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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
                            ------------------------

(MARK ONE)

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

                    FOR THE FISCAL YEAR ENDED MARCH 31, 2001

                                       OR

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

                         FOR THE TRANSITION PERIOD FROM
                               --------------- TO
                               --------------- .

                        COMMISSION FILE NUMBER: 0-25560

                                CELERITEK, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                 CALIFORNIA                                     77-0057484
       (STATE OR OTHER JURISDICTION OF                       (I.R.S. EMPLOYER
       INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NO.)
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              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 [X]  No [ ].

    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.  [ ]

    The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of April 27, 2001, was approximately $105,084,782 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 April 27, 2001, approximately 11,934,186 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, 2001, are
incorporated by reference in Part III of this Form 10-K.

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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 Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. We have attempted to identify
forward-looking statements by terminology including "believes," "can,"
"continue," "could," "estimates," "expects," "intends," "may," "plans,"
"potential," "predicts," "should," or "will" or the negative of these terms or
other comparable terminology. These statements relate to future events or our
future performance, and include statements concerning our beliefs or
expectations regarding: the growth of the wireless communications market, of
mobile wireless devices and in wireless access to the Internet; the growth in
CDMA subscribers and the possibility that third generation technology will be
based on CDMA; the expansion of third generation technology; the development of
new, and upgrading of existing, networks; our plans to become the leading
provider of GaAs semiconductor components and GaAs-based systems for the
wireless market; our intent to leverage our GaAs expertise to address emerging
trends in broadband markets; our strategy to pursue vertical integration of our
design and manufacturing processes; our desire to form lasting customer
relationships by working with customers early in the development process; our
expectation that sales to a limited number of customers will account for a high
percentage of our sales; our belief that our existing facilities are adequate
for our current needs and that additional space will be available as needed and
our ability to meet our liquidity requirements through at least the next year.

     Forward-looking statements involve known and unknown risks and
uncertainties that may cause our actual results in future periods to differ
materially from what is currently anticipated. We make cautionary statements in
a number of sections of this Form 10-K, including those under "Risk Factors."
You should read these cautionary statements as being applicable to all related
forward-looking statements wherever they appear.

ITEM 1. BUSINESS

OVERVIEW

     Formed in California 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. Our
products are designed to facilitate broadband voice and data transmission in
mobile handsets and wireless and wireline 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 point to point and point to
multipoint microwave radios addressing the high capacity wireless SONET/SDH
networks. In addition, we sell our subsystem products to major defense
contractors.

INDUSTRY BACKGROUND

  Growth in the Wireless Communications Industry

     The market for wireless communications has grown rapidly and has become
quite large. 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.

     Although the long-term potential for growth in the broadband communications
markets is strong, these markets are currently experiencing a slow down in
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
broadband voice and data services were unable to secure necessary capital and in
some cases, filed for Chapter 11 bankruptcy protection.

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  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, as
analog systems continue the transition to digital technology. 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. According to IDC, CDMA subscribers worldwide increased by
86% in 1999 over the prior year to 42 million subscribers, and IDC estimates
that the number of subscribers will increase to more than 212 million by 2003.

     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.

  Wireless Infrastructure Network Buildout

     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 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 recent months, softness in the US capital markets caused a
slow down in the wireless and wireline communications network markets. Several
US competitive local exchange carriers, or CLECs, have filed for Chapter 11
bankruptcy protection.

     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.

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     - 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
accelerate 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 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.

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. Our semiconductor components and subsystems are designed
to facilitate broadband voice and data transmission in mobile handsets and

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wireless communications networks. 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 16 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.

  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.

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  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 broadband markets. For example, we recently
introduced our InGaP HBT power amplifier modules, which 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 point to point radio products,
integrate circuits produced in-house and GaAs semiconductor components to
address customer demand for compact subsystems.

  Further Penetrate High-Growth Broadband Markets

     We target both existing and emerging high-growth broadband markets. We seek
to further increase the penetration of our GaAs semiconductor components and
GaAs-based subsystem products in existing and growing voice driven markets,
which include handsets and point to point networks. Our strategy is to further
penetrate emerging broadband markets, which include data handsets and fiber
optic networks.

     We believe data rates in fiber optic markets are driving demand for higher
frequency components. Our high frequency expertise positions us to penetrate
these wireline broadband markets. For example, we have developed high
performance 20 GHz driver amplifier solutions for the emerging 10 Gbps, or
OC-192, high-speed fiber optic market.

  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.

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  Expand Relationships with Leading Worldwide Manufacturers of Wireless
Infrastructure Equipment

     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. We have
developed relationships with large wireless customers, including Motorola, DMC
Stratex Networks, P-Com, and Ericsson. 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.

PRODUCTS

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

  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.

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

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

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  GaAs-based Subsystems

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

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 MARKET                     SEMICONDUCTOR COMPONENTS   APPLICATIONS               PRODUCT BENEFITS
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 Point to Point             - Power amplifiers         Transmitter and receiver   - Increases range
                            - Low noise amplifiers     portion of microwave and   - Reduces size of
                            - Transceivers             millimeter wave radios       terminals
                            - Complete radio outdoor   for medium capacity voice  - Increases integration
                              units, or ODUs           and data                   - Increases data rates up
                                                                                    to 44 Mbps
-----------------------------------------------------------------------------------------------------------
 Point to Multipoint        - Linear amplifiers        Transmitter and receiver   - Increases data capacity
                            - Low noise amplifiers     portion of millimeter        up to 44 Mbps
                            - Low phase noise sources  wave radios for high       - Reduces size of
                            - Transceivers             capacity voice and data    terminal
                            - Complete radio ODUs                                 - Reduces data errors
                                                                                  - Reduces sensitivity to
                                                                                    vibration
-----------------------------------------------------------------------------------------------------------
 Wireless SONET/SDH         - Linear amplifiers        Transmitter and receiver   - Increases data capacity
                            - Low noise amplifiers     portion of millimeter        up to 610 Mbps
                            - Low phase noise          wave radios for very high  - Reduces size of
                              sources                  capacity data              terminal
                            - Transceivers                                        - Reduces data errors
                            - Complete radio ODUs                                 - Reduces sensitivity to
                                                                                    vibration
-----------------------------------------------------------------------------------------------------------
 Defense                    - Amplifiers               Electronic                 - Increases integration
                            - Transceivers             countermeasures and
                                                       warning systems
-----------------------------------------------------------------------------------------------------------
 Satellite -- Retail        - Transmit ODUs            Two way satellite ground   - Reduces size of
                                                       terminals for point of     terminal
                                                       sale transactions and      - Reduces data errors
                                                       remote monitoring          - Reduces size of
                                                                                  terminal
-----------------------------------------------------------------------------------------------------------
</TABLE>

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 broadband wireless infrastructure equipment and
networks. We also sell our subsystem products to major defense contractors.

     Our largest semiconductor component customers for the fiscal year ended
March 31, 2001, were Motorola, Metricom and Ericsson. Our largest subsystem
customers for the fiscal year ended March 31, 2001 were DMC Stratex Networks,
P-Com, Gilat Satellite and ITT Aerospace.

     A relatively limited number of customers have historically accounted for a
substantial portion of our sales. During the fiscal year ended March 31, 2001,
Motorola accounted for approximately 21% of net sales, and DMC Stratex Networks
accounted for approximately 10% of net sales. During 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. In the fiscal year ended March 31,
1999, no customer accounted for more than 10% of net sales. Sales to our top ten
customers accounted for approximately 72% of our net sales in fiscal 2001 and
61% in fiscal 2000. 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 45% 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 $35.3 million, which accounted for
41% of net sales in fiscal 2001, $10.7 million, which accounted for 22% of net
sales in fiscal 2000, and $8.4 million, which accounted for 21% of net sales in
fiscal 1999. In addition, many of our domestic customers sell their products
outside of the United States. Please see the section of this Report entitled
"Risk Factors" for a description of risks related to our international sales and
operations.

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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. We believe we are the
first to offer InGaP power amplifier modules for these applications.

                                        8
<PAGE>   10

  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

                                        9
<PAGE>   11

force of six people. As of March 31, 2001, we had contracts with 13
manufacturers' representatives in the United States and 16 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, 2001 was approximately $62 million, as compared to
$65 million at March 31, 2000. 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. 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.

     In fact, in the fourth quarter of fiscal 2001 approximately 32% of our
backlog was cancelled due to changing market conditions. Certain of our
customers in the broadband wireless 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 broadband 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 45% is attributable to orders
received from Motorola. If we were to lose this or another major customer, or if
orders by major customers were to otherwise decrease or be delayed, 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, 2001, we employed 73
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 of
engineers has been difficult.

     We believe our expertise in high frequency applications is well suited to
higher-speed fiber optic component markets. We have announced a family of fiber
optic products for 10 Gbps, or OC-192, applications. We have secured a number of
design wins for these products which we believe will go into production at the
end of calendar 2001.

                                        10
<PAGE>   12

     Our total expenses for research and development were $10.2 million for the
fiscal year ended March 31, 2001, $6.7 million for the fiscal year ended March
31, 2000, and $5.9 million for the fiscal year ended March 31, 1999.

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 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 also
outsource a portion of the semiconductor fabrication to a subcontractor foundry.
We believe that outsourcing 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 have an arrangement with an independent subcontractor to assemble some
of our GaAs-based subsystems to reduce manufacturing labor costs. Additionally,
we use a number of third party vendors in Asia to package 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

                                        11
<PAGE>   13

California's current energy crisis could disrupt our operations and increase our
expenses" and "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 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
wireless subsystems products, we compete primarily with EndWave, MTI (Taiwan),
New Japan Radio Corporation, REMEC, SPC America and Telaxis. In the defense
segment of the subsystems market, we compete primarily with CTT and Litton
Industries.

     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 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. 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.

                                        12
<PAGE>   14

     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.

     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. For example, last year we received a
letter from Rockwell International Corporation alleging that components supplied
to us by a third party were manufactured by that third party using a process
claimed in a Rockwell patent. These components were processed and tested by us
for use by us as part of our InGaP HBT power amplifiers. The letter from
Rockwell invited us to discuss a licensing assignment for Rockwell's patented
technology. Rockwell's patent expired in January 2000 and prior to that time we
had distributed for testing but had not sold products incorporating the third
party supplied components. We have reviewed this matter but do not believe it
will seriously harm our operating results or financial condition. If, however,
Rockwell files suit in connection with our use of the third party supplied
components, we cannot assure you that we will prevail. In addition, litigation
would be costly and time consuming. 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, 2001, we had a total of 462 employees including 10 in
marketing, sales and related customer support services, 73 in research and
development, 351 in manufacturing and 28 in administration and finance. None of
our employees are represented by a labor union. We consider our relations with
our employees to be good. Subsequent to March 31, 2001, we reduced the number of
employees by about 30% to adjust our employment level to current business
conditions.

RAW MATERIAL

     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.

EXECUTIVE OFFICERS OF THE REGISTRANT

     Our executive officers as of March 31, 2001 are as follows:

<TABLE>
<CAPTION>
                NAME                   AGE                       POSITION
                ----                   ---                       --------
<S>                                    <C>    <C>
Tamer Husseini.......................  58     Chairman, President and Chief Executive
                                              Officer
Margaret E. Smith....................  53     Vice President, Finance and Chief Financial
                                              Officer
William W. Hoppin....................  38     Vice President, Sales and Marketing
Gary J. Policky......................  59     Vice President, Engineering and Chief
                                              Technical Officer
Richard G. Finney....................  51     Vice President, Subsystem Division
Perry A. Denning.....................  54     Vice President, Semiconductor Division
</TABLE>

                                        13
<PAGE>   15

     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. Smith joined 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 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.

     William W. Hoppin joined us in 1985 as a design engineer and has been our
Vice President, Sales and Marketing since April 1997. From January 1995 to April
1997, he was director of semiconductor sales. Prior to joining us, Mr. Hoppin
received a Bachelor of Science in Electrical Engineering from Cornell
University.

     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. Finney joined 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. Denning joined 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 all of its 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.

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 also
have a short-term sub-lease for an additional 12,000 square foot space in Santa
Clara, California to house part of our semiconductor 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 are not subject to any legal proceedings that, if adversely determined,
would cause a material adverse effect on our business, operation results and
financial condition.

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, 2001.

                                        14
<PAGE>   16

                                    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:

<TABLE>
<CAPTION>
                       QUARTER ENDED                          HIGH      LOW
                       -------------                         ------    ------
<S>                                                          <C>       <C>
FISCAL 2000
First Quarter..............................................  $ 6.63    $ 3.75
Second Quarter.............................................    7.50      4.75
Third Quarter..............................................   19.50      5.50
Fourth Quarter.............................................   81.00     16.50
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
</TABLE>

     At April 27, 2001 there were approximately 171 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.
In addition, we have a term loan that prohibits us from paying cash dividends
without prior bank approval.

ITEM 6. SELECTED FINANCIAL DATA

     The following selected financial data for the five-year period ended March
31, 2001, 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.

<TABLE>
<CAPTION>
                                                      FISCAL YEARS ENDED MARCH 31,
                                          ----------------------------------------------------
                                           1997       1998       1999       2000        2001
                                          -------    -------    -------    -------    --------
                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                       <C>        <C>        <C>        <C>        <C>
Net sales...............................  $45,346    $56,317    $41,128    $48,211    $ 85,062
Gross profit............................   16,428     20,170      4,528      8,373       7,580
Income (loss) from operations...........    5,374      5,997     (9,887)    (7,154)    (15,695)
Net income (loss).......................  $ 3,656    $ 3,991    $(7,538)   $(6,824)   $(10,602)
                                          =======    =======    =======    =======    ========
Basic net income (loss) per share.......  $  0.52    $  0.56    $ (1.04)   $ (0.88)   $  (0.94)
                                          =======    =======    =======    =======    ========
Diluted net income (loss) per share.....  $  0.50    $  0.54    $ (1.04)   $ (0.88)   $  (0.94)
                                          =======    =======    =======    =======    ========
Shares used in net income (loss) per
  share calculation(1):
  Basic.................................    7,017      7,126      7,265      7,736      11,272
  Diluted...............................    7,352      7,450      7,265      7,736      11,272
</TABLE>

---------------
(1) See note 2 of notes to consolidated financial statements for a description
    of the computation of the number of shares and net income (loss) per share.

<TABLE>
<CAPTION>
                                                                 AT MARCH 31,
                                                -----------------------------------------------
                                                 1997      1998      1999      2000      2001
                                                ------    ------    ------    ------    -------
                                                                (IN THOUSANDS)
<S>                                             <C>       <C>       <C>       <C>       <C>
Consolidated Balance Sheet Data
  Total assets................................  41,157    48,448    40,210    63,655    170,525
  Long-term obligations.......................      --       906       257       636      5,578
</TABLE>

                                        15
<PAGE>   17

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. 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 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. The U.S. military pioneered the use and funded the initial
development of radio frequency, or RF, and microwave wireless transmission
technology. 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.

     As government defense spending declined in the last decade, we began to
transition our business to focus on transceivers and transceiver components for
the commercial wireless communications market. These commercial products are
built with the same technology and processes as the products we have
historically made for the defense industry. All of our current defense business
consists of repeat purchases of products that were designed in the past. We are
not pursuing any new defense business that requires design effort.

     A limited number of customers have historically accounted for a substantial
portion of our sales. 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. During the fiscal year
ended March 31, 2000, sales to our top ten customers accounted for approximately
61% of net sales. Sales to Motorola accounted for approximately 15% of net
sales, and sales to P-Com accounted for approximately 11% of net sales. We
expect that sales of our products to a limited number of customers will continue
to account for a high percentage of our net sales for the foreseeable future.
One customer accounted for approximately 45% of our backlog at March 31, 2001.
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.

     In the fourth quarter of our fiscal year, many of our customers in the
broadband wireless 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 broadband 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.

     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

                                        16
<PAGE>   18

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. To offset these decreases, we
rely primarily on obtaining design and yield improvements and corresponding cost
reductions in the manufacture of existing products.

RESULTS OF OPERATIONS

     The following table sets forth consolidated statement of operations data as
a percentage of net sales for the periods indicated:

<TABLE>
<CAPTION>
                                                               YEARS ENDED MARCH 31,
                                                              -----------------------
                                                              1999     2000     2001
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Net sales...................................................  100.0%   100.0%   100.0%
Cost of goods sold..........................................   89.0     82.6     91.1
                                                              -----    -----    -----
Gross profit................................................   11.0     17.4      8.9
Operating expenses:
  Research and development..................................   14.4     13.8     12.0
  Selling, general and administrative.......................   20.6     18.4     15.4
                                                              -----    -----    -----
          Total operating expenses..........................   35.0     32.2     27.4
                                                              -----    -----    -----
Loss from operations........................................  (24.0)   (14.8)   (18.5)
Interest and other income (expense), net....................   (0.2)     0.7      6.1
                                                              -----    -----    -----
Loss before income taxes....................................  (24.2)   (14.1)   (12.4)
Provision (benefit) for income taxes........................   (5.9)      --      0.1
                                                              -----    -----    -----
Net loss....................................................  (18.3)%  (14.1)%  (12.5)%
                                                              =====    =====    =====
</TABLE>

FISCAL YEAR ENDED MARCH 31, 2000 COMPARED TO FISCAL YEAR ENDED MARCH 31, 2001

     Net sales. Net sales increased 76% from $48.2 million in fiscal 2000 to
$85.1 million in fiscal 2001. During fiscal 2001, net sales, excluding sales to
defense customers, increased 109% over fiscal 2000 from $34.1 million to $71.3
million. Net sales to defense customers decreased 2% from $14.1 million in
fiscal 2000 to $13.8 million in fiscal 2001, primarily as a result of decreased
government spending in defense programs for our type of products, continued
competition in the defense industry and our focus on commercial markets.

     Net sales of GaAs-based subsystems increased 85%, from $15.8 million in
fiscal 2000 to $29.3 million in fiscal 2001, primarily because of increased
sales of GaAs-based subsystems for point to point radios. GaAs semiconductor
component sales increased 130% from $18.3 million in fiscal 2000 to $42.0
million in fiscal 2001. The increase in the semiconductor component sales was
the result of an increase of sales to the broadband wireless infrastructure
market and increased sales of GaAs RF power amplifiers for use in mobile
handsets.

     Recent developments. In the fourth quarter of this fiscal year, many of our
customers in the broadband wireless 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 broadband 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. In response to the current market conditions, we increased
inventory, sales, and accounts receivables reserves, wrote-down fixed assets,
and a reduced our number of employees. In the event we are able to secure any

                                        17
<PAGE>   19

cancellation charges, cost of goods sold for these revenues will be zero because
of the write-downs we have already taken.

     Gross margin. Gross margin decreased from 17% in fiscal 2000 to 9% in
fiscal 2001. The gross margin improvement that resulted from the increased sales
volume and consequently better utilization of assets, in fiscal 2001 was offset
by inventory write-downs resulting from delayed and canceled orders due to the
declining broadband wireless market and higher product costs associated with
lower yields related to the startup of volume production of certain new
products.

     Research and development. Research and development expenses increased 53%
from $6.7 million in fiscal 2000 to $10.2 million in fiscal 2001. This 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
expenses increased 48% from $8.9 million in fiscal 2000 to $13.1 million in
fiscal 2001. This increase resulted primarily from the write down of capital
assets and increased accounts receivables reserves due to the declining
broadband wireless market. Due to the delayed and canceled contracts in fourth
quarter of this fiscal year, we assessed our assets for possible impairment.
Assets for which there were no longer any productive use were written down to
net realizable value. Additionally, we analyze our receivables on a recurring
basis as to any risk of collectability. In the case of certain of our customers
who canceled future orders during the fourth quarter, we believe the assurance
of collectability has been reduced and we have increased our reserves
accordingly.

     Interest and other income. Interest and other income, net, was $330,000 in
fiscal 2000 compared to $5.2 million of income in fiscal 2001. The increase is
primarily due to higher interest income because of higher cash balances
generated by a secondary public offering of common stock in June 2000. The
increase was partially offset by a write down of approximately $524,000 for PG&E
bonds, which we deemed to have an other than temporary decline in market value
because PG&E has filed for Chapter 11 bankruptcy protection. Going forward,
there may additional impairments we deem other than temporary regarding the PG&E
bonds.

     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.

FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 31, 2000

     Net sales. Net sales increased 17% from $41.1 million in fiscal 1999 to
$48.2 million in fiscal 2000. During fiscal 2000, net sales, excluding sales to
defense customers, increased 66% over fiscal 1999 from $20.5 million to $34.1
million. Net sales to defense customers decreased 32% from $20.7 million in
fiscal 1999 to $14.1 million in fiscal 2000, primarily as a result of decreased
government spending in defense programs for our type of products, continued
competition in the defense industry and our focus on commercial markets.

     Net sales of GaAs-based subsystems increased 63%, from $9.7 million in
fiscal 1999 to $15.8 million in fiscal 2000, primarily because of increased
sales of GaAs-based subsystems for point to point radios. GaAs semiconductor
component sales increased 69% from $10.8 million in fiscal 1999 to $18.3 million
in fiscal 2000. The increase in the semiconductor component sales was the result
of an increase in the sales of GaAs RF power amplifiers for use in mobile
handsets.

     Gross margin. Gross margin increased from 11% in fiscal 1999 to 17% in
fiscal 2000. Gross margin was lower in fiscal 1999 because of decreased
revenues, excess capacity and inventory write downs resulting from canceled
orders. We had an increase in our quarterly shipment rate in the second half of
fiscal 2000 that improved gross margin because of better utilization of
capacity. During fiscal 2000, we transferred some of our subsystem assembly and
test functions to a subcontractor in Asia and incurred related costs in fiscal
2000 for employee terminations, moving, training and other start up costs
associated with this transfer.

     Research and development. Research and development expenses increased 14%
from $5.9 million in fiscal 1999 to $6.7 million in fiscal 2000. This increase
primarily reflects the hiring of additional personnel in

                                        18
<PAGE>   20

the United States and the staffing of a new commercial product development and
design center in the United Kingdom in January 2000.

     Selling, general and administrative. Selling, general and administrative
expenses increased 5% from $8.5 million in fiscal 1999 to $8.9 million in fiscal
2000. This increase resulted primarily from increased commissions associated
with higher sales levels.

     Interest and other income (expense). Interest and other income (expense),
net, was $92,000 of expense in fiscal 1999 compared to $330,000 of income in
fiscal 2000. The increase is primarily due to higher interest income because of
higher cash balances generated by a private placement of common stock. Interest
expense was also lower due to lower average debt balances.

     Provision (benefit) for income taxes. No tax provision or benefit was
recorded in fiscal 2000. In fiscal 1999, we recorded an income tax benefit of
$2.4 million to reflect income taxes recoverable from prior years. Due to our
overall loss position, a valuation allowance has been established in an amount
equal to the expected benefit derived by applying the statutory rate to the net
loss in fiscal 2000.

                                        19
<PAGE>   21

QUARTERLY RESULTS OF OPERATIONS

     The following tables present unaudited quarterly data for the eight
quarters ended March 31, 2001, and this data expressed as a percentage of net
sales for these quarters. In our opinion, this information has been presented on
the same basis as the audited consolidated financial statements included
elsewhere in this Form 10-K, and all necessary adjustments have been included in
the amounts stated below to present fairly the unaudited quarterly results when
read in conjunction with our audited consolidated financial statements. 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.

<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED
                                         ---------------------------------------------------------------------------------------
                                         JUNE 30,   SEPT. 30,   DEC. 31,   MAR. 31,   JUNE 30,   SEPT. 30,   DEC. 31,   MAR. 31,
                                           1999       1999        1999       2000       2000       2000        2000       2001
                                         --------   ---------   --------   --------   --------   ---------   --------   --------
                                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                      <C>        <C>         <C>        <C>        <C>        <C>         <C>        <C>
CONSOLIDATED STATEMENT OF
  OPERATIONS DATA:
Net sales..............................  $10,188     $10,731    $11,822    $15,470    $19,689     $23,109    $24,245    $ 18,019
Cost of goods sold.....................    9,395       8,381     10,806     11,256     14,228      16,462     18,505      28,287
                                         -------     -------    -------    -------    -------     -------    -------    --------
Gross profit...........................      793       2,350      1,016      4,214      5,461       6,647      5,740     (10,268)
Operating expenses:
  Research and development.............    1,439       1,444      1,644      2,132      2,257       2,452      2,613       2,857
  Selling, general and
    administrative.....................    2,227       1,942      2,515      2,184      2,641       2,848      2,198       5,409
                                         -------     -------    -------    -------    -------     -------    -------    --------
        Total operating expenses.......    3,666       3,386      4,159      4,316      4,898       5,300      4,811       8,266
                                         -------     -------    -------    -------    -------     -------    -------    --------
Income (loss) from operations..........   (2,873)     (1,036)    (3,143)      (102)       563       1,347        929     (18,534)
Interest and other income, net.........       40          78         18        194        262       1,735      2,141       1,080
                                         -------     -------    -------    -------    -------     -------    -------    --------
Income (loss) before income taxes......   (2,833)       (958)    (3,125)        92        825       3,082      3,070     (17,454)
Provision (benefit) for income taxes...       --          --         --         --        124         462        461        (922)
                                         -------     -------    -------    -------    -------     -------    -------    --------
Net income (loss)......................  $(2,833)    $  (958)   $(3,125)   $    92    $   701     $ 2,620    $ 2,609    $(16,532)
                                         =======     =======    =======    =======    =======     =======    =======    ========
Basic net income (loss) per share......  $ (0.38)    $ (0.13)   $ (0.42)   $  0.01    $  0.07     $  0.22    $  0.22    $  (1.39)
                                         =======     =======    =======    =======    =======     =======    =======    ========
Diluted net income (loss) per share....  $ (0.38)    $ (0.13)   $ (0.42)   $  0.01    $  0.07     $  0.21    $  0.21    $  (1.39)
                                         =======     =======    =======    =======    =======     =======    =======    ========
Shares used in net income (loss) per
  share calculation:
  Basic................................    7,381       7,427      7,464      8,671      9,633      11,708     11,842      11,903
  Diluted..............................    7,381       7,427      7,464      9,678     10,527      12,555     12,667      11,903
AS A PERCENTAGE OF NET SALES:
Net sales..............................    100.0%      100.0%     100.0%     100.0%     100.0%      100.0%     100.0%      100.0%
Cost of goods sold.....................     92.2        78.1       91.4       72.8       72.3        71.2       76.3       157.0
                                         -------     -------    -------    -------    -------     -------    -------    --------
  Gross profit.........................      7.8        21.9        8.6       27.2       27.7        28.8       23.7       (57.0)
Operating expenses:
  Research and development.............     14.1        13.5       13.9       13.8       11.5        10.6       10.8        15.9
  Selling, general and
    administrative.....................     21.9        18.1       21.3       14.1       13.4        12.3        9.1        30.0
                                         -------     -------    -------    -------    -------     -------    -------    --------
        Total operating expenses.......     36.0        31.6       35.2       27.9       24.9        22.9       19.9        45.9
                                         -------     -------    -------    -------    -------     -------    -------    --------
Income (loss) from operations..........    (28.2)       (9.7)     (26.6)      (0.7)       2.8         5.9        3.8      (102.9)
Interest and other income, net.........      0.4         0.7        0.2        1.3        1.4         7.5        8.8         6.0
                                         -------     -------    -------    -------    -------     -------    -------    --------
Income (loss) before income taxes......    (27.8)       (9.0)     (26.4)       0.6        4.2        13.4       12.6       (96.9)
Provision (benefit) for income taxes...       --          --         --         --        0.6         2.0        1.9        (5.1)
                                         -------     -------    -------    -------    -------     -------    -------    --------
Net income (loss)......................    (27.8)%      (9.0)%    (26.4)%      0.6%       3.6%       11.4%      10.7%      (91.8)%
                                         =======     =======    =======    =======    =======     =======    =======    ========
</TABLE>

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, 2001, we had $3.5
million of cash and cash equivalents, $104.0 million of short-term investments
and $120.7 million of working capital. In June 2000, we issued 2.3 million
shares of common stock to institutional investors in an underwritten secondary
offering and received net proceeds of approximately $100.3 million.

                                        20
<PAGE>   22

     Net cash used in operating activities was $5.9 million in fiscal 2001, $2.8
million in fiscal 2000, and $3.2 million in fiscal 1999. The increase in cash
used in operating activities in fiscal 2001 was primarily due to the increased
net loss and a tax refund received in fiscal 2000 for which there is no
corresponding activity in fiscal 2001.

     Net cash used in investing activities was $107.2 million in fiscal 2001,
$16.6 million in fiscal 2000 and $488,000 in fiscal 1999. Net cash used in
investing activities in fiscal 2001 and 2000 relates primarily to purchases of
short-term investments with the proceeds from a secondary public offering in
June 2000 and a private placement in February 2000, respectively.

     Net cash provided by financing activities was $107.9 million in fiscal
2001, $26.4 million in fiscal 2000 and $1.4 million in fiscal 1999. We raised
approximately $100.3 million in a secondary public offering in June 2000 and
approximately $25.3 million in a private placement of common stock in February
2000.

     As of March 31, 2001, we had $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
will expire in November 2001. The term loans bear interest at the bank's
reference rate (8.0% as of March 31, 2001) plus 0.5%. As of March 31, 2001, we
had borrowings of $222,222 outstanding against the term loan. As part of the
agreement, we are required to maintain various covenants. The covenants pertain
to the maintenance of financial ratios, liquidity levels and minimum tangible
net worth and prohibit the payment of dividends.

     We believe our current cash resources, combined with cash generated from
operations and borrowings available from our equipment financing sources should
be sufficient to meet our liquidity requirements through at least the next
fiscal year.

                                        21
<PAGE>   23

                                  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 fourth quarter of
fiscal 2001, a number of our GaAs-based subsystems contracts were either
terminated or delayed and our net sales declined substantially from the prior
quarter. We cannot assure you that additional customers will not terminate
contracts, that customer orders will not be delayed, or that customers will ever
reinstate orders under contracts that have been delayed. 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 are 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 ONE OF OUR
KEY CUSTOMERS DECREASE, OUR NET SALES WILL DECLINE AND OUR BUSINESS WILL BE
HARMED.

     A substantial portion of our sales are 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. 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 45% of our backlog at March 31, 2001. In addition, the mix of our
major

                                        22
<PAGE>   24

customers shifted during the fiscal year ended March 31, 2000 to rely more upon
customers in the mobile handset and wireless communications infrastructure
markets, and less upon defense industry customers. Accordingly, our
relationships with many of our anticipated major customers have only recently
been established. Our success depends on our ability to successfully satisfy
these customers' GaAs semiconductor component and GaAs-based subsystem
requirements. If we lose a major customer or if anticipated sales to a major
customer do not to materialize, our operating results and business would be
harmed. For example, in the fourth quarter of fiscal 2001, our net sales were
adversely affected when a number of customers cancelled orders as a result of a
decline in demand for wireless communications equipment.

BECAUSE MANY OF OUR EXPENSES ARE FIXED, 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. 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.

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, 2001, our backlog was approximately
$62 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 our purchase of
materials, hiring of 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 our fiscal year, certain of our customers in the
broadband wireless 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 broadband 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 45% 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 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 produce 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

                                        23
<PAGE>   25

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:

     - 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 have experienced lower than
expected yields and start up quality issues with the subcontractor who is
assembling the modules. These issues have 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 RELY ON A CONTINUOUS POWER SUPPLY TO CONDUCT OUR OPERATIONS, AND CALIFORNIA'S
CURRENT ENERGY CRISIS COULD DISRUPT OUR OPERATIONS AND INCREASE OUR EXPENSES.

     California is in the midst of an energy crisis that could disrupt our
operations and increase our expenses. 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 we or our
customers 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 has caused power prices to increase. 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, wholesale prices have skyrocketed over the past
year. If wholesale prices continue to increase, our operating expenses will
likely increase, as all of our facilities are located in California.

OUR MANUFACTURING CAPACITY AND OUR ABILITY TO INCREASE SALES VOLUME IS DEPENDENT
ON THE SUCCESSFUL RETENTION AND HIRING OF SUFFICIENT 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, hire or
contract for 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
hire, contract, train and manage these personnel will intensify further if 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, hiring and contracting for sufficient personnel
with these critical skills. Our business has been harmed in the past by our
inability to hire and retain people with these 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.

                                        24
<PAGE>   26

     Our ability to increase 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.

OUR IN-HOUSE FOUNDRY CAPACITY IS LIMITED. IF WE ARE UNABLE TO MANUFACTURE A
SUFFICIENT NUMBER OF GAAS SEMICONDUCTOR COMPONENTS AT OUR IN-HOUSE FOUNDRY AND
THROUGH THIRD PARTY FOUNDRY RELATIONSHIPS TO MEET OUR PRODUCTION NEEDS, WE WOULD
BE UNABLE TO SATISFY CUSTOMER DEMAND FOR OUR PRODUCTS AND OUR BUSINESS WOULD
SUFFER.

     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. Our foundry may not have sufficient capacity to
meet customer demand for our GaAs semiconductor components and GaAs- based
subsystems. If we are not able to meet our planned production requirements, it
could result in a loss of customers and sales, which would harm our business.

     Our in-house capacity may not be sufficient by itself to satisfy
anticipated 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
them requires us to commit to a certain volume of production based on a rolling
forecast. In the event that our requirements fall below this level, we are still
obligated to pay for the forecast level of service. If this foundry does not
deliver to us the GaAs semiconductor components we request in a timely manner at
acceptable yields, we may not be able to satisfy customer demand for our
products on a timely basis. In addition, our use of this third party foundry can
be subject to approval by our customers. If our customers do not approve of the
use of this foundry, we may not be able to fulfill their orders for our
products.

     In December 2000, we invested approximately $2.4 million in Suntek Compound
Semiconductor Co. LTD, a GaAs foundry under construction in Taiwan. This foundry
is scheduled to be in production at the end of calendar 2002. We believe this
investment will assist in securing a portion of Suntek's capacity for our use
although we have not yet entered into a written agreement for the purchase of
product. If Suntek is not successful or is delayed in completing the
construction of their facility of if we do not execute a capacity purchase
agreement with Suntek, we may have difficulty in meeting our capacity
requirements and might have to write down this investment. We have accounted for
this investment on a cost basis.

     We anticipate that we may have to enter into additional arrangements with
independent foundries to meet our future production requirements. We anticipate
these future arrangements may require us to enter into agreements that may
include:

     - contracts that commit us to purchase specified quantities at specified
       prices over extended periods;

     - option payments, non-refundable deposits, loans or other prepayments; or

     - joint ventures or other strategic partnerships with foundries.

     Qualifying a new foundry can take six months or longer. We may not be able
to make any such arrangements in a timely fashion or at all, and these
arrangements, if any, may not be favorable to us. Our increasing 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.

                                        25
<PAGE>   27

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. 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.

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 meet some GaAs-based subsystem orders 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 attract, assimilate or retain
key personnel could significantly harm our business, operating results and
financial condition.

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

                                        26
<PAGE>   28

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.

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 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 broadband
wireless communications networks.

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 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, we wrote off out of date inventory when one of our customers
stopped producing the mobile handset 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.

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, EndWave,
Litton Industries, MTI (Taiwan), New Japan Radio Corporation, REMEC, RF Micro
Devices, SPC America, Telaxis, and TriQuint Semiconductor. In addition, a number
of smaller companies may introduce

                                        27
<PAGE>   29

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.

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 significantly declined in the past. 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.

WE ARE SUBJECT TO STRINGENT ENVIRONMENTAL REGULATION 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.

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.

                                        28
<PAGE>   30

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. For example, we received a letter
from Rockwell International Corporation alleging that components supplied to us
by a third party were manufactured by that third party using a process claimed
in a Rockwell patent. These components were processed and tested by us for use
by us as part of our InGaP HBT power amplifiers. The letter from Rockwell
invited us to discuss a licensing assignment for Rockwell's patented technology.
Rockwell's patent expired in January 2000 and prior to that time we had
distributed for testing but had not sold products incorporating the third party
supplied components. We have reviewed this matter but do not believe it will
seriously harm our operating results or financial condition. If, however,
Rockwell files suit in connection with our use of the third party supplied
components, we cannot assure you that we will prevail. In addition, litigation
would be costly and time consuming.

     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 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.

OUR SALES TO INTERNATIONAL CUSTOMERS EXPOSE US TO RISKS THAT MAY HARM OUR
BUSINESS.

     In fiscal 2001, sales from international customers accounted for 41% of our
net sales. In fiscal 2000, sales from international customers accounted for 22%
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

                                        29
<PAGE>   31

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;

     - 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.

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 our company
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, 2001 our investment portfolio comprised
approximately $3.6 million in money market funds and certificate of deposits and
$103.5 million of 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, 2001 levels, the
fair value of our portfolio would decline by approximately $287,000. The
modeling technique used measures the change in fair values arising from an
immediate hypothetical shift in market interest rates and assumes ending fair
values include principal plus accrued interest.

  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.

                                        30
<PAGE>   32

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.

                                    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 2001 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 2001
Annual Meeting of Shareholders and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is included under "Share Ownership by
Principal Shareholders and Management" in our Proxy Statement to be filed in
connection with our 2001 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 2001
Annual Meeting of Shareholders and is incorporated herein by reference.

                                        31
<PAGE>   33

                                    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:

     1. Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                                  PAGE
                                                                  ----
    <S>                                                           <C>
    Report of Ernst & Young LLP, Independent Auditors...........   34
    Consolidated Balance Sheets as of March 31, 2001 and 2000...   35
    Consolidated Statements of Operations for the years ended
      March 31, 2001, 2000 and 1999.............................   36
    Consolidated Statements of Shareholders' Equity for the
      Years ended March 31, 2001, 2000 and 1999.................   37
    Consolidated Statements of Cash Flows for the years ended
      March 31, 2001, 2000 and 1999.............................   38
    Notes to Consolidated Financial Statements..................   39
</TABLE>

     2. Financial Statement Schedule

<TABLE>
<S>                                                           <C>
Schedule II -- Valuation and Qualifying Accounts............  S-1
</TABLE>

     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.

     3. Exhibits

<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                            DESCRIPTION
--------                           -----------
<C>        <S>
 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)    Business Loan Agreement dated September 11, 1992 between the
           Registrant and Silicon Valley Bank and Promissory Notes
           issued thereunder.
10.7(1)    Lease Agreement dated April 1, 1993 between the Registrant
           and Berg & Berg Developers.
10.8(2)    Lease agreement dated April 11, 1997 between the Registrant
           and Spieker Properties, L.P.
10.9(4)    Loan modification agreement dated September 11, 1997 between
           Registrant and Silicon Valley Bank.
10.10(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).
10.11      2000 Nonstatutory Stock Option Plan.
10.12      Share Subscription Agreement by and between the Registrant
           and Suntek Compound Semiconductor Co. LTD, dated December 5,
           2000.
23.1       Consent of Ernst & Young LLP, Independent Auditors.
</TABLE>

---------------
(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.

                                        32
<PAGE>   34

(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.

     (b) Reports on Form 8-K

     No reports on Form 8-K were filed during the quarter ended March 31, 2001.

                                        33
<PAGE>   35

               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, 2001 and 2000, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended March 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

     We conducted our audits 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, 2001 and 2000, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended March 31, 2001,
in conformity with accounting principles generally accepted in the United
States.

                                          /S/ ERNST & YOUNG LLP

San Jose, California
April 30, 2001

                                        34
<PAGE>   36

                          CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                   MARCH 31,
                                                              -------------------
                                                                2001       2000
                                                              --------    -------
<S>                                                           <C>         <C>
Current assets:
  Cash and cash equivalents.................................  $  3,515    $ 8,707
  Short-term investments....................................   103,998     18,009
  Accounts receivable, net of allowance for doubtful
     accounts of $1,977 and $349 at March 31, 2001 and 2000,
     respectively...........................................    16,495     11,909
  Inventories...............................................    15,361     14,355
  Income tax refund receivable..............................        --        548
  Prepaid expenses and other current assets.................     3,446        634
                                                              --------    -------
          Total current assets..............................   142,815     54,162
Net property and equipment..................................    23,998      9,401
Other assets................................................     3,712         92
                                                              --------    -------
          Total assets......................................  $170,525    $63,655
                                                              ========    =======
                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $ 13,413    $ 6,221
  Accrued payroll...........................................     2,679      2,514
  Accrued liabilities.......................................     3,912      2,467
  Current portion of long-term debt.........................     1,380        667
  Current obligations under capital leases..................       754        319
                                                              --------    -------
          Total current liabilities.........................    22,138     12,188
Long-term debt, less current portion........................     3,686        222
Noncurrent obligations under capital lease commitments......     1,892        414
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 -- 11,932,394 and
      9,316,927 at March 31, 2001 and 2000, respectively....   154,494     52,394
  Accumulated other comprehensive income....................       480         --
  Retained earnings (accumulated deficit)...................   (12,165)    (1,563)
                                                              --------    -------
          Total shareholders' equity........................   142,809     50,831
                                                              --------    -------
          Total liabilities and shareholders' equity........  $170,525    $63,655
                                                              ========    =======
</TABLE>

                            See accompanying notes.

                                        35
<PAGE>   37

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                  YEARS ENDED MARCH 31,
                                                              ------------------------------
                                                                2001       2000       1999
                                                              --------    -------    -------
<S>                                                           <C>         <C>        <C>
Net sales...................................................  $ 85,062    $48,211    $41,128
Cost of goods sold..........................................    77,482     39,838     36,600
                                                              --------    -------    -------
Gross profit................................................     7,580      8,373      4,528
Operating expenses:
  Research and development..................................    10,179      6,659      5,927
  Selling, general, and administrative......................    13,096      8,868      8,488
                                                              --------    -------    -------
          Total operating expenses..........................    23,275     15,527     14,415
                                                              --------    -------    -------
Loss from operations........................................   (15,695)    (7,154)    (9,887)
Interest income and other...................................     5,630        561        300
Interest expense............................................      (412)      (231)      (392)
                                                              --------    -------    -------
Loss before income taxes....................................   (10,477)    (6,824)    (9,979)
Provision (benefit) for income taxes........................       125         --     (2,441)
                                                              --------    -------    -------
Net Loss....................................................  $(10,602)   $(6,824)   $(7,538)
                                                              ========    =======    =======
Basic net loss per share....................................  $  (0.94)   $ (0.88)   $ (1.04)
                                                              ========    =======    =======
Diluted net loss per share..................................  $  (0.94)   $ (0.88)   $ (1.04)
                                                              ========    =======    =======
Shares used in net loss per share calculation
  Basic.....................................................    11,272      7,736      7,265
  Diluted...................................................    11,272      7,736      7,265
</TABLE>

                            See accompanying notes.

                                        36
<PAGE>   38

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               ACCUMULATED      RETAINED
                                            COMMON STOCK          OTHER         EARNINGS         TOTAL
                                          -----------------   COMPREHENSIVE   (ACCUMULATED   SHAREHOLDERS'
                                          SHARES    AMOUNT       INCOME         DEFICIT)        EQUITY
                                          ------   --------   -------------   ------------   -------------
<S>                                       <C>      <C>        <C>             <C>            <C>
BALANCE AT MARCH 31, 1998...............   7,176   $ 24,214       $ --          $ 12,799       $ 37,013
Issuance of common stock on exercise of
  options under stock option plan.......      83        425         --                --            425
Issuance of common stock under employee
  stock purchase plan...................     122        448         --                --            448
Net and comprehensive loss..............      --         --         --            (7,538)        (7,538)
                                          ------   --------       ----          --------       --------
BALANCE AT MARCH 31, 1999...............   7,381     25,087         --             5,261         30,348
Issuance of common stock on exercise of
  options under stock option plan.......     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
  Directors' 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 plan.......     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
                                          ======   ========       ====          ========       ========
</TABLE>

                            See accompanying notes.

                                        37
<PAGE>   39

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  YEARS ENDED MARCH 31,
                                                            ---------------------------------
                                                              2001         2000        1999
                                                            ---------    --------    --------
<S>                                                         <C>          <C>         <C>
OPERATING ACTIVITIES
Net loss..................................................  $ (10,602)   $ (6,824)   $ (7,538)
Adjustments to reconcile net loss to net cash used in
  operating activities:
  Depreciation and amortization...........................      3,641       2,864       3,143
  Write down of impaired investments......................        524          --          --
  (Gain) loss on disposal of property and equipment.......      1,116         (27)         --
  (Gain) loss on sale of short-term investments...........       (239)         --          --
  Income tax receivable...................................         --       1,893      (2,441)
  Deferred income taxes...................................         --         494       1,433
  Changes in operating assets and liabilities:
     Accounts receivable..................................     (4,586)     (1,294)      5,201
     Inventories..........................................     (1,006)     (2,979)       (741)
     Prepaid expenses and other current assets............     (2,264)       (328)         56
     Other assets.........................................     (1,258)         52          --
     Accounts payable.....................................      7,192       2,004        (274)
     Accrued payroll......................................        165       1,114        (170)
     Accrued liabilities..................................      1,445         252      (1,850)
                                                            ---------    --------    --------
          Net cash used in operating activities...........     (5,872)     (2,779)     (3,181)
INVESTING ACTIVITIES
Purchases of property and equipment.......................    (19,019)     (4,512)     (2,084)
Investment in semiconductor foundry.......................     (2,362)         --          --
Purchases of short-term investments.......................   (177,614)    (24,868)    (12,504)
Proceeds from sales of short-term investments.............     43,902          --          --
Proceeds from maturities of short-term investments........     47,918      12,763      14,100
                                                            ---------    --------    --------
          Net cash used in investing activities...........   (107,175)    (16,617)       (488)
FINANCING ACTIVITIES
Principal payments on long-term debt......................     (1,138)       (722)       (389)
Borrowings on long-term debt..............................      7,207          --       1,000
Principal payments on obligations under capital leases....       (314)       (211)       (108)
Net proceeds from stock offerings.........................    100,319      25,316          --
Net proceeds from issuance of common stock................      1,781       1,991         873
                                                            ---------    --------    --------
          Net cash provided by financing activities.......    107,855      26,374       1,376
                                                            ---------    --------    --------
Increase (decrease) in cash and cash equivalents..........     (5,192)      6,978      (2,293)
Cash and cash equivalents at beginning of year............      8,707       1,729       4,022
                                                            ---------    --------    --------
Cash and cash equivalents at end of year..................  $   3,515    $  8,707    $  1,729
                                                            =========    ========    ========
</TABLE>

                            See accompanying notes.

                                        38
<PAGE>   40

                                CELERITEK, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BUSINESS ACTIVITIES  Celeritek, 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. The Company's products are designed to facilitate broadband voice and
data transmission in mobile handsets and wireless communication network
infrastructures.

     BASIS OF PRESENTATION  The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary. 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 2001, 2000, and 1999 ended April 1, April 2, and
March 28, respectively. For convenience, the accompanying financial statements
have been presented as ending on the last day of the calendar month.

     USE OF ESTIMATES  The preparation of the financial statements in conformity
with generally accepted accounting principles 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 INVESTMENTS  The 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 comprise readily marketable debt securities with remaining maturities
of more than 90 days at the time of purchase. 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 income which is a component of stockholders' equity. 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. Realized gains and losses are included in other income
(expense). 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.

     CONCENTRATION OF CREDIT RISK  The 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. In the fourth quarter of
this fiscal year, certain of the Company's customers in the broadband wireless
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
broadband voice and data services were unable to secure necessary capital and in
some cases, filed for Chapter 11 bankruptcy protection. The Company's customers,
the equipment suppliers to these service providers, responded by first delaying
and then canceling orders associated with this market. The Company has taken
additional reserves in response to the delayed and cancelled contracts and to
the declining market demand. 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.

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

     PROPERTY AND EQUIPMENT  Property 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

                                        39
<PAGE>   41
                                CELERITEK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

     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 customer has delayed its
acceptance of our product, we defer recognition of the revenue until acceptance.
To date, the Company has not had customers delay acceptance of its products. The
Company provides for expected returns based on past experience as well as
current customer activities. Generally, the Company's customers do not have
rights of return and to date, returns have not been material.

     WARRANTY  The 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 DEVELOPMENT  Research and development expenditures are charged
to operations as incurred.

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

     EARNINGS PER SHARE  In accordance with Statement of Financial Accounting
Standards No. 128, "Earnings per Share," (SFAS 128) basic net income (loss) per
common share is computed using the weighted average number of common shares
outstanding during the period. Diluted net income (loss) per share incorporates
the incremental shares issuable upon the assumed exercise of stock options and
warrants and assumed conversions of preferred stock, if dilutive.

     COMPREHENSIVE INCOME (LOSS)  Comprehensive income (loss) comprises net
income (loss) and other comprehensive income (loss). Other comprehensive income
(loss) includes certain changes in equity of the Company that are excluded from
net income (loss). Comprehensive income (loss) in fiscal 2001, 2000 and 1999 has
been reflected in the Consolidated Statements of Shareholders' Equity.

     RECLASSIFICATION  Certain amounts reported in previous years have been
reclassified to conform to the 2001 presentation.

NOTE 2. NET LOSS PER SHARE

     The following table sets forth the computation of basic and diluted net
income loss per share:

<TABLE>
<CAPTION>
                                                           YEARS ENDED MARCH 31,
                                                       ------------------------------
                                                         2001       2000       1999
                                                       --------    -------    -------
                                                           (IN THOUSANDS, EXCEPT
                                                             PER SHARE AMOUNTS)
<S>                                                    <C>         <C>        <C>
Numerator:
  Net loss...........................................  $(10,602)   $(6,824)   $(7,538)
Denominator:
  Denominator for basic net loss per
     share -- weighted average common shares.........    11,272      7,736      7,265
Effect of dilutive securities:
  Stock options......................................        --         --         --
                                                       --------    -------    -------
  Denominator for diluted net loss per
     share -- weighted average common and potentially
     dilutive securities.............................    11,272      7,736      7,265
                                                       ========    =======    =======
Basic net loss per share.............................  $  (0.94)   $ (0.88)   $ (1.04)
                                                       ========    =======    =======
Diluted net loss per share...........................  $  (0.94)   $ (0.88)   $ (1.04)
                                                       ========    =======    =======
</TABLE>

                                        40
<PAGE>   42
                                CELERITEK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The Company has excluded outstanding stock options from the calculation of
diluted net loss per share for the years ended March 31, 2001, 2000 and 1999
because these securities are anti-dilutive. Options to purchase 1,549,592,
1,078,320 and 1,019,563 shares of common stock at average exercise prices of
$17.48, $6.31 and $5.10, respectively, have been excluded from the calculation
of diluted net loss per share for the years ended March 31, 2001, 2000 and 1999,
respectively.

NOTE 3. SHORT-TERM INVESTMENTS

     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.
Management has determined that, as of March 31, 2001 and 2000, all short-term
investments were available-for-sale securities. None of the debt securities have
contractual maturities greater than one year for all periods presented.

     Available-for-sale securities are carried at fair value, and the unrealized
gains and losses, net of taxes, are reported as a component of comprehensive
income (loss). The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in income. Realized gains and losses, and declines
in value judged to be other-than-temporary on available-for-sale securities are
included in interest income and other. Interest and dividends on securities
classified as available-for-sale are included in interest income and other. The
following is a summary of available-for-sale securities at cost, which
approximates fair value:

<TABLE>
<CAPTION>
                                                         GROSS         GROSS
                                          AMORTIZED    UNREALIZED    UNREALIZED      FAIR
                                            COST         GAINS         LOSSES       VALUE
                                          ---------    ----------    ----------    --------
                                                           (IN THOUSANDS)
<S>                                       <C>          <C>           <C>           <C>
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.............    89,019         519            39         89,499
  Municipal bonds.......................     3,000          --            --          3,000
                                          --------        ----          ----       --------
          Total.........................  $106,595        $519          $ 39       $107,075
                                          ========        ====          ====       ========
As of March 31, 2000
  Money market funds....................  $  1,003        $ --          $ --       $  1,003
  Preferred stock.......................     5,050          --            --          5,050
  Corporate debt securities.............    20,198          --            --         20,198
                                          --------        ----          ----       --------
          Total.........................  $ 26,251        $ --          $ --       $ 26,251
                                          ========        ====          ====       ========
</TABLE>

     Above amounts are included in the following:

<TABLE>
<CAPTION>
                                                       MARCH 31,
                                                  -------------------
                                                    2001       2000
                                                  --------    -------
                                                    (IN THOUSANDS)
<S>                                               <C>         <C>
Cash and cash equivalents.......................  $  3,077    $ 8,242
Short-term investments..........................   103,998     18,009
                                                  --------    -------
          Total.................................  $107,075    $26,251
                                                  ========    =======
</TABLE>

                                        41
<PAGE>   43
                                CELERITEK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Following is a reconciliation of cash and cash equivalents:

<TABLE>
<CAPTION>
                                                        MARCH 31,
                                                     ----------------
                                                      2001      2000
                                                     ------    ------
                                                      (IN THOUSANDS)
<S>                                                  <C>       <C>
Available-for-sale securities......................  $3,077    $8,242
Cash and bank accounts.............................     438       465
                                                     ------    ------
          Total....................................  $3,515    $8,707
                                                     ======    ======
</TABLE>

NOTE 4. INVENTORIES

     Significant components of inventories are:

<TABLE>
<CAPTION>
                                                       MARCH 31,
                                                   ------------------
                                                    2001       2000
                                                   -------    -------
                                                     (IN THOUSANDS)
<S>                                                <C>        <C>
Raw materials....................................  $ 4,903    $ 3,193
Work-in-process..................................   10,458     11,162
                                                   -------    -------
                                                   $15,361    $14,355
                                                   =======    =======
</TABLE>

NOTE 5. PROPERTY AND EQUIPMENT

     Significant components of property and equipment are:

<TABLE>
<CAPTION>
                                                      MARCH 31,
                                                 --------------------
                                                   2001        2000
                                                 --------    --------
                                                    (IN THOUSANDS)
<S>                                              <C>         <C>
Equipment......................................  $ 39,792    $ 26,737
Furniture and fixtures.........................       665         626
Leasehold improvements.........................     8,712       5,026
                                                 --------    --------
                                                   49,169      32,389
Accumulated depreciation and amortization......   (25,171)    (22,988)
                                                 --------    --------
Net property and equipment.....................  $ 23,998    $  9,401
                                                 ========    ========
</TABLE>

NOTE 6. SUNTEK COMPOUND SEMICONDUCTOR CO. LTD

     In December 2000, the Company invested approximately $2.4 million in Suntek
Compound Semiconductor Co. LTD, a GaAs foundry under construction in Taiwan.
This foundry is scheduled to be in production at the end of calendar 2002. The
Company believes this investment will assist in securing a portion of Suntek's
capacity for the Company's use although the Company has not yet entered into a
written agreement for the purchase of product. The Company has accounted for
this investment on a cost basis. As of March 31, 2001, there are no impairment
issues with this investment.

                                        42
<PAGE>   44
                                CELERITEK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7. ACCRUED LIABILITIES

     Significant components of accrued liabilities are:

<TABLE>
<CAPTION>
                                                        MARCH 31,
                                                     ----------------
                                                      2001      2000
                                                     ------    ------
                                                      (IN THOUSANDS)
<S>                                                  <C>       <C>
Accrued commission.................................  $1,014    $  811
Accounts receivable deposits.......................     778       272
Accrued expenses...................................     730        81
Warranty accrual...................................     502       501
Other..............................................     888       802
                                                     ------    ------
                                                     $3,912    $2,467
                                                     ======    ======
</TABLE>

NOTE 8. 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
2005. Property and equipment include the following amounts under leases that
have been capitalized:

<TABLE>
<CAPTION>
                                                        MARCH 31,
                                                     ----------------
                                                      2001      2000
                                                     ------    ------
                                                      (IN THOUSANDS)
<S>                                                  <C>       <C>
Equipment..........................................  $3,305    $1,078
Less accumulated amortization......................    (458)     (242)
                                                     ------    ------
                                                     $2,847    $  836
                                                     ======    ======
</TABLE>

     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 leased assets.

     Future minimum payments under capital and non-cancellable operating leases
with initial terms of one year or more consisted of the following at March 31,
2001:

<TABLE>
<CAPTION>
                                                           CAPITAL    OPERATING
                                                           LEASES      LEASES
                                                           -------    ---------
                                                              (IN THOUSANDS)
<S>                                                        <C>        <C>
2002.....................................................  $  890      $ 5,642
2003.....................................................     723        4,358
2004.....................................................     658        2,986
2005.....................................................     557        1,913
2006.....................................................     279          668
                                                           ------      -------
          Total minimum lease payments...................   3,107      $15,567
                                                                       =======
Less amounts representing interest.......................    (461)
                                                           ------
Present value of net minimum lease payments..............   2,646
Less current portion.....................................    (754)
                                                           ------
                                                           $1,892
                                                           ======
</TABLE>

     Rent expense was approximately $5.9 million, $4.5 million, and $3.4 million
for the years ended March 31, 2001, 2000, and 1999, respectively.

                                        43
<PAGE>   45
                                CELERITEK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9. 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, we had a lease line, which subsequently converted into two separate
term loans. One of these two term loans expired in March 2001 and the other will
expire in November 2001. The term loans bear interest at the bank's reference
rate (8.0% as of March 31, 2001) plus 0.5%. As of March 31, 2001, we had
borrowings of $222,222 outstanding against the term loan. As part of the
agreement, we are required to maintain various covenants. The covenants pertain
to the maintenance of financial ratios, liquidity levels and minimum tangible
net worth and prohibit the payment of dividends.

     Future minimum principle payments on debt are as follows (in thousands):

<TABLE>
<S>                                                           <C>
Year ending March 31,
     2002...................................................  $ 1,380
     2003...................................................    1,278
     2004...................................................    1,411
     2005...................................................      997
                                                              -------
               Total minimum principle payments.............    5,066
     Less current portion...................................   (1,380)
                                                              -------
     Long-term portion......................................  $ 3,686
                                                              =======
</TABLE>

NOTE 10. INCOME TAXES

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

<TABLE>
<CAPTION>
                                                     YEARS ENDED MARCH 31,
                                                    ------------------------
                                                    2001    2000      1999
                                                    ----    -----    -------
                                                         (IN THOUSANDS)
<S>                                                 <C>     <C>      <C>
Current:
  Federal.........................................  $125    $(468)   $(3,363)
  State...........................................    --      (80)      (348)
                                                    ----    -----    -------
          Total current...........................   125     (548)    (3,711)
Deferred:
  Federal.........................................    --      468        922
  State...........................................    --       80        348
                                                    ----    -----    -------
          Total deferred..........................    --      548      1,270
                                                    ----    -----    -------
Provision (benefit) for income taxes..............  $125    $  --    $(2,441)
                                                    ====    =====    =======
</TABLE>

                                        44
<PAGE>   46
                                CELERITEK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     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:

<TABLE>
<CAPTION>
                                                      YEARS ENDED MARCH 31,
                                   -----------------------------------------------------------
                                         2001                 2000                 1999
                                   -----------------    -----------------    -----------------
                                   AMOUNT    PERCENT    AMOUNT    PERCENT    AMOUNT    PERCENT
                                   -------   -------    -------   -------    -------   -------
                                               (IN THOUSANDS, EXCEPT PERCENTAGES)
<S>                                <C>       <C>        <C>       <C>        <C>       <C>
At U.S. statutory rate...........  $(3,545)   (34.0)%   $(2,320)   (34.0)%   $(3,393)   (34.0)%
Change in valuation allowance....    3,545     34.0       2,407     35.2       1,162     11.7
Research and development tax
  credits........................       --       --          --       --        (172)    (1.7)
Federal alternative minimum
  tax............................      125      1.2          --       --          --       --
Other............................       --       --         (87)    (1.2)        (38)    (0.5)
                                   -------    -----     -------    -----     -------    -----
                                   $   125      1.2%    $    --      0.0%    $(2,441)   (24.5)%
                                   =======    =====     =======    =====     =======    =====
</TABLE>

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

<TABLE>
<CAPTION>
                                                               MARCH 31,
                                                          -------------------
                                                            2001       2000
                                                          --------    -------
                                                            (IN THOUSANDS)
<S>                                                       <C>         <C>
DEFERRED TAX ASSETS:
Inventory valuation.....................................  $  5,542    $ 1,978
Accruals and reserves not deductible for tax purposes...     2,758        786
Net operating loss carryforwards........................       882      2,657
Tax credit carryforwards................................     1,311      1,781
Other...................................................       433        123
                                                          --------    -------
Deferred tax assets.....................................    10,926      7,325
Valuation allowance.....................................   (10,926)    (7,325)
                                                          --------    -------
          Total and net deferred tax assets.............  $     --    $    --
                                                          ========    =======
</TABLE>

     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 $3.6
million and $4.2 million during the years ended March 31, 2001 and 2000,
respectively.

     As of March 31, 2001 the Company had federal and state net operating loss
carryforwards of approximately $1.9 million and $4.0 million, respectively. The
Company also had federal and state tax credit carryforwards of approximately
$605,000 and $1,069,000, respectively. If not utilized, the carryforwards will
expire beginning in 2004.

NOTE 11. 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 $159,000 in fiscal 2001, $128,000 in fiscal 2000, and $159,000 in
fiscal 1999. Administrative expenses relating to the Plan are insignificant.

                                        45
<PAGE>   47
                                CELERITEK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12. 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. During the fiscal year ended March 31, 2001, 2000, and
1999, 121,045, 131,895, and 122,307 shares of common stock, respectively, were
purchased under the ESPP. The Company has 32,938 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
443,642 shares for future issuance under the 1994 Plan.

  Nonstatutory Stock Option Plan (the 2000 Plan)

     On March 23, 2000, the Board of Directors approved the 2000 Nonstatutory
Stock Option Plan under which 200,000 shares of common stock have been reserved
for issuance to employees and consultants. The Company has 90,750 shares
remaining reserved for future issuance under the 2000 plan.

                                        46
<PAGE>   48
                                CELERITEK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

<TABLE>
<CAPTION>
                                                           OPTIONS OUTSTANDING       WEIGHTED
                                             SHARES     --------------------------   AVERAGE
                                           AVAILABLE    NUMBER OF     PRICE PER      EXERCISE
                                           FOR GRANT     SHARES         SHARE         PRICE
                                           ----------   ---------   --------------   --------
<S>                                        <C>          <C>         <C>              <C>
BALANCE AT MARCH 31, 1998................     174,564     851,288   $3.00 - $16.00    $ 8.71
  Additional shares authorized for 1994
     Plan................................     215,260          --         --              --
  Options granted........................  (1,119,000)  1,119,000    3.88 -  10.00      6.51
  Options exercised......................          --     (83,508)   3.00 -  10.00      5.01
  Options canceled and expired...........     867,217    (867,217)   3.00 -  16.00     10.46
                                           ----------   ---------   --------------    ------
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
</TABLE>

     At March 31, 2000 and 1999, outstanding options covering 479,220 and
531,235 shares were exercisable.

     The following table summarizes information about stock options outstanding
and exercisable at March 31, 2001:

<TABLE>
<CAPTION>
                            OPTIONS OUTSTANDING
                   --------------------------------------      OPTIONS EXERCISABLE
                                   WEIGHTED                  -----------------------
                                    AVERAGE      WEIGHTED                   WEIGHTED
                                   REMAINING     AVERAGE                    AVERAGE
   RANGE OF          NUMBER       CONTRACTUAL    EXERCISE      NUMBER       EXERCISE
EXERCISE PRICES    OUTSTANDING       LIFE         PRICE      EXERCISABLE     PRICE
---------------    -----------    -----------    --------    -----------    --------
<S>                <C>            <C>            <C>         <C>            <C>
 $3.00 - $ 5.63       658,226     6.39 years      $ 4.88       457,651       $ 4.92
 $6.00 - $31.44       669,491     9.36 years      $18.04        76,049       $14.20
$32.44 - $53.75       221,875     9.02 years      $53.15        51,331       $53.60
                    ---------     ----------      ------       -------       ------
                    1,549,592     8.05 years      $17.48       585,031       $10.40
</TABLE>

     The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its stock options since, as discussed below,
the alternative firm market value accounting provided for under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation" (SFAS 123), requires use of option valuation models that were not
developed for use in valuing stock options. Under APB 25, 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.

     Pro forma information regarding net income and net income per share is
required by SFAS 123, which also requires that the information be determined as
if the Company had accounted for its stock options granted subsequent to March
31, 1995 under the fair value method. 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

                                        47
<PAGE>   49
                                CELERITEK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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:

<TABLE>
<CAPTION>
                                                      YEARS ENDED MARCH 31,
                                                  -----------------------------
                                                   2001       2000       1999
                                                  -------    -------    -------
<S>                                               <C>        <C>        <C>
Risk-free interest rate.........................     5.7%       5.6%       5.4%
Dividend yield..................................     0.0%       0.0%       0.0%
Volatility......................................    92.1%      83.1%      77.9%
Expected life of options........................  5 years    5 years    5 years
</TABLE>

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

<TABLE>
<CAPTION>
                                                    YEARS ENDED MARCH 31,
                                             -----------------------------------
                                               2001         2000         1999
                                             ---------    ---------    ---------
<S>                                          <C>          <C>          <C>
Risk-free interest rate....................       5.7%         5.4%         5.4%
Dividend yield.............................       0.0%         0.0%         0.0%
Volatility.................................      92.1%        83.1%        77.9%
Expected life of options...................  0.5 years    0.5 years    0.5 years
</TABLE>

     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:

<TABLE>
<CAPTION>
                                                   YEARS ENDED MARCH 31,
                                              -------------------------------
                                                2001       2000        1999
                                              --------    -------    --------
<S>                                           <C>         <C>        <C>
Pro forma net loss..........................  $(15,375)   $(8,567)   $(10,075)
Pro forma basic net loss per share..........  $  (1.36)   $ (1.11)   $  (1.39)
Pro forma diluted net loss per share........  $  (1.36)   $ (1.11)   $  (1.39)
</TABLE>

     The weighted average grant date fair value of options granted during the
fiscal years ended March 31, 2001, 2000, and 1999 was $23.18, $5.52, and $2.63,
respectively. The weighted average grant date fair value of ESPP shares granted
during the fiscal years ended March 31, 2001, 2000, and 1999 was $4.11, $2.20,
and $1.88, 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 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, 2001, 3,000
options to purchase shares of common stock were granted. At March 31, 2001,
options to purchase 30,000 shares of common stock were outstanding of which
18,750 options were exercisable at weighted average exercise prices of $9.47 and
$6.87, respectively. The Company has 42,000 shares reserved for future issuance
under the Directors' Plan.

                                        48
<PAGE>   50
                                CELERITEK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 13. 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). Discrete financial information for each customer market
segment, other than revenues, is not provided to the CEO.

     In fiscal 2001, one customer accounted for 21% of net sales and another
accounted for 10%. In fiscal 2000, one customer accounted for 15% of net sales
and another accounted for 11%. In fiscal 1999, no one customer accounted for
more than 10% of net sales.

     The following is a summary of operations by geographic region:

<TABLE>
<CAPTION>
                                                            YEARS ENDED MARCH 31,
                                                        -----------------------------
                                                         2001       2000       1999
                                                        -------    -------    -------
                                                               (IN THOUSANDS)
<S>                                                     <C>        <C>        <C>
Net sales to customers:
  United States.......................................  $49,780    $37,526    $32,684
  Europe..............................................    8,283      4,814      4,309
  Mexico..............................................    6,974         --         --
  Israel..............................................    5,726      1,967        986
  Japan...............................................    4,586      2,462      2,401
  Korea...............................................    4,187         90        108
  Brazil..............................................    4,054        444         --
  Other...............................................    1,472        908        640
                                                        -------    -------    -------
                                                        $85,062    $48,211    $41,128
                                                        =======    =======    =======
Net property and equipment:
  United States.......................................  $20,761    $ 7,013    $ 6,500
  Philippines.........................................      367      1,682        475
  Other...............................................    2,870        706        226
                                                        -------    -------    -------
                                                        $23,998    $ 9,401    $ 7,201
                                                        =======    =======    =======
</TABLE>

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

NOTE 14. 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.

                                        49
<PAGE>   51
                                CELERITEK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15. SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                 YEARS ENDED MARCH 31,
                                                -----------------------
                                                2001     2000     1999
                                                -----    -----    -----
                                                    (IN THOUSANDS)
<S>                                             <C>      <C>      <C>
Cash paid for interest........................  $412     $235     $386
Cash paid for income taxes....................     1       --      151
Capital lease obligations incurred to acquire
  equipment...................................   335      525      218
</TABLE>

                                        50
<PAGE>   52

                                   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.

Date: June 1, 2001                        By:      /s/ TAMER HUSSEINI
                                            ------------------------------------
                                                       Tamer Husseini
                                               Chairman, President and Chief
                                                      Executive Officer

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

<TABLE>
<CAPTION>
                      SIGNATURE                                      TITLE                     DATE
                      ---------                                      -----                     ----
<C>                                                      <C>                               <S>
                 /s/ TAMER HUSSEINI                         Chairman, President and        June 1, 2001
-----------------------------------------------------       Chief Executive Officer
                   Tamer Husseini                        (Principal Executive Officer)

                /s/ MARGARET E. SMITH                     Vice President, Finance and      June 1, 2001
-----------------------------------------------------       Chief Financial Officer
                  Margaret E. Smith                         (Principal Financial and
                                                              Accounting Officer)

               /s/ ROBERT J. GALLAGHER                              Director               June 1, 2001
-----------------------------------------------------
                 Robert J. Gallagher

                /s/ CHARLES P. WAITE                                Director               June 1, 2001
-----------------------------------------------------
                  Charles P. Waite

                /s/ WILLIAM D. RASDAL                               Director               June 1, 2001
-----------------------------------------------------
                  William D. Rasdal

                 /s/ THOMAS W. HUBBS                                Director               June 1, 2001
-----------------------------------------------------
                   Thomas W. Hubbs
</TABLE>

                                        51
<PAGE>   53

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

             ALLOWANCE FOR DOUBTFUL ACCOUNTS (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                              ADDITIONS
                                               BALANCE AT    CHARGED TO                       BALANCE
                                               BEGINNING      COSTS AND                       AT END
                   PERIOD                      OF PERIOD     EXPENSES(1)    DEDUCTIONS(2)    OF PERIOD
                   ------                      ----------    -----------    -------------    ---------
<S>                                            <C>           <C>            <C>              <C>
Year Ended 4/1/01............................     $349         $1,645           $ 17          $1,977
Year Ended 4/2/00............................      517             60            228             349
Year Ended 3/28/99...........................      595            165            243             517
</TABLE>

---------------
(1) See "Concentration of Credit Risk" under footnote 1 for additional
    information.

(2) Deductions represent write-offs of uncollectable accounts receivable.

                                       S-1
<PAGE>   54

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                           DESCRIPTION
-------                           -----------
<C>       <S>                                                           <C>
 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)   Business Loan Agreement dated September 11, 1992 between the
          Registrant and Silicon Valley Bank and Promissory Notes
          issued thereunder.
10.7(1)   Lease Agreement dated April 1, 1993 between the Registrant
          and Berg & Berg Developers.
10.8(2)   Lease agreement dated April 11, 1997 between the Registrant
          and Spieker Properties, L.P.
10.9(4)   Loan modification agreement dated September 11, 1997 between
          Registrant and Silicon Valley Bank.
10.10(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).
10.11     2000 Nonstatutory Stock Option Plan.
10.12     Share Subscription Agreement by and between the Registrant
          and Suntek Compound Semiconductor Co. LTD, dated December 5,
          2000.
23.1      Consent of Ernst & Young LLP, Independent Auditors.
</TABLE>

---------------
(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.