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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





---




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 March 31, 2002





or





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




For the transition period from              to





Commission file number 000-31581





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OPLINK COMMUNICATIONS, INC.


(Exact name of registrant
as specified in its charter)





Delaware (State or other jurisdiction of incorporation or organization)

No. 77-0411346 (I.R.S. Employer Identification No.)





3469 North First Street, San Jose, CA 95134


(Address of principal executive offices)            (Zip Code)





Registrants telephone number, including area code: (408) 433-0606





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  ̈





The number of shares of the Registrants Common Stock outstanding as of May 4, 2002 was 164,801,988.





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OPLINK COMMUNICATIONS, INC.





FORM 10-Q





INDEX





PagePART I.    FINANCIAL INFORMATIONItem 1.    Financial Statements (unaudited):Condensed Consolidated Balance SheetsMarch 31, 2002 and June 30, 2001(audited)

3Condensed Consolidated Statements of OperationsThree and nine months ended March 31, 2002 and 2001

4Condensed Consolidated Statements of Cash FlowsNine months ended March 31, 2002 and 2001

5Notes to Condensed Consolidated Financial Statements

7Item 2.    
Managements Discussion and Analysis of Financial Condition and Results of Operations

13Item 3.    
Quantitative and Qualitative Disclosures About Market Risk

44PART II.    OTHER INFORMATIONItem 1.    
Legal Proceedings

45Item 2.    
Changes in Securities and Use of Proceeds

45Item 3.    
Defaults Upon Senior Securities

47Item 4.    
Submission of Matters to a Vote of Security Holders

47Item 5.    
Other Information

47Item 6    
Exhibits and Reports on Form 8-K

47SIGNATURES

48




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##### Table of Contents

PART I.    FINANCIAL INFORMATION


Item 1.    Financial Statements





OPLINK COMMUNICATIONS, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS


(In thousands)





March 31,


June 30,2002


2001ASSETS


(Unaudited
)Current assets:Cash and cash equivalents

$
225,631


$
246,473Short-term investments


5,743



Accounts receivable, net


6,057



17,178Inventories


6,914



21,739Assets held for sale


265



Prepaid expenses


3,836



8,501Total current assets


248,446



293,891Property and equipment, net


63,393



92,086Intangible assets


542



667Other assets


1,257



1,258Total assets

$
313,638


$
387,902LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
7,917


$
21,596Accrued liabilities


15,570



16,905Current portion of capital lease obligations


4,200



3,534Borrowings under the line of credit






1,148Total current liabilities


27,687



43,183Capital lease obligations, non current


2,680



4,988Accrued restructuring, non current


3,818



1,724Total liabilities


34,185



49,895Commitments and contingencies (Note 13)Stockholders equity:Common stock


164



161Additional paid-in capital


469,953



472,102Notes receivable from stockholders


(10,594
)


(3,889
)Deferred stock compensation


(7,138
)


(17,554
)Accumulated comprehensive income


56



25Accumulated deficit


(172,988
)


(112,838
)Total stockholders equity


279,453



338,007Total liabilities and stockholders equity

$
313,638


$
387,902





The accompanying notes are an integral part of these condensed consolidated
financial statements.




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##### Table of Contents

OPLINK COMMUNICATIONS, INC.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands, except per share data)


(Unaudited)





Three Months Ended March 31,


Nine Months EndedMarch 31,2002


2001


2002


2001Revenues

$
9,598


$
36,042


$
30,236


$
111,560Cost of revenues:Cost of revenues


9,244



45,465



41,760



100,981Non-cash compensation expense


200



1,173



47



4,062Total cost of revenues


9,444



46,638



41,807



105,043Gross profit (loss)


154



(10,596
)


(11,571
)


6,517Operating expenses:Research and development:Research and development


3,204



4,888



10,595



13,523Non-cash compensation expense


352



1,030



675



3,784Total research and development


3,556



5,918



11,270



17,307Sales and marketing:Sales and marketing


2,304



2,955



6,394



17,312Non-cash compensation expense (benefit)


186



893



(499
)


2,156Total sales and marketing


2,490



3,848



5,895



19,468General and administrative:General and administrative


1,713



4,777



5,611



11,152Non-cash compensation expense


1,035



1,926



2,960



13,629Total general and administrative


2,748



6,703



8,571



24,781Restructuring costs and other special charges










25,643



Merger fees


1,425







1,425



Amortization of goodwill, intangible and other assets


42



984



126



2,950Total operating expenses


10,261



17,453



52,930



64,506Loss from operations


(10,107
)


(28,049
)


(64,501
)


(57,989
)Gain (loss) on sale or disposal of assets


671



(801
)


671



(801
)Interest and other income, net


1,032



3,621



3,680



7,771Net loss

$
(8,404
)

$
(25,229
)

$
(60,150
)

$
(51,019
)Basic and diluted net loss per share

$
(0.05
)

$
(0.16
)

$
(0.37
)

$
(0.45
)Basic and diluted weighted average shares outstanding


163,735



157,668



162,055



112,481





The accompanying notes are an integral part of these condensed consolidated
financial statements.




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OPLINK COMMUNICATIONS, INC.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)


(Unaudited)





Nine Months Ended March 31,2002


2001Cash flows from operating activities:Net loss

$
(60,150
)

$
(51,019
)Adjustments to reconcile net loss to net cash used in operating activities:Non-cash restructuring costs and other special charges


16,260



Depreciation and amortization of property and equipment


9,702



5,988Amortization of goodwill, intangible and other assets


126



4,119Amortization of deferred compensation


3,183



23,631Provision for excess and obsolete inventory


10,407



Loss (gain) on sale or disposal of assets


(671
)


801Deferred tax assets






(3,910
)Sales and marketing expense related to the convertible note payable to Cisco Systems






8,824Interest expense related to the convertible note payable to Cisco Systems






471Other


(723
)


100Change in assets and liabilities:Accounts receivable


11,121



(11,640
)Inventories


4,418



(13,479
)Prepaid expenses


4,665



(1,061
)Other assets






(671
)Accounts payable


(4,592
)


9,085Accrued liabilities


747



10,612Net cash used in operating activities


(5,507
)


(18,149
)Cash flows from investing activities:Purchases of short-term investments


(70,152
)


Maturities of short-term investments


64,900



Proceeds from sales of assets


2,644



Purchases of property and equipment


(7,426
)


(54,926
)Net cash used in investing activities


(10,034
)


(54,926
)Cash flows from financing activities:Proceeds from issuance of common stock upon the initial public offering






261,014Proceeds from issuance of common stock


636



480Repurchase of common stock


(1,895
)


Proceeds from issuance of convertible note payable






50,000Proceeds from borrowings under line of credit


1,268



1,013Repayment of borrowings under line of credit


(2,416
)


Repayment of capital lease obligations


(2,894
)


(1,494
)Net cash provided by (used for) financing activities


(5,301
)


311,013Net increase (decrease) in cash and cash equivalents


(20,842
)


237,938Cash and cash equivalents, beginning of year


246,473



26,665Cash and cash equivalents, end of year

$
225,631


$
264,603








(Continued on next page)





The accompanying notes are an integral part of these condensed consolidated financial statements.




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OPLINK COMMUNICATIONS, INC.


CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS


(In thousands)


(Unaudited)





(CONTINUED FROM PREVIOUS PAGE)





Nine Months Ended March 31,2002


2001Supplemental disclosures of cash flow information:Cash paid during the period for interest expense

$
547


$
412Cash paid during the period for income taxes

$



$
4,990Supplemental non-cash investing and financing activities:Property and equipment acquired under capital lease

$
1,252


$
7,150Forfeiture of common stock option grants

$
(2,921
)

$
Deferred compensation related to common stock option grants to employees

$



$
29,516Return of property and equipment

$
9,087


$
Conversion of convertible preferred stock

$



$
58,373Conversion of convertible note payable and related interest to Cisco Systems

$



$
50,471Issuance of common stock in connection with note receivable

$
6,411


$






The accompanying notes are an integral part of these condensed consolidated
financial statements.




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##### Table of Contents

OPLINK COMMUNICATIONS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





1.  Description of Business.    Oplink Communications, Inc. (Oplink or the Company) designs and manufactures fiber optic
networking components and integrated optical subsystems and modules that expand optical bandwidth, amplify optical signals, monitor and protect wavelength performance and redirect light signals within an optical network. The Company markets its
broad line of products to communications equipment suppliers and service providers. The Companys bandwidth creation products increase the performance and capacity of fiber optic networks. The Companys bandwidth management products
provide communications service providers with the ability to monitor and manage optical signals to enhance network performance. The Company produces components, subsystems and modules for next-generation, all-optical dense wavelength division
multiplexing (DWDM), optical amplification, switching and routing, and ultra-high reliability undersea use. The Company was incorporated in September 1995 and is headquartered in San Jose, California. The Companys primary manufacturing
facility is in Zhuhai, China. The Company conducts its business within one operating segment and has no organizational structure dictated by product, service line, geography or customer type.





2.  Basis of Presentation.    The condensed consolidated financial statements included herein have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to such rules and regulations. The financial statements presented herein have been prepared by management, without audit by independent accountants who do not express an opinion thereon,
and should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2001 included in the Companys Annual Report on Form 10-K.





The Company operates and reports using a fiscal year, which ends on the Sunday closest to June 30. Interim fiscal quarters end on the Sunday closest to
each calendar quarter end. For presentation purposes, the Company presents each fiscal year as if it ended on June 30. The Company presents each of the fiscal quarters as if it ended on the last day of each calendar quarter. Fiscal year 2002 will
consist of 52 weeks.





In the opinion of the management, these unaudited financial statements contain all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the financial position of the Company at March 31, 2002, the results of its operations for the three and nine-month periods ended March 31, 2002 and 2001 and its cash flows. The
results of operations for the periods presented are not necessarily indicative of those that may be expected for the full year.





3.  Merger.    On March 18, 2002, Oplink and Avanex Corporation (Avanex) entered into an Agreement and Plan of Reorganization (the Agreement). The Agreement contemplates that,
subject to the satisfaction of certain conditions contained therein, including the approval of the merger referred to therein by the stockholders of Oplink and Avanex, compliance with applicable regulatory requirements and other customary closing
conditions, Avanex would acquire Oplink in a stock-for-stock transaction, by automatically converting each share of Oplink common stock outstanding on the closing date into 0.405344 of a share of Avanex common stock, subject to the terms and
conditions of the Agreement. In addition, at the closing of the merger, Avanex will assume all options to purchase Oplink common stock, after application of the exchange ratio, and will reserve shares of Avanex common stock for issuance upon the
exercise of the assumed options. Oplink currently believes that the transaction will close during the quarter




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ending June 30, 2002, after which Oplink will operate as a wholly owned subsidiary of Avanex. The merger is subject to approval by Oplink and Avanex stockholders and other customary closing
conditions.





The acquisition is expected to be accounted for under the purchase method of accounting. Oplink estimates the total
purchase price to be approximately $315.6 million comprised of:





i) Approximately 66.5 million shares of
Avanex common stock, based upon an exchange ratio of 0.405344 of a share of Avanex common stock for each outstanding share of common stock of Oplink at March 31, 2002. The actual number of shares of Avanex common stock to be issued will be
determined based on the actual number of shares of Oplink common stock outstanding at the closing of the merger. The average market price of Avanexs common stock of $4.20 was determined based as the closing price from March 15, 2002 to March
21, 2002, which includes two trading days prior and two trading days subsequent to the public announcement of the merger.





ii) Approximately 11.8 million vested and unvested options to purchase shares of Avanex common stock, based upon an exchange ratio of 0.405344 of a share of Avanex common stock for each outstanding share of common
stock of Oplink at March 31, 2002. The actual number of options to purchase Avanex common stock to be assumed will be determined based on the actual number of options to purchase Oplink common stock outstanding at the closing of the merger. The fair
value of the outstanding options was determined using a Black-Scholes valuation model.





iii) Estimated direct
transaction costs of $5.4 million.





The total estimated purchase price is as follows (in thousands):





Value of securities issued

$
279,275Assumption of Oplink common stock options


30,885Estimated transaction costs and expenses


5,424Total estimated purchase price

$
315,584





4.  Net Loss Per Share.    The Company
computes net loss per share in accordance with Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, and SEC Staff Accounting Bulletin (SAB) No. 98. Under the provisions of SFAS No. 128
and SAB No. 98, basic net loss per share is computed by dividing the net loss for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss for
the period by the weighted average number of common and common equivalent shares outstanding during the period, if dilutive. Potentially dilutive common equivalent shares are composed of preference shares, warrants and the incremental common shares
issuable upon the exercise of stock options. The following is a reconciliation of the numerators and denominators of the Basic and Diluted net loss per share computations for the periods presented (in thousands, except per share data):




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Three Months Ended March 31,


Nine Months Ended March 31,2002


2001


2002


2001Numerator:Net loss attributable to holders of Common Stock

$
(8,404
)

$
(25,229
)

$
(60,150
)

$
(51,019
)Denominator:Weighted average shares outstanding


163,735



157,668



162,055



112,481Denominator for basic and diluted calculations


163,735



157,668



162,055



112,481Basic and diluted net loss per share

$
(0.05
)

$
(0.16
)

$
(0.37
)

$
(0.45
)Antidilutive securities including options, warrants, preferred shares and
shares per convertible note payable not included in net loss per share calculation


29,009



18,474



29,009



57,071





5.  Short-Term Investments.    Short-term
investments consist of commercial paper and municipal bonds with maturities of less than one year from the balance sheet date. Oplinks short-term investments are classified as available-for-sale. These securities are carried at fair value with
the unrealized gains and losses, net of taxes, reported as a component of stockholders equity.





6.  Comprehensive Loss.    SFAS No. 130 requires disclosure of non-stockholder changes in equity, which include unrealized gains and losses on securities classified as available-for-sale under SFAS No.
115 and foreign currency translation adjustments accounted for under SFAS No. 52.





The reconciliation of net loss to
comprehensive loss for the three and nine months ended March 31, 2002 and 2001 is as follows (in thousands):





Three Months Ended March 31,


Nine Months Ended March 31,2002


2001


2002


2001Net loss

$
(8,404
)

$
(25,229
)

$
(60,150
)

$
(51,019
)Unrealized gain on investments


6







18



Change in cumulative translation adjustments


(7
)


39



13



8Comprehensive loss

$
(8,405
)

$
(25,190
)

$
(60,119
)

$
(51,011
)





7.  Inventories.    Inventories are stated
at the lower of cost (first-in, first-out) or market. Inventories consist of (in thousands):





March, 31 2002


June 30, 2001Inventories:Raw materials

$
23,554


$
24,963Work-in-process


14,628



16,723Finished goods


7,605



7,18745,787



48,873Less: Reserves for excess and obsolete inventory


(38,873
)


(27,134
)$
6,914


$
21,739







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8.  Restructuring Costs and Other Special Charges.    In
September 2001, the Company committed to a plan to restructure its business and realign its resources to focus on reducing expenses, preserving cash, accelerating its planned move of manufacturing operations to China and focusing on core
opportunities due to the decline in current business conditions. This restructuring plan includes a workforce reduction and consolidation of excess facilities. As a result of the restructuring plan and decline in forecasted revenue, the Company
recorded restructuring costs and other special charges of $25.6 million classified as operating expenses during the nine months ended March 31, 2002. In addition to the costs related to the restructuring, an excess and obsolete inventory charge of
$10.4 million, classified as cost of sales, was recorded during the nine months ended March 31, 2002. The following paragraphs provide detailed information relating to the restructuring costs and other special charges and the excess and obsolete
inventory charge, which were recorded during the nine months ended March 31, 2002.





Worldwide workforce reduction





The worldwide workforce reductions started in the fourth quarter of fiscal 2001. During the nine months ended March 31,
2002, the Company recorded a charge of approximately $2.9 million primarily related to severance and fringe benefits associated with the reduction of 2,700 employees. Of the 2,700 employee planned reduction, approximately 2,400 were engaged in
manufacturing activities and approximately 800 and 1,900 were from sites located in San Jose, California and China, respectively. As of March 31, 2002, approximately 2,254 employees had been terminated. The worldwide workforce reductions will be
substantially completed by the third quarter of calendar 2002.





Excess fixed assets, facilities and other special charges





The Company recorded a restructuring charge of $16.6 million relating to excess fixed assets during the nine months ended
March 31, 2002. Property and equipment disposed of or removed from operations were related to the manufacture of fiber optic networking components, subsystems and modules. The excess fixed assets charge represents the charge required to remeasure
such assets at the lower of carrying amount or fair value less cost to sell. The carrying amount of excess fixed assets to be disposed of is $265,000 as of March 31, 2002, and has been included in current assets as assets held for sale on the
balance sheet. While the remaining assets with an original book value of $14.1 million removed from operations as of March 31, 2002, are being actively marketed, the Company expects the period of disposal to be an additional six to nine months for
most of the assets. The property and equipment disposed of or removed from operations consisted primarily of production and engineering equipment, but also included leasehold improvements, computer equipment, office equipment and furniture and
fixtures. In addition, the Company incurred a charge of $4.3 million for leases primarily related to excess or closed facilities with planned exit dates. The Company estimated the cost of the facility leases based on the contractual terms of the
agreements and then current real estate market conditions. The Company determined that it would take approximately two years to sublease the various properties that will be vacated. Amounts related to the lease expense (net of anticipated sublease
proceeds) will be paid over the respective lease terms through 2009. The consolidation of excess facilities includes the closure of certain manufacturing and research and development facilities located in San Jose, California and Beijing, Chengdu
and Fuzhou, China. The total number of sites closed under the restructuring plan is six.The Company also recorded other restructuring costs and special charges of $1.8 million relating primarily to payments due to suppliers and vendors to
terminate agreements for the purchase of capital equipment and inventory.




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Summary





A summary of the restructuring costs and other special charges is outlined as follows (in thousands):





Restructuring Liabilities at June 30, 2001

Total Charge

Non-cash Charge

Cash Payments

Restructuring Liabilities at March 31, 2002Workforce reduction

$
250

$
2,899




$
2,134

$
1,015Excess fixed assets





16,635


16,260


375


Consolidation of excessfacilities and other charges


4,294


6,109





3,961


6,442$
4,544

$
25,643

$
16,260

$
6,470


7,457Accrued restructuring, current














3,640Accrued restructuring, non current













$
3,817





Provision for inventory





The Company recorded a provision for excess and obsolete inventory totaling $10.4 million, which was charged to cost of sales during the nine months
ended March 31, 2002. This excess inventory charge was due to a sudden and material decline in backlog and forecasted revenue. The Company evaluates the need to provide write downs for excess and obsolete inventory on an individual part analysis
based on estimated future sales of the Companys products compared to quantities on hand at each balance sheet date. This analysis is based on specific sales forecasts for each of the Companys products. Information that the Company would
consider in determining the forecast would include contractual obligations to deliver products, purchase orders with delivery dates or managements knowledge of a specific order that would significantly alter the sales forecast.





Return of property and equipment





As of June 30, 2001, the Company had accrued in accounts payable $9.0 million associated with the purchase of certain capital equipment from a vendor. In connection with the Companys evaluation of its
manufacturing capacity needs, the Company determined that this new capital equipment was excess based on current anticipated production levels. During the nine months ended March 31, 2002, the Company negotiated a settlement with the vendor whereby
the vendor accepted the return of this equipment totaling $9.0 million for a settlement fee of $500,000. Accordingly, the reduction in accounts payable and fixed assets is reflected as a non-cash item in the consolidated statement of cash flows.





9.    Notes Receivable from Stockholders.    In April and November 2001, a
director borrowed from Oplink, pursuant to three full recourse promissory notes, the aggregate principal amount of $10,068,751. The principal amount borrowed was $3,657,500 on April 3, 2001 at an annual interest rate of 8.0%, $828,750 on November
27, 2001 at an annual interest rate of 6.5%, and $5,582,501 on November 28, 2001 at an annual interest rate of 6.5%. Originally, these promissory notes provided that the outstanding principal amount and any accrued and unpaid interest would be due
and payable on the fifth anniversary of the respective dates of issuance. The promissory notes also provided for acceleration of their maturity dates upon the demand of the Oplink board of directors or upon the termination of service to Oplink.
These promissory notes were amended on March 18, 2002 to provide for the outstanding principal amount and any accrued and unpaid interest will now become due and payable in full on March 19, 2007. The notes are secured each by an escrow comprising
all of the shares of the Companys common stock covered by the stock options granted to this director. The notes are recorded as a component of stockholders equity.




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In March 2001, an executive officer borrowed from Oplink, pursuant to a full recourse promissory note, the principal amount of $160,000
at an annual interest rate of 8.5%. The promissory note, which has a balance of $100,000 as of March 31, 2002, was amended and is now due and payable in four equal installments, one every six months from the date of new employment by the executive
officer. The note is secured by an escrow comprising all of the shares of the Companys common stock covered by the stock options granted to this executive officer. The note is recorded as a component of stockholders equity.





In August, 2000, an executive officer borrowed from Oplink, pursuant to a full recourse promissory note, the principal amount of $400,000 at
an annual interest rate of 6.5%. Originally, this promissory note provided that the outstanding principal amount and any accrued and unpaid interest would be due and payable in two equal installments on August 16, 2002 and August 16, 2004. The
promissory note also provided for the acceleration of its maturity date upon the termination of the executive officers employment with Oplink. The executive officer and Oplink subsequently amended the promissory note on March 18, 2002 to
provide for the outstanding principal amount and any accrued and unpaid interest will now become due and payable in full on June 30, 2007. The note is recorded as a component of other assets.





10.  Repurchase of Common Stock.    On September 26, 2001, the Board of Directors authorized a program to repurchase up to an aggregate of
$21,200,000 of the Companys Common Stock. Such repurchases may be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market. As of March 31, 2002, repurchases of $1,895,000 have been
made under this program.





11.  Share Purchase Rights Agreement.    On March 18, 2002, the
board of directors of Oplink approved the adoption of a Share Purchase Rights Plan (the Plan). Terms of the Plan provide for a dividend distribution of one preferred share purchase right (a Right) for each outstanding share
of common stock, par value $.001 per share (the Common Shares), of Oplink. The dividend was paid on April 3, 2002 (the Record Date) to the stockholders of record on that date. Each Right entitles the registered holder to
purchase from Oplink one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $.001 per share (the Preferred Shares), at a price of $16.00 per one one-hundredth of a Preferred Share (the Purchase
Price), subject to adjustment. The Rights will be exercisable only after public announcement that a person or group has become the beneficial owner of 15% or more of Oplinks Common Stock (a 15% holder) or 10 days business
days after a person or group commences a tender or exchange offer which would result in the offeror becoming a15% holder. The Company and Avanex entered into an agreement that the merger with Avanex will not trigger any of the provisions of the
Share Purchase Rights Agreement.





12.  Recent Accounting Pronouncements.    In July 2001,
the Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business Combinations. SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method.





In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets,
which is effective for fiscal years beginning after March 15, 2001. SFAS No. 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions upon adoption for the reclassification of
certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill
and other intangibles. The Company does not believe that the adoption of SFAS No. 142 will have a material impact on its financial position, results of operations or cash flows.





In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 supercedes SFAS No. 121 and applies to all
long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30 (APB 30), Reporting Results of Operations Reporting the Effects of Disposal of a Segment of a Business. SFAS No. 144
develops one accounting model (based on the model in SFAS No. 121) for long-lived assets that are to be disposed of by sale, as well as addresses the principal implementation issues. SFAS No. 144 requires that long-lived assets that are to be
disposed of by sale be measured at the lower of book value or fair value less cost to sell. That requirement eliminates APB 30s requirement that discontinued operations be measured at net realizable value or that entities include under
discontinued operations in the financial statements amounts for operating losses that have not yet occurred. Additionally, SFAS No. 144 expands the scope of discontinued operations to include all components of an entity with operations
that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. The Company does not believe that the




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adoption of SFAS No. 144 will have a material impact on its financial position, results of operations or cash flows.





13.  Contingencies.    In November 2001, the Company and certain of its officers and directors, as well as certain of the underwriters, were named as
defendants in a class action shareholder complaint filed in the United States District Court for the Southern District of New York, known as Oplink Communications, Inc. Initial Public Offering Securities Litigation, Case No. 01CV9904. In
the complaint, the plaintiffs allege that the Company, certain of its officers and directors and the underwriters of its initial public offering (IPO) violated the federal securities laws because the Companys IPO registration
statement and prospectus contained untrue statements of material fact or omitted material facts regarding the compensation to be received by, and the stock allocation practices of, the IPO underwriters. The plaintiffs seek unspecified monetary
damages and other relief. Similar complaints were filed in the same Court against numerous public companies that conducted IPOs of their common stock in the late 1900s.





On August 8, 2001, all of the above-referenced lawsuits were consolidated for pretrial purposes before United States Judge Shira Scheindlin of the Southern District of New York. Judge
Scheindlin held an initial case management conference on September 7, 2001, at which time she ordered, among other things, that the time for all defendants to respond to any complaint be postponed until further order of the Court. Thus, the Company
has not been required to answer the complaint, and no discovery has been served on the Company.





In accordance with Judge
Scheindlins orders at further status conferences in March and April 2002, the appointed lead plaintiffs counsel filed amended, consolidated complaints in the IPO Lawsuits on April 19, 2002. However, Judge Scheindlin does not expect any
of the defendants to file motions to dismiss the amended, consolidated complaints until at least summer of 2002. The Company believes that this lawsuit is without merit and intends to defend against it vigorously.





There has been a complaint filed on September 20, 2001, in Superior Court of California, County of Santa Clara by former employees against the Company
claiming sex discrimination, wrongful termination in breach of public policy, discrimination based on pregnancy, and intentional infliction of emotional distress by the Company with respect to the termination of their employment. In a letter to
Cooley Godward LLP dated April 2, 2002, plaintiffs counsel submitted a settlement demand of $1,000,000 for each plaintiff. The Company denies the allegations, and is vigorously defending against the claim.





It
em 2.    Managements Discussion and Analysis of Financial Condition and Results of Operations





This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements
regarding the Companys expectations, beliefs, intentions, or future strategies that are signified by the words expects, anticipates, intends, believes, or similar language. All forward-looking
statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. In evaluating the Companys business, prospective investors should carefully consider the information set forth below under the caption Risk Factors in addition to the other information
set forth herein, and the section entitled Risk Factors beginning on page 19 of the Joint Proxy Statement/Prospectus contained in the Registration Statement on Form S-4 filed by Avanex Corporation (File No. 333-85906) regarding our
proposed merger with Avanex Corporation. The Company cautions investors that its business and financial performance are subject to substantial risks and uncertainties.




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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our
condensed consolidated financial statements and related notes in this report, and Managements Discussion and Analysis of Financial Condition and Results of Operations and related financial information contained in the Companys Form 10-K
(File No. 000-31581) as filed with the SEC on September 28, 2001.





Overview





We design and manufacture fiber optic networking components and integrated optical subsystems and modules that expand optical bandwidth, amplify optical signals, monitor and protect
wavelength performance and redirect light signals within an optical network. We market our broad line of products to communications equipment suppliers and service providers. Our bandwidth creation products increase the performance and capacity of
fiber optic networks. Our bandwidth management products provide communications service providers with the ability to monitor and manage optical signals to enhance network performance. We produce components, subsystems and modules for
next-generation, all-optical dense wavelength division multiplexing (DWDM), optical amplification, switching and routing, and ultra-high reliability undersea use. We were incorporated in September 1995 and are headquartered in San Jose, California.
Our primary manufacturing facility is in Zhuhai, China.





On March 18, 2002, we entered into an Agreement and Plan of
Reorganization (the Agreement) with Avanex Corporation (Avanex). The Agreement contemplates that, subject to the satisfaction of certain conditions contained therein, including the approval of the merger referred to therein
by the stockholders of Oplink and Avanex, compliance with applicable regulatory requirements and other customary closing conditions, Avanex would acquire us in a stock-for-stock transaction, by automatically converting each share of our common stock
outstanding on the closing date into 0.405344 of a share of Avanex common stock, subject to the terms and conditions of the Agreement. In addition, at the closing of the merger, Avanex will assume all options to purchase our common stock, after
application of the exchange ratio, and will reserve shares of Avanex common stock for issuance upon the exercise of the assumed options. We believe that the transaction will close during the quarter ending June 30, 2002, after which we would operate
as a wholly owned subsidiary of Avanex. The merger is subject to approval by Oplink and Avanex stockholders and other customary closing conditions. Investors and security holders may obtain more detailed information regarding the proposed merger by
reading the Form S-4 as filed by Avanex with the SEC on April 9, 2002, and the joint proxy statement/prospectus when it becomes available.





The acquisition is expected to be accounted for under the purchase method of accounting. We believe the estimated total purchase price will be approximately $315.6 million. See Note 3 to Notes to Condensed
Consolidated Financial Statements.





We generate revenues from the sale of fiber optic components and integrated optical
subsystems and modules. To date, we have developed over 100 standard products that are sold or integrated into customized solutions for our customers. Our products are generally categorized into the following major groups: our bandwidth creation
products, which include wavelength expansion and optical amplification products; and our bandwidth management products, which include wavelength performance monitoring and protection, and optical switching products. A majority of our revenues are
derived from our wavelength expansion products, in particular, DWDMs and multiplexers used in optical amplification and amplification products.




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We depend upon a small number of customers for a substantial portion of our revenues. Our top
five customers together accounted for 58.5% and 55.1% of our revenues in the three months and nine months ended March 31, 2002, respectively. Siemens, Marubun Corporation and Agere each accounted for revenues greater than 10% for the three months
ended March 31, 2002. Siemens, Marubun Corporation and Lucent Technologies, each accounted for revenues greater than 10% for the nine months ended March 31, 2002. We expect that we will continue to depend upon a small number of customers, although
most likely not the same customers, for a substantial portion of our revenues.





Financial instruments that potentially subject
us to a concentration of credit risk consist of cash, cash equivalents, short-term investments and accounts receivable. Substantially all of our cash, cash equivalents and short-term investments are managed or held by three financial institutions.
At times, such deposits may be in excess of the amount of the insurance provided on such deposits. To date, we have not experienced any losses on such deposits. Our accounts receivable are derived from revenue earned from customers located in the
United States, Europe and Asia. We perform ongoing credit evaluations of our customers financial condition and generally require no collateral from our customers. We maintain an allowance for doubtful accounts based upon the expected
collection of our outstanding receivable balance.





Critical Accounting Policies





Managements discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of America. We review the accounting policies we use in reporting our financial results on a regular basis. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to
product returns, accounts receivable, inventories, intangible assets, warranty obligations, restructuring, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Results may differ from these estimates due to actual
outcomes being different from those on which we based our assumptions. These estimates and judgments are reviewed by management on an ongoing basis, and by the Audit Committee at the end of each quarter prior to the public release of our financial
results. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.





Revenue Recognition and Product Returns





We recognize
revenue using the guidance from SEC Staff Accounting Bulletin No. 101 Revenue Recognition in Financial Statements and Statement of Financial Accounting Standards, or SFAS, No. 48 Revenue Recognition When Right of Return
Exists. Under these guidelines, we do not recognize revenue on transactions where persuasive evidence of an arrangement does not exist, delivery has not occurred or significant obligations remain, the price is not fixed or determinable or
payment is not reasonably assured. In addition, we estimate what future product returns may occur based upon actual historical return rates and reduce our revenue by these estimated future returns. If the historical data we use to calculate these
estimates does not properly reflect future returns, these estimates could be revised.




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Warranty





We accrue for warranty costs based on the expected material and labor usage costs to provide warranty services. If we experience an increase in warranty claims, which are higher than our historical experience, our gross margin could be
adversely affected.





Allowance for Doubtful Accounts





The allowance for doubtful accounts is based on our assessment of the collectibility of specific customer accounts and the aging of the accounts receivable. If there is a deterioration
of a major customers credit worthiness or actual defaults are higher than our historical experience, our estimates of the recoverability of amounts due us could be adversely affected.





Excess and Obsolete Inventory





The Company evaluates the
need to provide write downs for excess and obsolete inventory on an individual part analysis based on estimated future sales of the Companys products compared to quantities on hand at each balance sheet date. This analysis is based on specific
sales forecasts for each of the Companys products. Information that the Company would consider in determining the forecast would include contractual obligations to deliver products, purchase orders with delivery dates or managements
knowledge of a specific order that would significantly alter the sales forecast. If there is a sudden and significant decrease in demand for our products or there is a higher risk of inventory obsolescence because of rapidly changing technology and
customer requirements, we may be required to increase our inventory allowances and our gross margin could be adversely affected.





Goodwill and Other Identifiable Intangibles





We assess the impairment of goodwill and other identifiable
intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Some factors we consider important which could trigger an impairment review include significant underperformance relative to expected
historical or projected future operating results; significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and significant negative industry or economic trends.





When we determine that the carrying value of goodwill and other identified intangibles may not be recoverable based upon the existence of one or more of
the above indicators of impairment, we measure any impairment based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model. In accordance
with SFAS No. 142, Goodwill and Other Intangible Assets, on July 1, 2002 we will cease to amortize goodwill arising from acquisitions completed prior to July 1, 2001. In lieu of amortization, we are required to perform an initial
impairment review of our goodwill in 2002 and an annual impairment review thereafter. If we determine through the impairment review process that goodwill has been impaired, we would record the impairment charge in our statement of operations.





Results of Operations





Revenues.    Revenues decreased $26.4 million, or 73%, from $36.0 million for the three months ended March 31, 2001 to $9.6 million for the three months ended March 31, 2002. Revenues decreased $81.3 million, or
73%, from $111.6 million for the nine months ended March 31, 2001 to $30.2 million for the nine months ended March 31, 2002. These decreases were primarily due to decreased shipments of all of our products including our wavelength expansion
products, optical amplification products and optical switching products to existing and new customers. These decreases in shipments were primarily due to the slowdown in telecommunications equipment spending.





Over the nine months ended March 31, 2002, we have reduced our headcount by 1,483 people, consolidated our manufacturing operations in China and further
revised our cost structure to respond to the significantly lower revenues than previously anticipated by the Company. We have not significantly reduced our expenditures for research and development as these expenditures are critical to the
Companys continued




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growth. We have responded and will continue to respond as appropriate to the significant downturn in our industry. Future additional actions could include further reductions in headcount,
transitioning of a portion of our research and development to China and further consolidation of assets and facilities. Our visibility continues to be limited with respect to telecommunications equipment providers. We will continue to evaluate our
business on an ongoing basis in light of current and future revenue trends and adjust our cost structure accordingly.





Gross
Profit (Loss).    Gross profit, excluding non-cash compensation expense, increased $9.8 million, or 104%, from a gross loss of $9.4 million for the three months ended March 31, 2001 to a gross profit of $354,000 for the three
months ended March 31, 2002. This resulted in an increase in gross margin from (26.1)% to 3.1%. Our gross margin increased because we made no additional provision for inventory reserves during the three months ended March 31, 2002 compared to a
$19.4 million provision for inventory reserve during the three months ended March 31, 2001. In addition, our gross margin was favorably impacted due to cost savings associated with the worldwide workforce reduction and the consolidation of excess
facilities of $6.5 million and $64,000, respectively, and the cost benefits of operating in China. This increase was partially offset by higher manufacturing costs relative to our production volume. Gross profit (loss), excluding the $10.4 million
excess inventory charge and $47,000 non-cash compensation expense for the nine months ended March 31, 2002, and the $28.4 million excess inventory charge and $4.1 million non-cash compensation expense for the nine months ended March 31, 2001
decreased $40.1 million, or 103%, from a gross profit of $39.0 million for the nine months ended March 31, 2001 to a gross loss of $1.1 million for the nine months ended March 31, 2002. This resulted in a decrease in gross margin from 34.9% to
(3.7)%. This decrease in our gross margin was primarily due to higher manufacturing costs relative to our production volume, manufacturing inefficiencies associated with the transfer of our manufacturing capacity to China and lower yields in our
manufacturing facilities in China due to the rapid manufacturing transfer. These decreases were partially offset by the cost savings associated with the worldwide workforce reduction and the consolidation of excess facilities of $14.5 million and
$228,000, respectively, the cost benefits of manufacturing in China and the $18.0 million decrease in excess inventory charge. During the nine months ended March 31, 2002 we recorded $2.0 million in revenues in connection with a cancellation fee
from a significant customer. For the nine months ended March 31, 2002, excluding the $2 million of revenues and $47,000 non-cash compensation expense but including the $10.4 million excess inventory charge, our gross loss would have been $13.5
million, or (44.7%), compared to a gross profit, excluding $4.1 million non-cash compensation but including the $28.4 million excess inventory charge, of $10.6 million, or 9.5%, for the nine months ended March 31, 2001. Manufacturing overhead costs,
excluding the excess inventory charge and non-cash compensation expense, decreased $2.8 million and $1.8 million for the three months and nine months ended March 31, 2002, respectively, compared to the same periods in the prior fiscal year. Gross
profit, including non-cash compensation expense, increased $10.8 million, or 101%, from a gross loss of $10.6 million for the three months ended March 31, 2001 to $154,000 for the three months ended March 31, 2002. This resulted in an increase in
gross margin from (29.4)% to 1.6%. Gross profit (loss) decreased $18.1 million, or 278%, from a gross profit of $6.5 million for the nine months ended March 31, 2001 to a gross loss of $11.6 million for the nine months ended March 31, 2002. This
resulted in a decrease in gross margin from 5.8% to (38.3)%. The excess inventory charges reflect the recent significant downturn in customer demand. In response to this downturn, we focused on completing the transition of substantially all of our
manufacturing to China. We cannot assure you that this transition will result in improved gross margins due to the cost benefits of manufacturing in China. We are continuing to implement programs to further improve production yields of our products.
We cannot assure you, however, that these programs will be successful in increasing our gross margin.





Research and
Development.    Research and development expenses, excluding non-cash compensation expense, decreased $1.7 million, or 34%, from $4.9 million for the three months ended March 31, 2001 to $3.2 million for the three months
ended March 31, 2002. The decrease in research and development




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expenses was primarily due to cost savings associated with the worldwide workforce reduction and the consolidation of excess facilities of $1.4 million and
$452,000, respectively. Research and development expenses, excluding non-cash compensation expense, decreased $2.9 million, or 22%, from $13.5 million for the nine months ended March 31, 2001 to $10.6 million for the nine months ended March 31,
2002. The decrease in research and development expenses was primarily due to cost savings associated with the worldwide workforce reduction and the consolidation of excess facilities of $3.4 million and $867,000, respectively. Research and
development expenses, including non-cash compensation expense, decreased $2.4 million, or 40%, from $5.9 million for the three months ended March 31, 2001 to $3.6 million for the three months ended March 31, 2002. Research and development expenses,
including non-cash compensation expense, decreased $6.0 million, or 35%, from $17.3 million for the nine months ended March 31, 2001 to $11.3 million for the nine months ended March 31, 2002.





Sales and Marketing. Sales and marketing expenses, excluding non-cash compensation expense, decreased $651,000, or 22%, from $3.0 million for the three months ended March 31, 2001
to $2.3 million for the three months ended March 31, 2002. Sales and marketing expenses, excluding non-cash compensation benefit for the nine months ended March 31, 2002, and a one-time charge of $8.8 million related to the discount feature of the
convertible note payable to Cisco Systems and non-cash compensation expense for the nine months ended March 31, 2001, decreased $2.1 million, or 25%, from $8.5 million for the nine months ended March 31, 2001 to $6.4 million for the nine months
ended March 31, 2002. The decreases in sales and marketing expenses were primarily due to lower commissions to our internal and external sales representatives associated with decreased revenues and cost savings associated with the consolidation of
excess facilities of $76,000 and $142,000 for the three months and nine months ended March 31, 2002, partially offset by an increase in sales and marketing personnel and personnel-related costs and occupancy costs. Sales and marketing expenses,
including non-cash compensation expense for the three months ended March 31, 2002, and the Cisco Systems conversion charge and non-cash compensation expense for the three months ended March 31, 2001, decreased $1.4 million, or 35%, from $3.8 million
for the three months ended March 31, 2001 to $2.5 million for the three months ended March 31, 2002. Sales and marketing expenses, including non-cash compensation benefit for the nine months ended March 31, 2002, and the Cisco Systems conversion
charge and non-cash compensation expense for the nine months ended March 31, 2001 decreased $13.6 million, or 70%, from $19.5 million for the nine months ended March 31, 2001 to $5.9 million for the nine months ended March 31, 2002.





General and Administrative. General and administrative expenses, excluding non-cash compensation expense, decreased $3.1 million, or 64%,
from $4.8 million for the three months ended March 31, 2001 to $1.7 million for the three months ended March 31, 2002. The decrease in general and administrative expenses was primarily due to cost savings associated with the worldwide workforce
reduction and the consolidation of excess facilities of $700,000 and $45,000, respectively, and a reduction in our legal fees of $603,000. General and administrative expenses, excluding non-cash compensation expense, decreased $5.5 million, or 50%,
from $11.2 million for the nine months ended March 31, 2001 to $5.6 million for the nine months ended March 31, 2002. The decrease in general and administrative expenses was primarily due to cost savings associated with the worldwide workforce
reduction and the consolidation of excess facilities of $1.9 million and $88,000, respectively, and a reduction in our legal fees of $918,000. General and administrative expenses, including non-cash compensation expense, decreased $4.0 million, or
59%, from $6.7 million for the three months ended March 31, 2001 to $2.7 million for the three months ended March 31, 2002. General and administrative expenses, including non-cash compensation expense, decreased $16.2 million, or 65%, from $24.8
million for the nine months ended March 31, 2001 to $8.6 million for the nine months ended March 31, 2002.




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Non-Cash Compensation Expense.    From July 1, 1998 through March
31, 2002, we recorded an aggregate of $58.6 million in deferred non-cash compensation, net of stock option cancellations. Non-cash compensation expense decreased $3.2 million, or 65%, from $5.0 million for the three months ended March 31, 2001 to
$1.8 million for the three months ended March 31, 2002. Non-cash compensation expense decreased $20.4 million, or 87%, from $23.6 million for the nine months ended March 31, 2001 to $3.2 million for the nine months ended March 31, 2002. The
decreases in deferred non-cash compensation were primarily due to the method under which the deferred non-cash compensation is amortized, as set out in FASB Interpretation No. 28, and stock option cancellations.





Restructuring Costs and Other Special Charges.    We, like many of our peers in the communications industry, continue to be
affected by the slowdown in telecommunications equipment spending. Our revenues decreased from $43.2 million in the fiscal quarter ended December 31, 2000 to $36.0 million in the fiscal quarter ended March 31, 2001, to $20.3 million in the fiscal
quarter ended June 30, 2001, to $10.0 million in the fiscal quarter ended September 30, 2001 and increased to $10.6 million in the fiscal quarter ended December 31, 2001 and decreased to $9.6 million in the fiscal quarter ended March 31, 2002. Due
to the continued weakness in the general economy, and the telecom sector in particular, year-over-year revenue growth is expected to be negative compared to the fiscal year ended June 30, 2001, putting downward pressure on margins and profits. Due
to this decline in current business conditions, we began implementing our plan to restructure our business during the quarters ended September 30, 2001 and June 30, 2001 and realigned resources to focus on monitoring costs, preserving cash,
accelerating our planned move of manufacturing operations to China and focusing on core opportunities. We recorded restructuring costs and other special charges of $25.6 million classified as operating expenses during the nine months ended March 31,
2002. In addition to the costs related to the restructuring, an excess and obsolete inventory charge of $10.4 million, classified as cost of sales, was recorded during the nine months ended March 31, 2002. The following paragraphs provide detailed
information relating to the restructuring costs and other special charges and the excess and obsolete inventory charge, which were recorded during the nine months ended March 31, 2002.





Worldwide workforce reduction





The worldwide workforce
reductions started in the fourth quarter of fiscal 2001. During the nine months ended March 31, 2002, we recorded a charge of approximately $2.9 million primarily related to severance and fringe benefits associated with the reduction of 2,700
employees. Of the 2,700 employee planned reduction, approximately 2,400 were engaged in manufacturing activities and approximately 800 and 1,900 were from sites located in San Jose, California and China, respectively. As of March 31, 2002,
approximately 2,254 employees had been terminated. The worldwide workforce reductions will be substantially completed by the third quarter of calendar 2002





Excess fixed assets, facilities and other special charges





We recorded a restructuring
charge of $16.6 million relating to excess fixed assets during the nine months ended March 31, 2002. Property and equipment disposed of or removed from operations were related to the manufacture of fiber optic networking components, subsystems and
modules. The excess fixed assets charge represents the charge required to remeasure such assets at the lower of carrying amount or fair value less cost to sell. The carrying amount of excess fixed assets to be disposed of is $265,000 as of March 31,
2002, and has been included in current assets as assets held for sale on the balance sheet. While the remaining assets with an original book value of $14.1 million removed from operations as of March 31, 2002, are being actively marketed, we expect
the period of disposal to be an additional six to nine months for most of the assets. The property and equipment disposed of or removed from operations consisted primarily of




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production and engineering equipment, but also included leasehold improvements, computer equipment, office equipment and furniture and fixtures. In addition, we
incurred a charge of $4.3 million for leases primarily related to excess or closed facilities with planned exit dates. We estimated the cost of the facility leases based on the contractual terms of the agreements and then current real estate market
conditions. We determined that it would take approximately two years to sublease the various properties that will be vacated. Amounts related to the lease expense (net of anticipated sublease proceeds) will be paid over the respective lease terms
through 2009. The consolidation of excess facilities includes the closure of certain manufacturing and research and development facilities located in San Jose, California and Beijing, Chengdu and Fuzhou, China. The total number of sites closed under
the restructuring plan is six. The Company also recorded other restructuring costs and special charges of $1.8 million relating primarily to payments due to suppliers and vendors to terminate agreements for the purchase of capital equipment and
inventory.





Summary





A summary of the restructuring costs and other special charges is outlined as follows (in thousands):





Restructuring Liabilities at June 30, 2001

Total Charge

Non-cash Charge

Cash Payments

Restructuring Liabilities at March 31, 2002Workforce reduction

$
250

$
2,899




$
2,134

$
1,015Excess fixed assets





16,635


16,260


375


Consolidation of excess facilities and other charges


4,294


6,109





3,961


6,442$
4,544

$
25,643

$
16,260

$
6,470


7,457Accrued restructuring, current














3,640Accrued restructuring, non current













$
3,817





Provision for inventory





We recorded a provision for excess and obsolete inventory totaling $10.4 million, which was charged to cost of sales during the nine months ended March
31, 2002. This excess inventory charge was due to a sudden and material decline in backlog and forecasted revenue and was calculated on an individual part analysis based on the estimated future sales of our products compared to quantities on hand at
each balance sheet date. This analysis is based on specific sales forecasts for each of our products.





Return of property and
equipment





As of June 30, 2001, we had accrued in accounts payable $9.0 million associated with the purchase of certain
capital equipment from a vendor. In connection with our evaluation of our manufacturing capacity needs, we determined that this new capital equipment was excess based on current anticipated production levels. During the nine months ended March 31,
2002, we negotiated a settlement with the vendor whereby the vendor accepted the return of this equipment totaling $9.0 million for a settlement fee of $500,000. Accordingly, the reduction in accounts payable and fixed assets is reflected as a
non-cash item in the consolidated statement of cash flows.





Interest and Other Income, Net. Interest and other income, net,
decreased $1.1 million from $2.8 million for the three months ended March 31, 2001 to $1.7 million for the three months ended March 31, 2002. Interest and other income, net, decreased $2.6 million from $7.0 million for the nine months ended March




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31, 2001 to $4.4 million for the nine months ended March 31, 2002. The decreases in interest and other income, net, were primarily due to lower yields on our
cash investments and interest expense on the convertible note payable to Cisco Systems during the nine months ended March 31, 2001.





Gain (loss) on sale or disposal of assets. Gain on sale or disposal of assets increased $1.5 million from a loss of $801,000 for the three months and nine months ended March 31, 2001 to a gain of $671,000 for the three months and nine
months ended March 31, 2002.





Provision for Income Taxes. We have deferred tax assets of $18.0 million as of March 31, 2002 and
a corresponding valuation allowance that reduces the gross deferred tax assets to zero, an amount that management believes will more likely than not be realized. In assessing the realizability of deferred tax assets, management recorded a valuation
allowance to the extent the Company does not have a carryback right. Based on the Companys history of losses and uncertainty of generating future taxable income, the realizable portion of the deferred tax assets is equal only to the amount of
income tax expense expected to be paid during fiscal 2002, which is zero, and represents the amount that management believes will more likely than not be realizable based on currently available objective evidence.





Liquidity and Capital Resources





Since our
inception, we have financed our operations primarily through issuances of equity securities, which resulted in approximately $319.4 million in aggregate net proceeds, and proceeds from exercise of stock options, our employee stock purchase plan and
warrants which totaled approximately $2.8 million through March 31, 2002. In August 2000, we received $50.0 million in connection with the issuance to Cisco Systems of a convertible promissory note, which automatically converted into 3,298,773
shares of common stock upon the closing of our initial public offering in October 2000. Our initial public offering resulted in net proceeds of approximately $263.7 million, before offering expenses of approximately $2.7 million. As of March 31,
2002, we had cash, cash equivalents and short-term investments of $231.4 million and working capital of $220.8 million.





Our
operating activities used cash of $5.5 million in the nine months ended March 31, 2002. Cash used in operating activities was primarily attributable to a net loss incurred during the nine months ended March 31, 2002 of $60.2 million and decreases in
accounts payable of $4.6 million and other of $723,000. These amounts were partially offset by decreases in accounts receivable of $11.1 million, inventories of $4.4 million and prepaid expenses of $4.7 million, an increase in accrued liabilities of
$747,000, a provision for excess and obsolete inventory of $10.4 million, restructuring costs and other special charges of $15.6 million, depreciation and amortization expense of $9.8 million and non-cash compensation expense of $3.2 million.





Our investing activities used cash of $10.0 million in the nine months ended March 31, 2002 primarily due to the purchases of
short-term investments of $70.2 million and property and equipment of $7.4 million partially offset by maturities of short-term investments of $64.9 million and proceeds from sales of assets of $2.6 million. During the remaining three months of
fiscal 2002, we expect to use approximately $2.0 million for the purchase of property and equipment worldwide. We expect to use cash generated from our initial public offering for these expenditures.





Our financing activities used cash of $5.3 million in the nine months ended March 31, 2002 primarily due to our repurchase of common stock of $1.9
million, repayment of capital lease obligations of $2.9 million and repayment of borrowings under our line of credit of $2.4 million partially offset by proceeds from the issuance of common stock of $636,000 and borrowings under our line of credit
of $1.3 million.




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Our principal source of liquidity at March 31, 2002 consisted of $231.4 million in cash, cash equivalents and short-term investments.
We believe that our current cash, cash equivalents and short-term investments balance and any cash generated from operations, will be sufficient to meet our operating and capital requirements for at least the next 12 months. We may use cash, cash
equivalents and short-term investments from time to time to fund our acquisition of businesses and technologies. We may be required to raise funds through public or private financings, strategic relationships or other arrangements. We cannot assure
you that such funding, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. Our failure
to raise capital when needed could harm our ability to pursue our business strategy and achieve and maintain profitability.





Recent Accounting
Pronouncements





In July 2001, the FASB issued SFAS No. 141, Business Combinations. SFAS No. 141 requires the
purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method.





In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets, which is effective for fiscal years beginning after March 15, 2001. SFAS No. 142 requires, among other things, the discontinuance of goodwill
amortization. In addition, the standard includes provisions upon adoption for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of
certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill and other intangibles. The Company does not believe that the adoption of SFAS No. 142 will have a material impact on our financial position,
results of operations or cash flows.





In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 supercedes SFAS No. 121 and applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30 (APB 30), Reporting Results
of Operations Reporting the Effects of Disposal of a Segment of a Business. SFAS No. 144 develops one accounting model (based on the model in SFAS No. 121) for long-lived assets that are to be disposed of by sale, as well as addresses the
principal implementation issues. SFAS No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. That requirement eliminates APB 30s requirement that
discontinued operations be measured at net realizable value or that entities include under discontinued operations in the financial statements amounts for operating losses that have not yet occurred. Additionally, SFAS No. 144 expands
the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. We
do not believe that the adoption of SFAS No. 144 will have a material impact on our financial position, results of operations or cash flows.




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RISK FACTORS





THE COMPANY FACES NUMEROUS RISKS IN CONNECTION WITH THE PROPOSED TRANSACTION WITH AVANEX, WHICH MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS WHETHER OR NOT THE MERGER IS COMPLETED, AND THE MERGER MAY NOT BE COMPLETED ON A TIMELY BASIS
OR AT ALL.





On March 18, 2002, the Company entered into an agreement to combine its business with Avanex. The
planned merger could have an adverse effect on the Companys revenues in the near-term if customers delay, defer, or cancel purchases due to uncertainty about the direction of our product offerings following the merger and our willingness to
support and service existing products. In order to address customer uncertainty, we may incur additional obligations. To the extent a prolonged delay in completing the planned merger creates uncertainty among those persons and organizations
contemplating purchases of products or services such that several large customers, or a significant group of small customers, delay purchase decisions pending resolution of the planned merger, this could have an adverse effect on the Companys
results of operations, and quarterly revenues could be substantially below the expectations of market analysts and could cause a reduction in stock price. Additionally, speculation regarding the likelihood of the closing of the merger could increase
the volatility of the Companys stock price.





In addition, the market values of the Companys common stock and Avanex
common stock will continue to vary prior to completion of the merger transaction due to changes in the business, operations or prospects of the Company or Avanex, market assessments of the merger, regulatory considerations, market and economic
considerations, or other factors. However, there will be no adjustment to the exchange ratio between the Company and Avanex shares in connection with the merger, and the parties do not have a right to terminate the merger agreement based upon
changes in the market price of either the Companys common stock or Avanex common stock.





Completion of the merger also is
subject to numerous risks and uncertainties. The Company and Avanex may be unable to obtain shareholder approvals of the Company, both of which are required to complete the merger.





If the merger is not completed, the Company could be subject to a number of risks that may adversely affect its business and stock price, including:





| |  |  | the Company would not realize the benefits it expects by being part of a combined company with Avanex, as well as the potentially enhanced financial and competitive position as
a result of being part of the combined company;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | the diversion of management attention from the Companys day-to-day business and the unavoidable disruption to its employees and its relationships with customers as a
result of efforts and uncertainties relating to the Companys anticipated merger with Avanex may detract from its ability to grow revenues and minimize costs, which, in turn may lead to a loss of market position that the Company could be unable
to regain if the merger does not occur;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | the market price of shares of the Companys common stock may decline to the extent that the current market price of those shares reflects a market assumption that the
merger will be completed;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | the Company must pay the costs related to the merger, such as legal, accounting, and financial advisory fees, whether or not the merger is completed;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | under specified circumstances, the Company may be required to pay Avanex a termination fee of $12 million in connection with the termination of the merger agreement; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | the Company may not be able to continue its present level of operations, may need to scale back its business, may have to consider additional reductions in force, may have to
consider alternative sources of funding and may not be able to take advantage of future opportunities or effectively respond to competitive pressures, any of which could have a material adverse effect on its business and results of operations.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Covenants in the merger agreement may impede our ability to make acquisitions or complete other transactions
that are not in the ordinary course of business pending completion of the merger. As a result, if the merger is not completed, we may be at a disadvantage to our competitors. In addition, while the merger agreement is in effect and subject to very
narrowly defined exceptions, we are prohibited from soliciting, initiating, encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets or other business combination outside the ordinary course of business, with
any third party. Any such transactions could be favorable to our stockholders.





If the merger is completed, we will continue to
face risks associated with integration of the businesses and operations of the Company and Avanex, and we may not realize the anticipated benefits or synergies of the merger (primarily associated with anticipated restructurings and other operational
efficiencies) to the extent, or in the timeframe, anticipated. The combined company will need to overcome significant challenges in order to realize any benefits or synergies from the merger, including execution of a number of post-merger events:





| |  |  | integrating the operations and technologies of the two companies;
| | - |  | -----------------------------------------------------------------




| |  |  | retaining and assimilating the key personnel of each company;
| | - |  | -------------------------------------------------------------




| |  |  | retaining existing customers of both companies and attracting additional customers;
| | - |  | -----------------------------------------------------------------------------------

| | 
| | 

| |  |  | retaining strategic partners of each company and attracting new strategic partners; and
| | - |  | ---------------------------------------------------------------------------------------




| |  |  | creating uniform standards, controls, procedures, policies and information systems.
| | - |  | -----------------------------------------------------------------------------------




In addition to the integration risks previously discussed, our ability to realize these benefits and synergies could be impacted adversely by practical or legal constraints on combining
operations or implementing workforce reductions. The execution of these post-merger events will involve considerable risks and may not be successful. These risks include:





| |  |  | the potential disruption of the combined companys ongoing business and distraction of its management;
| | - |  | ------------------------------------------------------------------------------------------------------




| |  |  | the potential strain on the combined companys financial and managerial controls and reporting systems and procedures;
| | - |  | ----------------------------------------------------------------------------------------------------------------------




| |  |  | unanticipated expenses and potential delays related to integration of the operations, technology and other resources of the two companies;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | the impairment of relationships with employees, suppliers and customers as a result of any integration of new management personnel; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------




| |  |  | potential unknown liabilities associated with the merger and the combined operations.
| | - |  | -------------------------------------------------------------------------------------




The combined company may not succeed in addressing these risks or any other problems encountered in connection with the merger. The inability to successfully integrate operations,
technology and personnel with Avanex, or any significant delay in achieving integration, could have a material adverse effect on the combined company after the merger and, as a result, on the market price of Avanexs common stock. In addition
to the costs and expenses previously discussed, following the merger Avanex will be required to make payments to executive officers and key employees under a retention plan adopted in connection with the merger.





The merger may be completed even though material adverse changes may result from the announcement of the merger, industry-wide changes and other causes.
In general, we can refuse to complete the merger if there is a material adverse change affecting Avanex between the date of signing, March 18, 2002, and the closing. However, certain types of changes will not prevent the merger from going forward,
even if they would have a material adverse effect on us including:





| |  |  | changes resulting from the announcement or pendency of the merger;
| | - |  | ------------------------------------------------------------------




| |  |  | changes in our stock price or trading volume, in and of itself;
| | - |  | ---------------------------------------------------------------




| |  |  | changes resulting from our failure to meet published revenue or earnings projections, in and of itself;
| | - |  | -------------------------------------------------------------------------------------------------------




| |  |  | changes resulting from or relating to any change in accounting requirements or principles or any change in applicable laws, rules or regulations or the interpretation thereof;
or
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | changes affecting the optical networking industry or the economy as a whole.
| | - |  | ----------------------------------------------------------------------------




If adverse changes occur but we must still complete the merger, Avanexs stock price may suffer. This in turn may reduce the value of the merger to our stockholders.





WE HAVE INCURRED SIGNIFICANT LOSSES, AND OUR FAILURE TO INCREASE OUR REVENUES COULD PREVENT US FROM ACHIEVING PROFITABILITY.





We have incurred significant losses since our inception in 1995 and expect to incur losses in the future. We incurred net losses of $8.4 million, $6.7
million and $45.0 million for the fiscal quarters ended March 31, 2002, December 31, 2001 and September 30, 2001, respectively, and $80.4 million, $24.9 million and $3.5 million for the fiscal years ended June 30, 2001, 2000 and 1999, respectively.
We have not achieved profitability on a quarterly basis. As of March 31, 2002, we had an accumulated deficit of $173.0 million. We will need to generate significantly greater revenues while containing costs and operating expenses to achieve
profitability. Our revenues may not grow in future quarters, and we may never generate sufficient revenues to achieve profitability.




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WE DEPEND UPON A SMALL NUMBER OF CUSTOMERS FOR A SUBSTANTIAL PORTION OF OUR REVENUES, AND ANY DECREASE IN REVENUES
FROM, OR LOSS OF, THESE CUSTOMERS WITHOUT A CORRESPONDING INCREASE IN REVENUES FROM OTHER CUSTOMERS WOULD HARM OUR OPERATING RESULTS.





We depend upon a small number of customers for a substantial portion of our revenues. Our top five customers together accounted for 58.5% and 55.1% of our revenues in the three months and nine months ended March 31,
2002, respectively. Siemens, Marubun Corporation and Agere each accounted for revenues greater than 10% for the three months ended March 31, 2002. Siemens, Marubun Corporation and Lucent Technologies, each accounted for revenues greater than 10% for
the nine months ended March 31, 2002. We expect that we will continue to depend upon a small number of customers, although most likely not the same customers, for a substantial portion of our
revenues.





Our revenues generated from these customers,
individually or in the aggregate, may not reach or exceed historic levels in any future period. For example, we may not be the sole source of supply to our customers, and they may choose to purchase products from other vendors. Furthermore, the
businesses of our existing customers are experiencing a downturn, which is resulting, in some instances, in significantly decreased sales to these customers and harming our results of operations. Loss or cancellations of orders from, or any further
downturn in the business of, any of our customers could harm our business. Our dependence on a small number of customers may increase if the optical components industry and our target markets continue to consolidate.





BECAUSE WE DID NOT COMMENCE SALES OF OUR PRODUCTS UNTIL LATE 1996 AND ONLY RECENTLY BEGAN SELLING OUR PRODUCTS IN LARGE VOLUME, WE MAY BE UNABLE TO ACCURATELY FORECAST OUR
REVENUES, AND OUR QUARTERLY REVENUES AND OPERATING RESULTS MAY CONTINUE TO FLUCTUATE SIGNIFICANTLY FROM QUARTER TO QUARTER.





We did not commence sales of our products until late 1996 and only recently began selling our products in large volume. As a result, it is difficult to forecast our revenues accurately. You should not rely on our results for one quarter or
past quarters as any indication of our future performance. Quarterly variations in our operations have resulted in significant volatility in our stock price and the market price for our common stock might fall. Moreover, our revenues, expenses and
operating results have varied significantly from quarter to quarter in the past and may continue to fluctuate significantly in the future. Our operating results may be below the expectations of securities analysts or investors in future quarters. If
this occurs, the price of our common stock is likely to decrease.





The factors, many of which are more fully discussed in other
risk factors, that are likely to cause these variations include, among others:





| |  |  | economic downturn of the fiber optic industry;
| | - |  | ----------------------------------------------




| |  |  | economic conditions specific to the communications and related industries and the development and size of the markets for our products;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------




| |  |  | fluctuations in demand for, and sales of, our products;
| | - |  | -------------------------------------------------------




| |  |  | cancellations of orders and shipment rescheduling;
| | - |  | --------------------------------------------------



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| |  |  | the availability of raw materials used in our products and increases in the price of these raw materials;
| | - |  | ---------------------------------------------------------------------------------------------------------




| |  |  | the ability of our manufacturing operations in China to timely produce and deliver products and components in the quantity and of the quality we require;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | our ability to achieve acceptable production yields;
| | - |  | ----------------------------------------------------




| |  |  | the practice of communication equipment suppliers to sporadically place large orders with short lead times;
| | - |  | -----------------------------------------------------------------------------------------------------------




| |  |  | the mix of products and the average selling prices of the products we sell;
| | - |  | ---------------------------------------------------------------------------




| |  |  | competitive factors, including introductions of new products and product enhancements by competitors, entry of new competitors into the optical networking components market and
pricing pressures;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | our ability to develop, introduce, manufacture and ship new and enhanced optical networking products in a timely manner without defects; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | costs associated with and the outcomes of any intellectual property or other litigation to which we are, or may become, a party.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------




Due to the factors noted above and other risks discussed in this section, we believe that quarter-to-quarter comparisons of our operating results will
not be meaningful.





BECAUSE A HIGH PERCENTAGE OF OUR EXPENSES IS FIXED IN THE SHORT TERM, OUR OPERATING RESULTS ARE LIKELY TO BE HARMED IF WE
EXPERIENCE FURTHER DELAYS IN GENERATING AND RECOGNIZING REVENUES.





A high percentage of our expenses, including those
related to manufacturing, engineering, research and development, sales and marketing and general and administrative functions, are fixed in the short term. As a result, if we experience further delays in generating and recognizing revenues, our
quarterly operating results are likely to be harmed. For example, during the five quarters ended March 31, 2002, we experienced such delays. In the third and fourth quarter of fiscal 2001 and the first, second and third quarter of fiscal 2002, our
loss from operations was $25.2 million, $29.4 million, $45.0 million, $6.7 million and $8.4 million, respectively.





As we
improve our manufacturing processes as of result of our recent move to China, we will incur expenses in one quarter relating to the recent move that may not result in off-setting revenues until a subsequent quarter.





New product introductions can also result in a mismatching of research and development expenses and sales and marketing expenses that are incurred in
one quarter with revenues that are not recognized until a subsequent quarter when the new product is introduced. If growth in our revenues does not exceed the increase in our expenses, our results of operations will be harmed.




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IF WE FAIL TO EFFECTIVELY MONITOR OUR MANUFACTURING CAPACITY, WE MAY NOT BE ABLE TO DELIVER SUFFICIENT QUANTITIES OF PRODUCTS TO OUR CUSTOMERS IN A TIMELY
MANNER, WHICH WOULD HARM OUR OPERATING RESULTS.





We manufacture all of our products in our facilities in San Jose,
California and Shanghai and Zhuhai, China and have moved substantially all of our manufacturing capacity to our Zhuhai facility. Our facilities in Beijing and Chengdu are closed. Our facility at Fuzhou is idle and will be closed in accordance with
our restructuring plans. We must still devote significant resources to the transition of our manufacturing capacity to China, and such transition will be expensive, will require managements time and may disrupt our operations. Risks associated
with the recent move of our manufacturing capacity include:





| | - |  | a lack of availability of qualified management and manufacturing personnel;
| | - |  | ---------------------------------------------------------------------------




| | - |  | difficulties in achieving adequate yields from new manufacturing lines;
| | - |  | -----------------------------------------------------------------------




| | - |  | inability to quickly implement an adequate set of controls to track levels of inventory; and
| | - |  | --------------------------------------------------------------------------------------------




| | - |  | our inability to procure the necessary raw materials and equipment.
| | - |  | -------------------------------------------------------------------




Communications equipment suppliers typically require that their vendors commit to provide specified quantities of products over a given period of time. We could be unable to pursue many large orders if we do not have
sufficient manufacturing capacity to enable us to commit to provide customers with specified quantities of products. If we are unable to commit to deliver sufficient quantities of our products to satisfy a customers anticipated needs, we will
lose the order and the opportunity for significant sales to that customer for a lengthy period of time. Furthermore, if we fail to fulfill orders to which we have committed, we will lose revenue opportunities and our customer relationships may be
harmed.





IF WE FAIL TO EFFECTIVELY MANAGE OUR OPERATIONS, INCLUDING ANY REDUCTIONS OR INCREASES IN THE NUMBER OF OUR EMPLOYEES, OUR OPERATING RESULTS
COULD BE HARMED.





Primarily as a result of the economic downturn and slowdown in capital spending, particularly in the
communications industry, we recently implemented a number of cost-cutting measures, including reductions in our workforce. The impact of these cost-cutting measures, combined with the challenges of managing our geographically-dispersed operations,
has placed, and will continue to place, a significant strain on our management systems and resources. In addition, our ability to effectively manage our operations will be challenged to the extent that we begin expanding our workforce. We expect
that we will need to continue to improve our financial and managerial controls, reporting systems and procedures, and will need to continue to train and manage our workforce worldwide. Any failure to effectively manage our operations could harm our
operating results.





IF WE FAIL TO EFFECTIVELY MANAGE OUR INVENTORY LEVELS, OUR OPERATING RESULTS COULD BE HARMED.





Because we experience long lead times for raw materials and are often required to purchase significant amounts of raw materials far in advance of
product shipments, we may not effectively manage our




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inventory levels, which could harm our operating results. For example, in the nine months ended March 31, 2002 and the fiscal year ended June 30, 2001, we
recorded a $10.4 million and a $30.6 million, respectively, provision for excess and obsolete inventory due to the downturn in the fiber optics industry, and our gross margin, excluding non-cash compensation expense, decreased to 3.7% and (38.1)%
for the three months and nine months ended March 31, 2002 from 8.3% for the fiscal year ended June 30, 2001.





If we
underestimate our requirements, we may have inadequate inventory, which could result in delays in shipments and loss of customers.





If we purchase raw materials in anticipation of orders that do not materialize, we will have to carry or write off excess inventory and our gross margins will decline. Even if we receive these orders, the additional manufacturing capacity
that we add to meet customer requirements may be underutilized in a subsequent quarter. In this regard, we experienced significant increases in provisions for excess and obsolete inventory, which harmed our gross margins, through the nine months
ended March 31, 2002 and the fiscal year ended June 30, 2001.





We have recently implemented an automated manufacturing
management system to replace our previous system that tracked most of our data, including some inventory levels, manually. The conversion from our previous systems used in San Jose occurred in the fourth quarter of fiscal 2001, and the conversion in
China occurred in December 2001. Failure to effectively complete the transition to this new system in China could harm our results and increase the risk that we may fail to effectively manage our inventory.





BECAUSE WE DEPEND ON THIRD PARTIES TO SUPPLY SOME OF OUR RAW MATERIALS AND EQUIPMENT, WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT QUANTITIES OF THESE MATERIALS AND EQUIPMENT,
WHICH COULD LIMIT OUR ABILITY TO FILL CUSTOMER ORDERS AND HARM OUR OPERATING RESULTS.





Difficulties in obtaining raw
materials in the future may limit our product shipments. We depend on third parties to supply the raw materials and equipment we use to manufacture our products. To be competitive, we must obtain from our suppliers, on a timely basis, sufficient
quantities of raw materials at acceptable prices. We obtain most of our critical raw materials from a single or limited number of suppliers and generally do not have long-term supply contracts with them. As a result, our suppliers could terminate
the supply of a particular material at any time without penalty.





Our failure to obtain single or limited-source raw materials
could delay or reduce our product shipments, which could result in lost orders, increase our costs, reduce our control over quality and delivery schedules and require us to redesign our products. Some of our raw material suppliers are single
sources, and finding alternative sources may involve significant expense and delay, if these sources can be found at all. For example, all of our GRIN lenses, which are incorporated into substantially all of our products, are obtained from Nippon
Sheet Glass, the sole supplier worldwide of GRIN lenses. If a significant supplier became unable or unwilling to continue to manufacture or ship materials in required volumes, we would have to identify and qualify an acceptable replacement. A
material delay or reduction in shipments, any need to identify and qualify replacement suppliers or any significant increase in our need for raw materials that cannot be met on acceptable terms could harm our business.





We also depend on a limited number of manufacturers and vendors that make and sell the complex equipment we use in our manufacturing process. In periods
of high market demand, the lead times from




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order to delivery of this equipment could be as long as six months. Delays in the delivery of this equipment or increases in the cost of this equipment could
harm our operating results.





WE COMPETE IN A HIGHLY COMPETITIVE INDUSTRY, AND IF WE ARE UNABLE TO COMPETE SUCCESSFULLY OUR REVENUES COULD DECLINE,
WHICH WOULD HARM OUR OPERATING RESULTS.





The fiber optic components industry is intensely competitive. We believe that our
principal competitors are the major manufacturers of optical components and subsystems and modules, including vendors selling to third parties and business divisions within communications equipment suppliers. Our principal competitors in the
components market include Corning, DiCon Fiberoptics, Furukawa Electrical, New Focus, Nortel, Sumitomo, Tyco Electronics and JDS Uniphase. We believe that we primarily compete with diversified suppliers, such as Corning, JDS Uniphase and Nortel, for
the majority of our product line and to a lesser extent with niche players that offer more limited product lines. Competitors in any portion of our business may also rapidly become competitors in other portions of our business. In addition, our
industry has recently experienced significant consolidation, and we anticipate that further consolidation will occur. This consolidation has further increased competition.





Many of our current and potential competitors have significantly greater financial, technical, marketing, purchasing, manufacturing and other resources than we do. As a result, these
competitors may be able to respond more quickly to new or emerging technologies and to changes in customer requirements, to devote greater resources to the development, promotion and sale of products, or to deliver competitive products at lower
prices.





Several of our existing and potential customers are also current and potential competitors of ours. These companies may
develop or acquire additional competitive products or technologies in the future and thereby reduce or cease their purchases from us. In light of the consolidation in the optical networking industry, we also believe that the size of the optical
component and module suppliers will become increasingly important to our current and potential customers in the future. We may not be able to compete successfully with existing or new competitors, and the competitive pressures we face may result in
lower prices for our products, loss of market share, or reduced gross margins, any of which could harm our business.





New
technologies are emerging due to increased competition and customer demand. The introduction of new products incorporating new technologies or the emergence of new industry standards could make our existing products noncompetitive. For example, new
technologies are being developed in the design of wavelength division multiplexers that compete with the thin film filters that we incorporate in our products. These technologies include arrayed waveguide grating, or AWG, and fiber bragg grating, or
FBG. If our competitors adopt new technologies before we do, we could lose market share and our business would suffer.





SUBSTANTIALLY ALL OF
OUR MANUFACTURING OPERATIONS ARE LOCATED IN CHINA, WHICH EXPOSES US TO THE RISK THAT OUR FAILURE TO COMPLY WITH THE LAWS AND REGULATIONS OF CHINA, OR EVENTS IN THAT COUNTRY, WILL DISRUPT OUR OPERATIONS.





Substantially all of our manufacturing operations are located in China and are subject to the laws and regulations of China. Our operations in China may
be adversely affected by changes in the laws and regulations of China, such as those relating to taxation, import and export tariffs, environmental




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regulations, land use rights, property and other matters. Chinas central or local government may impose new, stricter regulations or interpretations of
existing regulations, which would require additional expenditures. Chinas economy differs from the economies of many countries in terms of structure, government involvement, degree of enforcement of laws and regulations, level of development,
growth rate, capital reinvestment, allocation of resources, self-sufficiency and rate of inflation, among others. Our results of operations and financial condition may be harmed by changes in the political, economic or social conditions in China.





In addition, events out of our control in China, such as political unrest, terrorism, war, labor strikes and work stoppages,
could disrupt our operations. There currently is political tension between the United States and China, which could lead to a breakdown in trade relations. There is also significant tension between China and Taiwan, which could result in
hostilities. Additionally, China has stepped up its condemnation of the United States pledge of military support to Taiwan, which could lead to potential political, economic or military instability. If such instability or other events cause a
disruption in our operations, it would be difficult for us to establish manufacturing operations at an alternative location on comparable terms.





DISRUPTION TO COMMERCIAL ACTIVITIES IN THE UNITED STATES OR IN OTHER COUNTRIES MAY ADVERSELY IMPACT OUR RESULTS OF OPERATIONS, OUR ABILITY TO RAISE CAPITAL OR OUR FUTURE GROWTH.





Our operations in the United States and China also expose us to the following general risks associated with international operations:





| | - |  | disruptions to commercial activities or damage to our facilities as a result of political unrest, war, terrorism, labor strikes and work stoppages;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------




| | - |  | difficulties and costs of staffing and managing foreign operations with personnel who have expertise in optical network technology;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------




| | - |  | unexpected changes in regulatory or certification requirements for optical systems or networks;
| | - |  | -----------------------------------------------------------------------------------------------




| | - |  | disruptions in the transportation of our products and other risks related to the infrastructure of foreign countries;
| | - |  | ---------------------------------------------------------------------------------------------------------------------




| | - |  | fluctuations in the value of currencies; and
| | - |  | --------------------------------------------




| | - |  | economic instability.
| | - |  | ---------------------




To the extent
that such disruptions interfere with our commercial activities, our results of operations could be harmed.




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CURRENCY RESTRICTIONS IN CHINA MAY LIMIT THE ABILITY OF OUR SUBSIDIARIES IN CHINA TO OBTAIN AND REMIT FOREIGN CURRENCY NECESSARY FOR THE THE PURCHASE OF
IMPORTED COMPONENTS AND MAY LIMIT OUR ABILITY TO OBTAIN AND REMIT FOREIGN CURRENCY IN EXCHANGE FOR RENMINBI EARNINGS.





Chinas government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. Any shortages in the availability of foreign currency may restrict the
ability of our China subsidiaries to obtain and remit sufficient foreign currency to pay dividends to us, or otherwise satisfy their foreign currency denominated obligations, such as payments to us for components which we export to them and for
technology licensing fees. Such shortages may also cause us to experience difficulties in completing the administrative procedures necessary to obtain and remit needed foreign currency. Under the current foreign exchange control system sufficient
foreign currency is presently available for our China subsidiaries to purchase imported components or to repatriate profits to us, but as demands on Chinas foreign currency reserves increase over time to meet its commitments, sufficient
foreign currency may not be available to satisfy Chinas currency needs.





Our business could be negatively impacted if we
are unable to convert and remit our sales received in Renminbi into U.S. dollars. Under existing foreign exchange laws, Renminbi held by the our China subsidiaries can be converted into foreign currencies and remitted out of China to pay current
account items such as payments to suppliers for imports, labor services, payment of interest on foreign exchange loans and distributions of dividends so long as our subsidiaries have adequate amounts of Renminbi to purchase the foreign currency.
Expenses of a capital nature such as the repayment of bank loans denominated in foreign currencies, however, require approval from appropriate governmental authorities before Renminbi can be used to purchase foreign currency for remittance out of
China. This system could be changed at any time by executive decision of the State Council to impose limits on current account convertibility of the Renminbi or other similar restrictions.





Moreover, even though the Renminbi is intended to be freely convertible on current accounts, the State Administration of Foreign Exchange, which is responsible for administering
Chinas foreign currency market, has a significant degree of administrative discretion in interpreting and implementing foreign exchange control regulations. From time to time, the State Administration of Foreign Exchange has used this
discretion in ways that effectively limit the convertibility of current account payments and restrict remittances out of China. Furthermore, in many circumstances the State Administration of Foreign Exchange must approve foreign currency conversions
and remittances. Under the current foreign exchange control system, sufficient foreign currency may not always be available in the future at a given exchange rate to satisfy our currency demands.





IF TAX BENEFITS AVAILABLE TO OUR SUBSIDIARIES LOCATED IN CHINA ARE REDUCED OR REPEALED, OUR BUSINESS COULD SUFFER.





Our subsidiaries located in China enjoy tax benefits in China that are generally available to foreign investment enterprises, including full exemption from national enterprise income tax
for two years starting from the first profit-making year and/or a 50% reduction in national income tax rate for the following three years. If our China subsidiaries are unable to extend their tax benefits, our financial condition and results of
operations may be adversely impacted. Our tax holiday expired December 31, 2001, and we are in the first year of a 50% reduction in the national income tax rate. In addition, local enterprise income tax is often waived or reduced during this tax
holiday/incentive period. Under current regulations in China, foreign investment enterprises that have been accredited as technologically advanced enterprises are entitled to an




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additional three year reduction in national income tax by 50%, with a provision that the income tax rate as so reduced may not be lower than 10%.





One of our subsidiaries in China has been accredited as a technologically advanced enterprise and three others are applying for such
accreditation, which may or may not be granted to them. As a technologically advanced enterprise, the tax holiday applicable to Zhuhai Oplink will expire at the end of 2007. At the time such tax holiday expires, the tax rate will increase from 10%
to 15% in respect of Zhuhai Oplink. If, after the expiration of the respective tax holidays, our China subsidiaries export at least 70% (by value) of their annual production, they will be entitled to a 50% reduction in their tax rate, but not below
a tax rate of 10% in each year in which they achieve such export ratio. If our China subsidiaries are unable to extend their respective tax holidays by qualifying as export oriented enterprises or becoming accredited as technologically advanced
enterprises, our financial condition and results of operations may be adversely impacted.





Additionally, the Chinese government
is considering the imposition of a unified corporate income tax that would phase out, over time, the preferential tax treatment to which foreign-funded enterprises are currently entitled. While it is not certain whether the government
will implement such a unified tax structure or whether, if implemented, we will be grandfathered into the new tax structure, if the new tax structure is implemented, it will adversely affect our financial condition.





OUR WAVELENGTH EXPANSION PRODUCTS HAVE ACCOUNTED FOR A MAJORITY OF OUR REVENUES, AND OUR REVENUES COULD BE HARMED IF THE PRICE OF OR DEMAND FOR THESE PRODUCTS FURTHER
DECLINES OR IF THESE PRODUCTS FAIL TO ACHIEVE BROADER MARKET ACCEPTANCE.





We believe that our future growth and a
significant portion of our future revenues will depend on the commercial success of our wavelength expansion products. Customers that have purchased wavelength expansion products may not continue to purchase these products from us. Although we
currently offer a broad spectrum of products, sales of our wavelength expansion products accounted for a majority of our revenues in the three months and nine months ended March 31, 2002 and fiscal years ended June 30, 2001 and 2000. These products
include, among others, dense wavelength division multiplexers, or DWDMs and multiplexers, used primarily in optical amplification and amplification components. These products accounted for 55%, 66%, 57% and 81% of our revenues in the three months
and nine months ended March 31, 2002 and fiscal years ended June 30, 2001 and 2000, respectively. Any decline in the price of, or demand for, our wavelength expansion products, or their failure to achieve broader market acceptance, could harm our
revenues.





THE OPTICAL NETWORKING COMPONENT INDUSTRY IS EXPERIENCING DECLINING AVERAGE SELLING PRICES, WHICH COULD CAUSE OUR GROSS MARGINS TO DECLINE
AND HARM OUR OPERATING RESULTS.





The optical networking component industry is experiencing declining average selling prices,
or ASPs, as a result of increasing competition and declining market demand. We anticipate that ASPs will continue to decrease in the future in response to product introductions by competitors, price pressures from significant customers and greater
manufacturing efficiencies achieved through increased automation in the manufacturing process. These ASP declines have contributed and may continue to contribute to a decline in our gross margins, which could harm our results of operations.




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OUR FAILURE TO ACHIEVE ACCEPTABLE MANUFACTURING YIELDS IN A COST-EFFECTIVE MANNER COULD DELAY PRODUCT SHIPMENTS TO OUR CUSTOMERS AND HARM OUR OPERATING
RESULTS.





Because manufacturing our products involves complex and precise processes and the majority of our manufacturing
costs are relatively fixed, manufacturing yields are critical to our results of operations. Lower than expected manufacturing yields could delay product shipments and harm our operating results. Factors that affect our manufacturing yields include
the quality of raw materials used to make our products, quality of workmanship and our manufacturing processes in China. Our or our suppliers inadvertent use of defective materials could significantly reduce our manufacturing yields.





Furthermore, because of the large labor component in and complexity of the manufacturing process, quality of workmanship is
critical to achieving acceptable yields. We cannot assure you that we will be able to hire and train a sufficient number of qualified personnel to cost-effectively produce our products with the quality and in the quantities required by our
customers.





Changes in our manufacturing processes or those of our suppliers could also impact our yields. In some cases,
existing manufacturing techniques, which involve substantial manual labor, may not allow us to cost-effectively meet our manufacturing yield goals so that we maintain acceptable gross margins while meeting the cost targets of our customers. We will
need to develop new manufacturing processes and techniques that will involve higher levels of automation in order to increase our gross margins and help achieve the targeted cost levels of our customers. We may not achieve manufacturing cost levels
that will allow us to achieve acceptable gross margins or fully satisfy customer demands.





OUR PRODUCTS MAY HAVE DEFECTS THAT ARE NOT DETECTED UNTIL
FULL DEPLOYMENT OF A CUSTOMERS EQUIPMENT, WHICH COULD RESULT IN A LOSS OF CUSTOMERS, DAMAGE TO OUR REPUTATION AND SUBSTANTIAL COSTS.





Our products are deployed in large and complex optical networks and must be compatible with other system components. Our products can only be fully tested for reliability when deployed in networks for long periods of
time. Our customers may discover errors, defects or incompatibilities in our products after they have been fully deployed and operated under peak stress conditions. Our products may also have errors, defects or incompatibilities that are not found
until after a system upgrade is installed. Errors, defects, incompatibilities or other problems with our products could result in:





| | - |  | loss of customers;
| | - |  | ------------------




| | - |  | loss of or delay in revenues;
| | - |  | -----------------------------




| | - |  | loss of market share;
| | - |  | ---------------------




| | - |  | damage to our brand and reputation;
| | - |  | -----------------------------------




| | - |  | inability to attract new customers or achieve market acceptance;
| | - |  | ----------------------------------------------------------------




| | - |  | diversion of development resources;
| | - |  | -----------------------------------




| | - |  | increased service and warranty costs;
| | - |  | -------------------------------------



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| | - |  | legal actions by our customers; and
| | - |  | -----------------------------------




| | - |  | increased insurance costs.
| | - |  | --------------------------




If any
of these occur, our operating results could be harmed.





IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, OUR ABILITY TO SUCCEED WILL BE HARMED.





Our ability to compete successfully and achieve future growth will depend, in part, on our ability to protect our
proprietary technology. We rely on a combination of patent, copyright, trademark, and trade secret laws and restrictions on disclosure to protect our intellectual property rights. However, the steps we have taken may not prevent the misappropriation
of our intellectual property, particularly in foreign countries, such as China, where the laws may not protect our proprietary rights as fully as in the United States.





As of May 13, 2002, we currently hold twenty-seven completed patents, seven allowed patents awaiting completion and thirty-four pending patent applications in the United States. We
cannot assure you that patents will be issued from pending or future applications or that, if patents are issued, they will not be challenged, invalidated or circumvented. Rights granted under these patents may not provide us with meaningful
protection or any commercial advantage. If we are unable to protect our proprietary technology, our ability to succeed will be harmed. In addition, we may in the future initiate claims or litigation against third parties for infringement of our
proprietary rights. These claims could result in costly litigation and the diversion of our technical and management personnel.





WE MAY BE INVOLVED IN
INTELLECTUAL PROPERTY DISPUTES IN THE FUTURE, WHICH WILL DIVERT MANAGEMENTS ATTENTION AND COULD CAUSE US TO INCUR SIGNIFICANT COSTS AND PREVENT US FROM SELLING OR USING THE CHALLENGED TECHNOLOGY.





Participants in the communications and optical components markets in which we sell our products have experienced frequent litigation regarding patent
and other intellectual property rights. Numerous patents in these industries are held by others, including our competitors and academic institutions. We have no means of knowing that a patent application has been filed in the United States until the
patent is issued. Optical component suppliers may seek to gain a competitive advantage or other third parties may seek an economic return on their intellectual property portfolios by making infringement claims against us.





In June 2000, Chorum Technologies, LP filed a lawsuit against us and our wholly-owned subsidiary, Telelight Communication Inc., in the United States
District Court for the Northern District of Texas alleging, among other things, infringement of two U.S. patents allegedly owned by Chorum relating to fiber optical interleaving, based on our manufacture of and offer to sell various fiber optic
interleaver products. On May 7, 2001, the Company filed a lawsuit against Chorum in the United States District Court for the District of Delaware, alleging, among other matters, that Chorum infringes one of our patents relating to fiber optic
couplers based on Chorums manufacture of and offer to sell various DWDM products.





In October 2001, we reached an
agreement with Chorum LP and its affiliates to dismiss the patent infringement litigation between the companies without prejudice. We cannot assure you that Chorum or




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Oplink will not in the future elect to refile the prior patent infringement actions or file new patent infringement actions against the other.





In the past we have been involved in lawsuits as a result of alleged infringement of others intellectual property. Both prosecuting or
defending such lawsuits in the future will likely be costly and time consuming and will divert the efforts and attention of our management and technical personnel. Patent litigation is highly complex and can extend for a protracted period of time,
which can substantially increase the cost of litigation. Accordingly, the expenses and diversion of resources associated with any intellectual property litigation to which we may become a party, could seriously harm our business and financial
condition. Any intellectual property litigation also could invalidate our proprietary rights and force us to do one or more of the following:





| | - |  | obtain from the owner of the infringed intellectual property right a license to sell or use the relevant technology, which license may not be available on reasonable terms, or
at all;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | - |  | stop selling, incorporating or using our products that use the challenged intellectual property;
| | - |  | ------------------------------------------------------------------------------------------------




| | - |  | pay substantial money damages; or
| | - |  | ---------------------------------




| | - |  | redesign the products that use the technology.
| | - |  | ----------------------------------------------




Any of these actions could result in a substantial reduction in our revenue and could result in losses over an extended period of time.





WE ARE THE TARGET OF A SECURITIES CLASS ACTION COMPLAINT AND ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION, WHICH WILL LIKELY RESULT IN SUBSTANTIAL COSTS AND DIVERT MANAGEMENT ATTENTION AND RESOURCES.





In November 2001, the Company and certain of its officers and directors, as well as certain of the underwriters, were named
as defendants in a class action shareholder complaint filed in the United States District Court for the Southern District of New York, known as Oplink Communications, Inc. Initial Public Offering Securities Litigation, Case No. 01-CV-9904. In the
complaint, the plaintiffs allege that the Company, certain of its officers and directors and the underwriters of its initial public offering (IPO) violated the federal securities laws because the Companys IPO registration statement
and prospectus contained untrue statements of material fact or omitted material facts regarding the compensation to be received by, and the stock allocation practices of, the IPO underwriters. The plaintiffs seek unspecified monetary damages and
other relief. Similar complaints were filed in the same Court against numerous public companies that conducted IPOs of their common stock in the late 1900s.





On August 8, 2001, all of the above-referenced lawsuits were consolidated for pretrial purposes before United States Judge Shira Scheindlin of the Southern District of New York. Judge Scheindlin held an initial case
management conference on September 7, 2001, at which time she ordered, among other things, that the time for all defendants to respond to any complaint be postponed until further order of the Court. Thus, the Company has not been required to answer
the complaint, and no discovery has been served on the Company.





In accordance with Judge Scheindlins orders at further
status conferences in March and April, the appointed lead plaintiffs counsel filed amended, consolidated complaints in the IPO Lawsuits on April 19, 2002. However, Judge Scheindlin does not expect any of the defendants to file motions to
dismiss the amended, consolidated complaints until at least summer of 2002. This action will likely divert the efforts




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and attention of our management and, if determined adversely to the Company, could have a material impact on our business.





IF WE ARE UNABLE TO DEVELOP NEW PRODUCTS AND PRODUCT ENHANCEMENTS THAT ACHIEVE MARKET ACCEPTANCE, SALES OF OUR PRODUCTS COULD DECLINE, WHICH WOULD HARM OUR OPERATING RESULTS.





The communications industry is characterized by rapid technological changes, frequent new product introductions, changes in customer requirements and
evolving industry standards. As a result, our products could quickly become obsolete as new technologies are introduced and incorporated into new and improved products. Our future success depends on our ability to anticipate market needs and to
develop products that address those needs.





Our failure to predict market needs accurately or to develop new products or product
enhancements in a timely manner will harm market acceptance and sales of our products. In this regard, we are currently developing bandwidth creation products as well as bandwidth management products. If the development of these products or any
other future products takes longer than we anticipate, or if we are unable to develop and introduce these products to market, our revenues could suffer and we may not gain market share. Even if we are able to develop and commercially introduce these
new products, the new products may not achieve widespread market acceptance.





WE DEPEND ON THE CONTINUED GROWTH AND SUCCESS OF THE COMMUNICATIONS
INDUSTRY, WHICH IS EXPERIENCING AN ECONOMIC DOWNTURN, AS WELL AS RAPID CONSOLIDATION AND REALIGNMENT AND MAY NOT CONTINUE TO DEMAND FIBER OPTIC PRODUCTS AT HISTORICAL RATES, THEREBY REDUCING DEMAND FOR OUR PRODUCTS AND HARMING OUR OPERATING RESULTS.





We depend on the continued growth and success of the communications industry, including the continued growth of the
Internet as a widely-used medium for commerce and communication and the continuing demand for increased bandwidth over communications networks. As a result of recent unfavorable economic conditions and reduced capital spending in the communications
industry, our growth rate may be significantly lower than our historical quarterly growth rate. For example, during the third quarter and fourth quarter of fiscal 2001 and the first quarter, second quarter and third quarter of fiscal 2002, revenues
decreased 16.7%, 43.8%, 50.6%, increased 6.1% and decreased 10.7%, respectively, from the immediately preceding quarters primarily due to the economic downturn in the communications industry.





Furthermore, the rate at which communications service providers and other fiber optic network users have built new fiber optic networks or installed new systems in their existing
fiber optic networks has fluctuated in the past and these fluctuations may continue in the future. These fluctuations may result in reduced demand from historical rates for new or upgraded fiber optic systems that utilize our products and,
therefore, may result in reduced demand for our products.





The communications industry is also experiencing rapid consolidation
and realignment, as industry participants seek to capitalize on the rapidly changing competitive landscape developing around the Internet and new communications technologies such as fiber optic and wireless communications networks. As the
communications industry consolidates and realigns to accommodate technological and




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other developments, our customers may consolidate or align with other entities in a manner that harms our business.





BECAUSE NONE OF OUR CUSTOMERS ARE OBLIGATED TO PURCHASE OUR PRODUCTS, THEY MAY AND DO CANCEL OR DEFER THEIR PURCHASES ON SHORT NOTICE AND AT ANY TIME, WHICH COULD HARM OUR
OPERATING RESULTS.





We do not have contracts with our customers that provide any assurance of future sales, and sales are
typically made pursuant to individual purchase orders, often with extremely short lead times. Accordingly, our customers:





| | - |  | may and do stop purchasing our products at any time without penalty;
| | - |  | --------------------------------------------------------------------




| | - |  | are free to purchase products from our competitors;
| | - |  | ---------------------------------------------------




| | - |  | are not required to make minimum purchases; and
| | - |  | -----------------------------------------------




| | - |  | may and do cancel orders that they place with us.
| | - |  | -------------------------------------------------




Sales to any single customer may and do vary significantly from quarter to quarter. Our customers generally do not place purchase orders far in advance. In addition, our customer purchase orders have varied
significantly from quarter to quarter. This means that customers who account for a significant portion of our revenues in one quarter may not and do not place any orders in the succeeding quarter, which makes it difficult to forecast revenue in
future periods. Moreover, our expense levels are based in part on our expectations of future revenue, and we may be unable to adjust costs in a timely manner in response to further revenue shortfalls. This can result in significant quarterly
fluctuations in our operating results.





OUR REVENUES AND RESULTS OF OPERATIONS MAY BE HARMED IF WE FAIL TO INCREASE THE VOLUME OF ORDERS, WHICH WE
RECEIVE AND FILL ON A SHORT-TERM BASIS.





Historically, a substantial portion of our net revenues in any fiscal period has
been derived from orders in backlog. Currently, due to the downturn in the fiber optics industry, we are substantially dependent upon orders we receive and fill on a short-term basis. Our customers can generally cancel, reschedule or delay orders in
backlog without obligation to us. As a result, we cannot rely on orders in backlog as a reliable and consistent source of future revenue. If any of our customers did in fact cancel or delay these orders, and we were not able to replace them with new
orders for products to be supplied on a short-term basis, our results of operations could be harmed. For example, during the third quarter and fourth quarter of fiscal 2001 and the first quarter, second quarter and third quarter of fiscal 2002, our
customers both delayed and cancelled some orders in backlog resulting in a 16.7%, 43.8% and 50.6% decrease in revenues, a 6.1% increase in revenues and a 10.7% decrease in revenues, respectively, from the immediately preceding quarter.




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OUR LENGTHY AND VARIABLE QUALIFICATION AND SALES CYCLE MAKES IT DIFFICULT TO PREDICT THE TIMING OF A SALE OR WHETHER A SALE WILL BE MADE, WHICH MAY HARM OUR
OPERATING RESULTS.





While our customers are evaluating our products and before they place an order with us, we may incur
substantial sales, marketing, research and development expenses, expend significant management efforts, increase manufacturing capacity and order long lead-time supplies. Our customers typically expend significant efforts in evaluating and
qualifying our products and manufacturing process prior to placing an order. This evaluation and qualification process frequently results in a lengthy sales cycle, typically ranging from nine to twelve months and sometimes longer. Even after this
evaluation process, it is possible that a potential customer will not purchase our products.





In addition, product purchases are
frequently subject to unplanned processing and other delays, particularly with respect to larger customers for which our products represent a very small percentage of their overall purchase activity. Long sales cycles may cause our revenues and
operating results to vary significantly and unexpectedly from quarter to quarter, which could cause volatility in our stock price.





WE DEPEND ON KEY
PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY CHANGING MARKET, AND IF WE ARE UNABLE TO HIRE ADDITIONAL PERSONNEL, OUR ABILITY TO SELL OUR PRODUCTS COULD BE HARMED.





Our future success depends upon the continued services of our executive officers and other key engineering, finance, sales, marketing, manufacturing and support personnel. In addition,
we depend substantially upon the continued services of key management personnel at our Chinese subsidiaries. None of our officers or key employees is bound by an employment agreement for any specific term, and these personnel may terminate their
employment at any time. In addition, we do not have key person life insurance policies covering any of our employees.





Our ability to continue to attract and retain highly-skilled personnel will be a critical factor in determining whether we will be successful in the future. Competition for highly-skilled personnel is intense, especially in the San
Francisco Bay area. We may not be successful in attracting, assimilating or retaining qualified personnel to fulfill our current or future needs.





Our future success depends upon the continued services of our executive officers, particularly:





| | - |  | Mr. Frederick R. Fromm, our Chief Executive Officer and President, who joined us in July 2000,
| | - |  | ----------------------------------------------------------------------------------------------




| | - |  | Mr. Bruce D. Horn, our Chief Financial Officer, who joined us in April 2000,
| | - |  | ----------------------------------------------------------------------------




| | - |  | Mr. Kenneth W. Brizel, our Senior Vice President of Strategy and Business Development, who joined us in October 2000,
| | - |  | ---------------------------------------------------------------------------------------------------------------------




| | - |  | Mr. Yanfeng Yang, our Vice President of Global Manufacturing/Operations, who assumed his position in September 2001, and
| | - |  | ------------------------------------------------------------------------------------------------------------------------




| | - |  | Mr. Christian A. Lepiane, our Vice President of Worldwide Sales, and Ms. Zeynep Hakimoglu, our Vice President of Product Line Management, both of whom joined us in November
2001.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




In addition, members of our management team have recently assumed new positions within the Company. On
November 7, 2001, Mr. Fromm became our Chief Executive Officer. Our former Chief




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Executive Officer, Mr. Joseph Y. Liu, became Chairman of the Board of Directors. The changes were in accordance with our planned succession strategy. If our
management team does not work effectively together, it could seriously harm our business.





BECAUSE SOME OF OUR THIRD-PARTY SALES REPRESENTATIVES AND
DISTRIBUTORS CARRY PRODUCTS OF ONE OR MORE OF OUR COMPETITORS, THEY MAY NOT RECOMMEND OUR PRODUCTS OVER COMPETITORS PRODUCTS.





A majority of our revenues are derived from sales through our domestic and international sales representatives and distributors. Our sales representatives and distributors are independent organizations that generally have exclusive
geographic territories and generally are compensated on a commission basis. We are currently migrating some of our larger customers to direct sales and are increasing our direct sales and marketing staff. We expect that we will continue to rely on
our independent sales representatives and distributors to market, sell and support many of our products for a substantial portion of our revenues. Some of our third-party sales representatives and distributors carry products of one or more of our
competitors. As a result, these sales representatives and distributors may not recommend our products over competitors products.





BECAUSE SOME
OF OUR OPERATIONS ARE LOCATED IN ACTIVE EARTHQUAKE FAULT ZONES, WE FACE THE RISK THAT A LARGE EARTHQUAKE COULD HARM OUR OPERATIONS.





Portions of our operations are located in San Jose, California, an active earthquake fault zone. This region has experienced large earthquakes in the past and may likely experience them in the future. A large earthquake in the San Jose area
could disrupt our operations for an extended period of time, which would limit our ability to supply our products to our customers in sufficient quantities on a timely basis, harming our customer relationships.





OUR FAILURE TO COMPLY WITH GOVERNMENTAL REGULATIONS COULD SUBJECT US TO LIABILITY.





Our failure to comply with a variety of federal, state and local laws and regulations in the United States and China could subject us to criminal, civil and administrative penalties. Our
products are subject to U.S. export control laws and regulations that regulate the export of products and disclosure of technical information to foreign countries and citizens. In some instances, these laws and regulations may require licenses for
the export of products to, and disclosure of technology in, some countries, including China, and disclosure of technology to foreign citizens. While we have received commodity classifications from the United States Department of Commerce that allow
us to export our current products and disclose our current technologies without export licenses, as we develop and commercialize new products and technologies, and as the list of products and technologies subject to U.S. export controls changes, we
may be required to obtain export licenses or other approvals with respect to those products and technologies. We cannot predict whether these licenses and approvals will be required and, if so, whether they will be granted. The failure to obtain any
required license or approval could harm our business.





We employ a number of foreign nationals in our U.S. operations and as a
result we are subject to various laws related to the status of those employees with the Immigration and Naturalization Service. Our failure to comply with the forgoing laws or any other laws and regulations could subject us to liability.




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In addition, we are subject to laws relating to the storage, use, discharge and disposal of
toxic or otherwise hazardous or regulated chemicals or materials used in our manufacturing processes. While we believe that we are currently in compliance in all material respects with these laws and regulations, if we fail to store, use, discharge
or dispose of hazardous materials appropriately, we could be subject to substantial liability or could be required to suspend or adversely modify our manufacturing operations. In addition, we could be required to pay for the cleanup of our
properties if they are found to be contaminated, even if we are not responsible for the contamination.





BECAUSE THE OPTICAL COMPONENTS INDUSTRY IS
CAPITAL INTENSIVE, OUR BUSINESS MAY BE HARMED IF WE ARE UNABLE TO RAISE ANY NEEDED ADDITIONAL CAPITAL.





The optical
components industry is capital intensive, and the transition of our manufacturing facilities to China, the development and marketing of new products and the hiring and retention of personnel will require a significant commitment of resources.
Furthermore, we may continue to incur significant operating losses if the market for optical networking components develops at a slower pace than we anticipate, or if we fail to establish significant market share and achieve a significantly
increased level of revenue. If cash from available sources is insufficient for these purposes, or if additional cash is used for acquisitions or other unanticipated uses, we may need to raise additional capital. Additional capital may not be
available on terms favorable to us, or at all. If we are unable to raise additional capital when we require it, our business could be harmed. In addition, any additional issuance of equity or equity-related securities to raise capital will be
dilutive to our stockholders.





BECAUSE THE OPTICAL COMPONENTS INDUSTRY IS EVOLVING RAPIDLY AND HIGHLY COMPETITIVE, OUR STRATEGY INVOLVES ACQUIRING
OTHER BUSINESSES AND TECHNOLOGIES TO GROW OUR BUSINESS. IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE ACQUIRED BUSINESSES OR TECHNOLOGIES, OUR OPERATING RESULTS MAY BE HARMED.





The optical components industry is evolving rapidly and is highly competitive. Accordingly, we have pursued and expect to continue to pursue acquisitions of businesses and technologies,
or the establishment of joint venture arrangements, that could expand our business. The negotiation of potential acquisitions or joint ventures, as well as the integration of an acquired or jointly developed business or technology, could cause
diversion of managements time and other resources or disrupt our operations. Future acquisitions could result in:





| | - |  | additional operating expenses without additional revenues;
| | - |  | ----------------------------------------------------------




| | - |  | potential dilutive issuances of equity securities;
| | - |  | --------------------------------------------------




| | - |  | the incurrence of debt and contingent liabilities;
| | - |  | --------------------------------------------------




| | - |  | amortization of intangibles;
| | - |  | ----------------------------




| | - |  | research and development write-offs; and
| | - |  | ----------------------------------------




| | - |  | other acquisition-related expenses.
| | - |  | -----------------------------------



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Furthermore, we may not be able to successfully integrate acquired businesses or joint ventures
with our operations, and we may not receive the intended benefits of any future acquisition or joint venture.





RISKS RELATED TO OUR COMMON STOCK





IF WE WERE UNABLE TO MAINTAIN OUR NASDAQ NATIONAL MARKET LISTING, THE LIQUIDITY OF OUR COMMON STOCK WOULD BE SERIOUSLY
IMPAIRED.





If our stock price falls below one dollar
for thirty consecutive business days and we are unable to cure such deficiency, we may be subject to delisting from the Nasdaq National Market. Delisting from the Nasdaq National Market would seriously impair the liquidity of our common stock and
limit our potential to raise future capital through the sale of our common stock, which could materially harm our business. During the three months and nine months ended March 31, 2002, the closing price of our common stock on the Nasdaq National
Market ranged from $1.51 to $2.95 and from $0.63 to $3.44, respectively.





In response to the extraordinary market conditions
following the events of September 11, 2001, The Nasdaq Stock Market, Inc. implemented a moratorium on the Nasdaq National Market listing requirements, including the minimum bid price requirement. This moratorium ended on January 2, 2002 and the
listing requirements were reinstated. Additionally, many companies that face delisting as a result of bid prices below the Nasdaqs maintenance standards seek to maintain their listings by effecting reverse stock splits. However, reverse stock
splits do not always result in a sustained share price increase. We will evaluate this option as well as others if our stock price falls below one dollar in the future.





BECAUSE OF THE EARLY STAGE OF OUR BUSINESS AND THE RAPID CHANGES TAKING PLACE IN THE FIBER OPTICS INDUSTRY, WE EXPECT TO EXPERIENCE SIGNIFICANT VOLATILITY IN OUR STOCK PRICE, WHICH COULD CAUSE YOU TO LOSE ALL OR
PART OF YOUR INVESTMENT.





Because of the early stage of our business and the rapid changes taking place in the fiber optics
industry, we expect the market price of our common stock to fluctuate significantly. For example, the market price of our common stock has fluctuated from a high sales price of $40.81 to a low of $0.60 during the period from October 3, 2000, the
date of our initial public offering to March 31, 2002. These fluctuations may occur in response to a number of factors, some of which are beyond our control, including:





| | - |  | economic downturn in the fiber optics industry;
| | - |  | -----------------------------------------------




| | - |  | preannouncement of financial results;
| | - |  | -------------------------------------




| | - |  | quarterly variations in our operating results;
| | - |  | ----------------------------------------------




| | - |  | changes in financial estimates by securities analysts and our failure to meet any estimates;
| | - |  | --------------------------------------------------------------------------------------------




| | - |  | changes in market values of comparable companies;
| | - |  | -------------------------------------------------




| | - |  | announcements by us or our competitors of new products or of significant acquisitions, strategic partnerships or joint ventures;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



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| | - |  | any loss by us of a major customer;
| | - |  | -----------------------------------




| | - |  | the outcome of, and costs associated with, any litigation to which we are or may become a party;
| | - |  | ------------------------------------------------------------------------------------------------




| | - |  | additions or departures of key management or engineering personnel; and
| | - |  | -----------------------------------------------------------------------




| | - |  | future sales of our common stock.
| | - |  | ---------------------------------




The price of our securities may also be affected by general economic and market conditions, and the cost of operations in our product markets. While we cannot predict the individual effect that these factors may have on the price of our
securities, these factors, either individually or in the aggregate, could result in significant variations in price during any given period of time. There can be no assurance that these factors will not have an adverse effect on the trading prices
of our common stock.





PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY HAVE ANTI-TAKEOVER EFFECTS THAT COULD PREVENT ANY CHANGE IN CONTROL,
WHICH COULD NEGATIVELY AFFECT YOUR INVESTMENT.





Provisions of Delaware law and of our certificate of incorporation and
bylaws could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. These provisions permit us to:





| | - |  | issue preferred stock with rights senior to those of the common stock without any further vote or action by the stockholders;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------




| | - |  | provide for a classified board of directors;
| | - |  | --------------------------------------------




| | - |  | eliminate the right of the stockholders to call a special meeting of stockholders;
| | - |  | ----------------------------------------------------------------------------------




| | - |  | eliminate the right of stockholders to act by written consent; and
| | - |  | ------------------------------------------------------------------




| | - |  | impose various procedural and other requirements, which could make it difficult for stockholders to effect certain corporate actions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------




On March 18, 2002, our board of directors adopted a share purchase rights plan, which has certain additional anti-takeover effects.
Specifically, the terms of the plan provide for a dividend distribution of one preferred share purchase right for each outstanding share of common stock. These rights would cause substantial dilution to a person or group that attempts to acquire us
on terms not approved by our board of directors.





Any of the foregoing provisions could limit the price that certain investors
might be willing to pay in the future for shares of our common stock.





In addition, the Agreement and Plan or Reorganization
signed with Avanex on March 18, 2002 contains certain provisions prohibiting us from seeking a competing acquisition transaction. For a more detailed discussion of such provisions, see the No Solicitation section of the registration statement filed
on Form S4 as filed with the SEC on April 9, 2002.




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##### Table of Contents




INSIDERS CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER US, WHICH MAY NEGATIVELY AFFECT YOUR INVESTMENT.





Our current executive officers, directors and their affiliates own in the aggregate, as of April 1, 2002, approximately 29.1% of our
outstanding shares. As a result, these persons and/or entities acting together will be able to substantially influence the outcome of all matters requiring approval by our stockholders, including the election of directors and approval of significant
corporate transactions. This ability may have the effect of delaying or preventing a change in control of us, which may be favored by our other stockholders.





It
em 3.  Quantitative and Qualitative Disclosure About Market Risk





We are exposed to market
risk related to fluctuations in interest rates and in foreign currency exchange rates:





Interest Rate Exposure. The
primary objective of our investment activities is to preserve principal while maximizing the income we receive from our investments without significantly increasing risk. Some of the securities that we may invest in may be subject to market risk. To
minimize this risk, we maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds, government and non-government debt securities and certificates of deposit. As of
March 31, 2002, all of our investments were in money market funds, certificates of deposits, municipal bonds or high quality commercial paper. Declines in interest rates could have a material impact on interest earnings for our investment portfolio.





Foreign Currency Exchange Rate Exposure. We operate in the United States, manufacture in China, and substantially all
sales to date have been made in U.S. dollars. Accordingly, we currently have no material exposure to foreign currency rate fluctuations.





We expect our international revenues and expenses to be denominated predominately in U.S. dollars. Certain expenses from our China operations are incurred in the Chinese Renminbi. Our China operations will expand in the future and account
for a larger portion of our worldwide manufacturing. We anticipate that we will experience the risks of fluctuating currencies due to this expansion and may choose to engage in currency hedging activities to reduce these risks. The following table
summarizes our current investment securities:





Carrying

Average Rate


Carrying

Average RateValue at

of Return at


Value at

of Return atMarch 31,

March 31,


June 30,

June 30,2002

2002


2001

2001In thousands

Annualized


In thousands

AnnualizedInvestment Securities:Cash equivalentsvariable rate

$
147,487

2.1
%

$
116,495

3.6
%Cash equivalentsfixed rate


69,833

1.8
%


111,709

3.8
%Short-term investmentsfixed rate


5,700

1.9
%




Total

$
223,020




$
228,204




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##### Table of Contents

PART II.    OTHER INFORMATION





Item 1.    Legal Proceedings





In November 2001, the Company, Joseph Y. Liu, Bruce
Horn, Ian Jenks, and Robertson Stephens Inc., were named as defendants in a class action shareholder complaint filed in the United States District Court for the Southern District of New York, known as Oplink Communications, Inc. Initial Public
Offering Securities Litigation, Case No. 01CV9904. In the complaint, the plaintiffs allege that the Company, certain of its officers and directors and the underwriters of its initial public offering (IPO) violated the federal
securities laws because the Companys IPO registration statement and prospectus contained untrue statements of material fact or omitted material facts regarding the compensation to be received by, and the stock allocation practices of, the IPO
underwriters. The plaintiffs seek unspecified monetary damages and other relief. Similar complaints were filed in the same Court against numerous public companies that conducted IPOs of their common stock in the late 1900s.





On August 8, 2001, all of the above-referenced lawsuits were consolidated for pretrial purposes before United States Judge Shira Scheindlin of the
Southern District of New York. Judge Scheindlin held an initial case management conference on September 7, 2001, at which time she ordered, among other things, that the time for all defendants to respond to any complaint be postponed until further
order of the Court. Thus, the Company has not been required to answer the complaint, and no discovery has been served on the Company.





In accordance with Judge Scheindlins orders at further status conferences in March and April 2002, the appointed lead plaintiffs counsel filed amended, consolidated complaints in the IPO Lawsuits on April 19, 2002. However,
Judge Scheindlin does not expect any of the defendants to file motions to dismiss the amended, consolidated complaints until at least summer of 2002. The Company believes that this lawsuit is without merit and intends to defend against it
vigorously.





There has been a complaint filed on September 20, 2001, in Superior Court of California, County of Santa Clara by
former employees against the Company claiming sex discrimination, wrongful termination in breach of public policy, discrimination based on pregnancy, and intentional infliction of emotional distress by the Company with respect to the termination of
their employment. In a letter to Cooley Godward LLP dated April 2, 2002, plaintiffs counsel submitted a settlement demand of $1,000,000 for each plaintiff. The Company denies the allegations, and is vigorously defending against the claim.





We may be involved in intellectual property disputes in the future, which will divert managements attention and could
cause us to incur significant costs and prevent us from selling or using the challenged technology. Participants in the communications and optical components markets in which we sell our products have experienced frequent litigation regarding patent
and other intellectual property rights. Numerous patents in these industries are held by others, including our competitors and academic institutions. We have no means of knowing that a patent application has been filed in the United States until the
patent is issued.





Ite
m 2.    Changes in Securities and Use of Proceeds





| | (a) |  | On March 18, 2002, the board of directors of Oplink approved the adoption of a Share Purchase Rights Plan (the Plan). Terms of the Plan provide for a dividend
distribution of one preferred share purchase right (a Right) for each outstanding share of common stock, par value $.001 per share (the Common Shares), of Oplink. The dividend was paid on April 3, 2002 (the Record
Date) to the stockholders of record on that date. Each Right entitles the registered holder to
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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purchase from Oplink one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $.001 per share (the
Preferred Shares), at a price of $16.00 per one one-hundredth of a Preferred Share (the Purchase Price), subject to adjustment. The Rights will be exercisable only after public announcement that a person or group has become
the beneficial owner of 15% or more of Oplinks Common Stock (a 15% holder) or 10 days business days after a person or group commences a tender or exchange offer which would result in the offeror becoming a 15% holder.





If a person or group becomes a 15% holder, then each Right (other than Rights held by a 15% holder and certain related parties, which will be
voided) will be adjusted so that upon exercise the holder will have the right to receive that number of shares of Common Stock having a value of twice the exercise price of the Right. In addition, if following the public announcement of the
existence of a 15% holder Oplink is involved in certain business combination transactions, each Right (other than Rights which have previously been voided) will represent the right to purchase, at the exercise price, common stock of the acquiring
entity having a value of twice the exercise price at the time. The Board of Directors will also have the right, after a person or group becomes a 15% holder, to cause each Right (other than Rights held by the 15% holder, which will be voided) to be
exchanged for one share of Common Stock. The Board of Directors is entitled to redeem the Rights at $.01 per Right at any time prior to the public announcement of the existence of a 15% holder.





The description and terms of the Rights are set forth in a Rights Agreement (the Rights Agreement), dated as of March 18, 2002 entered into between Oplink and The Bank
of New York, as rights agent (the Rights Agent). The Rights Agreement provides that Avanex Corporation and its affiliates and associates will not trigger any of the provisions of the Rights Agreement as a result of the execution or
consummation of the Agreement and Plan of Reorganization among Oplink, Avanex Corporation and Pearl Acquisition Corp. dated March 18, 2002 and the transactions contemplated thereby.





| | (b) |  | Not applicable
| | --- |  | --------------




| | (c) |  | Not applicable
| | --- |  | --------------




| | (d) |  | On October 3, 2000, the SEC declared effective the Companys Registration Statement on Form S-1 (No. 333-41506). Pursuant to this Registration Statement, the Company
completed an initial public offering of 15,755,000 shares of common stock, including the over-allotment shares, at an initial public offering price of $18.00 per share. The Company incurred expenses of approximately $22.6 million, of which $19.9
million represented underwriting discounts and commissions and $2.7 million represented other related expenses. The net offering proceeds to the Company after total expenses were $261.0 million.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




As of March 31, 2002, we had $231.4 million in cash, cash equivalents and short-term investments. All remaining proceeds are invested in cash, cash
equivalents, or short-term investments consisting of highly liquid money market funds, commercial paper, government/federal notes and bonds and certificates of deposit. Consistent with the use of proceeds as discussed in our Registration Statement
on Form S-1, the Company has approved a program to repurchase up to an aggregate of $21.2 million of its Common Stock. Such repurchases may be made from time to time on the open market at prevailing market prices or in negotiated transactions off
the market. As of March 31, 2002, there were repurchases of $1.9




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##### Table of Contents

million under this program. The use of these proceeds does not represent a material change in the use of proceeds described in our public offering prospectus.





Item 3.    Defaults Upon Senior Securities





None





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





None





Item 5.    Other Information





None





Item 6.    Exhibits and Reports on Form 8-K





(a)  Exhibits





02.7

Amendment to Promissory Notes by and between Oplink and Joseph Y. Liu dated March 18, 2002.02.8

Amendment to Promissory Note by and between Oplink and Frederick R. Fromm dated March 18, 2002.02.9

(1)Agreement and Plan of Reorganization,
dated March 18, 2002 among Avanex Corporation, Pearl Acquisition Corp., and Oplink Communications, Inc.02.10

(1)Rights Agreement, dated as of March 18,
2002, between Oplink Communications, Inc. and The Bank of New York.(1)

Previously filed in the Registrants report on Form 8-K on March 22, 2002.





(b)  Reports on Form 8-K





We filed a report on Form 8-K on March 22, 2002, reporting the Agreement and Plan of Reorganization dated as of March 18, 2002, among Avanex
Corporation, Pearl Acquisition Corp., and Oplink Communications, Inc., and reporting the approval and adoption by the board of directors of the Company of the Rights Plan.




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SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





OPLINK COMMUNICATIONS, INC. (Registrant)By:

/s/    BRUCE D. HORNBruce D. Horn Chief Financial Officer (Principal Financial and Accounting Officer)





DATE:May 15, 2002




48