UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-Q

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15() OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED DECEMBER 24, 2000
OR

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15() OF THE
SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NO. 0-26092

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CLARE, INC.
(Exact Name Of Registrant As Specified In Its Charter)

MASSACHUSETTS 04-2561471
(State or other jurisdiction of (IRS employer identification number)
incorporation or organization)

78 CHERRY HILL DRIVE
BEVERLY, MASSACHUSETTS 01915
(Address of principal executive offices) (Zip Code)

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Registrant's telephone number, including area code: (978) 524-6700

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

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

As of January 21, 2001, there were 9,773,467 shares of Common Stock,
$0.01 par value per share, outstanding.

CLARE, INC. TABLE OF CONTENTS
PAGE

PART I FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Balance Sheets...................... 1
Consolidated Condensed Statements of Operations............ 2
Consolidated Condensed Statements of Cash Flows............ 3
Notes to Consolidated Condensed Financial Statements....... 4-9
Item 2. Management's Discussion and Analysis of Financial
Condition And Results of Operations....................... 10-13
Item 3. Quantitative and Qualitative Disclosure About Market Risk.. 13
PART II OTHER INFORMATION:
Item 1. Legal Proceedings.......................................... 14
Item 2. Changes in Securities and Use of Proceeds.................. 14
Item 3. Default Upon Senior Securities............................. 14
Item 4. Submission of Matters to a Vote of Security Holders........ 14
Item 5. Other Information.......................................... 15
Item 6. Exhibits and Reports on Form 8-K........................... 15
Signatures.......................................................... 15

CLARE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands) (UNAUDITED)

DECEMBER 24, MARCH 31,
2000 2000
------------ ----------

ASSETS
Current assets:
Cash and cash equivalents and investments (Note 5).............. $28,073 $37,267
Accounts receivable, less allowance for doubtful accounts....... 9,260 11,068
Inventories (Note 6)............................................ 14,199 11,406
Other current assets............................................ 1,483 1,636
Deferred income taxes........................................... 2,733 2,733
------------ ----------
Total current assets......................................... 55,748 64,110
Property, plant and equipment, net................................. 26,108 26,294
Other assets:
Intangible assets, net of accumulated amortization
of $4,936 and $3,410, respectively........................... 9,482 9,354
Deferred income taxes........................................... 451 451
Other........................................................... 854 451
------------ ----------
$92,643 $100,660
------------ ----------
------------ ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital
lease obligations............................................ $112 $139
Accounts payable................................................ 7,655 5,151
Accrued expenses................................................ 4,210 5,896
------------ ----------
Total current liabilities.................................... 11,977 11,186
Long-term debt, net of current portion............................. 198 146
------------ ----------
Total liabilities............................................ 12,175 11,332
------------ ----------
Commitments and Contingencies (Note 9)
Stockholders' equity:
Preferred stock, $.01 par value-Authorized: 2,500,000 shares;
Issued and outstanding: None................................. - -
Common stock, $.01 par value-Authorized: 40,000,000 shares;
Issued: 9,728,111 shares and 9,591,266 shares as of
December 24, 2000 and March 31, 2000, respectively........... 97 96
Additional paid-in capital...................................... 97,179 96,895
Accumulated deficit............................................. (16,031) (7,210)
Cumulative translation adjustment............................... (612) (453)
Less: Treasury Stock (30,000 common shares, at cost)............ (165) -
------------ ----------
Total stockholders' equity................................... 80,468 89,328
------------ ----------
$92,643 $100,660
------------ ----------
------------ ----------

The accompanying notes are an integral part of the
Consolidated Condensed Financial Statements.

CLARE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF
OPERATIONS (Dollars in Thousands, Except Per Share Data) (UNAUDITED)

DEC. 24, 2000 DEC. 26, 1999 DEC. 24, 2000 DEC. 26, 1999
------------- ------------- ------------- -------------
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------

Net sales.................................. $19,698 $21,617 $60,939 $86,590
Cost of sales.............................. 14,435 15,748 43,805 67,472
------------- ------------- ------------- -------------
Gross profit............................ 5,263 5,869 17,134 19,118
Operating expenses:
Selling, general and administrative..... 5,203 5,005 16,853 17,689
Research and development................ 4,115 3,500 10,834 10,162
Gain on sale of real estate (Note 9).... (716) - (716) -
Gain on disposal of business, net of
related restructuring and other costs
(Note 4)............................. - - - (12,990)
Restructuring costs (Note 8)............ - - - (875)
------------- ------------- ------------- -------------
Operating (loss) income.................... (3,339) (2,636) (9,837) 5,132
Interest income............................ 345 332 1,378 594
Interest expense........................... (18) (51) (149) (100)
Other income (expense), net................ 14 124 (211) 259
------------- ------------- ------------- -------------
(Loss) income before benefit for
income taxes....................... (2,998) (2,231) (8,819) 5,885
Benefit for income taxes............. - - - (1,702)
------------- ------------- ------------- -------------
Net (loss) income.................... $(2,998) $(2,231) $(8,819) $7,587
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings (loss) per common and
common share equivalent
(Note 3):
Basic (loss) earnings per share...... $(0.31) $(0.23) $(0.92) $.80
------------- ------------- ------------- -------------
Diluted (loss) earnings per share.... $(0.31) $(0.23) $(0.92) $.78
------------- ------------- ------------- -------------
Weighted average common and
common share equivalent
shares outstanding:
Basic................................ 9,677,691 9,522,942 9,628,645 9,496,522
Diluted.............................. 9,677,691 9,522,942 9,628,645 9,666,471
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------

The accompanying notes are an integral part of the
Consolidated Condensed Financial Statements.

CLARE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF
CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)

DEC. 24, 2000 DEC. 26, 1999
------------- -------------
FOR THE NINE MONTHS ENDED
-----------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income...................................................................... $(8,819) $7,587
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Gain on disposal of business........................................................ - (12,990)
Gain on sale of real estate......................................................... (716) -
Depreciation and amortization....................................................... 6,143 7,057
Non-cash portion of restructuring charge............................................ - (875)
Compensation expense associated with stock options.................................. - 62
Changes in assets and liabilities, net of effect from disposition in 1999:
Accounts receivable.............................................................. 1,808 4,795
Inventories...................................................................... (2,609) 1,392
Other current assets............................................................. 153 (540)
Other assets..................................................................... (401) (120)
Accounts payable................................................................. 2,505 (7,975)
Accrued expenses and other liabilities........................................... (1,337) (2,242)
------------- -------------
Net cash used in operating activities............................................ (3,273) (3,849)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment, net......................................... (5,218) (3,836)
Net proceeds from sale of real estate.................................................. 1,300 -
Net proceeds from disposal of business activities...................................... - 33,115
Purchase of Teltone inventory and intangible assets.................................... (1,987) -
------------- -------------
Net cash (used in) provided by investing activities.............................. (5,905) 29,279
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds from issuance of common stock............................................. 187 392
Proceeds from exercise of options...................................................... 98 15
Purchase of treasury stock............................................................. (165) -
Net borrowings (payments) of principal on long-term debt............................... 25 (211)
------------- -------------
Net cash provided by financing activities........................................ 145 196
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Effect Of Exchange Rates On Cash, Cash Equivalents And Investments..................... (161) -
------------- -------------
NET (DECREASE) INCREASE IN CASH, AND CASH EQUIVALENTS.................................. (9,194) 25,626
Cash and cash equivalents, beginning of period......................................... 37,267 7,796
------------- -------------
Cash and cash equivalents end of period................................................ $28,073 $33,422
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SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest......................................................................... $138 $282
------------- -------------
Income taxes, net of refunds..................................................... $(70) $69
------------- -------------
Sale of business:
Carrying amount of net assets sold............................................... $- $(20,829)
Cash received.................................................................... - 37,629
Expenses......................................................................... - (3,810)
------------- -------------
Gain on sale after expenses...................................................... $- $12,990
------------- -------------

The accompanying notes are an integral part of the
Consolidated Condensed Financial Statements.

CLARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 24, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. FISCAL PERIODS

The Company's fiscal year is comprised of either 52 or 53 weeks and
ends on the Sunday closest to March 31. Interim quarters are comprised of 13
weeks unless otherwise noted, and end on the Sunday closest to June 30,
September 30, December 31 and March 31.

2. INTERIM FINANCIAL STATEMENTS

The unaudited interim consolidated condensed financial statements
presented herein have been prepared in accordance with generally accepted
accounting principles for interim financial statements and with the instructions
to Form 10-Q and Regulation S-X pertaining to interim financial statements.
Accordingly, these interim financial statements do not include all information
and footnotes required by generally accepted accounting principles for complete
financial statements. The financial statements reflect all normal, recurring
adjustments and accruals that management considers necessary for a fair
presentation of the Company's financial position as of December 24, 2000, and
results of operations for the nine months ended December 24, 2000 and December
26, 1999. The results for the interim periods presented are not necessarily
indicative of results to be expected for any future period. The financial
statements should be read in conjunction with the summary of significant
accounting policies and notes to consolidated financial statements included in
the Company's Annual Report on Form 10-K for the fiscal year ended March 31,
2000 as filed with the Securities and Exchange Commission.

3. EARNINGS (LOSS) PER SHARE

A reconciliation of basic and diluted shares outstanding, is as
follows:

DECEMBER 24, 2000 DECEMBER 26, 1999 DECEMBER 24, 2000 DECEMBER 26, 1999
----------------- ----------------- ----------------- -----------------
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------------- ---------------------------------------

Basic weighted average shares outstanding....... 9,677,691 9,522,942 9,628,645 9,496,522
Weighted average common share equivalents....... - - - 169,949
----------------- ----------------- ----------------- -----------------
Diluted weighted average shares outstanding..... 9,677,691 9,522,942 9,628,645 9,666,471
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------

The following securities were not included in computing diluted
earnings per share because their effect would be anti-dilutive.

Options to purchase common stock........... 2,132,467 1,715,983 1,885,602 2,175,856
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------

4. DIVESTITURE

On August 20, 1999, the Company sold all of the issued and
outstanding shares of common stock of Clare EMG, Inc. ("EMG"), a wholly owned
subsidiary of Clare, and certain assets to Sumida Electric Co., Ltd.
("Sumida"), for $37,629 in cash. EMG included the Company's advanced magnetic
winding, reed relay, and surge arrestor product lines together with the
second tier affiliate Clare Mexicana S.A. de C.V.

Pro forma financial information reflecting the divestiture of Clare EMG, Inc.
is as follows:

THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 26, 1999 DECEMBER 26, 1999
----------------- -----------------

Net Sales.......................... $21,617 $60,797
Gross Profit....................... 5,869 15,279
Operating loss..................... (2,636) (5,517)
Net loss........................... (2,231) (3,418)
Basic loss per share............... (0.23) (0.36)
Diluted loss per share............. (0.23) (0.36)

5. CASH, CASH EQUIVALENTS AND INVESTMENTS

The Company considers all highly liquid investment instruments with
maturities of three months or less to be cash equivalents. Short-term
investments are instruments with maturities of less than one year. The Company
accounts for its investments in accordance with SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Investments at December 24,
2000 consisted principally of overnight commercial paper and at March 31, 2000
consisted principally of overnight and short-term tax exempt commercial paper
and tax exempt variable rate municipal bonds. The Company had the option to
require the issuers of the tax exempt variable rate municipal bonds to purchase
these investments upon 7 days notice. The Company deemed these investments to be
held-to-maturity at March 31, 2000, as the Company had the ability and intent to
hold these investments until maturity. The investments are carried at cost,
which approximates amortized cost. Investments classified as held-to-maturity
were $2,000 at December 24, 2000.

6. INVENTORIES

Inventories include materials, labor and manufacturing overhead, and
are stated at the lower of cost (first-in, first-out) or market and consisted of
the following at December 24, 2000 and March 31, 2000:

DECEMBER 24, 2000 MARCH 31, 2000
----------------- --------------
Raw Material......................... $5,057 $3,200
Work in process...................... 6,781 5,858
Finished goods....................... 2,361 2,348
----------------- --------------
$14,199 $11,406
----------------- --------------
----------------- --------------

7. ACCRUED EXPENSES

Accrued expenses consisted of the following at December 24, 2000 and
March 31, 2000:

DECEMBER 24, 2000 MARCH 31, 2000
----------------- --------------
Payroll and benefits........................ $1,158 $2,679
Restructuring (Note 8)...................... - 149
Environmental remediation (Note 9).......... 490 854
Other....................................... 2,562 2,214
----------------- --------------
$4,210 $5,896
----------------- --------------
----------------- --------------

8. RESTRUCTURING COSTS

In fiscal 1999, the Company announced a restructuring of its
operations, and recorded a non-recurring pre-tax charge of $3,700 in accordance
with Emerging Issues Task Force Issue ("EITF") 94-3. In fiscal 2000, the Company
revised the estimated cost of this restructuring by reversing $875 reflecting
lower than expected severance costs. The Company paid all 1999 restructuring
expenses as of September 2000.

9. CONTINGENCIES

ENVIRONMENTAL MATTER

The Company accrues for estimated costs associated with known
environmental matters when such costs are probable and can be reasonably
estimated. The actual costs to be incurred for environmental remediation may
vary from estimates, given the inherent uncertainties in evaluating and
estimating environmental liabilities, including the possible effects of changing
laws and regulations, the stage of the remediation process and the magnitude of
contamination found as the remediation progresses. Management believes the
ultimate disposition of known environmental matters will not have a material
adverse effect upon the liquidity, capital resources, business or consolidated
financial position of the Company. However, one or more environmental matters
could have a significant negative impact on the Company's consolidated financial
results for a particular reporting period.

During December 2000, the Company sold its West Pratt Avenue facility
in Chicago, Illinois ("Site") for $1,300 in cash, net of closing costs. The net
book value of the assets sold was $934, resulting in a gain of $366. During
December 2000, management revised its estimate for environmental remediation
liability at this site and two adjacent sites by reducing the liability by $350,
which is included in the gain on the sale of real estate.

10. NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at fair
value. The statement requires that changes in the derivatives fair value be
recognized in earnings currently, unless specific hedge accounting criteria are
met. Special accounting or qualifying hedges allows derivative gains or losses
to offset related results on the hedged item in the income statement, and
require that a Company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. The adoption of
SFAS No. 133 did not have an impact on the Company's results of operations,
financial position or cash flows.

In March 2000, the FASB issued FASB interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation-An Interpretation of APB
Opinion No. 25 (Interpretation 44)". Interpretation No. 44 clarifies the
application of APB No. 25 in certain situations, as defined. Interpretation 44
is effective July 1, 2000 but is retroactive for certain events that occurred
after December 15, 1998. The adoption of Interpretation 44 did not materially
affect the Company's consolidated results of operations.

The Securities and Exchange Commission issued Staff Accounting Bulletin
(SAB) No. 101, "Revenue Recognition", in December 1999. The Company is required
to adopt this new accounting guidance in accordance with Accounting Principles
Board Opinion (APB) No. 20, "Accounting Changes," no later than December 31,
2000. The adoption of SAB No. 101 did not have a material impact on the
Company's operating results, financial position or cash flows.

11. COMPREHENSIVE (LOSS) INCOME

The components of the Company's comprehensive (loss) income are as
follows:

Net (loss) income.......................... $(2,998) $(2,231) $(8,819) $7,587
Foreign currency translation adjustments,
net of taxes............................ 116 (94) (159) (150)
----------------- ----------------- ----------------- -----------------
Comprehensive (loss) income................ $(2,882) $(2,325) $(8,978) $7,437
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------

12. FINANCIAL INFORMATION BY SEGMENT

The Company's reportable operating segments are Solid State Relays,
Integrated Circuits, Reed Switches and Electromechanical and other products.

The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. The Company evaluates
performance based on gross profit. Revenues are attributed to geographic areas
based on where the customer is located. The Company does not measure transfers
of sales between Company segments. Segment information for the quarters ended
December 24, 2000 and December 26, 1999 was as follows:

SOLID STATE INTEGRATED REED ELECTRO- CORPORATE TOTAL
RELAYS CIRCUITS SWITCHES MECHANICAL AND OTHER
----------- ---------- -------- -------------------- --------- -----

THREE MONTHS ENDED-DECEMBER 24, 2000
Net product sales................. 12,265 4,560 2,873 - - 19,698
Gross Profit...................... 3,411 2,187 (335) - - 5,263
Depreciation and amortization..... 1,195 775 311 - - 2,281
Interest income................... - - - - 345 345
Interest expense.................. - - - - 18 18
Income taxes...................... - - - - - -
Property, plant and equipment..... 18,086 3,337 4,685 - - 26,108

NINE MONTHS ENDED-DECEMBER 24, 2000
Net product sales................. 37,287 12,898 10,754 - - 60,939
Gross Profit...................... 11,275 6,576 (717) - - 17,134
Depreciation and amortization..... 3,585 1,864 694 - - 6,143
Interest income................... - - - - 1,378 1,378
Interest expense.................. - - - - 149 149
Income taxes...................... - - - - - -
Property, plant and equipment..... 18,086 3,337 4,685 - - 26,108

THREE MONTHS ENDED-DECEMBER 26, 1999
Net product sales................. 12,327 2,558 6,661 71 - 21,617
Gross Profit...................... 2,332 1,213 2,213 111 - 5,869
Depreciation and amortization..... 1174 662 175 - - 2,011
Interest income................... - - - - 332 332
Interest expense.................. - - - - 51 51
Benefit for income taxes.......... - - - - - -
Property, plant and equipment..... 20,591 3,332 3,065 - - 26,988

NINE MONTHS ENDED-DECEMBER 26, 1999
Net product sales................. 39,382 7,968 16,283 22,957 - 86,590
Gross Profit...................... 7,752 4,126 4,521 2,719 - 19,118
Depreciation and amortization..... 3,720 1,844 469 1,024 - 7,057
Interest income................... - - - - 594 594
Interest expense.................. - - - - 100 100
Benefit for income taxes.......... - - - - 1,702 1,702
Property, plant and equipment..... 20,591 3,332 3,065 - - 26,988

Interest income and expense, restructuring, and income taxes are
considered corporate level activities and are therefore, not allocated to
segments. Management believes transfers between geographic areas are accounted
for on an arms' length basis.

Long-lived tangible assets by geographic area were as follows:

GEOGRAPHIC AREA DECEMBER 24, 2000 MARCH 31, 2000
- --------------- ----------------- --------------
LONG-LIVED TANGIBLE ASSETS
-----------------------------------
United States...................... $25,985 $26,107
Other.............................. 123 187
----------------- --------------
$26,108 $26,294
----------------- --------------
----------------- --------------

Revenues by geographic area for the three and nine months ended
December 24, 2000 and December 26, 1999 were as follows:

GEOGRAPHIC AREA THREE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED
- --------------- DECEMBER 24, 2000 DECEMBER 26, 1999 DECEMBER 24, 2000 DECEMBER 26, 1999
------------------ ------------------- ----------------- ------------------

United States......... $7,769 $8,862 $26,556 $43,813
Malaysia.............. 3,014 1,398 6,455 5,841
Germany............... 1,422 1,164 4,026 3,792
United Kingdom........ 1,108 1,573 3,275 6,401
Taiwan................ 868 1,509 3,151 4,466
Other................. 5,517 7,111 17,476 22,277
------------------ ------------------- ----------------- ------------------
$19,698 $21,617 $60,939 $86,590
------------------ ------------------- ----------------- ------------------
------------------ ------------------- ----------------- ------------------

13. ACQUISITION OF PRODUCT LINE

On August 25, 2000 the Company acquired certain tangible and intangible
assets related to Teltone Corporation's Integrated Circuit business for $1,987.
The intangible assets are being amortized on a straight-line basis over five
years.

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference are discussed in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2000,
as filed with the Securities and Exchange Commission. See "Trends and
Uncertainties" in Management's Discussion and Analysis of Financial Condition
and Results of Operations.

RESULTS OF OPERATIONS

The following table sets forth the relative percentage that certain
income and expense items bear to net sales for the periods indicated:

DECEMBER 24, DECEMBER 26, DECEMBER 24, DECEMBER 26,
2000 1999 2000 1999
------------ ------------ ------------ ------------
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------- --------------------------------

Net sales........................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................... 73.3 72.9 71.9 77.9
------------ ------------ ------------ ------------
Gross profit.................................. 26.7 27.1 28.1 22.1
Operating expenses:
Selling, general and administrative........... 26.4 23.2 27.7 20.4
Research and development...................... 20.9 16.1 17.8 11.7
Gain on sale of real estate................... (3.6) - (1.2) -
Gain on disposal of business.................. - - - (15.0)
Restructuring costs .......................... - - - (1.0)
------------ ------------ ------------ ------------
Operating income (loss)....................... (17.0) (12.2) (16.2) 6.0
Interest income.............................. 1.8 1.6 2.3 0.7
Interest expense.............................. (0.1) (0.2) (0.2) (0.1)
Other income (expense), net................... 0.1 0.5 (0.3) 0.3
------------ ------------ ------------ ------------
(Loss) income before income taxes............. (15.2) (10.3) (14.4) 6.9
Benefit for income taxes...................... - - - (2.0)
------------ ------------ ------------ ------------
Net (loss) income............................. (15.2)% (10.3)% (14.4)% 8.9%
------------ ------------ ------------ ------------

NET SALES. In the third quarter of fiscal 2001, revenues totaled $19.7 million
compared with $21.6 million for the same period in fiscal 2000, a decrease of
9%, as a fall off in demand for reed switches in the cellular phone market more
than offset higher sales for semiconductor products. For the nine months ended
December 24, 2000, revenues were $60.9 million compared with $86.6 million for
the same period in the prior year, a decrease of 30%. Lower year-to-date sales
were largely the result of the disposition of the Company's electromagnetic
product lines, which were sold to Sumida Electric in August of 1999. Excluding
these products, revenues would have been approximately $60.8 million for the
nine months ending December 26, 1999, consistent with the comparable

period in the current year.

Net sales to customers located outside of the United States decreased
$1.2 million to $11.5 million in the third quarter of fiscal 2001 from $12.7
million for the same period in the prior fiscal year, with foreign customers
equally divided between Europe and Asia.

The Company monitors its currency exposure and international economic
developments and takes actions to reduce the Company's risk from exposures to
fluctuations in foreign currency markets. Because the Company ships and invoices
all of its business from the United States, 100% of sales into Asia and
approximately 75% of sales into Europe are U.S dollar denominated transactions
and are, therefore, not exposed to exchange risk. Although a portion of sales
into Europe are denominated in Euros, the related foreign currency assets are
partially naturally hedged by foreign currency liabilities for local sales
operations.

GROSS PROFIT. The Company's gross profit as a percentage of net sales was 27%
in the third quarter of fiscal 2001, consistent with the comparable period in
the prior year. Gross profit as a percentage of net sales increased to 28% for
the nine months ended December 24, 2000 from 22% for the comparable period in
the prior year. The increase was primarily due to the elimination of lower
margin products included in the sale of the electromagnetic product lines.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
("S,G&A") expenses increased $0.2 million to $5.2 million in the third quarter
of fiscal 2001 from $5.0 million for the same period in the prior fiscal year.
On a year-to-date basis, S,G&A expense totaled $16.9 million, down $0.8 million
from the prior year. The decrease for the nine-month period was attributable
primarily to reduced employment in the European sales office and the elimination
of the electromagnetic products headquarters operation in Arlington Heights,
Illinois.

RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was $4.1
million for the third quarter of fiscal 2001 compared with $3.5 million in the
prior year. For the nine months ended December 24, 2000, research and
development expenses were $10.8 million compared with $10.2 million for the same
period in the prior year, an increase of 6%. This increase was due to the
Company's continued investment in product design and process technology to
support new products such as application specific integrated circuits (ASICs),
the Line Card Access Switch (LCAS), LiteLink, and display drivers.

GAIN ON SALE OF REAL ESTATE. Gain on sale of real estate totaled $0.7 million
during the third quarter of fiscal 2001 and represented the gain associated with
the sale of the Company's West Pratt Avenue facility in Chicago, Illinois. The
amount consists of the gross proceeds received less the net book value of the
assets sold and includes the reduction in a portion of the environmental
remediation liability associated with the property. See Note 9 of the
Consolidated Condensed Financial Statements.

GAIN ON DISPOSAL OF BUSINESS. Gain on disposal of business totaled $13.0 million
during the second quarter of fiscal 2000 and represented the gain on the sale of
the reed relay, advanced magnetic winding, and surge arrestor product lines to
Sumida Electric Company of Tokyo, Japan. The amount consists of the difference
between the gross proceeds, less related selling and restructuring costs, and
the value of the assets sold. See Note 4 of the Consolidated Condensed Financial
Statements.

RESTRUCTURING COSTS. In fiscal 1999, the Company announced a restructuring of
its operations, and recorded a charge of $3.7 million. During the second quarter
of fiscal 2000, $0.9 million of this charge was reversed to reflect residuals
received from the sale of some of the Wakefield, MA assets and lower than
anticipated severance costs. See Note 8 of the Consolidated Condensed Financial
Statements.

INTEREST INCOME. Interest income totaled $0.3 million and $1.4 million for the
third quarter and first nine months of fiscal 2001, respectively. Interest
income is derived from investments in both commercial paper and short-term tax
exempt municipal bonds. Higher interest income compared with the prior fiscal
year resulted from higher cash balances, largely from the proceeds from the sale
of EMG.

OTHER INCOME. Other income consisted principally of net foreign currency
transactional gains and losses.

INCOME TAXES. In accordance with generally accepted accounting principles, the
Company has provided for income taxes at its estimated annual effective tax
rate. For the first nine months of fiscal 2001, the Company did not record a tax
benefit for pre-tax losses because it is not likely that such a benefit will be
utilized in the foreseeable future.

TRENDS AND UNCERTAINTIES

COMPETITION. Clare competes with various global companies. Certain competitors
of the Company have greater manufacturing, engineering or financial resources.

CUSTOMER CONCENTRATION. In the first nine months of fiscal 2001, the Company's
ten largest customers accounted for 34% of total net sales. The Company is
reliant upon continued revenues from its largest customers and any material
delay, cancellation or reduction of orders from these customers could have a
material adverse effect on the Company's future results.

DEVELOPMENT OF NEW PRODUCTS. Technological change and new product introductions
characterize the markets for the Company's products. In particular, the Company
is dependent on the communications industry, which is characterized by intense
competition and rapid technological change. The Company expects sales to the
communications industry to continue to represent a significant portion of its
sales for the foreseeable future. A decline in demand for communications related
equipment such as facsimile machines, modems and cellular telephones would cause
a significant decline in demand for the Company's products. The Company has
invested heavily over the past several years in the capital expenditures
necessary to develop new products. Slower than expected acceptance of new
products will adversely affect the Company's operating results. To remain
competitive, the Company must continue to develop new process and manufacturing
capabilities to meet customer needs and introduce new products that reduce size
and increase functionality and performance. The Company is currently limited by
its existing capital availability and may need to use its existing or new lines
of credit, in order to fund the capital expenditures required developing new
products. If the Company is unable to access adequate sources of capital or is
unable to design, develop and introduce competitive new products, operating
results will be adversely impacted.

FLUCTUATIONS IN OPERATING RESULTS. The Company has experienced fluctuation in
its operating results in the past and its operating results may fluctuate in the
future. In addition, because of recent capital expansions, the Company has
increased its operational fixed costs. This expansion also has resulted in new
and increased responsibilities for management personnel and has placed pressures
on the Company's operating systems. The Company's future success will depend to
a large part on its ability to manage these changes and manage effectively its
remote offices and facilities.

FULL UTILIZATION OF THE NEW WAFER FABRICATION FACILITY. The Company completed
construction of a larger, more advanced semiconductor facility in Beverly,
Massachusetts to address capacity constraints and operating efficiencies in the
production of its semiconductor products. Since its completion in October 1997,
demand for semiconductor products has not allowed the Company to fully utilize
the facility and has contributed to a decline in the Company's overall gross
margin rate. In addition, it is not expected that the new facility will be fully
utilized in the short term, as certain planned new semiconductor products,
including the Clare-Micronix products, will require

significant additional capital investment to be produced in the fabrication
facility. Currently, these wafers and products are made utilizing outside
foundries.

LIQUIDITY. The Company ended the quarter with cash balances of $28.1 million
compared with $33.4 million at December 26, 1999. The Company maintains a $10.0
million secured committed revolving credit facility. If the Company is unable to
access adequate sources of capital this could have a material adverse effect on
the Company's liquidity.

MARKETS. The Company continues to evaluate its operations and product offerings,
in order to invest in or potentially divest of certain business or market
opportunities.

RELIANCE ON KEY SUPPLIERS. The Company relies on certain suppliers of raw
materials and services for sole source supply of critical items. There can be no
assurance that in the future the Company's suppliers will be able to meet the
Company's demand needs effectively and on a timely basis. Also, the suppliers
could experience their own business disruption that could have a material
adverse effect on future results.

LIQUIDITY AND CAPITAL RESOURCES

During the three months ended December 24, 2000, the Company's cash,
cash equivalents and investments increased by $2.2 million as the result of a
reduction in working capital and the proceeds from the sale of an idle factory
in Chicago, Illinois.

At December 24, 2000, the Company had $0.2 million of outstanding debt
representing capital leases assumed when the Company acquired Clare-Micronix. In
fiscal 1999, the Company entered into a secured committed revolving credit
facility with a current limit of $10 million. No borrowings have been made
against this credit facility. The credit facility expires on December 24, 2001.

The Company manages its foreign exchange exposure by monitoring its net
monetary position using natural hedges of its assets and liabilities denominated
in local currencies. There can be no assurance that this policy will eliminate
all currency exposure.

The Company believes that cash generated from operations, cash, cash
equivalents and investments, and amounts available under its credit agreement
and operating lease facilities will be sufficient to satisfy its working capital
needs and planned capital expenditures for the balance of this fiscal year.
However, there can be no assurance that events in the future will not require
the Company to seek additional capital or, if so required, that adequate capital
will be available on terms acceptable to the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company's primary market risk exposures are in the areas of
interest rate risk and foreign currency exchange rate risk. The Company's
primary interest rate risk would be related to borrowings under its revolving
credit agreement. The interest rate on those borrowings fluctuates with changes
in short-term borrowing rates. There were no borrowings from the credit facility
during the year.

The Company is also exposed to currency exchange rate fluctuations as they
pertain to its operations in Europe. Operations in Europe were denominated in
Belgium Francs through March 31, 1999. The Company hedged its currency exposure
by entering into forward exchange contracts. The Company has denominated its
Europe operations in Euro, effective April 1, 1999. The exchange rate between
the U.S. dollar and Euro has fluctuated since the Euro's inception January 1,
1999. The Company has not engaged in currency hedging activities since April 1,
1999 and attempts to minimize currency exchange risk by converting excess Euro
funds

to U.S. dollars as often as practicable.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is subject to routine litigation incident to the conduct of
its business. None of such proceedings is considered material to the business or
financial condition of the Company.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULT UPON SENIOR SECURITIES

None

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

The Annual Meeting of Stockholders was held on September 21, 2000 to
elect two class II Directors to serve until the 2003 Annual Meeting of
Stockholders and until their successors are duly elected and qualified; to
authorize a change in the Company's name to Clare, Inc.; and to ratify the
appointment of the accounting firm of Arthur Andersen LLP as independent
accountants for the Company for the current year.

Proposal One: Election of Directors

FOR WITHHELD
Andrew E. Lietz 9,178,656 60,197
John G. Turner 8,477,214 761,639

Proposal Two: Change in Company Name

For: 9,174,115
Against: 51,446
Abstain: 13,292

Proposal Three: Appointment of Accounting Firm

For: 9,210,449
Against: 21,236
Abstain: 6,868

There were no Broker non votes.

ITEM 5. OTHER INFORMATION

On October 26, 1999, the Company's Board of Directors authorized a
share repurchase program to buy up to one million shares of the Company's common
stock through October 26, 2000. Repurchases totaled 30,000 shares during the
program.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

None

(b) Reports on Form 8-K

None.

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.

CLARE, INC.
By:
--------------------------------
Harry Andersen
SENIOR VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER

[date]