U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                    Form 10-K

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

                    For the fiscal year ended: March 31, 2001

                                       OR

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

              For the transition period from _________ to _________

                         Commission File Number: 0-15449

                      CALIFORNIA MICRO DEVICES CORPORATION
                      ------------------------------------
             (Exact name of registrant as specified in its charter)

             California                                      94-2672609
             ----------                                      ----------
   (State or other jurisdiction                (IRS Employer Identification No.)
        of incorporation)

        215 Topaz Street, Milpitas, CA                       95035-5430
        ------------------------------                       ----------
   (Address of principal executive offices)                  (Zip code)

        Registrant's telephone number, including area code: (408)263-3214


        Securities registered pursuant to Section 12(b) of the Act: None

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

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

Indicate by check mark if disclosure of delinquent files pursuant to Item 405 of
Regulation S-K (Section  209.405 of this chapter) is not contained  herein,  and
will not be contained to the best of registrant's  knowledge,  in any definitive
proxy or information statement incorporated by reference in Part II of this Form
10-K or any amendment to this Form 10-K. Yes X No __

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant as of March 31, 2001, was  approximately  $49,428,000  based upon the
last  sale  price of the  common  stock  reported  for such  date on the  Nasdaq
National Market System.  For purposes of this  disclosure,  common stock held by
persons who hold more than 10% of the outstanding voting shares and common stock
held by executive officers and directors of the Registrant have been excluded in
that such persons may be deemed to be "affiliates" as that term is defined under
the rules and  regulations  promulgated  under the Securities Act of 1933.  This
determination of affiliate status is not necessarily a conclusive  determination
for other purposes.

As of March 31,  2001,  the number of shares of the  Registrant's  common  stock
outstanding were 11,459,503.

                       DOCUMENTS INCORPORATED BY REFERENCE

The Proxy  Statement for the  Registrant's  Annual Meeting of Shareholders to be
held August 7, 2001.


<PAGE>


    This  report  contains  forward-looking  statements  within  the  meaning of
    Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of
    the Securities Act of 1934, as amended. Such forward-looking  statements are
    made  pursuant  to the safe  harbor  provisions  of the  Private  Securities
    Litigation  Reform Act of 1995.  These forward  looking  statements  are not
    historical  facts  and are based on  current  expectations,  estimates,  and
    projections about our industry;  our beliefs and assumptions;  and our goals
    and objectives. Words such as "anticipates",  "expects", "intends", "plans",
    "believes",  "seeks",  and  "estimates",  and  variations of these words and
    similar  expressions  are intended to identify  forward-looking  statements.
    Examples of the kinds of  forward-looking  statements in this report include
    statements regarding the following: (1) our concentrating on major worldwide
    electronic system  manufacturers has greater  long-term  business  potential
    despite a longer  design-in  cycle,  (2) the trend of shifting from original
    equipment  manufacturing toward the use of contract manufacturing within our
    customer  base will  continue,  (3)  international  sales will  continue  to
    represent a significant portion of our sales for the foreseeable future, (4)
    Sipex  will  likely  install  the  process  we run for them in their own new
    facility  and as a result we will likely lose their  foundry  business,  (5)
    chip scale  packages will  represent an increasing  portion of our business,
    (6) the thin film market will become more competitive,  (7) we will continue
    transferring our testing and shipping operations to foreign  subcontractors,
    and (8) we have  sufficient  financial  resources to fund our operations for
    the  foreseeable  future.  These  statements are only  predictions,  are not
    guarantees of future performance,  and are subject to risks,  uncertainties,
    and other  factors,  some of which are beyond our control,  are difficult to
    predict,  and could cause  actual  results to differ  materially  from those
    expressed or forecasted in the forward-looking  statements.  These risks and
    uncertainties  include those set forth in this report,  especially under the
    caption "Risk Factors" under Item 1. Business. Except as required by law, we
    undertake no obligation to update any forward-looking statement,  whether as
    a result of new information, future events, or otherwise.

    In this  report,  "CAMD,"  "we," "us" and "our"  refer to  California  Micro
    Devices  Corporation.  All  trademarks  appearing  in  this  report  are the
    property of their respective owners.


                                     PART I

ITEM 1. BUSINESS.

Introduction

We  are  a  leading  supplier  of  thin  film  integrated  passive  devices  and
complementary   analog   semiconductors.   Through   proprietary   manufacturing
processes,  we integrate multiple thin film passive components onto single chips
and enhance their functionality with discrete semiconductor functions to provide
single  chip  solutions  for  densely  populated,  high  performance  electronic
systems.  Our integrated  passive devices are significantly  smaller and provide
more  functionality  than  competitive  discrete  products.  Integrated  passive
devices replace functional clusters of discrete passive components that are used
for signal  filtering and termination at busses and ports,  wave shaping,  clock
signal filtering,  biasing,  and other traditional discrete component functions.
In some instances,  our integrated  passive  devices also provide  semiconductor
functions, such as electrostatic discharge protection.

We also offer analog  semiconductor  solutions  that  complement  our integrated
passive devices,  providing  electrostatic discharge protection for ports, smart
power management functions and micro-power  operational  amplifiers.  We use our
thin film  passive  component  technology  to enhance the  functionality  of our
semiconductor  products.  Additionally,  we manufacture  and sell an established
line of telecommunications related semiconductor products.

We focus our expertise on providing high volume,  cost  effective,  standard and
custom  solutions  for  computer  systems  and  peripherals,   high  performance
networking,  the mobile  communications  and  telecommunications  infrastructure
markets, and specialty medical and lighting applications.  Our customers include
original equipment manufacturers,  such as the Acer Group, Agilent Technologies,
Cisco Systems,  Guidant  Corporation,  Intel  Corporation,  ITI Limited,  Nortel
Networks,  Samsung  Electronics  Co. Ltd.  and 3Com  Corporation,  and  contract
manufacturers, including Celestica, Inc. and Solectron Corporation.

We were incorporated in 1980 and have been a public company since 1986.

                                       1

<PAGE>

Industry Background

Passive  components  -  principally  resistors  and  capacitors  - are  used  in
virtually  all  electronic  products.  Resistors  impede the flow of  electrical
current  and  dissipate  electrical  energy  as heat.  They  are used to  divide
voltage,   pull-up/pull-down   voltage,   and  terminate  and  control  current.
Capacitors store electrical charges and pass alternating  current while blocking
direct  current.  Capacitors  are used to  filter  noise  and  shape  waveforms.
Historically,  passive  components  have been discrete  devices that perform one
specific  function per device.  Individually  and in combination,  resistors and
capacitors are used to filter, condition, shape, bias, terminate and improve the
characteristics  of the  electrical  signals  used  and  transmitted  by  active
components such as microprocessors,  application  specific integrated  circuits,
dynamic random access memories, and analog integrated circuits.

The demand for discrete and  integrated  passive  components  is being driven by
both the increasing  number of components per system,  and the increasing number
of systems produced. For example, the number of passive components in a personal
computer  increased  from  a few  hundred  in the  486  generation  of  personal
computers  to as many as 1,000 in the Pentium III series of personal  computers.
Similar  trends are  occurring  in mobile  phones,  where  multiple  bands,  new
functionality  and  higher   frequencies  are  driving  the  number  of  passive
components from 300 in older analog phones to 600 in current versions.

The technological  progress of the  semiconductor  industry has been the driving
force behind the  electronics  industry,  and higher levels of  integration on a
single chip have been the underlying factor that has made this possible.  Higher
levels of  integration  lead to smaller  products  with higher  performance  and
functionality and lower cost.

The  semiconductor  industry has  segmented  into two major  technology  types -
digital circuits and analog  circuits.  Digital circuits are used principally in
computationally  intensive  functions  such  as  computing  and  digital  signal
processing.  Manufacturers of digital integrated circuits operate on the leading
edge of  process  technology  (e.g.  sub-micron  line  width)  to  maximize  the
performance and component density of their products.

Analog  circuits are more  typically  found in  applications  requiring  precise
voltage/power  control,  amplification,  audio filtering,  and other specialized
functions.  They are used  throughout  all  system  types,  providing  the power
management and ancillary functions necessary for system operation. Manufacturers
of  analog  integrated  circuits  are  able  to  use  lower  cost  manufacturing
facilities  with more  established  technology  (e.g.  larger  line  width) than
digital  circuit  manufacturers.  The  analog  circuit  market  tends to be less
cyclical and less capital intensive than the digital,  and is more fragmented in
terms of products.  This can provide greater opportunities for executing a niche
strategy.

Industry Challenges

Some of the fastest growing segments of the electronic products markets are:

     o    communications infrastructure, including fiber optic transmission;

     o    wireless communications, including mobile phones;

     o    networking products;

     o    personal digital assistants and other portable electronic devices; and

     o    personal computers and servers.

The  technological  advances in these market  segments  have allowed  electronic
product  manufacturers to address the demands of consumers by designing products
with the following characteristics:

Reduced Size and Weight. Consumer demand for smaller, more portable products has
created a need to reduce the size of components  used in their  manufacture  and
minimize the required space between  components.  For example,  laptop computers
and  mobile  phones  have  continued  to  get  smaller  and  lighter  while  the
functionality of these products has increased dramatically.

Increased   Performance  and   Functionality.   The  increasing  use  of  faster
microprocessors  in computers and higher  frequencies in communication  products
require more passive components that can function properly at the high operating
speeds. For example, the number of busses, along with their speed and width, has
increased  significantly

                                       2

<PAGE>
from the 486  generation to the Pentium III series of personal  computers,  with
each buss  requiring  passive  components to terminate its  transmission  lines.
Also,  as the  number of clock  lines  that  serve to  transmit  timing  signals
increased  from a few in earlier  personal  computers  to 27 in the Pentium III,
additional  passive  components  are needed for  filtering,  wave  shaping,  and
termination.

Greater  Reliability.  As electronic  systems become a more integral part of our
lives,  and more systems become  portable,  manufacturers  must provide products
with  greater  reliability  and the ability to withstand  hostile  environmental
conditions.  For example, we depend on electronic systems in almost every aspect
of  our  day-to-day  lives,  including  financial  transactions,  email,  health
records, the Internet, emergency response systems and mobile communications.

Electrostatic Discharge Protection. As electronic systems move out of controlled
environments  and become  more  portable  and user  configurable,  they are more
susceptible to damage from  electrostatic  discharge  caused by human  handling.
Protecting connectors and other surfaces where people touch sensitive electronic
devices is vital to assuring long, reliable operation.

Shorter Time to Market. The rapid changes in technology and intense  competition
have shortened  product life cycles  dramatically and required  manufacturers to
seek  shorter time to market.  Products  such as personal  computers  and mobile
phones,  which used to have life cycles of one or two years, are now replaced by
newer versions as frequently as every six to nine months, requiring new products
with new functions to quickly ramp into high volume production.

Lower Total Cost.  Manufacturers of electronic  systems are facing intense price
competition and are seeking ways of lowering the overall cost of their products.
Lowering the cost of  electronic  systems is  fundamental  to  increasing  their
affordability  and allowing  them to be applied to new tasks,  which allows more
people access to better, faster technology.

Reduced Power  Consumption.  As devices become more portable and need to operate
for longer  periods  of time,  there is an  increasing  need for  reduced  power
consumption  to  increase  battery  life.  In  addition,  as power  requirements
increase with enhanced system  functionality  and performance,  power management
techniques, such as powering down unused parts of systems, must be employed.

As  discussed  below,  discrete  passive  components,  because of their size and
performance  characteristics,  do not  effectively  meet  these  needs of system
designers.

Our Solution

We meet the needs of  electronic  system  manufacturers  through our  innovative
approach of integrating thin film passive  components and our patented technique
of combining these integrated passive components with  semiconductors.  Our thin
film technology allows us to combine multiple resistors,  capacitors, diodes and
other  components into a single,  high-density  device we market under the brand
name  "P/Active".  We also design and  manufacture  analog  semiconductors  that
provide  power  management  functions,   and  offer  low  voltage,  micro  power
operational  amplifiers that we can enhance by adding thin film passive devices.
We believe our products provide the following key benefits to our customers:

Smaller Size for  Miniaturization  and Portability.  Our integration of multiple
passive components into a single integrated device reduces the area required for
the  passive  components  by  as  much  as  80%  compared  to  discrete  passive
components.  Discrete passive components typically consume a significant part of
the space in an electronic system, limiting either the ability to reduce product
size or to incorporate  additional  features.  For example,  in a typical mobile
phone,  as much as two thirds of the printed  circuit  board area is consumed by
passive components.

Increased Performance at Higher Frequencies. Our thin film technology components
are designed to perform consistently at frequencies up to 3 GHz, unlike discrete
passive  components  that behave  unpredictably  at today's higher  frequencies,
particularly  in  excess  of 300 MHz.  Our PAC RC  family  of  filters  operates
properly at up to 10 times the frequency of traditional discrete components, and
can suppress electromagnetic  interference/radio frequency interference noise by
as much as 10 times more than combinations of thick film components at very high
frequencies.

                                       3

<PAGE>
The operating frequency range of our integrated passive components
is further extended when combined with our new chip scale packaging technology.

Improved  Reliability.  We reduce the number of  component  connections  through
higher levels of integration, thus improving reliability and eliminating many of
the problems  encountered in the manufacture of printed  circuit  boards.  These
problems  include  solder  migration,   cracking  and  peeling,  sensitivity  to
environmental  conditions and poor solder joints that often accompany the use of
numerous discrete passive components.  Depending on the system, up to 40% of all
system failures can be attributed to poor solder interconnections.

Improved Electrostatic  Discharge Protection.  All of our P/Active products have
been designed to tolerate high levels of  electrostatic  discharge,  and also to
help protect increasingly  sensitive integrated circuits. We produce a family of
dedicated  electrostatic  discharge protection devices, some of them application
specific,  as  well  as  other  standard  products  that  combine  electrostatic
discharge  protection with passive and active functions.  We continue to enhance
these  products  to  meet  increasingly   stringent  industry  requirements  for
electrostatic discharge protection.

Shorter Time to Market. We design application  specific solutions in conjunction
with our customers.  A number of these solutions can be standardized to meet the
needs of other customers.  These standardized  solutions assist design engineers
in their  efforts to bring  products to market  more  quickly.  These  solutions
eliminate the need for  engineers to design,  layout and test their own solution
using  numerous  discrete  components.  For example,  our Super 1284 is a single
component that combines 26 resistors,  17  capacitors,  and 34 diodes to provide
the  complete  filtering  and  termination  functionality,  in  addition  to the
electrostatic  discharge  protection  needed on the  parallel  printer port of a
computer.

Lower Total Cost Solutions.  We offer a lower total cost solution  compared with
most discrete passive  component  manufacturers by integrating  multiple passive
components  into a single chip.  Taking into account the per component  costs of
assembly,  solder,  testing,  repair/rework,  and warranty,  we believe a single
integrated  passive device offers an overall lower cost solution even though the
materials  cost of the discrete  passive  components  is usually  less. As noted
above,  our Super 1284 device  replaces 77  discrete  or low  integration  level
components with a single package.

Lower Power  Consumption  and Enhanced  Power  Management.  We have  developed a
product family combining low power CMOS technology with some passive  components
to address the problems associated with smart power management techniques. These
techniques are used to support devices which must remain  operational when major
parts of a system are powered down or in a "sleep mode" to save electricity.  In
addition,  we  build  small,  cost  effective  operational  amplifiers  that are
designed to operate in small,  low power,  hand held devices that must  conserve
battery power.  All of our products use CMOS technology  similar to that used in
high component count VLSI, instead of the bipolar semiconductor technology which
is more typically used in higher power drivers and power supplies.

Our Strategy

Our objective is to use our leadership position in the design and manufacture of
integrated  passive  devices to capture a greater share of the market  currently
served  by  discrete  passive  components.  We also  want to  become  a  leading
manufacturer of analog  semiconductors  that are complementary to our integrated
passive devices. Our strategy includes the following key elements:

Leverage Our Technology  Leadership  Position.  We intend to continue to use our
extensive thin film processing and materials  expertise in combination  with our
semiconductor  capabilities to create value-added devices for our customers.  In
passive  components,  we provide  higher levels of integration by using our thin
film  capabilities.  We use our applications  engineering  capability and system
level expertise to design products that are  application  specific  solutions to
customer  problems,  as  opposed to  providing  discrete  components  from which
customers  construct their own solution.  Using our ability to combine thin film
passive  components  with  semiconductors,  we are developing new  semiconductor
products in power management,  micro power amplifiers,  electrostatic  discharge
protection,  as well as custom applications.  We are leveraging our success with
power management  products into additional  products and  applications  where we
have the opportunity to achieve a leadership position.

                                       4

<PAGE>
Focus on High Volume Solutions.  We focus on manufacturers of products in growth
markets   such  as  personal   computers   and   servers,   mobile   phones  and
telecommunications infrastructure, networking equipment that supports the growth
of the  Internet and  internal  computer  networks,  high  performance  graphics
workstations,  and personal digital assistants,  all of which have an increasing
need for higher density and higher performance passive components.  We work with
customers to identify common,  high volume  applications  or, when  appropriate,
design custom solutions to meet particular  customer  requirements.  We have the
ability  to  expand  our  production   volumes   substantially   without  adding
significant  new  facilities or overhead,  both in our Milpitas,  California and
Tempe, Arizona manufacturing facilities.

Expand Our Sales and Marketing Efforts  Internationally  and Domestically.  Over
the last few years we have been  expanding both the breadth and intensity of our
sales  coverage.  We have added sales personnel to cover Japan,  Taiwan,  China,
South Korea and other parts of Southeast Asia. In addition,  we have added sales
capabilities  in Europe and increased the number of area managers in the U.S. To
support our  enhanced  sales  efforts and to define more new  products,  we have
expanded our internal marketing capabilities.

Develop Highly Responsive Product Development and Production Capabilities.  Many
system designers leave decisions  regarding passive components to the end of the
design  cycle,  and they often  require  custom  devices to meet their  specific
needs.  As a result,  we continue to invest in both  development  capability and
inventory planning and production capabilities to allow us to respond quickly to
these customers and shorten design and manufacturing cycles.

Develop  Standard  Products to Shorten  Customer Time to Market.  We continue to
work with existing and potential  customers to identify their passive  component
and specialized semiconductor  requirements.  We use this information to provide
customized  solutions  that often become  standard  products and solutions  that
shorten our customers' time to market.

Educate the Market on our Value  Proposition.  We are  educating the market that
our thin film  integrated  devices are a lower total cost solution than discrete
passive  components  when  the  total  cost  of  manufacturing  and  support  is
considered.  We also take an aggressive  pricing  approach to make our solutions
more attractive in connection with certain high volume market opportunities.

Our Competitive Advantages

We believe that we have the following competitive advantages that will assist us
in implementing solutions to satisfy our customers' needs:

Extensive Experience in Thin Film Technologies.  We have extensive experience in
creating  thin film  passive  components.  We have the  flexibility  to use many
different substrates, including silicon, ceramic and glass while our competitors
are  generally  limited to one type of  substrate.  This  allows us to apply the
technology  best suited to a given problem.  We can deposit  multiple  different
resistive  materials,  use  different  dielectric  materials  and add plating of
different materials to address a wide variety of resistor and capacitor needs.

Extensive   Experience   in   Combining   Thin  Film  Passive   Components   and
Semiconductors.  We believe our in-house ability to combine thin film technology
with semiconductors is unique among passive component manufacturers. Most of our
competitors in the passive component area lack internal semiconductor design and
manufacturing capability.  While there are some semiconductor  manufacturers who
have limited capabilities to combine semiconductors with passive components,  at
present we know of none that are selling  integrated  thin film passive  devices
incorporating semiconductor functions.

Application  Engineering  Expertise.  Our application  engineers define products
that are application specific solutions to our customers' problems.  Our goal is
to be able to specify and design application specific devices that not only meet
the needs of the  specific  customer,  but may also be used to meet the needs of
other customers.  Traditional passive component manufacturers provide components
from which customers construct their own solution.

Control of Wafer Fabrication  Facilities with Available  Capacity.  We currently
operate wafer fabrication facilities in Milpitas, California and Tempe, Arizona.
The processes that we use to build integrated  passive devices are not

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<PAGE>
standard,  nor are many of the  processes  used to build analog  semiconductors.
Outsourcing the required manufacturing technology can be quite difficult for our
competitors.  We have the capacity at our facilities to  significantly  increase
production with additional staffing and minimal additional capital expenditures.

Integrated Manufacturing Capabilities.  We bring together within our company the
specialized  capabilities necessary to build a broad range of integrated passive
devices.  These  include  laser  trimming,  noise  and  temperature  coefficient
control,   testing,   plating,   optical   inspection  and  chip  scale  bumping
technologies.  Our  competitors  generally  must  outsource one or more of these
capabilities,  raising issues of availability, cost, quality control and time to
market. We also have a leadership position in chip scale packaging,  having made
major investments in technology and manufacturing  capabilities,  which gives us
an enhanced  position relative to competition in a packaging  technology,  which
enhances cost, performance, and size.

Products

<TABLE>
Our products consist of thin film integrated  passive products and semiconductor
products and  generally  range in price from $0.20 to $1.00 per unit,  with some
specialized  or  special  purpose  products  priced up to $10.00  per unit.  The
following  table  provides   information   regarding  our  product  families  by
application:
<CAPTION>

             Application                Product Name                                      Typical Markets

<S>                                     <C>                                 <C>
Filters ...........................     PAC1284, PRC 1284, PRC, PACT,       Computers, Mobile Phones, Personal Digital
                                        PACUSB, PACGAME, PACKBM             Assistants, Set Top Boxes

Termination Devices................     PACDN, PACR, PRN, PACRAMBUS,        Computers, Base Stations, Networks
                                        PACGTL, PACAS, PRC, PACTF,
                                        PACV,CSPPT, CSPST, PACNLT

Resistor Networks..................     PACAC 97, PAC27A, PRN               Computers, Automobiles, Medical Devices,
                                                                            Audio Equipment, Test Equipment, Power
                                                                            Supplies, Networks

ESD Protection.....................     PACDN, DN, PDN, PACVGA              Mobile Phones, Personal Digital Assistants,
                                                                            Computers, Set Top Boxes

Power Management...................     CMPWR, PAC27                        Network Interface Cards, Modems, Cable
                                                                            Modems

Amplifiers.........................     CMC7, CMAMP, AMPM                   Audio Equipment, Instrumentation, Mobile
                                                                            Phones

Microprocessors and Peripherals....     G655, G65SC                         Telephone Switching

Dual Tone Multiple Frequency.......     CM8870, CM8880, CM8888, G8912       10-10 XXX Dialers, Telephone Switching,
                                                                            Answering Machines, Caller ID, PBX, Smart
                                                                            Phones
</TABLE>


Thin Film Integrated Passive Products

Our integrated  passive devices are application  specific,  high volume standard
and lower volume  custom  products.  They  represent  complete  solutions to the
electronic  problems of  termination,  filtering,  and  electrostatic  discharge
protection that plague many system designers.  Most of the systems in our target
markets include a core of highly  integrated  circuits,  accompanied by discrete
passive  components,  and low integration level integrated  circuits or discrete
semiconductors.  We  service  the need for the  integration  of these  companion
components,   which  in  recent  years  have

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<PAGE>
come to dominate the size and significantly impact the cost of most systems. Our
thin film product offerings fall into two categories:

     o   Our  P/Active  family of  components,  called "PAC" in the table above,
         optimizes high frequency  performance,  density,  reliability and other
         capabilities.  These devices are application  specific passive networks
         targeted to solve industry  standard  applications or to complement the
         semiconductor offerings of the industry's leading chip suppliers.  They
         take  full  advantage  of the  inherent  capabilities  of  the  silicon
         substrate to be used as interconnect  between  devices,  shield for low
         noise capabilities, and even impedance control. They often include some
         semiconductor  devices  as  part  of the  solution,  particularly  when
         electrostatic discharge protection is required.

     o   Our Integrated Passive Electronic Component products are cost effective
         solutions for customers with high volume requirements or those that can
         take advantage of our  capabilities  to provide tight  tolerances,  low
         temperature  coefficients,  tight matching between components, or other
         special  characteristics.  These  products  are often custom in nature.
         They are typically  simpler in function and easier to  manufacture  and
         are often well suited for very low cost applications.

We also offer a variety of precision and  non-precision  thin film resistors and
capacitors  as  well  as   combinations  of  those  elements  with  and  without
semiconductor  devices.  Devices can be  manufactured  on a variety of different
substrates.  We have  particular  strength  in the  area  of  resistor-capacitor
filters,  a rapidly  growing  and  complex  segment  of the  integrated  passive
component  business.  We sell  these  products  both in  standard  semiconductor
industry packages,  primarily surface mount technology,  as chip scale packages,
and as unpackaged die. Packaged devices currently represent the dominant portion
of our business,  although we expect our new chip scale packages to represent an
increasing portion.

Semiconductor Products

We  manufacture  CMOS based  analog  circuits,  utilizing  feature  sizes of 1.5
microns or greater.  We have  developed and  introduced  four new  semiconductor
product   families:   power  management   solutions,   operational   amplifiers,
electrostatic  discharge protection devices, and combination devices targeted at
the multiple functions on the VGA port of computers.

     o   Our power  management  devices are single chip solutions that implement
         the  power   management   techniques   used  in  computer  and  network
         enhancements such as network interface cards,  modems, and other system
         functions which must remain operational when major parts of systems are
         powered down.

     o   Our  operational  amplifier  focus is on providing  extremely low power
         consumption  products  that  are  attractive  in the  portable  systems
         markets.  Operational  amplifiers  are used in the processing of analog
         electrical  signals. We can integrate multiple  operational  amplifiers
         with passive components to provide higher level functions.

     o   Our electrostatic  discharge  protection  devices are typically used to
         protect connector interfaces and other external elements. These devices
         are often combined with signal termination and filtering functions.

     o   We have  introduced  a family of products  for the VGA port on personal
         computers.  These  devices  combine  buffer  amplifiers,  electrostatic
         discharge  protection,  level shifting  functions,  and termination and
         biasing  resistors for handling the  multiplicity of needs on the video
         port of computers.

Our traditional semiconductor business includes mixed signal integrated circuits
that  combine  digital and analog  functions on a single  chip.  Product  groups
include data communications and interface families,  and telecommunication  dual
tone multi-frequency  receiver and transceiver products. These products are used
in customer applications such as 10-10-XXX dialers, answering machines, portable
telephones and switching systems.  Additionally,  we continue to manufacture the
65CXX family of microprocessors.

Technology Licensing

In fiscal 2001, we announced our intention to license a new patented  technology
to  be  marketed  under  the  trademark   EZTerm(TM).   This  technology  solves
transmission line termination problems through the use of a  semiconductor-based
solution instead of the traditional passive component approach.  As a result, it
can be designed  directly  into an  Integrated  Circuit (IC) without any special
processing  or added  cost.  The Company  offers for sale a line of  termination

                                       7

<PAGE>
products using this technology, under the name "PACNLT". The Company has already
been issued two patents in this area with  several  additional  applications  in
process.

As of  the  date  of  this  report  we  have  not  entered  into  any  licensing
arrangements for this technology and there is no assurance that we will do so in
the future.

Foundry Operations

We  participate  in the foundry  business,  in which  wafers are  fabricated  to
customer  specifications using customer designed tooling. Most of these products
are built using unique  processes  that do not directly  compete with the larger
foundries in Southeast Asia and  elsewhere.  Our intent is to do foundry work to
leverage the utilization of our facilities in Tempe, Arizona, while building our
own products and establishing  relationships  with key partners.  In fiscal 2000
and 2001, our major foundry customer was Sipex Corporation,  which announced the
opening of its own facility in calendar 2000.  Sipex  represented  approximately
4.6% of product sales in fiscal 2001.

Customers

Our customers are original equipment  manufacturers,  contract manufacturers and
distributors.  In fiscal 2001  approximately  48% of our revenues  came from the
sale of our products directly to original  equipment  manufacturers and contract
manufacturers.  No single end use customer accounted for over 10% of net product
sales in fiscal year 2001,  2000, and 1999. The following were our major end use
customers for fiscal 2001 and the markets  served by our customers with products
into which our devices are incorporated:

     ACER Group                                 Personal Computers
     Agilent Technologies                       Optical Components and Test
                                                 and Measurement Equipment
     Celestica, Inc.                            Contract Manufacturing
     Cisco Systems                              Networks
     Guidant Corporation                        Medical Devices
     Intel Corporation                          Computers
     ITI Limited                                Telephone Switching
     Nortel Networks                            Networks and Infrastructure
     Samsung Electronics Co. Ltd.               Mobile Phones, Computers
     Solectron Corporation                      Contract Manufacturing
     3 COM Corporation                          Networks

In fiscal 2001,  52% of our revenues came from the sale of our products  through
distributors.  In fiscal 2001, no single distributor  accounted for greater than
10% of net  sales.  In fiscal  2000,  Arrow  Electronics,  Inc.  and  Excelpoint
Systems, our two largest  distributors,  accounted for approximately 17% and 14%
of net  product  sales,  respectively.  In fiscal  1999,  no single  distributor
accounted for greater than 10% of net sales.

Sales and Marketing

We focus our marketing efforts on high growth electronics sectors, including the
areas  of  computers  and  peripherals,   portable  communications  devices  and
telecommunications   infrastructure,   and  network  systems.  Additionally,  we
concentrate our efforts on major worldwide  electronic system  manufacturers who
are considered  market leaders in these segments,  and where we feel we have the
greatest  opportunities  and ability to influence  the  industry at large.  This
often involves a longer design-in cycle, but we believe it has greater long-term
business potential.

Our products are primarily specified through contact with customers' engineering
departments,  as well as their procurement and manufacturing personnel.  Most of
the systems into which our products  are designed  have short life cycles.  As a
result,  we require a significant  number of new design wins on an ongoing basis
to maintain and grow revenue.

We  work  with  existing  and  potential   customers  to  identify  passive  and
specialized  semiconductor  component needs that our capabilities  address,  and
seek to have customers  design our solutions into their products.  We facilitate
these  efforts

                                       8

<PAGE>
by  providing   customized  solutions  as  necessary  to  meet  customer  design
requirements.  These customized  designs,  and the knowledge acquired during the
design process, can often be used to create standard products, which we can then
offer for similar  applications  in other areas.  In this respect,  our business
style is closer to that of a semiconductor company, than that of the traditional
passive component company.

Our  sales   channels   consist   primarily  of   independent   regional   sales
representatives  managed by our sales force,  with its headquarters in Milpitas,
California and regional sales offices throughout the United States,  Europe, and
Asia. We sell through  distributors  in the United States,  Asia and Europe,  to
provide  sources of our products at locations  closer to the  customers.  As our
standard product line expands, more of our sales may be through distributors.

There is a distinct shift from original equipment  manufacturing towards the use
of contract  manufacturing  within our customer  base,  and we believe that this
trend will continue.  Since the end of fiscal 1998 and continuing through fiscal
2001, a contract  manufacturer  has been our single largest direct  purchaser of
product.

Foreign sales  accounted for 48%, 43%, and 39% of product sales for fiscal years
ended March 31, 2001, 2000, and 1999, respectively.  Many of those products were
designed  into  United  States  based  original   equipment   manufacturers  and
subcontracted  through  overseas  assemblers.  We use independent  foreign sales
representatives and distributors to provide  international sales support,  along
with our  employees  based  abroad.  We expect  that  international  sales  will
continue to  represent a  significant  portion of our sales for the  foreseeable
future. Our sales are denominated in U.S. dollars.

Manufacturing

Our  manufacturing  processes  are complex,  and require  production in a highly
controlled, clean environment suitable for fine tolerances. We currently operate
wafer fabrication facilities in Milpitas, California and Tempe, Arizona that are
ISO 9001 and 9002  certified,  respectively.  The Milpitas  facility  includes a
10,000 square foot clean room and primarily  uses four and five inch round and 4
1/2 inch square wafers to manufacture  thin film passive  components.  The Tempe
facility  includes a 16,000 square foot clean room and is equipped for five-inch
wafer  fabrication  of both  thin  film  passive  components  and  semiconductor
products.  We use subcontractors in Asia,  primarily in Thailand,  for assembly,
packaging,  and testing of most of our products.  We also have the capability in
our Milpitas  facility to produce chip scale products,  utilizing  either plated
solder bumps or solder balls.

We  manufacture  our  products  using  industry  standard   semiconductor  wafer
fabrication  equipment  that  we  modify  as  necessary.  We  have  historically
purchased  used  processing  equipment  at  significantly  lower  cost  than new
equipment,  but have also  purchased new equipment for some  operations  when it
could  be shown to be more  cost  effective  or  where  used  equipment  was not
available.

Research and Development

Our research and  development  programs  consist  primarily  of  developing  new
products,  processes,  and  materials in response to  identified  market  needs.
Additionally,  we redesign  existing  products to reduce  costs and expand their
capabilities  and  performance.  On March 31,  2001,  we had 32 engineers in our
research and  development  department and process  development  and  improvement
organizations who averaged 16 years of experience.

For the fiscal years ended March 31, 2001, 2000 and 1999, we spent $3.4 million,
$3.4  million,  and $3.7  million,  respectively,  on research  and  development
activities.

Intellectual Property

In the last five  years,  we have been  granted  12 U.S.  and 3 foreign  patents
related to our thin film and semiconductor  technologies.  We have 16 U.S. and 9
foreign  patent  applications  pending  relating to specific  embodiments of our
proprietary  resistor,  capacitor,  diode,  process  and  semiconductor  product
technologies. We have also established domestic and international trademarks for
our P/Active family of devices.

                                       9

<PAGE>
We have  acquired  a  non-exclusive,  non-assignable  license  with  respect  to
manufacturing flip chip, or "bumped" die, from Flip Chip Technologies. Under the
terms of this  license,  we can utilize  certain of Flip Chip's Ultra Chip Scale
packaging technologies.

Our  policy  is to apply for  patent  protection  for our  unique  products  and
manufacturing processes where such protection is warranted. Process technologies
are more often  designated  as trade  secrets.  With respect to mask works,  our
policy is to selectively seek copyright protection. We protect our trade secrets
by having our employees sign  confidentiality  and non-disclosure  agreements as
part  of our  personnel  policy.  It is not our  intention  to  rely  solely  on
protection of intellectual  property rights to deter competition.  However, when
and  where  appropriate,   we  have  taken  aggressive  action  to  protect  our
intellectual property rights.

Competition

Competition in the passive  component  industry is based on a number of factors,
including  price,  product  performance,   established  customer  relationships,
manufacturing  capabilities,  product  development  and  customer  support.  Our
primary competition has come from established  competitors and from pre-existing
technologies.  Many of our  competitors  have announced that they are or will be
providing  thin film  products  in  addition  to their  traditional  thick  film
devices.  We have seen only  sporadic  thin film  competition  but  continue  to
believe that this market will become more competitive.

Because our markets are highly  fragmented,  we  generally  encounter  different
competitors  in our  various  market  areas.  Competitors  with  respect  to our
integrated  passive  products include  AVX/Kyocera,  Beckman  Industrial  Corp.,
Bourns,  Intarsia,  IRC, KOA-Speer,  Matsushita  Electronics  Components,  Ltd.,
Murata-Erie of North America,  Inc.,  Philips  Electronics  N.V. Ltd., ROHM Co.,
STMicroelectronics  N.V., TDK Corp. of America and Vishay Intertechnology,  Inc.
In  the  semiconductor  area,  our  competitors  include  Cherry  Semiconductor,
Fairchild   Semiconductor,    Linear   Technology,    Maxim,   Mitel,   Motorola
Semiconductor,  Semtech, STMicroelectronics N.V., Telcom Semiconductor and Texas
Instruments.

Environmental

We are  subject  to a  variety  of  federal,  state  and  local  regulations  in
connection  with the  discharge  and  storage  of certain  chemicals  during our
manufacturing  processes.  We believe  that we are in  compliance  with all such
environmental  regulations.  Industrial  waste  generated at our  facilities  is
either processed prior to discharge or stored in barrels with double containment
methods  until  removed  by an  independent  contractor.  We have  obtained  all
necessary permits for such discharges and storage.

Employees

As of March 31, 2001, we had 309 full-time and part-time employees, including 33
in  sales  and  marketing,  32  in  engineering  and  research  and  development
activities and in-process  development  and  improvement  organizations,  221 in
manufacturing,  and 23 in administration.  None of our employees is subject to a
collective bargaining agreement. We consider our relations with our employees to
be good.

                                       10

<PAGE>

Risk Factors

You  should  carefully  consider  the  following  risks  as  well  as the  other
information  contained in this Form 10-K. If any of the following risks actually
occur,  our business  could be harmed and the trading  price of our common stock
could decline.

We  incurred  losses in our  fiscal  years 1998 and 1999 and we may be unable to
sustain profitability.

We have  experienced  losses for each quarter and fiscal year from June 30, 1998
through  September  30,  1999.  We incurred  net losses of $2.8  million for our
fiscal year ended March 31, 1999 and $594,000 for the nine months ended December
31,  1999.  Profits in the quarters  ended  December 31, 1999 and March 31, 2000
were sufficient to make the fiscal year ended March 31, 2000 profitable. We were
profitable  for the year ended March 31, 2001 but  unprofitable  for the quarter
ended  March 31,  2001.  We cannot  assure  you that we will be able to  achieve
revenue levels that would result in  profitability.  Our accumulated  deficit at
March 31, 2001 was $31.3 million.

Our  operating  results  may  fluctuate  significantly  because  of a number  of
factors, many of which are beyond our control.

Our  operating  results may  fluctuate  significantly.  Some of the factors that
affect our quarterly and annual operating  results,  many of which are difficult
to control or predict, are:

     o   the reduction, rescheduling or cancellation of orders by customers;

     o   fluctuations in the timing and amount of customer  requests for product
         shipments;

     o   fluctuations in the manufacturing output,  yields, and inventory levels
         of our suppliers;

     o   changes in the mix of products that our customers purchase;

     o   our ability to introduce new products on a timely basis;

     o   the announcement or introduction of products by our competitors;

     o   the availability of third-party assembly capacity and raw materials;

     o   competitive pressures on selling prices;

     o   market acceptance of our products;

     o   general conditions in the computer, telecommunications, networking, and
         general semiconductor and passives industries; and

     o   general economic conditions.

Our markets are subject to rapid technological  change.  Therefore,  our success
depends on our ability to develop and introduce new products.

The markets for our products are characterized by:

     o   rapidly changing technologies;

     o   changing customer needs;

     o   frequent new product introductions and enhancements;

     o   increased integration with other functions; and

     o   rapid product obsolescence.

To develop new products for our target markets, we must develop, gain access to,
and use leading technologies in a cost-effective and timely manner, and continue
to expand our  technical  and design  expertise.  In addition,  we must have our
products designed into our customers' future products and maintain close working
relationships  with key  customers  in order to develop new  products  that meet
their changing needs.

                                       11

<PAGE>

In addition,  products for some  applications  are based on new and  continually
evolving industry  standards.  Our ability to compete will depend on our ability
to identify and ensure compliance with these industry standards. As a result, we
could be required to invest significant time and effort and to incur significant
expense to redesign our products to ensure compliance with relevant standards.

We may not be able to identify new product  opportunities,  successfully develop
and bring to market new products,  achieve design wins or respond effectively to
new  technological  changes  or product  announcements  by our  competitors.  In
addition, we may not be successful in developing or using new technologies or in
developing new products or product  enhancements that achieve market acceptance.
Our pursuit of necessary technological advances may require substantial time and
expense. Failure in any of these areas could harm our operating results.

Our  future  success  depends  in  part  on the  continued  service  of our  key
engineering  and  management  personnel  and our ability to  identify,  hire and
retain additional personnel.

There is  intense  competition  for  qualified  personnel  in the  semiconductor
industry,  in particular for the highly skilled  design,  applications  and test
engineers  involved  in the  development  of  new  analog  integrated  circuits.
Competition  is  especially  intense in the San  Francisco  Bay area,  where our
corporate  headquarters and our Milpitas factory are located,  as well as in the
Tempe,  Arizona area, where our other factory is located.  We may not be able to
continue to attract and retain engineers or other qualified  personnel necessary
for the  development of our business or to replace  engineers or other qualified
personnel  who may leave our employ in the  future.  Any growth is  expected  to
place increased demands on our resources and will likely require the addition of
additional  management  and  engineering  personnel,   and  the  development  of
additional expertise by existing management personnel.  Loss of the services of,
or failure to recruit,  key  engineers  or other key  technical  and  management
personnel, or key top management, could harm our business.

The cyclicality of the semiconductor  industry could result in pricing pressures
for our products that could lower our net sales and  operating  margins and harm
our profitability.

We are dependent on the semiconductor  industry.  The semiconductor  industry in
general has historically experienced significant downturns and wide fluctuations
in supply and demand. The industry has also experienced significant fluctuations
in  anticipation  of  changes in general  economic  conditions.  This has caused
significant  variances in product demand,  production capacity and rapid erosion
of average selling prices. Industry-wide fluctuations in the future could result
in pricing pressure on our products and lower demand for our products that could
harm our operating margins and net sales.

We do our own wafer  fabrication  and do not have alternate  sources for most of
our processes.

We operate our own semiconductor and thin film wafer  manufacturing  facilities.
While some of the  processes  from our Milpitas  factory can be run in our Tempe
facility,  and vice versa, in general our processes are unique to the factory in
which they are being  produced.  We provide these  fabrication  facilities  with
rolling forecasts of our production  requirements.  However, the ability of each
facility to provide wafers to us is limited by the foundry's  available capacity
and influenced by rapid changes in mix.  Accordingly,  we cannot be certain that
these  facilities  will be able to supply  sufficient  capacity  to satisfy  our
requirements.  In addition,  much of our  equipment has been utilized for a long
time,  and can be subject  to  unscheduled  downtime.  Other  significant  risks
associated with our wafer manufacturing include:

     o   the lack of assured wafer supply,  chemicals,  or other materials,  and
         control over delivery schedules;

     o   the  unavailability  of, or delays in obtaining  access to, key process
         technologies;

     o   the  unavailability  of, or delays in the  ability  to hire and  train,
         sufficient manufacturing personnel;

     o   the variability in manufacturing yields and productivity; and

     o   the  availability  of spare  parts and  maintenance  service  for aging
         equipment.

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<PAGE>

We could  experience a substantial  delay or interruption in the shipment of our
products or an increase in our costs due to many reasons, including:

     o   a sudden, unanticipated demand for our products;

     o   a  manufacturing  disruption  experienced  by one or more of our  wafer
         fabrication facilities;

     o   errors in fabrication or defects in raw materials;

     o   the time required,  or the inability to identify or qualify alternative
         manufacturing  sources  for  existing  or new  products  in the case of
         disruption;

     o   failure of our suppliers to obtain the raw materials and equipment used
         in the production of our integrated  circuits and integrated  passives;
         or

     o   unavailability of sufficient capacity to expand chip scale production.

The markets in which we participate  are intensely  competitive and our products
are not sold pursuant to long-term contracts.

Our  target   markets  are  intensely   competitive.   Our  ability  to  compete
successfully in our target markets depends on the following factors:

     o   designing new products that implement new technologies;

     o   subcontracting  the assembly of new products and  delivering  them in a
         timely manner;

     o   product quality and reliability;

     o   technical support and service;

     o   timely product introduction;

     o   product performance and features;

     o   price;

     o   end-user acceptance of our customers' products;

     o   compliance with evolving standards; and

     o   market acceptance of competitors' products.

In addition,  our  competitors  or customers may offer new products based on new
technologies, industry standards or end-user or customer requirements, including
products  that  have  the   potential  to  replace  or  provide   lower-cost  or
higher-performance  alternatives  to  our  products.  The  introduction  of  new
products by our  competitors  or customers  could render our existing and future
products  obsolete or unmarketable.  In addition,  our competitors and customers
may introduce products that integrate the functions  performed by our integrated
circuits on a single integrated circuit, or combine our integrated passives onto
the integrated circuit, thus eliminating the need for our products.

Generally,  our sales are not  subject  to  long-term  contracts  but  rather to
short-term releases of customer purchase orders, most of which are cancelable on
relatively short notice.  The timing of these releases for production as well as
custom  design work is not under our control.  The  percentage  of revenues from
turns orders (orders booked and shipped in the same quarter) has ranged from 61%
in the quarter  ended June 30, 1999 to as low as 19% for the quarter ended March
31, 2001, making our quarterly  revenue dependent on short term orders.  Because
of the short  life  cycles  involved  with our  customers'  products,  the order
pattern from individual customers can be erratic with inventory accumulation and
de-accumulation  during phases of the life cycle for our customers' products. As
a result,  we may  experience  quarterly  fluctuations  in revenue and operating
results and the risk of inventory write-offs.

Because our markets are highly  fragmented,  we  generally  encounter  different
competitors  in our  various  market  areas.  Competitors  with  respect  to our
integrated  passive  products include  AVX/Kyocera,  Beckman  Industrial  Corp.,
Intarsia, IRC, KOA-Speer,  Matsushita Electronics Components., Ltd., Murata-Erie
of North America,  Inc.,  Phillips  Electronics,  ROHM Co.,  STMicroelectronics,
N.V., TDK Corp. of America and Vishay  Intertechnology,  Inc., N.V., Ltd. In the

                                       13

<PAGE>
semiconductor  area, our  competitors  include Cherry  Semiconductor,  Fairchild
Semiconductor, Linear Technology, Maxim, Mitel, Motorola Semiconductor, Semtech,
STMicroelectronics,  N.V., Telcom  Semiconductor and Texas Instruments.  Many of
our competitors are greater than us in size and have larger  financial and other
resources than we do.

If we are  unable to further  penetrate  the  markets  for  personal  computers,
telecommunications,  or networking  devices, or if these markets fail to grow as
expected, our revenues could stop growing and may decline.

A  significant  portion  of our  revenues  in recent  periods  has been,  and is
expected to  continue to be,  derived  from sales to  manufacturers  of personal
computer,  telecommunication,  and  networking  products.  In order for us to be
successful, we must continue to penetrate these markets.  Furthermore,  if these
markets fail to grow as expected, our business could be materially harmed.

If we are unable to maintain  our present  foundry  relationship  with the Sipex
Corporation,  or if their use of our capabilities were to decline,  our revenues
would be impacted.

In the last three fiscal years we have  derived  approximately  2.5 to 5% of our
revenue  from foundry  business  with the Sipex  Corporation.  In the last year,
Sipex built its own  facility.  It is likely that Sipex will  attempt to install
the  process we run for them in their own  facility.  If that  happens,  we will
likely  lose  this  business.  We may not be able  to find  replacement  foundry
business at that time or in the future.

We  expect  that  revenues  currently  derived  from some  older  communications
products will decline in future periods,  and our business will be harmed if our
other products fail to compensate for this decline.

We  manufacture  some older  microprocessor  products that are currently used in
places such as India's telephone system and other  telecommunications  products.
Since  all  other  significant  manufacturers  of these  products  are no longer
participating  in these markets,  our revenues have  increased.  However,  these
devices are not being designed into new systems, so the business will eventually
decline.  Additionally,  we manufacture a family of old tone generator products,
called DTMF circuits,  which are used for tone  recognition on analog  telephone
systems. As long as this communication  system is in use, there will be periodic
spurts of revenue from increased  usage when new functions are  introduced,  but
the  long-term  business  trend is most  likely  down.  If we are unable to find
replacement business for this revenue, our overall business will suffer.

Our dependence on third-party  subcontractors  to assemble and test our products
subjects us to a number of risks, including an inadequate supply of products and
higher manufacturing costs.

We depend on independent subcontractors for the assembly and most of the testing
of our products. As a result, we face significant risks including:

     o   reduced control over delivery schedules and quality;

     o   the  potential  lack of  adequate  capacity  during  periods  of excess
         industry demand;

     o   difficulties selecting and integrating new subcontractors;

     o   limited warranties on products supplied to us;

     o   potential  increases  in prices  due to  capacity  shortages  and other
         factors; and

     o   potential misappropriation of our intellectual property.

If we fail to  deliver  our  products  on time or if the  costs of our  products
increase, then our profitability and customer relationships could be harmed.

Our  reliance  upon  foreign  suppliers  exposes  us to  risks  associated  with
international operations.

We use  assembly  and test  subcontractors  in Asia,  primarily  in Thailand and
Malaysia,  for most of our  products.  We intend to  continue  transferring  our
testing and shipping  operations to foreign  subcontractors.  Our  dependence on
these subcontractors involves the following substantial risks:

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<PAGE>
     o   political and economic instability;

     o   disruption to air transportation from Asia; and

     o   changes in tax laws, tariffs and freight rates.

These risks may lead to delayed product delivery or increased costs, which would
harm our  profitability  and customer  relationships.  In addition,  we maintain
significant  inventory  of die at our  foreign  subcontractors  that could be at
risk.

We also "drop-ship" product from these foreign subcontractors to customers. This
has the effect of both saving  freight  charges and reducing the delivery  cycle
time.  However, it increases our exposure to disruptions in operations not under
our direct  control and has required us to enhance our computer and  information
systems to coordinate this remote activity.

Our  dependence  on a  limited  number  of  subcontractors  may  expose us to an
increased risk of manufacturing disruption or uncontrolled price changes.

Due to the volume of our products, we believe it is impractical for us to spread
our use of  subcontractors  over more than a few suppliers  without  significant
increases in our costs.  Although to date we have not  experienced  any material
disruptions with respect to our subcontractors, if the operations of one or more
of our  subcontractors  should  be  disrupted,  our  business  may be  adversely
impacted.  In  addition,  the  volatility  of  the  semiconductor  industry  has
occasionally   resulted  in  shortages  of  subcontractor   capacity  and  other
disruption of supplies. We may not be able to find sufficient  subcontractors at
a reasonable price or at all if such disruptions occur.

Our reliance on foreign  customers  could cause  fluctuations  in our  operating
results.

International  sales  accounted  for 48% of net sales for fiscal  2001,  43% for
fiscal  2000,  and 39% for fiscal 1999.  International  sales may account for an
increasing  portion of our  revenues,  which would  subject us to the  following
risks:

     o   changes in regulatory requirements;

     o   tariffs and other barriers;

     o   timing and availability of export licenses;

     o   political and economic instability;

     o   difficulties in accounts receivable collections;

     o   difficulties  in staffing and managing  foreign  subsidiary  and branch
         operations;

     o   difficulties in managing distributors;

     o   difficulties in obtaining governmental approvals for certain products;

     o   limited intellectual property protection;

     o   foreign currency exchange fluctuations;

     o   the burden of  complying  with and the risk of violating a wide variety
         of complex foreign laws and treaties; and

     o   potentially adverse tax consequences.

In addition,  because  sales of our products  have been  denominated  to date in
United States dollars,  increases in the value of the United States dollar could
increase the relative  price of our products so that they become more  expensive
to customers in the local currency of a particular country. Furthermore, because
some of our customer  purchase  orders and  agreements  are  influenced,  if not
governed,  by foreign  laws,  we may be limited  in our  ability to enforce  our
rights under these agreements and to collect damages, if awarded.

                                       15

<PAGE>
If our distributors or sales representatives  experience financial difficulty or
otherwise are unwilling to promote our products, our business could be harmed.

We sell many of our products through distributors and sales representatives. Our
distributors and sales  representatives could reduce or discontinue sales of our
products  or may  sell  our  competitor's  products.  They  may not  devote  the
resources  necessary  to sell our  products  in the  volumes and within the time
frames that we expect. In addition,  we depend upon the continued  viability and
financial  resources of these  distributors and sales  representatives,  some of
which are small  organizations with limited working capital.  These distributors
and sales  representatives,  in turn,  depend  substantially on general economic
conditions and conditions within the electronics  industry.  We believe that our
success   will   continue   to  depend   upon  these   distributors   and  sales
representatives.  If our distributor Arrow  Electronics Inc., in particular,  or
some of our other distributors and sales  representatives  experience  financial
difficulties,  or otherwise  become  unable or unwilling to promote and sell our
products, our business could be harmed.

Many of our  products  have long,  high-risk  sales cycles that expose us to the
possibility of delayed return,  or complete loss of our research and development
investment.

Due to the nature of our products,  we not only have a long design-in cycle, but
many of the design wins risk replacement  with other competing  components until
the time the system is released to  manufacturing.  It  typically  takes us more
than 12 months to realize volume  shipments  after we first achieve a design win
with a customer. We first work with customers to achieve a design win, which may
take nine months or longer. Our customers then complete the design,  testing and
evaluation  process and begin to ramp up  production,  a period which  typically
lasts an  additional  three months or longer.  At any point during this time, we
may lose the  design.  As a result,  a  significant  period  of time may  elapse
between our research and development  efforts and our realization of revenue, if
any, from volume purchasing of our products by our customers.

Due to the  volatility  of  demand  for our  products,  our  inventory  may from
time-to-time  be in excess of our needs,  which could cause  write-downs  of our
inventory.

Generally  our products  are sold  pursuant to  short-term  releases of customer
purchase  orders  and some  orders  must be filled  on an  expedited  basis.  In
addition,  many  of our  products  are  specific  to  individual  customers.  We
typically plan our production and inventory  levels based on internal  forecasts
of  customer   demand,   which  is  highly   unpredictable   and  can  fluctuate
substantially.  Therefore,  we often  order  materials  and at  least  partially
fabricate product in anticipation of customer requirements.  In order to achieve
level line  loading and  efficiencies  in  manufacturing,  we may also order and
process materials in advance of anticipated customer demand.

In the last two years,  there has been a trend toward  vendor-managed  inventory
among some large  customers.  In such  situations,  we do not  recognize  either
revenue or bookings  until such time as the customer  withdraws  inventory  from
stock. This imposes the burden upon us of carrying additional  inventory that is
on customer premises.

We value our  inventories  on a  part-by-part  basis to  appropriately  consider
excess inventory levels and obsolete  inventory based on backlog and demand, and
to consider reductions in sales price. However, due to the volatility of demand,
and the fact that many of our  products are  specific to  individual  customers,
backlog is subject to revisions  and  cancellations  and  anticipated  demand is
constantly changing,  which may result in adjustments to inventory valuations in
the future.

Our backlog may not result in future revenue.

Due to possible  customer  changes in delivery  schedules and  cancellations  of
orders,  our  backlog  at any  particular  point  in  time  is  not  necessarily
indicative  of actual sales for any  succeeding  period.  A reduction of backlog
during any particular  period, or the failure of our backlog to result in future
revenue, could harm our business.

                                       16

<PAGE>

Our operating expenses are relatively fixed.  Therefore, we have limited ability
to reduce expenses quickly in response to any revenue shortfalls.

Our operating  expenses are relatively  fixed,  and  therefore,  we have limited
ability  to reduce  expenses  quickly in  response  to any  revenue  shortfalls.
Consequently,  our operating  results will be harmed if our revenues do not meet
our  projections.  We may  experience  revenue  shortfalls for the following and
other reasons:

     o   significant pricing pressures that occur because of declines in average
         selling prices over the life of a product;

     o   sudden  shortages  of raw  materials or  fabrication,  test or assembly
         capacity  constraints  that lead our  suppliers  to allocate  available
         supplies or capacity to other  customers and, in turn, harm our ability
         to meet our sales obligations; and

     o   reduction, rescheduling, or cancellation of customer orders.

We may, in the future,  make  acquisitions  of other companies that will involve
numerous risks. We cannot assure you that we will be able to address these risks
successfully  without  substantial  expense,   delay  or  other  operational  or
financial problems.

The risks involved with acquisitions include:

     o   diversion of management's attention;

     o   failure to retain key personnel;

     o   amortization of acquired intangible assets;

     o   customer  dissatisfaction  or  performance  problems  with an  acquired
         company;

     o   the cost associated with  acquisitions  and the integration of acquired
         operations; and

     o   assumption  of  known or  unknown  liabilities  or other  unanticipated
         events or circumstances.

We cannot  assure you that we will be able to address  these risks  successfully
without substantial expense, delay or other operational or financial problems.

We may not be able to protect our intellectual property rights adequately.

Our ability to compete is  affected  by our ability to protect our  intellectual
property rights.  We rely on a combination of patents,  trademarks,  copyrights,
mask  work  registrations,   trade  secrets,   confidentiality   procedures  and
non-disclosure and licensing  arrangements to protect our intellectual  property
rights.  Despite  these  efforts,  the steps we take to protect our  proprietary
information may not be adequate to prevent  misappropriation  of our technology,
and our competitors may independently  develop  technology that is substantially
similar or superior to our technology.

More specifically,  our pending patent  applications or any future  applications
may not be approved,  and any issued patents may not provide us with competitive
advantages  and may be challenged by third parties.  If challenged,  our patents
may be found to be invalid or unenforceable,  and the patents of others may have
an  adverse  effect on our  ability  to do  business.  Furthermore,  others  may
independently  develop similar products or processes,  duplicate our products or
processes, or design around any patents that may be issued to us.

We could be harmed  by  litigation  involving  patents  and  other  intellectual
property rights.

As a general matter,  the semiconductor and related industries are characterized
by  substantial  litigation  regarding  patent and other  intellectual  property
rights.  We may be accused of infringing  the  intellectual  property  rights of
third parties.  Furthermore,  we may have certain indemnification obligations to
customers with respect to the infringement of third-party  intellectual property
rights by our  products.  Infringement  claims by third  parties  or claims  for
indemnification  by  customers  or end  users  of our  products  resulting  from
infringement claims may be asserted in the future and such assertions, if proven
to be true, may harm our business.

                                       17

<PAGE>
Any litigation  relating to the  intellectual  property rights of third parties,
whether or not  determined  in our favor or settled by us, would at a minimum be
costly  and could  divert  the  efforts  and  attention  of our  management  and
technical personnel.  In the event of any adverse ruling in any such litigation,
we could be required to pay substantial  damages,  cease the manufacturing,  use
and sale of infringing  products,  discontinue  the use of certain  processes or
obtain a  license  under the  intellectual  property  rights of the third  party
claiming infringement.  A license might not be available on reasonable terms, or
at all.

Earthquakes, other natural disasters, and shortages may damage our business.

Our Milpitas  facility,  including  our  corporate  headquarters,  is located in
California near major earthquake faults that have experienced earthquakes in the
past. In addition,  some of our  suppliers are located near fault lines.  In the
event of a major earthquake or other natural disaster near our headquarters, our
operations  could be harmed.  Similarly,  a major  earthquake  or other  natural
disaster near one or more of our major suppliers,  like the one that occurred in
Taiwan in September 1999, could disrupt the operations of those suppliers, which
could limit the supply of our products and harm our business.

Additionally,  our facility in Tempe,  Arizona is located in a desert  region of
the  southwestern   United  States.   Disruption  of  water  supplies  or  other
infrastructure  support  could  limit the  supply of our  products  and harm our
business.

We have occasionally  experienced power  interruptions at out Tempe facility and
the risks of power  shortages  in  California  and Arizona  have been  reported.
Although we have not  experienced  any  material  disruption  to our business to
date, we cannot  assure that if power  interruptions  or shortages  occur in the
future, they will not adversely affect our business.

Our stock price may continue to be volatile.

The market price of our common stock has  fluctuated  significantly  to date. In
the future, the market price of our common stock could be subject to significant
fluctuations   due  to   general   market   conditions   and  in   response   to
quarter-to-quarter variations in:

     o   our anticipated or actual operating results;

     o   announcements or introductions of new products;

     o   technological innovations or setbacks by us or our competitors;

     o   conditions in the semiconductor and passive components markets;

     o   the commencement of litigation;

     o   changes in estimates of our performance by securities analysts;

     o   announcements of merger or acquisition transactions; and

     o   general economic and market conditions.

In addition,  the stock market in recent years has experienced extreme price and
volume fluctuations that have affected the market prices of many high technology
companies,  particularly semiconductor companies, that have often been unrelated
or   disproportionate   to  the  operating   performance  of  companies.   These
fluctuations,  as well as general  economic and market  conditions  may harm the
market price of our common stock.

The  anti-takeover  provision of our  certificate  of  incorporation  and of the
California  General  Corporation  Law may  delay,  defer or  prevent a change of
control.

Our board of directors  has the  authority to issue up to  10,000,000  shares of
preferred stock and to determine the price,  rights,  preferences and privileges
and  restrictions,  including  voting rights of those shares without any further
vote or action by our  stockholders.  The rights of the holders of common  stock
will be subject  to,  and may be harmed  by,  the  rights of the  holders of any
shares of  preferred  stock that may be issued in the  future.  The  issuance of
preferred  stock may delay,  defer or prevent a change in control.  The terms of
the preferred stock that might be issued could  potentially

                                       18

<PAGE>
make more difficult or expensive our consummation of any merger, reorganization,
sale of  substantially  all of our assets,  liquidation  or other  extraordinary
corporate  transaction.  California Corporation law requires an affirmative vote
of all  classes of stock  voting  independently  in order to approve a change in
control.  In addition,  the  issuance of  preferred  stock could have a dilutive
effect on our stockholders.  Further,  our stockholders must give written notice
delivered  to our  executive  offices no less than 120 days before the  one-year
anniversary  of the date our proxy  statement  was released to  shareholders  in
connection  with the previous  year's annual meeting to nominate a candidate for
director or present a proposal to our  stockholders  at a meeting.  These notice
requirements  could  inhibit a takeover  by  delaying  stockholder  action.  The
California  Corporation  law also  restricts  business  combinations  with  some
stockholders once the stockholder acquires 15% or more of our common stock.

There may be a substantial  disbursement  of shares from the former  Chairman of
California Micro Devices that could negatively impact the stock price.

The former  Chairman of California  Micro Devices still  controls  approximately
1,700,000  shares of our stock. He has entered into a settlement  agreement with
the class of shareholders who sued him for securities fraud in 1994. Pursuant to
that  agreement,  which has been  preliminarily  approved by the Court,  he will
surrender  1,018,221  shares of our common stock, for distribution to the class.
We do not know what effect  disbursement of this amount of stock may have on the
price of our stock nor when the shares will be disbursed.

Our failure to comply with environmental regulations could result in substantial
liability to us.

We are  subject  to a  variety  of  federal,  state and  local  laws,  rules and
regulations  relating to the  protection  of health and the  environment.  These
include  laws,  rules and  regulations  governing the use,  storage,  discharge,
release,  treatment  and  disposal  of  hazardous  chemicals  during  and  after
manufacturing, research and development and sales demonstrations, as well as the
maintenance  of  healthy  and   environmentally   sound  conditions  within  our
facilities. If we fail to comply with present or future regulations, we could be
subject to substantial liability for clean up efforts, property damage, personal
injury and fines or suspension or cessation of our  operations.  Restrictions on
our ability to expand or continue  to operate  our  present  locations  could be
imposed upon us or we could be required to acquire costly remediation  equipment
or incur other significant expenses.

Issuance of new laws or accounting regulations, or re-interpretation of existing
laws or regulations, could materially impact our business or stated results.

From time to time, the government, courts, and financial accounting boards issue
new laws or accounting regulations,  or modify or re-interpret existing ones. We
cannot guarantee that there will not be future changes in laws, interpretations,
or  regulations  that would affect our financial  results or the way in which we
present  them.  Additionally,  changes  in the laws or  regulations  could  have
adverse  effects  on hiring and many other  aspects of our  business  that would
affect our ability to compete, both nationally and internationally.

                                       19

<PAGE>
ITEM 2. PROPERTIES.

We currently lease approximately  40,000 square feet of office,  development and
manufacturing  space,  including a 10,000  square foot clean room,  in Milpitas,
California,  pursuant  to an  agreement  that  expires  on June 30,  2002,  that
provides for a current  monthly rent of $33,619 plus  operating  expenses.  This
rent amount will be increased 3% annually.  We also own five acres of land and a
46,000 square foot building in Tempe,  Arizona which houses a 16,000 square foot
clean room, wafer fabrication, manufacturing, and engineering design center.

We estimate that our wafer  fabrication  capacity  utilization was approximately
58% in Tempe and 37% in Milpitas  by the end of the year ended  March 31,  2001.
Ramping up to full wafer fabrication capacity from both of these locations would
require  moderate  additional  capital   expenditures  as  well  as  an  ongoing
replacement of aging equipment.

ITEM 3. LEGAL PROCEEDINGS.

The Company is a party to lawsuits,  claims,  investigations,  and  proceedings,
including  commercial  and  employment  matters,  which  are being  handled  and
defended in the  ordinary  course of  business.  We are not aware of any pending
legal  proceedings  against the Company that,  individually or in the aggregate,
would have a material  adverse  effect on our business,  operating  results,  or
financial condition.

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

Not applicable.

                                       20

<PAGE>

                                     PART II

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

The  Company's  common  stock trades on the Nasdaq  National  Market tier of The
Nasdaq Stock Market under the symbol "CAMD".

Closing prices by quarter for fiscal 2001 and 2000 are as follows:

                                           Common Stock
                          -----------------------------------------------
         Fiscal 2001         Q1          Q2           Q3          Q4
         -----------      ----------  ----------   ----------  ----------
         High              $32.25      $30.38       $13.63      $12.00
         Low               $12.75      $12.69       $ 6.50      $ 6.44

         Fiscal 2000         Q1          Q2           Q3          Q4
         -----------      ----------  ----------   ----------  ----------
         High               $2.69       $5.69       $13.38      $33.88
         Low                $1.88       $2.13       $ 4.00      $12.94


Certain debt covenants restrict the payment of dividends. No dividends were paid
in  fiscal  2001,  2000,  or 1999.  We  expect to  continue  that  policy in the
foreseeable future.  There were approximately 9,000 common stock shareholders of
record as of March 31, 2001.

ITEM 6. SELECTED FINANCIAL DATA.

<TABLE>
The selected  financial data (in thousands except per common share  information)
set forth below with  respect to  operating  and balance  sheet data are derived
from the financial statements of the Company.
<CAPTION>

                                                                        Twelve Months Ended March 31,
                                              -------------------------------------------------------------------
                                                 2001        2000(1)         1999          1998          1997
                                              -----------   -----------   -----------   -----------   -----------
<S>                                           <C>           <C>           <C>            <C>           <C>
       Total revenues                         $57,534       $43,763       $33,617        $33,043       $32,936

       Income (loss) before income taxes      $ 2,588       $   275(1)    $(2,771)       $(3,005)      $   704

       Net income (loss)                      $ 2,536       $   275(1)    $(2,771)       $(3,005)      $   704

       Net income (loss) per common share
            Basic                             $  0.23       $  0.03(1)    $ (0.28)       $ (0.30)      $  0.07
            Diluted                           $  0.20       $  0.02(1)    $ (0.28)       $ (0.30)      $  0.07

       Total assets                           $44,269       $39,086       $33,644        $35,994       $38,270

       Long-term obligations                  $ 9,480       $ 8,135       $ 8,422        $ 8,159       $ 8,499

<FN>
       (1) Income before income taxes, net income, and related per share amounts
       have been  restated  to reflect  the  affect of a  $357,000  compensation
       charge related to a restricted stock grant.


       As publicly  announced  on April 26,  2001,  the Company had  incorrectly
       accounted  for  certain  restricted  stock  grants.  The  impact  of  the
       restatement  was to change net income for the year ended  March 31,  2000
       from $632,000 to $275,000;  basic earnings per share from $0.06 to $0.03;
       and  diluted  earnings  per share  from $0.05

                                       21

<PAGE>
       to $0.02.  The  restatement  resulted  in an  increase of $357,000 in the
       Company's  accumulated  deficit as of March 31, 2000 from  $33,528,000 to
       $33,885,000,  as well  as a  corresponding  increase  in the  balance  of
       Company's  common  stock  as  of  March  31,  2000  from  $56,479,000  to
       $56,836,000.  As a  result  of the  finding,  the  Company  has  restated
       previously  reported  annual  results,   including  the  March  31,  2000
       financial information set forth herein.
</FN>
</TABLE>

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

In the following  discussion,  fiscal 2001,  2000,  and 1999 refer to the twelve
months ended March 31, 2001, 2000, and 1999, respectively.

Results of Operations

Product sales for fiscal 2001 totaled $57.5 million compared to $43.8 million in
fiscal 2000 and $33.6 million in fiscal 1999.  The 31% increase in product sales
for fiscal 2001 over 2000 was due primarily to increased  sales of new products,
with the  majority of the increase  being in products  for the computer  market.
Units shipped increased 46% in fiscal 2001 compared to the year-earlier  period.
Sales of new  products  (products  introduced  within the past three  years) for
fiscal  2001  increased  by 52% in dollars  and 78% in units as  compared to the
year-earlier  period.  The 30%  increase  in product  sales for fiscal 2000 over
fiscal 1999  reflects  primarily  the  increase  sales to both the  computer and
telecommunications markets.

Research and  development  expenses  were $3.4 million in fiscal 2001 and fiscal
2000 and $3.7 million in fiscal 1999. The higher level of expenditures in fiscal
1999  compared  to fiscal  2001 and  fiscal  2000  reflected  a higher  level of
material costs associated with an emphasis on process development efforts.

Selling,  marketing,  and  administrative  expenses  in fiscal  2001 were  $11.4
million  compared to $10.1 million in fiscal 2000 and $7.3 million in 1999.  The
increase  in fiscal  2001 over  fiscal  2000 and fiscal 2000 over fiscal 1999 is
primarily due to increased commissions, increased personnel costs (including the
expansion of our presence in Europe and the Far East), and increased promotional
activities.

Sales,  marketing,  and administrative  expenses in 2000 reflect the effect of a
$357,000   compensation  charge  related  to  a  contingent  share  grant  to  a
non-employee.  The Company  announced  on April 26, 2001 that it had  discovered
that the grant had been  incorrectly  accounted  for in fiscal 2000 and restated
its previously reported results for 2000.

Interest expense was $982,000, $890,000, and $892,000, in fiscal 2001, 2000, and
1999, respectively.  The increase in interest expense in fiscal 2001 compared to
fiscal 2000 and 1999  primarily  reflects  financing of a portion of our capital
expenditures  during  fiscal 2001,  which were at a higher level of  expenditure
than in fiscal  2000 and fiscal  1999.  Interest  income and other  expense  was
$171,000  in fiscal 2001  compared  to  $419,000 in fiscal 2000 and  $219,000 in
fiscal 1999.  The decrease in fiscal 2001  compared to fiscal 2000 was primarily
due to a $250,000 write off of costs associated with a cancelled public offering
of our common  stock.  The  increase in fiscal 2000  compared to fiscal 1999 was
largely due to increased investment income.

In fiscal  2001,  we  recorded  a  Federal  and State  alternative  minimum  tax
provision of $52,000  after taking into  consideration  the use of net operating
loss  carryforwards.  We did not incur  income tax expense in fiscal 2000 due to
the availability of tax loss  carryforwards,  nor in fiscal 1999 due to having a
net loss in that year.  As of March 31, 2001,  we had Federal and state tax loss
carryforwards of approximately $31.6 million and $2.6 million,  respectively. We
have provided a valuation  allowance  against total deferred tax assets and will
continue to evaluate the realization of these assets on a quarterly  basis.  See
Note 12 of Notes to Financial Statements.

As a result of the above  factors,  we had net income of $2.5  million in fiscal
2001  compared to $.3  million in fiscal 2000 and a net loss of $2.8  million in
fiscal 1999.

                                       22

<PAGE>
Liquidity and Capital Resources

Total cash, short-term securities and investments as of March 31, 2001 were $6.6
million  compared to $6.6  million at March 31, 2000.  Receivables  decreased to
$8.1  million  at March  31,  2001  compared  to $8.9  million  a year  earlier.
Receivables days sales outstanding were 60 days as of March 31, 2001 as compared
to 56 days at March 31, 2000. Inventories increased to $11.7 million compared to
$10.0  million at March 31, 2000,  reflecting  the high level of sales in fiscal
2001. Capital expenditures totaled $6.7 million in fiscal 2001, compared to $2.0
million in fiscal 2000,  reflecting  our investment in new equipment to increase
production  and to support  our  production  of chip scale  products,  which are
expected to ramp up later in calendar 2001.  These  expenditures  were partially
offset by  additional  long  term  debt  financing,  net of  repayments  of $2.2
million. We also received $1.6 million from the sale of common stock through our
employee stock plans during fiscal 2001.

We have a $3.0 million  revolving  secured line of credit agreement that expires
on July 30, 2001. Under the terms of the line of credit,  we can borrow at prime
plus one-half percent,  collateralized by eligible receivables.  We have made no
borrowings  against this line.  During fiscal 1999, we borrowed $650,000 under a
credit agreement, due June 14, 2002, collateralized by certain of our equipment.
The agreement extends for 42 months,  carries an interest rate of 9.9% and has a
prepayment  option.  During fiscal 2001 we entered into an additional  agreement
with the same provider for a $975,000 credit agreement collateralized by certain
of our  equipment  at a 9.6%  interest  rate for a  period  of 48  months.  This
agreement  expires on March 31, 2005.  During  fiscal 2000,  we entered into two
capital equipment financing facilities for $1.0 million and $500,000.  The terms
of these facilities allow us to borrow at prime plus 0.75% and expire on June 30
and August 31, 2003, respectively.  During fiscal 2000 and 2001, we borrowed the
full amounts available under these facilities.  At March 31, 2001, no additional
funds were  available  under these two  facilities.  In July 2000, we secured an
additional $2.0 million  equipment  financing  facility that expires on December
25,  2003.  Under the terms of this  facility  we can borrow at prime plus 0.5%.
During fiscal 2001 we borrowed $997,000 against this $2.0 million  facility.  On
February  9, 2001 the  period to  borrow  the  remainder  of this  facility  was
extended to May 1, 2001. At March 31, 2001,  $1,003,000 remained available under
this  facility.  We are in  compliance  with our  financial  covenants for these
agreements.

We expect to fund our future  liquidity  needs through  existing cash  balances,
cash  flows from  operations,  bank  borrowings,  and  equipment  lease and loan
financing  arrangements.  Depending  on market  conditions  and the  results  of
operations, we may pursue other sources of liquidity.

We believe we have sufficient financial resources to fund our operations for the
foreseeable future.

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We own financial  instruments  that are sensitive to market risks as part of our
investment  portfolio.  The  investment  portfolio  is used to preserve our cash
until it is required to fund operations and capital  investments.  None of these
market-risk  sensitive  instruments  are held for  trading  purposes  except for
amounts related to our non-qualified  deferred  compensation  program. We do not
own derivative financial instruments in our investment portfolio. The investment
portfolio  contains  instruments  that are  subject to  fluctuation  in interest
rates.

Our investment  portfolio  includes debt  instruments  that are primarily United
Stated  government bonds,  high-grade  corporate bonds and money market funds of
less than one year in duration.  These  investments are subject to interest rate
risk,  and could decline in value if interest  rates  increase.  Our  investment
portfolio  also  consists of certain  commercial  paper that is also  subject to
interest rate risk. Due to the short duration and  conservative  nature of these
instruments, we do not believe that we have a material exposure to interest rate
risk.

The  interest  rates on  nearly  all of our  long-term  debt and  capital  lease
obligations  are fixed and therefore not subject to interest rate  fluctuations.
See Note 10 of Notes to Financial Statements.

                                       23

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


                   Index to Financial Statements and Schedules

                                                                     Page Number
                                                                     -----------
Financial Statements:

Report of Ernst & Young LLP, Independent Auditors                          25

Balance Sheets                                                             26
     March 31, 2001 and March 31, 2000

Statements of Operations                                                   27
     Years ended March 31, 2001, March 31, 2000, and March 31, 1999

Statements of Shareholders' Equity                                         28
     Years ended March 31, 2001, March 31, 2000, and March 31, 1999

Statements of Cash Flows                                                   29
     Years ended March 31, 2001, March 31, 2000, and March 31, 1999

Notes to Financial Statements                                              30


Financial Statement Schedule:

Schedule 2         Valuation and Qualifying Accounts                       48



                                     24

<PAGE>

                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

     The Board of Directors and Shareholders
     California Micro Devices Corporation

         We have audited the  accompanying  balance  sheets of California  Micro
     Devices  Corporation  as of  March  31,  2001  and  2000,  and the  related
     statements of operations,  shareholders' equity, and cash flows for each of
     the three  years in the  period  ended  March 31,  2001.  Our  audits  also
     included the financial  statement  schedule  listed in the index at Item 8.
     These  financial  statements  and  schedule are the  responsibility  of the
     Company's management.  Our responsibility is to express an opinion on these
     financial statements and schedule based on our audits.

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

         In our opinion,  the  financial  statements  referred to above  present
     fairly,  in all material  respects,  the  financial  position of California
     Micro Devices Corporation as of March 31, 2001 and 2000, and the results of
     its operations and its cash flows for each of the three years in the period
     ended March 31, 2001 in conformity  with  accounting  principles  generally
     accepted in the United States.  Also, in our opinion, the related financial
     statement  schedule,  when  considered  in relation to the basic  financial
     statements taken as a whole,  presents fairly in all material  respects the
     information set forth therein.

         As discussed in Note 2, the accompanying financial statements as of and
     for the period ended March 31, 2000, have been restated.


                              /s/ERNST & YOUNG LLP

     San Jose, California
     April 25, 2001


                                       25

<PAGE>


<TABLE>
                      CALIFORNIA MICRO DEVICES CORPORATION
                                 BALANCE SHEETS
                    (Amounts in Thousands, Except Share Data)
<CAPTION>

                                                                     March 31,   March 31,
                                                                       2001        2000
                                                                     --------    --------
ASSETS:                                                                        (as restated)
-------
<S>                                                                  <C>         <C>
Current assets:
  Cash and cash equivalents                                          $  2,309    $  1,490
  Short-term investments                                                4,288       5,069
  Accounts receivable, less allowance for doubtful
    accounts of $279 and $219                                           8,068       8,875
  Inventories                                                          11,716       9,994
  Other assets                                                          1,451         980
                                                                     --------    --------
      Total current assets                                             27,832      26,408

  Property and equipment, net                                          14,372      10,637
  Restricted cash                                                         914         902
  Other long-term assets                                                1,151       1,139
                                                                     --------    --------

      Total assets                                                   $ 44,269    $ 39,086
                                                                     ========    ========


LIABILITIES AND SHAREHOLDERS' EQUITY:
-------------------------------------
Current liabilities:
  Accounts payable                                                   $  3,471    $  4,821
  Accrued salaries and benefits                                         1,135       1,097
  Other accrued liabilities                                               657         742
  Deferred margin on shipments to distributors                            772         516
  Current maturities of long-term debt                                  1,415         398
  Current maturities of capital lease obligations                         179         417
                                                                     --------    --------
      Total current liabilities                                         7,629       7,991

  Long-term debt and capital leases, less current maturities            8,947       7,520
  Other long-term liabilities                                             533         615
                                                                     --------    --------
      Total liabilities                                                17,109      16,126

Commitments and contingencies

Shareholders' equity:
  Preferred stock - no par value; 10,000,000 shares authorized;
    none issued and outstanding                                          --          --
  Common stock - no par value; 25,000,000 shares authorized;
    shares issued and outstanding: 11,459,503 as of March 31, 2001
    and 11,037,543 as of March 31, 2000                                58,509      56,836

Accumulated deficit                                                   (31,349)    (33,885)
Accumulated other comprehensive income                                   --             9
Total shareholders' equity                                             27,160      22,960
                                                                     --------    --------

Total liabilities and shareholders' equity                           $ 44,269    $ 39,086
                                                                     ========    ========
</TABLE>

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

                                       26

<PAGE>

<TABLE>
                      CALIFORNIA MICRO DEVICES CORPORATION
                            STATEMENTS OF OPERATIONS
                  (Amounts in Thousands, Except Per Share Data)
<CAPTION>


                                                          Years Ended March 31,
                                                    --------------------------------
                                                      2001        2000        1999
                                                    --------    --------    --------
                                                                (as restated)
<S>                                                 <C>         <C>         <C>
Net sales                                           $ 57,534    $ 43,763    $ 33,617

Cost and expenses:
  Cost of sales                                       39,366      29,571      24,730
  Research and development                             3,405       3,366       3,685
  Selling, marketing and administrative               11,364      10,080       7,300
                                                    --------    --------    --------
    Total costs and expenses                          54,135      43,017      35,715
                                                    --------    --------    --------

Operating income (loss)                                3,399         746     (2 ,098)

Interest expense                                         982         890         892
Interest (income) and other (income) expense, net       (171)       (419)       (219)
                                                    --------    --------    --------
Income (loss) before income taxes                      2,588         275      (2,771)
Provision for income taxes                                52        --          --
                                                    --------    --------    --------
Net income (loss)                                   $  2,536    $    275    $ (2,771)
                                                    ========    ========    ========
Basic earnings (loss)  per share                    $   0.23    $   0.03    $  (0.28)
                                                    ========    ========    ========
Diluted earning (loss) per share                    $   0.20    $   0.02    $  (0.28)
                                                    ========    ========    ========
                                                                            ========
Weighted average common shares outstanding            11,243      10,324      10,017
Dilutive effect of employee stock options              1,141       1,318        --
                                                    --------    --------    --------
Weighted average common shares outstanding,
  assuming dilution                                   12,384      11,642      10,017
                                                    ========    ========    ========
</TABLE>

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

                                       27

<PAGE>

<TABLE>
                                         CALIFORNIA MICRO DEVICES CORPORATION
                                          STATEMENTS OF SHAREHOLDERS' EQUITY
                                       (Amounts in Thousands, Except Share Data)
<CAPTION>

                                                      Common Stock
                                                      ------------                             Accumulated
                                                                                                  Other
                                                Number of                     Accumulated     Comprehensive
                                                 Shares          Amount         Deficit        Income/(Loss)    Total
                                               ------------   ------------    -------------   --------------  --------
<S>                                             <C>                <C>            <C>              <C>         <C>
Balance at March 31, 1998                        9,978,351         $53,011        $(31,389)        $    5      $21,627

Components of comprehensive loss:
  Net loss                                            --              --            (2,771)           --        (2,771)
  Change in unrealized loss on
    available for sale investments                    --              --              --                (3)         (3)
                                                                                                              --------
    Total comprehensive loss                                                                                    (2,774)

  Exercise of stock options                          6,600              26              26
  Employee Stock Purchase Plan                     100,993             211             211
  Stock award                                          200               1               1
  Licensing agreement                               30,000              79              79
                                              ------------    ------------    ------------     -----------    --------
Balance at March 31, 1999                       10,116,144          53,328         (34,160)              2      19,170

Components of comprehensive income
   Net income (as restated)                            275             275
   Change in unrealized income on available
     for sale investments                                7               7
                                                                                                              --------
   Total comprehensive income                          282

Exercise of stock options                          729,641           2,191           2,191
Employee Stock Purchase Plan                       191,758             960             960
Provision for contingent stock award
   (as restated)                                      --               357             357
                                              ------------    ------------    ------------     -----------    --------
Balance at March 31, 2000 (as restated)         11,037,543          56,836         (33,885)              9      22,960

Components of comprehensive income
   Net income                                        2,536           2,536
   Change in unrealized income on available
     for sale investments                               (9)             (9)
                                                                                                              --------
   Total comprehensive income (as restated)          2,527

Exercise of stock options and awards               358,996           1,077           1,077
Repurchases of common stock                        (39,803)           (315)           (315)
Employee Stock Purchase Plan                        72,767             796             796
Stock issued related to contingent
  stock award                                       30,000             115             115
                                              ------------    ------------    ------------     -----------    --------
Balance at March 31, 2001                       11,459,503         $58,509        $(31,349)     $       --     $27,160
                                              ============    ============    ============     ===========    ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
                                                          28

<PAGE>

<TABLE>
                                         CALIFORNIA MICRO DEVICES CORPORATION
                                               STATEMENTS OF CASH FLOWS
                                                (Amounts in Thousands)
<CAPTION>
                                                                                          Years Ended March 31,
                                                                                -------------------------------------------
                                                                                    2001           2000           1999
                                                                                -------------  --------------  ------------
<S>                                                                             <C>            <C>             <C>
Cash flows from operating activities:                                                          (as restated)
  Net income (loss)                                                             $   2,536      $       275     $   (2,771)
  Adjustments to reconcile net income (loss)  to net cash provided by /
  (used in)
    operating activities:
      Depreciation and amortization                                                 2,947            2,899          2,945
      Issuance of common stock in exchange for licensing agreement                                       -             79
      Stock based compensation                                                        115               357             -
Change in operating assets and liabilities:
  Accounts receivable                                                                 807           (4,404)           616
  Inventories                                                                      (1,722)          (1,556)          (346)
  Other assets                                                                       (471)            (388)           394
  Trade accounts payable and other current liabilities                             (1,398)           1,869           (347)
  Other long-term assets                                                              (28)            (384)          (381)
  Other long-term liabilities                                                         (82)             290            323
  Deferred margin on shipments to distributors                                        256              (60)            (5)
                                                                                -------------  --------------  ------------
Net cash provided by (used in) operating activities                                 2,960           (1,102)           507
                                                                                -------------  --------------  ------------
Investing activities:
  Purchases of short-term investments                                             (11,561)          (3,626)        (4,822)
  Sales of short-term investments                                                  12,334            2,735          5,758
  Capital expenditures                                                             (6,666)          (1,981)        (1,544)
  Net change in restricted cash                                                       (12)           1,998              9
                                                                                -------------  --------------  ------------
Net cash used in investing activities                                              (5,905)            (874)          (599)
                                                                                -------------  --------------  ------------

Financing activities:
  Repayments of capital lease obligations                                            (411)            (379)          (357)
  Repayments of debt                                                                 (614)            (306)          (157)
  Additions of long-term debt                                                       3,231              238            650
  Proceeds from issuance of common stock                                            1,558            3,151            238
                                                                                -------------  --------------  ------------
Net cash provided by financing activities                                           3,764            2,704            374
Net increase in cash and cash equivalents                                             819              728            282
Cash and cash equivalents at beginning of period                                    1,490              762            480
                                                                                -------------  --------------  ------------
Cash and cash equivalents at end of period                                      $   2,309      $     1,490     $      762
                                                                                =============  ==============  ============
Supplemental disclosures of cash flow information:
  Interest paid                                                                 $     969      $       890     $      892
Supplemental disclosures of non-cash investing and financing activities:
  Unrealized gain (loss) on securities                                          $      (9)     $         7     $       (3)
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

                                                          29

<PAGE>


                      CALIFORNIA MICRO DEVICES CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

1.      THE COMPANY

        We design, develop,  manufacture and market thin film integrated passive
devices  and  complementary   analog   semiconductors   for  Original  Equipment
Manufacturers   and  contract   manufacturers   who  need  high  density,   high
performance,  lower  cost  and  unique  functionality.   The  Company  uses  its
silicon-based  thin film  materials  and  semiconductor  process  technology  to
integrate multiple passive and active elements onto a single integrated circuit.

        Our analog  semiconductor  products  include  primarily analog and mixed
signal products for the  telecommunications  industry,  electrostatic  discharge
protection devices, power management devices and operational amplifiers.

        Our  products  are  marketed  primarily to customers in the computer and
computer  peripherals,   wireless   communications,   networking,   and  medical
industries.

2.      SIGNIFICANT ACCOUNTING POLICIES

        Basis of Presentation

        In the accompanying  financial  statements,  fiscal 2001, 2000, and 1999
refer to the twelve months ended March 31, 2001, 2000, and 1999, respectively.

        Restatement

        The Company had previously  incorrectly accounted for certain restricted
stock grants and has restated its fiscal 2000 financial  statements.  The impact
of the  restatement  was to change net income for the year ended  March 31, 2000
from  $632,000 to $275,000;  basic  earnings per share from $0.06 to $0.03;  and
diluted earnings per share from $0.05 to $0.02.  The restatement  resulted in an
increase of $357,000 in the Company's  accumulated  deficit as of March 31, 2000
from  $33,528,000 to  $33,885,000,  as well as a  corresponding  increase in the
balance of the Company's  common stock as of March 31, 2000 from  $56,479,000 to
$56,836,000.

        Cash and Cash Equivalents

        We consider all highly liquid debt  instruments  with a maturity date of
three  months  or less at the  date of  purchase  to be cash  equivalents.  Cash
equivalents generally consist of commercial paper and money market funds.

        Short-term Investments

        We  invest  our  excess  cash in high  quality  instruments.  All of our
marketable  investments,  except for  investments  related to our  non-qualified
deferred compensation program, are classified as available-for-sale  and we view
our  available-for-sale  portfolio as available  for use in current  operations.
Accordingly,  we have classified all investments,  except for amounts related to
our  non-qualified  deferred  compensation  program  described  in Note  14,  as
short-term,  even though the stated  maturity  date may be one year or more past
the current balance sheet date.

        Available-for-sale  securities  are stated at fair  market  value,  with
unrealized  gains  and  losses,   net  of  tax,   reported  as  a  component  of
shareholders'  equity.  The cost of  securities  sold is based upon the specific
identification method. Realized gains and losses and declines in value judged to
be other than temporary are included in interest income and other (net).

        Inventories

        Inventories  are  stated  at the  lower  of  cost  or  market.  Cost  is
determined using the first-in, first-out (FIFO) basis.


                                       30

<PAGE>

        Property and Equipment

        Property and equipment are stated at cost. Depreciation and amortization
are computed  using the  straight-line  method over the shorter of the estimated
useful lives of the assets, or the remaining lease term.  Estimated useful lives
of assets are as follows:

                             Building                                   40 years
                             Machinery and equipment                   3-7 years
                             Leasehold improvements                    5-7 years
                             Furniture and fixtures                      7 years

        Revenue Recognition

        Revenue from product  sales to end user  customers  is  recognized  upon
transfer of title,  generally upon shipment.  We generally  recognize revenue on
shipments to  distributors  upon the final sales by the  distributor  to OEMs or
other end users. Distributor agreements allow the distributors certain rights of
return and price protection on unsold merchandise.  As a result, we believe that
deferral of such  distributor  sales and related cost of sales as deferred gross
margins until the  merchandise is resold by the  distributors  results in a more
meaningful  measurement of revenue from distributors.  Management  believes that
its  revenue  recognition  polices are in  accordance  with the  Securities  and
Exchange  Commission Staff Accounting  Bulletin No. 101 (Revenue  Recognition in
Financial Statements).

        Advertising

        We expense all advertising as incurred.

        Net Income (Loss) Per Share

        Basic earnings per common share are computed using the  weighted-average
number of common  shares  outstanding  during the period.  Diluted  earnings per
common  share  incorporate  the  incremental  shares  issuable  upon the assumed
exercise of stock  options and other  dilutive  securities.  Options to purchase
231,000 and 77,000  shares of common stock  outstanding  during  fiscal 2001 and
fiscal 2000,  respectively,  were not included in the diluted earnings per share
computation,  as the effect of including them would be antidilutive.  Options to
purchase  2,478,000 shares of common stock  outstanding  during fiscal 1999 were
not included in the computation of diluted net loss per common share because the
effect in years with a net loss would be anti-dilutive.

        Employee Stock Plans

        As allowed  under  Statement of Financial  Accounting  Standards No. 123
(SFAS  123),  "Accounting  for Stock  Based  Compensation,"  we account  for our
employee stock plans in accordance  with the provision of Accounting  Principles
Board's Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." and
have  adopted  the  disclosure  provisions  of SFAS 123.  Stock-based  awards to
non-employees  are  accounted  for in  accordance  with SFAS 123 and EITF  96-18
"Accounting for Equity  Instruments  That Are Issued to Other Than Employees for
Acquiring,  or in Conjunction with Selling,  Goods or Services".  Fair value for
these awards is estimated using the Black-Scholes option-pricing model.

        Comprehensive Income

        Accumulated   other   comprehensive   income  (loss)  presented  in  the
accompanying balance sheets consists of the accumulated net unrealized losses on
available-for-sale securities.


                                       31

<PAGE>


        Use of Estimates

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

        Recent Accounting Pronouncements

        Statement of Financial  Accounting  Standards No. 133,  "Accounting  for
Derivative Instruments and Hedging Activities" ("SFAS No. 133") requires that we
recognize all derivatives on the balance sheet at fair value.  Derivatives  that
are not hedges must be adjusted to fair value  through net income.  SFAS No. 133
is effective for our fiscal year ending March 31, 2002. We do not currently hold
any  derivatives  and do not anticipate  holding any  derivatives in the future.
Accordingly,  we do not expect this  pronouncement  to materially  impact future
results.

        The Securities and Exchange  Commission (SEC) Staff Accounting  Bulletin
No. 101 (SAB 101),  "Revenue  Recognition  in Financial  Statements"  summarizes
certain of the SEC's views in applying generally accepted accounting  principles
to revenue  recognition in financial  statements.  We were required to adopt the
provisions of SAB 101 in the fourth quarter of fiscal 2001. Based on a review of
our revenue recognition  policies, we concluded that the adoption of SAB 101 did
not require a change in those policies nor did it affect the timing or amount of
revenue  recognition.   Therefore,  the  impact  of  adoption  of  SAB  101  was
immaterial.


                                       32

<PAGE>


3.      CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

        The  following is a summary of cash,  cash  equivalents  and  marketable
securities  at March 31,  2001 and  March 31,  2000,  respectively  (amounts  in
thousands):

                                                  March 31,         March 31,
                                                    2001               2000
                                                 ------------      -------------
Cash equivalents
  Money market funds                              $  1,356          $  1,136
  Commercial paper                                     953               354
                                                 ------------      -------------
Total cash equivalents                            $  2,309          $  1,490
                                                 ============      =============

Short-term investments
  Commercial paper                                $  2,022          $  1,694
  U. S. Treasuries & U.S. Government agencies        1,766             1,493
  Corporate bonds                                      500             1,882
                                                 ------------      -------------
Total short-term investments                      $  4,288          $   5,069
                                                 ============      =============



<TABLE>
        The following is a summary of available-for-sale securities at March 31,
2001 and March 31, 2000, respectively, (amounts in thousands):
<CAPTION>
                                                                         Gross         Gross       Estimated
                                                                       Unrealized    Unrealized       Fair
                                                            Cost         Gains         Losses        Value
                                                         -----------  ------------- -------------  -----------
<S>                                                      <C>           <C>           <C>           <C>
March 31, 2001:
  Commercial paper                                       $  2,975      $      -      $       -     $  2,975
  U.S. Treasuries & U.S. government agencies                1,766             -              -        1,766
  Corporate bonds                                             500             -              -          500
                                                         -----------   -----------   -----------   -----------
    Total                                                $  5,241      $      -      $       -     $  5,241
                                                         ===========   ===========   ===========   ===========

March 31, 2000:
  Commercial paper                                       $  2,029      $     19      $       -      $  2,048
  U.S. Treasuries & U.S. government agencies                1,497             -             (4)        1,493
  Corporate bonds                                           1,890             -             (8)        1,882
                                                         -----------   -----------   -----------   -----------
    Total                                                $  5,416      $     19      $     (12)     $  5,423
                                                         ===========   ===========   ===========   ===========
</TABLE>

        Of the  fiscal  2001  securities  listed  above,  $5.2  million  of debt
securities  (at estimated  fair market  value) mature within one year.  Realized
gains and losses on the sales of  securities  are  reported as other  income and
were not significant for all years presented.


                                       33

<PAGE>


4.      CONCENTRATIONS OF CREDIT RISK

        Our financial  instruments that are exposed to  concentrations of credit
risk  consist  primarily  of  temporary  cash  investments  and  trade  accounts
receivable.

        We place our temporary cash  investments and short-term  securities with
substantial financial service institutions.

        A significant portion of our sales are to customers whose activities are
related  to  computer  and  computer   peripherals,   wireless   communications,
networking, medical, and consumer electronics industries, including some who are
located in foreign countries. We generally extend credit to these customers and,
therefore,  the aforementioned  industries and economic influences of customers'
geographic  locations  affect  collection of accounts  receivable.  However,  we
monitor extensions of credit and require collateral,  such as letters of credit,
whenever deemed necessary.

5.      CONCENTRATION OF OTHER RISKS

        Markets

        We market our products into high-technology industries, such as personal
computers,  telecommunications,  and networking, that are characterized by rapid
technological  change,   intense  competitive  pressure,   and  volatile  demand
patterns.  Most of the systems  into which the  Company's  products are designed
have short life  cycles.  As a result,  we require a  significant  number of new
design wins on an ongoing basis to maintain and grow revenue.

        Customers

        Generally,  our sales are not subject to long-term  contracts but rather
to  short-term  releases  of  customers'  purchase  orders,  most of  which  are
cancelable  on  relatively  short  notice.  The  timing  of these  releases  for
production as well as custom design work are in the control of the customer, not
us. Because of the short life cycles involved with our customers' products,  the
order  pattern  from  individual  customers  can  be  erratic  with  significant
accumulation and  de-accumulation  of inventory during phases of the life cycle.
For these reasons, our backlog and bookings as of any particular date may not be
representative of actual sales for any succeeding period.

        Inventories

        We value  our  inventories  on a  part-by-part  basis  to  appropriately
consider  excess  inventory  levels and obsolete  inventory based on backlog and
demand,  and  to  consider  reductions  in  sales  price.  However,  due  to the
volatility  of demand,  and the fact that many of our  products  are specific to
individual  customers,  backlog is subject to revisions  and  cancellations  and
anticipated  demand is constantly  changing,  which may require  adjustments  to
inventory valuations in the future.

        Manufacturing

        Our  manufacturing  processes are complex,  and require  production in a
highly  controlled,  clean  environment  suitable  for fine  tolerances.  Normal
manufacturing  risks include  errors in  fabrication  processes,  defects in raw
materials, process changes, as well as other factors that can affect yields.

        Subcontractors

        We  use  subcontractors  in  Asia,  primarily  Thailand,  for  assembly,
packaging,  and test of most of our product.  This common  industry  practice is
subject to political and economic risks and industry volatility has occasionally
resulted in shortages of subcontractor capacity and other disruptions to supply.


                                       34

<PAGE>


6.      INVENTORIES

        Inventories consist of the following (amounts in thousands):

                                                     March 31,       March 31,
                                                        2001           2000
                                                     ---------        -------
                  Raw materials                       $   574         $  452
                  Work-in-process                       6,337          6,473
                  Finished goods                        4,805          3,069
                                                      --------        -------
                                                      $11,716         $9,994
                                                      ========        =======


7.      PROPERTY AND EQUIPMENT

        Property and equipment consist of the following (amounts in thousands):

                                                          March 31,   March 31,
                                                            2001        2000
                                                         ---------   ---------
         Land                                             $    137    $    137
         Buildings                                           3,030       3,030
         Machinery, equipment and tooling                   30,677      24,709
         Leasehold improvements                              1,452         758
         Furniture and fixtures                                371         367
                                                          --------   ---------
                                                            35,667      29,001
         Less accumulated depreciation and amortization     21,295      18,364
                                                          --------   ---------
                                                          $ 14,372    $ 10,637
                                                          ========   =========


8.      SECURED LINE OF CREDIT

        We have a $3.0 million  revolving  secured line of credit agreement that
expires on July 30, 2001.  Under the terms of the line of credit,  we can borrow
at prime plus one-half percent,  collateralized by eligible receivables. We have
made no borrowings against this line.

9.      FAIR VALUE OF FINANCIAL INSTRUMENTS

        We have evaluated the estimated fair value of our financial instruments.
The  amounts  reported  as  cash  and  cash  equivalents,  accounts  receivable,
short-term  borrowings,  accounts payable and accrued expenses  approximate fair
value  due to  their  short-term  maturities.  The  fair  values  of  short-term
investments  are  estimated  based on quoted market  prices.  The fair value for
long-term  debt was  estimated  using  discounted  cash flow  analysis  based on
estimated interest rates for similar types of borrowing arrangements.

        The carrying amounts and estimated fair values of our long-term debt are
as follows (amounts in thousands):

                                                               Carrying    Fair
                                                                Amount    Value
                                                                -------   ------
         Long-term debt (excluding capital leases)              $10,356   $9,949


                                       35

<PAGE>


10.     LONG-TERM DEBT
<TABLE>
        Long-term debt consists of the following (amounts in thousands):
<CAPTION>
                                                                               March 31,           March 31,
                                                                                 2001                2000
                                                                              -----------        ------------
<S>                                                                             <C>                 <C>
        Industrial revenue bonds at 10.5%, due through March 1, 2018            $ 6,890             $7,045
        Equipment financing agreement due through February 9, 2004                2,218                238
        Equipment financing agreement due through March 15, 2005                  1,248                457
                                                                                                 ------------
                                                                              -----------
                                                                                 10,356              7,740
        Less current maturities                                                   1,415                398
                                                                              -----------        ------------
                                                                                $ 8,941             $7,342
                                                                              ===========        ============
</TABLE>
        During fiscal 1999, we borrowed $650,000 under a credit  agreement,  due
June 14, 2002, collateralized by certain of our equipment. The agreement extends
for 42 months,  carries an interest rate of 9.9%,  and has a prepayment  option.
During  fiscal  2001 we  entered  into an  additional  agreement  with  the same
provider  for  $975,000  credit  agreement  collateralized  by  certain  of  our
equipment  at a 9.6%  interest  rate for a period of 48 months.  This  agreement
expires on March 31, 2005.  Payments terms for both of these borrowings  require
equal monthly installments  covering principal and interest over the life of the
instrument. The current portion of principal amount due for fiscal year 2002 was
$412,000. As of March 31, 2001, $1,248,000 was outstanding under this agreement.

        During  fiscal  2000,  we entered into two capital  equipment  financing
facilities for $1.0 million and $500,000. The terms of these facilities allow us
to borrow at prime  plus  0.75% and  expire  on June 30 and  November  1,  2003,
respectively.  During  fiscal  2000 and  2001,  we  borrowed  the  full  amounts
available under these  facilities.  At March 31, 2001, no additional  funds were
available  under these two  facilities.  In July 2000,  we secured an additional
$2.0 million  equipment  financing  facility  that expires on December 25, 2003.
Under the terms of this facility we can borrow at prime plus 0.5%. During fiscal
2001 we borrowed  $997,000  against this $2.0 million  facility.  On February 9,
2001 the period to borrow the  remainder of this facility was extended to May 1,
2001. At March 31, 2001,  $1,003,000  remained  available  under this  facility.
Under the terms of the  agreement,  equal  monthly  principal  payments  and all
accrued interest are due to the lender. As of March 31, 2001, the current amount
of principal due for fiscal 2002 was $833,000.  As of March 31, 2001, $2,218,000
was outstanding  under this  agreement.  We are in compliance with our financial
covenants.

        Our industrial  revenue bonds are collateralized by a lien on all of our
land and buildings in Tempe,  Arizona,  and certain equipment  acquired with the
proceeds of the bonds,  and require certain minimum annual sinking fund payments
ranging from  $170,000 in fiscal 2002 to $780,000 in fiscal 2018. As of March 1,
2000, we may prepay the 10.5%  Industrial  Revenue Bond by redeeming all or part
of the  outstanding  principal  amounts without  penalty.  At March 31, 2001 and
2000, cash of $914,000 and $900,000 were held in sinking fund trust accounts. Of
these amounts, $800,000 is to be used for principal and interest payments in the
event of  default  by the  Company,  and the  balance  is used  for  semi-annual
interest and principal payments. As of March 31, 2001 $6,890,000 was outstanding
under this agreement.

        The Industrial  Revenue Bonds and certain lease  agreements  require the
maintenance of various financial  covenants  including certain minimum levels of
net  worth,  current  ratio,  quick  ratio,  ratio  of debt to net  worth,  debt
coverage,  and debt to working  capital ratio.  We are in compliance  with these
covenants at March 31, 2001. As a result of these covenants,  our ability to pay
dividends is restricted.

        Future  maturities of long-term  debt and sinking fund  requirements  at
March 31, 2001 are as follows (amounts in thousands):

                                   2002                          $  1,415
                                   2003                             1,321
                                   2004                             1,012
                                   2005                               503
                                   2006                               250
                                   2007 and thereafter              5,855
                                                                 ----------
                                                                 $ 10,356
                                                                 ==========


                                       36

<PAGE>


11.     LEASE COMMITMENTS

        Operating Leases

        We  lease  certain  manufacturing   facilities  under  operating  leases
expiring  in  fiscal  2003.   Future  gross   minimum  lease   payments,   under
non-cancelable  operating  leases,  for the years ending March 31 are as follows
(amounts in thousands):

                                2002             $384
                                2003               63
                                                 ------
                                                 $447
                                                 ======


        Rent  expense was  $459,000,  $445,000,  and  $450,000,  net of sublease
income of $176,000,  $148,000,  and $147,000,  in fiscal 2001,  2000,  and 1999,
respectively.

        Capital Leases

        Obligations  under  capital  leases are at interest  rates  ranging from
approximately  7%  to  10%,   depending   primarily  upon  the  purchase  option
arrangements  at the end of the lease term, and are due in monthly  installments
through April 2002. Future minimum lease payments,  under capital leases for the
years ending March 31, are as follows (amounts in thousands):

               2002                                             $192
               2003                                                6

                                                                -------
               Total minimum lease payments                      198
                 Less amount representing interest                13
                                                                -------
               Present value of net minimum lease payments       185
                 Less current maturities                         179
                                                                -------
                                                                $  6
                                                                =======

        Machinery and equipment under capital leases are as follows  (amounts in
thousands):

                                                   March 31,      March 31,
                                                     2001           2000
                                                  ------------   ------------
                Cost                              $   1,619      $  1,619
                Less accumulated depreciation           840           609
                                                  ------------   ------------
                                                  $     779      $  1,010
                                                  ============   ============


                                       37

<PAGE>



12.     INCOME TAXES

        The  Company's  provision  for income  taxes  consists of the  following
(amounts in thousands):

                              Years Ended March 31,

                                            --------------------------------
                                             2001         2000        1999
                                            --------     -------     -------
            Current:
              Federal                        $ 51          $   -       $   -
              State                             1              -           -
                                            --------     -------     -------
            Provision for income taxes       $ 52          $   -       $   -
                                            ========     =======     =======

        A  reconciliation  of the  Company's  effective  tax rate to the federal
statutory rate is as follows:

                                                   Years Ended March 31,
                                             ----------------------------------
                                               2001         2000        1999
                                             ----------   ----------  ---------
          Federal statutory tax rate              34 %        34 %       (34)%
          Losses with no current benefit           -           -          34 %
          Utilization of loss carryforward       (32)%       (34)%         -
                                             ----------   ----------  ---------
          Effective income tax rate                2%          0 %         0 %
                                             ==========   ==========  =========


        Deferred  income taxes reflect the tax effects of net operating loss and
credit  carryforwards and temporary  differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax  purposes.  Significant  components  of our  deferred  tax assets and
liabilities are as follows (amounts in thousands):

                                                       March 31,     March 31,
                                                         2001          2000
                                                      ----------    ----------
        Deferred tax assets:
          Net operating loss carryforwards            $ 10,900      $  12,200
          Tax credit carryforwards                         500            500
          Inventory reserves                             3,600          3,500
          Other non-deductible accruals and reserves       600            400
                                                      ----------    ----------
        Total deferred tax assets                       15,600         16,600
          Less valuation allowance                     (15,300)       (16,300)
                                                      ----------    ----------
        Net deferred tax asset                             300            300
        Deferred tax liabilities:
          Tax over book depreciation                       300            300
                                                      ----------    ----------
        Total net deferred tax asset                  $      -      $       -
                                                      ==========    ==========

        Financial   Accounting   Statement   (FAS)  No.  109  provides  for  the
recognition  of deferred tax assets if realization of such assets is more likely
than not. Based on the weight of available evidence,  the Company has provided a
valuation allowance against total deferred tax assets. The Company will continue
to evaluate the ability to realize the deferred tax asset on a quarterly  basis.
The valuation  allowance decreased by $1,000,000 during the year ended March 31,
2001 and increased by $1,250,000  and $950,000  during the years ended March 31,
2000 and 1999, respectively. Approximately $3,400,000 of the valuation allowance
for deferred tax assets  relates to benefits of stock option  deductions  which,
when recognized, will be directly allocated to common stock.

        At  March  31,  2001,  we had  federal  and  state  net  operating  loss
carryforwards  of  approximately  $31,600,000 and $2,600,000,  respectively.  In
addition,  we had federal and California  credit  carryforwards of approximately
$300,000 and $200,000,  respectively. These carryforwards will expire at various
dates  beginning in 2009 through  2021,  except for certain  state net operating
losses which expire from 2002 through 2005.


                                       38

<PAGE>

        Utilization of the net operating losses and credit  carryforwards may be
subject to substantial  annual  limitation due to ownership change provisions of
the  Internal  Revenue  Code of 1986 and similar  state  provisions.  The annual
limitation  may result in the  expiration  of net  operating  losses and credits
before utilization.

13.     INTEREST INCOME AND OTHER, NET

        Interest income and other, net, consists of (amounts in thousands):

                                                  Years Ended March 31,
                                            ----------------------------------
                                              2001         2000        1999
                                            ----------   ---------   ---------
        Interest income                     $   559      $   300     $   295
        Other income (expense)                 (388)         119         (76)
                                            ----------   ---------   ---------
                                            $    171     $   419     $   219
                                            ==========   =========   =========

        Interest  income  reflects  the  amounts  earned  from   investments  in
short-term securities.

14.     EMPLOYEE BENEFIT PLANS AND STOCK COMPENSATION

        401(K) Savings Plan

        We maintain a 401(K)  Savings  Plan  covering  substantially  all of our
employees.  Under the plan, eligible employees may contribute up to 15% of their
base  compensation to the plan with the Company matching at a rate of 50% of the
participants'  contributions  up to a maximum of 3% of their base  compensation.
Participants'  contributions  are  fully  vested  at all  times.  The  Company's
contributions  vest  incrementally  over a two-year period.  During fiscal 2001,
2000,  and 1999, we expensed  $305,000,  $278,000,  and $217,000,  respectively,
relating to our contributions under the plan.

        Nonqualified Deferred Compensation Plan

        In April 1997, we implemented a nonqualified  deferred compensation plan
for the benefit of eligible  employees.  This plan is designed to permit certain
discretionary  employer  contributions in excess of the tax limits applicable to
the  401(k)  plan and to permit  employee  deferrals  in excess of  certain  tax
limits.  Company  assets  earmarked to pay benefits under the plan are held by a
rabbi trust. We have  classified the diversified  assets held by the rabbi trust
as trading  securities,  and  recorded  them at fair market  value with  changes
recorded to other income and  expense.  The assets are  classified  within other
long-term assets on the balance sheet.  Changes in the liability  related to the
rabbi trust account are recorded as  adjustments  to  compensation  expense.  In
fiscal 2001, we recorded a benefit to compensation expense of $82,000 due to the
decrease in the market  value of the trust  assets,  with the same amount  being
recorded as a loss in other (income) expense.  Compensation  expense of $151,000
was  recognized  in fiscal 2000 as a result of  increases in the market value of
the trust  assets,  with the same  amount  being  recorded as  securities  gains
included in interest  income.  In fiscal 1999 the market  value  change in trust
assets was not significant.  Additionally, during fiscal 2001, 2000, and 1999 we
expensed $2,000, zero, and $8,000,  respectively,  relating to our contributions
under the plan. The balances held by the rabbi trust are classified as long-term
liabilities.  The balance in this  account was  $513,000 and $625,000 for fiscal
years 2001 and 2000, respectively.

        Stock Option Plans

        The 1995 Employee  Stock Option Plan is  administered  by a stock option
committee  consisting  of not  less  than  two  qualified  directors.  The  1995
Non-Employee  Directors Plan (the "Directors  Plan") is administered by not less
than  three  members  of the Board  and the  amount  of  shares  granted  to the
directors  on  an  annual  basis  are  fixed  in  amount,  as  approved  by  the
shareholders.


                                       39

<PAGE>

        Under our 1995 Plan,  for  fiscal  year-ended  March 31,  2001 and 2000,
1,981,186  and  1,779,933  shares of common  stock are  reserved  for  issuance,
respectively.  The 1995 Plan  provides for issuance of options to employees  and
consultants  at prices not less than 85% of fair market value for shares  issued
under a non-qualified stock option agreement.  Options may also be issued to key
employees for not less than 100% of fair market value for shares issued under an
incentive stock option agreement.

        Under the Directors Plan, for fiscal year-ended March 31, 2001 and 2000,
238,495  and  254,250   shares  of  common  stock  are  reserved  for  issuance,
respectively.  The 1995 Directors  Plan provides for a fixed issuance  amount to
the  directors  at prices  not less than  100% of the fair  market  value of the
common stock at the time of the grant.

        In addition  to the two 1995  plans,  we have a plan that was adopted in
1981 (The  Employee  Incentive  Stock  Option  Plan),  and another plan that was
adopted in 1987 (The 1987 Stock Option Plan) both of which have now expired.  No
new options were issued under these plans for fiscal  year-ended  March 31, 2001
and 2000.  These plans  provided  for the issuance of  1,500,000  and  2,500,000
shares of common  stock,  respectively.  Under  these  plans,  the  Company  had
previously  granted  incentive  stock  options  and  non-qualified   options  to
designated employees, officers, and directors.

         Generally,  options  under the plans become  exercisable  and vest over
varying periods ranging up to four years as specified by the Board of Directors.
Option  terms do not  exceed  ten years from the date of the grant and all plans
except the 1981  Employee  Incentive  Stock Option Plan (the "1981 Plan") expire
within 20 years of date of adoption. No options may be granted during any period
of suspension or after termination of any plan. Unexercised options expire upon,
or  within,  three  months of  termination  of  employment,  depending  upon the
circumstances surrounding termination.
<TABLE>
        The  following  is a  summary  of  stock  option  activity  and  related
information,  including  the effect of  repricing  in grants  and  cancellations
during fiscal 1999 of 1,325,742 shares:
<CAPTION>
                                         2001                              2000                           1999
                             ------------------------------     ---------------------------    ----------------------------
                                                Weighted-                       Weighted-                      Weighted-
                                                Average                         Average                        Average
                                                Exercise                        Exercise                       Exercise
                               Options           Price             Options       Price            Options       Price
                             -------------    -------------     ------------- -------------    ----------------------------
<S>                           <C>                 <C>            <C>              <C>             <C>             <C>
      Options:
        Outstanding at
          beginning of year   1,952,461           $ 4.27         2,477,595        $3.58           2,315,331       $5.44
        Granted                 671,010           $17.05           455,210        $5.80           1,756,742       $3.02
        Exercised              (369,561)          $ 3.63          (729,641)       $3.00              (6,600)      $3.93
        Cancelled              (197,331)          $14.64          (250,703)       $3.69          (1,587,878)      $5.68
                             -------------    -------------     ------------- -------------    ----------------------------
        Outstanding at
          end of year         2,056,579           $ 7.56         1,952,461        $4.27           2,477,595       $3.58
                             =============    =============     ============= =============    ============================

        Exercisable           1,065,640           $ 4.30         1,044,826        $4.06             717,201       $4.68
        Available for grant*    163,102                            106,031                          325,760
<FN>
         * Available for grant under plans that are currently active.
</FN>
</TABLE>
                                                                  40

<PAGE>

<TABLE>
        The following table summarizes  information about options outstanding at
March 31, 2001:
<CAPTION>
                                                Options Outstanding                         Options Exercisable
                                  ------------------------------------------------     ------------------------------


                                                   Weighted-
                                                    Average          Weighted-                           Weighted-
                                                    Remaining         Average                             Average
               Range Of              Number        Contractual        Exercise            Number          Exercise
           Exercise Prices         Outstanding     Life (Years)        Price            Exercisable        Price
        -----------------------   --------------  ---------------  ---------------     --------------    ------------
<S>        <C>      <C>                <C>             <C>             <C>                                   <C>
            $2.25 - $2.81              413,935         6.07            $ 2.79              302,156           $2.81
            $2.88 - $3.93              656,259         5.36            $ 3.59              514,371           $3.73
            $4.13 - $8.19              423,325         8.45            $ 6.70              172,988           $6.48
            $8.63 - $22.50             384,560         8.43            $13.44               76,125           $9.05
           $22.56 - $22.56             178,500         9.35            $22.56                    -           $   -
                                  --------------  ---------------  ---------------     --------------    ------------
                                    2,056,579          7.06            $ 7.56           1,065,640            $4.30
                                  ==============  ===============  ===============     ==============    ============
</TABLE>
        In September  1999,  the Company  entered  into a stock based  incentive
program with a non-employee consultant located in Europe for up to 30,000 shares
of restricted  Company common stock based upon achievement of certain incentives
over an 18-month period. The consultant achieved those incentives in fiscal year
2000 and  2001and  the  shares  were  issued in 2001.  In  connection  with this
agreement,  the Company recorded a non-cash compensation expense of $115,000 and
$357,000 for fiscal 2001 and 2000, respectively.

        Stock Option Cancellation and Re-grant Program

        In  January  2001,  the  Board  of  Directors  ratified  a plan to allow
non-officer  employees holding options to purchase the Company's common stock to
cancel certain stock option grants in exchange for a commitment  that options to
purchase  the same number of common  shares  would be granted six months and one
day after the cancellation date provided that the participant has not terminated
employment prior to such time (the "Cancellation and Re-grant Program"). The new
options  will be granted at an  exercise  price equal to $12.50 per share or the
fair market  value on the date of the new grant,  whichever  is higher.  Options
granted  under the  Cancellation  and Re-grant  Program will vest ratably over a
period of 36 months and would not be exercisable during the first year following
the grant date. All other terms of options  granted under the  Cancellation  and
Re-grant  Program  will be  substantially  the  same as the  cancelled  options.
Options to purchase  110,500  shares of common  stock were  cancelled  under the
Cancellation and Re-grant  Program.  At March 31, 2001, the Company is committed
to grant 110,500 options to purchase shares of common stock in August 2001.

        Employee Stock Purchase Plan

        The 1995 Employee  Stock  Purchase  Plan as Amended June 15, 1999,  (the
"Purchase Plan") is available for all full-time  employees  possessing less than
5% of the  Company's  common stock on a fully diluted  basis.  The Purchase Plan
provides  for the  issuance  of up to 960,000  shares at 85% of the fair  market
value of the  common  stock  at  certain  defined  points  in the plan  offering
periods.  Purchase of the shares is to be through  employees' payroll deductions
and may not exceed 15% of their total compensation. The Purchase Plan terminates
on February 9, 2005,  or earlier at the  discretion  of the  Company's  Board of
Directors.  As of fiscal year-end March 31, 2001, 300,046,  shares were reserved
for future issuance.

        The following is a summary of stock purchased under the plan:

                                                   2001       2000       1999
                                                --------    --------   --------
        Aggregate purchase price                $795,850    $680,004   $211,000
        Shares purchased                          72,767     191,758    100,993
        Employee participants as of March 31         123         185        161


                                       41

<PAGE>

        Stock-Based Compensation

        In accordance with the intrinsic value method, we generally recognize no
compensation   expense  with  respect  to  employee  stock  grants.   Pro  forma
information  regarding  net (loss) and net (loss) per share is  required by SFAS
123 for grants  after April 1, 1995,  as if we had  accounted  for stock  grants
under the fair  value  method  and is  presented  below.  The fair  value of our
stock-based grants was estimated using a Black-Scholes option-pricing model. The
Black-Scholes  option  valuation  model was developed for use in estimating  the
fair value of traded options that do not have specific vesting schedules and are
ordinarily  transferable.  Because the Black-Scholes model requires the input of
highly  subjective  assumptions,  including the expected stock price  volatility
which can materially  affect the fair value estimate,  in management's  opinion,
the existing models do not necessarily  provide a reliable single measure of the
fair value of its grants.
<TABLE>
        The fair value of our  stock-based  grants  was  estimated  assuming  no
expected dividends and the following weighted-average assumptions:
<CAPTION>
                                             Options                                Purchase Plan
                                -----------------------------------       -----------------------------------
                                  2001         2000        1999             2001         2000        1999
                                ----------   ---------   ----------       ----------   ----------  ----------
<S>                               <C>          <C>          <C>              <C>          <C>         <C>
        Expected life years       3.18         3.43         2.81             0.43         0.25        0.21
        Volatility                0.92         1.03         0.96             1.19         1.13        1.29
        Risk-free interest rate   5.79%        6.13%        4.69%            6.37%        5.06%       5.00%
</TABLE>
        The weighted-average  fair value of stock options granted in fiscal 2001
and 2000 were  $17.05 and $5.80 per share,  respectively.  The  weighted-average
fair value of the option  element of the Purchase  Plan stock  granted in fiscal
2001 and 2000 was $9.91 and $1.39 per share, respectively.
<TABLE>
        For pro forma  purposes,  the  estimated  fair value of our  stock-based
grants is amortized over the options'  vesting period for stock options  granted
under the 1995 Plan and the Director  Plan,  and the  purchase  period for stock
purchases under the Purchase Plan. The pro forma information follows (amounts in
thousands except per share amounts):
<CAPTION>
                                                                        Years Ended March 31,
                                                              -------------------------------------------
                                                                 2001            2000            1999
                                                              -----------     -----------     -----------
<S>                                                             <C>            <C>             <C>
        Net income (loss) - as reported                         $2,536         $   275         $(2,771)
        Diluted net income (loss) per share - as reported       $ 0.20         $  0.02         $ (0.28)
        Net (loss) - pro forma                                  $ (528)        $(1,143)        $(5,112)
        Diluted net (loss) per share - pro forma                $(0.04)        $ (0.10)        $ (0.51)
</TABLE>
15.     LITIGATION

        The  Company  is  a  party  to  lawsuits,  claims,  investigations,  and
proceedings,  including  commercial  and  employment  matters,  which  are being
handled and defended in the ordinary course of business. We are not aware of any
pending  legal  proceedings  against the Company  that,  individually  or in the
aggregate,  would  have a material  adverse  effect on our  business,  operating
results, or financial condition

16.     SEGMENT INFORMATION

        Our operations are classified into one reportable segment. Substantially
all of our operations and long-lived assets reside in the United States although
we have sales operations in Europe,  Japan, Hong Kong and Taiwan. In fiscal 2001
and fiscal 1999, no single customer accounted for greater than 10% of net sales.
In fiscal 2000, Arrow Electronics and Excelpoint Systems PTE, both distributors,
accounted  for 17% and 14% of net  sales,  respectively.  Other  than the


                                       42

<PAGE>

United  States  and Taiwan  (16% of net sales in fiscal  2001),  no one  country
accounted for more than 10% of net sales in fiscal 2001.  Sales into Tawain were
$9,108,000,   $4,317,000,  and  $3,012,000  in  fiscal  2001,  2000,  and  1999,
respectively.  In fiscal 2000 sales to Singapore were 10.5% of sales. Sales into
Singapore were  $3,546,000,  $4,598,000 and $2,054,000 in fiscal 2001, 2000, and
1999,  respectively.  Foreign  currency  transaction  gains and  losses  are not
significant.

        Net sales to  geographic  regions  reported  below  are  based  upon the
customers' locations (amounts in thousands):

                                                   Years Ended March 31,
                                              --------------------------------
                                              2001        2000         1999
                                            ----------  ----------   ---------
Net product sales to geographic regions:

  United States                               $30,073     $24,836      $20,476
  Europe                                        4,941       3,882        3,126
  Far East and other                           22,520      15,045       10,015
                                            ----------  ----------   ---------
Net product sales                             $57,534     $43,763      $33,617
                                            ==========  ==========   =========



17.     RESTATED QUARTERLY FINANCIAL DATA (UNAUDITED)

        As publicly  announced  on April 26, 2001,  the Company had  incorrectly
accounted for certain restricted stock grants. The impact of the restatement was
to change  net  income  for the year  ended  March 31,  2000  from  $632,000  to
$275,000; basic earnings per share from $0.06 to $0.03; and diluted earnings per
share from $0.05 to $0.02.  The restatement  resulted in an increase of $357,000
in the Company's  accumulated  deficit as of March 31, 2000 from  $33,528,000 to
$33,885,000, as well as a corresponding increase in the balance of the Company's
common stock as of March 31, 2000 from  $56,479,000 to $56,836,000.  As a result
of the finding,  the Company has restated  previously  reported  annual results,
including the March 31, 2000 financial information set forth herein.


                                       43

<PAGE>

<TABLE>
                                       CALIFORNIA MICRO DEVICES CORPORATION
                                                QUARTERLY SUMMARY
                                                   (UNAUDITED)
                                  (Amounts in Thousands, Except Per Share Data)
<CAPTION>
                                                                    For the three months ended
                                                    -------------------------------------------------------------
                                                      June 30       September 30    December 31      March 31
                                                    ------------- -------------------------------- --------------
<S>                                                     <C>             <C>             <C>             <C>
Fiscal 2001
-----------
Net sales                                               $14,876         $16,112         $14,507         $12,039
Costs and expenses:
  Cost of sales                                           9,600          10,725           9,076           9,965
  Research & development                                    810             900             892             803
  Selling, marketing and administrative                   2,806           2,857           3,031           2,670
                                                     ------------    ------------    -----------     -----------
Total costs and expenses                                 13,216          14,482          12,999          13,438

Operating income (loss)                                   1,660           1,630           1,508          (1,399)

Interest expense                                            236             247             242             257
Interest (income) and other (income) expense, net           (73)            133             (72)           (159)
                                                     ------------    ------------    -----------     -----------
Income (loss) before taxes                                1,497           1,250           1,338          (1,497)
Provision for Income taxes                                   30              25              28             (31)
                                                     ------------    ------------    -----------     -----------
Net income (loss)                                       $ 1,467         $ 1,225         $ 1,310         $(1,466)
                                                     ============    ============    ===========     ===========

Basic earnings (loss) per share                         $  0.13         $  0.11         $  0.12         $ (0.13)
                                                     ============    ============    ===========     ===========
Diluted earnings (loss) per share                       $  0.12         $  0.10         $  0.11         $ (0.13)
                                                     ============    ============    ===========     ===========

Fiscal 2000 (1)
---------------                                                                                       (restated)
Net sales                                               $ 8,517         $ 9,438         $11,664         $14,144
Costs and expenses:
  Cost of sales                                           6,209           6,639           7,867           8,856
  Research & development                                    959             769             762             876
  Selling, marketing and administrative                   2,117           2,032           2,463           3,468
                                                     ------------    ------------    -----------     -----------
Total costs and expenses                                  9,285           9,440          11,092          13,200
                                                     ------------    ------------    -----------     -----------

Operating income (loss)                                    (768)             (2)            572             944

Interest expense                                            230             218             222             220
Interest (income) and other (income) expense, net           (53)            (91)           (130)           (145)
                                                     ------------    ------------    -----------     -----------
Income (loss) before taxes                                 (945)           (129)            480             869
Provision for Income taxes                                    -               -               -               -
                                                     ------------    ------------    -----------     -----------

Net income (loss)                                        $ (945)        $  (129)        $   480         $   869
                                                     ============    ============    ===========     ===========

Basic earnings (loss) per share                         $ (0.09)        $ (0.01)        $  0.05         $  0.08
                                                     ============    ============    ===========     ===========
Diluted earnings (loss) per share                       $ (0.09)        $ (0.01)        $  0.04         $  0.07
                                                     ============    ============    ===========     ===========
<FN>
(1) Income before income taxes, net income and related per share amounts for the
three months ended March 31, 2000 have been  restated to reflect the affect of a
$357,000 compensation charge related to a restricted stock grant .
</FN>
</TABLE>
As publicly  announced on April 26, 2001, the Company had incorrectly  accounted
for certain restricted stock grants. The impact of the restatement was to change
net income for the quarter  ended March 31, 2000 from  $1,226,000  to  $869,000;
basic  earnings  per share from $0.11 to $0.08;  and diluted  earnings per share
from $0.10 to $0.07. The


                                       44

<PAGE>

restatement  resulted in an increase  of $357,000 in the  Company's  accumulated
deficit  as of March 31,  2000 from  $33,528,000  to  $33,885,000,  as well as a
corresponding  increase in the balance of Company's common stock as of March 31,
2000 from  $56,479,000 to $56,836,000.  As a result of the finding,  the Company
has restated previously reported quarterly results, including the March 31, 2000
financial information set forth herein.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

        There were no  disagreements  with the  independent  auditors  in fiscal
2001, 2000, and 1999.


                                       45

<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

        The  information  required  by this Item is set forth in the 2001  Proxy
Statement  under  the  captions   "Directors  and  Executive   Officers  of  the
Registrant"  and  "Executive   Compensation"  and  is  incorporated   herein  by
reference.

ITEM 11. EXECUTIVE COMPENSATION.

        The  information  required  by this Item is set forth in the 2001  Proxy
Statement under the caption "Executive  Compensation" and is incorporated herein
by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

        Information  related to security  ownership of certain beneficial owners
and security  ownership of management  is set forth in the 2001 Proxy  Statement
under  the  caption  "Security   Ownership  of  Certain  Beneficial  Owners  and
Management" and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

        No reportable relationships and transactions.


                                       46

<PAGE>

                                     PART IV

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

        The following documents are filed as a part of this Report:

        (a)  1.  See Item 8 for a list of financial statements filed herein.

             2. See Item 8 for a list of financial  statement  schedules  filed.
All other  schedules  have  been  omitted  because  they are not  applicable  or
the  required  information  is  shown  in  the Financial Statements or the notes
thereto.

             3.      Exhibit Index:
<TABLE>
               The exhibits  listed below are filed herewith or  incorporated by
reference as indicated  pursuant to Regulation S-K. The exhibit number refers to
number  indicated  pursuant  to  the  Instructions  to  the  Exhibit  Table  for
Regulation S-K.
<CAPTION>
               Exhibit
               Number           Description                            Document if Incorporated by Reference
               -------------    ----------------------------------     ---------------------------------------------------
<S>            <C>                                                     <C>
               3(i)             Articles of Incorporation, as          Exhibit 3(i) to the Company's Annual Report on
                                amended.                               Form 10K (File No. 0-15549) for the fiscal year
                                                                       ended March 31, 1995, ("1995 Form 10-K").

               3(ii)            By-laws, as amended.                   Exhibit 3(ii) to the Company's Annual Report on
                                                                       Form 10K (File No. 0-15549) for the fiscal year
                                                                       ended March 31, 1995, ("1995 Form 10-K").

               10.11            Commitment letter from Comerica
                                Bank.

               23.1             Consent of Ernst & Young,
                                Independent Auditors

        (b)       1.       Reports on Form 8-K:

                           None
</TABLE>
                       DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the  Registrant's  Proxy  Statement in  connection  with its
August 7, 2001  Annual  Meeting of  Shareholders  (which  will be filed with the
Securities and Exchange Commission within 120 days of the end of the fiscal year
ended March 31, 2001) are incorporated by reference into Part III.


                                       47

<PAGE>

<TABLE>
                                                 SCHEDULE 2

                                    CALIFORNIA MICRO DEVICES CORPORATION
                                     VALUATION AND QUALIFYING ACCOUNTS

                                 Years Ended March 31, 2001, 2000, and 1999
                                           (Amounts in Thousands)
<CAPTION>
                                                                 Additions
                                                   Balance at    Charged to                    Balance at
                                                   Beginning      Cost and       Deductions      End of
                                                    of Year       Expense           (1)           Year
                                                  ------------- -------------   ------------- -------------
<S>                                                  <C>            <C>             <C>          <C>
Year ended March 31, 2001
  Allowance for doubtful accounts
    (deducted from accounts receivable)              $ 219          $ -             $ 60         $ 279
                                                     ======         ====            ====         =====

Year ended March 31, 2000
  Allowance for doubtful accounts
    (deducted from accounts receivable)              $ 224          $ -             $ 5          $ 219
                                                     ======         ====            ====         =====

Year ended March 31, 1999
  Allowance for doubtful accounts
    (deducted from accounts receivable)              $ 380          $ -            $ 156         $ 224
                                                     ======         ====           ======        =====

<FN>
(1) Represents write-offs net of recovery of receivables.
</FN>
</TABLE>

                                                     48

<PAGE>


                                   SIGNATURES

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

CALIFORNIA MICRO DEVICES CORPORATION
               (Registrant)


By:     /s/ Robert V. Dickinson
        -----------------------------------
        ROBERT V. DICKINSON
        President and Chief Executive Officer
<TABLE>
        Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities indicated on the 15th day of June 2001.
<CAPTION>
By:

<S>     <C>                                       <C>
        /s/ Robert V. Dickinson                    President and Chief Executive Officer
        ----------------------------              (Principal Executive Officer)
        ROBERT V. DICKINSON


        /s/ John E. Trewin                         Vice President and Chief Financial Officer
        ----------------------------              (Principal Financial and Accounting Officer)
        JOHN E. TREWIN


        /s/ Wade Meyercord                         Chairman of the Board
        ----------------------------
        WADE MEYERCORD


        /s/ Angel G. Jordan                        Director
        ----------------------------
        ANGEL G. JORDAN


        /s/ Jeffrey C. Kalb                        Director
        ----------------------------
        JEFFREY C. KALB


        /s/ J. Daniel McCranie                     Director
        ----------------------------
        J. DANIEL MCCRANIE


        /s/ Stuart Schube                          Director
        ----------------------------
        STUART SCHUBE


        /s/ John Sprague                           Director
        ----------------------------
        JOHN SPRAGUE


        /s/ Donald Waite                           Director
        ----------------------------
        DONALD WAITE

</TABLE>