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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-Q

(Mark One)

|  |  |                                                                                        
|- |  | ---------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|  |  |                                                                                        
|  |  | For the quarterly period ended September 30, 2003                                      

or

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|  |  |                                                                                         
|  |  | For the transition period from ________________to ________________                      

Commission file number: 0-23576

CELERITEK, INC.

(Exact name of registrant as specified in its charter)


|                                         |  |                       
|---------------------------------------- |  | ----------------------
|California                               |  | 77-0057484            
|(State or other jurisdiction of          |  | (I.R.S. Employer      
|incorporation or organization)           |  | Identification Number)
|                                         |  |                       
|3236 Scott Blvd.                         |  |                       
|Santa Clara, CA                          |  | 95054                 
|(Address of principal executive offices) |  | (Zip Code)            

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

NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)

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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuers classes of stock, as of the latest
practicable date.

Common Stock, No Par Value: 12,396,210 shares as of October 24, 2003



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TABLE OF CONTENTS



|                             |                                                                                               |                                                      |  |  |  |  |  | 
|---------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION
|                             | Item 1. FINANCIAL STATEMENTS                                                                 
|                             |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                             |                                                                                               | Notes to Condensed Consolidated Financial Statements
|                             | Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                             | Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                             | Item 4. CONTROLS AND PROCEDURES                                                              
|PART II OTHER INFORMATION   
|                             | Item 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                  
|INDEX TO EXHIBITS           
|EXHIBIT 31.1                
|EXHIBIT 31.2                
|EXHIBIT 32.1                



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CELERITEK, INC.

Table of Contents

|           |  |                       |  |                                                                                                         |    |          |    | 
|---------- |  | --------------------- |  | ------------------------------------------------------------------------------------------------------- | -- | -------- | -- | 
|           |  |                       |  |                                                                                                         |    | Page No.
|           |  |                       |  |                                                                                                         |    |         
|PART I:    |  | FINANCIAL INFORMATION |  |                                                                                                         | 1  |         
|           |  | Item 1.               |  | Financial Statements (Unaudited)                                                                        |    |          | 1  | 
|           |  |                       |  | Condensed Consolidated Balance Sheets: September 30, 2003 and March 31, 2003                            |    |          | 1  | 
|           |  |                       |  | Condensed Consolidated Statements of Operations: Three and
six months ended September 30, 2003 and 2002 |    |          | 2  | 
|           |  |                       |  | Condensed Consolidated Statements of Cash Flows: Six months
ended September 30, 2003 and 2002           |    |          | 3  | 
|           |  |                       |  | Notes to Condensed Consolidated Financial Statements                                                    |    |          | 4  | 
|           |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                   |    |          | 12 | 
|           |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                                              |    |          | 28 | 
|           |  | Item 4.               |  | Controls and Procedures                                                                                 |    |          | 28 | 
|PART II:   |  | OTHER INFORMATION     |  |                                                                                                         | 29 |         
|           |  | Item 6.               |  | Exhibits and Reports on Form 8-K                                                                        |    |          | 30 | 
|SIGNATURES |  |                       |  |                                                                                                         | 31 |         

-i-





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PART I FINANCIAL INFORMATION




Item 1. FINANCIAL STATEMENTS

CELERITEK, INC.




CONDENSED CONSOLIDATED BALANCE SHEETS


(In thousands)


|                                                                                                                                                   |                                           |                           |         |               |        |           |         |        |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------- | ------- | ------------- | ------ | --------- | ------- | ------ | ------- | 
|                                                                                                                                                   |                                           |                           |         | September 30, |        | March 31,
|                                                                                                                                                   |                                           |                           |         | 2003          |        | 2003     
|                                                                                                                                                   |                                           |                           |         |               |        |          
|                                                                                                                                                   |                                           |                           |         | (Unaudited)   |        | (Note)   
|ASSETS                                                                                                                                             |                                           |                           |         |               |        |           |         |       
|Current assets:                                                                                                                                    |                                           |                           |         |               |        |           |         |       
|                                                                                                                                                   | Cash and cash equivalents                 |                           | $       | 13,463        |        |           | $       | 28,909 |        
|                                                                                                                                                   | Short-term investments                    |                           |         | 73,304        |        |           |         | 66,727 |        
|                                                                                                                                                   | Accounts receivable, net                  |                           |         | 4,156         |        |           |         | 4,483  |        
|                                                                                                                                                   | Inventories                               |                           |         | 3,257         |        |           |         | 3,599  |        
|                                                                                                                                                   | Prepaid expenses and other current assets |                           |         | 2,945         |        |           |         | 1,925  |        
|                                                                                                                                                   |                                           |                           |         |               |        |           |         |       
|                                                                                                                                                   |                                           | Total current assets      |         |               | 97,125 |           |         |        | 105,643 | 
|Property and equipment, net                                                                                                                        |                                           |                           | 6,132   |               |        |           | 11,029  |       
|Intangible assets                                                                                                                                  |                                           |                           |        |               |        |           | 931     |       
|Other assets                                                                                                                                       |                                           |                           | 4,829   |               |        |           | 4,857   |       
|                                                                                                                                                   |                                           |                           |         |               |        |           |         |       
|Total assets                                                                                                                                       |                                           | $                         | 108,086 |               |        | $         | 122,460 |       
|                                                                                                                                                   |                                           |                           |         |               |        |           |         |        |        
|LIABILITIES & SHAREHOLDERS EQUITY                                                                                                                 |                                           |                           |         |               |        |           |         |       
|Current liabilities:                                                                                                                               |                                           |                           |         |               |        |           |         |       
|                                                                                                                                                   | Accounts payable                          |                           | $       | 3,923         |        |           | $       | 4,355  |        
|                                                                                                                                                   | Accrued payroll                           |                           |         | 1,764         |        |           |         | 1,601  |        
|                                                                                                                                                   | Accrued liabilities                       |                           |         | 3,975         |        |           |         | 4,201  |        
|                                                                                                                                                   | Current portion of long-term debt         |                           |         | 2,667         |        |           |         | 2,543  |        
|                                                                                                                                                   | Current obligations under capital leases  |                           |         | 628           |        |           |         | 597    |        
|                                                                                                                                                   |                                           |                           |         |               |        |           |         |       
|                                                                                                                                                   |                                           | Total current liabilities |         |               | 12,957 |           |         |        | 13,297  | 
|Long-term debt, less current portion                                                                                                               |                                           |                           | 758     |               |        |           | 2,126   |       
|Non-current obligations under capital leases                                                                                                       |                                           |                           | 574     |               |        |           | 793     |       
|Shareholders equity (12,395,293 and
12,342,163 common and no preferred shares
outstanding at September 30, 2003 and March 31, 2003, respectively) |                                           |                           | 93,797  |               |        |           | 106,244 |       
|                                                                                                                                                   |                                           |                           |         |               |        |           |         |       
|Total liabilities and shareholders equity                                                                                                         |                                           | $                         | 108,086 |               |        | $         | 122,460 |       
|                                                                                                                                                   |                                           |                           |         |               |        |           |         |        |        



|Note: |  | The balance sheet at March 31, 2003 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See accompanying notes.

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CELERITEK, INC.




CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands, except per share amounts)


(Unaudited)


|                                                               |                                                      |   |                    |       |                  |   |        |       |      |   |         |       |  |   |        |       | 
|-------------------------------------------------------------- | ---------------------------------------------------- | - | ------------------ | ----- | ---------------- | - | ------ | ----- | ---- | - | ------- | ----- |  | - | ------ | ----- | 
|                                                               |                                                      |   | Three Months Ended |       | Six Months Ended
|                                                               |                                                      |   | September 30,      |       | September 30,   
|                                                               |                                                      |   |                    |       |                 
|                                                               |                                                      |   | 2003               |       | 2002             |   | 2003   |       | 2002
|                                                               |                                                      |   |                    |       |                  |   |        |       |     
|Net sales                                                      |                                                      | $ | 7,083              |       |                  | $ | 15,484 |       |      | $ | 13,655  |       |  | $ | 30,825 |      
|Cost of goods sold                                             |                                                      |   | 5,704              |       |                  |   | 11,604 |       |      |   | 11,721  |       |  |   | 22,990 |      
|                                                               |                                                      |   |                    |       |                  |   |        |       |      |   |         |       |  |   |        |      
|Gross profit                                                   |                                                      |   | 1,379              |       |                  |   | 3,880  |       |      |   | 1,934   |       |  |   | 7,835  |      
|Operating expenses:                                            |                                                      |   |                    |       |                  |   |        |       |      |   |         |       |  |   |        |      
|                                                               | Research and development                             |   |                    | 2,914 |                  |   |        | 2,738 |      |   |         | 5,829 |  |   |        | 5,443 | 
|                                                               | Selling, general and
administrative                  |   |                    | 2,243 |                  |   |        | 2,263 |      |   |         | 4,394 |  |   |        | 4,917 | 
|                                                               | Cost related to shareholder
and strategic activities |   |                    | 213   |                  |   |        | 500   |      |   |         | 2,713 |  |   |        | 500   | 
|                                                               | Special charges                                      |   |                    | 2,601 |                  |   |        |      |      |   |         | 2,601 |  |   |        |      | 
|                                                               | Intangible asset amortization                        |   |                    | 129   |                  |   |        |      |      |   |         | 257   |  |   |        |      | 
|                                                               |                                                      |   |                    |       |                  |   |        |       |      |   |         |       |  |   |        |      
|Total operating expenses                                       |                                                      |   | 8,100              |       |                  |   | 5,501  |       |      |   | 15,794  |       |  |   | 10,860 |      
|Loss from operations                                           |                                                      |   | (6,721             | )     |                  |   | (1,621 | )     |      |   | (13,860 | )     |  |   | (3,025 | )    
|Impairment of strategic investment                             |                                                      |   |                   |       |                  |   |       |       |      |   |        |       |  |   | (330   | )    
|Interest income and other, net                                 |                                                      |   | 991                |       |                  |   | 453    |       |      |   | 1,232   |       |  |   | 920    |      
|                                                               |                                                      |   |                    |       |                  |   |        |       |      |   |         |       |  |   |        |      
|Net loss                                                       |                                                      | $ | (5,730             | )     |                  | $ | (1,168 | )     |      | $ | (12,628 | )     |  | $ | (2,435 | )    
|                                                               |                                                      |   |                    |       |                  |   |        |       |      |   |         |       |  |   |        |      
|Basic and diluted loss per share                               |                                                      | $ | (0.46              | )     |                  | $ | (0.10  | )     |      | $ | (1.02   | )     |  | $ | (0.20  | )    
|                                                               |                                                      |   |                    |       |                  |   |        |       |      |   |         |       |  |   |        |      
|Weighted average common shares
outstanding  basic and diluted |                                                      |   | 12,374             |       |                  |   | 12,280 |       |      |   | 12,359  |       |  |   | 12,256 |      

See accompanying notes.

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CELERITEK, INC.




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)


(Unaudited)


|                                                                           |                                                         |   |              |       |                  |     |               |       |   |     | 
|-------------------------------------------------------------------------- | ------------------------------------------------------- | - | ------------ | ----- | ---------------- | --- | ------------- | ----- | - | --- | 
|                                                                           |                                                         |   |              |       | Six Months Ended
|                                                                           |                                                         |   |              |       |                 
|                                                                           |                                                         |   |              |       | September 30,    |     | September 30,
|                                                                           |                                                         |   |              |       | 2003             |     | 2002         
|                                                                           |                                                         |   |              |       |                  |     |              
|Operating activities                                                       |                                                         |   |              |       |                  |     |               |      
|Net loss                                                                   |                                                         | $ | (12,628      | )     |                  | $   | (2,435        | )    
|Adjustment to reconcile net loss to net cash used in operating activities: |                                                         |   |              |       |                  |     |               |      
|                                                                           | Depreciation, amortization and other                    |   |              | 5,603 |                  |     |               | 2,836 |  
|                                                                           | Changes in operating assets and liabilities             |   |              | (17   | )                |     |               | 8,197 |  
|                                                                           |                                                         |   |              |       |                  |     |               |      
|Net cash provided by (used in) in operating activities                     |                                                         |   | (7,042       | )     |                  |     | 8,598         |      
|Investing activities                                                       |                                                         |   |              |       |                  |     |               |      
|Purchase of property and equipment                                         |                                                         |   | (359         | )     |                  |     | (1,218        | )    
|Purchases of short-term investments                                        |                                                         |   | (80,332      | )     |                  |     | (58,048       | )    
|Purchases of strategic investments                                         |                                                         |   |             |       |                  |     | (1,992        | )    
|Maturities and sale of short-term investments                              |                                                         |   | 73,646       |       |                  |     | 55,642        |      
|                                                                           |                                                         |   |              |       |                  |     |               |      
|Net cash used in investing activities                                      |                                                         |   | (7,045       | )     |                  |     | (5,613        | )    
|Financing activities                                                       |                                                         |   |              |       |                  |     |               |      
|Payments on long-term debt                                                 |                                                         |   | (1,372       | )     |                  |     | (1,131        | )    
|Payments on obligations under capital leases                               |                                                         |   | (277         | )     |                  |     | (305          | )    
|Proceeds from issuance of common stock                                     |                                                         |   | 290          |       |                  |     | 471           |      
|                                                                           |                                                         |   |              |       |                  |     |               |      
|Net cash used in financing activities                                      |                                                         |   | (1,359       | )     |                  |     | (965          | )    
|(Decrease) increase in cash and cash equivalents                           |                                                         |   | (15,446      | )     |                  |     | 2,020         |      
|Cash and cash equivalents at beginning of period                           |                                                         |   | 28,909       |       |                  |     | 8,096         |      
|                                                                           |                                                         |   |              |       |                  |     |               |      
|Cash and cash equivalents at end of period                                 |                                                         | $ | 13,463       |       |                  | $   | 10,116        |      
|                                                                           |                                                         |   |              |       |                  |     |               |      
|Supplemental disclosures of cash flow information:                         |                                                         |   |              |       |                  |     |               |      
|                                                                           | Cash paid during the period for:                        |   |              |       |                  |     |               |       |  
|                                                                           |                                                         |   | Income taxes |       | $                | 1   |               |       | $ | 3   | 
|                                                                           |                                                         |   | Interest     |       |                  | 243 |               |       |   | 388 | 
|                                                                           | Capital lease obligations incurred to acquire equipment |   |              | 89    |                  |     |               |      |  

See accompanying notes.

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Celeritek, Inc.




Notes to Condensed Consolidated Financial Statements
(Unaudited)

September 30, 2003



|1. |  | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included.
|  
|   |  | The Companys reporting period consisted of a thirteen-week period ending
on the Sunday closest to the calendar month end. The second quarters of
fiscal 2004 and fiscal 2003 ended September 28, 2003 and September 29,
2002, respectively. For convenience, the accompanying financial
statements have been shown as ending on the last day of the calendar
month.                                                                                                                                                                                                                      
|  
|   |  | Operating results for the three and six months ended September 30, 2003
are not necessarily indicative of the results that may be expected for the
fiscal year ending March 31, 2004. This financial information should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Companys annual report on Form 10-K for the year
ended March 31, 2003 as filed with the Securities and Exchange Commission.                                                                                                                                  
|  
|   |  | Certain amounts reported in previous years have been reclassified to
conform to the current year presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|2. |  | Stock Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | The Company generally grants stock options to its employees for a fixed
number of shares with an exercise price equal to the fair value of the
shares on the date of grant. The Company records compensation related to
employees stock awards under the intrinsic value method and accordingly,
no compensation expense is recognized in the Companys financial
statements in connection with stock options granted to employees with
exercise prices not less than fair value.                                                                                                         
|  
|   |  | Pro forma information regarding net loss and net loss per share under the
fair value method is presented below (in thousands, except per share
amounts):                                                                                                                                                                                                                                                                                                                                                                                                                                  

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|                                      |                                                                                                                                    |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |        |  
|------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                      |                                                                                                                                    |  | Three months ended |        | Six months ended
|                                      |                                                                                                                                    |  | September 30,      |        | September 30,   
|                                      |                                                                                                                                    |  |                    |        |                 
|                                      |                                                                                                                                    |  | 2003               |        | 2002             |  | 2003 |        | 2002
|                                      |                                                                                                                                    |  |                    |        |                  |  |      |        |     
|Net loss                              |                                                                                                                                    |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |       
|                                      | As reported                                                                                                                        |  | $                  | (5,730 | )                |  | $    | (1,168 | )    |  | $ | (12,628 | ) |  | $ | (2,435 | )
|                                      | Add: Total stock-based
employee compensation expense
determined under fair value
method for all awards, net of
related tax
effects |  |                    | (1,165 | )                |  |      | (1,268 | )    |  |   | (2,321  | ) |  |   | (2,483 | )
|                                      |                                                                                                                                    |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |       
|                                      | Pro forma net loss                                                                                                                 |  | $                  | (6,895 | )                |  | $    | (2,436 | )    |  | $ | (14,949 | ) |  | $ | (4,918 | )
|Basic and diluted net loss per share: |                                                                                                                                    |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |       
|                                      | As reported                                                                                                                        |  | $                  | (0.46  | )                |  | $    | (0.10  | )    |  | $ | (1.02   | ) |  | $ | (0.20  | )
|                                      |                                                                                                                                    |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |       
|                                      | Pro forma                                                                                                                          |  | $                  | (0.56  | )                |  | $    | (0.20  | )    |  | $ | (1.21   | ) |  | $ | (0.40  | )
|                                      |                                                                                                                                    |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |       



| |  | Pro forma information regarding net loss and net loss per share is
required by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-based Compensation (SFAS 123), as amended by SFAS
148, and has been determined as if the Company had accounted for its stock
options granted subsequent to December 31, 1994 under the fair value
method of SFAS 123. The fair market value for options granted prior to
December 1995, the date of the initial public offering of the Companys
common stock, was estimated at the date of grant using the Minimum Value
Method. The fair market value for options granted subsequent to December
1995 was estimated at the date of grant using the Black-Scholes
option-pricing model. The Company valued its employee stock options using
the following weighted-average assumptions:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                         |  |                    |      |                  |  |         |      |         |  |  |      |   |  |  |      |  
|------------------------ |  | ------------------ | ---- | ---------------- |  | ------- | ---- | ------- |  |  | ---- | - |  |  | ---- | -
|                         |  | Three months ended |      | Six months ended
|                         |  | September 30,      |      | September 30,   
|                         |  |                    |      |                 
|                         |  | 2003               |      | 2002             |  | 2003    |      | 2002   
|                         |  |                    |      |                  |  |         |      |        
|Risk-free interest rate  |  |                    | 3.5  | %                |  |         | 4.1  | %       |  |  | 3.5  | % |  |  | 4.1  | %
|Dividend yield           |  |                    | 0.0  | %                |  |         | 0.0  | %       |  |  | 0.0  | % |  |  | 0.0  | %
|Volatility               |  |                    | 87.3 | %                |  |         | 88.7 | %       |  |  | 87.3 | % |  |  | 88.7 | %
|Expected life of options |  | 5 years            |      | 5 years          |  | 5 years |      | 5 years



| |  | The Black-Scholes option valuation model was developed for use in
estimating the fair market value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Companys stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair market value estimate, in managements opinion, the existing
models do not necessarily provide a reliable measure of the fair market
value of its options.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The weighted average grant date fair value of options granted during the
three months ended September 30, 2003 and 2002 was $5.12 and $5.26,
respectively. The weighted average grant date                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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|   |  | fair value of Employee
Stock Purchases shares granted during the three months ended September 30,
2003 and 2002 was $2.61 and $3.24, respectively.                                
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|3. |  | Inventories                                                                                                                                                                       
|  
|   |  | Inventories, stated at the lower of standard cost (which approximates
actual cost on a first-in, first-out method) or market, consists of the
following components (in thousands):

|                |  |               |       |           |  |   |       | 
|--------------- |  | ------------- | ----- | --------- |  | - | ----- | 
|                |  | September 30, |       | March 31,
|                |  | 2003          |       | 2003     
|                |  |               |       |          
|Raw materials   |  | $             | 549   |           |  | $ | 666   | 
|Work-in-process |  |               | 2,708 |           |  |   | 2,933 | 
|                |  |               |       |           |  |   |       | 
|                |  | $             | 3,257 |           |  | $ | 3,599 | 
|                |  |               |       |           |  |   |       | 



|4. |  | Loss Per Share                                                                                                                                                                                                                                                   
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Basic loss per common share is computed using the weighted average common
shares outstanding during the period. The effect of outstanding stock
options is excluded from the calculation of diluted net loss per share, as
their inclusion would be antidilutive.
|  
|   |  | The following table sets forth the computation of basic and diluted loss
per share (in thousands, except per share data):                                                                                                                                        

|                                        |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |        |  
|--------------------------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                        |  | Three months ended |        | Six months ended
|                                        |  | September 30,      |        | September 30,   
|                                        |  |                    |        |                 
|                                        |  | 2003               |        | 2002             |  | 2003 |        | 2002
|                                        |  |                    |        |                  |  |      |        |     
|Basic and Diluted                       |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |        |  
|Net loss                                |  | $                  | (5,730 | )                |  | $    | (1,168 | )    |  | $ | (12,628 | ) |  | $ | (2,435 | )
|                                        |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |        |  
|Weighted common
shares outstanding      |  |                    | 12,374 |                  |  |      | 12,280 |      |  |   | 12,359  |   |  |   | 12,256 |  
|                                        |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |        |  
|Basic and diluted
loss per common
share |  | $                  | (0.46  | )                |  | $    | (0.10  | )    |  | $ | (1.02   | ) |  | $ | (0.20  | )
|                                        |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |        |  

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|5. |  | Comprehensive Loss                                                                                                                       
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The components of comprehensive loss for the three and six month periods
ended September 30, 2003 and 2002 are as follows (in thousands):

|                                   |                                                    |   |                    |     |                  |   |        |     |      |   |         |      |   |   |        |    | 
|---------------------------------- | -------------------------------------------------- | - | ------------------ | --- | ---------------- | - | ------ | --- | ---- | - | ------- | ---- | - | - | ------ | -- | 
|                                   |                                                    |   | Three months ended |     | Six months ended
|                                   |                                                    |   | September 30,      |     | September 30,   
|                                   |                                                    |   |                    |     |                 
|                                   |                                                    |   | 2003               |     | 2002             |   | 2003   |     | 2002
|                                   |                                                    |   |                    |     |                  |   |        |     |     
|Net loss                           |                                                    | $ | (5,730             | )   |                  | $ | (1,168 | )   |      | $ | (12,628 | )    |   | $ | (2,435 | ) 
|Other comprehensive income (loss): |                                                    |   |                    |     |                  |   |        |     |      |   |         |      |   |   |        |   
|                                   | Unrealized gains (losses) on
marketable securities |   |                    | (87 | )                |   |        | (57 | )    |   |         | (104 | ) |   |        | 39 | 
|                                   |                                                    |   |                    |     |                  |   |        |     |      |   |         |      |   |   |        |   
|Other comprehensive income (loss)  |                                                    |   | (87                | )   |                  |   | (57    | )   |      |   | (104    | )    |   |   | 39     |   
|                                   |                                                    |   |                    |     |                  |   |        |     |      |   |         |      |   |   |        |   
|Comprehensive loss                 |                                                    | $ | (5,817             | )   |                  | $ | (1,225 | )   |      | $ | (12,732 | )    |   | $ | (2,396 | ) 
|                                   |                                                    |   |                    |     |                  |   |        |     |      |   |         |      |   |   |        |   



|6. |  | Strategic Investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company regularly reviews its investments for circumstances of
impairment and assesses the carrying value of the assets against market
value. When an impairment exists, the Company records an expense to the
extent that the carrying value exceeds fair market value in the period the
assessment was made. The fair value of strategic investments is dependent
on the performance of the companies invested in, as well as the
marketability of these investments. In assessing potential impairment of
these investments, management considers these factors as well as
forecasted financial performance of the investees. If these forecasts are
not met or if market conditions change, the Company may have to record
additional impairment charges.
|  
|   |  | Handset Design Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | In December 2001, the Company invested $0.5 million in a Korean handset
design company. On April 1, 2002, the Company invested an additional $2.0
million in the handset design company. The Company does not have
significant influence over the management of the handset design company
and accordingly has accounted for the investment on a cost basis in all
reported periods. The Company reviewed the investment as of September 30,
2003 and determined no indicators of impairment were present that would
indicate the current carrying value of the investment was impaired.                                                                                                                                                                         
|  
|   |  | GaAs Foundry                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | In December 2000, the Company invested approximately $2.4 million in a
GaAs foundry under construction in Taiwan in exchange for a strategic
interest in the foundry. The Company has accounted for this investment
using the cost basis in all reported periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | During the fourth quarter of fiscal 2002 and the first and fourth quarter
of fiscal 2003, the Company recorded impairment charges of approximately
$1.7 million, $0.3 million and $0.1 million, respectively, against its
strategic investment in the Taiwanese foundry, which was deemed, in those
respective periods, to have an other than temporary decline in value. The
Company reviewed the                                                                                                                                                                                                                                                                                                                                                               

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|   |  | investment as of September 30, 2003 and determined no
indicators of further impairment were present that would indicate the
current carrying value of the investment was impaired.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|7. |  | Intangible Assets                                                                                                                                                                 
|  
|   |  | Intangible assets consist of the following (in thousands):                                                                                                                        

|                                                   |  |                    |      |                     |  |          |     |          |  |              |      |          |  |   |      |     |  |   |      |   |  |   |      |  
|-------------------------------------------------- |  | ------------------ | ---- | ------------------- |  | -------- | --- | -------- |  | ------------ | ---- | -------- |  | - | ---- | --- |  | - | ---- | - |  | - | ---- | -
|                                                   |  | Patent application |      | Assembled workforce
|                                                   |  |                    |      |                    
|Amortization
period                                |  | 4 years            |      | 2 years            
|                                                   |  |                    |      |                    
|                                                   |  | Gross              |      |                     |  |          |     | Net      |  | Gross        |      |          |  |   |      | Net
|                                                   |  | Carrying           |      | Accumulated         |  | Carrying |     | Carrying |  | Accumulated  |      | Carrying
|                                                   |  | Amount             |      | Amortization        |  | Amount   |     | Amount   |  | Amortization |      | Amount  
|                                                   |  |                    |      |                     |  |          |     |          |  |              |      |         
|At March 31, 2003                                  |  | $                  | 233  |                     |  | $        | (25 | )        |  | $            | 208  |          |  | $ | 913  |     |  | $ | (190 | ) |  | $ | 723  |  
|Amortization - six
months ended
September 30, 2003 |  |                    |     |                     |  |          | (28 | )        |  |              | (28  | )        |  |   |     |     |  |   | (229 | ) |  |   | (229 | )
|Reclassification to
assets held for sale           |  |                    | (233 | )                   |  |          | 53  |          |  |              | (180 | )        |  |   | (913 | )   |  |   | 419  |   |  |   | (494 | )
|                                                   |  |                    |      |                     |  |          |     |          |  |              |      |          |  |   |      |     |  |   |      |   |  |   |      |  
|At September 30, 2003                              |  | $                  |     |                     |  | $        |    |          |  | $            |     |          |  | $ |     |     |  | $ |     |   |  | $ |     |  
|                                                   |  |                    |      |                     |  |          |     |          |  |              |      |          |  |   |      |     |  |   |      |   |  |   |      |  



|   |  | In late September 2003, the Company exited the wireless handset
power amplifier market and was in final negotiations to sell certain
tangible assets and all of its intangible assets. As a result, the Company
reclassified certain tangible and intangible assets to be sold, as Assets
Held for Sale as part of prepaid expenses and other current assets
(note 8).                                                                                                                                           
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|8. |  | Assets Held for Sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Assets held for sale are intangible and tangible assets actively being
marketed for disposal at September 30, 2003. The assets are stated at the
lower of their carrying amounts and estimated fair value, net of selling
costs, and are classified as current assets. The Company completed the
sale of the identified assets on October 15, 2003. See Note 13 
Subsequent Events. The following table summarizes the assets classified as
held-for-sale and the assessment of their carrying value (in thousands):

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|                       |                      |                    |      |       | 
|---------------------- | -------------------- | ------------------ | ---- | ----- | 
|Assets held for sale   |                      | September 30, 2003
|                       |                      |                    |     
|Tangible assets        |                      |                    | 468  |      
|Assembled workforce    |                      |                    | 495  |      
|Patent application     |                      |                    | 180  |      
|                       |                      |                    |      |      
|                       | Total net book value |                    |      | 1,143 | 
|Expected proceeds, net |                      |                    | (960 | )    
|                       |                      |                    |      |      
|                       | Impairment charge    |                    |      | 183   | 



|9. |  | Special Charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The special charges of $2.6 million recorded during the second quarter of
fiscal 2004 were due to the Companys restructuring activities at its
Belfast facility in July 2003, and the Companys decision to exit the
wireless handset power amplifier market in September 2003. The special
charges of $2.6 million are comprised of approximately $0.2 million of
impairment charges related to the writedown of carrying values for certain
tangible and intangible assets to be sold, $1.8 million of equipment
impairment charges related to exiting the wireless handset power amplifier
market, and $0.6 million of equipment impairment charges related to
restructuring at the Belfast facility.
|  
|   |  | The following table summarizes the Companys special charges activity (in
thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                                                      |  |             |      |           |  |               |        |             |  |       |      |   |  |   |       |   |  |   |        |  
|----------------------------------------------------- |  | ----------- | ---- | --------- |  | ------------- | ------ | ----------- |  | ----- | ---- | - |  | - | ----- | - |  | - | ------ | -
|                                                      |  | Employee    |      |           |  |               |        | Impairment  |  | Lease |      |   |  |  
|                                                      |  | Termination |      | Excess    |  | of Assets     |        | Termination |  |       |      |  
|                                                      |  | Costs       |      | Equipment |  | held for sale |        | Costs       |  | Total
|                                                      |  |             |      |           |  |               |        |             |  |      
|Accrual balances, March 31, 2003                      |  |             | 123  |           |  |               |       |             |  |       |     |   |  |   | 1,050 |   |  |   | 1,173  |  
|Fiscal 2004, second quarter special
charges           |  |             |     |           |  |               | 2,418  |             |  |       | 183  |   |  |   |      |   |  |   | 2,601  |  
|Cash paid through the first six months
of fiscal 2004 |  |             | (123 | )         |  |               |       |             |  |       |      |   |  |   | (446  | ) |  |   | (569   | )
|Non-cash adjustments                                  |  |             |     |           |  |               | (2,418 | )           |  |       | (183 | ) |  |   |      |   |  |   | (2,601 | )
|                                                      |  |             |      |           |  |               |        |             |  |       |      |   |  |   |       |   |  |   |        |  
|Accrual balances, September 30, 2003                  |  | $           |     |           |  | $             |       |             |  | $     |     |   |  | $ | 604   |   |  | $ | 604    |  
|                                                      |  |             |      |           |  |               |        |             |  |       |      |   |  |   |       |   |  |   |        |  

9



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|10. |  | Product Warranty                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company warrants its products against defects in design, materials,
and workmanship, generally for one year from the date of shipment for all
of its products. The actual term could vary depending on the specific
customers. An accrual for estimated future costs relating to warranty
expense is recorded, as a percentage of revenue based on prior experience,
when revenue is recorded and is included in cost of goods sold. Factors
that affect the Companys warranty liability include historical and
anticipated rates of warranty claims and cost per claim. The Company
periodically assesses the adequacy of its recorded warranty liabilities
and adjusts the amounts as necessary.
|   
|    |  | Changes in the Companys product liability during the three and six months
ended September 30, 2003 and 2002 were as follows (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|                          |  |                    |     |                  |  |      |     |      |  |   |      |   |  |   |      |  
|------------------------- |  | ------------------ | --- | ---------------- |  | ---- | --- | ---- |  | - | ---- | - |  | - | ---- | -
|                          |  | Three months ended |     | Six months ended
|                          |  | September 30,      |     | September 30,   
|                          |  |                    |     |                 
|                          |  | 2003               |     | 2002             |  | 2003 |     | 2002
|                          |  |                    |     |                  |  |      |     |     
|Beginning accrual balance |  | $                  | 401 |                  |  | $    | 500 |      |  | $ | 400  |   |  | $ | 500  |  
|Warranties issued         |  |                    | 45  |                  |  |      | 46  |      |  |   | 114  |   |  |   | 107  |  
|Charges incurred          |  |                    | (45 | )                |  |      | (45 | )    |  |   | (113 | ) |  |   | (106 | )
|                          |  |                    |     |                  |  |      |     |      |  |   |      |   |  |   |      |  
|Ending accrual balance    |  | $                  | 401 |                  |  | $    | 501 |      |  | $ | 401  |   |  | $ | 501  |  
|                          |  |                    |     |                  |  |      |     |      |  |   |      |   |  |   |      |  



|11. |  | Cost Related to Shareholder and Strategic Actions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | In the fourth quarter of fiscal 2003, a group of shareholders (the
Shareholder Committee) called a special meeting to remove the Companys
Board of Directors from office and replace them with a different slate of
candidates. In May 2003 the Companys Board of Directors entered into an
agreement with the Shareholder Committee. Under the terms of the
agreement, the Company has expanded its Board of Directors from six
directors to seven. The new Board is now composed of three of the
Companys directors who were directors prior to the agreement, three
directors nominated by the Shareholder Committee and one member who is not
affiliated with either the Company or the Shareholder Committee.
|   
|    |  | The four new directors were each automatically granted options to purchase
6,000 shares of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | In the first six months of fiscal 2004, expenses of $1.4 million related
to the special meeting of shareholders and $1.4 million in investment
banking fees were incurred and reported in loss from operations under the
caption Cost related to shareholder and strategic actions.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|12. |  | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities.In general, a variable
interest entity is a corporation, partnership, trust, or any other
legal structure used for business purposes that either (a) does not have
equity investors with voting rights or (b) has equity investors that do
not provide sufficient financial resources for the entity to                                                                                                                                                                                                                                                                                               

10



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|    |  | support its
activities. FIN 46 requires a variable interest entity to be consolidated
by a company if that company is subject to a majority of the risk of loss
from the variable interest entitys activities or entitled to receive a
majority of the entitys residual returns or both. The consolidation
requirements of FIN 46 apply immediately to variable interest entities
created after January 31, 2003. The consolidation requirements apply to
older entities in the first fiscal year or interim period ending after
December 15, 2003. Certain of the disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The Company will adopt FIN 46
in the third quarter of fiscal 2004 and this does not expect that this
will have a material impact on its financial position or results of
operations.                                                                                                                                                                                                                                                                   
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | In December 2002, the FASB issued Statement Number 148, Accounting for
Stock-Based Compensation  Transition and Disclosure (SFAS 148). SFAS
148 amends Statement Number 123, Accounting for Stock-Based
Compensation, (SFAS 123) to provide alternative methods of transition to
the SFAS 123 fair value method of accounting for stock-based employee
compensation. In addition, SFAS 148 requires disclosure of the effects of
an entitys accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and
interim financial statements. The transition provisions of SFAS No. 148
are effective for fiscal years ended after December 15, 2002. The
transition provisions do not currently have an impact on our consolidated
financial position and results of operations as we have not elected to
adopt the fair value based method of accounting for stock-based employee
compensation under SFAS No. 123. We adopted the disclosure provisions of
SFAS No. 148 and, accordingly, have included such disclosures in the
financial statements for the three and six month periods ended September
30, 2003.
|   
|    |  | In May 2003, the FASB issued Statement Number 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity
(SFAS 150). This Statement establishes standards for classifying and
measuring as liabilities certain financial instruments that embody
obligations of the issuer and have characteristics of both liabilities and
equity. SFAS 150 generally requires liability classification for two
broad classes of financial instruments: (1) instruments that represent, or
are indexed to, an obligation to buy back the issuers shares, and (2)
obligations that can be settled in shares, but are subject to certain
conditions. SFAS 150 applies to all financial instruments created or
modified after May 31, 2003, and to other instruments at the beginning of
the first interim period beginning after July 1, 2003. As we have not
created or modified any financial instruments since the effective date of
SFAS 150, we do not believe this Statement will have a material impact on
our financial statements.                                                                                                              
|   
|    |  | In November 2002, the Emerging Issues Task Force (EITF) reached a
consensus on Issue No. 00-21 Accounting for Revenue Arrangements with
Multiple Deliverables. The EITF concluded that revenue arrangements with
multiple elements should be divided into separate units of accounting if
the deliverables in the arrangement have value to the customer on a
standalone basis, if there is objective and reliable evidence of the fair
value of the undelivered elements, and as long as there are no rights of
return or additional performance guarantees by the Company. The provisions
of EITF Issue No. 00-21 are applicable to agreements entered into in
fiscal periods beginning after June 15, 2003. Management adopted the
consensus in the second quarter of fiscal 2004 and it did not have a
material effect on the Companys results of operations or financial
condition.                                                                                                                                                                                                                                                                                           
|   
|13. |  | Rights Plan Termination                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | On June 6, 2003, the Company amended its shareholder rights plan (the
Rights Plan) to accelerate the final expiration date of the Preferred
Share Purchase Rights issued thereunder from April 8, 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

11



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|    |  | to June 13, 2003. The Company terminated the Rights Plan upon expiration of the
purchase rights on June 13, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|14. |  | Subsequent Events                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | In late September 2003, the
Company exited the wireless handset power
amplifier market and subsequently in early October 2003, reduced its
headcount by 39 persons in the United States and 3 persons in Korea and is
in the process of closing its Korean subsidiary and consolidating its
Santa Clara operations into one building. The Company expects to incur
approximately $2.4 million in special charges in the next several quarters
related to employee termination expenses, building lease termination and
facilities consolidation costs.
|   
|    |  | On October 15, 2003, the Company sold the intangible and certain tangible
assets used to develop products for the wireless handset power amplifier
market to Anadigics, Inc. for approximately $1.0 million.                                                                                                                                                                                                                                                                                                                                          




Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Forward-Looking Statements

This report contains forward-looking statements, which are identified by
words such as anticipate, believe, plan, estimate, expect, intend
and other similar expressions. In addition, forward looking statements in this
report include, but are not limited to, those regarding: focusing our resources
on market areas where we believe our core competencies will allow us the
greatest opportunity of success in our goal of returning to profitability; our
consolidation of operations into one building in Santa Clara and the closing of
our Korean subsidiary; expected special charges as a result of existing the
wireless handset power amplifier market; our gross margins; research and
development expenses; investment banking fees and selling, general and
administrative expenses; and our belief that our cash and borrowings from
equipment financing should be sufficient to meet our liquidity needs through at
least the next twelve months. These forward-looking statements are subject to
business and economic risks and uncertainties, and our actual results of
operations may differ materially from those contained in the forward-looking
statements. Unless required by law, we undertake no obligation to update
publicly any forward-looking statements, whether as a result of new
information, future events, or otherwise. However, readers should carefully
review the risk factors set forth in this Form 10-Q and other reports or
documents we file from time to time with the Securities and Exchange
Commission.

Critical Accounting Policies

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

We review our estimates, including, but not limited to, allowance for
doubtful accounts, inventory write-downs, and impairments of long-lived assets
and investments on a regular basis and make adjustments based on historical
experiences and existing and expected future conditions. These evaluations are
performed

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regularly and adjustments are made, as information is available. We
believe that these estimates are reasonable; however, actual results could
differ from these estimates. The following paragraphs describe the methodology
we use in making some of our principal accounting estimates, in evaluating some
of the uncertainties inherent in accounting estimates and in evaluating some of
the ways that our estimates may impact our financial condition.

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

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

Inventory Write-downs.We record inventory write-downs for estimated
obsolescence or unmarketable inventory. Our write-downs for excess and obsolete
inventory are primarily based upon forecasted demand and our backlog of orders
for the product. Any inventory write-downs are reflected in cost of sales in
the period the write-downs are made.

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

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

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

13



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Intangible Assets.We recorded intangible assets at fair value.
Intangible assets with finite useful lives were amortized over their estimated
useful life and amortization expense was classified as part of operating
expenses. To date, we have only had intangible assets with finite useful lives.
We regularly performed reviews to determine if the carrying values of our
intangible assets were impaired. We looked for facts, circumstances, either
internal or external, that may have indicated we may not have recovered the
carrying value of the assets. We recorded impairment losses based on the
amount by which the carrying amounts of such assets exceeded their fair values.

Overview

In late September 2003, we exited the wireless handset power amplifier
market. This decision was the result of severe pricing pressure and other
adverse market conditions in the wireless handset industry that we believe
would have prevented our handset related business from achieving acceptable
gross margins. This decision will allow us to focus our resources on market
areas where we believe our core competencies will allow us the greatest
opportunity of success in our goal of returning to profitability. As a result
of this action, we face increased reliance on the sales of our defense products
and semiconductor products for commercial communications, both of which markets
may have lower growth potential than the wireless handset market.

As a result of this action, we incurred $2.6 million in special charges in
the second quarter of fiscal 2004 for fixed and intangible asset impairment
charges. The special charges of $2.6 million are comprised of approximately
$0.2 million of impairment charges related to the reassessment of carrying
values for certain tangible and intangible assets to be sold, $1.8 million of
equipment impairment charges related to exiting the wireless handset power
amplifier market, and $0.6 million of equipment impairment charges related to
restructuring at the Belfast facility.

On October 15, 2003, we sold all the intangible and certain tangible
assets related to the wireless handset power amplifier market for $1.0 million
to Anadigics, Inc. We also terminated 42 employees in early October 2003, and
are in the process of consolidating our Santa Clara operations into one
building and closing our Korean subsidiary. We expect to incur special
charges of approximately $2.4 million over the next several quarters related to
employee termination expenses, a building lease termination and facilities
consolidation costs.

We anticipate realizing annual cost savings in the range of $9.0 to $10.0
million compared to our expense rate before these actions were taken.

Result of Operations  Second Quarter of Fiscal 2004 Compared to Second Quarter
of Fiscal 2003:

Total net sales were $7.1 million for the second quarter of fiscal 2004,
compared to $15.5 million for the second quarter of fiscal 2003, a decrease of
54%.

Semiconductor sales were $2.2 million in the second quarter of fiscal
2004, compared to $11.4 million in the second quarter of fiscal 2003, a
decrease of 81%. Sales in the second quarter of fiscal 2004 did not include
any sales of power amplifier modules for handsets, while sales in the second
quarter of fiscal 2003 included $10.4 million of sales of power amplifier
modules for handsets. Motorola, which was our largest customer for this
product, transitioned from the handset platform on which we were the sole
source for power amplifier modules, to new handset platforms for which we are
not supplying modules. While sales of infrastructure products almost doubled in
the second quarter of fiscal 2004 as compared to the second quarter of fiscal
2003, they were not significant enough to offset the loss of the handset
related sales. Based on our decision to exit the wireless handset market, we do
not expect any future sales for handset related products.

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Subsystem sales in the second quarter of fiscal 2004 were $4.9 million,
compared to $4.1 million in the second quarter of fiscal 2003, an increase of
20%. The increase in sales of subsystems products to defense customers is
primarily the result of many defense customers making purchases for specific
programs, and therefore product demand fluctuates from quarter to quarter.

Gross margin was 19% of net sales in the second quarter of fiscal 2004,
compared to 25% of net sales in the second quarter of fiscal 2003. The decrease
in gross margin was primarily due to decreased semiconductor sales volume. We
do not expect significant improvement in gross margin until sales volumes
increase because of fixed costs related to our fabrication facility.

Research and development expenses were $2.9 million, or 41% of net sales,
in the second quarter of fiscal 2004, compared to $2.7 million, or 18% of net
sales, in the second quarter of fiscal 2003, an increase of 6%. Research and
development expenses increased due to our acquisition of Tavanza. A
significant part of our research and development efforts were focused on
developing handset products for the market in South Korea. We expect research
and development expenses to decrease because we exited the wireless handset
power amplifier market and reduced our headcount accordingly.

Selling, general and administrative expenses were $2.2 million, or 32% of
net sales, in the second quarter of fiscal 2004, compared to $2.3 million, or
15% of net sales, in the second quarter of fiscal 2003, a decrease of 1%. The
decrease was primarily due to lower selling costs driven by the decrease in
revenues. We expect selling, general and administrative expenses to be fairly
consistent with this quarter, absent any special charges.

The $0.2 million in costs related to shareholder and strategic actions in
the second quarter of fiscal 2004 was for investment banking fees. The $0.5
million in costs related to shareholder and strategic actions in the second
quarter of fiscal 2003 was for legal and investment advisors in response to an
unsolicited offer from Anaren Microwave, Inc. We expect to incur additional
investment banking fees of at least $0.6 million through March 2004

The special charges of $2.6 million in the second quarter of fiscal 2004
are comprised of approximately $0.2 million of impairment charges related to
the reassessment of carrying values for certain tangible and intangible assets
to be sold, $1.8 million of equipment impairment charges related to exiting the
wireless handset power amplifier market, and $0.6 million of equipment
impairment charges related to restructuring at the Belfast facility.

Amortization of intangibles was $0.1 million during the second quarter of
fiscal 2004. The intangible assets were acquired as part of the purchase of
Tavanzas assets during the third quarter of fiscal 2003. At the end of the
second quarter of fiscal 2004, the intangible assets were reclassified to
assets held for sale based on our decision in September 2003 to exit the
wireless handset power amplifier market. These assets were subsequently sold
on October 15, 2003; accordingly, no amortization expense will be recorded in
future periods.

Interest income and other, net was $1.0 million in the second quarter of
fiscal 2004 compared to $0.5 million in the second quarter of fiscal 2003. The
increase in interest income and other, net, was due to the collection of a
customers order cancellation charge of $0.8 million, offset by lower interest
rates on lower cash balances.

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Result of Operations  First Six Months of Fiscal 2004 Compared to the First
Six Months of Fiscal 2003:

Total net sales were $13.7 million for the first six months of fiscal
2004, compared to $30.8 million for the first six months of fiscal 2003, a
decrease of 56%.

Semiconductor sales were $3.8 million in the first six months of fiscal
2004, compared to $20.8 million in the first six months of fiscal 2003, a
decrease of 82%. Sales in the first six months of fiscal 2004 did not include
any sales of power amplifier modules for handsets, while sales in the first six
months of fiscal 2003 included $18.9 million of sales of power amplifier
modules for handsets. Motorola, which was our largest customer for this
product, transitioned from the handset platform on which we were the sole
source for power amplifier modules, to new handset platforms for which we are
not supplying modules. While sales of infrastructure products doubled in the
first six months of fiscal 2004 as compared to the first six months of fiscal
2003, they were not significant enough to offset the loss of the handset
related sales. Based on our decision to exit the wireless handset market, we do
not expect any future sales for handset related products.

Subsystem sales in the first six months of fiscal 2004 were $9.9 million,
compared to $10.0 million in the first six months of fiscal 2003, a decrease of
1%.

Gross margin was 14% of net sales in the first six months of fiscal 2004,
compared to 25% of net sales in the first six months of fiscal 2003. The
decrease in gross margin was primarily due to decreased semiconductor sales
volume. We do not expect significant improvement in gross margin until sales
volumes increase because of fixed costs related to our fabrication facility.

Research and development expenses were $5.8 million, or 43% of net sales,
in the first six months of fiscal 2004, compared to $5.4 million, or 18% of net
sales, in the first six months of fiscal 2003, an increase of 9%. Research and
development expenses increased due to our acquisition of Tavanza. A
significant part of our research and development efforts were focused on
developing handset products for the market in South Korea. We expect research
and development expenses to decrease because we exited the wireless handset
power amplifier market and reduced our headcount accordingly.

Selling, general and administrative expenses were $4.4 million, or 32% of
net sales, in the first six months of fiscal 2004, compared to $4.9 million, or
16% of net sales, in the first six months of fiscal 2003, a decrease of 11%.
The decrease was primarily due to lower selling costs driven by the decrease in
revenues and lower personnel costs. In addition, we incurred management
information systems consulting costs of approximately $0.2 million in the first
six months of fiscal 2003. We expect selling, general and administrative
expenses to be fairly consistent with this quarter, absent any special charges.

The $2.7 million in costs related to shareholder and strategic actions in
the first six months of fiscal 2004 consisted of approximately $1.4 million in
expense related to the special meeting of shareholders and $1.3 million in
investment banking fees. The $.5 million in costs related to shareholder
actions in the first six months of fiscal 2003 was for legal and investment
advisors in response to an unsolicited offer from Anaren Microwave, Inc. We
expect to incur additional investment banking fees of at least $0.6 million
through March 2004.

The special charges of $2.6 million are comprised of approximately $0.2
million of impairment charges related to the reassessment of carrying values
for certain tangible and intangible assets to be sold, $1.8 million of
equipment impairment charges related to exiting the wireless handset power
amplifier market, and $0.6 million of equipment impairment charges related to
restructuring at the Belfast facility.

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The $0.3 million impairment of strategic investment included in the first
quarter of fiscal 2003 was the result of a further impairment of our investment
in a Taiwanese foundry. The additional impairment charge was determined after
analysis of changes in the market values of public companies in the GaAs market
from March 2002 to June 2002. We reviewed the investment as of September 30,
2003 and determined no indicators of further impairment were present that would
indicate the current carrying value of the investment was impaired.

The following table summarizes our special charges activity (in
thousands):

|                                                      |  |             |      |           |  |          |        |             |  |            |      |   |  |   |       |   |  |   |        |  
|----------------------------------------------------- |  | ----------- | ---- | --------- |  | -------- | ------ | ----------- |  | ---------- | ---- | - |  | - | ----- | - |  | - | ------ | -
|                                                      |  |             |      |           |  |          |        |             |  | Impairment |      |   |  |   |       |   |  |  
|                                                      |  | Employee    |      |           |  |          |        | of Assets   |  | Lease      |      |   |  |  
|                                                      |  | Termination |      | Excess    |  | Held for |        | Termination |  |            |      |  
|                                                      |  | Costs       |      | Equipment |  | Sale     |        | Costs       |  | Total     
|                                                      |  |             |      |           |  |          |        |             |  |           
|Accrual balances, March 31, 2003                      |  |             | 123  |           |  |          |       |             |  |            |     |   |  |   | 1,050 |   |  |   | 1,173  |  
|Fiscal 2004, second quarter special
charges           |  |             |     |           |  |          | 2,418  |             |  |            | 183  |   |  |   |      |   |  |   | 2,601  |  
|Cash paid through the first six months
of fiscal 2004 |  |             | (123 | )         |  |          |       |             |  |            |      |   |  |   | (446  | ) |  |   | (569   | )
|Non-cash adjustments                                  |  |             |     |           |  |          | (2,418 | )           |  |            | (183 | ) |  |   |      |   |  |   | (2,601 | )
|                                                      |  |             |      |           |  |          |        |             |  |            |      |   |  |   |       |   |  |   |        |  
|Accrual balances, September 30, 2003                  |  | $           |     |           |  | $        |       |             |  | $          |     |   |  | $ | 604   |   |  | $ | 604    |  
|                                                      |  |             |      |           |  |          |        |             |  |            |      |   |  |   |       |   |  |   |        |  

Amortization of intangibles was $0.2 million during the first six months
of fiscal 2004. The intangible assets were acquired as part of the purchase of
Tavanzas assets during the third quarter of fiscal 2003. At the end of the
second quarter of fiscal 2004, the intangible assets were reclassified to
assets held for sale based on our decision in September 2003 to exit the
wireless handset power amplifier market. These assets were subsequently sold
on October 15, 2003; accordingly, no amortization expense will be recorded in
future periods.

Interest income and other, net was $1.2 million in the first six months of
fiscal 2004 compared to $0.9 million in the first six months of fiscal 2003.
The increase in interest income and other, net, was due to the collection of a
customers order cancellation charge of $0.8 million, offset by lower interest
rates on lower cash balances.

Liquidity and Capital Resources

We have funded our operations to date primarily through cash flows from
operations and sales of equity securities. As of September 30, 2003, we had
$13.5 million in cash and cash equivalents, $73.3 million in short-term
investments and $84.2 million in working capital.

Net cash used by operating activities was $7.0 million in the first six
months of fiscal 2004 and was due primarily to the quarterly net losses
partially offset by non-cash impairment charges and decreases in accounts
receivable and inventory. Net cash provided by operating activities was $8.6
million in the first six months of fiscal 2003 and was due mainly to decreases
in accounts receivable and inventory and increases in accounts payable and
other current liabilities.

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Net cash used by investing activities was $7.0 million in the first six
months of fiscal 2004 and was due to the net purchases, sales and maturities of
short-term investments of approximately $6.7 million and the purchase of
property and equipment of approximately $0.4 million. Net cash used by
investing activities was $5.6 million in the first six months of fiscal 2003
and was due to the net purchases, sales and maturities of short-term
investments of approximately $2.4 million, the purchase of property and
equipment of approximately $1.2 million, and further investment of
approximately $2.0 million in a Korean handset design company.

Net cash used by financing activities was $1.4 million in the first six
months of fiscal 2004 and was due to principal payments on long-term debt of
approximately $1.4 million and payments on capital leases of approximately $0.3
million offset by cash proceeds of $0.3 million from the issuance of common
stock. Net cash used by financing activities was approximately $1.0 million in
the first six months of fiscal 2003 and was due to principal payments on
long-term debt of approximately $1.1 million and payments on capital leases of
approximately $0.3 million off set by cash proceeds of $0.5 million from the
issuance of common stock. As of September 30, 2003, we had $0.5 million in
outstanding letters of credit, which are secured by certificates of deposits.
Given our cash position, we currently do not have a line of credit.

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

Commitments

We do not have any special purpose entities. We have no commercial
commitments with related parties, except for employee loans. We have
outstanding loans to certain current and former employees totaling
approximately $1.4 million at September 30, 2003. The notes are relocation
loans collateralized by certain real property assets, bear no interest and have
maturities through 2019. The principal will be repaid at various dates. If an
employee voluntarily ceases being employed by us, the principal outstanding
will be due and payable within 90 days.

We have various equipment notes outstanding with lenders, which are
secured by the equipment. Several of these notes have covenants pertaining to
liquidity levels and minimum tangible net worth. As of September 30, 2003 we
were in compliance with all covenants.

We have contractual obligations in the form of operating and capital
leases, debt and purchase order commitments. The following table sets forth our
future contractual obligations as of September 30, 2003 (in thousands):

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|                                |  |             |        |      |  |      |       |      |  |      |       |      |  |   |       |  |  |   |    |  |  |   |    | 
|------------------------------- |  | ----------- | ------ | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | -- |  |  | - | -- | 
|                                |  | Fiscal Year
|                                |  |            
|                                |  | Total       |        | 2004 |  | 2005 |       | 2006 |  | 2007 |       | 2008
|                                |  |             |        |      |  |      |       |      |  |      |       |     
|Contractual
Obligations         | 
|Long-term debt obligations      |  | $           | 3,666  |      |  | $    | 1,442 |      |  | $    | 1,922 |      |  | $ | 302   |  |  | $ |   |  |  | $ |   | 
|Capital lease obligations       |  |             | 1,269  |      |  |      | 356   |      |  |      | 634   |      |  |   | 279   |  |  |   |   |  |  |   |   | 
|Operating lease obligations     |  |             | 6,508  |      |  |      | 2,260 |      |  |      | 3,240 |      |  |   | 905   |  |  |   | 73 |  |  |   | 30 | 
|Open purchase order
commitments |  |             | 1,912  |      |  |      | 1,648 |      |  |      | 264   |      |  |   |      |  |  |   |   |  |  |   |   | 
|                                |  |             |        |      |  |      |       |      |  |      |       |      |  |   |       |  |  |   |    |  |  |   |    | 
|Total                           |  | $           | 13,355 |      |  | $    | 5,706 |      |  | $    | 6,060 |      |  | $ | 1,486 |  |  | $ | 73 |  |  | $ | 30 | 
|                                |  |             |        |      |  |      |       |      |  |      |       |      |  |   |       |  |  |   |    |  |  |   |    | 

The table records cash obligations, including future interest repayments,
and includes operating lease obligations for equipment that no longer has
economic value for us, for which a special charge of $1.3 million was recorded
in the third quarter of fiscal 2003 in the statement of operations.

In addition, we have contractual commitments as of September 30, 2003,
relating to our engagement of financial advisory firms pursuant to which we
will be required to incur aggregate minimum future costs of approximately $0.6
million through March 2004. However, as is customary for contracts of this
type, these commitments may increase above the minimum depending on the value
of any strategic transaction we may complete, or the value of our common stock
in the event that there is no strategic transaction.

We have outstanding letters of credit, secured by certificates of
deposits, of approximately $0.5 million as security for capital leases for
equipment.

RISK FACTORS

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

Because many of our expenses are fixed, we will not achieve profitability until
our revenues significantly increase.

Our business requires us to maintain manufacturing equipment and related
support infrastructure that we must pay for regardless of our level of sales.
To support our manufacturing capacity we also incur costs for maintenance and
repairs and employ personnel for manufacturing and process engineering
functions. These expenses, along with depreciation costs, are fixed and do not
vary greatly, if at all, when our net sales decrease. In addition, the lead
time for developing and manufacturing our products often requires us to invest
in manufacturing capacity in anticipation of future demand. The recent decline
in market demand has resulted in infrastructure costs in excess of current
needs and has resulted in lower earnings. Although we recently exited the
wireless handset power amplifier market  which we believe will result in
reduced expenses  we are nevertheless still relying on increased sales to
manufacturers of commercial communications equipment

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and defense contractors in order to realize a significant increase in
revenues. If these sales do not materialize, and if our revenues do not
significantly increase to a level commensurate with our installed capacity, we
will be unable to achieve profitability.

As a result of our recent exit from the wireless handset power amplifier
business, we face risks relating to our increased reliance on sales of our
defense products and semiconductor products for commercial communications.

In late September 2003, we exited the wireless handset power amplifier
business in order to focus our resources on market areas where we believe our
core competencies will allow us the greatest opportunity of success in our goal
of returning to profitability. There is, however, no guarantee that our exit
from the wireless handset power amplifier business will enable us to reach
profitability on a more expedited basis, or at all. In particular, we now face
increased reliance on the sales of our defense products and semiconductor
products for commercial communications, both of which markets may have lower
growth potential than the wireless handset market. In addition, we may fail to
manage successfully our exit from the wireless handset power amplifier
business. If we do not properly manage our exit from the handset business, or
if our projections with respect to the sales of our defense products and
semiconductors products for commercial communications are incorrect, we may
fail to achieve profitability and our business may suffer.

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

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



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

Any unfavorable changes in the factors listed above or general industry
and global economic conditions could significantly harm our business, operating
results and financial condition. For example, during the third quarter of
fiscal 2003, Motorola, our largest customer, began transitioning to new handset
platforms for which we were not the selected supplier of power amplifier
modules and our sales were negatively impacted. In addition, in late September
2003, we exited the wireless handset power amplifier market entirely. Due to
fluctuations in our net sales and operating expenses, we believe that period to
period comparisons of our results of operations are not good indications of our
future performance. It is possible that in some future quarter or quarters, our
operating results will be below the expectations of securities analysts or
investors. In that case, our stock price could decline.

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

We expect that sales to a limited number of customers will account for a
large percentage of our net sales in the future and will be a very important
component in our plans for returning to profitability.

If we lose any of our existing major customers, our operating results and
business would be harmed. In the first six months of fiscal year 2004, sales
to our top ten customers accounted for approximately 65% of our net sales, with
one customer making up approximately 15% and another customer making up
approximately 12% of those net sales. In fiscal year 2003, sales to our top
ten customers accounted for approximately 75% of our net sales, with Motorola
making up approximately 41% of those net sales. In fiscal year 2002, sales to
our top ten customers accounted for approximately 76% of our net sales, with
Motorola making up approximately 43% of those net sales. We had been a sole
source supplier of power amplifier modules to Motorola for its model 120v
handset platform. However, Motorola transitioned to new platforms, and it
selected a sole source supplier other than us for its new platforms. We did
not receive any revenue from products for the handset market in the first six
months of fiscal 2004 nor do we expect revenue sufficient to replace the
Motorola revenue in the next several quarters. Furthermore, as discussed
above, we have exited the wireless handset power amplifier market entirely.
If we were to lose a major customer, or if orders by any of our major customers
were to otherwise decrease or be delayed, our business, operating results and
financial condition would be seriously harmed.

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

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

Consolidation of our Santa Clara operations into one facility involves a number
of different risks that could adversely affect our business.

In connection with our exit from the wireless handset power amplifier
business, we are in the process of consolidating our Santa Clara operations,
which are currently housed into two separate facilities, into one facility. We
face a number of risks resulting from this consolidation, including, among
other things: possible disruptions in our ability to manufacture our products
in a timely fashion; unanticipated costs related to the move; the possible
inability to obtain a permit for some of our equipment on a timely basis (which
would prohibit our ability to move); and damage to our equipment as a result of
our move. If any of the foregoing occur, we may be unable to manufacture and
deliver our products in time to meet our customers demand and the costs of the
move could be greater than anticipated, either of which would adversely affect
our business and our ability to regain profitability.

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We are exposed to general economic, market and, additionally, industry
conditions.

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

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

In each of the markets where we compete, average sales prices of
established products have been significantly declining, and we anticipate that
prices will continue to decline and negatively impact our gross profit margins.
There is currently over capacity in the markets we serve, which could lead to
additional pricing pressure as our competitors seek to improve their asset
utilization. Accordingly, to remain competitive, we believe that we must
continue to develop product enhancements and new technologies that will either
slow the price declines of our products or reduce the cost of producing and
delivering our products. If we fail to do so, our results of operations would
be seriously harmed.

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

Sales to international customers accounted for 30% of our net sales in the
first six months of fiscal 2004, 67% of our net sales in fiscal 2003 and 31% of
our net sales in 2002. The decline in the percentage of sales to international
customers in fiscal 2004, as compared to fiscal 2003, is the result of the
decline in sales of power amplifiers to Motorola. Almost all of our wireless
handset power amplifier products were sold to Motorolas foreign subsidiaries
and contractors. We expect that international sales will continue to account
for a significant portion of our net sales in the future. In addition, many of
our domestic customers sell their products outside of the United States. These
sales expose us to a number of inherent risks, including:



| |  |  | the need for export licenses;                                                                      
| | - |  | ---------------------------------------------------------------------------------------------------
|
| |  |  | unexpected changes in regulatory requirements;                                                     
|
| |  |  | tariffs and other potential trade barriers and restrictions;                                       
|
| |  |  | reduced protection for intellectual property rights in some countries;                             
|
| |  |  | fluctuations in foreign currency exchange rates;                                                   
|
| |  |  | the burdens of complying with a variety of foreign laws;                                           
|
| |  |  | the impact of recessionary or inflationary environments in economies outside the United States; and
|
| |  |  | generally longer accounts receivable collection periods.                                           

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

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Additionally, all of our circuit assembly and test vendors are located
outside of the United States. Consequently, our ability to secure products
from these vendors is subject to most of the same risks described in the above
paragraphs, including: unexpected changes in regulatory requirements; tariffs
and other potential trade barriers and restrictions; reduced protection for
intellectual property rights in some countries; fluctuations in foreign
currency exchange rates; the burdens of complying with a variety of foreign
laws; and general geopolitical risks. In the event that any of our
international vendors is unable to fulfill our requirements in a timely manner,
we may experience an interruption in production until we locate alternative
sources of supply. If we encounter shortages in component supply, we may be
forced to adjust our product designs and production schedules. The failure of
one or more of our key suppliers or vendors to fulfill our orders in a timely
manner and with acceptable quality and yields could cause us to not meet our
contractual obligations, could damage our customer relationships (including
relationships with major customers) and could harm our business.

Uncertainties resulting from the recent proxy contest and the exploration of
strategic alternatives may adversely affect our business and may hamper our
ability to retain key personnel.

In the fourth quarter of fiscal 2003, a group of shareholders (the
Shareholder Committee) called a special meeting to remove our Board of
Directors from office and replace them with a different slate of candidates.
Although we have reached an agreement with the Shareholder Committee as
described in our Form 10-K and other public filings, uncertainties resulting
from the proxy contest and our exploration of strategic alternatives may
adversely affect our business and hamper our ability to retain our executives
or key personnel in our engineering and other departments. If we fail to
retain executives or key engineering personnel, our ability to develop
products, especially new products, will be harmed and our revenues will likely
decline. In addition, we anticipate that we will incur additional expenses of
at least $0.6 million through March 2004 for advisory services related to the
activities of our strategy committee with respect to the considerations of
strategic alternatives available to us. However, expenses could be greater
than anticipated, which would negatively affect our earnings.

Our backlog may not result in sales.

Our backlog primarily represents signed purchase orders for products due
to ship within the next year. As of September 30, 2003, our backlog was
approximately $12.9 million, of which 76% was from defense customers and 24%
was from commercial customers. Backlog is not necessarily indicative of future
sales as our customers may cancel or defer orders without penalty.
Nevertheless, we make a number of management decisions based on our backlog,
including purchasing materials, hiring personnel and other matters that may
increase our production capabilities and costs. Cancellation of pending
purchase orders or termination or reduction of purchase orders in progress
could significantly harm our business. We do not believe that our backlog as of
any particular date is representative of actual sales for any succeeding
period, and we do not know whether our current order backlog will necessarily
lead to sales in any future period.

Generally, purchase orders in our backlog are subject to cancellation
without penalty at the option of the customer, and from time to time we have
experienced cancellation of orders in backlog. In fact, in fiscal 2002, a
significant portion of our backlog was cancelled due to changing market
conditions. Certain of our customers in the wireless infrastructure market
delayed and cancelled long-standing contracts in response to declining market
demand.

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

The success of our business depends largely on our ability to make our
products efficiently through a manufacturing process that results in a large
number of usable products, or yields, from any particular

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production run. In the past we have experienced significant delays in our
product shipments due to lower than expected production yields. Due to the
rigid technical requirements for our products and manufacturing processes, our
production yields can be negatively affected for a variety of reasons, some of
which are beyond our control. For instance, yields may be reduced by:



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

Our manufacturing yields also vary significantly among our products due to
product complexity and the depth of our experience in manufacturing a
particular product. We cannot assure you that we will not experience problems
with our production yields in the future. Decreases in our yields can result in
substantially higher costs for our products. If we cannot maintain acceptable
yields in the future, our business, operating results and financial condition
will suffer.

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

Our current semiconductor product strategy is to design standard products
that can be used by different customers for a variety of applications. Any
significant increase in our sales volume is dependent on our achieving a
considerable number of design wins. Additionally, where our products are
designed into an original equipment manufacturers product, our sales volumes
will be dependent upon the commercial success of the original equipment
manufacturers product. Sales of our major customers products can vary
significantly from quarter to quarter. Accordingly, our sales could be
adversely affected by a reduction in demand for wireless and defense
communications systems. Our operating results have been significantly harmed in
the past by the failure of anticipated orders to be realized and by deferrals
or cancellations of orders as a result of changes in demand for our customers
products.

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

We acquire some of the components for our existing products from single
sources, and some of the other components for our products are presently
available or acquired only from a limited number of suppliers. Our
single-sourced components include substrates, millimeter wave components and
semiconductor packages. Some of these components are critical to the products
we sell to our major customers. In the event that any of these suppliers are
unable to fulfill our requirements in a timely manner, we may experience an
interruption in production until we locate alternative sources of supply. If we
encounter shortages in component supply, we may be forced to adjust our product
designs and production schedules. The failure of one or more of our key
suppliers or vendors to fulfill our orders in a timely manner and with
acceptable quality and yields could cause us to not meet our contractual
obligations, could damage our customer relationships (including relationships
with major customers) and could harm our business.

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

We compete in an intensely competitive industry and we expect our
competition to increase. A number of companies produce products that compete
with ours or could enter into competition with us. These competitors, or
potential future competitors, include CTT, JCA Technology, Miteq, and REMEC. In
addition, a number of smaller companies may introduce competing products. Many
of our current and potential competitors have significantly greater financial,
technical, manufacturing and marketing resources than we

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have and have achieved market acceptance of their existing technologies.
Our ability to compete successfully depends upon a number of factors,
including:



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

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

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

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



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

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

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

Our customers establish demanding specifications for product performance
and reliability. Our standard product warranty period is one year. Problems may
occur in the future with respect to the performance and reliability of our
products in conforming to customer specifications. If these problems do occur,
we could experience increased costs, delays in or reductions, cancellations or
rescheduling of orders and shipments, product returns and discounts and product
redesigns, any of which would have a negative impact on our business, operating
results and financial condition. In addition, errors or defects in our products
may result in legal claims that could damage our reputation and our business,
increase our expenses and impair our operating results.

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

Most of our products are components in commercial or defense
communications systems. The sales cycle associated with our products is
typically lengthy, and can be as long as two years, due to the fact that our

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customers conduct significant technical evaluations of our products before
making purchase commitments. This qualification process involves a significant
investment of time and resources from us and our customers to ensure that our
product designs are fully qualified to perform with the customers equipment.
The qualification process may result in the cancellation or delay of
anticipated product shipments, thereby harming our operating results.

In addition, our inventory can rapidly become out dated due to the short
life cycle of the end products that incorporate our products. In fiscal 2003,
we wrote off outdated inventory when one of our customers stopped producing the
mobile handsets that incorporated our power amplifier. Our business, operating
results and financial condition could be harmed by excess or out dated
inventory levels if our customers products evolve more rapidly than
anticipated or if demand for a product does not materialize.

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

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

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

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

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

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

In addition, to retain our intellectual property rights we may be required
to seek legal action against infringing parties. This legal action may be
costly and may result in a negative outcome. An adverse outcome in litigation
could subject us to significant liability to third parties, could put our
patents at risk of being invalidated or narrowly interpreted and could put our
patent applications at risk of not issuing. The steps taken

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by us may be inadequate to deter misappropriation or impede third party
development of our technology. In addition, the laws of some foreign countries
in which our products are or may be sold do not protect our intellectual
property rights to the same extent, as do the laws on the United States. If we
are not successful in protecting our intellectual property our business will
suffer.

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

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

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

Our success depends in significant part upon the continued service of our
key technical, marketing, sales and senior management personnel and our
continuing ability to attract and retain highly qualified technical, marketing,
sales and managerial personnel. In particular, we have experienced and continue
to experience difficulty attracting and retaining qualified engineers, which
has harmed our ability to develop a wider range of handset products in a timely
manner. Competition for these kinds of experienced personnel is intense. In
addition, as discussed above, uncertainties resulting from the proxy contest
and future unsolicited acquisition offers may hamper our ability to retain our
executives or key personnel in our engineering and other departments. We
cannot assure you that we can retain our key technical and managerial employees
or that we can attract, assimilate or retain other highly qualified technical
and managerial personnel in the future. Our failure to attract, assimilate or
retain key personnel could significantly harm our business, operating results
and financial condition.

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

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

A disaster could severely damage our operations.

A disaster could severely damage our ability to deliver our products to
our customers. Our products depend on our ability to maintain and protect our
computer systems, which are primarily located in or near our principal
headquarters in Santa Clara, California. Santa Clara exists on or near a known
earthquake fault zone. Although the facilities in which we host our computer
systems are designed to be fault tolerant, the systems are susceptible to
damage from fire, floods, earthquakes, power loss, telecommunications failures,

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and similar events. Although we maintain general business insurance
against fires, floods and some general business interruptions, there can be no
assurance that the amount of coverage will be adequate in any particular case.

Any acquisitions we make could disrupt our business and harm our financial
condition.

In October 2002, we acquired Tavanza, Inc., and we may make additional
investments in or acquire complementary companies, products or technologies.
These acquisitions involve numerous risks, including problems combining or
integrating the purchased operations, technologies or products; unanticipated
costs; diversion of managements attention from our core business; adverse
effects on existing business relationships with suppliers and customers; risks
associated with entering markets in which we have no or limited prior
experience; and potential loss of key employees, particularly those of the
acquired organizations. For example, although we acquired Tavanza in October
2002, we recently exited the wireless handset power amplifier market,
and we sold the assets that we acquired from Tavanza for significantly less
than we originally paid for them. In addition, in the event of any such
investments or acquisitions, we could issue stock that would dilute our current
shareholders percentage ownership, incur debt, assume liabilities, incur
amortization or impairment expenses related to goodwill and other intangible
assets, or incur large and immediate write-offs. We cannot assure you that we
will be able to successfully integrate any businesses, products, technologies
or personnel that we might acquire in the future.




Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to market risk is principally confined to our cash, cash
equivalents and investments which have maturities of less than two years. We
maintain a non-trading investment portfolio of investment grade, liquid, debt
securities that limits the amount of credit exposure to any one issue, issuer
or type of instrument. At September 30, 2003, our investment portfolio
comprised approximately $12.1 million in money market funds and certificate of
deposits and $72.8 million of money market auction rate preferred stocks,
corporate debt securities and municipal bonds. The securities in our investment
portfolio are not leveraged, are classified as available for sale and are
therefore subject to interest rate risk. We currently do not hedge interest
rate exposure. If market interest rates were to increase by 100 basis points,
or 1%, from September 30, 2003 levels, the fair value of our portfolio would
decline by approximately $0.2 million. The modeling technique used measures the
change in fair values arising from an immediate hypothetical shift in market
interest rates.

Foreign Currency Exchange Risk

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




Item 4. CONTROLS AND PROCEDURES

Our management evaluated, with the participation of our chief executive
officer and our chief financial officer, the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this Quarterly
Report on Form 10-Q. Based on this evaluation, our chief executive officer and
our chief financial officer have concluded that our disclosure controls and procedures are
effective to ensure that information we

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are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.

There was no change in our internal control over financial reporting that
occurred during the period covered by this Quarterly Report on Form 10-Q that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.




PART II OTHER INFORMATION

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

Our Annual Meeting of Shareholders was held on August 27, 2003. The
results of the voting were as follows:

Proposal 1: Election of Directors of the Company.

|                     |  |           |           |                |  |  |           | 
|-------------------- |  | --------- | --------- | -------------- |  |  | --------- | 
|Nominee              |  | Votes For |           | Votes Withheld
|                     |  |           |           |               
|Tamer Husseini       |  |           | 6,941,635 |                |  |  | 1,216,366 | 
|Robert J. Gallagher  |  |           | 7,124,849 |                |  |  | 1,033,152 | 
|J. Michael Gullard   |  |           | 7,227,145 |                |  |  | 930,856   | 
|Lloyd I. Miller, III |  |           | 7,282,765 |                |  |  | 875,236   | 
|Bryant R. Riley      |  |           | 7,084,014 |                |  |  | 1,073,987 | 
|Michael B. Targoff   |  |           | 7,281,740 |                |  |  | 876,261   | 
|Charles P. Waite     |  |           | 7,181,704 |                |  |  | 976,297   | 

Proposal 2: Ratification of Ernst & Young LLP as our independent auditors
for the fiscal year ending March 31, 2003.

|                  |  |  |           | 
|----------------- |  |  | --------- | 
|Votes For:        |  |  | 8,085,802 | 
|Votes Against:    |  |  | 64,347    | 
|Votes Abstaining: |  |  | 7,852     | 
|Broker Non-Vote   |  |  | 0         | 

Proposal 3: Approval of Amendment to Outside Directors Stock Option Plan.

|                  |  |  |           | 
|----------------- |  |  | --------- | 
|Votes For:        |  |  | 6,972,712 | 
|Votes Against:    |  |  | 1,146,360 | 
|Votes Abstaining: |  |  | 38,929    | 
|Broker Non-Vote   |  |  | 0         | 

Proposal 4: Approval of Amendment to 1994 Stock Option Plan.

|                  |  |  |           | 
|----------------- |  |  | --------- | 
|Votes For:        |  |  | 7,050,308 | 
|Votes Against:    |  |  | 1,098,381 | 
|Votes Abstaining: |  |  | 9,312     | 
|Broker Non-Vote   |  |  | 0         | 

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Item 6. EXHIBITS AND REPORTS ON FORM 8-K



| | (a) |  | Exhibits.
| | --- |  | ---------

|        |  |                                                                                                                                                                                  
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                  
|Number  |  | Description                                                                                                                                                                      
|31.1    |  | Certification of Chief Executive Officer pursuant to Securities
Exchange Act Rules 13a-15(e) and 15d-15(e), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|        |  |                                                                                                                                                                                  
|31.2    |  | Certification of Chief Financial Officer pursuant to Securities
Exchange Act Rules 13a-15(e) and 15d-15(e), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|        |  |                                                                                                                                                                                  
|32.1    |  | Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.   



| | (b) |  | Reports on Form 8-K.
| | --- |  | --------------------



| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | We filed one report on Form 8-K with the Securities and Exchange
Commission during the period covered by this report, as follows:



| | 1. |  | Report on Form 8-K filed on July 22, 2003 under
Item 12 (Results of Operations and Financial Condition),
regarding our first quarter 2004 financial results.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

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SIGNATURES

Pursuant to the requirements 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.

|                        |  |                                      
|----------------------- |  | -------------------------------------
|                        |  | CELERITEK, INC.                      
|                        |  |                                      
|Date: November 12, 2003 |  | /s/ MARGARET E. SMITH                
|                        |  |                                      
|                        |  | Margaret E. Smith, Vice President,   
|                        |  | Chief Financial Officer and Assistant
|                        |  | Secretary                            

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INDEX TO EXHIBITS

|        |  |                                                                                                                                                                                  
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                  
|Number  |  | Description                                                                                                                                                                      
|31.1    |  | Certification of Chief Executive Officer pursuant to Securities
Exchange Act Rules 13a-15(e) and 15d-15(e), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|        |  |                                                                                                                                                                                  
|31.2    |  | Certification of Chief Financial Officer pursuant to Securities
Exchange Act Rules 13a-15(e) and 15d-15(e), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|        |  |                                                                                                                                                                                  
|32.1    |  | Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.   

32