<PAGE>

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-K
(MARK ONE)
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the fiscal year ended                   DECEMBER 31, 2000
                          ------------------------------------------------------
                                       OR
[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from ______________________ to _______________________

                         Commission file number: 0-23562

                                 MELTRONIX, INC.
             (Exact name of Registrant as specified in its charter)

          CALIFORNIA                                   94-3142624
-------------------------------          --------------------------------------
   (State of Incorporation)               (I.R.S. Employer Identification No.)

               9577 CHESAPEAKE DRIVE, SAN DIEGO, CALIFORNIA 92123
               --------------------------------------------------
          (Address of principal executive offices, including zip code)

       Registrant's telephone number, including area code: (858) 292-7000

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

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

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

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

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

         The aggregate market value of the voting stock held by non-affiliates
of the Registrant, as of March 31, 2001 was approximately $2,963,000 (based upon
the closing price for shares of the Registrant's Common Stock as quoted by the
OTC Bulletin Board for the last trading date prior to that date). Shares of
Common Stock held by each officer, director and holder of 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.

         On March 31, 2001, 16,967,001 shares of the Registrant's Common Stock,
no par value, were outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE.

  Portions of the Registrant's Definitive Proxy Statement for the Registrant's
    Annual Meeting to be filed with the SEC on or before April 30, 2001, are
      incorporated by reference into Part III of this Report on Form 10-K.

================================================================================
<PAGE>

                                     PART I
                                     ------

ITEM 1.  BUSINESS

         THIS DOCUMENT INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AS SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACT INCLUDED IN THIS DOCUMENT, INCLUDING WITHOUT
LIMITATION, THE STATEMENTS UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "LIQUIDITY AND CAPITAL
RESOURCES" REGARDING THE COMPANY'S STRATEGIES, PLANS, OBJECTIVES, EXPECTATIONS,
AND FUTURE OPERATING RESULTS ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE
COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS ARE REASONABLE AT THIS TIME, IT CAN GIVE NO ASSURANCE THAT SUCH
EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. ACTUAL RESULTS COULD DIFFER
MATERIALLY BASED UPON A NUMBER OF FACTORS INCLUDING, BUT NOT LIMITED TO,
LEVERAGE AND DEBT SERVICE, OUR RELIANCE ON A SMALL NUMBER OF CUSTOMERS,
DEPENDENCE ON CONTINUED GROWTH IN WIRELESS TELECOMMUNICATIONS, INTERNET
EQUIPMENT AND HIGH BANDWIDTH COMMUNICATION MARKETS, VARIABILITY OF CUSTOMER
REQUIREMENTS, TECHNOLOGICAL CHANGE, LIMITED SOURCES OF SUPPLY, DEPENDENCE ON KEY
PERSONNEL, COMPETITION, GOVERNMENT REGULATIONS, EXPANSION OF OPERATIONS, LIMITED
PUBLIC MARKET AND LIQUIDITY, SHARES ELIGIBLE FOR FUTURE SALE, IMPACT OF
ANTI-TAKEOVER MEASURES, THE COMPANY'S COMMON STOCK BEING SUBJECT TO PENNY STOCK
REGULATION AND OTHER RISKS DETAILED IN THE COMPANY'S SECURITIES AND EXCHANGE
COMMISSION FILINGS. STATEMENTS MADE HEREIN ARE AS OF THE DATE OF THIS FORM 10-K
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ("COMMISSION"). THE COMPANY
DISCLAIMS ANY OBLIGATION TO UPDATE THE CONTENTS OF THE STATEMENTS SUBSEQUENT TO
THE FILING OF THE FORM 10-K, EXCEPT AS MAY BE REQUIRED BY LAW.

         MeltroniX, Inc. and its wholly-owned subsidiaries (MeltroniX Solutions,
Inc. and Microelectronic Packaging of America, Inc.) (collectively, the
"Company") provide semiconductor interconnect solutions to the Advanced
Electronic Manufacturing Services (AEMS) marketplace by providing design, volume
manufacturing, and testing capabilities. The Company targets high growth
industries including Internet equipment, wireless/telecommunication, broadband
communication and other electronic systems and integrated circuits (ICs)
manufacturers. Headquartered in San Diego, with on-site manufacturing
facilities, the Company develops, manufactures, tests, and sells OEM
microelectronic semiconductor assemblies. Capitalizing on what it believes are
overall industry trends to outsource manufacturing of electronic systems and
integrated circuits, the Company offers both turnkey manufacturing and kitted
subassembly services featuring value added interconnect design and test
capabilities in addition to contract assembly. MeltroniX was incorporated in
California in 1984.

         The Company made a strategic change in its approach to the market by
expanding its current service business by adding proprietary products utilizing
the company's capabilities already in place.

         US SEMICONDUCTOR. In February 2001, the Company executed a letter of
intent with United States Semiconductor Corporation ("USSC") for a proposed
transaction, which, if consummated, would provide that USSC will (i) grant the
Company an exclusive, non transferable license for the use of USSC's technology
in exchange for a percentage to be determined of the Company's common stock, and
(ii) purchase a percentage yet to be determined of the common stock of the
Company. The expenses to further develop the technology to a commercially
feasible and manufacturable level are to be born by USSC. Once established, the
Company is to manufacture the developed products and, upon sale, will be
obligated to pay USSC a royalty, the amount of which has yet to be agreed upon.
To date, the Company had received an advance of $200,000 from USSC. Management
is continuing its discussion with USSC in anticipation of executing a definitive
agreement. The consummation of the transactions contemplated by the letter of
intent are subject to a number of conditions that are outside the control of the
Company and, therefore, there is no assurance that such transactions will be
successfully completed.

         WIDCOMM, INC. The Company has signed a Memorandum of Understanding
(MOU) with WIDCOMM, Inc., a world leader in Bluetooth networking solutions, that
forms the basis of an agreement for WIDCOMM to license its Bluetooth protocol
stack to MeltroniX. The Company is planning to incorporate WIDCOMM's Bluetooth
technology into its high-density semiconductor interconnect solutions for

                                       2
<PAGE>

distribution to its customers in the wireless/internet, telecommunication, high
band width networks and medical markets. WIDCOMM's Bluetooth protocol software
was the world's first Bluetooth Qualification Body (BQB) certified product.

         The Company believes there is a growing need for single and multiple
chipset interconnect solutions because of the faster time to market, lower
development costs, and ultimately lower system costs that the Company offers
compared to very large scale single ASIC-based (application-specific integrated
circuit) designs offered by others. The Company differentiates itself from
Electronic Manufacturing Services (EMS) competitors by providing sophisticated
design and manufacturing skills required to effectively implement high-density
single and multiple chip-level integration solutions. The Company's strategy is
based upon forming long term partnerships with its customers by providing
innovative high density interconnect solutions, custom design support,
comprehensive manufacturing and testing services for the reliable volume
production of new broadband wireless and land-based electronic systems.

INDUSTRY OVERVIEW

         General industry trends to outsource manufacturing services have
exceeded the growth rates for the actual markets served. The Company believes
that the outsourcing trends will continue for the foreseeable future and thus it
views the business opportunities available to it to be large and growing
although there can be no assurance the business opportunities will continue in
such a manner. The Company is focusing on the specific market segments that it
believes offer superior growth potential. Specifically, the Company is targeting
wireless Internet, Internet and telecommunication infrastructure equipment
makers, as well as other industries where semiconductor interconnect
technologies demand specialized expertise.

INTERNET, WIRELESS AND HIGH BANDWIDTH COMMUNICATIONS

         Over the past half-decade, the global growth of the Internet along with
new bandwidth consuming voice, data and video applications are driving an
escalation of higher performance demands from worldwide network infrastructures.
While network backbones are being pushed toward terabit traffic levels, end
users are also turning to broadband connectivity with alternatives such as cable
modems and Digital Subscriber Line ("DSL") services to bring higher performance
directly to their desktops and computers. Similarly the growth of wireless
communications infrastructures is greatly expanding applications for seamless
delivery of voice, video and data to mobile users in virtually any location. To
a great extent, the Company believes this unprecedented communications
revolution is being built upon the bedrock of new chip-level integration and
interconnection technologies that allow for greater circuit densities, higher
operating frequencies, more mobility, and improved ruggedness and reliability.

ADVANCED MICROELECTRONICS FOR OTHER MARKETS INCLUDING MEDICAL AND SCIENTIFIC

         Advanced single and multiple chip-level integration and interconnection
techniques are also being used to fuel similar technology revolutions across the
entire spectrum of scientific and medical applications. Not only are these
products continually becoming much smaller and smarter, they are also delivering
a rich convergence of capabilities to users, such as a DNA testing or drop-in
(e)film system that can seamlessly turn an existing 35mm SLR camera into a
digital imaging device.

         In addition to packing denser circuitry designs into more compact
devices, the chip-level design challenges for medical, scientific and other
systems also often include precision integration of specialized devices, such as
medical sensors, lasers, or light-sensitive imaging sensors, directly on to the
same module as the semiconductor die.

         The convergence of market forces that include a general trend to
outsource contract manufacturing at the same time that microelectronic
technologies are replacing traditional through-hole/surface mount assembly
technologies, has created what the Company believes are substantial business
opportunities for companies positioned to take advantage of these market trends.

STRATEGY

         Building upon nearly a decade of proven capabilities in the design,
assembly, and testing of bare die microelectronic assemblies, including
manufacturing to stringent military specifications such as Mil-Q-9858A, in 1999
MeltroniX significantly changed its strategy from stagnant military and
automated test equipment markets to wireless Internet and broadband

                                       3
<PAGE>

communication markets that require similar expertise but that the Company
believes offer much larger business opportunities. In addition the Company
extended its semiconductor interconnect capabilities to encompass the entire
range of technologies for single and multiple chipset semiconductor solutions.
In essence, MeltroniX provides the value-added design and manufacturing services
that offer faster time to market with lower development costs than single ASIC
level integration. Besides providing a full menu of the latest chip-level
integration technologies, MeltroniX has also created a customer-driven
organization for cost-effectively delivering an unparalleled spectrum of
Advanced Electronic Manufacturing Services.

         The Company made a strategic change in its approach to the market by
expanding its current service business by adding proprietary products utilizing
the company's capabilities already in place.

         US SEMICONDUCTOR. In February 2001, the Company executed a letter of
intent with United States Semiconductor Corporation ("USSC") for a proposed
transaction, which, if consummated, would provide that USSC will (i) grant the
Company an exclusive, non transferable license for the use of USSC's technology
in exchange for a percentage to be determined of the Company's common stock, and
(ii) purchase a percentage yet to be determined of the common stock of the
Company. The expenses to further develop the technology to a commercially
feasible and manufacturable level are to be born by USSC. Once established, the
Company is to manufacture the developed products and, upon sale, will be
obligated to pay USSC a royalty, the amount of which has yet to be agreed upon.
To date, the Company had received an advance of $200,000 from USSC. Management
is continuing its discussion with USSC in anticipation of executing a definitive
agreement. The consummation of the transactions contemplated by the letter of
intent are subject to a number of conditions that are outside the control of the
Company and, therefore, there is no assurance that such transactions will be
successfully completed.

         WIDCOMM, INC. The Company has signed a Memorandum of Understanding
(MOU) with WIDCOMM, Inc., a world leader in Bluetooth networking solutions, that
forms the basis of an agreement for WIDCOMM to license its Bluetooth protocol
stack to MeltroniX. The Company is planning to incorporate WIDCOMM's Bluetooth
technology into its high-density semiconductor interconnect solutions for
distribution to its customers in the wireless/internet, telecommunication, high
band width networks and medical markets. WIDCOMM's Bluetooth protocol software
was the world's first Bluetooth Qualification Body (BQB) certified product.

DESIGN, MANUFACTURING AND TESTING CAPABILITIES

         As core competencies in our single and multiple chipset solutions,
MeltroniX was one of the first companies to fully develop the production level
use of mixed assembly high-speed wire bonding on organic laminate circuit board
technologies combining chip-on-board with surface mount and using silicon and
galium arsenide semiconductors. In addition, MeltroniX has pioneered and refined
the production use of a wide range of semiconductors, substrates, encapsulation
and interconnect technologies.

         The Company believes that it is uniquely positioned to offer its broad
experience with a wider range of semiconductor materials including silicon,
silicon germanium, and galium arsenide combined with a broad substrate expertise
ranging from economical organic laminates, to newly developed low temperature
co-fired ceramics as well as proven high temperature ceramics, beryllium oxide,
and other materials.

         In order to help match the right process technologies with each
customer's specific application requirements, the Company also has extensive
design experience in:

         o        Thermal design
         o        Digital, analog and mixed signal modules
         o        RF circuitry (to 30+ GHz levels)
         o        Low noise designs
         o        High Speed Digital designs
         o        Test station development

                                       4
<PAGE>

         The Company offers complete turnkey design, assembly and test services
as a total solution for outsourced semiconductor interconnect solutions for
electronic systems. The Company believes these services provide customers with a
cost-effective alternative to product design processes from internal operations
or competitors of the Company. The Company adopted the trademark "a few good
chips" to facilitate presenting the benefits that its solutions offer compared
to developing a much larger die area required for a single ASIC system.

         In addition to offering leading edge chip-level interconnection
technologies, the Company is proactively organized to foster the consistent
responsiveness, flexibility and communications that are essential to creating
successful customer-driven relationships. The Company views itself as an
extension of its customers' internal resources and formally establishes a
Customer Advocacy Team (CAT) made up of cross-functional program management
teams as a process for key customers to ensure timely two-way communications of
status and responsive resolution of all issues. CAT teams essentially act as
cross-functional business units for key customers to effectively bring all of
the Company's capabilities to bear as if they were an integral part of the
customers' own organizations. The continual focus of the Company is on improving
time-to-market and reducing the risk associated with developing new technologies
that the Company may be familiar with but its customers are not.

CUSTOMERS, APPLICATIONS AND MARKETS

         Highly visible markets for the Company include the newly targeted
segments of wireless/telecommunications, Internet equipment, wireless Internet,
and the previously served automated test equipment (ATE), military/aerospace,
and medical instrumentation segments. In 1999, the Company significantly
sharpened its focus on the newly targeted market segments with the goal of
expanding its customer base exclusively in these areas. The Company increased
the number of customers in 1999 to 33 from 12 in 1998 and focused on reducing
its dependence on its largest customer, Schlumberger. Sales to Schlumberger
accounted for 42%, 81%, and 87% of the Company's net sales in 2000, 1999, and
1998 respectively. Based upon the new customers added in 1999, the Company
believes it is well positioned to reduce its dependence on a single customer in
the year 2001. New customers are in the targeted market segments of
telecommunications and/or wireless.

         The Company currently sells its services through a combination of its
own direct sales for selected key accounts and use of independent sales
representatives located in 8 field sales offices in North America and Europe.

LICENSE AND OTHER SIGNIFICANT AGREEMENTS

         The Company seeks to obtain licenses to technologies that complement
and expand the current technologies that the Company owns. These agreements,
along with certain other significant agreements of the Company, are discussed
below.

         MOTOROLA. In July 1998, the Company signed an agreement with Motorola
for Ball Grid Array (BGA) and flip chip interconnect technologies. The Company
views this as a significant technology license that has already been
instrumental in securing business from new customers. The Company believes
general industry chip packaging trends show substantial growth for BGA and flip
chip packaging that replaces through-hole, PQFP and other forms of IC packaging.

         US SEMICONDUCTOR. In February 2001, the Company executed a letter of
intent with United States Semiconductor Corporation ("USSC") for a proposed
transaction, which, if consummated, would provide that USSC will (i) grant the
Company an exclusive, non transferable license for the use of USSC's technology
in exchange for a percentage to be determined of the Company's common stock, and
(ii) purchase a percentage yet to be determined of the common stock of the
Company. The expenses to further develop the technology to a commercially
feasible and manufacturable level are to be born by USSC. Once established, the
Company is to manufacture the developed products and, upon sale, will be
obligated to pay USSC a royalty, the amount of which has yet to be agreed upon.
To date, the Company had received an advance of $200,000 from USSC. Management
is continuing its discussion with USSC in anticipation of executing a definitive
agreement. The consummation of the transactions contemplated by the letter of
intent are subject to a number of conditions that are outside the control of the
Company and, therefore, there is no assurance that such transactions will be
successfully completed.

                                       5
<PAGE>

         WIDCOMM, INC. The Company has signed a Memorandum of Understanding
(MOU) with WIDCOMM, Inc., a world leader in Bluetooth networking solutions, that
forms the basis of an agreement for WIDCOMM to license its Bluetooth protocol
stack to MeltroniX. The Company is planning to incorporate WIDCOMM's Bluetooth
technology into its high-density semiconductor interconnect solutions for
distribution to its customers in the wireless/internet, telecommunication, high
band width networks and medical markets. WIDCOMM's Bluetooth protocol software
was the world's first Bluetooth Qualification Body (BQB) certified product.

ENGINEERING AND PRODUCT DEVELOPMENT

         The Company provides design, assembly and test services and features
engineering and product development as a differentiating service over its
competitors. In 1999, the Company purchased equipment and developed technology
to offer its customers flip chip, and Ball Grid Array (BGA) solutions that are
technologies of choice for wireless, telecommunications and other market
segments. The Company works closely with its customers to develop expertise in
new electronic assembly and packaging technologies based upon market demand.
Primary focus in 1999 was on process engineering for chip-on-board and surface
mount technologies including ball grid array and "flip chip" interconnect
processes. In addition, the Company invested in flexible substrate and low
temperature co-fired ceramic substrate packaging technology, projected to be of
increased demand in 2001 for commercial and wireless products. The Company also
uses outside services for x-ray, surface analysis and ultrasonic imaging, as
well as specialized design such as ASIC design, to supplement its internal
capabilities. Engineering and product development expenditures were
approximately $1,276,000, $736,000, and $1,060,000 in 2000, 1999 and 1998,
respectively.

         The Company developed nine new products in 2000 that went into
production. Developing new products is costly and resulted in additional
expenses in 2000 not entirely offset by production revenue. In 2001 production
of those newly developed products will result in revenues to the Company. The
Company continues to seek new customers and products which will require
development costs, but which the Company feels future revenues will offset. The
Company also seeks to charge to the customer as much of the development cost as
is possible in the negotiations with customers.

MANUFACTURING, SUPPLIERS AND TOTAL QUALITY PROGRAM

         The Company believes that its ability to manufacture its products in a
timely and cost effective manner at the highest quality level is essential in
order to be competitive in its markets and achieve its growth objectives. The
Company's manufacturing facilities in San Diego, California include design and
prototype facilities and a production capability. The Company believes it is
able to support high volume requirements for its semiconductor interconnect
solutions for the coming year within its present facilities and views space for
additional capacity to be readily available in the San Diego area. Long term
considerations for growth may include expansion to nearby maquiladora facilities
in Mexico that are used by major international electronics companies. The
Company believes its proximity to maquiladora operations in Mexico to be a
significant strategic advantage to competitors in other areas of the United
States, Europe, or Asia.

         The Company believes that total quality management (TQM) is a vital
component of its customer satisfaction and internal productivity programs. The
Company maintains a system of quality control and documentation with respect to
each of its manufacturing processes.

         The Company maintains a supplier quality program that includes
qualification, performance measurement and corrective action requirements. The
Company chooses its suppliers based on quality, delivery, service and price.
Certain raw materials essential for the manufacture of the Company's products
are obtained from sole suppliers or a limited group of suppliers. Due to general
industry trends of rapid expansion of demand for certain passive and active
components used in wireless, telecommunications and internet equipment markets,
the Company seeks to establish and maintain strategic relationships with

                                       6
<PAGE>

distributors and manufacturers of such components to insure adequate supplies
are available to meet customer needs. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Sole or Limited Sources of
Supply."

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

BACKLOG

         The Company significantly increased its backlog of business during
2000, ending the year 85% higher than in 1999. Backlog as of December 31, 2000
was approximately $6.1 million compared to a December 31, 1999 backlog of
approximately $3.3 million. This increase was due primarily to the new customers
added during the year.

COMPETITION

         The Company believes that overall global markets for outsourced
manufacturing services exceed $100 billion and there are hundreds of companies
that serve this EMS marketplace. The top ten competitors in the electronic
manufacturing services ("EMS") market represented an aggregate annualized
revenue of $33 billion in 2000. These global companies are primarily focused on
servicing the needs of the very large international electronics companies that
do not require the specialized bare die semiconductor interconnect solutions
that the Company provides, thus these are not viewed as direct competition. The
Company strives to differentiate itself from other EMS competitors by focusing
on flexibility and customer service based upon concurrent engineering to provide
design expertise to meet physical size, thermal management, and solve
performance issues that may be beyond the internal capabilities of the customer
resources.

         In 1999 the Company improved its competitive position with its largest
customer, Schlumberger, and actually purchased material from its competitors,
Natel Engineering and VLSI Packaging to produce modules based upon orders that
had been shifted from these competitors to the Company. In 2000 and the Company
expects in 2001 to remain Schlumberger's sole source for the products the
Company produces for Schlumberger.

         Competitors include the global multinational companies of Aeroflex,
Flextronics, SCI, Sanmina, and others as well as regional and more specialized
companies such as HEI, Maxtek, VLSI Packaging, and Natel Engineering. There are
also "off shore" competitors such as AMKOR in Korea and Tong Tshing in Taiwan
that tend to focus more on industry standard, very high volume packages used by
the semiconductor companies.

         For any particular customer, small privately owned local companies
offer potential competition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Future Operations --
Competitive Industry; Price Competition."

INTELLECTUAL PROPERTY RIGHTS

         The Company placed more strategic importance on both patents and
developing trade secrets in 2000 than it did in 1999. While the Company believes
that the success of its business depends more on the technical competence,
creativity and marketing abilities of its employees, rather than on patents,
trademarks and other intellectual property rights, it does seek patents as
appropriate on inventions resulting from its ongoing engineering and product
development activities. In addition, the Company has acquired intellectual
property rights through business acquisitions and technology licenses. The
Company owns five United States patentS and intends to actively pursue trade
secrets and apply for appropriate patents as it develops expertise for flip
chip, BGA, and other technologies that offer enabling qualities in the targeted
markets of wireless, internet equipment, broadband communication and
semiconductor interconnect in general. Two of the companies' patents are no

                                       7
<PAGE>

longer effective and the other three expire beginning in February 2002 through
July 2010. The Company owns one registered United States trademark. The Company
continuously seeks to protect its intellectual property through proper
documentation and protective marking of designs and concepts.

         The Company views trademarks as an element of a marketing strategy to
increase awareness for the Company's services. Adding to the trademarks
"QuickTurn Turnkey Manufacturing" and "QTM" used in 1998, the Company created "A
few good chips" in 1999 to bring focus to the feature/benefit argument that is
part of the Company's sales strategy. These are being used as unregistered
trademarks at this time. The Company will continue to seek opportunities to
differentiate itself with the use of trademarks.

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

EMPLOYEES

         As of December 31, 2000, the Company had a total of 99 employees,
including 70 engaged in manufacturing, 13 in engineering and product
development, and 16 in sales, marketing and administration (including its
executive officers). All of the Company's employees are located in the United
States. None of the Company's employees are represented by a labor union, and
the Company has not experienced any work stoppages. The Company considers its
employee relations to be good.

EXECUTIVE OFFICERS AND KEY EMPLOYEES

         The Company's executive officers and key employees, and their ages as
of March 30, 2001, are:

<TABLE>
<CAPTION>
         Name                         Age            Position
         ----                         ---            --------
         <S>                          <C>            <C>
         Andrew K. Wrobel             49             Chairman of the Board, President and Chief Executive Officer
         Randal D. Siville            49             Vice President of Finance and Chief Financial Officer
         Dudley E. Westlake           55             Executive Vice President of Operations and Sales
</TABLE>

         Andrew K. Wrobel, age 49, has served as the Chairman, President and
Chief Executive Officer of the Company since January 1999. Prior to that, Mr.
Wrobel was President, Chief Executive Officer and Director of the Company since
October 1997. From 1989 to 1997, Mr. Wrobel served as Chairman, President and
Chief Executive Officer of GIGATEK Memory Systems, Inc., a manufacturer of
computer disk drive back up cartridges. Prior to 1989, Mr. Wrobel was Vice
President of Technology for Carlisle Memory Products Group and Vice President of
Engineering for Data Electronics, and held various management positions in
Marketing and Engineering at Texas Instruments and BASF. Mr. Wrobel holds a
Masters degree from the Massachusetts Institute of Technology (MIT).

         Randal D. Siville, CPA, J.D., age 49, joined the Company in April 2000
as Vice President of Finance and Chief Financial Officer. Prior to joining the
Company, he was Corporate Controller, Financial Compliance for PriceSmart, Inc.
(NASDAQ). From 1995 to 1999, Mr. Siville has held various financial positions
responsible for financial reporting and Securities and Exchange Commission
filings including Factory 2-U Stores, Inc., Upper Deck and Proxima. Previously
he was the Chief Financial Officer for the Greater San Diego Chamber of
Commerce. He has additionally held positions of Director of Cost Accounting,
plus six years in public accounting. Mr. Siville has over 20 years financial
management experience in both public and private sectors. Mr. Siville's
experience includes extensive SEC filings and NASDAQ exchange experience. He
holds a B.S. degree in Accounting from San Diego State University, Masters of
Business Administration and Doctorate of Jurisprudence degrees from National
University. Mr. Siville is a Certified Public Accountant.

                                       8
<PAGE>

         Dudley E. Westlake, age 55, was promoted to Executive Vice President of
Operations and Sales December 18, 2000. Mr. Westlake joined the Company in April
1998 as Vice President of Sales and Marketing. Prior to joining the Company, he
was President and CEO of MSR Development Corporation since 1994. He previously
served as Director of Marketing at Iomega Corporation from 1991 to 1994 and has
prior sales and marketing experience with Rockwell International Semiconductor
Division. Mr. Westlake holds an MBA and a B.S. in Engineering from California
State Polytechnic University, Pomona, California.

ITEM 2.  PROPERTIES

         The Company maintains its corporate headquarters in San Diego,
California. This leased facility totals approximately 25,000 square feet and is
used for corporate administration, design, engineering, manufacturing and sales
operations. The Company believes the current facility provides adequate capacity
to meet its needs in 2001 including supporting new customers added in 2000 that
require BGA, flip chip and other technologies. The Company made modifications
and installed equipment in 1999 to support the needs of new customers including
in the targeted market segments including wireless, Internet equipment and
telecommunications. By amendment in March 2001, the term of the lease on this
facility was extended to December 31, 2010 with no options to extend beyond that
date. The Company currently pays approximately $20,000 per month with respect to
this facility. Lease rates are adjusted each November as per the terms
stipulated in the agreement.

ITEM 3.  LEGAL PROCEEDINGS

         In May 1995, the United States Environmental Protection Agency ("EPA")
issued written notice to all known generators of hazardous waste shipped to a
Whittier, California treatment facility. The EPA notice indicated that these
generators (including the Company) were potentially the responsible parties
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986
("CERCLA"). The notice requires all of the generators of this waste to take
immediate actions to contain and prevent any further release of hazardous
substances at the site. In response to the EPA notice, the Company and
approximately 100 of the other named generators provided the necessary funding
to effect the removal and destruction of the hazardous wastes stored at this
site. At present, the Company believes its percentage of responsibility for this
site is less than one half of one percent; and that percentage is expected to
decrease substantially, as additional generators are determined. In addition,
the Company along with other named generators has provided certain funding to
test the soil and groundwater at this site, which testing is currently ongoing.
Although the cost incurred by the Company to date of removing and destroying the
hazardous waste stored at this facility was not significant, this effort does
not address the cleanup of potential soil and/or ground-water contamination
present at this site. Management is unable to estimate the possible cost of this
suit at this time, as the cost of clean up has not been determined. There can be
no assurance, therefore, that the costs and expenses associated with this action
will not increase in the future to a level that would have a material adverse
effect upon the Company's business, financial condition, results of operations
or cash flows.

         Two of the Company's former consultants and directors, Lewis Solomon
and Gary Stein ("Plaintiffs"), filed a lawsuit on December 18, 1998 in the state
of New York against the Company and its major customer, Schlumberger. The former
consultants' services were terminated in July 1998. Mr. Solomon resigned from
the Board of Directors in August 1998; Mr. Stein resigned in December of the
same year. Since the filing of this lawsuit, the Company was successful in
causing it to be transferred to San Diego, California, which the Company
believes will make the Company's defense of this case more convenient and less
expensive. In the complaint, Plaintiffs charged that the Company failed to pay
them for alleged consulting services, expense reimbursements and other forms of
compensation aggregating $101,250. Further, Plaintiffs alleged they were
wrongfully terminated as consultants and seek damages to be determined at trial.
The Company believed that Plaintiffs' claims were without merit and made
substantial counterclaims against Plaintiffs. A court-supervised settlement
conference was held in this case in November 1999, but no settlement was reached
at that time. In March 2001, the matter was settled whereby the Company agreed
to pay $50,000 in the form of 120,482 shares of common stock. The number of
shares to be issued was based on the average of the high bid and low ask market
price of $.414 per share as of January 10, 2001.

                                       9
<PAGE>

         On October 18, 2000, the Company was notified by the United States
Bankruptcy Court that Lucien A. Morin, II, as Chapter 7 Trustee of H. J. Meyers
& Co., Inc. is seeking from the Company 1,000,000 common stock purchase warrants
with a term of five years from November 19, 1997, an exercise price of $1.00 per
share, and certain registration rights, under a contract between the Company and
H.J. Meyers & Co. The Company has responded that H. J. Meyers & Co. failed to
fulfill its obligations under the contract, which was cancelled in August 1998,
and that as a result no warrants are due.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not Applicable.

                                       10
<PAGE>

                                     PART II
                                     -------

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

         The Company's Common Stock is quoted on the OTC Bulletin Board under
the symbol MTNX. The following table sets forth the range of high and low per
share bid information, as reported on the OTC Bulletin Board for each quarter
for the last two years through December 31, 2000. These over-the-counter
quotations reflect inter-dealer prices, without retail mark-up, mark-down, or
commission and may not necessarily represent actual transactions. On March 30,
2001, the average of the highest and lowest trading price per share was $0.26.
On March 30, 2001, the Company had 253 holders of record of its Common Stock and
16,967,001 shares outstanding.

                 QUARTER ENDED                        HIGH          LOW
                 -------------                        ----          ---
                 March 31, 1999                       $0.50        $0.18
                 June 30, 1999                        $0.63        $0.24
                 September 30, 1999                   $0.44        $0.27
                 December 31, 1999                    $1.97        $0.25
                 March 31, 2000                       $8.56        $1.03
                 June 30, 2000                        $4.06        $1.03
                 September 30, 2000                   $2.98        $1.34
                 December 31, 2000                    $1.94        $0.22

         During the past year, the Company did not declare or pay any cash
dividends on its Common Stock. The Company currently plans to retain all of its
earnings to support the development and expansion of its business and has no
present intention of paying any dividends on the Common Stock in the foreseeable
future.

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

                                       11
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
                                                                           FISCAL YEAR ENDED DECEMBER 31,
                                                    -----------------------------------------------------------------------------
                                                         2000            1999            1998            1997            1996
                                                    -------------   -------------   -------------   -------------   -------------
<S>                                                 <C>             <C>             <C>             <C>             <C>
                                                              (In thousands, except share and per share amounts)
Consolidated Statements of Operations Data:
Net sales (3) ...................................   $     12,903    $      9,254    $     19,271    $     28,522    $     19,044
Cost of goods sold ..............................         13,673           7,682          14,714          23,352          15,774
                                                    -------------   -------------   -------------   -------------   -------------
Gross profit (loss) .............................           (770)          1,572           4,557           5,170           3,270
Selling, general and administrative .............          4,230           2,145           2,915           4,204           4,353
Engineering and product development .............          1,276             736           1,060             760             666
                                                    -------------   -------------   -------------   -------------   -------------
Income (loss) from operations ...................         (6,276)         (1,309)            582             206          (1,749)
Other income (expense):
      Interest expense ..........................           (679)         (1,617)         (2,269)         (2,535)
                                                                                                                          (3,193)
      Other income ..............................              7              95             179             120              10
                                                    -------------   -------------   -------------   -------------   -------------
Loss from continuing operations
   before income taxes ..........................         (6,948)         (2,831)         (1,508)         (2,209)         (4,932)
Provision for income taxes ......................              2              --             (18)             --              --
                                                    -------------   -------------   -------------   -------------   -------------
Net loss from continuing operations .............         (6,950)         (2,831)         (1,526)         (2,209)         (4,932)
Discontinued operations (2) .....................             --              --          14,188          (7,609)        (36,337)
                                                    -------------   -------------   -------------   -------------   -------------
Net income (loss) after discontinued operations
    before extraordinary gain ...................         (6,950)         (2,831)         12,662          (9,818)        (41,269)
Extraordinary gain (4) ..........................             --          18,757              --              --              --
                                                    -------------   -------------   -------------   -------------   -------------
Net income (loss) ...............................         (6,950)         15,926          12,662          (9,818)        (41,269)
                                                    -------------   -------------   -------------   -------------   -------------
Dividends attributable to Series A Convertible
    Preferred Stock .............................           (334)            (69)             --              --              --
                                                    -------------   -------------   -------------   -------------   -------------
Net income (loss) available to common shareholder
(1)(2) ..........................................   $     (7,284)   $     15,857    $     12,662    $     (9,818)   $    (41,269)
                                                    =============   =============   =============   =============   =============
Earnings per common share:
      Continuing operations .....................   $      (0.61)   $      (0.27)   $      (0.14)   $      (0.21)   $      (0.90)
      Discontinued operations, net of tax .......             --              --            1.31           (0.74)          (6.67)
      Extraordinary item, net of tax ............             --            1.73              --              --              --
                                                    -------------   -------------   -------------   -------------   -------------
      Net income (loss) available to common
      shareholder ...............................   $      (0.61)   $       1.46    $       1.17    $      (0.95)   $      (7.57)
                                                    =============   =============   =============   =============   =============
Weighted average number of shares outstanding         12,028,000      10,857,000      10,818,000      10,361,000       5,445,000
                                                    =============   =============   =============   =============   =============

                                                                                     DECEMBER 31,
                                                    -----------------------------------------------------------------------------
                                                         2000            1999            1998            1997            1996
                                                    -------------   -------------   -------------   -------------   -------------
                                                                                    (In thousands)
Consolidated Balance Sheet Data:
Working capital surplus (deficiency) .........      $     (4,630)   $        373    $    (27,120)   $    (39,406)   $    (29,442)
Total assets .................................             1,978           6,349           6,885           9,911          24,894
Current liabilities ..........................             5,476           4,083          32,028          47,823          50,153
Long-term debt, less current portion .........               524              47              49              69           4,782
Accumulated deficit ..........................           (56,762)        (49,478)        (65,335)        (77,997)        (68,179)
Total shareholders' equity (deficit) .........            (4,022)             86         (25,192)        (37,981)        (30,041)

---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)      See discussion of effects of income taxes in Note 8 to Notes to
         Consolidated Financial Statements.
(2)      See discussion of discontinued operations in Note 2 to Notes to
         Consolidated Financial Statements.
(3)      1998 net sales were higher when compared to a pro forma net sales for
         1997 of $17,896 after giving effect to a change in operations with
         respect to sales of products to a customer that included components
         purchased from that customer.
(4)      Extraordinary gain arising from extinguishment of debt in default
         exchanged for Series A Convertible Preferred Stock in 1999. See Note 2
         of Notes to Consolidated Financial Statements.

                                                               12
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE
SUBSTANTIAL RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THIS SECTION AND
ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K. STATEMENTS MADE HEREIN ARE AS OF
THE DATE OF THIS FORM 10-K AND OTHER REPORTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION"). THE COMPANY DISCLAIMS ANY OBLIGATION TO
UPDATE THE CONTENTS OF THOSE STATEMENTS SUBSEQUENT TO THE FILING OF THIS FORM
10-K, EXCEPT AS MAY BE REQUIRED BY LAW.

RESULTS OF OPERATIONS

         The following table sets forth certain consolidated statements of
operations data of the Company expressed as a percentage of net sales for the
periods indicated:

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                      2000             1999             1998
                                                                   -----------     -----------      -----------
<S>                                                                   <C>             <C>              <C>
Net sales                                                             100.0%          100.0%           100.0%
Cost of goods sold .........................................          106.0            83.0             76.4
Gross profit  (loss)........................................           (6.0)           17.0             23.6
Selling, general and administrative ........................           32.7            23.1             15.1
Engineering and product development ........................            9.9             8.0              5.5
Income (loss) from operations ..............................          (48.6)          (14.1)             3.0
Other income (expense):
     Interest expense ......................................           (5.3)          (17.5)           (11.8)
     Other income ..........................................             --             1.0              0.9
Income (loss) from continuing operations ...................          (53.9)          (30.6)            (7.9)
Income (loss) from discontinued operations .................             --              --             73.6
Extraordinary gain..........................................             --           202.7               --
Net income (loss) ..........................................          (53.9)          172.1             65.7
Dividend expense ...........................................           (2.6)           (0.7)              --
Net income (loss) available to common shareholders..........          (56.5)          171.4             65.7
</TABLE>

YEARS ENDED 2000, 1999 AND 1998

         NET SALES. For the year ended December 31, 2000 ("2000"), net sales
were $12,903,000 representing an increase of $3,649,000 or 39% from the net
sales for the year ended December 31, 1999 ("1999"). For 1999, net sales were
$9,254,000, representing a decrease of $10,017,000 or 52% from net sales of
$19,271,000 for the year ended December 31, 1998 ("1998"). The increase in net
sales in 2000 from those in 1999 were primarily the result of sales of newly
developed products to new customers, primarily Micro Networks Corporation
("Micro Networks"), which accounted for $5,466,000 of the sales in 2000, as well
as invoices for rework of $1,069,000 for an unusual and non recurring billing to
Schlumberger and a billing to the same customer for raw materials at cost in the
amount of $940,000. These two customers, Schlumberger and Micro Networks each
represented 42% of net sales for 2000. The decrease in net sales for 1999 is
primarily the result of decreased shipments to Schlumberger. Sales to this
customer comprised 42%, 81% and 87% for the years ended December 31, 2000, 1999
and 1998, respectively. Sales to Schlumberger were $5,458,000 for 2000,
representing a decrease of 27% from the 1999 sales. Sales in 2000 included the
rework billings and sale of inventory at cost noted above. Sales to this
customer declined from $16,852,000 for 1998 to $7,525,000 for 1999 or 55%.

                                       13
<PAGE>

         COST OF GOODS SOLD. For 2000, cost of goods sold was $13,673,000
representing an increase of $5,991,000 or 78% from cost of goods sold for 1999.
The increase in cost of goods sold, and the resulting decline in the Company's
gross profit, is due to the increase in sales of newly introduced products in
2000 from new customers and includes higher product costs associated with
process and product development learning curve experience associated with
production ramp up on multiple new products. In 2000 there were also costs and
reserves associated with discontinued products. In addition, the cost of goods
sold includes the value of the $940,000 of raw material sold to Schlumberger at
cost. For 1999, cost of goods sold were $7,682,000, representing a decrease of
$7,032,000 or 48% from cost of goods sold for 1998. The decrease of cost of
goods sold in 1999 as compared to 1998 was due primarily to the decrease in
sales in the same period. The decrease in revenue in 1999 dollars was comprised
of a decrease in units shipped (34% decline in units shipped to Schlumberger,
the Company's largest customer at the time) exacerbated by a 33% decrease in the
average selling price of a unit shipped in 1999 as compared to 1998. Cost of
goods sold as a percentage of revenue increased to 106% in 2000 from 83% in 1999
due to the higher product costs associated with new process and product
development for new products. Costs of goods sold increased to 83% in 1999 from
76% in 1998 due to the absorption of fixed manufacturing costs over lower sales
revenue. Production in the fourth quarter of 2000 was scaled back to respond to
the reduced demand from some customers and to focus on those customers for which
management felt gross profit margin was acceptable to continue manufacturing.
However, production payroll and semi-fixed costs could not be reduced as quickly
thereby contributing to the negative gross profit for the fourth quarter.

         GROSS PROFIT (LOSS). The Company incurred a gross loss for 2000 of
$(770,000) a decrease of $2,342,000 or 149% from the gross profit in 1999 as a
result of the development and introduction to production of new products. Gross
profit for 1999 was $1,572,000, a decrease of $2,985,000 or 66% from 1998. Gross
profit for 1999 represents 17% of net sales, as compared to 24% for 1998. The
decrease in gross profit for 1999 compared to 1998 was due primarily to the
lower sales volume. The decrease in gross profit as a percentage of net sales
results from the change in product mix as well as the absorption of fixed
manufacturing costs over the lower sales revenue in 1999.

         SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses were $4,230,000 for 2000, an increase of $2,085,000 or
97% as compared to 1999. Selling, general and administrative expenses were
$2,145,000 for 1999, a decrease of $770,000 or 26% as compared to 1998. The
increase in expenses for 2000 was primarily due to the Company's investment in
marketing and development of new customers as well as restructuring the
executive management team for future growth. Charges for warrants and
non-employee stock compensation account for approximately $681,000 of the
increase. Such warrant expense is a non-cash charge. The increase for 2000 was
also due to increased legal fees to successfully complete certain outstanding
legal matters. For a discussion of completed legal proceedings see Item 3 -
Legal Proceedings. The decreases in expenses for 1999 were primarily the result
of lower consulting fees, which had been incurred by the Company in 1998, as
well as reductions in staffing commensurate with the lower sales volume activity
in 1999.

         ENGINEERING AND PRODUCT DEVELOPMENT. Engineering and product
development expenses were $1,276,000 for 2000; an increase of $540,000 or 73% as
compared to 1999. Engineering and product development expenses were $736,000 for
1999; a decrease of $324,000 or 31% as compared to 1998. The increase is
primarily comprised of an increase in process and products development costs in
2000 as compared to 1999 which were necessary to bring new technology expertise
for BGA, flip chip, fine pitch wire bonding, and other semiconductor
interconnect technologies, to the Company. The largest component of the decrease
in expenses for 1999 as compared to 1998 was from decreased use of outside
consultants in 1999 as compared to 1998.

         INTEREST EXPENSE. Interest expense totaled $679,000 for 2000, a
decrease of $938,000 or 58% from 1999. Interest expense totaled $1,617,000 for
1999, a decrease of $652,000 or 29% from 1998. The primary cause of the decrease
in interest expense for 2000 is due to the lower debt structure after the
October 1999 conversion to equity of selected portions of the Company's
outstanding debt. Additionally, $620,000 of the 2000 interest expense is
non-cash interest resulting from warrants and the beneficial conversion features
of certain debt instruments. The primary cause of the decrease in interest
expense for 1999 was also the conversion of debt into equity in October of 1999.
Interest expense for 1999 and 1998 is primarily comprised of interest on
approximately $23.2 million of debt from the Company's discontinued Singapore
operations guaranteed by the Company.

                                       14
<PAGE>

         OTHER INCOME. Other income was insignificant at $7,000 for 2000, a
decrease of $88,000 or 93% from 1999. Other income was $95,000 for 1999, a
decrease of $84,000 or 47% from 1998. Other income for 1998 consists primarily
of the settlement of a note receivable, which had been previously written-off.

         EFFECTS OF INCOME TAXES. The Company believes that it has sufficient
losses to offset any taxable income that was generated during 2000, 1999 and
1998. However, the Company's use of these losses may result in alternative
minimum taxes for Federal income tax purposes. As a result, the Company has
recorded a small provision for income taxes.

         The Company believes that it has incurred an ownership change pursuant
to Section 382 of the Internal Revenue Code, and, as a result, the Company
believes that its ability to utilize its current net operating loss and credit
carryforwards in subsequent periods will be subject to annual limitations.

         DISCONTINUED OPERATIONS IN SINGAPORE. In 1998, the Company recorded a
gain of $10.2 million to reduce the Current Liabilities of Discontinued
Operations in Singapore. This gain resulted from the Company's decision not to
consolidate the assets and liabilities of the Company's operations which were
not guaranteed by the Company. The discontinued operations are Microelectronic
Packaging Singapore (S) Pte. Ltd. ("MPS"), MPM (S), Pte. Ltd., ("MPM"), MPC (S),
Pte. Ltd. ("MPC") and Furnace Technology Pte. ("FTECH") ("Singapore
Subsidiaries"). In addition, in 1998 the Company recorded a gain of $2.3 million
from the reversal of interest and expenses accrued in 1996, a gain of $1.0
million from the sales of MPS buildings, $0.2 million of amortization of
deferred revenue, and $0.5 million from the collection of an insurance recovery.
Discontinued operations in 1997 consisted of the net operating activities of
MPM, MPS, MPC and FTECH. Amounts recorded as estimated losses on disposal of
assets of the discontinued operations reflect management's best estimates of the
amounts expected to be realized on the sale of the assets associated with these
discontinued operations and the expenses to be incurred through the disposal
date.

         EXTRAORDINARY GAIN. The extraordinary gain of $18,757,000 recorded in
1999 consists of the gain from the conversion into 9,362,777 shares of Preferred
Stock, of all obligations owed by the Company pursuant to guarantees by the
Company of certain debt obligations owed by the Company's Singapore
subsidiaries. The extinguishment of those debt obligations, offset by the value
of the Preferred Stock issued in exchange for the debt, and further reduced by
certain expenses associated with the gain, has resulted in the gain. See Note 2
to the Consolidated Financial Statements for a more complete description of the
transaction, which resulted in the extraordinary gain.

LIQUIDITY AND CAPITAL RESOURCES

         During 2000, 1999 and 1998, the Company financed its operations from
operating cash flow. During 2000, operating activities of continuing operations
utilized $691,000, primarily resulting from cash consumed in the operations
offset by increases in accounts payable and accrued liabilities. Investing
activities, consisting principally of the purchases of fixed assets used
$95,000, and financing activities provided $451,000 during 2000 resulting from
issuances of common stock of $987,000, offset by net reductions in notes payable
of $536,000. During 2000, the Company had additions of liquidity from (i)
accounts receivable financing, as discussed below, (ii) short-term notes
payable, (iii) exercise of stock options and a private placement.

         The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. During the year ended
December 31, 2000, the Company experienced a net loss totaling $6,950,000 and
had negative cash flows from operations for 2000 totaling $691,000. In addition,
the Company had a working capital deficit totaling $4,630,000 and a net
shareholders' deficit totaling $4,022,000 at December 31, 2000. Further, the
Company has not made timely payments and was not in compliance with certain
debt, lease, and service agreements. As a result, the report of the Company's
auditors on its financial statements for 2000 contains an assumption and
corresponding discussion regarding the Company's ability to continue as a going
concern. The Company must improve its profitability and obtain additional
sources of liquidity through debt or equity financing to fund its operations,
repay debt currently due and debt about to become due as well as its general
working capital requirements. Management is currently monitoring its expenses in
an effort to improve the effectiveness and efficiency

                                       15
<PAGE>

of its available resources to assist in improving its profitability. Management
is also currently exploring various debt and equity funding sources including
and in addition to those with La Jolla Cove Investors, Inc. and United States
Semiconductor Corporation, as described below, which have occurred subsequent to
December 31, 2000. There can be no assurance that any additional financing will
be available to the Company on a timely basis or on acceptable terms or at all.
The Company's inability to accomplish these goals will have a materially adverse
effect on the Company's business, consolidated financial condition and
operations. The accompanying consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

         The Company's inventories declined by $1,900,000 or 82% at December 31,
2000 as compared to December 31, 1999. This decline is due to reductions of
inventory held on-hand for the Schlumberger account. Accounts payable decreased
by $30,000 or 1% as compared to 1999, which is net of the conversion of
approximately $681,000 of vendor account balances into common stock and debt
arrangements.

         In July 2000, the Company entered into an Accounts Receivable Financing
Agreement with Silicon Valley Bank ("Bank Credit Line") through July 19, 2001.
The Agreement is secured by all of the assets of the Company, and the Company
can borrow up to $1,500,000 in total over the term. In consideration of the
loan, 60,000 warrants were issued to Silicon Valley Bank with an exercise price
of $1.50 per share. The Agreement permits the Company to borrow 70% of the
amount of qualified accounts receivable which are accepted by the bank. The
Agreement originally required the Company to maintain a net profit after taxes
of at least $1.00 on a quarterly basis beginning with the quarter ended June 30,
2000. The Company was in violation of this covenant until it signed an Accounts
Receivable Financing Modification Agreement on November 14, 2000 ("Modification
Agreement"). Under the Modification Agreement the bank waived this default on
the profitability covenant and substituted a covenant requiring the Company to
maintain a certain EBITDA with no greater than a 15% negative variance. The
Company, pursuant to the Modification Agreement, issued an additional 60,000
warrants to Silicon Valley Bank with an exercise price of $1.50 per share and
pays a collateral handling fee based on the balance of the outstanding accounts
receivable every month. In December 2000, Silicon Valley Bank notified the
Company that it was in default of certain payment provisions. As of December 31,
2000, approximately $626,000 was outstanding under the agreement.

         In January 2001, La Jolla Cove Investors, Inc. ("LJCI") and The Norman
Litz IRA, loaned the Company $250,000 each in exchange for a two-year
convertible note bearing interest at 10%, payable monthly. The convertible note
due to The Norman Litz IRA is secured by the assets of the Company, while the
note due to LJCI is personally guaranteed by directors and officer of the
Company. The conversion prices of the notes are equal to (a) $.20 per share, if
the principal amounts are converted within one-year of the effective date, or
(b) the lesser of $.20 per share or 80% of the lowest market price (as defined)
during the 45 days prior to the conversion, if the principal amounts are
converted after one-year and prior to maturity. In addition, each of the
agreements contains an Additional Stock Purchase Right, whereby, the debt
holders can purchase additional shares at the lesser of $.20 per share or 80% of
the lowest market price (as defined) during the 45 days prior to note
conversion. Under the Additional Stock Purchase Right, the debt holders are
limited in the number of additional shares that can be purchased, such that, (a)
the additional shares purchased can not exceed 50% of the number of shares
initially converted from the loan balance, and (b) the debt holders can not own
more than 10%, individually, of the then outstanding shares of Common Stock.

         In February 2001, the Company executed a letter of intent with United
States Semiconductor Corporation ("USSC") for a proposed transaction, which, if
consummated, would provide that USSC will (i) grant the Company an exclusive,
non transferable license for the use of USSC's technology in exchange for a
percentage to be determined of the Company's common stock, (ii) purchase a
percentage yet to be determined of the common stock of the Company, The expenses
to further develop the technology to a commercially feasible and manufacturable
level are to be born by USSC. Once established, the Company is to manufacture
the developed products and, upon sale, will be obligated to pay USSC a royalty,
the amount of which has yet to be agreed upon. To date, the Company had received
an aggregate of $200,000 from USSC. Management is continuing its discussion with
USSC in anticipation of executing a definitive agreement. The consummation of
the transactions contemplated by the letter of intent are subject to a number of
conditions that are outside the control of the Company and, therefore, there is
no assurance that such transactions will be successfully completed.

                                       16
<PAGE>

         On April 6, 2001, the Company borrowed an additional $200,000 from LJCI
under a secured promissory with interest at 9%, due and payable on April 6, 2002
and guaranteed by certain officers/directors of the Company. In connection with
the promissory note, the Company is to issue 1,000,000 shares of its common
stock as additional consideration for the loan. The Company has further agreed
to prepare and file a registration statement within 60 days and use its best
efforts to effect such registration statement to register the 1,000,000 shares
and those underlying the previously issued convertible note payable.

FUTURE OPERATIONS

         THE COMPANY'S BUSINESS IS SUBJECT TO NUMEROUS RISKS ANYONE OF WHICH,
ALONE OR IN COMBINATION, COULD HAVE A MATERIAL ADVERSE EFFECT ON FUTURE RESULTS
OF OPERATIONS. SOME OF THESE RISKS ARE:

         CUSTOMER CONCENTRATION. The increase in net sales in 2000 from those in
1999 were primarily the result of sales of new products to new customers and
invoices for rework of $1.1 million for an unusual and non recurring billing to
Schlumberger and a billing to the same customer for raw materials at cost in the
amount of $0.9 million. Two customers, Schlumberger and Micro Networks each
represented 42% of net sales for 2000. Sales to one customer, Schlumberger,
accounted for 81% of the Company's net sales in 1999. The Company's revenues
from Schlumberger decreased from $16.8 million in 1998 to $7.5 million in 1999
to $5.4 million in 2000, primarily due to lower demand from the customer
combined with a high level of repair activity, which generated significantly
less revenue than would be generated by the sale of a comparable new unit.

         The Company significantly expanded its number of new products to
customers in 2000. In prior years, the Company has sold its products to a very
limited number of customers. Reductions, cancellations or delays in orders by
several of these customers, including reductions due to market, economic or
competitive conditions in the semiconductor, personal computer or electronic
industries or in other industries that manufacture products utilizing
semiconductors or MCMs could materially adversely affect the Company's business,
financial condition and results of operations. The Company's ability to increase
its sales in the future will depend upon its continuing ability to obtain orders
from new customers.

         FUTURE OPERATING RESULTS. The Company's operating results have
fluctuated in the past and may continue to fluctuate in the future depending
upon a variety of factors, including:

         o        downward pressure in gross margins,

         o        losses due to low shipping volume,

         o        delayed market acceptance, if any, of new and enhanced
                  versions of the Company's products,

         o        delays, cancellations or reschedulings of orders,

         o        delays in product development, defects in products,

         o        changes in the length of the design-to-production cycle,

         o        relationships with and conditions of customers,
                  subcontractors, and suppliers,

         o        receipt of raw materials, including consigned materials,

         o        customer concentration and

         o        price competition.

                                       17
<PAGE>

         In addition, operating results may fluctuate based upon several other
factors, including the Company's ability to retain present management and to
attract new customers, changes in pricing by the Company, its competitors,
subcontractors, customers or suppliers, and fluctuations in manufacturing
yields. The absence of significant backlog for an extended period of time will
also limit the Company's ability to plan production and inventory levels, which
could lead to fluctuations in operating results. Accordingly, the failure to
receive anticipated orders or delays in shipments due, for example, to
unanticipated shipment reschedulings or defects or to cancellations by
customers, or to unexpected manufacturing problems may cause net sales in a
particular quarter to fall significantly below the Company's expectations, which
would materially adversely affect the Company's operating results for such
quarter. The impact of these and other factors on the Company's net sales and
operating results in any future period cannot be forecasted with certainty. In
addition, the fixed overhead costs at the Company's facilities, the need for
continued expenditures for research and development, capital equipment and other
commitments of the Company, among other factors, will make it difficult for the
Company to reduce its expenses in a particular period if the Company's sales
goals for such period are not met. A large portion of the Company's operating
expenses are fixed and are difficult to reduce or modify should revenues not
meet the Company's expectations, thus magnifying the material adverse impact of
any such revenue shortfall. Accordingly, there can be no assurance that the
Company will not incur losses in the future or that such losses will not have a
material adverse effect on the Company's business, financial condition and
results of operations.

         DEPENDENCE ON THE CONTINUED GROWTH IN THE WIRELESS TELECOMMUNICATIONS,
INTERNET EQUIPMENT AND HIGH BANDWIDTH COMMUNICATIONS MARKETS. The Company's new
business strategy is to target the wireless telecommunications, internet
equipment and high bandwidth communications industries to sell its chip level
integration, interconnect services and developing proprietary products. These
industries have experienced dramatic growth. If the rate of growth slows or
capital investments in one or more of these markets is reduced, or other factors
adversely affect these industries, it could materially affect the business,
financial condition, and results of the operations of the Company.

         VARIABILITY OF CUSTOMER REQUIREMENTS AND OPERATING RESULTS. Electronics
manufacturing service providers must provide increasingly rapid product
turnaround for their customers. The Company may not be able to obtain firm, long
term purchase commitments from its customers. Customers may cancel their orders,
change production quantities, or delay production for a number of reasons.
Cancellations, reductions, or delays by a significant customer, or by a group of
customers would materially affect the business, financial condition and results
of the operations of the Company. Other factors, in addition to the short-term
nature of our customer's commitments, may contribute to fluctuations in results
of the operations of the Company, including those discussed herein under Future
Operating Results. The Company makes significant decisions, including the level
of business it seeks and accepts, production schedules, component procurement
commitments, personnel needs and another resource requirements, based upon the
estimates of customer requirements. The short-term nature of the Company's
customers' commitments and the possibility of rapid changes in the demand for
their products reduce the ability of the Company to estimate accurately future
customer requirements. Customers may occasionally require rapid increases in
production, which can stress the capacity of the Company and reduce margins.
Although the Company has increased its manufacturing capacity, there can be no
assurance it will have the capacity to meet the demands of customers. Because
many of the costs of the Company are relatively fixed, a reduction in customer
demand can adversely affect the gross margins and operating income.

         EXPANDED PRODUCT LINE AND CUSTOMER BASE COULD CAUSE PROBLEMS MANAGING
SUCH GROWTH. Failure to manage the increased number of customers and expanded
products in new industries such as wireless telecommunications, internet
equipment and high bandwidth communications could materially adversely affect
the business, financial conditions and results of the operations of the Company.
The Company's ability to compete effectively and to manage future growth will
depend on its ability to implement and improve operating and financial systems
on a timely basis for all of its product lines. The Company can give no
assurance it will be able to manage its future growth effectively.

                                       18
<PAGE>

         TECHNOLOGICAL CHANGE; IMPORTANCE OF TIMELY PRODUCT INTRODUCTION;
UNCERTAINTY OF MARKET ACCEPTANCE AND EMERGING MARKETS. The markets for the
Company's products are subject to technological change and new product
introductions and enhancements. Customers in the Company's markets require
products embodying increasingly advanced electronics interconnection technology.
Accordingly, the Company must anticipate changes in technology and define,
develop and manufacture or acquire new products that meet its customers' needs
on a timely basis. The Company anticipates that technological changes could
cause the Company's net sales to decline in the future. There can be no
assurance that the Company will be able to identify, develop, manufacture,
market, support or acquire new technologies successfully, that any such new
technologies will gain market acceptance, or that the Company will be able to
respond effectively to technological changes. If the Company is unable for
technological or other reasons to develop services in a timely manner in
response to changes in technology, the Company's business, financial condition
and results of operations will be materially adversely affected. There can be no
assurance that the Company will not encounter technical or other difficulties
that could in the future delay the introduction of new products or product
enhancements. In addition, new product introductions by the Company's
competitors could cause a decline in sales or loss of market acceptance of the
Company's products, which could materially adversely affect the Company's
business, financial condition and results of operations. Even if the Company
develops and introduces new products, such products must gain market acceptance
and significant sales in order for the Company to achieve its growth objectives.
Furthermore, it is essential that the Company develops business relationships
with and supplies products to customers whose end-user products achieve and
sustain market penetration. There can be no assurance that the Company's
products will achieve widespread market acceptance or that the Company will
successfully develop such customer relationships. Failure by the Company to
develop products that gain widespread market acceptance and significant sales or
to develop relationships with customers whose end-user products achieve and
sustain market penetration will materially adversely affect the Company's
business, financial condition and results of operations. The Company's financial
performance will depend in significant part on the continued development of new
and emerging markets such as the market for single and multiple chipset
interconnect solutions. The Company is unable to predict with any certainty any
growth rate and potential size of emerging markets. Accordingly, there can be no
assurance that emerging markets targeted by the Company will develop or that the
Company's products will achieve market acceptance in such markets. The failure
of emerging markets targeted by the Company to develop or the failure by the
Company's products to achieve acceptance in such markets could materially
adversely affect the Company's business, financial condition and results of
operations.

         COMPETITIVE INDUSTRY; PRICE COMPETITION. The electronic interconnection
technology industry is intensely competitive. The Company experiences intense
competition worldwide from a number of manufacturers, including Maxtek
Components Corporation, Natel Engineering, VLSI Packaging, Raytheon Electronic
Systems, Flextronics, Advanced Packaging Technology of America and HEI Inc. The
Company faces competition from certain of its customers that have the internal
capability to produce products competitive with the Company's products and may
face competition from new market entrants in the future. In addition,
corporations with which the Company has agreements are conducting independent
research and development efforts in areas that are or may be competitive with
the Company. The Company expects its competitors to continue to improve the
performance of their current products and to introduce new products or new
technologies that provide improved performance characteristics. New product
introductions by the Company's competitors could cause a decline in sales or
loss of market acceptance of the Company's existing products which could
materially adversely affect the Company's business, financial condition and
results of operations. The Company is also experiencing price competition, which
may materially adversely affect the Company's business, financial condition and
results of operations. The Company believes that to remain competitive in the
future it will need to continue to develop new products and to invest financial
resources in new product development. There can be no assurance that such new
products will be developed or that sales of such new products will be achieved.
There can be no assurance that the Company will be able to compete successfully
in the future.

         SOLE OR LIMITED SOURCES OF SUPPLY. As is common in the Company's
industry, certain raw materials essential for the manufacture of the Company's
products are obtained from a sole supplier or a limited group of suppliers.
There are a limited number of qualified suppliers of laminate substrates and die
which are of critical importance to the production of the Company's products. In
the manufacturing process, the Company may utilize consigned materials supplied
by certain of its customers. The Company's reliance on sole or a limited group
of suppliers and certain customers for consigned materials involves several

                                       19
<PAGE>

risks, including a potential inability to obtain an adequate supply of required
materials and reduced control over the price, timely delivery, and quality of
raw materials. There can be no assurance that problems with respect to yield and
quality of such materials and timeliness of deliveries will not occur.
Disruption or termination of these sources could delay shipments of the
Company's products and could have a material adverse effect on the Company's
business, financial condition and operating results. Such delays could also
damage relationships with current and prospective customers, including customers
that supply consigned materials.

         FUTURE CAPITAL NEEDS; NEED FOR ADDITIONAL FINANCING. The Company's
future capital requirements will depend upon many factors, including the extent
and timing of acceptance of the Company's products in the market, requirements
to construct, transition and maintain existing or new manufacturing facilities,
commitments to third parties to develop, manufacture, license and sell products,
the progress of the Company's research and development efforts, the Company's
operating results and the status of competitive products. The Company
anticipates that cash on hand and anticipated cash flow from operations will
assist in funding its capital needs for 2001. Management is also currently
exploring various debt and equity funding sources. There can be no assurance
that the Company will be able to obtain such additional financing on terms
acceptable to the Company.

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

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

         ENVIRONMENTAL REGULATIONS. The Company is subject to a variety of
local, state, federal and foreign governmental regulations relating to the
storage, discharge, handling, emission, generation, manufacture and disposal of
toxic or other hazardous substances used to manufacture the Company's products.
The Company believes it is currently in compliance in all material respects with
such regulations and has obtained all necessary environmental permits to conduct
its business. Nevertheless, failure to comply with current or future regulations
could result in the imposition of substantial fines against the Company,
suspension of production, alteration of the Company's manufacturing processes or
cessation of operations. Compliance with such regulations could require the
Company to acquire expensive remediation equipment or to incur substantial
expenses. Any failure by the Company to control the use, disposal, removal or
storage of, or adequately restrict the discharge of, or assist in the cleanup
of, hazardous or toxic substances, could subject the Company to liabilities,
including joint and several liability under certain statutes. The imposition of
such liabilities could materially adversely affect the Company's business,
financial condition or results of operations. The Company has been notified by
the United States Environmental Protection Agency that it considers the Company
to be a potentially responsible party under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986. See "Legal Proceedings."

         NASDAQ LISTING REQUIREMENTS. The Company's Common Stock is trading on
the OTC Bulletin Board. The Company may in the future be subject to continuing
requirements to be listed on the OTC Bulletin Board. There can be no assurance
that the Company could continue to meet such requirements. The price and
liquidity of the Company's Common Stock may be materially adversely affected if
the Company is unable to meet such requirements in the future. There can be no
assurance that the Company will be able to qualify for listing on the NASDAQ
National or SmallCap Market.

                                       20
<PAGE>

         DISCLOSURES RELATING TO LOW PRICED STOCKS; RESTRICTIONS ON RESALE OF
LOW PRICE STOCKS AND ON BROKER-DEAL SALE; POSSIBLE ADVERSE EFFECT OF "PENNY
STOCK" RULES ON LIQUIDITY FOR THE COMPANY'S SECURITIES. Transactions in the
Company's securities are subject to Rule 15g-9 under the Exchange Act, which
imposes additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and "accredited
investors" (generally, individuals with a net worth in excess of $1,000,000 or
annual incomes exceeding $200,000 or $300,000 together with their spouses). For
transactions covered by this Rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to the sale. Consequently, this Rule
may affect the ability of broker-dealers to sell the Company's securities, and
may affect the ability of purchasers in this offering to sell any of the
securities acquired hereby in the secondary market.

         The Commission has adopted regulations which generally define a "penny
stock" to be any non-NASDAQ equity security of a small company that has a market
price (as therein defined) less than $5.00 per share, or with an exercise price
of less than $5.00 per share subject to certain exceptions, and which is not
traded on any exchange or quoted on NASDAQ. For any transaction by
broker-dealers involving a penny stock (unless exempt), the rules require
delivery, prior to a transaction in a penny stock, of a risk disclosure document
relating to the penny stock market. Disclosure is also required to be made about
compensation payable to both the broker-dealer and the registered representative
and current quotations for the securities. Finally, monthly statements are
required to be sent disclosing recent price information for the penny stock held
in an account and information on the limited market in penny stocks.

         VOLATILITY OF STOCK PRICE. The stock market in general has recently
experienced extreme price and volume fluctuations that have affected the market
prices of technology companies. Such fluctuations have often been unrelated to
or disproportionately impacted by the operating performance of such companies.
Factors such as actual or anticipated operating results, announcements of
technological innovations, new products or new contracts by the Company, its
competitors or their customers, or events affecting other companies in the
electronics, wireless communications, internet, or high bandwidth communications
industries, and general market conditions may have a significant effect on the
market price of the Common Stock of the Company.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company has no derivative financial instruments and no assets or
indebtedness denominated in foreign currencies.

ITEM 8.  FINANCIAL STATEMENTS

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

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

         On February 6, 2001, the Company's independent accountants, BDO
Seidman, LLP, resigned. The Company engaged Haskell & White LLP as its new
independent accountants as of February 6, 2001. The Company did not consult with
Haskell & White LLP on any matters prior to their retention. The Company's Audit
Committee participated in and approved the decision to engage the new
independent accountants.

                                       21
<PAGE>

         The reports of BDO Seidman, LLP on the financial statements for the
past two fiscal years contain no adverse opinion or disclaimer of opinion, and
such reports were not qualified or modified as to uncertainty, audit scope, or
accounting principles, with the exception of the auditors' report covering the
Company's financial statements included in the Company's Form 10-K for the year
ended December 31, 1998, which contained a modification regarding the
Registrant's ability to continue as a going concern.

         In connection with the audits for the two most recent fiscal years, and
through February 6, 2001, there have been no disagreements with BDO Seidman, LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure of the nature presented in Item
304(a)1(iv) of Securities and Exchange Commission Regulation S-K, which
disagreements, if not resolved to the satisfaction of BDO Seidman, LLP, would
have caused them to make reference thereto in their report on the financial
statements for such years.

         During the two most recent fiscal years and through February 6, 2001,
there have been no reportable events as defined in Item 304(a)1(v) Regulation
S-K of Securities and Exchange Commission.

         The above was reported in a Form 8-K filed on February 12, 2001.

                                       22
<PAGE>

                                    PART III
                                    --------

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required by this item relating to the Company's
directors and nominees and disclosure relating to compliance with Section 16(a)
of the Securities Exchange Act of 1934 will be included under the captions
"Election of Directors" and "Compliance with Section 16(a) of the Securities
Exchange Act of 1934" in the Registrant's Proxy Statement for the 2000 Annual
Meeting of Shareholders and is incorporated herein by reference. The information
required by this item relating to the Company's executive officers and employees
is included under the caption "Executive Officers" in Part I of the Report on
Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

         The information required by this item is included under the caption
"Executive Compensation and Related Information" in the Registrant's Proxy
Statement for the 2000 Annual Meeting of Shareholders and will be incorporated
herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this item will be included under the
caption "Stock Ownership of Certain Beneficial Owners and Management" in the
Registrant's Proxy Statement for the 2000 Annual Meeting of Shareholders and is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this item will be included under the
caption "Certain Transactions" in the Registrant's Proxy Statement for the 2000
Annual Meeting of Shareholders and is incorporated herein by reference.

                                       23
<PAGE>

                                     PART IV
                                     -------

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

         (a)      1. Index to Consolidated Financial Statements.

                                                                    FORM 10-K
                                                                   PAGE NUMBER
                                                                   -----------

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

Consolidated Balance Sheets as of
    December 31, 2000 and 1999................................        F-3

Consolidated Statements of Operations
    for the three-year period ended
    December 31, 2000.........................................        F-4

Consolidated Statements of Cash Flows for
    the three-year period ended
    December 31, 2000.........................................        F-5

Consolidated Statements of Shareholders'
    Equity (Deficit) for the three-year period
    ended December 31, 2000...................................        F-6

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

         2.  Consolidated Financial Statement Schedule.

         The following financial statement schedule of MeltroniX, Inc. and its
subsidiaries is included in this annual report on Form 10-K.

                                                                    FORM 10-K
                                                                   PAGE NUMBER
                                                                   -----------

Reports of Independent Certified Public Accountants on
    Financial Statement Schedule................................      F-23

Schedule II-- Valuation and Qualifying Accounts and
              Reserves for the three years ended
              December 31, 2000.................................      F-25

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

         (b)      Reports on Form 8-K

No reports on Form 8-K were filed during the fourth quarter ended December 31,
2000.

         (c)      Exhibits

                                       24
<PAGE>

The following exhibits are referenced or included in this report.

Exhibit        Description
-------        -----------

3.1(13)        Amended and Restated Articles of Incorporation of the Company
               filed March 23, 1998.

3.2(16)        Certificate of Amendment of Amended and Restated Articles of
               Incorporation of the Company. *

3.3(1)         Amended and Restated Bylaws of the Company.

4.1(1)         Specimen Certificate of Common Stock.4.2(1)

10.11(1)       Form of Indemnification Agreement between the Company and each of
               its officers and directors.

10.46(11)      Building lease dated September 2, 1997.

10.47(11)      Employment agreement with Andrew K. Wrobel, dated October 6,
               1997.

10.52(13)+     Agreement among Schlumberger Technologies, Inc. ATE Division and
               Microelectronic Packaging, Inc. and CTM Electronics, Inc.
               effective January 5, 1998.

10.53(14)      Restructuring, Settlement and Mutual Release Agreement between
               ORIX Leasing Singapore Limited and the Company dated April 14,
               1998.10.54(14) Restructuring, Settlement and Mutual Release
               Agreement between Texas Instruments Singapore (Pte.) Ltd. and the
               Company dated April 24, 1998.

10.55(14)      Restructuring, Settlement and Mutual Release Agreement between
               Samsung-Corning Co., Ltd. and the Company dated May 19, 1998.

10.56(14)      Restructuring, Settlement and Mutual Release Agreement between
               Transpac Capital Pte. Ltd., Transpac Industrial Holdings Ltd.,
               Regional Investment Company, Ltd. and Natsteel Equity III Pte.
               Ltd., and the Company dated April 22, 1998.

10.57(14)      Forbearance, Restructure and Mutual Release Agreement between
               Motorola, Inc. and the Company dated July 1, 1998.

10.58(14)      Restructuring, Settlement and Mutual Release Agreement between NS
               Electronics Bangkok (1993) Ltd. and the Company dated May 29,
               1998.

10.59(14)      Restructuring, Settlement and Mutual Release Agreement between
               the Development Bank of Singapore Limited and the Company dated
               July 10, 1998.

10.60(14)      Form of Warrant to Purchase Common Stock dated April 24, 1998
               issued to Transpac Capital Pte. Ltd., Transpac Industrial
               Holdings Ltd., Regional Investment Company, Ltd. and Natsteel
               Equity III Pte. Ltd.

10.61(15)      Restructuring, Settlement and Mutual Release Agreement between
               STMicroelectronics, Inc. and the Company dated September 24,
               1998.

10.62(15)      Amendment to Restructuring, Settlement and Mutual Release
               Agreement between Texas Instruments Singapore (Pte.) Ltd. and the
               Company dated August 11, 1998.

10.63(15)      Amendment to Restructuring, Settlement and Mutual Release
               Agreement between Transpac Capital Pte. Ltd., Transpac Industrial
               Holdings Ltd., Regional Investment Company, Ltd. and Natsteel
               Equity III Pte. Ltd., and the Company dated September 1, 1998.

10.64(15)      Amendment to Restructuring, Settlement and Mutual Release
               Agreement between ORIX easing Singapore Limited and the Company
               dated August 11, 1998.

10.65(15)      Amendment to Forbearance, Restructure and Mutual Release
               Agreement between Motorola, Inc. and the Company dated November
               5, 1998.

                                       25
<PAGE>

10.66(16)      Amendment to Restructuring, Settlement and Mutual Release
               Agreement between The Development Bank of Singapore Limited and
               the Company dated November 24, 1998.

10.67(16)      Amendment to the Restructuring, Settlement and Mutual Release
               Agreement between Samsung Corning Co. Ltd. And the Company dated
               November 18, 1998.

10.68(16)      Form of Registration Rights Agreement between the Registrant and
               each of Transpac Capital Pte. Ltd., Development Bank of
               Singapore, Ltd., Motorola, Inc., NS Electronics Bangkok, Ltd.,
               Texas Instruments, Inc., Samsung Corning Co., Ltd., Orix Leasing
               Singapore, Ltd., effective October 15, 2000. *

10.69(16)      Form of Debt Conversion and Mutual Settlement and Release
               Agreement between the Registrant and each of Transpac Capital
               Pte. Ltd., Development Bank of Singapore, Ltd., Motorola, Inc.,
               NS Electronics Bangkok, Ltd., Texas Instruments, Inc., Samsung
               Corning, Ltd., Orix Leasing Singapore, Ltd., and FI Financial,
               effective October 15, 2000. *

10.70(16)      STM/FI Financial Assignment Agreement dated April 14, 1999. *

21.1(3)        Subsidiaries of the Company.

24.1           Power of Attorney (contained on signature page).

99.1(12)       Amended 1993 Stock Option/Stock Issuance Plan dated April 10,
               1997 and filed in the state of California on March 23, 1998.

99.2(2)        Form of Notice of Grant of Stock Option and Stock Option
               Agreement.

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

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

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

99.6(2)        Form of Stock Issuance Agreement.

99.7(1)        Form of Director Automatic Option Grant Agreement.

----------

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

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

(3)      Incorporated by reference from an exhibit filed with the Company's
         Annual Report on Form 10-K filed with the Securities and Exchange
         Commission on April 17, 1995 as amended.

(4)      Incorporated by reference from an exhibit filed with the Company's
         Annual Report on Form 10-K for the 1995 fiscal year filed with the
         Securities and Exchange Commission.

(5)      Incorporated by reference from an exhibit filed with the Company's
         Current Report on Form 8-K filed with the Securities and Exchange
         Commission on October 28, 1996.

(6)      Incorporated by reference from an exhibit filed with the Company's
         Current Report on Form 8-K filed with the Securities and Exchange
         Commission on January 15, 1997.

(7)      Incorporated by reference from an exhibit filed with the Company's
         current report on Form 8-K dated March 27, 1996 and filed with the
         Securities and Exchange Commission on April 5, 1996.

                                       26
<PAGE>

(8)      Incorporated by reference from an exhibit filed with the Company's
         Annual Report on Form 10-K for the 1996 fiscal year filed with the
         Securities and Exchange Commission on April 15, 1997, as amended.

(9)      Not used.

(10)     Incorporated by reference from an exhibit filed with the Company's
         Quarterly Report on Form 10-Q filed with the Securities and Exchange
         Commission on August 14, 1997.

(11)     Incorporated by reference from an exhibit filed with the Company's
         Quarterly Report on Form 10-Q filed with the Securities and Exchange
         Commission on November 12, 1997.

(12)     Incorporated by reference from an exhibit filed with the Company's
         Registration Statement on Form S-8 filed with the Securities and
         Exchange Commission on February 25, 1998.

(13)     Incorporated by reference from an exhibit filed with the Company's
         Annual Report on Form 10-K for the 1997 fiscal year filed with the
         Securities and Exchange Commission.

(14)     Incorporated by reference from an exhibit filed with the Company's
         Quarterly Report on Form 10-Q filed with the Securities and Exchange
         Commission on August 14, 1998.

(15)     Incorporated by reference from an exhibit filed with the Company's
         Quarterly Report on Form 10-Q filed with the Securities and Exchange
         Commission on November 14, 1998.

(16)     Incorporated by reference from an exhibit filed with the Company's
         Annual Report on Form 10-K for the 1999 fiscal year filed with the
         Securities and Exchange Commission.

------------
*        Previously filed.

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

                                       27
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on April 16, 2001.

                                     MELTRONIX, INC.

Date:    April 16, 2001              By:    /s/ Andrew K. Wrobel
                                        ---------------------------------------
                                        Andrew K. Wrobel
                                        Chairman, President and Chief Executive
                                        Officer, Director


                                POWER OF ATTORNEY

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

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

Date: April 16, 2001      By: /s/ Andrew K. Wrobel
                              --------------------------------------------------
                              Andrew K. Wrobel
                              Chairman of the Board of Directors of the Company
                              President and Chief Executive Officer, Director

Date: April 16, 2001      By: /s/ Abigail A. Barrow
                              --------------------------------------------------
                              Abigail A. Barrow
                              Director of the Company

Date: April 16, 2001      By: /s/ Paul H. Neuharth, Jr.
                              --------------------------------------------------
                              Paul H. Neuharth, Jr.
                              Director of the Company

Date: April 16, 2001      By: /s/ Randal D. Siville
                              --------------------------------------------------
                              Randal D. Siville
                              Vice President of Finance and
                              Chief Financial Officer

                                       28
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
MeltroniX, Inc.
San Diego, California


We have audited the accompanying consolidated balance sheets of MeltroniX, Inc.
as of December 31, 2000 and the related consolidated statements of operations,
changes in shareholders' equity (deficit), and cash flows for the year ended
December 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MeltroniX, Inc., as
of December 31, 2000 and the results of its operations and cash flows for the
year ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.

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


                                                   /s/  Haskell & White LLP
                                                   -----------------------------

                                                   HASKELL & WHITE LLP

Irvine, California
March 30, 2001, except for the
         last paragraph of Note 15
         as to which the date is
         April 6, 2001

                                     F - 1
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
MeltroniX, Inc.
San Diego, California


We have audited the accompanying consolidated balance sheet of MeltroniX, Inc.
(formerly Microelectronic Packaging, Inc.) as of December 31, 1999 and the
related consolidated statements of operations, changes in shareholders' equity
(deficit), and cash flows for each of the years in the two-year period ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the 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 MeltroniX, Inc., as
of December 31, 1999 and the results of its operations and cash flows for each
of the years in the two-year period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States of America.


                                                   /s/ BDO Seidman, LLP
                                                   -----------------------------

                                                   BDO SEIDMAN, LLP

Costa Mesa, California
February 17, 2000, except
     for Note 13, paragraph 3,
     which is as of March 22, 2000,
     Note 4, paragraph 3,
     which is as of March 31, 2000, and
     Note 6, paragraph 1,
     which is as of April 11, 2000.

                                     F - 2
<PAGE>

<TABLE>
                                           MELTRONIX, INC.
                                     CONSOLIDATED BALANCE SHEETS
<CAPTION>

DECEMBER 31,                                                                 2000            1999
=====================================================================================================
<S>                                                                     <C>             <C>
ASSETS
CURRENT ASSETS
     Cash                                                               $         --    $    335,000
     Accounts receivable, net                                                406,000       1,708,000
     Inventories                                                             418,000       2,318,000
     Other current assets                                                     22,000          95,000
-----------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                                         846,000       4,456,000

Property, plant and equipment, net                                         1,114,000       1,830,000
Other non-current assets                                                      18,000          63,000
-----------------------------------------------------------------------------------------------------
                                                                        $  1,978,000    $  6,349,000
=====================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
     Current portion of long-term debt                                  $    573,000    $    279,000
     Line of credit                                                          626,000              --
     Accounts payable                                                      2,905,000       2,935,000
     Accrued liabilities                                                   1,372,000         869,000
-----------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                                                  5,476,000       4,083,000
Long-term payables                                                                --       2,133,000
Long-term debt, less current portion                                         524,000          47,000
-----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES                                                          6,000,000       6,263,000
-----------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
Series A Convertible Preferred stock, no par value;
liquidation preference of $9,266,700 in 2000 and $9,550,000 in 1999
      Authorized shares - 9,362,777
      Issued and outstanding - 9,085,023 and 9,362,777, respectively       9,019,000       9,295,000
Common stock, no par value:
     Authorized shares - 50,000,000
     Issued and outstanding - 13,845,184 and 10,860,223, respectively     43,721,000      40,269,000
Accumulated deficit                                                      (56,762,000)    (49,478,000)
-----------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (DEFICIT)                                            (4,022,000)         86,000
-----------------------------------------------------------------------------------------------------
                                                                        $  1,978,000    $  6,349,000
=====================================================================================================

                                         SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                F - 3
</TABLE>
<PAGE>

<TABLE>
                                                     MELTRONIX, INC.
                                          CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>

YEAR ENDED DECEMBER 31,                                                  2000                 1999               1998
=========================================================================================================================
<S>                                                              <C>                  <C>                <C>
Net Sales                                                        $    12,903,000      $     9,254,000    $    19,271,000

Cost of goods sold                                                    13,673,000            7,682,000         14,714,000
-------------------------------------------------------------------------------------------------------------------------
Gross profit (loss)                                                     (770,000)           1,572,000          4,557,000
Selling, general and administrative                                    4,230,000            2,145,000          2,915,000
Engineering and product development                                    1,276,000              736,000          1,060,000
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations                                         (6,276,000)          (1,309,000)           582,000

Other income (expense):
     Interest expense                                                   (679,000)          (1,617,000)        (2,269,000)
     Other income, net                                                     7,000               95,000            179,000
-------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before provision for                  (6,948,000)          (2,831,000)        (1,508,000)
     income taxes
Provision for income taxes                                                 2,000                   --             18,000
-------------------------------------------------------------------------------------------------------------------------
Net loss from continuing operations                                   (6,950,000)          (2,831,000)        (1,526,000)

Discontinued operations
     Loss from operations                                                     --                   --                 --
     Estimated gain on disposal of discontinued operations                    --                   --         14,188,000
-------------------------------------------------------------------------------------------------------------------------
Net income (loss) after discontinued operations before                (6,950,000)          (2,831,000)        12,662,000
     extraordinary gain

Extraordinary gain, net of tax of $166,000                                    --           18,757,000                 --
-------------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                     (6,950,000)          15,926,000         12,662,000

Dividends attributable to Series A Convertible Preferred stock           334,000               69,000                 --
-------------------------------------------------------------------------------------------------------------------------
Net income (loss) available to common shareholder                $    (7,284,000)     $    15,857,000    $    12,662,000
=========================================================================================================================
Basic and diluted earnings (loss) per common share
     Loss from continuing operations                             $         (0.61)     $         (0.27)   $         (0.14)
     Discontinued operations                                                  --                   --               1.31
     Extraordinary gain                                                       --                 1.73                 --
-------------------------------------------------------------------------------------------------------------------------
Net income (loss) available to common shareholders               $         (0.61)     $          1.46    $          1.17
=========================================================================================================================
Weighted average number of shares outstanding                         12,028,000           10,857,000         10,818,000
=========================================================================================================================

                                                             SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                          F - 4
</TABLE>
<PAGE>

<TABLE>
                                                      MELTRONIX, INC.
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>

YEAR ENDED DECEMBER 31,                                                  2000                 1999                1998
==========================================================================================================================
<S>                                                             <C>                  <C>                 <C>
Cash flows from operating activities:
Net income (loss)                                               $     (6,950,000)    $     15,926,000    $     12,662,000
Adjustments to reconcile net income (loss) to
  net cash provided by (used in) operating activities:
    Depreciation and amortization                                        811,000              650,000             527,000
    Discontinued operations                                                   --                   --         (11,767,000)
    Non cash interest expense                                            620,000            1,606,000                  --
    Non-employee stock-based compensation                                681,000               53,000             114,000
    Gain on sale of fixed assets                                              --                   --             (11,000)
    Gain on extinguishment of debt                                            --          (18,757,000)                 --
Changes in assets and liabilities
    Accounts receivable                                                1,302,000             (402,000)          1,198,000
    Inventories                                                        1,900,000              755,000           1,157,000
    Other current assets                                                  73,000              (35,000)            327,000
    Other non-current assets                                              45,000              108,000             111,000
    Accounts payable, accrued liabilities and deferred revenue           827,000              632,000          (4,473,000)
--------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities                     (691,000)             536,000            (155,000)
--------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Acquisition of fixed assets                                            (95,000)            (107,000)         (1,102,000)
  Proceeds from sale of fixed assets
    Continuing operations                                                     --                   --              14,000
    Discontinued operations                                                   --                   --           2,349,000
--------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities                      (95,000)            (107,000)          1,261,000
--------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
   Increase in line of credit, net                                       626,000                   --                  --
   Borrowings under short-term notes payable                             750,000                   --                  --
   Borrowings under long-term debt                                       500,000                   --                  --
   Principal payments on long-term debt
    Continuing operations                                             (2,412,000)            (310,000)            (45,000)
    Discontinued operations                                                   --                   --          (1,901,000)
Issuance of common stock, net                                            987,000                2,000              13,000
Expenses on issuance of preferred stock                                       --             (255,000)                 --
--------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities                                    451,000             (563,000)         (1,933,000)
--------------------------------------------------------------------------------------------------------------------------
Net decrease in cash                                                    (335,000)            (134,000)           (827,000)
Cash at beginning of year                                                335,000              469,000           1,296,000
--------------------------------------------------------------------------------------------------------------------------
Cash at end of year                                             $             --     $        335,000    $        469,000
==========================================================================================================================

                                                               SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                           F - 5
</TABLE>
<PAGE>

<TABLE>
                                                     MELTRONIX, INC.
                                            CONSOLIDATED STATEMENT OF CHANGES
                                            IN SHAREHOLDERS' EQUITY (DEFICIT)
<CAPTION>

                                         Preferred                    Common Stock
                              ------------------------------  ----------------------------   Accumulated
                                   Shares         Amount         Shares          Amount         Deficit        Total
=========================================================================================================================
<S>                              <C>          <C>               <C>          <C>            <C>             <C>
BALANCE,
  January 1, 1998                        -    $          -      10,793,279   $ 40,016,000   $(77,997,000)   $(37,981,000)

Common stock issued                      -               -          63,611         13,000              -          13,000

Non-employee stock                       -               -               -        114,000              -         114,000
  compensation

Net income                               -               -               -              -     12,662,000      12,662,000
-------------------------------------------------------------------------------------------------------------------------

BALANCE,
  December 31, 1998                      -               -      10,856,890     40,143,000    (65,335,000)    (25,192,000)

Common stock issued                      -               -           3,333          2,000              -           2,000

Series A Convertible             9,362,777       9,295,000               -              -              -       9,295,000
  Preferred stock issued,
  net of expenses

Non-employee stock                       -               -               -        124,000              -         124,000
  compensation

Series A Convertible                     -               -               -              -        (69,000)        (69,000)
  Preferred stock dividends

Net income                               -               -               -              -     15,926,000      15,926,000
-------------------------------------------------------------------------------------------------------------------------

BALANCE,
  December 31, 1999              9,362,777       9,295,000      10,860,223     40,269,000    (49,478,000)         86,000

Common stock issued                      -               -       1,496,312        987,000              -         987,000

Non-employee stock                       -               -               -      1,257,000              -       1,257,000
   compensation

Conversion of debt                       -               -         910,886        925,000              -         925,000

Series A Convertible                     -               -               -              -       (334,000)       (334,000)
  Preferred stock dividends

Conversion of Series A            (277,754)       (276,000)        577,763        283,000              -           7,000
   Preferred stock and
   accrued dividends to
   common stock

Net loss                                 -               -               -              -     (6,950,000)     (6,950,000)
-------------------------------------------------------------------------------------------------------------------------

BALANCE,
  December 31, 2000              9,085,023    $  9,019,000      13,845,184   $ 43,721,000   $(56,762,000)   $ (4,022,000)
=========================================================================================================================

                                                             SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                          F - 6
</TABLE>
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS - MeltroniX, Inc. ("MeltroniX" or the "Company") is a
semiconductor electronic interconnect solutions company with design,
manufacturing and sales services to support the requirements of electronic
systems companies. The Company develops, manufactures, markets and sells single
and multiple chipset interconnect solutions to customers in the wireless
Internet, telecommunications, broadband communications and other electronics
related industries. The Company was formerly known as Microelectronic Packaging,
Inc. and changed it's name to MeltroniX, Inc., in November 1999.

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of MeltroniX and its wholly-owned subsidiaries, MeltroniX Solutions,
Inc. ("MeltroniX Solutions") and Microelectronic Packaging America, Inc. ("MPA")
which is dormant.

BASIS OF PRESENTATION / LIQUIDITY - The accompanying consolidated financial
statements have been prepared assuming the Company will continue as a going
concern. During the year ended December 31, 2000, the Company experienced a net
loss totaling $6,950,000 and had negative cash flows from operations for 2000
totaling $691,000. In addition, the Company had a working capital deficit
totaling $4,630,000 and a net shareholders' deficit totaling $4,022,000 at
December 31, 2000. Further, the Company has not made timely payments and was not
in compliance with certain debt, lease, and service agreements, see Notes 5, 6
and 7. These conditions raise substantial doubt as to the Company's ability to
continue as a going concern. The Company must significantly improve its
profitability and obtain additional sources of liquidity through debt or equity
financing to fund its operations, repay debt currently due and debt about to
become due as well as its general working capital requirements. Management is
currently monitoring its expenses in an effort to improve the effectiveness and
efficiency of its available resources to assist in improving its profitability.
Management is also currently exploring various debt and equity funding sources
including and in addition to those transactions described in Note 15, which have
occurred subsequent to December 31, 2000. There can be no assurance that any
additional financing will be available to the Company on a timely basis or on
acceptable terms or at all. The Company's inability to accomplish these goals
will have a materially adverse effect on the Company's business, consolidated
financial condition and operations. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

REVENUE RECOGNITION - The Company recognizes revenue from product sales at the
time of shipment.

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments
with original maturities of three months or less when purchased to be cash and
cash equivalents.

INVENTORIES - Inventories are stated at the lower of cost (determined using the
first-in, first-out method) or market. A substantial portion of the Company's
December 31, 1999 inventory was purchased for the Company's primary customer.
Under the terms of an agreement dated January 5, 1998 between the Company and
the customer, the Company has been required to maintain certain inventory levels
as defined by the agreement. The agreement stipulates that the cost of such
inventory will be paid to the Company should the customer terminate the business
relationship. Terms of the agreement have been used in determining the carrying
value of the Company's December 31, 1999 inventory.

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

INTANGIBLE ASSET - The intangible asset consists of an acquired customer base
and is classified as other non-current assets and is amortized using the
straight-line method over its estimated useful life of 7 years.

                                      F - 7
<PAGE>

LONG-LIVED ASSETS - The Company reviews the carrying amount of its long-lived
assets and identifiable intangible assets for possible impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value, less
costs to sell.

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

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

STOCK-BASED COMPENSATION - The Company applies APB Opinion 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
stock-based compensation plan. Accordingly, no compensation cost is recognized
for its employee stock option plan, unless the exercise price of options granted
is less than fair market value on the date of grant. The Company has adopted the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") (see Note 12).

The Company applies the provisions of SFAS 123 in accounting for its stock-based
compensation paid to non-employees. Accordingly, the fair value of common stock
options issued to non-employees is estimated at the grant date using the
Black-Scholes option-pricing model, and that estimated value is expensed as the
services are provided.

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

FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount of cash, accounts
receivable, accounts payable, accrued expenses and long-term debt are reasonable
estimates of their fair value because of the short maturity of these items. The
carrying amount of the Company's financial instruments generally approximate
their fair values as of December 31, 2000.

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

RECLASSIFICATION - Certain reclassifications have been made to the 1999
presentation to conform to the presentation used in 2000.

                                     F - 8
<PAGE>

CONCENTRATION OF CREDIT RISK - The Company operates in diversified electronic
and semiconductor business industries and primarily sells to a number of
semiconductor manufacturers electronic equipment manufacturers. The Company
performs ongoing credit evaluations of its customers but does not require
collateral for credit purchases. The Company maintains allowances for potential
credit losses, and such losses have been within management's expectations.

EARNINGS (LOSS) PER SHARE - Earnings (loss) per share is calculated pursuant to
Statement of Financial Accounting Standards No. 128, "Earnings per Share." Basic
earnings (loss) per share ("EPS") includes no dilution and is computed by
dividing income (loss) available to common shareholders by the weighted average
number of shares outstanding during the period. Diluted earnings (loss) per
share reflects the potential dilution of securities that could share in the
earnings of the Company.

COMPREHENSIVE INCOME - Effective in 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income.
This statement establishes standards for reporting the components of
comprehensive income and requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
included in a financial statement that is displayed with the same prominence as
other financial statements. Comprehensive income includes net income as well as
certain items that are reported directly within a separate component of
shareholders' equity and bypass net income. For the periods presented, the
Company has no items of other comprehensive income, as defined by SFAS No. 130.

NEW ACCOUNTING PRONOUNCEMENT - In June 2000, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
138 "Accounting for Certain Derivative Instruments and Certain Hedging
Activities," which amends SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 was previously amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," which deferred the effective date of
SFAS No. 133 to fiscal years commencing after June 15, 2000. The Company
currently does not engage in, nor does it expect to engage in, derivative or
hedging activities and, accordingly, the Company anticipates there will be no
impact to its consolidated financial statements.

Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition", summarizes the
Securities and Exchange Commission's views on applying generally accepted
accounting principles to revenue recognition in financial statements.
Significant views addressed relate to shipping terms, customer acceptance and
bundled service contracts. Implementation is effective for the first quarter of
fiscal 2001, The Company believes that its current revenue recognition policies
comply with SAB No. 101.

In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), "Accounting for
Certain Transactions Involving Stock Compensation", which addresses certain
accounting issues that arose under the previously established accounting
principles relating to stock-based compensation. The adoption of this
interpretation did not have a material effect on the Company's financial
position or results of operations.

NOTE 2 - SUBSIDIARY CREDITOR OBLIGATIONS, DISCONTINUED OPERATIONS, ISSUANCE OF
PREFERRED STOCK AND GAIN ON EXTINGUISHMENT OF DEBT

As of October 15, 1999, a majority of the Company's shareholders approved the
conversion into 9,362,777 shares of Series A Convertible Preferred Stock
("Preferred Stock"), of all obligations owed by the Company pursuant to all
guarantees by the Company of all debt obligations owed by the Company's former
Singapore subsidiaries Microelectronic Packaging (S) Pte. Ltd. ("MPS"), MPM (S),
Pte. Ltd., ("MPM"), MPC (S), Pte. Ltd. ("MPC") and Furnace Technology Pte.
("FTECH") ("Singapore Subsidiaries") to (a) Development Bank of Singapore, Ltd.;
(b) Transpac Capital Pte. Ltd., Transpac Industrial Holdings Ltd., Regional
Investment Company Ltd., and Natsteel Equity III Pte. Ltd.; (c) NS Electronics
Bangkok Ltd.; (d) Texas Instruments Singapore Ltd.; (e) STMicroelectronics, Inc.
(the creditor position of STMicroelectronics, Inc., in its entirety, was
purchased by and assigned to FI Financial, LLC, 34% of which is comprised of
employees and officers of the Company) (f) Motorola, Inc. (g) Samsung Corning

                                     F - 9
<PAGE>

Co, Ltd.; and (h) Orix Leasing Singapore Ltd. ("Singapore Creditors"). The
Company had entered into written guarantees of the Singapore Creditor
Obligations. Because the Company's Singapore subsidiaries ceased operations in
1997 and were unable to pay the Subsidiary Creditor Obligations, the Company
became obligated to do so. The Company's obligation to pay the Singapore
Creditor Obligations pursuant to the Company's guarantees thereof is referred to
herein as the "Company's Subsidiary Guarantee Obligations." The extinguishment
of the Company's Subsidiary Guarantee Obligations for 9,362,777 shares of
Preferred Stock is referred to herein as the "Debt Extinguishment". Prior to the
Debt Extinguishment, by virtue of the Company's Subsidiary Guarantee
Obligations, the Company was indebted to the Singapore Subsidiary Creditors in
the approximate amount of $28.7 million. The Debt Extinguishment became
effective as of October 15, 1999, and as of that date, the entire amount of the
Company's Subsidiary Guarantee Obligations was eliminated. After recording the
value of the Preferred Stock issued totaling $9.6 million together with expenses
incurred in connection with the debt extinguishment of $0.3 million, the Company
recorded a gain on extinguishment of the Subsidiary Guarantee Obligations of
approximately $18.8 million. This gain has been classified as an extraordinary
gain in the financial statements, net of applicable income tax of $166,000.

The Company had discontinued in 1997 and prior the operations of its Singapore
subsidiaries, all of which were located in Singapore. The operating activities
of the Singapore subsidiaries are included in Discontinued Operations--Loss from
Operations in the 1997 Consolidated Statement of Operations and consist of
losses from operations of $3,887,000 at MPS and $3,000 at FTECH and a gain at
MPC of $43,000. Discontinued Operations--Gain (Loss) on Disposal of Discontinued
Operations consists of losses at MPS of $3,762,000, and gains in 1998 of
$6,295,000 at MPS, $7,416,000 at MPM, $450,000 at MPC, and $27,000 at FTECH.
Interest expense of $2.5 million in 1997, $2.3 million in 1998 and $1.6 million
in 1999 on the Company's Subsidiary Guarantee Obligations is included in
continuing operations' activities.

The principal components of the 1998 estimated gain on disposal of discontinued
operations were a gain of $10.2 million from the deconsolidation of the
non-guaranteed net liabilities of the discontinued operations, a gain of $2.3
million from interest and expenses accrued in 1996 no longer considered
necessary, a gain of $1.0 million from the sale of MPS buildings, $0.2 million
of amortization of deferred revenue, and $0.5 million from the collection of an
insurance recovery.

NOTE 3 - COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

DECEMBER 31,                                             2000           1999
================================================================================
Accounts receivable consist of:
   Trade receivables .............................   $   456,000    $ 1,985,000
   Allowance for doubtful accounts ...............       (50,000)      (277,000)
                                                     ------------   ------------

                                                     $   406,000    $ 1,708,000
                                                     ============   ============
Inventories consist of:
   Raw materials .................................   $   488,000    $ 1,728,000
   Work-in-progress ..............................       375,000      1,057,000
   Obsolescence reserve ..........................      (445,000)      (467,000)
                                                     ------------   ------------
                                                     $   418,000    $ 2,318,000
================================================================================

                                     F - 10
<PAGE>

DECEMBER 31,                                             2000           1999
================================================================================
Property, plant and equipment consist of:
   Machinery and equipment .......................   $ 3,333,000    $ 3,238,000
   Leasehold improvements ........................       568,000        568,000
   Furniture and fixtures ........................        47,000         47,000
                                                     ------------   ------------
                                                       3,948,000      3,853,000
Accumulated depreciation .........................    (2,834,000)    (2,023,000)
                                                     ------------   ------------
                                                     $ 1,114,000    $ 1,830,000
                                                     ============   ============

Accrued liabilities consist of:
   Accrued employee compensation .................   $   439,000    $   320,000
   Accrued dividends .............................       397,000         70,000
   Accrued taxes .................................        29,000        166,000
   Other .........................................       507,000        313,000
                                                     ------------   ------------
                                                     $ 1,372,000    $   869,000
================================================================================

NOTE 4 - SIGNIFICANT AGREEMENTS

SCHLUMBERGER TECHNOLOGIES, INC. ATE DIVISION - In January 1998, the Company
signed an agreement with Schlumberger Technologies, Inc. ("Schlumberger"). The
agreement delineated the terms pursuant to which MeltroniX supplies products to
Schlumberger. The agreement includes warranty provisions and protection for
materials purchased by MeltroniX against production demand forecasts supplied by
Schlumberger.

Schlumberger is entitled to request repricing of the Company's product. The
Company can terminate this agreement with 120 days notice, at which time the
Company can compile a termination claim to redeem their cost which includes
manufacturing expenses incurred on that inventory and normal profit. However,
the agreement is not enforceable should the Company file bankruptcy.

On March 31, 2000 approximately $0.9 million of inventory was purchased by
Schlumberger under the terms of the manufacturing agreement of the manufacturing
agreement described above.

The agreement expired in October 2000 (see Note 5). The Company continues to
transact business with Schlumberger on a normal recurring basis.

NOTE 5 - SALES TO MAJOR CUSTOMERS - PURCHASES FROM MAJOR SUPPLIERS

During 2000, the Company had two major customers (customers accounting for 10%
or more of total sales), sales to each of which comprised 42% of the Company's
total sales. Amounts due from these customers comprised an aggregate 27%
accounts receivable at December 31, 2000.

During 1999, and 1998, the Company had one major customer, which accounted for
81% and 87%, respectively, of the Company's total sales. Amounts due from this
customer comprised 64% of accounts receivable at December 31, 1999.

During 2000, 1999, and 1998, the Company purchased materials from one of its
major customers, which accounted for 0%, 0%, and 20% of cost of sales
respectively. Amounts due to this customer comprised 9%, and 45% of accounts
payable at December 31, 2000 and 1999.

                                     F - 11
<PAGE>

The outstanding payables are to be reduced under a formalized payment plan,
which calls for the offset of a specific percentage of receivables, arising from
new business, due to the Company from Schlumberger. Under this plan the Company
originally estimated that the projected payments to Schlumberger would total
approximately $390,000 for the year ended December 31, 2000. Therefore, the
balance of $2,133,000 has been classified as a long-term liability in the
consolidated balance sheet at December 31, 1999. However, on July 25, 2000, the

Company entered into an amended payment plan with Schlumberger for the
settlement of its outstanding payables aggregating $1,327,000. The agreement
calls for 17 equal installments of $25,317 to be paid on the last day of each
month commencing August 31, 2000. At December 31, 2000, the balances due
Schlumberger were included within accounts payable.

NOTE 6 - ACCOUNTS RECEIVABLE FINANCING AGREEMENT

On April 11, 2000, the Company entered into an agreement to factor its trade
accounts receivable. The agreement had an original expiration on October 31,
2000. Terms of the agreement called for a maximum of $500,000 in aggregate
receivables at an advance rate of 80% of eligible account receivable or the
maximum accounts, whichever is less. Amounts due to the factor under the
agreement were secured by a first perfected security interest in all of the
Company's personal property including but not limited to accounts receivable,
inventory, general intangibles and deposit accounts with the exception of
capital equipment.

In July 2000, the Company entered into an Accounts Receivable Financing
Agreement with Silicon Valley Bank (the "Agreement") through July 19, 2001 to
replace the factoring agreement described above. The Agreement is secured by all
of the assets of the Company, and the Company can borrow up to $1,500,000 in
total over the term. In consideration of the loan, 60,000 warrants were issued
to Silicon Valley Bank with an exercise price of $1.50 per share for which the
Company recorded a compensation charge of approximately $52,000. The Agreement
permits the Company to borrow 70% of the amount of qualified accounts receivable
which are accepted by the bank. The Agreement originally required the Company to
maintain a net profit after taxes of at least $1.00 on a quarterly basis
beginning with the quarter ended June 30, 2000. The Company was in violation of
this covenant until it signed an Accounts Receivable Financing Modification
Agreement on November 14, 2000 ("Modification Agreement"). Under the
Modification Agreement, the bank waived this default on the profitability
covenant and substituted a covenant requiring the Company to maintain a certain
EBITDA with no greater than a 15% negative variance. The Company, pursuant to
the Modification Agreement, issued an additional 60,000 warrants to Silicon
Valley Bank with an exercise price of $1.50 per share for which the Company
recorded a compensation charge of approximately $26,000. In addition, the
Company pays a collateral handling fee based on the balance of the outstanding
accounts receivable every month. In December 2000, Silicon Valley Bank notified
the Company that it was in default of certain payment provisions. As of December
31, 2000 and March 30, 2001, approximately $626,000 and $336,000 was outstanding
under the agreement, respectively.

                                     F - 12
<PAGE>

NOTE 7 - COMMITMENTS AND CONTINGENCIES

CAPITAL AND OPERATING LEASES

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

<TABLE>
<CAPTION>
YEAR ENDING                                           CAPITAL          OPERATING
DECEMBER 31,                                          LEASES             LEASES           TOTAL
--------------------------------------------------------------------------------------------------
<S>                                               <C>                <C>              <C>
   2001                                           $    29,000        $   247,000      $   276,000
   2002                                                19,000            277,000          296,000
   2003                                                 4,000            375,000          379,000
   2004                                                 4,000            390,000          394,000
--------------------------------------------------------------------------------------------------
   2005                                                    --            406,000          406,000
--------------------------------------------------------------------------------------------------
   Thereafter                                              --          2,297,000        2,297,000
--------------------------------------------------------------------------------------------------
   Total minimum lease payments                        56,000        $ 3,992,000      $ 4,048,000
                                                                     ============     ============
   Amount representing interest
   at rates varying from 8.3% to 21.6%                  9,000
--------------------------------------------------------------------------------------------------
   Present value of net minimum lease payments         47,000
   Current portion                                     23,000
--------------------------------------------------------------------------------------------------
   Long-term portion                              $    24,000
==================================================================================================
</TABLE>

Certain machinery and equipment are subject to leases, which are classified as
capital leases for financial reporting purposes. At each of December 31, 2000
and 1999, $722,000, of such leased equipment is included in property, plant and
equipment. Amortization expense related to assets under capital leases, for
continuing operations was approximately $82,000, $82,000, and $31,000 in 2000,
1999, and 1998, respectively.

The Company leases its operating facilities under an agreement, which was
amended in March 2001 to extend the term to December 31, 2010 with no options to
extend beyond that date. The Company currently pays approximately $19,000 per
month with respect to this facility. Lease rates are adjusted each November as
per the terms stipulated in the agreement. The Company is also committed under
noncancelable operating agreements for the lease of machinery and equipment.
Rent expense for continuing operations in 2000, 1999, and 1998 was approximately
$342,000, $271,000, and $261,000, respectively.

In June of 1999, the Company entered into a capital lease agreement with Asymtec
for the acquisition of manufacturing equipment. This agreement expired in June
of 2000. The Company did not make all of the monthly payments as required by the
agreement and owed approximately $124,000 on the equipment at December 31, 2000.

NOTES PAYABLE

At December 31, 2000, the Company has $1,000,000 in notes payable; $500,000 of
convertible notes payable and $250,000 each to two related parties, which are
classified as long-term liabilities and current liabilities, respectively, in
the consolidated balance sheet, and are described in Note 13.

Additionally, during 2000, the Company converted trade accounts payable
aggregating $50,000 to one vendor into a note payable with an original maturity
date of August 18, 2000 with interest at 10%. The amount is still outstanding at
December 31, 2000 and carries a default rate of interest of 12%.

                                     F - 13
<PAGE>

PROFESSIONAL SERVICES AGREEMENT

The Company entered into a professional service agreement in 1998 whereby the
Company obtained the use of a piece of test equipment and technical support for
such equipment from the service provider. The agreement provided for annual
payments of approximately $90,000, until it was amended in September 2000 to
provide for monthly payments of $15,000 for October, November and December 2000.
The agreement can be further amended by the Company contingent upon the
Company's need for service and provision of a change order to the service
provider. Included in accounts payable at December 31, 2000 and 1999 is an
amount of $45,000 and $38,000 owed under this agreement.

REGISTRATION RIGHTS

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

LEGAL MATTERS

In May 1995, the United States Environmental Protection Agency ("EPA") issued
written notice to all known generators of hazardous waste shipped to a Whittier,
California treatment facility. The EPA notice indicated that these generators
(including the Company) were potentially responsible parties under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA").
The notice requires all of the generators of this waste to take immediate
actions to contain and prevent any further release of hazardous substances at
the site. In response to the EPA notice, the Company and approximately 100 of
the other named generators provided the necessary funding to effect the removal
and destruction of the hazardous wastes stored at this site. At present, the
Company believes its percentage of responsibility for this site is less than one
half of one percent; and that percentage is expected to decrease substantially
as additional generators are determined. In addition, the Company and other
named generators have provided certain funding to test the soil and groundwater
at this site, which testing is currently ongoing. Although the cost incurred by
the Company to date of removing and destroying the hazardous waste stored at
this facility was not significant, this effort does not address the cleanup of
potential soil and/or ground-water contamination present at this site.
Management is currently unable to estimate the possible cost of this suit, as
the cost of clean up has not been determined. Therefore, there can be no
assurance that the costs and expenses associated with this action will not
increase in the future to a level that would have a material adverse effect upon
the Company's business, financial condition, results of operations or cash
flows.

Two of the Company's former consultants and directors, Lewis Solomon and Gary
Stein ("Plaintiffs"), filed a lawsuit on December 18, 1998 in the state of New
York against the Company and its major customer, Schlumberger. The Consultants
services were terminated in July 1998. Mr. Solomon resigned from the Board of
Directors in August 1998; Mr. Stein resigned in December of the same year. Since
the filing of this lawsuit, the Company was successful in causing this matter to
be transferred to San Diego, California, thus making the Company's defense of
this case more convenient and less expensive. In the complaint, Plaintiffs
charged that the Company failed to pay them for alleged consulting services,
expense reimbursements and other forms of compensation aggregating $101,250.
Further, Plaintiffs alleged they were wrongfully terminated as consultants. The
Company believed Plaintiffs' claims were without merit and made substantial
counterclaims against Plaintiffs. A court-supervised settlement conference was
held in this case in November 1999, but no settlement was reached at that time.
In March 2001, the matter was settled whereby the Company agreed to pay $50,000
in the form of 120,482 shares of common stock. The number of shares to be issued
was based on the average of the high bid and low ask market price of $.414 per
share as of January 10, 2001.

                                     F - 14
<PAGE>

On October 18, 2000, the Company was notified by the United States Bankruptcy
Court that Lucien A. Morin, II, as Chapter 7 Trustee of H. J. Meyers & Co., Inc.
is seeking from the Company 1,000,000 common stock purchase warrants with a term
of five years from November 19, 1997, an exercise price of $1.00 per share, and
certain registration rights under a contract between the Company and H.J.
Meyers, Co. The Company has responded that H. J. Meyers & Co. failed to fulfill
its obligations under the contract, which was cancelled in August 1998 and that
as a result no warrants are due.

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

NOTE 8 - INCOME TAXES

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

Net income (loss) is comprised of the following:

YEAR ENDED DECEMBER 31,               2000             1999             1998
--------------------------------------------------------------------------------
Domestic operations              $ (6,950,000)    $ (2,831,000)    $ (1,526,000)
Singapore operations                        -       18,757,000       14,188,000
--------------------------------------------------------------------------------
     Total                       $ (6,950,000)    $ 15,926,000     $ 12,662,000
================================================================================

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,                                    2000                1999              1998
---------------------------------------------------------------------------------------------------------
<S>                                                     <C>                <C>              <C>
Amounts computed at Federal statutory rate              $ (2,360,000)      $  5,415,000     $  4,305,000
Foreign income not subject to U.S. taxation                        -         (5,853,000)      (4,824,000)
Alternative/minimum taxes due                                      -                  -           18,000
Amortization of non-deductible intangible assets              15,000             37,000           37,000
Non-deductible expenses                                      241,000             21,000          772,000
Realization of previously deferred tax benefits             (337,000)          (120,000)               -
Added to NOL carryforward                                  2,443,000            500,000                -
Utilization of NOL carryforward                                    -                  -         (290,000)
---------------------------------------------------------------------------------------------------------
Provision for income taxes                              $      2,000       $          -     $     18,000
=========================================================================================================
</TABLE>

The components of deferred income taxes:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,                                      2000               1999
----------------------------------------------------------------------------------------
<S>                                                     <C>                <C>
Deferred tax assets:
Net operating loss carryforwards                        $  7,000,000       $  4,557,000
Accrued liabilities and reserves                             187,000            462,000
Tax credit carryforwards                                     762,000            762,000
----------------------------------------------------------------------------------------
                                                           7,949,000          5,781,000
Valuation allowance                                       (7,861,000)        (5,586,000)
----------------------------------------------------------------------------------------
                                                              88,000            195,000
----------------------------------------------------------------------------------------
Book and tax depreciation differences                        (88,000)          (195,000)
Deferred taxes                                          $      -           $      -
========================================================================================
</TABLE>

                                     F - 15
<PAGE>

At December 31, 2000 and 1999, a 100% valuation allowance has been provided on
the total deferred income tax assets as they are not more likely than not to be
realized.

The Company has not recorded provisions for any United States income taxes in
2000 and 1999. At December 31, 2000, the Company had net operating loss
carryforwards of approximately $32,779,000 for Federal tax reporting purposes
and approximately $15,974,000 for California tax purposes. The net operating
loss carryforwards for tax purposes expire between 2001 and 2020.

As of December 31, 2000, the Company also has approximately $535,000 and
$227,000 in Federal and state general business credits credit carryforwards,
respectively. These credits expire between 2001 to 2013. The Company believes
that it has incurred an ownership change pursuant to Section 382 of the Internal
Revenue Code and, as a result, the Company believes that its ability to utilize
its current net operating loss and credit carryforwards in subsequent periods
will be subject to annual limitations.

NOTE 9 - SHAREHOLDERS' EQUITY

In order to permit the Company to issue additional options to employees, the
Shareholders approved an amendment to the Company's 1993 Stock Option/Stock
Issuance Plan, which reserved an additional 2.3 million shares for the plan in
1999. During 2000, 1999, and 1998, employees exercised options to purchase
1,153,979, 3,333, and 63,611 shares of the Company's common stock, respectively.

As of March 10, 1998, shareholders approved an amendment to the Company's
Amended and Restated Articles of Incorporation to increase the authorized shares
of Common Stock from 15 million shares to 50 million shares and to add 10
million shares of undesignated preferred stock, pursuant to a written consent
solicitation.

On October 15, 1999, shareholders approved an amendment to the Company's Amended
and Restated Articles of Incorporation to authorize the issuance of 9,362,777
shares of Series A Convertible Preferred Stock and to eliminate the previously
undesignated class of 10 million shares. The holders of the Preferred Stock are
entitled to voting rights equivalent to Common shareholders, preferential
dividends of 3.57% per year out of assets legally available whereas and as
declared by the Board, and conversion rights into common stock at the rate of 2
shares of Common Stock for each share of Preferred Stock. The 9,362,777 shares
of restricted preferred stock were issued effective October 15, 1999.

Upon the conversion of the Preferred Stock, any dividends payable with respect
to those shares shall be converted into that number of shares of Common Stock
determined by dividing the dividends payable by the conversion price. In
December 2000, certain Preferred shareholders converted 277,754 shares of
Preferred Stock and related accrued dividends of $7,000 into 577,763 shares of
Common Stock.

In the event of any liquidation, dissolution or winding up of the Company, the
holders of Preferred Stock are entitled to receive an amount per share equal to
$1.02 for each outstanding share of Preferred Stock plus any declared but unpaid
dividends before any distribution to the holders of the Common Stock.

The Company is entitled to redeem all or any part of the outstanding shares of
Preferred Stock for the original issue price of $1.02 plus the amount of all
declared but unpaid dividends.

In July 2000, the Company issued 342,333 shares under a private placement to
accredited investors at a price per share of $1.50, aggregating total proceeds
of $513,000. In addition, the new shareholders were granted warrants to purchase
171,175 shares of Common Stock with an exercise price of $1.50 per share for
which the Company recorded a compensation charge of approximately $147,000.
Subsequently, in December 2000, the Company amended the warrants to reflect
342,333 shares of Common Stock available for purchase by the new shareholders at
an exercise price of $.01 per share. As a result, the Company recorded
additional compensation of approximately $364,000 bringing the aggregate charge
for these warrants to $511,000. The value of the warrants was determined using
the Black-Scholes option-pricing model and similar assumptions as used to value
other options and warrants as discussed in Note 11. In January 2001, these
warrants were exercised in their entirety.

                                     F - 16
<PAGE>

During 2000, the Company converted $631,000 of accounts payable and $294,000 of
long-term debt into an aggregate of 910,886 shares of Common Stock. In addition,
the debtors were granted warrants to purchase 263,358 shares of Common Stock
with exercise prices ranging from $.56 to $1.51 per share for which the Company
recorded a compensation charge aggregating approximately $170,000.

NOTE 10 - EMPLOYEE BENEFIT PLAN

The Company maintains a defined contribution retirement savings plan, which is
intended to qualify under section 401(k) of the Internal Revenue Code. The Plan
covers substantially all full-time U.S. employees. Participants may contribute a
percentage of their salaries subject to statutory annual limitations. The
Company matches a percentage of the employee contributions as specified in the
plan agreement. Contributions by the Company totaled $64,000, $66,000, and
$70,000 in 2000, 1999, and 1998, respectively.

NOTE 11 - STOCK OPTION/STOCK ISSUANCE PLAN AND STOCK PURCHASE WARRANTS

STOCK OPTION/STOCK ISSUANCE PLAN - The Company maintains a stock option/stock
issuance plan under which incentive stock options may be granted to employees of
the Company and nonqualified stock options may be granted to consultants and
non-employee directors of the Company. Under the terms of the plan,
nontransferable options may be granted for terms of up to 10 years and are
generally exercisable at the rate of 33% per year, although vesting terms are
determined at the discretion of the Board of Directors. Options are granted with
an exercise price not less than the fair market value of the common stock shares
at the date of grant. A total of 7,000,000 shares of common stock have been
reserved for issuance under the plan. The plan terminates on December 8, 2003.

On December 14, 2000, the Company repriced its options previously granted to
employees, excluding members of the board of directors, given the decline in the
trading price of the Company's securities to reduce the exercise price to $0.453
per share. This repricing requires the recording of additional compensation
expense for subsequent increases in the market price for the common stock and
reductions of compensation expense for subsequent decreases, but in any case,
not for decreases in the market price below the repriced exercise price. For the
period ended December 31, 2000, no additional compensation was recorded as the
market price for the Company's common stock continued to decline.

The Company has issued options to non-employees in exchange for services and has
recorded compensation expense based upon the estimated fair value of those
options totaling $0, $124,000, and $114,000, for 2000, 1999, and 1998,
respectively. The fair value of the options was determined using the
Black-Scholes option-pricing model, and is charged to expense in the period the
services are provided. There were no non-employee stock options issued during
the year-ended December 31, 2000. For 1999, the Company issued to non-employees
30,000 shares of Common Stock at a price of $0.32 per share, the fair market
value on the date of issuance, pursuant to the Company's Stock Issuance Program.
The fair value of the 70,000 options granted to non-employees in 1998 was
$20,000.

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

Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation," requires the Company to provide pro forma
information regarding net income and earnings per share as if such compensation
cost for the Company's stock option and issuance plans had been determined in
accordance with the fair value based method prescribed in SFAS 123. The Company
estimates the fair value of each stock option at the grant date by using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2000, 1999, and 1998, respectively: 0% dividend
yield; expected volatility of 60%, 78.25 - 83.61%, and 75%; risk free interest
rates of 6.20%, 5.16 - 6.26%, and 5.39 - 5.75%; and expected lives of 3 to 6
years (determined on an option-by-option basis). Under the accounting provisions
of SFAS 123, the Company's net income (loss) per share would have adjusted to
the pro forma amounts indicated below:

                                     F - 17
<PAGE>

<TABLE>
<CAPTION>
                                                             2000            1999            1998
                                                        -------------   -------------   -------------
<S>                                                     <C>             <C>             <C>
Net income (loss):
    As reported .....................................   $ (6,950,000)   $ 15,857,000    $ 12,662,000
    Proforma ........................................     (7,571,000)     15,515,000      12,626,000
Earnings (loss) per common share:
    As reported .....................................          (0.61)           1.46            1.17
    Proforma ........................................          (0.63)           1.43            1.17
Earnings (loss) per common share - assuming dilution:
    As reported .....................................          (0.61)           1.46            1.17
    Proforma ........................................          (0.63)           1.43            1.17
</TABLE>

A summary of the status of the Company's stock option plan as of December 31,
2000, 1999 and 1998 and changes during the years ending on those dates is
presented below:

The table includes information for options granted to employees and
non-employees, both issued under one stock option plan.

<TABLE>
<CAPTION>
                                                2000                       1999                      1998
                                   ---------------------------  ------------------------  -------------------------
                                              WEIGHTED-AVERAGE          Weighted-Average           Weighted-Average
                                      SHARES      EXERCISE       Shares     Exercise        Shares     Exercise
                                      (000)        PRICE         (000)       Price          (000)       Price
                                   ---------------------------  ------------------------  -------------------------
<S>                                   <C>          <C>            <C>        <C>           <C>        <C>
Outstanding at beginning of year       6,047       $0.37          2,425      $0.48          3,870     $ 0.36
Granted                                  710        1.92          4,173       0.33            578       0.54
Exercised                             (1,154)       0.41             (3)      0.63            (64)      0.20
Forfeited                             (1,569)       0.40           (548)      0.51         (1,960)      0.28
Outstanding at end of year             4,034        0.47          6,047       0.37          2,425       0.48
Options exercisable at year-end        1,827        0.46          1,331       0.39          1,066       0.41
Weighted-average fair value of
   options granted during the year    $ 1.08                     $ 0.19                    $ 0.27
</TABLE>

The following table summarizes information about fixed stock options outstanding
at December 31, 2000.

<TABLE>
<CAPTION>
                                         Options Outstanding                          Options Exercisable
                       ------------------------------------------------------  ----------------------------------
                           Number        Weighted-Average       Weighted-          Number         Weighted-
  Range of Exercise    Outstanding at        Remaining           Average       Exercisable at      Average
        Prices            12/31/00       Contractual Life     Exercise Price      12/31/00      Exercise Price
-------------------------------------------------------------------------------------------------------------------
<S>                       <C>                <C>               <C>                 <C>             <C>
  $ 0.20  to  $0.22          85,000          6.6 years         $  0.20                11,250       $  0.20
  $ 0.32  to  $0.32       2,418,114            8.8             $  0.32               796,704       $  0.32
  $ 0.36  to  $0.66       1,311,940            8.7             $  0.45               966,031       $  0.45
  $ 1.12  to  $3.85         208,750            9.3             $  2.27                42,916       $  2.19
  $ 4.19  to  $5.13           9,900            3.6             $  5.04                 9,900       $  5.04
                       -------------                                            -------------
  $ 0.20  to  $5.13       4,033,704                                                1,826,801
                       =============                                            =============
</TABLE>

STOCK PURCHASE WARRANTS - During 2000, the Company issued 250,000 warrants to
each Transpac and FI Financial in connection with loans made to the Company
(Note 13), an aggregate of 120,000 warrants to Silicon Valley Bank in connection
with an Accounts Receivable Financing Agreement (Note 6), 342,333 warrants to

                                     F - 18
<PAGE>

new shareholders in connection with a private placement of securities in July
2000 (Note 9), and 263,358 warrants to debtors in connection with the conversion
of debt to common stock (Note 9).

In connection with an agreement dated April 24, 1998, with Transpac and the
related investors, Transpac and the related investors received a warrant to
purchase 500,000 shares of Common Stock at an exercise price of $1.00 per share,
exercisable on or until April 24, 2003. In 1999, in connection with the debt
restructuring, the exercise price of this warrant was reduced by 50% to $0.50.
In addition, on September 24, 1998, the Company granted warrants to ST
Microelectronics, currently controlled by preferred shareholders of the Company,
to purchase 200,000 shares of Common Stock at an exercise price of $1.00 per
share, exercisable on or until September 24, 2003. The number of shares
purchasable under the aforementioned warrants is subject to adjustment upon
certain events including stock splits, subdivisions or contributions of shares.
At December 31, 2000, none of these warrants had been exercised.

On November 19, 1997, the Company entered into an Agreement for a term of two
years. Pursuant to the Agreement, the Company was to receive business
development services including the review of the Company's managerial and
financial requirements, review of the Company's budgets and business plans,
analysis of alternative methods by which the Company can raise capital and
certain other related services in exchange for the issuance of 1,000,000 common
stock purchase warrants. This warrant was to have a term of five years, an
exercise price of $1.00 per share, and has certain registration rights. The fair
market value of the Company's Common Stock on the grant date was $0.625. The
exercise of the warrant was contingent on shareholder approval of an increase in
the number of authorized shares necessary to provide a sufficient number of
shares underlying the warrant. Shareholders subsequently granted such approval
effective March 10, 1998. Both agreements were cancelled for nonperformance
during 1998 and the warrantswere never issued.. See Note 8 for related
litigation.

In connection with the issuance of $2.8 million of convertible debentures on
October 23, 1996 the Company issued 75,421 common stock purchase warrants to the
lead investor at an exercise price of $0.55 (the average conversion price of the
debentures). These warrants, which were exercisable 45 days after issuance,
expired on October 23, 1997. In connection with its initial public offering, the
Company issued 160,000 common stock purchase warrants to its underwriter at an
exercise price of $6.50. These warrants, which were exercisable upon issuance,
expired in April 1999. The Company issued 17,693 common stock purchase warrants
at an exercise price of $5.63 per share in August 1993. These warrants expired
in August 1998.

No stock purchase warrants have been exercised during the three years ended
December 31, 2000. However, in January 2001, the Company issued 342,333 shares
of Common Stock in connection with the exercise of the warrants granted in
relation to the private placement (Note 9).

As of December 31, 2000, the Company had reserved common stock for the following
purposes:

                  Convertible Preferred Stock Exercise            18,170,046

                  1993 Stock Option Plan                           4,033,704

                  Stock Warrants                                   1,925,691
                                                                 ------------
                                                                  24,129,441
                                                                 ============

NOTE 12 - SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS

Cash paid for interest during 2000, 1999 and 1998 totaled $25,000, $29,000, and
$18,000, respectively.

Dividends on Preferred Stock were accrued and undeclared in the aggregate amount
of $334,000 for the year ended December 31, 2000. In December 2000, holders of
277,754 shares of Preferred Stock converted those shares and related accrued
dividends of $7,000 into 577,763 shares of common stock. Also, during 2000,
$631,000 of trade accounts payable and $294,000 of long-term liabilities were
converted into an aggregate of 910,886 shares of Common Stock. Further, the
Company converted trade accounts payable of $50,000 into notes payable during
the year ended December 31, 2000.

                                     F - 19
<PAGE>

Non cash capital leases entered into in 1999 totaled $567,000. Preferred Stock
was issued in exchange for debt (Note 2) on October 15, 1999, with a stated
value of $9,550,033. Dividends on Preferred Stock at December 31, 1999, were
accrued and undeclared in the amount of $69,000.

NOTE 13 - RELATED PARTY TRANSACTIONS

In December 2000, the Company entered into three separate loan and stock
issuance agreements aggregating $500,000 with related parties and shareholders.
These agreements are secured, bear interest at 10% and are convertible at any
time through the maturity date of December 2002 into Common Stock of the
Company. The conversion prices range from $.18 to $.32 per share, which
represents a 20% discount on the date of the respective agreement. As a result,
the Company incurred a one-time charge to interest expense aggregating $100,000
as recognition of the beneficial conversion feature. In addition, each of the
agreements contains an Additional Stock Purchase Right, whereby, the debt
holders can purchase additional shares at the then existing market value on the
date of the agreement, which ranges from $.22 to $.41 per share. Under the
Additional Stock Purchase Right, the debt holders are limited in the number of
additional shares that can be purchased, such that, the additional shares
purchased can not exceed the number of shares initially converted from the loan
balance.

In June 2000, Transpac Capital Pte. Ltd., an existing shareholder, and FI
Financial, a shareholder and an entity controlled by James T. Waring, a
director, loaned the Company $250,000 each in exchange for a six month secured
note bearing interest at prime plus .75% and 9%, respectively The Company
discussed payment arrangements with Transpac Capital Pte. and negotiated an
agreement to extend, waive or defer all or any part of the principal or interest
for an additional six month period. FI Financial has agreed to extend the due
date of its promissory note for six months. In consideration of each of these
loans, the lenders were each issued warrants to purchase 250,000 shares of
common stock with an exercise price of $1.344 for which the Company recorded a
compensation charge aggregating $398,000. The maturity dates for these
obligations have orally been extended to June 14, 2001.

On March 22, 2000, the Company entered into a loan and stock issuance agreement
(the "Loan Agreement") in the amount of $250,000 with a related party and
shareholder. The Loan Agreement was unsecured, bore interest at 10% and was
convertible after 60 days into common stock of the Company at a discount of 15%
pursuant to the terms of the MeltroniX 1993 Stock Option/Stock Issuance Plan. As
a result, the Company incurred a one-time charge to interest expense in the
amount of $44,000 as recognition of the beneficial conversion feature. In June
2000, the entire loan amount was converted into 212,303 shares of Common Stock
of the Company.

As part of the issuance of Preferred Stock on extinguishment of debt (see Note
2), a group of employees, officers, and directors purchased 449,696 shares of
the Preferred Stock in 1999.

In exchange for consulting services, the Company paid $249,000 in 1998 to the
Company's present or former Board Members or entities, which are affiliated with
three of the Company's Board members. The Company has recorded $78,000 of
accrued and unpaid fees to Board Members at December 31, 2000 and 1999.

See Note 15 for additional transactions with related parties occurring
subsequent to December 31, 2000.

NOTE 14 - EARNINGS PER SHARE ("EPS")

Options to purchase 4,033,704 shares and warrants to purchase 1,925,691 shares
of common stock at prices ranging from $0.01 to $5.13 were outstanding during
2000 but were not included in the computation of diluted EPS because the options
and warrants effect on EPS would be anti-dilutive. The options and warrants,
which expire between April 2001 and December 2010, were still outstanding as of
December 31, 2000. The 9,085,023 shares of Series A Convertible Preferred Stock
issued and outstanding at December 31, 2000 were not included in the computation
of diluted EPS as the effect on EPS would be anti-dilutive.

                                     F - 20
<PAGE>

Options to purchase 6,047,202 shares and warrants to purchase 700,000 shares of
common stock at prices ranging from $0.20 to $5.13 were outstanding during 1999,
but were not included in the computation of diluted EPS because the options and
warrants effect on EPS would be anti-dilutive. The options and warrants, which
expire between April 2001 and August 2009, were still outstanding as of December
31, 1999. The 9,362,777 shares of Series A Convertible Preferred Stock issued
and outstanding at December 31, 1999 were not included in the computation of
diluted EPS as the effect on EPS would be anti-dilutive.

Options to purchase 1,920,133 shares and warrants to purchase 660,000 shares of
common stock at prices ranging from $0.42 to $6.50 were outstanding during 1998,
but were not included in the computation of diluted EPS because the options and
warrants effect on EPS would be anti-dilutive. The options and warrants, which
expire between April 1999 and July 2008, were still outstanding as of December
31, 1998.

NOTE 15 - SUBSEQUENT EVENTS

         In January 2001, La Jolla Cove Investors, Inc. ("LJCI") and The Norman
Litz IRA, loaned the Company $250,000 each in exchange for a two-year
convertible note bearing interest at 10%, payable monthly. The convertible note
due to The Norman Litz IRA is secured by the assets of the Company, while the
note due to LJCI is personally guaranteed by directors and officer of the
Company. The conversion prices of the notes are equal to (a) $.20 per share, if
the principal amounts are converted within one-year of the effective date, or
(b) the lesser of $.20 per share or 80% of the lowest market price (as defined)
during the 45 days prior to the conversion, if the principal amounts are
converted after one-year and prior to maturity. In addition, each of the
agreements contains an Additional Stock Purchase Right, whereby, the debt
holders can purchase additional shares at the lesser of $.20 per share or 80% of
the lowest market price (as defined) during the 45 days prior to note
conversion. Under the Additional Stock Purchase Right, the debt holders are
limited in the number of additional shares that can be purchased, such that, (a)
the additional shares purchased can not exceed 50% of the number of shares
initially converted from the loan balance, and (b) the debt holders can not own
more than 10%, individually, of the then outstanding shares of Common Stock.

         The Company made a strategic change in its approach to the market by
expanding its current service business by adding proprietary products utilizing
the company's capabilities already in place.

         US SEMICONDUCTOR. In February 2001, the Company executed a letter of
intent with United States Semiconductor Corporation ("USSC") for a proposed
transaction, which, if consummated, would provide that USSC will (i) grant the
Company an exclusive, non transferable license for the use of USSC's technology
in exchange for a percentage to be determined of the Company's common stock, and
(ii) purchase a percentage yet to be determined of the common stock of the
Company. The expenses to further develop the technology to a commercially
feasible and manufacturable level are to be born by USSC. Once established, the
Company is to manufacture the developed products and, upon sale, will be
obligated to pay USSC a royalty, the amount of which has yet to be agreed upon.
To date, the Company had received an advance of $200,000 from USSC. Management
is continuing its discussion with USSC in anticipation of executing a definitive
agreement. The consummation of the transactions contemplated by the letter of
intent are subject to a number of conditions that are outside the control of the
Company and, therefore, there is no assurance that such transactions will be
successfully completed.

         WIDCOMM, INC. The Company has signed a Memorandum of Understanding
(MOU) with WIDCOMM, Inc., a world leader in Bluetooth networking solutions, that
forms the basis of an agreement for WIDCOMM to license its Bluetooth protocol
stack to MeltroniX. The Company is planning to incorporate WIDCOMM's Bluetooth
technology into its high-density semiconductor interconnect solutions for
distribution to its customers in the wireless/internet, telecommunication, high
band width networks and medical markets. WIDCOMM's Bluetooth protocol software
was the world's first Bluetooth Qualification Body (BQB) certified product.

                                     F - 21
<PAGE>

Also, in February 2001, the Company granted warrants to purchase 98,000 shares
of Common Stock to former directors upon resigning from the Company's Board.
Such warrants expire in February 2003 and are exercisable at prices ranging from
$.37 to $2.61 per share.

In March 2001, and in connection with the facility lease amendment, the Company
granted warrants to purchase 100,000 shares of Common Stock to the lessor at an
exercise price of $.50 per share that expire in March 2004.

In February and March 2001, the Company entered into two separate loan
agreements with James T. Waring in the amounts of $50,000 and $75,000. Each loan
agreement carries interest at an annual rate of 10%, is secured, and is due
within the earlier of 15 months or the closing of the transaction with USSC
discussed above.

As of March 30, 2001 and subsequent to December 31, 2000, the Company has
granted several employees and directors options to purchase a combined 1,708,040
shares of Common Stock of the Company. Such options expire at various dates
throughout March 2011 and carry exercise prices ranging from $.35 to $.41 per
share.

On April 6, 2001, the Company borrowed an additional $200,000 from LJCI under a
secured promissory note with interest at 9%, due and payable on April 6, 2002
and is guaranteed by certain officers/directors of the Company. In connection
with the promissory note, the Company issued 1,000,000 shares of its common
stock as additional consideration for the loan. The Company has further agreed
to prepare and file a registration statement within 60 days and use its best
efforts to effect such registration statement to register the 1,000,000 shares
and those underlying the previously issued convertible note payable.

                                     F - 22
<PAGE>

NOTE 16 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

THE FOLLOWING IS A SUMMARY OF THE QUARTERLY OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 2000 AND 1999 (IN THOUSANDS):

<TABLE>
<CAPTION>

2000                                March 31        June 30     September 30    December 31
----                                --------        -------     ------------    -----------
<S>                                 <C>            <C>            <C>            <C>
Net Sales                           $  3,351       $  3,376       $  4,009       $  2,167
Gross profit (loss)                       36            565            522         (1,893)
Income (loss) from operations         (1,125)          (793)          (618)        (3,740)
Net income (loss)                     (1,136)          (914)          (840)        (4,060)
Net income (loss) available to
   common shareholders                (1,220)          (998)          (924)        (4,142)
Basic and diluted net income
   (loss) per share                 $  (0.11)      $  (0.09)      $  (0.07)      $  (0.34)

1999
----

Net Sales                           $  1,743       $  2,182       $  2,031       $  3,298
Gross profit (loss)                      214            306            446            606
Income (loss) from operations           (578)          (425)          (392)            86
Net income (loss) before
   Extraordinary gain                 (1,084)          (842)          (901)            (4)
Net income (loss) available to
   common shareholders                (1,084)          (842)          (901)        18,684
Basic and diluted net income
   (loss) per share                 $  (0.10)      $  (0.08)      $  (0.08)      $   1.72
</TABLE>

                                     F - 23
<PAGE>

              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
                          FINANCIAL STATEMENT SCHEDULE




Board of Directors
MeltroniX, Inc.
San Diego, California


The audit referred to in our report dated March 30, 2001, except for the last
paragraph of Note 15 as to which the date is April 6, 2001, relating to the
consolidated financial statements of MeltroniX, Inc., which is contained in Item
8 of this Form 10-K included the audit of the financial statement schedule
listed in the accompanying index. The financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based upon our audits.

In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein for the year ended December
31, 2000.

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


                                                  /s/ Haskell & White LLP
                                                  -----------------------------

                                                  HASKELL & WHITE LLP


Irvine, California
March 30, 2001, except for the
         last paragraph of Note 15
         as to which the date is
         April 6, 2001

                                     F - 24
<PAGE>

              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
                          FINANCIAL STATEMENT SCHEDULE




Board of Directors
MeltroniX, Inc.
San Diego, California


The audit referred to in our report dated February 17, 2000, except for Note 13,
paragraph 3 which is as of March 22, 2000, Note 4 paragraph 3 which is as of
March 31, 2000, and Note 6 paragraph 1 which is as of April 11, 2000 relating to
the consolidated financial statements of MeltroniX, Inc., (formerly
Microelectronic Packaging, Inc.) which is contained in Item 8 of this Form 10-K
included the audit of the financial statement schedule listed in the
accompanying index. The financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based upon our audits.

In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein for the years ended
December 31 1999 and 1998.


                                                    /s/ BDO Seidman, LLP
                                                    ---------------------------

                                                    BDO SEIDMAN, LLP


Costa Mesa, California
February 17, 2000, except
    for Note 13, paragraph 3
    which is as of March 22, 2000,
    Note 4, paragraph 3
    which is as of March 31, 2000 and
    Note 6, paragraph 1
    which is as of April 11, 2000.

                                     F - 25
<PAGE>

<TABLE>
                                                      MELTRONIX, INC.
                                      VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                        FOR THE THREE YEARS ENDED DECEMBER 31, 2000
                                                        SCHEDULE II
<CAPTION>

                                                           Additions
                                         Balance At        Charged To      Transfers to
                                        Beginning Of       Costs And       Discontinued                     Balance At End
                                           Period           Expenses        Operations       Deductions        Of Period
                                       ===================================================================================
<S>                                      <C>               <C>                    <C>     <C>                <C>
Allowance For Doubtful Accounts for
  the Year Ended:
     December 31, 1998                   $    235,000                 -           -                  -       $    235,000
     December 31, 1999                        235,000            42,000           -                  -            277,000
     December 31, 2000                        277,000                 -           -           (227,000)            50,000

Inventory Valuation Reserves for
  the Year Ended:
     December 31, 1998                   $    244,000      $    455,000           -                  -       $    699,000
     December 31, 1999                        699,000            61,000           -           (293,000)           467,000
     December 31, 2000                        467,000                 -           -            (22,000)           445,000

Other Valuation Reserves (1)
  for the Year Ended:
     December 31, 1998                   $    274,000                 -           -       $   (200,000)      $     74,000
     December 31, 1999                         74,000                 -           -            (74,000)                 -
     December 31, 2000                              -                 -           -                  -                  -

Property, Plant And Equipment -
  Discontinued Operations
  for the Year Ended:
     December 31, 1998                   $ 21,861,000                 -           -       $(21,861,000)                 -
     December 31, 1999                              -                 -           -                  -                  -
     December 31, 2000                              -                 -           -                  -                  -
</TABLE>

(1)  Pertains To Other Receivables

                                                          F - 26