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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, 2000

                                       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 28, 2000, was approximately $386,292,088 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 28, 2000, approximately 9,361,356 shares of the Registrant's
Common Stock were outstanding.

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ITEM 1. BUSINESS

     This Annual Report on Form 10-K contains forward-looking statements. These
statements relate to future events or our future performance. 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.

     Forward-looking statements involve known and unknown risks and
uncertainties which 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.

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 satellite
transceivers addressing the high capacity wireless SONET/SDH networks. In
addition, we sell our subsystem products to major defense contractors.

INDUSTRY BACKGROUND

Rapid Growth in the Wireless Communications Industry

     The market for wireless communications has become very large and continues
to grow rapidly. 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.

     Consumers have quickly adopted mobile wireless devices for voice
communications. According to International Data Corporation, or IDC, the number
of cellular and personal communications services, or PCS, subscribers worldwide
increased 40% in 1999 over the prior year, to 427 million subscribers, and is
expected to reach 1.1 billion subscribers by 2003. In addition, the use of
mobile wireless devices for Internet access and other data transmission is
expected to increase substantially over the next several years. According to
IDC, the number of subscribers worldwide with wireless access to the Internet
was approximately 10 million in 1999 and is expected to grow to 562 million
subscribers by 2004.

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

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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 are expected to upgrade their existing networks or
develop new networks quickly in order 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. Wireless networks are constructed using microwave radios and
other equipment to connect base stations with wired transmission systems and
facilities. Wireless infrastructure solutions used in communications networks
include:

  - Point to Point Networks. Point to point systems are used to transmit voice
    or data traffic over a single transmission link, typically between wireless
    communications networks or within a metropolitan area where wired networks
    are not available or are not cost effective. Data rates for these systems
    range from 4 Mbps to as high as 44 Mbps, which is over 600 times faster than
    a typical 56 Kbps modem.

  - Point to Multipoint/Fixed Wireless Networks. Point to multipoint and fixed
    wireless networks connect a number of communications end users within a
    local area to a single point, thereby bypassing the last mile bottleneck in
    the communications network. Point to multipoint networks are primarily being
    used by businesses as an alternative means of data communication, while
    fixed wireless systems are used by consumers as an alternative to
    traditional wireline telephone services. These networks transport data at
    rates from 44 Mbps to as high as 155 Mbps and can offer consumer access to
    data at multiple points from 4 Mbps to 44 Mbps.

  - Wireless SONET/SDH. Wireless SONET/SDH systems are high capacity point to
    point solutions, which offer service providers wireless alternatives for
    fiber optic network expansion. SONET and SDH are fiber optic transmission
    standards. Because wireless SONET/SDH systems can transport data at speeds
    comparable with fiber based systems, the high capacity portion of networks
    can now be more rapidly and cost effectively deployed with wireless systems.
    These high capacity wireless systems support data rates from 155 Mbps,
    equivalent to OC-3 fiber optic standards, to as high as 610 Mbps.

  - Satellite Voice and Internet Data Terminals. In satellite communications
    networks, signals are sent from users on the ground to the satellite, which
    then amplifies the signal and sends it back to the end user on the ground.
    The signal is typically received via very small aperture terminals, or
    VSATs, that are installed at the end user's premises, typically on a
    rooftop. Traditional uses of these satellite services include point-of-sale
    authorizations and private networks for businesses such as financial
    institutions. Emerging

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    applications for satellite communications include two-way Internet access,
    which is expected to offer data rates ranging from 2 Mbps to as high as 44
    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 which 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 and two way satellite voice and Internet data terminals. 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
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 15 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.

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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 10 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.

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.

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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, and
smaller size and higher linear efficiency as compared to power amplifiers
produced using other GaAs processes. We believe the modules will also address
our customers' needs for reduced parts count and number of suppliers. Our
GaAs-based subsystem products, such as high capacity wireless SONET/SDH and
two-way data satellite 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, point to
multipoint networks and satellite voice and Internet data terminals.

     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 are developing 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.

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,
P-COM, Digital Microwave, Metricom, Gilat 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.

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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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                         SEMICONDUCTOR
 MARKET                  COMPONENTS                APPLICATIONS                     PRODUCT BENEFITS
<S>                      <C>                       <C>                              <C>
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 Mobile Handsets         - Power amplifier RFICs   Transmitter portion of cellular  - Lengthens talk
                         - HBT Power Modules       and PCS CDMA, TDMA, and, in the    time
                         - Driver RFICs            future, 3G mobile handsets, for  - Increases data capacity up
                                                   voice and data                   to 2 Mbps
                                                                                    - Decreases size of handsets
                                                                                    - Decreases battery voltage
                                                                                    - Increases integration
----------------------------------------------------------------------------------------------------------------
 Wireless                - Power amplifier RFICs   Transmitter and receiver         - Increases range
 Infrastructure          - Power transistors       portions of cellular, GSM, and   - Increases data capacity up
                         - Low noise transistors   PCS wireless infrastructure      to 2 Mbps
                                                   equipment                        - Reduces size of base
                                                                                    stations
----------------------------------------------------------------------------------------------------------------
 Fixed Wireless          - Power amplifier RFICs   Transmitter portion of 1.9 GHz,  - Increases data capacity up
                         - Power transistors       2.4 GHz and 3.5 GHz fixed        to 2 Mbps
                         - Low noise transistors   wireless base stations and       - Lengthens battery back up
                         - Driver RFICs            subscriber terminals             - Reduces size of base
                                                                                    stations
----------------------------------------------------------------------------------------------------------------
 Point to Point and      - Millimeter wave         Transmitter and receiver         - Provides a secure source
 Point to Multipoint       microwave monolithic    portions of our GaAs-based       of supply and reduce the
                           integrated circuits     subsystems                         cost of our GaAs-based
                           (MMICs)                                                    subsystems
----------------------------------------------------------------------------------------------------------------
 Satellite               - Microwave and           Transmitter portions of our      - Provides a secure source
                           millimeter wave MMICs   GaAs-based subsystems            of supply and reduces the
                                                                                      cost of our GaAs-based
                                                                                      subsystems
----------------------------------------------------------------------------------------------------------------
 Fiber Optic*            - Driver amplifier MMICs  OC-192 20 GHz fiber optic        - Increases data capacity up
                                                   external modulator applications  to 10 Gbps
                                                                                    - Reduces data
                                                                                      errors
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* Recently introduced 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                  SUBSYSTEM PRODUCT         APPLICATIONS                     PRODUCT BENEFITS
<S>                      <C>                       <C>                              <C>
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 Point to Point          - Power amplifiers        Transmitter and receiver         - Increases range
                         - Low noise amplifiers    portion of microwave and         - Reduces size of terminals
                         - Transceivers            millimeter wave radios for       - Increases integration
                         - Complete radio outdoor  medium capacity voice and data   - Increases data rates up to
                           units, or ODUs                                           44 Mbps
----------------------------------------------------------------------------------------------------------------
 Point to Multipoint     - Linear amplifiers       Transmitter and receiver         - Increases data capacity up
                         - Low noise amplifiers    portion of millimeter wave       to 44 Mbps
                         - Low phase noise         radios for high capacity voice   - Reduces size of terminal
                         sources                   and data                         - Reduces data errors
                         - Transceivers                                             - Reduces sensitivity to
                         - Complete radio ODUs                                      vibration
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 Wireless SONET/ SDH     - Linear amplifiers       Transmitter and receiver         - Increases data capacity up
                         - Low noise amplifiers    portion of millimeter wave       to 610 Mbps
                         - Low phase noise         radios for very high capacity    - Reduces size of terminal
                         sources                   data                             - Reduces data errors
                         - Transceivers                                             - Reduces sensitivity to
                         - Complete radio ODUs                                      vibration
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 Defense                 - Amplifiers              Electronic countermeasures and   - Increases integration
                         - Transceivers            warning systems
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 Satellite -- Retail     - Transmit ODUs           Two way satellite ground         - Reduces size of terminal
                                                   terminals for point of sale      - Reduces data errors
                                                   transactions and remote
                                                   monitoring
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 Satellite -- Internet   - Transmit ODUs           Two way satellite terminals for  - Reduces size of terminal
 Protocol*                                         high capacity voice and data to  - Reduces data transmission
                                                   remote Internet service            errors
                                                   providers, home office and       - Increases integration
                                                   basic phone
----------------------------------------------------------------------------------------------------------------
</TABLE>

* These products are in the prototype stage and we have not commenced commercial
  shipments.

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, 2000, were Motorola, Metricom, Mitsubishi and Ericsson. Our largest
subsystem customers for the fiscal year ended March 31, 2000 were P-COM, Digital
Microwave, ITT Aerospace and Gilat Satellite.

     A relatively limited number of customers have historically accounted for a
substantial portion of our 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. In fiscal 1998, P-COM,
accounted for approximately 20% of net sales. Sales to our top ten customers
accounted for approximately 61% of our net sales in fiscal 2000 and 56% in
fiscal 1999. 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.

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     Sales to international customers accounted for 22% of net sales in fiscal
2000 and 21% of net sales in fiscal 1999. In addition, many of our domestic
customers sell their products outside of the United States.

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 provides 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 currently used in several
    high volume mobile handset and 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.

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

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

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.

                                       10
<PAGE>   11

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 force of six
people. As of March 31, 2000, we have contracts with 11 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. We believe our customer engineering
support provides us with a competitive advantage.

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, 2000 was approximately $65 million. 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
addition, we may not be able to achieve the rapid expansion necessary to meet
our current orders. For example, a significant portion of our backlog as of
March 31, 2000 represents orders whose requested shipment dates have passed,
some by more than six months.

     Of our current backlog, approximately 28% is attributable to orders
received from one customer. 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, 2000, we employed 55
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 announced our first fiber optic
product for 10 Gbps, or OC-192, applications in the first quarter of calendar
2000. The product is the first of a family of high speed fiber optic solutions,
and samples of our products are being distributed to potential customers. We
believe we will be in a position to initiate larger shipments in this product
area at the end of calendar 2000.

                                       11
<PAGE>   12

     Our total expenses for research and development were $5.4 million for the
fiscal year ended March 31, 1998, $5.9 million for the fiscal year ended March
31, 1999, and $6.7 million for the fiscal year ended March 31, 2000.

MANUFACTURING

     We manufacture our GaAs semiconductor components and GaAs-based subsystems
and supplement our manufacturing capacity by selectively outsourcing wafer
fabrication, assembly and test manufacturing functions to third parties. Our
manufacturing lines are designed to meet increasing 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 three 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.

                                       12
<PAGE>   13

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, sales force effectiveness, 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.

PROPRIETARY RIGHTS

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

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

     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

                                       13
<PAGE>   14

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, we recently 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
are currently reviewing 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, 2000, we had a total of 339 employees including 12 in
marketing, sales and related customer support services, 55 in research and
development, 251 in manufacturing and 21 in administration and finance. None of
our employees is represented by a labor union. We consider our relations with
our employees to be good.

ITEM 2. PROPERTIES

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

ITEM 3. LEGAL PROCEEDINGS

     We 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, 2000.

                                       14
<PAGE>   15

                                    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 1999
First Quarter...............................................  $12.13    $ 5.25
Second Quarter..............................................    6.63      3.63
Third Quarter...............................................    4.00      2.63
Fourth Quarter..............................................    6.69      2.75

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
</TABLE>

     At April 28, 2000 there were approximately 211 shareholders of record. To
date, we have neither 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 lines of credit which prohibit us from paying cash
dividends without prior bank approval.

Recent Sales of Unregistered Securities

     We issued a total of 1,499,998 shares of common stock to institutional
investors in a private placement that closed between February 4, 2000 and
February 10, 2000. This issuance was not underwritten, and the net proceeds were
approximately $25.3 million. These shares were subsequently registered on Form
S-3 on February 25, 2000.

     The issuance of these shares was done in reliance on Section 4(2) of the
Securities Act of 1933, as amended.

                                       15
<PAGE>   16

ITEM 6. SELECTED FINANCIAL DATA

     Summary Consolidated Financial Data

<TABLE>
<CAPTION>
                                                     FISCAL YEARS ENDED MARCH 31,
                                            -----------------------------------------------
                                             1996      1997      1998      1999      2000
                                            -------   -------   -------   -------   -------
                                                 (in thousands, except per share data)
<S>                                         <C>       <C>       <C>       <C>       <C>
Net sales.................................  $37,724   $45,346   $56,317   $41,128   $48,211
Cost of goods sold........................   23,884    28,918    36,147    36,600    39,838
                                            -------   -------   -------   -------   -------
Gross profit..............................   13,840    16,428    20,170     4,528     8,373
Operating expenses:
  Research and development................    3,772     4,252     5,389     5,927     6,659
  Selling, general and administrative.....    6,115     6,802     8,784     8,488     8,868
                                            -------   -------   -------   -------   -------
     Total operating expenses.............    9,887    11,054    14,173    14,415    15,527
                                            -------   -------   -------   -------   -------
Income (loss) from operations.............    3,953     5,374     5,997    (9,887)   (7,154)
Interest and other income (expense),
  net.....................................     (244)      525       416       (92)      330
                                            -------   -------   -------   -------   -------
Income (loss) before income taxes.........    3,709     5,899     6,413    (9,979)   (6,824)
Provision (benefit) for income taxes......    1,433     2,243     2,422    (2,441)       --
                                            -------   -------   -------   -------   -------
Net income (loss).........................  $ 2,276   $ 3,656   $ 3,991   $(7,538)  $(6,824)
                                            =======   =======   =======   =======   =======
Basic net income (loss) per share.........  $  0.73   $  0.52   $  0.56   $ (1.04)  $ (0.88)
                                            =======   =======   =======   =======   =======
Diluted net income (loss) per share.......  $  0.38   $  0.50   $  0.54   $ (1.04)  $ (0.88)
                                            =======   =======   =======   =======   =======
Shares used in net income (loss) per share
  calculation(1):
  Basic...................................    3,107     7,017     7,126     7,265     7,736
  Diluted.................................    5,953     7,352     7,450     7,265     7,736
</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.

                                       16
<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, satellite
transceivers 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, and,
accordingly, we expect our net sales from our defense customers to continue to
decline.

     A limited number of customers have historically accounted for a substantial
portion of our 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. During the fiscal year ended March
31, 1999, sales to our top ten customers accounted for approximately 56% of net
sales while none of our customers accounted for more than 10% 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. If
we were to lose a major customer, or if orders by a major customer were to
otherwise decrease or be delayed, our business, operating results and financial
condition would be seriously harmed.

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

     In addition, average selling prices for our products generally fluctuate
from period to period due to a number of factors, including product mix,
competition and unit volumes. The average selling prices of a

                                       17
<PAGE>   18

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,
                                                              -----------------------
                                                              1998     1999     2000
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Net sales...................................................  100.0%   100.0%   100.0%
Cost of goods sold..........................................   64.2     89.0     82.6
                                                              -----    -----    -----
Gross profit................................................   35.8     11.0     17.4
Operating expenses:
  Research and development..................................    9.6     14.4     13.8
  Selling, general and administrative.......................   15.6     20.6     18.4
                                                              -----    -----    -----
     Total operating expenses...............................   25.2     35.0     32.2
                                                              -----    -----    -----
Income (loss) from operations...............................   10.6    (24.0)   (14.8)
Interest and other income (expense), net....................    0.7     (0.2)     0.7
                                                              -----    -----    -----
Income (loss) before income taxes...........................   11.3    (24.2)   (14.1)
Provision (benefit) for income taxes........................    4.3     (5.9)      --
                                                              -----    -----    -----
Net income (loss)...........................................    7.0%   (18.3)%  (14.1)%
                                                              =====    =====    =====
</TABLE>

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 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.

                                       18
<PAGE>   19

     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.

FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1999

     Net sales. Net sales decreased 27% from $56.3 million in fiscal 1998 to
$41.1 million in fiscal 1999. During fiscal 1999, net sales, excluding sales to
defense customers, decreased 38% over fiscal 1998 from $32.9 million to $20.5
million. Net sales to defense customers decreased 12% from $23.4 million in
fiscal 1998 to $20.7 million in fiscal 1999, primarily as a result of decreased
government spending in defense programs for our type of products and continued
competition in the defense industry.

     Net sales of subsystems decreased 37% from $48.3 million in fiscal 1998 to
$30.3 million in fiscal 1999, primarily because a major customer cancelled a
significant order as a result of a decline in demand for point to point radio
networks. The decrease in subsystem sales was partially offset by 35% growth in
semiconductor component sales, from $8.0 million in fiscal 1998 to $10.8 million
in fiscal 1999. The increase in the semiconductor sales was the result of an
increase in the sales of GaAs RF power amplifiers for use in mobile handsets.

     Gross margin. Gross margin decreased from 36% in fiscal 1998 to 11% in
fiscal 1999 due to decreased revenues, excess capacity and significant inventory
write downs resulting from the point to point radio order cancellation and from
an OEM customer's decision to cancel a substantial order for GaAs semiconductor
components in connection with this customer's termination of production of a
mobile handset.

     Research and development. Research and development expenses increased 9%
from $5.4 million in fiscal 1998 to $5.9 million in fiscal 1999, reflecting our
continuing investment in product development, particularly for semiconductor
products. The increase resulted primarily from expenses associated with the
establishment of a design center in Northern Ireland.

     Selling, general and administrative. Selling, general and administrative
expenses decreased 3% from $8.8 million in fiscal 1998 to $8.5 million in fiscal
1999. The decrease resulted from lower commissions on sales and reduced salary
costs.

     Interest and other income (expense). Interest and other income (expense),
net, was $416,000 of income in fiscal 1998 compared to $92,000 of expense in
fiscal 1999. The decrease was primarily due to lower interest income because of
lower cash balances, and increased interest expense due to debt resulting from
the purchase of capital assets.

     Provision (benefit) for income taxes. In fiscal 1999, we recorded an income
tax benefit of $2.4 million to reflect income taxes recoverable from prior
years. In fiscal 1998, we recorded a provision for income taxes of $2.4 million,
reflecting a tax rate of 38%.

                                       19
<PAGE>   20

QUARTERLY RESULTS OF OPERATIONS

     The following tables present unaudited quarterly data for the eight
quarters ended March 31, 2000, 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,
                                      1998       1998        1998       1999       1999       1999        1999       2000
                                    --------   ---------   --------   --------   --------   ---------   --------   --------
                                                             (in thousands, except per share data)
<S>                                 <C>        <C>         <C>        <C>        <C>        <C>         <C>        <C>
CONSOLIDATED STATEMENT OF
  OPERATIONS
DATA:
Net sales.........................  $10,196     $10,829    $10,004    $10,099    $10,188     $10,731    $11,822    $15,470
Cost of goods sold................   11,466       8,189      8,207      8,738      9,395       8,381     10,806     11,256
                                    -------     -------    -------    -------    -------     -------    -------    -------
Gross profit......................   (1,270)      2,640      1,797      1,361        793       2,350      1,016      4,214
Operating expenses:
  Research and development........    1,861       1,357      1,313      1,396      1,439       1,444      1,644      2,132
  Selling, general and
    administrative................    2,502       2,036      2,052      1,898      2,227       1,942      2,515      2,184
                                    -------     -------    -------    -------    -------     -------    -------    -------
    Total operating expenses......    4,363       3,393      3,365      3,294      3,666       3,386      4,159      4,316
                                    -------     -------    -------    -------    -------     -------    -------    -------
Income (loss) from operations.....   (5,633)       (753)    (1,568)    (1,933)    (2,873)     (1,036)    (3,143)      (102)
Interest and other income
  (expense), net..................       (6)        (31)       (26)       (29)        40          78         18        194
                                    -------     -------    -------    -------    -------     -------    -------    -------
Income (loss) before income
  taxes...........................   (5,639)       (784)    (1,594)    (1,962)    (2,833)       (958)    (3,125)        92
Benefit for income taxes..........   (2,143)       (298)        --         --         --          --         --         --
                                    -------     -------    -------    -------    -------     -------    -------    -------
Net income (loss).................  $(3,496)    $  (486)   $(1,594)   $(1,962)   $(2,833)    $  (958)   $(3,125)   $    92
                                    =======     =======    =======    =======    =======     =======    =======    =======
Basic net income (loss) per
  share...........................  $ (0.48)    $ (0.07)   $ (0.22)   $ (0.27)   $ (0.38)    $ (0.13)   $ (0.42)   $  0.01
                                    =======     =======    =======    =======    =======     =======    =======    =======
Diluted net income (loss) per
  share...........................  $ (0.48)    $ (0.07)   $ (0.22)   $ (0.27)   $ (0.38)    $ (0.13)   $ (0.42)   $  0.01
                                    =======     =======    =======    =======    =======     =======    =======    =======
Shares used in net income (loss)
  per share calculation:
  Basic...........................    7,210       7,212      7,270      7,370      7,381       7,427      7,464      8,671
  Diluted.........................    7,210       7,212      7,270      7,370      7,381       7,427      7,464      9,678
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................    112.5        75.6       82.0       86.5       92.2        78.1       91.4       72.8
                                    -------     -------    -------    -------    -------     -------    -------    -------
  Gross profit....................    (12.5)       24.4       18.0       13.5        7.8        21.9        8.6       27.2
Operating expenses:
  Research and development........     18.3        12.5       13.1       13.8       14.1        13.5       13.9       13.8
  Selling, general and
    administrative................     24.5        18.8       20.5       18.8       21.9        18.1       21.3       14.1
                                    -------     -------    -------    -------    -------     -------    -------    -------
    Total operating expenses......     42.8        31.3       33.6       32.6       36.0        31.6       35.2       27.9
                                    -------     -------    -------    -------    -------     -------    -------    -------
Income (loss) from operations.....    (55.3)       (6.9)     (15.6)     (19.1)     (28.2)       (9.7)     (26.6)      (0.7)
Interest and other income
  (expense), net..................     (0.0)       (0.3)      (0.3)      (0.3)       0.4         0.7        0.2        1.3
                                    -------     -------    -------    -------    -------     -------    -------    -------
Income (loss) before income
  taxes...........................    (55.3)       (7.2)     (15.9)     (19.4)     (27.8)       (9.0)     (26.4)       0.6
Benefit for income taxes..........    (21.0)       (2.8)        --         --         --          --         --         --
                                    -------     -------    -------    -------    -------     -------    -------    -------
Net income (loss).................    (34.3)%      (4.4)%    (15.9)%    (19.4)%    (27.8)%      (9.0)%    (26.4)%      0.6%
                                    =======     =======    =======    =======    =======     =======    =======    =======
</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, 2000, we had $8.7
million of cash and cash equivalents, $18.0 million of short-term investments
and $42.0 million of working capital. In February 2000, we issued 1.5 million
shares of common stock to institutional investors and received net proceeds of
approximately $25.3 million.

                                       20
<PAGE>   21

     Net cash used in operating activities was $1.1 million in fiscal 1998, $3.2
million in fiscal 1999 and $2.8 million in fiscal 2000. The increase in cash
used in operating activities in fiscal 1999 and fiscal 2000 was primarily due to
net losses for both years that were the result of lower levels of sales
activity.

     Net cash used in investing activities was $3.4 million in fiscal 1998,
$488,000 in fiscal 1999 and $16.6 million in fiscal 2000. Net cash used in
investing activities in fiscal 1998 and 1999 relates primarily to purchases of
capital equipment. In fiscal 2000, we purchased $4.5 million of capital
equipment and made net purchases of $12.1 million of short-term investments.

     Net cash provided by financing activities was $1.5 million in fiscal 1998,
$1.4 million in fiscal 1999 and $26.4 million in fiscal 2000. We financed $1.0
million of equipment purchases through long-term debt for both fiscal years 1998
and 1999. We raised approximately $25.3 million in a private placement of common
stock and received $2.0 million from the purchase of common stock under our
stock plans.

     On October 25, 1999, we renewed our Master Loan Agreement which will expire
October 31, 2000. Under that agreement, we have available credit facilities,
consisting of a line of credit and letters of credit, of up to $6.0 million,
subject to a borrowing base test related to our accounts receivable. As of March
31, 2000, we had no balance outstanding under our line of credit. Borrowings
under the line of credit bear interest at the bank's reference rate (9% per
annum as of March 31, 2000) plus 0.5%. Additionally, we had $725,000 in
outstanding letters of credit, leaving a balance of up to $5.3 million available
under the credit facility as of March 31, 2000. The credit facilities are
secured by our assets.

     Under the Master Loan Agreement, we have two term loans outstanding, which
expire in March and November 2001. The term loans bear interest at the bank's
reference rate plus 0.5%. As of March 31, 2000, we had borrowings of $889,000
outstanding against the term loans. 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 both from our line of credit and available
equipment leasing sources should be sufficient to meet our liquidity
requirements through at least the next year.

RECENTLY ISSUED PRONOUNCEMENTS

     In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition" (SAB 101), which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
We believe our revenue recognition policy is in compliance with the provisions
of SAB 101 and that the adoption of SAB 101 should have no material effect on
our financial position or results of operations.

                                       21
<PAGE>   22

                                  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 fiscal 1999, a number of
our GaAs semiconductor components and GaAs-based subsystems contracts were
either terminated or delayed and our net sales declined substantially. 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 which 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 MAY NOT EFFECTIVELY MANAGE POSSIBLE FUTURE GROWTH.

     The wireless communication industry's rapid growth has caused our business
to expand in size and complexity at a pace we have not encountered in the past.
The recent expansion of our customer base and product line has placed
significant demands on our management and operations. In addition, our business
has shifted recently to rely more upon the commercial mobile handset and
infrastructure markets and less on the defense industry. Our systems, procedures
or controls may not be adequate to support these increased demands and shifts in
market emphasis. We may not be able to achieve the rapid expansion necessary to
meet our current orders. For example, a significant portion of our approximately
$65 million backlog as of March 31, 2000 represents orders whose requested
shipment dates have passed, some by more than six months. If we cannot
successfully manufacture our products in the future at volumes, yields or cost
levels

                                       22
<PAGE>   23

necessary to meet our customers' needs, we may lose customers and our net sales
will suffer. We do not know if we will be able to manage our future growth and
increasing emphasis on the mobile handset and infrastructure markets and
customers, and the failure to do so could seriously harm our business.

OUR MANUFACTURING CAPACITY AND OUR ABILITY TO INCREASE SALES VOLUME IS DEPENDENT
ON THE SUCCESSFUL 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 hire or
contract for additional 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 hiring and
contracting for sufficient personnel with these critical skills. Our business
has been harmed in the past by our inability to 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
which resulted from our inability to hire a sufficient number of test personnel.
We also lost an order from a major customer in fiscal 2000 due to a shortage we
experienced in design engineers.

     Our ability to 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 does not have sufficient capacity to
meet anticipated customer demand for our GaAs semiconductor components and GaAs-
based subsystems. We plan to expand the capacity of our foundry and currently
expect that the expansion will be completed during calendar 2000. If the
expansion is not completed on a timely basis, we may not be able to meet our
planned production requirements which could result in a loss of customers and
sales which would harm our business.

     Even if our planned expansion is successfully completed, our in-house
capacity will 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. However, our production requests are submitted on a
purchase order basis and we do not have a formal agreement with this third party
foundry that obligates it to accept our production requests. If this foundry
does not deliver to us the GaAs semiconductor components we request in a timely
manner at acceptable yields, we would 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.

                                       23
<PAGE>   24

     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.

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 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 which 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. We cannot assure you that we will not experience problems with our
production yields in the future. Decreases in our yields can result in
substantially higher costs for our products. If we cannot maintain acceptable
yields in the future, our business, operating results and financial condition
will suffer.

WE DEPEND ON 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, 2000, sales to our top ten customers accounted for approximately 61% of our
net sales. Motorola accounted for approximately 15% of our net sales and P-COM
accounted for approximately 11% of our net sales during fiscal 2000. 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. In addition, the mix of our major
customers has 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

                                       24
<PAGE>   25

harmed. For example, in fiscal 1999, our net sales were adversely affected when
a major customer cancelled a significant order as a result of a decline in
demand for point to point radio networks.

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, 2000, our backlog was approximately
$65 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. A significant portion of our backlog as of March 31, 2000
represents orders whose requested shipment dates have passed, some by more than
six months. 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.

     Of our current backlog, approximately 28% is attributable to orders
received from one customer. 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.

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

                                       25
<PAGE>   26

germanium versus gallium arsenide integrated circuits for use in their next
generation high performance systems. Customers may be reluctant to adopt our
gallium arsenide products because of:

  - unfamiliarity with designing systems with gallium arsenide products;

  - concerns related to relatively higher manufacturing costs and lower yields;
    and

  - uncertainties about the relative cost effectiveness of our products compared
    to high performance silicon components.

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

WE NEED TO KEEP PACE WITH RAPID PRODUCT AND PROCESS DEVELOPMENT AND
TECHNOLOGICAL CHANGES TO BE COMPETITIVE.

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

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 a
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. If future demand does not materialize
or if our net sales decline, we may continue to incur many of these
manufacturing related costs causing our results to suffer. For instance, during
fiscal 1999, we experienced two major customer order cancellations. These
cancellations caused net sales to decline faster than our ability to reduce our
costs and contributed to our net loss for that year. 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.

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 1999, our operating results were adversely affected
when a major customer experienced a reduction in anticipated demand for point to
point networks.

                                       26
<PAGE>   27

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 which 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 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.

                                       27
<PAGE>   28

     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 WHICH 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.

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 recently 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 are currently reviewing 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.

                                       28
<PAGE>   29

     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. 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 are 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 WHICH MAY HARM OUR
BUSINESS.

     In fiscal 2000, sales from international customers accounted for 22% of our
net sales. In fiscal 1999, sales from international customers accounted for 21%
of our net sales. We expect that international sales will continue to account
for a significant portion of our net sales in the future. In addition, many of
our domestic customers sell their products outside of the United States. These
sales expose us to a number of inherent risks, including:

  - the need for export licenses;

  - unexpected changes in regulatory requirements;

  - tariffs and other potential trade barriers and restrictions;

  - reduced protection for intellectual property rights in some countries;

  - 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.

YOU WILL BE RELYING ON THE JUDGMENT OF OUR MANAGEMENT REGARDING OUR USE OF
PROCEEDS.

     We expect to use a portion of the net proceeds from our sale of common
stock for working capital and other general corporate purposes, for the purchase
of capital equipment relating to our planned increase in manufacturing capacity
and for potential acquisitions of technologies, product lines or businesses.
Conse-

                                       29
<PAGE>   30

quently, our management will have significant flexibility in applying the net
proceeds of this offering and will have the ability to change the application of
the proceeds of this offering without shareholder approval.

THE VOLATILITY OF OUR STOCK PRICE COULD AFFECT YOUR INVESTMENT IN OUR STOCK.

     The market price of our stock has fluctuated widely. Between January 1,
1999 and March 31, 2000, the sales price of our common stock fluctuated from a
low of $2.88 per share to a high of $85.25 per share. The current market price
of our common stock may not be indicative of future market prices and we may not
be able to sustain or increase the value of your investment in our common stock.

WE MAY NEED ADDITIONAL CAPITAL THAT WE MAY NOT BE ABLE TO OBTAIN, WHICH COULD
PREVENT US FROM CARRYING OUT OUR BUSINESS STRATEGY.

     We currently anticipate that our available cash resources, cash generated
from operations and borrowings available from both our line of credit and
available equipment leasing sources, combined with the net proceeds from this
offering should be sufficient to fund our operating needs for at least the next
year. At some point in the future, however, we may be required to raise
additional financing in an amount that we cannot determine at this time. In that
event, we would likely raise funds through public or private debt or equity
financings.

     If funds are raised through the issuance of equity securities, the
percentage ownership of our then current shareholders may be reduced and the
holders of new equity securities may have rights, preferences or privileges
senior to those of the holders of our common stock. If additional funds are
raised through bank credit facilities or the issuance of debt securities, the
holder of this indebtedness would have rights senior to the rights of the
holders of our common stock and the terms of this indebtedness could impose
restrictions on our operations. If we need to raise additional funds, we may not
be able to do so on terms favorable to us, or at all. If we cannot raise
adequate funds on acceptable terms as needed, we may not be able to continue to
fund our operations.

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISKS

Interest Rate Risk

     At March 31, 2000, our cash equivalents and short-term investments
consisted primarily of high grade fixed income securities of short-term
maturity. We maintain a strict investment policy which ensures the safety and
preservation of our invested funds by limiting default risk and reinvestment
risk. The securities held are subject to interest rate fluctuations and may
decline in value when interest rates change. However, the short-term maturity of
all securities removes any material risk, and in the opinion of management, no
material impact could result in our financial results due to these holdings.

Foreign Currency Exchange Risk

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information required by this item is listed under Item 14(a)1, of Part
IV of this Form 10-K and in the records at the Security and Exchange Commission
(Edgar Data Base).

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     Not applicable.

                                       30
<PAGE>   31

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE BOARD

<TABLE>
<CAPTION>
               NAME                 AGE                        POSITION
               ----                 ---                        --------
<S>                                 <C>    <C>
Tamer Husseini....................  57     Chairman, President and Chief Executive Officer
Margaret E. Smith.................  52     Vice President, Finance and Chief Financial
                                           Officer
William W. Hoppin.................  37     Vice President, Sales and Marketing
Gary J. Policky...................  58     Vice President, Engineering and Chief Technical
                                           Officer
Richard G. Finney.................  50     Vice President, Subsystem Division
Perry A. Denning..................  53     Vice President, Semiconductor Division
Frank Sasselli....................  43     Vice President
Robert J. Gallagher(1)............  56     Director
Thomas W. Hubbs(1)................  55     Director
William D. Rasdal(2)..............  66     Director
Charles P. Waite(2)...............  70     Director
</TABLE>

-------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.

     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.

                                       31
<PAGE>   32

     Frank Sasselli joined us in April 1992 as Director of Engineering and has
held various positions here. He was appointed Vice President in July 1999. Prior
to joining us, Mr. Sasselli was employed by Spectrian from 1987 to 1992 as
Director of Engineering. Before joining Spectrian, Mr. Sasselli was employed by
Avantek from 1979 to 1987, most recently as an engineering manager.

     Robert J. Gallagher was appointed to our Board of Directors in October
1998. Since 1983, Mr. Gallagher has been employed by Acuson Corporation, a
manufacturer of medical ultrasound imaging systems. Mr. Gallagher joined Acuson
in January 1983 as Vice President, Finance and Chief Financial Officer, became
Executive Vice President in March 1991, was Chief Operating Officer from January
1994 until March 1999, and was President of Acuson from May 1995 until November
1997, when he was appointed Vice Chairman of the Board. He retired as Chief
Operating Officer in March 1999, but remained Senior Vice President until
February 2000. In February 2000, Mr. Gallagher again became President and Chief
Operating Officer of Acuson. Mr. Gallagher also serves on the Board of Directors
of Lumisys Inc.

     Thomas W. Hubbs was appointed to our Board of Directors in June 1998. Since
November 1998, Mr. Hubbs has been employed by interWAVE Communications
International, Ltd., a developer of distributed systems architecture for
wireless communications. Mr. Hubbs was a consultant at interWAVE from November
1998 to June 1999, and in July 1999, he became the Executive Vice President and
Chief Financial Officer there. From April 1998 to October 1998, Mr. Hubbs served
as Senior Vice President and Chief Financial Officer of Walker Interactive
Systems, Inc., a developer of financial applications software products. From
December 1995 to April 1998, Mr. Hubbs served as Senior Vice President and Chief
Financial Officer of interWAVE. From 1987 to 1995, Mr. Hubbs served as Vice
President and Chief Financial Officer of VeriFone, Inc.

     William D. Rasdal has served on our Board of Directors since our
organization in 1984. Until June 1998, Mr. Rasdal served as Chairman of the
Board and Chief Executive Officer of SymmetriCom, Inc., a position he held since
1989, and continues to serve on SymmetriCom's Board of Directors. Mr. Rasdal
joined SymmetriCom in 1985 as President and Chief Executive Officer. Prior to
his employment with SymmetriCom, Mr. Rasdal was employed by Granger Associates
as President and Chief Operating Officer. Prior to his employment with Granger
Associates, Mr. Rasdal served as Vice President and General Manager of Avantek's
Microwave Integrated Circuit and Semiconductor Operations. Mr. Rasdal also
serves on the Board of Directors of Advanced Fibre Communications, Inc.

     Charles P. Waite has served on our Board of Directors since our
organization in 1984. He has been with Greylock, a venture capital firm, since
1966 and is currently a special limited partner and director. Mr. Waite also
serves on the Board of Directors of Teltone Corporation.

                                       32
<PAGE>   33

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

     The following table sets forth compensation earned in the last three fiscal
years by the Company's Chief Executive Officer and each of the four other most
highly compensated executive officers who were serving as executive officers at
the end of Fiscal 2000 (together, the "Named Officers").

<TABLE>
<CAPTION>
                                                                           LONG TERM
                                                                          COMPENSATION
                                                    ANNUAL COMPENSATION      AWARDS
                                                    -------------------    SECURITIES     ALL OTHER
                                                     SALARY     BONUS      UNDERLYING    COMPENSATION
        NAME AND PRINCIPAL POSITION          YEAR     ($)        ($)       OPTIONS(#)        ($)
        ---------------------------          ----   --------   --------   ------------   ------------
<S>                                          <C>    <C>        <C>        <C>            <C>
Tamer Husseini.............................  2000    343,824         --       50,000          6,753(1)
  Chairman of the Board                      1999    302,187         --       55,000          9,793
  President and CEO                          1998    249,225     97,000           --          9,966
Richard G. Finney..........................  2000    170,296     10,000       15,000          1,746(1)
  Vice President, Subsytems                  1999    170,907         --       25,000         11,127
  Division                                   1998    170,775     38,000           --          5,287
William W. Hoppin..........................  2000    141,617     10,000           --          1,594(1)
  Vice President, Sales and                  1999    140,005     21,069      115,000          1,492
  Marketing                                  1998    140,005     14,999           --          1,162
Perry A. Denning...........................  2000    162,199     10,000       15,000         11,986(1)
  Vice President,                            1999    170,627         --       70,000          9,036
  Semiconductor Division                     1998    117,697     50,000           --          3,918
Gary J. Policky............................  2000    164,985         --           --         13,282(1)
  Vice President, Engineering                1999    173,659         --       22,500         15,796
  and Chief Technical Officer                1998    169,613     30,000           --         10,400
</TABLE>

---------------
(1) Represents premiums paid on term life insurance, supplemental accidental
    death and dismemberment insurance, medical reimbursement insurance and
    401(k) Plan contributions.

Option Grants in Last Fiscal Year

     The following table sets forth certain information regarding the stock
options granted during Fiscal 2000 to each of the Named Officers. No stock
appreciation rights were granted to the Named Officers during Fiscal 2000.

<TABLE>
<CAPTION>
                                             INDIVIDUAL GRANTS                          POTENTIAL REALIZABLE VALUE
                        ------------------------------------------------------------      AT ASSUMED ANNUAL RATE
                        NUMBER OF       % OF TOTAL                                                  OF
                        SECURITIES       OPTIONS                                         STOCK PRICE APPRECIATION
                        UNDERLYING      GRANTED TO                                          FOR OPTION TERM(4)
                         OPTIONS       EMPLOYEES IN     EXERCISE PRICE    EXPIRATION    --------------------------
         NAME            GRANTED      FISCAL YEAR(1)     PER SHARE(2)      DATE(3)         5%               10%
         ----           ----------    --------------    --------------    ----------    ---------        ---------
<S>                     <C>           <C>               <C>               <C>           <C>              <C>
Tamer Husseini........    50,000           11.0%            $4.00          03/31/09     $125,779         $318,748
Perry A. Denning......    15,000            3.3              4.00          03/31/09       37,734           95,625
Richard G. Finney.....    15,000            3.3              4.00          03/31/09       37,734           95,625
</TABLE>

---------------
(1) Based on total of 453,500 shares granted to all employees in Fiscal 2000.

(2) The exercise price is equal to the closing price of the Company's Common
    Stock on the date of grant.

(3) Options may terminate before their expiration date if the optionee's status
    as an employee or consultant is terminated or upon optionee's death.

(4) Potential gains are net of the exercise price but before taxes associated
    with the exercise. The 5% and 10% assumed annual rates of compounded stock
    appreciation based upon the deemed fair market value are mandated by the
    rules of the Securities and Exchange Commission and do not represent the
    Company's estimate or projection of the future common stock price. Actual
    gains, if any, on

                                       33
<PAGE>   34

    stock option exercises are dependent on the future financial performance of
    the Company, overall market conditions and the option holder's continued
    employment through the vesting period. There can be no assurance that the
    amounts reflected in this table will be achieved.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values

     The following table provides information with respect to option exercises
in Fiscal 2000 by the Named Officers and the value of such officers' unexercised
options at the close of business on March 31, 2000 (the last market trading day
prior to the end of Fiscal 2000).

<TABLE>
<CAPTION>
                                                            NUMBER OF SECURITIES
                                                           UNDERLYING UNEXERCISED           VALUE OF UNEXERCISED
                                                           OPTIONS AT FISCAL YEAR         IN-THE-MONEY OPTIONS AT
                         SHARES                                    END(#)                  FISCAL YEAR END($)(2)
                       ACQUIRED ON        VALUE         ----------------------------    ----------------------------
        NAME           EXERCISE(#)    REALIZED($)(1)    EXERCISABLE    UNEXERCISABLE    EXERCISABLE    UNEXERCISABLE
        ----           -----------    --------------    -----------    -------------    -----------    -------------
<S>                    <C>            <C>               <C>            <C>              <C>            <C>
Tamer Husseini.......         0         $        0        76,457          51,043        $4,485,210      $3,002,290
William W. Hoppin....    10,000            360,000        64,997          65,003         3,784,827       3,745,798
Richard G. Finney....         0                  0        30,209          19,375         1,772,045       1,134,766
Gary J. Policky......         0                  0        15,729           6,771           906,384         390,179
Perry A. Denning.....    47,047          1,825,532         7,013          30,940           405,140       1,801,199
</TABLE>

---------------
(1) Market value of underlying securities based on the closing price of the
    Company's Common Stock on the date of exercise, minus the exercise price.

(2) Market value of underlying securities based on the closing price of $63.25
    of the Company's Common Stock on March 31, 2000, minus the exercise price.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Share Ownership by Principal Shareholders and Management

     The following table sets forth the beneficial ownership of Common Stock of
the Company as of April 30, 2000, by (i) all persons known to the Company to be
the beneficial owners of more than 5% of the Company's Common Stock, (ii) the
Company's Chief Executive Officer, (iii) the four most highly compensated
executive officers other than the Chief Executive Officer, (iv) each director
and (v) all directors and executive officers as a group. A total of 9,361,356
shares of the Company's Common Stock was outstanding as of April 30, 2000.

<TABLE>
<CAPTION>
                                                                 SHARES
                                                              BENEFICIALLY     APPROXIMATE
                      NAME AND ADDRESS                           OWNED        PERCENT OWNED
                      ----------------                        ------------    -------------
<S>                                                           <C>             <C>
State of Wisconsin Investment Board(1)......................     892,390           9.5%
  121 East Wilson Street
  P.O. Box 7842
  Madison, WI 53707
Kahn Capital Partners(7)....................................     612,200           6.5%
  8910 University Center Lane, Suite 570
  San Diego, CA 92122
Tamer Husseini(2,3).........................................     218,476           2.3%
William W. Hoppin(3)........................................     101,714           1.1%
Gary J. Policky(3,4)........................................      79,968             *
Richard G. Finney(3)........................................      73,771             *
Perry A. Denning(3).........................................      36,762             *
William D. Rasdal(3,5)......................................      35,572             *
</TABLE>

                                       34
<PAGE>   35

<TABLE>
<CAPTION>
                                                                 SHARES
                                                              BENEFICIALLY     APPROXIMATE
                      NAME AND ADDRESS                           OWNED        PERCENT OWNED
                      ----------------                        ------------    -------------
<S>                                                           <C>             <C>
Charles P. Waite(3).........................................      26,273             *
Thomas W. Hubbs(6)..........................................       6,000            --
Robert J. Gallagher(3)......................................       1,500            --
All directors and executive officers as a group (11
  persons)(3)...............................................     660,754           6.9%
</TABLE>

---------------
 *  Less than one percent (1%)

(1) As of March 31, 2000 and based upon information set forth in a letter from
    State of Wisconsin Investment Board dated April 6, 2000.

(2) Includes a total of 1,276 shares held by Mr. Husseini's son and daughters
    and as to which Mr. Husseini disclaims beneficial ownership.

(3) Includes 80,103, 72,185, 16,510, 31,771, 10,451, 6,000, 6,000, 3,000, 1,500
    and 274,602 shares which Messrs. Husseini, Hoppin, Policky, Finney, Denning,
    Rasdal, Waite, Hubbs, Gallagher and all present directors and executive
    officers as a group, respectively, have the right to acquire within 60 days
    of April 30, 2000 upon exercise of stock options.

(4) Includes 1,878 shares held by Mr. Policky's spouse.

(5) Includes 29,572 shares held by The Rasdal Family Trust as to which Mr.
    Rasdal shares voting and dispositive power.

(6) Includes 3,000 shares held by The Hubbs Family Trust of which Mr. Hubbs and
    his spouse serve as trustees.

(7) As of May 10, 2000 and based upon the representations of Brian Kahn.
    Includes 577,200 shares held by Kahn Capital Partners and 35,000 shares held
    by Brian Kahn, its sole general partner.

Other Information

  Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors and persons who own more than 10% of a
registered class of the Company's equity securities to file certain reports
regarding ownership of, and transactions in, the Company's securities with the
Securities and Exchange Commission (the SEC). Such officers, directors and 10%
shareholders are also required by SEC rules to furnish the Company with copies
of all Section 16(a) forms that they file.

     Based solely on its review of such forms furnished to the Company and
written representations from certain reporting persons, the Company believes
that all filing requirements applicable to the Company's executive officers,
directors and more than 10% shareholders were complied with during Fiscal 2000,
except the Form 4 required to be filed by Tamer Husseini to report the
acquisition of stock in November 1996 through a gift of stock and the Form 4
required to be filed by Thomas Hubbs to report a stock purchase in February 2000
were filed late.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     During Fiscal 2000 stock options under the Company's 1994 Stock Option Plan
or the Director Plan were granted to the following executive officers and
directors as of the grant dates and for the number of shares of common stock and
at the exercise prices set forth below opposite their names:

<TABLE>
<CAPTION>
                                                                                PER SHARE       EXPIRATION
       OFFICER/DIRECTOR           PLAN      DATE OF GRANT    NO. OF SHARES    EXERCISE PRICE       DATE
       ----------------         --------    -------------    -------------    --------------    ----------
<S>                             <C>         <C>              <C>              <C>               <C>
Perry A. Denning..............    1994        03/31/99          15,000           $  4.00         03/31/09
Richard G. Finney.............    1994        03/31/99          15,000              4.00         03/31/09
Tamer Husseini................    1994        03/31/99          50,000              4.00         03/31/09
William D. Rasdal.............  Director      12/20/99           1,500            11.375         12/20/09
Frank Sasselli................    1994        03/31/99           7,500              4.00         03/31/09
Margaret E. Smith.............    1994        11/05/99          50,000             6.625         11/05/09
Charles P. Waite..............  Director      12/20/99           1,500            11.375         12/20/09
</TABLE>

                                       35
<PAGE>   36

                                    PART IV

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

(a) 1. Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                                        PAGE
                                                                        ----
        <S>                                                             <C>
        Report of Ernst & Young LLP, Independent Auditors...........     37
        Consolidated Balance Sheets as of March 31, 2000 and 1999...     38
        Consolidated Statements of Operations for the years ended
          March 31, 2000, 1999 and 1998.............................     39
        Consolidated Statements of Shareholders' Equity for the
          years ended March 31, 2000, 1999 and 1998.................     40
        Consolidated Statements of Cash Flow for the years ended
          March 31, 2000, 1999 and 1998.............................     41
        Notes to Consolidated Financial Statements..................     42
</TABLE>

                                       36
<PAGE>   37

               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, 2000 and 1999, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended March 31, 2000. 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, 2000 and 1999, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended March 31, 2000,
in conformity with accounting principles generally accepted in the United
States.

                                                               ERNST & YOUNG LLP

San Jose, California
April 25, 2000

                                       37
<PAGE>   38

                          CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                  MARCH 31,
                                                              ------------------
                                                               2000       1999
                                                              -------    -------
<S>                                                           <C>        <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 8,707    $ 1,729
  Short-term investments....................................   18,009      5,904
  Accounts receivable, net of allowance for doubtful
     accounts of $349 and $517 at March 31, 2000 and 1999,
     respectively...........................................   11,909     10,615
  Inventories...............................................   14,355     11,376
  Income tax refund receivable..............................      548      2,441
  Prepaid expenses and other current assets.................      634        306
  Deferred tax assets.......................................       --        494
                                                              -------    -------
          Total current assets..............................   54,162     32,865
Net property and equipment..................................    9,401      7,201
Other assets................................................       92        144
                                                              -------    -------
          Total assets......................................  $63,655    $40,210
                                                              =======    =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $ 6,221    $ 4,217
  Accrued payroll...........................................    2,514      1,400
  Accrued liabilities.......................................    2,467      2,215
  Current portion of long-term debt.........................      667      1,611
  Current obligations under capital leases..................      319        162
                                                              -------    -------
          Total current liabilities.........................   12,188      9,605
Long-term debt, less current portion........................      222         --
Noncurrent obligations under capital lease commitments......      414        257
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 -- 20,000,000
       Issued and outstanding shares -- 9,316,927 and
        7,381,396 at March 31, 2000 and 1999,
        respectively........................................   52,394     25,087
  Retained earnings (accumulated deficit)...................   (1,563)     5,261
                                                              -------    -------
          Total shareholders' equity........................   50,831     30,348
                                                              -------    -------
          Total liabilities and shareholders' equity........  $63,655    $40,210
                                                              =======    =======
</TABLE>

See accompanying notes.

                                       38
<PAGE>   39

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                  YEARS ENDED MARCH 31,
                                                              -----------------------------
                                                               2000       1999       1998
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Net sales...................................................  $48,211    $41,128    $56,317
Cost of goods sold..........................................   39,838     36,600     36,147
                                                              -------    -------    -------
Gross profit................................................    8,373      4,528     20,170
Operating expenses:
  Research and development..................................    6,659      5,927      5,389
  Selling, general, and administrative......................    8,868      8,488      8,784
                                                              -------    -------    -------
     Total operating expenses...............................   15,527     14,415     14,173
                                                              -------    -------    -------
Income (loss) from operations...............................   (7,154)    (9,887)     5,997
Interest income and other...................................      561        300        475
Interest expense............................................     (231)      (392)       (59)
                                                              -------    -------    -------
Income (loss) before income taxes...........................   (6,824)    (9,979)     6,413
Provision (benefit) for income taxes........................       --     (2,441)     2,422
                                                              -------    -------    -------
Net income (loss)...........................................  $(6,824)   $(7,538)   $ 3,991
                                                              =======    =======    =======
Basic net income (loss) per share...........................  $ (0.88)   $ (1.04)   $  0.56
                                                              =======    =======    =======
Diluted net income (loss) per share.........................  $ (0.88)   $ (1.04)   $  0.54
                                                              =======    =======    =======
Shares used in net income (loss) per share calculation
  Basic.....................................................    7,736      7,265      7,126
  Diluted...................................................    7,736      7,265      7,450
</TABLE>

See accompanying notes.

                                       39
<PAGE>   40

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                         RETAINED
                                                    COMMON STOCK         EARNINGS          TOTAL
                                                  -----------------    (ACCUMULATED    SHAREHOLDERS'
                                                  SHARES    AMOUNT       DEFICIT)         EQUITY
                                                  ------    -------    ------------    -------------
<S>                                               <C>       <C>        <C>             <C>
BALANCE AT MARCH 31, 1997.......................  7,096     $23,676      $ 8,808          $32,484
Issuance of common stock on exercise of options
  under stock option plan.......................     32         134           --              134
Issuance of common stock under employee stock
  purchase plan.................................     48         404           --              404
Net and comprehensive income....................     --          --        3,991            3,991
                                                  -----     -------      -------          -------
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
                                                  =====     =======      =======          =======
</TABLE>

See accompanying notes.

                                       40
<PAGE>   41

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                  YEARS ENDED MARCH 31,
                                                             --------------------------------
                                                               2000        1999        1998
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
OPERATING ACTIVITIES
Net income (loss)..........................................  $ (6,824)   $ (7,538)   $  3,991
Adjustments to reconcile net income (loss) to net cash used
  in operating activities:
  Depreciation and amortization............................     2,864       3,143       2,358
  Gain on disposal of property and equipment...............       (27)         --          --
  Income tax receivable....................................     1,893      (2,441)         --
  Deferred income taxes....................................       494       1,433         306
  Changes in operating assets and liabilities:
     Accounts receivable...................................    (1,294)      5,201      (5,705)
     Inventories...........................................    (2,979)       (741)     (3,317)
     Prepaid expenses and other current assets.............      (328)         56        (145)
     Accounts payable, accrued payroll and accrued
       liabilities.........................................     3,370      (2,294)      1,364
                                                             --------    --------    --------
       Net cash used in operating activities...............    (2,831)     (3,181)     (1,148)
INVESTING ACTIVITIES
Purchases of property and equipment........................    (4,512)     (2,084)     (4,029)
Increase in other assets...................................        52          --         (48)
Purchases of short-term investments........................   (24,868)    (12,504)    (10,180)
Proceeds from maturities of short-term investments.........    12,763      14,100      10,880
                                                             --------    --------    --------
       Net cash used in investing activities...............   (16,565)       (488)     (3,377)
FINANCING ACTIVITIES
Principal payments on long-term debt.......................      (722)       (389)         --
Borrowings on long-term debt...............................        --       1,000       1,000
Principal payments on obligations under capital leases.....      (211)       (108)        (24)
Net proceeds from issuance of common stock.................    27,307         873         538
                                                             --------    --------    --------
       Net cash provided by financing activities...........    26,374       1,376       1,514
                                                             --------    --------    --------
Increase (decrease) in cash and cash equivalents...........     6,978      (2,293)     (3,011)
Cash and cash equivalents at beginning of period...........     1,729       4,022       7,033
                                                             --------    --------    --------
Cash and cash equivalents at end of period.................  $  8,707    $  1,729    $  4,022
                                                             ========    ========    ========
</TABLE>

See accompanying notes.

                                       41
<PAGE>   42

                   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 2000, 1999, and 1998 ended April 2, March 28,
and March 29, 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
highly liquid investments with maturities of less than three months, when
purchased, to be cash equivalents. Investments with maturities greater than
three months and less than one year are classified as short-term investments.
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. 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 five 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.
Generally, the Company's customers do not have rights to 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.

                                       42
<PAGE>   43
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     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)  Under Statement of Financial Accounting
Standards No. 130, (SFAS 130), "Reporting Comprehensive Income", the Company is
required to display comprehensive income and its components as part of the
Company's full set of financial statements. Comprehensive income comprises net
income and other comprehensive income. Other comprehensive income includes
certain changes in equity of the Company that are excluded from net income.
Specifically, SFAS 130 requires unrealized gains and losses on the Company's
available-for-sale securities to be included in accumulated other comprehensive
income. There is no material difference between net income (loss) and
comprehensive income (loss) for all periods presented. Comprehensive income
(loss) in fiscal 2000, 1999, and 1998 has been reflected in the Consolidated
Statements of Shareholders' Equity.

     RECENTLY ISSUED PRONOUNCEMENTS  In December 1999, the Securities and
Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101, "Revenue
Recognition" (SAB 101), which provides guidance on the recognition, presentation
and disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. The Company
believes that its revenue recognition policy is in compliance with the
provisions of SAB 101 and that the adoption of SAB 101 should have no material
effect on the financial position or results of operations.

NOTE 2. NET INCOME (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,
                                                       ------------------------------------------
                                                          2000            1999            1998
                                                       -----------     -----------     ----------
                                                        (in thousands, except per share amounts)
<S>                                                    <C>             <C>             <C>
Numerator:
  Net income (loss)..................................    $(6,824)        $(7,538)        $3,991
Denominator:
  Denominator for basic net income (loss) per
     share -- weighted average common shares.........      7,736           7,265          7,126
Effect of dilutive securities:
  Stock options......................................         --              --            324
                                                         -------         -------         ------
  Denominator for diluted net income (loss) per
     share -- weighted average common and potentially
     dilutive securities.............................      7,736           7,265          7,450
                                                         =======         =======         ======
Basic net income (loss) per share....................    $ (0.88)        $ (1.04)        $ 0.56
                                                         =======         =======         ======
Diluted net income (loss) per share..................    $ (0.88)        $ (1.04)        $ 0.54
                                                         =======         =======         ======
</TABLE>

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

                                       43
<PAGE>   44
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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, 2000 and 1999, 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 in a separate component of
shareholders' equity, when material. 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 income. Interest and dividends on
securities classified as available-for-sale are included in income. The
following is a summary of available-for-sale securities at cost, which
approximates fair value:

<TABLE>
<CAPTION>
                                                                  MARCH 31,
                                                              -----------------
                                                               2000       1999
                                                              -------    ------
                                                               (in thousands)
<S>                                                           <C>        <C>
Money market funds..........................................  $ 1,003    $1,290
Preferred stock.............................................    5,050     1,600
Investment trusts...........................................       --       800
Corporate debt securities...................................   20,198     3,504
                                                              -------    ------
     Total..................................................  $26,251    $7,194
                                                              =======    ======
</TABLE>

     Above amounts are included in the following:

<TABLE>
<CAPTION>
                                                                  MARCH 31,
                                                              -----------------
                                                               2000       1999
                                                              -------    ------
                                                               (in thousands)
<S>                                                           <C>        <C>
Cash and cash equivalents...................................  $ 8,242    $1,290
Short-term investments......................................   18,009     5,904
                                                              -------    ------
     Total..................................................  $26,251    $7,194
                                                              =======    ======
</TABLE>

     Following is a reconciliation of cash and cash equivalents:

<TABLE>
<CAPTION>
                                                                 MARCH 31,
                                                              ----------------
                                                               2000      1999
                                                              ------    ------
                                                               (in thousands)
<S>                                                           <C>       <C>
Available-for-sale securities...............................  $8,242    $1,290
Cash and bank accounts......................................     465       439
                                                              ------    ------
     Total..................................................  $8,707    $1,729
                                                              ======    ======
</TABLE>

     The gross realized gains and losses on available-for-sale securities for
the fiscal years ended March 31, 2000, 1999 and 1998 were not material.

                                       44
<PAGE>   45
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4. INVENTORIES

<TABLE>
<CAPTION>
                                                                  MARCH 31,
                                                              ------------------
                                                               2000       1999
                                                              -------    -------
                                                                (in thousands)
<S>                                                           <C>        <C>
Raw materials...............................................  $ 3,193    $ 3,054
Work-in-process.............................................   11,162      8,322
                                                              -------    -------
                                                              $14,355    $11,376
                                                              =======    =======
</TABLE>

NOTE 5. PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                   MARCH 31,
                                                              --------------------
                                                                2000        1999
                                                              --------    --------
                                                                 (in thousands)
<S>                                                           <C>         <C>
Equipment...................................................  $ 26,737    $ 22,544
Furniture and fixtures......................................       626         621
Leasehold improvements......................................     5,026       4,813
                                                              --------    --------
                                                                32,389      27,978
Accumulated depreciation and amortization...................   (22,988)    (20,777)
                                                              --------    --------
Net property and equipment..................................  $  9,401    $  7,201
                                                              ========    ========
</TABLE>

NOTE 6. ACCRUED LIABILITIES

     Significant components of accrued liabilities are:

<TABLE>
<CAPTION>
                                                                 MARCH 31,
                                                              ----------------
                                                               2000      1999
                                                              ------    ------
                                                               (in thousands)
<S>                                                           <C>       <C>
Accrued commission..........................................  $  811    $  684
Warranty accrual............................................     501       353
Other.......................................................   1,155     1,178
                                                              ------    ------
                                                              $2,467    $2,215
                                                              ======    ======
</TABLE>

NOTE 7. LEASES

     The Company leases equipment under capital and operating leases. The
Company also leases certain facilities used in operations under non-cancellable
operating leases that expire at various times through the year 2005. Property
and equipment include the following amounts for leases that have been
capitalized:

<TABLE>
<CAPTION>
                                                                 MARCH 31,
                                                              ---------------
                                                               2000     1999
                                                              ------    -----
                                                              (in thousands)
<S>                                                           <C>       <C>
Equipment...................................................  $1,078    $ 551
Less accumulated amortization...............................    (242)    (154)
                                                              ------    -----
                                                              $  836    $ 397
                                                              ======    =====
</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.

                                       45
<PAGE>   46
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Future minimum payments under capital leases and non-cancellable operating
leases with initial terms of one year or more consisted of the following at
March 31, 2000:

<TABLE>
<CAPTION>
                                                              CAPITAL    OPERATING
                                                              LEASES      LEASES
                                                              -------    ---------
                                                                 (in thousands)
<S>                                                           <C>        <C>
2001........................................................   $ 357      $ 4,297
2002........................................................     308        3,055
2003........................................................     141        2,277
2004........................................................      --        2,071
2005........................................................      --        1,563
Thereafter..................................................      --          668
                                                               -----      -------
     Total minimum lease payments...........................     806      $13,931
                                                                          =======
Less amounts representing interest..........................     (73)
                                                               -----
Present value of net minimum lease payments.................     733
Less current portion........................................    (319)
                                                               -----
                                                               $ 414
                                                               =====
</TABLE>

     Rent expense was approximately $4.5 million, $3.4 million, and $2.4 million
for the years ended March 31, 2000, 1999, and 1998, respectively.

NOTE 8. LONG-TERM DEBT

     On October 25, 1999, the Company renewed its Master Loan Agreement which
will expire October 31, 2000. Under that agreement, the Company has available
credit facilities, consisting of a line of credit and letters of credit, of up
to $6.0 million, subject to a borrowing base test related to its accounts
receivable. As of March 31, 2000, the Company had no balance outstanding under
its line of credit. Borrowings under the line of credit bear interest at the
bank's reference rate (9% per annum as of March 31, 2000) plus 0.5%.
Additionally, the Company had $725,000 in outstanding letters of credit, leaving
a balance of up to $5.3 million available under the credit facility as of March
31, 2000. The credit facilities are secured by its assets.

     Under the Master Loan Agreement, the Company has two term loans
outstanding, which expire in March and November 2001. The term loans bear
interest at the bank's reference rate plus 0.5%. As of March 31, 2000, the
Company had borrowings of $889,000 outstanding against the term loans. As part
of the agreement, the Company is 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. At March 31,
2000, the Company was in compliance with all covenants under the Master Loan
Agreement.

                                       46
<PAGE>   47
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9. INCOME TAXES

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

<TABLE>
<CAPTION>
                                                             YEARS ENDED MARCH 31,
                                                           --------------------------
                                                           2000      1999       1998
                                                           -----    -------    ------
                                                                 (in thousands)
<S>                                                        <C>      <C>        <C>
Current:
  Federal................................................  $(468)   $(3,363)   $1,892
  State..................................................    (80)      (348)      224
                                                           -----    -------    ------
     Total current.......................................   (548)    (3,711)    2,116
Deferred:
  Federal................................................  $ 468        922       266
  State..................................................     80        348        40
                                                           -----    -------    ------
     Total deferred......................................    548      1,270       306
                                                           -----    -------    ------
Provision (benefit) for income taxes.....................  $  --    $(2,441)   $2,422
                                                           =====    =======    ======
</TABLE>

     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,
                                            ----------------------------------------------------------
                                                  2000                 1999                 1998
                                            -----------------    -----------------    ----------------
                                            AMOUNT    PERCENT    AMOUNT    PERCENT    AMOUNT   PERCENT
                                            -------   -------    -------   -------    ------   -------
                                                        (in thousands, except percentages)
<S>                                         <C>       <C>        <C>       <C>        <C>      <C>
At U.S. statutory rate....................  $(2,320)   (34.0)%   $(3,393)   (34.0)%   $2,180    34.0%
State income tax, net of federal tax
  benefit.................................       --       --          --       --        174     2.7
Change in valuation allowance.............    2,407     35.2       1,162     11.7         --      --
Research and development tax credits......       --       --        (172)    (1.7)        --      --
Other.....................................      (87)    (1.2)        (38)    (0.5)        68     1.1
                                            -------    -----     -------    -----     ------    ----
                                            $    --      0.0%    $(2,441)   (24.5)%   $2,422    37.8%
                                            =======    =====     =======    =====     ======    ====
</TABLE>

                                       47
<PAGE>   48
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     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 significant
components of the Company's deferred tax liabilities and assets are as follows:

<TABLE>
<CAPTION>
                                                                  MARCH 31,
                                                              ------------------
                                                               2000       1999
                                                              -------    -------
                                                                (in thousands)
<S>                                                           <C>        <C>
DEFERRED TAX LIABILITIES:
Tax depreciation in excess of financial statement
  depreciation..............................................  $    --    $   132
                                                              -------    -------
     Total deferred tax liabilities.........................       --        132
DEFERRED TAX ASSETS:
Inventory valuation.........................................    1,978      1,916
  Accruals and reserves not deductible for tax purposes.....      786        694
  Net operating loss carryforwards..........................    2,657        208
  Tax credit carryforwards..................................    1,781        828
  Other.....................................................      123        122
                                                              -------    -------
Deferred tax assets.........................................    7,325      3,768
Valuation allowance.........................................   (7,325)    (3,088)
                                                              -------    -------
     Total deferred tax assets..............................       --        680
                                                              -------    -------
     Net deferred tax assets................................  $    --    $   548
                                                              =======    =======
</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 $4.2
million during the year ended March 31, 2000.

     As of March 31, 2000 the Company had federal and state net operating loss
carryforwards of approximately $6.7 million and $7.0 million, respectively. The
Company also had federal and state tax credit carryforwards of approximately
$795,000 and $985,000, respectively. If not utilized, the carryforwards will
expire beginning in 2004.

NOTE 10. SALARY DEFERRAL PLAN

     The Company maintains a Salary Deferral Plan (the Plan) which is qualified
under Section 401(k) of the Internal Revenue Code and allows all eligible
employees to defer a percentage of their earnings on a pretax basis through
contributions to the Plan. The Plan provides for employer contributions at the
discretion of the Board of Directors. Company contributions to the Plan were
approximately $128,000 in fiscal 2000, $159,000 in fiscal 1999, and $73,000 in
fiscal 1998. Administrative expenses relating to the Plan are insignificant.

NOTE 11. SHAREHOLDERS' EQUITY

PREFERRED STOCK

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

EMPLOYEE STOCK PURCHASE PLAN

     Under the Company's Employee Qualified Stock Purchase Plan (the ESPP),
500,000 shares of common stock have been reserved for issuance to employees of
the Company. During the fiscal year ended March 31,

                                       48
<PAGE>   49
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2000, 1999, and 1998, 131,895, 122,307, and 47,450 shares of common stock,
respectively, were purchased under the ESPP. The Company has reserved 153,783
shares for future issuance under this Plan.

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. On August 13, 1997, at the
Company's annual meeting, the shareholders approved an increase in the number of
shares available for issuance under the 1994 Plan by an additional 250,000
shares. The shareholders also approved an amendment to the 1994 Plan to provide
that on March 31 of each year, beginning with March 31, 1998, 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 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 Company has reserved 250,086 shares for future issuance under
the 1994 Plan.

     Activity under the 1994 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, 1997...............................     119,680    769,124    $ 1.50 - $14.00    $ 7.77
  Expiration of 1985 Plan authorization.................     (79,638)        --                 --        --
  Additional shares authorized for 1994 Plan............     250,000         --                 --        --
  Options granted.......................................    (152,000)   152,000      11.00 - 16.00     13.25
  Options exercised.....................................          --    (32,005)      1.50 - 13.88      4.19
  Options canceled and expired..........................      36,522    (37,831)      1.50 - 13.88     11.72
                                                          ----------   ---------   ---------------    ------
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 - $ 6.94    $ 5.10
  Additional shares authorized for 1994 Plan............     471,440         --                 --        --
  Options granted.......................................    (453,500)   453,500       4.00 - 61.75      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 - $61.75    $ 6.31
</TABLE>

     At March 31, 1999 and 1998, outstanding options covering 531,235 and
395,764 shares were exercisable.

                                       49
<PAGE>   50
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The following table summarizes information about stock options outstanding
and exercisable at March 31, 2000:

<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 - $ 5.44      359,128    7.43 years     $ 3.76      172,041      $3.30
  $5.63 - $ 5.63      485,278    7.11 years     $ 5.63      285,063      $5.63
  $5.88 - $61.75      233,914    9.53 years     $11.66       22,116      $6.24
                    ---------                               -------
                    1,078,320    7.74 years     $ 6.31      479,220      $4.82
                    =========                               =======
</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 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,
                                                          -----------------------------
                                                           2000       1999       1998
                                                          -------    -------    -------
<S>                                                       <C>        <C>        <C>
Risk-free interest rate.................................     5.6%       5.4%       5.9%
Dividend yield..........................................     0.0%       0.0%       0.0%
Volatility..............................................    83.1%      77.9%      72.9%
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,
                                                     -----------------------------------
                                                       2000         1999         1998
                                                     ---------    ---------    ---------
<S>                                                  <C>          <C>          <C>
Risk-free interest rate............................       5.4%         5.4%         5.4%
Dividend yield.....................................       0.0%         0.0%         0.0%
Volatility.........................................      83.1%        77.9%        72.9%
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 which 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.

                                       50
<PAGE>   51
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     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,
                                                        -----------------------------
                                                         2000        1999       1998
                                                        -------    --------    ------
<S>                                                     <C>        <C>         <C>
Pro forma net income (loss)...........................  $(8,567)   $(10,075)   $3,066
Pro forma basic net income (loss) per share...........  $ (1.11)   $  (1.39)   $ 0.43
Pro forma diluted net income (loss) per share.........  $ (1.11)   $  (1.39)   $ 0.41
</TABLE>

     The weighted average grant date fair value of options granted during the
fiscal years ended March 31, 2000, 1999, and 1998 was $5.52, $2.63, and $7.96,
respectively. The weighted average grant date fair value of ESPP shares granted
during the fiscal years ended March 31, 2000, 1999, and 1998 was $2.20, $1.88,
and $4.61, respectively.

OUTSIDE DIRECTORS' STOCK OPTION PLAN

     On October 30, 1995, the Board of Directors approved, and on November 22,
1995, shareholders approved the Outside Directors' Stock Option Plan (the
Directors' Plan) whereby 75,000 shares of common stock were reserved for
issuance under the Directors' Plan. Options are granted automatically under the
Directors' Plan 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 fifth
anniversary of serving on the Board, each director is automatically granted an
additional 1,500 options to purchase shares of common stock. During the fiscal
year ended March 31, 2000, 3,000 options to purchase shares of common stock were
granted. At March 31, 2000, options to purchase 27,000 shares of common stock
were outstanding of which 15,000 options were exercisable at weighted average
exercise prices of $7.93 and $7.50, respectively. The Company has 45,000 shares
reserved for future issuance under the Directors' Plan.

NONSTATUTORY STOCK OPTION 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. As of March 31, 2000, no shares have
been issued under this plan.

PURCHASE RIGHTS

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

NOTE 12. BUSINESS SEGMENT DATA AND RELATED INFORMATION

     For purposes of the disclosure required by Statement of Financial
Accounting Standards No. 131 "Disclosures about Segments of an Enterprise 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.

                                       51
<PAGE>   52
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     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. In fiscal 1998, one customer accounted for 20% of net sales.

     The following is a summary of operations by geographic region:

<TABLE>
<CAPTION>
                                                            YEARS ENDED MARCH 31,
                                                        -----------------------------
                                                         2000       1999       1998
                                                        -------    -------    -------
                                                               (in thousands)
<S>                                                     <C>        <C>        <C>
Net sales to customers:
  United States.......................................  $37,526    $32,684    $43,380
  Europe..............................................    4,814      4,309      6,848
  Japan...............................................    2,462      2,401      2,154
  Other...............................................    3,409      1,734      3,935
                                                        -------    -------    -------
                                                        $48,211    $41,128    $56,317
                                                        =======    =======    =======
Net property and equipment:
  United States.......................................    7,013      6,500      8,042
  Philippines.........................................    1,682        475         --
  Other...............................................      706        226         --
                                                        -------    -------    -------
                                                        $ 9,401    $ 7,201    $ 8,042
                                                        =======    =======    =======
</TABLE>

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

NOTE 13. CONTINGENCIES

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

NOTE 14. SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                              YEARS ENDED MARCH 31,
                                                              ----------------------
                                                              2000    1999     1998
                                                              ----    ----    ------
                                                                  (in thousands)
<S>                                                           <C>     <C>     <C>
Cash paid for interest......................................  $235    $386    $   59
Cash paid for income taxes..................................    --     151     2,226
Capital lease obligations incurred to acquire equipment.....   525     218       333
</TABLE>

                                       52
<PAGE>   53

     2. Financial Statements Schedules.

     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    DEDUCTIONS(1)   OF PERIOD
                       ------                         ----------   ----------   -------------   ---------
<S>                                                   <C>          <C>          <C>             <C>
Year Ended 4/2/00...................................     517           60            228           349
Year Ended 3/28/99..................................     595          165            243           517
Year Ended 3/31/98..................................     520          150             75           595
</TABLE>

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

     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.

                                       53
<PAGE>   54

     3. Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                               DESCRIPTION
-------                              -----------
<C>          <S>
   3.1(1)    Restated Articles of Incorporation of Registrant.
   3.3(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       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).
  10.9(2)    Lease agreement dated April 11, 1997 between the Registrant
             and Spieker Properties, L.P.
  10.10(4)   Loan modification agreement dated September 11, 1997 between
             Registrant and Silicon Valley Bank.
  23.1       Consent of Ernst & Young LLP, Independent Auditors.
  27.1       Financial data schedule.
</TABLE>

---------------
(1) Incorporated by reference to the identically numbered exhibits to the
    Company's Registration Statement of Form S-1 (Commission File No. 33-98854),
    which became effective on December 19, 1995.

(2) Incorporated by reference to the exhibit to the Company's Form 10-K filing
    for the fiscal year ended March 31, 1997.

(3) Incorporated by reference to the Registrant's Statement on Form S-8
    (Commission File No. 333-52037), filed May 7, 1998.

(4) Incorporated by reference to the Company's Form 10-K for the fiscal year
    ended March 31, 1999.

(5) Incorporated by reference to the Company's Form 8-A filed on April 1, 1999.

(b) Reports on Form 8-K

     No reports on Form 8-K were filed during the quarter ended March 31, 2000.

                                       54
<PAGE>   55

     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: May 10, 2000                        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>                                            <S>                                       <C>

             /s/ TAMER HUSSEINI                Chairman, President and Chief             May 10, 2000
---------------------------------------------  Executive Officer (Principal Executive
               Tamer Husseini                  Officer)

            /s/ MARGARET E. SMITH              Vice President, Finance and Chief         May 10, 2000
---------------------------------------------  Financial Officer (Principal Financial
              Margaret E. Smith                and Accounting Officer)

           /s/ ROBERT J. GALLAGHER             Director                                  May 10, 2000
---------------------------------------------
             Robert J. Gallagher

            /s/ CHARLES P. WAITE               Director                                  May 10, 2000
---------------------------------------------
              Charles P. Waite

            /s/ WILLIAM D. RASDAL              Director                                  May 10, 2000
---------------------------------------------
              William D. Rasdal

             /s/ THOMAS W. HUBBS               Director                                  May 10, 2000
---------------------------------------------
               Thomas W. Hubbs
</TABLE>

                                       55
<PAGE>   56

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                               DESCRIPTION
-------                              -----------
<C>          <S>
   3.1(1)    Restated Articles of Incorporation of Registrant.
   3.3(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       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).
  10.9(2)    Lease agreement dated April 11, 1997 between the Registrant
             and Spieker Properties, L.P.
  10.10(4)   Loan modification agreement dated September 11, 1997 between
             Registrant and Silicon Valley Bank.
  23.1       Consent of Ernst & Young LLP, Independent Auditors.
  27.1       Financial data schedule.
</TABLE>

---------------
(1) Incorporated by reference to the identically numbered exhibits to the
    Company's Registration Statement of Form S-1 (Commission File No. 33-98854),
    which became effective on December 19, 1995.

(2) Incorporated by reference to the exhibit to the Company's Form 10-K filing
    for the fiscal year ended March 31, 1997.

(3) Incorporated by reference to the Registrant's Statement on Form S-8
    (Commission File No. 333-52037), filed May 7, 1998.

(4) Incorporated by reference to the Company's Form 10-K for the fiscal year
    ended March 31, 1999.

(5) Incorporated by reference to the Company's Form 8-A filed on April 1, 1999.

                                       56