<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-Q


[x]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the quarterly period ended June 30, 2001

[ ]  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: 000-31863

                     COMPUTER ACCESS TECHNOLOGY CORPORATION
             (exact name of registrant as specified in its charter)

          Delaware                                        77-0302527
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                        Identification No.)

     2403 Walsh Avenue, Santa Clara
               California                                     95051
(Address of principal executive offices)                    (Zip Code)

                                 (408) 727-6600

              (Registrant's telephone number, including area code)

                         Common Stock, $0.001 par value

                                (Title of Class)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                Yes [X]  No [_]


     As of July 31, 2001, there were 18,788,612 shares of the registrant's
Common Stock outstanding.
<PAGE>

Part I - FINANCIAL INFORMATION

Item 1.  Financial Statements

                     COMPUTER ACCESS TECHNOLOGY CORPORATION

                     CONDENSED CONSOLIDATED BALANCE SHEETS

                            (unaudited in thousands)


<TABLE>
<CAPTION>
                                                                                               December 31, June 30,
                                                                                                   2000       2001
                                                                                                 -------    -------
                                         ASSETS
<S>                                                                                             <C>        <C>
Current assets:
  Cash and cash equivalents...............................................................       $47,411    $47,446
  Short-term investments..................................................................           285         --
  Trade accounts receivable, net..........................................................         2,452      1,714
  Related party receivable................................................................           756        547
  Inventories.............................................................................           799      1,064
  Deferred tax assets.....................................................................           390        228
  Other current assets....................................................................           771      1,442
                                                                                                 -------    -------
    Total current assets..................................................................        52,864     52,441
Property and equipment, net...............................................................           832      1,173
Other assets..............................................................................           196        132
                                                                                                 -------    -------
                                                                                                 $53,892    $53,746
                                                                                                 =======    =======
                        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable........................................................................       $   543    $   865
  Accrued expenses........................................................................         3,179      1,092
                                                                                                 -------    -------
    Total current liabilities.............................................................         3,722      1,957
Deferred rent.............................................................................            13          3
                                                                                                 -------    -------
    Total liabilities.....................................................................         3,735      1,960
                                                                                                 -------    -------
Stockholders' equity:
  Common Stock............................................................................            18         19
  Additional paid-in capital..............................................................        54,029     53,791
  Deferred stock-based compensation.......................................................        (7,853)    (4,530)
  Retained earnings.......................................................................         3,963      2,506
                                                                                                 -------    -------
    Total stockholders' equity............................................................        50,157     51,786
                                                                                                 -------    -------
                                                                                                 $53,892    $53,746
                                                                                                 =======    =======
</TABLE>

                            See accompanying notes.

                                       2
<PAGE>

                    COMPUTER ACCESS TECHNOLOGY CORPORATION

                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
              (unaudited in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                 Three Month Period Ended               Six Month Period Ended
                                                                          June 30,                              June 30,
                                                                ---------------------------            -------------------------
                                                                  2000               2001               2000               2001
                                                                 ------            --------            ------             ------
<S>                                                             <C>               <C>                  <C>              <C>
Revenue.....................................................     $ 4,444           $ 4,147              $ 8,782          $ 9,822
Cost of revenue (inclusive of amortization of
  deferred stock-based compensation of $57 and $170
  in the three month period ended June 30, 2000 and
  2001, respectively,  and of $112 and $346 in the
  six month period ended June 30, 2000 and 2001,
  respectively).............................................       1,163             1,213                2,168            2,478
                                                                 -------           -------              -------          -------
Gross profit................................................       3,281             2,934                6,614            7,344
                                                                 -------           -------              -------          -------
Operating expenses:
   Research and development (exclusive of
     amortization of deferred stock-based
     compensation of $174 and $750 in the
     three month period ended June 30, 2000
     and 2001, respectively, and of $336 and
     $1,476 in the six month period ended June 30,
     2000 and 2001, respectively)...........................         945             1,793                1,882            3,709

   Sales and marketing (exclusive of amortization
     of deferred stock-based compensation of $194
     and $145 in the three month period ended June
     30, 2000 and 2001, respectively, and of $411
     and $360 in the six month period ended June 30,
     2000 and 2001, respectively)...........................         611               774                1,103            1,377

   General and administrative (exclusive of amortization
     of deferred stock-based compensation of $15 and $371 in
     the three month period ended June 30, 2000 and 2001,
     respectively, and of $25 and $782 in the six month
     period ended June 30, 2000 and 2001,respectively)......         263               757                  433            1,564

   Amortization of deferred stock-based compensation........         383             1,266                  772            2,618
                                                                 -------           -------              -------          -------
        Total operating expenses............................       2,202             4,590                4,190            9,268
                                                                 -------           -------              -------          -------
Income (loss) from operations...............................       1,079            (1,656)               2,424           (1,924)
Interest income.............................................          89               532                  156            1,174
                                                                 -------           -------              -------          -------
Income (loss) before provision (benefit) for income taxes...       1,168            (1,124)               2,580             (750)
Provision (benefit) for income taxes........................         614               (37)               1,325              707
                                                                 -------           -------              -------          -------
Net income (loss)...........................................     $   554           $(1,087)             $ 1,255          $(1,457)
                                                                 =======           =======              =======          =======
Net income (loss) per share:
    Basic...................................................     $  0.04           $ (0.06)             $  0.09          $ (0.08)
                                                                 =======           =======              =======          =======
    Diluted.................................................     $  0.04           $ (0.06)             $  0.08          $ (0.08)
                                                                 =======           =======              =======          =======
Weighted average shares outstanding
    Basic...................................................      14,359            18,712               14,359           18,657
                                                                 =======           =======              =======          =======
    Diluted.................................................      15,531            18,712               15,508           18,657
                                                                 =======           =======              =======          =======
</TABLE>

                            See accompanying notes.

                                       3
<PAGE>

                    COMPUTER ACCESS TECHNOLOGY CORPORATION

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (unaudited in thousands)

<TABLE>
<CAPTION>
                                                                               Six Month Period Ended
                                                                                      June 30,
                                                                               -----------------------
                                                                                 2000           2001
                                                                               --------       --------
<S>                                                                            <C>            <C>
Cash flows from operating activities:
 Net income (loss)...........................................................   $ 1,255        $(1,457)
 Adjustments to reconcile net income (loss) to net cash provided by
  operating activities:
   Depreciation and amortization.............................................        57            195
   Provision for doubtful accounts...........................................        21              4
   Amortization of deferred stock-based compensation.........................       884          2,964
   Fair value of stock options in exchange for services......................        --             16
   Changes in assets and liabilities:
     Accounts receivable.....................................................      (826)           943
     Inventories.............................................................      (286)          (265)
     Deferred tax assets.....................................................      (726)           162
     Other assets............................................................      (219)          (607)
     Accounts payable........................................................       168            322
     Accrued expenses........................................................     1,958         (2,087)
     Deferred rent...........................................................        (4)           (10)
                                                                                -------        -------
        Net cash provided by operating activities............................     2,282            180
                                                                                -------        -------
Cash flows from investing activities:
 Acquisition of property and equipment.......................................      (136)          (536)
 (Purchase) sale of short-term investments...................................    (1,161)           285
 Acquisition of other assets.................................................      (125)            --
                                                                                -------        -------
        Net cash used in investing activities................................    (1,422)          (251)
                                                                                -------        -------
Cash flows from financing activities:
 Proceeds from exercise of stock options.....................................       103            106
                                                                                -------        -------
        Net cash provided by financing activities............................       103            106
                                                                                -------        -------
Net increase in cash and cash equivalents....................................       963             35
Cash and cash equivalents at beginning of period.............................     4,195         47,411
                                                                                -------        -------
Cash and cash equivalents at end of period...................................   $ 5,158        $47,446
                                                                                =======        =======
Supplemental information:
Cash paid for income taxes...................................................   $ 1,625        $ 3,133
                                                                                =======        =======
</TABLE>

                            See accompanying notes.

                                       4
<PAGE>

                    COMPUTER ACCESS TECHNOLOGY CORPORATION

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

     Computer Access Technology Corporation is a provider of advanced
verification systems and connectivity products for existing and emerging digital
communications standards. Our products are used by semiconductor, device, system
and software companies at each phase of their products' lifecycles from
development through production and market deployment.

     We have expertise in the USB, USB 2.0, IEEE 1394, Bluetooth, Infiniband and
Ethernet standards and are actively engaged with our customers throughout their
development and production processes. Utilizing our easy to use, color-coded
software, the CATC Trace, our development products generate, capture, filter and
analyze high speed communications traffic, allowing our customers to quickly
discover and correct persistent and intermittent errors and flaws in their
product design. Our production products are used in manufacturing to ensure that
products comply with standards and operate with other devices as well as to
assist system manufacturers in downloading software onto new computers. Our
connectivity products are devices that translate communications traffic between
USB and Ethernet and enable reliable, uninterrupted service for broadband
Internet access. These connectivity products also allow for simple installation
and incorporate an application specific integrated circuit, or ASIC, and our
proprietary embedded software and software drivers.

Interim Financial Information and Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements as
of June 30, 2001, and for the three and six month periods ended June 30, 2001
and 2000, have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial statements and
pursuant to the rules and regulations of the Securities and Exchange Commission
and include the accounts of Computer Access Technology Corporation and its
wholly-owned subsidiary (collectively, "Computer Access Technology Corporation"
or the "Company").  Intercompany accounts and transactions have been eliminated
in consolidation.  Certain information and footnote disclosures normally
included in annual consolidated financial statements prepared in accordance with
generally accepted accounting principles in the United States of America have
been condensed or omitted pursuant to such rules and regulations.  In the
opinion of management, the unaudited condensed consolidated financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the consolidated financial position at June
30, 2001, the consolidated operating results for the three and six month periods
ended June 30, 2001 and 2000 and consolidated cash flows for the six month
periods ended June 30, 2001 and 2000.  These unaudited condensed consolidated
financial statements should be read in conjunction with the Company's audited
consolidated financial statements and notes for the year ended December 31,
2000.

     The unaudited condensed consolidated balance sheet at December 31, 2000 has
been derived from the audited consolidated financial statements at that date but
does not include all of the information and footnotes required by generally
accepted accounting principles in the United States of America for complete
financial statements.

                                       5
<PAGE>

                    COMPUTER ACCESS TECHNOLOGY CORPORATION

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Concentrations of credit risk

     Revenue and accounts receivable of each customer comprising more than 10%
of revenue or receivables are summarized as follows:

                                            Six Month Period Ended
                                                   June 30,
                                            ----------------------
                                              2000          2001
                                            --------      --------
Revenue:
 Company A...........................          13%           26%

                                            December 31,   June 30,
                                               2000          2001
                                            ------------   --------
Accounts receivable:
 Company A...........................           22%           22%
 Company B...........................           15%           --
 Company C...........................            6%           11%


NOTE 2 - COMPREHENSIVE INCOME

     Comprehensive income is defined as changes in equity of a company from
transactions, other events and circumstances, excluding transactions resulting
from investments by owners and distributions to owners. There is no difference
between net income and comprehensive income for the Company in any of the
periods presented.

NOTE 3 - STOCK-BASED COMPENSATION

     In connection with certain stock option grants in 2000, 1999 and 1998, the
Company recorded deferred stock-based compensation totaling $14,393,000 which
represents the difference between the exercise price and the deemed fair value
at the date of grant, which is being recognized over the vesting period of the
related options. Amortization of deferred stock-based compensation was
$1,436,000 and $2,964,000 in the quarter ended June 30, 2001 and the six month
period ended June 30, 2001, respectively, of which $170,000 and $346,000 was
included in cost of revenue in the quarter ended June 30, 2001 and the six month
period ended June 30, 2001, respectively.  Amortization of deferred stock-based
compensation was $440,000 and $884,000 in the quarter ended June 30, 2000 and
the six month period ended June 30, 2000, respectively, of which $57,000 and
$112,000 was included in cost of revenue in the quarter ended June 30, 2001 and
the six month period ended June 30, 2001, respectively.  Amortization of
deferred stock-based compensation on grants prior to December 31, 2000 is
estimated to be approximately $1,727,000 in the six month period ending December
31, 2001 and $1,939,000, $768,000 and $96,000 in the years ending December 31,
2001, 2002, 2003 and 2004, respectively, and may change due to the granting of
additional options or the cancellation of existing grants in future periods.

NOTE 4 - NET INCOME (LOSS) PER SHARE

     The Company computes net income (loss) per share in accordance with SFAS
No. 128, Earnings per Share, and SEC Staff Accounting Bulletin ("SAB") No. 98.
Under the provisions of SFAS No. 128 and SAB No. 98, basic net income (loss) per
share is computed by dividing net income (loss) for the period by the weighted
average number of shares of common stock outstanding during the period. The
calculation of diluted net (loss) income per share excludes potential common
stock if its effect is antidilutive. Potential common stock consists of
incremental common shares issuable upon the exercise of stock options.

                                       6
<PAGE>

                    COMPUTER ACCESS TECHNOLOGY CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT


     The following table sets forth the computation of basic and diluted net
income (loss) per share for the periods indicated (in thousands except per share
data):

<TABLE>
<CAPTION>
                                                         Three Month Period Ended     Six Month Period Ended
                                                                June 30,                     June 30,
                                                         ------------------------     ----------------------
                                                             2000         2001            2000        2001
                                                           -------      -------         -------     -------
<S>                                                    <C>          <C>              <C>         <C>
Numerator:
 Net income (loss)...................................      $   554      $(1,087)        $ 1,255     $(1,457)
                                                           =======      =======         =======     =======
Denominator:
 Weighted average shares outstanding.................       14,359       18,712          14,359      18,657
                                                           -------      -------         -------     -------
 Denominator for basic calculation...................       14,359       18,712          14,359      18,657
 Dilutive effect of stock options....................        1,172           --           1,149          --
                                                           -------      -------         -------     -------
 Denominator for diluted calculation.................       15,531       18,712          15,508      18,657
                                                           =======      =======         =======     =======

Net income (loss) per share:
 Basic...............................................      $  0.04      $ (0.06)        $  0.09     $ (0.08)
                                                           =======      =======         =======     =======
 Diluted.............................................      $  0.04      $ (0.06)        $  0.08     $ (0.08)
                                                           =======      =======         =======     =======
Total common stock equivalents, related to options
 outstanding, excluded from the computation of
 earning per share as their effect is antidilutive...           --          722              --       1,098
                                                           =======      =======         =======     =======
 </TABLE>

NOTE 5 - INVENTORIES

     Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                             December 31,        June 30,
                                                2000               2001
                                             ------------        --------
<S>                                          <C>                 <C>
Raw materials...............................    $ 361             $  482
Work in progress............................      160                367
Finished goods..............................      278                215
                                                -----             ------
                                                $ 799             $1,064
                                                =====             ======
</TABLE>

NOTE 6 - INCOME TAXES

     The reconciliation between the effective tax rate and statutory federal
income tax rate is shown in the following table:

<TABLE>
<CAPTION>
                                                                 Three Month Period Ended      Six Month Period Ended
                                                                         June 30,                     June 30,
                                                                 ------------------------      ----------------------
                                                                      2000       2001             2000        2001
                                                                      ----       ----             ----        ----
<S>                                                                  <C>         <C>              <C>       <C>
Statutory federal income tax rate..............................       34.0%      34.0%            34.0%       34.0%
State taxes, net of federal income tax benefit.................        7.0        1.3              7.0       (10.8)
Amortization of deferred stock-based compensation..............       12.7      (42.1)            11.6      (134.4)
Research and development credit................................       (2.3)       5.0             (2.1)       11.2
Other..........................................................        1.2        5.1               .9         5.7
                                                                      ----       ----             ----        ----
   Effective tax rate..........................................       52.6%       3.3%            51.4%      (94.3)%
                                                                      ====       ====             ====        ====
</TABLE>

                                       7
<PAGE>

                    COMPUTER ACCESS TECHNOLOGY CORPORATION
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - REPORTABLE SEGMENTS AND GEOGRAPHIC INFORMATION

     The Company has three reportable segments categorized by product type:
development products, production products and connectivity products. The
development products are advanced verification systems that assist hardware and
software manufacturers in the efficient design of reliable and interoperable
systems and devices. Production products are production verification systems and
connectivity solutions designed to assist hardware and software manufacturers in
volume production of reliable devices and systems. Connectivity products are
designed to assist broadband Internet service providers in delivering convenient
and dependable service and device manufacturers in producing reliable products.
The Company has no inter-segment revenue.

     The Company analyzes segment revenue and cost of revenue, but does not
allocate operating expenses, including stock-based compensation, or assets to
segments. Accordingly, the Company has presented only revenue and gross profit
by segment.

Segment information (in thousands):

<TABLE>
<CAPTION>
                                                                                                         Unallocated
                                                                                                         Stock-based
                                               Development        Production        Connectivity         Compensation
                                                 Products          Products          Products              Expense        Total
                                               -----------        ---------         ----------           ----------     --------
<S>                                            <C>                <C>               <C>                  <C>            <C>
Three Month Period Ended June 30, 2000
  Segment revenue from external
   customers............................            $1,820           $1,522             $1,102                $  --       $4,444
  Segment gross profit..................            $1,606           $1,286             $  446                $ (57)      $3,281

Three Month Period Ended June 30, 2001
  Segment revenue from external
   customers............................            $3,014           $  481             $  652                $  --       $4,147
  Segment gross profit..................            $2,568           $  368             $  168                $(170)      $2,934

Six Month Period Ended June 30, 2000
  Segment revenue from external
   customers............................            $4,028           $2,757             $1,997                $  --       $8,782
  Segment gross profit..................            $3,554           $2,311             $  861                $(112)      $6,614

Six Month Period Ended June 30, 2001
  Segment revenue from external
   customers............................            $7,339           $  984             $1,499                $  --       $9,822
  Segment gross profit..................            $6,412           $  782             $  496                $(346)      $7,344
</TABLE>

Geographic information (in thousands):

<TABLE>
<CAPTION>
                                                                                           Revenue         Long-Lived Assets
                                                                                        ---------------   -------------------
<S>                                                                                     <C>               <C>
Three Month Period Ended June 30, 2000
   North America..................................................................            $3,212
   Europe.........................................................................               479
   Asia...........................................................................               738
   Rest of world..................................................................                15
                                                                                        ------------
     Total........................................................................            $4,444
                                                                                        ============

Three Month Period Ended June 30, 2001
   North America..................................................................            $2,130              $  914
   Europe.........................................................................               663                 259
</TABLE>

                                       8
<PAGE>

                    COMPUTER ACCESS TECHNOLOGY CORPORATION
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                     <C>               <C>
   Asia...........................................................................             1,337                  --
   Rest of world..................................................................                17                  --
                                                                                        ------------      --------------
     Total........................................................................            $4,147              $1,173
                                                                                        ============      ==============

Six Month Period Ended June 30, 2000
   North America..................................................................            $5,857
   Europe.........................................................................             1,133
   Asia...........................................................................             1,766
   Rest of world..................................................................                26
                                                                                        ------------
     Total........................................................................            $8,782
                                                                                        ============

Six Month Period Ended June 30, 2001
   North America..................................................................            $4,452              $  914
   Europe.........................................................................             1,508                 259
   Asia...........................................................................             3,799                  --
   Rest of world..................................................................                63                  --
                                                                                        ------------      --------------
     Total........................................................................            $9,822              $1,173
                                                                                        ============      ==============
</TABLE>

Revenues are attributed to countries based on delivery locations.  Sales to
foreign customers accounted for 28% and 49% of revenue during the quarters ended
June 30, 2000 and 2001, respectively, and 33% and 55% for the six months ended
June 30, 2000 and 2001, respectively.

                                       9
<PAGE>

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

     The following information should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included in Item 1
of this report and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained in our Form 10-K as filed with the
Securities and Exchange Commission on March 12, 2001.

     The following "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contains forward-looking statements within the
meaning of the federal securities laws.  These statements may contain words such
as "expects," "anticipates," "intends," "plans," "believes," "estimates," or
other wording indicating future results.  Forward-looking statements are subject
to risks and uncertainties.  Actual results may differ materially from the
results discussed in forward-looking statements.  Factors that could cause
actual results to differ materially include, but are not limited to, those
discussed under "Risk Factors" following "Recent Accounting Pronouncements"
below, and elsewhere in this report.  We undertake no obligation to revise or
update any forward-looking statements to reflect any event or circumstance that
may arise after the date of this report.

Overview

     We are a provider of advanced verification systems and connectivity
products for existing and emerging digital communications standards such as USB,
IEEE 1394, Bluetooth wireless technology, Infiniband and Ethernet.  Our products
are used by semiconductor, device, system and software companies at each phase
of their products' lifecycles from development through production and market
deployment.  Our verification systems consist of development and production
products that accurately monitor communications traffic and diagnose operational
problems to ensure that products comply with standards and operate with other
devices as well as to assist system manufacturers in downloading software onto
new computers.  Our connectivity products enable reliable, uninterrupted service
for broadband Internet access.  We currently outsource most of the manufacturing
of our verification systems and connectivity products so that we may concentrate
our resources on the design, development and marketing of our existing and new
products.

     We report our revenue and gross profit in three business segments:
development, production and connectivity products.  In the quarter ended June
30, 2001, our revenue from our development products was $3.0 million, from
production products was $481,000 and from connectivity products was $652,000.
Historically, we have generated a majority of our revenue across all segments
from products for the USB standard. Revenue from our USB products accounted for
approximately 67.2% of our revenue in the quarter ended June 30, 2001, of which
20.3% was from our USB 2.0 products.

     We sell our products on a purchase order basis.  We have adopted Statement
of Position, or SOP, 97-2, Software Revenue Recognition.  Under SOP 97-2, we
recognize revenue to resellers and end users upon shipment provided that there
is persuasive evidence of an arrangement, the product has been delivered, the
fee is fixed and determinable and collection of the resulting receivable is
reasonably assured.  When we have shipped products but some elements essential
to the functionality of the products have not been completed, revenue and
associated cost of revenue are deferred until all remaining elements have been
delivered.  As a result, our revenue trends are dependent on the timing of
delivery of these essential elements. Our products are typically sold with a one
year parts and labor repair warranty. Provisions for warranty costs are recorded
at the time products are shipped. Product returns to date have not been
significant.

     We sell our products to technology, infrastructure and application
companies through our direct sales force and indirectly through our distributors
and resellers. Historically, a significant portion, but less than half of our
revenue, has been derived from customers outside of the United States.  In the
quarter ended June 30, 2001, 48.6% of our revenue was derived from international
customers, of which 18.4% was derived from customers based in Japan, 13.9% was
derived from customers based in other parts of Asia, and 16.0% was derived from
customers based in Europe.  International revenue decreased as a percentage of
total revenue in the quarter from the quarter ended December 31, 2000, primarily
due to the general economic slowdown in Japan.  All of our revenue and accounts
receivable are denominated in U.S. dollars. Although seasonality affects many of
our target markets, to date our revenues and financial condition as a whole have
not been materially impacted by seasonality.

     The development of emerging communications standards and technological
change have influenced and are likely to continue to influence our quarterly and
annual revenue and results of operations. Our product development and marketing
strategies are focused on working closely with the promoter companies and
communications standards groups to gain early access to new communications
standards and technologies.  We have invested significantly in the research and
development and marketing of our products for emerging communications standards,
often before these standards have gained widespread industry acceptance and in
advance of generating substantial revenue related to these investments.
Additionally, the rate and timing of customer orders may vary significantly from
month to month. Accordingly, if sales of our products do not occur when we
expect and we are unable to predict or adjust our estimates on a timely basis,
our expenses may increase as a percentage of revenue.

                                       10
<PAGE>

     The overall economic environment continues to create uncertainties for us
and our customers.  We have experienced some weakness in each of our business
segments as a result of slowing growth in the global economy and delays in
orders as a result of reduced spending by many of our customers.  Our near term
financial results have been and may continue to be affected by our decision to
accelerate sales, marketing and research and development spending in the first
six months of 2001.

Results of Operations

     The following table presents selected consolidated financial data for the
periods indicated as a percentage of revenue:

<TABLE>
<CAPTION>
                                                                      Three Month Period Ended           Six Month Period Ended
                                                                               June 30,                          June 30,
                                                                    ----------------------------       --------------------------
                                                                       2000               2001             2000           2001
                                                                    ----------          --------       -----------     ----------
<S>                                                                 <C>             <C>                <C>              <C>
Consolidated Statement of Income Data:
Revenue......................................................         100.0%             100.0%           100.0%          100.0%
Cost of Revenue..............................................          26.2               29.3             24.7            25.2
                                                                    ----------          --------       -----------     ----------
Gross profit.................................................          73.8               70.7             75.3            74.8
                                                                    ----------          --------       -----------     ----------
Operating expenses:
 Research and development....................................          21.3               43.2             21.4            37.8
 Sales and marketing.........................................          13.7               18.7             12.6            14.0
 General and administrative..................................           5.9               18.3              4.9            15.9
 Amortization of deferred stock-based compensation...........           8.6               30.5              8.8            26.7
                                                                    ----------          --------       -----------     ----------
  Total operating expenses...................................          49.5              110.7             47.7            94.4
                                                                    ----------          --------       -----------     ----------
Income (loss) from operations................................          24.3              (40.0)            27.6           (19.6)
Interest income..............................................           2.0               12.8              1.8            12.0
                                                                    ----------          --------       -----------     ----------
Income before provision (benefit) for income taxes...........          26.3              (27.2)            29.4            (7.6)
Provision (benefit) for income taxes.........................          13.8               (0.9)            15.1             7.2
                                                                    ----------          --------       -----------     ----------
Net income (loss)............................................          12.5%             (26.3)%           14.3%          (14.8)%
                                                                    ==========          ========       ===========     ===========
</TABLE>

Comparison of Quarters Ended June 30, 2000 and 2001

     Revenue.  Our revenue was $4.1 million in the quarter ended June 30, 2001
and $4.4 million in the quarter ended June 30, 2000. This represents a decrease
of 6.7% from the quarter ended June 30, 2000 to the quarter ended June 30, 2001.
The decrease in revenue was due primarily to decreases in our sales of certain
development products, production products and connectivity products of $700,000,
$1.0 million and $450,000, respectively, offset by sales of our new development
products, which represented $2.1 million. Revenue from international customers
increased by 63.7%, while domestic revenue decreased by 33.7%. International
revenue represented 48.6% of our revenue in the quarter ended June 30, 2001, as
compared to 27.7% in the quarter ended June 30, 2000. Revenue from Japan,
through our distributor Toyo, represented 18.4% of our total revenue in the
quarter ended June 30, 2001, as compared to 9.0% in the quarter ended June 30,
2000.

     Cost of Revenue and Gross Profit.  Our gross profit was $2.9 million in the
quarter ended June 30, 2001 and $3.3 million in the quarter ended June 30, 2000.
This represents a decrease of 10.6% from the quarter ended June 30, 2000 to the
quarter ended June 30, 2001. The dollar decrease was primarily the result of
decreased unit sales of production and connectivity products, partially offset
by increased unit sales of development products, and an increase in the
amortization of deferred stock-based compensation of $113,000. Our gross margin
was 70.7% in the quarter ended June 30, 2001 and 73.8% in the quarter ended June
30, 2000. This represents a decrease of 3.1% from the quarter ended June 30,
2000 to the quarter ended June 30, 2001. This decrease in gross margin was due
primarily to the change in the mix of our revenue by business segment. Our lower
margin business segments, production products and connectivity products,
decreased as a percentage of revenue by 22.6% and 9.1%, respectively, and our
higher margin business segment, development products, increased as a percentage
of revenue by 31.7%. This was primarily offset by reduced margins for our
development products, due to higher costs associated with low volume initial
product releases, and lower margins for our connectivity products, due to
competitive pricing pressure. Excluding amortization of deferred stock-based
compensation, our gross margin would have been 74.8% in the quarter ended June
30, 2001 and 75.1% in the quarter ended June 30, 2000.

                                       11
<PAGE>

     Research and Development.  Our research and development expenses were $1.8
million in the quarter ended June 30, 2001 and $945,000 in the quarter ended
June 30, 2000. This represents an increase of 89.7% from the quarter ended June
30, 2000 to the quarter ended June 30, 2001. Research and development expenses
represented 43.2% of revenue in the quarter ended June 30, 2001 and 21.3% of
revenue in the quarter ended June 30, 2000. The dollar and percentage of revenue
increase was primarily due to an increase in personnel and related costs of
$842,000.

     Sales and Marketing.  Our sales and marketing expenses were $774,000 in the
quarter ended June 30, 2001 and $611,000 in the quarter ended June 30, 2000.
This represents an increase of 26.7% from the quarter ended June 30, 2000 to the
quarter ended June 30, 2001.  Sales and marketing expenses represented 18.7% of
revenue in the quarter ended June 30, 2001 and 13.7% of revenue in the quarter
ended June 30, 2000.  The dollar and percentage of revenue increase was
primarily due to increases in personnel and related costs of approximately
$156,000.

     General and Administrative.  Our general and administrative expenses were
$757,000 in the quarter ended June 30, 2001 and $263,000 in the quarter ended
June 30, 2000.  This represents an increase of 187.8% from the quarter ended
June 30, 2000 to the quarter ended June 30, 2001.  General and administrative
expenses represented 18.3% of revenue in the quarter ended June 30, 2001 and
5.9% of revenue in the quarter ended June 30, 2000.  The dollar increase and
percentage of revenue increase was primarily due to the addition of management
and administrative personnel and related costs of $94,000 and the increase in
professional services of $300,000, primarily legal fees.

     Interest Income.  Interest income was $532,000 in the quarter ended June
30, 2001 and $89,000 in the quarter ended June 30, 2000.  This represents an
increase of 497.8% from the quarter ended June 30, 2000 to the quarter ended
June 30, 2001. The increase was the result of the investment of additional
excess cash balances and the proceeds from our initial public offering in
November 2000.

     Provision (benefit) for Income Taxes.  Benefit for income taxes was $37,000
in the quarter ended June 30, 2001 and the provision for income taxes was
$614,000 in the quarter ended June 30, 2000.  These amounts represent a decrease
of 106.0% from the quarter ended June 30, 2000 to the quarter ended June 30,
2001.  Our effective tax rate decreased from 52.6% in the quarter ended June 30,
2000 to 3.3% in the quarter ended June 30, 2001, due primarily to an increase in
the amortization of deferred stock-based compensation, offset by an increase in
our expected research and development tax credit for the year and the effect of
annual accounting adjustments associated with an estimate of the effective tax
rate for full year.  Our effective tax rate after excluding the effect of
amortization of deferred stock-based compensation was (11.9)% in the quarter
ended June 30, 2001 and 38.2% in the quarter ended June 30, 2000.

     Net Income (loss).  Our net loss was $1.1 million in the quarter ended June
30, 2001 and our net income was $554,000 in the quarter ended June 30, 2000.
Our net loss represented 26.3% of revenue in the quarter ended June 30, 2001 and
our net income represented 12.5% of revenue in the quarter ended June 30, 2000.
The net loss in the quarter ended June 30, 2001 was primarily the result of an
increase in the amortization of deferred stock-based compensation and operating
costs, and a decrease in gross profit from the quarter ended June 30, 2000.  Net
income before the effect of the amortization of deferred stock-based
compensation was $349,000 in the quarter ended June 30, 2001 and $994,000 in the
quarter ended June 30, 2000.

     Amortization of Deferred Stock-based Compensation.  Amortization of
deferred stock-based compensation represents the difference between the exercise
price and the deemed fair value at the date of grant, in connection with certain
stock option grants in 2000, 1999 and 1998, which is being recognized over the
vesting period of the related options.  Amortization of deferred stock-based
compensation was $1.4 million in the quarter ended June 30, 2001, of which
$170,000 was included in cost of revenue during that period.  Amortization of
deferred stock-based compensation was $440,000 in the quarter ended June 30,
2000, of which $57,000 was included in cost of revenue during that period.
Amortization of deferred stock-based compensation on grants prior to December
31, 2000 is estimated to be approximately $1,727,000 in the six month period
ending December 31, 2001, and $1,939,000, $768,000 and $96,000 in the years
ending December 31, 2001, 2002, 2003 and 2004 respectively, and may change due
to the granting of additional options or the cancellation of existing grants in
future periods.

The following table sets forth net income and net income per share, both after
excluding the amortization of deferred stock-based compensation (in thousands,
except per share amounts).

                                       12
<PAGE>

<TABLE>
<CAPTION>
                                                                                               Three Month Period Ended
                                                                                                       June 30,
                                                                                         -------------------------------------
                                                                                               2000                2001
                                                                                         ---------------      ----------------

<S>                                                                                      <C>                    <C>
Net income, excluding amortization of deferred compensation  ....................              $   994             $   349
Net income per share, excluding amortization of deferred compensation
 Basic  .........................................................................              $  0.07             $  0.02
 Diluted  .......................................................................              $  0.06             $  0.02
Weighted average shares outstanding
 Basic  .........................................................................               14,359              18,712
 Diluted  .......................................................................               15,531              19,434
</TABLE>

 Comparison of Six Months Ended June 30, 2000 and 2001

     Revenue.  Our revenue was $9.8 million in the six months ended June 30,
2001 and $8.8 million in the six months ended June 30, 2000. This represents an
increase of 11.8% from the six months ended June 30, 2000 to the six months
ended June 30, 2001. The increase in revenue was due primarily to sales of our
new development products, which represented $4.6 million, offset by decreases in
our sales of certain development products, production products and connectivity
products of $1.1 million, $1.8 million and $497,000, respectively. Revenue from
international customers increased by 83.6%, while domestic revenue decreased by
24.0%. International revenue represented 54.7% of our revenue in the six months
ended June 30, 2001, as compared to 33.3% in the six months ended June 30, 2000.
Revenue from Japan, through our distributor Toyo, represented 26.2% of our total
revenue in the six months ended June 30, 2001, as compared to 12.9% in the six
months ended June 30, 2000.

     Cost of Revenue and Gross Profit.  Our gross profit was $7.3 million in the
six months ended June 30, 2001 and $6.6 million in the six months ended June 30,
2000. This represents an increase of 11.0% from the six months ended June 30,
2000 to the six months ended June 30, 2001. The dollar increase was primarily
the result of increased unit sales of development products, partially offset by
deceased unit sales of production and connectivity products and increased
amortization of deferred stock-based compensation of $234,000. Our gross margin
was 74.8% in the six months ended June 30, 2001 and 75.3% in the six months
ended June 30, 2000. This represents a decrease of 0.5% from the quarter ended
June 30, 2000 to the quarter ended June 30, 2001. This decrease in gross margin
was due primarily to the change in the mix of our revenue by business segment.
Our lower margin business segments, production products and connectivity
products, decreased as a percentage of revenue by 21.4% and 7.5%, respectively,
and our higher margin business segment, development products, increased as a
percentage of revenue by 28.9%. This was primarily offset by reduced margins for
our development products, due to higher costs associated with low volume initial
product releases, and lower margins for our connectivity products, due to
competitive pricing pressure. Excluding amortization of deferred stock-based
compensation, our gross margin would have been 78.3% in the six months ended
June 30, 2001 and 76.6% in the six months ended June 30, 2000.

     Research and Development.  Our research and development expenses were $3.7
million in the six months ended June 30, 2001 and $1.9 million in the six months
ended June 30, 2000. This represents an increase of 97.1% from the six months
ended June 30, 2000 to the six months ended June 30, 2001. Research and
development expenses represented 37.8% of revenue in the six months ended June
30, 2001 and 21.4% of revenue in the six months ended June 30, 2000. The dollar
and percentage of revenue increase was primarily due to an increase in personnel
and related costs of $1.7 million.

     Sales and Marketing.  Our sales and marketing expenses were $1.4 million in
the six months ended June 30, 2001 and $1.1 million in the six months ended June
30, 2000.  This represents an increase of 24.8% from the six months ended June
30, 2000 to the six months ended June 30, 2001.  Sales and marketing expenses
represented 14.0% of revenue in the six months ended June 30, 2001 and 12.6% of
revenue in the six months ended June 30, 2000. The dollar and percentage of
revenue increase was primarily due to increases in personnel and related costs
of approximately $247,000.

     General and Administrative.  Our general and administrative expenses were
$1.6 million in the six months ended June 30, 2001 and $433,000 in the six
months ended June 30, 2000.  This represents an increase of 261.2% from the six
months ended June 30, 2000 to the six months ended June 30, 2001. General and
administrative expenses represented 15.9% of revenue in the six months ended
June 30, 2001 and 4.9% of revenue in the six months ended June 30, 2000.  The
dollar increase and percentage of revenue increase was primarily due to the
addition of management and administrative personnel and related costs of
$316,000, the increase in professional services of $580,000, primarily legal
fees, and an increase in insurance of $145,000.

                                       13
<PAGE>

     Interest Income.  Interest income was $1.2 million in the six months ended
June 30, 2001 and $156,000 in the six months ended June 30, 2000.  This
represents an increase of 652.6% from the quarter ended June 30, 2000 to the
quarter ended June 30, 2001. The increase was the result of the investments of
additional excess cash balances and the proceeds from our initial public
offering in November 2000.

     Provision for Income Taxes.  Provision for income taxes was $707,000 in the
six months ended June 30, 2001 and $1.3 million in the six months ended June 30,
2000.  These amounts represent a decrease of 46.6% from the six months ended
June 30, 2000 to the six months ended June 30, 2001.  Our effective tax rate
decreased from 51.4% in the six months ended June 30, 2000 to (94.3)% in the six
months ended June 30, 2001 due primarily to an increase in the amortization of
deferred stock-based compensation, offset by an increase in our expected
research and development tax credit for the year and the effect of annual
accounting adjustments associated with an estimate of the effective tax rate for
full year.  Our effective tax rate after excluding the effect of amortization of
deferred stock-based compensation was 31.9% in the six months ended June 30,
2001 and 38.3% in the six months ended June 30, 2000.

     Net Income (loss).  Our net loss was $1.5 million in the six months ended
June 30, 2001 and our net income was $1.3 million in the six months ended June
30, 2000.  Our net loss represented 14.8% of revenue in the six months ended
June 30, 2001 and our net income represented 14.3% of revenue in the six months
ended June 30, 2000.  The net loss in the six months ended June 30, 2001 was
primarily the result of an increase in the amortization of deferred stock-based
compensation and operating costs from the six months ended June 30, 2000.  Net
income before the effect of the amortization of deferred stock-based
compensation was $1.5 million in the six months ended June 30, 2001 and $2.1
million in the six months ended June 30, 2000.

     Amortization of Deferred Stock-based Compensation.  Amortization of
deferred stock-based compensation represents the difference between the exercise
price and the deemed fair value at the date of grant, in connection with certain
stock option grants in 2000, 1999 and 1998, which is being recognized over the
vesting period of the related options.  Amortization of deferred stock-based
compensation was $3.0 million in the six months ended June 30, 2001, of which
$346,000 was included in cost of revenue during that period.  Amortization of
deferred stock-based compensation was $884,000 in the six months ended June 30,
2000, of which $112,000 was included in cost of revenue during that period.

     The following table sets forth net income and net income per share, both
after excluding the amortization of deferred stock-based compensation (in
thousands, except per share amounts).

<TABLE>
<CAPTION>
                                                                                                 Six Month Period Ended
                                                                                                        June 30,
                                                                                         -------------------------------------
                                                                                                2000                2001
                                                                                         ----------------    -----------------
<S>                                                                                      <C>                <C>

Net income, excluding amortization of deferred compensation  .........................         $ 2,139             $ 1,507
Net income per share, excluding amortization of deferred compensation
 Basic  ..............................................................................         $  0.15             $  0.08
 Diluted  ............................................................................         $  0.14             $  0.08
Weighted average shares outstanding
 Basic  ..............................................................................          14,359              18,657
 Diluted  ............................................................................          15,508              19,755
</TABLE>

Liquidity and Capital Resources


     Our operating cash flow requirements have generally increased reflecting
the expanding scope and level of our activities.  Since our inception, we have
financed our operations primarily through cash flows from operating activities.
In November 2000, we received net proceeds of  $38.3 million from the initial
public offering of our common stock.

     As of June 30, 2001, our principal sources of liquidity were $47.4 million
in cash and cash equivalents.  In the six months ended June 30, 2001, cash
provided by operating activities of $180,000 primarily consisted of an increase
in amortization of deferred stock-based compensation of $3.0 million, a decrease
in accounts receivable of $943,000, an increase in accounts payables of
$322,000, depreciation expense of $195,000 and a decrease in deferred tax assets
of $162,000, offset by a net loss of $1.5 million, a decrease in accrued
expenses of $2.1 million, an increase in other assets of $607,000 and an
increase in the level of inventory of $265,000.  The decrease in accrued
expenses primarily related to decreased income tax accruals of $2.3 million

                                       14
<PAGE>

and increased accrued expenses from operations of $185,000. Cash used in
investing activities was $251,000, related to capital expenditures of $536,000,
offset by the proceeds from the sale of short-term investments of $285,000. Cash
provided by financing activities of $106,000 related to the proceeds from the
exercise of stock options.

     In the six months ended June 30, 2000, cash provided by operating
activities of $2.3 million primarily consisted of net income of $1.3 million, an
increase in accrued expenses of $2.0 million, the amortization of deferred
stock-based compensation of $884,000 and an increase in accounts payable of
$168,000, offset by an increase in accounts receivable of $826,000, an increase
in deferred tax assets of $726,000, an increase in the level of inventory of
$286,000 and an increase in other assets of $219,000.  Cash used in investing
activities of $1.4 million related to the purchase of short-term investments of
$1.2 million and capital expenditures of $136,000.

     As of June 30, 2001, we had cash and cash equivalents of $47.4 million,
working capital of $50.5 million and no debt.  We believe that the net proceeds
from our initial public offering in November 2000, together with funds generated
from operations, will be sufficient to meet our working capital and capital
expenditure requirements for at least the next 12 months. Thereafter, we may
find it necessary to obtain additional equity or debt financing. If we are
required to raise additional funds, we may not be able to do so on acceptable
terms or at all. In addition, if we issue new securities, stockholders might
experience dilution or the holders of the new securities might have rights,
preferences or privileges senior to those of existing stockholders.

Recent Accounting Pronouncements

     In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations." SFAS 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the pooling-of-
interests method. We believe that the adoption of SFAS 141 will not have a
significant impact on our financial statements.

     In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is effective
for fiscal years beginning after March 15, 2001. SFAS 142 requires, among other
things, the discontinuance of goodwill amortization. In addition, the standard
includes provisions upon adoption for the reclassification of certain existing
recognized intangibles as goodwill, reassessment of the useful lives of existing
recognized intangibles, reclassification of certain intangibles out of
previously reported goodwill and the testing for impairment of existing goodwill
and other intangibles. We believe that the adoption of SFAS 142 will not have a
significant impact on our financial statements.

RISK FACTORS

We continue to face uncertainty relating to economic conditions affecting our
customers.

We face uncertainty in the degree to which the current economic slowdown will
negatively affect growth and capital spending by our existing and potential
customers.  We continue to experience instances of customers delaying or
deferring orders for our products, and longer lead times needed to close our
customer sales.  If global economic conditions do not improve, or if there is a
worsening in the global economic slowdown, we may continue to experience adverse
impacts on our business, operating results and financial condition.

Our future operating results are unpredictable and are likely to fluctuate from
quarter to quarter and, if we fail to meet the expectations of securities
analysts or investors, our stock price would likely decline significantly.

     Our quarterly and annual operating results have fluctuated in the past and
are likely to fluctuate significantly in the future due to a number of factors,
some of which are wholly or partially outside of our control. Many of these
risks are described in the following risk factors. Accordingly, we believe that
period-to-period comparisons of our results of operations are not meaningful and
should not be relied upon as indications of future performance. Some of the
factors that could cause our quarterly or annual operating results to fluctuate
include:

     .  the amount and timing of our operating expenses and capital
        expenditures;

     .  changes in the volume of our product sales and pricing concessions on
        volume sales;

     .  the timing, reduction, deferral or cancellation of customer orders or
        purchases;

     .  seasonality in some of our target markets;

     .  the effectiveness of our product cost reduction efforts;

                                       15
<PAGE>

     .  variability of our customers' product lifecycles;

     .  changes in the average selling prices of our products; and

     .  cancellations, changes or delays of deliveries to us by our
        manufacturers and suppliers.

     If our operating results fall below the expectations of securities analysts
or investors, the trading price of our common stock would likely decline
significantly.

If we fail to keep up with rapid technological change and evolving industry
standards, our products could become less competitive or obsolete.

     The markets for our products are characterized by rapid technological
change, frequent new product introductions, changes in customer requirements and
evolving industry standards. Our products may cease to be competitive if we fail
to introduce new products or product enhancements that address these changes,
meet new customer requirements and support new standards. To continue to
introduce new products or product enhancements on a timely basis, we must:

     .  identify emerging technological trends in our target markets, including
        new communications standards;

     .  accurately define and design new products or product enhancements to
        meet market needs;

     .  develop or license the underlying core technologies necessary to create
        new products and product enhancements; and

     .  respond effectively to technological changes and product introductions
        by others.

     If we are unable to identify, develop, manufacture, market or support new
or enhanced products successfully or on a timely basis, our competitors could
gain market share or our new products or product enhancements might not gain
market acceptance. Further, we might not be able to respond effectively to
product announcements by competitors, technological changes or emerging industry
standards.

We depend upon widespread market acceptance of our USB products, and our revenue
will decline if the market does not continue to accept these products.

     We currently derive a substantial majority of our revenue from sales of our
USB products. Revenue from sales of our USB products accounted for approximately
67.2% of our revenue in the quarter ended June 30, 2001.  We expect that revenue
from these products will continue to account for a substantial portion of our
revenue for the foreseeable future. If the market does not continue to accept
our USB products, our revenue will decline significantly. Factors that may
affect the market acceptance of our current USB products include the continued
growth of the markets for USB compliant devices as well as the performance and
pricing of our USB products and the availability, functionality and price of
competing products. Companies must also modify their products to support new
versions of USB as they are developed, such as USB 2.0. Many of these factors
are beyond our control. In addition, in order to maintain widespread market
acceptance, we must continue to differentiate ourselves from the competition
through our technical expertise, product offerings and brand name recognition.
Failure of our USB products to maintain market acceptance would adversely impact
our revenue.

If we devote resources to developing products for communications standards that
ultimately are not widely accepted, our business could be harmed.

     We may incur significant expenses and dedicate significant time and
resources in developing products for emerging communications standards that may
not gain broad acceptance. For example, we spent four years from 1992 to 1995
developing products for the ACCESS.bus technology, a standard designed to
connect peripheral devices to computers, which did not gain market acceptance.
The failure of a standard for which we devote resources to gain widespread
acceptance, or our failure to be first to market with products that address a
particular standard, would likely harm our business.

If we fail to maintain and expand our relationships with the core or promoter
companies in our target markets, we may have difficulty developing and marketing
our products.

     It is important to our success to maintain and expand our relationships
with companies that are leaders in developing new communications standards in
our target markets. We believe that we need to work closely with these core or
promoter companies to gain valuable insights into the market demands for new
products, to obtain early access to new communications

                                       16
<PAGE>

standards as they are developed and to help us design new products. We will need
to maintain our relationships with leading technology and infrastructure
companies, as well as expand our relationships with leaders in markets that are
new for us. Generally, we do not enter into formal contracts that obligate these
companies to work or share their technology with us. Industry leaders could
choose to work with other companies as they develop new communications standards
in the future. If we fail to maintain and expand our industry relationships, we
could lose the opportunity for first-mover advantage with respect to emerging
standards and it would be more difficult for us to develop and market products
that address these standards.

If our target markets do not accept our products for emerging communications
standards, our revenue growth could suffer.

     Our future growth depends upon our ability to sell advanced verification
systems and connectivity products for emerging communications standards such as
Bluetooth wireless technology. However, our products may not gain widespread
acceptance by customers. The success of our products depends upon volume
production of computer, communications and consumer electronic products that use
a particular standard and the acceptance of these products by customers. The
markets for emerging standards products have only recently begun to develop and
are rapidly evolving. As a result, it is difficult to predict their potential
size or future growth rate. There is significant uncertainty as to whether these
markets ultimately will develop at all or, if they do develop, whether they will
develop rapidly. If the markets for a particular emerging communications
standard fail to develop or develop more slowly than expected, or if our
products do not achieve widespread market acceptance by customers in these
markets, our business would be significantly harmed.

Delays in the development of new products or product enhancements could harm our
operating results and our competitive position.

     The development of new, technologically advanced products is a complex and
uncertain process requiring high levels of innovation and highly skilled
engineering and development personnel, as well as accurate anticipation of
technological and market trends. Although we have not experienced any material
product development delays in the past, these types of delays could occur in the
future. To the extent that we do not introduce the first product for an emerging
standard or customers defer or cancel orders with the expectation of a new
product or product enhancement release, our operating results could suffer.
Product development delays may result from numerous factors, including:

     .  changing product specifications and customer requirements;

     .  difficulties in hiring and retaining necessary technical personnel;

     .  difficulties in allocating engineering resources and overcoming resource
        limitations;

     .  difficulties with contract manufacturers or suppliers of key components;

     .  changing market or competitive product requirements; and

     .  unanticipated engineering complexities.

     If we are unable to meet the design and market introduction schedules for
our new products or product enhancements, our operating results and competitive
position may suffer.

Variations in our revenue may cause fluctuations in our operating results.

     We may experience a delay in generating or recognizing revenue for a number
of reasons. Historically, we have had little backlog and our revenue in any
quarter has depended upon orders booked and shipped in that quarter.
Furthermore, our customers may delay scheduled delivery dates and cancel orders
without significant penalty. In addition, even if we ship orders, generally
accepted accounting principles may require us to defer recognition of revenue
from those orders until a later date. Because we budget our operating expenses
on anticipated revenue trends and a high percentage of our expenses is fixed in
the short term, any delay in generating forecasted revenue could have a
significant negative impact on our operating results.

Shifts in our product mix may result in declines in gross margins.

Our gross margins vary among our products, with our gross margins generally
being higher on our advanced verification systems than on our connectivity
products. Our overall gross margins might fluctuate from period to period as a
result of shifts in product mix, the channels through which we sell our
products, the introduction of new products and product costs.

                                       17
<PAGE>

Decreases in average selling prices of our products may reduce gross margins and
revenue.

     The average selling prices of our products may decrease in the future in
response to product introductions or enhancements by us or our competitors, or
as a result of other factors, including discounts given on volume purchase
orders or pricing pressures. For example, we recently reduced the prices of
certain of our connectivity products in response to competitive pricing
pressure. We anticipate that we will need to continue to develop and introduce
on a timely basis new products that incorporate features that can be sold at
higher average selling prices. Failure to do so would likely cause our revenue
and gross margins to decline.

Continued competition in our markets may lead to a reduction in our prices,
revenue and market share.

     The markets for advanced verification and connectivity products for
emerging communications standards are highly competitive. We compete with
multiple companies in various markets, including Yokagawa in the markets for
products for the 1394 standard, Tektronix in the markets for products for the
Bluetooth wireless technology and Finisar in the markets for products for the
InfiniBand standard. Any of our competitors may develop technologies that
address our targeted markets more effectively and at a lower cost. In addition,
these competitors may enter into strategic alliances or business combinations
that increase their ability to innovate and address our markets.

     We may also face competition from other equipment manufacturers, such as
Agilent, National Instruments and Rhode & Schwartz. Many of these companies have
substantially greater financial, technical, marketing and distribution resources
and brand name recognition than we have. We expect that more companies,
including some of our customers, will enter our markets. If these companies
develop products that compete with our products or form alliances with or
acquire companies offering competing products, even if those products do not
have capabilities comparable to our products, they would be significant
competitors and their activities could cause us to reduce our prices. Increased
competition could result in significant price erosion, reduced revenue, lower
margins and loss of market share, any of which would significantly harm our
business.

We depend on contract manufacturers for substantially all of our manufacturing
requirements and if these manufacturers fail to provide us with adequate
supplies of high-quality products, our competitive position, reputation and
business could be harmed.

     We currently rely on four contract manufacturers for all of our
manufacturing requirements except for the final assembly, testing and quality
assurance on our lower volume, higher margin products. We do not have long-term
contracts with any of these manufacturers. As a result, our manufacturers could
refuse to continue to manufacture all or some of our products that we require or
change the terms under which they manufacture our products. We have experienced
delays in product shipments from some of our contract manufacturers in the past,
which in turn forced us to delay product shipments to our customers. We may in
the future experience similar delays or other problems, such as inferior quality
and insufficient quantity of products, any of which could significantly harm our
business. Our contract manufacturers may not be able to meet our future
requirements for timely delivery of products of sufficient quality and quantity.
We intend to introduce new products and product enhancements regularly, which
will require that we rapidly achieve volume production by coordinating our
efforts with those of our suppliers and contract manufacturers. The inability of
our contract manufacturers to provide us with adequate supplies of high quality
products or the loss of any of our contract manufacturers would cause a delay in
our ability to fulfill orders while we obtain a replacement manufacturer.

If we are unable to forecast our supply needs accurately, our costs may increase
or we may not be able to ship products in a timely manner.

     We purchase components used in the manufacture of our products from several
key sources. We depend on these sources to deliver necessary components in a
timely manner based on twelve-month rolling forecasts that we provide. Lead
times for materials and components that we order vary significantly and depend
on factors such as specific supplier requirements, contract terms and current
market demand for particular components. If we overestimate our component
requirements, we may develop excess inventory, which would increase our costs.
If we underestimate our component requirements, we may not be able to fulfill
customer orders.

We depend on sole source suppliers for several key components of our products,
and we may lose sales if they fail to meet our needs.

     We obtain some parts, components and packaging used in our products from
sole sources of supply. For example, we obtain field programmable gate array
integrated circuits from Altera, ASICs from LSI Logic through Wyle Electronics
and micro-controllers from Intel and Cypress Semiconductor. If suppliers are
unable to meet our demand for sole source components at reasonable costs and if
we are unable to obtain an alternative source or the price for an alternative
source is prohibitive, our ability to maintain timely and cost-effective
production of our products would be harmed. In addition, because we rely on

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purchase orders rather than long-term contracts with our suppliers, including
our sole source suppliers, we cannot predict with certainty our ability to
obtain components in the longer term. If we are unable to obtain components or
receive a smaller allocation of components than is necessary to manufacture
products in quantities sufficient to meet demand, customers could choose to
purchase competing products.

If our distributors and resellers do not actively sell our products, our product
sales may decline.

     We sell a substantial portion of our products through distributors and
resellers, including Toyo, our distributor in Japan, which accounted for
approximately 18.4% of our revenue in the quarter ended June 30, 2001. Our
distributors and resellers generally offer products from multiple manufacturers.
Accordingly, there is a risk that these distributors and resellers may give
higher priority to selling products from other suppliers and reduce their
efforts to sell our products. Our distributors and resellers may not market our
products effectively or continue to devote the resources necessary to provide us
with effective sales, marketing and technical support. Our distributors and
resellers may on occasion build inventories in anticipation of substantial
growth in sales and, if growth does not occur as rapidly as anticipated, may
decrease the quantity of products ordered from us in subsequent quarters. A
slowdown in orders from our distributors could reduce our revenue in any given
quarter and give rise to fluctuations in our operating results.

     In addition, our sales to Toyo and our other distributors are made on the
basis of purchase orders rather than a long-term commitment. The loss of any one
of our major distributors, or the delay of significant orders from these
distributors, could result in decreased revenue.

If we are unable to hire and retain additional sales, marketing, engineering,
operations and finance personnel, our growth will be impaired.

     To grow our business successfully and maintain a high level of quality, we
will need to recruit, retain and motivate additional highly skilled sales,
marketing, engineering, operations and finance personnel. If we are not able to
hire and retain a sufficient number of qualified employees, our growth will be
impaired. In particular, as a company focused on the development of complex
products, we will need to hire additional hardware and software developers and
engineers and project managers of various experience levels in order to keep
pace with technological change and develop products that meet the needs of
rapidly evolving markets. Competition for skilled employees, particularly in the
San Francisco Bay Area, is intense. We may have even greater difficulty
recruiting potential employees if prospective employees perceive the equity
component of our compensation package to be less valuable as a result of market
fluctuations in the price of our common stock.

The loss of key management personnel, on whose knowledge, leadership and
technical expertise we rely, would harm our ability to execute our business
plan.

     Our success depends heavily upon the continued contributions of our key
management personnel, whose knowledge, leadership and technical expertise would
be difficult to replace. For example, as we reported in "Part II, Item 5. Other
Information," Dan Wilnai, our president and chief executive officer, previously
announced his intention to retire and Joseph Mendolia, formerly our vice
president of sales and marketing, is no longer employed by our company. All of
our executive officers and key personnel are employees at will. We maintain no
key person insurance on any of our personnel. If we were to lose the services of
any of our key personnel and were unable to hire qualified replacements, our
ability to execute our business plan would be harmed. In addition, employees who
leave our company may subsequently compete against us.

If we fail to manage our growth effectively, our business could suffer.

     Our ability to offer products and implement our business plan successfully
in a rapidly evolving market requires an effective planning and management
process. We increased our headcount by 8.5% in the quarter ended June 30, 2001.
This growth may place a significant strain on our management systems,
infrastructure and other resources. We expect that we will need to continue to
improve our financial and managerial controls, reporting systems and procedures.
For example, we are in the process of migrating our operations to a new
enterprise resource planning system that affects almost every facet of our
business operations. Typically, these conversions negatively affect a company's
near-term ability to conduct business due to problems such as historical data
conversion errors, personnel training time associated with the new system,
delays in implementation or unforeseen technical problems during conversion. If
problems arise during this transition, we could experience delays in or lack of
shipping, an inability to support our existing customer base, delays in paying
vendors, delays in collecting from customers, an inability to place or receive
product orders or other operational problems. If this were to occur, our
profitability or financial position could be negatively impacted. If we are not
able to manage our growth effectively and efficiently, the quality of our
products, our ability to retain key personnel and our operating results could
suffer.

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<PAGE>

Our products may contain defects that cause us to incur significant costs,
divert our attention from product development efforts and result in a loss of
customers.

     Highly complex products such as our verification systems and connectivity
products frequently contain defects when they are first introduced or as new
versions are released. Although none of our products has contained any material
defects in the past, our products may contain defects of this nature in the
future. If any of our products contains defects or have reliability, quality or
compatibility problems, our reputation may be damaged and customers may be
reluctant to buy our products. As a result, our ability to retain existing
customers or attract new customers could be harmed. In addition, these defects
could interrupt or delay sales to our customers. We may have to invest
significant capital and other resources to alleviate these problems. If any of
these problems remains undiscovered until after we have commenced commercial
production of a new product, we may be required to incur additional development
costs and product recall, repair or replacement costs. These problems may also
result in claims against us by our customers or others. In addition, these
problems may divert our technical and other resources from other development
efforts.

If we are unable to expand our direct sales operations and our distributor and
reseller channels or successfully manage our expanded sales organization, our
ability to increase our revenue will be harmed.

     Historically, we have relied on a limited direct sales organization,
supported by third-party resellers, to sell our products domestically and on
third-party distributors to sell our products internationally. We intend to
develop and expand our direct sales organization in North America and our
indirect distribution channels internationally. We may not be able to expand our
direct sales organization successfully, and the cost of any expansion may exceed
the revenue generated from expansion. In addition, if we fail to develop
relationships with significant distributors or resellers, or if our current
distributors or resellers are not successful in their sales or marketing
efforts, sales of our products may decrease.

Any acquisitions that we undertake could be difficult to integrate, disrupt our
business, dilute stockholder value and harm our operating results.

     We expect to review opportunities to buy other businesses or technologies
that would complement our current products, expand the breadth of our markets or
enhance our technical capabilities or that might otherwise offer growth
opportunities. While we have no current agreements or negotiations underway, we
may buy businesses, product lines or technologies in the future. If we make any
future acquisitions, we could issue stock that would dilute the percentage
ownership of our existing stockholders, incur substantial debt or assume
contingent liabilities. To date, we have not acquired any other business or
technologies. Potential acquisitions also involve numerous risks, including:

     .  problems in assimilating the purchased operations, technologies or
        products;

     .  costs or accounting charges associated with the acquisition;

     .  diversion of management's attention from our existing business;

     .  adverse effects on existing business relationships with suppliers and
        customers;

     .  risks associated with entering markets in which we have little or no
        prior experience; and

     .  potential loss of key employees of purchased businesses.

Economic, political and other risks associated with international sales and
operations could adversely affect our sales.

     Because we sell our products worldwide, our business is subject to risks
associated with doing business internationally. We recognized 48.6% of our
revenue from sales to international customers in the quarter ended June 30,
2001. We anticipate that revenue from international operations will continue to
represent a substantial portion of our revenue. In addition, several of our
manufacturers' facilities and suppliers are located outside the United States.
Accordingly, our future results could be harmed by a variety of factors,
including:

     .  changes in foreign currency exchange rates;

     .  changes in a specific country's or region's political or economic
        conditions, particularly in emerging markets;

     .  trade protection measures and import or export licensing requirements;

                                       20
<PAGE>

     .  potentially negative consequences from changes in tax laws;

     .  difficulty in staffing and managing widespread operations;

     .  differing labor regulations;

     .  differing protection of intellectual property; and

     .  unexpected changes in regulatory requirements.

Our headquarters and our contract manufacturers are located in Northern
California, Asia and other areas where natural disasters may occur.

     Currently, our corporate headquarters and some of our contract
manufacturers are located in Northern California and our other contract
manufacturers are located in Asia. Northern California and Asia historically
have been vulnerable to natural disasters and other risks, such as earthquakes,
fires, floods, power loss and telecommunication failure, which at times have
disrupted the local economy and posed physical risks to our and our
manufacturers' properties. We also maintain facilities in San Diego, California
and Netanya, Israel. We do not have redundant, multiple site capacity in the
event of a natural disaster.

Any failure to protect our intellectual property adequately may significantly
harm our business.

     To date, we protect our proprietary processes, software, know-how and other
intellectual property and related rights through copyrights, trademarks and
maintenance of trade secrets, including entering into confidentiality
agreements. Our success and ability to compete depend in part on our proprietary
technology. We currently do not have any patents. Although we have three patents
pending, patents may not issue as a result of these or other patent
applications. Any patents that ultimately issue may be successfully challenged
by others or invalidated, or may not provide us with a significant competitive
advantage. Third parties may breach confidentiality agreements or other
protective contracts into which we have entered, and we may not be able to
enforce our rights in the event of these breaches. We may be required to spend
significant resources to monitor and police our intellectual property rights,
including pursuing remedies in court. We may become involved in legal
proceedings against other parties, which may also cause other parties to assert
claims against us. We report material pending legal proceedings, if any, under
the separate caption "Part II, Item 1. Legal Proceedings" elsewhere in this
report. However, in the future, we may not be able to detect infringement and
may lose competitive position in our markets before we do so. In addition,
competitors may design around our technologies or develop competing
technologies. The laws of other countries in which we market our products might
offer little or no effective protection of our proprietary technology. Reverse
engineering, unauthorized copying or other misappropriation of our proprietary
technology could enable third parties to benefit from our technology without
paying us for it, which could significantly harm our business.

Claims that we infringe third-party intellectual property rights could result in
significant expenses or restrictions on our ability to sell our products.

     Our industry is characterized by uncertain and conflicting intellectual
property claims and frequent intellectual property litigation, especially
regarding patent rights. To date, we have not received any letters, and we do
not have any other reason to believe, that our products infringe any other
party's intellectual property rights. However, we cannot be certain that our
products do not and will not infringe issued patents or other intellectual
property rights of others. Historically, patent applications in the United
States have not been publicly disclosed until the patent is issued, and we may
not be aware of filed patent applications that relate to our products or
technology. If patents are later issued in connection with these applications,
we may be liable for infringement. From time to time, other parties may assert
patent, copyright and other intellectual property rights to technologies and in
various jurisdictions that are important to our business. Any claims asserting
that our products infringe or may infringe proprietary rights of third parties,
including claims arising through our contractual indemnification of our
customers, regardless of their merit or resolution, would likely be costly and
time-consuming, result in costly litigation, divert the efforts of our technical
and management personnel, cause product shipment delays or require us to enter
into royalty or licensing agreements. Royalty or licensing agreements, if
required, may not be available on terms acceptable to us, or at all.

Changes in current laws or regulations or the imposition of new laws or
regulations could impede the sale of our products.

     In the United States, the entire telecommunications industry and many of
our customers and their products are subject to regulations and standards set by
the Federal Communications Commission, or FCC. Internationally, many of our
customers and their products may also be required to comply with regulations
established by local authorities in various countries. We believe that neither
our business nor our products is currently subject to regulations or standards
set by the FCC or any similar foreign authority. However, our business or
products may be deemed by the FCC or any similar foreign authority to be subject
to

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<PAGE>

their jurisdiction. New products or lines of business we pursue may also be
subject to these types of regulations or standards. In addition, the regulations
in force both in the United States and in foreign jurisdictions are constantly
changing. As a result, our business or products could become subject to
regulations or standards in the future. Failure to comply with regulations
established by regulatory authorities or to obtain timely domestic or foreign
regulatory approvals or certificates could significantly harm our business.

The energy crisis in California may cause our operating results to suffer.

       California is in the midst of an energy crisis that could disrupt our
operations and increase our expenses. Suppliers of electric power have on some
occasions implemented, and may in the future continue to implement, rolling
blackouts throughout California. We currently do not have backup generators or
alternate sources of power in the event of a blackout, and our current insurance
does not provide coverage for any damages our customers or we may suffer as a
result of any interruption in the power supply. If blackouts interrupt our power
supply, we would be temporarily unable to continue operations at our facilities
in California. Any such interruption in our ability to continue operations at
our facilities could damage our reputation, harm our ability to retain existing
customers and to obtain new customers, and result in lost revenue, any of which
could substantially harm our business and results of operations.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

     The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities in which we invest
may be subject to market risk. This means that a change in prevailing interest
rates may cause the principal amount of the investment to fluctuate. For
example, if we hold a security that was issued with an interest rate fixed at
the then-prevailing rate and the prevailing interest rate later rises, the
principal amount of our investment will probably decline. As of June 30, 2001,
all of our investments were in money market funds, certificates of deposit or
high quality commercial paper.

Part II - OTHER INFORMATION

Item 1.  Legal Proceedings

     On December 29, 2000, we filed in the United States District Court for the
Northern District of California a complaint against Catalyst Enterprises, Inc.,
alleging trademark and trade dress infringement, copyright infringement and
unfair competition and seeking damages and attorneys' fees. The case is referred
to as Computer Access Technology Corporation v. Catalyst Enterprises, Inc., Case
No. C 00 4852 DLJ. Catalyst responded to the complaint on April 6, 2001 by
denying each of the substantive claims and asserting federal and state unfair
competition counterclaims, and requesting an award of attorneys' fees. We
answered the counterclaims on June 27, 2001, and denied all the substantive
claims of Catalyst's counterclaims. The case is set for trial on April 15, 2002.
We cannot predict the outcome of this matter at this time.

     On March 28, 2001, we filed a motion for preliminary injunction against
Catalyst. The Court denied this motion by order entered June 13, 2001. We filed
a notice of appeal to the 9th Circuit Court of Appeals on July 12, 2001, and our
opening brief for the appeal is due August 23, 2001. We cannot predict the
outcome of this matter at this time.

Item 5.  Other Information

       On June 19, 2001, we announced that Dan Wilnai, our president and chief
executive officer announced his intention to retire from such positions that we
have initiated a search for a successor. Mr. Wilnai will continue as our
president and chief executive officer until his successor is in place. After the
completion of the CEO transition plan, Mr. Wilnai intends to remain actively
involved as chairman of our board of directors.

       On July 23, 2001, we announced that Joseph Mendolia, our vice president
of sales and marketing, left the employ of our company. On that date, we also
announced the hiring of Craig Lynar as our new vice president of marketing. We
have also initiated a search for a new vice president of sales.

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Item 6.  Exhibits and Reports on Form 8-K

         a.  Exhibits.

             Exhibit No.        Document Name
             -----------        -------------

             3.1*  Amended and Restated Certificate of Incorporation of
                   the Registrant.

             3.2*  Bylaws of the Registrant.

             4.1*  Specimen Certificate of the Registrant's common stock.

             *     Previously filed as an exhibit to the Registrant's
                   Registration Statement on Form S-1 (Registration No.
                   333-43866) as filed with the SEC on August 16, 2000, as
                   subsequently amended, and incorporated in this quarterly
                   report by reference.

         b.  Reports on Form 8-K.

             None.

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                                  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.

Date August 14, 2001                 Computer Access Technology Corporation

                                By:  /s/ Dennis W. Evans
                                     -------------------------------------------
                                     Dennis W. Evans
                                     Vice President, Chief Financial Officer and
                                     Secretary (Principal Financial Officer and
                                     Principal Accounting Officer)

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