SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q
                Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                       For the Quarter Ended June 30, 2000

                          Commission File Number 1-4373


                            THREE-FIVE SYSTEMS, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


              Delaware                                          86-0654102
   -------------------------------                         ---------------------
   (State or other jurisdiction of                            I.R.S. Employer
    incorporation or organization)                         Identification Number


1600 North Desert Drive, Tempe, Arizona                           85281
----------------------------------------                        ----------
(Address of principal executive offices)                        (Zip Code)


                                 (602) 389-8600
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

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

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, at the latest practical date.

CLASS                                            OUTSTANDING AS OF JULY 20, 2000
-----                                            -------------------------------
Common                                                    21,508,275
Par value $.01 per share
<PAGE>
                            THREE-FIVE SYSTEMS, INC.
                          QUARTERLY REPORT ON FORM 10-Q
                       FOR THE QUARTER ENDED JUNE 30, 2000
                                TABLE OF CONTENTS


                         PART I - FINANCIAL INFORMATION

                                                                           Page
                                                                           ----
ITEM 1. FINANCIAL STATEMENTS:

        Condensed Consolidated Balance Sheets -
          December 31, 1999 and June 30, 2000................................1

        Condensed Consolidated Statements of Income -
          Three Months and Six Months Ended June 30, 1999 and 2000...........2

        Condensed Consolidated Statements of Cash Flows -
          Six Months Ended June 30, 1999 and 2000............................3

        Notes to Condensed Consolidated Financial Statements.................4

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS..................................7

                           PART II - OTHER INFORMATION

ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS................14

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................14

SIGNATURES..................................................................15
<PAGE>
ITEM 1. FINANCIAL STATEMENTS


                            THREE-FIVE SYSTEMS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

                                                    DECEMBER 31,       JUNE 30,
                                                       1999             2000
                                                     ---------        ---------
                                                                     (UNAUDITED)
                                     ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                          $  45,363        $ 127,559
  Short-term investments                                    --           46,545
  Accounts receivable, net                              20,886           25,785
  Inventories                                           12,344           15,187
  Deferred tax asset                                     3,231            4,202
  Other current assets                                   1,047            1,864
                                                     ---------        ---------
     Total current assets                               82,871          221,142

PROPERTY, PLANT AND EQUIPMENT, net                      40,546           42,726

OTHER ASSETS                                             3,513            4,246
                                                     ---------        ---------
                                                     $ 126,930        $ 268,114
                                                     =========        =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                   $  13,450        $  14,423
  Accrued liabilities                                    7,526            7,921
  Current taxes payable                                  1,042            3,059
                                                     ---------        ---------
     Total current liabilities                          22,018           25,403
                                                     ---------        ---------

DEFERRED TAX LIABILITY                                   3,692            3,710
                                                     ---------        ---------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Common stock                                             189              215
  Additional paid-in capital                            67,388          197,265
  Retained earnings                                     33,639           41,552
  Cumulative translation adjustment                          7              (30)
  Less - Treasury stock, at cost                            (3)              (1)
                                                     ---------        ---------
     Total stockholders' equity                        101,220          239,001
                                                     ---------        ---------

                                                     $ 126,930        $ 268,114
                                                     =========        =========

              The accompanying notes are an integral part of these
                     condensed consolidated balance sheets.

                                        1
<PAGE>
                            THREE-FIVE SYSTEMS, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (unaudited)
                    (in thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                       THREE MONTHS                SIX MONTHS
                                                       ENDED JUNE 30,             ENDED JUNE 30,
                                                  ----------------------      ----------------------
                                                    1999          2000          1999          2000
                                                  --------      --------      --------      --------
<S>                                             <C>         <C>         <C>         <C>
NET SALES                                         $ 31,600      $ 44,926      $ 54,644      $ 84,088
                                                  --------      --------      --------      --------
COSTS AND EXPENSES:
  Cost of sales                                     25,103        34,157        45,294        63,517
  Selling, general and administrative                2,493         2,418         4,942         4,680
  Research, development and engineering              2,008         2,989         3,829         5,752
                                                  --------      --------      --------      --------
                                                    29,604        39,564        54,065        73,949
                                                  --------      --------      --------      --------

    Operating income                                 1,996         5,362           579        10,139
                                                  --------      --------      --------      --------
OTHER INCOME (EXPENSE):
  Interest, net                                       (211)        1,185          (366)        1,789
  Other, net                                            (3)          (20)          (33)          (44)
                                                  --------      --------      --------      --------
                                                      (214)        1,165          (399)        1,745
                                                  --------      --------      --------      --------
INCOME BEFORE PROVISION FOR (BENEFIT FROM)
INCOME TAXES:                                        1,782         6,527           180        11,884
    Provision for (benefit from) income taxes          742         2,158          (218)        3,928
                                                  --------      --------      --------      --------

NET INCOME                                        $  1,040      $  4,369      $    398      $  7,956
                                                  ========      ========      ========      ========
EARNINGS PER COMMON SHARE:
  Basic                                           $   0.07      $   0.22      $   0.03      $   0.41
                                                  ========      ========      ========      ========
  Diluted                                         $   0.07      $   0.21      $   0.03      $   0.39
                                                  ========      ========      ========      ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
    Basic                                           14,035        19,807        14,030        19,370
                                                  ========      ========      ========      ========
    Diluted                                         14,212        21,083        14,239        20,593
                                                  ========      ========      ========      ========
</TABLE>

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

                                        2
<PAGE>
                            THREE-FIVE SYSTEMS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                          SIX MONTHS ENDED
                                                                              JUNE 30,
                                                                      ------------------------
                                                                        1999           2000
                                                                      ---------      ---------
<S>                                                                   <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                          $     398      $   7,956
  Adjustments to reconcile net income to net cash
   provided by operating activities:
   Depreciation and amortization                                          2,605          3,087
   Provision for accounts receivable valuation reserves                     117            105
  Change in assets and liabilities:
   (Increase) in accounts receivable                                     (6,106)        (5,005)
   (Increase) in inventories                                             (2,755)        (2,843)
   (Increase) decrease in other assets                                      363         (1,062)
   Increase in accounts payable and accrued liabilities                   6,443          1,368
   Increase (decrease) in taxes payable and deferred taxes, net            (238)         1,064
                                                                      ---------      ---------
        Net cash provided by operating activities                           827          4,670
                                                                      ---------      ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property, plant and equipment, net                         (5,102)        (5,254)
  Purchase of short-term investments                                         --        (46,545)
  Investment in Inviso, Inc.                                                 --           (500)
                                                                      ---------      ---------
        Net cash used in investing activities                            (5,102)       (52,299)
                                                                      ---------      ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from notes payable to banks                                5,000             --
  Net proceeds from equity offering                                          --        128,638
  Issuance of treasury stock                                                 43             --
  Stock options exercised                                                    61          1,224
                                                                      ---------      ---------
        Net cash provided by financing activities                         5,104        129,862
                                                                      ---------      ---------

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                  2            (37)
                                                                      ---------      ---------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                   831         82,196
CASH AND CASH EQUIVALENTS, beginning of period                            4,946         45,363
                                                                      ---------      ---------

CASH AND CASH EQUIVALENTS, end of period                              $   5,777      $ 127,559
                                                                      =========      =========
</TABLE>
              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.

                                        3
<PAGE>
             THREE-FIVE SYSTEMS, INC. AND SUBSIDIARIES (THE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Note A    The accompanying unaudited Condensed Consolidated Financial Statements
          have been prepared in accordance with accounting  principles generally
          accepted in the United States for interim  financial  information  and
          the  instructions to Form 10-Q.  Accordingly,  they do not include all
          the  information  and  footnotes  required  by  accounting  principles
          generally  accepted  in  the  United  States  for  complete  financial
          statements.  In the  opinion of  management,  all  adjustments  (which
          include only normal recurring adjustments) necessary to present fairly
          the financial position,  results of operations, and cash flows for all
          periods  presented  have been made.  The results of operations for the
          three and six-month  periods  ended June 30, 2000 are not  necessarily
          indicative  of the  operating  results  that may be  expected  for the
          entire year ending  December  31,  2000.  These  financial  statements
          should be read in  conjunction  with the  Company's  December 31, 1999
          financial statements and accompanying notes thereto.

Note B    Basic earnings per common share are computed by dividing net income by
          the  weighted  average  number of shares of common  stock  outstanding
          during the three and six-month  periods.  Diluted  earnings per common
          share for the three- and  six-month  periods are  determined  assuming
          that the options and warrants  were  exercised at the beginning of the
          period or at the time of issuance,  if later.  Set forth below are the
          disclosures  for the three- and six-month  periods ended June 30, 1999
          and 2000.

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED       SIX MONTHS ENDED
                                                             JUNE 30,                JUNE 30,
                                                        -------------------     -------------------
                                                         1999        2000        1999        2000
                                                        -------     -------     -------     -------
                                                                        (UNAUDITED)
                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                   <C>          <C>         <C>         <C>
          Basic earnings per share:

          Income available to common stockholders       $ 1,040     $ 4,369     $   398     $ 7,956
                                                        -------     -------     -------     -------
             Weighted average common shares              14,035      19,807      14,030      19,370
                                                        -------     -------     -------     -------
               Basic per share amount                   $  0.07     $  0.22     $  0.03     $  0.41
                                                        =======     =======     =======     =======

          Diluted earnings per share:

          Income available to common stockholders       $ 1,040     $ 4,369     $   398     $ 7,956
                                                        -------     -------     -------     -------
             Weighted average common shares              14,035      19,807      14,030      19,370
             Options and warrants assumed exercised         177       1,276         209       1,223
                                                        -------     -------     -------     -------
             Total common shares plus common
               stock equivalents                         14,212      21,083      14,239      20,593
                                                        -------     -------     -------     -------
               Diluted per share amount                 $  0.07     $  0.21     $  0.03     $  0.39
                                                        =======     =======     =======     =======
</TABLE>

Note C    Inventories consist of the following at:

                                                 DECEMBER 31,       JUNE 30,
                                                    1999             2000
                                                  --------         --------
                                                                  (unaudited)
                                                        (in thousands)

          Raw materials                           $  9,554         $ 11,925
          Work-in-process                            1,336            1,743
          Finished goods                             1,454            1,519
                                                  --------         --------
                                                  $ 12,344         $ 15,187
                                                  ========         ========

                                        4
<PAGE>
Note D    Property, plant, and equipment consist of the following at:

                                                  DECEMBER 31,     JUNE 30,
                                                     1999            2000
                                                   --------        --------
                                                                 (unaudited)
                                                        (in thousands)

          Building and improvements                $ 16,411        $ 16,412
          Furniture and equipment                    47,036          52,289
                                                   --------        --------
                                                     63,447          68,701
          Less accumulated depreciation             (22,901)        (25,975)
                                                   --------        --------
                                                   $ 40,546        $ 42,726
                                                   ========        ========

Note E    Segment information:

          Management  monitors and evaluates the  financial  performance  of the
          Company's operations by its four operating segments located in various
          parts of the world.  These  segments  consist  of three  manufacturing
          operations,  located in the United States, China, and the Philippines,
          and a sales and distribution operation in the United Kingdom.

          The  following  operating  segment   information   includes  financial
          information  (in  thousands)  for all four of the Company's  operating
          segments.

<TABLE>
<CAPTION>
          Three Months Ended         United      United
            June 30, 1999            States      Kingdom       China      Philippines    Eliminations     Total
            -------------            ------      -------       -----      -----------    ------------     -----
             (UNAUDITED)
<S>                                 <C>          <C>          <C>           <C>            <C>           <C>
          Net sales                 $ 10,535     $ 14,225     $  6,840      $     --       $     --      $ 31,600
          Intersegment sales          18,427           --        2,694           804        (21,925)           --
          Income before provision
           for (benefit from)
           income taxes                1,345          245          292            16           (116)        1,782


          Three Months Ended         United      United
            June 30, 2000            States      Kingdom       China      Philippines    Eliminations     Total
            -------------            ------      -------       -----      -----------    ------------     -----
             (UNAUDITED)
          Net sales                 $ 18,321     $ 13,882     $ 12,723      $     --       $     --      $ 44,926
          Intersegment sales          20,501           --          605           825        (21,931)           --
          Income before provision
           for (benefit from)
           income taxes                2,519        1,025        3,000            16            (33)        6,527


          Six Months Ended           United      United
           June 30, 1999             States      Kingdom       China      Philippines    Eliminations     Total
          ----------------          --------     --------     --------      --------       --------      --------
            (UNAUDITED)
          Net sales                 $ 17,483     $ 24,576     $ 12,585      $     --       $     --      $ 54,644
          Intersegment sales          33,518           --        3,839         1,595        (38,952)           --
          Income before provision
           for (benefit from)
           income taxes                 (609)         382          349            31             27           180
</TABLE>

                                        5
<PAGE>
<TABLE>
<CAPTION>
          Six Months Ended           United      United
           June 30, 2000             States      Kingdom       China      Philippines    Eliminations     Total
           -------------             ------      -------       -----      -----------    ------------     -----
            (UNAUDITED)
<S>                                 <C>          <C>          <C>           <C>            <C>           <C>
          Net sales                 $ 33,918     $ 32,478     $ 17,692      $     --       $     --      $ 84,088
          Intersegment sales          39,564           --        5,328         1,524        (46,416)           --
          Income before provision
           for (benefit from)
           income taxes                4,018        2,510        5,413            30            (87)       11,884
</TABLE>

Note F    Comprehensive income for the periods was as follows:

<TABLE>
<CAPTION>
                                           Three Months Ended       Six Months Ended
                                                June 30,                June 30
                                           -------------------     -------------------
                                            1999        2000        1999        2000
                                           -------     -------     -------     -------
                                                           (unaudited)
                                                         (in thousands)

<S>                                        <C>         <C>         <C>         <C>
          Net income                       $ 1,040     $ 4,369     $   398     $ 7,956
          Other comprehensive income:
            Cumulative foreign currency
             translation adjustment              2         (35)          2         (37)
                                           -------     -------     -------     -------
          Comprehensive income             $ 1,042     $ 4,334     $   400     $ 7,919
                                           =======     =======     =======     =======
</TABLE>

Note G    Commitments and Contingencies:

          In March 1995,  the Company  entered into a  non-cancelable  operating
          lease  for  its  primary   manufacturing   facility  in  Manila,   the
          Philippines.  The lease has a current term extending  through December
          31,  2000.   Also,  in  April  1995,   the  Company   entered  into  a
          non-cancelable   operating  lease  for  an  additional   manufacturing
          facility in Manila,  the Philippines.  This lease expired on March 31,
          2000 and has been renewed to March 31, 2001.

          In  July  2000,  the  Company  notified  the  lessor  of  its  primary
          manufacturing  facility in Manila that the Company was  canceling  the
          lease for its primary manufacturing  facility effective as of December
          31, 2000.

          In conjunction with that cancellation,  Three-Five  Systems,  Pacific,
          Inc., the Company's wholly owned foreign  subsidiary,  is currently in
          the  process of  negotiating  a new lease with the  Company's  primary
          manufacturing  facility in Manila. Under the proposed terms of the new
          lease, the leasehold period will be for a term of five years,  with an
          annual review period. If during this annual review period either party
          desires to  terminate  the lease,  either  party may do so by giving a
          180-day written notice to the other party.

          In May 2000,  Three-Five  Systems  Pacific,  Inc. signed a lease for a
          build-to-suit  factory in Manila.  The term of the lease is 120 months
          starting upon  completion  of the factory.  In  conjunction  with that
          lease,  Three-Five Systems Pacific, Inc. has made security deposits of
          approximately $650,000.

Note H    Benefit Plans

          On January 27, 2000,  the Board of Directors  increased  the number of
          shares of the Company's  common stock available for issuance under the
          1997 Stock Option Plan by 150,000 to 350,000 shares.

                                        6
<PAGE>
Note I    Stockholders' Equity

          In May 2000, the Company issued  2,150,000 shares of common stock at a
          price of $55.00  per share in a public  offering.  In June  2000,  the
          Company issued an additional 322,500 shares of common stock at a price
          of  $55.00  per  share  to  cover  over-allotments  pertaining  to the
          offering.

          On April 18,  2000,  the Board of Directors  approved a  three-for-two
          stock  split,  to be  effected  in  the  form  of a 50  percent  stock
          dividend.  The Board's approval of the stock split was contingent upon
          the  approval  by the  stockholders  of an  increase  in the number of
          authorized  shares of common stock,  which occurred on April 27, 2000.
          At that time, the  stockholders  approved an increase in the number of
          authorized  shares of the Company's common stock from 15 million to 60
          million.  The stock dividend was paid on May 12, 2000, to stockholders
          of record at the close of business of May 1, 2000. The increase in the
          authorized  shares and the stock  split  have been  given  retroactive
          recognition for all periods  presented in the  accompanying  condensed
          consolidated financial statements.

Note J    Short-term Investments

          The Company considers all liquid  interest-earning  investments with a
          maturity  of three  months or less at the date of  purchase to be cash
          equivalents.  Short-term  investments  generally  mature between three
          months and one year from the purchase date. All short-term investments
          are classified as available for sale and are presented at market using
          the specific  identification  method.  Unrealized gains and losses are
          reflected in other comprehensive income. Realized and unrealized gains
          and losses were not material at June 30, 2000.

Note K    Recently Issued Accounting Standards

          In June 1998, the Financial  Accounting  Standards Board (FASB) issued
          SFAS No. 133 (as amended by SFAS No. 138),  "ACCOUNTING FOR DERIVATIVE
          INSTRUMENTS  AND HEDGING  ACTIVITIES,"  which  requires that an entity
          recognize  all  derivatives  as either  assets or  liabilities  in the
          statement of financial  position and measure those instruments at fair
          value.  The  issuance  of SFAS No.  137,  "ACCOUNTING  FOR  DERIVATIVE
          INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF
          FASB  STATEMENT NO. 133," delayed the required  effective date of SFAS
          No. 133 to all fiscal years beginning after June 15, 2000. The Company
          will be required  to adopt SFAS No.  133,  as  amended,  on January 1,
          2001.  Management  does not believe that the adoption of SFAS No. 133,
          as amended,  will have a material  impact on its results of operations
          or financial position.

          On December 3, 1999, the Securities and Exchange Commission staff (the
          Staff)  issued  Staff   Accounting   Bulletin   (SAB)  101,   "Revenue
          Recognition."  Subsequent to its issuance,  the Staff elected to defer
          the  required  implementation  date.  The Company  will be required to
          adopt SAB 101 during the fourth quarter of 2000.  Management  believes
          that the  adoption  of SAB 101 will not have a material  impact on the
          Company's financial position or results of operations.

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

FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT RESULTS

     Except  for  the  historical  information  contained  herein,  this  Report
contains  forward-looking  statements,   including  those  relating  to  revenue
concentration, margins, pricing pressures, quarterly fluctuations, the impact of
our China facility, material shortages,  research,  development, and engineering
expense,  and  liquidity  and  anticipated  cash  needs that  involve  risks and
uncertainties that could cause actual results to differ materially.

     We caution that these  statements  are subject to various  factors that may
affect future  results,  including the following:  changes in the market for our
products  and  the  success  of our  customers'  products,  the  failure  of key
technologies to deliver commercially acceptable  performance,  our dependence on
one large  customer,  the absence of  long-term  purchase  commitments,  and our
lengthy development periods and product acceptance cycles. This Report should be

                                        7
<PAGE>
read in  conjunction  with our  Report on Form 10-K for the  fiscal  year  ended
December 31, 1999 and our Registration  Statement on Form S-3  (Registration No.
333-35788) as declared  effective by the Securities  and Exchange  Commission on
May 5, 2000.

OVERVIEW

     We offer advanced design and manufacturing  services to original  equipment
manufacturers,  commonly  referred to as OEMs. We  specialize in custom  display
modules utilizing liquid crystal display, or LCD, components and technology. Our
LCD  modules  have  varying  levels of  integration.  At a minimum,  each module
includes an LCD, a custom LCD driver, and a flexible connector.  We also provide
value-added  services,   which  increase  our  competitiveness,   by  assembling
additional  components  onto the  module  based upon the  specific  needs of the
customer.   These   additional   components   include  such  items  as  keypads,
microphones, speakers, light guides, and optics.

     We currently  sell  substantially  all of our LCD modules to major OEMs. We
derived  more than 85% of our net  sales in 1999 and in the  first  half of 2000
from the mobile  handset  market.  When we win a design  program,  our  customer
typically  pays all or a portion of our  nonrecurring  engineering  expenses  to
defray the costs of custom design, as well as the costs of nonrecurring  tooling
for custom components.  The typical program life cycle of a custom-designed  LCD
module is three to twelve  months and includes  technical  design,  prototyping,
pilot  manufacturing,  and  high-volume  manufacturing.  We typically seek large
volume  programs  from major OEMs.  The minimum  production  quantity for an LCD
module typically  approximates  100,000 units per year,  although the production
rate for some programs has been as high as 100,000  units per week.  The selling
price  of our LCD  modules  usually  ranges  between  $5 and $20  per  unit.  We
recognize revenue upon product shipment.

     We experienced  substantial  growth from 1993 through 1995,  primarily as a
result of sales to OEMs in the  wireless  communications  industry,  which  grew
substantially  during that period.  During that period, our primary customer was
Motorola.  In  1996,  our net  sales  declined,  primarily  as a  result  of the
phase-out  by Motorola of a  significant  family of programs.  In 1997,  our net
sales returned to pre-1996 levels  primarily as a result of several new programs
and customers.  Motorola  accounted for 65.1% of our net sales in 1996, 34.6% in
1997,  and 63.6% in 1998.  In 1999,  net sales to Motorola  increased  at a rate
faster than net sales to our other  customers and  represented  86.1% of our net
sales. In the first half of 2000, net sales to Motorola represented 87.8% of our
net sales.  Since 1998 no other  customer has accounted for more than 10% of our
net sales.

     During the past  several  years,  we have  experienced  seasonal  quarterly
fluctuations  in our net sales as our OEM customers  developed  retail  products
with shorter product life cycles and phased out older programs early in the year
following  holiday sales. As a result,  sales usually peak in the fourth quarter
of a calendar year and are lower in the following quarter.

     Several   factors  impact  our  gross  margins,   including   manufacturing
efficiencies,   product  mix,  product   differentiation,   product  uniqueness,
inventory  management,  and  volume  pricing.  Currently,   significant  pricing
pressure  exists in the LCD module market,  especially in higher volume programs
in the wireless communications industry.  Accordingly,  as the production levels
of some of our new higher volume  programs have  increased,  the lower  standard
gross margins on those programs have impacted our overall margins.

     We vertically  integrate our manufacturing  facilities.  In Arizona, we own
and operate the largest  high-volume  LCD production  line in North America.  We
generally use the Arizona  facility for the manufacture of more  technologically
complex  and  custom  high-volume  LCDs.  We also  purchase  LCDs from Asian and
European  sources  to  provide us an  alternate  source and to ensure  available
capacity.  In order to take advantage of lower labor costs,  we ship our LCDs to
our facilities in Manila, the Philippines,  or Beijing, China, for assembly into
modules.

     Historically, we have conducted most of our manufacturing operations at our
facility in Manila. At that facility,  we assemble LCDs into modules and perform
certain back-end LCD processing operations.  We conduct our operations in Manila
under an  agreement  with a  third-party  subcontract  manufacturer.  Under this
agreement,  the  subcontractor  supplies  direct labor and  incidental  services
required to manufacture our products.  We also lease our manufacturing  facility
from  the  subcontractor.   All  indirect  manufacturing  employees,   primarily
technicians, supervisors, and engineers, are our employees.

                                        8
<PAGE>
     In early 1998, we decided to open a similar  display  module  manufacturing
facility in Beijing.  Within six  months,  we located a temporary  manufacturing
facility,  equipped the facility, trained our personnel,  qualified the facility
for customers, and qualified products manufactured at the facility. We commenced
construction of our permanent  Beijing  facility in late 1998. This facility was
substantially  completed in early July 1999, and we began  production in the new
manufacturing  facility  late in the third  quarter of 1999.  All  production in
Beijing  beginning  in the  fourth  quarter  of 1999  was  conducted  at our new
permanent  facility.  We own our Beijing facility through a wholly owned foreign
subsidiary.

     Selling,  general,  and  administrative  expense  consists  principally  of
administrative  and  selling  costs,  salaries,  commissions,  and  benefits  to
personnel and related  facility  costs. We make  substantially  all of our sales
directly  to OEMs,  and our sales  force  consists  of a small  number of direct
technical sales persons. As a result,  there is no material cost of distribution
in our selling,  general,  and administrative  expense.  Selling,  general,  and
administrative  expense has  increased  as we have  expanded  our  business  and
increased our diversification  efforts.  In addition,  we have recently incurred
substantial  marketing and  administrative  expenses in connection with our LCOS
microdisplay business.

     Research,  development,  and engineering  expense  consists  principally of
salaries and  benefits to  scientists,  design  engineers,  and other  technical
personnel,  related  facility  costs,  process  development  costs,  and various
expenses for projects, including new product development. Research, development,
and engineering expense continues to increase as we develop new display products
and  technologies,  especially  LCOS  microdisplays,  while we continue with our
in-house   process   development   efforts   related  to  the   high-volume  LCD
manufacturing line located in Arizona.

     Since 1997, we have been working on the development of LCOS  microdisplays.
In 1997,  we entered  into a  strategic  alliance  with  National  Semiconductor
Corporation  for the  development  of LCOS  microdisplay  products.  Under  that
alliance, National focused on the silicon technologies needed for microdisplays,
and we focused on the liquid crystal technologies.  In 1999, National decided to
close its microdisplay  business unit. In connection with that closing,  in July
1999,  we  purchased  certain  assets and  licensed  silicon  technologies  from
National relating to LCOS  microdisplays.  We paid approximately $3.0 million in
cash and issued  warrants to purchase  140,000 shares of our common stock in the
transaction,  which valued the total transaction at approximately  $3.6 million.
No additional  payments are required  under the licenses.  We also hired several
key  technical  employees  of  National to assist in the  implementation  of the
acquired technologies.

     In April 1998, we entered into a strategic  relationship with Inviso, Inc.,
formerly  Siliscape,  Inc., a privately  held company with numerous  patents and
proprietary  technology  related  to  microdisplay  development.  We  acquired a
minority  equity  interest in Inviso for  approximately  $3.3 million.  In March
2000,  we acquired an additional  interest in Inviso for  $500,000,  raising our
total  minority  equity  interest  to $3.8  million.  As part of this  strategic
relationship,  we  provide  proprietary  manufacturing  capabilities  and liquid
crystal expertise, and Inviso provides patented and proprietary technologies and
components for the joint development of microdisplay products.

     In August  1999,  we  licensed  the  microdisplay  technology  of  S-Vision
Corporation,   which  had  recently  ceased  operations.   This  license  is  an
irrevocable,  royalty free, fully paid-up,  worldwide license to manufacture and
package certain microdisplay products and patented optical engines.

     In October  1999,  we entered  into an  agreement  with  Tecdis  S.p.A.,  a
European-based LCD company,  to form an ASIC design center in Chatillon,  Italy.
The ASIC  design  center  will be known as Dora and will  focus on the design of
ASICs  necessary  to drive  the LCDs we and  Tecdis  design  for our  respective
customers.  STMicroelectronics  is also  participating in Dora and has agreed to
manufacture the ASICs designed by Dora.

     These  acquisitions,  investments,  and  licenses  will result in increased
research,   development,   and  engineering   expense  as  we  expand  our  LCOS
microdisplay  development efforts in preparation for the commercial introduction
of  LCOS  microdisplay   products.  We  are  also  considering  licensing  other
technologies   from  other   companies  that  could  be  optimized  on  our  LCD
manufacturing  line as well as entering  into  further  alliances.  We expect to
continue to devote substantial resources to research and development, especially
on our LCOS  microdisplay  technology  and related  products.  As a result,  the
actual dollar amount of our research,  development, and engineering expense will
continue to increase.

                                        9
<PAGE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999

     NET SALES.  Net sales  increased 42.1% to $44.9 million in the three months
ended June 30, 2000 from $31.6  million in the three months ended June 30, 1999.
This increase occurred because of the increased level of programs at our largest
customer and strong growth in the mobile handset market.  As a result of delayed
programs and product mix issues at that largest customer,  however,  second half
net sales is estimated to be in the same range as first half net sales.

     COST OF SALES.  Cost of sales  decreased to 76.0% of net sales in the three
months  ended June 30, 2000 from 79.4% in the three  months ended June 30, 1999.
This  percentage   decrease  resulted   primarily  from  accelerated   operating
efficiencies and cost reduction efforts as a result of the continued high levels
of  production  for  programs  that have been ongoing for several  quarters.  In
addition, we had nearly $500,000 in microdisplay  development revenue during the
second quarter, which had a positive effect on the cost of sales percentage. The
cost of sales  slightly  increased from the first quarter of 2000 because of new
pricing for some high volume programs.

     SELLING,   GENERAL,  AND  ADMINISTRATIVE  EXPENSE.  Selling,  general,  and
administrative  expense  slightly  decreased to $2.4 million in the three months
ended June 30, 2000 from $2.5  million in the three  months ended June 30, 1999.
Selling,  general, and administrative expense was 5.4% of net sales in the three
months  ended June 30, 2000  compared to 7.9% in the three months ended June 30,
1999. The decrease in selling, general, and administrative expense reflected our
efforts  to hold the costs of SG&A in 2000 to 1999  levels in order to  leverage
those expenses as we continued to expand the business. In the three months ended
June  30,  2000,   we  incurred   approximately   $600,000  of   marketing   and
administrative  expenditures relating to the LCoS microdisplay business compared
to approximately $400,000 in the three months ended June 30, 1999.

     RESEARCH,  DEVELOPMENT AND ENGINEERING EXPENSE.  Research,  development and
engineering  expense  increased  50.0% to $3.0 million in the three months ended
June 30,  2000 from  $2.0  million  in the three  months  ended  June 30,  1999.
Research, development and engineering expense was 6.7% of net sales in the three
months  ended June 30, 2000  compared to 6.4% in the three months ended June 30,
1999.  Research,  development and engineering  expense overall  increased as the
result of the development of new display products and technologies. For example,
LCoS  microdisplays  accounted  for  approximately  $1.6  million  of  research,
development  and  engineering  expense in the three  months  ended June 30, 2000
compared to approximately $950,000 in the three months ended June 30, 1999.

     OTHER INCOME/EXPENSE,  NET. Other income in the three months ended June 30,
2000 was $1.2 million  compared to other expense of $214,000 in the three months
ended June 30, 1999. The difference  was a result of increased  interest  income
and reduced  interest  expense.  The increase in interest income was primarily a
result of  additional  cash balances in the three months ended June 30, 2000 and
the elimination of all indebtedness.

     PROVISION  FOR INCOME  TAXES.  We had a provision  for income taxes of $2.2
million in the three  months  ended June 30, 2000  compared  to a provision  for
income taxes of $742,000 in the three  months  ended June 30, 1999.  This change
resulted primarily from higher pre-tax income in the three months ended June 30,
2000 compared to the same period in 1999. The tax rate decreased to 33.1% in the
three  months  ended June 30, 2000  compared to 41.6% in the three  months ended
June 30, 1999.  The  decreased  tax rate in the three months ended June 30, 2000
resulted  primarily  from reporting  income in Beijing,  which is a low tax rate
jurisdiction.  In the second  half of 2000,  we expect our  overall  tax rate to
continue to be approximately 33%.

     NET INCOME. Net income increased 320% to $4.4 million, or $0.21 per diluted
share,  in the three months ended June 30, 2000 from $1.0 million,  or $0.07 per
diluted  share,  in the three  months ended June 30,  1999.  Excluding  our LCoS
microdisplay  business,  our net income in the three  months ended June 30, 2000
was approximately $5.6 million, or $0.27 per diluted share.

                                       10
<PAGE>
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999.

     NET SALES.  Net sales  increased  54.0% to $84.1  million in the six months
ended June 30, 2000 from $54.6  million in the six months  ended June 30,  1999.
This increase occurred because of the increased level of programs at our largest
customer and strong growth in the mobile handset market.  As a result of delayed
programs and product mix issues at that largest customer,  however,  second half
net sales is estimated to be in the same range as first half net sales.

     COST OF  SALES.  Cost of sales  decreased  to 75.5% of net sales in the six
months  ended June 30,  2000 from 82.9% in the six months  ended June 30,  1999.
This  percentage   decrease  resulted   primarily  from  accelerated   operating
efficiencies and cost reduction efforts as a result of the continued high levels
of  production  for  programs  that have been ongoing for several  quarters.  In
addition, we had nearly $500,000 in microdisplay  development revenue during the
second quarter, which had a positive effect on the cost of sales percentage.

     SELLING,   GENERAL,  AND  ADMINISTRATIVE  EXPENSE.  Selling,  general,  and
administrative  expense  decreased  4.1% to $4.7 million in the six months ended
June 30, 2000 from $4.9 million in the six months ended June 30, 1999.  Selling,
general,  and  administrative  expense  was 5.6% of net sales in the six  months
ended June 30, 2000 compared to 9.0% in the six months ended June 30, 1999.  The
decrease in selling, general, and administrative expense reflected our desire to
leverage  those  expenses as we continued to expand the  business.  In the first
half  of  2000,  we  incurred   approximately  $1.2  million  of  marketing  and
administrative  expenditures relating to our LCoS microdisplay business compared
to approximately $800,000 in the first six months of 1999.

     RESEARCH,  DEVELOPMENT AND ENGINEERING EXPENSE.  Research,  development and
engineering expense increased 52.6% to $5.8 million in the six months ended June
30,  2000 from $3.8  million in the six months  ended June 30,  1999.  Research,
development  and  engineering  expense  was 6.8% of net sales in the six  months
ended June 30,  2000  compared  to 7.0% in the six months  ended June 30,  1999.
Research, development and engineering expense overall increased as the result of
the   development   of  new  display   products  and   technologies,   primarily
microdisplays.  For example, LCoS microdisplays accounted for approximately $3.1
million of research, development and engineering expense in the first six months
of 2000 compared to approximately $1.8 million in the first six months of 1999.

     OTHER INCOME (EXPENSE),  NET. Other income in the six months ended June 30,
2000 was $1.7  million  compared to other  expense of $399,000 in the six months
ended June 30, 1999. The difference  was a result of increased  interest  income
and reduced  interest  expense.  The increase in interest income was primarily a
result of additional cash balances and the elimination of all indebtedness.

     PROVISION FOR (BENEFIT  FROM) INCOME  TAXES.  We had a provision for income
taxes of $3.9  million  for the six months  ended June 30,  2000  compared  to a
benefit  from income  taxes of $218,000  for the six months ended June 30, 1999.
This change  resulted  primarily  from higher  pre-tax  income in the six months
ended June 30, 2000 compared to the same period in 1999.

     NET INCOME.  Net income  increased over 20 times to $8.0 million,  or $0.39
per diluted share, in the six months ended June 30, 2000 from $398,000, or $0.03
per  diluted  share,  in the six months  ended  June 30,  1999.  Excluding  LCoS
microdisplay related expenses,  our net income for the six months ended June 30,
2000 was approximately $10.5 million, or $0.51 per diluted share.

QUARTERLY RESULTS OF OPERATIONS

     The following table presents unaudited consolidated statement of operations
data for each of the five quarters in the period ended June 30, 2000. We believe
that all  necessary  adjustments  have  been  included  to  present  fairly  the
quarterly  information when read in conjunction with the Condensed  Consolidated
Financial Statements.  The operating results for any quarter are not necessarily
indicative of the results for any subsequent quarter.

                                       11
<PAGE>
<TABLE>
<CAPTION>
                                                                Quarters Ended
                                           ------------------------------------------------------
                                                                 (Unaudited)
                                                                (In Thousands)
                                           ------------------------------------------------------
                                            Jun 30      Sep 30,     Dec 31,    Mar 31,   Jun 30,
                                                         1999                        2000
                                           --------------------------------   -------------------
<S>                                        <C>         <C>         <C>        <C>        <C>
Net sales                                  $ 31,600    $ 42,723    $ 50,041   $ 39,162   $ 44,926
                                           --------    --------    --------   --------   --------
Cost and expenses:
  Cost of sales                              25,103      33,882      38,407     29,360     34,157
  Selling, general, and administrative        2,493       2,741       3,487      2,262      2,418
  Research, development, and engineering      2,008       2,427       2,489      2,763      2,989
                                           --------    --------    --------   --------   --------
                                             29,604      39,050      44,383     34,385     39,564
                                           --------    --------    --------   --------   --------
Operating income                              1,996       3,673       5,658      4,777      5,362
Other income (expense), net                    (214)       (160)        541        580      1,165
                                           --------    --------    --------   --------   --------
Income before provision for income taxes      1,782       3,513       6,199      5,357      6,527
Provision for income taxes                      742       1,476       1,710      1,770      2,158
                                           --------    --------    --------   --------   --------
Net income                                 $  1,040    $  2,037    $  4,489   $  3,587   $  4,369
                                           ========    ========    ========   ========   ========
</TABLE>

     Historically,  we have experienced seasonal  fluctuations in our net sales.
OEM customers that purchase our products for incorporation into retail products,
such as mobile handsets,  typically increase their purchases during the year-end
holiday period and phase out old programs  early in the year  following  holiday
sales.  As a result,  net sales typically peak in the fourth quarter and reach a
seasonal low point in the first quarter.

     There is  significant  pricing  pressure in higher  volume  programs in the
wireless   communications  and  office  automation   industries.   In  addition,
high-volume  programs that generally have lower gross margins began to represent
a larger  percentage of net sales in the second half of 1998,  thereby  reducing
gross  margins.  In the third  quarter  of 1998,  we also  started  several  new
programs and  incurred  substantial  start-up  costs on those new  programs.  In
addition,  excess  inventory  purchases  occurred in the second quarter of 1998,
slowing  purchases in the third  quarter of 1998 and greatly  reducing  material
overhead  absorption  in that  quarter.  In the first quarter of 1999, we had an
unfavorable  product  mix,  shipping  principally  lower  margin  products.   In
addition,  reduced  manufacturing  yields and under-absorption of fixed overhead
contributed to lower margins.  In the second half of 1999, higher volumes in our
manufacturing facilities produced increased operating efficiencies, resulting in
better margins. We continued to improve the margins in the first half of 2000 as
we focused on cost-reduction efforts. We expect the margins to sequentially drop
over the next few quarters as new programs  with lower  margins begin to ramp to
production.

     In 1999, we continued to expand and intensify our research and  development
efforts on  proprietary  display  products,  such as LCOS  microdisplays.  Other
expense  increased  in the last half of 1998 and the  first  half of 1999 as our
cash balances declined and we increased our borrowings. All borrowings were paid
off and cash balances  increased as a result of our equity offering in the third
quarter of 1999.  As a result,  we had  sharply  higher  interest  income in the
fourth  quarter of 1999. In the second  quarter of 2000,  we had another  equity
offering,  which  further  raised our cash  balances and  increased our interest
income.

LIQUIDITY AND CAPITAL RESOURCES

     At June 30, 2000, we had cash, cash equivalents, and short-term investments
of $174.1 million compared to $45.4 million at December 31, 1999.

     In the quarter  ended June 30,  2000,  we had $1.9 million in net cash flow
from operations  compared to $1.3 million in net cash outflow from operations in
the quarter ended June 30, 1999.  Our cash flow was  positively  impacted in the
quarter ended June 30, 2000  primarily as a result of  substantially  higher net
income.

     Depreciation  expense  increased to $1.5 million for the second  quarter of
2000  compared to $1.3  million for the second  quarter of 1999.  This  increase
primarily  relates to increased  starts on our LCD line and  increased  building
depreciation  as a result of our China  operations.  The high-volume LCD line is
depreciated on a  units-of-production  method based on units started.  Inventory
turns  were 9.7 in the  second  quarter  of 2000  compared  to 7.8 in the second
quarter of 1999.  Accounts  receivable DSOs (Day Sales Outstanding) were 52 days

                                       12
<PAGE>
in the  second  quarter  of 2000  from 60 days in the  second  quarter  of 1999.
Accounts receivable balances substantially increased this quarter primarily as a
result of strong shipments in June.

     In the first six months of 2000,  we had $4.7 million in net cash flow from
operations  compared to $827,000 in net cash flow from  operations  during 1999.
Cash flow from operations improved during the first six months of 2000 primarily
as a result of increased net income.

     Our working capital was $195.7 million at June 30, 2000 compared with $60.9
million at December 31, 1999.  Our current  ratio  increased to 8.7-to-1 at June
30, 2000 from  3.8-to-1 at December 31, 1999.  The  substantial  increase in our
working  capital and current  ratio during the second  quarter of 2000  occurred
primarily because of the equity offering that was completed during that quarter.
In that offering,  we raised $129 million and issued  approximately  2.5 million
additional  shares of  common  stock.  Including  our  cash,  cash  equivalents,
short-term investments,  and available credit facilities,  we had $199.5 million
in  readily  available  funds at June 30,  2000  compared  to $70.7  million  at
December 31, 1999.

     In January 2000,  we entered into a new credit  facility with Imperial Bank
to replace the then existing credit facility. The new credit facility is a $25.0
million unsecured  revolving line of credit that matures in January 2001. Mellon
Bank is a participating  lender on that new credit  facility.  No borrowings are
outstanding  under the new credit facility.  Advances under the new facility may
be made as prime rate advances,  which accrue  interest  payable  monthly at the
bank's prime lending rate, or as LIBOR rate advances, which bear interest at 150
basis  points in excess of the LIBOR  base  rate.  In  addition,  we have  other
smaller credit facilities in Europe and China.

     Capital  expenditures during the first half of 2000 were approximately $5.3
million.  These capital  expenditures  primarily  consisted of equipment for our
operations in Manila,  Beijing, and Arizona,  including  manufacturing equipment
for LCOS microdisplays. In the first quarter of 2000, we also made an additional
investment in Inviso, Inc. of $500,000,  bringing our total minority investments
in Inviso to $3.8 million.  Our total capital  budget for 2000 is  approximately
$14-16 million.

     Capital  expenditures during 1999 were approximately  $12.5 million.  These
capital  expenditures  consisted of $5.6 million for equipment and  construction
costs  relating  to our  manufacturing  facility in  Beijing;  $1.8  million for
manufacturing and office equipment for our operations in Manila and Arizona; and
$5.1  million  for LCOS  microdisplays,  including  our  purchase  of assets and
licenses  from  National  Semiconductor  and  S-Vision.  The assets and licensed
silicon technologies from National  Semiconductor relating to LCOS microdisplays
were  acquired for  approximately  $3.0 million in cash and warrants to purchase
140,000 shares of our common stock.  Substantially all of the purchase price was
allocated  to  depreciable  assets,  tooling and mask  rights,  and  amortizable
licenses.

     We believe that our existing balances of cash, cash equivalents, short term
investments,  anticipated cash flows from operations, and available credit lines
will provide  adequate  sources to fund our operations and planned  expenditures
through 2001.

EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE FLUCTUATIONS

     The  results of our  operations  for the  periods  discussed  have not been
significantly  affected  by  inflation  or  foreign  currency  fluctuations.  We
generally sell our products and services and negotiate  purchase orders with our
foreign  suppliers in U.S.  dollars.  However,  we have certain foreign currency
exchange exposure as a result of our manufacturing operations in the Philippines
and China.  The sub-assembly  agreement  relating to our operations in Manila is
based on a fixed conversion rate, exposing us to exchange rate fluctuations with
the Philippine peso. We have not incurred any material  exchange gains or losses
to date. There has been some minor benefit as a result of the peso  devaluation,
although  we  are  now  required  to pay  approximately  one-third  of any  peso
devaluation gain to our lessor and direct labor subcontractor in Manila.

     In  China,  we have  accounts  receivable  and cash  deposits  in the local
currency.  Although  the  Chinese  currency  currently  is stable,  its value in
relation to the U.S. dollar is determined by the Chinese  government.  There has
been general  speculation  since late 1998 that China may devalue its  currency.
Devaluation of the Chinese  currency could result in translation  adjustments to
our  balance  sheet  as well as  reportable  losses  depending  on our  monetary
balances and outstanding indebtedness at the time of devaluation. The government
of China  historically  has made it difficult to convert its local currency into

                                       13
<PAGE>
foreign  currencies.  Although  from  time  to time we may  enter  into  hedging
transactions  in order to minimize our exposure to currency  rate  fluctuations,
the Chinese  currency is not freely  traded and thus is difficult  to hedge.  In
addition,  the government of China has imposed  restrictions on Chinese currency
loans to foreign-operated  entities in China. Based on the foregoing,  we cannot
provide  assurance that  fluctuations and currency  exchange rates in the future
will not have an  adverse  effect  on our  financial  condition  or  results  of
operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     There are no material  changes in reported market risks since the Company's
most recent filing on Form 10-K for the year ended December 31, 1999.

                           PART II. OTHER INFORMATION

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

     Our Annual Meeting of  Stockholders  was held on April 27, 2000. All of the
nominees  were  elected  to our  Board of  Directors  as set  forth in the Proxy
Statement as follows:

          Nominees                    Votes in Favor          Against
          --------                    --------------          -------
          Jeffrey D. Buchanan           10,630,783            349,356
          David C. Malmberg             10,630,783            349,356
          Thomas H. Werner              10,628,850            351,289
          Kenneth M. Julien             10,469,313            510,826
          Gary R. Long                  10,628,917            351,222
          David P. Chavoustie           10,626,837            353,302

     The following items were also voted upon and approved by the Stockholders:

     (a)  To approve the 1998 Amended and Restated Directors' Stock Plan (the
          "1998 Plan").

                                      Votes in Favor          Opposed
                                      --------------          -------
                                        10,679,832            269,580

     (b)  To ratify the  appointment of Arthur  Andersen LLP as our  independent
          auditors for the fiscal year ending December 31, 2000.

                                      Votes in Favor          Opposed
                                      --------------          -------
                                        10,955,184             9,632

     (c)  To amend  the  Company's  Restated  Certificate  of  Incorporation  to
          increase  the  number  of  authorized  shares  of  common  stock  from
          15,000,000 to 60,000,000 shares.

                                      Votes in Favor          Opposed
                                      --------------          -------
                                         7,124,791           3,837,741

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits:

          Exhibit 10(x):  Amended and Restated Directors' Stock Plan.

          Exhibit 10(aa): Credit  Agreement  dated  January 21, 2000,  by  and
                          between Three-Five Systems, Inc., its subsidiaries,
                          the Banks listed therein, and Imperial Bank, as Agent
                          and as Issuing Bank.

          Exhibit 27:     Financial Data Schedule

     (b)  Reports on Form 8-K: None

                                       14
<PAGE>
                                   SIGNATURES

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

                            THREE-FIVE SYSTEMS, INC.
                            ------------------------
                                 (Registrant)


Dated: July 21, 2000.                   By: /s/ Jeffrey D. Buchanan
                                            ------------------------------------
                                        Name: Jeffrey D. Buchanan
                                        Its:  Executive Vice President;
                                              Chief Financial Officer

                                       15