<PAGE>

                                 UNITED STATES
                      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 March 31, 1999.

                                      OR

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

                For the transition period from       to      .

                       Commission file number 001-14165

                               IXYS CORPORATION
            (Exact name of registrant as specified in its charter)

              Delaware                                 770140882-5
                                                    (I.R.S. Employer
   (State or other jurisdiction of                 identification No.)
   incorporation or organization)

                              3540 Bassett Street
                      Santa Clara, California 95054-2704
             (Address of principal executive offices and zip code)

                                (408) 982-0700
             (Registrant's telephone number, including area code)

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

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

<TABLE>
<CAPTION>
                                                        Name of each exchange
            Title of each class                          on which registered
            -------------------                         ----------------------
   <S>                                                  <C>
       Common stock, par value $.01 per
                     share                              Nasdaq SmallCap Market
</TABLE>

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

                               (Title of class)
                                     None

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

  Indicate by check mark if disclosure of delinquent filers 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
amendments to this Form 10-K.  Yes [X]  No [_]

  The aggregate market value of the voting stock held by non-affiliates of the
registrant as of May 31, 1999, was approximately $10,503,652*. The number of
shares of the Registrant's Common Stock outstanding as of May 31, 1999 is
11,986,661.
--------
* Based on a closing price of $4.00 per share of the Registrants' Common Stock
  on May 28, 1999 held by executive officers, directors and stockholders whose
  ownership exceeds 5% of the Common Stock outstanding at May 31, 1999.
  Exclusion of such shares should not be construed to indicate that any such
  person possesses the power, direct or indirect, to direct or cause the
  direction of the management or policies of the registrant or that such
  person is controlled by or under common control with the Registrant.
<PAGE>

                           ANNUAL REPORT ON FORM 10-K

                    FOR THE FISCAL YEAR ENDED MARCH 31, 1999

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
 <C>         <S>                                                           <C>
 PART I

    Item 1.  Business...................................................     1

    Item 2.  Properties.................................................    21

    Item 3.  Legal Proceedings..........................................    21

    Item 4.  Submission of Matters of a Vote of Security Holders........    23

 PART II

    Item 5.  Market for Registrant's Common Stock and Related
              Stockholder Matters.......................................    24

    Item 6.  Selected Financial Data....................................    24

    Item 7.  Management's Discussion and Analysis of Financial Condition
              and Results of Operations.................................    25

    Item 8.  Financial Statements and Supplementary Data................    31

    Item 9.  Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure..................................    53

 PART III

    Item 10. Directors and Executive Officers of the Registrant.........    53

    Item 11. Executive Compensation.....................................    53

    Item 12. Security Ownership of Certain Beneficial Owners and
              Management................................................    53

    Item 13. Certain Relationships and Related Transactions.............    53

 PART IV

    Item 14. Exhibits, Financial Statement Schedules and Reports on Form
              8-K.......................................................    53

</TABLE>
<PAGE>

  Except for the historical information contained herein, this report contains
forward-looking statements that involve risks and uncertainties. IXYS' actual
results could differ materially from those discussed here. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed under the heading "Risk Factors" at the end of Item 1 IXYS Business.

                                    PART I

ITEM 1. IXYS Business

Overview

 General

  IXYS Corporation, a Delaware corporation ("IXYS") designs, develops and
markets power semiconductors used primarily in controlling energy in motor
drives, power conversion (including uninterruptible power supplies ("UPS") and
switch mode power supplies ("SMPS")) and medical electronics. IXYS' power
semiconductors convert electricity at relatively high voltage and current
levels to create efficient power as required by a specific application. IXYS'
target market includes segments of the power semiconductor market that require
medium to high power semiconductors, with a particular emphasis on higher
power semiconductors, which IXYS considers to be those capable of processing
greater than 500 watts of power. IXYS offers a broad line of power
semiconductors, including power MOSFETs, insulated gate bipolar transistors
("IGBTs"), thyristors (silicon controlled rectifiers or "SCRs") and
rectifiers, including fast recovery epitaxial diodes ("FREDs").

  In addition, IXYS also sells a broad range of static random access memory
("SRAM") products with various density, speed, configuration, temperature
range and packaging options for a wide range of commercial, industrial and
military applications. IXYS' products range in density from 256 kilobytes to 4
megabytes.

  IXYS' major customers include Still GmbH, Rockwell International
Corporation, Emerson Electric Company, Eurotherm Ltd. (U.K.), Medtronics Inc.,
ABB, Guidant Corporation, General Signal, Alpha Technology and Siemens AG.

  IXYS has not declared or paid any cash dividends on any series of its
capital stock during any period for which information is provided in this
Report on Form 10-K.

  IXYS Corporation was founded in April 1983. In December 1995, IXYS was
reincorporated as a Delaware corporation. On September 23, 1998, IXYS
Corporation merged with Paradigm Technology, Inc., a Delaware corporation that
designs and markets fast SRAM products ("Paradigm"), in a transaction
accounted for as a reverse merger. In the merger, Paradigm issued 11,513,821
shares of its common stock in exchange for all outstanding shares of IXYS
Corporation capital stock. At the conclusion of the merger, IXYS Corporation
stockholders held approximately 96% of the combined company, and the historic
accounting records of IXYS Corporation became those of the combined company.
Accordingly, Paradigm formally changed its name to "IXYS Corporation" (the
combined company of which is referred to in this report as "IXYS," the
"Company" or the "Registrant").

 Industry Background

  As the world enters the 21st century, demand for electricity is forecasted
to increase faster than demand for other forms of energy. Electrical energy is
demanded worldwide at an increasing rate due to (i) the introduction of new
technologies that require electricity, including computers, telecommunications
equipment, industrial machinery and automation and transportation, (ii) the
increased use of electrical processes in industry and transportation, (iii)
the increasing energy demands of electrical products requiring greater power
than more traditional electrical products because of the additional features
provided by these products and (iv) the economic development of emerging third
world countries. As a result of these and other factors, the U.S. Department
of

                                       1
<PAGE>

Energy reports that worldwide electrical power consumption is expected to
increase from approximately 11.7 trillion kilowatt hours in 1995 to
approximately 20 trillion kilowatt hours in 2015.

  The increasing demand for electrical energy, government regulation requiring
energy efficiency and social and environmental concerns have caused an
increased demand for energy efficiency. Government regulations are also
imposing efficiency requirements on products and equipment. For example, the
European Community has adopted the IEC-555 standard that regulates the
efficiency of certain power supplies and has effectively required SMPS
manufacturers to incorporate power factor correction ("PFC") circuits, which
require power semiconductors, in their higher power supplies. Finally,
environmental concerns related to pollution and the depletion of natural
resources further support the demand for energy efficiency.

  In addition to the demand for energy efficiency, electrical products in all
markets are becoming increasingly sophisticated, offering "intelligence"
through the use of microprocessors and additional components. The integration
of microprocessors into such products as home appliances, office equipment and
industrial controls will continue as products gain "intelligence." As a result
of the introduction of microprocessors and integrated circuits, products
require increasingly sophisticated power supplies that are capable of
providing precisely regulated power (free of spikes and surges) as required by
a specific application. This must be done without adding to the existing size
of the product or equipment, thereby putting pressure on power supply
designers to improve efficiency in size (i.e., increase the power output of
power supplies without increasing their size). Additionally, uninterruptible
power operation is a requirement for such applications as intranet and
internet servers, telecommunications, hospitals and financial institution
equipment.

  Today, virtually all digital electronic systems, including cellular
telephones, workstations, PCs and modems, contain memory devices. Over the
past decade, the drive to reduce the size and increase the speed and
functionality of electronic systems has required concurrent increases in the
density and speed of memory devices used in these systems. The most widely
used memory devices are dynamic random access memories ("DRAMs") and SRAMs.

 Role of Power Semiconductors

  Power semiconductors address the demand for energy efficiency and are
essential for providing the precisely regulated power required by
sophisticated electrical products and equipment. Power semiconductors process
and control the electrical energy generated by electrical utilities to provide
efficient power systems and precisely regulated power as required by a
specific application. Most equipment needs to process the voltage level and
frequency delivered by the utility to derive the required power at specific
voltage, current and frequency levels, and power semiconductors help provide
this function. Power semiconductors (i) convert or "rectify" alternating
current ("AC") power delivered by electrical utilities to direct current
("DC") power which is useable by most equipment; (ii) convert DC power at a
certain voltage level to DC power at a different voltage level to meet the
specific voltage requirement for an application; (iii) invert DC power to high
frequency alternating current electricity ("AC") power to permit the
processing of power using substantially smaller electronic components and (iv)
rectify high frequency AC power from SMPS to meet the specific DC voltage
required by an application. Energy efficiency is obtained in part through
efficient power control designs. As a result, the power semiconductors that
perform the task of controlling and regulating the power in equipment are
required to perform with a high degree of efficiency, with minimal wasting of
energy.

 Power Semiconductor Applications

  Power semiconductors are used in controlling energy in motor drives and
power conversion systems, including SMPS and UPS. Motor drive controls
regulate the voltage, current and frequency of power to a motor to control the
speed, torque, position, efficiency and other features of a motor. A SMPS
efficiently converts power as provided by electrical utilities to meet the
specific voltage requirements of an application. A UPS provides a short term
backup of electricity to the power supply in the case of an interruption of
power from the primary source of electricity.

                                       2
<PAGE>

  Power semiconductors can be classified based upon the amount of power that
they are capable of handling. Generally, IXYS views lower power semiconductors
as those capable of handling less than 500 watts of power. Lower power
semiconductors are used in small motor drives, UPS and SMPS for personal
computers, telephones, automotive electronics, stereo equipment and battery
operated tools and equipment.

  IXYS views higher power semiconductors as those capable of handling power in
excess of 500 watts. Industrial and commercial motor drive control
applications for higher power semiconductors include robotics, machine tools,
pumps, heating, ventilation and air conditioning systems ("HVAC"), appliances
and transportation systems. Applications for higher power semiconductors in
SMPS include mainframe and workstation computers, instrumentation and
telecommunications. Applications for higher power semiconductors in UPS
include power back-up for hospitals, financial institutions, mainframes,
workstations, local area networks, communications systems and industrial
equipment.

 Power Semiconductor Market

  The power semiconductor market consists of power transistors (including
IGBTs and power MOSFETs), rectifiers and thyristors. According to World
Semiconductor Trade Statistics ("WSTS"), the worldwide market for power
semiconductors in 1998 was $7.4 billion and is projected to increase to $8.5
billion in 2000. IXYS believes that growth in the power semiconductor market
is driven in part by the need for an increased number of power semiconductors
for a given application as power control requirements become more
sophisticated, the increased number of end-user applications for power
semiconductors and the resulting higher dollar value of power semiconductors
included in products and equipment.

  WSTS indicate that worldwide sales of IGBTs, substantially all of which are
higher power semiconductors, and power MOSFETs, a substantial portion of which
are higher power semiconductors, were projected to grow from approximately
$2.7 billion in 1998 to $2.9 billion in 1999 to $3.2 billion in 2000. Sales of
power MOSFETs and IGBTs are experiencing stronger growth than other segments
of the power semiconductor market as these products are used to replace
traditional bipolar transistors, such as rectifiers and thyristors. In
addition to the relatively fast rate of growth for power MOSFETs and IGBTs,
IXYS believes that FREDs will grow at higher growth rates than standard diodes
since they are required in the same faster switching circuits in which power
MOSFETs and IGBTs are included. In fact, almost all IGBTs included in motor
drives require a FRED, and SMPS with PFCs require a FRED as a boost diode or
as an output rectifier.

IXYS Approach

  Since its inception, IXYS has focused on the higher power segment of the
power semiconductor market and has focused its product development and
marketing efforts on the specific needs of customers in this segment of the
market. In contrast to most other competitors in the power semiconductor
market, including large international companies, IXYS is focused on the
design, manufacture and marketing of power semiconductors, with a particular
emphasis on higher power semiconductors. Approximately 90% of the IXYS' sales
in fiscal 1999 were of higher power products. Through its broad product line
and range of packaging options, its ability to mobilize its focused
organization (which includes a wide range of technical capabilities) quickly
to bring new products to the market and its ability to collaborate with its
customers in the development of products designed to meet their needs, IXYS
has become a leader in the higher power semiconductor market.

IXYS Strategy

  IXYS intends to build a leadership position within its targeted higher power
segment of the power semiconductor market by pursuing the following business
strategies:

 Maintain Technological Leadership Within Higher Power Market

  IXYS intends to maintain its technological leadership with respect to higher
power semiconductors by focusing its scientific expertise on the development
of these semiconductors. This expertise encompasses a wide

                                       3
<PAGE>

range of technical capabilities, including physics, mechanical engineering,
chemistry, circuit design and material science capabilities. IXYS also intends
to use its expertise with respect to semiconductor packaging and assembly to
develop technologically advanced packaging of its higher power semiconductors.

 Target Rapid Growth Applications Within the Higher Power Market

  IXYS' strategy is to target markets by evaluating the growth of those
markets and IXYS' ability to establish a leadership position in them based
upon its technological capabilities, the level of competition in the markets
and the overall performance of the products offered by competitors. For
example, IXYS has targeted the market for power supplies used in servers,
which IXYS believes represents an attractive market, and has focused its
efforts on providing power semiconductors for this application. IXYS intends
to pursue this element of its strategy through the development of new
technology and products for high growth markets and the packaging of its
existing technology into products tailored to new high growth applications.

 Offer Broad Range of Higher Power Products

  IXYS' product line is targeted at the higher power segment of the power
semiconductor market across a broad range of functionality and price. IXYS
offers a comprehensive range of power semiconductors that allows it to provide
an appropriate solution to its customers' power semiconductor needs from its
range of standard products. IXYS' product line allows its customers to
purchase a substantial portion of their power semiconductor needs from a
single supplier. IXYS intends to continue to offer a wide array of products by
developing additional products that offer improvements over current products
or address new applications.

 Promote Product Development Collaborations

  IXYS seeks to enter into collaborative arrangements with leaders in
attractive end-user markets in order to optimize IXYS products for use by
these customers in their products. IXYS' strategy is to leverage these
collaborative arrangements into sales to other manufacturers of end-user
products in these markets. For example, in 1988 IXYS targeted the
defibrillator market and continues to be the leading supplier of IGBTs for
this application. IXYS has leveraged its relationships with the two
implantable defibrillator market leaders to include other IXYS products,
including power MOSFETs and thyristors, in their products. IXYS believes that
its ability to provide technical assistance with respect to the design of
hardware and software systems by its customers encourages the incorporation of
its devices in products manufactured by its customers. IXYS believes that it
has gained a reputation for strong product development collaborations, which
has contributed to the inclusion of its semiconductors in products designed by
its customers, and intends to expand its efforts in this area.

 Maintain Balance Between Internal and External Manufacturing

  IXYS intends to take advantage of its combination of in-house wafer
fabrication facilities and its foundry relationships to maximize its
manufacturing efficiency and flexibility. IXYS believes that its in-house
manufacturing capabilities enable it to lower its manufacturing cost with
respect to certain products, bring products to the market more quickly than
would be possible if IXYS were required to rely exclusively on outside
foundries, retain certain proprietary aspects of its process technology and
more quickly introduce new process innovations. In particular, IXYS continues
to fabricate its 1,600 volt and greater power MOS devices at its Lampertheim
facility to better protect its process technologies with respect to the
fabrication of these products. IXYS also believes that its in-house wafer
fabrication facilities provide it with a significant competitive advantage
because the fabrication facilities permit close collaborations between design
and process engineers in the development of new products. In addition to
maintaining its own fabrication facilities, IXYS establishes alliances with
selected foundries for wafer fabrication. This approach allows IXYS to reduce
substantial capital spending and manufacturing overhead expenses, obtain
competitive pricing and technologies and optimize production schedules while
retaining the flexibility to shift the production of its products to a
different or additional foundries for cost or performance reasons. IXYS'
product designs enable the production of its devices at multiple foundries
using well-established and cost-effective processes. IXYS intends to continue
to

                                       4
<PAGE>

strategically expand its in-house manufacturing capabilities while continuing
its significant reliance on outside foundries which permit IXYS to reduce its
exposure to the large capital expenditures required for increasing in-house
manufacturing capacity.

Products and Applications

  IXYS' power semiconductor products perform any of the four functions
performed by power semiconductors:

  .  Conversion or "rectification" of power delivered by electrical utilities
     to DC power which is useable by most equipment ("input rectification")

  .  Conversion of DC power at a certain voltage level to DC power at a
     different voltage level to meet the specific voltage requirement for an
     application

  .  Inversion of DC power to high frequency AC power to permit the
     processing of power using substantially smaller electronic components

  .  Rectification of high frequency AC power from SMPS to meet the specific
     DC voltage required by an application ("output rectification")

  IXYS designs, develops and markets power semiconductors used primarily in
controlling energy in motor drives, power conversion (including UPS and SMPS)
and medical devices, sales of which represented 37%, 33% and 9% of IXYS'
revenues in fiscal 1999, respectively.

  An SMPS converts AC power to regulated DC power. AC power is converted to
high voltage DC power through input rectifiers and is then switched to a very
high frequency AC. The AC power is then stepped down to a different voltage
and converted through output rectification to produce the required DC power.

  A UPS continues to supply AC power to electronic equipment in the event of
an electrical utility power failure. A UPS consists of an SMPS, battery
chargers, a semiconductor transfer switch to activate the UPS and an inverter
to invert DC battery power to AC power.

  IXYS' principal products are power MOSFETs, IGBTs, thyristors and other
rectifiers. During fiscal 1999, power MOS products (including MOSFETs and
IGBTs), rectifiers, and thyristors constituted approximately 43%, 15%, and 21%
of IXYS' revenues, respectively. IXYS also markets DCB substrates for use with
power semiconductors and integrated circuits. IXYS' power semiconductors are
sold separately and are also packaged in high power modules that frequently
consist of multiple semiconductor die. IXYS believes that the packaging of its
modules constitutes an important element of IXYS' products, as packaging
determines how much power can be controlled and the reliability of the module.

                                       5
<PAGE>

  The following table summarizes the primary categories of uses for power
semiconductors, the IXYS products used in each category, the end-user
applications served by these products and representative customers of IXYS for
each application.

<TABLE>
<CAPTION>
                              IXYS                                                       Selected
Category                    Products                   Application                      Customers
--------             ----------------------- ------------------------------- --------------------------------
<S>                  <C>                     <C>                             <C>
Motor Drive Control  Thyristor/diode modules HVAC, pumps, hoists,            Emerson Electric Company
                     Diode bridges           cranes, machine tools,          Siemens AG
                     Discrete diodes and     fork lift trucks,               Still GmbH
                     thyristors IGBTs        electric vehicles,              Rockwell International Corp.
                     MOSFETs                 traction, elevators, robotics   Eurotherm Ltd.
                     FREDs                   industrial and process controls

Power Conversion     Thyristor/diode modules SMPS, UPS                       General Signal
                     Diode bridges           communications,                 Alpha Technologies Incorporated
                     IGBTs                   battery chargers,               HC Power, Incorporated
                     MOSFETs                 welding, plasma cutting,        Transistor Devices, Incorporated
                     FREDs                   radio frequency generators,     ABB Power Supplies
                                             power generation                GmbH
                                                                             Siemens-AG
                                                                             Delta Electronics, Inc.
                                                                             Astec International

Medical Electronics  IGBTs                   Implantable and external        Medtronics Incorporated
                     MOSFETs                 defribillators, laser power     Guidant Corporation
                     Thyristors              supplies                        Hewlett Packard
</TABLE>

 Power MOS Transistors

  Power MOS transistors offer significant benefits over traditional bipolar
transistors. Power MOS transistors operate at much greater switching speed,
which allows the design of smaller and less costly end products, due primarily
to the smaller and less expensive additional peripheral components required at
higher switching frequencies. Power MOS transistors are activated by voltage
rather than current (compared to bipolar transistors), so they require less
external circuitry to operate, making them more compatible with IC controls.
They also offer more reliable long-term performance and are more rugged,
permitting them to better withstand adverse operating conditions. In addition,
power MOSFETs and IGBTs compare favorably to bipolar power transistors on a
system price/performance basis.

  Power MOSFETs. A power MOSFET (metal oxide silicon field effect transistor)
is a switch controlled by voltage at its gate. Power MOSFETs are used in
combination with passive components to vary the amperage and frequency of
electricity by switching on and off at high frequency.

  IXYS' power MOSFETs are focused on higher voltage applications (ranging from
60 to 1,100 volts) and have on-state resistance among the lowest available for
a given die size and voltage. Lower on-state resistance results in increased
efficiency of a power semiconductor device. IXYS believes that as the power
requirements of workstations, servers and other computers increase as the
result of larger and more powerful microprocessors, disk drives and CD/ROMs,
the designers of power supplies will increasingly demand higher power MOSFETs,
particularly to address the greater power requirements of the equipment
without increasing the physical size of the power supply incorporated into the
equipment.

  Power MOSFETs have improved the volumetric efficiency of SMPS by allowing
faster switching frequencies (in some cases into the megahertz range),
dramatically reducing the size of associated components such as power
transformers and capacitors. IXYS' power MOSFETs are used primarily in SMPS
and UPS. The prices of IXYS' power MOSFETs vary depending on the quantity
ordered and the packaging of the semiconductors and generally range for
moderate quantities from $3 to $150.

                                       6
<PAGE>

  IGBTs. IGBTs (insulated gate bipolar transistors) also are used as switches.
IGBTs have achieved many of the advantages of power MOSFETs and of traditional
bipolar technology by combining the voltage controlled switching features of
power MOSFETs with the superior conductivity and energy efficiency of bipolar
transistors. IGBTs serve the same functions as power MOSFETs, but have
different features, which make their use preferable in certain applications.
For a given semiconductor die size, IGBTs can operate at higher currents and
voltages, making them a more cost effective device compared to power MOSFETs
for high energy applications. The principal tradeoff of IGBTs compared to
power MOSFETs is the switching speed of IGBTs, which is slower than that of
power MOSFETs. IGBTs are seldom used in applications where very fast switching
is required, including SMPS operating at speeds over 150 kilohertz.

  An IGBT is the most cost-effective technology used in AC variable speed
motor drives due to its ability to efficiently switch higher power. IGBTs
allow drives to operate at faster frequencies, thereby reducing system cost,
simplifying drive electronics, increasing efficiency and reducing noise. IXYS'
IGBTs are used principally in AC motor drives and defibrillators. The prices
of IXYS' IGBTs vary depending on the quantity ordered and the packaging of the
semiconductors and generally range for moderate quantities from $1 to $120.

 Bipolar Products

  Rectifiers. Rectifiers convert AC power to DC power and are used primarily
in input and output rectification and inverters. IXYS' rectifiers are used in
DC and AC motor drives, power supplies, lighting and heating controls and
welding. The prices of IXYS' rectifiers vary depending on the quantity ordered
and the packaging of the semiconductors and generally range for moderate
quantities from $1 to $120.

  A newer subset of IXYS' rectifier product group is a very fast switching
device known as a FRED (fast recovery epitaxial diode). FREDs limit spikes in
voltage across the power switch to reduce power dissipation and
electromagnetic interference. Because most IGBTs require a FRED to address its
output, FRED sales are expected to move in concert with IGBTs. IXYS' FREDs are
used principally in AC motor drives and power supplies. The prices of IXYS'
FREDs vary depending on the quantity ordered and the packaging of the
semiconductors and generally range for moderate quantities from $0.50 to $55.

  Thyristors. Thyristors are switches that can be turned on by a controlled
signal and are turned off only when the output current is reduced to zero,
which occurs in the flow of AC power. Thyristors are preferred over power
MOSFETs and IGBTs in high-voltage, low-frequency AC applications because their
on-state resistance is lower than the on-state resistance of power MOSFETs and
IGBTs. Thyristors also represent the most cost-effective solution in many AC
motor control and amplifier applications.

  IXYS' thyristors are used in motor drives, power supplies, lighting and
heating controls and welding. The prices of IXYS' thyristors vary depending on
the quantity ordered and the packaging of the semiconductors and generally
range for moderate quantities from $1 to $250.

 Other Products

  IXYS markets its patented DCB (direct copper bond) substrates to a variety
of customers, including those in the power semiconductor industry, and uses
DCB in the manufacturing of its modules. DCB technology cost-effectively
provides excellent thermal transfer while maintaining high electrical
isolation. It addresses thermal fatigue and die cracking problems encountered
by manufacturers of power semiconductor modules utilizing traditional copper
base plates. The prices of IXYS' DCB products vary and generally range for
moderate quantities from $1.00 to $5.50.

  IXYS also markets integrated circuits that have applications associated with
power semiconductors, such as high voltage current regulators, motion
controllers, digital pulse width modulators and power MOSFET/IGBT drivers.

                                       7
<PAGE>

  IXYS also sells synchronous and asynchronous SRAM products which include
high speed 256 kilobyte, 1 megabyte and 4 megabyte CMOS SRAMs. They are
available in a variety of configurations and commercial and industrial
temperature range versions, as well as military versions manufactured to
comply with the most recent military specifications.

Sales and Marketing

  IXYS sells its products by means of a worldwide selling organization that
includes direct sales personnel, independent representatives and distributors
managed through IXYS' California and Germany offices. IXYS employs 26 people
in its sales and marketing efforts, including 5 in marketing, 10 in sales and
11 in customer support and service. IXYS currently uses 28 independent sales
representative organizations and 7 distributors in North America. IXYS
currently uses 19 independent sales representative organizations and 42
distributors and stocking representatives in the rest of the world. In fiscal
1999, net revenues derived from North American and international sales
represented approximately 35% and 65%, respectively, of IXYS' net revenues,
with approximately 54% of IXYS' net revenues derived from sales to Europe and
the Middle East and 11% of IXYS' net revenues derived from sales to Asia. No
single customer accounted for more than 10% of IXYS' net revenues in fiscal
1999.

  In addition to new products developed for general use in target markets,
IXYS custom designs and manufactures products in which product design efforts
are coordinated with manufacturers. Custom products are achieved through IXYS'
wide selection of products and packaging options. IXYS provides product
samples and works directly with manufacturers in designing end-user products
using IXYS' semiconductors. Specific products are then delivered to the
manufacturers.

  IXYS markets its services and programs through advertisements, technical
articles and press releases that appear regularly in a variety of trade
publications, as well as through the dissemination of Company brochures, data
sheets and technical manuals. Additionally, IXYS participates in industry
trade shows on a regular basis. IXYS has also initiated a presence on the
Internet with a worldwide web page enabling engineers to access and download
technical information and data sheets.

  The majority of IXYS' revenues are derived from international sales.
International sales are subject to certain risks, including unexpected changes
in regulatory requirements, fluctuations in exchange rates, tariffs and other
barriers, political and economic instability, difficulties in staffing and
managing foreign subsidiary operations and potentially adverse tax
consequences.

  During fiscal 1997, 1998 and 1999, sales to independent distributors and
stocking representatives accounted for approximately 46%, 46% and 41% of net
revenues, respectively. Some of these distributors and stocking
representatives have a limited right to return unsold products to IXYS, and
there can be no assurance that such returns will not have a material adverse
effect on IXYS. These independent distributors and stocking representatives
generally are not subject to any minimum purchase requirements and can
discontinue marketing IXYS' products at any time upon proper notice.
Accordingly, IXYS must compete for the focus and sales efforts of its
distributors and stocking representatives. There can be no assurance that
IXYS' distributors and stocking representatives will continue to distribute
IXYS' products or do so successfully. Although IXYS believes that other
channels of distribution would be available if IXYS were to lose the services
of one or more of its independent distributors or stock representatives, there
can be no assurance that such loss would not have an adverse effect on its
results of operations.

Research and Development

  The ability of IXYS to successfully compete in the power semiconductor
market will be substantially dependent on its ability to design, develop and
introduce to the market on a timely basis new products offering technological
improvements. IXYS is a pioneer in technology with respect to higher power
IGBTs, IGBT modules and DCB and introduced the power semiconductor industry's
first 800 volt, 50 ampere IGBT and an

                                       8
<PAGE>

IGBT and FRED combination high power discrete device. (A discrete device is an
electrical or electronic component that performs a single function). While the
time from sampling to volume production of new power semiconductors products
can take up to 18 months, power semiconductors also have a product lifetime
exceeding an average of 10 years. In fiscal 1999, sales of products introduced
within the last 4 years constituted approximately 20% of total net revenues.
In fiscal 1999, IXYS introduced over 200 new part types. During fiscal 1998
and 1999, IXYS' research and development expenses were approximately $3.3
million and $4.2 million, respectively, and, at March 31, 1999, IXYS employed
22 people in engineering and research and development activities. IXYS expects
that it will continue to spend substantial funds on research and development
activities.

  IXYS is engaged in ongoing research and development efforts focused on
enhancements to existing products and the development of new products.
Currently, IXYS is pursuing research and development projects with respect to
increasing the voltage operating range of its MOS products beyond 1,800 volts,
improving the thermal conductivity of its DCB products, increasing the voltage
ratings of its bipolar products beyond 2,200 volts, developing 500 kilowatt
IGBT modules, developing a complete range of bipolar MOS products capable of
handling 1,400 to 2,000 volts, improving its multiple die module assembly
technology and beginning its development of another line of integrated circuit
("IC") products. Research and development activities are conducted in
collaboration with manufacturing activities to help expedite new products from
the development phase to manufacturing and more quickly implement new process
technologies.

  From time to time, IXYS has entered into agreements with customers to
develop specific products for inclusion in the customer's end product.
Pursuant to such agreements, the non-recurring engineering cost associated
with such development work, which is treated by IXYS as research, development
and engineering expense, is generally reimbursed by the customer. IXYS'
research and development efforts also include participation in technology
joint ventures with universities and research institutions. These joint
ventures allow research and development activities that would otherwise
require potentially cost prohibitive capital expenditures since the necessary
capital equipment is often available at research institutes and universities.
Through these joint ventures, IXYS is able to maximize its range of research
and development activities without defusing the focus of its in-house research
and development work and reduce its research and development costs. Research
and development projects currently being pursued through research institutes
or universities include MOS process simplification, new starting silicon wafer
development and new "higher power" semiconductor packaging and process
simplification.

  There can be no assurance that IXYS will be able to identify new products
successfully and develop and bring to market such new products or that IXYS
will be able to respond effectively to new technological changes or new
product announcements by others. There also can be no assurance that IXYS' new
products will be accepted by the market. Moreover, the end markets for IXYS'
products are subject to rapid technological change and there can be no
assurance that as such markets change IXYS' product offerings will remain
current and suitable for them.

Patents and Licenses

  IXYS holds 68 patents, including 49 which have been filed in the U.S. and 19
that have been filed in international jurisdictions. IXYS relies on a
combination of patent rights, copyrights and trade secrets to protect the
proprietary elements of its products. IXYS' policy is to file patent
applications to protect technology, inventions and improvements that are
important to its business. There can be no assurance that patents will issue
from any of IXYS' pending applications or that any claims allowed from
existing or pending patents will be sufficiently broad to protect IXYS'
technology. While IXYS intends to protect its intellectual property rights
vigorously, there can be no assurance that any patents held by IXYS will not
be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide competitive advantages to IXYS.

  IXYS also seeks to protect its trade secrets and proprietary technology, in
part, through confidentiality agreements with employees, consultants and other
parties. There can be no assurance that these agreements will not be breached,
that IXYS will have adequate remedies for any breach, or that IXYS' trade
secrets will not

                                       9
<PAGE>

otherwise become known to or independently developed by others. In addition,
the laws of some foreign countries do not protect IXYS' proprietary rights to
the same extent as the laws of the United States.

  While IXYS believes that its intellectual property rights are valuable, IXYS
also believes that, because of the rapid pace of technological change in the
industry, factors such as innovative skills, technical expertise, the ability
to adapt quickly to new technologies and evolving customer requirements,
product support and customer relations are of greater competitive
significance.

Manufacturing

  The production of IXYS' products is a highly complex and precise process.
IXYS manufactures its products in manufacturing facilities which are owned and
operated by IXYS and by utilizing outside wafer foundries and subcontract
assembly facilities. IXYS divides its manufacturing operations into two key
areas: wafer fabrication and assembly.

  Wafer Fabrication. IXYS owns an approximately 170,000 square foot
manufacturing facility in Lampertheim, Germany at which it fabricates
rectifiers and thyristors. IXYS has also retained the fabrication of its 1,600
volt and higher power MOS devices at this facility in order to protect its
process technologies with respect to the fabrication of these products. In
addition to the Lampertheim facility, IXYS has an approximately 20,000 square
foot facility in Santa Clara. IXYS designs and tests substantially all of its
IGBT, power MOSFET wafers and SRAM devices in Santa Clara, California and
designs and tests its bipolar and custom MOS modules in Lampertheim, Germany.
IXYS believes that its in-house fabrication capabilities enable it to lower
its manufacturing cost with respect to certain products, bring products to the
market more quickly than would be possible if IXYS were required to rely
exclusively on outside foundries, retain certain proprietary aspects of its
process technology and more quickly introduce new process innovations.

  In addition to maintaining its own fabrication facility, IXYS establishes
alliances with selected foundries for wafer fabrication. This approach allows
IXYS to reduce substantial capital spending and manufacturing overhead
expenses, obtain competitive pricing and technologies and optimize production
schedules while retaining the flexibility to shift the production of its
products to a different or additional foundries for cost or performance
reasons. IXYS' product designs enable the production of its devices at
multiple foundries using well-established and cost-effective processes.

  IXYS relied on outside foundries for 47% of its wafer fabrication
requirements in fiscal 1999, and dependency on outside foundries is expected
to grow. IXYS has arrangements with five wafer foundries, of which two
foundries provide approximately 90% of the wafers provided to IXYS by outside
foundries. IXYS has a supply agreement with one foundry, Samsung. Other than
the commitment with respect to the next two months' demand to be delivered
monthly, there are no obligations on the part of IXYS to order any minimum
quantities. See "Risk Factors--Risks Relating to the Business of IXYS--
Dependence on Third Parties for Wafer Fabrication and Assembly."

  Wafer fabrication of power semiconductors generally employs process
technology and equipment already proven in IC manufacturing. Power
semiconductors are manufactured using fabrication equipment that is one or
more generations behind the equipment used to fabricate state-of-the-art ICs.
Used fabrication equipment can be obtained at prices substantially less than
the original cost of such equipment or than the cost of current, state-of-the-
art equipment. Consequently, the fabrication of power semiconductors is less
capital intensive than the fabrication of ICs.

  Minute levels of contaminants in the manufacturing environment, difficulties
in the fabrication process, defects in the masks used to print circuits on a
wafer, manufacturing equipment failure, wafer breakage or other factors can
cause a substantial percentage of wafers to be rejected or numerous die on
each wafer to be nonfunctional. In the event that IXYS increases its
manufacturing output, there can be no assurance that IXYS will not experience
a decrease in manufacturing yields. Moreover, there can be no assurance that
IXYS in general

                                      10
<PAGE>

will be able to maintain acceptable manufacturing yields in the future. To the
extent IXYS does not achieve acceptable manufacturing yields or experiences
product shipment delays, its business, financial condition and results of
operations would be materially and adversely affected.

  There are significant risks associated with IXYS' reliance on outside
foundries, including the lack of assured supply of an adequate quantity of
semiconductor devices, control over delivery schedules and limited control
over quality assurance, manufacturing yields and production costs. IXYS'
foundries may from time to time experience lower than anticipated
manufacturing yields, particularly in connection with the introduction of new
products and the installation and start-up of new process technologies. There
can be no assurance that IXYS' foundries will not experience lower than
expected manufacturing yields in the future, which could materially and
adversely affect IXYS' business, financial condition and results of
operations.

  Although from time to time certain materials, including silicon wafers, have
been in short supply, to date IXYS has not experienced substantial delays in
obtaining raw materials which have materially adversely affected production.
There can be no assurance that IXYS will not experience such delays in the
future. As is typical in the industry, IXYS must allow for significant lead
time in delivery of its materials. See "Risk Factors--Dependence on
Suppliers."

  Assembly. Generally, each die on IXYS' wafers is electrically tested for
performance, and most of the wafers are subsequently sent to independent
subcontract assembly facilities. Packaging or assembly is the sequence of
production steps that divide the wafer into individual chips and enclose the
chips in external structures (termed packages) that make them useable in a
circuit. Discrete manufacturing involves the assembly and packaging of single
die devices. Module manufacturing involves the assembly of multiple devices
within a single package. The resulting packages vary in configuration, but all
have leads which are used to mount the package through holes in the customer's
printed circuit boards.

  IXYS has equipment at, or manufacturing supply agreements with, assembly
subcontractors located in the Philippines, Portugal and Thailand in order to
take advantage of low assembly costs. Approximately 40% of IXYS' products are
assembled at these assembly facilities. Following assembly, IXYS' products are
returned to Santa Clara or Germany for testing and final inspection prior to
shipment to customers. IXYS' reliance on independent assemblers may subject
IXYS to supply constraints and longer manufacturing cycle times. IXYS from
time to time has experienced competition with respect to these contractors
from other manufacturers seeking assembly of circuits by independent
contractors. Although IXYS currently believes that alternative assembly
sources could be obtained, there can be no assurance that such alternative
sources could be quickly obtained. Foreign assembly is subject to risks
normally associated with foreign operations, including changes in local
governmental policies and the imposition of export controls or increased
import tariffs. See "Risk Factors".

Competition

  The power semiconductor industry is intensely competitive and is
characterized by price competition, technological change, limited fabrication
capacity, international competition and manufacturing yield problems. The
ability of IXYS to compete successfully in its evolving industry depends on
factors both within and outside its control, including success in designing
and subcontracting the manufacture of new products that implement new
technologies, protection of Company products by effective utilization of
intellectual property laws, product quality, reliability, price, efficiency of
production, the pace at which customers incorporate IXYS' power semiconductors
into their products, success of competitors' products and general economic
conditions.

  IXYS encounters differing degrees of competition for its various products,
depending upon the type of product and the particular market served. Many of
IXYS' competitors are larger companies with greater technical, financial and
marketing resources than IXYS. The competitive factors in the market for IXYS'
products include overall functional performance of the products, quality,
price, reliability, breadth and availability of products, delivery time to the
customer and service.

                                      11
<PAGE>

  IXYS believes that it is able to effectively compete in the power
semiconductor market, and in the higher power segment of this market in
particular, because of (i) its broad product line in the higher power segment,
(ii) its ability to focus its technical resources on the development of higher
power semiconductors, (iii) its ability to target new market opportunities and
extensions of existing power semiconductor applications more quickly than may
be possible by a larger, more diversified organization and (iv) its ability
and willingness to collaborate with customers to provide custom products. IXYS
believes that it is one of only a few companies focused on the development and
marketing of higher power semiconductors capable of performing all of the
basic functions of power semiconductors.

  In the power MOSFET market, IXYS' competitors include Advanced Power
Technology, Inc. ("APT"), International Rectifier Corporation ("I.R."), Harris
Corporation ("Harris"), Motorola, Inc. ("Motorola") and SGS-Thomson
Microelectronics ("SGS"). IXYS targets the higher power segment of the MOSFET
market rather than the lower voltage, lower current segment of the market
dominated by IXYS' larger competitors. Currently, IXYS competes most directly
in this market with APT. IXYS believes that it is able to effectively compete
against APT by offering a wider range of products, improved body diode
performance at voltages over 500 volts and a greater number of high current
module packaging options.

  With respect to the IGBT market, IXYS competes primarily with Toshiba
Corporation, I.R., Harris, Siemens AG, Fuji Electric Company and Powerex, Inc.
("Powerex"). IXYS believes that its relatively quick time to market and its
package and product enhancements provide it with a competitive advantage over
most of its competitors.

  With respect to the FRED market, IXYS competes primarily with I.R., Harris,
Motorola and SGS. IXYS believes that FRED product performance is circuit
dependent but that in many chases, competitive products can be virtually
interchangeable. FREDs are necessary components of IGBT-based systems, and
IXYS' ability to package FREDs with IGBTs in one package without compromising
the performance of the IGBT allows it to be competitive with other larger
suppliers.

  IXYS' thyristors, standard diodes and thyristor/diode modules compete
primarily with the products of I.R., Eupec GmbH, Semikron International and
Powerex. As opposed to the market for IXYS' other products, this market tends
to be driven primarily by price and product availability. Therefore, IXYS
competes in this market through guaranteed inventory programs, custom
products, custom module capability and selective competitive pricing. See
"Risk Factors".

Backlog

  As of March 31, 1999, IXYS' backlog of orders was approximately $18.2
million, as compared with $24.2 million as of March 31, 1998. Backlog
represents firm orders anticipated to be shipped within the next 12 months.
IXYS' business and, to a large extent, that of the entire semiconductor
industry is characterized by short-term order and shipment schedules. Since
orders constituting IXYS' current backlog are subject to changes in delivery
schedules or to cancellation at the option of the purchaser without
significant penalty, backlog is not necessarily an indication of future
revenue.

Employees

  As of March 31, 1999, IXYS employed 290 full-time employees, of whom 22 were
primarily engaged in engineering and research and development activities, 26
in marketing, sales and customer support, 219 in manufacturing and 23 in
administration and finance. A high percentage of the employees have advanced
degrees, including 13 Ph.D.s. IXYS' future success will be greatly dependent
upon its ability to attract, motivate and retain technical, marketing, sales
and management personnel who are in great demand in the semiconductor
industry. Certain employees at IXYS' Lampertheim facility are subject to
collective bargaining agreements. IXYS believes that its employee relations
are good.

                                      12
<PAGE>

Environmental Matters

  IXYS is subject to a variety of federal, state and local laws, rules and
regulations, and IXYS GmbH is subject to laws, rules and regulations in
Germany, related to the use, storage, handling, discharge and disposal of
certain chemicals and gases used in IXYS' manufacturing process. Any of those
regulations could require IXYS to acquire equipment or to incur substantial
other expenses to comply with environmental regulations. If substantial
additional expenses were incurred by IXYS, product costs could significantly
increase, thus materially adversely affecting IXYS' business, financial
condition and results of operations. IXYS believes that its activities conform
to present environmental regulations. Increasing public attention has,
however, been focused on the environmental impact of semiconductor operations.
While IXYS has not experienced any materially adverse effects on its
operations from environmental regulations, there can be no assurance that
changes in such regulations will not impose the need for additional capital
equipment or other requirements or restrict IXYS' ability to expand its
operations. Any failure by IXYS to comply with present or future environmental
laws rules and regulations could result in fines being imposed on IXYS,
suspension of production or cessation of operations, any of which could have a
material adverse effect on IXYS' business, financial condition and results of
operations. IXYS' business, financial condition and results of operations
would be subject to similar effects as a result of comparable laws and
regulations in Germany. See "Risk Factors--Risks Related to the Business of
IXYS."

  IXYS' Lampertheim facility is located in an industrial area in which there
is known environmental contamination. In connection with the purchase of the
Lampertheim facility, IXYS conducted an environmental assessment of the site,
and no material contamination under German law was found on the Lampertheim
facility premises. There can be no assurance that IXYS' business, financial
condition and results of operations will not be materially adversely affected
by this situation. See "Risk Factors--Risks Related to the Business of IXYS."

                                      13
<PAGE>

                                 RISK FACTORS

  In addition to the other information in this Annual Report on Form 10-K, the
following risk factors should be considered carefully in evaluating the
Company and its business. This Annual Report on Form 10-K contains forward-
looking statements which involve risks and uncertainties. The Company's actual
results may differ significantly from the results discussed in the forward-
looking statements. Factors that might cause such a difference include, but
are not limited to, those discussed below.

  Factors Affecting Operating Results. IXYS' quarterly and annual operating
results are affected by a wide variety of factors that could materially
adversely affect revenues and profitability, including IXYS' ability to
introduce new products and technologies on a timely basis; the level of orders
received which can be shipped in a quarter; availability of foundry capacity
and raw materials; the timing of investments in research and development,
including tooling expenses associated with product development and pre-
production; competitive pressures on selling prices; the timing and
cancellation of customer orders; the timing and provision of pricing
projections and returns from certain distributors; fluctuations in yields;
changes in product mix; introduction of products and technologies by IXYS'
competitors; foreign currency fluctuations; cyclicality of the semiconductor
industry; seasonality; and whether IXYS' customers buy from a distributor or
directly from IXYS. IXYS markets its products to various industries including
the computers and peripherals, industrial machinery and equipment,
telecommunications, transportation, medical and other industries. A downturn
in any of IXYS' markets could materially adversely affect IXYS' business,
financial condition and results of operations. Sudden shortages of raw
materials or production capacity constraints can lead producers to allocate
available supplies or capacity to customers with resources greater than those
of IXYS, which could interrupt IXYS' ability to meet its production
obligations. Historically, average selling prices in the IC and power
semiconductor industries have decreased over the life of a product, and as a
result, the average selling prices of IXYS' products may be subject to
significant pricing pressures in the future.

  Customer orders typically can be canceled or rescheduled without significant
penalty to the customer. As a result, backlog may not be indicative of sales
for any future period. IXYS typically plans its production and inventory
levels based on forecasts of customer demand, which are highly unpredictable
and can fluctuate substantially. Because IXYS is continuing to increase its
operating expenses for personnel and new product development and for inventory
in anticipation of increasing sales levels, operating results would be
adversely affected if increased sales are not achieved. In addition, a large
part of IXYS' expenses are fixed and difficult to reduce in response to any
revenue shortfalls. From time to time, in response to anticipated long lead
times to obtain inventory and materials from its foundries, IXYS may order in
advance of anticipated customer demand, which might result in excess inventory
levels if expected orders fail to materialize or other factors render the
customer's product less marketable.

  As a result of the foregoing or other factors, IXYS may experience material
fluctuations in future operating results on a quarterly or annual basis which
could materially and adversely affect its business, financial condition and
results of operations. Due to the foregoing factors, it is likely that in some
period, IXYS' revenues or operating results will be below the expectations of
public market analysts and investors. In such event, the price of the IXYS
Common Stock would likely be materially adversely affected.

  Manufacturing. IXYS manufactures its products in manufacturing facilities
which are owned and operated by IXYS and by utilizing outside wafer foundries
and independent subcontract assembly facilities. The fabrication of discrete
and integrated circuits is a highly complex and precise process. Minute levels
of contaminants in the manufacturing environment, difficulties in the
fabrication process, defects in the masks used to print circuits on a wafer,
manufacturing equipment failure, wafer breakage or other factors can cause a
substantial percentage of wafers to be rejected or numerous die on each wafer
to be nonfunctional. In the event that IXYS increases its manufacturing
output, there can be no assurance that IXYS will not experience a decrease in
manufacturing yields. Moreover, there can be no assurance that IXYS in general
will be able to maintain acceptable manufacturing yields in the future. To the
extent IXYS does not achieve acceptable manufacturing

                                      14
<PAGE>

yields or experiences product shipment delays, its business, financial
condition and results of operations would be materially and adversely
affected. To achieve adequate production yields, IXYS may need to expand its
existing facilities. There can be no assurance that IXYS will be able to cost-
effectively expand its existing facilities in a timely manner, if at all, or
achieve adequate production yields from such expanded facilities. If IXYS
fails to cost-effectively expand its existing facility in a timely manner, its
business, financial condition and results of operations may be adversely
affected. See "IXYS Business--Manufacturing."

  Dependence on Third Parties for Wafer Fabrication and Assembly. Forty-seven
percent (47%) of the revenue in fiscal year 1999 came from wafers acquired
from outside foundries. Dependency on outside foundries is expected to grow.
IXYS has arrangements with five wafer foundries, of which two foundries
provide 90% of the wafers provided to IXYS by outside foundries. IXYS has a
supply agreement with one of these foundries, Samsung Electronics Co.
("Samsung"). There can be no assurance that this agreement will be extended
beyond its current terms. IXYS expects that it will continue to rely
significantly on outside foundries in the future. There are significant risks
associated with IXYS' reliance on outside foundries, including the lack of
assured supply of an adequate quantity of semiconductor devices, control over
delivery schedules and limited control over quality assurance, manufacturing
yields and production costs. IXYS' foundries may from time to time experience
lower than anticipated manufacturing yields, particularly in connection with
the introduction of new products and the installation and start-up of new
process technologies. There can be no assurance that IXYS' foundries will not
experience lower than expected manufacturing yields in the future which could
materially and adversely affect IXYS' business, financial condition and
results of operations.

  The ability of each foundry to provide semiconductor devices to IXYS is
limited by the foundry's available capacity. Therefore, IXYS' foundry
suppliers could choose to prioritize capacity for other customers or uses or
reduce or eliminate deliveries to IXYS on short notice. Accordingly, there is
no assurance that IXYS' foundries will allocate sufficient capacity to satisfy
IXYS' requirements. In addition, IXYS has been, and expects in the future to
be, particularly dependent upon a limited number of foundries for its power
MOSFET requirements. To address foundry capacity constraints, other
semiconductor suppliers that rely on third-party foundries have utilized
various arrangements, including equity investments in or loans to independent
wafer manufacturers in exchange for guaranteed production capacity, joint
ventures to own and operate foundries or take or pay contracts that commit a
company to purchase specified quantities of wafers over extended periods.
While IXYS is not currently a party to any such arrangements, it may be
required to enter into such arrangements in the future, and there can be no
assurance that it will be successful in this regard. Any such arrangements
could require IXYS to commit substantial capital and grant licenses to its
technology. The need to commit substantial capital may require IXYS to obtain
additional debt or equity financing, which could result in dilution to IXYS'
stockholders. There can be no assurance that such additional financing, if
required, will be available when needed or, if available, will be obtained on
terms acceptable to IXYS.

  There can be no assurance that material disruptions in supply will not occur
in the future. In such event, IXYS may have to identify and secure additional
foundry capacity and may be unable to identify or secure additional foundry
capacity from another manufacturer, particularly at the levels that IXYS
currently anticipates such foundries to provide. Even if such capacity is
available from another manufacturer, the qualification process could take six
months or longer. If IXYS were unable to qualify alternative manufacturing
sources for existing or new products in a timely manner or if such sources
were unable to produce semiconductor devices with acceptable manufacturing
yields and at acceptable prices, IXYS' business, financial condition and
results of operations would be materially and adversely affected.

  IXYS relies on independent subcontract assembly facilities for its discrete
and IC product requirements. IXYS' reliance on independent assemblers may
subject IXYS to supply constraints and longer manufacturing cycle times, which
could delay deliveries of IXYS' products to its customers. IXYS has from time
to time experienced competition from other manufacturers seeking assembly of
circuits by independent contractors, which could further constrain supply.
Such constraints or delays might result in the loss of customers, limitations
or reductions in IXYS' revenues or other material adverse effects on IXYS'
business, financial condition or

                                      15
<PAGE>

results of operations. Although IXYS currently believes that alternative
assembly sources could be obtained, there can be no assurance that such
alternative sources could be quickly obtained or obtained at acceptable
prices. Failure to obtain such alternative assembly sources in a timely
manner, or at all, would have a material adverse effect on IXYS' business,
financial condition and results of operations. IXYS' reliance on independent
assemblers involves a number of other risks, including reduced control over
quality assurance and costs. The inability of such third parties to deliver
products of acceptable quality and at an acceptable cost could have a material
adverse effect on IXYS' business, financial condition and results of
operations. See "IXYS Business--Manufacturing."

  Dependence on Suppliers. IXYS purchases silicon wafers from Sumitomo Sitix
Silicon, Inc., Epitech and Wacker AG, with whom IXYS does not have long term
supply agreements. Any of these suppliers could eliminate or terminate IXYS'
supply of wafers at any time. IXYS' reliance on a limited number of suppliers
involves several risks, including potential inability to obtain an adequate
supply of silicon wafers and reduced control over the price, timely delivery,
reliability and quality of the silicon wafers. There can be no assurance that
problems will not occur in the future with suppliers.

  The silicon wafers used as starting material for power semiconductors are
different from the type of silicon wafers used for ICs. Power semiconductors
require silicon wafers with thicker layers for higher voltage blocking
capability. In addition, the IC industry has been moving toward the use of 8"
and larger diameter wafers, which require large capital equipment expenditures
from silicon wafer suppliers and IC manufacturers. Currently, the power
semiconductor industry generally uses 4" and 5" wafers, although IXYS
anticipates that the power semiconductor industry will move toward 6" wafers
for at least some applications. To the extent the power semiconductor industry
moves toward the use of larger wafer sizes, IXYS or its suppliers will be
required to invest in the processing equipment necessary for these larger
diameter wafers. Power semiconductor manufacturers currently rely on the
availability of smaller diameter silicon wafers for their needs, and there is
a risk that silicon wafer suppliers will move to larger diameter wafers to
cater to the IC industry, thus limiting the supply of the more economical 4"
and 5" wafers and forcing IXYS to make the large capital expenditures
necessary for processing the larger diameter wafers. The unavailability of 4"
and 5" silicon wafers in sufficient quantities to meet IXYS' manufacturing
needs, or an increase in the price of such wafers as a result of shortages in
their supply, would have a material adverse effect on IXYS' business,
financial condition and results of operations.

  Because of IXYS' limited inventory of raw materials and tight manufacturing
cycles, unanticipated interruptions of supply, which have occurred
periodically in the past, could have a material adverse effect on IXYS'
business, financial condition and results of operations.

  Competition. The power semiconductor industry is intensely competitive and
is characterized by price competition, technological change, limited
fabrication capacity, international competition and manufacturing yield
problems. The ability of IXYS to compete successfully in this evolving
industry depends on factors both within and outside its control, including
success in designing and subcontracting the manufacture of new products that
implement new technologies, protection of Company products by effective
utilization of intellectual property laws, product quality, reliability,
price, efficiency of production, the pace at which customers incorporate IXYS'
power semiconductors into their products, success of competitors' products and
general economic conditions.

  IXYS encounters differing degrees of competition for its various products,
depending upon the type of product and the particular market served. Many of
IXYS' competitors are larger companies with greater financial, technical and
marketing resources than IXYS. The competitive factors in the market for IXYS'
products include overall functional performance of the products, quality,
price, reliability, breadth and availability of products, delivery time to the
customer and service. IXYS' primary competitors include Advanced Power
Technology, Fuji, International Rectifier, Harris Corporation, Motorola, Inc.,
Powerex, Inc., SGS-Thomson Microelectronics, Siemens AG and Toshiba
Corporation. Certain of these competitors may benefit from established
customer

                                      16
<PAGE>

relationships that provide them with a competitive advantage. New entrants
could also attempt to obtain a share of the market for IXYS' current and
future products. There can be no assurance that IXYS will continue to be able
to compete successfully against current or new competitors or new technologies
in the future. See "IXYS Business--Competition."

  Management of International Operations; Fluctuation in Exchange Ratios. IXYS
operates a manufacturing facility in Lampertheim, Germany, relies on foundry
and assembly facilities in Asia and Europe and conducts a substantial portion
of its operations outside the United States. In fiscal 1997, 1998 and 1999,
foreign sales accounted for approximately 62%, 63% and 65% respectively, of
IXYS' total revenues. IXYS anticipates that foreign sales will continue to
account for a significant percentage of its revenues. A significant portion of
IXYS' total revenues will therefore be subject to risks associated with
foreign operations, including unexpected changes in, and the burden of
complying with, a wide variety of legal and regulatory requirements and policy
changes, changes in tariffs, exchange rates and other barriers, political and
economic instability, difficulties in accounts receivable collection,
difficulties in managing distributors or representatives, difficulties in
staffing and managing foreign operations, difficulties in protecting IXYS'
intellectual property overseas, seasonality of sales and potentially adverse
tax consequences. IXYS is also subject to risks associated with regulations
relating to the import and export of high technology products. IXYS cannot
predict whether quotas, duties, taxes or other charges or restrictions upon
the importation or exportation of IXYS' products in the future will be
implemented by the United States or any other country. IXYS' sales of products
manufactured in, and salaries of its personnel at, its Lampertheim facility
are denominated in German marks. Fluctuations in the German mark against the
United States dollar have had, and could in the future have, a significant
impact on the Company's balance sheet and results of operations. The Company's
net income has in the past and could in the future vary significantly
depending on fluctuations in the German mark against the United States dollar.
IXYS currently does not enter into foreign currency hedging transactions.
Fluctuations in currency exchange rates has caused, and could in the future
cause, IXYS' products to become relatively more expensive to customers in a
particular country, leading to a reduction in sales or profitability in that
country. To the extent that IXYS expands its international operations or
changes its pricing practices to denominate prices in other foreign
currencies, IXYS will be exposed to even greater risks of currency
fluctuations. There can be no assurance that any of these factors will not
have a material adverse effect on IXYS' business, financial condition and
results of operations. See "IXYS Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "IXYS Business--
Environmental Matters."

  Management of Growth. To effectively manage its future growth, if any, IXYS
will need to implement a variety of new or expanded business and financial
systems, procedures and controls, including the improvement of its accounting,
manufacturing and other internal management systems. Currently, IXYS is in the
process of implementing a new comprehensive management information system
addressing all operational functions, including, sales, inventory, and
engineering functions. There can be no assurance that the implementation of
such systems, procedures and controls can be completed successfully, or
without disruption of IXYS' operations. Expansion of IXYS could significantly
strain IXYS' management, financial and other resources. In particular, if IXYS
seeks to increase its manufacturing capacity, it may be necessary for IXYS to
efficiently allocate any increased capacity among its products and to react to
changing market conditions, and the failure to do so would have a material
adverse effect on IXYS' business, financial condition and results of
operations. See "IXYS Business--Manufacturing."

  In addition, IXYS has hired and will be required to hire in the future
substantial numbers of new employees, particularly additional management
personnel. The market for such personnel has become increasingly competitive,
and the inability of IXYS to recruit, train and retain adequate numbers of
qualified personnel would adversely affect IXYS' ability to manufacture and
sell its products.

  As IXYS may be required to design and manufacture its products in larger
volumes, it may become more difficult for IXYS to maintain its standards of
quality and reliability, and delivery times for its products may grow longer.
Further, if IXYS is unable to expand its manufacturing capacity to meet
demand, the placement of

                                      17
<PAGE>

a large order requiring the delivery of products during a particular period
might deter other customers from placing orders with IXYS that would require
development and delivery of products during the same period.

  There can be no assurance that IXYS' systems, procedures, controls and
personnel will be adequate to support IXYS' operations. Failure to manage
IXYS' growth effectively could have a material adverse effect on IXYS'
business, financial condition and results of operations. See "IXYS Business--
Employees" and "--Management."

  Dependence on Patents and Proprietary Technology. IXYS relies on a
combination of patent rights, copyrights and trade secrets to protect the
proprietary elements of its products. However, there can be no assurance that
such measures will provide adequate protection for IXYS' trade secrets or
other proprietary information, that disputes with respect to the ownership of
its intellectual property rights will not arise, that IXYS' trade secrets or
proprietary technology will not otherwise become known or be independently
developed by competitors or that IXYS can otherwise meaningfully protect its
intellectual property rights. IXYS' policy is to file patent applications to
protect technology, inventions and improvements that are important to its
business. There can be no assurance that patents will issue from any of IXYS'
pending applications or that any claims allowed from existing or pending
patents will be sufficiently broad to protect IXYS' technology. While IXYS
intends to protect its intellectual property rights vigorously, there can be
no assurance that any patents held by IXYS will not be challenged, invalidated
or circumvented, or that the rights granted thereunder will provide
competitive advantages to IXYS. Furthermore, there can be no assurance that
others will not develop similar products, duplicate IXYS' products or design
around the patents owned by IXYS.

  IXYS also seeks to protect its trade secrets and proprietary technology, in
part, through confidentiality agreements with employees, consultants and other
parties. There can be no assurance that these agreements will not be breached,
that IXYS will have adequate remedies for any breach, or that IXYS' trade
secrets will not otherwise become known to or independently developed by
others. In addition, there can be no assurance that foreign intellectual
property laws will adequately protect IXYS' proprietary rights abroad.

  The assertion of claims for infringement of intellectual property rights is
common in the semiconductor industry. There can be no assurance that any
infringement claims (or claims for indemnification resulting from infringement
claims against third parties, such as customers) or claims that IXYS' patents
are invalid will not be asserted against IXYS. If infringement claims are
asserted against IXYS, IXYS may seek to obtain a license of such third party's
intellectual property rights, which may not be available under reasonable
terms or at all. If an IXYS product is found to infringe a patent, a court may
grant an injunction to prevent making, selling or using the product in the
applicable country. Litigation may be necessary to defend against claims made
by third parties, enforce patents issued to IXYS, protect trade secrets or
know-how owned by IXYS. Any such litigation could result in substantial costs
and diversion of resources and could have a material adverse effect on IXYS'
business, financial condition and results of operations. See "IXYS Business--
Patents and Licenses."

  Effect of Government Regulations. Power semiconductors with operating
voltages above 40 volts are subject, in some applications, to industry
regulations intended to address the safety, reliability and quality of the
products and to address environmental considerations. These regulations relate
to processes, design, materials and assembly. For example, in the United
States some high voltage products are required to pass Underwriters Laboratory
("UL") recognition for voltage isolation and fire hazard tests. Sales of power
semiconductors outside of the United States are subject to international
regulatory requirements that vary from country to country. Products used in
Europe may be required to be qualified under the Verband Deutscher
Elektrotechniker ("VDE") regulations. The process of obtaining and maintaining
required regulatory clearances can be lengthy, expensive and uncertain. The
time required to obtain approval for sale internationally may be longer or
shorter than that required for U.S. approval, and the requirements may differ.
In addition, 9% of IXYS' revenues in fiscal 1999 were derived from the sale of
products included in medical devices that are subject to extensive regulation
by numerous governmental authorities in the United States and internationally,
including the U.S. Food and Drug Administration (the "FDA"). The FDA and
certain foreign regulatory authorities impose

                                      18
<PAGE>

numerous requirements with which medical device manufacturers must comply,
including adherence to Good Manufacturing Practices ("GMP") regulations and
similar regulations in other countries, which include testing, control and
documentation requirements. Ongoing compliance with GMP and other applicable
regulatory requirements is monitored through periodic inspections by federal
and state agencies, including the FDA, and by comparable agencies in other
countries. Failure to comply with applicable regulatory requirements could
result in, among other things, the inability to include IXYS' products in
approved medical devices. Delays in receipt of or failure to receive required
approvals or clearances, the loss of previously obtained approvals or
clearances, or failure to comply with existing or future regulatory
requirements would have a material adverse effect on IXYS' business, financial
condition and results of operations.

  Technological Change. The power semiconductor industry is subject to
technological change and evolving industry standards. To remain competitive,
IXYS must continue to devote significant resources to the development of new
products and new process technologies. In addition, new product announcements,
introductions or enhancements by IXYS' competitors could cause a decline in
sales or loss of market acceptance of IXYS' existing products. Because new
product development commitments must be made well in advance of sales, new
product decisions must anticipate advances in power semiconductor
manufacturing. There can be no assurance that IXYS will be able to identify
new product opportunities successfully and develop and bring to market such
new products, that IXYS will be able to respond effectively to new
technological changes or new product announcements by others or that IXYS' new
products will be accepted by the market.

  The markets for products incorporating power semiconductors are subject to
technological change, and there can be no assurance that as such markets
change IXYS' product offerings will remain current and suitable for them.
Certain of IXYS' new products are incorporated into a customer's products or
systems in the design stage. The value of any design win largely depends upon
the commercial success of the customer's product and on the extent to which
the design of the customer's electronic system accommodates incorporation of
components manufactured by IXYS' competitors. In addition, products or systems
may be subsequently redesigned so that they no longer require IXYS' products.
No assurance can be given that IXYS will achieve design wins or that any
design win will result in future revenues. The failure of IXYS to achieve
design wins could materially and adversely affect IXYS' business, financial
condition and results of operations. In addition, there can be no assurance
that IXYS' competitors will not develop new technologies that are
substantially equivalent or superior to IXYS' technologies or that IXYS will
be successful in enhancing existing processes or developing new technologies.
See "IXYS Business--Research and Development" and "--Competition."

  Dependence on Key Personnel. IXYS is dependent upon a limited number of key
management, sales and technical personnel. IXYS' future success will depend in
part upon its ability to attract and retain highly qualified personnel. IXYS
faces competition for such personnel from other companies and other
organizations. As a result, there can be no assurance that IXYS will be
successful in hiring or retaining qualified personnel. Subject to the terms of
certain employment agreements, officers and other key personnel could leave
the employ of IXYS with little or no prior notice. Loss of key personnel, such
as Dr. Zommer, Chief Executive Officer, and Mr. Agbayani, Vice President of
Finance and Administration, especially if such loss is without advance notice,
or the inability to hire or retain qualified personnel could have a material
adverse effect on IXYS' business, financial condition and results of
operations. See "IXYS Business--Employees," "--Management."

  Environmental Regulations. IXYS is subject to a variety of federal, state
and local laws, rules and regulations, and IXYS GmbH is subject to laws, rules
and regulations in Germany, related to the use, storage, handling, discharge
and disposal of certain chemicals and gases used in IXYS' manufacturing
process. Any of those regulations could require IXYS to acquire equipment or
to incur substantial other expenses to comply with environmental regulations.
If substantial additional expenses were incurred by IXYS, product costs could
significantly increase, thus materially adversely affecting IXYS' business,
financial condition and results of operations. IXYS believes that its
activities conform to present environmental regulations. Increasing public
attention has, however, been focused on the environmental impact of
semiconductor operations. While IXYS has not experienced any materially
adverse effects on its operations from environmental regulations, there can be
no

                                      19
<PAGE>

assurance that changes in such regulations will not impose the need for
additional capital equipment or other requirements or restrict IXYS' ability
to expand its operations. Although IXYS believes it is currently in compliance
with applicable environmental laws, any failure by IXYS to comply with present
or future environmental laws rules and regulations could result in fines being
imposed on IXYS, suspension of production or cessation of operations, any of
which could have a material adverse effect on IXYS' business, financial
condition and results of operations. IXYS' business, financial condition and
results of operations would be subject to similar effects as a result of
comparable laws and regulations in Germany. See "IXYS Business--Environmental
Matters."

  IXYS' Lampertheim facility is located in an industrial area in which there
is known environmental contamination. Although IXYS is not aware of any soil
or groundwater contamination at its facility, there can be no assurance that
IXYS' business, financial condition and results of operations will not be
materially adversely affected by this situation.

  Litigation. IXYS is involved in various litigation and potential claims. Due
to the inherent uncertainty of litigation, management is not able to
reasonably estimate losses that may be incurred in relation to its litigation
matters. However, if unsuccessful in the defense of any of the claims
currently made against it, IXYS' business, operating results and cash flows
could be materially and adversely affected. However, based on the facts
presently known, management believes that the resolution of these matters will
not have a material adverse impact on the results of operations or the
financial position of IXYS. See "Item 3. Legal Proceedings" for a discussion
regarding certain litigation.

  Financial Exposure to Product Liability Claims. IXYS faces the risk of
financial exposure to product liability claims alleging that the use of
devices which incorporate IXYS' products resulted in adverse effects.
Approximately 9% of IXYS' net revenues in fiscal 1999 were derived from sales
of products used in medical devices. Product liability risks may exist with
respect to these medical devices even with respect to those medical devices
that have received, or in the future may receive, regulatory approval for
commercial sale. See "Effect of Regulations." IXYS does not currently carry
product liability insurance, and there can be no assurance that IXYS will
avoid significant product liability claims. A successful claim brought against
IXYS could have a material adverse effect on IXYS' business, financial
condition and results of operations.

  Potential Volatility of Stock Price. The trading price of IXYS' Common Stock
is subject to wide fluctuations in response to variations in operating results
of IXYS and other companies in the same industry, actual or anticipated
announcements of technical innovations or new products by IXYS or its
competitors and general market conditions. In addition, in recent years, the
stock market in general, and the market for shares of small capitalization and
high technology stocks in particular, have experienced extreme price
fluctuations, which have often been unrelated to the operating performance of
affected companies.

  Impact of Year 2000. The Year 2000 will impact computer programs written
using two digits rather than four digits to define the applicable year. Any
programs with time-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operation, including a temporary
inability to process transactions, send invoices or engage in other ordinary
activities. This problem largely affects software programs written years ago,
before the issue came to prominence.

  IXYS has reviewed both its internal computer systems and its products that
could be affected by the "Year 2000" issue and has identified certain minor
software applications that will be affected. In the ordinary course of
replacing computer equipment and software, IXYS attempts to obtain
replacements that are Year 2000 compliant. Utilizing both internal and
external resources to identify and assess needed Year 2000 remediation, IXYS
currently anticipates that its internal Year 2000 identification, assessment,
remediation and testing efforts, will be completed during calendar, 1999, and
that such efforts will be completed prior to any currently anticipated impact
on its internal computer equipment and software.

                                      20
<PAGE>

  IXYS presently believes, with modification to existing software and
conversion to new software, the "Year 2000" issues relating to internal
computer systems and products will not cause significant operational problems
or computer problems. Furthermore, the cost of implementing these solutions is
not anticipated to be material to the financial position or results of
operations. The plan is currently expected to result in non-recurring expenses
through calendar 1999 of approximately $750,000. However, if such
modifications and conversions are not made, or not completed, IXYS does not
expect the "Year 2000" issue to have a material adverse impact on the
operations of the Company, as there are inexpensive alternatives available.
Although IXYS has completed its internal assessment of the Year 2000 issue and
believes that it is substantially compliant, there can be no assurance that
all potential problem areas have been identified and the Year 2000 risks
assessed. Should there be systems that were not included in the assessment and
which are not Year 2000 compliant, IXYS may be unable to conduct business or
manufacture its products, which could cause a material adverse effect on IXYS'
results of operations.

  IXYS has initiated formal communications with all of its significant
suppliers and large customers during fiscal 1999 to determine the extent to
which IXYS is vulnerable to those third parties failure to remediate their own
"Year 2000" issues. There can be no guarantee that the systems or products of
other companies or significant suppliers will be converted. A failure to
convert by another company, or a conversion that is incompatible with IXYS'
systems may have a material adverse impact on IXYS.

  IXYS' suppliers and customers may be adversely affected by their respective
failure to address the Year 2000 problem. Should any of IXYS' suppliers
encounter Year 2000 problems that cause them to delay manufacturing or
shipments of key components, IXYS may be forced to delay or cancel shipments
of its products, which would have a material adverse effect on IXYS' results
of operations. IXYS is currently working with its suppliers to address their
Year 2000 compliance in a timely manner. IXYS anticipates completion of this
effort by June 1999; however, there can be no assurance that any such effort
will be successful.

  Currently, IXYS does not have a Year 2000 contingency plan in place as it
has completed its internal assessment and believes that it is substantially
compliant.

ITEM 2. Properties

  IXYS' administrative, marketing, development and manufacturing facilities
are located in Santa Clara, California and Lampertheim, Germany. The Santa
Clara facility consists of approximately 20,000 square feet under a lease
which expires in January 31, 2004. IXYS has an option to extend the lease for
five years. The base rent under this lease is approximately $323,575 per year.
The Lampertheim facility, which is owned by IXYS, consists of approximately
170,000 square feet. IXYS also holds a lease for a 20,000 square foot
principal facility in Milpitas, California that expires in January 2002. IXYS
is currently subletting such Milpitas facility to 2Wire, a Delaware
corporation. IXYS believes that its current facilities will be adequate
through at least fiscal 2000 and that suitable additional space will be
available in the future as needed on commercially reasonably terms.

ITEM 3. Legal Proceedings

  On August 12, 1996, the Company and Michael Gulett, Robert McClelland,
Richard A. Veldhouse, Dennis McDonald and Chiang Lam (the "Paradigm
Defendants") were named, along with PaineWebber, Inc., as defendants in a
purported class action (entitled Bulwa et al. v. Paradigm Technology, Inc. et
al., Santa Clara County Superior Court Case No. CV759991) brought on behalf of
stockholders who purchased the Company's stock between November 20, 1995 and
March 22, 1996 (the "Class Period").

  The complaint asserted six causes of action against the Paradigm Defendants:
negligent misrepresentation, fraud, breach of fiduciary duty, violations of
California Corporations Code sections 25400 and 25500 ("Sections 25400 and
25500"), violation of Corporations Code section 1507, and violation of
California Civil Code sections 1709 and 1710.

                                      21
<PAGE>

  The Paradigm Defendants responded to the complaint by filing a demurrer
which challenged the legal sufficiency of all six causes of action. On
December 12, 1996, the Court sustained the demurrer as to all of the causes of
action except for the fourth cause of action for violation of Sections 25400
and 25500 (and as to all causes of action for defendant Michael Gulett). The
Court, however, granted plaintiffs leave to amend the complaint to attempt to
cure the defects which caused the Court to sustain the demurrer. Plaintiffs
failed to amend within the allotted time and independently expressed an intent
to prosecute only the fourth cause of action. On January 8, 1997, the Paradigm
Defendants, with the exception of Michael Gulett (who by virtue of the ruling
on the demurrer has obtained a dismissal with prejudice as to all causes of
action asserted against him), filed an answer to the complaint denying any
liability for the acts and damages alleged by the plaintiffs.

  Plaintiffs have since served the Paradigm Defendants with discovery requests
for production of documents and interrogatories, to which the Paradigm
Defendants have responded. Plaintiffs have also subpoenaed documents from
various third parties. The Paradigm Defendants have served the plaintiffs with
an initial set of discovery requests, to which plaintiffs have responded. The
Paradigm Defendants also took the depositions of the named plaintiffs on April
9, 1997.

  On January 15, 1997, plaintiffs filed a motion to certify the matter as a
class action. After several hearings and continuances, on February 9, 1998 the
Court certified a class consisting only of California purchasers of the
Company's stock during the Class Period. Following the California Supreme
Court decision in Diamond Multimedia Systems, Inc. v. Superior Court, 19 Cal.
4th 1036 (1999), plaintiffs moved to modify the prior class certification
ruling to include also non-California purchaser. The Court granted this motion
on April 28, 1999.

  On April 9, 1998, the court granted plaintiffs' motion to amend their
complaint to incorporate factual allegations derived from the Campbell, et al.
action described below. The court overruled the Paradigm Defendants' demurrer
to the amended complaint on August 6, 1998. The Paradigm Defendants filed an
answer to the amended complaint on August 27, 1998. There can be no assurance
that the Company will be successful in the defense of this action. If
unsuccessful in the defense of any such claim, the Company's business,
operating results and cash flows could be materially adversely affected.

  On December 4, 1998, defendant Dennis McDonald, Paradigm's former Vice
President of Human Resources, filed a motion for summary judgment on the
amended complaint. Following his deposition, and prior to the hearing on the
motion, plaintiffs agreed to dismiss the defendant McDonald from the action
with prejudice in exchange for a waiver of costs. Defendant McDonald has since
obtained a judgment of dismissal.

  On February 21, 1997, an additional purported class action, with causes of
action and factual allegations essentially identical to those of the Bulwa, et
al. action, was filed by the law firm of Stull, Stull & Brody in the Santa
Clara County Superior Court on behalf of stockholders who held the Company's
stock between November 20, 1995 and March 22, 1996. The action was entitled
Chai, et al. v. Paradigm Technology Inc. et al. (Case No. CV764259), and was
asserted against the same Paradigm Defendants as in the Bulwa, et al. action,
PaineWebber, Inc. and Smith Barney. Prior to the hearing on the Paradigm
Defendants' demurrer to the initial complaint, plaintiff amended his complaint
to incorporate factual allegations derived from the Campbell, et al. action
described below. The Paradigm Defendants filed a demurrer to the amended
complaint, which was heard on September 9, 1997.

  On September 10, 1997, the Court issued an order sustaining the Paradigm
Defendants' demurrer as to all causes of action without leave to amend. A
judgment in favor of the Paradigm Defendants dismissing the entire complaint
was entered by the Court on September 23, 1997. Plaintiff appealed the
decision, but on November 13, 1998 the Court of Appeal affirmed the judgment.
Plaintiff's petition for rehearing was denied. The time for filing a petition
for review by the Supreme Court has expired.

  On May 19, 1997, Thomas Campbell, James Zulliger and Mark Wagenhals, former
employees of the Company, filed an action (Campbell, et al. v. Paradigm
Technology, Inc., et al., Case No. CV766271) in Santa Clara County Superior
Court. The complaint named as defendants the Company, Michael Gulett, Richard

                                      22
<PAGE>

Veldhouse, Dennis McDonald and Chiang Lam. The Campbell plaintiffs filed with
the complaint a notice that they considered their case related legally and
factually to the Bulwa action discussed above. The Campbell complaint
contained causes of action for fraud, breach of fiduciary duty, violations of
California Corporations Code sections 25400-25402, 25500-25502 and 25504 and
violation of California Civil Code sections 1709-1710. The Campbell complaint
alleged that the defendants misled them and committed fraud by allegedly
overstating the Company's back orders in the fourth quarter of 1995 and
inflated reported sales in the fourth quarter of 1995 and the first quarter of
1996, which allegedly resulted in distorting the Company's financial
condition, which allegedly inflated its stock price. Plaintiffs alleged that
they purchased the Company's stock at the allegedly inflated prices and were
damaged thereby. The complaint sought an unspecified amount of compensatory,
rescissory and/or punitive damages. Defendants responded to the complaint on
September 12, 1997 by filing a demurrer as to all causes of action. Prior to
the hearing on the demurrer, plaintiffs amended their complaint to identify
two allegedly fraudulent sale transactions. Defendants filed a demurrer as to
all causes of action in the amended complaint, which was heard on April 2,
1998. That same day, the Court issued its order sustaining the demurrer on
multiple grounds, but granted plaintiffs leave to amend the complaint by May
15, 1998. Defendants filed a demurrer in response to the second amended
complaint, which was heard on September 3, 1998. That same day, the Court
sustained the demurrer but granted plaintiffs leave to file a third amended
complaint by September 30, 1998. Plaintiffs then filed a third amended
complaint. Following defendants' filing of a demurrer to the third amended
complaint, plaintiffs agreed to dismiss their claims with prejudice in
exchange for defendants' agreement not to seek to recover defendants' costs
incurred in defending against the action. The third amended complaint was
dismissed with prejudice on December 11, 1998 and the defendants agreed not to
pursue any action against the plaintiffs for having filed the action.

  On May 19, 1998, the law firm that filed the Bulwa, et al. action described
above filed an additional securities class action lawsuit against the Company,
Michael Gulett, Robert McClelland, Richard A. Veldhouse and Chiang Lam, this
time in the United States District Court for the Northern District of
California. The complaint alleged violations of section 10(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Commission Rule 10b-5 and section 20(a) of the Exchange Act. Plaintiff alleged
the same class and the same substantive factual allegations that are contained
in the Bulwa, et al. action as amended. Defendants responded to the complaint
on July 27, 1998 by filing a motion to dismiss the complaint for failure to
state claims upon which relief can be granted and for various pleading
inadequacies. In lieu of opposing the motion, plaintiff filed a first amended
complaint. Defendants renewed their motion to dismiss, and on January 20, 1999
the Court issued an order granting the motion and dismissing plaintiff's
action and entered judgment thereon. On February 3, 1999, the Court entered an
amended judgment clarifying that the judgment is with prejudice. On March 12,
1999, plaintiffs filed a notice of appeal.

ITEM 4. Submission of Matters of a Vote of Security Holders.

  None.

                                      23
<PAGE>

                                    PART II

ITEM 5. Market For Registrant's Common Stock and Related Stockholder Matters

  The Common Stock of the Company began trading publicly on the Nasdaq
National Market on June 28, 1995 under the symbol PRDM. As of August 22, 1997,
the Company's stock has been trading publicly on the Nasdaq SmallCap Market.
Prior to June 28, 1995, there was no public market for the Common Stock. In
September 1998, following the merger transaction between Paradigm and IXYS,
the Company commenced trading on the Nasdaq SmallCap Market under the symbol
SYXI. The Company has never paid cash dividends and does not anticipate paying
cash dividends in the foreseeable future. The following table sets forth for
the periods indicated the high and low sale prices of the Common Stock of the
Company on the Nasdaq National Market prior to August 22, 1997 and the Nasdaq
SmallCap Market subsequent to August 22, 1997. As of May 31, 1999, there were
approximately 159 holders of record of the Company's Common Stock.

<TABLE>
<CAPTION>
Fiscal Year ended March 31, 1999*                                   High   Low
---------------------------------                                  ------ ------
<S>                                                                <C>    <C>
First Quarter.....................................................  2 1/2   1/4
Second Quarter.................................................... 10 1/2   3/16
Third Quarter.....................................................  6 1/2 1 1/4
Fourth Quarter....................................................  3 3/4 2 3/4
</TABLE>

--------
* Note that several reverse splits were implemented by IXYS Corporation during
  fiscal 1999.

<TABLE>
<CAPTION>
Fiscal Year ended March 31, 1998                                     High   Low
--------------------------------                                    ------ -----
<S>                                                                 <C>    <C>
First Quarter...................................................... 2      11/16
Second Quarter..................................................... 2 7/32 11/16
Third Quarter...................................................... 1 1/2  1/8
Fourth Quarter..................................................... 1 7/32 1/4
</TABLE>

ITEM 6. Selected Financial Data

  The selected consolidated financial data set forth below have been derived
from the audited financial statements of IXYS. The audited financial
statements of IXYS as of March 31, 1998 and 1999 and for each of the three
years in the period ended March 31, 1999, together with the notes thereto and
the related report of PricewaterhouseCoopers llp, independent auditors, are
included elsewhere herein. The selected financial data set forth below should
be read in conjunction with the Financial Statements of IXYS and related Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." IXYS has not declared or paid cash dividends on its
Common Stock since inception and does not intend to pay any cash dividends in
the foreseeable future.

                                      24
<PAGE>

                         IXYS Selected Financial Data
                    (in thousands, except per share amount)

<TABLE>
<CAPTION>
                               1995      1996      1997      1998      1999
                             --------  --------  --------  --------  --------
<S>                          <C>       <C>       <C>       <C>       <C>
Statement of Operations
 Data:
Net revenues................ $ 42,489  $ 57,436  $ 55,322  $ 56,856  $ 66,523
Cost of goods sold..........   28,488    35,629    34,158    38,048    44,939
                             --------  --------  --------  --------  --------
Gross profit................   14,001    21,807    21,164    18,808    21,584
                             --------  --------  --------  --------  --------
Operating expenses:
  Research, development and
   engineering..............    2,848     3,423     3,015     3,329     4,196
  Selling, general and
   administrative...........    7,118     9,430     8,950     8,384    20,256
                             --------  --------  --------  --------  --------
    Total operating
     expenses...............    9,966    12,853    11,965    11,713    24,452
                             --------  --------  --------  --------  --------
Operating income (loss).....    4,035     8,954     9,199     7,095    (2,868)
Interest expense............     (715)      (78)     (116)     (431)     (993)
Gain (loss) on foreign
 currency transactions......   (2,246)      (32)     (246)      183        37
Other income (expense),
 net........................      (79)   (1,578)     (484)    3,466       669
                             --------  --------  --------  --------  --------
Income (loss) before
 (provision) benefit for
 income taxes...............      995     7,266     8,353    10,313    (3,155)
(Provision) benefit for
 income taxes...............    6,267     4,327    (3,946)   (4,229)   (2,083)
                             --------  --------  --------  --------  --------
Net income (loss)........... $  7,262  $ 11,593  $  4,407  $  6,084  $ (5,238)
                             ========  ========  ========  ========  ========
Net income (loss) per
 share--basic............... $   2.99  $   0.45  $   0.08  $   0.09  $  (0.56)
                             ========  ========  ========  ========  ========
Shares used in per share
 calculation--basic.........    2,426    25,709    53,478    65,501     9,373
                             ========  ========  ========  ========  ========
Net income (loss) per
 share--diluted............. $   0.11  $   0.09  $   0.02  $   0.03  $  (0.56)
                             ========  ========  ========  ========  ========
Shares used in per share
 calculation--diluted.......   67,139   124,093   208,280   201,866     9,373
                             ========  ========  ========  ========  ========
Balance Sheet Data:
Cash and cash equivalents... $  2,154  $  4,968  $  6,640  $  9,644  $  7,087
Working capital (2).........    3,256    12,025    19,660    13,834    23,104
Total assets................   26,943    39,626    39,410    54,340    58,733
Total debt, capital lease
 and pension obligations....   16,438     6,767     8,931    17,147    19,264
Mandatorily redeemable
 convertible preferred
 stock (1)..................   27,107    37,556    37,556    37,556
Accumulated deficit.........  (33,443)  (21,850)  (17,443)  (11,359)  (16,597)
Total stockholders'
 (deficit), equity..........  (32,823)  (21,022)  (17,129)  (11,956)   25,720
</TABLE>

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

Overview

  IXYS was founded in 1983 to design, develop and market power semiconductors
used primarily in controlling energy in motor drives and power conversion.
IXYS' target market includes segments of the power semiconductor market that
require medium to higher power semiconductors, with a particular emphasis on
higher power semiconductors, which are those capable of processing greater
than 500 watts of power.

  IXYS has been an innovator in power MOS semiconductor products and
technologies since its inception. IXYS pioneered the high voltage, high
current MOSFET and IGBT technologies and was the industry's first developer
and manufacturer of a 1,000 volt, 100 amp IGBT, which has proven to be
superior in reliability and performance to traditional bipolar Darlington
transistors.

  In 1989, IXYS acquired the ABB AG power semiconductor operation in
Lampertheim, Germany from Zurich-based ABB, a world leader in power
generation, transmission, distribution equipment, industrial controls

                                      25
<PAGE>

and motor drives. Now called IXYS Semiconductor GmbH, the power semiconductor
operation in Lampertheim is recognized for pioneering work in DCB packaging
technology. The group also developed a line of FREDs that significantly reduce
energy losses in motor control and UPS applications. IXYS Semiconductor GmbH
provides IXYS with a strong foothold in the European Community ("EC") and
positions IXYS to take advantage of tariff and import incentives to EC-based
entities.

  In January 1993, in answer to continuing operational losses, IXYS underwent
a reorganization of its upper level management structure. Subsequent cost
cutting in its US operations as well as in its Lampertheim facility allowed
IXYS to operate more efficiently and achieve profitability.

  In 1995, IXYS reincorporated in Delaware. Also in 1995, ABB AG converted
approximately $10.5 million in debt owed to it by IXYS into IXYS Series B
Preferred Stock.

  In January 1998, IXYS completed the purchase of the Lampertheim facility
previously leased from ABB AG. This facility is approximately 170,000 square
feet and houses IXYS' Lampertheim offices and manufacturing operations. ABB AG
leases some office space in this facility. IXYS feels that the Lampertheim
facility is sufficient to serve its needs in the module and bipolar product
lines for the foreseeable future.

  On September 23, 1998, IXYS Corporation merged with Paradigm, a Delaware
corporation that designs and markets fast SRAM products, in a transaction
accounted for as a reverse merger. In the merger, Paradigm issued 11,513,821
shares of its common stock in exchange for all outstanding shares of IXYS
Corporation capital stock. At the conclusion of the merger, IXYS Corporation
stockholders held approximately 96% of the combined company, and the historic
accounting records of IXYS Corporation became those of the combined company.
Accordingly, Paradigm formally changed its name to "IXYS Corporation."

Results of Operations--Years Ended March 31, 1999 and March 31, 1998

  Net Revenue. IXYS' net revenues for fiscal 1999 were $66.5 million, a 17.0%
increase from revenues of $56.9 million in 1998. The increase is primarily
related to approximately a 39% increase in units shipped in 1999 as compared
to 1998, offset by approximately 16% decrease in average selling prices.
International net revenue represents $42.8 million for fiscal 1999 or 65% of
total net revenue as compared to $35.8 million for fiscal 1998 or 63% of net
revenue.

  Gross Margin. IXYS' gross margin for 1999 was 32% in 1999 as compared to 33%
in 1998. The decrease in gross margin is due to average selling prices which,
in response to competition, declined at a somewhat faster rate than IXYS'
ability to reduce its cost of goods sold. International gross margin for 1999
was 22% as compared to 25% in 1998. Domestic gross margin for 1999 was 34% as
compared to 42% 1998.

  Research, Development and Engineering ("R&D"). For the fiscal year ended
1999 R&D was $4.2 million or 6.3% of net revenues as compared to $3.3 million
or 5.8% of net revenues, for fiscal year 1998. R&D expenses increase was due
to higher engineering headcount in 1999.

  Selling, General, Administrative Expenses ("SG&A"). For the fiscal year
1999, SG&A was $20.3 million (30.4% of net sales) as compared to $8.4 million
(14.7% of net sales) in fiscal year 1998. The increase reflects $10.4 million,
amortization and writeoff of goodwill related to the acquisition of Paradigm
or 15.6% of net sales. SG&A excluding the amortization and writeoff of
goodwill related to the acquisition of Paradigm was $9.9 million, or 14.8% of
net sales.

  Interest Expense. During 1999, interest expense was $993,000 as compared to
$431,000 compared to in 1998. The increase in interest expense is due to
higher average borrowings in 1999 as compared to 1998.

  Other Income (Expense), Net. Other income (expense) in fiscal in 1999 was
$669,000 as compared to $3.5 million in 1998, which included $3.7 million
attributable to the settlement of the patent claim made by Harris Corporation.

                                      26
<PAGE>

  Provision/Benefit For Income Taxes. The 1999 provision for income taxes
reflects an effective tax rate of 29% in 1999, prior to the effect of the
write-off of the one-time non-deductible charge of $10.4 million in connection
with the reverse merger acquisition of Paradigm as compared with a 1998
provision for income tax rate of 41.0%. Including the one-time non-deductible
charge of $10.4 million, the effective tax rate is 66% in 1999.

Results of Operations--Years Ended March 31, 1998 and March 31, 1997

  Net Revenue. IXYS' net revenues for fiscal 1998 were $56.9 million, a 2.9%
increase from revenue of $55.3 million in 1997. The increase is primarily
related to an increase of approximately 12% in units shipped in 1998 as
compared to 1997, offset by a 10% decrease in average selling prices.
International net revenue represents $35.8 million for fiscal 1998 or 63% of
total net revenue as compared to $34.3 million for fiscal 1997 or 62% of net
revenue.

  Gross Margin. IXYS' gross margin for 1998 was 33% as compared to 38% in
1997. The decrease in gross margin is due to average selling prices which, in
response to competition, declined at a faster rate than IXYS' ability to
reduce its costs. International gross margin for 1998 was 25% as compared to
35% in 1997. Domestic gross margin for 1998 was 42% as compared 44% in 1997.

  Research, Development and Engineering ("R&D"). For the fiscal year ended
1998 R&D was $3.3 million or 5.8% of net revenues, as compared to $3.0
million, or 5.4%, for fiscal year 1997. R&D expenses increase was due to
higher engineering headcount in 1998.

  Selling, General, Administrative Expenses ("SG&A"). For the fiscal year
1998, SG&A was $8.4 million (14.8% of net sales) as compared to $9.0 million
(16.3% of net sales) in fiscal year 1997. In absolute dollars, SG&A decreased
by $600,000 reflecting significantly lower costs associated with IXYS' defense
of a patent claim made by Harris, which was settled in fiscal 1998.

  Interest Expense. During 1998, interest expense was $431,000 compared to
$116,000 in 1997. The increase in interest expense is due to higher average
borrowings in 1998 as compared to 1997.

  Other Income (Expense), Net. Other income in fiscal 1998 includes $3.7
million attributable to the settlement of the Harris litigation.

  Provision/Benefit For Income Taxes. The 1998 provision for income taxes
reflected an effective tax rate of 41.0% in 1998 compared to 47.2% in 1997.
IXYS' effective tax rate approximates statutory foreign and US federal and
state rates.

Liquidity and Capital Resources

  The Company has financed its operations to date through the private sale of
equity, lease financing and bank borrowings. As of March 31, 1999, the cash
and cash equivalents were $8.5 million, a decrease of $2.1 million from cash
and cash equivalents of $10.6 million at March 31, 1998. The decrease in cash
and cash equivalents was primarily due to usage of cash to fund Paradigm
operations.

  Line of credit facilities available to the Company are as follows: A line of
credit with a U.S. bank that as of March 31, 1999 consists of a $5.0 million
commitment amount which is available through August 1999. The line bears
interest at the bank's prime rate (7.75% at March 31, 1999). The line is
collateralized by certain assets and contains certain general and financial
covenants, which include provisions stating that the Company cannot incur
additional debt or pledge assets without the prior approval of such bank. At
March 31, 1999, the Company had drawn $2.1 million against such line of
credit.

  The accounts receivable at March 31, 1999 were $11.7 million, an increase of
17.0% as compared to March 31, 1998. The inventories at March 31, 1999 were
$20.2 million, an increase of 17.9% as compared to March 31,

                                      27
<PAGE>

1998. Net plant and equipment at March 31, 1999 were $11.3 million, an
increase of 6.8% as compared to March 31, 1998.

  The Company evaluates the acquisition of businesses, products or
technologies that complement the Company's business. Any such transactions, if
consummated, may use a portion of the Company's working capital or require the
issuance of equity securities, which may result in further dilution to the
Company's stockholders.

  The Company believes that cash generated from operations, if any, and
banking facilities will be sufficient to meet its cash requirements through
fiscal 2000. To the extent that funds generated from operations, together with
bank facilities are insufficient to meet its capital requirements, the Company
will be required to raise additional funds. No assurance can be given that
additional financing will be available on acceptable terms. The lack of such
financing if needed, would have a material adverse effect on the Company's
business, financial condition and results of operations.

Recent Accounting Pronouncements

  In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 establishes standards
for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to stockholders. SFAS 131 generally supersedes
Statement of Financial Accounting Standards No.14, "Financial Reporting for
Segments of Business Enterprise." Under SFAS 131, operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis it is used
internally. SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997, and restatement of comparative information
for earlier years is required. However, SFAS 131 is not required to be applied
to interim financial statements in the initial year of application. Based upon
the criteria of SFAS 131, the Company has a single operating segment.
Accordingly, the financial statements provided herein satisfy the standard for
reporting. Geographic information about revenues, operating income and
identifiable assets are provided in the notes to the financial statements.

  In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which establishes accounting and reporting standards
for derivative instruments and hedging activities. SFAS 133 requires that an
entity recognize all derivatives as either assets or liabilities in the
balance sheets and measure those instruments at fair value. This Statement
becomes effective for the Company for fiscal years beginning after June 15,
1999. The company does not currently hold derivative instruments or engage in
hedging activities.

  In March 1998, the Accounting Standards Executive Committee, or AcSEC,
released Statement of Position 98-1, or SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1 requires
companies to capitalize certain costs of computer software developed or
obtained for internal use, provided that those costs are not research and
development. SOP 98-1 is effective for fiscal years beginning after December
15, 1998. The Company is evaluating the requirements of SOP 98-1 and the
effects, if any, on the Company's current policies on accounting for software
costs.

Year 2000 Conversion--See "Risk Factors."

  The Company has reviewed both its internal computer systems and its products
that could be affected by the "Year 2000" issue and has identified certain
minor software applications that will be affected. In the ordinary course of
replacing computer equipment and software, the Company attempts to obtain
replacements that are Year 2000 compliant. Utilizing both internal and
external resources to identify and assess needed Year 2000 remediation, the
Company currently anticipates that its internal Year 2000 identification,
assessment, remediation

                                      28
<PAGE>

and testing efforts, will be completed,during calendar 1999, and that such
efforts will be completed prior to any currently anticipated impact on its
internal computer equipment and software.

  The Company presently believes, with modification to existing software and
conversion to new software, the "Year 2000" issues relating to internal
computer systems and products will not cause significant operational problems
or computer problems. Furthermore, the cost of implementing these solutions is
not anticipated to be material to the financial position or results of
operations. The plan is currently expected to result in non-recurring expenses
through calendar 1999 of approximately $750,000. However, if such
modifications and conversions are not made, or not completed, the Company does
not expect the "Year 2000" issue to have a material adverse impact on the
operations of the Company, as there are inexpensive alternatives available.
Although the Company has completed its internal assessment of the Year 2000
issue and believes that it is substantially compliant, there can be no
assurance that all potential problem areas have been identified and the Year
2000 risks assessed. Should there be systems that were not included in the
assessment and which are not Year 2000 compliant, the Company may be unable to
conduct business or manufacture its products, which could cause a material
adverse effect on the Company's results of operations.

  The Company has initiated formal communications with all of its significant
suppliers and large customers during fiscal 1999 to determine the extent to
which the Company is vulnerable to those third parties failure to remediate
their own "Year 2000" issues. There can be no guarantee that the systems or
products of other companies or significant suppliers will be converted. A
failure to convert by another company, or a conversion that is incompatible
with the Company's systems may have a material adverse impact on the Company.

  The Company's suppliers and customers may be adversely affected by their
respective failure to address the Year 2000 problem. Should any of the
Company's suppliers encounter Year 2000 problems that cause them to delay
manufacturing or shipments of key components, the Company may be forced to
delay or cancel shipments of its products, which would have a material adverse
effect on the Company's results of operations. The Company is currently
working with its suppliers to address their Year 2000 compliance in a timely
manner.

  Currently, the Company does not have a Year 2000 contingency plan in place
as it has completed its internal assessment and believes that it is
substantially compliant.

ITEM. 7(a) Quantitative and Qualitative Disclosures about Market Risk

  The Company is exposed to the impact of interest rate changes, foreign
currency fluctuations, and change in the market values of its investments.

  Interest Rate Risk. The Company's exposure to market rate risk for changes
in interest rates relates primarily to the Company's investment portfolio. The
Company has not used derivative financial instruments in its investment
portfolio. The Company invests its excess cash in debt instruments of the U.S.
Government and its agencies, and in high-quality corporate issuers and, by
policy, limits the amount of credit exposure to any one issuer. The Company
protects and preserves its invested funds by limiting default, market and
reinvestment risk.

  Investments in both fixed rate and floating rate interest-earning
instruments carries a degree of interest rate risk. Fixed rate securities may
have their fair market value adversely impacted due to a rise in interest
rates, while floating rate securities may produce less income than expected if
interest rates fall. Due in part to these factors, the Company's future
investment income may fall short of expectations due to changes in interest
rates or the Company may suffer losses in principal if forced to sell
securities which have declined in market value due to changes in interest
rates.

  Foreign Currency Risk. International revenues from the Company's foreign
subsidiary were approximately 55% of total revenues. International sales are
made mostly from the Company's German subsidiary and are typically denominated
in the local currency of Germany. This subsidiary also incurs most of its
expenses in the local currency. Accordingly, IXYS' foreign subsidiary uses the
local currency as its functional currency.

                                      29
<PAGE>

  The Company's international business is subject to risks typical of an
international business including, but not limited to, differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility.
Accordingly, the Company's future results could be materially adversely
impacted by changes in these or other factors.

  The Company's exposure to foreign exchange rate fluctuations arises in part
from intercompany accounts in which costs incurred in the United States are
charged to the Company's foreign subsidiary. These intercompany accounts are
typically denominated in the functional currency of its foreign subsidiary in
order to centralize foreign exchange risk with the parent company in the
United States. The Company is also exposed to foreign exchange rate
fluctuations as the financial results of its foreign subsidiary are translated
into U.S. dollars in consolidation. As exchange rates vary, these results,
when translated, may vary from expectations and adversely impact overall
expected profitability. The effect of foreign exchange rate fluctuations on
the Company in 1999 was not material.

                                      30
<PAGE>

ITEM 8. Financial Statements

                                IXYS CORPORATION

                         INDEX TO FINANCIAL STATEMENTS

                                    CONTENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Report of PricewaterhouseCoopers LLP, Independent Accountants..............  32
Audited Financial Statements
  Consolidated Balance Sheets..............................................  33
  Consolidated Statement of Operations.....................................  34
  Consolidated Statement of Stockholders' Deficit..........................  35
  Consolidated Statements of Cash Flows....................................  36
  Notes to Consolidated Financial Statements...............................  37
</TABLE>

                                       31
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors IXYS Corporation

  In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit), and
cash flows, present fairly, in all material respects, the financial position
of IXYS Corporation and its subsidiaries at March 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years
in the period ended March 31, 1999, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

                                          /s/ PricewaterhouseCoopers LLP

San Jose, California
May 10, 1999

                                      32
<PAGE>

                                IXYS CORPORATION

                          CONSOLIDATED BALANCE SHEETS
                       (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                 March 31,
                                                             ------------------
                                                               1998      1999
                                                             --------  --------
<S>                                                          <C>       <C>
                          ASSETS
Current assets:
  Cash and cash equivalents................................  $  9,644  $  7,087
  Restricted cash..........................................       950     1,393
  Accounts receivable, less allowance for doubtful accounts
   of $588 in 1998 and $600 in 1999, respectively..........    10,009    11,731
  Inventories..............................................    17,103    20,167
  Deferred income taxes....................................     1,617     1,617
                                                             --------  --------
    Total current assets...................................    39,323    41,995
  Plant and equipment, net.................................    10,602    11,323
  Other assets.............................................     1,143     2,743
  Deferred income taxes....................................     3,272     1,039
                                                             --------  --------
    Total..................................................  $ 54,340  $ 57,100
                                                             ========  ========
                        LIABILITIES
Current liabilities:
  Current portion of capitalized lease obligations.........  $    428  $ 1, 102
  Current portion of notes payable to bank.................     4,168     4,369
  Current portion of mandatorily redeemable preferred
   stock...................................................     9,300
  Accounts payable.........................................     4,474     5,161
  Accrued expenses and other liabilities...................     7,119     6,954
                                                             --------  --------
    Total current liabilities..............................    25,489    17,586
Notes payable to bank, net of current portion..............     6,624     6,211
Capitalized lease obligations, net of current portion......       814     2,195
Pension liabilities........................................     5,113     5,388
Commitments and contingencies (Note 8)
Series A and B mandatorily redeemable convertible preferred
 stock, $.001 par value: Authorized: 116,000 shares in 1998
 and 0 shares in 1999
 Issued and outstanding: 111,409,671 shares in 1998 and 0
 shares in 1999 (Aggregate liquidation value of $37,589 in
 1998), net................................................    28,256
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.01 par value; 5,000,000 shares
 authorized, No shares issued and outstanding
Common stock, $.01 par value:
  Authorized: 250,000,000 shares in 1998 and 40,000,000
   shares in 1999
  Issued and outstanding: 72,211,873 shares in 1998 and
   11,986,661 shares in 1999...............................        72       120
Additional paid-in capital.................................     1,001    43,297
Notes receivable from stockholders.........................      (936)     (936)
Accumulated deficit........................................   (11,359)  (16,597)
Cumulative translation adjustment..........................      (734)     (164)
                                                             --------  --------
    Total common stock, additional paid-in capital, notes
     receivable from stockholders, accumulated deficit, and
     accumulated translation adjustment....................   (11,956)   25,720
                                                             --------  --------
      Total................................................  $ 54,340  $ 57,100
                                                             ========  ========
</TABLE>

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

                                       33
<PAGE>

                                IXYS CORPORATION

                      CONSOLIDATED STATEMENT OF OPERATIONS
                       (in thousands, except share data)

<TABLE>
<CAPTION>
                                                     Year Ended March 31,
                                                  ----------------------------
                                                    1997      1998      1999
                                                  --------  --------  --------
<S>                                               <C>       <C>       <C>
Net revenues....................................  $ 55,322  $ 56,856  $ 66,523
Cost of goods sold..............................    34,158    38,048    44,939
                                                  --------  --------  --------
    Gross profit................................    21,164    18,808    21,584
                                                  --------  --------  --------
Operating expenses:
  Research, development and engineering.........     3,015     3,329     4,196
  Selling, general and administrative...........     8,950     8,384    20,256
                                                  --------  --------  --------
    Total operating expenses....................    11,965    11,713    24,452
                                                  --------  --------  --------
Operating income (loss).........................     9,199     7,095    (2,868)
Interest expense................................      (116)     (431)     (993)
Gain (loss) on foreign currency transactions....      (246)      183        37
Other income (expense)..........................      (484)    3,466       669
                                                  --------  --------  --------
Income before income tax provision..............     8,353    10,313    (3,155)
Income tax provision............................    (3,946)   (4,229)   (2,083)
                                                  --------  --------  --------
Net income (loss)...............................  $  4,407  $  6,084  $ (5,238)
                                                  ========  ========  ========
Net income (loss) per share--basic..............  $   0.08  $   0.09  $  (0.56)
                                                  ========  ========  ========
Number of shares used in per share calculation--
 basic..........................................    53,478    65,501     9,373
                                                  ========  ========  ========
Net income (loss) per share--diluted............  $   0.02  $   0.03  $  (0.56)
                                                  ========  ========  ========
Number of shares used in per share calculation--
 diluted........................................   208,280   201,866     9,373
                                                  ========  ========  ========
</TABLE>


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

                                       34
<PAGE>

                                IXYS CORPORATION

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

               FOR THE YEARS ENDED MARCH 31, 1997, 1998 and 1999
                                 (in thousands)

<TABLE>
<CAPTION>
                                                      Notes
                                        Additional  Receivable              Cumulative      Total
                                         Paid-In       from     Accumulated Translation Stockholder's
                         Shares  Amount  Capital   Stockholders   Deficit   Adjustment     Deficit
                         ------  ------ ---------- ------------ ----------- ----------- -------------
<S>                      <C>     <C>    <C>        <C>          <C>         <C>         <C>
Balances, March 31,
 1996...................  4,191   $ 42   $ 1,022      $(936)     $(21,850)     $ 700      $(21,022)
Exercise of stock
 options................      2                4                                                 4
Exercise of stock
 warrants...............      1                1                                                 1
Issuance of note
 receivable for common
 stock..................      2
Foreign currency
 translation
 adjustments............                                                        (519)         (519)
Net income..............                                            4,407                    4,407
                         ------   ----   -------      -----      --------      -----      --------
Balances, March 31,
 1997...................  4,196     42     1,027       (936)      (17,443)       181       (17,129)
Exercise of stock
 options................      2                2                                                 2
Repurchase of common
 stock..................    (21)              (4)                                               (4)
Payment on notes
 receivable from
 stockholders...........
Exercise of warrants....
Foreign currency
 translation
 adjustments............                                                        (915)         (915)
Net income..............                                            6,084                    6,084
                         ------   ----   -------      -----      --------      -----      --------
Balance, March 31,
 1998...................  4,177     42     1,025       (936)      (11,359)      (734)      (11,962)
Exercise of stock
 options................      6               17                                                17
Exercise of warrants....    893      9                                                           9
Conversion of preferred
 stock..................  6,469     65    37,491                                            37,556
Issuance of common
 stock..................    442      4     4,764                                             4,768
Foreign currency
 translation
 adjustment.............                                                         570           570
Net loss................                                           (5,238)                  (5,238)
                         ------   ----   -------      -----      --------      -----      --------
Balances, March 31,
 1999................... 11,987   $120   $43,297      $(936)     $(16,597)     $(164)     $ 25,720
                         ======   ====   =======      =====      ========      =====      ========
</TABLE>


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

                                       35
<PAGE>

                                IXYS CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                       Year Ended March 31,
                                                     --------------------------
                                                      1997     1998      1999
                                                     -------  -------  --------
<S>                                                  <C>      <C>      <C>
Cash flows from operating activities:
 Net income (loss).................................  $ 4,407  $ 6,084  $ (5,238)
 Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation and amortization....................      969    1,525     2,614
  Other............................................     (262)   1,018
  Provision for excess and obsolete inventories....      730      708     1,367
  Writeoff of goodwill and in-process research and
   development.....................................                      10,401
  Loss (gain) on foreign currency translation......      246     (317)      297
  Deferred income taxes............................    3,366    4,369       600
  Changes in operating assets and liabilities:
  Accounts receivable..............................     (401)  (3,447)   (2,290)
  Inventories......................................   (2,735)  (6,907)   (5,657)
  Prepaid expenses and other current assets........                (5)     (514)
  Other assets.....................................     (264)    (754)   (1,213)
  Accounts payable.................................     (812)   2,446      (178)
  Accrued expenses and other liabilities...........   (4,255)  (1,741)      151
  Pension liabilities..............................      379      353       275
                                                     -------  -------  --------
   Net cash provided by operating activities.......    1,368    3,332       615
                                                     -------  -------  --------
Cash flows used in investing activities:
 Purchases of plant and equipment..................   (1,400)  (9,311)   (3,116)
 Purchase of goodwill..............................      --       --       (606)
                                                     -------  -------  --------
   Net cash used in investing activities...........   (1,400)  (9,311)   (3,722)
                                                     -------  -------  --------
Cash flows used in financing activities:
 Proceeds from capital lease obligations...........      996      350     2,143
 Restricted cash (increase)........................     (187)     641      (443)
 Principal payments on capital lease obligations...     (268)    (209)     (303)
 Repayment of notes payable to bank................     (645)  (2,500)
 Proceeds from bank Loan...........................    2,500   11,148
 Other ............................................        5        5      (977)
                                                     -------  -------  --------
   Net cash provided by financing activities.......    2,401    9,435       420
                                                     -------  -------  --------
Effect of foreign exchange rate fluctuations on
 cash and cash equivalents.........................     (697)    (452)      130
                                                     -------  -------  --------
Net increase in cash and cash equivalents..........    1,672    3,004    (2,557)
Cash and cash equivalents at beginning of year.....    4,968    6,640     9,644
                                                     -------  -------  --------
Cash and cash equivalents at end of year...........  $ 6,640  $ 9,644  $  7,087
                                                     =======  =======  ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 Cash paid during the period for interest..........  $    36  $   501  $    979
 Cash paid during the period for income taxes......    1,615      326     2,739
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
 FINANCING ACTIVITIES:
 Purchase of fixed assets under capital lease......                         129
 Purchase of common stock through issuance of notes
  receivable.......................................        6
 Conversion of mandatorily convertible preferred
  stock............................................                      37,556
 Common stock issued for Paradigm assets...........                       4,740
</TABLE>

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

                                       36
<PAGE>

                               IXYS CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. FORMATION AND BUSINESS OF IXYS:

  Effective September 23, 1998, IXYS Corporation ("IXYS") merged with Paradigm
Technology, Inc. ("Paradigm"), a company that designs and markets fast SRAM
products, in a transaction accounted for as a reverse merger. In the merger,
Paradigm issued 11,513,821 shares of its common stock in exchange for all
outstanding shares of IXYS capital stock. At the conclusion of the merger,
IXYS stockholders held approximately 96% of the combined company. After the
merger, the historic accounting records of IXYS became those of the combined
company and, accordingly, Paradigm changed its name to IXYS (the combined
company of which is referred to in this filing as the "Company" or the
"Registrant").

  IXYS Corporation designs, develops and markets power semiconductors, Digital
and Analog Integrated Circuits (IC), and high speed, high density Static
Random Access Memory (SRAM). Power semiconductors are used primarily in
controlling energy in motor drives, power conversion (including
uninterruptible power supplies (UPS) and switch mode power supplies (SMPS))
and medical electronics. IXYS' power semiconductors convert electricity at
relatively high voltage and current levels to create efficient power as
required by a specific application. IXYS' target market includes segments of
the power semiconductor market that require medium to high power
semiconductors, with a particular emphasis on higher power semiconductors.
IXYS sells power semiconductors, including power MOSFETs, insulated gate
bipolar transistors (IGBTs), thyristors (silicon controlled rectifiers or
"SCRs") and rectifiers, including fast recovery epitaxial diodes (FREDs). SRAM
products are for uses in telecommunication devices, workstations and high
performance PCs to OEMs and distributors in the United States, Europe and the
Far East.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation:

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

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 and 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 materially differ from IXYS' estimates.

Foreign Currency Translation:

  The local currency is considered to be the functional currency of the
Company's wholly owned subsidiary IXYS Semiconductor GmbH ("IXYS GmbH").
Accordingly, assets and liabilities are translated at the exchange rate in
effect at year-end and revenues and expenses are translated at average rates
during the year. Adjustments resulting from the translation of the accounts of
IXYS GmbH into U.S. dollars are included in cumulative translation adjustment,
a separate component of stockholders' deficit. Foreign currency transaction
gains and losses are included as a component of other income and expense.

Cash Equivalents:

  IXYS considers all highly liquid investments with original or remaining
maturities of three months or less at the time of purchase to be cash
equivalents.

                                      37
<PAGE>

                               IXYS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Inventories:

  Inventories, consisting primarily of bipolar devices, transistors, diodes
and integrated circuits, are stated at the lower of cost or market. Cost is
determined on a standard cost basis which approximates actual costs determined
on a first-in, first-out (FIFO) method.

Plant and Equipment:

  Plant and equipment, including equipment under capital leases, is stated at
cost less accumulated depreciation and amortization. Depreciation or
amortization is computed using the straight-line method over estimated useful
lives of three to five years for equipment and twenty years for buildings.
Upon disposal, the assets and related accumulated depreciation are removed
from IXYS' accounts and the resulting gains or losses are reflected in the
statements of income. The Company's policy is to regularly review the carrying
value of specialized assets to evaluate the remaining life and recoverability
of such equipment in light of current market conditions.

Product Warranty:

  Expected future product warranty expense is recorded when the product is
sold.

Revenue Recognition:

  Revenue from power semiconductor product sales is recognized upon shipment
and is reflected net of an allowance for estimated returns and discounts. In
general, the Company's sales to distributors are made under agreements
allowing certain rights of return and price protection on products unsold by
the distributors.

Advertising:

  IXYS expenses advertising as the costs are incurred. Advertising expense for
the years ended March 31, 1997, 1998 and 1999 was $268,000, $408,000, and
$413,000 respectively.

Research and Development:

  Research and development costs are charged to operations as incurred.

Income Taxes:

  The Company's provision for income taxes is comprised of its current tax
liability and the change in deferred tax assets and liabilities. Deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.

Other Assets--Goodwill and Other Intangible Assets:

  Goodwill and other intangible assets arose from the Paradigm merger in the
amount of approximately $9,908,000. The company assesses the recoverability of
intangible assets by determining whether the amortization of the asset's net
book value over its remaining life can be recovered through projected
undiscounted future cash flows. Accordingly, the company wrote off
approximately $1,463,000 of intangible assets and $7,752,000 of goodwill in
the fourth quarter of fiscal year 1999 to reflect an impairment in the value
of intangible assets and goodwill associated with the acquisition. The
anticipated cash flows related to the related products indicated that the
recoverability of those assets was not reasonably assured.

                                      38
<PAGE>

                               IXYS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Net Income Per Share:

  Basic EPS is computed by dividing net income by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the
potential dilution from the exercise or conversion of other securities into
common stock.

Recent Accounting Pronouncements:

  In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 establishes standards
for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to stockholders. SFAS 131 generally supersedes
Statement of Financial Accounting Standards No.14, "Financial Reporting for
Segments of Business Enterprise." Under SFAS 131, operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis it is used
internally. SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997, and restatement of comparative information
for earlier years is required. However, SFAS 131 is not required to be applied
to interim financial statements in the initial year of application. Based upon
the criteria of SFAS 131, the Company has a single operating segment.
Accordingly, the financial statements provided herein satisfy the standard for
reporting. Geographic information about revenues, operating income and
identifiable assets are provided in the notes to the financial statements.

  In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, or SFAS 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 133 establishes new standards of accounting and reporting for
derivative instruments and hedging activities. SFAS 133 requires that all
derivatives be recognized at fair value in the balance sheet, and that the
corresponding gains or losses be reported either in the statement of
operations or as a component of comprehensive income, depending on the type of
hedging relationship that exists. SFAS 133 will be effective for fiscal years
beginning after June 15, 1999. The Company does not currently hold derivative
instruments or engage in hedging activities.

  In March 1998, the Accounting Standards Executive Committee, or AcSEC,
released Statement of Position 98-1, or SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1 requires
companies to capitalize certain costs of computer software developed or
obtained for internal use, provided that those costs are not research and
development. SOP 98-1 is effective for fiscal years beginning after December
15, 1998. The Company is evaluating the requirements of SOP 98-1 and the
effects, if any, on the Company's current policies on accounting for software
costs.

Comprehensive Income:

  The Company adopted Statement of Financial Accounting Standards No. 130, or
SFAS 130, Accounting for Comprehensive Income, during the fiscal year ended
1998. This statement establishes standards for reporting and display of
comprehensive income and its components (including revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. The
Company's change in the cumulative translation adjustment represent the only
component of comprehensive income which is excluded from net income for 1999
and prior years. The Company's comprehensive income has been presented in the
consolidated financial statements.

Business Risks:

  Dependence on Third Parties for Wafer Fabrication and Assembly: IXYS
manufactures approximately 53% of its wafers, an integral component of its
products, in its wholly owned facility in Germany. IXYS

                                      39
<PAGE>

purchases the remaining 47% of its wafers from other suppliers. There can be
no assurance that material disruptions in supply will not occur in the future.
In such event, IXYS may have to identify and secure additional foundry
capacity and may be unable to identify or secure additional foundry capacity
from another manufacturer, particularly at the levels that IXYS currently
anticipates such foundries to provide. Even if such capacity is available from
another manufacturer, the qualification process could take six months or
longer. If IXYS were unable to qualify alternative manufacturing sources for
existing or new products in a timely manner or if such sources were unable to
produce semiconductor devices with acceptable manufacturing yields and at
acceptable prices, IXYS' business, financial condition and results of
operations would be materially and adversely affected.

  Dependence on Suppliers: IXYS purchases silicon wafers from three vendors
with whom IXYS does not have long term supply agreements. Any of these
suppliers could eliminate or terminate IXYS' supply of wafers at any time.
IXYS' reliance on a limited number of suppliers involves several risks,
including potential inability to obtain an adequate supply of silicon wafers
and reduced control over the price, timely delivery, reliability and quality
of the silicon wafers. There can be no assurance that problems will not occur
in the future with suppliers.

  Included in IXYS' consolidated balance sheet at March 31, 1999 are the net
assets, at book value, of IXYS' manufacturing operation in Germany, which
total approximately $5.67 million.

                                      40
<PAGE>

                               IXYS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Concentration of Credit Risk:

  IXYS invests its excess cash primarily in short-term time deposit accounts
with a major German bank and money market accounts with a U.S. bank. These
securities typically mature within ninety days and bear minimal credit risk.
IXYS has not experienced any losses on such investments.

  IXYS sells its products primarily to distributors and original equipment
manufacturers in the United States and in Europe. IXYS performs ongoing credit
evaluations of its customers and generally does not require collateral. An
allowance for potential credit losses is maintained by IXYS and such losses
have not been material.

Fair Value of Financial Instruments:

  Carrying amounts of certain of IXYS' financial instruments including cash
and cash equivalents, accounts receivable, other assets, accounts payable and
other accrued liabilities approximate fair value due to their short
maturities. Based on borrowing rates currently available to IXYS for loans
with similar terms, the carrying value of notes payable to bank and notes
receivable from shareholders approximate fair value.

  The amounts reported for cash equivalents, receivables and other financial
instruments are considered to approximate fair values based upon comparable
market information available at the respective balance sheet dates. Financial
instruments that potentially subject the Company to concentrations of credit
risks comprise principally cash, investments and trade accounts receivable.
The Company invests its excess cash in accordance with its investment policy
that has been approved by the Board of Directors and is reviewed periodically
to minimize credit risk. The policy authorizes the investment of excess cash
in government securities, tax exempt municipal securities, Eurodollar notes
and bonds, time deposits, certificates of deposit, commercial paper rated Aa
or better and other specific money market and corporate instruments of similar
liquidity and credit quality.

Stock--Based Compensation Plans

  The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees." Under APB No. 25, compensation
cost is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of grant over the exercise price of the option
granted. Compensation cost for stock options, if any, is recognized ratably
over the vesting period. The Company's policy is to grant options with an
exercise price equal to the quoted market price of the Company's stock on the
grant date. Accordingly, no compensation has been recognized for its stock
option plans. The Company provides additional pro forma disclosures as
required under SFAS No. 123, "Accounting for Stock-Based Compensation."

3. ACQUISITION AND MERGER:

  The purchase price for Paradigm, consisting of the value of Paradigm common
stock outstanding at the date of the merger, costs incurred by IXYS and the
Paradigm liabilities assumed, has been allocated to Paradigm's tangible and
intangible assets based on relative fair values as follows:

<TABLE>
   <S>                                                                  <C>
   Current assets...................................................... $   484
   Fixed assets........................................................     810
   In-process research and development.................................   1,186
   Other intangibles...................................................   1,463
   Goodwill............................................................   8,445
                                                                        -------
                                                                        $12,388
                                                                        =======
</TABLE>

                                      41
<PAGE>

                               IXYS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The amounts allocated to intangible assets, including in-process research
and development, were based on results of an independent appraisal. Acquired
in-process research and development represented development projects in areas
that had not reached technological feasibility and had no alternative future
use and were valued using the "stage of completion" methodology prescribed by
the Securities and Exchange Commission, and were charged to operations at the
date of the acquisition.

  Intangible amortization of $1,463,000 and the writeoff of goodwill in the
amount of $7,752,000 was recorded as expense in fiscal 1999. The value of the
in-process research development acquired in the transaction, in the amount of
$1,186,000, was recorded as an expense immediately following the transaction
as the products under development had not reached technological feasibility
and there was no other alternative future use for the costs incurred. The
aforementioned items are included within the operating statement caption
"Sales, general and administrative."

  In conjunction with the merger, all outstanding shares of mandatorily
redeemable convertible preferred stock were converted to common stock and the
carrying value of $37,556,000 has been reclassified as stockholders' equity.

  The following unaudited proforma consolidated statement of operations
assumes Paradigm had been purchased at the beginning of fiscal 1998.

<TABLE>
<CAPTION>
                                                             Years Ended March
                                                                    31,
                                                             ------------------
                                                               1999      1998
                                                             --------  --------
                                                                Dollars in
                                                                 thousands
   <S>                                                       <C>       <C>
   Net sales................................................ $ 67,983  $ 67,697
   Net loss.................................................  (13,006)   (2,061)
                                                             ========  ========
   Net loss per share:
     Basic.................................................. $  (1.39) $  (0.03)
                                                             ========  ========
     Diluted................................................ $  (1.39) $  (0.03)
                                                             ========  ========
   Shares used in per share calculations:
     Basic..................................................    9,373    65,501
     Diluted................................................    9,373    65,501
</TABLE>

4. INVENTORIES:

  Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                 March 31,
                                                              ----------------
                                                               1998     1999
                                                              -------  -------
   <S>                                                        <C>      <C>
   Raw materials............................................. $ 3,789  $ 3,368
   Work in process...........................................  12,059   13,654
   Finished goods............................................   5,765    9,172

                                                              -------  -------
                                                               21,613   26,194
   Less inventory reserve....................................  (4,510)  (6,027)
                                                              -------  -------
                                                              $17,103  $20,167
                                                              =======  =======
</TABLE>

                                      42
<PAGE>

                               IXYS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


5. PLANT AND EQUIPMENT:

  Plant and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                               March 31,
                                                            -----------------
                                                             1998      1999
                                                            -------  --------
   <S>                                                      <C>      <C>
   Buildings
     Equipment--owned...................................... $13,825  $ 20,055
     Equipment--capital leases.............................   4,635     7,400
     Leasehold improvements................................      38        38
                                                            -------  --------
                                                             23,624    27,493
   Accumulated depreciation and amortization--owned plant
    and equipment..........................................  (9,449)  (11,662)
   Accumulated amortization--capital leases................  (3,573)   (4,508)
                                                            -------  --------
                                                            $10,602  $ 11,323
                                                            =======  ========
</TABLE>

6. ACCRUED EXPENSES AND OTHER LIABILITIES:

  Accrued expenses and other liabilities consist of the following (in
thousands):

<TABLE>
<CAPTION>
                                                                    March 31,
                                                                  -------------
                                                                   1998   1999
                                                                  ------ ------
   <S>                                                            <C>    <C>
   Accrued patent and licenses................................... $  800 $   16
   Personnel accruals............................................  1,837  1,610
   Warranty and loss accrual.....................................    715    957
   Income taxes..................................................  1,602    737
   Other.........................................................  2,165  3,634
                                                                  ------ ------
                                                                  $7,119 $6,954
                                                                  ====== ======
</TABLE>

7. BORROWING AND CAPITAL LEASE ARRANGEMENTS:

  Borrowings and capital lease arrangements consist of the following (in
thousands):

<TABLE>
<CAPTION>
                                                                  March 31,
                                                               ----------------
                                                                1998     1999
                                                               -------  -------
   <S>                                                         <C>      <C>
   Notes payable to banks..................................... $10,792  $10,580
   Capitalized lease obligations..............................   1,242    3,297
                                                               -------  -------
                                                                12,034   13,877
     Less current portion.....................................  (2,496)  (5,471)
                                                               -------  -------
                                                               $ 9,538  $ 8,406
                                                               =======  =======
</TABLE>

  IXYS entered into a loan and security agreement with a U.S. bank to borrow
up to an aggregate amount not to exceed $5 million. The loan bears interest at
the bank's prime rate (7.75% at March 31, 1999), payable monthly, and matures
in August 1999. The loan is collateralized by certain assets and contains
certain general and financial covenants, including a requirement that IXYS
remain solvent and able to pay its debts as they become due. At March 31,
1999, IXYS has drawn $2.1 million against the loan.

                                      43
<PAGE>

                               IXYS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The Company entered into a loan agreement with a German bank to finance the
acquisition of the Lampertheim facility (the "Facility") from Asea Brown
Boveri Aktiengesellschaft (ABB), a stockholder. The loan was for the total
amount of DM 13,250,000 ($7,175,000), payable in monthly installments of DM
125,226 ($67,800 at March 31, 1999) and is due no later than October 31, 2009.
The loan, which is collateralized by the Facility, bears interest at the
annual rate of 5.40% through August 2001, at which time the interest rate will
be adjusted to market rates in accordance with the terms of the loan
agreement. The acquisition of the Facility closed in January 1998, at which
time the proceeds were drawn against the loan. At March 31, 1999, the amount
outstanding under the loan agreement was DM 12,234,000 ($6,681,000).

  IXYS leases certain equipment under capital lease arrangements expiring
through fiscal 2001 at interest rates of 4.9% to 6.3%.

  Future minimum payments under capital lease obligations and notes payable
are (in thousands):

<TABLE>
<CAPTION>
                                                                Capital  Notes
                                                                Leases  Payable
                                                                ------- -------
   <S>                                                          <C>     <C>
   Fiscal year ending March 31,
     2000...................................................... $1,102  $ 4,369
     2001......................................................    890      499
     2002......................................................    720      525
     2003......................................................    585      554
     2004......................................................             585
     Thereafter................................................           4,048
                                                                ------  -------
                                                                $3,297  $10,580
                                                                ======  =======
</TABLE>

8. COMMITMENTS AND CONTINGENCIES:

Commitments:

  IXYS rents certain of its facilities under operating leases which expire in
January 2002 and March 2004. IXYS is responsible for insurance and property
taxes. Future minimum lease payments are as follows (in thousands):

<TABLE>
   <S>                                                                   <C>
   Fiscal year ending March 31,
     2000............................................................... $  413
     2001...............................................................    329
     2002...............................................................    338
     2003 and thereafter................................................    685
                                                                         ------
                                                                         $1,765
                                                                         ======
</TABLE>

  Rent expense, for fiscal years ended March 31, 1997, 1998 and 1999 amounted
to $410,000, $571,000, and $358,000 respectively.

  As of March 31, 1998 and 1999, IXYS had cash deposits with a financial
institution of $950,000, and $1,393,00 respectively, which were restricted as
to use and represent compensating balances for current or future Discounted
Acceptances and letters of credit.

                                      44
<PAGE>

                               IXYS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Litigation

  In February 1997, in U.S. District Court, a judgment was entered against
IXYS for $3.65 million related to the sale of products that infringed certain
patents. IXYS paid $3.13 million of the $3.65 million judgment in 1997 and
filed an appeal in U.S. Federal Court. Through the appeal process, IXYS
accrued the unpaid portion of the judgment and was accruing royalty expense in
accordance with the Court's judgment. At March 31, 1997, IXYS was holding
approximately $575,000 in an escrow account for payment of the balance of the
judgment.

  In December 1997, IXYS entered into a settlement agreement with the
plaintiff, whereby there would be no liability to IXYS. The agreement is
subject to ratification by the U.S. District Court, and during 1998, the
plaintiff returned the $3.13 million payment plus interest which is included
in other income on the consolidated statements of income.

  On August 12, 1996, the Company and Michael Gulett, Robert McClelland,
Richard A. Veldhouse, Dennis McDonald and Chiang Lam (the "Paradigm
Defendants") were named, along with PaineWebber, Inc., as defendants in a
purported class action (entitled Bulwa et al. v. Paradigm Technology, Inc. et
al., Santa Clara County Superior Court Case No. CV759991) brought on behalf of
stockholders who purchased the Company's stock between November 20, 1995 and
March 22, 1996 (the "Class Period").

  The complaint asserted six causes of action against the Paradigm Defendants:
negligent misrepresentation, fraud, breach of fiduciary duty, violations of
California Corporations Code sections 25400 and 25500 ("Sections 25400 and
25500"), violation of Corporations Code section 1507, and violation of
California Civil Code sections 1709 and 1710.

  The Paradigm Defendants responded to the complaint by filing a demurrer
which challenged the legal sufficiency of all six causes of action. On
December 12, 1996, the Court sustained the demurrer as to all of the causes of
action except for the fourth cause of action for violation of Sections 25400
and 25500 (and as to all causes of action for defendant Michael Gulett). The
Court, however, granted plaintiffs leave to amend the complaint to attempt to
cure the defects which caused the Court to sustain the demurrer. Plaintiffs
failed to amend within the allotted time and independently expressed an intent
to prosecute only the fourth cause of action. On January 8, 1997, the Paradigm
Defendants, with the exception of Michael Gulett (who by virtue of the ruling
on the demurrer has obtained a dismissal with prejudice as to all causes of
action asserted against him), filed an answer to the complaint denying any
liability for the acts and damages alleged by the plaintiffs.

  Plaintiffs have since served the Paradigm Defendants with discovery requests
for production of documents and interrogatories, to which the Paradigm
Defendants have responded. Plaintiffs have also subpoenaed documents from
various third parties. The Paradigm Defendants have served the plaintiffs with
an initial set of discovery requests, to which plaintiffs have responded. The
Paradigm Defendants also took the depositions of the named plaintiffs on April
9, 1997.

  On January 15, 1997, plaintiffs filed a motion to certify the matter as a
class action. After several hearings and continuances, on February 9, 1998 the
Court certified a class consisting only of California purchasers of the
Company's stock during the Class Period. Following the California Supreme
Court decision in Diamond Multimedia Systems, Inc. v. Superior Court, 19 Cal.
4th 1036 (1999), plaintiffs moved to modify the prior class certification
ruling to include also non-California purchaser. The Court granted this motion
on April 28, 1999.

  On April 9, 1998, the court granted plaintiffs' motion to amend their
complaint to incorporate factual allegations derived from the Campbell, et al.
action described below. The court overruled the Paradigm Defendants' demurrer
to the amended complaint on August 6, 1998. The Paradigm Defendants filed an
answer to the amended complaint on August 27, 1998. There can be no assurance
that the Company will be successful

                                      45
<PAGE>

                               IXYS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

in the defense of this action. If unsuccessful in the defense of any such
claim, the Company's business, operating results and cash flows could be
materially adversely affected.

  On December 4, 1998, defendant Dennis McDonald, Paradigm's former Vice
President of Human Resources, filed a motion for summary judgment on the
amended complaint. Following his deposition, and prior to the hearing on the
motion, plaintiffs agreed to dismiss the defendant McDonald from the action
with prejudice in exchange for a waiver of costs. Defendant McDonald has since
obtained a judgment of dismissal.

  On February 21, 1997, an additional purported class action, with causes of
action and factual allegations essentially identical to those of the Bulwa, et
al. action, was filed by the law firm of Stull, Stull & Brody in the Santa
Clara County Superior Court on behalf of stockholders who held the Company's
stock between November 20, 1995 and March 22, 1996. The action was entitled
Chai, et al. v. Paradigm Technology Inc. et al. (Case No. CV764259), and was
asserted against the same Paradigm Defendants as in the Bulwa, et al. action,
PaineWebber, Inc. and Smith Barney. Prior to the hearing on the Paradigm
Defendants' demurrer to the initial complaint, plaintiff amended his complaint
to incorporate factual allegations derived from the Campbell, et al. action
described below. The Paradigm Defendants filed a demurrer to the amended
complaint, which was heard on September 9, 1997.

  On September 10, 1997, the Court issued an order sustaining the Paradigm
Defendants' demurrer as to all causes of action without leave to amend. A
judgment in favor of the Paradigm Defendants dismissing the entire complaint
was entered by the Court on September 23, 1997. Plaintiff appealed the
decision, but on November 13, 1998 the Court of Appeal affirmed the judgment.
Plaintiff's petition for rehearing was denied. The time for filing a petition
for review by the Supreme Court has expired.

  On May 19, 1997, Thomas Campbell, James Zulliger and Mark Wagenhals, former
employees of the Company, filed an action (Campbell, et al. v. Paradigm
Technology, Inc., et al., Case No. CV766271) in Santa Clara County Superior
Court. The complaint named as defendants the Company, Michael Gulett, Richard
Veldhouse, Dennis McDonald and Chiang Lam. The Campbell plaintiffs filed with
the complaint a notice that they considered their case related legally and
factually to the Bulwa action discussed above. The Campbell complaint
contained causes of action for fraud, breach of fiduciary duty, violations of
California Corporations Code sections 25400-25402, 25500-25502 and 25504 and
violation of California Civil Code sections 1709-1710. The Campbell complaint
alleged that the defendants misled them and committed fraud by allegedly
overstating the Company's back orders in the fourth quarter of 1995 and
inflated reported sales in the fourth quarter of 1995 and the first quarter of
1996, which allegedly resulted in distorting the Company's financial
condition, which allegedly inflated its stock price. Plaintiffs alleged that
they purchased the Company's stock at the allegedly inflated prices and were
damaged thereby. The complaint sought an unspecified amount of compensatory,
rescissory and/or punitive damages. Defendants responded to the complaint on
September 12, 1997 by filing a demurrer as to all causes of action. Prior to
the hearing on the demurrer, plaintiffs amended their complaint to identify
two allegedly fraudulent sale transactions. Defendants filed a demurrer as to
all causes of action in the amended complaint, which was heard on April 2,
1998. That same day, the Court issued its order sustaining the demurrer on
multiple grounds, but granted plaintiffs leave to amend the complaint by May
15, 1998. Defendants filed a demurrer in response to the second amended
complaint, which was heard on September 3, 1998. That same day, the Court
sustained the demurrer but granted plaintiffs leave to file a third amended
complaint by September 30, 1998. Plaintiffs then filed a third amended
complaint. Following defendants' filing of a demurrer to the third amended
complaint, plaintiffs agreed to dismiss their claims with prejudice in
exchange for defendants' agreement not to seek to recover defendants' costs
incurred in defending against the action. The third amended complaint was
dismissed with prejudice on December 11, 1998 and the defendants agreed not to
pursue any action against the plaintiffs for having filed the action.

                                      46
<PAGE>

                               IXYS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  On May 19, 1998, the law firm that filed the Bulwa, et al. action described
above filed an additional securities class action lawsuit against the Company,
Michael Gulett, Robert McClelland, Richard A. Veldhouse and Chiang Lam, this
time in the United States District Court for the Northern District of
California. The complaint alleged violations of section 10(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Commission Rule 10b-5 and section 20(a) of the Exchange Act. Plaintiff alleged
the same class and the same substantive factual allegations that are contained
in the Bulwa, et al. action as amended. Defendants responded to the complaint
on July 27, 1998 by filing a motion to dismiss the complaint for failure to
state claims upon which relief can be granted and for various pleading
inadequacies. In lieu of opposing the motion, plaintiff filed a first amended
complaint. Defendants renewed their motion to dismiss, and on January 20, 1999
the Court issued an order granting the motion and dismissing plaintiff's
action and entered judgment thereon. On February 3, 1999, the Court entered an
amended judgment clarifying that the judgment is with prejudice. On March 12,
1999, plaintiffs filed a notice of appeal.

  IXYS is involved in various other litigation and potential claims. Due to
the inherent uncertainty of litigation, management is not able to reasonably
estimate losses that may be incurred in relation to this litigation. Although
no assurance can be given as to the results of these cases, based on the
present status, management does not believe that results of the aforementioned
actions will have a material adverse effect on the Company's financial
condition or results of operations.

9. COMMON STOCK AND PREFERRED STOCK:

  Preferred Stock under the terms of the Company's Articles of Incorporation,
the Board of Directors may determine the rights, preferences, and terms of the
Company's authorized but unissued shares of preferred stock.

Warrants:

  IXYS has outstanding warrants as follows:

<TABLE>
<CAPTION>
                                                      Number
                                                     of Shares
                                                     Under The
   Expiration Date                                   Warrants   Exercise Price
   ---------------                                   --------- ----------------
   <S>                 <C>                           <C>       <C>
   None............... Convertible into common stock    8,031  $14.70 per share
   April 2001......... Convertible into common stock  181,847  $ 0.86 per share
</TABLE>

Stock Purchase and Incentive Stock Option Plans:

  IXYS has a 1994 Stock Option Plan (the Plan) under which incentive stock
options may be granted not less than 85% of fair market value at the time of
grant. The options once granted expire ten years from the date of grant. The
Board of Directors has the full power to determine the provisions of each
option issued under both plans.

                                      47
<PAGE>

                               IXYS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Stock option activity under the Plan is summarized below (in thousands,
except share data):

<TABLE>
<CAPTION>
                             Shares          Options Outstanding        Weighted-
                            Available  -------------------------------   Average
                               for      Number                          Exercise
                              Grant    of Shares Exercise Price  Total    Price
                            ---------  --------- --------------- -----  ---------
   <S>                      <C>        <C>       <C>             <C>    <C>
   Balances, March 31,
    1996...................  206,361    115,849  $  0.017--$4.32 $ 13    $ 0.12
   Options granted......... (206,496)   206,496  $   6.91--$7.61   87    $ 0.42
   Options exercised.......      --      (2,314) $          1.73  --     $ 0.10
   Options canceled........      289       (289) $  0.017--$2.59  --     $ 0.06
                            --------    -------  --------------- ----    ------
   Balances, March 31,
    1997...................      154    319,742  $  0.017--$7.61  100    $ 0.31
   Options exercised.......              (2,024) $   0.86--$2.59  --     $ 0.13
   Options canceled........   42,803    (42,803) $          6.92  (17)   $ 0.40
                            --------    -------  --------------- ----    ------
   Balances, March 31,
    1998...................   42,957    274,915  $  0.017--$7.61   83    $ 0.30
   New authorized..........  115,260             $                  1    $ 0.15
   Options granted.........  (99,900)   106,566  $3.7125--3.3750  348    $3.481
   Options exercised.......      --     (25,129) $  0.017--$0.86   (2)   $0.075
   Options canceled........    3,905     (3,905) $  0.017--$4.32   (1)   $0.157
   Options expired.........  (46,841)       --   $                --        --
                            --------    -------  --------------- ----    ------
   Balances, March 31,
    1999...................   15,381    352,447  $ 0.017-$3.7125 $429    $ 1.22
</TABLE>

  Expired options in 1999 represents options under the pre-merger IXYS plan
established in 1989 which ceased in fiscal year 1999.

  In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123 (SFAS 123), "Accounting for Stock-
Based Compensation," which was effective for IXYS' fiscal year 1997. SFAS 123
allows companies to either account for stock-based compensation under the new
provisions of SFAS 123 or under the provisions of Accounting Principles Board
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees," but
requires pro forma disclosure in the footnotes to the financial statements as
if the measurement provisions of SFAS 123 had been adopted.

  IXYS has continued to account for its stock based compensation under the
Plan in accordance with APB 25. Accordingly, no compensation expense has been
recognized for stock options granted under the Plan. Had compensation cost for
the Plan been determined based on the fair value at the grant date for awards
in fiscal years 1996, 1997 and 1998 consistent with the provisions of SFAS No.
123, IXYS' net income and net income per share for fiscal years 1996, 1997 and
1998 would have decreased to the pro forma amounts indicated below (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                         Year Ended March 31,
                                                         ---------------------
                                                          1997   1998   1999
                                                         ------ ------ -------
   <S>                                                   <C>    <C>    <C>
   Net income (loss)--as reported....................... $4,407 $6,084 $(5,238)
                                                         ====== ====== =======
   Net income (loss)--pro forma......................... $4,388 $5,996 $(5,285)
                                                         ====== ====== =======
   Net income (loss) per share--basic--as reported...... $ 0.08 $ 0.09 $ (0.56)
                                                         ====== ====== =======
   Net income (loss) per share--basic--pro forma........ $ 0.08 $ 0.09 $ (0.56)
                                                         ====== ====== =======
   Net income (loss) per share--diluted--as reported.... $ 0.02 $ 0.03 $ (0.56)
                                                         ====== ====== =======
   Net income (loss) per share--diluted--pro forma...... $ 0.02 $ 0.03 $ (0.56)
                                                         ====== ====== =======
</TABLE>

                                      48
<PAGE>

                               IXYS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  In future years, annual compensation expense will vary relative to the
vesting of options granted in those future years.

  In accordance with the provisions of SFAS 123, the fair value of each option
is estimated using the Black- Scholes model using the following assumptions
used for grants for the year ended March 31, 1999; dividend yield of 0%,
volatility of 83%, risk-free interest rates of between 4.33% to 5.67% at the
date of grant and an expected term of four years. The weighted-average fair
value of options granted during 1998 and 1999 was $1.625 and $3.481 per share,
respectively.

  IXYS has sold 3,908,095 shares of common stock to certain members of IXYS'
management under a restricted stock purchase agreement subject to IXYS' right
of repurchase, which lapses ratably over five years. The shares were purchased
through recourse promissory notes at a purchase price of $0.22 per share.
Interest is due on the notes at a rate of 5% per annum, with the balance
outstanding due in full November 2000. At March 31, 1998 and 1999, 187,077
shares and 72,550 shares of common stock are subject to IXYS' right of
repurchase, respectively.

 Reverse Stock Split

  On May 1, 1998, the Company's stockholders approved a 10-for-1 reverse stock
split of the Company's common stock, such that every 10 shares shall be
combined into one share of common stock. Common share and per share data for
1999 have been restated to reflect this stock split.

  A Stock Split was effected in September 1998 by the Company's Board of
Directors which approved a 1-for-15 reverse split of the Company's common
stock that was applicable to shareholders of record on June 16, 1998 and
effective on September 23, 1998. References to share and per-share data for
1999 have been adjusted to give effect to this stock split.

10. EMPLOYEE SAVINGS AND RETIREMENT PLAN:

  IXYS has a 401K plan, known as the "IXYS Corporation and Subsidiary Employee
Savings and Retirement Plan." Eligibility to participate in the plan is
subject to certain minimum service requirements. Employees may voluntarily
contribute up to 20% of yearly compensation and IXYS may make matching
contributions as determined by the Board of Directors in a resolution on or
before the end of the fiscal year. Employees are 100% vested immediately. For
the years ended March 31, 1997, 1998 and 1999, IXYS contributed $76,000,
$96,000 and $113,000, respectively.

11. PENSION PLANS:

  Employees of IXYS GmbH participate in a number of employee retirement plans,
including a defined benefit pension plan, the benefits for which will be paid
out of the general assets of IXYS GmbH, as well as other government sponsored
retirement plans to which IXYS GmbH and eligible employees are required to
contribute.

  In addition to providing income at retirement, many of these plans also
provide survivor, termination and disability benefits. The defined benefits
pension plan covers substantially all employees and benefits are based on
years of service and the employees' compensation.

                                      49
<PAGE>

                               IXYS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Pension expense for the defined benefit pension plan was as follows at March
31, (in thousands):

<TABLE>
<CAPTION>
                                                                 1997 1998 1999
                                                                 ---- ---- ----
   <S>                                                           <C>  <C>  <C>
   Service cost of the current period........................... $111 $ 94 $111
   Interest cost on the projected benefit obligation............  408  337  312
                                                                 ---- ---- ----
   Pension expense.............................................. $519 $431 $423
                                                                 ==== ==== ====
</TABLE>

  In Germany there are no legal requirements to fund the pension obligation by
transferring cash to an outside funding agency. Consequently, the defined
benefit pension plan is unfunded.

  The following table sets forth the actuarial present value of benefit
obligations and funded status for the defined benefit pension plan (in
thousands):

<TABLE>
<CAPTION>
                                                                    March 31,
                                                                  -------------
                                                                   1998   1999
                                                                  ------ ------
   <S>                                                            <C>    <C>
   Actuarial present value of benefit obligation:
     Vested benefit obligation................................... $5,007 $5,248
     Nonvested benefit obligation................................     71    104
                                                                  ------ ------
                                                                   5,078  5,352
   Additional benefits related to future compensation levels.....     35     36
                                                                  ------ ------
   Projected benefit obligation.................................. $5,113 $5,388
                                                                  ====== ======
</TABLE>

  The actuarial computations calculated at March 31, 1998 and 1999 assume a
discount rate used to measure the projected benefit obligation of 3%, and the
rate of increase in future compensation levels of 3%.

12. INCOME TAXES:

  Income (loss) before income tax provision consists of the following (in
thousands):

<TABLE>
<CAPTION>
                                                          Year Ended March 31,
                                                         ----------------------
                                                          1997   1998    1999
                                                         ------ ------- -------
   <S>                                                   <C>    <C>     <C>
   Domestic............................................. $3,866 $ 8,250 $(3,260)
   International........................................  4,487   2,063     105
                                                         ------ ------- -------
                                                         $8,353 $10,313 $(3,155)
                                                         ====== ======= =======
</TABLE>

  IXYS' provision for income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                      Year Ended March 31,
                                                     -------------------------
                                                      1997     1998     1999
                                                     -------  -------  -------
   <S>                                               <C>      <C>      <C>
   Current:
     Federal........................................ $   (63) $  (175) $  (234)
     State..........................................    (188)    (398)     (40)
     Foreign........................................    (329)    (904)     (44)
                                                     -------  -------  -------
                                                        (580)  (1,477)     150
                                                     -------  -------  -------
   Deferred:
     Federal........................................  (1,289)  (2,590)  (2,042)
     State..........................................     109     (147)    (191)
     Foreign........................................  (2,186)     (15)
                                                     -------  -------  -------
                                                      (3,366)  (2,752)  (2,233)
                                                     -------  -------  -------
       Total income tax provision................... $(3,946) $(4,229) $(2,083)
                                                     =======  =======  =======
</TABLE>

                                      50
<PAGE>

                               IXYS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  IXYS' effective tax rate differs from the statutory federal income tax rate
for the years ended March 31, as shown in the following table:

<TABLE>
<CAPTION>
                                                                1997  1998  1999
                                                                ----  ----  ----
   <S>                                                          <C>   <C>   <C>
   Statutory federal income tax rate...........................  34%   34%  (34)%
   State taxes, net of federal tax benefit.....................   3     4     4
   Foreign taxes at higher rates...............................   9     2     1
   Acquired technology.........................................              94
   Other items.................................................   1     1     1
                                                                ---   ---   ---
     Effective tax rate .......................................  47%   41%   66%
                                                                ===   ===   ===
</TABLE>

  The effective tax rate of 66% in fiscal year 1999 includes the one-time non-
tax deductible write-off of $10.4 million in connection with the reverse
acquisition of Paradigm. Without the write-off, tax rate would approximate
29%.

  The components of net deferred income tax assets are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                    March 31,
                                                                  -------------
                                                                   1998   1999
                                                                  ------ ------
   <S>                                                            <C>    <C>
   Deferred tax assets:
     Other liabilities and accruals.............................. $1,562 $1,117
     Depreciable assets..........................................     72    538
     Net operating loss carryforwards............................  2,519  4,283
     Research and development tax credit carryforward............    504    504
     Alternative minimum tax carryforward........................    232    342
   Less valuation on allowance...................................        (4,128)
                                                                  ------ ------
   Net deferred tax asset........................................ $4,889 $2,656
                                                                  ====== ======
</TABLE>

  At March 31, 1999, the Company had approximately $12 million and $8 million
of federal and state net operating loss carryforwards, respectively. The
Company also has federal research and development tax credit carryforwards of
approximately $500,000 and federal alternative minimum tax credit
carryforwards of approximately $342,000. The net operating loss and research
and development tax credit carryforwards expire in varying amounts from 2008
to 2018. The alternative minimum tax credit carryforwards can be carried
forward indefinitely.

  The Tax Reform Act of 1986 limits the utilization of net operating loss and
tax credit carryforwards in certain situations where changes occur in the
stock ownership of a company. Due to the merger of the Company with Paradigm
Technology, Inc. ("Paradigm") in September of 1998, a change in ownership of
Paradigm took place. As a result of the change in ownership, a portion of the
Company's net operating losses and tax credit carryforwards will be subject to
an annual limitation of approximately $400,000.

  Due to the uncertainty of the realization of certain tax carryforwards
related to the Paradigm transaction, the Company has established a valuation
allowance against these carryforward benefits in the amount of $4,128,000.

                                      51
<PAGE>

                               IXYS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


13. FOREIGN OPERATIONS:

  IXYS' foreign operations consist of those of its subsidiary IXYS GmbH in
Germany. The following table summarizes the sales, income and total assets of
IXYS' U.S. and German operations (in thousands):

<TABLE>
<CAPTION>
                                                         Year Ended March 31,
                                                        -----------------------
                                                         1997    1998    1999
                                                        ------- ------- -------
   <S>                                                  <C>     <C>     <C>
   Sales:
     IXYS GmbH......................................... $34,262 $35,722 $36,534
     IXYS U.S..........................................  21,060  21,134  29,989
                                                        ------- ------- -------
                                                        $55,322 $56,856  66,523
                                                        ======= ======= =======
   Net Income (Loss):
     IXYS GmbH......................................... $ 2,157 $ 2,010  (1,438)
     IXYS U.S..........................................   2,250   4,074  (3,800)
                                                        ------- ------- -------
                                                        $ 4,407 $ 6,084  (5,238)
                                                        ======= ======= =======
   Total Assets:
     IXYS Gmbh......................................... $21,724 $27,008  26,503
     IXYS U.S..........................................  17,686  27,332  32,229
                                                        ------- ------- -------
                                                        $39,410 $54,340 $58,732
                                                        ======= ======= =======
</TABLE>

  There were no significant export sales from the U.S. during the years ended
March 31, 1997, 1998 or 1999.

14. COMPUTATION OF NET INCOME (LOSS) PER SHARE:

  Basic and diluted earnings per share are calculated as follows (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                      Year Ended March 31,
                                                    -------------------------
                                                      1997     1998    1999
                                                    -------- -------- -------
   <S>                                              <C>      <C>      <C>
   BASIC:
     Weighted-average shares.......................   53,478   65,501   9,373
                                                    -------- -------- -------
     Net income (loss)............................. $  4,407 $  6,084 $(5,238)
                                                    ======== ======== =======
     Net income (loss) per share................... $   0.08 $   0.09 $ (0.56)
                                                    ======== ======== =======
   DILUTED:
     Weighted-average shares.......................   53,478   65,501   9,373
     Restricted stock subject to repurchase........   19,041    3,234
     Common equivalent shares from stock options
      and warrants.................................   24,351   21,721
     Common equivalent shares from preferred
      stock........................................  111,410  111,410
                                                    -------- -------- -------
     Shares used in per share calculation..........  208,280  201,866   9,373
                                                    ======== ======== =======
     Net income (loss)............................. $  4,407 $  6,084 $(5,238)
                                                    ======== ======== =======
     Net income (loss) per share................... $   0.02 $   0.03 $ (0.56)
                                                    ======== ======== =======
</TABLE>

                                      52
<PAGE>

                               IXYS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


15. SEGMENT AND GEOGRAPHIC INFORMATION

  The Company operates in a single industry segment comprising power
semiconductors used primarily in controlling energy in motor drives, power
conversion (including uninterruptible power supplies (UPS) and switch mode
power supplies (SMPS)) and medical electronics. The Company's sales by major
geographic area (based on destination) were as follows:

<TABLE>
<CAPTION>
                                                          Year Ended March 31,
                                                         -----------------------
                                                          1997    1998    1999
                                                         ------- ------- -------
   <S>                                                   <C>     <C>     <C>
   North America:
     United States...................................... $21,060 $21,134 $23,734
                                                         ------- ------- -------
       Total North America.............................. $21,060 $21,134 $23,734
   Europe...............................................  28,625  29,239  36,054
   Japan................................................     580     953     480
   Asia Pacific.........................................   5,057   5,530   6,255
                                                         ------- ------- -------
       Total............................................ $55,322 $56,856 $66,523
                                                         ======= ======= =======
</TABLE>

  There was no single end customer providing more than 10% of the Company's
sales for years ended March 31, 1997, 1998, and 1999.

ITEM. 9 Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure

  Not Applicable.
                                   PART III

ITEM 10. Directors and Executive Officers of the Registrant

  The information required is hereby incorporated by reference from the
information contained in the Company's definitive Proxy Statement with respect
to the Company's Annual Meeting of Stockholders, filed with the Commission
pursuant to Regulation 14A (the "Proxy Statement") under the headings
"Nominees" and "Executive Officers".

ITEM 11. Executive Compensation

  The information required by this item is hereby incorporated by reference
from information contained in the Proxy Statement under the heading "Executive
Compensation."

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

  The information required by this item is hereby incorporated by reference
contained in the Proxy Statement under the heading of "Security Ownership of
Certain Beneficial Owners and Management."

ITEM 13. Certain Relationships and Related Transactions

  The information required by this item is hereby incorporated by reference
from information contained in the Proxy Statement under the heading "Certain
Transactions" and "Executive Compensation".

                                   PART IV

ITEM 14. Exhibits, Financial Statement Schedules, and Reports On Form 8-K

  (a) The following documents are filed as part of this Report on Form 10-K:

    (1) Financial Statements:

                                      53
<PAGE>

    Report of PricewaterhouseCoopers LLP, Independent Accountants
    Consolidated Balance Sheets
    Consolidated Statement of Operations
    Consolidated Statement of Stockholders' Deficit
    Consolidated Statements of Cash Flows
    Notes to Consolidated Financial Statements

    (2) Financial Statements schedules have been omitted from this report
  because the information is provided in the Financial Statements or is not
  applicable.

    (3) Exhibits

<TABLE>
<CAPTION>
 Exhibit No.                             Description
 -----------                             -----------
 <C>         <S>
     2.1     Agreement and Plan of Merger and Reorganization, dated as of March
             6, 1998 and amended April 10, 1998 and May 29, 1998, among
             Paradigm Technology, Inc., Paradigm Enterprises, Inc. and IXYS
             Corporation. (1)

     3.1     Amended and Restated Certificate of Incorporation of the
             Registrant. (1)

     3.2     Certificate of Amendment to Amended and Restated Certificate of
             Incorporation (regarding increased authorization and reverse stock
             split). (3)

     3.3     Certificate of Amendment to Amended and Restated Certificate of
             Incorporation (regarding name change). (3)

     4.2     Amended and Restated Bylaws of the Registrant. (2)

    10.1     First Amended Executive Employment Agreement, dated as of July 1,
             1998, by and between IXYS and Nathan Zommer. (1)

    10.2     First Amended Executive Employment Agreement, dated as of July 1,
             1998, by and between IXYS and Arnold Agbayani. (1)

    10.3     Wafer Foundry Agreement, dated as of June 21, 1995, as amended on
             March 28, 1996 and March 13, 1998, by and between IXYS and Samsung
             Electronics Co. (1)

    10.4     Lampertheim Contractual Purchase Deed and Conveyance, dated as of
             February 26, 1997. (1)

    10.5     Loan Agreement, dated as of February 27, 1997, by and between IXYS
             and Commerzbank, Aktiengesellschaft, Mannheim Branch. (1)

    10.6     Loan and Security Agreement, dated as of December 24, 1997, by and
             between IXYS and Bank of the West. (1)

    10.7     Registration and Stockholder Rights Agreement, by and between the
             Company, Asea Brown Boveri AG, and Asea Brown Boveri, Inc., dated
             September 23, 1998. (3)

    10.8     Form of Indemnity Agreement between the Company and its directors.
             (2)

    10.9     The Paradigm 1994 Stock Option Plan, as amended. (2)

    10.10    The IXYS 1999 Equity Incentive Plan.

    10.11    The IXYS 1999 Employee Stock Purchase Plan.

    10.12    The IXYS 1999 Non-Employee Directors' Equity Incentive Plan.

    10.13    Amendment of Lease by and between Mission West Properties, L.P.
             and IXYS Corporation, dated as of September 30, 1998.
</TABLE>

                                       54
<PAGE>

<TABLE>
<CAPTION>
 Exhibit No.               Description
 -----------               -----------
 <C>         <S>
    23.3     Consent of PricewaterhouseCoopers LLP.

    24.1     Power of Attorney. (4)

    27.1     Financial Data Schedule.
</TABLE>

  (b) Financial Statement Schedules.

  (c) IXYS has filed no reports on Form 8-K during the last quarter of this
fiscal year.
--------
(1) Filed as an Annex or Exhibit to the Joint Proxy Statement/Prospectus
    forming part of the Registration Statement on Form S-4 of Paradigm
    Technology, Inc., as amended (333-57003) and incorporated herein by
    reference.
(2) Filed as an Exhibit to the Quarterly Report on Form 10-Q (000-26124) for
    the period ended December 31, 1998 and incorporated herein by reference.
(3) Filed as an Exhibit to the Quarterly Report on Form 10-Q (000-26124) for
    the period ended September 30, 1998 and incorporated herein by reference.
(4) Included in the signature page of this Report on Form 10-K.

                                      55
<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.

Dated: July 7, 1999

                                          IXYS CORPORATION

                                                     /s/ Nathan Zommer
                                          By: _________________________________
                                                       Nathan Zommer
                                            President, Chief Executive Officer
                                                       and Chairman

                               POWER OF ATTORNEY

  KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Nathan Zommer and Arnold P. Agbayani, and each
or any one of them, his true and lawful attorney-in-fact and agent, 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 (including
post-effective amendments) to this Report, 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, and each of them, 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 substitutes or substitute, 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.

<TABLE>
<CAPTION>
              Signature                          Title                   Date

<S>                                    <C>                        <C>
          /s/ Nathan Zommer            President, Chief Executive    June 29, 1999
______________________________________  Officer and Chairman
            Nathan Zommer               (Principal Executive
                                        Officer) and Director

        /s/ Arnold P. Agbayani         Vice President, Finance &     June 29, 1999
______________________________________  Administration and Chief
          Arnold P. Agbayani            Financial Officer
                                        (Principal Financial
                                        Officer)

          /s/ James Kochman            Director                      June 29, 1999
______________________________________
            James Kochman

         /s/ Andreas Hartmann          Director                      June 29, 1999
______________________________________
           Andreas Hartmann
</TABLE>


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