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 30, 2000 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.
[ ]

The   approximate   aggregate   market   value  of  the  voting  stock  held  by
non-affiliates  of the Registrant as of November 21, 2000 was $164,520,749  (A).
As of November 21, 2000,  14,321,090  shares of  Registrant's  Common Stock were
outstanding.

(A) Based upon the closing  sale price of the Common  Stock on November 21, 2000
as reported on the NASDAQ National Market System.  Excludes  3,071,808 shares of
Common  Stock held by  directors,  executive  officers  and  stockholders  whose
ownership  exceeds ten percent of Common Stock outstanding on November 21, 2000.
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  2001  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 OF CONTENTS
                                                                            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......................42

PART III

         Item 10. Directors and Executive Officers
                  of the Registrant...........................................42

         Item 11. Executive Compensation......................................42

         Item 12. Security Ownership of Certain Beneficial
                  Owners and Management.......................................42

         Item 13. Certain Relationships and Related Transactions..............42

PART IV

         Item 14. Exhibits, Financial Statement Schedules,
                  and Reports on Form 8-K.....................................42

Signatures ...................................................................46

                                       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.,
("Electronics"))  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 its divisions which design,  manufacture
and sell  electronic  devices that provide  vital  sensory input for the control
systems of advanced  machinery and automation  systems.  These sensors,  most of
which are concerned with physical motion,  provide information that is essential
to logical, safe and efficient operation of sophisticated machinery.

         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 motion
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.

         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) After a power  outage,  an elevator  system  needs to know  exactly
where each car is before permitting motion to resume. (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, distance or exact location.

         (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.

                                       3

<PAGE>


         (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 assure  efficient
and clean  combustion  and safe and reliable  gear  changes 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 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) Process  automation  systems and various  medical  systems  require
compact, high reliability pressure measurement and fast acting valves, for which
the Company provides silicon pressure sensors and/or magnetic actuators.

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  automation,   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  8,250  different  commercial
customers,  principally in the United States.  These customers  include both end
users and original  equipment  manufacturers.  The Company ships 90% of sales to
commercial customers, with approximately 50% to the automotive market and 40% 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 9%
of the Company's net sales in fiscal 2000,  12% in fiscal 1999 and 17% in fiscal
1998.  One  customer  accounted  for  approximately  37% and 20% of net sales in
fiscal year 2000 and 1999,  respectively,  but no single customer  accounted for
more than 10% of net sales in fiscal 1998. In fiscal 2000,  approximately 45% of
the  Company's  sales  occurred  in  foreign  markets  with less than 4% sold in
foreign currency.

         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.

                                       4

<PAGE>
         Traditional Sensors and Complementary Products

         Shaft Encoders.  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 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 which employ shaft encoders include
servo motors and servo drive electronic control systems.

         Precision  Potentiometers.  Similar  in  basic  function  to  encoders,
potentiometers  measure  motion by analog (not  digital)  changes in  electrical
potential.  These changes may sometimes be subsequently  translated into digital
code.  Potentiometers are used as economical motion or position-sensing  devices
for throttle,  steering,  suspension,  and seat and mirror position  controls in
automobiles and in some heavy equipment,  such as earth movers, and construction
and farm machinery.  They are also used as position sensors 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
potentiometer  technology  with its  proprietary  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
solenoids 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 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 in aircraft and missiles,  stabilization of
satellites, pointing and 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
miniature,  solid state rate sensors and  accelerometers are 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 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.

                                       5
<PAGE>

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 or velocity of rotating  shafts or other  moving  parts by
noting a desired rate of movement or position  (usually  input from computers or
control  panels),  monitoring the actual  position or 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.  Technologies'  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 30, 2000 and at October 2,
1999, were $83,269,000 and $62,469,000, 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.

         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  30, 2000 are  scheduled for
shipment  during  fiscal  2001.  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
Danaher Corp., Litton, Rockwell International,  Delphi Automotive Systems Corp.,
Mannesmann  Group,  and  Panasonic.   There  are  smaller  or   product-specific
companies,  some of whose products compete with those of the Company,  including
Sensor Systems LLC, CTS Corp., Dynamics Research Corp., Heidenhain,  Kollmorgen,
Kulite  Semiconductor,  Servo Magnetics Corp.,  Bourns, Inc. 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.

                                       6

<PAGE>

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.

         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--Limited Volume
Manufacturing Experience."

Research and Development

         The Company's major research and development  focus has been to improve
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.  Other  development  has focused on expanding  applications  of existing
sensors and  utilizing the Company's  various  complementary  products to create
additional capability and intelligence within the sensor package.

         The Company is  developing  products  for the future and  continues  to
produce  prototypes  incorporating  silicon MEMS geared towards next  generation
requirements for automotive, medical, industrial and aerospace markets.

         During the 2000 fiscal year, the Company invested in the development 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,  torque
sensors,   angular  position  measurement  sensors),  that  would  overcome  the
limitations  of  contacting  sensors  as well as the  limitations  of  currently
available  non-contacting  sensors.  During fiscal 2000,  the Company  completed
development  and testing  efforts,  and is presently  developing  pre-production
units.  The  design  and  architecture  of the NCAPS  (essentially  a  digitally
processed proprietary  transceiver sensor unit) 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, industrial and aerospace market sectors. A linear version
of NCAPS is also in development  for use with the Company's voice coil actuators
manufactured for the motion control industry.

         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  $8.9 million,  $6.6 million and $6.4 million in
fiscal 2000, 1999 and 1998, respectively. In addition,  customer-funded research
and development  expenditures  charged to cost of sales were $0.6 million,  $0.4
million and $0.9 million, respectively, for the same periods. Development of the
Company's portfolio of quartz 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 30, 2000,  the business units  comprising  Technologies
had 1,189 employees, including 143 in research, development and engineering, 134
in administration, 56 in marketing and sales, and 856 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.

                                       7

<PAGE>

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 78 U.S.  patents  and 93  foreign  patents  with
expiration  dates ranging from April 2001 to August 2017.  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 fiscal 2000,  1999 and 1998
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 45%, 28% and
14% of revenues  for fiscal  2000,  1999 and 1998,  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.

Recent Developments

         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.  OpticNet's  business  is focused on  developing  fiber  optic
components and subsystems,  such as optical switches, used in telecommunications
systems.

                                       8

<PAGE>

         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. As a separate matter, the
Board of Directors of Technologies also declared a one-for-one stock dividend to
its  stockholders,  also effective October 30, 2000,  immediately  following the
distribution of the shares in OpticNet.  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.


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.

Limited Volume Manufacturing Experience

         The Company is continuing the process of adding production capacity for
its automotive yaw rate sensors to respond to the high volume demand required by
the  automobile   market.  The  Company  has  relatively  recent  experience  in
large-scale  manufacturing  and,  accordingly,  may not be  able to  manufacture
products  and deliver  them to  customers  as quickly  and in the  volumes  they
require.  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.

         The Company is largely dependent on its Concord, California facility to
meet the volume of manufacturing  required by the automobile  market.  In fiscal
2000, the Concord facility  manufactured  approximately  1.35 million automotive
quartz  rate  sensors  for use in  automobiles  sold in the North  American  and
European  markets.  The  Company  has  encountered  difficulties  in the past in
scaling  up for  high  volume  production  of its  GyroChip  sensors,  including
problems  involving  production  yields,  component  supplies  and  shortages of
qualified  personnel.  There  can  be no  assurance  that  future  manufacturing
difficulties,  which  could  have a  material  adverse  effect on the  Company's
business, financial condition and results of operations, will not occur.

                                        9

<PAGE>
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 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.

Limited Manufacturing Experience; 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 demand for  quantities
required by the automobile  market. The Company has relatively recent experience
in  large-scale  manufacturing.  The  Company  manufactured  approximately  1.35
million units of its  automotive  quartz rate sensor in the Concord,  California
facility,  which  supplied  sensors to less than 5% of  automobiles  sold in the
North American and European markets in fiscal 2000. The Company has continued to
encounter  difficulties  in  scaling  up  production  of the  GyroChip  sensors,
including problems involving production yields, component supplies and shortages
of  qualified  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.  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.; scanner motors,  supplied by Litton Industries,  Inc.;
four types of ASIC's,  supplied by  National  Semiconductor  Corporation,  Orbit
Semiconductor,  Honeywell  Inc.  (recently  acquired  by General  Electric)  and
Semtech Corp.; 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 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

                                       10
<PAGE>

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  37% of the net sales of the  Company in fiscal 2000 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 2001 and beyond.  The Company continues to
increase    production   of   the   GyroChip   sensors   (see    "Business--Risk
Factors--Limited  Volume Manufacturing  Experience") to meet the requirements of
its contracts with Continental Teves. 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 on favorable terms. 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  9%,  12% and 17% of the net  sales  of  Technologies  in
fiscal 2000, 1999 and 1998,  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 which 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 5.9% of the Company's net sales in fiscal 2000. 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.

         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.

                                       11

<PAGE>

         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  45% and 28% of the  Company's  net sales in fiscal 2000 and 1999,
respectively.  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.

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.

                                       12

<PAGE>

Voting Control by Officers, Directors and Affiliates

         At September  30, 2000 the  Company's  officers and directors and their
affiliates  beneficially owned  approximately over 25% 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.

                                       13

<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

<TABLE>
         The directors  and executive  officers of the Company and their ages as
of December 1, 2000 are as follows:

<CAPTION>
                    Name                       Age                          Position
                    ----                       ---                          --------
<S>                                            <C>  <C>
     Charles Crocker........................   61   Chief Executive Officer and Chairman of the Board of Directors

     Dr. Asad Madni.........................   53   President, Chief Operating Officer and Director

     John LaBoskey..........................   47   Senior Vice President and Chief Financial Officer

     Dr. Lawrence A. Wan....................   61   Senior Vice President and Chief Technology Officer

     Robert R. Corr.........................   54   Vice President, Secretary, Treasurer and Controller

     Gerald D. Brasuell.....................   52   Vice President and General Manager, BEI Systron Donner

     David Pike.............................   47   Senior Vice President Divisional Administration and Human Resources

     Richard M. Brooks(1)(2)................   72   Director

     George S. Brown(2).....................   79   Director

     C. Joseph Giroir, Jr.(1)(2)............   61   Director

     Dr. William G. Howard, Jr.(1)..........   59   Director

     Gary D. Wrench ........................   67   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 Electronics in September
1997. From 1987 until his resignation as a result of the Distribution, he served
as  a  director  of  Electronics.  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 a 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 Electronics in September
1997.  He served as a  director  of  Electronics  from  October  1974  until his
resignation as a result of the  Distribution.  Mr. Brown served as President and
Chief  Executive  Officer of Electronics  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 Electronics.  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 Electronics in September
1997. He was a founder of Electronics and has served as Chairman of the Board of
Directors  of  Electronics  since  October  1974 and  Chairman  of the  Board of
Directors of Technologies  since October 1997. Mr. Crocker assumed the positions
of President and Chief Executive  Officer of Technologies,  effective October 1,
1997,  after  resigning as President and CEO of  Electronics  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 Company  International  and
Pope & Talbot,  Inc. Mr.  Crocker also serves as director of OpticNet,  Inc. 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 Electronics in September
1997.  He was a director of  Electronics  from 1978 until his  resignation  as a
result of the Distribution.  He served as the Secretary of Electronics from 1974
to early  1995.  Mr.  Giroir  is the sole  member  of  Giroir,  PLC.  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.

                                       14
<PAGE>

         Dr.  Howard  began  serving  as a  Director  in June 1997  prior to the
Distribution and resulting spin-off of the Company from Electronics in September
1997. He was a director of Electronics  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  Chairman of
Credence  Systems,   Inc.  and  a  director  of  RAMTRON   International  Corp.,
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 Electronics 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 BEI  Electronics in 1992, he served for 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 Bachelor of Science and Master of
Science 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 Electronics in September
1997. He was Senior Vice  President and Chief  Financial  Officer of Electronics
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  Electronics  in February  1986, and continues to serve as a
director of Electronics (now named BEI Medical Systems  Company,  Inc.). He also
serves as a  director  of  OpticNet,  Inc.,  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 Electronics  and President and Chief  Executive  Officer of
BEI Motion Systems Company,  Inc., then a wholly owned subsidiary of Electronics
that is now a part of Sensors & Systems.  Other experience includes twenty years
with Hughes Aircraft Company.  Mr. Wrench holds a B.A. from Pomona College and a
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 I
directors to expire at the 2001 annual meeting of  stockholders  and the term of
office  of the  Class II  directors  to expire  at the 2002  annual  meeting  of
stockholders, and the term of office of the Class III directors to expire at the
2003  annual  meeting of  stockholders.  Class I consists  of Mr.  Brown and Mr.
Crocker;  Class II consists of Mr. Giroir,  Dr. Madni and Mr. Wrench;  and Class
III consists of Mr. Brooks and Dr.  Howard.  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 BEI  Technologies,  Inc. Mr. Brasuell has served in
this  position  since  October  1995.  From 1985  until 1995 Mr.  Brasuell  held
executive staff level  positions at Systron 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.

                                       15

<PAGE>


         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  Electronics  prior to the
Distribution  in September  1997.  Mr. Corr  resigned  from his  positions  with
Electronics immediately prior to the Distribution.  Mr. Corr served as Secretary
of Electronics 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. John  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 is a  Certified  Public
Accountant in the State of Arkansas.

         Dr. Wan serves as a Senior Vice President and Chief  Technical  Officer
for  Technologies.  Previously,  Dr.  Wan  served as Vice  President,  Corporate
Technology  for  Electronics  from April 1991,  which  position he resigned from
immediately  prior to the Distribution in 1997. Dr. Wan presently also serves as
President  of Sitek,  Inc.,  a  subsidiary  of the  Company and as a director of
Electronics  (now named BEI Medical  Systems  Company,  Inc.). He also serves as
Chairman of the Board of OpticNet,  Inc. From 1984 until 1990, Dr. Wan served as
Vice President,  Engineering,  for Systron Donner Corporation.  Between 1979 and
1984, he held various  technical and general  management  positions with Systron
Donner Corporation.  From 1968 to 1979, he served as Chief Executive Officer for
Sycom,  Inc., a  commercial  electronics  company that he founded.  From 1964 to
1968,  he worked for Hughes  Aircraft  Company where he headed the Radar Systems
Section of the  Hughes  Ground  Systems  Group.  In 1962,  Dr. Wan and two other
professors established an Engineering School at University of California,  Santa
Barbara,  where he also taught  Engineering.  Dr. Wan holds B.S., M.S. and Ph.D.
degrees in Engineering and Applied Sciences from Yale University.

                                       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 22,000 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.

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 results of operations.


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  issued  to
shareholders  of record on  October  30,  2000 (see Note 15 to the  Consolidated
Financial Statements). Such quotations do not reflect retail mark-ups, markdowns
or commissions.

   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  21, 2000,  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  of $0.01 per share of common stock in each fiscal
quarter of 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 5 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

<TABLE>
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.


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

                                                    September 30,      October 2,      October 3,   September 27,   September 28,
                                                             2000            1999            1998            1997(1)         1996(1)
                                                         --------        --------        --------        --------        --------
                                                       (amounts in thousands except per share amounts)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>             <C>             <C>             <C>            <C>
Statement of Income Data:
Net sales                                                $219,216        $159,403        $124,264        $101,539       $ 96,746
Income from continuing operations
   (before extraordinary item)                              9,607           5,339           2,515           2,997          2,873
Diluted income from continuing
   operations per share (before
   extraordinary item and discontinued
   operations)                                               0.65            0.37            0.17            0.21           0.21
Shares used in computing diluted
   income per share (before
   extraordinary item)                                     14,807(2)       14,508(2)       14,548(2)       14,134(2)      13,956(2)
Balance Sheet Data:
Working capital                                          $ 41,808        $ 37,937        $ 36,124        $ 26,967       $ 27,775
Total assets                                              138,288         123,360         109,515          94,855         92,171
Long-term debt (excluding current
   portion)                                                36,614          36,705          37,157          27,508         24,137
Stockholders' equity                                       49,096          45,843          40,194          36,617         33,246
------------------------------------------------------------------------------------------------------------------------------------

<FN>
---------------

(1) Selected financial data for the years ended September 27, 1997 and September
28, 1996 is derived from results of Electronics prior to the Distribution

(2) Share  numbers have been  adjusted  for the  one-for-one  stock  dividend to
shareholders  of record on  October  30,  2000 (See Note 15 of the  Consolidated
Financial Statements)
</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.

<TABLE>
         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.  The table and the accompanying analysis
cover  periods  in which the  businesses  now  carried on by  Technologies  were
operated by Electronics.  However,  the table and analysis have been prepared as
if the  Company  and its  businesses  were a  separate  entity  for all  periods
discussed.

<CAPTION>
                                                                      Years Ended
                                                             -------------------------
                                                             2000       1999      1998
                                                             -----     -----     -----
<S>                                                          <C>       <C>       <C>
Net sales ..............................................     100.0%    100.0%    100.0%
Cost of sales ..........................................      72.3      69.7      68.9
                                                             -----     -----     -----
Gross profit ...........................................      27.7      30.3      31.1
Operating expenses:
     Selling, general and administrative expenses ......      15.6      18.8      20.5
     Research, development and related expenses ........       4.1       4.2       5.1
                                                             -----     -----     -----
Income from operations .................................       8.0       7.3       5.5
Other income ...........................................       0.4       0.2       0.4
Interest expense .......................................       1.2       1.9       2.4
                                                             -----     -----     -----
Income from continuing operations before income taxes ..       7.2       5.6       3.5
Income taxes ...........................................       2.8       2.3       1.5
                                                             -----     -----     -----
Income from continuing operations ......................       4.4       3.3       2.0
Income from discontinued operations, net of
  income taxes                                                 0.0       0.0       0.1
                                                             -----     -----     -----
Income before extraordinary item .......................       4.4       3.3       2.1
Extraordinary item, net of income taxes ................      (0.0)     (0.2)     (0.0)
                                                             -----     -----     -----
Net Income .............................................       4.4%      3.1%      2.1%
                                                             =====     =====     =====
</TABLE>


Continuing Operations

Net Sales

         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 the automotive  industry's  growing demand for the Company's GyroChip sensors
used  in  automotive  stability  systems.  Sales  to  the  automotive  industry,
including  those  attributable  to  sales  of the  Company's  GyroChip  sensors,
increased  97.3% to $107.5  million from $54.5 million in fiscal 1999.  Sales by
the  Company  to other  industrial  customers  increased  $7.2  million to $93.0
million from $85.8 million during fiscal 2000 resulting primarily from increases
to the sales of actuators to the semiconductor capital equipment industry during
fiscal 2000.  Government  related sales decreased $0.5 million in fiscal 2000 to
$18.7 million from $19.2 million during fiscal 1999.

         During fiscal 1999,  net sales  increased  28.3% to $159.4 million from
$124.3 in  fiscal  1998,  reflecting  continuing  increases  in sales due to the
automotive  industry's growing demand for the Company's GyroChip sensors used in
automotive stability systems.  Sales to the automotive  industry,  including the
GyroChip sales,  increased  170.0% to $54.5 million from $20.2 million in fiscal
1998.  Other  industrial  product sales  increased $2.8 million to $85.8 million
from $83.0 million during fiscal 1999 and sales to the government decreased $1.8
million to $19.2 from $21.0 during fiscal 1999.

                                       20

<PAGE>


         The Company's sales to international  customers were approximately 45%,
28%,  and 14% of the  Company's  net  sales  for  fiscal  2000,  1999 and  1998,
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 by the Company to non-U.S.  customers are  denominated in
U.S. Dollars.

Cost of Sales and Gross Profit

         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. 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 2000.  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 1999,  cost of sales as a percentage  of net sales  increased
0.8  percentage  points due to  increased  shipments of products  having  higher
average production costs.

Selling, General and Administrative Expenses

         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.

         Selling,  general and administrative  expenses in fiscal 1999 increased
$4.5 million from $25.5  million in fiscal 1998 to $30.0  million as a result of
costs incurred to support the increase in sales during fiscal 1999.

Research, Development and Related Expenses

         Research and  development  expenses in fiscal 2000  increased  34.8% to
$8.9 million from $6.6 million in fiscal 1999. This increase is 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.  Other research and development  engineering efforts include 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 1999 increased 3.0% to $6.6
million from $6.4 million in fiscal 1998.  Spending on MEMS product  development
for a variety of markets was the principal focus.

         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 funding of research and development
efforts.

Interest Expense and Other Income

         Interest  expense was $2.6  million,  $3.0  million and $2.9 million in
fiscal  2000,  1999 and 1998,  respectively.  In fiscal  2000,  the  decrease in
interest  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.  During fiscal 1999,  interest expense was slightly higher
than in fiscal 1998 due to a higher average debt balance for the Company to fund
capital  expenditures.  The Company's  average interest rate was lower in fiscal
2000  than in  fiscal  1999 due to the  reduced  need for bank  borrowings.  The
Company's  average interest rate was lower in fiscal 1999 due to a restructuring
of the Company's debt facilities in fiscal 1999 (see Note 5 to the  Consolidated
Financial Statements).

         Other income in fiscal 2000,  1999 and 1998 was  comprised of royalties
and interest income earned on highly liquid  investments.  Other income was $1.0
million,  $0.4  million  and $0.4  million  for  fiscal  2000,  1999  and  1998,
respectively.  The increase in fiscal 2000 resulted  primarily  from the sale in
the second quarter of an asset held for investment for $0.5 million, net.

                                       21

<PAGE>


Income Taxes

         The Company's  effective tax rate was 39.3%, 40.4% and 41.8% for fiscal
2000, 1999 and 1998, 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 1.1 percentage  points in
fiscal 2000 from fiscal 1999 and the decrease of 1.4 percentage points in fiscal
1999 from fiscal 1998 results from  increased  federal and state tax credits for
the Company during fiscal 2000 and fiscal 1999, respectively.

Deferred Income Taxes

         At September 30, 2000, the Company had net current  deferred income tax
assets of $6.2 million and net  non-current  deferred  income tax assets of $3.2
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.

Discontinued Operations

         In August 1998, Technologies  discontinued the operations of its wholly
owned subsidiary,  Defense Systems Company ("Defense Systems").  In fiscal 1998,
income for Defense  Systems was $0.1  million  reflecting  the  wind-down of its
operations (see Note 2 to the  Consolidated  Financial  Statements).  Due to the
discontinuation  of operation  there was no income for Defense Systems in fiscal
years 2000 or 1999.

Liquidity and Capital Resources

         During fiscal 2000, operations of the Company provided $23.6 million in
cash.  Net income of $9.6 million plus  non-cash  charges for  depreciation  and
amortization of $6.1 million and $2.8 million,  respectively,  and net increases
in accounts  payable,  accrued  expenses and other  liabilities of $11.4 million
together with a decrease of $0.6 million in other assets  provided $30.7 million
in cash.  These cash inflows were offset by  increases in trade  receivables  of
$3.5  million and income tax payable of $3.0  million and a gain of $0.4 million
on the disposition of assets.

         Investing activities for the Company in fiscal 2000 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.  The capital  purchases  were offset by the receipt of $1.9
million in cash from the  disposal of  equipment  resulting  in net cash used by
investing activities of $6.6 million.

         Fiscal 2000 financing  activities  primarily consisted of the Company's
repurchase of its common stock for $7.6 million.  In addition,  the Company paid
$0.6  million in  dividends  and $0.6  million  for debt  repayment.  These cash
outflows were offset by proceeds of $0.9 million from stock issuances related to
the exercise of options  granted under the Company's 1997 Equity  Incentive Plan
resulting  in net cash used for  financing  activities  of $7.9  million  during
fiscal 2000 (See Note 8 to the Consolidated Financial Statements).

         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 and changes in the prices of marketable equity securities held as
part of a deferred compensation plan (a "Rabbi" trust).

         The Company has approximately $1,700,000 (translated from French francs
at September  30,  2000)  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
$170,000, 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.

                                       23

<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


CONSOLIDATED BALANCE SHEETS
BEI Technologies, Inc. and Subsidiaries

--------------------------------------------------------------------------------
                                                       September 30,  October 2,
dollars in thousands except share amounts                       2000        1999
--------------------------------------------------------------------------------

ASSETS

Current assets
Cash and cash equivalents                                   $ 12,296    $  3,181
Investments                                                    7,252       6,467
Trade receivables:
   Commercial customers, less allowance for doubtful
   accounts (2000--$1,084; 1999--$597)                        30,439      24,660
   United States Government                                    2,628       4,895
                                                            --------    --------

                                                              33,067      29,555

Inventories - Note 3                                          31,084      31,036
Deferred income taxes - Note 6                                 6,148       4,646
Other current assets                                           1,715       2,547
                                                            --------    --------

Total current assets                                          91,562      77,432

Property, plant and equipment - Notes 5 and 9
Land                                                           4,287       4,567
Structures                                                    12,513      14,167
Equipment                                                     61,909      57,747
Leasehold improvements                                         1,589       1,547
                                                            --------    --------
                                                              80,298      78,028

Less allowances for depreciation and amortization             44,288      42,906
                                                            --------    --------
                                                              36,010      35,122

Other assets
Tradenames, patents and related assets,
  less amortization (2000--$3,082; 1999--$2,890)               1,201       1,402
Technology acquired under license agreements,
  less amortization (2000--$7,115; 1999--$6,154)               3,093       4,054
Goodwill, less amortization (2000--$964; 1999--$510)           2,085       2,436
Deferred income taxes, non-current                             3,214       1,680
Other                                                          1,123       1,234
                                                            --------    --------

                                                              10,716      10,806
                                                            --------    --------

                                                            $138,288    $123,360
                                                            ========    ========

See notes to consolidated financial statements

                                       24

<PAGE>


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


<CAPTION>
----------------------------------------------------------------------------------------
                                                             September 30,    October 2,
dollars in thousands except share amounts                             2000          1999
----------------------------------------------------------------------------------------

<S>                                                               <C>          <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Trade accounts payable                                            $  18,926    $  15,484
Accrued expenses and other liabilities - Note 4                      23,442       17,424
Deferred compensation liability                                       7,252        6,467
Current portion of long-term debt - Note 5                              134          120
                                                                  ---------    ---------

Total current liabilities                                            49,754       39,495

Long-term debt, less current portion - Note 5                        36,614       36,705

Other liabilities                                                     2,824        1,317

Commitments and contingencies - Notes 9 and 10                         --           --

Stockholders' equity - Note 7
Preferred stock
    ($.001 par value; authorized 2,000,000 shares; none issued)        --           --
Common stock - Note 15
    ($.001 par value; authorized 20,000,000 shares; issued
    and outstanding; 2000--14,308,776; 1999--14,909,576)              2,321        3,731
Retained earnings                                                    49,193       44,498
Accumulated other comprehensive loss                                   (398)        (106)
                                                                  ---------    ---------
                                                                     51,116       48,123
Less:  Unearned restricted stock - Note 7                            (2,020)      (2,280)
                                                                  ---------    ---------

Total stockholders' equity                                           49,096       45,843
                                                                  ---------    ---------

                                                                  $ 138,288    $ 123,360
                                                                  =========    =========

<FN>
See notes to consolidated financial statements
</FN>
</TABLE>

                                       25

<PAGE>


<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
BEI Technologies, Inc. and Subsidiaries

<CAPTION>
                                                                                                   Years Ended
                                                                          ---------------------------------------------------------
                                                                          September 30,            October 2,            October 3,
dollars in thousands except share and per share amounts                            2000                  1999                  1998
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                   <C>                   <C>
Net sales                                                                     $ 219,216             $ 159,403             $ 124,264
Cost of sales                                                                   158,526               111,180                85,562
                                                                              ---------             ---------             ---------

Gross profit                                                                     60,690                48,223                38,702

Selling, general and administrative expenses                                     34,300                30,044                25,491
Research, development and related expenses                                        8,897                 6,605                 6,410
                                                                              ---------             ---------             ---------

                                                                                 43,197                36,649                31,901
                                                                              ---------             ---------             ---------

Income from operations                                                           17,493                11,574                 6,801
Other income                                                                        968                   360                   445
Interest expense                                                                 (2,644)               (2,974)               (2,924)
                                                                              ---------             ---------             ---------

Income before income taxes                                                       15,817                 8,960                 4,322
Income taxes                                                                      6,210                 3,621                 1,807
                                                                              ---------             ---------             ---------

Income from continuing operations                                                 9,607                 5,339                 2,515
Income from discontinued operations, net of
    income taxes                                                                   --                    --                     142
                                                                              ---------             ---------             ---------

Income before extraordinary item                                                  9,607                 5,339                 2,657
Extraordinary item, net of income taxes                                            --                    (326)                 --
                                                                              ---------             ---------             ---------

Net income                                                                    $   9,607             $   5,013             $   2,657
                                                                              =========             =========             =========

<FN>
See notes to consolidated financial statements
</FN>
</TABLE>

                                                                 26

<PAGE>


<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS (cont.)
BEI Technologies, Inc. and Subsidiaries.


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

                                                                       September 30,              October 2,              October 3,
dollars in thousands except share and per share amounts                         2000                    1999                    1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                     <C>                     <C>
                                                  Basic Income Per Share - Note 14

Income from continuing operations per
     common share                                                     $         0.68          $         0.37          $         0.18
Income from discontinued operations per
     common share                                                               --                      --                      0.01
                                                                      --------------          --------------          --------------
Income before extraordinary item per
     common share                                                               0.68                    0.37                    0.19
Loss from extraordinary item per common
     share                                                                      --                      0.02                 --
                                                                      --------------          --------------          --------------
Net income per common share                                           $         0.68          $         0.35          $         0.19
                                                                      ==============          ==============          ==============
Shares used in computing basic income per
     common share - Notes 7 and 15                                        14,113,156              14,315,890              14,024,500
                                                                      ==============          ==============          ==============


                                                 Diluted Income Per Share - Note 14

Income from continuing operations per
    common and common equivalent
    share - Note 7                                                    $         0.65          $         0.37          $         0.17
Income from discontinued operations
    per common and common equivalent
    share - Note 7                                                              --                      --                      0.01
                                                                      --------------          --------------          --------------
Income before extraordinary item per
    common and common equivalent share                                $         0.65          $         0.37          $         0.18

Loss from extraordinary item per common
    and common equivalent share                                                 --                      0.02                 --
                                                                      --------------          --------------          --------------
Net income per common and common
     equivalent share                                                 $         0.65          $         0.35          $         0.18
                                                                      ==============          ==============          ==============
Shares used in computing diluted income
     per common and common equivalent
     share - Notes 7 and 15                                               14,806,504              14,508,968              14,548,070
                                                                      ==============          ==============          ==============

<FN>
See notes to consolidated financial statements
</FN>
</TABLE>

                                                                 27

<PAGE>


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

<CAPTION>
                                                                                                       Years Ended
                                                                                  -------------------------------------------------
                                                                                  September 30,       October 2,         October 3,
dollars in thousands                                                                       2000             1999               1998
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>               <C>               <C>
Cash flows from operating activities:
Net income                                                                             $  9,607          $  5,013          $  2,657
Adjustments to reconcile net income to net cash provided
    by operating activities:
Discontinued operations                                                                    --                --               1,111
Depreciation                                                                              6,067             6,220             4,537
Amortization                                                                              2,826             2,013             1,789
Deferred income taxes                                                                    (3,036)             (576)           (1,171)
Loss (gain) on disposition of assets                                                       (415)               42                60
Other                                                                                      (126)              122                24
Changes in operating assets and liabilities:
Trade receivables                                                                        (3,511)           (6,244)           (4,383)
Inventories                                                                                 (47)           (1,657)           (5,190)
Other current assets                                                                        831              (576)           (1,171)
Trade accounts payable, accrued expenses and other liabilities                           11,375             7,112             3,260
                                                                                       --------          --------          --------

Net cash provided by operating activities                                                23,571            10,182             2,792

Cash flows from investing activities:
Acquisition of a business, net of cash acquired                                            --                --              (1,627)
Purchase of property, plant and equipment                                                (8,408)          (10,597)           (6,890)
Proceeds from sale of assets                                                              1,868              --                   5
Other                                                                                       (27)               10              (133)
                                                                                       --------          --------          --------
                                                                                         (6,567)          (10,587)           (8,645)
Net cash used by investing activities


Cash flows from financing activities:
Proceeds from debt borrowings                                                             1,472            40,300            22,017
Principal payments on debt and other financing                                           (2,121)          (40,457)          (18,093)
Proceeds from issuance of common stock                                                      903                55               768
Tax benefit from exercised stock options                                                     31               726               264
Repurchase of stock                                                                      (7,586)             --                --
Payment of cash dividends                                                                  (588)             (595)             (580)
                                                                                       --------          --------          --------

Net cash provided (used) by financing activities                                         (7,889)               29             4,376
                                                                                       --------          --------          --------

Net increase (decrease) in cash and cash equivalents                                      9,115              (376)           (1,477)
Cash and cash equivalents at beginning of year                                            3,181             3,557             5,034
                                                                                       --------          --------          --------

Cash and cash equivalents at end of year                                               $ 12,296          $  3,181          $  3,557
                                                                                       ========          ========          ========

<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>

                                                                 28

<PAGE>


<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
BEI Technologies, Inc. and Subsidiaries

<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 September 27, 1997                                7       38,003         --               --       (1,393)       36,617

Comprehensive income:
    Net income for 1998                                                2,657                        2,657                     2,657
    Other comprehensive income
       Foreign currency translation gain,
       net of income tax of $27                                                      39                39                        39
                                                                                                   ------
Comprehensive income                                                                               $2,696
                                                                                                   ======

Restricted Stock Plan                                     1,093                                                  (664)          429
Stock options exercised                                     768                                                                 768
Tax benefit from exercised stock options                    264                                                                 264
Cash dividends                                                          (580)                                                  (580)
                                                        -------      -------      -----                       -------       -------

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
Treasury stock purchases                                 (3,262)      (4,324)                                                (7,586)
Cash dividends                                                          (588)                                                  (588)
                                                        -------      -------      -----                       -------       -------
Balances at September 30, 2000                          $ 2,321      $49,193      $(398)                      $(2,020)      $49,096
                                                        =======      =======      =====                       =======       =======

<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>

                                                                 29

<PAGE>


Notes to Consolidated Financial Statements

BEI Technologies, Inc. and Subsidiaries
September 30, 2000

Note 1 Summary of Significant Accounting Policies

         Basis of Presentation:  BEI Technologies,  Inc.  ("Technologies" or the
"Company")  was  incorporated  on June 30, 1997 in the State of  Delaware,  as a
wholly owned subsidiary of BEI Electronics,  Inc. ("Electronics").  On September
27, 1997,  Electronics  distributed to holders of  Electronics  common stock one
share of common stock of the Company for each share of Electronics  common stock
held on  September  24,  1997  (the  "Distribution").  In  connection  with  the
Distribution,  Electronics  transferred  to  Technologies  all  of  the  assets,
liabilities and operations of its BEI Sensors & Systems Company,  Inc. ("Sensors
& Systems") and Defense  Systems  Company,  Inc.  ("Defense  Systems")  business
segments.  As  further  described  in Note 2, on June  30,  1997,  the  Board of
Directors  of  Electronics  also  approved  a  formal  plan to  discontinue  the
operations of its Defense  Systems  segment.  The operations of Defense  Systems
were discontinued as of July 4, 1998.

         Effective as of the close of business on October 30, 2000, Technologies
declared a one-for-one  stock dividend  payable to  stockholders of record as of
that date.  The effect of the stock  dividend was a doubling of shares of common
stock outstanding for the Company as of such date. 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.  The  financial  position and results of  operations  of Sensors &
Systems and Defense Systems,  former subsidiaries of Electronics and predecessor
entities  to the  Company are  presented  on a combined  basis for all dates and
periods prior to the  Distribution.  All intercompany  accounts and transactions
have  been  eliminated.  The  results  of  operations  of the  Sensors & Systems
business segment are presented as continuing operations and those of the Defense
Systems business segment through the end of the third quarter of fiscal 1998 are
presented as discontinued operations.

         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 2000 and 1999 each  contained 52 weeks.  Fiscal year
1998 contained 53 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.

                                       30

<PAGE>


                             BEI TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

         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 are amortized over the shorter of the lease term or their estimated
useful life.

         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.

         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  on
long-lived  assets,  including  property,  plant and equipment and other assets,
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  June  1998,  the  Financial
Accounting  Standards  Board  issued FAS No. 133 ("FAS  133"),  "Accounting  for
Derivative  Instruments  and  Hedging  Activities."  FAS 133  requires  that all
derivative  instruments be recorded on the balance sheet at fair value.  Changes
in the value of  derivatives  are  recorded  each period in current  earnings or
other  comprehensive  income,  depending on whether a derivative  is designed as
part of a hedge  transaction and if so, the type of hedge  transaction.  FAS 133
must be adopted on January 1, 2001.  Presently,  the Company  has no  derivative
financial  instruments and anticipates  that adoption of this standard will have
no impact on the Company.

         In March 2000,  the Financial  Accounting  Standards  Board issued FASB
Interpretation  No. 44,  "Accounting  for certain  Transactions  involving Stock
Compensation",  an interpretation  of APB Opinion No. 25. The  Interpretation is
effective on July 1, 2000. The  Interpretation  requires that stock options that
have been  modified to reduce the exercise  price be accounted  for as variable.
The Company does not anticipate any significant impact from the adoption of this
interpretation.

         Net Income (Loss) 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.

         Acquisition:  On August 7, 1998,  Sensors & Systems  acquired  Ideacod,
S.A., a sensor  manufacturer  located in Strasbourg,  France,  for $1,627,000 in
cash and the assumption of $3,735,000 in liabilities, in a transaction accounted
for as a purchase.  The  results of Ideacod  since the date of  acquisition  are
included in the accompanying  consolidated  financial statements.  The impact of
the  acquisition  was not  significant  in relation to the Company's  results of
operations.

         The financial  statements of Ideacod,  S.A. 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 1999
and  1998  consolidated  financial  statements  to  conform  with  current  year
presentations.

                                       31

<PAGE>


                             BEI TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2 Discontinued Operations

         In July 1998,  Technologies  discontinued  the operations of its wholly
owned subsidiary,  Defense Systems Company ("Defense Systems").  In fiscal 1998,
income for Defense  Systems was $0.1  million  reflecting  the  wind-down of its
operations.  Due to the  discontinuation  of  operation  there was no income for
Defense Systems in fiscal years 2000 or 1999.


Note 3 Inventories

                                                      September 30,   October 2,
                                                               2000         1999
                                                           --------    --------
                                                              (in thousands)

Finished products .....................................    $  2,052    $  1,521
Work in process .......................................       5,880      10,165
Materials .............................................      23,152      17,848
Costs incurred under long-term contracts, including
   U.S. Government contracts ..........................        --         1,746
Unliquidated progress payments ........................        --          (244)
                                                           --------    --------
Total inventories .....................................    $ 31,084    $ 31,036
                                                           ========    ========


Note 4 Accrued Expenses and Other Liabilities

                                                      September 30,   October 2,
                                                               2000         1999
                                                            -------      -------
                                                               (in thousands)

Employee compensation ................................      $ 3,915      $ 2,603
Vacation .............................................        1,810        2,145
Accrued taxes ........................................        2,561        3,163
Contract costs .......................................          552          724
Accrued professional fees ............................        1,020          827
Insurance ............................................        1,303          909
Royalties and related costs ..........................        6,188        2,167
Customer advances ....................................          891          446
Commissions ..........................................          755          549
Other ................................................        4,447        3,891
                                                            -------      -------
Total accrued expenses and other liabilities .........      $23,442      $17,424
                                                            =======      =======


Note 5 Long-Term Debt

                                                 September 30,       October 2,
                                                          2000             1999
                                                       -------          -------
                                                           (in thousands)

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...........     1,655            1,681

Capitalized equipment lease obligations.............        93              144
                                                       -------          -------

                                                        36,748           36,825

Less current portion................................       134              120
                                                       -------          -------

                                                       $36,614          $36,705
                                                       =======          =======

                                       32

<PAGE>


                            BEI TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

         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. No
borrowings were outstanding  under the new line of credit at September 30, 2000.
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  2001  $134,000;  fiscal 2002
$7,075,000;   fiscal  2003  $7,064,000;  fiscal  2004  $8,475,000;  fiscal  2005
$7,00,000; thereafter--$7,000,000.

         Interest of  approximately  $2,480,000,  $2,354,000 and $2,535,000 were
paid during fiscal years 2000, 1999 and 1998, respectively.

Note 6 Income Taxes

         The Company  accounts  for income  taxes under  Statement  of Financial
Accounting  Standards 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.

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

<CAPTION>
                                                                                           Year Ended
                                                                          --------------------------------------------
                                                                          September 30,      October 2,     October 3,
                                                                                   2000            1999           1998
                                                                               --------        --------       --------
<S>                                                                            <C>             <C>            <C>
Current
     Federal..........................................................         $  7,504        $  3,365       $  2,581
     State............................................................            1,742             832            496
                                                                               --------        --------       --------
          Total Current...............................................            9,246           4,197          3,077

Deferred
      Federal ........................................................           (2,500)           (437)        (1,038)
      State   ........................................................             (536)           (139)          (133)
                                                                               --------        --------       --------
           Total Deferred.............................................           (3,036)           (576)        (1,171)
                                                                               --------        --------       --------
Total income tax provision............................................         $  6,210        $  3,621       $  1,906
                                                                               ========        ========       ========
Income tax expense attributable to continuing operations..............            6,210        $  3,621       $  1,807
Income tax expense attributable to discontinued operations............              --             --              99
                                                                               --------        --------       --------
Total income taxes....................................................         $  6,210        $  3,621       $  1,906
                                                                               ========        ========       ========
</TABLE>

                                                          33

<PAGE>


                             BEI TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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


                                                     September 30,    October 2,
                                                              2000          1999
                                                           -------       -------
                Deferred tax assets

Accrued expenses ...................................       $ 7,282       $ 4,846
Inventory valuation ................................         3,063         2,520
Contract reserves ..................................           709           461
Other ..............................................           527           525
                                                           -------       -------
        Total deferred tax assets ..................        11,581         8,352
                                                           -------       -------

              Deferred tax liabilities

Depreciation and property basis difference .........         1,438         1,495
Other ..............................................           781           531
                                                           -------       -------
     Total deferred tax liabilities ................         2,219         2,026
                                                           -------       -------
     Net deferred tax assets .......................       $ 9,362       $ 6,326
                                                           =======       =======


         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
1998 and 1999, and 35.0% for 2000 (in thousands) are as follows:


                                            September 30,  October 2, October 3,
                                                     2000        1999       1998
                                                  -------     -------    -------

Income tax at the statutory rate of 34% ......    $ 5,536     $ 3,046    $ 1,551
State income tax, net of federal tax .........        789         457        240
Other ........................................       (115)        118        115
                                                  -------     -------    -------
Total income taxes ...........................    $ 6,210     $ 3,621    $ 1,906
                                                  =======     =======    =======


         Pursuant to the tax sharing agreement with  Electronics,  the Company's
income taxes prior to fiscal year 1998 were paid by  Electronics.  Cash paid for
income  taxes in  fiscal  year  2000 and 1999  was  $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 123. The Company  accounts for employee stock
awards using the intrinsic value method in accordance with APB Opinion No. 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
Electronics in connection with the Distribution.

                                       34

<PAGE>


                             BEI TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

<TABLE>
         Option  activity  under the  Technologies  Incentive Plan is summarized
below:


<CAPTION>
                                                                      Weighted average
                                                          Number of     exercise price
                                                        Common shares     per share
                                                          --------          ------
<S>                                                       <C>               <C>
Options outstanding at September 27, 1997                  678,890          $ 2.49
               Granted ............................          4,000          $ 8.35
               Exercised ..........................       (336,586)         $ 2.17
                                                          --------          ------
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)         $11.67
               Terminated .........................        (47,464)         $ 5.12
                                                          --------          ------
Options outstanding at September 30, 2000                  361,928          $ 5.72
                                                          ========          ======
</TABLE>


<TABLE>
<CAPTION>

                                                                        Weighted Average         Weighted Average
                                                          Number     Remaining Contractual      Exercise Price Per
Exercise Prices                                        Outstanding       Life (Years)                  Share
---------------                                        -----------       ------------                  -----
<S>                                                      <C>                 <C>                      <C>
$ 2.33......................................              15,026             4.14                     $ 2.33
$ 2.97......................................              14,944             2.65                     $ 2.97
$ 3.50......................................              93,452             8.01                     $ 3.50
$ 4.25......................................              12,882             1.61                     $ 4.25
$ 5.25......................................               6,000             8.86                     $ 5.25
$ 5.50......................................               4,000             8.84                     $ 5.50
$ 6.00......................................              17,688             8.45                     $ 6.00
$ 6.22......................................               4,000             8.97                     $ 6.22
$ 6.25......................................             159,600             9.19                     $ 6.25
$ 7.44......................................               4,000             9.55                     $ 7.44
$ 8.34......................................               1,336             7.53                     $ 8.34
$ 8.50......................................               5,000             9.20                     $ 8.50
$ 8.59......................................               4,000             9.39                     $ 8.59
$ 8.88......................................               4,000             9.49                     $ 8.88
$12.94......................................               4,000             9.76                     $12.94
$18.06......................................               6,000             9.79                     $18.06
$19.31......................................               6,000             9.97                     $19.31
------                                                   -------             ----                    ------
$ 2.33 - $19.31.............................             361,928             8.13                      $5.77
</TABLE>

         As of  September  30, 2000,  options for 76,352  shares were vested and
exercisable at a weighted average exercise price of $3.56.

                                       35

<PAGE>


                             BEI TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

         Under the  Incentive  Plan,  the  holders  of the  1,400,000  shares of
Electronics  common  stock  which had been  issued  under the  Electronics  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  30,  2000,
1,366,452  shares had been granted,  of which 1,171,842  shares are outstanding,
and  628,904  shares  have fully  vested.  Compensation  expense of  $1,178,000,
$595,000 and $429,000 for the  amortization of the restricted stock was recorded
in fiscal years 2000, 1999 and 1998, respectively.

         The Company computed the pro forma  disclosures  required under FAS No.
123 for  options  granted  in  fiscal  years  2000,  1999  and  1998  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  years 1999 and 1998.  For fiscal  year 2000,  the
significant  assumptions used in the Black-Scholes  calculation were a risk-free
interest  rate of 5.98%,  a weighted  average  expected  life of three years,  a
volatility rate of 85%, and an expected dividend yield of 0.4%.

         Options to acquire  215,000 shares were granted during fiscal 2000 with
a weighted  average fair value of $5.08 per share.  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
$0.71 to $0.63.

         In addition to options,  145,000 shares of nonvested stock were granted
during fiscal year 2000, with a weighted  average fair value of $7.55 per share.
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 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  2000,  1999 and 1998 were
approximately $960,000, $911,000, and $780,000 respectively.

         The  Company  has a grantor  trust to fund  deferred  compensation  for
certain employees (a "Rabbi 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 30, 2000 and October 2, 1999.

                                       36

<PAGE>


                             BEI TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 9 Lease Commitments

<TABLE>
         Operating leases consist  principally of leases for real properties 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.  Assets recorded under capital leases consist of
land,  buildings and equipment of $265,000,  net of accumulated  amortization of
$94,000. The future minimum payments for operating and capital leases consist of
the following at September 30, 2000 (in thousands):

<CAPTION>
                                                                                          Capital        Operating
     Fiscal Year                                                                           Leases           Leases
     -----------                                                                           ------           ------
<S>                                                                                           <C>           <C>
         2001  ...................................................................            $88           $1,982
         2002  ...................................................................             18            1,323
         2003  ...................................................................             --            1,287
         2004  ...................................................................             --            1,253
         2005  ...................................................................             --              726
         Thereafter...............................................................             --               --
                                                                                             ----           ------
               Total minimum lease payments.......................................            106           $6,571
                                                                                                            ======
               Less amounts representing interest.................................             13
                                                                                             ----
               Amounts included in long-term debt.................................           $ 93
                                                                                             ====
</TABLE>

         Total   rental   expense   amounted   to   approximately    $2,192,000,
$2,187,000,and $1,694,000 for fiscal years 2000, 1999 and 1998, 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 will
have a  material  impact  on the  Company's  financial  condition  or  operating
results.

Note 11 Sales and Major Customers

         The Company's  operations are conducted within one business segment-the
production,  manufacturing  and sale of a full line of  electronic  devices that
provide vital sensory  input for the control  systems of advanced  machinery for
the commercial automotive,  government,  and industrial industries. The sales to
major industries are as follows (in thousands):


                                           September 30,  October 2,  October 3,
                                                    2000        1999        1998
                                                --------    --------    --------
Commercial automotive sensors sales ........    $107,459    $ 54,459    $ 20,170
Government .................................      18,723      19,172      21,046
Industrial sales ...........................      93,034      85,772      83,048
                                                --------    --------    --------
Total sales from continuing operations .....    $219,216    $159,403    $124,264
                                                ========    ========    ========

                                       37

<PAGE>


                             BEI TECHNOLOGIES, INC.

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     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 30, 2000.

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


                                           September 30,  October 2,  October 3,
                                                    2000        1999        1998
                                                --------    --------    --------
Domestic sales .............................    $120,894    $114,766    $106,872
Foreign ....................................      98,322      44,637      17,392
                                                --------    --------    --------
Total sales from continuing operations .....    $219,216    $159,403    $124,264
                                                ========    ========    ========


Foreign sales accounted for  approximately  45%, 28%, and 14% of total sales for
fiscal 2000, 1999 and 1998, respectively.

In  fiscal  2000  and  fiscal  1999,  one  customer  accounted  for 37% and 20%,
respectively,  of the  Company's  net  sales.  In  fiscal  1998 no one  customer
accounted for more than 10% of the Company's net sales.

Note 12 Quarterly Results of Operations (Unaudited)

<TABLE>
         The tables below present unaudited quarterly financial  information for
fiscal years 2000 and 1999:


<CAPTION>
                                                                                         Continuing Operations
                                                                                           Three months ended
                                                                    ----------------------------------------------------------------
                                                                 January 1,           April 1,            July 1,      September 30,
                                                                       2000               2000               2000               2000
                                                                    -------            -------            -------            -------
                                                                            (dollars in thousands except per share amounts)
<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 .............................            $  0.09            $  0.16            $  0.21            $  0.22


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

                                                                 38

<PAGE>


                             BEI TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

<TABLE>
Note 12 Quarterly Results of Operations (Cont.) (Unaudited)

<CAPTION>
                                                                            January 2,     April 3,     July 3,  October 2,
                                                                                  1999         1999        1999        1999
                                                                               -------      -------     -------     -------
<S>                                                                            <C>          <C>         <C>         <C>
Net sales..............................................................        $36,743      $39,047     $41,175     $42,438
Gross profit...........................................................         11,463       12,316      12,194      12,250
Income before extraordinary item.......................................          1,054        1,159       1,170       1,956
Loss from extraordinary item, net of income taxes......................           (326)        --          --          --
Net income.............................................................            728        1,159       1,170       1,956


                        Basic Income Per Share
Income per share.......................................................        $  0.07      $  0.08     $  0.08     $  0.14
Loss from extraordinary item...........................................        $ (0.02)        --          --          --
Net income per share-basic.............................................        $  0.05      $  0.08     $  0.08     $  0.14

                       Diluted Income Per Share
Income per common and common equivalent share..........................        $  0.07      $  0.08     $  0.08     $  0.14
Loss from extraordinary item...........................................        $ (0.02)        --          --          --
Net income per share-diluted...........................................        $  0.05      $  0.08     $  0.08     $  0.14
</TABLE>


Note 13 Fair Value of Financial Instruments

         Statement  of  Financial   Accounting  Standards  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 30, 2000 and as of October 2, 1999.

         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  $35,787,000 and  $35,300,000  compared with the carrying
amounts of  $36,614,000  and  $36,705,000  at September  30, 2000 and October 2,
1999, respectively.

                                       39

<PAGE>


                             BEI TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14 - Income Per Share

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


<CAPTION>
                                                                            Year Ended
                                                                 -----------------------------------
                                                           September 30,    October 2,    October 3,
                                                                    2000          1999          1998
                                                                 -------       -------       -------
                                                              (in thousands, except per share amounts)
<S>                                                              <C>           <C>           <C>
Numerator

Income from continuing operations before
extraordinary item, net of taxes                                 $ 9,607       $ 5,339       $ 2,515
                                                                 =======       =======       =======

Denominator

Denominator for basic income per share

  Weighted average shares, net of
  nonvested shares (fiscal 2000--543 shares;
  fiscal 1999--590 shares;
  fiscal 1998--502 shares)                                        14,113        14,316        14,024
Effect of dilutive securities:
  Nonvested shares                                                   422            34           216
  Employee stock options                                             272           158           308
                                                                 -------       -------       -------
  Denominator for diluted earnings per share                      14,807        14,508        14,548
                                                                 =======       =======       =======
</TABLE>


Note 15 - Subsequent Events

         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.  OpticNet's  business  is focused on  developing  fiber  optic
components and subsystems,  such as optical switches, used in telecommunications
systems.

         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.

         As a separate  matter,  the Board of  Directors  of  Technologies  also
declared  a  one-for-one  stock  split  in the form of a stock  dividend  to its
stockholders,  also  effective  October  30,  2000,  immediately  following  the
distribution  of the shares in OpticNet.  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 of  Technologies  held as of such  date.
Accordingly,   all  data  shown  in  the  accompanying   consolidated  financial
statements  and notes have been  retroactively  adjusted  to reflect  this stock
split in the form of a dividend.

                                       40

<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  30, 2000 and October 2,
1999,  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  30,  2000.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of BEI  Technologies,  Inc. and
subsidiaries  at September  30, 2000 and October 2, 1999,  and the  consolidated
results of their operations,  stockholders'  equity and comprehensive income and
their cash flows for each of the three years in the period ended  September  30,
2000 in conformity with accounting  principles  generally accepted in the United
States.


                                                               Ernst & Young LLP


San Francisco, California
October 30, 2000


                                       41

<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 2001 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.

                                                                      Form 10-K
                                                                     Page Number
                                                                     -----------
(a)(1) Index to Consolidated Financial Statements.

       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                   41

       Consolidated Balance Sheets -
         September 30, 2000 and October 2, 1999                            24

       Consolidated Statements of Operations - Years ended
         September 30, 2000, October 2, 1999 and October 3, 1998           26

                                       42

<PAGE>


       Consolidated Statements of Cash Flows - Years ended
         September 30, 2000, October 2, 1999 and October 3, 1998           28

       Consolidated Statement of Changes in Stockholders'
         and Comprehensive Income Equity - Years ended
         September 30, 2000, October 2, 1999 and October 3, 1998           29

       Notes to Consolidated Financial Statements -
          September 30, 2000                                               30

(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 30, 2000 is filed as part of this Form 10-K:

       Schedule V                Valuation and Qualifying Accounts         S-1

                                 Report of Ernst & Young LLP, Independent
                                 Auditors as to Schedule                   S-2


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.

(a)(3) Listing of Exhibits

  Exhibit
  Numbers       Description                                             Footnote
  -------       -----------                                             --------

     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

                                       43

<PAGE>


     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


    10.3        Assumption Agreement--Series A and Series B Senior
                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

    21.1        Subsidiaries of the Registrant                               ii

    23.1        Consent of Ernst & Young LLP, Independent Auditors

    24.1        Power of Attorney

    27.1        Financial Data Schedule

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

                                       44
<PAGE>

    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


(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.

*    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 30, 2000.

                                       45

<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 15, 2000

                                       46

<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.

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

<CAPTION>
Signature                                     Title                                             Date
---------                                     -----                                             ----
<S>                                           <C>                                               <C>
/s/ Charles Crocker                           Chief Executive Officer and Chairman of           December 15, 2000
---------------------------------------       the Board Of Directors (Principal                 ------------------------------
Charles Crocker                               Executive Officer)


/s/ Dr. Asad M. Madni                         President, Chief Operating Officer and            December 15, 2000
---------------------------------------       Director                                          ------------------------------
Dr. Asad M. Madni

/s/ John LaBoskey                             Senior Vice President and Chief Financial         December 15, 2000
---------------------------------------       Officer                                           ------------------------------
John LaBoskey


/s/ Robert R. Corr                            Vice President, Secretary, Treasurer and          December 15, 2000
---------------------------------------       Controller (Principal Accounting Officer)         ------------------------------
Robert R. Corr


/s/ Richard M. Brooks                         Director                                          December 15, 2000
---------------------------------------                                                         ------------------------------
Richard M. Brooks


/s/ George S. Brown                           Director                                          December 15, 2000
---------------------------------------                                                         ------------------------------
George S. Brown


/s/ C. Joseph Giroir, Jr.                     Director                                          December 15, 2000
---------------------------------------                                                         ------------------------------
C. Joseph Giroir, Jr.


/s/ Dr. William G. Howard                     Director                                          December 15, 2000
---------------------------------------                                                         ------------------------------
Dr. William G. Howard


/s/ Gary D. Wrench                            Director                                          December 15, 2000
---------------------------------------                                                         ------------------------------
Gary D. Wrench
</TABLE>

                                                 47

<PAGE>


<TABLE>
                                                                                                                  SCHEDULE V

                                                       BEI TECHNOLOGIES, INC.

                                                  VALUATION AND QUALIFYING ACCOUNTS


<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 30, 2000:
Deducted from asset accounts:
     Allowance for doubtful accounts................         $ 597          $550        $  --         $ 63(B)        $1,084
                                                             =====          ====        =====         ====           ======
Year ended October 2, 1999:
Deducted from asset accounts:
     Allowance for doubtful accounts................         $ 509          $187        $ --          $ 99(B)        $ 597
                                                             =====          ====        =====         ====           =====
Year ended October 3, 1998:
Deducted from asset accounts:
     Allowance for doubtful accounts................         $ 363          $101        $ 98 (C)      $ 53(B)        $ 509
                                                             =====          ====        =====         ====           =====


<FN>
(A)  Adjustment  based on the evaluation of  uncertainties in the realization of
     state net operating loss carryovers

(B)  Write-offs of uncollectible accounts

(C)  Acquired as part of an acquisition
</FN>
</TABLE>

                                       S-1


<PAGE>


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


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 30, 2000 and October 2, 1999, and for each of
the three years in the period  ended  September  30,  2000,  and have issued our
report  thereon dated  October 30, 2000.  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 30, 2000

                                       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

27.1                                Financial Data Schedule