UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

|X|    Annual report  pursuant to Section 13 or 15(d) of the Securities Exchange
       Act of 1934 for the fiscal year ended September 29, 2001 or

|_|    Transition  report  pursuant to  Section 13  or 15(d) of  the  Securities
       Exchange Act of 1934

                         Commission file number 0-22799
                             BEI TECHNOLOGIES, INC.
             (Exact name of Registrant as specified in its charter)

           Delaware                                      94-3274498
------------------------------              ------------------------------------
State or other jurisdiction of              (I.R.S. Employer Identification No.)
incorporation or organization

                           One Post Street, Suite 2500
                         San Francisco, California 94104
              (Address of principal executive officers) (Zip code)
        ---------------------------------------------------------------

                                 (415) 956-4477
        ---------------------------------------------------------------
              (Registrant's telephone number, including area code)

           Securities registers pursuant to Section 12(b) of the Act:
                                      None
                                      ----
           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.001 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 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  proxy or  information  statements
incorporated  by  reference  in  Part III of  this  Form 10-K  or any  amendment
to this Form 10-K. |X|

The   approximate   aggregate   market   value  of  the  voting  stock  held  by
non-affiliates  of the Registrant as of November 26, 2001 was $192,963,766  (A).
As of November 26, 2001,  14,326,697  shares of  Registrant's  Common Stock were
outstanding.

(A) Based upon the closing  sale price of the Common  Stock on November 26, 2001
as reported on the NASDAQ National Market System.  Excludes  3,015,808 shares of
Common  Stock held by  directors,  executive  officers  and  stockholders  whose
ownership  exceeds ten percent of Common Stock outstanding on November 26, 2001.
Exclusion of shares held by any person  should not be construed to indicate that
such person  possesses  the power,  direct or  indirect,  to direct or cause the
direction of the  management or policies of  Registrant,  or that such person is
controlled by or under common control with Registrant.

DOCUMENTS INCORPORATED BY REFERENCE

Registrant's  Proxy  Statement  with  respect  to its  2002  Annual  Meeting  of
Stockholders  to be  filed  with  the  Securities  and  Exchange  Commission  is
incorporated by reference into Part III, Items 10, 11, 12 and 13 of this report.


<PAGE>

<TABLE>
                                                         TABLE OF CONTENTS
<CAPTION>
<S>                        <C>                                                                                  <C>
                                                                                                               Page
PART I

         Item 1.           Business.......................................................................        3

         Item 2.           Properties.....................................................................       17

         Item 3.           Legal Proceedings..............................................................       18

         Item 4.           Submission of Matters to a Vote of Security Holders............................       18

PART II

         Item 5.           Market for Registrant's Common Equity and
                           Related Stockholder Matters....................................................       18

         Item 6.           Selected Financial Data........................................................       19

         Item 7.           Management's Discussion and Analysis of
                           Financial Condition and Results of Operations..................................       20

         Item 7a.          Quantitative and Qualitative Disclosures About Market Risk.....................       23

         Item 8.           Financial Statements and Supplementary Data....................................       24

         Item 9.           Changes in and Disagreements with Accountants
                           on Accounting and Financial Disclosure.........................................       41

PART III

         Item 10.          Directors and Executive Officers
                           of the Registrant..............................................................       41

         Item 11.          Executive Compensation.........................................................       41

         Item 12.          Security Ownership of Certain Beneficial
                           Owners and Management..........................................................       41

         Item 13.          Certain Relationships and Related Transactions.................................       41

PART IV

         Item 14.          Exhibits, Financial Statement Schedules,
                           and Reports on Form 8-K........................................................       41

Signatures                 ...............................................................................       45
</TABLE>


                                        2
<PAGE>

Except for the historical information contained herein, the following discussion
contains forward-looking  statements that involve risks and uncertainties.  When
used  herein,  the words,  "intend,"  "anticipate,"  "believe,"  "estimate"  and
"expect" and similar  expressions  as they relate to the Company are intended to
identify  such  forward-looking   statements.   The  Company's  actual  results,
performance or achievements  could differ  materially from those discussed here.
Factors that could cause or contribute to such differences  include, but are not
limited  to,  those  discussed  in  Item  1,  "Business"  as  well  as  Item  7,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."

PART I

ITEM 1.  BUSINESS

Introduction

     BEI  Technologies  ("Technologies"  or the "Company") was  incorporated  in
Delaware in June 1997 and became publicly held on September 27, 1997 as a result
of the  distribution of shares in  Technologies  to all the  stockholders of BEI
Electronics,  Inc., (since renamed BEI Medical Systems Company,  Inc., ("Medical
Systems") on September 24, 1997 (the "Distribution"). The principal business and
continuing  operations of Technologies are conducted within one business segment
and are carried out by operations which design,  manufacture and sell electronic
devices that provide  vital  sensory  input for the control  systems of advanced
machinery and automation systems. The sensors,  most of which are concerned with
physical  motion,  provide  information  that is essential to logical,  safe and
efficient operation of sophisticated machinery.

      At the close of  business  on October 30,  2000,  Technologies  declared a
distribution  to its  stockholders  of  approximately  42%  of  the  outstanding
securities of OpticNet, Inc. ("OpticNet"),  a formerly majority-owned subsidiary
of  Technologies.  In the  distribution,  each holder of record of  Technologies
common stock as of the close of business on October 30, 2000  received one share
of OpticNet common stock for every two shares of Technologies common stock held,
and cash in lieu of any fractional  share of OpticNet common stock. The OpticNet
common stock  dividend  valued at $0.04 per share of  Technologies  common stock
resulted in a tax basis of $0.08 per  OpticNet  share.  The total  dividend  was
approximately $300,000,  based on an appraisal of OpticNet.  OpticNet's business
is focused on developing fiber optic components and subsystems,  such as optical
switches,  used in  telecommunication  systems.  No  securities  of OpticNet are
registered  under the  Securities  Exchange  Act of 1934.  OpticNet  is pursuing
funding options to expand future operations.

          In the quarter  ending  December  30,  2000,  Technologies'  effective
ownership  in  OpticNet  was reduced to 24%.  OpticNet's  net loss for the three
month  period  from  October 1, 2000  through  December  30, 2000 of $176,000 is
included in the  consolidated  results of Technologies.  Beginning  December 31,
2000,  the Company  accounted for its  investment  in OpticNet  under the equity
method  and,  as of  September  29,  2001,  reduced  its  initial  $1.0  million
investment in OpticNet by $160,000,  reflecting the Company's  share of OpticNet
losses for the nine months from  December  31, 2000 to September  29,  2001.  In
addition, Technologies had a note receivable totaling $1.1 million from OpticNet
as of September 29, 2001.

     The Board of Directors of  Technologies  also declared a one-for-one  stock
dividend to its stockholders,  effective October 30, 2000. Immediately following
the  effectiveness of the  distribution of the OpticNet shares,  stockholders of
record as of the close of business on October 30, 2000,  received one additional
share of the common stock of  Technologies  for each share held as of such date,
and cash in lieu of any fractional share of Technologies common stock. The stock
dividend was paid November 21, 2000.

     The Company's long-term strategy is to provide, on a global basis, selected
advanced intelligent sensors and sensor based subsystems  utilizing  proprietary
technologies.  Management  believes  that  intelligent  sensory input to machine
control  systems and computers  will be  increasingly  crucial to the productive
functioning of a modern economy. Accordingly, Technologies' goal is to maintain,
develop  and  acquire  a diverse  offering  of  advanced  sensor  products,  and
manufacture  and sell these with  complementary  products.  The Company  targets
technology-based   markets  for   subsystems  and  end  products  in  which  its
traditional sensors,  micromachined  sensors and complementary  products play an
enabling role. The Company's near term initiatives include: (a) increased global
penetration of the quartz "yaw" sensor for the automotive industry (as described
below);  (b) development and  commercialization  of other  internally  developed
technologies  that have broad industrial and commercial  applications for motion
control, pressure, rate and position sensing; and (c) expansion of product lines
through synergistic acquisitions of complementary technologies.

     A key feature of the Company's  strategy is to be  recognized  worldwide as
the most capable source for the sensor categories it has selected. The Company's
traditional  emphasis has been on producing highly engineered sensing components
and assemblies.  The Company believes it  differentiates  itself by offering (a)
superior   technology  to  solve  a  customer  problem   (including   innovative
proprietary  technology);  (b) quality service; and (c) engineering expertise in
recommending   and   prescribing   technical   solutions   for  its   customers'
applications.  The Company's products are not sold as commodities.  Its strategy
is to provide technical  solutions and customer service that,  together with the
products  themselves,  create  value and give the customer  confidence  that the
product has been expertly prescribed and applied.


                                        3
<PAGE>

     By way of more specific examples, the Company's engineers regularly address
the following illustrative machine control requirements of customers:

     (1) Many  automobiles now have  computer-controlled  stability  enhancement
systems to assist  drivers in  maintaining  control of the  vehicle in  slippery
conditions.  In some of these  systems,  one of the Company's  sensors tells the
computer  system the present  direction and angle of the steering  wheel,  while
another of the Company's sensors instantly  measures and reports the presence of
yaw  forces  which if not  corrected  could  cause  the  vehicle  to spin out or
fishtail.  The automation system relies on these sensors to compare the driver's
indicated  directions with the actual result and can then take corrective action
automatically. To this end the Company provides special GyroChip quartz sensors.

     (2) During normal operation, an elevator system needs to know exactly where
each car is. (Is the car between  floors or not?  Are the doors open or closed?)
In both the foregoing  examples,  the Company's  encoders  could measure  speed,
exact location or door position.

     (3) An antenna on a moving ship needs to be actively stabilized so that the
antenna will  continuously  point at a satellite or another  ship's  pencil beam
laser signal.  For such an application the Company might provide its proprietary
GyroChip quartz rate sensor. It might also provide  motor-encoders and actuators
to drive the compensating action of such a system.

     (4) A pick and place robot needs to know how far its elbow and wrist joints
have moved in order to control the speed and  position  of its  "hand."  Factory
automation customers typically use optical encoders in pick and place robots and
other position control applications.

     (5)  Advanced  control  systems  in  tractors,   trucks,   automobiles  and
construction equipment need to know position data in order to control implements
on tractors and adjust engine speed and other automated functions. The Company's
potentiometers  provide  the  necessary  data for  steering,  throttle  and seat
position as well as for positioning tools on industrial or off-road equipment.

     (6) Semiconductor production equipment requires extremely fast yet accurate
control of start-move-stop  action on x-y-z positioners and tools. The Company's
magnetic  actuators  provide  the  energizing  force  for  such  tasks  and,  by
incorporating a linear encoder, can measure travel and location.

     (7) Various medical systems require compact, high reliability, air flow and
pressure  regulation.  The Company provides motors for blower  assemblies and/or
magnetic actuators for fast acting pressure regulating valves.

Customers and Markets

     The foregoing examples illustrate a few of the thousands of machine control
situations for which the products of the Company are used. Customers who buy the
Company's products are makers and users of many different kinds of machinery and
systems used in diverse  markets and  industries.  Important  market  categories
include factory  automation,  process control,  transportation  (including cars,
trucks,  mass  transit,  construction  and  farm  equipment),  health  care  and
scientific  equipment,  and  military,  aviation,  space and  telecommunications
applications.

     The Company  considers  its large number of customers and the vast scope of
existing  and  potential  applications  for its  products  to be a source of the
Company's existing business strength and an opportunity for continued  long-term
growth.

     The Company's  brands have been well  established in North America for many
years and were  distributed  during the past fiscal year  through  Technologies'
direct  sales  force  to  more  than  8,700  different   commercial   customers,
principally in the United  States.  These  customers  include both end users and
original equipment  manufacturers.  The Company ships 92% of sales to commercial
customers,  with  approximately  63% to the  automotive  market and 37% to other
industrial markets.  The value of individual orders from industrial customers is
typically less than $100,000.

     Sales  from  continuing   operations  to  the  U.S.  Government  (or  prime
contractors who manage government funded projects) represented  approximately 8%
of the  Company's  net sales in fiscal 2001, 9% in fiscal 2000 and 12% in fiscal
1999. One customer,  Continental Teves AG & Co. ("Continental Teves"), accounted
for  approximately  49%, 37% and 20% of net sales in fiscal year 2001,  2000 and
1999,  respectively.  In fiscal 2001,  approximately  56% of the Company's sales
occurred in foreign markets with approximately 3% sold in foreign currency.


                                        4
<PAGE>

     The Company also seeks to use its proprietary sensor capabilities to create
value-added  subsystems  or  products.  The  goal is to make  such  high  margin
products, enabled by the Company's proprietary technology, a growing part of the
Company's  business.  For  example,  the Company can provide  position  feedback
inside a magnetic actuator creating a "smart" actuator.

Products and Proprietary Systems

     The Company's main product groups may be categorized as follows;

     1.  Traditional sensors and complementary products;

     2.  Micromachined sensors; and

     3.  Engineered  subsystems  (such as inertial  measurement  units,  scanner
         assemblies, electronic servo control systems and trackballs).

     A  more  detailed   description  of  the  products  and  systems  designed,
manufactured and sold by the Company follows below.

   Traditional Sensors and Complementary Products

     Optical  Shaft  Encoders.  Optical shaft  encoders  translate the motion of
rotating  shafts  directly  into  digitally  coded  electronic  signals.   These
digitally  coded  signals  facilitate  interpretation  of the  sensed  motion by
microcomputer processors that are used to control the operation of machinery and
equipment.  The Company offers a wide array of optical shaft encoders to serve a
variety  of  applications.   The  most  common   applications  are  for  factory
automation,  office  automation and  transportation  equipment,  but specialized
versions are also used for military and space hardware.  Value-added  assemblies
that  employ  optical  shaft  encoders  include  servo  motors  and servo  drive
electronic control systems.

     Position Sensors.  Similar in basic function to encoders,  position sensors
are  potentiometric  devices that measure motion by analog (not digital) changes
in electrical potential.  These changes may sometimes be subsequently translated
into  digital  code.  Position  sensors are used as  economical  motion  sensing
devices  for  throttle,  steering,  suspension,  and  seat and  mirror  position
controls  in  automobiles  and in some heavy  equipment,  such as earth  movers,
construction  equipment  and  farm  machinery.  They are  also  used to  measure
position in such  applications  as actuators on molding  presses,  saw mills and
numerous other types of industrial  equipment and in oil well logging  calipers.
Combining the Company's position sensor technology with its proprietary  optical
shaft encoder  technology  has resulted in a highly  engineered  steering  wheel
position sensor used for intelligent  stability  control systems for automobiles
and steer-by-wire off-road transportation programs.

     Magnetic Actuators.  Magnetic actuators are used in place of cams or motors
to achieve  precise  control of short stroke  linear or limited  rotary  motion.
Actuators  using very  high-energy  magnets are also  produced  for  specialized
applications  requiring  intense force,  torque or acceleration  relative to the
size of the device.

     Brushless  DC  Motors.  Brushless  DC  Motors  give  high  performance  and
efficiency  in  compact,   lightweight  packages  and  ease  of  interface  with
microprocessors.   These  motors,   which  feature  high-energy   magnets,   are
characterized by long life and low acoustic and electrical  noise. They are well
suited to high speed,  high  reliability  applications,  such as in  respiration
therapy equipment where there is a long life requirement,  the risk of dust from
a brush motor  could be  troublesome  or where  electrical  noise could  disrupt
computers or computer-controlled equipment.

     Accelerometers.   Accelerometers   and  rate  sensors   using   traditional
mechanical  technology  (e.g.,  a moving  mass  suspended  by a pivot  and jewel
mechanism)  rely on the movement of complex  machined  metallic parts to measure
motion.

    Micromachined Sensors

     Rate  Sensors  and  Accelerometers.  These  products  provide  precise  and
reliable  measurement of minute linear and angular motion for control,  guidance
and instrumentation.  In general,  these devices operate without need for direct
linkage to the driving  mechanisms.  Such  measurements are required for heading
and attitude  reference  instruments  and flight  control  needs in aircraft and
missiles,  stabilization  of  satellites,  stabilization  control of antennae on
aircraft,  ships and other moving  platforms,  navigation  of oil well drill bit
assemblies,  and for  intelligent  vehicle  stability  systems in the automotive
industry.   Technologies  produces


                                        5
<PAGE>

miniature,  solid state rate sensors and accelerometers  based on innovative and
proprietary chemical micro-machining of a single element from crystalline quartz
using  photolithographic  methods  similar to those used in the  manufacture  of
silicon   semiconductor  chips.  The  advantages  of  quartz  rate  sensors  and
accelerometers  over  traditional  mechanical  units are increased  reliability,
reduced size, and lower production and life cycle costs.

     BEI Technologies' GyroChip Sensors. The Company's family of GyroChip quartz
rate sensors,  developed primarily to accommodate the need for reliable and high
precision yet economical  gyros,  have found use in such varied  applications as
the navigation of autonomous (robotic) guided vehicles, ocean buoy and sea-state
monitoring,  and  stabilization  of pointing  systems for  antennas  and optical
systems.  The most frequent use of GyroChip  units (the  automotive  quartz rate
sensor or "AQRS") is as yaw sensors in stability  control or spinout  prevention
systems for  automobiles.  GyroChip  sensors  provide  performance  suitable for
commercial applications while offering ruggedness,  longer life and smaller size
at a lower cost than military versions of quartz rate sensors.

     Pressure Sensors.  Pressure sensors measure absolute,  gage or differential
pressure  from  vacuum to 10,000  psi.  Various  sensing  technologies  are used
including  silicon  micromachined  systems used for  commercial  and  industrial
markets.  The Company provides standard products as well as application specific
solutions to pressure measurement requirements.

     Micro-Electromechanical  Systems ("MEMS"). MEMS are a new category of ultra
small devices,  usually micro-machined from crystalline materials such as quartz
or silicon.  The GyroChip  sensors and other quartz devices  discussed above are
examples of MEMS currently being sold by  Technologies.  Management  expects the
Company's  MEMS  research  and  development  programs to lead to new devices for
sensing motion, pressure and other physical parameters.

   Engineered Subsystems:

     Inertial  Measurement  Units  ("IMU").  These  subsystems are a fundamental
element of virtually all inertial  navigation and position or attitude reporting
systems.  Even systems  that rely on the Global  Positioning  Satellite  ("GPS")
network frequently must have an IMU built in to ensure a back up in case the GPS
signal  is  interrupted.   Technologies'  quartz  rate  sensors  have  made  new
breakthroughs in size, reliability and cost for it's proprietary IMU subsystems.

     Scanner  Assemblies.  Scanner  assemblies are an integral  subsystem of the
optics in military  night vision  systems  that guide the infrared  image to the
focal plane sensor array.  These subsystems consist of spinning or reciprocating
mirrors,  a motor and an encoder in a precision servo loop. The Company's motion
control   know-how   helps  ensure  that  the  scanner   delivers   jitter-free,
well-resolved images.

     Servo  Systems.  Servo  Systems are  closed-loop  electronic  systems  that
control the position and/or velocity of rotating  shafts,  linear  assemblies or
other moving  parts by noting a desired  rate of movement and position  (usually
input from computers or control panels), monitoring the actual position and rate
of  movement  (using an  appropriate  encoder or other  sensor)  and  constantly
providing  feedback that indicates whether further action is required to achieve
or maintain the desired performance.

     Trackballs. BEI trackballs have flexible and rugged designs that allow them
to be an integral part of a keyboard as well as stand-alone cursor  positioners.
They are used in ultra-sound  scanning machines,  factory automation and defense
applications.  The flexibility is provided by the interface  electronics  design
that  accommodates  various  standard  and  customized   interfaces  and  rugged
performance  is provided by a  proprietary  ball sealing  technique  that allows
operation in harsh environments.

Backlog

     Backlog  figures for the Company at September 29, 2001 and at September 30,
2000, were $76,272,000 and $83,269,000, respectively.

     The Company's commercial operations typically ship standard products within
30 to 90 days  after  receipt  of a purchase  authorization.  Management  of the
Company believes that its competitive position depends in part on minimizing the
time that  elapses  between  receipt  and  shipment of an order.  Products  that
require  special  analysis,  design  or  testing,  such as  those  produced  for
customers in the aviation or space  technology  markets,  are generally  shipped
from six to eighteen months after receipt of the purchase authorization.


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<PAGE>

     In the  case  of U.S.  Government  contracts,  backlog  includes  only  the
applicable portion of contracts that are fully funded by a procuring  Government
agency.  All  U.S.   Government   contracts  and  subcontracts  are  subject  to
termination by the U.S. Government at-will,  traditionally with compensation for
work completed and costs incurred.

     Backlog  figures  for  the  Company  include  aggregate  contract  revenues
remaining to be earned by the Company,  principally over the next twelve months,
for scheduled deliveries under existing contracts.  Some contracts undertaken by
Technologies extend beyond one year. Accordingly,  portions of certain contracts
are carried  forward  from one year to the next as part of  backlog.  All orders
considered  backlog for the Company as of September  29, 2001 are  scheduled for
shipment  during  fiscal  2002.  There  can be no  assurance  that all  existing
contract backlog will eventually result in revenue and, accordingly,  the amount
of backlog at any date is not necessarily a reliable indicator of future revenue
or profitability trends.

Competition

     Competitors  for  various  products  offered by the Company are found among
certain  divisions  or product  lines of large,  diversified  companies  such as
Bosch, Danaher Corp., Litton,  Panasonic,  Rockwell  International and Sumitomo.
There are smaller or product-specific  companies, some of whose products compete
with  those  of  the   Company,   including   CTS  Corp.,   Heidenhain,   Kulite
Semiconductor,   Servo  Magnetics  Corp.,   Bourns,   Inc.,  Kavlico  Corp.,  BI
Technologies Corp. and Druck Holdings, P.L.C.

     In its principal  markets,  the Company  believes that competition is based
primarily on design,  performance,  reliability,  price,  delivery,  service and
support.  The Company believes that it competes  favorably with respect to these
factors.

Manufacturing

     The Company's  manufacturing  operations provide a mix of standard products
and  custom  products  designed  to  meet  the  specialized  requirements  of  a
particular  customer.  The Company's  products,  whether standard or custom, are
normally  manufactured  in response to customers'  orders and are in general not
held as finished goods. Most are assembled from parts or subassemblies  that are
proprietary to the Company.  The Company  relies on various  sources for its raw
material   components.   See   "Business--Risk   Factors--Dependence   Upon  Key
Suppliers."

     Specialized or proprietary equipment is often used to produce the Company's
products.  For example,  a code pattern generator designed by and proprietary to
the Company is used to produce  some shaft  encoder  parts.  Specialized  quartz
micromachining  equipment is used for the  production  of GyroChip  units.  High
throughput  automated or semi-automated  equipment is used for the production of
GyroChip  assemblies,  brushless  motors  and  potentiometers.  Some  parts  are
fabricated under clean room conditions.

     The Company's  production of automotive yaw sensors required scaling-up its
production to the quantities  demanded by the automobile  market. The Company is
continuing to refine production engineering measures to support the fabrication,
assembly, and testing of new sensors in the appropriate quantities. There can be
no assurance that the Company will be able to produce the required quantities on
time or in sufficient  amounts to satisfy demand.  Failure to do so would have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.  See  "Business--Risk  Factors--Manufacturing  Experience
Risk; Scale-Up Risk; Product Recall Risk."

Research and Development

     The  Company's  research  and  development  focus  has  included  improving
performance and yield of existing products,  with special emphasis on the quartz
sensors  used in high  accuracy  IMU's and high volume yaw rate  sensors for the
automotive industry. Substantial effort has also been devoted to the development
of efficient  manufacturing  methods  necessary for  competitive  pricing of the
Company's  products while  maintaining  the required  quality for the automotive
market.  The Company has begun  transition  to the next  generation  quartz fork
sensor. Value engineering reduced the size and thickness of this next generation
fork  enabling  faster  etch time and nearly  doubling  the forks per wafer from
prior generation 16 forks per wafer to current configuration 30 forks per wafer.
Several patent applications for this configuration were filed and issued.

     During  the  2001  fiscal  year,  the  Company  continued  development  and
commercialization of a new non-contacting angular position sensor referred to as
NCAPS.  The development was driven by the Company's  perception of market demand
for a technology  usable in high volume  applications  (e.g.,  steering sensors,
medium resolution  absolute angular position  measurement  sensors),  that would
overcome the  limitations  of contacting  sensors as well as the  limitations of
currently available  non-contacting  sensors. The design and architecture of the
NCAPS (essentially a digitally processed  proprietary  transceiver sensor unit),


                                        7
<PAGE>

when combined  with the Company's  existing  manufacturing  expertise,  may lend
itself to high volume  production.  The Company  believes  applications for this
technology may cover a wide spectrum within the automotive and industrial market
sectors.  The Company also  developed  and  introduced a dual output hall effect
angular   position   sensor  for  use  in  heavy  duty  off  road  and  military
applications.

     Also enhancing our core position sensing technology, the Company introduced
the Linear Gap Displacement  Transducer (LGDT) for short stroke,  high precision
applications.   This  reflective  fiber  optic  technology  offers   measurement
resolution as low as 100 nanometers.

     Management of the Company  believes that its future  success will depend in
part on its ability to continue to enhance its existing products, and to develop
and introduce new products that maintain technological leadership,  meet a wider
range  of  customer  needs  and  achieve  market  acceptance.  Accordingly,  the
Company's  internally  funded  research,  development  and  related  engineering
expenditures were approximately  $8.8 million,  $8.9 million and $6.6 million in
fiscal 2001, 2000 and 1999, respectively. In addition,  customer-funded research
and development  expenditures  charged to cost of sales were $0.2 million,  $0.6
million and $0.4 million, respectively, for the same periods. Development of the
Company's portfolio of rate sensors,  including the NCAPS, comprised most of the
prior years'  customer-funded  research and development  expenditures.  As these
sensors have moved from the  development  stage to production,  there has been a
corresponding decrease in customer-funded research and development expenditures.

Employees

     As of September 29, 2001, the business units  comprising  Technologies  had
1,118 employees,  including 142 in research, development and engineering, 195 in
administration,  56 in marketing and sales,  and 725 in operations.  The Company
believes that its continued success depends on its ability to attract and retain
highly  qualified  personnel.   The  Company's  employees  are  not  covered  by
collective  bargaining  agreements.  The  Company has not  experienced  any work
stoppages and considers its relationship with its employees to be good.

Intellectual Property

     The Company relies primarily upon trade secrets and know-how to develop and
maintain its competitive position. In addition, the Company and its subsidiaries
have been issued 88 U.S.  patents and 69 foreign patents with  expiration  dates
ranging from March 2002 to October 2018. Because many of these patents relate to
technology that is important to certain of the Company's  products,  the Company
considers these patents to be significant to its business.

     While management believes that the Company's  intellectual  property rights
are  important,  management  also  believes  that  because  of the rapid pace of
technological  change in the industries in which the Company  competes,  factors
such as innovative skills,  technical expertise, the ability to adapt quickly to
technological  change and evolving  customer  requirements,  product support and
customer relations are of equal competitive significance.

Environmental Matters

     The Company uses certain controlled or hazardous  materials in its research
and manufacturing  operations and, as a result, is subject to federal, state and
local  regulations  governing the storage,  use and disposal of such  materials.
Management of the Company  believes that it is currently in compliance with such
laws  and  regulations,  and  that  the  cost of such  compliance  has not had a
material effect on the Company's capital  expenditures,  earnings or competitive
position,  and  is not  expected  to  have  a  material  adverse  effect  in the
foreseeable future.

Government Regulation

     The Company is subject to  significant  regulation  by the U.S.  Government
with  respect to a variety of matters  affecting  its  business,  including  the
matters  set forth  below  and as  discussed  in the  "Risk  Factors--Government
Regulation" and "Risk Factors--Contracting with the U.S. Government" below.

Facility Security Clearance

     The  Company  has  several  facility  security  clearances  from  the  U.S.
Government.  A portion of the Company's net sales in


                                        8
<PAGE>

fiscal 2001,  2000 and 1999 was derived from work for which this  clearance  was
required.  Continuation of this clearance  requires that the Company remain free
from foreign ownership, control or influence (FOCI). In addition, the Company is
required to comply with the regulations promulgated by the Defense Investigative
Service  (DIS),  which  relate,  in large  part,  to the  Company's  control  of
classified  documents and other  information.  Management  does not believe that
there is presently any substantial risk of FOCI or DIS noncompliance  that would
cause any of its security clearances to be revoked.

Regulation of Foreign Sales

     Certain of Technologies'  exports are subject to restrictions  contained in
the U.S.  Department of State's  International  Traffic in Arms  Regulations and
require export licenses in order to be sold abroad.  Non-defense related foreign
sales are generally governed by the Bureau of Export  Administration of the U.S.
Commerce  Department,  which  also  frequently  requires  export  licenses.  The
Company's net sales to foreign customers constituted  approximately 56%, 45% and
28% of revenues  for fiscal  2001,  2000 and 1999,  respectively.  To date,  the
Company has not  experienced  any  significant  difficulties  in  obtaining  the
requisite licenses.  In addition,  the Company is subject to the Foreign Corrupt
Practices  Act,  which  prohibits  payments  or offers of  payments  to  foreign
officials  for the  purpose  of  influencing  an act or  decision  by a  foreign
government,  politician  or  political  party in order to assist  in  obtaining,
retaining or directing business to any person.

RISK FACTORS

     Stockholders  or  investors  considering  the  purchase  of  shares  of the
Company's Common Stock should carefully consider the following risk factors,  in
addition to other  information  contained  in this  Annual  Report on Form 10-K.
Additional  risks and  uncertainties  not presently known to the Company or that
the Company currently deems immaterial could also impair the Company's  business
operations.

Competition

      The principal  competitive  factors affecting the market for the Company's
products  include  product  functionality,  performance,  quality,  reliability,
price,  compatibility  and  conformance  with industry  standards,  and changing
customer  systems  requiring  product  customization.  Several of the  Company's
existing and potential competitors,  including those noted above under "Business
- Competition", have substantially greater financial, engineering, manufacturing
and marketing resources than does the Company. Further, the technologies offered
by the Company may compete for customer acceptance with technologies  offered by
other manufacturers, such as resolvers, inductosyns, laser and fiber optic gyros
and magnetic  encoders.  There can be no assurance that other companies will not
develop more  sophisticated,  more cost-effective or otherwise superior products
which could have a material adverse effect on the Company's business,  financial
condition and results of operations.

Rapid Technological Change; Research and Development Efforts

      The market for the  Company's  products is  affected  by rapidly  changing
technology and evolving industry standards and the emergence of new technologies
and protocols. The Company believes that its future success will depend upon its
ability to enhance its existing  products and to further  develop and  introduce
new products that meet a wide range of evolving  customer  needs and can achieve
market acceptance. There can be no assurance that the Company will be successful
in these efforts. The Company has incurred,  and the Company expects to continue
to incur, substantial expenses associated with the introduction and promotion of
new  products.  There can be no assurance  that the expenses  incurred  will not
exceed research and development cost estimates or that new products will achieve
market acceptance and generate sales sufficient to offset  development costs. In
order to develop new products  successfully,  the Company is dependent  upon key
management and technical personnel who continuously  contribute ideas to develop
new products and enhancements of the Company's existing  products.  There can be
no assurance that products or  technologies  developed by others will not render
the Company's products non-competitive or obsolete.

Risks  from  Manufacturing  and  Design  Defects;  Ability  to  Meet  Customers'
Performance Criteria

      The Company has experienced manufacturing quality problems in the past and
could  experience  similar  problems  in the  future.  Certain of the  Company's
products are designed for use in critical safety and mission  critical  systems.
During the Company's continuing efforts to increase manufacturing and production
capabilities  to meet market  demand,  high quality  standards for the Company's
products must be  maintained,  or risk customer  dissatisfaction,  damage to the
Company's reputation,  or significant liability claims if the Company's products
contain undetected errors or inaccuracies. The Company attempts to contractually
limit exposure to liability claims by customers, but this may be insufficient in
the face of very large claims and does


                                        9
<PAGE>

not preclude all potential claims.  As a result,  product recalls or significant
liability claims, whether or not successful, could harm the Company's reputation
and business.

Manufacturing Experience Risk; Scale-Up Risk; Product Recall Risk

     Technologies  is continuing the process of adding  production  capacity for
its  automotive  yaw rate sensors to respond to the expected  future  demand for
quantities  required by the automobile market. The Company has relatively recent
experience in large-scale manufacturing.  The Company manufactured approximately
1.83  million  units  of its  automotive  quartz  rate  sensor  in the  Concord,
California facility, which supplied sensors to less than 10% of automobiles sold
in the North American and European  markets in fiscal 2001. In prior years,  the
Company  encountered  difficulties  in scaling  up  production  of the  GyroChip
sensors,  including problems involving production yields, component supplies and
shortages of qualified  personnel.  A failure by the Company to manufacture  and
deliver  products in a timely  fashion could harm the Company's  reputation  and
cause the loss of potential  future sales and the Company could be forced to pay
penalties to customers  in the event of contract  breach for delivery  failures.
These types of manufacturing  delays can occur for various reasons,  including a
lack of manufacturing  capacity, the failure of a supplier to provide components
in a timely fashion or with acceptable  quality,  or an inability by the Company
to  attract  and  retain  qualified  manufacturing  personnel.  There  can be no
assurance that future manufacturing  difficulties or product recalls,  either of
which could have a material adverse effect on the Company's business,  financial
condition and results of operations, will not occur.

Manufacturing Processes and Equipment

      The Company  manufactures  certain  products  such as quartz rate sensors,
potentiometers  and some shaft  encoders  using  extremely  complex  proprietary
processes  and  equipment.   The   fabrication   of  these   products   requires
manufacturing   efforts  to  occur  in  a  highly   controlled  and  ultra-clean
environment,  and accordingly these products are extremely  sensitive to changes
in manufacturing  conditions.  The Company is largely  dependent on its Concord,
California  facility  to  meet  the  volume  of  manufacturing  required  by the
automotive  market.  In the event of a production  disruption,  the  possibility
exists that equipment could be irrevocably  damaged or that process  disciplines
and controls could be temporarily  or  permanently  lost,  which would cause the
Company to experience problems achieving acceptable manufacturing yields. Such a
disruption of production  could have a material  adverse effect on the Company's
business, financial condition and results of operations.

Dependence Upon Key Personnel

     The Company depends to a significant  degree on the continued  contribution
of key  management and technical  personnel.  The loss of the services of one or
more key  employees  could have a material  adverse  effect on the Company.  The
Company's  success also depends on its ability to attract and retain  additional
highly qualified management and technical personnel. Skilled technical personnel
in the Company's  industry are in short  supply,  and this shortage is likely to
continue for some time. As a result, competition for these people is intense and
they are often  subject to offers  from  competing  employers,  particularly  in
northern  California  where certain of the Company's  facilities are located and
there is a high concentration of technology companies. There can be no assurance
that the Company  will be able to retain its key  employees,  or that it will be
able to attract or retain additional  skilled  personnel as needed.  The Company
does  not  currently  maintain  key  person  insurance  on  any  employee.   See
"Business-Employees"  and  "Business-Directors  and  Executive  Officers  of the
Company."

Dependence Upon Key Suppliers

     Although  the  majority  of the  components  used in Company  products  are
available from multiple sources, several components are built or provided to the
Company's  specifications.  Such components  include quartz,  supplied by Sawyer
Research  Products,  Inc.;  housings,  supplied by Tomco  Plastics,  Inc.;  gold
pellets,  supplied  by  Vacuum  Engineering  &  Material  Co.,  Inc.;  PWB/ case
assemblies,  supplied by Kimball Electronics Group; injection molding,  supplied
by L. W. Reinhold, Inc.; substrates, supplied by Aurora Circuits, LLC; two types
of ASIC's,  supplied  by  National  Semiconductor  Corporation  and  Flextronics
Semiconductor,  Inc.; and two types of LED's, supplied by Optek Technology, Inc.
and Opto Diode Corp. The Company  currently relies on single suppliers for these
components.  Any increase in the cost of the  components  used in the  Company's
products  could  make the  Company's  products  less  competitive  and lower the
Company's  gross margin.  Additionally,  the Company's  single source  suppliers
could  enter  into  exclusive  agreements  with  or be  acquired  by  one of the
Company's  competitors,  increase their prices, refuse to sell their products to
the  Company,  discontinue  products  or go  out  of  business.  To  the  extent
alternative  suppliers  are  available  to the  Company,  identifying  them  and
entering into arrangements  with them is difficult and time consuming,  and they
may not meet  quality  standards of the  Company.  Additionally,  consolidations
among the


                                       10
<PAGE>

Company's suppliers could result in other sole source suppliers. There can be no
assurance that there will not be a significant  disruption in the supply of such
components in the future,  or in the event of such disruption,  that the Company
will be able to locate  alternative  suppliers of the  components  with the same
quality at an acceptable price. An interruption in the supply of components used
in the manufacture of the Company's products, particularly as the Company scales
up its  manufacturing  activities in support of commercial  sales,  could have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

Dependence Upon Key Customers

     Approximately  49% of the net sales of the  Company in fiscal  2001 were to
Continental  Teves  for  the  automotive  quartz  rate  sensor  product  used in
automobile stability control systems. Continental Teves integrates the Company's
sensor product into independently  developed products and markets the integrated
systems to various customers in the automobile  industry.  This concentration of
sales is expected to expand in fiscal 2003 and beyond.  In fiscal year 2002, the
Company  is  transitioning  to its next  generation  automotive  quartz yaw rate
sensor product,  a multi-sensor  cluster  configuration.  The Company expects to
continue to increase  production  of the GyroChip  sensors (see  "Business--Risk
Factors--Manufacturing  Experience Risk; Scale-Up Risk; Product Recall Risk") to
meet the  requirements  of its contracts with  Continental  Teves in FY 2003 and
beyond.  In addition,  the Company is in discussion with  Continental  Teves and
other automotive  customers that could lead to extensions of existing  contracts
and to new contracts. There can be no assurance that the Company will be able to
retain  or extend  its  contracts  with  Continental  Teves or other  automotive
customers,  or obtain new contracts on favorable terms, or that the product will
continue to achieve  continuing growth beyond the end of the current  contracts,
any of which could have a material  adverse  effect on the  Company's  business,
financial condition and results of operations.

Government Regulation

      Certain  aspects of the industry in which the Company's  products are sold
are regulated both in the United States and in foreign countries.  Imposition of
public  carrier  tariffs,  foreign  taxation  and  the  necessity  of  incurring
substantial  costs  and  the  expenditure  of  managerial  resources  to  obtain
regulatory  approvals,  particularly in foreign countries where safety standards
differ from those in the United  States,  or the inability to obtain  regulatory
approvals  within a reasonable  period of time,  could have a material,  adverse
effect on the Company's business, operating results and financial condition. The
Company's  products  must  comply  with a variety of  equipment,  interface  and
installation  standards  promulgated  by  regulatory  authorities  in  different
countries.  Changes in government policies,  regulations and interface standards
could  require the  redesign of products and result in product  shipment  delays
which could have a material, adverse impact on the Company's business, operating
results and financial condition.

Contracting with the U.S. Government

     Approximately  8%,  9% and 12% of the net sales of  Technologies  in fiscal
2001,  2000 and 1999,  respectively,  were derived from  contracts with the U.S.
Government  or  under  subcontract  to  other  prime  contractors  to  the  U.S.
Government.  Because a significant portion of Technologies'  business is derived
from  contracts  with the  Department  of Defense or other  agencies of the U.S.
Government,  the Company's  business is sensitive to changes in U.S.  Government
spending  policies that can have  significant  variations  from year to year. At
various times,  the Company's  results have been adversely  affected by contract
cutbacks and there can be no assurance that the Company's  results of operations
will not in the future be materially  and adversely  affected by changes in U.S.
Government  procurement  policies or reductions in U.S. Government  expenditures
for products furnished by the Company.

     Under applicable regulations, various audit agencies of the U.S. Government
conduct  regular  audits  of  contractors'  compliance  with a  variety  of U.S.
Government  regulations.  The  U.S.  Government  also has the  right  to  review
retroactively the cost records under most U.S.  Government  contracts.  Contract
prices may be  adjusted  in the event the U.S.  Government  determines  that the
Company  submits  incomplete,  inaccurate  or  obsolete  cost or  pricing  data.
Government  contracts  and  subcontracts  generally  provide  for either a fixed
price, negotiated fixed price or cost-plus-fixed-fee basis for remuneration. The
majority of the contracts with the U.S.  Government are competitive  fixed price
or negotiated  fixed price  contracts,  although  cost-plus-fixed-fee  contracts
provided approximately 2.0% of the Company's net sales in fiscal 2001. For fixed
price  contracts,  the Company  bears the risk of cost  overruns and derives the
benefits from cost savings. As a result,  greater risks are involved under fixed
price  contracts than under  cost-plus  contracts  because failure to anticipate
technical  problems,  estimate costs accurately or control costs during contract
performance may reduce or eliminate the  contemplated  profit or may result in a
loss.


                                       11
<PAGE>

     All U.S.  Government  contracts contain  termination clauses that allow the
contract to be terminated  either for contractor  default or for the convenience
of the U.S.  Government.  In the event of termination for the convenience of the
Government,  the clause  typically  provides  that the  contractor  will receive
payment  for  work-in-progress,   including  profit.  To  date,  termination  of
Technologies'  contracts  by the  U.S.  Government  has not had any  significant
effect on the Company's  financial results.  However,  no assurance can be given
that  such  terminations  will  not  have a  materially  adverse  effect  on the
Company's results of operations in the future.

     Portions of the Company's government business are sometimes classified.  As
a result,  the Company may be prohibited from disclosing the substance or status
of such business.

Dependence on Proprietary Intellectual Property

      Success for the Company  depends,  in part,  on the  Company's  ability to
protect its  intellectual  property.  The  Company  relies on a  combination  of
patent,  copyright,  trademark and trade secret laws to protect its  proprietary
technologies and processes.  Nevertheless,  such measures may not be adequate to
safeguard the proprietary  technology underlying its products. In addition,  the
Company's  existing  and  any  future  patents  that  may be  issued,  could  be
challenged,  invalidated or circumvented,  and any right granted  thereunder may
not provide meaningful  protection to the Company. The failure of any patents to
provide  protection  to the  Company's  technology  might  make  it  easier  for
competitors to offer similar products and use similar manufacturing  techniques.
Despite  precautions,  it may be possible for a third party to copy or otherwise
obtain and use the  Company's  products  or  technology  without  authorization,
develop similar  technology  independently or design around those patents issued
to the Company. In addition,  effective patent,  copyright,  trademark and trade
secret  protection may be  unavailable or limited  outside of the United States,
Europe  and  Japan.  The  Company  may  not be  able to  obtain  any  meaningful
intellectual   property   protection   in  such   countries   and   territories.
Additionally,  the Company may, for a variety of reasons, decide not to file for
patent,  copyright,  or  trademark  protection  outside  of the  United  States.
Further, at the request of customers,  the Company  occasionally  incorporates a
customer's  intellectual  property into designs,  in which case the Company will
have  obligations  with  respect  to the  non-use  and  non-disclosure  of  that
intellectual  property.  However,  the steps  taken by the  Company  to  prevent
misappropriation  or  infringement of Company  intellectual  property or that of
customers may not be successful.  Moreover, costly and time intensive litigation
could be necessary to enforce the Company's  intellectual  property  rights,  to
protect the  Company's  trade  secrets or to determine the validity and scope of
proprietary rights of others, including customers.

      The industries in which the Company operates can be characterized by their
vigorous protection and pursuit of intellectual property rights. In this regard,
the  invalidity  of the  Company's  patents  could be  asserted  and claims made
against  the  Company.  Furthermore,  in a patent or trade  secret  action,  the
Company  could be  required  to  withdraw  certain  products  from the market or
redesign  products offered for sale or under  development.  The Company has also
entered  into certain  indemnification  obligations  in favor of  customers  and
strategic  partners  that could be triggered  upon an  allegation  or finding of
infringement of other parties' proprietary rights.  Irrespective of the validity
or  successful  assertion  of  such  claims,  the  Company  would  likely  incur
significant costs and diversion of resources with respect to the defense of such
claims.  To address any potential claims or actions asserted in opposition,  the
Company may seek to obtain a license under a third party's intellectual property
rights. Under such circumstances, a license may not be available on commercially
reasonable terms, if at all.

International Sales

      Sales to  customers  located  outside  the  United  States  accounted  for
approximately  56%, 45% and 28% of the Company's net sales in fiscal 2001,  2000
and 1999,  respectively.  Most of these sales were to Continental Teves, located
in Germany.  The  Company  expects  that  international  sales will  continue to
represent a significant  portion of the Company's  product revenues and that the
Company  will be subject to the normal  risks of  international  sales,  such as
export laws, currency fluctuations,  longer payment cycles, greater difficulties
in accounts receivable  collections and complying with a wide variety of foreign
laws.   Although  the  Company  has  not  previously   experienced   significant
difficulties  under  foreign  law in  exporting  its  products,  there can be no
assurance that the Company will not experience such  difficulties in the future.
In addition,  because the Company  primarily  invoices its foreign sales in U.S.
dollars,  fluctuations  in exchange  rates could affect demand for the Company's
products  by causing  its prices to be out of line with  products  priced in the
local currency.  Such  difficulties  could have a material adverse effect on the
Company's  international  sales and a resulting  material  adverse effect on the
Company's business, operating results and financial condition.


                                       12
<PAGE>

Possible Volatility of the Company's Common Stock Price

      The price of the Company's Common Stock has fluctuated widely in the past.
Sales of substantial  amounts of the Company's  Common Stock,  or the perception
that such sales could occur, could adversely affect prevailing market prices for
the Company's  Common Stock.  The  management of the Company  believes that such
past  fluctuations may have been caused by the factors  identified above as well
as  announcements  of new  products,  quarterly  fluctuations  in the results of
operations and other factors,  including  recent  volatility in stock prices for
technology focused companies as a whole. These fluctuations,  as well as general
economic,  political  and market  conditions  and other  unrelated  to operating
performance may adversely affect the market price of the Company's Common Stock.
The Company  anticipates that prices for Technologies  Common Stock may continue
to be volatile.  Future stock price  volatility  for  Technologies  Common Stock
could  provoke  the  initiation  of  securities   litigation  which  may  divert
substantial  management  resources  and have an adverse  effect on the Company's
business, operating results and financial condition.

Voting Control by Officers, Directors and Affiliates

      At  September  29, 2001 the  Company's  officers and  directors  and their
affiliates beneficially owned approximately 24% of the outstanding shares of the
Company's  Common  Stock.   Accordingly,   together  they  had  the  ability  to
significantly  influence  the  election  of the  Company's  directors  and other
corporate  actions  requiring  shareholder   approval.   Such  concentration  of
ownership  may have the effect of delaying,  deferring or preventing a change in
control of the Company.

Certain Charter Provisions

     The  Company's  Board of Directors  has  authority to issue up to 2,000,000
shares of Preferred  Stock and to fix the rights,  preferences,  privileges  and
restrictions,  including voting rights, of these shares without any further vote
or action by the shareholders. The rights of the holders of the Company's Common
Stock will be subject to, and may be  adversely  affected  by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance of
Preferred  Stock,  while  providing  desirable  flexibility  in connection  with
possible  acquisitions  and other corporate  purposes,  could have the effect of
making  it more  difficult  for a third  party  to  acquire  a  majority  of the
outstanding  voting  stock  of  the  Company,  thereby  delaying,  deferring  or
preventing a change in control of the Company. Furthermore, such Preferred Stock
may have other rights,  including  economic rights,  senior to the Common Stock,
and as a result,  the issuance  thereof could have a material  adverse effect on
the market value of the Company's Common Stock.

Economic Downturn

     We are  currently in the midst of a general  economic  downturn.  We cannot
predict how long or severe this downturn will be or whether any actions taken or
proposed by the government will be effective to bolster the economy. As a result
of this uncertainty,  forecasting and financial and strategic  planning are more
difficult  than usual.  If the  downturn  continues  for an  extended  period or
becomes more severe, our business will suffer and we may experience  declines in
sales and resulting  losses,  as our customers  attempt to limit their spending.
Specifically,  a continued  economic  downturn may result in diminished  factory
utilization  and  consumer  demand  in  the  aviation,   aerospace  and  factory
automation markets, as well as lower automobile sales, resulting in lower demand
for our products purchased by these industries.  In addition, the adverse impact
of the downturn on the capital markets could impair our ability to raise capital
as needed and impede our ability to expand our business.

     In addition,  this  economic  downturn has been  exacerbated  by the recent
terrorist  attacks in New York and Washington,  D.C., which caused disruption to
commercial  activities in the United States and  internationally.  The long-term
impact of the  terrorist  attacks  on the  economy  as a whole,  the  automotive
industry, government related sales, and other industries to which we sell is not
known at this  time.  Any  future  terrorist  attacks  or  future  outbreaks  or
escalation of hostilities  arising out of any attacks,  or concerns that attacks
or hostilities may occur,  could  adversely  affect the United States economy in
general, including the capital markets, which in turn could adversely impact the
worldwide economy and prolong or intensify the current downturn.


                                       13
<PAGE>

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

     The directors  and  executive  officers of the Company and their ages as of
December 1, 2001 are as follows:

<TABLE>
<CAPTION>
                    Name                          Age                             Position
                    ----                          ---                             --------
<S>                                                <C>    <C>
     Charles Crocker........................       62     Chief Executive Officer and Chairman of the Board of Directors
     Dr. Asad Madni ........................       54     President, Chief Operating Officer and Director
     John LaBoskey..........................       48     Senior Vice President and Chief Financial Officer
     Robert R. Corr.........................       55     Vice President, Secretary, Treasurer and Controller
     Gerald D. Brasuell.....................       53     Vice President and General Manager, BEI Systron Donner
     David Pike.............................       48     Senior Vice President Divisional Administration and Human Resources
     Richard M. Brooks(1)(2)................       73     Director
     George S. Brown(2).....................       80     Director
     C. Joseph Giroir, Jr.(1)(2)............       62     Director
     Dr. William G. Howard, Jr.(1)..........       60     Director
     Gary D. Wrench ........................       68     Director
<FN>
--------
(1)  Member of the Audit Committee
(2)  Member of the Compensation Committee
</FN>
</TABLE>

Directors

     Mr.  Brooks  began  serving  as a  Director  in  June  1997  prior  to  the
Distribution  and  resulting  spin-off of the Company  from  Medical  Systems in
September 1997. From 1987 until his resignation as a result of the Distribution,
he served as a director  of Medical  Systems.  He is  currently  an  independent
financial  consultant,  and  also  serves  as a  director  of Longs  Drug  Store
Corporation,  Granite  Construction,  Inc.  and the Western  Farm Credit Bank, a
private company. Mr. Brooks holds a B.S. from Yale University and an M.B.A. from
the University of California, Berkeley.

     Mr.  Brown  began  serving  as  a  Director  in  June  1997  prior  to  the
Distribution  and  resulting  spin-off of the Company  from  Medical  Systems in
September  1997.  He served as a director of Medical  Systems  from October 1974
until his  resignation  as a result of the  Distribution.  Mr.  Brown  served as
President and Chief Executive Officer of Medical Systems from October 1974 until
July 1990. Mr. Brown served from 1971 until 1974 as Executive Vice President and
General  Manager of Baldwin  Electronics,  Inc.,  a subsidiary  of D.H.  Baldwin
Company and the predecessor of Medical Systems. Mr. Brown holds a B.S.E.E.  from
the University of Oklahoma.

     Mr.  Crocker  began  serving  as a  Director  in  June  1997  prior  to the
Distribution  and  resulting  spin-off of the Company  from  Medical  Systems in
September  1997. He was a founder of Medical  Systems and has served as Chairman
of the Board of Directors of Medical  Systems since October 1974 and Chairman of
the Board of Directors of  Technologies  since October 1997. Mr. Crocker assumed
the  positions  of  President  (in which  position he served until May 2000) and
Chief  Executive  Officer of  Technologies,  effective  October  1, 1997,  after
resigning  as  President  and  CEO  of  Medical  Systems  as  a  result  of  the
Distribution.  Mr. Crocker served as President of Crocker Capital Corporation, a
Small Business Investment Company,  from 1970 to 1985, and as General Partner of
Crocker Associates, a venture capital investment partnership, from 1970 to 1990.
He  currently  serves as a director of  Fiduciary  Trust  International,  Pope &
Talbot, Inc. and Teledyne Technologies, Inc. Mr. Crocker also serves as director
of OpticNet, Inc., a minority owned subsidiary of the Company. Mr. Crocker holds
a B.S. from Stanford University and an M.B.A. from the University of California,
Berkeley.

     Mr.  Giroir  began  serving  as a  Director  in  June  1997  prior  to  the
Distribution  and  resulting  spin-off of the Company  from  Medical  Systems in
September  1997.  He was a  director  of  Medical  Systems  from 1978  until his
resignation  as a result of the  Distribution.  He served  as the  Secretary  of
Medical  Systems  from 1974 to early  1995.  Mr.  Giroir  is the sole  member of
Giroir,


                                       14
<PAGE>

PLLC. He is also President of Arkansas International Development Corporation II,
LLC and Chairman of the Board of Directors for Clinical Study Centers,  LLC. Mr.
Giroir holds a B.A. and an L.L.B.  from the University of Arkansas and an L.L.M.
from Georgetown University.

     Dr.  Howard  began  serving  as a  Director  in  June  1997  prior  to  the
Distribution  and  resulting  spin-off of the Company  from  Medical  Systems in
September  1997.  He was a director of Medical  Systems from December 1992 until
his resignation as a result of the Distribution.  He is currently an independent
consulting engineer in microelectronics and technology-based  business planning.
From 1987 to 1990, Dr. Howard served as Senior Fellow of the National Academy of
Engineering  and,  prior to that time,  held various  technical  and  management
positions  with  Motorola,  Inc.,  most  recently as Senior Vice  President  and
Director of Research and Development. He currently serves as director of RAMTRON
International Corp., Credence Systems, Inc., Thunderbird Technologies, Inc., and
Xilinx, Inc. Dr. Howard holds a B.S.E.E. and an M.S. from Cornell University and
a Ph.D. in electrical  engineering and computer  sciences from the University of
California, Berkeley.

     Dr.  Madni was  appointed  President  and Chief  Operating  Officer  of the
Company in May 2000. He began  serving as a Director and as a Vice  President of
the Company in June 1997 prior to the Distribution and resulting spin-off of the
Company  from  Medical  Systems  in  September  1997.  Dr.  Madni was  appointed
President  of BEI Sensors & Systems  Company,  Inc. in October  1993,  which was
formed by the  consolidation of BEI Motion Systems Company and the BEI Sensors &
Controls Group, of which Dr. Madni had been President since October 1992.  Prior
to joining  Medical  Systems in 1992, he served over 17 years in various  senior
level  technical and executive  positions  with Systron  Donner  Corporation,  a
manufacturer  of avionics  and  aerospace  sensors and  subsystems.  He was most
recently Chairman, President and CEO of Systron Donner Corporation, a subsidiary
of Thorn/EMI. Dr. Madni's degrees include a B.S and M.S. in Engineering from the
University  of  California,  Los  Angeles,  and  a  Ph.D.  in  Engineering  from
California Coast University. He is also a graduate of the Engineering Management
Program from the California Institute of Technology,  the AEA/Stanford Executive
Institute from Stanford  University,  and the Program for Senior Executives from
the Massachusetts Institute of Technology,  Sloan School of Management.  He is a
Chartered  Engineer and Fellow of the  Institute of Electrical  and  Electronics
Engineers,  the  Institution  of  Electrical  Engineers,  the  Institute for the
Advancement  of  Engineering,   the  New  York  Academy  of  Sciences,  and  the
International Biographical Association.

     Mr.  Wrench  began  serving  as a  Director  in  June  1997  prior  to  the
Distribution  and  resulting  spin-off of the Company  from  Medical  Systems in
September  1997.  He was Senior Vice  President and Chief  Financial  Officer of
Medical  Systems  from  July  1993  until  his  resignation  as a result  of the
Distribution,  and  held  these  same  positions  with  Technologies  until  his
retirement in May 2000.  He was named a Director of Medical  Systems in February
1986, and continues to serve as a director of Medical Systems. He also serves as
a director of OpticNet,  Inc., a minority owned  subsidiary of the company,  and
has served as Chief Financial Officer of that company since May 2000. From April
1985 to July 1993, he served as Vice President of Medical  Systems and President
and Chief Executive  Officer of BEI Motion Systems Company,  Inc., then a wholly
owned  subsidiary  of Medical  Systems that is now a part of the Company.  Other
experience includes twenty years with Hughes Aircraft Company.  Mr. Wrench holds
a B.A. from Pomona College and an M.B.A. from the University of California,  Los
Angeles.

Staggered Board of Directors

     The Company has a staggered  Board of Directors,  which may have the effect
of deterring  hostile  takeovers or delaying changes in control of management of
the Company.  For purposes of  determining  their term of office,  directors are
divided into three classes, with the term of office of the Class II directors to
expire at the 2002  annual  meeting of  stockholders,  the term of office of the
Class III directors to expire at the 2003 annual meeting of stockholders and the
term of office of the Class I directors to expire at the 2004 annual  meeting of
stockholders.  Class II consists of Mr. Giroir, Dr. Madni and Mr. Wrench;  Class
III consists of Mr. Brooks and Dr. Howard; and Class I consists of Mr. Brown and
Mr.  Crocker.  Directors  elected to succeed those  directors whose terms expire
will be elected to a three-year term of office.  All directors hold office until
the next annual  meetings of  stockholders at which their terms expire and until
their successors have been duly elected and qualified.  Executive officers serve
at the discretion of the Board. There are no family relationships between any of
the officers and directors.

Executive Officers

     In  addition  to  Mr.   Crocker  and  Dr.  Madni,   whose   positions  with
Technologies,   experience  and  educational   background  are  described  under
Directors  above,  the  following   persons  are  also  Executive   Officers  of
Technologies:

     Mr.  Brasuell is Vice  President and General  Manager of the Systron Donner
Inertial  Division of  Technologies.  Mr.  Brasuell has served in this  position
since October 1995. From 1985 until 1995 Mr. Brasuell held executive staff level
positions  at  Systron


                                       15
<PAGE>

Donner Inertial Division in Program  Management and Contracts,  Advanced Product
Development and  Manufacturing.  Between 1976 and 1986 Mr. Brasuell held various
technical and management positions at Systron Donner Inertial Division.

     Mr. Corr was named a Vice President of  Technologies  in March 2000. He has
served as Treasurer,  Controller and Secretary of  Technologies  since September
1997  and  held  these  same  positions  with  Medical   Systems  prior  to  the
Distribution  in September  1997.  Mr. Corr  resigned  from his  positions  with
Medical  Systems  immediately  prior to the  Distribution.  Mr.  Corr  served as
Secretary  of Medical  Systems in February  1995 and served as  Controller  from
November  1989  and as  Treasurer  from  November  1987  until  his  resignation
immediately  prior to the  Distribution.  From 1978 to 1987,  he was employed by
AMPEX  Corporation,  an  electronics  and  magnetic  media  company,  in various
financial  positions.  From 1975 to 1978, he was an auditor with Arthur Andersen
LLP. Mr. Corr received a B.B.A. from Loyola University and is a Certified Public
Accountant in the State of California.

     Mr.  LaBoskey  began serving as Senior Vice  President and Chief  Financial
Officer of the Company,  in May 2000. He was appointed  Vice President and Chief
Financial  Officer of BEI Sensors & Systems Company Inc., in October 1993, which
was  formed by the  consolidation  of BEI  Motion  Systems  Company  and the BEI
Sensors & Controls Group, of which Mr. LaBoskey had served as Vice President and
Controller  since 1992.  Prior to joining  Technologies in 1992, he served for 7
years as  Controller  for Systron  Donner  Corporation,  Microwave  Division,  a
manufacturer  of avionics  and  aerospace  sensors and  subsystems.  He was most
recently  Director of Finance for Systron  Donner  Corporation,  a subsidiary of
Thorn/EMI. Mr. LaBoskey's degrees include a Bachelor of Arts from the University
of  California,  Irvine,  and a  Masters  in  Business  Administration  from the
University of Colorado.  He is also a graduate of the Executive Program from the
University of California,  Los Angeles,  Anderson School of Management.  He is a
Certified  Management  Accountant  (CMA)  through the  Institute  of  Management
Accountants  (IMA), and Certified in Production and Inventory  Management (CPIM)
through the American Production and Inventory Control Society (APICS).

     Mr. Pike serves as Senior Vice President of Divisional  Administration  and
Human  Resources for  Technologies.  Mr. Pike joined  Technologies  in 1983, and
prior to his present position served in various operational,  administrative and
financial  positions  with BEI  Sensors  &  Systems  Company,  a  subsidiary  of
Technologies.  Prior to joining  Technologies,  he was employed by Coastal Oil &
Gas and AFCO Metals in their  respective  financial  departments.  He received a
B.A. from Ouachita Baptist University in 1973 and his CPA in 1979 from the State
of Arkansas.


                                       16
<PAGE>

ITEM 2.  PROPERTIES

The Company's  principal executive offices are located in leased office space in
San Francisco,  California, under a lease that expires in 2003. The Company owns
or operates  nine other  facilities  that relate to the business  and  maintains
office space in various locations throughout the United States and in Europe for
sales and technical support.  None of the owned principal  properties is subject
to any  encumbrance  material to the  consolidated  operations  of the  Company.
Management believes that its existing owned or leased facilities are adequate to
meet  the  Company's  needs  for the  foreseeable  future.  In  addition  to its
executive offices, the Company's principal facilities are as follows:

Location                                  Description of Facility
--------------------------------------------------------------------------------

Maumelle, Arkansas            Owns    approximately     50,000    square    foot
                              manufacturing,   engineering,  administrative  and
                              research and development facility.

Concord, California           Owns    approximately    101,000    square    foot
                              manufacturing,   engineering  and   administrative
                              facilities.

Sylmar, California            Leases    approximately    74,000    square   foot
                              manufacturing,   engineering  and   administrative
                              facility.

Tustin, California            Leases    approximately    80,000    square   foot
                              manufacturing,   engineering  and   administrative
                              facility.

San Marcos, California        Leases    approximately    35,000    square   foot
                              manufacturing,   engineering  and   administrative
                              facilities.

Goleta, California            Owns    approximately     25,000    square    foot
                              manufacturing,   engineering  and   administrative
                              facility.

Campbell, California          Leases    approximately    5,000    square    foot
                              manufacturing,  administrative  and  research  and
                              development facility.

Hayward, California           Leases approximately 2,330 square foot engineering
                              facility and leases  approximately  15,000  square
                              foot   manufacturing,   research  and  development
                              facility.

Strasbourg, France            Leases and subleases  approximately  20,000 square
                              foot manufacturing, engineering and administrative
                              facility.


                                       17
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

The Company has pending  various legal  actions  arising in the normal course of
business.  Management believes that none of these legal actions, individually or
in the  aggregate,  will  have a  material  impact  on the  Company's  business,
financial condition or operating results.


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

None.

PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock commenced  regular way trading on the NASDAQ National
Market  System under the symbol  "BEIQ" on October 8, 1997.  Set forth below are
the high and low  closing  sale  prices on the  National  Market  System for the
periods indicated, adjusted for the one-for-one stock dividend paid November 21,
2000 to  shareholders  of record as of October 30, 2000.  Such quotations do not
reflect retail mark-ups, markdowns or commissions.

  2001 Fiscal Year                                               Cash Dividend
  (ended 9/29/01)             High               Low                Declared
--------------------------------------------------------------------------------
  Fourth Quarter             $28.60              $13.50               $0.01
  Third Quarter              $37.00              $15.69               $0.01
  Second Quarter             $18.56              $11.00               $0.01
  First Quarter              $21.69              $ 9.94              $0.045

  2000 Fiscal Year                                               Cash Dividend
  (ended 9/30/00)             High               Low                Declared
--------------------------------------------------------------------------------
  Fourth Quarter             $29.31              $11.19               $0.01
  Third Quarter              $14.47              $ 6.25               $0.01
  Second Quarter             $10.63              $ 5.25               $0.01
  First Quarter              $ 9.38              $ 5.63               $0.01


     As of November 26, 2001, there were  approximately  1,200 holders of record
of the Company's common stock.  The Board of Directors  declared and the Company
paid cash  dividends  per share of common  stock  noted above in fiscal 2001 and
2000.  Payment of dividends is within the  discretion of the Company's  Board of
Directors,  will be subject to  periodic  review and will  depend,  among  other
factors,  upon  the  earnings,  capital  requirements,   operating  results  and
financial  condition of the Company from time to time. There are no restrictions
on the Company's  ability to pay  dividends  provided the covenants set forth in
its bank credit  agreement and Senior Note Agreement are met (see  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Liquidity  and  Capital  Resources"  and  Note 4 to the  Consolidated  Financial
Statements).  The  covenants  primarily  concern  certain  operating  ratios and
minimum balances of tangible net worth.


                                       18
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

The selected financial data for the five fiscal years presented below is derived
from the audited  Consolidated  Financial  Statements  of the Company.  The data
should be read in conjunction  with the  Consolidated  Financial  Statements and
their related Notes, and the other financial information included therein.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                                                 Years Ended
                                               September 29,    September 30,      October 2,        October 3,   September 27,
                                                   2001             2000             1999              1998            1997(1)
                                                               (amounts in thousands except per share amounts)
------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>              <C>             <C>               <C>             <C>
Statement of Income Data:
Net sales                                       $238,985         $219,216        $159,403          $124,264        $101,539
Income from continuing operations
   (before extraordinary item)                    11,717            9,607           5,339             2,515           2,997
Diluted income from continuing
   operations per share (before
   extraordinary item and discontinued
   operations)                                      0.81             0.65            0.37              0.17            0.21
Shares used in computing diluted
   income per share (before
   extraordinary item)                            14,444(2)        14,807(2)       14,508(2)         14,548(2)       14,134(2)
Balance Sheet Data:
Working capital                                 $ 43,764         $ 41,808        $ 37,937          $ 36,124        $ 26,967
Total assets                                     146,357          138,288         123,360           109,515          94,855
Long-term debt (excluding current
   portion)                                       29,556           36,614          36,705            37,157          27,508
Stockholders' equity                              60,320           49,096          45,843            40,194          36,617
------------------------------------------------------------------------------------------------------------------------------
<FN>
1 Selected  financial data for the year ended September 27, 1997 is derived from
results of Electronics prior to the Distribution

2 Share  numbers have been  adjusted for the  one-for-one  stock  dividend  paid
November 21, 2000 to shareholders of record as of October 30, 2000
</FN>
</TABLE>


                                       19
<PAGE>

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

     Except for the  historical  information  contained  herein,  the  following
discussion   contains   forward-looking   statements   that  involve  risks  and
uncertainties.  The Company's actual results could differ  materially from those
discussed  in, or implied by,  these  forward-looking  statements.  Factors that
could cause or contribute to such differences  include,  but are not limited to,
those discussed in this section and in the "Business--Risk  Factors"--section of
this Report.

     The  following  table sets forth,  for the fiscal  periods  indicated,  the
percentage  of  net  sales   represented  by  certain  items  in  the  Company's
Consolidated Statements of Operations.

<TABLE>
<CAPTION>
                                                                                            Years Ended
                                                                                            -----------
                                                                                      2001       2000      1999
                                                                                      ----       ----      ----
<S>                                                                                 <C>        <C>       <C>
Net sales...........................................................                100.0%     100.0%    100.0%
Cost of sales.......................................................                 72.8       72.3      69.7
                                                                                    -----      -----     -----
Gross profit........................................................                 27.2       27.7      30.3

Operating expenses:
     Selling, general and administrative expenses...................                 14.7       15.6      18.8
     Research, development and related expenses.....................                  3.7        4.1       4.2
                                                                                    -----      -----     -----
Income from operations..............................................                  8.8        8.0       7.3
Other income........................................................                  0.2        0.4       0.2
Interest expense....................................................                  1.0        1.2       1.9
                                                                                    -----      -----     -----
Income before income taxes and extraordinary item...................                  8.0        7.2       5.6
Income taxes........................................................                  3.1        2.8       2.3
                                                                                    -----      -----     -----
Income before extraordinary item....................................                  4.9        4.4       3.3
Extraordinary item, net of income taxes.............................                 (0.0)      (0.0)     (0.2)
                                                                                    -----      -----     -----
Net Income..........................................................                  4.9%       4.4%      3.1%
                                                                                    =====      =====     =====
</TABLE>

Continuing Operations

Net Sales

     During  fiscal  2001,  net sales for the Company  increased  9.0% to $239.0
million from $219.2 million in fiscal 2000,  reflecting  continuing increases in
sales  due to growth  in the  automotive  industry's  demand  for the  Company's
GyroChip sensors used in automotive  stability systems.  Sales to the automotive
industry,  including sales of the Company's GyroChip sensors, increased 29.0% to
$138.7  million from $107.5  million in fiscal 2000. In fiscal 2002, the Company
is transitioning to its next generation GyroChip sensor, a multi-sensor  cluster
configuration.  Sales to other industrial  customers  decreased $11.2 million to
$81.8 million from $93.0 million  during fiscal 2001  resulting  primarily  from
reduced  sales  to the  semiconductor  capital  equipment  industry.  Government
related sales  decreased $0.2 million in fiscal 2001 to $18.5 million from $18.7
million during fiscal 2000.

     During  fiscal 2000,  net sales for the Company  increased  37.5% to $219.2
million from $159.4 in fiscal 1999, reflecting continuing increases in sales due
to growth in the automotive industry's demand for the Company's GyroChip sensors
used  in  automotive  stability  systems.  Sales  to  the  automotive  industry,
including  sales of the Company's  GyroChip  sensors,  increased 97.3% to $107.5
million from $54.5 million in fiscal 1999. Sales to other  industrial  customers
increased  $7.2 million to $93.0 million from $85.8 million  during fiscal 2000.
Government  related sales decreased $0.5 million in fiscal 2000 to $18.7 million
from $19.2 million during fiscal 1999.

     The Company's sales to international customers were approximately 56%, 45%,
and 28% of the Company's net sales for fiscal 2001, 2000 and 1999, respectively.
The increase in  international  sales is  attributable to increased sales of the
Company's  GyroChip  sensors  and the  Company's  acquisition  in August 1998 of
Ideacod,  S.A., a sensor  manufacturer  located in Strasbourg,  France. The vast
majority of sales to non-U.S. customers are denominated in U.S. Dollars.


                                       20
<PAGE>

Cost of Sales and Gross Profit

     In fiscal 2001,  cost of sales as a percentage  of net sales  increased 0.5
percentage  points due to increased  shipments of products having higher average
production  costs.  The  Company  also  continued  to expand  its  manufacturing
capacity for the  production of GyroChip  sensors  resulting in higher costs for
employee hiring and training in fiscal 2001.  Management  continues to undertake
technological  initiatives  designed to increase  manufacturing  and  production
efficiencies  and  attempts to maintain  close  relationships  with  vendors and
customers in an effort to reduce costs and increase margins.

     In fiscal 2000,  cost of sales as a percentage  of net sales  increased 2.6
percentage  points due to increased  shipments of products having higher average
production  costs and  continued  expansion  of  manufacturing  capacity for the
production of GyroChip sensors.

Selling, General and Administrative Expenses

     Selling,  general and administrative expenses in fiscal 2001 increased $0.8
million from $34.3 million in fiscal 2000 to $35.1 million primarily as a result
of costs  incurred to support the  increase in sales during  fiscal  2001.  As a
percentage of sales, selling,  general and administrative expenses decreased 0.9
percentage  points to 14.7% in fiscal 2001 from 15.6% in fiscal 2000 as a result
of increased sales.

     Selling,  general and administrative expenses in fiscal 2000 increased $4.3
million from $30.0  million in fiscal 1999 to $34.3 million as a result of costs
incurred to support the increase in sales during fiscal 2000. As a percentage of
sales,  selling,  general and  administrative  expenses decreased 3.2 percentage
points  to  15.6% in  fiscal  2000  from  18.8% in  fiscal  1999 as a result  of
management's cost reduction efforts.

Research, Development and Related Expenses

     Research and development  expenses in fiscal 2001 decreased $0.1 million to
$8.8 million from $8.9 million in fiscal 2000. The decrease is due to a spending
reduction  primarily  associated  with  SiTek,  partially  offset  by  increased
spending on the design and  development  of  non-contacting  position and torque
sensors (e.g. NCAPS) for industrial and automotive applications.

     Research and  development  expenses in fiscal 2000 increased  34.8% to $8.9
million from $6.6 million in fiscal 1999.  This  increase was  primarily  due to
spending     incurred    for    research     efforts    focused    on    silicon
micro-electromechanical  systems  (MEMS)  and  costs of  refocusing  engineering
resources related to automotive GyroChip  production from manufacturing  support
in an  attempt to achieve  further  product  enhancement  of  existing  GyroChip
sensors.

     The Company believes that the continued timely  development of new products
and  enhancements  to its  existing  products is essential  to  maintaining  its
competitive  position.   Accordingly,  the  Company  anticipates  that  expenses
associated with such efforts will increase in absolute amount, but may fluctuate
as a  percentage  of sales  depending  on the  Company's  success  in  acquiring
customers or, in some cases,  U.S.  Government  contracts  funding  research and
development efforts.

Interest Expense and Other Income

     Interest expense was $2.5 million,  $2.6 million and $3.0 million in fiscal
2001, 2000 and 1999, respectively.  Interest expense in fiscal 2001 approximated
interest  expense in fiscal 2000. The decrease in interest expense during fiscal
2000 from fiscal 1999  resulted  from a reduction in the amount and frequency of
borrowings  on the  Company's  line  of  credit  as a  result  of the  Company's
increased  cash  flows.  The  Company's  average  interest  rate in fiscal  2001
approximated  the average  interest rate in fiscal 2000.  The Company's  average
interest  rate was lower in fiscal  2000 than in fiscal  1999 due to the reduced
need for bank borrowings.

     Other income in fiscal 2001,  2000 and 1999 was  comprised of royalties and
interest  income  earned on highly  liquid  investments.  Other  income was $0.5
million,  $1.0  million  and $0.4  million  for  fiscal  2001,  2000  and  1999,
respectively.  The higher income in fiscal 2000 resulted primarily from the sale
in the second  quarter of fiscal 2000 of an asset held for  investment  for $0.5
million, net.


                                       21
<PAGE>

Income Taxes

     The  Company's  effective  tax rate was  39.1%,  39.3% and 40.4% for fiscal
2001, 2000 and 1999, respectively. The effective tax rate primarily reflects the
statutory  federal tax rate and the  weighted  average tax rate of the states in
which the Company conducts  business.  The decrease of 0.2 percentage  points in
fiscal 2001 from fiscal 2000 and the decrease of 1.1 percentage points in fiscal
2000 from fiscal 1999  results  from  increased  federal and state tax  credits,
primarily foreign tax credits and  manufacturer's  investment  credits,  for the
Company during fiscal 2001 and fiscal 2000, respectively.

Deferred Income Taxes

     At September  29,  2001,  the Company had net current  deferred  income tax
assets of $6.3 million and net  non-current  deferred  income tax assets of $3.0
million.  Realization  of the net  deferred  tax  assets is  dependent  upon the
Company  generating  sufficient taxable income in future years to benefit from a
reversal of the underlying temporary differences.

Liquidity and Capital Resources

     During  fiscal 2001,  operations of the Company  provided  $15.1 million in
cash.  Net income of $11.7  million  plus  non-cash  charges  for  depreciation,
amortization  and deferred  income taxes of $6.5 million,  $3.2 million and $1.2
million,  respectively,  together  with a  decrease  of $6.3  million  in  trade
receivables  provided  $28.9 million in cash.  These cash inflows were offset by
increases  in assets  held for sale and other  assets of $6.4  million  and $3.7
million,  respectively,  and net decreases in trade  accounts  payable,  accrued
expenses and other liabilities of $3.7 million. The assets held for sale include
research  and  development  equipment  of $3.3  million that will be bundled for
lease  financing when the assets are placed in service.  The Company  expects to
rent capacity on this equipment to OpticNet, an equity investee. Assets held for
sale also include production equipment of $3.1 million that the Company plans to
sell to a significant  customer.  Additionally,  other  liabilities  included an
amount of $1.0 million in respect of stock  repurchased under a temporary change
to SEC and NASDAQ rules at fiscal 2001 year end.

     Investing  activities for the Company in fiscal 2001 consisted primarily of
the  purchase  of  $8.4  million  in  capital  equipment  to  support  increased
production.  The majority of the equipment  purchased was for the  production of
automotive  sensors.  In  addition,  the  Company  paid  $1.0  million  for  the
investment in OpticNet,  and another cash outflow was due to an increase of $0.2
million in other assets.  These cash outflows were offset by the receipt of $0.1
million in cash from the  disposal of  equipment  resulting  in net cash used by
investing activities of $9.5 million.

     Fiscal 2001  financing  activities  primarily  consisted  of the  Company's
open-market  repurchases of its common stock totaling $1.5 million. In addition,
the Company paid $1.1 million in dividends and $0.2 million for debt  repayment.
These cash outflows were offset by proceeds of $0.7 million from stock issuances
related to the  exercise  of options  granted  under the  Company's  1997 Equity
Incentive Plan and  contributed  capital from a minority  interest in one of the
Company's  majority-owned  subsidiaries,  as well as $0.7  million  from the tax
benefit  of  the  exercised  stock  options,  resulting  in net  cash  used  for
financing activities of $1.4 million during fiscal 2001.

     The Company anticipates that its existing capital resources, including cash
provided by operating activities and available bank borrowings, will be adequate
to fund the Company's operations for at least the next twelve months.

Effects of Inflation

     Management believes that, for the periods presented,  inflation has not had
a material effect on the Company's operations.


                                       22
<PAGE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company is exposed to market risk in the form of changes in foreign
exchange rates,  changes in the prices of marketable  equity  securities held as
part of a deferred  compensation  plan (a "Rabbi"  trust)  and  interest  income
sensitivity.

         The  Company  has  approximately  $2,500,000  (calculated  based on the
conversion rate for French francs at September 29, 2001) permanently invested in
the assets of Ideacod,  S.A., located in Strasbourg,  France. The potential loss
in fair value  resulting from a  hypothetical  10% adverse change in the foreign
currency  exchange rate amounts to $250,000,  which would not be material to the
consolidated financial statements.

         The Rabbi trust  assets,  consisting of cash  equivalents  and debt and
equity securities,  are offset by an equivalent deferred compensation  liability
to the trust participants.  The liability fluctuates equally with changes in the
value of the assets.  Because the liability completely offsets the assets of the
trust,  changes  in asset  value  have no effect  on the  Company's  results  of
operations or financial position.

         The Company's  exposure to interest  income  sensitivity is affected by
changes  in the  general  level of U.S.  interest  rates,  as a  portion  of the
Company's  investments are in short-term debt securities issued by corporations.
The Company's  investments are placed with high-duality  issuers and the Company
attempts to limit the amount of credit  exposure  to any one issuer.  Due to the
nature of the Company's short-term investments,  the Company believes that it is
not subject to any material market risk exposure.  The Company does not have any
foreign currency or other derivative financial instruments.


                                       23
<PAGE>

ITEM  8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED BALANCE SHEETS
BEI Technologies, Inc. and Subsidiaries

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                                                                         September 29,     September 30,
dollars in thousands except share amounts                                         2001              2000
---------------------------------------------------------------------------------------------------------
<S>                                                                           <C>               <C>
ASSETS

Current assets
Cash and cash equivalents                                                     $ 16,438          $ 12,296
Investments                                                                      7,099             7,252
Trade receivables:
   Commercial customers, less allowance for doubtful
   accounts (2001--$1,662; 2000--$1,084)                                        22,734            30,439
   United States Government                                                      4,034             2,628
                                                                         --------------    --------------

                                                                                26,768            33,067

Inventories, less inventory
   reserves (2001--$3,755; 2000--$4,452)                                        30,808            31,084
Deferred income taxes                                                            6,322             6,148
Assets held for sale                                                             4,881                --
Other current assets                                                             5,476             1,715
                                                                         --------------    --------------

Total current assets                                                            97,792            91,562

Property, plant and equipment
Land                                                                             4,294             4,287
Structures                                                                      14,378            12,513
Equipment                                                                       66,496            61,909
Leasehold improvements                                                           1,671             1,589
                                                                         --------------    --------------
                                                                                86,839            80,298

Less allowances for depreciation and amortization                               49,032            44,288
                                                                         --------------    --------------
                                                                                37,807            36,010

Other assets
Tradenames, patents and related assets,
  less amortization (2001--$3,493; 2000--$3,082)                                   424             1,201
Technology acquired under license agreements,
  less amortization (2001--$8,077; 2000--$7,115)                                 2,731             3,093
Goodwill, less amortization (2001--$590; 2000--$964)                             1,612             2,085
Deferred income taxes, non-current                                               3,174             3,214
Other                                                                            2,817             1,123
                                                                         --------------    --------------

                                                                                10,758            10,716
                                                                         --------------    --------------

                                                                              $146,357          $138,288
                                                                         ==============    ==============
</TABLE>

See notes to consolidated financial statements


                                       24
<PAGE>

CONSOLIDATED BALANCE SHEETS (cont.)
BEI Technologies, Inc. and Subsidiaries

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                                                                         September 29,     September 30,
dollars in thousands except share amounts                                         2001              2000
---------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Trade accounts payable                                                        $ 18,357           $18,926
Accrued expenses and other liabilities                                          21,483            23,442
Deferred compensation liability                                                  7,099             7,252
Current portion of long-term debt                                                7,089               134
                                                                         --------------    --------------

Total current liabilities                                                       54,028            49,754

Long-term debt, less current portion                                            29,556            36,614

Other liabilities                                                                2,453             2,824

Stockholders' equity
Preferred stock
    ($.001 par value; authorized 2,000,000 shares; none issued)
Common stock                                                                        --                --
    ($.001 par value; authorized 35,000,000 shares; issued
    and outstanding; 2001--14,326,272; 2000--14,308,776)
Retained earnings                                                                4,025             2,321
Accumulated other comprehensive loss                                            59,434            49,193
                                                                                  (458)             (398)
                                                                         --------------    --------------
                                                                                63,001            51,116
Less:  Unearned restricted stock                                                (2,681)           (2,020)
                                                                         --------------    --------------

Total stockholders' equity                                                      60,320            49,096
                                                                         --------------    --------------

                                                                              $146,357          $138,288
                                                                         ==============    ==============

</TABLE>

See notes to consolidated financial statements


                                       25
<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS
BEI Technologies, Inc. and Subsidiaries

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                                                    Years Ended
                                                                 --------------------------------------------------

                                                                   September 29,   September 30,        October 2,
dollars in thousands except share and per share amounts                     2001            2000              1999
-------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>             <C>               <C>
Net sales                                                               $238,985        $219,216          $159,403
Cost of sales                                                            173,897         158,526           111,180
                                                                 ----------------  --------------  ----------------

Gross profit                                                              65,088          60,690            48,223

Selling, general and administrative expenses                              35,077          34,300            30,044
Research, development and related expenses                                 8,825           8,897             6,605
                                                                 ----------------  --------------  ----------------
                                                                          43,902          43,197            36,649
                                                                 ----------------  --------------  ----------------
Income from operations                                                    21,186          17,493            11,574
Other income                                                                 524             968               360
Interest expense                                                          (2,466)         (2,644)           (2,974)
                                                                 ----------------  --------------  ----------------
Income before income taxes and extraordinary item                         19,244          15,817             8,960
Income taxes                                                               7,527           6,210             3,621
                                                                 ----------------  --------------  ----------------
Income before extraordinary item                                          11,717           9,607             5,339
Extraordinary item, net of income taxes                                       --              --              (326)
                                                                 ----------------  --------------  ----------------

Net income                                                              $ 11,717        $  9,607          $  5,013
                                                                 ================  ==============  ================

                                     Basic Income Per Share

Income before extraordinary item per common share                          $0.84        $   0.68          $   0.37
Loss from extraordinary item per common share                                 --              --             (0.02)
                                                                 ----------------  --------------  ----------------
Net income per common share                                             $   0.84        $   0.68          $  0.35
                                                                 ================  ==============  ================
Shares used in computing basic income per
     common share                                                     13,904,937      14,113,156        14,315,890
                                                                 ================  ==============  ================
                                     Diluted Income Per Share

Income before extraordinary item per
    common and common equivalent share                                  $   0.81        $   0.65          $   0.37
Loss from extraordinary item per common and common
    equivalent share                                                          --              --             (0.02)
                                                                 ----------------  --------------  ----------------
Net income per common and common equivalent share                       $   0.81        $   0.65          $   0.35
                                                                 ================  ==============  ================
Shares used in computing diluted income per common and
     common equivalent share                                          14,443,609      14,806,504        14,508,968
                                                                 ================  ==============  ================
</TABLE>

See notes to consolidated financial statements


                                       26
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
BEI Technologies, Inc. and Subsidiaries

<TABLE>
<CAPTION>
                                                                                    Years Ended
                                                                   ------------------------------------------------
                                                                   September 29,    September 30,       October 2,
dollars in thousands                                                        2001             2000             1999
-------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>             <C>               <C>
Cash flows from operating activities:
Net income                                                              $ 11,717        $  9,607          $  5,013
Adjustments to reconcile net income to net cash provided
    by operating activities:
Depreciation                                                               6,456           6,067             6,220
Amortization                                                               3,247           2,826             2,013
Deferred income taxes                                                      1,250          (3,036)             (576)
Loss (gain) on disposition of assets                                          17            (415)               42
Foreign currency translation                                                 (60)           (292)             (145)
Changes in operating assets and liabilities:
Trade receivables                                                          6,298          (3,511)           (6,244)
Inventories                                                                  276             (47)           (1,657)
Assets held for sale                                                      (6,383)             --                --
Other current assets                                                      (3,755)            831            (1,061)
Customer advances                                                           (258)            166              (535)
Trade accounts payable, accrued expenses and other liabilities            (3,706)         11,375             7,112
                                                                 ----------------  --------------  ----------------

Net cash provided by operating activities                                 15,099          23,571            10,182

Cash flows from investing activities:
Investment in minority owned equity investee - OpticNet                   (1,000)             --                --
Purchase of property, plant and equipment                                 (8,436)         (8,408)          (10,597)
Proceeds from sale of assets                                                 109           1,868                --
Other                                                                       (194)            (27)               10
                                                                 ----------------  --------------  ----------------
Net cash used by investing activities                                     (9,521)         (6,567)          (10,587)

Cash flows from financing activities:
Proceeds from long-term debt                                                   3           1,472            40,300
Principal payments on debt and other financing                              (153)         (2,121)          (40,457)
Proceeds from issuance of common stock                                       667             903                55
Tax benefit from exercised stock options                                     654              31               726
Repurchase of stock                                                       (1,531)         (7,586)               --
Payment of cash dividend                                                  (1,076)           (588)             (595)
                                                                 ----------------  --------------  ----------------

Net cash provided (used) by financing activities                          (1,436)         (7,889)               29
                                                                 ----------------  --------------  ----------------

Net increase (decrease) in cash and cash equivalents                       4,142           9,115              (376)
Cash and cash equivalents at beginning of year                            12,296           3,181             3,557
                                                                 ----------------  --------------  ----------------

Cash and cash equivalents at end of year                                $ 16,438        $ 12,296          $  3,181
                                                                 ================  ==============  ================
</TABLE>

See notes to consolidated financial statements


                                       27
<PAGE>

CONSOLIDATED  STATEMENT  OF CHANGES IN  STOCKHOLDERS'  EQUITY AND  COMPREHENSIVE
INCOME

BEI Technologies, Inc. and Subsidiaries

<TABLE>
<CAPTION>
                                                                       Accumulated
                                                                          Other                          Unearned
                                            Common          Retained   Comprehensive   Comprehensive    restricted
dollars in thousands                        Stock           earnings      Income           Income          stock         Total
-------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>             <C>              <C>              <C>         <C>           <C>
Balances at October 3, 1998                $  2,132        $ 40,080         $   39                       $(2,057)      $40,194
Net income for 1999                                           5,013                           5,013                      5,013
    Other comprehensive income
       Foreign currency translation
       loss, net of income tax of $96                                         (145)            (145)                      (145)
                                                                                     ---------------
Comprehensive income                                                                          4,868
                                                                                     ===============
Restricted Stock Plan                           818                                                         (223)          595
Stock options exercised                          55                                                                         55
Tax benefit from exercised stock
    options                                     726                                                                        726
Cash dividends                                                 (595)                                                      (595)
                                         ----------- --------------- --------------                   ------------ ------------
Balances at October 2, 1999                $  3,731        $ 44,498         $ (106)                      $(2,280)      $45,843
Net income for 2000                                           9,607                           9,607                      9,607
    Other comprehensive income
       Foreign currency translation
       loss, net of income tax of $96                                         (292)            (292)                      (292)
                                                                                     ---------------
Comprehensive income                                                                          9,315
                                                                                     ===============
Restricted Stock Plan                           918                                                          260         1,178
Stock options exercised                         903                                                                        903
Tax benefit from exercised stock
    options                                      31                                                                         31
Repurchase of stock                          (3,262)         (4,324)                                                    (7,586)
Cash dividends                                                 (588)                                                      (588)
                                         ----------- --------------- --------------                   ------------ ------------
Balances at September 30, 2000             $  2,321        $ 49,193         $ (398)                      $(2,020)      $49,096
Net income for 2001                                          11,717                          11,717                     11,717
    Other comprehensive income
       Foreign currency translation
       loss, net of income tax of $39                                          (60)             (60)                       (60)
                                                                                     ---------------
Comprehensive income                                                                         11,657
                                                                                     ===============
Restricted Stock Plan                         1,416                                                         (661)          755
Stock options exercised                         390                                                                        390
Tax benefit from exercised stock
    options                                     654                                                                        654
Tax benefit from restricted stock             1,139                                                                      1,139
Repurchase of stock                         (2,130)           (400)                                                     (2,530)
Cash dividends                                              (1,076)                                                     (1,076)
Contributed capital and other                   235                                                                        235
                                         ----------- --------------- --------------                   ------------ ------------
Balances at September 29, 2001             $  4,025        $ 59,434         $(458)                       $(2,681)      $60,320
                                         =========== =============== ==============                   ============ ============
</TABLE>

See notes to consolidated financial statements


                                       28
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BEI Technologies, Inc. and Subsidiaries
September 29, 2001

Note 1 Summary of Significant Accounting Policies

     Basis of Presentation:  BEI Technologies  ("Technologies" or the "Company")
was  incorporated in Delaware in June 1997 and became publicly held on September
27, 1997 as a result of the  distribution  of shares in  Technologies to all the
stockholders  of BEI  Electronics,  Inc.,  (since  renamed BEI  Medical  Systems
Company, Inc., ("Medical Systems") on September 24, 1997 (the "Distribution").

     At the close of  business  on October  30,  2000,  Technologies  declared a
distribution  to its  stockholders  of  approximately  42%  of  the  outstanding
securities of OpticNet, Inc. ("OpticNet"),  a formerly majority-owned subsidiary
of  Technologies.  In the  distribution,  each holder of record of  Technologies
common stock as of the close of business on October 30, 2000  received one share
of OpticNet common stock for every two shares of Technologies common stock held,
and cash in lieu of any fractional  share of OpticNet common stock. The OpticNet
common stock  dividend  valued at $0.04 per share of  Technologies  common stock
resulted in a tax basis of $0.08 per  OpticNet  share.  The total  dividend  was
approximately $300,000, based on an appraisal of OpticNet.

     In the quarter ending December 30, 2000,  Technologies' effective ownership
in OpticNet was reduced to 24%.  OpticNet's  net loss for the three month period
from  October 1, 2000  through  December 30, 2000 of $176,000 is included in the
consolidated  results of Technologies.  Beginning December 31, 2000, the Company
accounted  for its  investment  in OpticNet  under the equity  method and, as of
September 29, 2001,  reduced its initial $1.0 million  investment in OpticNet by
$160,000,  reflecting the Company's share of OpticNet losses for the nine months
from December 31, 2000 to September 29, 2001.

     The Board of Directors of  Technologies  also declared a one-for-one  stock
dividend to its stockholders,  effective October 30, 2000. Immediately following
the  effectiveness of the  distribution of the OpticNet shares,  stockholders of
record as of the close of business on October 30, 2000,  received one additional
share of the common stock of  Technologies  for each share held as of such date,
and cash in lieu of any fractional  share of Technologies  common stock. All per
share  numbers and per share data  included  within the  Company's  consolidated
financial  statements  have been  adjusted as  appropriate  to reflect the stock
dividend.

     The accompanying  financial  statements present the consolidated  financial
position  and  results  of  operations  of  the  Company  and  its  wholly-owned
subsidiaries. All intercompany accounts and transactions have been eliminated.

     The Sensors & Systems business provides sensors,  engineered subsystems and
associated  components  which are used for  controlled  precision  machinery and
equipment  in   industrial,   medical,   automotive,   aerospace   and  military
applications.

     Fiscal  Year:  The  Company's  fiscal  year  ends on the  Saturday  nearest
September 30. Fiscal years 2001, 2000 and 1999 each contained 52 weeks.

     Use of Estimates:  The  preparation  of financial  statements in conformity
with  accounting  principles  generally  accepted in the United States  requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and the accompanying notes. Actual results could differ
from these estimates.

     Cash  and  Cash  Equivalents:  The  Company  considers  all  highly  liquid
investments  with a maturity of three  months or less when  purchased to be cash
equivalents.

     Concentration of Credit Risk: The Company's  products are primarily sold to
commercial  customers  throughout  the  United  States  and in  various  foreign
countries and to the United States  government.  Substantially all foreign sales
are denominated in U.S. dollars. The Company performs ongoing credit evaluations
of its  commercial  customers and  generally  does not require  collateral.  The
Company  maintains  reserves for potential  credit  losses.  Historically,  such
losses have been within the expectations of management.

     Revenue  Recognition:  Revenue from product  sales is generally  recognized
upon shipment provided that a purchase order has been received or a contract has
been executed, there are no uncertainties regarding customer acceptance, any fee
is fixed or determinable and collectibility is deemed probable. If uncertainties
regarding   customer   acceptance   exist,   revenue  is  recognized  when  such
uncertainties  are  resolved.  The Company  records a warranty  liability on its
products at the time of revenue recognition.

     Inventories:  Inventories  are  carried  principally  at the  lower of cost
(first-in,  first-out  method) or fair  value and do not  exceed net  realizable
value.


                                       29
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BEI Technologies, Inc. and Subsidiaries

     Assets Held for Sale: Assets held for sale include research and development
equipment  of $3.3  million  that will be bundled for lease  financing  when the
assets are placed in  service.  The  Company  expects to rent  capacity  on this
equipment to  OpticNet,  an equity  investee.  Assets held for sale also include
$0.9  million,  which  is the  current  portion  of  deposits  and  advances  on
production  equipment  that a  significant  customer  has  agreed to fund over a
period of two years.  In addition,  assets held for sale  totaling  $1.5 million
have been  included in long term other assets  because it is not  expected  that
payment in respect of this  portion of the assets held for sale will be received
in the next  fiscal  year.  The  assets  are not in  production,  are not  being
depreciated  and are  available  for  immediate  sale.  Assets held for sale are
carried at cost.

     Depreciation and Amortization:  Property,  plant and equipment are recorded
at cost.  Depreciation and  amortization  are provided in amounts  sufficient to
amortize the cost of such assets over their estimated useful lives,  which range
from  3  to  30  years,  using  the  straight-line  method  for  structures  and
accelerated or straight-line methods for equipment.  Leasehold  improvements and
assets acquired under capital leases are amortized over the shorter of the lease
term or their estimated useful lives.

     Other Assets:  Tradenames,  patents and related assets are being  amortized
over  their  remaining  lives  at the  date of  acquisition  up to a  period  of
seventeen years. Other current assets include assets held for sale.

         Technology  acquired under license agreements consists primarily of the
cost of exclusive  rights to make, use and sell products  utilizing  quartz rate
sensing technology.  Technology acquired is being amortized over thirteen years,
which approximates its estimated useful life from the date of acquisition.

         Goodwill consists of the excess of cost over fair value of net tangible
assets  acquired  in  purchase  acquisitions.   Goodwill  is  amortized  by  the
straight-line method over 20 years.

         Long-Lived  Assets:   The  Company  recognizes   impairment  losses  in
accordance with Financial  Accounting Statement ("FAS") No. 121, "Accounting for
the Impairment of Long-Lived  Assets and  Long-Lived  Assets to be Disposed of."
Long-lived assets, including property, plant and equipment and other assets, are
reviewed and impairment recognized when indicators of impairment are present and
the  undiscounted  cash flows estimated to be generated by those assets are less
than the carrying amounts of the assets.

         Research and Development:  Costs to develop the Company's  products are
expensed as incurred.

         Recent   Accounting   Pronouncements:   In  July  2001,  the  Financial
Accounting  Standards Board ("FASB")  issued FAS No. 141 ("FAS 141"),  "Business
Combinations."  FAS 141 requires that the purchase  method of accounting be used
for all business  combinations  initiated  after June 30, 2001 and prohibits the
use of the pooling-of-interests method for those business combinations.  FAS 141
became effective on July 1, 2001. The adoption of this standard had no impact on
the Company.

         In July 2001,  the FASB issued FAS No. 142 ("FAS 142"),  "Goodwill  and
Other  Intangible  Assets." FAS 142 changes the  accounting for goodwill from an
amortization  method  to  an  impairment-only  approach.  Thus  amortization  of
goodwill,  including  goodwill  recorded in past  transactions,  will cease upon
adoption of this  statement.  FAS 142 is effective  for fiscal  years  beginning
after December 15, 2001, with early adoption  permitted for entities with fiscal
years  beginning  after March 15, 2001.  The Company has chosen to adopt FAS 142
for  its  fiscal  year  beginning  September  30,  2001.  After  adoption,   the
elimination  of goodwill  amortization  is not  expected  to have a  significant
impact on the Company.

         In October 2001,  the FASB issued FAS No. 144  ("FAS144"),  "Accounting
for the  Impairment  or Disposal of Long-Lived  Assets",  which is effective for
fiscal  periods  beginning  after  December 15, 2001.  FAS 144 provides a single
accounting  model for , and  supersedes  previous  guidance on,  accounting  and
reporting for the  impairment/disposal  of long-lived  assets.  FAS 144 sets new
criteria  for  the  classification  of  assets  held-for-sale  and  changes  the
reporting  of  discontinued  operations.  The Company  does not believe that the
adoption of FAS 144 will have a significant impact on its financial statements.

         Net Income  Per Share:  Basic  income per share is  computed  using the
weighted  average  number of shares  outstanding.  Diluted  income  per share is
computed using the weighted average number of shares  outstanding,  adjusted for
the incremental  shares attributed to unvested stock and outstanding  options to
purchase common stock calculated using the treasury stock method.


                                       30
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BEI Technologies, Inc. and Subsidiaries

         Foreign  subsidiary:  The  financial  statements  of Ideacod,  S.A. , a
wholly  owned  subsidiary,  have been  translated  into U.S.  dollars  at fiscal
year-end, using the exchange rates on those dates for assets and liabilities and
the  average  exchange  rates  during the period  for income and  expenses.  The
resulting  unrealized  translation  adjustments  are  recorded as a component of
other comprehensive income.

         Reclassification:  Certain reclassifications have been made to the 2000
and  1999  consolidated  financial  statements  to  conform  with  current  year
presentations.

<TABLE>
<CAPTION>
Note 2 Inventories
                                                                                     September 29,      September 30,
                                                                                              2001               2000
                                                                                              ----               ----
                                                                                             (in thousands)
                                                                                --------------------------------------
<S>                                                                                        <C>                 <C>
Finished products...............................................................           $ 4,919             $ 2,052
Work in process.................................................................             7,354               5,880
Materials.......................................................................            18,535              23,152
                                                                                           -------             -------
Total inventories...............................................................           $30,808             $31,084
                                                                                           =======             =======

<CAPTION>
Note 3 Accrued Expenses and Other Liabilities
                                                                                     September 29,       September 30,
                                                                                              2001                2000
                                                                                            (in thousands)
                                                                                --------------------------------------
<S>                                                                                        <C>                 <C>
Employee compensation...........................................................           $ 3,548             $ 3,915
Vacation........................................................................             2,066               1,810
Accrued taxes...................................................................             1,846               2,561
Contract costs..................................................................               550                 552
Accrued professional fees.......................................................             1,088               1,020
Insurance.......................................................................               762               1,303
Royalties and related costs.....................................................             5,593               6,188
Customer advances...............................................................               245                 891
Commissions.....................................................................               589                 755
Repurchase of stock.............................................................               999                  --
Other...........................................................................             4,197               4,447
                                                                                           -------             -------
Total accrued expenses and other liabilities....................................           $21,483             $23,442
                                                                                           =======             =======

<CAPTION>
Note 4 Long-Term Debt
                                                                                     September 29,       September 30,
                                                                                              2001                2000
                                                                                              ----                ----
                                                                                             (in thousands)
                                                                                --------------------------------------
<S>                                                                                        <C>                 <C>
6.70% Senior Notes; due in annual installments of $7,000 from November 16,
   2001 through November 16, 2005...............................................           $35,000             $35,000

Mortgage note payable with  interest at 6.87%;  due in monthly  installments of
   principal and interest of $14 until December, 2003 when the
   remaining balance of approximately $1,400 is due; collateralized
   by certain real property ....................................................             1,626               1,655

Capitalized equipment lease obligations.........................................                19                  93
                                                                                           -------             -------
                                                                                            36,645              36,748
Less current portion............................................................             7,089                 134
                                                                                           -------             -------
                                                                                           $29,556             $36,614
                                                                                           =======             =======
</TABLE>


                                       31
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BEI Technologies, Inc. and Subsidiaries

     On November 16, 1998,  the Company sold $35.0  million of senior notes in a
private placement.  The notes have an interest rate of 6.7% and mature in annual
installments  of $7.0 million  beginning  November 16, 2001 up to and  including
November 16, 2005.  The note  agreement  contains  covenants  regarding  certain
operating ratios,  limitations on debt, dividend payments and minimum net worth.
The proceeds  from the senior notes were used to repay the  pre-existing  senior
notes and pay down  outstanding  borrowings on the  Company's  line of credit as
they matured. The prepayment penalty and the remaining  unamortized loan fees of
$326,000,  net of the related tax benefit,  were charged in the first quarter of
fiscal 1999 as an extraordinary loss on the early extinguishment of the debt.

      On December 16, 1998,  the Company  established  a $12.0  million two year
line of credit with a bank and terminated the $25.0 million facility in place at
the end of fiscal 1998. Under the terms of line of credit,  the amount available
to the Company  increased  $1.0  million to $13.0  million  during  fiscal 2000.
During  fiscal  2001,  the Company  completed an amendment to its line of credit
agreement that  increased the amount  available to the Company to $25.0 million.
No  borrowings  were  outstanding  under the new line of credit at September 29,
2001. On December 13, 1998,  the mortgage note payable was  refinanced  with the
original lender and the due date extended from fiscal 1999 to fiscal 2003.

     Maturities of long-term  debt,  adjusted for the effect of senior notes and
the mortgage  refinancing and excluding  capitalized  equipment lease obligation
(see Note 9), are as follows:  fiscal 2002  $7,070,000;  fiscal 2003 $7,034,000;
fiscal 2004 $8,522,000; fiscal 2005 $7,000,000; fiscal 2006 $7,000,000.

     Interest of approximately  $2,499,000,  $2,480,000 and $2,354,000 were paid
during fiscal years 2001, 2000, and 1999, respectively.

Note 5 Research and Development

     The  Company's   internally   funded  research,   development  and  related
engineering  expenditures were approximately $8.8 million, $8.9 million and $6.6
million  in  fiscal   2001,   2000,   and  1999,   respectively.   In  addition,
customer-funded  research and development  expenditures charged to cost of sales
were $0.2  million,  $0.6 million and $0.4 million,  respectively,  for the same
periods.

Note 6 Income Taxes

     The Company  accounts for income taxes under FAS No. 109,  "Accounting  for
Income  Taxes."  Under this  method,  deferred  tax  liabilities  and assets are
recognized for the expected  future tax  consequences  of temporary  differences
between  the  carrying  amounts  and the tax  bases of assets  and  liabilities.
Deferred tax assets and  liabilities  are  determined  based on the  differences
between financial  reporting and the tax basis of assets and liabilities and are
measured  using the  enacted tax rates and laws known at this time and that will
be in effect when the differences are expected to reverse.

     The  provision  for  income  tax  expense  consists  of the  following  (in
thousands):

<TABLE>
<CAPTION>
                                                                                          Year Ended
                                                                          --------------------------------------------
                                                                          September 29,   September 30,     October 2,
                                                                                   2001            2000           1999
                                                                          --------------------------------------------
<S>                                                                              <C>             <C>            <C>
Current
     Federal..........................................................           $5,691          $7,504         $3,365
     State............................................................              586           1,742            832
                                                                                 ------         -------         ------
          Total Current...............................................            6,277           9,246          4,197
Deferred
      Federal ........................................................              815          (2,500)          (437)
      State   ........................................................              435            (536)          (139)
                                                                                 ------         -------         ------
           Total Deferred.............................................            1,250          (3,036)          (576)
                                                                                 ------         -------         ------
Total income tax provision............................................           $7,527          $6,210         $3,621
                                                                                 ======         =======         ======
</TABLE>


                                       32
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BEI Technologies, Inc. and Subsidiaries

     Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) requires the tax benefit related to the Company's restricted
stock program to be reported as an addition to  paid-in-capital.  In the current
year, $1,139,000 of accumulated tax benefit was reclassed from deferred taxes to
paid-in-capital.

Significant  components  of the Company's net deferred tax assets are as follows
(in thousands):

<TABLE>
<CAPTION>
                                                                                          September 29,  September 30,
                                                                                                   2001           2000
                                                                                --------------------------------------
                                  Deferred tax assets
<S>                                                                                              <C>            <C>
Accrued expenses                                                                                 $8,218         $7,282
Inventory valuation.............................................................                  1,572          3,063
Contract reserves ..............................................................                  1,396            709
Other...........................................................................                    847            527
                                                                                                 ------         ------
        Total deferred tax assets...............................................                 12,033         11,581
                                                                                                 ------         ------

                                Deferred tax liabilities
Depreciation and property basis difference......................................                  2,135          1,438
Other...........................................................................                    647            781
                                                                                                 ------         ------
     Total deferred tax liabilities.............................................                  2,782          2,219
                                                                                                 ------         ------
     Net deferred tax assets....................................................                 $9,251         $9,362
                                                                                                 ======         ======
</TABLE>

     Realization  of the net deferred  tax assets is dependent  upon the Company
generating  sufficient taxable income in future years to obtain benefit from the
reversal of the underlying temporary differences.

     The  differences  between the provision for income taxes and the income tax
determined by applying the statutory  federal  income tax rate of 34.0% for 1999
and 35.0% for 2000 and 2001 (in thousands) are as follows:

<TABLE>
<CAPTION>
                                                                        September 29,    September 30,     October 2,
                                                                                 2001             2000           1999
                                                                               ------           ------         ------
<S>                                                                            <C>              <C>            <C>
Income tax at the statutory rate........................................       $6,735           $5,536         $3,046
State income tax, net of federal tax....................................          616              789            457
Other...................................................................          176             (115)           118
                                                                               ------           ------         ------
Total income taxes......................................................       $7,527           $6,210         $3,621
                                                                               ======           ======         ======
</TABLE>

     Cash  paid  for  income  taxes  in  fiscal  year  2001,  2000  and 1999 was
$6,341,000, $9,245,000 and $2,171,000, respectively.

Note 7 Equity Incentive Plans

     The  Company has adopted the  disclosure  only  alternative  for its equity
incentive  plan as  described  in FAS  No.  123,  "Accounting  for  Stock  Based
Compensation"(FAS 123). The Company accounts for employee stock awards using the
intrinsic value method in accordance with APB 25.

     The Company's 1997 Equity Incentive Plan (the "Incentive Plan") was adopted
by the Board of Directors in September 1997. The Incentive Plan provides for the
granting of incentive stock options to employees and nonstatutory stock options,
restricted  stock  purchase  awards,  and stock  bonuses  (collectively,  "Stock
Awards") to  consultants,  employees  and  directors.  The Company has  reserved
2,278,890  shares of common stock for issuance under the Incentive  Plan,  which
included shares for substitute  options granted to the option holders of Medical
Systems in connection with the Distribution.


                                       33
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BEI Technologies, Inc. and Subsidiaries

     Option activity under the Technologies Incentive Plan is summarized below:

<TABLE>
<CAPTION>
                                                                                                 Weighted average
                                                                             Number of            exercise price
                                                                           Common shares             per share
                                                                          ----------------     --------------------
<S>                                                                               <C>                        <C>
Options outstanding at October 3, 1998                                             346,304                   $ 2.81
               Granted............................................                 168,000                   $ 4.02
               Exercised..........................................                 (29,928)                  $ 5.72
               Terminated.........................................                (150,294)                  $ 2.06
                                                                          ----------------     --------------------
Options outstanding at October 2, 1999............................                 334,082                   $ 3.82
               Granted............................................                 215,000                   $ 7.24
               Exercised..........................................                (139,690)                  $ 3.75
               Terminated.........................................                 (47,464)                  $ 5.12
                                                                          ----------------     --------------------
Options outstanding at September 30, 2000                                          361,928                   $ 5.72
               Granted............................................                 131,440                   $15.74
               Exercised..........................................                 (81,220)                  $ 4.70
               Terminated.........................................                 (30,388)                  $11.58
                                                                          ----------------     --------------------
Options outstanding at September 29, 2001                                          381,760                   $ 8.98
                                                                          ================     ====================

<CAPTION>
                                                                     Weighted Average     Weighted Average
                                                      Number      Remaining Contractual  Exercise Price Per
  Range of Exercise Prices                          Outstanding        Life (Years)             Share
                                                    -----------        ------------             -----
<S>                                                     <C>               <C>                   <C>
  $2.33 - $2.97...............................           16,722           2.43                  $ 2.64
  $3.50 ......................................           69,750           7.02                  $ 3.50
  $5.25 - $6.22...............................           20,002           7.70                  $ 5.75
  $6.25 ......................................          124,678           8.19                  $ 6.25
  $7.44 - $12.78..............................           25,668           8.41                  $ 9.35
  $13.25 .....................................           78,040           9.19                  $13.25
  $14.58 .....................................           10,000           4.19                  $14.58
  $15.25 - $29.35 ............................           36,900           9.49                  $22.04
  ---------------                                       -------           ----                  ------
  $2.33 - $29.35..............................          381,760           7.94                  $ 8.95
                                                        =======
</TABLE>

     As of  September  29,  2001,  options  for  104,757  shares were vested and
exercisable at a weighted average exercise price of $5.08.


                                       34
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BEI Technologies, Inc. and Subsidiaries

     Under the Incentive  Plan,  the holders of the 1,400,000  shares of Medical
Systems  common  stock  that had been  issued  under the  Medical  Systems  1992
Restricted Stock Plan who became employees of Technologies received Technologies
common stock of equal value subject to forfeiture if employment terminated prior
to the end of prescribed vesting periods.  The market value at the date of grant
of  shares  is  recorded  as  unearned  restricted  stock  and is  amortized  to
compensation  expense  over its  vesting  periods.  As of  September  29,  2001,
1,482,873  shares had been granted,  of which 1,256,683  shares are outstanding,
and  811,967  shares  have  fully  vested.  Compensation  expense  of  $755,000,
$1,178,000  and  $595,000  for the  amortization  of the  restricted  stock  was
recorded in fiscal years 2001, 2000, and 1999, respectively.

      The Company computed the pro forma disclosures  required under FAS No. 123
for options granted in fiscal years 2001, 2000, and 1999 using the Black-Scholes
option  pricing  model.  The impact on the  calculation  of pro forma results of
operations  and  earnings  per share  required by FAS 123 was  determined  to be
immaterial for fiscal year 1999. For fiscal years 2001 and 2000, the significant
assumptions used in the Black-Scholes calculation were a risk-free interest rate
of 4.00%  and  5.98%,  a  weighted  average  expected  life of 5 and 3 years,  a
volatility rate of 83% and 85%, and an expected dividend yield of 0.4% and 0.4%,
respectively.

      During fiscal years 2001 and 2000,  options to acquire 131,440 and 215,000
shares were granted  with a weighted  average fair value of $10.85 and $5.08 per
share,  respectively.  For the year ended  September 29, 2001, the  compensation
cost of options  under FAS 123 would have reduced net income from $11.7  million
to $11.2 million,  and diluted  earnings per share from $0.81 to $0.77.  For the
year ended  September 30, 2000, the  compensation  cost of options under FAS 123
would have  reduced net income from $9.6  million to $9.3  million,  and diluted
earnings per share from $0.65 to $0.63.

      In addition to options,  during  fiscal  years 2001 and 2000,  116,421 and
145,000  shares of nonvested  stock were  granted  with a weighted  average fair
value of $14.17 and $7.55 per share,  respectively.  The  weighted  average fair
value of nonvested stock is amortized to  compensation  expense over its related
vesting period.

     Note 8 Employee Benefit Plan

     The Company has a multi-employer  defined contribution  retirement plan for
the benefit of all eligible employees. Matching non-discretionary  contributions
are based on a percentage of employee  contributions.  Contributions to the plan
by the Company for the benefit of its employees for fiscal years 2001,  2000 and
1999 were approximately $1,068,00, $960,000 and $911,000, respectively. The plan
includes  employees of BEI Technologies,  Inc. and subsidiaries and employees of
OpticNet, Inc.

     The Company has a grantor trust to fund deferred  compensation  for certain
employees (a "Rabbi Trust" or "trust".) As determined by the trustee, the assets
in the  Rabbi  Trust,  consisting  of  cash  equivalents  and  debt  and  equity
securities,  are  recorded  at  current  market  prices  principally  based upon
national exchange and  over-the-counter  markets. The trust assets are available
to  satisfy  claims  of the  Company's  general  creditors  in the  event of its
bankruptcy.  The  trust's  assets and the  corresponding  deferred  compensation
obligation are included in the accompanying balance sheets at September 29, 2001
and September 30, 2000.


                                       35
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BEI Technologies, Inc. and Subsidiaries

Note 9 Lease Commitments

     Operating  leases  consist  principally  of  leases  for  real  properties,
manufacturing  equipment  and land.  Certain  of the  operating  leases  contain
various  options for renewal  and/or  purchase of the related assets for amounts
approximating  their fair  market  value at the date of  exercise of the option.
Capital  leases  were  assumed  as part of the  acquisition  of a  business.  At
September 29, 2001 and September 30, 2000,  assets recorded under capital leases
consist of land,  buildings  and  equipment  of $876,000  and  $875,000,  net of
accumulated  amortization  of $376,000 and  $265,000,  respectively.  The future
minimum payments for operating and capital leases, net of future minimum rentals
to be  received  under  noncancelable  subleases,  consist of the  following  at
September 29, 2001 (in thousands):

<TABLE>
<CAPTION>
                                                                                          Capital        Operating
     Fiscal Year                                                                           Leases           Leases
<S>                                                                                           <C>           <C>
         2002  ...................................................................            $22           $1,843
         2003  ...................................................................             --            1,574
         2004  ...................................................................             --            1,448
         2005  ...................................................................             --              731
         2006  ...................................................................             --              620
         Thereafter...............................................................             --            1,510
                                                                                          -------           ------
               Total minimum lease payments, net of future minimum rental income..             22           $7,726
                                                                                                            ======
               Less amounts representing interest.................................              3
                                                                                          -------
               Amounts included in long-term debt.................................            $19
                                                                                          =======
</TABLE>


     On September  28, 2001,  the Company  completed the leasing of research and
development  equipment  placed in service during the quarter ended September 29,
2001, which had been previously purchased by the Company for $700,000. Under the
terms of the lease transaction,  the Company sold $700,000 of equipment and then
immediately  leased the equipment from the sole purchaser under a non-cancelable
operating  lease  with a lease  term of  three  years  and an  interest  rate of
approximately  6.9%. Total rent expense,  including  interest,  during the lease
term  will be  approximately  $660,000  and is  included  in the table of future
minimum annual rental commitments under operating leases.

     The  Company  has  entered  into an  agreement  with  OpticNet,  an  equity
investee,  to rent  capacity of this  equipment to OpticNet  from month to month
based on OpticNet's usage of the equipment beginning in October 2001.

     Total rental expense amounted to approximately  $2,304,000,  $2,192,000 and
$2,187,000 for fiscal years 2001, 2000 and 1999, respectively.

Note 10 Contingencies and Litigation

   Claim against U.S. Government

         The Company  believes  that its now  discontinued  subsidiary,  Defense
Systems,  suffered  substantial  monetary  damages  due to  actions  of the U.S.
Government  in  connection  with the parties' H70 contract in effect  during the
1992-1996  timeframe.  As a result,  Defense  Systems filed a substantial  claim
against  the  U.S.  Government  in  1996.  Following  attempts  to  negotiate  a
settlement,  Defense  Systems  filed an appeal  of its  claim  that is now being
adjudicated  before the Armed  Services  Board of Contract  Appeals.  Due to the
uncertainties  inherent  in the  formal  claims  process,  the  Company  has not
recorded any recovery of these claims in the accompanying financial statements.

   Other

     The Company has pending  various legal actions arising in the normal course
of business.  Management believes that none of these legal actions, individually
or in the  aggregate,  will have a material  impact on the  Company's  business,
financial condition or operating results.


                                       36
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BEI Technologies, Inc. and Subsidiaries

Note 11 Related Party Transactions

      During the fiscal year,  Technologies entered into an agreement to provide
working  capital bridge  financing to OpticNet,  an equity  investee.  Under the
terms of the agreement,  Technologies agreed to make available to OpticNet, from
time to time,  until September 28, 2002, an amount not to exceed at any time the
aggregate  principle amount of $2 million.  At September 29, 2001,  OpticNet has
borrowed $1.1 million under this agreement.  OpticNet's  obligation to repay the
advances is evidenced by a promissory  note, due in full on or before  September
28, 2002,  unless extended by mutual  agreement of the parties.  The outstanding
principal on the note bears interest at prime plus 1.5% per annum.

        OpticNet's business is focused on developing fiber optic components and
subsystems,  such  as  optical  switches,  used  in  telecommunication  systems.
OpticNet's  primary  activities  since inception have been devoted to developing
its product  offerings and related  technologies,  recruiting key management and
technical  personnel  and  seeking  capital  to fund  operations.  OpticNet  has
operating  losses for its  fiscal  year ended  September  29,  2001 and the sole
source of funding for OpticNet's  operations is from BEI.  OpticNet's operations
are  subject to  significant  risks and  uncertainties,  including  competitive,
financial,  developmental,  operational,  growth and  expansion,  technological,
regulatory and other risks  associated  with an emerging  business.  OpticNet is
pursuing various funding options to sustain and expand future operations.

Note 12 Sales and Major Customers

     The  principal  business and  continuing  operations  of  Technologies  are
conducted  within one business  segment and are carried out by operations  which
design, manufacture and sell electronic devices that provide vital sensory input
for the control  systems of advanced  machinery and  automation  systems for the
commercial automotive,  government and industrial industries. The sales to major
industries are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                             September 29,  September 30,   October 2,
                                                                                 2001           2000         1999
                                                                                 ----           ----         ----
<S>                                                                           <C>            <C>           <C>
Commercial automotive sensors sales.....................................      $138,702       $107,459      $54,459
Government..............................................................        18,501         18,723       19,172
Industrial sales........................................................        81,782         93,034       85,772
                                                                              --------         ------       ------
Total sales from continuing operations..................................      $238,985       $219,216     $159,403
                                                                              ========       ========     ========
</TABLE>

     Although the Company is directly affected by the economic well being of the
above industries,  management does not believe significant credit risk exists at
September 29, 2001.

         The Company's  foreign  operations are conducted  throughout  Europe. A
summary of foreign vs. domestic sales follows (in thousands):

<TABLE>
<CAPTION>
                                                                         September 29,  September 30,    October 2,
                                                                                  2001           2000          1999
                                                                                  ----           ----          ----
<S>                                                                           <C>            <C>           <C>
Domestic sales..........................................................      $104,377       $120,894      $114,766
Foreign ................................................................       134,608         98,322        44,637
                                                                              --------       --------      --------
Total sales from continuing operations..................................      $238,985       $219,216      $159,403
                                                                              ========       ========      ========
</TABLE>

Foreign sales accounted for  approximately  56%, 45%, and 28% of total sales for
fiscal 2001, 2000 and 1999, respectively.

In fiscal 2001,  2000 and fiscal 1999,  one customer  accounted for 49%, 37% and
20%, respectively, of the Company's net sales.

Note 13 Quarterly Results of Operations (Unaudited)

     The tables below present  unaudited  quarterly  financial  information  for
fiscal years 2001 and 2000:

<TABLE>
<CAPTION>
                                                                                        Continuing Operations
                                                                                         Three months ended
                                                                           --------------------------------------------------
                                                                           December 30,  March 31,  June 30,  September 29,
                                                                                   2000       2001      2001           2001
                                                                                   ----       ----      ----           ----
                                                                             (dollars in thousands except per share amounts)
                                                                           --------------------------------------------------
<S>                                                                             <C>       <C>       <C>          <C>
Net sales..............................................................         $60,221   $65,116   $61,811      $51,837
Gross profit...........................................................          17,494    18,259    14,877       14,458
Net income ............................................................           3,292     3,460     2,853        2,112

                          Basic Income Per Share
Net income per share-basic (rounded)...................................          $0.24     $0.25     $0.20        $0.15

                         Diluted Income Per Share
Net income per share-diluted (rounded).................................           $0.23     $0.24     $0.20        $0.15
</TABLE>


                                       37
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BEI Technologies, Inc. and Subsidiaries

<TABLE>
<CAPTION>
                                                                             January 1,   April 1,   July 1,  September 30,
                                                                                   2000       2000      2000           2000
                                                                                   ----       ----      ----           ----
<S>                                                                             <C>        <C>       <C>            <C>
Net sales..............................................................         $43,728    $54,217   $60,246        $61,025
Gross profit...........................................................          11,559     15,159    17,542         16,430
Net income.............................................................           1,256      2,291     2,993          3,067

                          Basic Income Per Share
Net income per share-basic (rounded)...................................           $0.09      $0.16     $0.21          $0.22

                         Diluted Income Per Share
Net income per share-diluted (rounded).................................           $0.09      $0.15     $0.20          $0.21
</TABLE>

Note 14 Fair Value of Financial Instruments

         FAS No. 107 (FAS  107),  "Disclosures  about  Fair  Value of  Financial
Instruments,"  requires  disclosure of fair value  information  about  financial
instruments,  whether or not  recognized in the balance  sheet,  for which it is
practicable to estimate that value. Whenever possible, quoted market prices were
used to  develop  fair  values.  In cases  where  quoted  market  prices are not
available,  fair  values are based on  estimates  using  present  value or other
valuation  techniques.  Those  techniques  are  significantly  affected  by  the
assumptions  used,  including  the  discount  rate and  estimates of future cash
flows. In that regard,  the derived fair value estimates cannot be substantiated
by comparison to independent markets,  and, in many cases, could not be realized
in immediate  settlement of the instrument.  FAS 107 excludes certain  financial
instruments and all nonfinancial  instruments from its disclosure  requirements.
Accordingly,  the aggregate  fair value  amounts  presented do not represent the
underlying value of the Company. The following methods and assumptions were used
by  the  Company  in  estimating  its  fair  value   disclosures  for  financial
instruments as of September 29, 2001 and as of September 30, 2000.

         Cash, Cash Equivalents and  Investments:  The carrying amounts reported
in the balance sheet for cash,  cash  equivalents  and  investments  approximate
those assets' fair values.

         Long-Term  Debt:  The fair value of long-term  debt has been  estimated
based upon discounted  future cash flows. The discount rate used included a risk
free  rate  derived  from  the  Treasury  yield  curve  plus  a  risk  weighting
commensurate with the Company's borrowing position.  The fair value of long-term
debt is  approximately  $30,567,000 and  $35,787,000  compared with the carrying
amounts of $29,556,000  and  $36,614,000 at September 29, 2001 and September 30,
2000, respectively.


                                       38
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BEI Technologies, Inc. and Subsidiaries

Note 15 - Income Per Share

     The following  table sets forth the computation of basic and diluted income
per common share from continuing operations:

<TABLE>
<CAPTION>
                                                                                          Year Ended
                                                                          --------------------------------------------
                                                                          September 29,   September 30,     October 2,
                                                                                   2001            2000           1999
                                                                                   ----            ----           ----
                                                                              (in thousands, except per share amounts)
                                                                          --------------------------------------------
                               Numerator
                               ---------
<S>                                                                             <C>              <C>            <C>
Income from continuing operations before extraordinary
    item, net of taxes                                                          $11,717          $9,607         $5,339
                                                                                =======          ======         ======

                              Denominator
                              -----------

Denominator  for  basic  income  per share - Weighted
    average shares,  net of nonvested shares (fiscal 2001--501 shares;
    fiscal 2000--543 shares; fiscal 1999--590 shares)                            13,905          14,113         14,316
Effect of dilutive securities:
    Nonvested shares                                                                299             422             34
    Employee stock options                                                          240             272            158
                                                                                -------          ------         ------
    Denominator for diluted earnings per share                                   14,444          14,807         14,508
                                                                                =======          ======         ======
</TABLE>


                                       39
<PAGE>

Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Stockholders
BEI Technologies, Inc.

We  have  audited  the   accompanying   consolidated   balance   sheets  of  BEI
Technologies,  Inc. and  subsidiaries as of September 29, 2001 and September 30,
2000,  and the related  consolidated  statements  of  operations,  stockholders'
equity and  comprehensive  income and cash flows for each of the three  years in
the  period  ended  September  29,  2001.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated financial position of BEI Technologies,
Inc. and  subsidiaries  at September 29, 2001 and  September  30, 2000,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended September 29, 2001 in conformity with accounting
principles generally accepted in the United States.

                                                               Ernst & Young LLP

San Francisco, California
October 29, 2001


                                       40
<PAGE>

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

         None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Certain information with respect to directors and executive officers is
         set forth in Part I of this Report.  Additional information required by
         this Item is incorporated  herein by reference to the section  entitled
         "Compliance  with Section 16(a) of the  Securities  and Exchange Act of
         1934" of the Proxy  Statement  related  to the  Company's  2002  Annual
         Meeting of  Stockholders to be filed by the Company with the Securities
         and Exchange Commission (the "Definitive Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION

         The  information  required  by this  Item  is  incorporated  herein  by
         reference  to  the  sections  entitled  "Executive   Compensation"  and
         "Certain Transactions" of the Definitive Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  information  required  by this  Item  is  incorporated  herein  by
         reference  to the  section  entitled  "Security  Ownership  of  Certain
         Beneficial Owners and Management" of the Definitive Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The  information  required  by this  Item  is  incorporated  herein  by
         reference  to  the  sections   entitled   "Certain   Transactions"  and
         "Compensation  Committee  Interlocks and Insider  Participation" of the
         Definitive Proxy Statement.


                                     PART IV

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

The following documents are filed as part of this Form 10-K.

<TABLE>
<CAPTION>
                                                                                                          Form
                                                                                                          10-K
(a)(1)      Index to Consolidated Financial Statements                                                 Page Number
            -------------------------------------------                                                -----------
<S>                                                                                                            <C>
            The following Consolidated Financial Statements of BEI Technologies, Inc. and its
            Subsidiaries are filed as part of this Form 10-K:

            Report of Ernst & Young LLP, Independent Auditors                                                   40

            Consolidated Balance Sheets -
              September 29, 2001 and September 30, 2000                                                         24

            Consolidated  Statements of  Operations -
              Years ended  September 29, 2001, September 30, 2000
              and October 2, 1999                                                                               26
</TABLE>


                                       41

<PAGE>

<TABLE>
<S>                                                                                                            <C>
            Consolidated  Statements  of Cash Flows -
              Years ended  September 29, 2001, September 30, 2000
              and October 2, 1999                                                                               27

            Consolidated Statement of Changes in Stockholders' Equity and Comprehensive
              Income - Years ended September 29, 2001, September 30, 2000
              and October 2, 1999                                                                               28

            Notes to Consolidated Financial Statements -
              September 29, 2001                                                                                29

(a)(2)      Index to Financial Statement Schedule.

            The  following  Consolidated  Financial  Statement  Schedule  of BEI
            Technologies,  Inc.  for  each  of the  years  in the  period  ended
            September 29, 2001 is filed as part of this Form 10-K:

            Schedule II                     Valuation and Qualifying Accounts                                   S-1

                                            Report of Ernst & Young LLP, Independent Auditors as to
                                            Schedule                                                            S-2
</TABLE>

Schedules not listed above have been omitted  because they are not applicable or
are not required or the information required to be set forth therein is included
in the Consolidated Financial Statements or Notes thereto.

<TABLE>
<CAPTION>
(a)(3)      Listing of Exhibits
            -------------------
            Exhibit Numbers                 Description                                                    Footnote
            ---------------                 -----------                                                    --------
<S>                                         <C>                                                             <C>
                         2.1                Distribution Agreement between BEI Electronics, Inc.
                                            and BEI Technologies, Inc.                                      i

                         2.2                Corporate Services Agreement between BEI Technologies,
                                            Inc. and BEI Electronics, Inc.                                  i

                         2.3                Tax Allocation and Indemnity Agreement between BEI
                                            Electronics, Inc. and BEI Technologies, Inc.                    i

                         2.4                Assumption of Liabilities and Indemnity Agreement
                                            between BEI Electronics, Inc. and BEI Technologies, Inc.        i

                         2.5                Technology Transfer and License Agreement by and
                                            between BEI Electronics, Inc. and BEI Technologies, Inc.        i

                         2.6                Trademark Assignment and Consent Agreement by and
                                            between BEI Electronics, Inc. and BEI Technologies, Inc.        i

                         2.7                Agreement Regarding Certain Representations and
                                            Covenants by and between BEI Electronics, Inc. and BEI
                                            Technologies, Inc.                                              i

                         3.1                Certificate of Incorporation of BEI Technologies, Inc.          i

                         3.2                Bylaws of BEI Technologies, Inc.                                i

                         3.3                Registrant's Certificate of Designation of Series A
                                            Junior Participating Preferred Stock (filed as Exhibit
                                            99.3 hereto)                                                    i
</TABLE>


                                       42
<PAGE>

<TABLE>
<S>                                         <C>                                                             <C>
                         4.1                Specimen Common Share Certificate                               i

                         4.2                Certificate of Incorporation of BEI Technologies, Inc.
                                            (filed as Exhibit 3.1 hereto)                                   i

                         4.3                Bylaws of BEI Technologies, Inc. (filed as Exhibit 3.2
                                            hereto)                                                         i

                         4.4                Registrant's Certificate of Designation of Series A
                                            Junior Participating Preferred Stock (filed as Exhibit
                                            99.3 hereto)                                                    i

                         4.5                Form of Rights Certificate (filed as Exhibit 99.4               i
                                            hereto)

                        10.1  *             Registrant's 1997 Equity Incentive Plan and forms of
                                            related agreements                                              i

                        10.2  *             Executive Change in Control Benefits Agreement between
                                            BEI Technologies, Inc. and Certain Named Executive
                                            Officers                                                        i

                                            Assumption Agreement--Series A and Series B Senior
                        10.3                Notes dated September 15, 1997 by and between BEI
                                            Technologies, Inc., Principal Mutual Life Insurance
                                            Company, Berkshire Life Insurance Company and TMG Life
                                            Insurance Company                                               i

                        10.4                Credit Agreement dated as of September 27, 1997 among
                                            BEI Technologies, Inc., BEI Sensors & Systems Company,
                                            Inc., Defense Systems Company, Inc., CIBC, Inc.,
                                            Canadian Imperial Bank of Commerce and CIBC Wood Gundy
                                            Securities Corp.                                                i

                        10.5                Note Purchase Agreement dated November 16, 1998 by and
                                            between BEI Technologies, Inc., BEI Sensors & Systems
                                            Company, Inc., Connecticut General Life Insurance
                                            Company and Allstate Life Insurance Company.                   ii

                        10.6                Amendment to Tax Allocation and Indemnity Agreement
                                            between BEI Electronics, Inc. and BEI Technologies, Inc.       ii

                        10.7                Credit Agreement dated December 16, 1998, by and
                                            between BEI Technologies, Inc., BEI Sensors & Systems
                                            Company, Inc. and Wells Fargo Bank, National Association       ii

                                            Amendment to Credit Agreement as amended as of November
                        10.8                30, 2000, by and between BEI Technologies, Inc., BEI
                                            Sensors & Systems Company, Inc. and Wells Fargo Bank,
                                            National Association                                          iii
</TABLE>


                                       43
<PAGE>

<TABLE>
<S>                                         <C>                                                            <C>
                        10.9                Development and Supply Agreement, dated April 26, 2001,
                                            by and between Systron Donner Inertial Division and
                                            Continental Teves  AG & Co.                                    iv

                        21.1                Subsidiaries of the Registrant                                 ii

                        23.1                Consent of Ernst &Young LLP, Independent Auditors

                        24.1                Power of Attorney

                        99.1                BEI Technologies, Inc. Information Statement dated
                                            September 24, 1997                                             ii

                        99.2                Rights Agreement dated as of September 11, 1997 among
                                            BEI Technologies, Inc. and ChaseMellon Shareholder
                                            Services, L.L.C.                                                i

                        99.3                Registrant's Certificate of Designation of Series A
                                            Junior Participating Preferred Stock                            i

                        99.4                Form of Rights Certificate                                      i
</TABLE>

  (i)  Incorporated  by  reference.  Previously  filed  as  an  exhibit  to  the
       Registrant's Information Statement on Form 10 (File No. 0-22799) as filed
       on September 22, 1997.

 (ii)  Incorporated  by  reference.  Previously  filed as an exhibit to the Form
       10-K (File No. 0-22799) as filed on December 30, 1998.

(iii)  Incorporated  by  reference.  Previously  filed as an exhibit to the Form
       10-Q (File No. 000-22799) as filed on February 13, 2001.

 (iv)  Incorporated  by  reference.  Previously  filed as an exhibit to the Form
       10-Q (File No. 000-22799) as filed on August 14, 2001.

   *   Items  which  are   management   contracts  or   compensatory   plans  or
       arrangements required to be filed as an exhibit pursuant to Item 14(c) of
       Form 10-K.

  (b)  No reports on Form 8-K were filed by the Company during the quarter ended
       September 29, 2001.


                                       44
<PAGE>

                                   SIGNATURES

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

                                            BEI TECHNOLOGIES, INC.


                                       By:  /s/ Robert R. Corr
                                            ------------------

                                            Robert R. Corr
                                            Vice President, Secretary, Treasurer
                                            and Controller
                                            December 12, 2001


                                       45
<PAGE>

                                POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE  PRESENTS,  that each person whose  signature  appears
below  constitutes and appoints  Charles Crocker and John LaBoskey,  and each of
them, as his true and lawful  attorneys-in-fact  and agents,  with full power of
substitution and  resubstitution,  for him and in his name, place, and stead, in
any and all  capacities,  to sign any and all  amendments  to this Report and to
file the same,  with all exhibits  thereto,  and other  documents in  connection
therewith,  with the  Securities  and Exchange  Commission,  granting  unto said
attorneys-in-fact  and agents,  and each of them, full power and authority to do
and perform each and every act and thing  requisite  and necessary to be done in
connection therewith,  as fully to all intents and purposes as he might or could
do in person,  hereby  ratifying and confirming all that said  attorneys-in-fact
and agents,  or any of them,  or their or his  substitute  or  substitutes,  may
lawfully do or cause to be done by virtue hereof.

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

<TABLE>
<CAPTION>
Signature                                     Title                                             Date

<S>                                           <C>                                               <C>
/s/ Charles Crocker                           Chief Executive Officer and Chairman of           December 14, 2001
---------------------------------------       the Board Of Directors (Principal                 ------------------------------
Charles Crocker                               Executive Officer)


/s/ Dr. Asad M. Madni                         President, Chief Operating Officer and            December 14, 2001
---------------------------------------       Director                                          ------------------------------
Dr. Asad M. Madni


/s/ John LaBoskey                             Senior Vice President and Chief Financial         December 14, 2001
---------------------------------------       Officer                                           ------------------------------
John LaBoskey


/s/ Robert R. Corr                            Vice President, Secretary, Treasurer and          December 14, 2001
---------------------------------------       Controller (Principal Accounting Officer)         ------------------------------
Robert R. Corr


/s/ Richard M. Brooks                         Director                                          December 14, 2001
---------------------------------------                                                         ------------------------------
Richard M. Brooks


/s/ George S. Brown                           Director                                          December 14, 2001
---------------------------------------                                                         ------------------------------
George S. Brown


/s/ C. Joseph Giroir, Jr.                     Director                                          December 14, 2001
---------------------------------------                                                         ------------------------------
C. Joseph Giroir, Jr.


/s/ Dr. William G. Howard                     Director                                          December 14, 2001
---------------------------------------                                                         ------------------------------
Dr. William G. Howard


/s/ Gary D. Wrench                            Director                                          December 14, 2001
---------------------------------------                                                         ------------------------------
Gary D. Wrench
</TABLE>


                                       46
<PAGE>

                                                                     SCHEDULE II

                             BEI TECHNOLOGIES, INC.

                        VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                      Column A                         Column B               Column C              Column D     Column E
                      ---------                        --------               --------              --------     --------
                                                                             Additions
                                                                             ----------
                                                      Balance at    Charged to                                  Balance at
                                                       Beginning    Costs and       Charged to                    End of
                     Description                       of Period     Expenses     Other Accounts   Deductions     Period
                     -----------                       ---------     --------     --------------   ----------   ----------
                                                                                  (in thousands)
<S>                                                      <C>           <C>            <C>            <C>           <C>
Year ended September 29, 2001:
Deducted from asset accounts:
     Allowance for doubtful accounts................     $1,084        $1,093         $ --            $ 515(A)     $1,662
     Inventory reserve..............................      4,452         4,843           --            5,540(B)      3,755
                                                         ------        ------         -----           ------       ------
          Total.....................................     $5,536        $5,936         $ --            $6,055       $5,417
                                                         ======        ======         =====           ======       ======
Year ended September 30, 2000:
Deducted from asset accounts:
     Allowance for doubtful accounts................     $  597        $  550         $ --           $   63(A)     $1,084
     Inventory reserve..............................      3,154         4,685           --            3,387(B)      4,452
                                                         ------        ------         -----           ------       ------
          Total.....................................     $3,751        $5,235         $ --            $3,450       $5,536
                                                         ======        ======         =====           ======       ======

Year ended October 2, 1999:
Deducted from asset accounts:
     Allowance for doubtful accounts................     $  509        $  187         $ --           $   99(A)     $  597
     Inventory reserve..............................      3,496           881           --            1,223(B)      3,154
                                                         ------        ------         -----           ------       ------
          Total.....................................     $4,005        $1,068         $ --            $1,322       $3,751
                                                         ======        ======         =====           ======       ======


<FN>
(A)  Write-offs of uncollectible accounts
(B)  Write-offs of obsolete and scrap items
</FN>
</TABLE>


                                       S-1
<PAGE>

      REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS, AS TO SCHEDULE II

The Board of Directors and Shareholders
BEI Technologies, Inc.

We have audited the consolidated financial statements of BEI Technologies,  Inc.
and  subsidiaries  as of September 29, 2001 and September 30, 2000, and for each
of the three years in the period ended  September 29, 2001,  and have issued our
report  thereon dated  October 29, 2001.  Our audits also included the financial
statement  schedule listed in Item 14(a) of this Form 10-K. This schedule is the
responsibility of the Company's management.  Our responsibility is to express an
opinion based on our audits.

In our  opinion,  the  financial  statement  schedule  referred  to above,  when
considered in relation to the basic consolidated financial statements taken as a
whole,  presents  fairly in all material  respects,  the  information  set forth
therein.


                                                               Ernst & Young LLP

San Francisco, California
October 29, 2001


                                       S-2
<PAGE>

INDEX TO EXHIBITS
-----------------

Exhibit
Number                              Description
------                              -----------

21.1                                Subsidiaries of the Registrant

23.1                                Consent of Ernst & Young LLP
                                    Independent Auditors

24.1                                Power of Attorney