdaq National Market
                                                   Cayman Islands Stock Exchange

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:

                                      None
                                (Title of Class)

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.

                           39,032,616 Ordinary Shares

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 which financial statement item the registrant has elected
to follow:

     Item 17 [ ]   Item 18 [x]

<PAGE>

                                EXPLANATORY NOTE

This Form 20-F/A amends and restates Items 8, 18, and 19 of the annual report on
Form 20-F for the year ended December 31, 2003 filed by O2 Micro International
Limited (the "Company") on June 14, 2004 (the "2003 Form 20-F") to make certain
corrections to disclosures set forth in Notes 2 and 12 to the Company's
Consolidated Financial Statements included in those items in the 2003 Form 20-F.

This Form 20-F/A consists of a cover page, this explanatory note, the
disclosures as required by Items 8, 18, and 19 of the 2003 Form 20-F, the
signature page and the required certifications of the principal executive
officer and the principal financial officer of O2 Micro International Limited.
While the disclosures required by Items 8, 18, and 19 of the Form 20-F have been
restated in full in this Form 20-F/A as required by Rule 12b-15 under the
Securities Exchange Act of 1934, no changes have been made to the disclosures
except to the Notes as described above.

Other than as set forth above, this Form 20-F/A does not, and does not purport
to, amend, update or restate the information in any other Item of the 2003 Form
20-F nor reflect any events that have occurred after the 2003 Form 20-F was
filed on June 14, 2004.

ITEM 8. FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

Consolidated Financial Statements

     Our  financial   statements  set  forth  in  the   accompanying   index  to
Consolidated  Financial Statements included in this Annual Report on Form 20-F/A
following Part IV beginning on page F-1 are hereby  incorporated  in this Annual
Report on Form 20-F/A. Our Consolidated  Financial  Statements are filed as part
of this Annual Report.

DIVIDEND POLICY

     We have never declared or paid any cash dividends on our ordinary shares or
other securities and do not anticipate  paying cash dividends in the foreseeable
future.

ITEM 18. FINANCIAL STATEMENTS

     The Company's  financial  statements set forth in the accompanying Index to
Consolidated  Financial Statements included in this annual report on Form 20-F/A
following Part IV beginning on page F-1 are hereby  incorporated  herein by this
reference.  Such  consolidated  financial  statements  are filed as part of this
annual report on Form 20-F/A.

ITEM 19. EXHIBITS

12.3    Certification of Chief Executive Officer of the Company, pursuant to
        Section 302 of the Sarbanes-Oxley Act, for this Form 20-F/A.

12.4    Certification of Chief Financial Officer of the Company, pursuant to
        Section 302 of the Sarbanes-Oxley Act, for this Form 20-F/A.

<PAGE>

13.1    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
        Section 906 of the Sarbanes-Oxley Act, for this Form 20-F/A

14.3    Consent of Deloitte & Touche, independent registered public accounting
        firm

14.4    Consent of Deloitte & Touche, independent registered public accounting
        firm

<PAGE>

                                   SIGNATURES

     Pursuant to the  requirements of Section 12 of the Securities  Exchange Act
of 1934, the registrant  hereby  certifies that it meets all of the requirements
for  filing  on Form  20-F  and  that it has  duly  caused  and  authorized  the
undersigned to sign this Form 20-F/A amendment to the annual report on Form 20-F
for the year ended December 31, 2003 on its behalf.

                                           O2 MICRO INTERNATIONAL LIMITED


Date: May 26, 2005                         By: /s/ STERLING DU
                                               ---------------------------------
                                           Name: Sterling Du
                                           Title:Chief Executive Officer

<PAGE>

                         O2 MICRO INTERNATIONAL LIMITED

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Independent Auditors' Report ................................................F-2
Consolidated Balance Sheets .................................................F-4
Consolidated Statements of Operations and Comprehensive Income ..............F-5
Consolidated Statements of Shareholders' Equity .............................F-7
Consolidated Statements of Cash Flows ...................................... F-8
Notes to Consolidated Financial Statements .................................F-10

<PAGE>

O//2//Micro International Limited and Subsidiaries

Consolidated Financial Statements as of
December 31, 2002 and 2003 and
Report of Independent Registered Public Accounting Firm

<PAGE>
[LETTERHEAD OF DELOITTE&TOUCHE CAYMAN ISLANDS]

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and the Shareholders
O//2//Micro International Limited

We have audited the accompanying consolidated balance sheets of O//2//Micro
International Limited and subsidiaries as of December 31, 2002 and 2003 and the
related consolidated statements of operations and comprehensive income,
shareholders' equity, and cash flows for each of the years ended December 31,
2002 and 2003 (expressed in United States dollars). These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. The financial statements of the Company for the year ended December 31,
2001 were audited by other auditors whose report expressed an unqualified
opinion on those statements.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of O//2//Micro
International Limited and subsidiaries as of December 31, 2002 and 2003 and the
results of their operations and their cash flows for each of the years ended
December 31, 2002 and 2003, in conformity with accounting principles generally
accepted in the United States of America.

As discussed in Note 2 "Stock-based Compensation" and Note 12, the 2002 and 2003
pro forma net income and pro forma earnings per share disclosures have been
restated.

/s/ Deloitte & Touche
January 30, 2004 (May 10, 2005 as to Note 2 "Stock-based Compensation" and Note
12)

                                       F-2

<PAGE>
[LETTERHEAD OF DELOITTE&TOUCHE TAIPEI, TAIWAN]

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and the Shareholders
O2Micro International Limited

We have audited the accompanying consolidated balance sheet of O//2//Micro
International Limited and subsidiaries as of December 31, 2001 and the related
consolidated statements of operations and comprehensive income, shareholders'
equity, and cash flows for the year ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of O//2//Micro
International Limited and its subsidiaries as of December 31, 2001 and the
results of their operations and their cash flows for the year ended December 31,
2001 in conformity with accounting principles generally accepted in the United
States of America.

As discussed in Note 2 "Stock-based Compensation" and Note 12, the 2001 pro
forma net income and pro forma earnings per share disclosures have been
restated.

/s/Deloitte & Touche

January 24, 2002 (May 10, 2005 as to Note 2 "Stock-based Compensation" and Note
12)

                                       F-3

<PAGE>

O//2//MICRO INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In Thousand U.S. Dollars, Except Per Share Amounts)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                         December 31
                                                                                  ------------------------
                                                                                     2002          2003
                                                                                  ----------    ----------
<S>                                                                               <C>           <C>
ASSETS

CURRENT ASSETS
   Cash and cash equivalents                                                      $   69,334    $   66,489
   Restricted cash                                                                     2,019         1,892
   Short-term investments                                                             42,675        53,923
   Accounts receivable--net                                                            7,595         9,794
   Inventories                                                                         6,967         9,613
   Prepaid expenses and other current assets                                           2,891         3,365
                                                                                  ----------    ----------
         Total current assets                                                        131,481       145,076
                                                                                  ----------    ----------

LONG-TERM INVESTMENTS                                                                  7,735         7,865
                                                                                  ----------    ----------
FIXED ASSETS--Net                                                                      5,611         4,880
                                                                                  ----------    ----------
OTHER ASSETS
   Restricted assets--net                                                                 --        10,044
                                                                                  ----------    ----------
   Others                                                                              1,009         1,428
                                                                                  ----------    ----------
TOTAL ASSETS                                                                      $  145,836    $  169,293
                                                                                  ==========    ==========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Notes and accounts payable                                                     $    5,202    $    6,334
   Income tax payable                                                                  1,957         2,852
   Accrued expenses and other current liabilities                                      3,529         5,380
                                                                                  ----------    ----------
         Total current liabilities                                                    10,688        14,566
                                                                                  ----------    ----------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
   Preference shares at $0.001 par value per share
      Authorized--5,000,000 shares                                                        --            --
   Ordinary shares at $0.001 par value per share
      Authorized--95,000,000 shares
      Issued--38,857,094 shares including 720,700 shares of treasury stocks as
         of December 31, 2002 and 39,032,616 shares as of December 31, 2003               39            39
   Treasury stock                                                                     (6,823)           --
   Additional paid-in capital                                                        133,016       137,076
   Accumulated other comprehensive loss                                                 (692)         (521)
   Retained earnings                                                                   9,608        18,133
                                                                                  ----------    ----------
         Total shareholders' equity                                                  135,148       154,727
                                                                                  ----------    ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                        $  145,836    $  169,293
                                                                                  ==========    ==========
</TABLE>

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

                                       F-4

<PAGE>

O//2//MICRO INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In Thousand U.S. Dollars, Except Per Share Amounts)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                 Years Ended December 31
                                                                          -----------------------------------
                                                                             2001         2002         2003
                                                                          ---------    ---------    ---------
<S>                                                                       <C>          <C>          <C>
NET SALES                                                                 $  45,819    $  70,187    $  88,599

COST OF SALES                                                                16,465       28,143       38,314
                                                                          ---------    ---------    ---------
GROSS PROFIT                                                                 29,354       42,044       50,285
                                                                          ---------    ---------    ---------

OPERATING EXPENSES
   Research and development (exclusive of amortization of deferred stock
      compensation of $91, $30 and $0 in 2001, 2002 and 2003,
      respectively)                                                          14,320       18,935       19,219
   Selling, general and administrative (exclusive of amortization of
      deferred stock compensation of $75, $14 and $0 in 2001, 2002
      and 2003, respectively)                                                 9,909       12,325       17,476
   Stock-based compensation                                                     166           44           --
                                                                          ---------    ---------    ---------
      Total operating expenses                                               24,395       31,304       36,695
                                                                          ---------    ---------    ---------
INCOME FROM OPERATIONS                                                        4,959       10,740       13,590
                                                                          ---------    ---------    ---------

NON-OPERATING INCOME(EXPENSES)
   Interest income                                                            1,814        1,802        1,283
   Impairment loss on long-term investments                                      --         (483)         (17)
   Interest expenses                                                            (11)          (4)          (1)
   Foreign exchange gain--net                                                    59            4          287
   Other--net                                                                   (35)         343         (115)
                                                                          ---------    ---------    ---------
      Total non-operating income                                              1,827        1,662        1,437
                                                                          ---------    ---------    ---------

INCOME BEFORE INCOME TAX                                                      6,786       12,402       15,027

INCOME TAX EXPENSE                                                            1,152        1,673        1,826
                                                                          ---------    ---------    ---------
NET INCOME                                                                    5,634       10,729       13,201
                                                                          ---------    ---------    ---------

OTHER COMPREHENSIVE INCOME (LOSS)
   Translation adjustments on subsidiaries                                     (489)         132          (90)
   Unrealized gain (loss) on available-for-sale securities                       15         (127)         261
                                                                          ---------    ---------    ---------
      Total other comprehensive income (loss)                                  (474)           5          171
                                                                          ---------    ---------    ---------
COMPREHENSIVE INCOME                                                      $   5,160    $  10,734    $  13,372
                                                                          =========    =========    =========
</TABLE>

                                                                     (Continued)

                                       F-5

<PAGE>

<TABLE>
<CAPTION>
                                                                                 Years Ended December 31
                                                                          -----------------------------------
                                                                             2001         2002         2003
                                                                          ----------   ----------   ----------
<S>                                                                       <C>          <C>          <C>
EARNINGS PER SHARE:
   Basic                                                                  $     0.17   $     0.28   $     0.34
                                                                          ==========   ==========   ==========
   Diluted                                                                $     0.16   $     0.27   $     0.33
                                                                          ==========   ==========   ==========

SHARES USED IN EARNINGS PER SHARE CALCULATION:
   Basic (in thousands)                                                       34,020       38,300       38,374
                                                                          ==========   ==========   ==========
   Diluted (in thousands)                                                     35,576       39,591       39,736
                                                                          ==========   ==========   ==========
</TABLE>

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

                                                                     (Concluded)

                                       F-6

<PAGE>

O//2//MICRO INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Thousand U.S. Dollars, Except Per Share Amounts)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                           Additional Paid-in Capital
                                                     Ordinary Shares     ------------------------------
                                                   -------------------   Ordinary    Stock                Treasury
                                                     Shares     Amount    shares    options     Total       Stock    Warrants
                                                   ----------   ------   --------   -------   ---------   --------   --------
<S>                                                <C>          <C>      <C>        <C>       <C>         <C>        <C>
BALANCE, JANUARY 1, 2001                           32,788,238   $   33   $ 53,148   $ 1,923   $  55,071   $     --   $     51

Issuance of:
   Shares issued for exercise of stock options        656,215        1      1,780      (796)        984         --         --
   Shares issued for 1999 ESPP Plan                    90,058       --        690        --         690         --         --
   Shares, net of $601 in offering costs            4,600,000        4     73,450        --      73,450         --         --
Cancellation of stock options                              --       --         --       (39)        (39)        --         --
Options granted to nonemployees                            --       --         --        41          41         --         --
Amortization of deferred stock compensation                --       --         --        --          --         --         --
Net income for 2001                                        --       --         --        --          --         --         --
Translation adjustments on subsidiaries                    --       --         --        --          --         --         --
Unrealized gain on available-for-sale securities           --       --         --        --          --         --         --
                                                   ----------   ------   --------   -------   ---------   --------   --------
BALANCE, DECEMBER 31, 2001                         38,134,511       38    129,068     1,129     130,197         --         51

Issuance of:
   Shares issued for exercise of stock options        325,279        1      1,187      (275)        912         --         --
   Shares issued for 1999 ESPP Plan                    97,304       --        737        --         737         --         --
   Shares issued for exercise of warrants             300,000       --        801        --         801         --        (51)
Acquisition of treasury stocks--720,700 shares             --       --         --        --          --     (6,823)        --
Cancellation of stock options                              --       --         --        (2)         (2)        --         --
Options granted to nonemployees                            --       --         --       371         371         --         --
Amortization of deferred stock compensation                --       --         --        --          --         --         --
Net income for 2002                                        --       --         --        --          --         --         --
Translation adjustments on subsidiaries                    --       --         --        --          --         --         --
Unrealized loss on available-for-sale securities           --       --         --        --          --         --         --
                                                   ----------   ------   --------   -------   ---------   --------   --------
BALANCE, DECEMBER 31, 2002                         38,857,094       39    131,793     1,223     133,016     (6,823)        --

Issuance of:
   Shares issued for exercise of stock options        863,987        1      6,135      (503)      5,632         --         --
   Shares issued for 1999 ESPP Plan                   109,735       --        942        --         942         --         --
   Cancellation of stock options                           --       --         --       (23)        (23)        --         --
Acquisition of treasury stock--77,500 shares               --       --         --        --          --       (647)        --
Retirement of treasury stock                         (798,200)      (1)    (2,793)       --      (2,793)     7,470         --
Options granted to nonemployees                            --       --         --       302         302         --         --
Net income for 2003                                        --       --         --        --          --         --         --
Translation adjustments on subsidiaries                    --       --         --        --          --         --         --
Unrealized loss on available-for-sale securities           --       --         --        --          --         --         --
                                                   ----------   ------   --------   -------   ---------   --------   --------
BALANCE, DECEMBER 31, 2003                         39,032,616   $   39   $136,077   $   999   $ 137,076   $     --   $     --
                                                   ==========   ======   ========   =======   =========   ========   ========

<CAPTION>

                                                                           Accumulated Other
                                                                      Comprehensive Income (Loss)
                                                                  -----------------------------------    Retained
                                                                  Unrealized      Cumulative             Earnings        Total
                                                     Deferred      investment    translation           (Accumulated   Shareholders'
                                                   Compensation    gain/loss      adjustment   Total     Deficit)        Equity
                                                   ------------   ------------   -----------   -----   ------------   -------------
<S>                                                <C>            <C>            <C>           <C>     <C>            <C>
BALANCE, JANUARY 1, 2001                           ($       249)  $         --   ($      223)  ($223)  $     (6,755)  $      47,928

Issuance of:
   Shares issued for exercise of stock options               --             --            --      --             --             985
   Shares issued for 1999 ESPP Plan                          --             --            --      --             --             690
   Shares, net of $601 in offering costs                     --             --            --      --             --          73,454
Cancellation of stock options                                 6             --            --      --             --             (33)
Options granted to nonemployees                              --              -            --      --             --              41
Amortization of deferred stock compensation                 199             --            --      --             --             199
Net income for 2001                                          --             --            --      --          5,634           5,634
Translation adjustments on subsidiaries                      --             --          (489)   (489)            --            (489)
Unrealized gain on available-for-sale securities             --             15            --      15             --              15
                                                   ------------   ------------   -----------   -----   ------------   -------------
BALANCE, DECEMBER 31, 2001                                  (44)            15          (712)   (697)        (1,121)        128,424

Issuance of:
   Shares issued for exercise of stock options               --             --            --      --             --             913
   Shares issued for 1999 ESPP Plan                          --             --            --      --             --             737
   Shares issued for exercise of warrants                    --             --            --      --             --             750
Acquisition of treasury stocks--720,700 shares               --             --            --      --             --          (6,823)
Cancellation of stock options                                --             --            --      --             --              (2)
Options granted to nonemployees                              --             --            --      --             --             371
Amortization of deferred stock compensation                  44             --            --      --             --              44
Net income for 2002                                          --             --            --      --         10,729          10,729
Translation adjustments on subsidiaries                      --             --           132     132             --             132
Unrealized loss on available-for-sale securities             --           (127)           --    (127)            --            (127)
                                                   ------------   ------------   -----------   -----   ------------   -------------
BALANCE, DECEMBER 31, 2002                                   --           (112)         (580)   (692)         9,608         135,148

Issuance of:
   Shares issued for exercise of stock options               --             --            --      --             --           5,633
   Shares issued for 1999 ESPP Plan                          --             --            --      --             --             942
   Cancellation of stock options                             --             --            --      --             --             (23)
Acquisition of treasury stock--77,500 shares                 --             --            --      --             --            (647)
Retirement of treasury stock                                 --             --            --      --         (4,676)             --
Options granted to nonemployees                              --             --            --      --             --             302
Net income for 2003                                          --             --            --      --         13,201          13,201
Translation adjustments on subsidiaries                      --             --           (90)    (90)            --            (90)
Unrealized loss on available-for-sale securities             --            261             -     261             --             261
                                                   ------------   ------------   -----------   -----   ------------   -------------
BALANCE, DECEMBER 31, 2003                         $         --   $        149   ($      670)  ($521)  $     18,133   $     154,727
                                                   ============   ============   ===========   =====   ============   =============
</TABLE>

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

                                       F-7

<PAGE>

O//2//MICRO INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousand U.S. Dollars)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                        Years Ended December 31
                                                                --------------------------------------
                                                                   2001          2002          2003
                                                                ----------    ----------    ----------
<S>                                                             <C>           <C>           <C>
OPERATING ACTIVITIES
   Net income                                                   $    5,634    $   10,729    $   13,201
   Adjustments to reconcile net income to net cash provided by
     operating activities:
     Depreciation and amortization                                   1,180         1,937         2,623
     Amortization of deferred stock compensation                       166            44            --
     Amortization of stock options granted for services                 19            74           335
     Loss (gain) on sale of short-term investments                       2          (385)            5
     Deferred income tax assets                                       (153)          198           386
     Impairment of long-term investments                                --           483            17
     Loss on sale of fixed assets                                       --             7            68
     Changes in operating assets and liabilities:
        Accounts receivable--net                                     1,720        (3,895)       (2,199)
        Inventories                                                    111        (1,606)       (2,646)
        Prepaid expenses and other current assets                     (571)         (765)         (474)
        Notes and accounts payable                                    (197)        1,632         1,132
        Income taxes payable                                           770           737           895
        Accrued expenses and other current liabilities                 831           333         1,413
                                                                ----------    ----------    ----------
        Net cash provided by operating activities                    9,512         9,523        14,756
                                                                ----------    ----------    ----------

INVESTING ACTIVITIES
   Receivables from employee cash advance                             (185)         (262)         (104)
   Acquisition of:
      Fixed assets                                                  (2,295)       (4,275)       (1,749)
      Patents                                                         (122)           --            --
      Long-term investments                                             --        (6,968)         (147)
      Short-term investments                                       (21,636)     (188,231)     (116,138)
   (Increase) decrease in:
      Restricted assets                                                 --            --       (10,044)
      Restricted cash                                                   40          (860)          127
      Other assets                                                     (68)          (46)         (612)
   Proceeds from:
      Sale of short-term investments                                 1,513       165,970       105,146
      Sale of fixed assets                                              --             3             1
                                                                ----------    ----------    ----------

        Net cash used in investing activities                      (22,753)      (34,669)      (23,520)
                                                                ----------    ----------    ----------
</TABLE>

                                                                     (Continued)

                                       F-8

<PAGE>

<TABLE>
<CAPTION>
                                                                  Years Ended December 31
                                                          --------------------------------------
                                                             2001          2002          2003
                                                          ----------    ----------    ----------
  <S>                                                     <C>           <C>           <C>
FINANCING ACTIVITIES
   Acquisitions of treasury stock                         $       --    $   (6,823)   $     (647)
   Proceeds from:
      Exercise of stock options                                  985           913         5,633
      Issuance of ordinary shares                             73,454            --            --
      Issuance of shares for warrants exercised                   --           750            --
      Issuance of ordinary shares under ESPP Plan                690           737           942

   Payments of principal of capital leases                       (42)          (10)           (6)
   Decrease in guarantee deposits                                (51)           --            --
                                                          ----------    ----------    ----------
         Net cash provided by (used in) financing
            activities                                        75,036        (4,433)        5,922
                                                          ----------    ----------    ----------
EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATE                     (429)           99            (3)
                                                          ----------    ----------    ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS          61,366       (29,480)       (2,845)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                37,448        98,814        69,334
                                                          ----------    ----------    ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR                  $   98,814    $   69,334    $   66,489
                                                          ==========    ==========    ==========

SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
   Cash paid for interest                                 $       11    $        4    $        1
   Cash paid for tax                                             474           744           600

NON-CASH INVESTING AND FINANCING ACTIVITIES
   Property and equipment acquired under capital leases            5            --            --
   Convertible loans converted to long-term investments           --            --         1,750
   Unrealized gain (loss) on short-term investments               15          (127)          261
</TABLE>

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

                                                                     (Concluded)

                                       F-9

<PAGE>

O//2//MICRO INTERNATIONAL LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars Unless Otherwise Noted)
--------------------------------------------------------------------------------

1.   GENERAL

     Business

     O//2//Micro, Inc. was incorporated in the state of California in the United
     States of America on March 29, 1995 to design, develop, and deliver
     semiconductor components primarily for mobile applications. In March 1997,
     O//2//Micro, Inc. reincorporated in the Cayman Islands under the name
     O//2//Micro International Limited (the "Company"). In connection with the
     reincorporation, all authorized and outstanding common stock, preferred
     stock and stock options of O//2//Micro, Inc. were exchanged for the
     Company's ordinary shares, preference shares and stock options with
     identical rights and preferences. O//2//Micro, Inc. became the Company's
     subsidiary after the shares exchange.

     The Company had incorporated various wholly-owned subsidiaries, namely,
     O//2//Micro Electronics, Inc. (O//2//Micro--Taiwan), O//2//Micro
     International Japan Limited (O//2//Micro--Japan), O//2//Micro PTE
     Limited--Singapore (O//2//Micro--Singapore), and other subsidiaries.
     O//2//Micro-Taiwan and O//2//Micro--Japan are engaged in trading while
     O//2//Micro--Singapore and other subsidiaries are engaged in research and
     development. The Company also established a Taiwanese branch office,
     O//2//Micro International Limited--Taiwan Branch (O//2//Micro--Taiwan
     Branch) to engage in marketing and customer support related services. Due
     to the duplicate function of O//2//Micro--Taiwan Branch and
     O//2//Micro--Taiwan, the Board of Directors determined to dissolve
     O//2//Micro--Taiwan Branch on October 31, 2002. The dissolution process of
     O//2//Micro--Taiwan Branch was not completed as of December 31, 2003.

2.   ACCOUNTING POLICIES

     Basis of Presentation

     The consolidated financial statements have been prepared in accordance with
     accounting principles generally accepted in the United States of America.
     The consolidated financial statements include the accounts of the Company
     and its wholly-owned subsidiaries. All intercompany accounts and
     transactions have been eliminated on consolidation.

     Use of Estimates

     The preparation of financial statements in conformity with accounting
     principles generally accepted in the United States of America requires
     management to make estimates and assumptions that affect certain reported
     amounts and disclosures. Accordingly, actual results could differ from
     those estimates.

     Concentration of Credit Risk

     Financial instruments that potentially subject the Company to a
     concentration of credit risk consist of cash, cash equivalents and accounts
     receivable. Cash is deposited with high credit quality financial
     institutions. For accounts receivable, the Company performs ongoing credit
     evaluations of its

                                      F-10

<PAGE>

     customers' financial condition and the Company maintains an allowance for
     doubtful accounts receivable based upon review of the expected
     collectibility of individual accounts.

     Fair Value of Financial Instruments

     The Company's financial instruments, including cash and cash equivalents,
     restricted cash, accounts receivable, notes and accounts payable, and
     capital lease obligations are carried at cost, which approximates the fair
     value due to the short-term maturity of those instruments. Fair values of
     short-term investments and long-term investments represent quoted market
     prices, if available. If no quoted market prices are available, fair values
     are estimated based on other factors.

     Cash and Cash Equivalents

     The Company considers all highly liquid investments with maturities of not
     more than three months when purchased to be cash equivalents.

     Restricted Assets

     The Company classifies deposits made for customs, collateral for obtaining
     foundry capacity, lines of credit, office leases and Taiwan court cases as
     restricted assets. The deposits are classified as current asset if
     refundable within a twelve-month period.

     Short-term Investments

     The Company maintains its excess cash in U.S. treasury bills and notes,
     government and corporate bonds issued by financial institutions with strong
     ratings. The specific identification method is used to determine the cost
     of securities sold, with realized gains and losses reflected in
     non-operating income and expenses. As of December 31, 2003, all of the
     Company's investments were classified as available-for-sale securities and
     are recorded at market value. Unrealized gains and losses on these
     investments are included with accumulated other comprehensive income, as a
     separate component of shareholders' equity, net of any related tax effect,
     unless unrealized losses are deemed other than temporary. Unrealized losses
     are recorded as a charge to income when deemed other than temporary.

     Inventories

     The Company outsources the wafer fabrication, assembly, and testing of its
     products. Inventories are stated at the lower of standard cost or market
     value. Cost is determined on a currently adjusted standard basis, which
     approximates actual cost on a first-in first-out basis.

     Long-term Investments

     Long-term investments over which the Company does not exercise significant
     influence are accounted for under the cost method of accounting. Management
     evaluates related information in addition to quoted market prices, if any,
     in determining the fair value of these investments and whether an other
     than temporary decline in value exists. Factors indicative of an other than
     temporary decline include recurring operating losses, credit defaults and
     subsequent rounds of financings at an amount below the cost basis of the
     investment. The list is not all inclusive and management periodically
     weighs all quantitative and qualitative factors in determining if any
     impairment loss exists.

                                      F-11

<PAGE>

     Fixed Assets

     Fixed assets are stated at cost less accumulated depreciation. Major
     additions, renewals and betterments are capitalized, while maintenance and
     repairs are expensed as incurred.

     Depreciation is provided on the straight-line method over estimated service
     lives that range as follows: equipment--3 to 10 years, furniture and
     fixtures--3 to 15 years, equipment under capital lease--2 to 5 years,
     leasehold improvements--2 to 6 years and transportation equipment--5 years.
     Depreciation expense recognized during the years ended December 31, 2001,
     2002 and 2003 was approximately $1,129,000, $1,884,000 and $2,325,000,
     respectively.

     Equipment covered by agreements qualifying as capital leases is stated at
     the lower of fair market value or the present value of the minimum lease
     payments at the inception of the lease, less depreciation.

     Asset Impairment

     The Company evaluates the recoverability of long-lived assets whenever
     events or changes in circumstances indicate the carrying value may not be
     recoverable. The carrying value of a long-lived asset is considered
     impaired when the anticipated undiscounted cash flows from such asset is
     separately identifiable and is less than the carrying value. If impairment
     occurs, a loss based on the excess of carrying value over the fair market
     value of the long-lived asset is recognized. Fair market value is
     determined by reference to quoted market prices, if available, or
     discounted cash flows, as appropriate.

     Other Assets--Others

     Other assets--others consist of refundable deposits, employee cash
     advances, deferred charges and patents. Costs incurred in connection with
     securing patents, including attorneys' fees, are capitalized and amortized
     over the estimated life of the related technology which is estimated to be
     five years.

     Treasury Stock

     In 2003, the Company determined it will retire ordinary shares repurchased
     under a share repurchase plan. Accordingly, the excess of the purchase
     price over par value was allocated between additional paid-in capital and
     retained earnings based on the average issuance price of the shares
     repurchased. Any future repurchases will be immediately retired.

     Revenue Recognition

     Revenue from product sales to customers, other than distributors, is
     recognized at the time of shipment and when title and right of ownership
     transfers to customers. The four criteria for revenue being realized and
     earned are the existence of evidence of sale, actual shipment, fixed or
     determinable selling price, and reasonable assurance of collectibility.

     Allowances for sales returns and discounts are provided at the time of the
     recognition of the related revenues on the basis of experience and these
     provisions are deducted from sales.

     In certain limited instances, the Company sells its products through
     distributors. The Company has limited control over these distributors'
     selling of products to third parties. Accordingly, the Company

                                      F-12

<PAGE>

     recognizes revenue on sales to distributors when the distributors sell the
     Company's products to third parties. Thus, products held by distributors
     are included in the Company's inventory balance.

     The Company provides its distributors with limited product rotation and
     price protection rights for products held in distributors' inventory. To
     date, the Company has given no price adjustments to or rotated products for
     its distributors.

     Research and Development

     Research and development costs consist of expenditures incurred during the
     course of planned research and investigation aimed at the discovery of new
     knowledge that will be useful in developing new products or processes, or
     at significantly enhancing existing products or production processes as
     well as expenditures incurred for the design and testing of product
     alternatives or construction of prototypes. All expenditures related to
     research and development activities of the Company are charged to operating
     expenses when incurred.

     Advertising Expenses

     The Company expenses all advertising and promotional costs as incurred.
     These costs were $1,464,000, $1,577,000 and $795,000 in the years ended
     December 31, 2001, 2002 and 2003, respectively. A portion of these costs
     were for advertising, which amounted to $138,000 in 2001, $138,000 in 2002
     and $153,000 in 2003.

     Income Taxes

     The Company is not subject to income or other taxes in the Cayman Islands.
     However, subsidiaries are subject to taxes of the jurisdiction where they
     are located.

     Under current Republic of China ("ROC") tax regulations, the current year's
     earnings, on a tax basis, that are not distributed in the following year
     are subject to a 10% additional income tax. This 10% additional income tax
     is recognized in the period during which the related income is generated.

     Income taxes are accounted for in accordance with Statement of Financial
     Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes". The
     provision for income tax represents income tax paid and payable for the
     current year plus the changes in the deferred income tax assets and
     liabilities during the years. Deferred income tax assets are recognized for
     operating loss carryforwards, research and development credits, and
     temporary differences. The Company believes that uncertainty exists
     regarding the realizability of certain deferred income tax assets and,
     accordingly, has established a valuation allowance for those net deferred
     income tax assets to the extent the realizability is not deemed more likely
     than not.

     Stock-based Compensation

     The Company has elected to follow Accounting Principles Board Opinion
     ("APB") No. 25, "Accounting for Stock Issued to Employees" and complies
     with the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
     Compensation" for its employee stock options. Under APB No. 25,
     compensation expense is measured based on the difference, if any, on the
     date of the grant, between the fair value of the Company's stock and the
     exercise price.

     Had the compensation expense for the Company's stock-based compensation
     plans been determined on the basis of the fair values under SFAS No. 123,
     the Company's fiscal 2001, 2002 and 2003 net income and net income per
     share would be the following.

                                      F-13

<PAGE>

<TABLE>
<CAPTION>
                                                                         Years Ended December 31
                                                                     --------------------------------
                                                                       2001        2002        2003
                                                                     --------    --------    --------
<S>                                                                  <C>         <C>         <C>
     Net income as reported (in thousands)                           $  5,634    $ 10,729    $ 13,201
     Add: Stock-based compensation expense included in net
        income, including tax expense of $0 for 2001, 2002 and 2003,
        respectively                                                      166          44          --
     Deduct: Stock-based compensation expense determined under
        SFAS No. 123 including tax expense of $0 for 2001, 2002 and
        2003, respectively                                             (3,929)     (8,643)     (8,061)
                                                                     --------    --------    --------
     Pro forma net income                                            $  1,871    $  2,130    $  5,140
                                                                     ========    ========    ========
     Pro forma shares used in calculation--basic (in thousands)        34,020      38,300      38,374
                                                                     --------    --------    --------
     Pro forma earnings per share--basic                             $   0.05    $   0.06    $   0.13
                                                                     ========    ========    ========
     Earnings per share--basic as reported                           $   0.17    $   0.28    $   0.34
                                                                     ========    ========    ========

     Pro forma shares used in calculation--diluted (in thousands)      35,576      39,591      39,736
                                                                     ========    ========    ========
     Pro forma earnings per share--diluted                           $   0.05    $   0.05    $   0.13
                                                                     ========    ========    ========
     Earnings per share--diluted as reported                         $   0.16    $   0.27    $   0.33
                                                                     ========    ========    ========
</TABLE>

     The Company determined that certain volatility assumptions used to compute
     the fair value of employee stock compensation for 2001, 2002 and 2003 were
     inappropriate. Accordingly, such pro forma amounts presented above have
     been restated. The pro forma net income previously reported was $3,503,000,
     $5,652,000 and $8,676,000 for 2001, 2002 and 2003, respectively. The pro
     forma basic earnings per share and pro forma diluted earnings per share
     previously reported for 2001, 2002 and 2003 was $0.10 and $0.10, $0.15 and
     $0.14, and $0.23 and $0.22, respectively. This change did not impact the
     Company's consolidated financial position, results of operations, or cash
     flows for any periods presented.

     Foreign Currency Transactions

     The functional currency is the local currency of the respective entities.
     Foreign currency transactions are recorded at the rate of exchange in
     effect when the transaction occurs. Gains or losses, resulting from the
     application of different foreign exchange rates when cash in foreign
     currency is converted into the entities' functional currency, or when
     foreign currency receivables and payables are settled, are credited or
     charged to income in the period of conversion or settlement. At year-end,
     the balances of foreign currency monetary assets and liabilities are
     restated based on prevailing exchange rates and any resulting gains or
     losses are credited or charged to income.

     Translation of Foreign Currency
        Financial Statements

     The reporting currency of the Company is the U.S. dollar. Accordingly, the
     financial statements of the foreign subsidiaries are translated into U.S.
     dollars at the following exchange rates: Assets and liabilities--current
     rate on balance sheet date; shareholders' equity--historical rate; income
     and expenses--weighted average rate during the year. The resulting
     translation adjustment is recorded as a separate component of shareholders'
     equity.

                                      F-14

<PAGE>

     Comprehensive Income (Loss)

     Comprehensive income represents net income plus the results of certain
     changes in shareholders' equity during a period from non-owner sources that
     are not reflected in the consolidated statement of operations.

     Legal Contingencies

     The Company is currently involved in various claims and legal proceedings.
     Periodically, the Company reviews the status of each significant matter and
     assesses the potential financial exposure. If the potential loss from any
     claim or legal proceeding is considered probable and the amount can be
     estimated, the Company accrues a liability for the estimated loss. Because
     of uncertainties related to these matters, accruals are based only on the
     best information available at the time. As additional information becomes
     available, the Company reassesses the potential liability related to the
     pending claims and litigation and revises these estimates as appropriate.
     Such revisions in the estimates of the potential liabilities could have a
     material impact on the results of operations and financial position.

     Recent Accounting Pronouncements
        Not Yet Adopted

     In January 2003, the Financial Accounting Standards Board ("FASB") released
     Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN
     46") which requires that all primary beneficiaries of Variable Interest
     Entities ("VIE") consolidate that entity. FIN 46 is effective immediately
     for VIEs created after January 31, 2003 and to VIEs in which an enterprise
     obtains an interest after that date. It applies in the first fiscal year or
     interim period beginning after June 15, 2003 to VIEs in which an enterprise
     holds a variable interest it acquired before February 1, 2003. In December
     2003, the FASB published a revision to FIN 46 ("FIN 46R") to clarify some
     of the provisions of the interpretation and to defer the effective date of
     implementation for certain entities. Under the guidance of FIN 46R,
     entities that do not have interests in structures that are commonly
     referred to as special purpose entities (SPE's) are required to apply the
     provisions of the interpretation in financial statements for periods ending
     after March 14, 2004. The Company does not have interests in special
     purpose entities and will apply the provisions of FIN 46R with its first
     quarter 2004 financial statements.

     In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
     Financial Instruments with Characteristics of both Liabilities and Equity".
     The statement establishes standards for how an issuer classifies and
     measures certain financial instruments. This statement is effective for
     financial instruments entered into or modified after May 31, 2003, and
     otherwise is effective at the beginning of the first interim period
     beginning after June 15, 2003. The statement requires that certain
     financial instruments that, under previous guidance, could be accounted for
     as equity, be classified as liabilities, or assets in some circumstances.
     This statement does not apply to features embedded in a financial
     instrument that is not a derivative in its entirety. The statement also
     requires disclosures about alternative ways of settling the instruments and
     the capital structure of entities whose shares are mandatorily redeemable.
     The adoption of SFAS No. 150 did not impact the Company's consolidated
     financial statements.

     Reclassifications

     Certain amounts reported in previous years have been reclassified to
     conform to the 2003 presentation.

                                      F-15

<PAGE>

3.   CASH AND CASH EQUIVALENTS

                                                 December 31
                                             -------------------
                                               2002       2003
                                             --------   --------
                                                (In Thousands)

     Time deposits                           $ 31,191   $ 34,951
     US treasury bills and corporate bonds     25,997     17,122
     Savings and checking accounts             12,140     14,409
     Petty cash                                     6          7
                                             --------   --------

                                             $ 69,334   $ 66,489
                                             ========   ========

4.   SHORT-TERM INVESTMENTS

     The following is a summary of available-for-sale securities:

                                                 December 31
                                             -------------------
                                               2002       2003
                                             --------   --------
                                                (In Thousands)

     US treasury bills                       $ 26,914   $ 33,958
     Time deposits                             10,263     10,611
     Corporate bonds                            2,247      8,185
     Foreign government bonds                   3,227      1,144
     Others                                        24         25
                                             --------   --------

                                             $ 42,675   $ 53,923
                                             ========   ========

     Available-for-sale securities by contractual maturity are as follows:

                                                 December 31
                                             -------------------
                                               2002       2003
                                             --------   --------
                                                (In Thousands)

     Due within one year                     $ 40,606   $ 52,752
     Due after one year through two years       2,069         --
     Due after two years                           --      1,171
                                             --------   --------

                                             $ 42,675   $ 53,923
                                             ========   ========

     The Company's gross realized gains and losses on the sale of investments
     for the year ended December 31, 2002 were $606,000 and $221,000,
     respectively, and for the year ended December 31, 2003 were $0 and $5,000,
     respectively. Gross unrealized gains and losses at December 31, 2002 were
     $64,000 and $176,000, respectively, and at December 31, 2003 were $196,000
     and $47,000, respectively. The Company did not provide the disclosure of
     fair value and unrealized losses by category of investment as required by
     EITF No 03-1, "The Meaning of Other-Than-Temporary Impairment and Its
     Application to Certain Investments" as the amount of the unrealized losses
     for 2003 are deemed insignificant.

                                      F-16

<PAGE>

5.   ACCOUNTS RECEIVABLE--NET

                                                 December 31
                                             -------------------
                                               2002       2003
                                             --------   --------
                                                (In Thousands)

     Accounts receivable                     $  7,973    $ 10,195
     Allowances for
        Doubtful receivables                      (64)        (86)
        Sales returns and discounts              (314)       (315)
                                             --------    --------

                                             $  7,595    $  9,794
                                             ========    ========

     The changes in the allowances are summarized as follows:

                                                   2001     2002     2003
                                                  ------   ------   ------
                                                       (In Thousands)

     Allowances for doubtful receivables
        Balance, beginning of year                $   38   $   55   $   64
        Additions                                     17        9       22
                                                  ------   ------   ------

     Balance, end of year                         $   55   $   64   $   86
                                                  ======   ======   ======

     Allowances for sales returns and discounts
        Balance, beginning of the year            $  252   $  314   $  314
        Additions                                     62       --        1
                                                  ------   ------   ------

     Balance, end of the year                     $  314   $  314   $  315
                                                  ======   ======   ======

6.   INVENTORIES

                                                 December 31
                                             -------------------
                                               2002       2003
                                             --------   --------
                                               (In Thousands)

     Finished goods                          $  2,344   $  2,042
     Work-in-process                            2,846      3,608
     Raw materials                              1,777      3,963
                                             --------   --------

                                             $  6,967   $  9,613
                                             ========   ========

7.   LONG-TERM INVESTMENTS

                                                      December 31
                                                  -------------------
                                                    2002       2003
                                                  --------   --------
                                                     (In Thousands)
     Cost method
        X-FAB Semiconductor Foundries AG (X-FAB)  $  4,968   $  4,968
        360 Degree Web Ltd. (360 Degree Web)            --      1,750
        GEM Services, Inc. (GEM)                       500        500
        Etrend Hightech Corporation (Etrend)           500        647
        Silicon Genesis Corporation (SiGen)             17         --
                                                  --------   --------
                                                     5,985      7,865
     Convertible loans to 360 Degree Web             1,750         --
                                                  --------   --------

                                                  $  7,735   $  7,865
                                                  ========   ========

                                      F-17

<PAGE>

     The Company invested in X-FAB's ordinary shares in July 2002. X-FAB is a
     European-American foundry group that specializes in mixed signal
     applications. As of December 31, 2003, the Company acquired 530,000 shares
     for $4,968,000 (4,982,000 EURO), which represents a 2.03% ownership of
     X-FAB.

     The Company invested in GEM's preferred shares in August 2002. GEM is a
     multinational semiconductor assembly and test company. As of December 31,
     2003, the Company acquired 333,334 shares for $500,000, which represents a
     1.26% ownership of GEM.

     The Company invested in Etrend's ordinary shares in December 2002 and July
     2003. Etrend is a wafer probing, packing and testing company. As of
     December 31, 2003, the Company acquired 2,189,288 shares for $647,000,
     which represents approximately 12.5% ownership of Etrend.

     The Company invested in SiGen preferred shares in December 2000. SiGen is
     an advanced nanotechnology company that develops silicon-on-insulator
     "SOI", strained-silicon products and other engineered multi-layer
     structures to the microelectronics and photonics industries for advanced
     electronic and opto-electronic device applications. As of December 31,
     2003, the Company acquired 71,840 shares for $500,000, which represents a
     0.25% ownership of SiGen. In 2002 and 2003, the Company reviewed
     qualitative factors of this investment and determined that the decline in
     value of SiGen was other-than-temporary and recognized an impairment loss
     of $483,000 and $17,000, respectively.

     On January 3, 2003, the Company exercised its option to convert its
     convertible loans of $1,750,000 in 360 Degree Web to 2,083,333 Series B
     preference shares of capital stock at $0.36 per share and 1,000,000 Series
     B2 preference shares of capital stock at $1.00 per share. 360 Degree Web
     designs, develops and markets intelligent security software solutions that
     provide secure computing environment for personal computer mobile devices
     and the internet. After the conversion, the Company had a 35.18% ownership
     in 360 Degree Web. The Company did not participate in 360 Degree Web's
     financing during 2003 and the ownership was diluted to 29.33% as of
     December 31, 2003. At December 31, 2003, one of the Company's directors
     serves as a director of 360 Degree Web. In addition, the Company does not
     actively participate in the decision-making process at 360 Degree Web.
     Management of 360 Degree Web owns more than 50% of the outstanding voting
     shares and 100% of the Series A voting preferred shares which has more
     characteristics of common stock than the other preferred shares. Therefore,
     the Company accounts for the investment under the cost method of
     accounting.

8.   FIXED ASSETS--NET

                                                  December 31
                                              -------------------
                                                2002       2003
                                              --------   --------
                                                (In Thousands)
     Cost
        Equipment                             $  8,928   $ 10,457
        Furniture and fixtures                     242        336
        Equipment under capital lease              165        165
        Leasehold improvements                     654        727
        Transportation equipment                    56         56
        Prepayment for leasehold                   239         43
                                              --------   --------
                                                10,284     11,784
                                              --------   --------
     Accumulated depreciation
        Equipment                                3,985      6,096
        Furniture and fixtures                     117        131
        Equipment under capital lease              155        162
        Leasehold improvements                     398        486
        Transportation equipment                    18         29
                                              --------   --------
                                                 4,673      6,904
                                              --------   --------
                                              $  5,611   $  4,880
                                              ========   ========

                                      F-18

<PAGE>

9.   OTHER ASSETS

<TABLE>
<CAPTION>
                                                                             December 31
                                                                         -------------------
                                                                           2002       2003
                                                                         --------   --------
                                                                            (In Thousands)

     <S>                                                                 <C>        <C>
     Restricted assets                                                   $     --    $ 10,044
                                                                         --------   --------
     Long-term note receivables from employees                                447        551
     Deferred charges                                                          39        473
     Refundable deposits                                                      373        404
     Patent costs--net of accumulated amortization of $169 in 2002 and
        $319 in 2003                                                          150         --
                                                                         --------   --------
                                                                            1,009      1,428
                                                                         --------   --------
                                                                         $  1,009   $ 11,472
                                                                         ========   ========
</TABLE>

     As of December 31, 2003, restricted assets consisted of deposits made for
     Taiwan court cases in the form of Taiwan Government bonds, negotiated
     certificates of deposit and cash, amounting to $10,044,000.

     In 2001, James Keim, one of the Company's directors, accepted the
     assignment of Head of Marketing and Sales in the Cayman Islands, and moved
     to the Cayman Islands in December 2001. In connection with the move and to
     assist Mr. Keim to purchase a residence in the Cayman Islands, the Company
     entered into a term loan agreement with Mr. Keim in February 2002, under
     which the Company made an interest free, unsecured loan in the amount of
     $400,000 to Mr. Keim. The loan is repayable on February 2007. As of
     December 31, 2003, $18,000 had been repaid.

10.  ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

                                                 December 31
                                             -------------------
                                              2002        2003
                                             --------   --------
                                                (In Thousands)

     Legal and audit fees                    $    314   $  1,180
     Salaries and bonus                           995      1,155
     Deferred income tax liabilities               --        444
     Accrued vacation                             350        371
     ESPP payable                                 172        301
     Commissions                                  331        239
     Others accrued expenses                    1,367      1,690
                                             --------   --------
                                             $  3,529   $  5,380
                                             ========   ========

                                      F-19

<PAGE>

11.  INCOME TAXES

     Income before income taxes consisted of:

                                              Years Ended December 31
                                           ------------------------------
                                             2001       2002       2003
                                           --------   --------   --------
                                                   (In Thousands)
     Cayman                                $  2,635   $ 10,735   $ 12,159
     Other subsidiaries                       4,151      1,667      2,868
                                           --------   --------   --------
                                           $  6,786   $ 12,402   $ 15,027
                                           ========   ========   ========

     Income tax expense consisted of:

                                                Years Ended December 31
                                           ------------------------------
                                             2001        2002       2003
                                           --------    --------   --------
                                                    (In Thousands)
     Current                               $  1,305    $  1,475   $  1,440
     Deferred                                  (153)        198        386
                                           --------    --------   --------
     Income tax expense                    $  1,152    $  1,673   $  1,826
                                           ========    ========   ========

     The Company and its subsidiaries file separate income tax returns.
     Reconciliation of the significant differences between the statutory income
     tax rate and the effective income tax rate on pretax income is as follows:

                                                 Years Ended December 31
                                              ----------------------------
                                               2001       2002       2003
                                              ------     ------     ------
     Cayman statutory rate                         0%         0%         0%
     Foreign in excess of statutory rate       22.40%     12.40%     10.72%
     Research and development credits         (14.10%)    (5.90%)    (4.39%)
     Adjustments to prior years' taxes         (6.40%)     0.40%      0.09%
     Valuation allowance                       10.40%      5.70%      2.55%
     Others                                     4.70%      0.90%      3.18%
                                              ------     ------     ------
     Effective tax rate                        17.00%     13.50%     12.15%
                                              ======     ======     ======

     The deferred income tax assets and liabilities as of December 31, 2002 and
     2003 consisted of the following:

                                                            December 31
                                                        --------------------
                                                          2002        2003
                                                        --------    --------
                                                           (In Thousands)
     Deferred income tax assets
        Net operating loss carryforwards                $    567    $    390
        Research and development credits                   2,835       3,409
        Depreciation and amortization                         93         104
        Accrued vacation                                     122         118
        Others                                                43         165
                                                        --------    --------
                                                           3,660       4,186
     Valuation allowance                                  (3,440)     (3,909)
                                                        --------    --------
     Total net deferred income tax assets                    220         277
                                                        --------    --------
     Deferred income tax liabilities
        Withholding tax liabilities                           --         359
        Unrealized capital allowance                          --          76
        Unrealized foreign exchange                            1           9
                                                        --------    --------
     Total deferred income tax liabilities                     1         444
                                                        --------    --------
     Net deferred income tax assets (liabilities)       $    219    ($   167)
                                                        ========    ========
     Balance sheet caption reported in:
        Prepaid expenses and other current assets       $    219    $    277
        Accrued expenses and other current liabilities        --         444
                                                        --------    --------
                                                        $    219    ($   167)
                                                        ========    ========

                                      F-20

<PAGE>

     As of December 31, 2003, O//2//Micro, Inc. had U.S. federal and state net
     operating loss carryforwards of approximately $290,000 and $4,994,000, and
     federal and state research and development credit carryforwards of
     approximately $2,123,000 and $1,949,000, respectively. The U.S. federal net
     operating loss carryforwards will expire from 2011 through 2012 if not
     utilized. The state net operating loss carryforwards will expire in 2004
     and 2005 if not utilized. The U.S. federal research and development credit
     will expire from 2012 through 2023 if not utilized, while the state
     research and development credit will never expire. Utilization of the net
     operating loss carryforwards may be subject to significant annual
     limitation due to the ownership change limitations provided by the U.S.
     Internal Revenue Code of 1986 and similar provisions in the State of
     California's tax regulations. The annual limitation may result in the
     expiration of net operating losses before utilization.

12.  EMPLOYEE BENEFIT PLANS

     Savings plan

     The Company has a savings plan that qualifies under Section 401(k) of the
     U.S. Internal Revenue Code. Participating employees may defer up to 15% of
     pretax salary, but not more than statutory limits. The Company may make
     voluntary contributions to the savings plan but has made no contributions
     since the inception of the savings plan.

     1999 employee stock purchase plan ("1999 purchase plan")

     In 1999, the Company's Board of Directors adopted the 1999 Purchase Plan,
     which was approved by the shareholders in October 1999. A total of
     1,000,000 ordinary shares have been reserved for issuance under the 1999
     Purchase Plan, plus annual increases on January 1 of each year, commencing
     in 2001, up to 800,000 shares as approved by the Board of Directors. The
     1999 Purchase Plan is subject to adjustment in the event of a stock split,
     stock dividend or other similar changes in ordinary shares or capital
     structure.

     The 1999 Purchase Plan permits eligible employees to purchase ordinary
     shares through payroll deductions, which may range from 1% to 10% of an
     employee's regular base pay at a price equal to the lesser of 85% of the
     fair market value of the Company's ordinary shares on the date of grant of

                                      F-21

<PAGE>

     the option to purchase or 85% of the fair market value of the Company's
     ordinary shares on the applicable exercise date. Employees may elect to
     discontinue their participation in the purchase plan at any time during the
     enrollment period. Participation ends automatically on termination of
     employment with the Company. If not terminated earlier, the 1999 Purchase
     Plan will have a term of 10 years. During 2002 and 2003, 97,304 and 109,735
     ordinary shares, respectively, had been purchased under the 1999 Purchase
     Plan. As of December 31, 2003, 702,903 shares were available for issuance.

     Stock option plans

     In 1997, the Company's Board of Directors adopted the 1997 Stock Plan, and
     in 1999, adopted the 1999 Stock Incentive Plan (collectively, the "Plans").
     The Plans provide for the granting of stock options to employees, directors
     and consultants of the Company. Options granted under the Plans may be
     either incentive stock options ("ISO") within the meaning of Section 422 of
     the United States Internal Revenue Code, or nonstatutory stock options
     ("NSO"). ISOs may be granted only to Company employees and directors. NSOs
     may be granted to Company employees and consultants.

     Options under the Plans may be granted for periods of up to ten years and
     at prices no less than 85% of the estimated fair value of the shares (in
     the case of NSOs) on the date of grant as determined by the Board of
     Directors, provided, however, that (i) the exercise price of an ISO may not
     be less than 100% of the estimated fair value of the shares on the date of
     grant, and (ii) the exercise price of an ISO granted to a 10% shareholder
     may not be less than 110% of the estimated fair value of the shares on the
     date of grant. Options may be exercised following the termination of a
     grantee's continuous service only to the extent provided in the award
     agreement. Options generally expire no later than ten years after grant, or
     five years in the case of an ISO granted to a 10% shareholder. The options
     generally vest over a period of four years from the vesting commencement
     date. Options may be granted with different vesting terms from time to
     time.

     Under the 1997 Stock Plan, the Board of Directors reserved 3,700,000
     ordinary shares for issuance. After the completion of an initial public
     offering, no further options were granted under the 1997 Stock Plan. Under
     the 1999 Stock Incentive Plan, the maximum aggregate number of shares
     available for grant shall be 3,000,000 ordinary shares plus an annual
     increase on January 1 of each year, commencing in 2001, equal to the least
     of 1,500,000 shares (in the case of ISOs) or 4% of the outstanding ordinary
     shares on the last day of the preceding fiscal year or a smaller number
     determined by the administrator. As of December 31, 2003, the number of
     options outstanding and exercisable were 570,207 and 522,554 under the 1997
     Stock Plan, respectively, and 3,349,653 and 878,038 under the 1999 Stock
     Incentive Plan, respectively.

     A summary of the Company's stock option activity and related information is
     as follows:

                                                                     Weighted
                                                       Number of       Average
                                        Available     Outstanding      Exercise
                                        for Grant       Options         Price
                                       -----------    -----------    -----------
     Balance, January 1, 2001            3,034,006      2,323,365
        Granted                         (1,615,000)     1,615,000    $     12.04
        Exercised                               --       (656,215)   $      1.50
        Canceled                           168,373       (168,373)   $      6.45
                                       -----------    -----------
     Balance, December 31, 2001          1,587,379      3,113,777
        Additional shares authorized     1,500,000             --
        Granted                         (1,310,400)     1,310,400    $     12.30
        Exercised                               --       (325,113)   $      2.96
        Canceled                            54,894        (54,894)   $     10.83
                                       -----------    -----------
     Balance, December 31, 2002          1,831,873      4,044,170
        Additional shares authorized     1,500,000             --
        Granted                           (913,300)       913,300    $     13.88
        Exercised                               --       (863,987)   $      6.52
        Canceled                           173,623       (173,623)   $     13.05
                                       -----------    -----------
      Balance, December 31, 2003         2,592,196      3,919,860
                                      ===========    ===========

                                      F-22

<PAGE>

     The following table summarizes information about the stock options
     outstanding as of December 31, 2003:

<TABLE>
<CAPTION>
                                         Options Outstanding             Options Exercisable
                                ------------------------------------   -----------------------
                                               Weighted
                                                Average     Weighted                 Weighted
                                               Remaining     Average      Number      Average
                                   Number     Contractual   Exercise   Exercisable   Exercise
     Range of Exercise Prices   Outstanding      Life         Price     and Vested    Price
     ------------------------   -----------   -----------   --------   -----------   --------
     <S>                         <C>              <C>        <C>        <C>           <C>
     $0.03--$0.09                    69,292        3.46       $ 0.045       69,292     $ 0.05
     $0.18--$0.25                     2,396        4.80       $ 0.245        2,396     $ 0.25
     $0.50                          50,333        5.19       $ 0.500       50,333     $ 0.50
     $3.95--$5.88                   277,560        6.23       $ 4.777      234,749     $ 4.58
     $6.50--$9.60                 1,115,723        7.87       $ 8.460      522,204     $ 8.37
     $10.06--$14.97               1,550,677        8.36       $12.900      316,156     $12.92
     $15.38--$24.18                 853,879        8.68       $18.168      205,462     $17.81
                                ----------                              ---------

                                 3,919,860        8.01       $ 11.81    1,400,592     $ 9.44
                                ==========                              =========
</TABLE>

     For purposes of measuring compensation expense under APB No. 25, the fair
     value of the shares on the date of grant was determined by the Board of
     Directors for grants prior to August 23, 2000. The fair value of subsequent
     option grants were based on the market price of ordinary shares on the day
     of grant.

     The Company calculated the fair value of each option grant on the date of
     grant using the Black-Scholes option pricing model as prescribed by SFAS
     No. 123. The Black-Scholes option valuation model was developed for
     estimating the fair value of traded options that have no vesting
     restrictions and are fully transferable. In addition, option valuation
     model requires the input of highly subjective assumptions, including the
     expected stock price volatility. The Company used the following
     weighted-average assumptions in calculating the fair value of the options
     granted: For purposes of measuring compensation expense under APB No. 25,
     the fair value of the shares on the date of grant was determined by the
     Board of Directors for grants prior to August 23, 2000. The fair value of
     subsequent option grants were based on the market price of ordinary shares
     on the day of grant.

                                      F-23

<PAGE>

<TABLE>
<CAPTION>
                                            Stock Options                               Employee Stock Purchase Plan
                              ----------------------------------------     --------------------------------------------------------
                                                                     Years Ended December 31
                              -----------------------------------------------------------------------------------------------------
                                 2001           2002          2003              2001                 2002                2003
                              -----------    -----------   -----------     ---------------      ---------------     ---------------
     <S>                      <C>            <C>           <C>             <C>                  <C>                 <C>
     Risk-free interest rate         4.40%          2.76%         3.34%       2.21 %- 4.32%                1.82%       1.58% - 1.80%
     Expected life            5 - 9 years    5 - 9 years   5 - 9 years     0.51-1.53 years      0.50-2.03 years     0.51-1.53 years
     Volatility                        80%            75%           70%                 85%                  85%                 65%
     Dividend                          --             --            --                  --                   --                  --
</TABLE>

     Expected life of stock options is estimated to be one year after vesting.

     The weighted average fair values under SFAS No. 123 for options granted
     during the years ended December 31, 2001, 2002 and 2003 was $7.54, $9.83
     and $7.64, respectively. The weighted average fair values under SFAS No.
     123 for purchase rights granted pursuant to the Employee Stock Purchase
     Plan during the years ended December 31, 2001, 2002, and 2003 was $4.40,
     5.13 and $5.40, respectively.

     As explained in Note 2, the Company determined that certain volatility
     assumptions used to compute the fair value of employee stock compensation
     for 2001, 2002 and 2003 were inappropriate. Accordingly, such volatility
     percentages presented above have been restated. The volatility previously
     used in the computation for stock options was 41%, 45% and 31% for 2001,
     2002 and 2003, respectively.

     Deferred compensation

     In connection with stock option grants since the Company's inception, the
     Company recognized accumulated deferred compensation totaling $3,056,000
     which was fully amortized as of December 31, 2002. Amortization expense
     recognized during the years ended December 31, 2001, 2002 and 2003 was
     approximately $166,000, $44,000 and $0, respectively.

     Shares reserved

     Ordinary shares reserved for future issuance was as follows at December 31,
     2003:

                                                          Shares
                                                        ----------
     Outstanding stock options                           3,919,860
     Shares reserved for future stock option grants      2,592,196
     Shares reserved for employee stock purchase plan      702,903
                                                        ----------

                                                         7,214,959
                                                        ==========

                                      F-24

<PAGE>

13.  EARNINGS PER SHARE

     Basic earnings per share is calculated by dividing net income by the
     weighted average number of ordinary shares outstanding during the period.
     Diluted earnings per share is calculated by dividing net income by the
     weighted average number of ordinary and dilutive ordinary equivalent shares
     outstanding during the period, using either the "as if converted" method
     for convertible preference shares or the treasury stock method for options
     and warrants.

     A reconciliation of the numerator and denominator of basic and diluted
     earnings per share calculations is provided as follows:

<TABLE>
<CAPTION>
                                                                Years Ended December 31
                                                             ------------------------------
                                                               2001       2002       2003
                                                             --------   --------   --------
     <S>                                                     <C>        <C>        <C>
     Net income (in thousands)                               $  5,634   $ 10,729   $ 13,201
                                                             ========   ========   ========

     Weighted average thousand shares outstanding--basic       34,020     38,300     38,374
     Effect of dilutive securities:
        Options                                                 1,317      1,194      1,362
        Warrants                                                  239         97         --
                                                             --------   --------   --------
     Weighted average thousand shares outstanding--diluted     35,576     39,591     39,736
                                                             ========   ========   ========

     Earnings per share--basic                               $   0.17   $   0.28   $   0.34
                                                             ========   ========   ========
     Earnings per share--diluted                             $   0.16   $   0.27   $   0.33
                                                             ========   ========   ========
</TABLE>

     Certain antidilutive outstanding options and warrants were excluded from
     the computation of diluted EPS since their exercise prices exceeded the
     average market price of the ordinary shares during the period. The
     antidilutive stock options excluded and their associated exercise prices
     per share were 1,023,100 shares and $12.54 to $24.05 as of December 31,
     2001, 1,141,900 shares and $14.10 to $24.18 as of December 31, 2002 and
     916,646 shares and $15.38 to $24.18 as of December 31, 2003.

14.  LEASE COMMITMENTS

     The Company leases office space and certain equipment under non-cancelable
     operating lease agreements that expire at various dates through January
     2006. The Company's office lease provides for periodic rent increases based
     on the general rate of inflation. The Company also leases certain equipment
     under a capital lease that expires in May 2004. There are provisions in the
     lease that provide for a bargain purchase option upon the expiration of the
     lease.

     As of December 31, 2003, minimum lease payments under all noncancelable
     leases were as follows:

                                                  Capital   Operating
                             Year                 Leases     Leases
                             ----                --------   ---------
                                                   (In Thousands)

     2004                                        $      2   $   1,359
     2005                                              --         213
     2006                                              --           3
     2007                                              --          --
     2008                                              --          --
                                                 --------   ---------
     Total minimum lease payments                       2   $   1,575
                                                            =========
     Less--amount representing interest                 1
                                                 --------
     Present value of minimum lease payments            1
     Less--current portion                              1
                                                 --------

     Long-term obligations under capital lease   $     --
                                                 ========

                                      F-25

<PAGE>

     Capital lease obligations are secured by the related equipment and the
     total costs of the equipment under capital lease was $165,000, $165,000 and
     $165,000 for December 31, 2001, 2002 and 2003, respectively. Accumulated
     depreciation was $122,000, $155,000 and $162,000 at December 31, 2001, 2002
     and 2003, respectively.

15.  CONTINGENCIES

     Monolithic Power Systems, Inc. ("MPS"), a privately held company in Los
     Gatos, California, USA has alleged in a counterclaim that certain products
     of the Company infringe on two of MPS' patents. Litigation on such claim is
     pending in the United States District Court in the Northern District of
     California. Trial is currently scheduled for August 2004.

     While the Company cannot make any assurance regarding the eventual
     resolution of this matter, the Company does not believe the final outcome
     will have a material adverse effect on its consolidated results of
     operations or financial condition.

     The Company, as a normal course of business, is a party to various
     litigation matters, legal proceedings and claims. These actions may be in
     various jurisdictions, and may involve patent protection and/or patent
     infringement. While the results of such litigations and claims cannot be
     predicted with certainty, the final outcome of such matters is not expected
     to have a material adverse effect on its consolidated financial position or
     results of operations. No assurance can be given, however, that these
     matters will be resolved without the Company becoming obligated to make
     payments or to pay other costs to the opposing parties, with the potential
     for having an adverse effect on the Company's financial position or its
     results of operations.

16.  FINANCIAL INSTRUMENTS

     Information on the Company's financial instruments are as follows:

                                                   December 31
                                    -----------------------------------------
                                           2002                  2003
                                    -------------------   -------------------
                                    Carrying     Fair     Carrying    Fair
                                     Value       Value     Value      Value
                                    --------   --------   --------   --------
                                                  (In Thousands)
     Assets
        Cash and cash equivalents   $ 69,334   $ 69,334   $ 66,489   $ 66,489
        Restricted cash                2,019      2,019      1,892      1,892
        Short-term investments        42,675     42,675     53,923     53,923
        Accounts receivable--net       7,595      7,595      9,794      9,794
        Restricted assets--net            --         --     10,044     10,796
     Liabilities
        Notes and accounts payable     5,202      5,202      6,334      6,334

                                      F-26

<PAGE>

     Fair values of restricted assets made in the form of Taiwan Government
     bonds are based on market value; otherwise are carried at amounts which
     approximate fair value.

     Long-term investments are in privately-held companies where there is no
     readily determinable market value. The Company periodically evaluates these
     investments for impairment. If it is determined that an other than
     temporary decline has occurred in the carrying value, an impairment charge
     is recorded in the period of decline in value.

17.  SEGMENT INFORMATION

     The Company designs, develops and markets innovative power management and
     security components for mobile communication, computer, information
     appliance and LCD products. The Company's integrated circuit products are
     produced with digital, analog, and mixed signal integrated circuit
     manufacturing processes. The Company's Chief Operating Decision Maker
     ("CODM"), the Chief Executive Officer, reviews information on an
     enterprise-wide basis to assess performance and allocate resources so the
     Company has one reporting segment.

     Net revenues from unaffiliated customers by geographic region are based on
     the customer's bill-to location and were as follows:

                                              Years Ended December 31
                                           ------------------------------
                                             2001       2002       2003
                                           --------   --------   --------
                                                    (In Thousands)

     Asia                                  $ 45,780   $ 70,149   $ 88,548
     United States                               39         31         51
     Europe                                      --          7         --
                                           --------   --------   --------
                                           $ 45,819   $ 70,187   $ 88,599
                                           ========   ========   ========

     Long-lived assets consist of fixed assets and are based on the physical
     location of the assets at the end of each year.

                                              Years Ended December 31
                                           ------------------------------
                                             2001       2002       2003
                                           --------   --------   --------
                                                    (In Thousands)

     Taiwan                                $  1,272   $  2,759   $  2,354
     U.S.A.                                   1,190      1,422      1,251
     Singapore                                  227        764        633
     People's Republic of China                 204        388        415
     Others                                     320        278        227
                                           --------   --------   --------
                                           $  3,213   $  5,611   $  4,880
                                           ========   ========   ========

     During the year ended December 31, 2003, one customer accounted for 13.5%
     of net revenues. During the year ended December 31, 2002, two customers
     accounted for 18.6% and 15.9% of net revenues. During the year ended
     December 31, 2001, two customers accounted for 20.9% and 11.0% of net
     revenues.

                                      F-27