##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K



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|                                                            |  |                                                                                                 
|----------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------
|(Mark One)                                                  |  |                                                                                                 
|þ                                                           |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|                                                           
|For the fiscal year ended March 31,
    2002               
|                                                           
|or                                                         
|                                                           
|o                                                           |  | 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: 0-23576

Celeritek, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|California                                                         |  | 77-0057484                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

3236 Scott Boulevard, Santa Clara, California
95054

(Address of principal executive offices,
including zip code)


Registrants telephone number including
area code: (408) 986-5060

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

NONE


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

Common Stock, no par value


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

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

The aggregate market value of the voting stock
held by non-affiliates of the registrant, as of May 24,
2002, was approximately $61,701,227 based upon the closing price
for shares of the registrants Common Stock as reported by
the Nasdaq National Market on such date. Shares of Common Stock
held by each executive officer, director and holder of 5% or
more of the outstanding Common Stock have been excluded in that
such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive
determination for other purposes.

On May 24, 2002, approximately 12,232,464
shares of the registrants Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement to be
filed pursuant to Regulation 14A promulgated by the
Securities and Exchange Commission under the Securities Exchange
Act of 1934, which is anticipated to be filed within 120 days
after the end of the registrants fiscal year ended
March 31, 2002, are incorporated by reference in Part III
of this Form 10-K.



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TABLE OF CONTENTS



|                                                                                 |                                                                                                         |  |  |  |  |  |  | 
|-------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                                          
|                                                                                 | Item 1. Business                                                                                       
|                                                                                 | Item 2. Properties                                                                                     
|                                                                                 | Item 3. Legal Proceedings                                                                              
|                                                                                 | Item 4. Submission of Matters to a Vote of Security Holders                                            
|PART II                                                                         
|                                                                                 | Item 5. Market for Registrants Common Stock and Related Stockholder Matters                            
|                                                                                 | Item 6. Selected Financial Data                                                                        
|                                                                                 | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations          
|RISK FACTORS                                                                    
|                                                                                 | Item 7A. Qualitative and Quantitative Disclosure About Market Risk                                     
|                                                                                 | Item 8. Financial Statements and Supplementary Data                                                    
|                                                                                 | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|PART III                                                                        
|                                                                                 | Item 10. Directors and Executive Officers of the Board                                                 
|                                                                                 | Item 11. Executive Compensation                                                                        
|                                                                                 | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
|                                                                                 | Item 13. Certain Relationships and Related Transactions                                                
|PART IV                                                                         
|                                                                                 | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS                               
|CONSOLIDATED STATEMENTS OF OPERATIONS                                           
|CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY                                 
|SIGNATURES                                                                      
|SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS ALLOWANCE FOR DOUBTFUL ACCOUNTS
|EXHIBIT INDEX                                                                   
|EXHIBIT 10.13                                                                   
|EXHIBIT 21                                                                      
|EXHIBIT 23.1                                                                    



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PART I

The Business section and the
section entitled Managements Discussion and Analysis
of Financial Condition and Results of Operations contained
in this Annual Report on Form 10-K contain forward-looking
statements within the meaning of the Private-Securities
Litigation Reform Act of 1995. These forward-looking statements
include, without limitation, statements regarding our
expectations about (1) the implementation of
next-generation wireless infrastructure systems; (2) our
ability to design and manufacture high performance GaAs
semiconductor components and subsystems that will provide us
with a competitive advantage in functionality, size, linear
efficiency, modularity, low parts count, reliability and shorter
time to market; (3) the strategic advantage of our
third-party manufacturing relationships to help increase
production volumes, manage capacity and increase yields;
(4) our strategies to become a leading provider of GaAs
semiconductors and components by exploiting perceived
integration trends, penetrating the mobile handset market,
pursuing WLAN opportunities, vertically integrating our design
and manufacturing processes, building strong customer
relationships and seeking new defense electronics opportunities;
(5) advantages of our product offerings for CDMA
applications, and to solve other complex problems;
(6) assumptions underlying our critical accounting
estimates; and (7) the sufficiency of our capital resources
to fund our operations for at least the next twelve months.
These, and other forward-looking statements are subject to
business and economic risks and uncertainties that could cause
our actual results of operations to differ materially from those
contained in the forward-looking statements. For example, the
wireless infrastructure market may develop more slowly than
anticipated and technologies may change causing us to lose any
competitive advantage; GaAs technology may become obsolete due
to advances in other materials or we may realize diminishing
returns in terms of enhanced functionality and design
advantages; our third party manufacturing relationships may not
be an asset if we have difficulty managing the relationships and
if production volumes remain low and demand weak; we may fail to
pursue our strategies as planned, our priorities may shift if we
pursue opportunities in an anticipated market that does not
develop; our products may not best meet the needs of CDMA, or
other applications; our good faith accounting estimates may
prove to be incorrect and our cash position may deteriorate for
currently unanticipated reasons. Unless required by law, we
undertake no obligation to update publicly any forward-looking
statements, whether as a result of new information, future
events, or otherwise. However, readers should carefully review
the risk factors set forth in this Form 10-K and other
reports or documents we file from time to time with the
Securities and Exchange Commission.




Item 1.     Business

Overview

Formed as a California corporation in 1984, we
design and manufacture gallium arsenide, or GaAs, semiconductor
components and GaAs-based subsystems used in the transmission of
voice, video and data over wireless communication networks and
systems. Our products are designed to facilitate broadband voice
and data transmission in mobile handsets and wireless
communications network infrastructure. Our GaAs semiconductor
components mainly consist of power amplifiers for mobile
handsets, which employ code division multiple access, or CDMA,
wireless technology. Our GaAs-based subsystems are used in a
variety of defense application such as tactical aircraft and
ground based and ship board radar systems and in point to point
and point to multipoint microwave radios addressing the high
capacity wireless SONET/ SDH networks.

The wireless communications infrastructure
market, from which we received a significant portion of our
revenue in fiscal 2001, weakened substantially in fiscal 2002.
This downturn in demand was due to reduced capital spending by
network operators and the overall slowdown in the economy. As a
result, our revenues declined in fiscal 2002 to
$57.1 million from $85.1 million in fiscal 2001 and we
reported a net loss of $22.6 million. We responded to these
changes during fiscal 2002 by reducing our workforce by
approximately 40%, writing off obsolete inventory and impairing
underutilized assets to their current fair value.

Although the demand for defense products has been
fairly stable over the last few years, we have not actively
pursued defense business because of capacity constraints. As
capacity became available in fiscal 2002, due to lower demand in
the wireless infrastructure market, we reallocated resources to
pursuing defense business.

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Industry Background



| |                                                   
| | --------------------------------------------------
| | Growth in the Wireless Communications
    Industry

Although the market for wireless communications
declined in 2001, this market has grown rapidly in recent years.
For example, in the handset segment of the market, unit sales
declined in 2001 compared to the previous year, the first such
decline in the handset market. Wireless communications are used
by consumers for mobile voice and, increasingly, data. Wireless
communication is also an important element of modern networks as
service providers are using wireless technology as an effective
and less costly means of transmitting voice and data over
portions of their networks.

The wireless communications market is constantly
changing with the advent of new applications such as digital
wireless phones, personal communications systems (PCS), handheld
navigation products based on the global positioning satellite
(GPS) standard, satellite communications and wireless local area
networks (WLAN).

The proliferation of some of these new
applications has led to increased communication traffic
resulting in congestion of the existing assigned frequency
bands. As a consequence, wireless communications are moving to
higher, less congested frequency bands. The advantages of
wireless communications systems as well as the increasing demand
for wireless communications at higher frequency continue to
drive worldwide growth in existing systems and continue to drive
the emergence of new markets and applications.



| |                                                   
| | --------------------------------------------------
| | Challenges Facing Mobile Handset
    Manufacturers

Consumer demand for smaller handset size, longer
battery life and additional services such as data access, has
increased the complexity of mobile handsets. The increased
functionality of these devices means that manufacturers of
mobile handsets have to add more components to existing devices
without compromising size and weight. Many manufacturers seek to
find third party providers that have both semiconductor and
systems level expertise to design and supply these solutions.
Also, these factors have caused some mobile handset
manufacturers to look to higher levels of integration for
components. Beyond performance advantages, the integration of
these components permits manufacturers to reduce both the parts
count and the number of suppliers.

Handset manufacturers also must adapt to changing
wireless technologies. The two primary digital wireless
technologies are known as code division multiple access, or
CDMA, and time division multiple access, or TDMA, which includes
a variation called global system for mobile communications, or
GSM. TDMA, including GSM, is currently the most widely used
digital wireless technology, although CDMA is the fastest
growing due primarily to its clearer signal and greater capacity
for the transmission of data.

The next generation of wireless technology, known
as third generation technology or 3G, is expected to be based on
CDMA technology. 3G technologies are being designed to
provide increased capacity, high bandwidth for multimedia
applications and global roaming capabilities. The increased
capacity and data speeds of 3G networks are expected to
permit wireless transmission of integrated voice, video and data
traffic. With speeds up to 2 megabits per second, or Mbps,
which is 30 times faster then a typical 56 kilobits per
second, or Kbps, modem, applications such as broadband wireless
access to the Internet and mobile video conferencing are
expected to become a reality. We believe service providers
should be able to implement this technology with new
infrastructure or as an equipment overlay to existing networks.
Service providers are expected to begin to upgrade their
networks to 3G levels over the next few years and regulatory
agencies in some countries have allocated additional frequency
bands for 3G services. To date, the markets transition to
2.5G and 3G technology has not proceeded as rapidly as the
industry expected.



| |                                             
| | --------------------------------------------
| | Wireless Infrastructure Network
    Buildout

In recent years service providers have been
upgrading their existing networks or developing new networks to
take advantage of new wireless technologies as they emerge.
Service providers must choose between constructing their
networks using traditional wireline infrastructure, wireless
infrastructure or a combination of both. Traditional wireline
connectivity solutions typically require significant
installation periods and may be

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relatively expensive to install. Many service
providers are installing wireless networks because they are
generally faster to install and may be less expensive than
traditional wireline networks. As a result, many service
providers are deploying wireless networks as an alternative to
the construction of traditional wireline networks.
Notwithstanding the relatively lower cost of wireless networks,
there is still a significant period of investment in network
installation before subscriber revenues reach a substantial
level.


In calendar 2001, demand for network
installations declined due to lower capital spending by service
providers and excess network capacity.

Wireless networks are constructed using microwave
radios and other equipment to connect base stations with wired
transmission systems and facilities. Wireless infrastructure
solutions used in communications networks include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Point to Point Networks.Point to point systems are used to
    transmit voice or data traffic over a single transmission link,
    typically between wireless communications networks or within a
    metropolitan area where wired networks are not available or are
    not cost effective. Data rates for these systems range from
    4 Mbps to as high as 44 Mbps, which is over 600 times
    faster than a typical 56 Kbps modem.                                                                                                                                                                                                                                                          
|
| |  | Point to Multipoint/ Fixed Wireless Networks.Point to multipoint and fixed wireless
    networks connect a number of communications end users within a
    local area to a single point, thereby bypassing the last mile
    bottleneck in the communications network. Point to multipoint
    networks are primarily being used by businesses as an
    alternative means of data communication, while fixed wireless
    systems are used by consumers as an alternative to traditional
    wireline telephone services. These networks transport data at
    rates from 44 Mbps to as high as 155 Mbps and can
    offer consumer access to data at multiple points from
    4 Mbps to 44 Mbps.
|
| |  | Wireless SONET/SDH.Wireless SONET/ SDH systems are high capacity point to point
    solutions, which offer service providers wireless alternatives
    for fiber optic network expansion. SONET and SDH are fiber optic
    transmission standards. Because wireless SONET/ SDH systems can
    transport data at speeds comparable with fiber based systems,
    the high capacity portion of networks can now be more rapidly
    and cost effectively deployed with wireless systems. These high
    capacity wireless systems support data rates from 155 Mbps,
    equivalent to OC-3 fiber optic standards, to as high as
    610 Mbps.                                                     



| |                                                          
| | ---------------------------------------------------------
| | Challenges Facing Broadband Wireless System
    Providers

To meet the demand for wireless infrastructure
solutions, as well as to construct and augment mobile wireless
systems to meet growing subscriber demand, service providers are
turning to systems integrators and original equipment
manufacturers, or OEMs, to build out infrastructure quickly,
efficiently and in accordance with exacting performance
specifications. In addition, OEMs are looking to outsource the
design and manufacture of highly integrated, reliable subsystems
in a cost-effective manner. By outsourcing subsystems, OEMs can
reduce their time to market and leverage their core competencies
of full system design and integration. Additionally, OEMs can
promote competition among developers and manufacturers, which
leads to technological innovations in wireless infrastructure
equipment. Concurrently, OEMs are seeking to select a core group
of subsystem and component providers in order to reduce the
supply and management risks associated with the currently
fragmented supplier base.



| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | GaAs Semiconductor Components and
    GaAs-based Subsystems Increasingly Address the Requirements of
    Broadband Wireless Systems

Manufacturers of mobile handsets and
telecommunications systems are increasingly looking to GaAs
solutions because of their requirements for efficient power
consumption and faster integrated circuits for high bandwidth,
high performance communications products. Compared to silicon,
GaAs has inherent physical properties that allow electrons to
move several times faster. This translates into improved linear
efficiency and higher frequency performance. The
linearity, or ability to amplify a signal with minimal
distortion, and efficiency, a measure of the strength of
an amplified signal relative to the amount of power consumed,
are criteria that become more challenging in broadband wireless
applications. For example, GaAs semiconductor

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components in mobile handsets used in transmitter
applications are more power efficient than silicon based
components. This efficiency allows for longer battery life or
use of smaller batteries.


Highly integrated GaAs-based subsystems also
leverage the benefits of GaAs technology to offer compact,
broadband wireless solutions. GaAs-based subsystems with high
linear efficiency are critical to a service providers
ability to reduce interference levels and increase system
capacity. Applications that incorporate GaAs-based subsystems
include radio applications at millimeter wave frequencies. Since
these GaAs-based products are complex, highly integrated
components and hard to produce in volume, many manufacturers are
looking to outsource these components and subsystems.



| |                           
| | --------------------------
| | Defense Electronics Market

Military forces worldwide are dependant on
sophisticated electronic equipment. Military aircraft and naval
vessels generally contain extensive electronic countermeasure
equipment for defense against enemy missile and radar systems.
These systems typically provide protection for the aircraft or
the ship from incoming enemy missiles by jamming the
missiles tracking systems through various RF and microwave
signal processing techniques. Major missile systems such as the
Air-to-Air Missile (AMRAAM), Patriot Ground-to-Air Missile and
Theater High Altitude Area Defense (THAAD) also require
sophisticated signal processing equipment for targeting and
guidance purposes. Amplifiers are key transceiver components
that determine many of the basic performance characteristics of
a signal processing system. Low noise amplifiers are used to
receive low-level signals and increase their level to a usable
range. Power amplifiers are used to increase signal level to the
required transmission power range. For missile guidance and
radar applications, broadband amplifiers capable of receiving a
range of frequencies are necessary given that the incoming
frequencies are not known in advance.

The Celeritek Solution

We design and manufacture GaAs semiconductor
components and GaAs-based subsystems used in the transmission of
voice, video and data over wireless communication networks and
defense communications systems. Our products are designed to
facilitate broadband voice and data transmission in mobile
handsets, wireless communications networks and defense
applications. We believe our core competencies, as outlined
below, enable us to successfully address the existing and
emerging opportunities in these wireless services markets:



| |                                             
| | --------------------------------------------
| | Extensive Expertise in GaAs
    Technologies

We believe our 17 years of experience with
GaAs technology has enabled us to manufacture high performance
GaAs semiconductor components and GaAs-based subsystems. Our
expertise allows us to deliver high quality products to our
customers by balancing the latest GaAs technology with advanced
manufacturing techniques. In particular, we are able to
manufacture GaAs semiconductor components that meet the more
challenging CDMA linearity requirements, as well as TDMA
requirements. This ability stems from our proficiency with
different GaAs semiconductor processes, such as metal
semiconductor field effect transistor, or MESFET, pseudo-morphic
high electron mobility transistor, or pHEMT, and the indium
gallium phosphide method of heterojunction bipolar transistor,
or InGaP HBT.



| |                                        
| | ---------------------------------------
| | Millimeter Wave Frequency
    Expertise

Many of our subsystem products operate in
millimeter wave frequency ranges as high as 40 gigahertz,
or GHz. Higher frequencies offer more data transmission
capacity. Wireless solutions at these frequencies require
individual building blocks with demanding tolerances and
specifications, which can be difficult to produce in volume. We
believe our circuit design expertise, internally produced GaAs
semiconductor components, extensive experience and understanding
in how to better integrate functionality at these frequencies
provides us with a technical advantage. We believe that our
expertise results in simpler, more robust, and higher
performance solutions for our subsystem customers. It has also
enabled us to produce new products targeted for high-speed fiber
optic applications of up to 40 gigabits per second, or Gbps.

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| |                            
| | ---------------------------
| | Linear Efficiency Expertise

We have developed technology competencies in
multiple disciplines, including pHEMT and InGaP HBT GaAs
technologies, which enable us to achieve high linear efficiency
in our GaAs semiconductor components and GaAs-based subsystems.
These competencies and disciplines include RF integrated circuit
technology, solid state device physics, thermal mechanical
packaging design, advance circuit design, linearity enhancement
techniques, advanced signal processing techniques, and computer
aided design and modeling. We believe the linear efficiency of
GaAs allows our subsystem products to be packaged in smaller
enclosures due to a reduced need for heat removal. We also
believe our linear efficiency expertise provides us with an
important technology advantage, particularly with respect to
products addressing the rapidly growing CDMA market. CDMA tends
to have more stringent power requirements than other digital
standards and is very sensitive to any distortion, which places
greater demands on the linearity characteristics of CDMA power
amplifiers.



| |                                        
| | ---------------------------------------
| | Vertically Integrated
    Manufacturing

The vertical integration of our design and
production process improves our ability to address wireless
equipment providers quantity and time to market
requirements for GaAs semiconductor components and GaAs-based
subsystems. We believe our in-house ability to design and
manufacture our products in a modular fashion is critical to
introduce new products meeting the evolving needs of our
customers in a rapid and cost effective manner. We also design
our products to be manufactured in high volumes in modular
manufacturing lines, which we believe improves our ability to
secure volume orders from our customers. In addition, common
architectures are used for multiple applications resulting in
faster development times and manufacturing efficiencies
associated with common material content. We have developed
relationships with third party manufacturers throughout our
supply chain, which are intended to improve our ability to
increase volume production to meet customers needs and
optimize the utilization of our in-house capacity.



| |                 
| | ----------------
| | Design Expertise

Our expertise in RF and microwave design allows
us to effectively select and integrate appropriate circuit
blocks to achieve high level functionality with cost-effective
performance for our customers. This is typically a very
difficult problem as bandwidth, or data rate, requirements of
these systems increase. We believe our technical advantage stems
from selecting appropriate high-level functionality with low
parts count and complexity. This advantage translates into
reliable, simple and more manufacturable products. In addition
to the vertical integration benefits that come from our in-house
GaAs fabrication, we also produce our own circuits and
components for subsystem applications. These capabilities
support higher levels of integration for our products. For
example, our design expertise enabled us to develop our
semiconductor InGaP HBT power modules for mobile handsets.

Strategy

Our objective is to become the leading provider
of GaAs semiconductor components and GaAs-based subsystems for
the wireless communications market. We target leading OEMs in
growing voice and data driven markets and align our technologies
and products to address their needs. The following are the key
elements of our strategy:



| |                                                                               
| | ------------------------------------------------------------------------------
| | Leverage our Expertise in Linear Efficient
    GaAs Technology and Integration

We intend to continue to use our expertise in
GaAs and integration to address emerging trends in wireless
communication markets. For example, our InGaP HBT power
amplifier modules offer our mobile handset customers an
integrated solution involving fewer parts, greater ease of use,
smaller size and higher linear efficiency as compared to power
amplifiers produced using other GaAs processes. We believe our
modules will also address our customers needs for reduced
parts count and number of suppliers. Our GaAs-based subsystem
products, such as our amplifiers for defense products, integrate
circuits produced in-house and GaAs semiconductor components to
address customer demand for compact subsystems.

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| |                                        
| | ---------------------------------------
| | Further Penetrate Broadband
    Markets

We target both existing and emerging high-growth
wireless communications markets. We seek to further increase the
penetration of our GaAs semiconductor components in the existing
and growing voice driven market for mobile handsets. Our
strategy is to further penetrate emerging wireless
communications markets, which include data handsets, wireless
local area networks (WLAN) and network infrastructure.

We believe frequencies and, correspondingly, data
rates in the WLAN market will increase with the acceptance of
new standards. For example, the current standard, 802.11b,
operates at 2.4 GHz and has data rates up to 11 MBps
and the newer standard, 802.11a, operates at 5 GHz and has
data rates up to 54 MBps. We believe our GaAs processing
and high frequency design expertise will allow us to develop
products for this market that have excellent linearity and lower
power consumption.



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Capitalize on Vertical Integration in
    Design and Manufacturing of Integrated Components

We intend to continue to pursue a strategy of
vertical integration of our design and manufacturing processes,
from design and development of the semiconductor integrated
circuit through assembly and automated testing. We believe our
expertise in the design and manufacturing of integrated
components benefits us in the wireless subsystems market because
GaAs semiconductor components are a critical part of these
GaAs-based subsystems. We also believe our control over each of
these steps contributes to improved linear efficiency, shortens
our time to market, reduces unit costs and increases our control
over quality and reliability. In periods of high industry demand
for semiconductors and intense competition for wafer fabrication
capacity, operating a wafer fabrication facility provides access
to a captive supply of RF semiconductors for the mobile
handset market and for integration into our GaAs-based
subsystems.



| |                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Expand Relationships with Leading Worldwide
    Manufacturers of Mobile Handsets, Wireless Local Area Networks,
    Network Infrastructure Equipment and Defense
    Systems

Our strategy is to form lasting customer
relationships by working closely with our customers early in the
development process. By working with our customers throughout
the entire development process, we believe we are able to
provide final solutions tailored to their cost and performance
goals. For example, we have developed relationships with large
wireless customers, such as Motorola. We believe that our
customer relationships also allow us to develop insight into
their requirements and to design specific products that meet
their needs by rapidly delivering product designs and volume
production. In addition, we do not generally compete with our
customers and we believe, as a result, they are more willing to
openly discuss with us their proprietary technologies and
development plans.



| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | Build on Expertise in Broadband Microwave
    Amplifiers to Develop Multifunction Assemblies for the Defense
    Market

We target defense electronics programs such as
missile guidance and radar systems in which microwave signal
processing expertise is a key performance factor. Our strategy
is to build on our expertise in broadband microwave amplifiers
to develop multifunction assemblies to increase our available
market.

Products

We design, develop, manufacture and market GaAs
semiconductor components and GaAs-based subsystems.

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| |                              
| | -----------------------------
| | GaAs Semiconductor Components

We offer our GaAs semiconductor components to
customers for use in the wireless communications markets, and
integrate them into our own GaAs-based subsystems.

|                                       |  |                                                                                                |  |                                                                                                                    |  |                                                                                                                                                                   
|-------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                      
|                                      
|Market                                 |  | Semiconductor Components                                                                       |  | Applications                                                                                                       |  | Product Benefits                                                                                                                                                  
|                                      
|                                      
|Mobile Handsets                        |  |  Power amplifier RFICs
     HBT Power Modules
     Driver RFICs                             |  | Transmitter portion of cellular and PCS CDMA,
    TDMA, and, in the future, 3G mobile handsets, for voice and data |  |  Lengthens talk time
     Increases data capacity up to  2
    Mbps
     Decreases size of handsets
     Decreases battery voltage
     Increases integration
|                                      
|                                      
|Wireless Infrastructure                |  |  Power amplifier RFICs
     Power transistors
     Low noise transistors                    |  | Transmitter and receiver portions of cellular,
    GSM, and PCS wireless infrastructure equipment                  |  |  Increases range
     Increases data capacity up
    to  2 Mbps
     Reduces size of base stations                                                             
|                                      
|                                      
|Fixed Wireless                         |  |  Power amplifier RFICs
     Power transistors
     Low noise transistors
     Driver RFICs |  | Transmitter portion of 1.9 GHz, 2.4 GHz
    and 3.5 GHz fixed wireless base stations and subscriber
    terminals  |  |  Increases data capacity up
    to  2 Mbps
     Lengthens battery back up
     Reduces size of base stations                                                   
|                                      
|                                      
|Point to Point and Point to Multipoint |  |  Millimeter wave
    microwave  monolithic
    integrated  circuits  (MMICs)                  |  | Transmitter and receiver portions of our
    GaAs-based subsystems                                                 |  |  Provides a secure source
    of  supply and reduce the cost
    of  our GaAs-based subsystems                                                                   
|                                      
|                                      
|Satellite*                             |  |  Microwave and
    millimeter  wave MMICs                                                     |  | Transmitter portion of ground-based satellite.                                                                     |  |  Increased reliability
     Increased integration                                                                                                               
|                                      
|                                      
|Fiber Optic*                           |  |  Driver amplifier MMICs                                                                       |  | OC-192 20 fiber optic external modulator
    applications                                                          |  |  Increases data capacity up
    to  10 Gbps
     Reduces data errors                                                                                            
|                                      



|  |                                                   
|- | --------------------------------------------------
|* | Products that have not commenced volume shipments.

Revenue from semiconductor components was
$30.4 million in fiscal 2002, $42.0 million in fiscal
2001 and $18.3 million in fiscal 2000.

7



---



##### Table of Contents





| |                      
| | ---------------------
| | GaAs-based Subsystems

Our GaAs-based subsystems address the needs of
wireless communication markets for voice and data.

|                    |  |                                                                                                                           |  |                                                                                                                 |  |                                                                                                                                               
|------------------- |  | ------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|                   
|                   
|Market              |  | Semiconductor Components                                                                                                  |  | Applications                                                                                                    |  | Product Benefits                                                                                                                              
|                   
|                   
|Defense             |  |  Amplifiers
     Multi-function assemblies                                                                              |  | Electronic countermeasures, warning systems and
    radar decoys                                                |  |  Increases integration                                                                                                                       
|                   
|                   
|Point to Point      |  |  Power amplifiers
     Low noise amplifiers
     Transceivers
     Complete radio outdoor  units, or ODUs             |  | Transmitter and receiver portion of microwave and
    millimeter wave radios for medium capacity voice and data |  |  Increases range
     Reduces size of terminals
     Increases integration
     Increases data rates up
    to  44 Mbps                   
|                   
|                   
|Point to Multipoint |  |  Linear amplifiers
     Low noise amplifiers
     Low phase noise sources
     Transceivers
     Complete radio ODUs |  | Transmitter and receiver portion of millimeter
    wave radios for high capacity voice and data                 |  |  Increases data capacity up
    to  44 Mbps
     Reduces size of terminal
     Reduces data errors
     Reduces sensitivity to  vibration 
|                   
|                   
|Wireless SONET/ SDH |  |  Linear amplifiers
     Low noise amplifiers
     Low phase noise sources
     Transceivers
     Complete radio ODUs |  | Transmitter and receiver portion of millimeter
    wave radios for very high capacity data                      |  |  Increases data capacity up
    to  610 Mbps
     Reduces size of terminal
     Reduces data errors
     Reduces sensitivity to  vibration
|                   

Revenue from GaAs-based subsystems was
$26.7 million in fiscal 2002, $43.1 million in fiscal 2001
and $29.9 million in fiscal 2000.

Customers

We sell our GaAs semiconductor components and
GaAs-based subsystems products primarily to commercial OEMs, who
integrate these products into both wireless mobile handsets and
wireless infrastructure equipment and networks. We also sell our
subsystem products to major defense contractors.

A relatively limited number of customers have
historically accounted for a substantial portion of our sales.
During the fiscal year ended March 31, 2002, Motorola
accounted for approximately 43% of net sales. During the fiscal
year ended March 31, 2001, Motorola accounted for
approximately 21% of net sales, and DMC Stratex Network
accounted for approximately 10% of net sales. In the fiscal year
ended March 31, 2000, Motorola accounted for approximately
15% of net sales and P-Com accounted for approximately 11% of
net sales. Sales to our top ten customers accounted for
approximately 76% of our net sales in fiscal 2002 and 72% in
fiscal 2001. We expect that sales of our products to a limited
number of customers will continue to account for a high
percentage of our sales in the foreseeable future. Of our
current backlog, approximately 43% is attributable to orders
received from Motorola. Please see the section of this Report
entitled Risk Factors for a description of risks
related to our backlog and customer concentration.

Sales to international customers were
$17.5 million, which accounted for 31% of net sales in
fiscal 2002, $35.3 million, which accounted for 41% of net
sales in fiscal 2001, and $10.7 million, which accounted
for 22% of net sales in fiscal 2000. In addition, many of our
domestic customers sell their products outside of the United
States. For a breakdown of our international sales by region,
please see Note 12 to our financial statements included in this
Report. Please also see the section of this Report entitled
Risk Factors for a description of risks related to
our international sales and operations

8



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##### Table of Contents



Technology

We utilize GaAs technology expertise, advanced
integration and packaging technologies, RF and microwave circuit
design and high frequency competency to offer what we believe
are superior wireless solutions. We also employ advanced
simulation and modeling tools to offer wireless customers
advanced semiconductor RF integrated circuits, or RFICs,
and power amplifier modules, as well as GaAs-based subsystems
that bring the benefits of the latest technologies to market
quickly.



| |                 
| | ----------------
| | Gallium Arsenide

GaAs is a semiconductor material that has an
electron mobility several times faster than silicon. As a
result, it is possible to design GaAs circuits that operate at
significantly higher frequencies than silicon circuits. GaAs
circuits can be designed to consume less power, amplify with
more linearity, and operate more efficiently at lower voltages
than silicon circuits. This means that transceiver products
operate with smaller batteries for a longer period of time. Low
voltage linear efficiency makes GaAs circuits well suited for
power amplifiers operating in CDMA, TDMA and 3G systems. High
frequency GaAs technology supports millimeter wave MMICs for
transceivers and other components for integration into
GaAs-based subsystem products. High frequency GaAs technology
also facilitates the support of the high-speed fiber optic
market. Our GaAs technology provides repeatability and control
through our proprietary 0.25 micron semiconductor fabrication
process.



| |               
| | --------------
| | GaAs Processes

We utilize a broad range of GaAs production
processes, which provide us with flexibility in designing
products to suit the needs of our customers, including the
following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Metal semiconductor field effect transistor, or
    MESFET, is a production process characterized by lower initial
    wafer costs and fewer processing steps than newer processes,
    such as InGaP HBT. Semiconductor products manufactured using
    MESFET need two power supplies, a positive and negative, and
    have a larger die size. These products are generally used in
    infrastructure applications.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Pseudo-morphic high electron mobility transistor,
    or pHEMT, is a production process characterized by low voltage
    and high frequency performance, which is superior to the MESFET
    process. pHEMT also requires a positive and negative power
    supply like MESFET. pHEMT is used in current generation CDMA
    power amplifiers, high frequency MMICs for GaAs-based subsystems
    and our fiber optic driver products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Heterojunction bipolar transistor, or HBT,
    processes have a bipolar structure, similar to that used in
    traditional high frequency analog applications, rather than the
    FET structure utilized in MESFET and pHEMT processes. The
    bipolar structure of HBT enables the use of a single power
    supply and can be disabled with a digital control signal in
    contrast with MESFET and pHEMT, both of which require two
    supplies and supply switching components. Additionally, HBT
    devices generally have superior linear efficiency relative to
    MESFET and pHEMT. HBT devices generally involve more processing
    steps than MESFET or pHEMT processes, which tend to make the
    cost of processing a single wafer more expensive. However, the
    smaller die size of an HBT device, and therefore the greater
    number of devices per wafer, tend to offset this additional
    cost. These devices are used in current generation CDMA power
    amplifier modules.



| |                            
| | ---------------------------
| | InGaP HBT versus AlGaAs HBT

The most commonly utilized HBT process today uses
aluminum to create aluminum GaAs, or AlGaAs. Our HBT process
uses indium and phosphide to create indium gallium phosphide, or
InGaP. The primary advantages of InGaP are the reliability and
low voltage linear efficiency. As a result, we believe InGaP is
the preferred technology for CDMA broadband applications.

9



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##### Table of Contents





| |                      
| | ---------------------
| | Integration Expertise

We have developed technologies to enhance our
expertise at higher levels of integration. We believe these
technologies allow us to offer a higher level of functionality,
in smaller form factors, to our customers.

Modular Design.Our
subsystem assemblies use modular building blocks to provide high
level functionality. These assemblies are produced with common
system architectures for multiple applications to enable cost
effective and flexible integration. Our module products can use
a common die supply for multiple applications allowing us to
dynamically allocate material as demand changes.

Hybrid Waveguide.We
have developed a proprietary millimeter wave integration
technology called Hybrid Waveguide Technology, or HWT, in which
circuits are built directly inside the waveguide. This
technology enables high performance filters and active
components.



| |          
| | ---------
| | Packaging

We have developed proprietary RFIC and power
module packaging techniques to enhance the linear efficiency of
our products, while using commercially available cost effective
manufacturing processes. These packaging technologies are
compatible with subcontract assembly capacity, and offer size
reduced, higher levels of functionality to our customers.



| |                        
| | -----------------------
| | Low Phase Noise Sources

We have developed a proprietary approach to
produce low phase noise sources to support high capacity
wireless data applications. The approach is designed to be a
cost effective and robust design. We believe our approach offers
a technical advantage over competing approaches, which when
subjected to vibration, can induce critical errors in high
capacity data transmission at millimeter wave frequencies.



| |                        
| | -----------------------
| | Simulation and Modeling

We believe that our long history of solving
complex integration problems gives us a strong basis from which
to address new applications. This experience is enhanced with
in-house and commercially available simulation techniques. For
example, we have an advanced non-linear model for InGaP HBT that
enables better prediction of end performance on a first design
attempt.



| |          
| | ---------
| | Amplifier

Linear amplifiers amplify signals so that they
will have sufficient strength to reach the next location, but do
so in such a way as to not induce distortion in transmitted
voice or data. Amplifiers are typically the most challenging
component in any RF and microwave system. They were our first
product and continue to be a core technology. Millimeter wave
power amplifiers up to one watt of power are needed for higher
bandwidth voice and data applications, and our expertise in this
area enables these applications to transmit higher capacity
data. GaAs semiconductor RFICs and power amplifier modules are
an important part of the transmit chain in a handset, and we
believe our leadership in linear efficiency in this product area
is a result of amplifier technology which in turn enables higher
capacity mobile voice and data solutions.



| |                
| | ---------------
| | Millimeter Wave

We have developed millimeter wave technologies to
help simplify and improve the performance of our components.
These include careful control over the geometries to produce
GaAs MMICs with our 0.25 micron semiconductor fabrication
process, tolerance control over in-house thin film circuits, and
correct circuit implementations that allow centering of design
performance to specifications.

Sales and Marketing

We market our products worldwide to customers in
commercial markets and prime contractors in the defense industry
primarily through a network of manufacturers
representatives managed by our internal sales

10



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##### Table of Contents



force. As of March 31, 2002, we had
contracts with 13 manufacturers representatives in the
United States and 15 international representatives located in
Western Europe, the Middle East and Asia. As part of our
marketing efforts, we advertise in major trade publications and
attend major industry shows.


After we have identified key potential customers
in our market segments, we make sales calls with our
manufacturers representatives and our own sales,
management and engineering personnel. Many of the companies
entering the wireless communications markets possess expertise
in digital processing and wired systems but relatively little
experience in analog signal processing and wireless
transmission. To promote widespread acceptance of our
transceiver products and provide customers with support for
their wireless transmission needs, our sales and engineering
teams work closely with our customers to develop tailored
solutions to these needs.

Backlog

We generally include in our backlog all purchase
orders and contracts for products with requested delivery dates
within one year.

Our backlog at March 31, 2002 was
approximately $28.0 million, as compared to
$62.0 million at March 31, 2001. Generally, purchase
orders in our backlog are subject to cancellation without
penalty at the option of the customer, and from time to time we
have experienced cancellation of orders in backlog. In fact, in
the fourth quarter of fiscal 2001 and in fiscal 2002, a
significant portion of our backlog was cancelled due to changing
market conditions. Certain of our customers in the wireless
infrastructure market delayed and cancelled long-standing
contracts in response to declining market demand.

Most of our quarterly net sales have resulted
from orders obtained in prior quarters. Our backlog is subject
to fluctuations and is not necessarily indicative of our future
sales. There can be no assurance that current backlog will
necessarily lead to sales in any future period.

Of our current backlog, approximately 43% is
attributable to orders received from Motorola. If we were to
lose this or other major customers, or if orders by major
customers were to otherwise decrease or be delayed, our
operating results and financial condition would be harmed.

Research and Development

Our research and development efforts are focused
on the design of new GaAs semiconductor components and
GaAs-based subsystems, improvement of existing device
performance, process improvements in GaAs wafer fabrication and
improvements in packaging and integration. As of March 31,
2002, we employed 52 people to support our research and
development efforts. In addition to their design and development
activities, the engineering staff participates with our
marketing department in proposal preparation and applications
support for customers. We have developed an extensive library of
circuit designs and architectures that can be integrated into
higher level systems. We believe our ability to leverage this
library of modules reduces product time to market and
development costs.

We have established two design centers in the
United Kingdom to support development efforts in both the
semiconductor component and subsystem areas. We opened these
design centers in the United Kingdom to take advantage of the
greater availability of engineering talent in the United
Kingdom, as compared to the United States and Northern
California in particular where hiring engineers has been
difficult.

Our total expenses for research and development
were $9.2 million for the fiscal year ended March 31,
2002, $10.2 million for the fiscal year ended
March 31, 2001 and $6.7 million for the fiscal year
ended March 31, 2000.

Manufacturing

We manufacture our GaAs semiconductor components
and GaAs-based subsystems and supplement our manufacturing
capacity by selectively outsourcing wafer fabrication, assembly
and test manufacturing

11



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##### Table of Contents



functions to third parties. Our manufacturing
lines are designed to meet increased customer demand without
sacrificing our high quality standards. Our manufacturing
strategy consists of five key elements:




| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | control and optimization of the key technologies
    and manufacturing processes at all levels of vertical
    integration;     
|
| |  | multiple sourcing where possible in the supply
    line for outside purchased material and strategic development of
    vendors;
|
| |  | commonality in design to leverage common
    materials and processes;                                                           
|
| |  | strategic use of subcontract services to optimize
    internal utilization and provide additional capacity as needed;
    and   
|
| |  | use of modular manufacturing lines, using
    commercially available equipment, and low risk proven processes.                  

We maintain manufacturing control of our products
through the use of our in-house GaAs wafer production facility.
The fabrication of semiconductor products is highly complex and
sensitive to dust and other contaminants, requiring production
in a highly controlled, clean environment. Our facility includes
clean rooms with class 10 performance for fabrication
operations. A class 10 clean room has no more than ten
particles larger than 0.5 microns in size per cubic foot of
air. To maximize wafer yields and quality, we test our products
at various stages in the fabrication process, maintain
reliability monitoring, and conduct numerous quality control
inspections throughout the entire production flow using
analytical manufacturing controls.

In addition to fabricating our own GaAs
semiconductor components, we have the ability to outsource a
portion of the semiconductor fabrication to a subcontractor
foundry. We believe that having the ability to outsource a
portion of the fabrication allows us to achieve benefits. For
example, outsourcing provides us with a redundant source of
semiconductors. In addition, it allows us to better use our own
facility by providing us with an increased ability to manage our
in-house capacity. Further, the ability to outsource a portion
of the fabrication allows us to recognize cost efficiencies that
may be present to a greater degree in the independent
subcontract fabrication facility.

We use a number of third party vendors in Asia to
package and test our GaAs semiconductor components. Although we
strive to maintain more than one vendor for each process, this
is not always possible due to volume and quality issues. To the
extent that any of the vendors are not able to provide a
sufficient level of service with an acceptable quality level, we
could have difficulty meeting our delivery commitments, which
could seriously harm our business and operating results.

We use our high frequency test expertise to test
our high volume RFICs, power amplifier modules, and subsystem
products. We believe our test process results in higher
throughput, shorter cycle times and overall capacity control.
Test equipment is commercially available and supports the need
to scale capacity to meet increased demand. Internal test
capability is also augmented with offshore subcontractors.

We acquire some of the components for our
existing products from single sources, and some of the other
components for our products are presently available or acquired
only from a limited number of suppliers. For example, our
single-sourced components include millimeter wave components and
semiconductor packages.

For a discussion of the risks related to our
manufacturing location in Santa Clara, please see the section of
this report entitled Risk Factors  We rely on a
continuous power supply to conduct our operations, and an energy
crisis could disrupt our operations and increase our
expenses and Risk Factors  A disaster
could severely damage our operations.

Competition

Our current and potential competitors include
specialized manufacturers of RF and microwave signal processing
components, large vertically integrated systems producers that
manufacture their own GaAs components, and independent suppliers
of silicon and GaAs integrated circuits that compete with our
GaAs devices. Furthermore, we currently supply components to
customers that are continuously evaluating whether

12



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##### Table of Contents



to manufacture their own components or purchase
them from outside sources. We expect significantly increased
competition both from existing competitors and a number of
companies that may enter the wireless communications market.


In the semiconductor product market, we compete
primarily with ANADIGICS, Conexant Systems, RF Micro
Devices, and TriQuint Semiconductor. In the area of subsystems
products, we compete primarily with CTT, JCA Technology, Miteq,
Narda Microwave and Remec.

We believe that competition in our markets is
based primarily on price, performance, security of supply, the
ability to support rapid development cycles, and design wins.
Many of our current and potential competitors have significantly
greater financial, technical, manufacturing and marketing
resources than we have and have achieved market acceptance of
their existing technologies. We cannot assure you that we will
be able to compete successfully with our existing or new
competitors. If we are unable to compete successfully in the
future, our business, operating results and financial condition
will be harmed.

Government Regulation

Our products are incorporated into wireless
communications systems that are subject to various United States
regulations and similar laws and regulations adopted by
regulatory authorities in other countries. Regulatory changes,
including changes in the allocation of available frequency
spectrum, could significantly impact our operations by
restricting development efforts by our customers, making
obsolete current products or increasing the opportunity for
additional competition. Changes in, or the failure to comply
with, applicable domestic and international regulations could
have an adverse effect on our business, operating results and
financial condition. In addition, the increasing demand for
wireless communications has exerted pressure on regulatory
bodies worldwide to adopt new standards for these products and
services, generally following extensive investigation of and
deliberation over competing technologies. The delays inherent in
this government approval process have caused in the past, and
may cause in the future, the cancellation, postponement or
rescheduling of the installation of communications systems by
our customers, which in turn may negatively affect the sale of
our products to those customers. We are also subject to a
variety of federal, state, and local laws, rules and regulations
related to the discharge and disposal of toxic, volatile and
other hazardous chemicals used in our manufacturing process. Any
failure to comply with such requirements currently in effect or
subsequently adopted could result in the imposition of fines on
us, the suspension of production or a cessation of operations.
In addition, such requirements could restrict our ability to
expand our facilities or require us to acquire costly equipment
or incur other significant expenses to comply with environmental
regulations or clean up discharges. We believe that costs
arising from existing environmental laws will not have a
material adverse effect on our financial position or results of
operations. However, environmental laws may become more
stringent in the future and may require us to incur significant
expenses in the future to maintain our compliance. Please see
the section of this report entitled Risk
Factors  We are subject to stringent environmental
regulation that could negatively impact our business.

Proprietary Rights

Our ability to compete depends, in part, on our
ability to obtain and enforce intellectual property protection
for our technology in the United States and internationally.
Although we have three U.S. patents, none of which are critical
to our business, expiring from 2005 to 2008, we currently rely
primarily on a combination of trade secrets, copyrights,
trademarks and contractual rights to protect our intellectual
property. To protect our trade secrets and other proprietary
information, we require our employees to sign agreements
providing for maintenance of confidentiality and also the
assignment of rights to inventions made by them while in our
employ.

The steps taken by us may be inadequate to deter
misappropriation or impede third party development of our
technology. In addition, the laws of some foreign countries in
which our products are or may be sold do not protect our
intellectual property rights to the same extent, as do the laws
of the United States. Our failure to protect our proprietary
information could cause our business and operating results to
suffer.

13



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##### Table of Contents



From time to time, third parties have asserted
exclusive patent, copyright and other intellectual property
rights to technologies that are used in our business. We cannot
assure you that third parties will not assert infringement
claims against us in the future, that assertions by third
parties will not result in costly litigation or that we would
prevail in any litigation or be able to license any valid and
infringed patents from third parties on commercially reasonable
terms or at all. Litigation, regardless of its outcome, could
result in substantial cost and diversion of our resources. Any
infringement claim or other litigation against or by us could
seriously harm our business and operating results.

Employees

As of March 31, 2002, we had a total of 281
employees including 5 in marketing, sales and related customer
support services, 52 in research and development, 203 in
manufacturing and 21 in administration and finance. None of our
employees are represented by a labor union. We consider our
relations with our employees to be good. In fiscal 2002, we
reduced our work force by approximately 40% in response to a
decline in market demand for our products.

Raw Materials

We acquire some of the components for our
existing products from single sources, and some of the other
components for our products are presently available or acquired
only from a limited number of suppliers. For example, our
single-sourced components include millimeter wave components and
semiconductor packages. In the event that any of these suppliers
are unable to fulfill our requirements in a timely manner, we
may experience an interruption in production until we locate
alternative sources of supply. If we encounter shortages in
component supply, we may be forced to adjust our product designs
and production schedules. The failure of one or more of our key
suppliers or vendors to fulfill our orders in a timely manner
and with acceptable quality and yields could cause us to not
meet our contractual obligations, could damage our customer
relationships and could harm our business. For example, a
single-sourced supplier of substrates ceased operations at the
end of the second quarter of fiscal 2002, but we were able to
find a replacement supplier. If we had not been able to find
another supplier, the delivery of our products to our customers,
including our major customers, would have been delayed and our
relationship with such customers would have been harmed and our
business would have suffered.

Executive Officers of the Registrant

Our executive officers as of March 31, 2002
are as follows:

|                   |  |     |    |          |  |                                                            
|------------------ |  | --- | -- | -------- |  | -----------------------------------------------------------
|Name               |  | Age |    | Position
|                   |  |     |    |         
|Tamer Husseini     |  |     | 59 |          |  | Chairman, President and Chief Executive Officer            
|Margaret E. Smith  |  |     | 54 |          |  | Vice President, Finance and Chief Financial
    Officer    
|Gary J. Policky    |  |     | 60 |          |  | Vice President, Engineering and Chief Technical
    Officer
|Richard G. Finney  |  |     | 52 |          |  | Vice President, Subsystem Division                         
|Perry A. Denning   |  |     | 55 |          |  | Vice President, Semiconductor Division                     
|Stephen W. Redfern |  |     | 46 |          |  | Vice President, Product Development                        
|Damian M. McCann   |  |     | 40 |          |  | Vice President, Advanced Marketing and Technology          

Tamer Husseini,a
founder of our company, has served as our Chairman of the Board,
President and Chief Executive Officer since our organization in
1984. Prior to founding our company, Mr. Husseini was
employed by Granger Associates, a telecommunications company, as
Vice President from 1982 until 1984. Before joining Granger
Associates, Mr. Husseini was employed by Avantek, Inc., a
manufacturer of integrated circuits and components for wireless
communications applications and now a division of
Hewlett-Packard Company, from 1972 until 1982, most recently as
General Manager of the Microwave Transistor Division.

Margaret E. Smithjoined us in November 1989 as
Controller and served as Vice President, Finance and Chief
Financial Officer from January 1994 until December 1998. After a
brief departure, Ms. Smith rejoined

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us in November 1999, again as Vice President,
Finance and Chief Financial Officer. Prior to joining us,
Ms. Smith was employed by Avantek from 1980 until September
1989 where she served most recently as a Divisional
Controller.


Gary J. Policky,a
founder of our company, has served as Vice President, Signal
Processing Operations since our organization in 1984. In 1997,
Mr. Policky was appointed Vice President, Engineering and Chief
Technical Officer. Prior to founding our company,
Mr. Policky was employed from 1969 until 1984 at Avantek as
Engineering Manager of Microwave Components and Amplifiers.

Richard G. Finneyjoined us in 1985 as Director of
Manufacturing and has served as Vice President, Manufacturing
from January 1996 to 1997. In 1997, Mr. Finney was appointed
Vice President, Subsystem Division. Prior to joining us,
Mr. Finney was employed by Loral, Western Operations in
1984 as Director of Operations. Before joining Loral, Western
Operations, Mr. Finney was employed by Avantek from 1974 to
1984, most recently as a manufacturing manager.

Perry A. Denningjoined us in July 1997 as Vice
President, Semiconductor Division. Prior to joining us,
Mr. Denning was employed by Monolithic Systems Technology,
Inc. as the Vice President of Operations. Before joining
Monolithic Systems, Mr. Denning worked for 13 years
for VLSI Technology, Inc. where he started the companys
entire wafer manufacturing operations and managed its foundry
relations with Taiwan Semiconductor Manufacturing Corporation
and Chartered Semiconductor. Prior to VLSI, Mr. Denning
worked 13 years for Texas Instruments where he was
responsible for multiple high volume manufacturing facilities.

Stephen W. Redfernjoined us as Director of Radio Systems
Engineering in January 2000 and was appointed Vice President,
Product Development in July 2001. Prior to joining us,
Dr. Redfern was employed by Mitel Semiconductor as
Engineering Manger for the Automotive Sensors Division. From
1983 to 1995 Dr. Redfern was employed by Marconi Electronic
Devices, Ltd. and GEC Plessey Semiconductors in various
microwave design and engineering management roles, following the
completion of postgraduate research work at Southampton
University in the United Kingdom.

Damian M. McCannjoined us in 1991 as a design engineer
and served as Director, Semiconductor Product Development from
1997 to 2001. He was appointed Vice President, Advanced
Marketing and Technology in June 2001. Prior to joining us,
Mr. McCann was employed by Marconi Electronic Devices, Ltd.
as a design engineer. Mr. McCann has a degree from
Queens University in Belfast.




Item 2.     Properties

Our principal administrative, sales, marketing,
research and development and manufacturing facility is located
in an approximately 57,000 square foot building in Santa
Clara, California, which is leased through September 30,
2005. We also lease an additional 25,000 square foot
building in Santa Clara, California to house our wireless
subsystems manufacturing operation. We have two facilities in
the United Kingdom which house design centers, a leased facility
in Belfast, Northern Ireland and a building that we own in
Lincoln, England. We believe our existing facilities are
adequate for our current needs and that additional space will be
available as needed.




Item 3.     Legal
Proceedings

We operate in the semiconductor industry and may
from time to time become party to litigation. We are currently
not aware of any potential or pending litigation that could
reasonably be expected to have a material adverse affect on our
financial condition or result of operations.




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

No matters were submitted to a vote of our
security holders during the fourth quarter ended March 31,
2002.

15



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##### Table of Contents






PART II




Item 5.     Market
for Registrants Common Stock and Related Stockholder
Matters

Our common stock started trading on the Nasdaq
National Market in December 1995 under the symbol CLTK. The
following table sets forth, for the periods indicated, the high
and low closing sales prices for our common stock, as reported
on the Nasdaq National Market System:

|               |  |      |       |     |  |   |       | 
|-------------- |  | ---- | ----- | --- |  | - | ----- | 
|Quarter Ended  |  | High |       | Low
|               |  |      |       |    
|Fiscal 2001    |  |      |       |     |  |   |       | 
|First Quarter  |  | $    | 62.50 |     |  | $ | 33.63 | 
|Second Quarter |  |      | 53.06 |     |  |   | 31.11 | 
|Third Quarter  |  |      | 49.06 |     |  |   | 25.88 | 
|Fourth Quarter |  |      | 34.63 |     |  |   | 12.50 | 
|              
|Fiscal 2002    |  |      |       |     |  |   |       | 
|First Quarter  |  | $    | 14.95 |     |  | $ | 10.19 | 
|Second Quarter |  |      | 16.54 |     |  |   | 11.46 | 
|Third Quarter  |  |      | 14.35 |     |  |   | 11.20 | 
|Fourth Quarter |  |      | 13.74 |     |  |   | 8.95  | 

At June 5, 2002 there were approximately 156
shareholders of record. We have never declared nor paid cash
dividends on shares of our common stock. We currently intend to
retain all future earnings for our business and do not
anticipate paying cash dividends on our common stock in the
foreseeable future.




Item 6.     Selected
Financial Data

The following selected financial data for the
five-year period ended March 31, 2002, should be read in
conjunction with our Consolidated Financial Statements and notes
thereto and Managements Discussion and Analysis of
Financial Condition and Results of Operations.

|                                                               |         |                                       |        |       |  |      |        |       |  |      |        |       |  |   |         |        |  |   |         |        | 
|-------------------------------------------------------------- | ------- | ------------------------------------- | ------ | ----- |  | ---- | ------ | ----- |  | ---- | ------ | ----- |  | - | ------- | ------ |  | - | ------- | ------ | 
|                                                               |         |                                      
|                                                               |         | Fiscal Years Ended March 31,         
|                                                               |         |                                      
|                                                               |         | 1998                                  |        | 1999  |  | 2000 |        | 2001  |  | 2002
|                                                               |         |                                       |        |       |  |      |        |       |  |     
|                                                               |         |                                      
|                                                               |         | (In thousands, except per share data)
|Net sales                                                      |         | $                                     | 56,317 |       |  | $    | 41,128 |       |  | $    | 48,211 |       |  | $ | 85,062  |        |  | $ | 57,050  |       
|Gross profit                                                   |         |                                       | 20,170 |       |  |      | 4,528  |       |  |      | 8,373  |       |  |   | 7,580   |        |  |   | 5,211   |       
|Income (loss) from operations                                  |         |                                       | 5,997  |       |  |      | (9,887 | )     |  |      | (7,154 | )     |  |   | (15,695 | )      |  |   | (24,592 | )     
|Net income (loss)                                              |         | $                                     | 3,991  |       |  | $    | (7,538 | )     |  | $    | (6,824 | )     |  | $ | (10,602 | )      |  | $ | (22.618 | )     
|                                                               |         |                                       |        |       |  |      |        |       |  |      |        |       |  |   |         |        |  |   |         |       
|Basic net income (loss) per share                              |         | $                                     | 0.56   |       |  | $    | (1.04  | )     |  | $    | (0.88  | )     |  | $ | (0.94   | )      |  | $ | (1.87   | )     
|                                                               |         |                                       |        |       |  |      |        |       |  |      |        |       |  |   |         |        |  |   |         |       
|Diluted net income (loss) per share                            |         | $                                     | 0.54   |       |  | $    | (1.04  | )     |  | $    | (0.88  | )     |  | $ | (0.94   | )      |  | $ | (1.87   | )     
|                                                               |         |                                       |        |       |  |      |        |       |  |      |        |       |  |   |         |        |  |   |         |       
|Shares used in net income (loss) per share
    calculation(1): |         |                                       |        |       |  |      |        |       |  |      |        |       |  |   |         |        |  |   |         |       
|                                                               | Basic   |                                       |        | 7,126 |  |      |        | 7,265 |  |      |        | 7,736 |  |   |         | 11,272 |  |   |         | 12,076 | 
|                                                               | Diluted |                                       |        | 7,450 |  |      |        | 7,265 |  |      |        | 7,736 |  |   |         | 11,272 |  |   |         | 12,076 | 



---



|    |                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | See note 1 of notes to consolidated financial
    statements for a description of the computation of the number of
    shares and net income (loss) per share.

Fiscal 2002 results of operations include a fixed
asset impairment charge of approximately $11.0 million and
a $1.7 million strategic investment write-down.

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Fiscal 2001 results of operations include a fixed
asset impairment charge of approximately $1.3 million and a
write-down of short-term investments of $524,000.

|                                |  |                |        |      |  |      |        |      |  |      |        |  |  |   |         |  |  |   |         | 
|------------------------------- |  | -------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------- |  |  | - | ------- | 
|                                |  |               
|                                |  | At March 31,  
|                                |  |               
|                                |  | 1998           |        | 1999 |  | 2000 |        | 2001 |  | 2002
|                                |  |                |        |      |  |      |        |      |  |     
|                                |  |               
|                                |  | (In thousands)
|Consolidated Balance Sheet Data |  |                |        |      |  |      |        |      |  |      |        |  |  |   |         |  |  |   |         | 
|Total assets                    |  | $              | 48,448 |      |  | $    | 40,210 |      |  | $    | 63,655 |  |  | $ | 170,525 |  |  | $ | 139,688 | 
|Long-term obligations           |  |                | 906    |      |  |      | 257    |      |  |      | 636    |  |  |   | 5,578   |  |  |   | 6,015   | 




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

You should read this discussion together with
the financial statements and other financial information
included in this Form 10-K. This discussion and analysis
contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results may differ
materially from those anticipated in these forward-looking
statements as a result of a number of factors, including those
described under Risk Factors and elsewhere in this
Form 10-K.

Overview

We design and manufacture gallium arsenide, or
GaAs, semiconductor components and GaAs-based subsystems used in
the transmission of voice, video and data over wireless
communication networks and systems. Our products are designed to
facilitate broadband voice and data transmission in mobile
handsets and wireless communications network infrastructure. Our
GaAs semiconductor components mainly consist of power amplifiers
for mobile handsets, which employ code division multiple access,
or CDMA, wireless technology. Our GaAs-based subsystems are used
in a variety of defense applications such as tactical aircraft
and ground based and ship board radar systems and in point to
point and point to multipoint microwave radios, and high
capacity wireless SONET/ SDH networks.

Since our inception in 1984, we have supplied
transceiver products to the defense industry. RF and microwave
transmission systems are well suited for military applications
because higher frequency transmissions have shorter wavelengths,
which afford greater accuracy for detection and guidance systems
and allow for small lightweight transmission equipment.

In fiscal 2001, a majority of our revenue was
derived from GaAs semiconductor components and GaAs-based
subsystem products used in the wireless infrastructure markets.
These markets had a major decline in calendar 2001 as the result
of the overall slowdown in the economy, overcapacity in the
wireless infrastructure markets and excess inventory levels. As
a result our fiscal 2002 revenue declined to $57.1 million
from $85.1 million in fiscal 2001 and we recorded a loss of
$22.6 million.

In response to the weakened wireless
infrastructure market we reduced our headcount approximately
40%, wrote off obsolete inventory and recorded impairment
charges for fixed assets and investments in fiscal 2002. The
majority of the headcount reductions were in manufacturing and
the subsystem product engineering area. We have increased the
research and development staff dedicated to semiconductor
products in order to expand our product offerings. We have
shifted manufacturing capacity from products for the wireless
infrastructure market to defense products. In fiscal 2003, we do
not expect any significant revenue from GaAs-based subsystem
products for the wireless infrastructure market. We expect some
increase in research and development and selling expenses in
support of our efforts to increase our product offerings and
expand our customer base.

A limited number of customers have historically
accounted for a substantial portion of our sales. During the
fiscal year ended March 31, 2002, sales to our top ten
customers accounted for approximately 76% of net sales. Sales to
Motorola accounted for approximately 43% of net sales in fiscal
2002. During the fiscal year ended March 31, 2001, sales to
our top ten customers accounted for approximately 72% of net
sales. Sales to Motorola accounted for approximately 21% of net
sales, and sales to DMC Stratex Networks accounted for
approximately 10% of net sales in fiscal 2001. We expect that
sales of our products to a limited number of

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customers will continue to account for a high
percentage of our net sales for the foreseeable future. Motorola
accounted for approximately 43% of our backlog at March 31,
2002. If we were to lose a major customer, or if orders by a
major customer were to otherwise decrease or be delayed, our
business, operating results and financial condition would be
seriously harmed.


Our gross margins in any period are affected by a
number of different factors. Gross margins for some of our
products, primarily our semiconductor components, are strongly
impacted by production volume. The fabrication and packaging of
GaAs semiconductor components are highly complex and precise
processes. Minute impurities, defects in the masks used to print
circuits on a wafer, difficulties in the fabrication or
packaging processes, or other factors could result in lower than
expected production yields, which could adversely affect gross
margins. Gross margins for our products are also affected by
pricing pressure, market demand for lower cost products in
commercial markets and adequate production volumes. Because
gross margins on our products differ due to, among other things,
the stage of the life cycles of the products, changes in product
mix can impact gross margins in any particular time period. In
addition, in the event that we are not able to adequately
respond to pricing pressures, our current customers may
decrease, postpone or cancel current or planned orders, and we
might be unable to secure new customers. As a result, we may not
be able to achieve desired production volumes or gross margins.

In addition, average selling prices for our
products generally fluctuate from period to period due to a
number of factors, including product mix, competition and unit
volumes. The average selling prices of a specific product also
tend to decrease over that products life cycle. To offset
these decreases, we rely primarily on obtaining design and yield
improvements and corresponding cost reductions in the
manufacture of existing products.

Critical Accounting Policies

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts. Some of the estimation processes
affect current assets and liabilities and are therefore critical
in assessing our financial and operating status. These estimates
involve certain assumptions that if incorrect could create a
material adverse impact on our operations and financial position.

We review our estimates, including, but not
limited to, allowance for doubtful accounts, inventory
write-downs, and impairments of long-lived assets and
investments on a regular basis and make adjustments based on
historical experiences and existing and expected future
conditions. These evaluations are performed regularly and
adjustments are made as information is available. We believe
that these estimates are reasonable; however, actual results
could differ from these estimates. The following paragraphs
describe the methodology we use in making some of our principal
accounting estimates, evaluate some of the uncertainties
inherent in accounting estimates and evaluate some of the ways
that our estimates may impact our financial condition.

Revenue Recognition.Revenue related to product sales are
recognized when the products are shipped to the customer, title
has transferred and no obligations remain. In circumstances
where the collection of payment is highly questionable at the
time of shipment, we defer recognition of the revenue until
payment is collected. We provide for expected returns based on
past experience as well as current customer activities. Our
customers do not have rights of return outside of products
returned under warranty and, to date, returns have not been
material.

Allowance for Doubtful Accounts.We establish an allowance for doubtful
accounts for estimated losses resulting from the inability of
our customers to make required payments. We evaluate our
customers financial position and order level to determine
if an allowance should be established. Any change in the
allowance from our assessment of the likelihood of receiving
payment is reflected in the selling, general, and administrative
costs in the period the change in assessment is made.

Inventory Write-downs.We record inventory write-downs for
estimated obsolescence or unmarketable inventory. Our
write-downs for excess and obsolete inventory are primarily
based upon forecasted demand and

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our backlog of orders for the product. Any
inventory write-downs are reflected in cost of sales in the
period the write-downs are made.


Fixed Assets and Strategic Investments.We regularly review our long-lived
assets and investments for indicators of impairment and assess
the carrying value of the assets against market values. When an
impairment exists, we record an expense to the extent that the
carrying value exceeds fair market value in the period the
assessment is made.

We record impairment losses on long-lived assets
used in operations or expected to be disposed of when events and
circumstances indicate that the undiscounted cash flow estimated
to be generated by these assets is less than the carrying
amounts of those assets. Management considers sensitivities to
capacity, utilization and technological developments in making
related assumptions.

The fair value of strategic investments is
dependent on the performance of the companies in which we have
invested, as well as the marketability of these investments. In
assessing potential impairment of these investments, management
considers these factors as well as forecasted financial
performance of the investees. If these forecasts are not met or
if market conditions change, we may assess the value of the
strategic investment to be other than temporarily impaired and
accordingly record an impairment charge.

Fiscal year ended March 31, 2002 compared
to fiscal year ended March 31, 2001

Net sales.Net sales
for fiscal 2002 were $57.1 million compared to
$85.1 million for fiscal 2001, a decrease of 33%. The
decrease was due to weak demand in the wireless infrastructure
market, which has caused a decrease in sales volume for this
particular market, partially offset by increased sales of our
GaAs semiconductor products for the mobile handset market and
GaAs-based subsystems for the defense electronics market. We do
not expect any significant revenue from the wireless
infrastructure market in fiscal 2003.

Net sales of GaAs semiconductor products for
fiscal 2002 were $30.4 million compared to
$42.0 million in fiscal 2001, a decrease of 28%. The
decrease in sales was the result of a decline of 71% from
$26.5 million in fiscal 2001 to $7.8 million in fiscal
2002 for wireless infrastructure products partially offset by an
increase of 46% from $15.5 million in fiscal 2001 to
$22.6 million in fiscal 2002 for our products for the
mobile handset market.

Net sales of GaAs-based subsystems products for
fiscal 2002 were $26.7 million compared to
$43.1 million in fiscal 2001, a decrease of 38%. The
decrease in sales was the result of a decline of 79% from
$29.3 million in fiscal 2001 to $6.2 million in fiscal
2002 for wireless infrastructure products partially offset by an
increase of 49% from $13.8 million in fiscal 2001 to
$20.5 million in fiscal 2002 of our defense electronics
products. While demand in the defense market for our type of
product has been fairly stable, we were able to increase our
defense related revenue by refocusing our manufacturing and
marketing capacity on defense products.

Gross margin.Gross
margin was consistent at 9% in fiscal 2002 and fiscal 2001.
Improvements in gross margin from improved yields and a
favorable shift in product mix were offset by lower factory
utilization. Excess capacity will continue to unfavorably impact
gross margin in fiscal 2003. Newly introduced semiconductor
products tend to have lower yields and, consequently, lower
gross margin. The mix of new and more mature products in any
quarter can cause fluctuations in gross margin.

Research and development.Research and development expense for
fiscal 2002 was $9.2 million, or 16% of net sales compared
to $10.2 million, or 12% of net sales, in fiscal 2001, a
decrease of 10%. The dollar decrease was primarily due to a
reduction of engineering headcount and related expenses for
product development efforts for the wireless infrastructure
market partially offset by increased investment in semiconductor
development costs. We expect some increase in research and
development expense in fiscal 2003 for new product development.

Selling, general and administrative.Selling, general and administrative
expense for fiscal 2002 was $9.6 million, or 17% of net
sales compared to $11.8 million, or 14% of net sales, in
fiscal 2001, a decrease of

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19%. The dollar decrease was primarily due to
salary reductions, reduced headcount and lower selling costs due
to the decline in business activity. In response to market
conditions, including significant order cancellations in the
fourth quarter of 2001 in the wireless infrastructure market, we
increased our allowance for doubtful accounts in response to
heightened collectibility concerns. We expect some increase in
selling expense in fiscal 2003 because we are increasing our
sales force.


Fixed asset impairment charge.During the fourth quarter of fiscal
2001, we recorded an impairment charge of approximately
$1.3 million for certain capital assets used in the
subsystem production area due to delayed and cancelled
contracts. Assets for which there was no longer any productive
use were written down to net realizable value. In the third
quarter of fiscal 2002, the remaining $502,000 was written off
as we determined that any recovery on these assets was not
probable given the excess of this type of equipment in the
market place.

In response to a decline in the wireless
infrastructure market and slower than expected growth rate in
the mobile handset market, which included several semiconductor
customers reducing their forecasted demand in the third quarter
of fiscal 2002, we evaluated the ongoing value of our
semiconductor capital assets. As a result of this analysis, we
recorded an impairment charge of $10.5 million. The
$10.5 million write-down is comprised of $5.4 million
related to abandoned leasehold improvements originally intended
to expand our wafer fabrication facility and $5.1 million
related to un-utilized wafer fabrication equipment. The wafer
fabrication equipment was written down to fair value based upon
our best estimate, which included third party sources to arrive
at the estimate.

Impairment of short-term and strategic
investments.During the fourth quarter
of fiscal 2001 we recorded an impairment charge of $524,000 for
PG&E bonds, held in our short-term investments, which we
deemed to have an other than temporary decline in market value
because PG&E had filed for chapter 11 bankruptcy
protection. The PG&E bonds were subsequently sold in fiscal
2002 at a loss.

During the fourth quarter of fiscal 2002 we
recorded an impairment charge of approximately $1.7 million
related to our cost basis strategic investment in a Taiwanese
foundry. The investment is valued at approximately $700,000 at
March 31, 2002.

During the fourth quarter of fiscal 2002, we
reviewed updated financial statements and projections from the
foundry. Significant decreases in actual and expected revenues,
net income and cash balances were observed as compared with the
original projections. In addition, the foundry has no current
customers. With this backdrop, combined with the downturn in the
semiconductor industry and our excess semiconductor capacity, we
determined that there was a decline in the value of the foundry
that was other than temporary. The impairment charge was
determined after analysis of changes in the market values of
public companies in the GaAs market from December 2000 through
March 2002. An additional write-down was taken on the fact that
the foundry is a private company, which is inherently less
liquid.

Interest income (expense) and other, net.Interest income (expense) and
other, net, for fiscal 2002 was $3.5 million compared to
$5.7 million in fiscal 2001. The decrease was primarily due
to lower interest income, which was a result of lower interest
rates and to a lesser extent, lower cash and short-term
investment balances.

Provision (benefit) for income taxes.For the year ended March 31, 2002
we recorded an income tax benefit of $180,000 that consisted of
$244,000 of federal refundable taxes attributable to the recent
law change allowing companies to carryback net operating losses
five years offset by $64,000 of foreign taxes incurred that do
not currently provide a benefit in the U.S. In fiscal 2001, we
recorded an income tax provision of $125,000 to reflect federal
alternative minimum taxes.

Fiscal year ended March 31, 2001 compared
to fiscal year ended March 31, 2000

Net sales.Net sales
for fiscal 2001 were $85.1 million compared to
$48.2 million for fiscal 2000, an increase of 76%. The
increase was due to increased sales to the wireless
infrastructure market and increased sales of our GaAs
semiconductor products to the mobile handset market partially
offset by decreased sales of GaAs-based subsystems to the
defense electronics market.

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Net sales of GaAs semiconductor products for
fiscal 2001 were $42.0 million compared to
$18.3 million for fiscal 2000, an increase of 130%. The
increase in sales was the result of an increase of 131% from
$11.4 million in fiscal 2000 to $26.5 million in
fiscal 2001 for wireless infrastructure products and an increase
of 126% from $6.9 million in fiscal 2000 to
$15.5 million for fiscal 2001 for our products for the
mobile handset market.

Net sales of GaAs-based subsystems products for
fiscal 2001 were $43.1 million compared to
$29.9 million for fiscal 2000, an increase of 44%. The
increase in sales was the result of an increase of 86% from
$15.8 million in fiscal 2000 to $29.3 million in
fiscal 2001 for wireless infrastructure products partially
offset by a decrease of 3% from $14.1 million in fiscal
2000 to $13.8 million in fiscal 2001 of our defense
electronics products.

During the fourth quarter of fiscal 2001, we
increased sales and accounts receivable reserves, wrote-down
inventory and fixed assets, and reduced our number of employees
in response to market conditions in the wireless infrastructure
market.

Gross margin.Gross
margin for fiscal 2001 was 9% compared to 17% for fiscal 2000.
The decrease was due to inventory write-downs in the fourth
quarter of fiscal 2001 resulting from delayed and canceled
orders due to the declining wireless infrastructure market and
higher product costs associated with lower yields related to the
startup of volume production of certain new products partially
offset by gross margin improvements that resulted from the
increased sales volume and consequently, better utilization of
assets, in the first three quarters of fiscal 2001.

Research and development.Research and development expense for
fiscal 2001 was $10.2 million, or 12% of net sales compared
to $6.7 million, or 14% of net sales, for fiscal 2000, an
increase of 53 %. The dollar increase primarily reflects the
hiring of additional personnel in the United States and, to a
lesser degree, the increased staffing of our design centers in
the United Kingdom.

Selling, general and administrative.Selling, general and administrative
expense for fiscal 2001 was $11.8 million, or 14% of net
sales compared to $8.9 million, or 18% of net sales, in
fiscal 2000, an increase of 48%. The dollar increase resulted
primarily from increased accounts receivables reserves due to
the declining wireless infrastructure market during the fourth
quarter of fiscal 2001.

Fixed asset impairment charge.Due to the delayed and canceled
contracts in fourth quarter of fiscal year 2001, we assessed our
assets for possible impairment. Assets for which there was no
longer any productive use were written down to net realizable
value.

Impairment of short-term investments.During the fourth quarter of fiscal
2001 we recorded an impairment charge of $524,000 for PG&E
bonds, held in our short-term investments, which we deemed to
have an other than temporary decline in market value because
PG&E had filed for chapter 11 bankruptcy protection. The
PG&E bonds were subsequently sold in fiscal 2002 at a loss.

Interest income (expense) and other, net.Interest income (expense) and
other, net, for fiscal 2001 was $5.2 million, as compared
to $330,000 for fiscal 2000 The increase is primarily due to
higher interest income because of higher cash balances generated
by a secondary public offering of common stock in the first
quarter of fiscal 2001.

Provision (benefit) for income taxes.In fiscal 2001, we recorded an income
tax provision of $125,000 to reflect federal alternative minimum
taxes. No tax provision or benefit was recorded in fiscal 2000
due to a net operating loss.

Liquidity and Capital Resources

We have funded our operations to date primarily
through cash flows from operations and sales of equity
securities. As of March 31, 2002, we had $8.1 million
of cash and cash equivalents, $90.6 million of short-term
investments and $109.6 million of working capital.

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Net cash used in operating activities was
$3.6 million in fiscal 2002, $5.9 million in fiscal
2001, and $2.8 million in fiscal 2000. The decrease in cash
used in operating activities in fiscal 2002 was primarily due to
the decrease in accounts receivable and inventories during
fiscal 2002 compared to increases during fiscal 2001 offset by
increases in accounts payable and other current liabilities
during fiscal 2002 compared to decreases during fiscal 2001.

Net cash provided by investing activities in
fiscal 2002 was $5.2 million compared to net cash used in
investing activities of $107.2 million in fiscal 2001 and
net cash used in investing activities of $16.6 million in
fiscal 2000. Net cash provided by investing activities in fiscal
2002 is primarily the result of the sale and maturity of
short-term investments of approximately $151.9 million
versus the purchase of short-term and strategic investments of
approximately $140.0 and the purchase of property and equipment
of approximately $6.7 million. Net cash used in investing
activities in fiscal 2001 and 2000 relates primarily to
purchases of short-term investments.

Net cash provided by financing activities was
$2.9 million in fiscal 2002, $107.9 million in fiscal
2001 and $26.4 million in fiscal 2000. Net cash provided by
financing activities during fiscal 2002 was due primarily to
borrowings on long-term debt of approximately $3.7 million
and net proceeds from the exercise of stock options and employee
stock purchase plan of approximately $1.8 million reduced
by payments on long-term debt and capital leases of
$2.6 million. In June of fiscal 2001, we raised
approximately $100.3 million in a secondary public offering
of common stock and in February of fiscal 2000 we raised
approximately $25.3 million in a private placement of
common stock.

As of March 31, 2002, we had approximately
$500,000 in outstanding letters of credit, which are secured by
certificates of deposits.

We chose not to renew our line of credit and
allowed the Master Loan Agreement to expire on October 31,
2000. Under the original Master Loan Agreement, we had a lease
line that subsequently converted into two separate term loans.
One of these two term loans expired in March 2001, and the other
expired in November 2001. As of March 31, 2002, we had no
borrowings outstanding against the term loan. We have various
equipment notes outstanding with other lenders, which are
secured by the equipment. Several of these notes have covenants
attached pertaining to liquidity levels and minimum tangible net
worth. As of March 31, 2002 we were in compliance with all
covenants.

In December 2001, we invested $512,000 in a
Korean handset design company. We believe this investment will
increase our market opportunities in Korea and China. On
April 1, 2002 we invested an additional $2.0 million
in the company. This investment was accounted for using the cost
basis as of March 31, 2002. We do not have significant
influence over the management of the handset design company and
accordingly will account for the investment on a cost basis.

We believe that our current cash resources and
borrowings available from our equipment financing sources should
be sufficient to meet our liquidity requirements through at
least the next twelve months.

Commitments

We do not have any special purpose entities. We
have no commercial commitments with related parties, except for
employee loans. We have outstanding loans to certain officers
and employees totaling $1.6 million at March 31, 2002
and $1.9 million at March 31, 2001. The notes are
relocation loans collateralized by certain real property assets,
bear no interest and have maturities through 2019. The principal
will be repaid at various dates. If an employee leaves us, the
principal outstanding will be due and payable within
90 days.

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We have contractual obligations in the form of
operating and capital leases, debt and purchase order
commitments. These are described in further detail in Notes 7
and 8 of Notes to Consolidated Financial Statements. The
following table sets forth our future contractual obligations
(in thousands):

|                                |  |                             |        |      |  |      |        |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |    | 
|------------------------------- |  | --------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- |  |  | - | -- | 
|                                |  |                            
|                                |  | Fiscal Year Ended March 31,
|                                |  |                            
|Contractual Obligations         |  | Total                       |        | 2003 |  | 2004 |        | 2005 |  | 2006 |       | 2007
|                                |  |                             |        |      |  |      |        |      |  |      |       |     
|Long-term debt obligations      |  | $                           | 6,987  |      |  | $    | 2,318  |      |  | $    | 2,550 |      |  | $ | 1,829 |  |  | $ | 290   |  |  | $ |   | 
|Capital lease obligations       |  |                             | 2,282  |      |  |      | 805    |      |  |      | 633   |      |  |   | 565   |  |  |   | 279   |  |  |   |   | 
|Operating lease obligations     |  |                             | 12,503 |      |  |      | 5,419  |      |  |      | 3,815 |      |  |   | 2,516 |  |  |   | 719   |  |  |   | 34 | 
|Open purchase order commitments |  |                             | 3,092  |      |  |      | 3,092  |      |  |      |      |      |  |   |      |  |  |   |      |  |  |   |   | 
|                                |  |                             |        |      |  |      |        |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |    | 
|Total                           |  | $                           | 24,864 |      |  | $    | 11,634 |      |  | $    | 6,998 |      |  | $ | 4,910 |  |  | $ | 1,288 |  |  | $ | 34 | 
|                                |  |                             |        |      |  |      |        |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |    | 

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RISK FACTORS

You should carefully consider the risks
described below before making an investment decision. The risks
and uncertainties described below are not the only ones facing
us. Additional risks and uncertainties not presently known to us
or that we currently deem immaterial may also impair our
business operations. If any of the following risks actually
occur, our business, results of operations or cash flows could
be adversely affected. In those cases, the trading price of our
common stock could decline, and you may lose all or part of your
investment.

Our operating results have fluctuated
significantly in the past and we expect these fluctuations to
continue. If our results are worse than expected, our stock
price could fall.

Our operating results have fluctuated in the
past, and may continue to fluctuate in the future. These
fluctuations may cause our stock price to decline. Some of the
factors that may cause our operating results to fluctuate
include:



| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | the timing, cancellation or delay of customer
    orders or shipments;                                     
|
| |  | the mix of products that we sell;                                                                          
|
| |  | our ability to secure manufacturing capacity and
    effectively utilize the capacity;                     
|
| |  | the availability and cost of components;                                                                   
|
| |  | GaAs semiconductor component and GaAs-based
    subsystem failures and associated support costs;           
|
| |  | variations in our manufacturing yields related to
    our GaAs semiconductor components;                   
|
| |  | the timing of our introduction of new products
    and the introduction of new products by our competitors;
|
| |  | market acceptance of our products;                                                                         
|
| |  | variations in average selling prices of our
    products; and                                              
|
| |  | changes in our inventory levels.                                                                           

Any unfavorable changes in the factors listed
above or general industry and global economic conditions could
significantly harm our business, operating results and financial
condition. For example, during the third quarter of fiscal 2002,
a number of our semiconductor customers delayed shipment of
their orders and our sales were negatively impacted. We cannot
assure you that we will be able to achieve or maintain quarterly
profitability in the future.

Due to fluctuations in our net sales and
operating expenses, we believe that period to period comparisons
of our results of operations is not a good indication of our
future performance. It is possible that in some future quarter
or quarters, our operating results will be below the
expectations of securities analysts or investors. In that case,
our stock price could decline.

We depend on a small number of original
equipment manufacturers as customers. If we lose one or more of
our significant customers, or if purchases by any one of our key
customers decrease, our net sales will decline and our business
will be harmed.

A substantial portion of our sales is derived
from sales to a small number of original equipment
manufacturers. For example, in the fiscal year ended
March 31, 2001, sales to our top ten customers accounted
for approximately 72% of our net sales. Motorola accounted for
approximately 21% of our net sales and DMC Stratex Networks
accounted for approximately 10% of our net sales during fiscal
2001. For the fiscal year 2002, sales to our top ten customers
accounted for approximately 76% of our net sales, with Motorola
making up approximately 43% of those net sales. We expect that
sales to a limited number of customers will continue to account
for a large percentage of our net sales in the future. Motorola
accounted for approximately 43% of our backlog at March 31,
2002. If we lose a major customer or if anticipated sales to a

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major customer do not materialize, our operating
results and business would be harmed. For example, in the third
quarter of fiscal 2002, our net sales were adversely affected
when Motorola delayed shipment of semiconductor products.


Because many of our expenses are fixed in the
near term, our earnings will decline if we do not meet our
projected sales.

Our business requires us to invest heavily in
manufacturing equipment and related support infrastructure that
we must pay for regardless of our level of sales. To support our
manufacturing capacity we also incur costs for maintenance and
repairs and employ personnel for manufacturing and process
engineering functions. These expenses, along with depreciation
costs, do not vary greatly, if at all, as our net sales
decrease. In addition, the lead time for developing and
manufacturing our products often requires us to invest in
manufacturing capacity in anticipation of future demand. We
committed to significant expenditures in capital equipment and
facilities in fiscal 2001 based on customer demand. The recent
decline in market demand has resulted in infrastructure costs in
excess of current needs and has resulted in lower earnings. In
the third quarter of fiscal 2002, we wrote down fixed assets in
response to the decline in the wireless infrastructure and
mobile handset markets. If future demand does not increase or if
our net sales decline further, our results will continue to
suffer. If our net sales projections are inaccurate or we
experience declines in demand for our products, we may not be
able to reduce many of our costs rapidly, if at all, and our
business, operating results and financial condition may be
harmed.

We are exposed to general economic and market
conditions.

Our business is subject to the effects of general
economic conditions in the United States and globally, and, in
particular, market conditions in the wireless communications
industry. In recent quarters, our operating results have been
adversely affected as a result of unfavorable economic
conditions and reduced capital spending in the United States,
Europe and Asia. In particular, sales to customers who supply
equipment to service providers of voice and data services have
been adversely affected due to significant decline in demand in
the wireless infrastructure markets. If the economic conditions
in the United States and globally do not improve, if we
experience a worsening in the global economic slowdown or if the
wireless infrastructure markets do not recover, we may continue
to experience material adverse impacts on our business,
operating results and financial condition.

Our backlog may not result in sales.

Our backlog primarily represents signed purchase
orders for products due to ship within the next year. As of
March 31, 2002, our backlog was approximately
$28 million. Backlog is not necessarily indicative of
future sales as our customers may cancel or defer orders without
penalty. Nevertheless, we make a number of management decisions
based on our backlog, including purchasing materials, hiring
personnel and other matters that may increase our production
capabilities and costs. Cancellation of pending purchase orders
or termination or reduction of purchase orders in progress could
significantly harm our business. We do not believe that our
backlog as of any particular date is representative of actual
sales for any succeeding period, and we do not know whether our
current order backlog will necessarily lead to sales in any
future period.

In the fourth quarter of fiscal 2001, some of our
customers in the wireless infrastructure market delayed and
cancelled long-standing contracts in response to declining
market demand. The build out of wireless infrastructure is
capital intensive. As the capital markets rapidly softened in
late 2000, a number of the providers of voice and data services
were unable to secure necessary capital and in some cases, filed
for Chapter 11 bankruptcy protection. Our customers, the
equipment suppliers to these service providers, responded by
first delaying and then canceling orders associated with this
market.

Of our current backlog, approximately 43% is
attributable to orders received from Motorola. If we lose this
customer or any other major customer, or if orders by a major
customer were to otherwise decrease or be delayed, including
reductions due to market or competitive conditions in the
wireless communications markets

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or further decreases in government defense
spending, our business, operating results and financial
condition would be harmed.


The variability of our manufacturing yields
may affect our gross margins.

The success of our business depends largely on
our ability to make our products efficiently through a
manufacturing process that results in a large number of usable
products, or yields, from any particular production run. In the
past we have experienced significant delays in our product
shipments due to lower than expected production yields. Due to
the rigid technical requirements for our products and
manufacturing processes, our production yields can be negatively
affected for a variety of reasons, some of which are beyond our
control. For instance, yields may be reduced by:



| |   |                                                                             
| | - | ----------------------------------------------------------------------------
| |  | lack of experience in producing a new product;                              
|
| |  | defects in masks that are used to transfer
    circuit patterns onto wafers;
|
| |  | impurities in materials used;                                               
|
| |  | contamination of the manufacturing environment;
    and                     
|
| |  | equipment failures.                                                         

Our manufacturing yields also vary significantly
among our products due to product complexity and the depth of
our experience in manufacturing a particular product. For
example, in the fourth quarter of fiscal 2001, we began volume
production of a new product, HBT modules. We experienced lower
than expected yields and start-up quality issues with the
subcontractor who is assembling the modules. These issues
resulted in lower gross margins than expected. We cannot assure
you that we will not experience problems with our production
yields in the future. Decreases in our yields can result in
substantially higher costs for our products. If we cannot
maintain acceptable yields in the future, our business,
operating results and financial condition will suffer.

We depend on single and limited sources for
key components. If we lose one or more of these sources,
delivery of our products could be delayed or prevented and our
business could suffer.

We acquire some of the components for our
existing products from single sources, and some of the other
components for our products are presently available or acquired
only from a limited number of suppliers. Our single-sourced
components include substrates, millimeter wave components and
semiconductor packages. Some of these components are critical to
the products we sell to our major customers. In the event that
any of these suppliers are unable to fulfill our requirements in
a timely manner, we may experience an interruption in production
until we locate alternative sources of supply. If we encounter
shortages in component supply, we may be forced to adjust our
product designs and production schedules. The failure of one or
more of our key suppliers or vendors to fulfill our orders in a
timely manner and with acceptable quality and yields could cause
us to not meet our contractual obligations, could damage our
customer relationships (including relationships with major
customers) and could harm our business. For example, a
single-sourced supplier of substrates ceased operations at the
end of the second quarter of fiscal 2002, but we were able to
find a replacement supplier. If we had not been able to find
another supplier, the delivery of our products to our customers,
including our major customers, would have been delayed and our
relationship with such customers would have been harmed and our
business would have suffered.

Decreases in our customers sales volumes
could result in decreases in our sales volumes.

A significant number of our products are designed
to address the specific needs of individual original equipment
manufacturer customers. Where our products are designed into an
original equipment manufacturers product, our sales
volumes depend upon the commercial success of the original
equipment manufacturers product. Sales of our major
customers products can vary significantly from quarter to
quarter. Accordingly, our sales could be adversely affected by a
reduction in demand for mobile handsets and for wireless
subsystem infrastructure equipment. Our operating results have
been significantly harmed in the past

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by the failure of anticipated orders to be
realized and by deferrals or cancellations of orders as a result
of changes in demand for our customers products. For
example, in 2001, our operating results were adversely affected
when major customers experienced a reduction in anticipated
demand for wireless communications networks.


We expect our products to experience rapidly
declining average sales prices, and if we do not decrease costs
or develop new or enhanced products, our margins will
suffer.

In each of the markets where we compete, average
sales prices of established products have been significantly
declining, and we anticipate that prices will continue to
decline and negatively impact our gross profit margins.
Accordingly, to remain competitive, we believe that we must
continue to develop product enhancements and new technologies
that will either slow the price declines of our products or
reduce the cost of producing and delivering our products. If we
fail to do so, our results of operations would be seriously
harmed.

Intense competition in our industry could
result in the loss of customers or an inability to attract new
customers.

We compete in an intensely competitive industry
and we expect our competition to increase. A number of companies
produce products that compete with ours or could enter into
competition with us. These competitors, or potential future
competitors, include ANADIGICS, Conexant Systems, CTT, JCA
Technology, Miteq, Narda Microwave, REMEC, RF Micro Devices and
TriQuint Semiconductor. In addition, a number of smaller
companies may introduce competing products. Many of our current
and potential competitors have significantly greater financial,
technical, manufacturing and marketing resources than we have
and have achieved market acceptance of their existing
technologies. Our ability to compete successfully depends upon a
number of factors, including:



| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | the willingness of our customers to incorporate
    our products into their products;             
|
| |  | product quality, performance and price;                                                           
|
| |  | the effectiveness of our sales and marketing
    personnel;                                       
|
| |  | the ability to rapidly develop new products with
    desirable features;                          
|
| |  | the ability to produce and deliver products that
    meet our customers requested shipment dates;
|
| |  | the capability to evolve as industry standards
    change; and                                    
|
| |  | the number and nature of our competitors.                                                         

We cannot assure you that we will be able to
compete successfully with our existing or new competitors. If we
are unable to compete successfully in the future, our business,
operating results and financial condition will be harmed.

Our sales to international customers expose us
to risks that may harm our business.

During fiscal 2002, sales to international
customers accounted for 31% of our net sales. In fiscal 2001,
sales to international customers accounted for 41% of our net
sales. We expect that international sales will continue to
account for a significant portion of our net sales in the
future. In addition, many of our domestic customers sell their
products outside of the United States. These sales expose us to
a number of inherent risks, including:



| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | the need for export licenses;                                             
|
| |  | unexpected changes in regulatory requirements;                            
|
| |  | tariffs and other potential trade barriers and
    restrictions;          
|
| |  | reduced protection for intellectual property
    rights in some countries;

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| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | fluctuations in foreign currency exchange rates;                                                       
|
| |  | the burdens of complying with a variety of
    foreign laws;                                           
|
| |  | the impact of recessionary or inflationary
    environments in economies outside the United States; and
|
| |  | generally longer accounts receivable collection
    periods.                                           

We are also subject to general geopolitical
risks, such as political and economic instability and changes in
diplomatic and trade relationships, in connection with our
international operations. Potential markets for our products
exist in developing countries that may deploy wireless
communications networks. These countries may decline to
construct wireless communications networks, experience delays in
the construction of these networks or use the products of one of
our competitors to construct their networks. As a result, any
demand for our products in these countries will be similarly
limited or delayed. If we experience significant disruptions to
our international sales, our business, operating results and
financial condition could be harmed.

Our business will be harmed if potential
customers do not use gallium arsenide components.

Silicon semiconductor technologies are the
dominant process technologies for integrated circuits and the
performance of silicon integrated circuits continues to improve.
Our prospective customers may be systems designers and
manufacturers who are evaluating these silicon technologies and,
in particular, silicon germanium versus gallium arsenide
integrated circuits for use in their next generation high
performance systems. Customers may be reluctant to adopt our
gallium arsenide products because of:



| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | unfamiliarity with designing systems with gallium
    arsenide products;                                                    
|
| |  | concerns related to relatively higher
    manufacturing costs and lower yields; and                                         
|
| |  | uncertainties about the relative cost
    effectiveness of our products compared to high performance
    silicon components.

In addition, potential customers may be reluctant
to rely on a smaller company like us for critical components. We
cannot be certain that prospective customers will design our
products into their systems, that current customers will
continue to integrate our components into their systems or that
gallium arsenide technology will continue to achieve widespread
market acceptance.

We need to keep pace with rapid product and
process development and technological changes to be
competitive.

We compete in markets with rapidly changing
technologies, evolving industry standards and continuous
improvements in products. To be competitive we will need to
continually improve our products and keep abreast of new
technology. For example, our ability to grow will depend
substantially on our ability to continue to apply our GaAs
semiconductor components and GaAs-based subsystems processing
expertise to existing and emerging wireless communications
markets. New process technologies could be developed that have
characteristics that are superior to our current processes. If
we are unable to develop competitive processes or design
products using new technologies, our business and operating
results will suffer. We cannot assure you that we will be able
to respond to technological advances, changes in customer
requirements or changes in regulatory requirements or industry
standards. Any significant delays in our development,
introduction or shipment of products could seriously harm our
business, operating results and financial condition.

Our products may not perform as designed and
may have errors or defects that could result in a decrease in
net sales or liability claims against us.

Our customers establish demanding specifications
for product performance and reliability. Our standard product
warranty period is one year. Problems may occur in the future
with respect to the performance and reliability of our products
in conforming to customer specifications. If these problems do
occur, we could experience increased costs, delays in or
reductions, cancellations or rescheduling of orders and
shipments, product returns and discounts and product redesigns,
any of which would have a negative impact on our

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business, operating results and financial
condition. In addition, errors or defects in our products may
result in legal claims that could damage our reputation and our
business, increase our expenses and impair our operating results.


The sales cycle of our products is lengthy and
the life cycle of our products is short, making it difficult to
manage our inventory efficiently.

Most of our products are components in mobile
handsets or wireless subsystem infrastructure equipment. The
sales cycle associated with our products is typically lengthy,
and can be as long as two years, due to the fact that our
customers conduct significant technical evaluations of our
products before making purchase commitments. This qualification
process involves a significant investment of time and resources
from us and our customers to ensure that our product designs are
fully qualified to perform with the customers equipment.
The qualification process may result in the cancellation or
delay of anticipated product shipments, thereby harming our
operating results.

In addition, our inventory can rapidly become out
of date due to the short life cycle of the end products that
incorporate our products. For example, the life cycle of mobile
handsets has been and is expected to continue to be relatively
short with models, features and functionality evolving rapidly.
In fiscal 1999 and 2002, we wrote off out of date inventory when
one of our customers stopped producing the mobile handsets that
incorporated our power amplifier. Our business, operating
results and financial condition could be harmed by excess or out
of date inventory levels if our customers products evolve
more rapidly than anticipated or if demand for a product does
not materialize.

We are subject to stringent environmental
regulations that could negatively impact our business.

We are subject to a variety of federal, state and
local laws, rules and regulations related to the discharge and
disposal of toxic, volatile and other hazardous chemicals used
in our manufacturing process. Our failure to comply with present
or future regulations could result in fines being imposed on us,
suspension of our production or a cessation of our operations.
The regulations could require us to acquire significant
equipment or to incur substantial other expenses in order to
comply with environmental regulations. Any past or future
failure by us to control the use of or to restrict adequately
the discharge of hazardous substances could subject us to future
liabilities and could cause our business, operating results and
financial condition to suffer. In addition, under some
environmental laws and regulations we could be held financially
responsible for remedial measures if our properties are
contaminated, even if we did not cause the contamination.

We rely on a continuous power supply to
conduct our operations, and an energy crisis could disrupt our
operations and increase our expenses.

In early 2001, California experienced an energy
crisis that caused power outages throughout the State of
California, disrupted the operations of numerous businesses in
California and resulted in significantly increased prices for
power. In the event of an acute power shortage, that is, when
power reserves for the State of California fall below 1.5%,
California has on some occasions implemented, and may in the
future continue to implement, rolling blackouts throughout
California. We currently do not have backup generators or
alternate sources of power in the event of a blackout, and our
current insurance does not provide coverage for any damages our
customers or we may suffer as a result of any interruption in
our power supply. If blackouts interrupt our power supply, we
would be temporarily unable to continue operations at our
facilities. Any such interruption in our ability to continue
operations at our facilities could damage our reputation, harm
our ability to retain existing customers and to obtain new
customers, and could result in lost revenue, any of which could
substantially harm our business and results of operations.

Furthermore, the deregulation of the energy
industry instituted in 1996 by the California government caused
power prices to increase in early 2001. Under deregulation,
utilities were encouraged to sell their plants, which
traditionally had produced most of Californias power, to
independent energy companies that were expected to compete
aggressively on price. Instead, due in part to a shortage of
supply, on occasion

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wholesale prices have skyrocketed. If wholesale
prices continue to increase, our operating expenses will likely
increase, because all of our facilities are located in
California.


A disaster could severely damage our
operations.

A disaster could severely damage our ability to
deliver our products to our customers. Our products depend on
our ability to maintain and protect our computer systems, which
are primarily located in or near our principal headquarters in
Santa Clara, California. Santa Clara exists on or near a known
earthquake fault zone. Although the facilities in which we host
our computer systems are designed to be fault tolerant, the
systems are susceptible to damage from fire, floods,
earthquakes, power loss, telecommunications failures, and
similar events. Although we maintain general business insurance
against fires, floods and some general business interruptions,
there can be no assurance that the amount of coverage will be
adequate in any particular case.

If we are unable to effectively protect our
intellectual property, or if it were determined that we
infringed the intellectual property rights of others, our
ability to compete in the market may be impaired.

Our success depends in part on our ability to
obtain patents, trademarks and copyrights, maintain trade secret
protection and operate our business without infringing the
intellectual property rights of other parties. Although there
are no pending lawsuits against us, from time to time we have
been notified in the past and may be notified in the future that
we are infringing another partys intellectual property
rights.

In the event of any adverse determination of
litigation alleging that our products infringe the intellectual
property rights of others, we may be unable to obtain licenses
on commercially reasonable terms, if at all. If we were unable
to obtain necessary licenses, we could incur substantial
liabilities and be forced to suspend manufacture of our
products. Litigation arising out of infringement claims could be
costly and divert the effort of our management and technical
personnel.

In addition to patent and copyright protection,
we also rely on trade secrets, technical know-how and other
unpatented proprietary information relating to our product
development and manufacturing activities. We try to protect this
information with confidentiality agreements with our employees
and other parties. We cannot be sure that these agreements will
not be breached, that we would have adequate remedies for any
breach or that our trade secrets and proprietary know-how will
not otherwise become known or independently discovered by others.

In addition, to retain our intellectual property
rights we may be required to seek legal action against
infringing parties. This legal action may be costly and may
result in a negative outcome. An adverse outcome in litigation
could subject us to significant liability to third parties,
could put our patents at risk of being invalidated or narrowly
interpreted and could put our patent applications at risk of not
issuing. The steps taken by us may be inadequate to deter
misappropriation or impede third party development of our
technology. In addition, the laws of some foreign countries in
which our products are or may be sold do not protect our
intellectual property rights to the same extent, as do the laws
on the United States. If we are not successful in protecting our
intellectual property our business will suffer.

Our manufacturing capacity and our ability to
maintain sales volume is dependent on the successful retention
of qualified design, assembly and test personnel and our ability
to install critical assembly and test equipment on a timely
basis.

Our ability to satisfy our current backlog and
any additional orders we may receive in the future will depend
on our ability to successfully retain qualified design
engineers, assembly and test personnel. Our design engineers
reside at our headquarters in Santa Clara, California and at our
two design centers in the United Kingdom. We contract with third
parties located primarily in Asia for many of our assembly and
test requirements. Our need to successfully manage and retain
these personnel will intensify if in the future our production
volumes are required to increase significantly from expected
levels. Demand for people with these skills is intense and we
cannot assure you that we will be successful in retaining
sufficient personnel with these critical skills. Our business
has been harmed in the past by our inability to hire and retain
people with these

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critical skills, and we cannot assure you that
similar problems will not reoccur. For example, in 1997 we
experienced manufacturing capacity constraints that resulted
from our inability to hire a sufficient number of test
personnel. We also lost an order from a major customer in fiscal
2000 due to a shortage we experienced in design engineers.


Our ability to maintain manufacturing capacity
also depends on our ability to install additional assembly and
test equipment at our Santa Clara facility and at our Asian
subcontractors facilities on a timely basis. We rely on
third party providers of this equipment to deliver and install
it on a timely basis. If there is a delay in the delivery and
installation of this equipment, our planned increased production
capacity will be reduced or delayed. This could result in
delayed or lost sales to customers, adversely affect our
customer relationships and harm our business.

Past in-house foundry capacity limitations
forced us into relationships with other foundries. We may incur
extra costs as a result of these third party foundry
relationships, which could negatively impact our financial
condition.

We currently operate our own foundry located in
Santa Clara, California to produce GaAs semiconductor components
for sale as well as for use in our GaAs-based subsystems
products. In the past, our in-house capacity was not sufficient
by itself to satisfy the demand and our growth objectives.
Accordingly, in order to meet increasing customer demand, we
entered into an arrangement in February 2000 with a third party
foundry located in Los Angeles, California. Our agreement with
this foundry required us to commit to a certain volume of
production based on a rolling forecast. Our requirements have
fallen below this level, however, we were still contractually
obligated to pay for the forecast level of service. We have met
all our obligations in regards to this agreement.

In addition, in December 2000, we invested
approximately $2.4 million in a GaAs foundry under
construction in Taiwan. This foundry is scheduled to be in
production at the end of calendar 2002. We made this investment
to secure a portion of the foundrys capacity for our use.
During the fourth quarter of fiscal 2002 we recorded an
impairment charge of approximately $1.7 million, which was
deemed to have an other than temporary decline in value. We
regularly review our investments for circumstances of impairment
and assess the carrying value of the assets against market
value. When an impairment exists, we record an expense to the
extent that the carrying value exceeds fair market value in the
period the assessment was made. The fair value of strategic
investments, such as the foundry, is dependent on the
performance of the companies invested in, as well as the
marketability for these investments. In assessing potential
impairment of these investments, management considers these
factors as well as forecasted financial performance of the
investees. If these forecasts are not met or if market
conditions change, we may have to record additional impairment
charges.

Reliance on third party foundries means we have
less control over delivery schedules, manufacturing yields and
costs. Our relationship with outside foundries will also require
us to successfully manage and coordinate our production through
third parties over which we have limited or no control. If we
are not successful in effectively managing and coordinating our
in-house manufacturing capabilities with the independent
foundries, our integrated component production could be
disrupted and fail to meet our requirements which could severely
harm our business.

We depend heavily on our key managerial and
technical personnel. If we cannot attract and retain persons for
our critical management and technical functions we may be unable
to compete effectively.

Our success depends in significant part upon the
continued service of our key technical, marketing, sales and
senior management personnel and our continuing ability to
attract and retain highly qualified technical, marketing, sales
and managerial personnel. In particular, we have experienced and
continue to experience difficulty attracting and retaining
qualified engineers, which has harmed our ability to develop a
wider range of handset products in a timely manner. Competition
for these kinds of experienced personnel is intense, and we
cannot assure you that we can retain our key technical and
managerial employees or that we can attract, assimilate or
retain other highly qualified technical and managerial personnel
in the future. Our failure to

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attract, assimilate or retain key personnel could
significantly harm our business, operating results and financial
condition.


Our customers failure to adhere to
governmental regulations could harm our business.

A significant portion of our products is
integrated into the wireless communications subsystems of our
clients. These subsystems are regulated domestically by the
Federal Communications Commission and internationally by other
government agencies. With regard to equipment in which our
products are integrated, it is typically our customers
responsibility, and not ours, to ensure compliance with
governmental regulations. Our net sales will be harmed if our
customers products fail to comply with all applicable
domestic and international regulations.

Antitakeover provisions could affect the price
of our common stock.

The ability of our board of directors to issue
preferred stock at any time with rights preferential to those of
our common stock and the presence of our shareholder rights plan
may deter or prevent a takeover attempt, including a takeover
attempt in which the potential purchaser offers to pay a per
share price greater than the current market price for our common
stock. The practical effect of these provisions is to require a
party seeking control of us to negotiate with our board, which
could delay or prevent a change in control. These provisions
could limit the price that investors might be willing to pay in
the future for our common stock.




Item 7A.     Qualitative
and Quantitative Disclosure About Market Risk



| |                   
| | ------------------
| | Interest Rate Risk

Our exposure to market risk is principally
confined to our cash, cash equivalents and investments which
have maturities of less than two years. We maintain a
non-trading investment portfolio of investment grade, liquid,
debt securities that limits the amount of credit exposure to any
one issue, issuer or type of instrument. At March 31, 2002,
our investment portfolio comprised approximately
$8.3 million in money market funds and certificate of
deposits and $90.1 million of money market auction rate
preferred stocks, corporate debt securities and municipal bonds.
The securities in our investment portfolio are not leveraged,
are classified as available for sale and are therefore subject
to interest rate risk. We currently do not hedge interest rate
exposure. If market interest rates were to increase by
100 basis points, or 1%, from March 31, 2002 levels,
the fair value of our portfolio would decline by approximately
$343,000. The modeling technique used measures the change in
fair values arising from an immediate hypothetical shift in
market interest rates.



| |                                   
| | ----------------------------------
| | Foreign Currency Exchange
    Risk

The current foreign exchange exposure in all
international operations is deemed to be immaterial since all of
our net sales and the majority of liabilities are receivable and
payable in U.S. dollars. A 10% change in exchange rates would
not be material to our financial condition and results from
operations. Accordingly, we do not use derivative financial
instruments to hedge against foreign exchange exposure.




Item 8.     Financial
Statements and Supplementary Data

The information required by this item is listed
under Item 7 and Item 14(a)1 of this Form 10-K.




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

Not applicable.

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##### Table of Contents






PART III




Item 10.     Directors
and Executive Officers of the Board

The information required by this item relating to
the our directors and nominees is included under Election
of Directors and Section 16(a) Beneficial
Ownership Reporting Compliance in the our Proxy Statement
to be filed in connection with our 2002 Annual Meeting of
Shareholders and is incorporated herein by reference. The
information required by this item relating to our executive
officers is included under the heading Executive Officers
of the Registrant in Part I, Item I herein.




Item 11.     Executive
Compensation

The information required by this item is included
under Executive Compensation in our Proxy Statement
to be filed in connection with our 2002 Annual Meeting of
Shareholders and is incorporated herein by reference.






|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Shareholder
    Matters

The information required by this item is included
under the captions Share Ownership by Principal
Shareholders and Management and Equity Compensation
Plan Information in our Proxy Statement to be filed in
connection with our 2002 Annual Meeting of Shareholders and is
incorporated herein by reference.




Item 13.     Certain
Relationships and Related Transactions

The information required by this item is included
under Related Party Transactions in our Proxy
Statement to be filed in connection with our 2002 Annual Meeting
of Shareholders and is incorporated herein by reference.




PART IV




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

(a) The following documents are filed as
part of this report:

|   |  |                                                                                                       |  |      |     | 
|-- |  | ----------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|   |  |                                                                                                       |  | Page
|   |  |                                                                                                       |  |     
|1. |  | Consolidated Financial Statements                                                                     |  |      |     | 
|   |  | Report of Ernst & Young LLP, Independent
    Auditors                                                 |  |      | 35  | 
|   |  | Consolidated Balance Sheets as of March 31, 2002
    and 2001                                         |  |      | 36  | 
|   |  | Consolidated Statements of Operations for the
    years ended March 31, 2002, 2001 and 2000           |  |      | 37  | 
|   |  | Consolidated Statements of Shareholders
    Equity for the years ended March 31, 2002, 2001 and 2000 |  |      | 38  | 
|   |  | Consolidated Statements of Cash Flow for the
    years ended March 31, 2002, 2001 and 2000            |  |      | 39  | 
|   |  | Notes to Consolidated Financial Statements                                                            |  |      | 40  | 
|  
|2. |  | Financial Statement Schedule                                                                          |  |      |     | 
|   |  | Schedule II  Valuation and Qualifying
    Accounts                                                   |  |      | S-1 | 

All other schedules and financial statements are
omitted because they are not applicable or the required
information is shown in the consolidated financial statements or
notes thereto.

33



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##### Table of Contents



3. Exhibits

|        |       |             |  |                                                                                                                                                                
|------- | ----- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 3.1(  | 1)          |  | Restated Articles of Incorporation of Registrant.                                                                                                              
|        | 3.2(  | 1)          |  | Bylaws of Registrant, as amended to date.                                                                                                                      
|        | 4.1(  | 1)          |  | Form of Registrants Stock Certificate.                                                                                                                        
|        | 4.2(  | 1)          |  | Third Modification Agreement (including
    Registration Rights Agreement) dated July 30, 1990, between
    the Registrant and certain investors.              
|        | 4.3(  | 5)          |  | Shareholders Rights Agreement dated
    March 25, 1999, by and between the Registrant and
    BankBoston, N.A.                                                 
|        | 10.1( | 3)          |  | 1985 Stock Incentive Program and forms of
    Incentive Stock Option Agreement and Nonstatutory Stock Option
    Agreement.                                    
|        | 10.2( | 1)          |  | 1994 Stock Option Plan, as amended, and form of
    Stock Option Agreement.                                                                                    
|        | 10.3( | 1)          |  | Employee Qualified Stock Purchase Plan and form
    of Subscription Agreement.                                                                                 
|        | 10.4( | 1)          |  | Outside Directors Stock Option Plan and
    form of Stock Option Agreement.                                                                                   
|        | 10.5( | 1)          |  | Form of Directors and Officers
    Indemnification Agreement.                                                                                                
|        | 10.6( | 1)          |  | Lease Agreement dated April 1, 1993 between
    the Registrant and Berg & Berg Developers.                                                                     
|        | 10.7( | 2)          |  | Lease agreement dated April 11, 1997 between
    the Registrant and Spieker Properties, L.P.                                                                   
|        | 10.8( | 4)          |  | Loan modification agreement dated
    September 11, 1997 between Registrant and Silicon Valley
    Bank.                                                       
|        | 10.9( | 6)          |  | First Amendment to Lease dated June 17, 1999
    by and between Registrant and Mission West Properties,
    L.P. II (formerly known as Berg & Berg Developers).
|        | 10.10 | (7)         |  | 2000 Nonstatutory Stock Option Plan.                                                                                                                           
|        | 10.11 | (7)         |  | Share Subscription Agreement by and between the
    Registrant and Suntek Compound Semiconductor Co. LTD, dated
    December 5, 2000.                          
|        | 10.12 | (8)         |  | Joint Venture Agreement, dated as of
    December 20, 2001, by and among Celeritek, Inc., UBE
    Electronics, Ltd. and NewGen Telecom Co., Ltd.               
|        | 10.13 |             |  | Stock Purchase agreement, dated as of
    March 18, 2002, by and among Celeritek, Inc. and NewGen
    Telecom Co., Ltd.                                        
|        | 21    |             |  | Subsidiaries of Celeritek.                                                                                                                                     
|        | 23.1  |             |  | Consent of Ernst & Young LLP, Independent
    Auditors.                                                                                                        



---



|    |                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the identically
    numbered exhibits to our Registration Statement of Form S-1
    (Commission File No. 33-98854), which became effective on
    December 19, 1995.
|   
|(2) | Incorporated by reference to our Form 10-K
    filed for the fiscal year ended March 31, 1997.                                                                                                   
|   
|(3) | Incorporated by reference to our Statement on
    Form S-8 (Commission File No. 333-52037), filed
    May 7, 1998.                                                                               
|   
|(4) | Incorporated by reference to our Form 10-K
    filed for the fiscal year ended March 31, 1999.                                                                                                   
|   
|(5) | Incorporated by reference to our Form 8-A
    filed on April 1, 1999.                                                                                                                            
|   
|(6) | Incorporated by reference to our Form 10-K/A
    filed for the fiscal year ended March 31, 2000.                                                                                                 
|   
|(7) | Incorporated by reference to our Form 10-K
    filed for the fiscal year ended March 31, 2001.                                                                                                   
|   
|(8) | Incorporated by reference to our Form 10-Q
    filed for the quarter ended December 31, 2001.                                                                                                    

(b) Reports on Form 8-K

No reports on Form 8-K were filed during the
quarter ended March 31, 2002.

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REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS

The Board of Directors and Shareholders

Celeritek, Inc.


We have audited the accompanying consolidated
balance sheets of Celeritek, Inc. as of March 31, 2002 and
2001, and the related consolidated statements of operations,
shareholders equity, and cash flows for each of the three
years in the period ended March 31, 2002. Our audits also
included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Celeritek, Inc. at
March 31, 2002 and 2001, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended March 31, 2002, 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.



| |                           
| | --------------------------
| | /s/  ERNST
    & YOUNG LLP

San Jose, California

April 25, 2002


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CELERITEK

CONSOLIDATED BALANCE SHEETS

|                                                           |                                                                                                                                   |                                |                                                                                                            |                                            |   |         |         |         |   |         |         | 
|---------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | ------------------------------ | ---------------------------------------------------------------------------------------------------------- | ------------------------------------------ | - | ------- | ------- | ------- | - | ------- | ------- | 
|                                                           |                                                                                                                                   |                               
|                                                           |                                                                                                                                   | March 31,                     
|                                                           |                                                                                                                                   |                               
|                                                           |                                                                                                                                   | 2002                           |                                                                                                            | 2001                                      
|                                                           |                                                                                                                                   |                                |                                                                                                            |                                           
|                                                           |                                                                                                                                   |                               
|                                                           |                                                                                                                                   | (In thousands,                
|                                                           |                                                                                                                                   | except share amounts)         
|ASSETS                                                    
|Current assets:                                            |                                                                                                                                   |                                |                                                                                                            |                                            |   |         |         |        
|                                                           | Cash and cash equivalents                                                                                                         |                                | $                                                                                                          | 8,096                                      |   |         | $       | 3,515   |  
|                                                           | Short-term investments                                                                                                            |                                |                                                                                                            | 90,597                                     |   |         |         | 103,667 |  
|                                                           | Accounts receivable, net of allowance for
    doubtful accounts of $1,183 and $1,977 at March 31, 2002
    and 2001, respectively |                                |                                                                                                            | 10,001                                     |   |         |         | 16,495  |  
|                                                           | Inventories                                                                                                                       |                                |                                                                                                            | 9,372                                      |   |         |         | 15,361  |  
|                                                           | Prepaid expenses and other current assets                                                                                         |                                |                                                                                                            | 3,671                                      |   |         |         | 3,777   |  
|                                                           |                                                                                                                                   |                                |                                                                                                            |                                            |   |         |         |        
|                                                           |                                                                                                                                   |                                |                                                                                                            | Total current assets                       |   |         | 121,737 |         |   |         | 142,815 | 
|Net property and equipment                                 |                                                                                                                                   |                                | 14,839                                                                                                     |                                            |   |         | 23,998  |        
|Other assets                                               |                                                                                                                                   |                                | 3,112                                                                                                      |                                            |   |         | 3,712   |        
|                                                           |                                                                                                                                   |                                |                                                                                                            |                                            |   |         |         |        
|                                                           |                                                                                                                                   |                                |                                                                                                            | Total assets                               |   | $       | 139,688 |         |   | $       | 170,525 | 
|                                                           |                                                                                                                                   |                                |                                                                                                            |                                            |   |         |         |        
|LIABILITIES AND SHAREHOLDERS
    EQUITY                  
|Current liabilities:                                       |                                                                                                                                   |                                |                                                                                                            |                                            |   |         |         |        
|                                                           | Accounts payable                                                                                                                  |                                | $                                                                                                          | 4,583                                      |   |         | $       | 13,413  |  
|                                                           | Accrued payroll                                                                                                                   |                                |                                                                                                            | 1,505                                      |   |         |         | 2,679   |  
|                                                           | Accrued liabilities                                                                                                               |                                |                                                                                                            | 3,098                                      |   |         |         | 3,912   |  
|                                                           | Current portion of long-term debt                                                                                                 |                                |                                                                                                            | 2,312                                      |   |         |         | 1,380   |  
|                                                           | Current obligations under capital leases                                                                                          |                                |                                                                                                            | 669                                        |   |         |         | 754     |  
|                                                           |                                                                                                                                   |                                |                                                                                                            |                                            |   |         |         |        
|                                                           |                                                                                                                                   |                                |                                                                                                            | Total current liabilities                  |   |         | 12,167  |         |   |         | 22,138  | 
|Long-term debt, less current portion                       |                                                                                                                                   |                                | 4,675                                                                                                      |                                            |   |         | 3,686   |        
|Noncurrent obligations under capital lease
    commitments |                                                                                                                                   |                                | 1,340                                                                                                      |                                            |   |         | 1,892   |        
|Commitments and contingencies                              |                                                                                                                                   |                                |                                                                                                            |                                            |   |         |         |        
|Shareholders equity:                                      |                                                                                                                                   |                                |                                                                                                            |                                            |   |         |         |        
|                                                           | Preferred stock, no par value:                                                                                                    |                                |                                                                                                            |                                            |   |         |         |         |  
|                                                           |                                                                                                                                   | Authorized shares  2,000,000  |                                                                                                            |                                            |   |         |         |         |   |        
|                                                           |                                                                                                                                   |                                | Issued and outstanding  none                                                                              |                                            |   |        |         |         |   |        |        
|                                                           | Common stock, no par value:                                                                                                       |                                |                                                                                                            |                                            |   |         |         |         |  
|                                                           |                                                                                                                                   | Authorized shares  50,000,000 |                                                                                                            |                                            |   |         |         |         |   |        
|                                                           |                                                                                                                                   |                                | Issued and outstanding shares 
    12,228,194 and 11,932,394 at March 31, 2002 and 2001,
    respectively |                                            |   | 156,340 |         |         |   | 154,494 |        
|                                                           | Accumulated other comprehensive (loss) income                                                                                     |                                |                                                                                                            | (51                                        | ) |         |         | 480     |  
|                                                           | Accumulated deficit                                                                                                               |                                |                                                                                                            | (34,783                                    | ) |         |         | (12,165 | )
|                                                           |                                                                                                                                   |                                |                                                                                                            |                                            |   |         |         |        
|                                                           |                                                                                                                                   |                                |                                                                                                            | Total shareholders equity                 |   |         | 121,506 |         |   |         | 142,809 | 
|                                                           |                                                                                                                                   |                                |                                                                                                            |                                            |   |         |         |        
|                                                           |                                                                                                                                   |                                |                                                                                                            | Total liabilities and shareholders equity |   | $       | 139,688 |         |   | $       | 170,525 | 
|                                                           |                                                                                                                                   |                                |                                                                                                            |                                            |   |         |         |        

See accompanying notes.

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##### Table of Contents



CELERITEK




CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                              |                                      |                          |         |        |        |      |         |        |        |   |        |       |        | 
|--------------------------------------------- | ------------------------------------ | ------------------------ | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------ | ----- | ------ | 
|                                              |                                      |                         
|                                              |                                      | Years Ended March 31,   
|                                              |                                      |                         
|                                              |                                      | 2002                     |         | 2001   |        | 2000
|                                              |                                      |                          |         |        |        |     
|                                              |                                      |                         
|                                              |                                      | (In thousands, except   
|                                              |                                      | per share amounts)      
|Net sales                                     |                                      | $                        | 57,050  |        |        | $    | 85,062  |        |        | $ | 48,211 |      
|Cost of goods sold                            |                                      |                          | 51,839  |        |        |      | 77,482  |        |        |   | 39,838 |      
|                                              |                                      |                          |         |        |        |      |         |        |        |   |        |      
|Gross profit                                  |                                      |                          | 5,211   |        |        |      | 7,580   |        |        |   | 8,373  |      
|Operating expenses:                           |                                      |                          |         |        |        |      |         |        |        |   |        |      
|                                              | Research and development             |                          |         | 9,195  |        |      |         | 10,179 |        |   |        | 6,659 |       
|                                              | Selling, general, and administrative |                          |         | 9,648  |        |      |         | 11,846 |        |   |        | 8,868 |       
|                                              | Fixed asset impairment charge        |                          |         | 10,960 |        |      |         | 1,250  |        |   |        |      |       
|                                              |                                      | Total operating expenses |         |        | 29,803 |      |         |        | 23,275 |   |        |       | 15,527 | 
|                                              |                                      |                          |         |        |        |      |         |        |        |   |        |      
|Loss from operations                          |                                      |                          | (24,592 | )      |        |      | (15,695 | )      |        |   | (7,154 | )    
|Impairment of strategic investments           |                                      |                          | (1,702  | )      |        |      |        |        |        |   |       |      
|Impairment of short-term investments          |                                      |                          |        |        |        |      | (524    | )      |        |   |       |      
|Interest income and other                     |                                      |                          | 4,191   |        |        |      | 6,154   |        |        |   | 561    |      
|Interest expense                              |                                      |                          | (695    | )      |        |      | (412    | )      |        |   | (231   | )    
|                                              |                                      |                          |         |        |        |      |         |        |        |   |        |      
|Loss before income taxes                      |                                      |                          | (22,798 | )      |        |      | (10,477 | )      |        |   | (6,824 | )    
|Provision (benefit) for income taxes          |                                      |                          | (180    | )      |        |      | 125     |        |        |   |       |      
|                                              |                                      |                          |         |        |        |      |         |        |        |   |        |      
|Net Loss                                      |                                      | $                        | (22,618 | )      |        | $    | (10,602 | )      |        | $ | (6,824 | )    
|                                              |                                      |                          |         |        |        |      |         |        |        |   |        |      
|Basic net loss per share                      |                                      | $                        | (1.87   | )      |        | $    | (0.94   | )      |        | $ | (0.88  | )    
|                                              |                                      |                          |         |        |        |      |         |        |        |   |        |      
|Diluted net loss per share                    |                                      | $                        | (1.87   | )      |        | $    | (0.94   | )      |        | $ | (0.88  | )    
|                                              |                                      |                          |         |        |        |      |         |        |        |   |        |      
|Shares used in net loss per share calculation |                                      |                          |         |        |        |      |         |        |        |   |        |      
|                                              | Basic                                |                          |         | 12,076 |        |      |         | 11,272 |        |   |        | 7,736 |       
|                                              | Diluted                              |                          |         | 12,076 |        |      |         | 11,272 |        |   |        | 7,736 |       

See accompanying notes.

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CELERITEK




CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

|                                                                                          |                                                  |                |        |               |  |              |         |               |  |        |     |      |   |   |         |         |   |   |         |         |  
|----------------------------------------------------------------------------------------- | ------------------------------------------------ | -------------- | ------ | ------------- |  | ------------ | ------- | ------------- |  | ------ | --- | ---- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                                          |                                                  |                |        | Accumulated   |  | Retained     |         |              
|                                                                                          |                                                  | Common Stock   |        | Other         |  | Earnings     |         | Total        
|                                                                                          |                                                  |                |        | Comprehensive |  | (Accumulated |         | Shareholders
|                                                                                          |                                                  | Shares         |        | Amount        |  | Income       |         | Deficit)      |  | Equity
|                                                                                          |                                                  |                |        |               |  |              |         |               |  |       
|                                                                                          |                                                  |               
|                                                                                          |                                                  | (In thousands)
|Balance at March 31, 1999                                                                 |                                                  |                | 7,381  |               |  | $            | 25,087  |               |  | $      |    |      |   | $ | 5,261   |         |   | $ | 30,348  |        
|Issuance of common stock on exercise of options
    under stock option plans              |                                                  |                | 301    |               |  |              | 1,473   |               |  |        |    |      |   |   |        |         |   |   | 1,473   |        
|Issuance of common stock in connection with
    private placement, net of issuance costs  |                                                  |                | 1,500  |               |  |              | 25,316  |               |  |        |    |      |   |   |        |         |   |   | 25,316  |        
|Issuance of common stock under employee stock
    purchase plan                           |                                                  |                | 132    |               |  |              | 495     |               |  |        |    |      |   |   |        |         |   |   | 495     |        
|Issuance of common stock under Outside
    Directors plan                                |                                                  |                | 3      |               |  |              | 23      |               |  |        |    |      |   |   |        |         |   |   | 23      |        
|Net and comprehensive loss                                                                |                                                  |                |       |               |  |              |        |               |  |        |    |      |   |   | (6,824  | )       |   |   | (6,824  | )      
|                                                                                          |                                                  |                |        |               |  |              |         |               |  |        |     |      |   |   |         |         |   |   |         |        
|Balance at March 31, 2000                                                                 |                                                  |                | 9,317  |               |  |              | 52,394  |               |  |        |    |      |   |   | (1,563  | )       |   |   | 50,831  |        
|Issuance of common stock on exercise of options
    under stock option plans              |                                                  |                | 194    |               |  |              | 953     |               |  |        |    |      |   |   |        |         |   |   | 953     |        
|Issuance of common stock in connection with
    secondary offering, net of issuance costs |                                                  |                | 2,300  |               |  |              | 100,319 |               |  |        |    |      |   |   |        |         |   |   | 100,319 |        
|Issuance of common stock under employee stock
    purchase plan                           |                                                  |                | 121    |               |  |              | 828     |               |  |        |    |      |   |   |        |         |   |   | 828     |        
|Comprehensive loss:                                                                       |                                                  |                |        |               |  |              |         |               |  |        |     |      |   |   |         |         |   |   |         |        
|                                                                                          | Net loss for the year ended March 31, 2001       |                |        |              |  |              |         |              |  |        |     |     |   |   |         | (10,602 | ) |   |         | (10,602 | )
|                                                                                          | Unrealized gain on available-for-sale securities |                |        |              |  |              |         |              |  |        |     | 480  |   |   |         |        |   |   |         | 480     |  
|                                                                                          |                                                  |                |        |               |  |              |         |               |  |        |     |      |   |   |         |         |   |   |         |        
|                                                                                          | Comprehensive loss                               |                |        |               |  |              |         |               |  |        |     |      |   |   |         |         |   |   |         | (10,122 | )
|                                                                                          |                                                  |                |        |               |  |              |         |               |  |        |     |      |   |   |         |         |   |   |         |        
|Balance at March 31, 2001                                                                 |                                                  |                | 11,932 |               |  |              | 154,494 |               |  |        | 480 |      |   |   | (12,165 | )       |   |   | 142,809 |        
|Issuance of common stock on exercise of options
    under stock option plans              |                                                  |                | 225    |               |  |              | 1,157   |               |  |        |    |      |   |   |        |         |   |   | 1,157   |        
|Issuance of common stock under employee stock
    purchase plan                           |                                                  |                | 71     |               |  |              | 689     |               |  |        |    |      |   |   |        |         |   |   | 689     |        
|Comprehensive loss:                                                                       |                                                  |                |        |               |  |              |         |               |  |        |     |      |   |   |         |         |   |   |         |        
|                                                                                          | Net loss for the year ended March 31, 2002       |                |        |              |  |              |         |              |  |        |     |     |   |   |         | (22,618 | ) |   |         | (22,618 | )
|                                                                                          | Unrealized loss on available-for-sale securities |                |        |              |  |              |         |              |  |        |     | (531 | ) |   |         |        |   |   |         | (531    | )
|                                                                                          |                                                  |                |        |               |  |              |         |               |  |        |     |      |   |   |         |         |   |   |         |        
|                                                                                          | Comprehensive loss                               |                |        |               |  |              |         |               |  |        |     |      |   |   |         |         |   |   |         | (23,149 | )
|                                                                                          |                                                  |                |        |               |  |              |         |               |  |        |     |      |   |   |         |         |   |   |         |        
|Balance at March 31, 2002                                                                 |                                                  |                | 12,228 |               |  | $            | 156,340 |               |  | $      | (51 | )    |   | $ | (34,783 | )       |   | $ | 121,506 |        
|                                                                                          |                                                  |                |        |               |  |              |         |               |  |        |     |      |   |   |         |         |   |   |         |        

See accompanying notes.

38



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CELERITEK

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                 |                                                                      |                                           |                                                      |        |        |        |          |       |        |          |         |       |        |         |  
|-------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ----------------------------------------- | ---------------------------------------------------- | ------ | ------ | ------ | -------- | ----- | ------ | -------- | ------- | ----- | ------ | ------- | -
|                                                                                 |                                                                      |                                          
|                                                                                 |                                                                      | Years Ended March 31,                    
|                                                                                 |                                                                      |                                          
|                                                                                 |                                                                      | 2002                                      |                                                      | 2001   |        | 2000  
|                                                                                 |                                                                      |                                           |                                                      |        |        |       
|                                                                                 |                                                                      |                                          
|                                                                                 |                                                                      | (In thousands)                           
|Operating activities                                                             |                                                                      |                                           |                                                      |        |        |        |          |       |        |          |         |      
|Net loss                                                                         |                                                                      | $                                         | (22,618                                              | )      |        | $      | (10,602  | )     |        | $        | (6,824  | )    
|Adjustments to reconcile net loss to net cash
    used in operating activities:  |                                                                      |                                           |                                                      |        |        |        |          |       |        |          |         |      
|                                                                                 | Depreciation and amortization                                        |                                           |                                                      | 5,276  |        |        |          | 3,641 |        |          |         | 2,864 |       
|                                                                                 | Impairment of strategic and short-term investments                   |                                           |                                                      | 1,702  |        |        |          | 524   |        |          |         |      |       
|                                                                                 | (Gain) loss on impairment and disposal of
    property and equipment |                                           |                                                      | 11,047 |        |        |          | 1,116 |        |          |         | (27   | )     
|                                                                                 | (Gain) loss on sale of short-term investments                        |                                           |                                                      | 145    |        |        |          | (239  | )      |          |         |      |       
|                                                                                 | Deferred income taxes                                                |                                           |                                                      |       |        |        |          |      |        |          |         | 494   |       
|                                                                                 | Changes in operating assets and liabilities:                         |                                           |                                                      |        |        |        |          |       |        |          |         |       |       
|                                                                                 |                                                                      | Accounts receivable                       |                                                      |        | 6,494  |        |          |       | (4,586 | )        |         |       | (1,294 | )      
|                                                                                 |                                                                      | Inventories                               |                                                      |        | 5,989  |        |          |       | (1,006 | )        |         |       | (2,979 | )      
|                                                                                 |                                                                      | Prepaid expenses and other current assets |                                                      |        | (233   | )      |          |       | (2,264 | )        |         |       | 1,565  |        
|                                                                                 |                                                                      | Other assets                              |                                                      |        | (590   | )      |          |       | (1,258 | )        |         |       | 52     |        
|                                                                                 |                                                                      | Accounts payable                          |                                                      |        | (8,830 | )      |          |       | 7,192  |          |         |       | 2,004  |        
|                                                                                 |                                                                      | Accrued payroll                           |                                                      |        | (1,174 | )      |          |       | 165    |          |         |       | 1,114  |        
|                                                                                 |                                                                      | Accrued liabilities                       |                                                      |        | (814   | )      |          |       | 1,445  |          |         |       | 252    |        
|                                                                                 |                                                                      |                                           |                                                      |        |        |        |          |       |        |          |         |      
|                                                                                 |                                                                      |                                           | Net cash used in operating activities                |        |        | (3,606 | )        |       |        | (5,872   | )       |       |        | (2,779  | )
|Investing activities                                                             |                                                                      |                                           |                                                      |        |        |        |          |       |        |          |         |      
|Purchases of property and equipment                                              |                                                                      |                                           | (6,656                                               | )      |        |        | (19,019  | )     |        |          | (4,512  | )    
|Purchase of strategic investments                                                |                                                                      |                                           | (512                                                 | )      |        |        | (2,362   | )     |        |          |        |      
|Purchases of short-term investments                                              |                                                                      |                                           | (139,472                                             | )      |        |        | (177,614 | )     |        |          | (24,868 | )    
|Sale of property and equipment                                                   |                                                                      |                                           | 20                                                   |        |        |        |         |       |        |          |        |      
|Proceeds from sales of short-term investments                                    |                                                                      |                                           | 59,863                                               |        |        |        | 43,902   |       |        |          |        |      
|Proceeds from maturities of short-term investments                               |                                                                      |                                           | 92,003                                               |        |        |        | 47,918   |       |        |          | 12,763  |      
|                                                                                 |                                                                      |                                           |                                                      |        |        |        |          |       |        |          |         |      
|                                                                                 |                                                                      |                                           | Net cash provided (used) in investing
    activities |        |        | 5,246  |          |       |        | (107,175 | )       |       |        | (16,617 | )
|Financing activities                                                             |                                                                      |                                           |                                                      |        |        |        |          |       |        |          |         |      
|Principal payments on long-term debt                                             |                                                                      |                                           | (1,787                                               | )      |        |        | (1,138   | )     |        |          | (722    | )    
|Borrowings on long-term debt                                                     |                                                                      |                                           | 3,708                                                |        |        |        | 7,207    |       |        |          |        |      
|Principal payments on obligations under capital
    leases                       |                                                                      |                                           | (826                                                 | )      |        |        | (314     | )     |        |          | (211    | )    
|Proceeds from the issuance of common stock, net
    of issuance costs            |                                                                      |                                           |                                                     |        |        |        | 100,319  |       |        |          | 25,316  |      
|Proceeds from the exercise of stock options and
    employee stock purchase plan |                                                                      |                                           | 1,846                                                |        |        |        | 1,781    |       |        |          | 1,991   |      
|                                                                                 |                                                                      |                                           |                                                      |        |        |        |          |       |        |          |         |      
|                                                                                 |                                                                      |                                           | Net cash provided by financing activities            |        |        | 2,941  |          |       |        | 107,855  |         |       |        | 26,374  |  
|                                                                                 |                                                                      |                                           |                                                      |        |        |        |          |       |        |          |         |      
|Increase (decrease) in cash and cash
    equivalents                             |                                                                      |                                           | 4,581                                                |        |        |        | (5,192   | )     |        |          | 6,978   |      
|Cash and cash equivalents at beginning of year                                   |                                                                      |                                           | 3,515                                                |        |        |        | 8,707    |       |        |          | 1,729   |      
|                                                                                 |                                                                      |                                           |                                                      |        |        |        |          |       |        |          |         |      
|Cash and cash equivalents at end of year                                         |                                                                      | $                                         | 8,096                                                |        |        | $      | 3,515    |       |        | $        | 8,707   |      
|                                                                                 |                                                                      |                                           |                                                      |        |        |        |          |       |        |          |         |      

See accompanying notes.

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CELERITEK

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Note
1.     Organization and Summary of
Significant Accounting Policies

Business ActivitiesCeleritek, Inc. (the Company) designs
and manufactures gallium arsenide, or GaAs, semiconductor
components and GaAs-based subsystems used in the transmission of
voice, video and data over wireless communication networks and
systems. The Companys products are designed to facilitate
broadband voice and data transmission in mobile handsets and
wireless communication network infrastructures. The
Companys GaAs-based subsystems are also used in a variety
of defense applications such as tactical aircraft and ground
based and ship board radar systems and in point to point and
point to multi-point microwave radios.

Basis of PresentationThe consolidated financial statements
include the accounts of the Company and its wholly owned
subsidiary, Celeritek UK Limited. Intercompany accounts and
transactions have been eliminated. The Companys reporting
period generally consists of a fifty-two week period ending on
the Sunday closest to the calendar month end, however, the
fiscal year 2000 reporting period consisted of fifty-three
weeks. Fiscal years 2002, 2001, and 2000 ended March 31,
April 1, and April 2, respectively. For convenience,
the accompanying financial statements have been presented as
ending on the last day of the calendar month.

Use of EstimatesThe
preparation of the financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect 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 reported period. Actual results could differ
from those estimates.

Cash and Cash Equivalents and Short-Term
InvestmentsThe Company considers all
highly liquid investments with a remaining maturity of
90 days or less at the time of purchase to be cash
equivalents. Cash equivalents are carried at cost, which
approximates fair value. The Companys short-term
investments primarily consist of readily marketable debt
securities with remaining maturities of more than 90 days
at the time of purchase.

Marketable equity and all debt securities are
classified as held-to-maturity, available-for-sale, or trading.
Management determines the appropriate classification of
marketable equity and debt securities at the time of purchase
and reevaluates such designation as of each balance sheet date.
The Company has classified its entire investment portfolio as
available-for-sale. Available-for-sale securities are classified
as cash equivalents or short-term investments and are stated at
fair value with unrealized gains and losses included in
accumulated other comprehensive loss, which is a component of
stockholders equity. The Company views its
available-for-sale portfolio as available for sale in current
operations. Accordingly, all investments are classified as
short-term even though the stated maturity date may be a year or
more beyond the current balance sheet date. The amortized cost
of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization and
accretion are included in interest income (expense) and other.
Realized gains and losses are also included in interest income
(expense) and other. The cost of securities sold is based on the
specific identification method. Other than U.S. government
treasury instruments, the Companys investment policy
limits the amounts invested in any one institution or in any
single type of instrument.

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CELERITEK


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following is a summary of available-for-sale
securities at cost, which approximates fair value:

|                     |                                          |                |   |            |         |            |   |       |     |  |   |     |     |  |   |        |         | 
|-------------------- | ---------------------------------------- | -------------- | - | ---------- | ------- | ---------- | - | ----- | --- |  | - | --- | --- |  | - | ------ | ------- | 
|                     |                                          |                |   | Gross      |         | Gross      |   |      
|                     |                                          | Amortized      |   | Unrealized |         | Unrealized |   | Fair 
|                     |                                          | Cost           |   | Gains      |         | Losses     |   | Value
|                     |                                          |                |   |            |         |            |   |      
|                     |                                          |               
|                     |                                          | (In thousands)
|As of March 31, 2002 |                                          |                |   |            |         |            |   |       |     |  |   |     |     |  |   |       
|                     | Money market funds                       |                | $ | 7,775      |         |            | $ |      |     |  | $ |    |     |  | $ | 7,775  |        
|                     | Certificate of deposits                  |                |   | 502        |         |            |   |      |     |  |   |    |     |  |   | 502    |        
|                     | U.S. Government and federal agency bonds |                |   | 3,000      |         |            |   |      |     |  |   | 7   |     |  |   | 2,993  |        
|                     | Corporate debt securities                |                |   | 74,646     |         |            |   | 94    |     |  |   | 138 |     |  |   | 74,602 |        
|                     | Municipal bonds                          |                |   | 12,500     |         |            |   |      |     |  |   |    |     |  |   | 12,500 |        
|                     |                                          |                |   |            |         |            |   |       |     |  |   |     |     |  |   |       
|                     |                                          | Total          |   | $          | 98,423  |            |   | $     | 94  |  |   | $   | 145 |  |   | $      | 98,372  | 
|                     |                                          |                |   |            |         |            |   |       |     |  |   |     |     |  |   |       
|As of March 31, 2001 |                                          |                |   |            |         |            |   |       |     |  |   |     |     |  |   |       
|                     | Money market funds                       |                | $ | 3,077      |         |            | $ |      |     |  | $ |    |     |  | $ | 3,077  |        
|                     | Certificate of deposits                  |                |   | 499        |         |            |   |      |     |  |   |    |     |  |   | 499    |        
|                     | Preferred stock                          |                |   | 11,000     |         |            |   |      |     |  |   |    |     |  |   | 11,000 |        
|                     | Corporate debt securities                |                |   | 88,688     |         |            |   | 519   |     |  |   | 39  |     |  |   | 89,168 |        
|                     | Municipal bonds                          |                |   | 3,000      |         |            |   |      |     |  |   |    |     |  |   | 3,000  |        
|                     |                                          |                |   |            |         |            |   |       |     |  |   |     |     |  |   |       
|                     |                                          | Total          |   | $          | 106,264 |            |   | $     | 519 |  |   | $   | 39  |  |   | $      | 106,744 | 
|                     |                                          |                |   |            |         |            |   |       |     |  |   |     |     |  |   |       

Above amounts are included in the following:

|                          |       |                |        |        |  |   |         |         | 
|------------------------- | ----- | -------------- | ------ | ------ |  | - | ------- | ------- | 
|                          |       |               
|                          |       | March 31,     
|                          |       |               
|                          |       | 2002           |        | 2001  
|                          |       |                |        |       
|                          |       |               
|                          |       | (In thousands)
|Cash and cash equivalents |       | $              | 7,775  |        |  | $ | 3,077   |        
|Short-term investments    |       |                | 90,597 |        |  |   | 103,667 |        
|                          |       |                |        |        |  |   |         |        
|                          | Total |                | $      | 98,372 |  |   | $       | 106,744 | 
|                          |       |                |        |        |  |   |         |        

Following is a reconciliation of cash and cash
equivalents:

|                              |       |                |       |       |  |   |       |       | 
|----------------------------- | ----- | -------------- | ----- | ----- |  | - | ----- | ----- | 
|                              |       |               
|                              |       | March 31,     
|                              |       |               
|                              |       | 2002           |       | 2001 
|                              |       |                |       |      
|                              |       |               
|                              |       | (In thousands)
|Available-for-sale securities |       | $              | 7,775 |       |  | $ | 3,077 |      
|Cash and bank accounts        |       |                | 321   |       |  |   | 438   |      
|                              |       |                |       |       |  |   |       |      
|                              | Total |                | $     | 8,096 |  |   | $     | 3,515 | 
|                              |       |                |       |       |  |   |       |      

Concentration of Credit RiskThe Company sells its products
primarily to original equipment manufacturers in the
communications industry and government contractors. Credit is
extended based on an evaluation of a customers financial
condition and, generally, collateral is not required. Actual
credit losses may differ from managements estimates. To
date, credit losses have been within managements
expectations, and the Company believes that an adequate
allowance for doubtful accounts has been provided.

InventoriesInventories are stated at the lower of
standard cost (which approximates actual cost on a first-in,
first-out method) or market.

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CELERITEK


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Significant components of inventories are:

|                |  |                |       |      |  |   |        | 
|--------------- |  | -------------- | ----- | ---- |  | - | ------ | 
|                |  |               
|                |  | March 31,     
|                |  |               
|                |  | 2002           |       | 2001
|                |  |                |       |     
|                |  |               
|                |  | (In thousands)
|Raw materials   |  | $              | 2,346 |      |  | $ | 4,903  | 
|Work-in-process |  |                | 7,026 |      |  |   | 10,458 | 
|                |  |                |       |      |  |   |        | 
|                |  | $              | 9,372 |      |  | $ | 15,361 | 
|                |  |                |       |      |  |   |        | 

Property and EquipmentProperty and equipment are recorded at
cost and depreciated using the straight-line method over their
respective estimated useful lives (generally five years). Assets
recorded under capital leases are amortized by the straight-line
method over their respective useful lives of three to seven
years or the lease term, whichever is less. Leasehold
improvements are amortized by the straight-line method over
their respective estimated useful lives of seven years or the
lease term, whichever is less.

Significant components of property and equipment
are:

|                                          |  |                |         |      |  |   |         |  
|----------------------------------------- |  | -------------- | ------- | ---- |  | - | ------- | -
|                                          |  |               
|                                          |  | March 31,     
|                                          |  |               
|                                          |  | 2002           |         | 2001
|                                          |  |                |         |     
|                                          |  |               
|                                          |  | (In thousands)
|Equipment and building                    |  | $              | 35,839  |      |  | $ | 39,792  |  
|Furniture and fixtures                    |  |                | 451     |      |  |   | 665     |  
|Leasehold improvements                    |  |                | 2,509   |      |  |   | 8,712   |  
|                                          |  |                |         |      |  |   |         |  
|                                          |  |                | 38,799  |      |  |   | 49,169  |  
|Accumulated depreciation and amortization |  |                | (23,960 | )    |  |   | (25,171 | )
|                                          |  |                |         |      |  |   |         |  
|Net property and equipment                |  | $              | 14,839  |      |  | $ | 23,998  |  
|                                          |  |                |         |      |  |   |         |  

Revenue RecognitionRevenue related to product sales are
recognized when the products are shipped to the customer, title
has transferred, and no obligations remain. In circumstances
where the collection of payment is highly questionable at the
time of shipment, recognition of the revenue is deferred until
payment is collected. The Company provides for expected returns
based on past experience as well as current customer activities.
The Companys customers do not have rights of return
outside of products returned under warranty and to date, returns
have not been material. Shipping and handling costs are included
in cost of goods sold for all periods presented.

WarrantyThe Company
provides for estimated normal warranty costs to repair or
replace products for a period of one year from the time of sale.
Actual warranty costs may differ from managements
estimates.

Research and DevelopmentResearch and development expenditures
are charged to operations as incurred.

AdvertisingThe
Company accounts for advertising costs as expense in the period
in which they are incurred. Advertising expense for all years
presented was immaterial.

Net Loss Per ShareBasic and diluted net loss per share
are computed by dividing the net loss for the period by the
weighted average number of common shares outstanding during the
period. Diluted net loss per share excludes the incremental
shares issuable upon the assumed exercise of stock options if
their effect is antidilutive.

42



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CELERITEK


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table sets forth the potential
shares of common stock that are not included in the computation
of diluted net loss per share because to do so would be
antidilutive for all periods presented:

|                                 |  |                       |           |      |  |      |           |  |  |   |           | 
|-------------------------------- |  | --------------------- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                 |  |                      
|                                 |  | Years Ended March 31,
|                                 |  |                      
|                                 |  | 2002                  |           | 2001 |  | 2000
|                                 |  |                       |           |      |  |     
|Options to purchase common stock |  |                       | 1,824,294 |      |  |      | 1,549,592 |  |  |   | 1,078,320 | 
|Average exercise price           |  | $                     | 16.39     |      |  | $    | 17.48     |  |  | $ | 6.31      | 

Comprehensive LossComprehensive loss comprises net loss
and other comprehensive income (loss). Other comprehensive
income (loss) includes certain changes in equity of the
Company that are excluded from net loss. Comprehensive loss in
fiscal 2002, 2001 and 2000 has been reflected in the
Consolidated Statements of Shareholders Equity.

ReclassificationCertain amounts reported in previous
years have been reclassified to conform to the current year
presentation.

Note 2.     Fixed
Asset Impairment Charge

During the fourth quarter of fiscal 2001, we
recorded an impairment charge of approximately $1.3 million
for certain capital assets used in the subsystem production area
due to delayed and cancelled contracts. Assets for which there
was no longer any productive use were written down to net
realizable value. In the third quarter of fiscal 2002, the
remaining $502,000 was written off as we determined that any
recovery on these assets was not probable given the excess of
this type of equipment in the market place.

In response to a decline in the wireless
infrastructure and mobile handset markets, which included
several semiconductor customers reducing their forecasted demand
in the third quarter of fiscal 2002, the Company evaluated the
ongoing value of the Companys semiconductor capital
assets. As a result of this analysis, the Company recorded an
impairment charge of $10.5 million in fiscal 2002. The
$10.5 million write-down is comprised of $5.4 million
related to abandoned leasehold improvements originally intended
to expand the Companys wafer fabrication facility and
$5.1 million related to un-utilized wafer fabrication
equipment. The wafer fabrication equipment was written down to
fair value based upon the Companys best estimate, which
included third part sources to arrive at the estimate.

Note 3.     GaAs
Foundry

In December 2000, the Company invested
approximately $2.4 million in a GaAs foundry under
construction in Taiwan in exchange for a 3% strategic interest.
This foundry is scheduled to be in production at the end of
calendar 2002. The Company has accounted for this investment
using the cost basis.

During the fourth quarter of fiscal 2002 the
Company recorded an impairment charge of approximately
$1.7 million for its strategic investment in the Taiwanese
foundry, which was deemed to have an other than temporary
decline in value. The Company regularly reviews its investments
for circumstances of impairment and assesses the carrying value
of the assets against market value. When an impairment exists,
the Company records an expense to the extent that the carrying
value exceeds fair market value in the period the assessment was
made. The fair value of strategic investments, such as the
foundry, is dependent on the performance of the companies
invested in, as well as the marketability for these investments.
In assessing potential impairment of these investments,
management considers these factors as well as forecasted
financial performance of the investees. If these forecasts are
not met or if market conditions change, the Company may have to
record additional impairment charges.

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CELERITEK


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 4.     Handset
Design Company

In December 2001, the Company invested $512,000
in a Korean handset design company. The Company believes this
investment will increase its market opportunities in Korea and
China. On April 1, 2002 the Company invested an additional
$2.0 million in the handset design company. This investment
was accounted for using the cost basis as of March 31,
2002. The Company does not have significant influence over the
management of the handset design company and, accordingly, will
account for the investment on a cost basis.

Note 5.     Related
Party Transactions

The Company has outstanding loans totaling
$1.6 million at March 31, 2002 and $1.9 million
at March 31, 2001 to certain officers and employees. The
notes are relocation loans collateralized by certain real
property assets, bear no interest and have maturities through
2019. The principal will be repaid at various dates. If an
employee leaves the Company, the outstanding principal will be
due and payable within 90 days.

Note 6.     Accrued
Liabilities

Significant components of accrued liabilities are:

|                             |  |                |       |      |  |   |       | 
|---------------------------- |  | -------------- | ----- | ---- |  | - | ----- | 
|                             |  |               
|                             |  | March 31,     
|                             |  |               
|                             |  | 2002           |       | 2001
|                             |  |                |       |     
|                             |  |               
|                             |  | (In thousands)
|Accrued commission           |  | $              | 775   |      |  | $ | 1,014 | 
|Accounts receivable deposits |  |                | 155   |      |  |   | 778   | 
|Accrued expenses             |  |                | 636   |      |  |   | 730   | 
|Warranty accrual             |  |                | 500   |      |  |   | 502   | 
|Other                        |  |                | 1,032 |      |  |   | 888   | 
|                             |  |                |       |      |  |   |       | 
|                             |  | $              | 3,098 |      |  | $ | 3,912 | 
|                             |  |                |       |      |  |   |       | 

Note
7.     Leases

The Company leases equipment under capital and
non-cancelable operating leases. The Company also leases certain
facilities used in operations under non-cancelable operating
leases that expire at various times through the year 2007.
Property and equipment include the following amounts under
leases that have been capitalized:

|                              |  |                |        |      |  |   |       |  
|----------------------------- |  | -------------- | ------ | ---- |  | - | ----- | -
|                              |  |               
|                              |  | March 31,     
|                              |  |               
|                              |  | 2002           |        | 2001
|                              |  |                |        |     
|                              |  |               
|                              |  | (In thousands)
|Equipment                     |  | $              | 8,994  |      |  | $ | 3,305 |  
|Less accumulated amortization |  |                | (2,652 | )    |  |   | (458  | )
|                              |  |                |        |      |  |   |       |  
|                              |  | $              | 6,342  |      |  | $ | 2,847 |  
|                              |  |                |        |      |  |   |       |  

Amortization of leased assets is included in
depreciation and amortization expense. Certain of the leased
assets require the Company to maintain adequate liability
insurance coverage. The leases are secured by the related assets.

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CELERITEK


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Future minimum payments under capital and
non-cancelable operating leases with initial terms of one year
or more consisted of the following at March 31, 2002:

|                                            |                              |                |       |           |  |   |       |        | 
|------------------------------------------- | ---------------------------- | -------------- | ----- | --------- |  | - | ----- | ------ | 
|                                            |                              | Capital        |       | Operating
|                                            |                              | Leases         |       | Leases   
|                                            |                              |                |       |          
|                                            |                              |               
|                                            |                              | (In thousands)
|2003                                        |                              | $              | 805   |           |  | $ | 5,419 |       
|2004                                        |                              |                | 633   |           |  |   | 3,815 |       
|2005                                        |                              |                | 565   |           |  |   | 2,516 |       
|2006                                        |                              |                | 279   |           |  |   | 719   |       
|2007                                        |                              |                |      |           |  |   | 34    |       
|                                            |                              |                |       |           |  |   |       |       
|                                            | Total minimum lease payments |                |       | 2,282     |  |   | $     | 12,503 | 
|                                            |                              |                |       |           |  |   |       |       
|Less amounts representing interest          |                              |                | (273  | )         |  |   |       |       
|                                            |                              |                |       |           |  |   |       |       
|Present value of net minimum lease payments |                              |                | 2,009 |           |  |   |       |       
|Less current portion                        |                              |                | (669  | )         |  |   |       |       
|                                            |                              |                |       |           |  |   |       |       
|                                            |                              | $              | 1,340 |           |  |   |       |       
|                                            |                              |                |       |           |  |   |       |       

Rent expense was approximately $7.2 million,
$5.9 million, and $4.5 million for the years ended
March 31, 2002, 2001, and 2000, respectively.

Note 8.     Long-Term
Debt

The Company chose not to renew its line of credit
and allowed the Master Loan Agreement to expire on
October 31, 2000. Under the original Master Loan Agreement,
the Company had a lease line that subsequently converted into
two separate term loans. One of these two term loans expired in
March 2001, and the other expired in November 2001. As of
March 31, 2002, the Company had no borrowings outstanding
against the term loan. The Company has various equipment notes
outstanding with other lenders, which are secured by the related
equipment and carry interest rates ranging from 8.87% to 10.97%.
Several of these notes have covenants attached pertaining to
liquidity levels and minimum tangible net worth. As of
March 31, 2002 we were in compliance with all covenants.

Future minimum principle payments on debt
consisted of the following at March 31, 2002:

|                     |                                  |                |        |       | 
|-------------------- | -------------------------------- | -------------- | ------ | ----- | 
|                     |                                  | Debt          
|                     |                                  |               
|                     |                                  | (In thousands)
|2003                 |                                  | $              | 2,318  |      
|2004                 |                                  |                | 2,550  |      
|2005                 |                                  |                | 1,829  |      
|2006                 |                                  |                | 290    |      
|                     |                                  |                |        |      
|                     | Total minimum principle payments |                |        | 6,987 | 
|Less current portion |                                  |                | (2,312 | )    
|                     |                                  |                |        |      
|Non-current portion  |                                  | $              | 4,675  |      
|                     |                                  |                |        |      

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##### Table of Contents



CELERITEK


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 9.     Income
Taxes

Significant components of the provision
(benefit) for income taxes are as follows:

|                                     |         |                       |      |      |      |      |     |     |     |   |   |      |      |  
|------------------------------------ | ------- | --------------------- | ---- | ---- | ---- | ---- | --- | --- | --- | - | - | ---- | ---- | -
|                                     |         |                      
|                                     |         | Years Ended March 31,
|                                     |         |                      
|                                     |         | 2002                  |      | 2001 |      | 2000
|                                     |         |                       |      |      |      |     
|                                     |         |                      
|                                     |         | (In thousands)       
|Current:                             |         |                       |      |      |      |      |     |     |     |   |   |     
|                                     | Federal |                       | $    | (244 | )    |      | $   | 125 |     |   | $ | (468 | )   
|                                     | State   |                       |      |     |      |      |     |    |     |   |   | (80  | )   
|                                     | Foreign |                       |      | 64   |      |      |     |    |     |   |   |     |     
|                                     |         |                       |      |      |      |      |     |     |     |   |   |     
|                                     |         | Total current         |      |      | (180 | )    |     |     | 125 |   |   |      | (548 | )
|Deferred:                            |         |                       |      |      |      |      |     |     |     |   |   |     
|                                     | Federal |                       |      |     |      |      | $   |    |     |   | $ | 468  |     
|                                     | State   |                       |      |     |      |      |     |    |     |   |   | 80   |     
|                                     |         |                       |      |      |      |      |     |     |     |   |   |     
|                                     |         | Total deferred        |      |      |     |      |     |     |    |   |   |      | 548  |  
|                                     |         |                       |      |      |      |      |     |     |     |   |   |     
|Provision (benefit) for income taxes |         | $                     | (180 | )    |      | $    | 125 |     |     | $ |  |     
|                                     |         |                       |      |      |      |      |     |     |     |   |   |     

The reconciliation of the provision
(benefit) for income taxes computed at the U.S. federal
statutory tax rate to the effective tax rate is as follows:

|                                     |  |                                    |        |         |  |        |       |         |  |        |        |         |  |  |       |    |  |   |        |   |  |  |       |   
|------------------------------------ |  | ---------------------------------- | ------ | ------- |  | ------ | ----- | ------- |  | ------ | ------ | ------- |  |  | ----- | -- |  | - | ------ | - |  |  | ----- | --
|                                     |  |                                   
|                                     |  | Years Ended March 31,             
|                                     |  |                                   
|                                     |  |                                    |        |         |  |       
|                                     |  | 2002                               |        | 2001    |  | 2000  
|                                     |  |                                    |        |         |  |       
|                                     |  | Amount                             |        | Percent |  | Amount |       | Percent |  | Amount |        | Percent
|                                     |  |                                    |        |         |  |        |       |         |  |        |        |        
|                                     |  |                                   
|                                     |  | (In thousands, except percentages)
|At U.S. statutory rate               |  | $                                  | (7,751 | )       |  |        | (34.0 | )%      |  | $      | (3,545 | )       |  |  | (34.0 | )% |  | $ | (2,320 | ) |  |  | (34.0 | )%
|Change in valuation allowance        |  |                                    | 7,751  |         |  |        | 34.0  |         |  |        | 3,545  |         |  |  | 34.0  |    |  |   | 2,407  |   |  |  | 35.2  |   
|Foreign taxes                        |  |                                    | 64     |         |  |        | 0.3   |         |  |        |       |         |  |  |      |    |  |   |       |   |  |  |      |   
|Benefit due to change in tax law     |  |                                    | (244   | )       |  |        | (1.1  | )       |  |        |       |         |  |  |      |    |  |   |       |   |  |  |      |   
|Federal alternative minimum tax      |  |                                    |       |         |  |        |      |         |  |        | 125    |         |  |  | 1.2   |    |  |   |       |   |  |  |      |   
|Other                                |  |                                    |       |         |  |        |      |         |  |        |       |         |  |  |      |    |  |   | (87    | ) |  |  | (1.2  | ) 
|                                     |  |                                    |        |         |  |        |       |         |  |        |        |         |  |  |       |    |  |   |        |   |  |  |       |   
|Provision (benefit) for income taxes |  | $                                  | (180   | )       |  |        | (0.8  | )%      |  | $      | 125    |         |  |  | 1.2   | %  |  | $ |       |   |  |  | 0.0   | % 
|                                     |  |                                    |        |         |  |        |       |         |  |        |        |         |  |  |       |    |  |   |        |   |  |  |       |   

Deferred income taxes reflect the net tax effect
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The

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##### Table of Contents



CELERITEK


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Company has no deferred tax liabilities. The
significant components of the Companys deferred tax assets
are as follows:

|                                                          |                         |                |         |      |  |  |         |   | 
|--------------------------------------------------------- | ----------------------- | -------------- | ------- | ---- |  |  | ------- | - | 
|                                                          |                         |               
|                                                          |                         | March 31,     
|                                                          |                         |               
|                                                          |                         | 2002           |         | 2001
|                                                          |                         |                |         |     
|                                                          |                         |               
|                                                          |                         | (In thousands)
|Deferred tax assets:                                      |                         |                |         |      |  |  |         |  
|Inventory valuation                                       |                         |                | 4,637   |      |  |  | 5,542   |  
|Accruals and reserves not deductible for tax
    purposes |                         |                | 6,394   |      |  |  | 2,758   |  
|Net operating loss carryforwards                          |                         |                | 7,158   |      |  |  | 882     |  
|Tax credit carryforwards                                  |                         |                | 1,925   |      |  |  | 1,311   |  
|Other                                                     |                         |                | 484     |      |  |  | 433     |  
|                                                          |                         |                |         |      |  |  |         |  
|Deferred tax assets                                       |                         |                | 20,598  |      |  |  | 10,926  |  
|Valuation allowance                                       |                         |                | (20,598 | )    |  |  | (10,926 | )
|                                                          |                         |                |         |      |  |  |         |  
|                                                          | Net deferred tax assets |                | $       |     |  |  | $       |  | 
|                                                          |                         |                |         |      |  |  |         |  

Realization of deferred tax assets is dependent
upon future earnings, the timing and amount of which are
uncertain. Accordingly, deferred tax assets have been fully
offset by a valuation allowance to reflect these uncertainties.
The valuation allowance for deferred tax assets increased by
approximately $9.7 million, $3.6 million and
$4.2 million during the years ended March 31, 2002,
March 31, 2001 and March 31, 2000, respectively.

As of March 31, 2002, the Company had
federal and state net operating loss carryforwards of
approximately $19.5 million and $8.9 million,
respectively. The Company also had federal and state tax credit
carryforwards of approximately $0.9 million and
$1.6 million, respectively. If not utilized, the
carryforwards will expire beginning in 2004.

Note 10.     Salary
Deferral Plan

The Company maintains a Salary Deferral Plan (the
Plan) which is qualified under Section 401(k) of the
Internal Revenue Code and allows all eligible employees to defer
a percentage of their earnings on a pretax basis through
contributions to the Plan. The Plan provides for employer
contributions at the discretion of the Board of Directors.
Company contributions to the Plan were approximately $253,000 in
fiscal 2002, $159,000 in fiscal 2001, and $128,000 in fiscal
2000. Administrative expenses relating to the Plan are
insignificant.

Note
11.     Shareholders
Equity

Preferred
Stock

The Board of Directors has the authority, without
further action by the shareholders, to issue up to 2,000,000
shares of preferred stock in one or more series and to fix the
designations, powers, preferences, privileges, and relative
participation, optional, or special rights and the
qualifications, limitations or restrictions thereof, including
dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may
be greater than the rights of the common stock.

Employee Stock Purchase Plan

Under the Companys Employee Qualified Stock
Purchase Plan (the ESPP), 500,000 shares of common stock
were originally reserved for issuance to employees of the
Company. On July 27, 2001 the Companys shareholders
approved an amendment to the ESPP to increase the number of
shares of common stock reserved for issuance thereunder from
500,000 to 1,000,000. During the fiscal year ended
March 31, 2002,

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##### Table of Contents



CELERITEK


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2001, and 2000, 71,087, 121,045, and
131,895 shares of common stock, respectively, were
purchased under the ESPP. The Company has 461,851 shares
remaining reserved for future issuance under this Plan.

Stock Option Plans



| |                       
| | ----------------------
| | 1994 Stock Option Plan

Under the 1994 Stock Option Plan (the 1994 Plan),
which was approved in April 1994 and expires ten years from
adoption, the Company may grant either incentive stock options
or nonstatutory stock options to certain employees and
consultants as designated by the Board of Directors. The 1994
Plan provides that (i) the exercise of an incentive stock
option will be no less than the fair market value of the
Companys common stock at the date of grant, (ii) the
exercise price of a nonstatutory stock option will be no less
than 85% of the fair market value, and (iii) the exercise
price to an optionee who possesses more than 10% of the total
combined voting power of all classes of stock will be no less
than 110% of the fair market value. The plan administrator has
the authority to set exercise dates (no longer than ten years
from the date of grant or five years for an optionee who meets
the 10% criteria), payment terms, and other provisions for each
grant. Unexercised options are canceled upon termination of
employment and become available under the 1994 Plan. The number
of shares reserved for issuance under the 1994 Plan shall be
increased by an amount equal to the lesser of (i) 250,000
shares, (ii) 3% of the outstanding shares of the
Companys common stock on such a date or (iii) a
lesser amount determined by the Board of Directors of the
Company. The Company has reserved 266,560 shares for future
issuance under the 1994 Plan.



| |                                        
| | ---------------------------------------
| | 2000 Nonstatutory Stock Option
    Plan

On March 23, 2000, the Board of Directors
approved the 2000 Nonstatutory Stock Option Plan (the 2000 Plan)
under which 200,000 shares of common stock have been reserved
for issuance to employees and consultants. The Company has
18,417 shares remaining reserved for future issuance under
the 2000 plan.

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##### Table of Contents



CELERITEK


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Activity under the 1994 Plan and the 2000 Plan is
set forth below:

|                          |                                            |           |         |                     |   |           |           |          |   |   |               |               |  |   |       |       | 
|------------------------- | ------------------------------------------ | --------- | ------- | ------------------- | - | --------- | --------- | -------- | - | - | ------------- | ------------- |  | - | ----- | ----- | 
|                          |                                            |           |         |                     |   |          
|                          |                                            |           |         | Options Outstanding |   | Weighted 
|                          |                                            | Shares    |         |                     |   | Average  
|                          |                                            | Available |         | Number of           |   | Price Per |           | Exercise
|                          |                                            | for Grant |         | Shares              |   | Share     |           | Price   
|                          |                                            |           |         |                     |   |           |           |         
|Balance at March 31, 1999 |                                            |           | 138,041 |                     |   |           | 1,019,563 |          |   | $ | 3.00 - $16.00 |               |  | $ | 5.10  |      
|                          | Additional shares authorized for 1994 Plan |           |         | 471,440             |   |           |           |          |   |   |               |               |  |   |       |       | 
|                          | Options granted                            |           |         | (453,500            | ) |           |           | 453,500  |   |   |               | 4.00 - 52.63  |  |   |       | 7.95  | 
|                          | Options exercised                          |           |         |                    |   |           |           | (300,638 | ) |   |               | 3.00 -  6.94  |  |   |       | 4.90  | 
|                          | Options canceled and expired               |           |         | 94,105              |   |           |           | (94,105  | ) |   |               | 3.00 -  6.63  |  |   |       | 5.56  | 
|                          |                                            |           |         |                     |   |           |           |          |   |   |               |               |  |   |       |      
|Balance at March 31, 2000 |                                            |           | 250,086 |                     |   |           | 1,078,320 |          |   | $ | 3.00 - $52.63 |               |  | $ | 6.31  |      
|                          | Additional shares authorized for 1994 Plan |           |         | 750,000             |   |           |           |          |   |   |               |               |  |   |       |       | 
|                          | Shares authorized for 2000 Plan            |           |         | 200,000             |   |           |           |          |   |   |               |               |  |   |       |       | 
|                          | Options granted                            |           |         | (722,500            | ) |           |           | 722,500  |   |   |               | 12.63 - 53.75 |  |   |       | 31.43 | 
|                          | Options exercised                          |           |         |                    |   |           |           | (194,422 | ) |   |               | 3.00 -  7.63  |  |   |       | 4.90  | 
|                          | Options canceled and expired               |           |         | 56,806              |   |           |           | (56,806  | ) |   |               | 4.00 - 53.75  |  |   |       | 23.83 | 
|                          |                                            |           |         |                     |   |           |           |          |   |   |               |               |  |   |       |      
|Balance at March 31, 2001 |                                            |           | 534,392 |                     |   |           | 1,549,592 |          |   | $ | 3.00 - $53.75 |               |  | $ | 17.48 |      
|                          | Additional shares authorized for 1994 Plan |           |         | 250,000             |   |           |           |          |   |   |               |               |  |   |       |       | 
|                          | Options granted                            |           |         | (709,000            | ) |           |           | 709,000  |   |   |               | 10.00 - 14.53 |  |   |       | 11.02 | 
|                          | Options exercised                          |           |         |                    |   |           |           | (224,713 | ) |   |               | 3.00 - 13.13  |  |   |       | 5.15  | 
|                          | Options canceled and expired               |           |         | 209,585             |   |           |           | (209,585 | ) |   |               | 4.00 - 53.75  |  |   |       | 18.34 | 
|                          |                                            |           |         |                     |   |           |           |          |   |   |               |               |  |   |       |      
|Balance at March 31, 2002 |                                            |           | 284,977 |                     |   |           | 1,824,294 |          |   | $ | 3.00 - $53.75 |               |  | $ | 16.39 |      

At March 31, 2001 and 2000, outstanding
options covering 585,031 and 479,220 shares were
exercisable.

The following table summarizes information about
stock options outstanding and exercisable at March 31, 2002:

|                         |  |                     |           |                     |  |          |            |             |  |          |       |  |  |  |         |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ------------------- |  | -------- | ---------- | ----------- |  | -------- | ----- |  |  |  | ------- |  |  | - | ----- | 
|                         |  |                     |           |                    
|                         |  | Options Outstanding |           | Options Exercisable
|                         |  |                     |           |                    
|                         |  |                     |           | Weighted            |  |          |            |            
|                         |  |                     |           | Average             |  | Weighted |            |             |  | Weighted
|                         |  |                     |           | Remaining           |  | Average  |            |             |  | Average 
|                         |  | Number              |           | Contractual         |  | Exercise |            | Number      |  | Exercise
|Range of Exercise Prices |  | Outstanding         |           | Life                |  | Price    |            | Exercisable |  | Price   
|                         |  |                     |           |                     |  |          |            |             |  |         
|$ 3.00 - $10.00          |  |                     | 933,587   |                     |  |          | 7.72 years |             |  | $        | 7.26  |  |  |  | 433,651 |  |  | $ | 5.21  | 
|$11.95 - $31.44          |  |                     | 701,207   |                     |  |          | 8.80 years |             |  | $        | 18.53 |  |  |  | 306,616 |  |  | $ | 18.02 | 
|$37.50 - $53.75          |  |                     | 189,500   |                     |  |          | 8.01 years |             |  | $        | 53.48 |  |  |  | 90,548  |  |  | $ | 53.53 | 
|                         |  |                     |           |                     |  |          |            |             |  |          |       |  |  |  |         |  |  |   |       | 
|                         |  |                     | 1,824,294 |                     |  |          | 8.17 years |             |  | $        | 16.39 |  |  |  | 830,815 |  |  | $ | 15.20 | 

The Company utilized the intrinsic value method
in accounting for its stock options since, as discussed below,
the alternative fair market value accounting requires the use of
option valuation models that were not developed for use in
valuing stock options. Under the intrinsic value method, if the
exercise price of the Companys stock options is equal to
the market price of the underlying stock on the date of grant,
no expense is recognized.

49



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##### Table of Contents



CELERITEK


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Pro forma information regarding net income and
net income per share under the fair value method is required.
The fair market value for options granted prior to December
1995, the date of the initial public offering of the
Companys common stock, was estimated at the date of grant
using the Minimum Value Method. The fair market value for
options granted subsequent to December 1995 was estimated at the
date of grant using the Black-Scholes option-pricing model. The
Company valued its employee stock options using the following
weighted-average assumptions:

|                         |  |                       |          |      |  |      |          |  |  |  |          | 
|------------------------ |  | --------------------- | -------- | ---- |  | ---- | -------- |  |  |  | -------- | 
|                         |  |                      
|                         |  | Years Ended March 31,
|                         |  |                      
|                         |  | 2002                  |          | 2001 |  | 2000
|                         |  |                       |          |      |  |     
|Risk-free interest rate  |  |                       | 5.0%     |      |  |      | 5.7%     |  |  |  | 5.6%     | 
|Dividend yield           |  |                       | 0.0%     |      |  |      | 0.0%     |  |  |  | 0.0%     | 
|Volatility               |  |                       | 90.5%    |      |  |      | 92.1%    |  |  |  | 83.1%    | 
|Expected life of options |  |                       | 5  years |      |  |      | 5  years |  |  |  | 5  years | 

The Company used the following weighted average
assumptions for its ESPP:

|                         |  |                       |            |      |  |      |            |  |  |  |            | 
|------------------------ |  | --------------------- | ---------- | ---- |  | ---- | ---------- |  |  |  | ---------- | 
|                         |  |                      
|                         |  | Years Ended March 31,
|                         |  |                      
|                         |  | 2002                  |            | 2001 |  | 2000
|                         |  |                       |            |      |  |     
|Risk-free interest rate  |  |                       | 4.1%       |      |  |      | 5.7%       |  |  |  | 5.4%       | 
|Dividend yield           |  |                       | 0.0%       |      |  |      | 0.0%       |  |  |  | 0.0%       | 
|Volatility               |  |                       | 90.5%      |      |  |      | 92.1%      |  |  |  | 83.1%      | 
|Expected life of options |  |                       | 0.5  years |      |  |      | 0.5  years |  |  |  | 0.5  years | 

The Black-Scholes option valuation model was
developed for use in estimating the fair market value of traded
options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected
stock price volatility. Because the Companys stock options
have characteristics significantly different from those of
traded options, and because changes in the subjective input
assumptions can materially affect the fair market value
estimate, in managements opinion, the existing models do
not necessarily provide a reliable measure of the fair market
value of its options.

For purposes of pro forma disclosures, the
estimated fair value of options and ESPP awards is amortized to
expense over the options vesting period. The Companys pro
forma information follows:

|                                     |  |                       |         |      |  |      |         |   |  |   |        |  
|------------------------------------ |  | --------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                     |  |                      
|                                     |  | Years Ended March 31,
|                                     |  |                      
|                                     |  | 2002                  |         | 2001 |  | 2000
|                                     |  |                       |         |      |  |     
|Pro forma net loss                   |  | $                     | (28,837 | )    |  | $    | (15,375 | ) |  | $ | (8,567 | )
|Pro forma basic net loss per share   |  | $                     | (2.39   | )    |  | $    | (1.36   | ) |  | $ | (1.11  | )
|Pro forma diluted net loss per share |  | $                     | (2.39   | )    |  | $    | (1.36   | ) |  | $ | (1.11  | )

The weighted average grant date fair value of
options granted during the fiscal years ended March 31,
2002, 2001, and 2000 was $7.99, $23.18, and $5.52, respectively.
The weighted average grant date fair value of ESPP shares
granted during the fiscal years ended March 31, 2002, 2001,
and 2000 was $6.35, $4.11, and $2.20, respectively.

Outside Directors Stock Option
Plan

Under the Outside Directors Stock Option
Plan (the Directors Plan), options are granted
automatically at periodic intervals to nonemployee members of
the Board of Directors at an exercise price equal to 100% of the
fair market value of the common stock on the date of grant. Such
options have a maximum term of 10 years. New directors are
automatically granted options to purchase 6,000 shares of common
stock at their date of election or appointment to the Board. On
the fourth anniversary of serving on the Board and on each

50



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CELERITEK


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

anniversary thereof, each director is
automatically granted an additional 1,500 options to purchase
shares of common stock. During the fiscal year ended
March 31, 2002, 3,000 options to purchase shares of common
stock were granted. At March 31, 2002, options to purchase
33,000 shares of common stock were outstanding of which 23,250
options were exercisable at weighted average exercise prices of
$9.72 and $7.62, respectively. The Company has 39,000 shares
reserved for future issuance under the Directors Plan.

Purchase Rights

The Board of Directors declared a dividend of one
right for each share of common stock (the Right) to be paid on
April 8, 1999, to shareholders of record at such date. Each
Right represents the right to purchase one one-thousandth of a
share of preferred stock at an exercise price of $45.00 per
Right. All common stock issued after April 9, 1999 contains
the Right.

Note 12.     Business
Segment Data and Related Information

The Company operates in one business segment, the
sale of GaAs-based products for the wireless communications
market to semiconductor and subsystems customers.

The chief operating decision-maker has been
identified as the Chief Executive Officer (CEO). Revenue from
semiconductor components was $30.4 million in fiscal 2002,
$42.0 million in fiscal 2001 and $18.3 million in
fiscal 2000. Revenue from GaAs-based subsystems was
$26.7 million in fiscal 2002, $43.1 million in fiscal
2001 and $29.9 million in fiscal 2000.

Revenues for significant customers, those
representing approximately 10% or more of total revenues for
each period are summarized below.

|           |  |                       |      |      |  |      |      |  |  |  |      | 
|---------- |  | --------------------- | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|           |  |                      
|           |  | Years Ended March 31,
|           |  |                      
|           |  | 2002                  |      | 2001 |  | 2000
|           |  |                       |      |      |  |     
|Customer A |  |                       | 43%  |      |  |      | 21%  |  |  |  | 15%  | 
|Customer B |  |                       | <10% |      |  |      | 10%  |  |  |  | <10% | 
|Customer C |  |                       | <10% |      |  |      | <10% |  |  |  | 11%  | 

51



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CELERITEK


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following is a summary of operations by
geographic region:

|                            |                |                       |        |        |  |      |        |        |  |   |        |        | 
|--------------------------- | -------------- | --------------------- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                            |                |                      
|                            |                | Years Ended March 31,
|                            |                |                      
|                            |                | 2002                  |        | 2001   |  | 2000
|                            |                |                       |        |        |  |     
|                            |                |                      
|                            |                | (In thousands)       
|Net sales to customers:     |                |                       |        |        |  |      |        |        |  |   |        |       
|                            | United States  |                       | $      | 39,541 |  |      | $      | 49,780 |  |   | $      | 37,526 | 
|                            | Europe         |                       |        | 3,064  |  |      |        | 8,283  |  |   |        | 4,814  | 
|                            | Mexico         |                       |        | 5,521  |  |      |        | 6,974  |  |   |        |       | 
|                            | Israel         |                       |        | 262    |  |      |        | 5,726  |  |   |        | 1,967  | 
|                            | Japan          |                       |        | 4,530  |  |      |        | 4,586  |  |   |        | 2,462  | 
|                            | Korea          |                       |        | 280    |  |      |        | 4,187  |  |   |        | 90     | 
|                            | Brazil         |                       |        | 2,336  |  |      |        | 4,054  |  |   |        | 444    | 
|                            | Other          |                       |        | 1,516  |  |      |        | 1,472  |  |   |        | 908    | 
|                            |                |                       |        |        |  |      |        |        |  |   |        |       
|                            |                | $                     | 57,050 |        |  | $    | 85,062 |        |  | $ | 48,211 |       
|                            |                |                       |        |        |  |      |        |        |  |   |        |       
|Net property and equipment: |                |                       |        |        |  |      |        |        |  |   |        |       
|                            | United States  |                       |        | 11,984 |  |      |        | 20,761 |  |   |        | 7,013  | 
|                            | Philippines    |                       |        | 297    |  |      |        | 367    |  |   |        | 1,682  | 
|                            | United Kingdom |                       |        | 2,558  |  |      |        | 2,870  |  |   |        | 706    | 
|                            |                |                       |        |        |  |      |        |        |  |   |        |       
|                            |                | $                     | 14,839 |        |  | $    | 23,998 |        |  | $ | 9,401  |       
|                            |                |                       |        |        |  |      |        |        |  |   |        |       

Net sales to customers are based on the
customers billing location. Long-lived assets are those
assets used in each geographical area.

Note
13.     Contingencies

The Company operates in the semiconductor
industry and may from time to time become party to litigation.
Management is currently not aware of any potential or pending
litigation that could reasonably be expected to have a material
adverse affect on the Companys financial condition or
result of operations.

Note
14.     Supplemental Cash Flow
Information

|                                                            |  |                       |     |      |  |      |     |  |  |   |     | 
|----------------------------------------------------------- |  | --------------------- | --- | ---- |  | ---- | --- |  |  | - | --- | 
|                                                            |  |                      
|                                                            |  | Years Ended March 31,
|                                                            |  |                      
|                                                            |  | 2002                  |     | 2001 |  | 2000
|                                                            |  |                       |     |      |  |     
|                                                            |  |                      
|                                                            |  | (In thousands)       
|Cash paid for interest                                      |  | $                     | 695 |      |  | $    | 412 |  |  | $ | 231 | 
|Cash paid for income taxes                                  |  |                       | 77  |      |  |      | 1   |  |  |   |    | 
|Capital lease obligations incurred to acquire
    equipment |  |                       | 189 |      |  |      | 335 |  |  |   | 525 | 

52



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CELERITEK


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note
15.     Quarterly Results of Operations
(Unaudited)

The following table presents unaudited quarterly
data for the eight quarters ended March 31, 2002. This
information has been presented on the same basis as the audited
consolidated financial statements. All necessary adjustments
have been included in the amounts stated below to present fairly
the unaudited quarterly results. Results of operations for any
quarter are not necessarily indicative of the results to be
expected for the entire fiscal year or for any future period.
Certain amounts have been reclassed to conform to annual
disclosures.

|                                                            |         |                                       |        |           |  |          |        |          |  |          |        |           |  |          |         |          |  |   |        |        |  |   |        |        |  |   |         |        |  |   |        |        | 
|----------------------------------------------------------- | ------- | ------------------------------------- | ------ | --------- |  | -------- | ------ | -------- |  | -------- | ------ | --------- |  | -------- | ------- | -------- |  | - | ------ | ------ |  | - | ------ | ------ |  | - | ------- | ------ |  | - | ------ | ------ | 
|                                                            |         |                                      
|                                                            |         | Three Months Ended                   
|                                                            |         |                                      
|                                                            |         | June 30,                              |        | Sept. 30, |  | Dec. 31, |        | Mar. 31, |  | June 30, |        | Sept. 30, |  | Dec. 31, |         | Mar. 31,
|                                                            |         | 2000                                  |        | 2000      |  | 2000     |        | 2001(1)  |  | 2001     |        | 2001      |  | 2001(2)  |         | 2002(3) 
|                                                            |         |                                       |        |           |  |          |        |          |  |          |        |           |  |          |         |         
|                                                            |         |                                      
|                                                            |         | (In thousands, except per share data)
|Consolidated Statement of Operations
    Data:              |         |                                       |        |           |  |          |        |          |  |          |        |           |  |          |         |          |  |   |        |        |  |   |        |        |  |   |         |        |  |   |        |       
|Net sales                                                   |         | $                                     | 19,689 |           |  | $        | 23,109 |          |  | $        | 24,245 |           |  | $        | 18,019  |          |  | $ | 14,012 |        |  | $ | 15,131 |        |  | $ | 14,680  |        |  | $ | 13,227 |       
|Gross profit                                                |         |                                       | 5,461  |           |  |          | 6,647  |          |  |          | 5,740  |           |  |          | (10,268 | )        |  |   | (1,214 | )      |  |   | 862    |        |  |   | 2,869   |        |  |   | 2,694  |       
|Income (loss) from operations                               |         |                                       | 563    |           |  |          | 1,347  |          |  |          | 929    |           |  |          | (18,534 | )        |  |   | (6,441 | )      |  |   | (3,698 | )      |  |   | (12,582 | )      |  |   | (1,871 | )     
|Net income (loss)                                           |         | $                                     | 701    |           |  | $        | 2,620  |          |  | $        | 2,609  |           |  | $        | (16,532 | )        |  | $ | (5,119 | )      |  | $ | (2,732 | )      |  | $ | (11,919 | )      |  | $ | (2,848 | )     
|                                                            |         |                                       |        |           |  |          |        |          |  |          |        |           |  |          |         |          |  |   |        |        |  |   |        |        |  |   |         |        |  |   |        |       
|Basic net income (loss) per share                           |         | $                                     | 0.07   |           |  | $        | 0.22   |          |  | $        | 0.22   |           |  | $        | (1.39   | )        |  | $ | (0.43  | )      |  | $ | (0.23  | )      |  | $ | (0.99   | )      |  | $ | (0.23  | )     
|                                                            |         |                                       |        |           |  |          |        |          |  |          |        |           |  |          |         |          |  |   |        |        |  |   |        |        |  |   |         |        |  |   |        |       
|Diluted net income (loss) per share                         |         | $                                     | 0.07   |           |  | $        | 0.21   |          |  | $        | 0.21   |           |  | $        | (1.39   | )        |  | $ | (0.43  | )      |  | $ | (0.23  | )      |  | $ | (0.99   | )      |  | $ | (0.23  | )     
|                                                            |         |                                       |        |           |  |          |        |          |  |          |        |           |  |          |         |          |  |   |        |        |  |   |        |        |  |   |         |        |  |   |        |       
|Shares used in net income (loss) per share
    calculation: |         |                                       |        |           |  |          |        |          |  |          |        |           |  |          |         |          |  |   |        |        |  |   |        |        |  |   |         |        |  |   |        |       
|                                                            | Basic   |                                       |        | 9,633     |  |          |        | 11,708   |  |          |        | 11,842    |  |          |         | 11,903   |  |   |        | 11,960 |  |   |        | 12,071 |  |   |         | 12,097 |  |   |        | 12,174 | 
|                                                            | Diluted |                                       |        | 10,527    |  |          |        | 12,555   |  |          |        | 12,667    |  |          |         | 11,903   |  |   |        | 11,960 |  |   |        | 12,071 |  |   |         | 12,097 |  |   |        | 12,174 | 



---



|    |                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The quarter ended March 31, 2001 includes a
    fixed asset impairment charge of $1.3 million and a
    write-down of short-term investments of $524,000.
|   
|(2) | The quarter ended December 31, 2001 includes
    a fixed asset impairment charge of approximately
    $11.0 million.                                     
|   
|(3) | The quarter ended March 31, 2002 includes a
    $1.7 million strategic investment write-down.                                                            

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##### Table of Contents






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, thereupon duly authorized.



| |                
| | ---------------
| | CELERITEK, INC.



| |     |                   
| | --- | ------------------
| | By: | /s/ TAMER HUSSEINI

| |                                                    
| | ---------------------------------------------------
| |                                                    
| | Tamer Husseini                                     
| | Chairman, President and Chief Executive
    Officer

Date: June 10, 2002

POWER OF ATTORNEY

Each person whose signature below constitutes and
appoints Tamer Husseini and Margaret E. Smith, jointly and
severally, his or her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign
any amendments to this Report on Form 10-K, and to file the
same, with exhibits thereto and other documents in connection
therewithin, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorney-in-fact,
or his or her substitute or substitutes, may do or cause to be
done by virtue hereof.

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

|                                           |  |                                                                                                          |  |               |  | 
|------------------------------------------ |  | -------------------------------------------------------------------------------------------------------- |  | ------------- |  | 
|                                           |  |                                                                                                          |  |              
|Signature                                  |  | Title                                                                                                    |  | Date         
|                                           |  |                                                                                                          |  |              
|/s/ TAMER HUSSEINITamer Husseini           |  | Chairman, President and
    Chief Executive Officer
    (Principal Executive Officer)                    |  | June 10, 2002
|                                          
|/s/ MARGARET E. SMITHMargaret E. Smith     |  | Vice President, Finance and
    Chief Financial Officer
    (Principal Financial and Accounting Officer) |  | June 10, 2002
|                                          
|/s/ ROBERT J. GALLAGHERRobert J. Gallagher |  | Director                                                                                                 |  | June 10, 2002
|                                          
|/s/ CHARLES P. WAITECharles P. Waite       |  | Director                                                                                                 |  | June 10, 2002
|                                          
|/s/ WILLIAM D. RASDALWilliam D. Rasdal     |  | Director                                                                                                 |  | June 10, 2002
|                                          
|/s/ THOMAS W. HUBBSThomas W. Hubbs         |  | Director                                                                                                 |  | June 10, 2002

54



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SCHEDULE II  VALUATION
AND QUALIFYING ACCOUNTS

ALLOWANCE FOR DOUBTFUL ACCOUNTS

|                   |  |                |       |            |  |               |       |           |  |   |       |  |  |   |       | 
|------------------ |  | -------------- | ----- | ---------- |  | ------------- | ----- | --------- |  | - | ----- |  |  | - | ----- | 
|                   |  |                |       | Additions  |  |               |       |          
|                   |  | Balance at     |       | Charged to |  |               |       | Balance  
|                   |  | Beginning      |       | Costs and  |  |               |       | at End   
|Period             |  | of Period      |       | Expenses   |  | Deductions(1) |       | of Period
|                   |  |                |       |            |  |               |       |          
|                   |  |               
|                   |  | (In thousands)
|Year Ended 3/31/02 |  | $              | 1,977 |            |  | $             | 557   |           |  | $ | 1,351 |  |  | $ | 1,183 | 
|Year Ended 4/1/01  |  |                | 349   |            |  |               | 1,645 |           |  |   | 17    |  |  |   | 1,977 | 
|Year Ended 4/2/00  |  |                | 517   |            |  |               | 60    |           |  |   | 228   |  |  |   | 349   | 



---



|    |                                                                          
|--- | -------------------------------------------------------------------------
|(1) | Deductions represent write-offs of uncollectible
    accounts receivable.

S-1



---



##### Table of Contents






EXHIBIT INDEX

|        |          |             |  |                                                                                                                                                                
|------- | -------- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |          |            
|Number  |          | Description
|        |          |            
|        | 3.1(1)   |             |  | Restated Articles of Incorporation of Registrant.                                                                                                              
|        | 3.2(1)   |             |  | Bylaws of Registrant, as amended to date.                                                                                                                      
|        | 4.1(1)   |             |  | Form of Registrants Stock Certificate.                                                                                                                        
|        | 4.2(1)   |             |  | Third Modification Agreement (including
    Registration Rights Agreement) dated July 30, 1990, between
    the Registrant and certain investors.              
|        | 4.3(5)   |             |  | Shareholders Rights Agreement dated
    March 25, 1999, by and between the Registrant and
    BankBoston, N.A.                                                 
|        | 10.1(3)  |             |  | 1985 Stock Incentive Program and forms of
    Incentive Stock Option Agreement and Nonstatutory Stock Option
    Agreement.                                    
|        | 10.2(1)  |             |  | 1994 Stock Option Plan, as amended, and form of
    Stock Option Agreement.                                                                                    
|        | 10.3(1)  |             |  | Employee Qualified Stock Purchase Plan and form
    of Subscription Agreement.                                                                                 
|        | 10.4(1)  |             |  | Outside Directors Stock Option Plan and
    form of Stock Option Agreement.                                                                                   
|        | 10.5(1)  |             |  | Form of Directors and Officers
    Indemnification Agreement.                                                                                                
|        | 10.6(1)  |             |  | Lease Agreement dated April 1, 1993 between
    the Registrant and Berg & Berg Developers.                                                                     
|        | 10.7(2)  |             |  | Lease agreement dated April 11, 1997 between
    the Registrant and Spieker Properties, L.P.                                                                   
|        | 10.8(4)  |             |  | Loan modification agreement dated
    September 11, 1997 between Registrant and Silicon Valley
    Bank.                                                       
|        | 10.9(6)  |             |  | First Amendment to Lease dated June 17, 1999
    by and between Registrant and Mission West Properties, L.P. II
    (formerly known as Berg & Berg Developers).
|        | 10.10(7) |             |  | 2000 Nonstatutory Stock Option Plan.                                                                                                                           
|        | 10.11(7) |             |  | Share Subscription Agreement by and between the
    Registrant and Suntek Compound Semiconductor Co. LTD, dated
    December 5, 2000.                          
|        | 10.12(8) |             |  | Joint Venture Agreement, dated as of
    December 20, 2001, by and among Celeritek, Inc., UBE
    Electronics, Ltd. and NewGen Telecom Co., Ltd.               
|        | 10.13    |             |  | Stock Purchase agreement, dated as of
    March 18, 2002, by and among Celeritek, Inc. and NewGen
    Telecom Co., Ltd.                                        
|        | 21       |             |  | Subsidiaries of Celeritek.                                                                                                                                     
|        | 23.1     |             |  | Consent of Ernst & Young LLP, Independent
    Auditors.                                                                                                        



---



|    |                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the identically
    numbered exhibits to our Registration Statement of Form S-1
    (Commission File No. 33-98854), which became effective on
    December 19, 1995.
|   
|(2) | Incorporated by reference to our Form 10-K
    filed for the fiscal year ended March 31, 1997.                                                                                                   
|   
|(3) | Incorporated by reference to our Statement on
    Form S-8 (Commission File No. 333-52037), filed
    May 7, 1998.                                                                               
|   
|(4) | Incorporated by reference to our Form 10-K
    filed for the fiscal year ended March 31, 1999.                                                                                                   
|   
|(5) | Incorporated by reference to our Form 8-A
    filed on April 1, 1999.                                                                                                                            
|   
|(6) | Incorporated by reference to our Form 10-K/A
    filed for the fiscal year ended March 31, 2000.                                                                                                 
|   
|(7) | Incorporated by reference to our Form 10-K
    filed for the fiscal year ended March 31, 2001.                                                                                                   
|   
|(8) | Incorporated by reference to our Form 10-Q
    filed for the quarter ended December 31, 2001.