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

                                    FORM 10-K

       FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)

----
  X     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
----    ACT OF 1934
                  For the fiscal year ended September 30, 2004

                                       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 000-31861


                      OPTICAL COMMUNICATION PRODUCTS, INC.
             (Exact Name of Registrant as Specified in Its Charter)
                              --------------------



Delaware                                                              95-4344224
(State or Other Jurisdiction                                    (I.R.S. Employer
of Incorporation or Organization)                            Identification No.)



                               6101 Variel Avenue
                        Woodland Hills, California 91367
          (Address of principal executive offices, including zip code)

       Registrant's Telephone Number, Including Area Code: (818) 251-7100
--------------------------------------------------------------------------------

        Securities registered pursuant to Section 12(b) of the Act: None
           Securities registered pursuant to Section 12(g) of the Act:

                                                    Name of each exchange
             Title of each class                     on which registered
    ---------------------------------------    --------------------------------
    Class A Common Stock, $0.001 par value       The Nasdaq National Market

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

        Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|

        Indicate by a check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes |_| No |X|

        As of March 31, 2004, the last business day of the registrant's most
recently completed second fiscal quarter, the approximate aggregate market value
of voting and non-voting common stock held by non-affiliates of the registrant
was $61,211,983 (based upon the last closing price for shares of the
registrant's common stock as reported by The National Market System of the
National Association of Securities Dealers Automated Quotation System as of that
date). Shares of common stock held by each officer, director, and holder of 10%
or more of the outstanding common stock have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.

        The registrant has two classes of common stock authorized, Class A
Common Stock and Class B Common Stock. The rights, preferences and privileges of
each class of common stock are identical except for voting rights. The holders
of Class A Common Stock are entitled to one vote per share while holders of
Class B Common


<PAGE>


Stock are entitled to ten votes per share on matters to be voted on by
stockholders. As of December 27, 2004, there were approximately 46,839,305
shares of Class A Common Stock outstanding and 66,000,000 shares of Class B
Common Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

        Certain information required in Part III hereto is incorporated by
reference to the Proxy Statement for the Registrant's 2005 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this Form 10-K.


<PAGE>


                      OPTICAL COMMUNICATION PRODUCTS, INC.

                           ANNUAL REPORT ON FORM 10-K

                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2004

                                TABLE OF CONTENTS

                                                                            Page

PART I.........................................................................1
        ITEM 1.     BUSINESS...................................................1
        ITEM 2.     PROPERTIES................................................27
        ITEM 3.     LEGAL PROCEEDINGS.........................................28
        ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY
                    HOLDERS...................................................28

PART II.......................................................................29
        ITEM 5.     MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
                    RELATED STOCKHOLDER MATTERS...............................29
        ITEM 6.     SELECTED FINANCIAL DATA...................................30
        ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............32
        ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                    ABOUT MARKET RISK.........................................43
        ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............44
        ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                    ACCOUNTING AND FINANCIAL DISCLOSURES......................44
        ITEM 9A.    CONTROLS AND PROCEDURES...................................44


PART III......................................................................45
        ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE
                    REGISTRANT................................................45
        ITEM 11.    EXECUTIVE COMPENSATION....................................45
        ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                    OWNERS AND MANAGEMENT AND RELATED
                    STOCKHOLDER MATTERS.......................................45
        ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............45
        ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES....................45

PART IV.......................................................................46
        ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
                    REPORTS ON FORM 8-K.......................................46


<PAGE>


This Annual Report on Form 10-K,  including  information  incorporated herein by
reference,  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. These statements relate to expectations concerning matters that are not
historical facts. Words such as "projects,"  "believes,"  "anticipates," "will,"
"estimate," "plans," "expects," "intends," and similar words and expressions are
intended to identify forward-looking  statements.  Although we believe that such
forward-looking  statements  are  reasonable,  we  cannot  assure  you that such
expectations  will prove to be correct.  Important  language  regarding  factors
which could cause actual results to differ materially from such expectations are
disclosed in this Report,  including without  limitation under the caption "Risk
Factors"  beginning on page 16 of this Report,  and the other  documents we file
with the Securities and Exchange Commission  ("SEC"),  including our most recent
reports on Form 8-K and Form 10-Q, and amendments  thereto.  All forward-looking
statements   attributable  to  Optical  Communication   Products  are  expressly
qualified in their entirety by such language. We do not undertake any obligation
to update any forward-looking statements.

                                    PART I.

ITEM 1.  BUSINESS


        We  design,   manufacture  and  sell  a   comprehensive   line  of  high
performance,  highly  reliable  fiber  optic  subsystems  and  modules  for  the
metropolitan  area, local area and storage area markets.  Subsystems and modules
are  preassembled  components  that  are used to build  network  equipment.  Our
subsystems  and modules are  integrated  into systems that address the bandwidth
limitations  in  metropolitan  area  networks,  ("MANs"),  local area  networks,
("LANs") and storage area  networks,  ("SANs").  Our  products  include  optical
transmitters,  receivers,  transceivers and transponders that convert electronic
signals into optical signals and back to electronic signals, enabling high-speed
communication  of voice and data  traffic  over public and  private  fiber optic
networks.   Our  products   support  a  wide  range  of  network   applications,
transmission   speeds,   distances  and   standards,   including   international
transmission standards.

        The Company was founded in October  1991 with  initial  funding from The
Furukawa Electric Company, Ltd. of Japan ("Furukawa").  We offer a comprehensive
line of high performance, cost-effective solutions to our customers supported by
volume production  capabilities.  We believe that our close working relationship
with leading  fiber optic  communication  equipment  manufacturers  allows us to
quickly design and build advanced fiber optic  subsystems and modules,  enabling
our  customers to focus on their core  competencies  in  designing  and building
overall systems. Our customers include  communication  equipment  manufacturers,
such as Acterna  Corporation,  Alcatel,  Ciena, Cisco Systems, ECI Telecom Ltd.,
Extreme Networks,  Fujitsu Network Communications,  Huawei Technologies,  Nortel
Networks, and Telrad  Telecommunication and Electronic Industries,  Ltd. some of
whom purchase through contract manufacturers such as Celestica,  Jabil Circuits,
Plexus, Sanmina-SCI, and Solectron.

Industry Background

Increased network traffic

        During the past several years,  the amount of voice and data transmitted
over  communication  networks  has  increased  significantly.   This  growth  is
primarily  attributed  to the rapid  growth  and  popularity  of data  intensive
applications, such as Internet access, distance learning, web hosting, real-time
data backup,  e-mail,  video  conferencing,  multimedia  file  transfers and the
movement of large  blocks of stored data across  networks.  To meet this demand,
communication service providers upgraded their


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<PAGE>


communication  networks to expand capacity,  which greatly reduced  transmission
costs per bit. This cost  reduction has, in turn,  further  increased the demand
for and usage of communication  networks.  This cycle,  increased demand fueling
increased  capacity at reduced costs and increasing demand further,  has enabled
the growth in voice and data traffic across networks.

Evolution of network infrastructure

        Communication networks were originally designed to handle voice traffic.
The infrastructure of existing prior generation, or legacy, networks consists of
copper cabling along which voice  communications  are transmitted in the form of
electronic  signals.  While copper cabling is generally a reliable  transmission
medium,  its ability to transmit large volumes of data at high speed is limited,
and it is prone to electromagnetic  interference, or EMI, from nearby electronic
equipment and other sources.  EMI interferes  with the  transmission of a signal
and degrades signal quality.

        To overcome the  limitations  of the legacy copper cable  infrastructure
and meet  increasing  demand for high  capacity  and  high-speed  voice and data
transmission,   communication   service   providers  have  adopted  fiber  optic
technology in their networks.  Fiber optic technology  involves the transmission
of data over fiber  optic cable via digital  pulses of light,  which  allows for
greater  bandwidth  over longer  distances  than copper cable and higher quality
transmissions that are not subject to EMI.

        Widespread  deployment of fiber optic technology  initially  occurred in
the long-haul network. Long-haul networks connect the communications networks of
metropolitan  areas  around  the world and  facilitate  the  transport  of large
amounts of voice and data traffic over long distances, up to thousands of miles.
Companies  designing  equipment  for this  segment  have  typically  focused  on
providing as much bandwidth as possible between any two locations. The long-haul
market was the first to face increasing network  congestion as data,  aggregated
from expanding MAN, LAN, and SAN  infrastructures,  began to overload  long-haul
networks.   Long-haul   network   managers,   focused  on  maintaining   network
performance, were the first to adopt advanced subsystems and modules to increase
the capacity of existing fiber.  Long-haul  network managers have typically been
concerned  more about  network  performance  than  transmission  equipment  cost
because the cost of increasing the capacity of long-haul networks through adding
fiber is expensive  relative to upgrading the  transmission  equipment to higher
data transmission rates.

        The  build-out  of optical  long-haul  networks  through the adoption of
advanced  subsystems  and modules to increase  capacity  represents an important
step in improving  network  infrastructure  to support  increased demand for new
services  and greater  traffic  volumes.  While  optical  fiber  continues to be
deployed, and its transmission capacity is expanded in long-haul networks, fiber
optic  technologies  are  increasingly  being  adopted to support high data rate
connections to link end-users to the long-haul networks.

Metropolitan area networks, local area networks, storage area networks

        Metropolitan  area networks  consist of metro core and access  networks.
Metro core networks are the distribution  points between long-haul  networks and
metro access networks.  In a typical system,  a long-haul  network connects to a
city-wide MAN through which  long-haul  data is aggregated by network  managers,
such as Internet service  providers,  or ISP, and distributed to local users via
an access network.  Metro core networks enable enterprises and service providers
to  interconnect  network  systems  over  areas from as small as a city block or
corporate campus to a wider geographic area.


                                       2
<PAGE>


        Metro access  networks  connect  business and  residential  end-users to
metro core networks.  These end-users have  increasingly  demanded  higher-speed
connections  to  take  advantage  of  new   data-intensive,   multimedia-centric
applications.  Access  networks  traditionally  have used relatively slow copper
cable based connections.  A number of high-speed transmission  technologies have
been  developed  to  improve  the speed of access  networks,  including  digital
technologies  such  as  digital   subscriber  line,  or  DSL,  and  cable  modem
technologies.  DSL technology utilizes the legacy copper-based infrastructure to
provide users with increased bandwidth at low cost. Cable modems,  which connect
computers  to local  cable TV lines,  also  provide  users  with  access to high
bandwidth  at low cost.  As these high data rates and new  services  become more
widely available to end-users,  legacy copper cable  connections are expected to
become increasingly insufficient to meet demand. Consequently, service providers
are  beginning  to  deploy  fiber  optic  cable  directly  to  end-users  or  to
neighborhood  distribution points, enabling the business or residential end-user
to obtain a wide range of current and future services.

        Local  area  networks  connect  users  within a  building  or  groups of
buildings. Storage area networks connect computers and data storage sites within
buildings or groups of buildings.  These networks were  originally  developed as
copper cable  networks using  standards  such as Ethernet and Fast Ethernet.  As
performance requirements surpassed the limitations of copper-based  deployments,
these  networks  were  upgraded to support  multimode  fiber optic  solutions to
address the expanding  application  needs of the end-user.  As the data rate and
transmission  distance requirements of these networks increase further, they are
being  upgraded  with  single  mode  fiber  optics  technology  to  support  the
next-generation  of  high-speed  networking  standards,  such as  Fibre  Channel
(single, double and quad speed), Gigabit Ethernet, and 10 Gigabit Ethernet.

Market Opportunity

        With increasing volumes of digitally-based data being transmitted across
long-haul  networking  infrastructures,  the MAN topology is often viewed as the
limiting  factor  in  overall  network  performance.  In  addition,  LAN and SAN
segments are also requiring  greater  bandwidth and performance  capabilities to
address  data  traffic  congestion.  As a  result,  network  managers  have been
upgrading  their LAN and SAN  infrastructures  to higher  speeds  using  optical
transmission  technologies and high-speed  networking  standards such as Gigabit
Ethernet, SONET/SDH, Fibre Channel (single, double and quad speed) Fast Ethernet
and 10 Gigabit Ethernet.

        As  demand  for  bandwidth   grows,   service   providers  will  require
increasingly  sophisticated systems to support metro, local and storage networks
applications.  Systems must meet the unique requirements of these networks, such
as  cost-effectiveness  and  reliability  in  harsh  environmental   conditions.
Historically, the MAN, LAN and SAN optical infrastructures have been supplied by
large vertically integrated fiber optic communication  equipment  manufacturers,
which  manufactured  their own components  such as lasers and  photodiodes.  The
demand for optical  networking  equipment has led to the expansion of production
by existing  optical  component  manufacturers,  as well as the  creation of new
companies offering  cost-effective fiber optic systems.  These new companies are
typically  not  vertically  integrated  and do not employ system design teams to
create  mixed   analog/digital   circuits  required  for  laser  and  photodiode
interfaces.

        The market demands on fiber optic communication  equipment manufacturers
to produce  optical  networking  solutions for the MAN, LAN and SAN markets have
given  rise to a number  of  significant  technical  challenges,  including  the
following:


                                       3
<PAGE>


o   Providing  solutions that balance  performance  and cost.  The  metropolitan
    market   requires   optical   subsystems   and  modules  that  are  designed
    specifically to meet the unique  performance  and cost  requirements of this
    market.

o   Providing long distance operation in MAN applications where  interconnection
    distances can range from a few kilometers (km) up to 120km. Systems that are
    unable to transmit over long distances require expensive  repeaters to boost
    and  regenerate  signals,  raising the overall  cost of the  solution to the
    end-customer.

o   Providing wide operating temperature range in metro networks where equipment
    is located in remote locations with no environmental control.  Products that
    operate from -40 to 85 degrees Celsius are a necessity in this market.  This
    is in  contrast  to the  long-haul  network  and local area  networks  where
    equipment is deployed within temperature controlled buildings.

o   Delivering  products  that  address  the  demand  for  increasingly  smaller
    packages  to  provide  higher  port  density  requires   greater   component
    miniaturization, thermal and EMI engineering design expertise.

o   Supporting a wide range of data rates,  transmission distance  requirements,
    network  standards,  optical  interfaces and packaging options requires that
    fiber optic  communication  equipment  manufacturers  offer a broad range of
    products.

o   Producing  increasingly  integrated  products  requires   cross-disciplinary
    expertise in optics,  circuit  design,  packaging,  software,  microwave and
    radio frequency engineering.

o   Responding  to demands  for shorter  lead times  requires  manufacturers  to
    design products and scale production rapidly.

o   Producing  systems to handle  increasingly  higher data rates in  compliance
    with Federal Communications  Commission standards for EMI emissions requires
    advanced fiber optic subsystem and module design.

o   Responding  to customer  requirements  for  "customized"  standard  products
    requires scalable base-line designs.

Current Industry Environment

        The fiber optic  communication  industry  continues to face  challenging
market   conditions.   Capital   spending  by  service   providers   on  network
infrastructure has remained substantially below pre-2001 levels, increasing only
slightly  -  if  at  all  -  during  the  last  year.  As  a  result,  equipment
manufacturers  have also  dramatically  reduced  their  quarterly  purchases  of
components and modules from our  competitors  and from us. While several service
providers, including BellSouth, SBC and Verizon, have recently announced current
and planned investments in Fiber-to-the-Premises  (FTTP) applications,  which we
believe could increase traffic demand on the  metropolitan  area networks (MANs)
into which such FTTP  infrastructure  would feed, it is too early to predict the
outcome of these  potential FTTP roll-outs.  Because  visibility in the industry
remains extremely  limited,  we cannot provide any assurance as to the timing or
extent of any  increased  business  that we may  receive as a result of these or
other industry developments.


                                       4
<PAGE>


Our Solution

        We  design,   manufacture  and  sell  a   comprehensive   line  of  high
performance,  reliable fiber optic subsystems and modules that are used in fiber
optic  transmission  systems.  Our subsystems  and modules are  integrated  into
systems,   which  address  the  bandwidth  limitations  in  MAN,  LAN,  and  SAN
infrastructures.   We  provide   communication   equipment   manufacturers  with
high-value,  cost-effective optical solutions to meet the market requirements of
the MAN,  LAN, and SAN industry  segments,  allowing them to focus on their core
competencies of designing and building overall systems.

        We provide our customers with the following key benefits:

o High-performance, high reliability, cost-effective products - Our portfolio of
high  performance  subsystems and modules enables optical networks to operate at
high data transmission rates, transmit signals over a variety of distances up to
120km and  operate  in wide  temperature  ranges of  between  -40 to 85  degrees
Celsius.  Our products are engineered using advanced packaging  technologies and
feature  low  levels  of  radiated  EMI.  Our  products  are   qualified   under
requirements   established  by  Telcordia   (Bellcore),   an   engineering   and
administrative  services  consortium  that  establishes  industry  standards and
specifications for the telecommunications,  wireless and fiber optic industries.
The Telcordia  requirements relate to the environmental,  electrical and optical
testing for fiber optic  transmitters  and receivers,  to ensure that they offer
the high  reliability  required  for  critical  applications.  Our  products are
engineered  to meet the specific  distance,  temperature  and other  performance
requirements of the MAN, LAN, and SAN markets.

o  Comprehensive  product  line - Our  comprehensive  fiber optic  product  line
provides communication  equipment  manufacturers with a broad range of solutions
for MAN, LAN, and SAN  applications.  Our  subsystems  and modules are available
with all the common fiber optic interfaces,  and are available in a wide variety
of thru-hole and  pluggable  package  styles.  They support a wide range of data
rates, standards, wavelengths and transmission distances.

o Innovative  design  capabilities - We believe that our expertise in high-speed
electronic circuit design and packaging of fiber optic devices,  enhanced by our
close working  relationships  with customers,  enables us to provide  innovative
subsystems  and modules for the MAN, LAN, and SAN markets.  Our  engineers  work
closely with Furukawa and other  suppliers to integrate  advanced  semiconductor
lasers and custom fiber optic  packaging  techniques.  We also have expertise in
designing the complex transmitter circuitry that converts a digital logic signal
into the proper  signal  for the laser or light  emitting  diode.  We design and
manufacture  our own fiber optic receiver  subassemblies  using our  proprietary
automated processes.  As a result of our fiber optic device design expertise and
our close customer  relationships,  we are able to quickly adapt our products to
respond to new standards and our  customers'  requirements  for  subsystems  and
modules.

o Reduced  time to  market - Our  subsystems  and  modules  allow  communication
equipment  manufacturers to design and assemble fiber optic interfaces as easily
as standard  electronic  components by eliminating the need for complex setup of
individual  lasers or  receivers.  By working  closely with our customer  design
teams, we are able to provide optimized  solutions that are  cost-effective  and
meet time to market objectives.

o Scalable  manufacturing  capabilities  - Our broad  portfolio  of products use
modular designs which enable us to rapidly configure and manufacture  subsystems
and modules to meet each customer's


                                       5
<PAGE>


specifications  and to rapidly scale our production to deliver these products in
volume.  We can easily  customize  our  products  for  example  by  implementing
different electrical  connections,  or pin configurations,  voltages and package
sizes as requested by our customers,  without impairing the functionality of our
products.

Products

        We offer a comprehensive line of high-performance fiber optic subsystems
and modules, including fiber optic transmitters,  receivers,  transceivers,  and
transponders, primarily for use in MAN, LAN, and SAN. Fiber optic subsystems and
modules are pre-assembled  components that are used to build network  equipment.
Our products  convert  electronic  signals  into  optical  signals and back into
electronic  signals,  thereby  facilitating the transmission of information over
fiber  optic  communication   networks.   We  believe  our  products'  technical
specifications  meet or exceed industry standards for fiber optic subsystems and
modules.

        Our fiber optic products  integrate  advanced optical devices with mixed
analog/digital  integrated  circuits.  These circuits allow continuously varying
signals and digital data to be designed in the same circuit rather than separate
circuits.  Our  products  provide  subsystem/module  functionality  over  a wide
variety of connectivity speeds,  distances,  standards and operating temperature
ranges.

        Our products are  engineered  with varying levels of integration to suit
our customers. The lowest level of integration involves separate transmitter and
receiver  modules,  which  provides our  customers the greatest  flexibility  in
product  design by allowing  them to place the  transmitters  and the  receivers
according to their design specifications. Transceivers provide the next level of
integration.  Transceivers  place both the  transmitter and receiver in the same
package  with a dual fiber or  connector  interface.  Transponders  provide  the
highest level of  integration  by combining the  functionality  of a transceiver
with the addition of multiplexer and demultiplexer circuits in the same package.

Current products

        Transmitters and Receivers - Transmitters  convert an electronic digital
input signal into an optical output signal for  transmission  over a fiber optic
network. Receivers detect optical signals from a fiber optic network and convert
them into an  electronic  signal in  standard  digital/logic  format for further
signal  processing.  We offer  separate  transmitter  and receiver  modules that
provide  our  customers  with the  greatest  flexibility  in  product  design by
allowing them to place transmitters and receivers separately according to design
specifications.

        Our optical  transmitter  and receiver  products  support the SONET/SDH,
Fast Ethernet, Gigabit Ethernet and Fibre Channel transmission standards and are
offered in a wide range of data  rates,  transmission  distances  and  packaging
options.

        DWDM  Transmitter - Dense  wavelength  division  multiplexing,  or DWDM,
transmitters allow the mixing of optical signals using different  standards such
as  SONET/SDH,  asynchronous  transfer  mode, or ATM, and Gigabit  Ethernet,  by
utilizing  different  wavelengths.  Our DWDM  transmitters  are  available  in a
compact, low-profile 24-pin package along with two supply voltage options. Also,
the transmitters are provided with additional  functions such as disable inputs,
LD degradation alarm, and wavelength deviation alarm signals.


                                       6
<PAGE>


        Transceivers  - Optical  transceivers  are products  that contain both a
transmitter  and a  receiver  in a single  device  and  serve as high  data rate
interconnects  between network devices, such as routers,  switches,  servers and
storage  elements.  Our optical  transceivers are available in a wide variety of
fiber optic interfaces, or form factors, and support a wide range of data rates,
wavelengths,  modes and transmission  distances.  Our  transceivers  support the
SONET/SDH,  ATM, Fast Ethernet,  Gigabit Ethernet and Fibre Channel transmission
standards.

        SFP Transceivers - Small form-factor pluggable, or SFP, transceivers are
"hot-pluggable"  optical  transceivers  that can be removed or inserted into the
equipment  without turning off the power of the system.  This feature allows our
customers  to readily  reconfigure  their  systems  without  interrupting  their
network  services,  thereby,  eliminating  system  downtime  during upgrades and
maintenance.  Our cam latches are color  coded to provide the  end-user  with an
easy way to identify module types in an installed system.

        Our SFP  transceiver  is available in a variety of distances  and speeds
and uses the  popular  small form  factor LC fiber  optic  connector  interface,
allowing fiber optic equipment  makers to increase their port density.  They are
also offered in speeds from 155 Mb/s up to 2.5Gb/s  including  multimode LED and
850nm VCSEL as well as single mode 1310 and 1550nm lasers. We provide commercial
and industrial temperature ranges of many SFP transceiver models.

        CWDM Transceivers - Coarse wavelength  division  multiplexing,  or CWDM,
transceivers,  allow the  mixing  of  optical  signals  by  utilizing  different
wavelengths.  The CWDM  transceivers  use lasers  with wide  channel  wavelength
spacing,  typically 20 nm, which allows the equipment to achieve a lower overall
system cost. This lower cost is the result of a lower  transmitter cost since no
temperature  and  wavelength  control  is  needed,  as well  as a lower  optical
MUX/DMUX cost due to wider tolerance on the wavelength stability and bandwidth.

        Our CWDM  transceivers are available in all the common industry standard
transceiver  footprints  of 1x9,  2x9,  GBIC,  SFF and SFP,  and  provide  eight
wavelength  channels at  nominally  1470 nm, 1490 nm, 1510 nm, 1530 nm, 1550 nm,
1570 nm, 1590 nm, and 1610 nm. They are  available in a  multi-rate  format that
allows operation at all speeds from 100 Mb/s Ethernet up to 2.5Gb/s. SONET/SDH.

        Bi-Directional  Transceivers-  Bi-Directional  transceivers  allow  full
duplex  transmission  utilizing a single fiber. These  transceivers  incorporate
lasers,  receivers and optical filters,  allowing simultaneous  transmission and
reception from a single port or a single fiber. The advantage of  Bi-Directional
transceiver  modules is lower material cost, lower  installation  cost and lower
operational  cost for fiber  installations,  as a result of having to  purchase,
install, maintain, and administer fewer fibers.

        Our  Bi-Directional  transceivers  are  available  in industry  standard
pluggable  modules (SFP) and are compliant to industry standard of EFM (Ethernet
for First Mile).  The data  transmission is 1250 Mb/s which is Gigabit  Ethernet
standard  rate.  Samples  of these  products  are  available  to  customers  for
evaluations.

        Transponders - Our optical  transponders  combine the functionality of a
transceiver   with   integrated   circuits  for  electronic   multiplexing   and
demultiplexing  in the same package.  Multiplexers are paired with  transmitters
and allow the system  designer to combine  multiple  low-speed  electronic  data
streams onto a single optical  wavelength,  while  demultiplexers  and receivers
reverse this process. The transmitter portion of the transponder accepts sixteen
155 Mb/s  electronic  signals,  multiplexes  them  together  and provides at the
output  a  single  2,488  Mb/s  optical  signal.  The  receiver  portion  of the


                                       7
<PAGE>


transponder  performs the reverse  function,  namely  accepting a single optical
signal and providing back sixteen 155 Mb/s electronic signals.  The advantage of
this product is the compact overall design that minimizes the equipment size and
the low speed  electronic  interface  that  simplifies  our  customers'  printed
circuit design.

Products under development

        Our product  development  efforts have, and will continue to be, focused
on developing new products and  technologies to support  increased  transmission
speeds,  distances and capacities.  We have been developing  products to support
future  generations  of fiber optic MAN, LAN, and SAN by utilizing  CWDM,  DWDM,
850nm VCSEL-based optical modules, the integration of 1310nm VCSELs into optical
modules and to address 10 Gb/s transmission standards.

        Wavelength  division  multiplexing  is a technology that allows multiple
signals to be sent along the same  optical  fiber by using  different  colors of
light for each signal.  We have expanded efforts in this area to cover SONET/SDH
and Gigabit Ethernet applications for multiple operating temperature ranges.

        We plan to  introduce  optical  transceivers  using DWDM as well as CWDM
technologies.  These are being  designed to allow the mixing of optical  signals
using different  standards,  such as SONET/SDH,  asynchronous  transfer mode, or
ATM, and Gigabit Ethernet, by utilizing different wavelengths.

        In October  2002 we  acquired  certain  assets of Cielo  Communications,
Inc., a research and design company located in Broomfield,  Colorado  focused on
creating VCSEL technology for fiber optic communication  networks.  The purchase
price  was $5  million  and  includes  the  acquisition  of  capital  equipment,
inventory  and  intellectual  property.  We  believe  the Cielo  Communications'
technology  will enhance our ability to accelerate  the  integration  of 1300 nm
VCSEL sources into the next generation of optical modules.  Due to the potential
low cost to produce 1300 nm VCSELs, we believe the cost of our new generation of
optical modules employing these 1300 nm VCSEL sources will be lower than modules
employing  other types of optical  sources.  We also  expect that these  optical
modules will offer the advantage of lower power consumption.

        We believe that some of our competitors are developing  products similar
to those  that we have  under  development.  While we are  currently  developing
products in all of the areas  described  above,  we may choose to  prioritize or
redirect our development efforts in response to market demands. Therefore, it is
not certain that we will  introduce  products  for any or all of the  categories
listed above.

Customers

        We sell our products to communication equipment manufacturers,  or CEMs,
directly and through contract  manufacturers,  or CMs, who incorporate them into
systems  they  assemble  for  CEMs.  Contract  manufacturers  assemble  specific
products  for CEMs.  We define  our  customers  as CEMs who have  purchased  our
products  directly  or ordered  our  products  for  incorporation  into  systems
produced by contract manufacturers,  such as Celestica,  Jabil Circuits, Plexus,
Sanmina-SCI, and Solectron.

        A  small  number  of  customers  have   historically   accounted  for  a
significant  portion of our total revenue.  For the fiscal year ended  September
30, 2004,  our 10 largest  customers  accounted for 68.0% of our total  revenue,
with  Alcatel  and  Cisco  Systems  (including  sales to each of their  contract
manufacturers)  accounting  for  approximately  16.7%  and  11.2%  of our  total
revenue,  respectively.  No


                                       8
<PAGE>


other  customer  accounted for more than 10.0% of our revenue  during the fiscal
year ended September 30, 2004.

        For financial  reporting  purposes,  we consider our customers to be the
CEMs, CMs and distributors  who place purchase orders with us directly.  Comstar
Communications  accounted for  approximately  11.1% of our total revenue for the
fiscal year ended September 30, 2004. No other customer  accounted for more than
10.0% of our revenue during the fiscal year ended September 30, 2004.

Technology

        The  development  and  manufacture  of   high-performance   fiber  optic
subsystems and modules for MAN, LAN, and SAN require  diverse  technical  skills
and expertise. We believe that our understanding of fundamental optical devices,
their  packaging  and  high  speed  circuit  design  allows  us  to  extend  the
performance of low cost packaging and technology,  which we originally  designed
for smaller local area networks,  to provide the  high-performance  required for
fiber optic MAN,  LAN, and SAN. Key elements of our  technological  capabilities
include:

        o  Optical  device  technology - With the purchase of certain  assets of
           Cielo Communications,  Inc., a research and design company located in
           Broomfield,  Colorado,  we have acquired the technology of designing,
           fabricating  and packaging long wave VCSEL  devices.  We believe that
           this long wave VSCEL device  technology  is a key building  block for
           next generation optical modules.

           In addition,  we understand  the  performance  requirements  for many
           optical devices for use in fiber optic systems. There is a wide range
           of optical source and detector technologies available, and these must
           be optimized for each application.

        o  Optical  packaging/subassembly design - We work closely with Furukawa
           and other suppliers to combine advanced  semiconductor  laser designs
           and custom optical  packaging  techniques to produce advanced optical
           subassemblies. Less than one micron tolerances, or variability in the
           alignment of  components,  are  required in these laser  packages and
           reliability  specifications  require  us  to  hold  these  mechanical
           tolerances over a wide range of  temperatures  and the specified life
           of our  products.  A micron is one  thousandth  of a  millimeter.  We
           believe these designs and technologies improve the performance of our
           products as well as enhance yields and reduce material costs. We also
           design our receiver  packages for automated  assembly,  and we design
           and manufacture our own optical subassemblies for our receivers. This
           allows us to provide design  flexibility,  high-performance,  and the
           ability to manufacture in volume.

        o  Links with Furukawa - We have worked closely with Furukawa to develop
           new optical devices for our products using  technology that they have
           developed.  Furukawa  supplies  us with the  majority  of the optical
           devices, such as lasers, needed for some of the optical subassemblies
           used in our products.

        o  Electronic  circuit  design - We have the expertise to design complex
           transmitter  circuitry  that converts a digital logic signal into the
           proper signal for the laser or light emitting diode. This circuit has
           compensation  and feedback  control  loops that change the current to
           maintain  constant optical power output.  This electronic signal must
           also  be  modulated


                                       9
<PAGE>

           and the waveform of the  modulation  must be carefully  controlled to
           ensure that the optical  output meets the fiber optic  communications
           equipment   manufacturer's  defined  specifications.   We  also  have
           considerable expertise in designing receivers to minimize the effects
           of external noise that can significantly  affect the performance of a
           receiver.  Our  products  operate at speeds up to 2.5 Gb/s and we are
           working  to  develop  future  products  to work at 10 Gb/s.  At these
           speeds,  microwave and radio frequency design techniques must be used
           to ensure that the  waveforms do not degrade and meet the  parameters
           defined in standards.  We believe our technical competencies in these
           areas enable us to produce  fiber optic  subsystems  and modules with
           low electromagnetic interference emission levels.

        o  Fast product development cycle time - Our products are designed using
           a  building  block  approach  that  allows  us to  combine  different
           subassemblies  in different ways to provide a wide range of products.
           Our integrated  subassemblies  allow us to quickly adapt our products
           to respond  to new  standards  and our  customers'  requirements  for
           special subsystems and modules. This ability, in combination with our
           market knowledge, allows us to select the commercial opportunities we
           believe to be the best and provide samples and production  volumes in
           very short time frames.

Manufacturing

        We  assemble,  burn in and test all of our  products in our  facility in
Woodland  Hills,   California.   We  also  conduct  all  of  our  manufacturing,
engineering, quality assurance and documentation control at this facility.

        We use a number of subcontractors and suppliers,  including Furukawa, to
supply  subassemblies.   We  rely  upon  domestic  and  international   contract
manufacturers for most of our printed circuit board assembly.  Our manufacturing
supply  chain  management  team  manages  these  relationships  supported by our
research and development group. We do not have any long-term  contracts with any
of our contract manufacturers and none of them are obligated to perform assembly
services for us for any specific period or at any specific price,  except as may
be provided in a particular purchase order.

        We  provide  quality  assurance  through  internal  testing   procedures
throughout the entire  manufacturing  process.  Our quality  control  procedures
include vendor inspection, incoming material inspection,  in-process testing and
outgoing inspection. We provide specialized training to assure the competency of
our manufacturing personnel.

        We  purchase  several key  components  for our  products  from a limited
number  of  suppliers.  The  components  that  we  purchase  include  integrated
circuits,  lasers,  light  emitting  diodes,  vertical  cavity  surface-emitting
lasers,  photodiode  devices and other passive  electronic  components.  We have
periodically  experienced  shortages  and delivery  delays for these  materials.
Because we operate in an industry where material  supplies are  constrained,  we
maintain an inventory of some limited source  components to decrease the risk of
shortage.  As a result,  we have excess  inventory of these components that have
led to write downs of excess inventory.

Research and Development

        In fiscal 2002,  2003, and 2004, our research and  development  expenses
were $5.3 million, $16.2 million and $17.0 million,  respectively.  Our research
and  development  activities  are focused on


                                       10
<PAGE>


enhancing our existing  products,  developing  new products to meet the evolving
needs of our  customers  within our  existing  markets and  supporting  emerging
standards that are consistent with our product strategies.

        We plan  to  continue  to  collaborate  with  universities  or  research
institutes  in  our  product  development  effort.  In  addition,  Furukawa  has
developed a number of innovative  components  that we have  integrated  into our
products.  We plan to continue to collaborate with Furukawa to take advantage of
their optical component technology wherever appropriate.

Sales, Marketing and Technical Support

        We sell our products  primarily through our worldwide direct sales force
supported by independent  manufacturers'  representatives and distributors.  Our
direct  sales force and field  applications  engineering  team  maintains  close
contact with our customers and provides  technical support to our manufacturers'
representatives and distributors. We maintain regional sales offices in Northern
and Southern California, Texas, New Hampshire, Canada and the United Kingdom. In
addition, we have direct sales personnel located on the East Coast of the United
States,  working from home offices. Our corporate customer service department in
Woodland Hills,  California provides day-to-day updates on orders and deliveries
to our customers world-wide, excluding Europe. We also have a satellite customer
service  operation in our United Kingdom  facility to better address our growing
European customer base.

        We  have  established  contractual   relationships  with  manufacturers'
representatives  and distributors in North America,  Europe,  Israel,  and Asia.
Manufacturers'  representatives  and  distributors are third parties who provide
commercial  and  technical   support  in  selling  our  products  to  customers.
Manufacturers'  representatives represent us with customers, but customers place
orders  directly with us. We pay the  manufacturers'  representatives  a fee for
this service.  Distributors  perform the same  function,  but differ in that the
distributor  buys  products  from us and  resells  them at a  profit  to the end
customer.  We have short-term contracts with our manufacturers'  representatives
and distributors, which can be cancelled by either party upon 30 days notice. We
intend to expand our indirect sales activity by establishing  relationships with
additional independent manufacturers'  representatives and distributors.  Please
refer to Note 14 to our Notes to Financial  Statements  for further  information
about our sales to particular geographic areas.

        We focus our  marketing  on CEMs in the fiber  optic MAN,  LAN,  and SAN
markets.  Our  intent  is to  become  a market  driven  supplier  that  provides
cost-effective,  value-add  solutions to our customer  base.  Our efforts in the
development  of an  effective  branding  campaign  are to  better  position  our
strengths  as  customer-focused  suppliers  of a broad  product  portfolio  that
addresses optical applications. Key elements of our marketing initiatives are as
follows:

      o Expansion  of the overall  marketing  resources to provide more focus on
        industry  segments,  to  identify  and drive  new  product  efforts,  to
        position  our  company  strengths  with  our  customers  as  well as the
        technical community, and to introduce new revenue opportunities into the
        company product portfolio.

      o The  development  of  key  marketing  relationships  at  our  identified
        strategic accounts with high-level decision makers to better position us
        for  current  and  next-generation   opportunities  during  the  product
        development and specification defining phases.


                                       11
<PAGE>



      o The  expansion  of our  applications  engineering  group to provide  our
        customers  with complete pre- and  post-sales  technical  support on our
        products, including design and troubleshooting assistance.

           We have added  geographically-based  field applications  engineers to
           service key regional design centers to support the sales efforts.

      o The implementation of a marketing  communications  plan to focus efforts
        on  strategic   corporate   branding  and  positioning   initiatives  in
        advertising,  press  relations,  tradeshow  events,  web site,  speaking
        engagements, and publication opportunities. The new web site launched in
        September  2003  includes  a part  number  search  engine  and  provides
        customers with a comprehensive listing of our broad product portfolio.

        We also interact with our customers in industry associations,  standards
committees and participation in multi-source agreements,  to promote and further
enhance our position within the technical community.

        We provide  extensive  technical  support to our customers  during their
design and qualification process through direct contact with our application and
design   engineering   teams.  In  addition,   our  web  site  provides  product
documentation  and application  notes. Our account managers and customer service
personnel provide ongoing post-sales support.

Backlog

        Backlog  consists of orders for  shipments  with release  dates from our
customers.  As of September  30, 2004 and  September  30, 2003,  our backlog was
approximately $6.6 million and $5.3 million, respectively. Orders in backlog are
firm, but are subject to cancellation  or rescheduling by the customer.  Backlog
comparisons  on a year to year or quarter to quarter basis may not be meaningful
as our backlog is unpredictable and fluctuates monthly.

Competition

        The MAN, LAN, and SAN markets for optical subsystems and modules for CEM
applications are highly competitive and subject to rapidly changing  technology.
We believe  the  primary  competitive  factors  impacting  our  business  are as
follows:

o       Breadth of product portfolio;
o       Competitive with market-level pricing;
o       Time to market of new product introductions;
o       Established relationships with key customers;
o       Capability to scale production requirements;
o       Quality and reliability of products;
o       Complete technical documentation for product lines;
o       Financially stable suppliers;
o       Ability to provide technical design support;
o       Scope and responsiveness of service and technical support;
o       Compliance to industry standard specifications; and
o       Meeting the customer design phase timelines for product qualification.


                                       12
<PAGE>

        We believe  that we have  established  a favorable  position in the MAN,
LAN, and SAN markets by identifying  and focusing on fiber optic  subsystems and
modules specifically for these segments. We believe that we are focused on these
markets with a combination of comprehensive  product portfolios,  management and
design  expertise,  market  understanding  and  manufacturing  capabilities.  We
compete primarily with Agilent Technologies, ExceLight Communications,  Finisar,
Infineon Technologies, JDS Uniphase, MRV Communications,  OpNext, Picolight, and
Stratos  Lightwave.   Many  of  our  current  and  potential   competitors  have
significantly  greater  financial,  technical,  marketing,  purchasing and other
resources  than we do. In  addition,  several  low-cost  Asian  competitors  are
entering into our market  segment.  We have  competitors  for all of our current
products.

        Our  products  may  also   compete   with   technologies   that  provide
alternatives to optical networking, including fixed and mobile radio, free space
point-to-point  optical  transmission  and  copper-based  technologies  such  as
digital  subscriber line, or DSL, and cable modems.  Most of these  technologies
provide lower speed and shorter distance  capabilities  than optical  networking
technologies,  but may provide certain advantages such as lower costs and mobile
capabilities.

Intellectual Property

        Our  success  and  ability  to  compete  is  dependent  in  part  on our
proprietary technology.  We rely primarily on patent,  copyright,  trademark and
trade secret laws, as well as confidentiality  agreements and other methods,  to
establish and protect our proprietary technologies and processes. However, these
measures afford only limited protection of our proprietary technology. Including
patent properties acquired from Cielo Communications in October 2002, our patent
portfolio now counts more than 53 issued United States  patents and more that 37
pending  United States  patent  applications.  In addition,  there is one issued
Canadian patent, 5 pending  Canadian patent  applications,  one pending European
patent, and one pending PCT international patent  applications.  There can be no
assurance that we will continue to seek the issuance of patents from our pending
patent  applications  filed in the United States and other foreign  governmental
authorities.  Furthermore,  there  can be no  assurance  that any of our  patent
applications  will  result in the  issuance  of any  patents or that any patents
issued  will  provide  competitive  advantages  for our  products  or protect us
against  claims  asserting  that  our  products  infringe  or may  infringe  the
proprietary rights of third parties.

        On  April  12,  2002,  the  Company  entered  into a  five-year  license
agreement  with  Stratos   Lightwave,   Inc.  covering  Stratos'   portfolio  of
optoelectronic  transceiver  patents.  In  addition,  we acquired  two  licenses
related to VCSEL technology  resulting from our acquisition of certain assets of
Cielo  Communications.  With the exception of these three licenses, we currently
do not license to or from any other third  parties  the  technology  used in the
manufacture  of  our  fiber  optic  subsystems  and  modules.  In  addition,  no
technology is transferred or licensed in connection with our supply relationship
with  Furukawa.  Accordingly,  Furukawa  owns  the  technology  relating  to the
manufacture of its laser and other products we purchase for  incorporation  into
our products and may license or sell this  technology to other  parties.  We own
the technology  relating to the  manufacture  of our fiber optic  subsystems and
modules.  We have not transferred to Furukawa any  intellectual  property rights
that  would  allow it to  compete  with us in the  MAN,  LAN,  and SAN  markets.
However, there can be no assurance that Furukawa would not develop in the future
internal  capabilities to manufacture fiber optic subsystems and modules similar
to and competitive with our products.

        Litigation  may be necessary  in the future to enforce our  intellectual
property rights or to determine the validity and scope of the proprietary rights
of others.  This litigation  could result in substantial  costs and diversion of
resources and could  significantly harm our business.  From time-to-

                                       13
<PAGE>

time,  third  parties  may  assert  patent,   copyright,   trademark  and  other
intellectual  property rights to technologies and in various  jurisdictions that
are important to our business.  Any claims asserting that our products  infringe
or may infringe  proprietary rights of third parties, if determined adversely to
us, could  significantly harm our business.  Any claims,  with or without merit,
could be time-consuming,  result in costly litigation, divert the efforts of our
technical and management personnel,  cause product shipment delays or require us
to enter into royalty or licensing agreements,  any of which could significantly
harm our  business.  Royalty or licensing  agreements,  if required,  may not be
available on terms acceptable to us, if at all. In addition, our agreements with
our customers  typically  require us to indemnify our customers from any expense
or liability  resulting from claimed  infringement  of third party  intellectual
property  rights.  In the event a claim  against us is  successful,  we could be
liable for significant  monetary  damages.  If we cannot obtain a license to the
relevant  technology on acceptable  terms or license a substitute  technology or
redesign our products to avoid infringement, our business would be significantly
harmed.

Employees

        As of  September  30,  2004,  we  had  324  full-time  employees  and no
part-time  employees.  Our  employees  are  not  represented  by any  collective
bargaining   agreements   and  we  have  never   experienced  a  work  stoppage.
Notwithstanding  the  current  economic  downturn,   we  consider  our  employee
relations to be generally good.

Our Relationship with Furukawa

        We were incorporated as a California  corporation in October 1991 and we
subsequently  reincorporated  as a  Delaware  corporation  in  October  2000  in
connection  with our initial public  offering.  In November 1991, a wholly owned
subsidiary  of The Furukawa  Electric  Co.,  Ltd.  provided our initial  capital
investment.  Furukawa,  a publicly held company  incorporated  under the laws of
Japan, is one of the world's leading  manufacturers  of electric wire and cable,
nonferrous metals and related products.  It also provides engineering  services,
including the  installation  of power and  telecommunications  cables,  and is a
major manufacturer of fiber optic cable.  Furukawa's stock is publicly traded on
the  Tokyo  Exchange  Nikkei  in Japan.  Furukawa  beneficially  owns all of our
outstanding Class B common stock, which as of October 31, 2004 represented 58.5%
of our outstanding shares of common stock and 93.4% of the combined voting power
of all of our outstanding common stock.

        Our  relationship  with  Furukawa  has  allowed us to  benefit  from the
optical  device and  packaging  technologies  developed at its  laboratories  in
Japan,  which are  incorporated  into  laser  products,  that we  purchase  from
Furukawa for inclusion in our products. We have also established a close working
relationship  with  Furukawa's  research and development  team through  periodic
meetings  and   discussions   to  understand   our  product  and   manufacturing
requirements.   Under   these   arrangements,   Furukawa   customizes   to   our
specifications the components that it supplies to us. For example,  Furukawa has
developed laser products with customized features in the areas of package design
and power output.  We have not licensed from Furukawa any of its optical devices
or other technologies.

        We  currently  purchase  the  majority of lasers from  Furukawa  under a
Master Purchase Agreement which we entered into with Furukawa on October 1, 2003
which was  automatically  renewed on October 1, 2004. We have enjoyed a reliable
supply of these critical components from Furukawa in the past. Under this Master
Purchase Agreement,  we agreed to purchase from Furukawa, and Furukawa agreed to
manufacture and sell to us, specific types of lasers which are critical parts in
the  manufacture of our subsystems and modules.  This Agreement  continues until
September 30, 2004, and renews  automatically


                                       14
<PAGE>


each year  thereafter  unless it is  terminated  upon  written  notice by either
Furukawa or us prior to renewal.  Under this  agreement,  OCP and Furukawa  must
maintain a minimum  quantity  of certain  products.  The product and its related
quantities,  or safety  stock  level,  shall be  specified by OCP on a quarterly
basis. OCP will be obligated to purchase any unused safety stock at the close of
the  quarter or at the  termination  of the  agreement.  The  pricing  for these
products are set out in the Agreement, although we have agreed to negotiate with
Furukawa  on a quarterly  basis to  determine  whether  the pricing  needs to be
revised.  Either  Furukawa or we may terminate the Agreement upon written notice
to the other for material breach, bankruptcy, or force majeure.

        From time to time our research and  development  team works closely with
Furukawa's  team to assist in the  development  of our design and  manufacturing
process. We may enter into similar  development  agreements with Furukawa in the
future. However we have no current commitments and currently have no development
agreements under negotiation with Furukawa.

Disposition of Chatsworth Facility

        In June 2004,  we sold the building  located in  Chatsworth,  California
which was our former corporate headquarters.  Net proceeds from this transaction
were approximately $5.7 million.

RISK FACTORS

        This Report  contains  forward-looking  statements  based on the current
expectations,  assumptions, estimates and projections about us and our industry.
Our  actual  results  could  differ  materially  from those  discussed  in these
forward-looking  statements  as a  result  of  certain  factors,  as more  fully
described in this section and  elsewhere in this Report.  These  forward-looking
statements  involve risks and  uncertainties.  You should carefully consider the
following risks before you decide to buy shares of our Class A common stock. The
risks  and  uncertainties  described  below  are not the only  ones  facing  us.
Additional  risks  and  uncertainties,   including  those  risks  set  forth  in
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" and elsewhere in this Report,  may also adversely  impact and impair
our  business.  If any of the  following  risks  actually  occur,  our business,
results of operations or financial  condition would likely suffer. In such case,
the trading  price of our Class A common stock could  decline,  and you may lose
all or part of the  money  you paid to buy our  stock.  We do not  undertake  to
update  publicly  any  forward-looking  statements  for any reason,  even if new
information becomes available or other events occur in the future.

Our continued success in generating revenue depends on growth in construction of
fiber optic MAN, LAN, and SAN.

        Our fiber optic  subsystems  and modules are used primarily in MAN, LAN,
and SAN applications. These markets are rapidly evolving, and it is difficult to
predict  their  potential  size or  future  growth  rate.  In  addition,  we are
uncertain  as to the extent to which  fiber optic  technologies  will be used in
these  markets.  Our success in generating  revenue will depend on the growth of
these  markets and their  adoption of fiber optic  technologies.  A  substantial
portion of our  revenue is derived  from sales of our product in the MAN market.
Sales of our products for the MAN market represented approximately 87%, 84%, and
86% of our  revenue  for the years  ended  September  30,  2004,  2003 and 2002,
respectively.

        As the result of currently uncertain economic and market conditions, (a)
our revenue may decline, (b) we are unable to predict future revenue accurately,
and (c) we are  currently  unable  to  provide  long-term  guidance  for  future
financial performance. The conditions contributing to this difficulty include:


                                       15
<PAGE>


o       lower near term revenue visibility; and
o       general market and economic uncertainty.

        Based on these  and other  factors,  many of our  major  customers  have
reduced  orders for our  products  and have  expressed  uncertainty  as to their
future requirements.  As a result, our revenue in future periods may decline. In
addition,  our ability to meet financial  expectations for future periods may be
harmed.

We derive a  significant  portion of our total  revenue  from a few  significant
customers,  and our total  revenue  may  decline  significantly  if any of these
customers cancels, reduces or delays purchases of our products or extracts price
concessions from us.

        Our success  depends on our  continued  ability to develop and  maintain
relationships  with a  limited  number  of  significant  customers.  We sell our
products  into  markets  dominated  by a  relatively  small  number  of  systems
manufacturers,  a fact that limits the number of our  potential  customers.  Our
dependence  on orders from a  relatively  small  number of  customers  makes our
relationship with each customer critical to our business.

        We do not have long-term  sales  contracts with our customers.  Instead,
sales to our customers are made on the basis of individual  purchase orders that
our customers may cancel or defer on short notice without  significant  penalty.
In the past,  some of our major  customers  canceled,  delayed or  significantly
accelerated  orders in response to changes in the  manufacturing  schedules  for
their  systems,  and they are  likely  to do so in the  future.  The  reduction,
cancellation  or delay of individual  customer  purchase  orders would cause our
revenue to decline.  Moreover,  these  uncertainties  complicate  our ability to
accurately  plan  our  manufacturing  schedule.  Additionally,  if  any  of  our
customers  cancel or defer  orders,  our  operating  expenses  may increase as a
percentage of revenue.

        In the past,  our customers have sought price  concessions  from us, and
they are likely to  continue to do so in the future.  In  addition,  some of our
customers may shift their purchases of products from us to our competitors.  The
loss of one or more of our significant customers,  our inability to successfully
develop  relationships  with  additional  customers or future price  concessions
could cause our revenue to decline significantly.

We are  dependent  on a  limited  number  of  suppliers  for  most  of  our  key
components.   If  these   suppliers   are  unable  to  meet  our   manufacturing
requirements,   we  may  experience  production  delays  leading  to  delays  in
shipments, increased costs and cancellation of orders for our products.

        We purchase several key components that we incorporate into our products
from a limited number of suppliers.  We also purchase the majority of our lasers
from Furukawa under a Master Purchase Agreement. We do not have long-term supply
contracts with any of our other key suppliers and our agreement with Furukawa is
only for one year. Our dependence on a small number of suppliers and our lack of
longer  term  supply  contracts  exposes  us to  several  risks,  including  our
potential  inability  to obtain an adequate  supply of quality  components,  the
discontinuance  of key components  from our suppliers,  price increases and late
deliveries.  We have  experienced  shortages  and delays in  obtaining,  and the
discontinuation  of  key  components  in  the  past  and  expect  to  experience
shortages, delays, and the discontinuation of key components in the future.


                                       16
<PAGE>

        In the past,  industry  capacity  has been  constrained  and some of our
component  suppliers  placed limits on the number of  components  sold to us. If
industry capacity becomes constrained in the future, our component suppliers may
place similar  limits on us. We do not have any control over these  limits,  and
our  suppliers  may  choose  to  allocate  more  of  their   production  to  our
competitors.

        A  disruption  in, or  termination  of,  our  supply  relationship  with
Furukawa  or any of our  other  key  suppliers,  or  our  inability  to  develop
relationships  with new suppliers would interrupt and delay the manufacturing of
our products,  which could result in delays in our revenue,  or the cancellation
of  orders  for our  products.  We may not be able  to  identify  and  integrate
alternative  suppliers  in a  timely  fashion,  or at  all.  Any  transition  to
alternative suppliers would likely result in delays in shipment, quality control
issues and increased  expenses,  any of which would limit our ability to deliver
products  to  our  customers.  Furthermore,  if we are  unable  to  identify  an
alternative  source of supply,  we may have to redesign or modify our  products,
which would cause delays in shipments,  increase design and manufacturing  costs
and require us to increase the prices of our products.

Our future  operating  results are likely to fluctuate  from quarter to quarter,
and if we fail to meet the expectations of securities analysts or investors, our
stock price could decline significantly.

        Our historical  quarterly  operating results have varied  significantly,
and our  future  quarterly  operating  results  are likely to  continue  to vary
significantly   from   period  to  period.   As  a  result,   we  believe   that
period-to-period  comparisons of our operating results should not be relied upon
as an indicator of our future performance.  Some of the factors that could cause
our operating results to vary include:

o       fluctuations  in  demand  for,  and  sales of,  our  products,  which is
        dependent on the implementation of fiber optic networks;
o       the  timing  of  customer  orders,  particularly  from  our  significant
        customers;
o       competitive factors,  including  introductions of new products,  product
        enhancements   and  the   introduction   of  new   technologies  by  our
        competitors,   the  entry  of  new  competitors  into  the  fiber  optic
        subsystems and modules market and pricing pressures;
o       our ability to control expenses;
o       the mix of our products sold; and
o       economic   conditions   specific  to  the   communications  and  related
        industries.

        We incur expenses from time to time that may not generate  revenue until
subsequent quarters. In addition, in connection with new product  introductions,
we incur research and development expenses and sales and marketing expenses that
are not matched with revenue until a subsequent  quarter when the new product is
introduced. We cannot assure you that our expenditures on manufacturing capacity
will  generate  increased  revenue in  subsequent  quarters  or that new product
introductions will generate sufficient revenue in subsequent quarters to recover
our research  and  development  expenditures.  If growth in our revenue does not
outpace the increase in our expenses,  our quarterly  operating results may fall
below expectations and cause our stock price to decline significantly.

        Due to these and other factors,  we believe that our quarterly operating
results are not an indicator of our future performance. If our operating results
are below the  expectations  of public  market  analysts or  investors in future
quarters,  the  trading  price of our  Class A common  stock  would be likely to
decrease significantly.


                                       17
<PAGE>


General economic factors could negatively impact our growth plan.

        Since early 2001,  unfavorable  economic conditions in the United States
detrimentally  affected the U.S. manufacturing  industry,  particularly sales of
fiber  optics  equipment  to  service  providers  and  communication   equipment
companies.  Announcements  by fiber  optics  equipment  manufacturers  and their
customers  during this period indicate that there is a reduction in spending for
fiber optic equipment as a result of the economic slowdown and efforts to reduce
existing  inventories.  Based on these and other factors,  some of our customers
have reduced,  modified,  cancelled or  rescheduled  orders for our products and
have expressed  uncertainty as to their future  requirements.  In addition,  the
economic slowdown has required us to aggressively manage our costs and expenses,
including  our July 2001 and April  2002  announcements  of the  elimination  of
approximately 110 jobs and 45 jobs, respectively, primarily in the manufacturing
area. Our business,  operating  results and financial  condition may continue to
suffer if the global economy,  or economic conditions in the United States fiber
optics equipment market do not improve .

If we do not develop and  introduce  new products  with higher  average  selling
prices in a timely manner,  the overall  average  selling prices of our products
will decrease.

        The market for fiber optic  subsystems and modules is  characterized  by
declining  average  selling  prices  for  existing  products  due  to  increased
competition,   the  introduction  of  new  products,  product  obsolescence  and
increased unit volumes as manufacturers deploy new network equipment. We have in
the  past  experienced,  and  in the  future  may  experience,  period-to-period
fluctuations in operating results due to declines in our overall average selling
prices.  We anticipate  that the selling  prices for our existing  products will
decrease in the future in response to product  introductions  by  competitors or
us, or other factors,  including  pressure from significant  customers for price
concessions.  Therefore,  we must continue to develop and introduce new products
that can be sold at higher  prices on a timely  basis to  maintain  our  overall
average  selling  prices.  Failure to do so could  cause our  revenue  and gross
margins to decline.

If our  customers  do not approve our  manufacturing  processes  and qualify our
products, we will lose significant customer sales and opportunities.

        Customers  generally  will not purchase any of our products  before they
qualify them and approve our manufacturing processes and quality control system.
Our customers may require us to register under international  quality standards,
such  as ISO  9001.  Delays  in  product  qualification  or  loss  of  ISO  9001
certification  may cause a product to be dropped from a long-term supply program
and result in a significant lost revenue opportunity. If particular customers do
not approve of our manufacturing processes, we will lose the sales opportunities
with those customers.

        We are currently registered under ISO 9001:2000.

If we fail to predict our manufacturing  requirements accurately, we could incur
additional  carrying  costs and have excess and  obsolete  inventory or we could
experience  manufacturing  delays,  which  could  cause  us to  lose  orders  or
customers.

        We currently use  historical  data, a backlog of orders and estimates of
future  requirements  to determine our demand for components  and materials.  We
must  accurately  predict  both the demand for our  products  and the  lead-time
required  to obtain  the  necessary  components  and  materials.  Lead times for
components  and materials  vary  significantly  depending on factors such as the
specific  supplier,  the size of the order,  contract  terms and demand for each
component at a given time.  We generally  maintain  levels


                                       18
<PAGE>


of inventories that increase our inventory carrying costs and periodically cause
us to have excess and obsolete  inventory.  However, if we were to underestimate
our purchasing  requirements,  manufacturing could be interrupted,  resulting in
delays in shipments.

Our  markets  are  highly  competitive,  some  of our  customers  are  also  our
competitors,  and our other  customers  may choose to purchase our  competitors'
products  rather than our products or develop  internal  capabilities to produce
their own fiber optic subsystems and modules.

        The market for fiber optic subsystems and modules is highly  competitive
and we expect  competition to intensify in the future.  Our primary  competitors
include  Agilent  Technologies,  ExceLight  Communications,   Finisar,  Infineon
Technologies,  JDS Uniphase, MRV Communications,  OpNext, Picolight, and Stratos
Lightwave.  We also face indirect  competition from public and private companies
providing  products that address the same fiber optic network  problems that our
products  address.  The  development  of  alternative  solutions  to fiber optic
transmission  problems by our competitors,  particularly  systems companies that
also manufacture modules, such as Fujitsu,  could significantly limit our growth
and harm our competitive position.

        Many of our current  competitors and potential  competitors  have longer
operating histories and significantly  greater financial,  technical,  sales and
marketing  resources  than we do. As a  result,  these  competitors  are able to
devote  greater  resources to the  development,  promotion,  sale and support of
their  products.   In  addition,   our   competitors   that  have  large  market
capitalization  or cash reserves are in a much better  position to acquire other
companies in order to gain new  technologies  or products  that may displace our
products.  Any of these  potential  acquisitions  could give our  competitors  a
strategic  advantage.  In addition,  many of our  competitors  have much greater
brand  name   recognition,   more  extensive   customer  bases,  more  developed
distribution  channels and broader product offerings than we do. These companies
can use their broader customer bases and product  offerings and adopt aggressive
pricing policies to gain market share.

        In addition,  existing and potential customers,  especially in Japan and
other international  markets, may also become competitors.  These customers have
the internal  capabilities to integrate their  operations by producing their own
optical  subsystems and modules or by acquiring our competitors or the rights to
produce  competitive  products or  technologies,  which may allow them to reduce
their purchases or cease purchasing from us.

        We expect our  competitors  to introduce new and improved  products with
lower prices, and we will need to do the same to remain competitive.  We may not
be able to compete  successfully  against either  current or future  competitors
with respect to new products.  We believe that competitive  pressures may result
in price reductions, reduced margins and our loss of market share.

Our sales  cycle  runs from our  customers'  initial  design to  production  for
commercial sale. This cycle is long and  unpredictable and may cause our revenue
and operating results to vary from our forecasts.

        The period of time  between our initial  contact with a customer and the
receipt of a purchase  order from that customer may span to more than a year and
varies by product  and  customer.  During  this time,  customers  may perform or
require us to perform  extensive  evaluation  and  qualification  testing of our
products.  Generally, they consider a wide range of issues before purchasing our
products, including interoperation with other subsystems and components, product
performance  and  reliability.  We may incur  substantial  sales  and  marketing
expenses and expend significant  management effort while potential


                                       19
<PAGE>


customers are  qualifying our products.  Even after  incurring  these costs,  we
ultimately  may not sell any or sell only  small  amounts of our  products  to a
potential  customer.  If sales forecasts to specific customers are not realized,
our revenue and results of operations may be negatively impacted.

If we do not achieve acceptable manufacturing yields in a cost-effective manner,
or we are required to develop new manufacturing processes to improve our yields,
our operating results would be impaired.

        The manufacture of our products involves complex and precise  processes.
As a result, it may be difficult to cost-effectively  meet our production goals.
In addition,  changes in our manufacturing  processes or those of our suppliers,
or our suppliers'  inadvertent use of defective  materials,  could significantly
reduce our  manufacturing  yields,  increase  our costs and  reduce our  product
shipments.  To increase  our gross  margin,  while  offering  products at prices
acceptable to customers, we will need to develop new manufacturing processes and
techniques that will involve higher levels of automation.

We could be subjected to  litigation  regarding  intellectual  property  rights,
which may divert  management  attention,  cause us to incur significant costs or
prevent us from selling our products.

        In recent  years,  there has been  significant  litigation in the United
States  involving  patents  and  other  intellectual   property  rights  in  the
networking  technologies industry.  Many companies aggressively use their patent
portfolios to bring infringement claims against competitors. As a result, we may
be  a  party  to  litigation  or  be  involved  in  disputes  over  our  alleged
infringement of others'  intellectual  property in the future.  These claims and
any resulting lawsuit, if successful,  could subject us to significant liability
for damages and prevent us from making or selling  some of our  products.  These
lawsuits,  regardless  of  their  merit,  would  likely  be  time-consuming  and
expensive  to resolve and would  divert  management's  time and  attention.  Any
potential intellectual property litigation also could force us to do one or more
of the following:

        o  stop  selling,  incorporating  or  using  our  products  that use the
           infringed intellectual property;
        o  obtain a license to make,  sell or use the relevant  technology  from
           the owner of the infringed intellectual  property,  which license may
           not be available on commercially reasonable terms, if at all; or
        o  redesign the products to not use the infringed intellectual property,
           which may not be technically or commercially feasible.

        If we are forced to take any of these actions,  we may be limited in our
ability to execute our business plan.

        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.  In the
process of asserting our  intellectual  property  rights,  these rights could be
found to be invalid,  unenforceable  or not infringed.  Failure to  successfully
assert our intellectual property rights could result in our inability to prevent
our competitors from utilizing our proprietary rights.

If we are unable to protect our proprietary technology, this technology could be
misappropriated,  which  would  make  it  difficult  for  us to  compete  in our
industry.

        Our  success  and  ability  to  compete  is  dependent  in  part  on our
proprietary technology.  We rely primarily on patent,  copyright,  trademark and
trade secret laws, as well as confidentiality  agreements and


                                       20
<PAGE>


other methods, to establish and protect our proprietary rights. Existing patent,
copyright, trademark and trade secret laws afford only limited protection. While
we are pursuing foreign patent  protections,  the laws of some foreign countries
do not protect the unauthorized use of our proprietary  technology and processes
to the same  extent  as do the  laws of the  United  States,  and  policing  the
unauthorized  use of  our  products  is  difficult.  Many  U.S.  companies  have
encountered substantial infringement problems in some foreign countries. Because
we sell some of our products overseas,  we have exposure to foreign intellectual
property  risks.  Any  infringement  of our  proprietary  rights could result in
costly litigation,  and any failure to adequately protect our proprietary rights
could result in our competitors offering similar products, potentially resulting
in the loss of some of our competitive advantage and a decrease in our revenue.

If we are  unable to  generate  adequate  additional  revenue as a result of the
expansion of our sales  operations,  our competitive  position may be harmed and
our revenue or margins may decline.

        Historically,  we have relied primarily on a limited direct sales force,
supported by third party  manufacturers'  representatives  and distributors,  to
sell our  products.  Our sales  strategy  focuses  primarily on  developing  and
expanding   our  direct  sales   force,   manufacturers'   representatives   and
distributors.  We have  incurred and will  continue to incur  significant  costs
related to the expansion of our sales operations.  If the expansion of our sales
operations does not generate adequate additional revenue,  our operating margins
may decline.  To the extent we are  unsuccessful  in developing our direct sales
force,   we  will  likely  be  unable  to  compete   successfully   against  the
significantly  larger and well-funded sales and marketing  operations of many of
our  current  or  potential  competitors.  In  addition,  if we fail to  develop
relationships with significant  manufacturers'  representatives or distributors,
or if these representatives or distributors are not successful in their sales or
marketing  efforts,  sales of our  products  may  decrease  and our  competitive
position would be harmed. Our representatives or distributors may not market our
products  effectively  or may not continue to devote the resources  necessary to
provide us with effective sales,  marketing and technical support. Our inability
to  effectively  manage our  domestic  and foreign  sales and  support  staff or
maintain   existing   or   establish   new   relationships   with   manufacturer
representatives  and distributors would harm our revenue and result in declining
margins.

The market for our products is new and is characterized  by rapid  technological
changes and evolving industry standards.  If we do not respond to the changes in
a timely manner, our products likely will not achieve market acceptance.

        The market for our  products  is  characterized  by rapid  technological
change, new and improved product introductions, changes in customer requirements
and evolving industry standards. Our future success will depend to a substantial
extent on our  ability to develop,  introduce  and  support  cost-effective  new
products and technology on a successful and timely basis.  Because the costs for
research  and  development  of new  products  and  technology  are  expensed  as
incurred,  we expect a negative impact on our reported net operating results. If
we fail to develop and deploy new  cost-effective  products and  technologies or
enhancements of existing  products on a timely basis, or if we experience delays
in  the   development,   introduction   or   enhancement  of  our  products  and
technologies,  our products will no longer be  competitive  and our revenue will
decline.

        The development of new,  technologically  advanced products is a complex
and uncertain  process  requiring  high levels of innovation  and highly skilled
engineering and development  personnel,  as well as the accurate anticipation of
technological  and market  trends.  We cannot assure you that we will be able to
identify, develop, manufacture,  market or support new or enhanced products on a
timely basis, if at all. Furthermore, we cannot assure you that our new products
will gain market  acceptance or that we will be


                                       21
<PAGE>


able  to  respond   effectively  to  product   announcements   by   competitors,
technological changes or emerging industry standards.  Our failure to respond to
product  announcements,  technological  changes or industry changes in standards
would likely  prevent our products from gaining  market  acceptance and harm our
competitive position.

Terrorist  activities and resulting  military and other actions could  adversely
affect our business.

        The September 11, 2001 terrorist attacks in the United States and recent
terrorist  attacks in other parts of the world, as well as continued  threats of
global  terrorism,  current and future military  response to them and the United
States  military  action  in Iraq  have  created  many  economic  and  political
uncertainties  that make it extremely  difficult  for us, our  customers and our
suppliers to  accurately  forecast  and plan future  business  activities.  This
reduced  predictability  challenges our ability to operate profitably or to grow
our  business.  In  particular,   it  is  difficult  to  develop  and  implement
strategies,   sustainable   business  models  and  efficient   operations,   and
effectively  manage contract  manufacturing and supply chain  relationships.  In
addition,  the  continued  threats  of  terrorism  and the  heightened  security
measures in response to such threats have and may continue to cause  significant
disruption to commerce throughout the world. Disruption in air transportation in
response to these  threats or future  attacks may result in  transportation  and
supply-chain  disruptions,  increase our costs for both receipt of inventory and
shipment  of  products  to our  customers,  and cause  customers  to defer their
purchasing  decisions.   Disruptions  in  commerce  could  also  cause  consumer
confidence  and  spending to decrease or result in increased  volatility  in the
U.S. and  worldwide  financial  markets and  economy.  They also could result in
economic  recession in the U.S. or abroad. Any of these occurrences could have a
significant impact on our operating results, revenue and costs and may result in
the  volatility  of the  market  price for our  Class A common  stock and on the
future price of our Class A common stock.

Our success depends on our key personnel,  including our executive officers, the
loss of any of whom could harm our business.

        Our  success  depends  on the  continued  contributions  of  our  senior
management  and other key  research and  development,  sales and  marketing  and
operations  personnel,  including Muoi Van Tran, our Chief Executive Officer and
President,  Susie  Nemeti,  our Chief  Financial  Officer and Vice  President of
Finance and Administration, Mohammad Ghorbanali, our Chief Operating Officer and
Vice President of Technical Operations,  and Masato Sakamoto, our Executive Vice
President of Corporate Development. Competition for employees in our industry is
intense.  We do not have life insurance policies covering any of our executives.
There can be no  assurance  that we will be  successful  in  retaining  such key
personnel,  or that we will be successful in hiring  replacements  or additional
key personnel.  Our loss of any key employee, the failure of any key employee to
perform in his or her current position, or the inability of our officers and key
employees  to expand,  train and manage our  employee  base may  prevent us from
executing our growth strategy.

        We will need to attract and retain highly qualified managers,  sales and
marketing and technical  support  personnel.  We have had difficulty  hiring the
necessary engineering, sales and marketing and management personnel in the past.
If we fail to hire and retain  qualified  personnel  when  needed,  our  product
development  efforts and  customer  relations  will suffer.  Our key  management
personnel  have limited  experience  in managing  the growth of  technologically
complex businesses in a rapidly evolving environment. If we are unable to manage
our growth  effectively,  we will incur additional expenses that will negatively
impact our operating results.


                                       22
<PAGE>


Our products may have defects that are not detected  until full  deployment of a
customer's  system.  Any of these  defects  could result in a loss of customers,
damage to our reputation and substantial costs.

        We design our products for large and complex fiber optic  networks,  and
our products must be  compatible  with other  components of the network  system,
both current and future.  We have  experienced  in the past, and may continue to
experience in the future,  defects in our  products.  Defects in our products or
incompatibilities  in our products may appear only when deployed in networks for
an extended  period of time.  In  addition,  our  products  may fail to meet our
customers'  design  specifications,  or our  customers  may change  their design
specifications  after the  production  of our  product.  A  failure  to meet our
customers' design  specification  often results in a loss of the sale due to the
length of time required to redesign the product.  We may also experience defects
in third party components that we incorporate into our products. We have and may
continue to  experience  the  following  due to our  inability  to detect or fix
errors:

        o  increased   costs   associated  with  the  replacement  of  defective
           products,  redesign of products to meet customer design specification
           and/or refund of the purchase price;
        o  diversion of development resources; and
        o  increased service and warranty costs.

Our  products and the systems  into which our  products  are  incorporated  must
comply with  domestic and  international  governmental  regulations,  and if our
products do not meet these regulations, our ability to sell our products will be
restricted.

        Our  products  are subject to various  regulations  of U.S.  and foreign
governmental  authorities  principally in the areas of radio frequency  emission
standards and eye safety.  Radio frequency  emission  standards govern allowable
radio interference with other services. Eye safety standards govern the labeling
and  certification  of laser products to ensure that they are used in a way that
does not create a hazard to the human eye.  Our  products  and the systems  into
which they are incorporated  must also comply with  international  standards and
governmental standards of the foreign countries where our products are used. Our
inability,  or the  inability  of our  customers,  to comply  with  existing  or
evolving standards  established by regulatory  authorities,  or to obtain timely
domestic or foreign  regulatory  approvals  or  certificates  will  restrict our
ability to sell our products.

We are subject to environmental  laws and other legal requirements that have the
potential to subject us to substantial  liability and increase our cost of doing
business.

        Our properties and business  operations are subject to a wide variety of
federal,  state and local environmental,  health and safety laws and other legal
requirements,  including  those  relating to the  storage,  use,  discharge  and
disposal  of  toxic,  volatile  or  otherwise  hazardous  substances.  We may be
required  to incur  substantial  costs to comply  with  current or future  legal
requirements.  In addition,  if we fail to obtain required  permits or otherwise
fail to operate within these or future legal requirements, we may be required to
pay substantial penalties,  suspend our operations or make costly changes to our
manufacturing  processes or  facilities.  We believe our properties and business
operations  are in  compliance  with  applicable  environmental  laws. We do not
anticipate  any  material  capital   expenditures  for   environmental   control
facilities for the 2004 fiscal year.


                                       23
<PAGE>


We face risks associated with our international operations that could prevent us
from marketing and distributing our products internationally.

        Although a  significant  portion of our sales has  historically  been in
North  America,  a growing  percentage  of our revenue is  generated  from sales
outside North America. Sales of our products outside North America accounted for
approximately  43.4%,  39.5%,  and 24.3% of our revenue  for the  periods  ended
September  30,  2004,  2003 and 2002,  respectively.  We  expect  that our sales
outside of North America will continue to contribute  materially to our revenue.
We  have  limited   experience  in  marketing  and   distributing  our  products
internationally. We intend to expand our international operations in the future.
Significant  management  attention and financial resources are needed to develop
our international sales, support and distribution channels and manufacturing. We
may not be able to establish  or maintain  international  market  demand for our
products.

        In  addition,  international  operations  are  subject  to other  risks,
including:

        o  greater  difficulty  in  accounts  receivable  collection  and longer
           collection periods;
        o  difficulties  and costs of staffing and managing  foreign  operations
           with personnel who have expertise in fiber optic technology;
        o  unexpected  changes in regulatory or  certification  requirements for
           optical networks; and
        o  political or economic instability.

        A portion of our  international  revenue and expenses may be denominated
in foreign currencies in the future.  Accordingly, we could experience the risks
of  fluctuating  currencies  and  may  choose  to  engage  in  currency  hedging
activities.  These factors could  adversely  impact our  international  sales or
increase our costs of doing business abroad or impair our ability to expand into
international markets, and therefore could significantly harm our business.

Disruption of our  operations at our Woodland  Hills,  California  manufacturing
facility could require us to lease alternative manufacturing facilities or limit
our manufacturing operations.

        In  August  2003,  we  relocated  our   headquarters   from  Chatsworth,
California to Woodland Hills,  California.  All of our manufacturing  operations
are  conducted  in our  Woodland  Hills,  California  headquarters.  Due to this
geographic   concentration,   a  disruption  of  our  manufacturing  operations,
resulting  from  sustained  process  abnormalities,   human  error,   government
intervention  or natural  disasters,  such as earthquakes,  fires or floods,  or
other causes,  could require us to cease or limit our manufacturing  operations.
See "Business - Manufacturing" and "Properties."

Our  limited  experience  in  acquiring  other  businesses,  product  lines  and
technologies  may make it difficult for us to overcome  problems  encountered in
connection with any acquisition we may undertake.

        We expect to review  opportunities to buy other businesses,  products or
technologies  that would  enhance our  technical  capabilities,  complement  our
current  products or expand the  breadth of our  markets or which may  otherwise
offer growth  opportunities.  Our acquisition of businesses or technologies will
require significant  commitment of resources.  We may be required to pay for any
acquisition with cash, but we cannot be certain that additional  capital will be
available to us on favorable  terms, if at all. In lieu of paying cash, we could
issue stock as  consideration  for an  acquisition  that would  dilute  existing
stockholders' percentage ownership,  incur substantial debt or assume contingent
liabilities. We have little


                                       24
<PAGE>


experience  in  acquiring   other   businesses   and   technologies.   Potential
acquisitions also involve numerous risks, including:

        o  problems  assimilating  the  purchased  operations,  technologies  or
           products;
        o  unanticipated costs associated with the acquisition;
        o  diversion of management's attention from our core business;
        o  adverse effects on existing business relationships with suppliers and
           customers;
        o  risks associated with entering markets in which we have no or limited
           prior experience; and
        o  potential loss of key employees of purchased organizations.

        On October 9, 2002, we acquired certain assets of  privately-held  Cielo
Communications,  Inc and on January 31, 2003 we acquired  certain assets of Gore
Photonics,  the fiber optics  business unit of W.L.  Gore &  Associates.  We may
encounter problems integrating the acquired operations, technologies or products
into our own and could lose the  services  of certain key  employees  associated
with these acquired entities.

Our stock price is likely to be volatile and could drop unexpectedly.

        Our Class A common  stock has been  publicly  traded  since  November 3,
2000.  The  market  price  of our  Class A common  stock  has  been  subject  to
significant  fluctuations  since the date of our initial  public  offering.  The
stock  market  has from time to time  experienced  significant  price and volume
fluctuations  that have affected the market prices of  securities,  particularly
securities of  telecommunications  and fiber optic companies.  As a result,  the
market price of our Class A common stock may materially  decline,  regardless of
our operating  performance.  In the past, following periods of volatility in the
market  price of a  particular  company's  securities,  securities  class action
litigation has often been brought  against that company.  We may become involved
in this  type of  litigation  in the  future.  Litigation  of this type is often
expensive and diverts management's attention and resources.

We may not be able to maintain our listing on the Nasdaq  National Market and if
we fail to do so,  the  price  and  liquidity  of our  Class A common  stock may
decline.

        The Nasdaq Stock Market has  quantitative  maintenance  criteria for the
continued  listing of  securities  on the Nasdaq  National  Market.  The current
requirements  affecting us include  maintaining a minimum bid price per share of
$1. Our bid price has been below $1 in the past. If the bid price of our Class A
common stock drops below $1 per share and remains at that level for more than 30
consecutive trading days, we will be in violation of Nasdaq's listing standards.
If within 90 days  thereafter,  our Class A common stock does not have a minimum
bid price of $1 per share for 10 consecutive  trading days, Nasdaq will commence
proceedings to delist our Class A common stock from the Nasdaq National  Market.
If we fail to maintain  continued listing on the Nasdaq National Market and must
move to a market with less liquidity,  our stock price would likely decline.  If
we are delisted, it could have a material adverse effect on the market price of,
and the liquidity of the trading market for, our Class A common stock.

We have potential business  conflicts of interest with Furukawa,  the resolution
of  which  may  not  be  as  favorable  to us as if  we  were  dealing  with  an
unaffiliated third party.

        We have  historically  relied on  Furukawa's  research  and  development
capabilities to provide us with technologically  advanced lasers and fiber optic
components that we purchase from Furukawa for


                                       25
<PAGE>


inclusion in our products,  and we expect to continue to rely on Furukawa in the
future.  We  currently  purchase the  majority of lasers from  Furukawa  under a
Master  Purchase  Agreement.  We cannot  assure you that Furukawa will renew the
Agreement  upon its expiration on September 30, 2005 or whether it will continue
to provide  services and components to us, and if not,  whether or on what terms
we could find adequate alternative sources for these services and components. We
intend to continue to maintain our  relationship  with Furukawa and Furukawa can
control the outcome of any stockholder  votes, as discussed  below. The terms of
future  transactions  with  Furukawa may or may not be  comparable to those that
would be available from unaffiliated third parties.

        Potential  conflicts  of interest  exist  between  Furukawa  and us in a
number of areas,  including  the nature  and  quality of  services  rendered  by
Furukawa  to  us,   potential   competitive   business   activities,   sales  or
distributions by Furukawa of all or any portion of its ownership interest in us,
or Furukawa's ability to control our management and affairs. It is possible that
business  decisions  made by  management  that are in the best  interest  of our
stockholders may conflict with Furukawa's interests.  For example, we may decide
to enter  into or  acquire a line of  business  competitive  with  Furukawa,  or
Furukawa may decide to enter into or acquire a line of business competitive with
us. Any of these events may alter or  eliminate  our ability to rely on Furukawa
to supply key  components  to us in the future,  increase our costs of producing
our  products  and result in increased  competition  in our  markets.  We cannot
assure  you that we will be able to  resolve  any  conflicts  we may  have  with
Furukawa or, if we are able to do so, that the  resolution  will be favorable to
us.

Furukawa  will  control  the outcome of  stockholder  voting and there may be an
adverse effect on the price of our Class A common stock due to disparate  voting
rights of our Class A common stock and our Class B common stock.

        Furukawa  beneficially  owns all of our  outstanding  shares  of Class B
common stock, which as of October 31, 2004 represented 93.4% voting control over
all  stockholder  issues.  The  holders of our Class A common  stock and Class B
common  stock have  identical  rights  except that holders of our Class A common
stock are  entitled  to one vote per share  while  holders of our Class B common
stock  are  entitled  to ten  votes  per  share  on  matters  to be  voted on by
stockholders.  The differential in the voting rights of our Class A common stock
and Class B common stock could adversely  affect the price of our Class A common
stock to the extent that  investors  or any  potential  future  purchaser of our
shares of Class A common stock give greater value to the superior  voting rights
of our  Class B common  stock.  Each  share of our  Class B  common  stock  will
automatically  convert  into  one  share  of  Class  A  common  stock  if  it is
transferred to any entity,  other than an entity  controlling,  controlled by or
under common control with Furukawa.  In addition,  our Class B common stock will
automatically  convert  into  shares  of our  Class A common  stock if the total
number of  outstanding  shares of Class B common  stock falls below 20% of total
number of  outstanding  shares of our common  stock.  As long as Furukawa  has a
controlling  interest,  it will continue to be able to elect our entire board of
directors  and  generally  be able to  determine  the  outcome of all  corporate
actions  requiring  stockholder  approval.  As a result,  Furukawa  will be in a
position to continue to control all matters affecting us, including:

        o  a change of control, including a merger;
        o  our acquisition or disposition of assets;
        o  our future issuances of common stock or other securities;
        o  our incurrence of debt; and
        o  our payment of dividends on our common stock.


                                       26
<PAGE>


        Two members of our board of directors  are also  executives of Furukawa.
These individuals have obligations to both our company and Furukawa and may have
conflicts of interest with respect to matters  potentially or actually involving
or affecting us, such as acquisitions and other corporate opportunities that may
be suitable for both Furukawa and us.

Our exploration of strategic alternatives may not be successful.

        On September  29, 2003,  we  announced  that a special  committee of our
board of directors is evaluating strategic alternatives.  The special committee,
which is  comprised  of our three  independent  directors,  has  retained  Bear,
Stearns & Co. Inc. to advise it in evaluating strategic alternatives,  including
a special dividend, share repurchase, strategic merger or sale of the Company.

        We are uncertain as to what strategic  alternatives  may be available to
us or what impact any particular  strategic  alternative  will have on our stock
price if  accomplished.  Uncertainties  and risks relating to our exploration of
strategic alternatives include:

      o the  exploration of strategic  alternatives  may disrupt  operations and
        distract  management,  which could have a material adverse effect on our
        operating results;

      o the  process  of  exploring  strategic  alternatives  may be  more  time
        consuming and expensive than we currently anticipate;

      o we may not be able to successfully achieve the benefits of the strategic
        alternative undertaken by us; and

      o perceived  uncertainties  as to the future  direction of the Company may
        result in the loss of employees or business partners.

ITEM 2. PROPERTIES

        In August 2003, we relocated our corporate headquarters,  manufacturing,
research and development  and sales  operations to a building in Woodland Hills,
California with  approximately  149,000 square feet. We acquired the building in
June 2001 for  $18,750,000.  The purchase  price was paid from our existing cash
on-hand.  We are occupying an aggregate of approximately  89,000 square feet and
are currently leasing an aggregate of 59,550 square feet of this building to two
unrelated parties.

        In June 2004,  we sold the building  located in  Chatsworth,  California
which was our former corporate headquarters.  Net proceeds from this transaction
were  approximately  $5.7 million.  In November  2002, we leased a 21,660 square
foot  building in  Broomfield,  Colorado,  which serves as a research and design
facility.  This lease expires in October 2005 and the base rent is approximately
$21,700 per month.  In December  2003, we leased a 6,800 square foot building in
Elkton,  Maryland, which will also serve as a research and design facility. This
lease  expires in November  2006 and the base rent is  approximately  $5,700 per
month In addition,  we lease small sales  facilities in Nashua,  New  Hampshire;
Richardson,  Texas;  Santa  Clara,  California;  Ottawa,  Canada;  and  Bury St.
Edmunds,  England.  Our leases for the  facilities  in Ottawa,  Canada and Santa
Clara,  California are on a month-to-month  basis. Our leases for the facilities
in Nashua,  New Hampshire,  Richardson,  Texas,  and Bury St.  Edmunds,  England
expire in February 2005, June 2005, and July 2006, respectively.


                                       27
<PAGE>


        We  believe  that  our  existing  space  is  adequate  for  our  current
operations.  We believe that suitable  replacement  and  additional  spaces,  if
needed, will be available in the future on commercially reasonable terms.

ITEM 3. LEGAL PROCEEDINGS

        We are not currently involved in any material legal proceedings.  We are
not aware of any other material legal proceedings  threatened or pending against
us.  From time to time,  however,  we may  become  subject to  additional  legal
proceedings,  claims, and litigation arising in the ordinary course of business.
In addition, in the past we have received, and we may continue to receive in the
future,  letters alleging  infringement of patent or other intellectual property
rights.  Our management  believes that these letters generally are without merit
and intend to contest them vigorously.

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

        None.


                                       28
<PAGE>


                                    PART II.

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

Market Information

        Our Class A common stock has traded on The Nasdaq  National Market under
the  symbol  "OCPI".  The  following  table sets forth the range of high and low
intra-day  sales  prices  (rounded to the nearest  cent)  reported on The Nasdaq
National Market for our Class A common stock for the periods indicated.

                                                        Price range of
                                                         Common Stock
                                                   -------------------------
                                                      High          Low
                                                   -----------   -----------
Fiscal Year Ended September 30, 2003:
-------------------------------------
  First Quarter ...............................        $ 1.22        $ 0.66
  Second Quarter...............................        $ 1.28        $ 0.85
  Third Quarter................................        $ 2.02        $ 0.86
  Fourth Quarter...............................        $ 2.88        $ 1.70

Fiscal Year Ended September 30, 2004:
-------------------------------------
  First Quarter ...............................        $ 4.30        $ 2.31
  Second Quarter...............................        $ 4.80        $ 2.37
  Third Quarter................................        $ 3.83        $ 1.87
  Fourth Quarter...............................        $ 2.44        $ 1.66

        Our Class B common stock is not publicly  traded and is held entirely by
Furukawa. Each share of our Class B common stock will automatically convert into
one share of Class A common stock if it is transferred to any entity, other than
an entity controlling,  controlled by or under common control with Furukawa.  In
addition, our Class B common stock will automatically convert into shares of our
Class A common stock if the total number of outstanding shares of Class B common
stock falls below 20% of total number of outstanding shares of our common stock.

Recent Share Prices

        The following table sets forth the closing sales prices per share of our
Class A common stock on The Nasdaq National Market on (i) September 30, 2004 and
(ii) December 27, 2004.  Because the market price of our Class A common stock is
subject to  fluctuation,  the  market  value of the shares of our Class A common
stock may increase or decrease.

                                                         Closing
                                                          Price
                                                       -------------

      September 30, 2004..............................        $2.09
      December 27, 2004...............................        $2.49


                                       29
<PAGE>


Holders

        As of  December  20,  2004 there  were 94 record  holders of our Class A
common stock and 1 record holder of our Class B common stock.

Dividend Policy

        We have not  declared or paid any cash  dividends  on our capital  stock
since our inception and we intend to retain future earnings,  if any, for use in
the operation and expansion of our business and do not anticipate paying regular
or periodic cash dividends in the foreseeable future.  However, on September 29,
2003,  we  announced  that a  special  committee  of our board of  directors  is
evaluating  strategic  alternatives to enhance  shareholder value and liquidity,
including a special dividend to our shareholders.


Securities Authorized For Issuance Under Equity Compensation Plans

        The following  table  summarizes the number of shares issuable under our
equity compensation plans, the weighted-average exercise price and the number of
shares available for issuance, as of September 30, 2004.

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------
Plan Category            Number of securities   Weighted-average      Number of securities
                         to be issued upon      exercise price of     remaining available
                         exercise of            outstanding options,  for future issuance
                         outstanding options,   warrants and rights   under equity
                         warrants and rights                          compensation plans
                                                                      (excluding securities
                                                                      reflected in column
                                                                      (a))
                                   (a)                   (b)                   (c)
---------------------------------------------------------------------------------------------
<S>                            <C>                      <C>                 <C>
Equity compensation            4,447,101                $7.13               6,103,369
plans approved by
security holders
---------------------------------------------------------------------------------------------
Equity compensation            3,301,680               $11.00                   0
plans not approved by
security holders (1)
---------------------------------------------------------------------------------------------
Total                          7,748,781                $8.78               6,103,369
---------------------------------------------------------------------------------------------
</TABLE>

(1) These were shares granted on August 29, 2000 to certain  executive  officers
prior to our initial public offering.

Recent Sales of Unregistered Securities

        None.

ITEM 6. SELECTED FINANCIAL DATA

        The following  selected  consolidated  financial  data should be read in
conjunction with, and are qualified by reference to, our consolidated  financial
statements and related notes and Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The selected


                                       30
<PAGE>


income  statement data for the three fiscal years ended September 30, 2004, 2003
and 2002 and the selected  balance  sheet data as of September 30, 2004 and 2003
are derived  from,  and  qualified  by  reference  to, the audited  consolidated
financial  statements  included elsewhere in this Form 10-K. The selected income
statement  data for the fiscal years ended  September  30, 2000 and 1999 and the
selected  balance sheet data as of September 30, 2001, 2000 and 1999 are derived
from audited financial statements not included in this Form 10-K.

<TABLE>
<CAPTION>

                                                           Fiscal years ended September 30,
                                         -----------------------------------------------------------------
       Income statement data                   2000         2001         2002         2003         2004
                                                         (In thousands, except per share data)
       ---------------------------------------------------------------------------------------------------
<S>                                          <C>          <C>          <C>         <C>           <C>
       Revenue                               $ 101,867    $ 144,012    $ 37,207      $ 38,880     $ 57,143
       Cost of revenue                          50,326       94,684      26,375        25,048       32,648
                                             ---------    ---------    --------      --------     --------
       Gross profit                             51,541       49,328      10,832        13,832       24,495
                                             ---------    ---------    --------      --------     --------
       Operating Expenses:
         Research and development                2,527        2,958       5,261        16,246       17,022
         Sales and marketing                     2,943        3,799       3,717         4,562        5,021
         General and administrative              3,877        4,553       4,671         7,011        5,849
                                             ---------    ---------    --------      --------     --------
           Total operating expenses              9,347       11,310      13,649        27,819       27,892
                                             ---------    ---------    --------      --------     --------
       Gain from sale of real property            -             -           -           -              942

       Income (loss) from operations            42,194       38,018     (2,817)      (13,987)      (2,455)

       Other income, net                           305        6,081       3,391         1,834        1,517
                                             ---------    ---------    --------      --------     --------
       Income (loss) before income taxes        42,499       44,099         574      (12,153)        (938)

       Income taxes provision (benefit)         17,319       17,655       (265)       (1,952)          369
                                             ---------    ---------    --------      --------     --------
       Net income (loss)                     $  25,180    $  26,444    $    839    $ (10,201)    $ (1,307)
                                             =========    =========    ========    ==========    =========
       Earnings (loss) per share:
       Basic                                 $    0.91    $    0.26    $   0.01    $   (0.09)    $  (0.01)
       Diluted                               $    0.25    $    0.24    $   0.01    $   (0.09)    $  (0.01)
       Shares outstanding:
         Basic                                  27,547      100,263     108,391       111,074      112,553
         Diluted                               102,500      111,430     112,578       111,074      112,553


                                                                      September 30,
                                         -----------------------------------------------------------------
                                               2000         2001         2002         2003         2004
                                         -----------------------------------------------------------------
       Balance sheet data                                             (In thousands)

       Cash and cash equivalents             $   3,202    $  62,529    $ 85,426    $   64,895    $  75,423
       Working capital                          34,078      166,416     167,865       145,353      156,580
       Total assets                             50,426      204,268     205,061       200,143      199,967
       Long-term portion of debt                 2,296        1,825       1,353           864         -
       Stockholders' equity                     40,373      194,713     197,196       188,360      187,260
</TABLE>


                                       31
<PAGE>


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

        The  following  discussion  of our  financial  condition  and results of
operations  should be read in conjunction with our financial  statements and the
related notes to such  financial  statements  included  elsewhere in this Report
beginning  on  page  F-1.  The  following  discussion  contains  forward-looking
statements  that involve risks and  uncertainties.  The  statements are based on
current  expectations  and actual  results  could differ  materially  from those
discussed herein.  Factors that could cause or contribute to the differences are
discussed in Item 1 "Business - Risk Factors" and elsewhere in this Report.


Overview

        We  design,   manufacture  and  sell  a   comprehensive   line  of  high
performance,  highly reliable fiber optic subsystems and modules for fiber optic
transmission  systems  that are used to address  the  bandwidth  limitations  in
metropolitan area networks,  or MANs, local area networks,  or LANs, and storage
area networks,  or SANs,  markets.  Our subsystems and modules  include  optical
transmitters,  receivers,  transceivers and transponders that convert electronic
signals into optical signals and back to electronic signals, enabling high-speed
communication  of voice and data  traffic over public and private  networks.  We
began our operations and shipped our first products in November of 1991.

        Furukawa  beneficially owns all of our outstanding Class B common stock,
representing  58.5% of our  outstanding  shares of common stock and 93.4% of the
combined  voting power of all of our  outstanding  common stock as of the fiscal
year  ended  September  30,  2004.  Since  our  inception,   we  have  purchased
substantially  all of our  lasers  and the  majority  of our other  fiber  optic
components from Furukawa.  We have relied on Furukawa's research and development
capabilities to provide us with technologically  advanced lasers and fiber optic
components  that we purchase from  Furukawa for  inclusion in our  products.  We
currently  purchase the majority of lasers from Furukawa under a Master Purchase
Agreement which we entered into with Furukawa on October 1, 2003. This Agreement
continues  until  September  30,  2004,  and  renews   automatically  each  year
thereafter  unless it is terminated upon written notice by either Furukawa or us
prior to renewal. This agreement was automatically renewed on October 1, 2004.

        We operate in one industry segment,  the design and manufacture of fiber
optic subsystems and modules.  We sell our products to  communication  equipment
manufacturers or CEMs, their contract manufacturers or CMs, who incorporate them
into systems they assemble for CEMs and to distributors. We define our customers
as CEMs who have purchased our products  directly or indirectly  through CMs and
distributors.  We recognize revenue upon product shipment, and sales returns and
allowances have been insignificant.  Historically,  a relatively small number of
customers  have  accounted for a significant  percentage of our revenue.  Our 10
largest  customers  accounted  for  approximately  68.0%  and 61.2% of our total
revenue for the fiscal years ended  September  30, 2004 and 2003,  respectively.
Alcatel  and  Cisco  Systems   (including   sales  to  each  of  their  contract
manufacturers)  accounted for approximately 16.7%, and 11.2%,  respectively,  of
our total revenue for the fiscal year ended  September 30, 2004.  Cisco Systems,
Alcatel,  and Huawei  (including sales to each of their contract  manufacturers)
accounted for approximately 12.2%, 11.8% and 10.0%,  respectively,  of our total
revenue  for the  fiscal  year  ended  September  30,  2003.  No other  customer
accounted  for more than 10.0% of our total  revenue for the fiscal  years ended
September 30, 2004 and 2003.


                                       32
<PAGE>


        For financial  reporting  purposes,  we consider our customers to be the
CEMs, CMs and distributors  who place purchase orders with us directly.  For the
fiscal year ended September 30, 2004 and 2003, Comstar Communications  accounted
for approximately 11.1% and 11.0%, of our total revenue,  respectively. No other
direct sales customer accounted for more than 10.0% of our total revenue for the
fiscal years ended September 30, 2004 and 2003.  Although our revenue from sales
to our  other  customers  continues  to  increase,  we expect  that  significant
customer  concentration will continue for the foreseeable  future. Our sales are
made on a purchase  order basis rather than by long-term  purchase  commitments.
Our  customers  may cancel or defer  purchase  orders  without  penalty on short
notice.

        In October  1999,  Methode  Electronics,  Inc.  filed a lawsuit  against
Infineon Technologies Corporation and us seeking unspecified damages,  including
monetary damages,  injunctive relief, attorneys' fees and costs arising from our
alleged  infringement  of some of the claims  contained  in patents  assigned to
Methode, including patents relating to our 1x9 pin configuration products. After
Methode initiated the lawsuit, it assigned to Stratos Lightwave, Inc., a Methode
spin-off,  all of Methode's  rights,  title and interest in the patent at issue.
The court subsequently added Stratos as a plaintiff to the lawsuit. On April 12,
2002,  we  resolved  our  patent  infringement   litigation  with  Stratos.  The
settlement  resolves all claims in the lawsuit among us and Stratos.  As part of
the  settlement,  we entered  into a five-year  license  agreement  with Stratos
covering  Stratos'   portfolio  of  optoelectronic   transceiver   patents.   In
consideration  of the license  agreement,  we are  required to pay a total of $2
million over the license  term.  As of September  30,  2004,  $600,000  remained
outstanding  and is expected to be paid by fiscal year 2007. Our  optoelectronic
products  covered by this license include our 1x9, GBIC, small form factor (SFF)
and  small  form-factor  pluggable  (SFP)  product  families.  At the end of the
five-year term, we have the option to renegotiate  with Stratos for an extension
of the license.

        Since early 2001, the  telecommunications  sector, and in particular the
fiber optic networking sector, has suffered a severe downturn. Service providers
have  scaled  back  on  deployment,  within  their  networks,  of new  equipment
associated  with  network  upgrades  that  enable  them to provide  new types of
services to their  customers,  and they have also scaled back  network  capacity
expansion  programs;  and therefore,  have dramatically  reduced their quarterly
purchases of equipment  from  equipment  manufacturers.  As a result,  equipment
manufacturers  have also  dramatically  reduced  their  quarterly  purchases  of
components and modules from our competitors and from us. Moreover,  as equipment
manufacturers' sales declined, they have moved to reduce their overall component
and module  inventory  levels.  Consequently,  the slowdown  continues to have a
negative  impact on our business as we face  declining  sales as a result of our
customers' declining business.

        On October 9, 2002, we acquired certain assets of Cielo  Communications,
Inc.,  ("Cielo  Communications")  a  research  and  design  company  located  in
Broomfield,  Colorado,  focused on  creating  VCSEL  technology  for fiber optic
communication  networks  for a cash  purchase  price  and  direct  costs of $6.6
million.  The purchase price includes the  acquisition of capital  equipment and
intellectual property.

        On January 31, 2003,  we acquired  parallel  optical  module  assets and
intellectual  property from Gore  Photonics,  an industry leader in the research
and development of VCSEL parallel optical modules for fiber optic  communication
networks located in Elkton, Maryland, for a cash purchase price of $3.4 million.
The purchase price includes the acquisition of capital equipment and inventory.

        The average  selling  prices of our products  generally  decrease as the
products mature from factors such as increased competition,  the introduction of
new products,  increased  unit volumes,  and price  concessions  required by our
customers.  We anticipate that average  selling prices of our existing  products


                                       33
<PAGE>


will continue to decline in future periods although the timing and degree of the
declines cannot be predicted with any certainty. We must continue to develop and
introduce  new products  that  incorporate  features  that can be sold at higher
average selling prices on a timely basis.

        Our  cost of  revenue  consists  principally  of  materials,  as well as
salaries  and  related  expenses  for  manufacturing  personnel,   manufacturing
overhead and provisions for excess and obsolete  inventory.  We purchase several
key components for our products from a limited number of suppliers.

        Our research and development  expenses consist primarily of salaries and
related  expenses for design  engineers and other technical  personnel,  cost of
developing prototypes,  and depreciation of test and prototyping equipment.  Our
research and  development  expenses also consist of materials and overhead costs
related  to major  product  development  projects.  We charge all  research  and
development  expenses to  operations  as  incurred.  We believe  that  continued
investment  in research  and  development  is  critical  to our future  success.
Accordingly,  we may  continue to expand our internal  research and  development
capabilities  in the future to develop new products.  As a result,  our research
and  development  expenses in  absolute  dollar  amounts may  increase in future
periods.

        Sales and marketing  expenses consist  primarily of salaries and related
expenses for sales and marketing personnel,  commissions paid to sales personnel
and independent manufacturers'  representatives,  marketing and promotion costs.
We intend to expand our sales and marketing  operations  and efforts in order to
increase  sales and market  awareness  of our  products.  In July 2000 we opened
sales offices in Bury St. Edmunds, England and Richardson, Texas; in May 2001 we
opened a sales office in Ottawa, Canada; in May 2002 we opened a sales office in
Santa Clara,  California;  and in March 2003 we opened a sales office in Nashua,
New Hampshire.  We believe that investment in sales and marketing is critical to
our success and that these expenses may increase in the future.

        General and administrative expenses consist primarily of salaries, stock
compensation  and related  expenses  for our  administrative,  finance and human
resources personnel,  professional fees and other corporate expenses.  We expect
that our legal and consulting  fees will increase as a result of our analysis of
strategic  alternatives,  including  future  market  opportunities  that  may be
pursued by our management and board of directors.  As a result,  our general and
administrative expenses in absolute dollars may increase in future periods.

Critical Accounting Policies

        The  preparation  of financial  statements  and related  disclosures  in
conformity with accounting  principles  generally  accepted in the United States
requires management to make judgments, assumptions and estimates that affect the
amounts  reported in the  Consolidated  Financial  Statements  and  accompanying
notes. Note 2 to our Financial  Statements  describe the significant  accounting
policies  and  methods  used in the  preparation  of our  Financial  Statements.
Estimates are used for, but not limited to, the accounting for the allowance for
doubtful accounts and sales returns,  the allowance for inventory  obsolescence,
warranty  accruals,  long-lived  assets and income taxes.  Actual  results could
differ from these  estimates.  The following  critical  accounting  policies are
impacted  significantly  by judgments,  assumptions  and  estimates  used in the
preparation of our Financial Statements.

Allowance for Doubtful Accounts and Sales Returns

        Our accounts receivable balance,  net of allowance for doubtful accounts
and sales returns, was $8.6 million as of September 30, 2004, compared with $6.7
million as of September 30, 2003. The


                                       34
<PAGE>


allowance  for doubtful  accounts and sales returns as of September 30, 2004 was
$362,000,  compared  with  $459,000 as of September  30, 2003.  The allowance is
based on our assessment of the collectibility of customer accounts and potential
returns..  We  regularly  review the  allowance by  considering  factors such as
historical experience,  credit quality, age of the accounts receivable balances,
current  economic  conditions  that may affect a  customer's  ability to pay and
historical   customer   returns.   If  a   major   customer's   creditworthiness
deteriorates,  or if actual defaults are higher than our historical  experience,
or if actual future customer returns were to deviate from our expectations,  our
estimates of the  recoverability  of amounts due to us could be overstated,  and
additional  allowances could be required,  which could have an adverse impact on
our operations.

Inventory Write-downs

        Our  inventory  balance  was $8.7  million  as of  September  30,  2004,
compared  with $5.6 million as of September  30, 2003. At September 30, 2004 and
2003  inventory  with a  historical  cost of $10.5  million,  and $15.6 has been
written  down as excess  and  obsolete  inventory.  We  estimate  our excess and
obsolete  inventory  primarily  through reference to historical usage and future
demand forecasts.  At the point of write down, a new,  lower-cost basis for that
inventory is established,  and subsequent  changes in facts and circumstances do
not result in the restoration or increase in that newly  established cost basis.
Our write-down for excess and obsolete inventory was $759,000, $1.6 million, and
$3.2 million for fiscal 2004, 2003, and 2002, respectively.  If there were to be
a sudden and significant decrease in demand for our products, or if there were a
higher  incidence  of  inventory   obsolescence   because  of  rapidly  changing
technology and customer requirements, we could be required to increase inventory
write-downs , and our gross margin could be adversely affected.

Warranty Accruals

        The  liability  for  product  warranties,   included  in  other  accrued
liabilities,  was $31,000 as of September 30, 2004,  compared with $46,000 as of
September 30, 2003. See Note 9 to the  Consolidated  Financial  Statements.  Our
products sold are generally  covered by a warranty for periods  ranging from one
to five years.  We accrue for warranty  costs as part of our cost of sales based
on  associated  material  costs,  and labor  costs.  The  provision  for product
warranties issued during fiscal 2004, 2003 and 2002 was $19,000, $11,000 and $0,
respectively.  If we experience an increase in warranty claims compared with our
historical  experience,  or if the cost of servicing  warranty claims is greater
than the  expectations  on which the accrual has been  based,  our gross  margin
could be adversely affected.

Long-Lived Assets

        We monitor and evaluate the  recoverability of our long-lived assets. If
the carrying amount of a long-lived asset exceeds the expected future cash flows
(undiscounted  and  without  interest  charges)  from the use of the  asset,  we
recognize  an  impairment  loss in the  amount  of the  difference  between  the
carrying amount and the fair value of the asset.  Our long-lived  assets subject
to impairment are our property,  plant and equipment and our  intangible  assets
which had net carrying values of $29.2 million and $1.8 million, respectively at
September 30, 2004. We currently  estimate that  undiscounted  future cash flows
will be sufficient to recover the value of our long-lived assets.  However,  our
estimates  of future cash flows are subject to change.  Should our  estimates of
future  undiscounted  cash  flows  indicate  that  the  carrying  value  of  our
long-lived assets may not be recoverable,  we would be required to determine the
fair value of those assets and record a loss for the difference, if any, between
the carrying value and the fair value of those assets.


                                       35
<PAGE>


Income Taxes

        At September  30, 2004,  the  unadjusted  net book value of our deferred
income tax assets  totaled  approximately  $4.5 million,  which was  principally
comprised of federal and state net operating loss carry-forwards and differences
between the book and tax bases or our  inventories.  The  provisions of SFAS No.
109  "Accounting for Income Taxes,"  require a valuation  allowance when,  based
upon currently  available  information and other factors, it is more likely than
not that all or a portion of the deferred income tax asset will not be realized.
Our  valuation  allowance  was  increased  by  $1,028,000  during the year ended
September 30, 2004. We intend to maintain a valuation allowance until sufficient
evidence  exists to support its reversal.  Also,  until an appropriate  level of
profitability is reached,  we do not expect to recognize any domestic income tax
benefits in future results of operations.


Results of Operations

        The  following  table sets forth income  statement  data for the periods
indicated as a percentage of revenue:

                                                    Fiscal years ended September
                                                                30,
         -----------------------------------------------------------------------
                                                      2002      2003     2004
         -----------------------------------------------------------------------

         Revenue...................................  100.0%    100.0%    100.0%
         Cost of revenue...........................   70.9      64.4      57.1
         Gross Profit..............................   29.1      35.6      42.9
         Operating Expenses:
                Research and development...........   14.1      41.8      29.8
                Sales and marketing................   10.0      11.8       8.8
                General and administrative.........   12.6      18.0      10.2
         Total operating expenses..................   36.7      71.6      48.8
         Income (loss) from operations.............   (7.6)    (36.0)     (4.3)
         Other income, net ........................    9.1       4.7       2.7
         Income (Loss) before income taxes.........    1.5     (31.3)     (1.6)
         Income taxes..............................   (0.7)     (5.1)     (0.6)
                            Net income (Loss)          2.2%    (26.2)%   (2.3)%


Fiscal years ended September 30, 2004 and 2003

        Revenue - Revenue  increased  47.0% to $57.1  million in the fiscal year
ended  September 30, 2004 from $38.9 million in the fiscal year ended  September
30, 2003. This increase was due  substantially to an increase in demand from our
existing  customers.  Revenue from our largest ten customers  increased to $39.0
million in fiscal year ended  September  30,  2004 from $23.8  million in fiscal
year  September  30, 2003,  or  approximately  63.9% of the increase in absolute
dollars. Sales of our products for metropolitan area networks were approximately
86.7% of revenue  for the fiscal  year ended  September  30,  2004  compared  to
approximately  84.1% of revenue for the fiscal year ended  September  30,  2003.
Sales  of  our  products  for  local  area  and  storage  area   networks   were
approximately  12.5% of revenue for the fiscal year ended September 30, 2004 and
for the fiscal year ended  September 30, 2003. We do not expect that our rate of
year-over-year  growth in revenue will be sustainable in future periods,  as the
average selling prices for existing  products may decline in response to product
introductions by competitors or us, or


                                       36
<PAGE>


other  factors,  including the reduction of customer  demand for our products or
pressure from customers for price concessions.

        Cost  of Revenue - Cost of revenue  increased  30.3% to $32.6 million in
the fiscal year ended  September  30, 2004 from $25.0 million in the fiscal year
ended  September 30, 2003.  The increase in cost of revenue is mainly due to the
increase in sales  volume.  Gross  margin  increased to 42.9% in the fiscal year
ended  September 30, 2004 from 35.6% in the same period last year.  The increase
in gross margin was primarily due to a $1.5 million  increase of inventory  used
in  production in the fiscal year ended  September 30, 2004 that was  previously
written down as excess inventory compared to the fiscal year ended September 30,
2003 and a decrease in overhead  costs as a percentage  of revenue in the fiscal
year ended  September 30, 2004  compared to the fiscal year ended  September 30,
2003. The Company utilized approximately $5.2 million of inventory in production
during fiscal 2004 that had  previously  been written down to zero,  compared to
$3.7 million during fiscal 2003.

        Research  and Development - Research and development  expenses increased
4.8% to $17.0  million in the fiscal  year ended  September  30, 2004 from $16.2
million in the fiscal year ended September 30, 2003. This increase was primarily
due to an  increase  in  engineering  supplies  resulting  from an  increase  in
research and development activities.

        Sales  and Marketing - Sales and marketing  expenses  increased 10.0% to
$5.0  million in the fiscal year ended  September  30, 2004 from $4.6 million in
the fiscal year ended  September 30, 2003.  The increase was primarily due to an
increase of $325,000 in salaries and benefits  resulting from  additional  sales
and marketing  personnel and an increase of $154,000 in commissions  paid to our
direct sales force and independent manufacturers' representatives as a result of
increase revenue.

        General  and  Administrative  -  General  and  administrative   expenses
decreased 16.6% to $5.8 million in the fiscal year ended September 30, 2004 from
$7.0  million in the fiscal  year ended  September  30,  2003.  During the third
quarter of 2003, the Company  repurchased stock from two executives and recorded
a  $1.3  million  expense   associated  with  this  stock  repurchase  as  stock
compensation  expense. No stock compensation expense was recorded in fiscal year
ended  September  30, 2004.  In addition,  the decrease was due to a decrease in
insurance  expense  primarily  related to a decrease in directors' and officers'
insurance  premiums and bad debt expense.  These decreases were partially offset
by an increase of $300,000 in salaries and benefits  resulting  from  additional
personnel hired.

        Gain from sale of real property - On June 30, 2004, the Company sold the
building  located  in  Chatsworth,  California  which was its  former  corporate
headquarters  and  recognized  a gain of $942,000.  The net  proceeds  from this
transaction were approximately $5.7 million.

        Other Income, net - Other income, net decreased 17.3% to $1.5 million in
the fiscal year ended  September  30, 2004 from $1.8  million in the fiscal year
ended  September  30, 2003.  This  decrease was due to a decrease in  investment
income, which was primarily the result of a decrease in interest rates.

        Income Taxes - Income tax expense was $369,000 for the fiscal year ended
September  30, 2004  compared  to an income tax benefit of $2.0  million for the
fiscal year ended  September  30,  2003.  Income tax expense for the fiscal year
ended September 30, 2004 is comprised of foreign taxes in the amount of $44,000,
state  income taxes in the amount of $133,000,  and $192,000  resulting  from an
adjustment  to prior year's net deferred tax assets.  The income tax benefit for
the fiscal year ended September 30, 2003


                                       37
<PAGE>


includes a charge of $3.5 million related to the valuation  allowance of certain
deferred tax assets and state net operating loss and credit carry-forwards.

Fiscal years ended September 30, 2003 and 2002

        Revenue - Revenue  increased  4.5% to $38.9  million in the fiscal  year
ended  September 30, 2003 from $37.2 million in the fiscal year ended  September
30,  2002.   Sales  of  our  products  for   metropolitan   area  networks  were
approximately  84% of revenue  for the  fiscal  year ended  September  30,  2003
compared to approximately 86% of revenue for the fiscal year ended September 30,
2002.  Sales of our  products  for local area and  storage  area  networks  were
approximately  13% of revenue  for the  fiscal  year ended  September  30,  2003
compared to approximately 10% of revenue for the fiscal year ended September 30,
2002. Also, in May 2003, Acterna,  one of our significant  customers,  filed for
Chapter 11 bankruptcy with respect to itself and its domestic  subsidiaries.  We
do not believe  that  Acterna's  bankruptcy  filing  will  impact its  operating
subsidiaries  in  Europe,   Latin  America  and  the  Asia-Pacific   region.  We
experienced lower revenue from Acterna in the last six months of the fiscal year
ended  September  30, 2003 compared to the first six months of that fiscal year.
This was  primarily  offset  by an  increase  in sales  to other  customers.  If
Acterna's bankruptcy filing causes it to continue to reduce its orders to us, it
could negatively affect our revenue in future quarters.

        Cost of Revenue - Cost of revenue decreased 5.0% to $25.0 million in the
fiscal year ended September 30, 2003 from $26.4 million in the fiscal year ended
September  30, 2002.  Gross  margin  increased to 35.6% in the fiscal year ended
September 30, 2003 from 29.1% in the same period the prior year. The increase in
gross margin was primarily due to a $1.7 million  increase of inventory  used in
production  in the fiscal  year ended  September  30,  2003 that was  previously
written down as excess inventory compared to the fiscal year ended September 30,
2002,  and a $1.6 million  decrease in inventory  write downs in the fiscal year
ended  September 30, 2003 compared to the fiscal year ended  September 30, 2002.
These were partially offset by a $644,000  increase in material cost as a result
of the  increase in revenues,  an increase in licensing  fees as a result of the
licensing  agreement entered into with Stratos Lightwave,  Inc being included in
cost of revenue in 2003 and higher  warranty  expense when compared to the prior
year.

        Research and Development - Research and development  expenses  increased
208.8% to $16.2  million in the fiscal year ended  September  30, 2003 from $5.3
million in the fiscal year ended September 30, 2002. This increase was due to an
increase in salaries and other  operating  costs  resulting from the increase of
personnel  and  operation  costs  associated  with the  acquisitions  of certain
business assets of Cielo  Communications  and Gore Photonics and the addition of
engineering personnel hired in Woodland Hills,  California and Bury St. Edmunds,
England.

        Sales and Marketing - Sales and marketing  expenses  increased  22.7% to
$4.6  million in the fiscal year ended  September  30, 2003 from $3.7 million in
the fiscal year ended  September 30, 2002.  The increase was primarily due to an
increase of $1.1 million in salaries and benefits from the addition of sales and
marketing personnel hired and an increase of $242,000 in commissions paid to our
direct sales force and independent manufacturers' representatives. This increase
was partially  offset by a decrease in licensing fees for the license  agreement
entered into with Stratos  Lightwave,  Inc. due to licensing fees being included
in cost of revenue for the fiscal year ended September 30, 2003.

        General  and  Administrative  -  General  and  administrative   expenses
increased 50.1% to $7.0 million in the fiscal year ended September 30, 2003 from
$4.7  million in the fiscal  year ended  September  30,  2002.  During the third
quarter of 2003, the Company  repurchased  stock from two executives.  The


                                       38
<PAGE>


stock  repurchased  by the Company had been recently  acquired by the executives
through the  exercise of stock  options.  The  Company  recorded a $1.3  million
expense associated with this stock repurchase as stock compensation  expense. In
addition,  the increase was due to an increase of $700,000 in insurance  expense
primarily related to an increase in directors' and officers'  insurance premiums
and an increase of $590,000 in salaries and benefits  related to the addition of
personnel  hired.  These increases were partially  offset by a decrease in legal
and consulting  fees due to a decrease in legal fees associated with the Stratos
Lightwave, Inc. patent infringement litigation and a decrease in consulting fees
associated with the analysis of strategic alternatives.

        Other Income, net - Other income, net decreased 45.9% to $1.8 million in
the fiscal year ended  September  30, 2003 from $3.4  million in the fiscal year
ended  September  30, 2002.  This  decrease was due to a decrease in  investment
income, which was primarily the result of a decrease in interest rates.

        Income  Taxes - The income tax benefit  was $2.0  million for the fiscal
year ended September 30, 2003,  based on an effective tax rate of 16.1% compared
to an income tax benefit of $265,000  for the fiscal  year ended  September  30,
2002.  The income tax  benefit  for the fiscal  year ended  September  30,  2003
includes a charge of $3.5 million related to the valuation  allowance of certain
deferred tax assets and state net operating loss and credit carry-forwards.


Supplementary Data - Quarterly Results

        The  following   table  sets  forth  some  of  our  selected   financial
information  for our eight  most  recently  completed  fiscal  quarters.  In the
opinion  of our  management,  this  unaudited  financial  information  has  been
prepared on the same basis as the audited  financial  information,  and includes
all adjustments,  consisting only of normal recurring adjustments,  necessary to
present this  information  fairly when read in  conjunction  with our  financial
statements  and the related  notes  contained  elsewhere in this  Report.  These
operating  results  are not  necessarily  indicative  of  results  of any future
period.

<TABLE>
<CAPTION>

                                                                    Three-Month Period Ended
                                ----------------------------------------------------------------------------------------------------
                                   Dec. 31,    Mar. 31,    Jun. 30,    Sept. 30,    Dec. 31,    Mar. 31,     Jun. 30,   Sept. 30,
                                       2002        2003        2003         2003        2003        2004         2004        2004
                                                                (In thousands, except per share data)
                                                                -------------------------------------
<S>                                <C>          <C>         <C>          <C>         <C>          <C>         <C>         <C>
Revenue                            $   9,400    $   9,568   $   9,481    $  10,431   $  13,769    $  15,909   $  14,299   $  13,166
Cost of revenue                        6,439        6,005       6,120        6,484       8,185        8,777       7,770       7,916
                                   ---------    ---------   ---------    ---------   ---------    ---------   ---------   ---------
Gross profit                           2,961        3,563       3,361        3,947       5,584        7,132       6,529       5,250
                                   ---------    ---------   ---------    ---------   ---------    ---------   ---------   ---------

Operating Expenses:
  Research and development             3,011        4,232       4,489        4,514       4,253        4,565       4,152       4,052
  Sales and marketing                    959        1,103       1,270        1,230       1,348        1,330       1,153       1,190
  General and administrative           1,309        1,354       2,823        1,525       1,596        1,628       1,504       1,121
                                   ---------    ---------   ---------    ---------   ---------    ---------   ---------   ---------
    Total operating expenses           5,279        6,689       8,582        7,269       7,197        7,523       6,809       6,363

Gain from sale of real property
                                           0            0           0            0           0            0         942           0
                                   ---------    ---------   ---------    ---------   ---------    ---------   ---------   ---------

Income (Loss) from operations         (2,318)      (3,126)     (5,221)      (3,322)     (1,613)        (391)        662      (1,113)

Other income, net                        592          492         411          339         262          294         344         617
                                   ---------    ---------   ---------    ---------   ---------    ---------   ---------   ---------
Income (loss) before income taxes     (1,726)      (2,634)     (4,810)      (2,983)     (1,351)         (97)      1,006        (496)
</TABLE>



                                       39
<PAGE>


<TABLE>
<CAPTION>

<S>                                <C>          <C>         <C>          <C>         <C>          <C>         <C>         <C>

Income tax (benefit) provision          (587)        (899)        325         (791)        192            0           0          177
                                   ---------    ---------   ---------    ---------   ---------    ---------   ---------   ---------
Net income (loss)                  $  (1,139)   $  (1,735)  $  (5,135)   $  (2,192)  $  (1,543)   $     (97)  $   1,006   $    (673)
                                   =========    =========   =========    =========   =========    =========   =========   =========

Earnings (loss) per share:
  Basic                            $   (0.01)   $   (0.02)  $   (0.05)   $   (0.02)  $   (0.01)   $   (0.00)  $    0.01   $   (0.01)
  Diluted                          $   (0.01)   $   (0.02)  $   (0.05)   $   (0.02)  $   (0.01)   $   (0.00)  $    0.01   $   (0.01)
Shares outstanding:
  Basic                              109,523      110,720     111,766      112,287     112,338      112,458     112,655     112,769
  Diluted                            109,523      110,720     111,766      112,287     112,338      112,458     113,938     112,769
</TABLE>


        Our  historical  operating  results have varied  significantly,  and our
future quarterly  operating results are likely to continue to vary significantly
from period-to-period. We believe that period-to-period comparisons of operating
results  should not be relied upon as an  indicator  of our future  performance.
Some of the  factors  which could cause our  operating  results to vary  include
fluctuations in the demand for and sales of our products, the timing of customer
orders,  the  cancellation  of  existing  orders,  competitive  factors  such as
introductions of new products, our ability to develop, introduce and manufacture
new  products  in  a  timely  manner,  our  ability  to  control  expenses,  the
availability  of  components  for our  products,  the mix of our products  sold,
changes  in  industry   standards  and  general   economic   conditions  in  the
communications and related industries.

        The  following  table sets  forth  revenue  attributable  to each of our
product groups as a percentage of revenue for the periods presented.

                                        Fiscal years ended September 30,
                                       ---------------------------------
                                            2002      2003       2004
                                       ---------------------------------
                      Receivers             10.7%    10.8%       7.2%
                      Transceivers          71.4     72.7       83.0
                      Transmitters          14.1     13.5        9.0
                      Other                  3.8      3.0        0.8
                                       ---------------------------------
                      Revenue              100.0%   100.0%     100.0%


Liquidity and Capital Resources

        As of September 30, 2004,  our primary  source of liquidity was our cash
and cash  equivalents  balance of $75.4  million and $75.1 million of marketable
securities, which consist primarily of United States treasury notes and treasury
bonds. At September 30, 2003, we had $64.9 million in cash and cash  equivalents
balance and $65.6  million in marketable  securities.  The total of our cash and
cash equivalents balance and our marketable  securities balance increased during
the fiscal year primarily due to the $5.7 million  received from the sale of the
Chatsworth  building that occurred at the end of the third quarter and the $11.6
million federal income tax refund.

        Since  inception,  we have financed our  operations  primarily with cash
generated from operations.  Additional financing has been generated through term
loans and through our initial public offering of our Class A common stock, which
we completed on November 3, 2000. As of September 30, 2004, our working  capital
was $157.0 million with a current ratio of 14:1 compared to our working  capital
of


                                       40
<PAGE>


$145.8  million  with a current  ratio of 15:1 as of  September  30,  2003.  Our
working  capital  increased  during the fiscal  year  primarily  due to the $5.7
million cash received from the sale of the Chatsworth  property and $5.0 million
of marketable  securities that was transferred  from long term to current assets
due to  maturity  date.  We believe  that  additional  cash could be borrowed if
necessary;  however,  our  current  cash  flow  from  operations,  cash and cash
equivalents,  and marketable  securities,  are expected to be sufficient to fund
operations for the next 12 months.

        On June 30, 2004, we sold the building located in Chatsworth, California
which was our former corporate headquarters.  Net proceeds from this transaction
were approximately $5.7 million.

        In August 2004, we fully repaid our long-term  debt. As of September 30,
2004, there is no balance outstanding under our term loan agreement.

        During the fiscal year ended  September  30, 2004,  our cash provided by
operating  activities  was $13.2 million  compared to a use of cash in operating
activities  of $253,000  during fiscal 2003.  The increase in cash  generated by
operating activities during the period was primarily caused by a decrease in our
net loss from $10.2  million to $1.3  million  and the  receipt of an income tax
refund of $11.7 million in fiscal 2004  compared  taxes paid for income taxes of
$10.7  million  in 2003.  We do not  expect to  receive  significant  income tax
refunds in the foreseeable future.

        During the fiscal year ended  September 30, 2004, cash used in investing
activities  was $1.5 million  compared to cash used by investing  activities  of
$19.9  million for the fiscal year ended  September  30, 2003.  The cash used in
investing  activities  for the fiscal year ended  September  30, 2004 was due to
$5.4 million  increase in  marketable  securities  resulting  from our purchases
being  greater than the  maturities  and $1.8  million in capital  expenditures.
These were  partially  offset by $5.7 million net proceeds  from the sale of the
building located in Chatsworth,  California in the third quarter.  The cash used
in investing  activities during the fiscal year ended September 30, 2003 was due
to the $10.0 million cash purchase  price and direct costs  associated  with the
acquisition of certain assets of Cielo Communications and Gore Photonics, a $6.4
million  increase in marketable  securities  resulting from our purchases  being
greater than the maturities, and a $3.4 million increase in capital expenditures
for the  purchase  of  property,  plant and  equipment  to  upgrade,  expand and
automate  our  manufacturing  and  research and  development  operations  and to
relocate our  headquarters,  manufacturing,  research and  development and sales
operations from Chatsworth, California to our larger facility in Woodland Hills,
California.

        During the fiscal year ended  September 30, 2004, cash used by financing
activities was $1.1 million  compared to cash used of $408,000 during the fiscal
year  ended  September  30,  2003.  The  increase  in cash used  from  financing
activities for the fiscal year ended  September 30, 2004 was due to $1.3 million
payout of the  long-term  loan,  partially  offset by  $207,000  provided by the
issuance of common  stock for the exercise of employee  stock  options and stock
plan  purchases.  The cash used by financing  activities  during the fiscal year
ended  September  30, 2003 was due to a $489,000  reduction in  long-term  debt,
partially  offset by $81,000  provided by the  issuance of common  stock for the
exercise of employee stock options and stock plan purchases.

        On January 31, 2003,  we acquired  parallel  optical  module  assets and
intellectual  property from Gore  Photonics,  an industry leader in the research
and development of VCSEL parallel optical modules for fiber optic  communication
networks located in Elkton, Maryland, for a cash purchase price of $3.4 million.
The purchase price includes the acquisition of capital equipment and inventory.


                                       41
<PAGE>


        On October 9, 2002, we acquired certain assets of Cielo  Communications,
Inc.,  ("Cielo  Communications")  a  research  and  design  company  located  in
Broomfield,  Colorado,  focused on  creating  VCSEL  technology  for fiber optic
communication  networks  for a cash  purchase  price  and  direct  costs of $6.6
million.  The purchase price includes the  acquisition of capital  equipment and
intellectual property.

        We believe that our existing cash,  cash  equivalents and investments on
hand, together with cash that we expect to generate from our operations, will be
sufficient  to meet our  capital  needs  for at least  the next  twelve  months.
However,  it is possible that we may need or elect to raise  additional funds to
fund our activities beyond the next year or to consummate  acquisitions of other
businesses,  products or technologies. We could raise such funds by selling more
stock  to the  public  or to  selected  investors,  or by  borrowing  money.  In
addition,  even though we may not need  additional  funds, we may still elect to
sell additional equity securities or obtain credit facilities for other reasons.
We  cannot  assure  you  that we will be able  to  obtain  additional  funds  on
commercially favorable terms, or at all. If we raise additional funds by issuing
additional equity or convertible debt securities,  the ownership  percentages of
existing  stockholders  would  be  reduced.  In  addition,  the  equity  or debt
securities  that we issue may have rights,  preferences or privileges  senior to
those of the holders of our common stock.

        Although we believe we have  sufficient  capital to fund our  activities
for at least the next twelve months,  our future capital  requirements  may vary
materially from our historical expenditures.  The amount of capital that we will
need in the future will depend on many factors, including:

      o the market acceptance of our products;
      o the levels of promotion and advertising  that will be required to launch
        our new products and achieve and maintain a competitive  position in the
        marketplace;
      o price discounts on our products to our customers;
      o our business,  product, capital expenditure and research and development
        plans and product and technology roadmaps;
      o the levels of inventory and accounts receivable that we maintain;
      o capital improvements to new and existing facilities;
      o technological advances;
      o our competitors' response to our products;
      o our  pursuit  of  strategic   alternatives,   including   future  market
        opportunities; and
      o our relationships with suppliers and customers.

        In addition,  we may require additional  capital to accommodate  planned
growth, hiring,  infrastructure and facility needs or to consummate acquisitions
of other businesses, products or technologies.


                                       42
<PAGE>


Contractual Obligations

        The  following  is a  summary  of  future  minimum  payments  due  under
operating  leases that have  initial or remaining  noncancelable  lease terms in
excess of one year at September 30, 2004:


                                          Operating            Other
Fiscal Year                                   Leases      Liabilities      Total
                                          ------------- ------------- ----------
2005                                     $        523         200    $     723
2006                                              189         200          389
2007                                               12         200          212
                                         ------------- ------------- ----------
Total                                    $        725  $      600    $    1,325
                                         ============= ============= ==========

        We also have purchase commitments for materials, supplies, equipment and
outside  services  in  aggregate  of  approximately  $3.6  million of which $3.5
million and  $100,000 is for fiscal  year  ending  September  30, 2005 and 2006,
respectively. Total purchase commitments to related party for the next two years
is $804,000.  Based on our current operations,  we believe that our current cash
flow from operations, cash and cash equivalents,  and marketable securities, are
expected to be sufficient to meet all of the known requirements.

Inflation

        Inflation  has not had a  material  adverse  effect  on our  results  of
operations,  however,  our results of operations may be materially and adversely
affected by inflation in the future.

Other Events

        On September  29, 2003,  we  announced  that a special  committee of our
board of directors is evaluating  strategic  alternatives to enhance shareholder
value and  liquidity.  The special  committee,  which is  comprised of our three
independent  directors,  has retained Bear Stearns & Co. Inc., which is advising
the  committee  in  evaluating  strategic  alternatives,   including  a  special
dividend, share repurchase, strategic merger or sale of the Company.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risk

        We are  currently  exposed  to  interest  rate  risk  on our  investment
portfolio.

        The  primary  objective  of our  investment  activities  is to  preserve
capital.  We have not used  derivative  financial  instruments in our investment
portfolio.  Our cash and cash  equivalents  includes  $75.4 million  invested in
money market and other interest  bearing  accounts.  In addition,  we have $75.1


                                       43
<PAGE>


million  invested in marketable  securities,  which  represents  investments  in
United States treasury notes and treasury bonds.

        As of September 30, 2004, our investment in marketable  securities had a
weighted-average   time  to  maturity  of  approximately  210  days.  Marketable
securities  represent  United States  treasury  notes and treasury  bonds with a
maturity of greater than three months.  These  securities are classified as held
to maturity  because we have the intention and ability to hold the securities to
maturity.  Gross  unrealized  gains and  losses on  held-to-maturity  marketable
securities have historically not been material.  Maturities on  held-to-maturity
marketable debt securities range from three months to two years.

        If interest  rates were to increase or decrease  1%, the result would be
an annual  increase  or  decrease  of  interest  income of $1.5  million  on our
investment portfolio.  However, due to the uncertainty of the actions that would
be taken and their  possible  effects,  this  analysis  assumes no such  action.
Further,  this  analysis does not consider the effect of the change in the level
of overall economic activity that could exist in such an environment.

Foreign Currency Risk

        Sales to foreign  customers are denominated in U.S.  dollars and as such
we have no foreign currency fluctuation risk.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

        The financial  statements required by this item are included in Part IV,
Item 15 of this  Report and the  supplementary  data  required  by this item are
included in Part II, Item 7 of this Report.


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

        None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

        Based on their  evaluation,  as of the end of the period covered by this
annual report, our principal  executive officer and principal  financial officer
have concluded that our disclosure  controls and procedures (as defined in Rules
13a-15(e)  or 15d-15(e)  under the  Securities  Exchange Act of 1934  ("Exchange
Act")) are effective based on their  evaluation of these controls and procedures
required by paragraph (b) of Rules 13a-15 or 15d-15 under the Exchange Act.

Changes in Internal Control

        There were no changes in our internal  control over financial  reporting
identified in connection with the evaluation  required by paragraph (d) of Rules
13a-15 or 15d-15  under the Exchange  Act that  occurred  during our last fiscal
quarter that has  materially  affected,  or is  reasonably  likely to materially
affect, our internal control over financial reporting.


                                       44
<PAGE>

                                   PART III.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The  information  required  by this Item is  included  in  "Proposal  1:
Elections of Directors",  "Management",  and "Section 16(a) Beneficial Ownership
Reporting  Compliance" sections of our Proxy Statement to be filed in connection
with our 2005  Annual  Meeting of  Stockholders  and is  incorporated  herein by
reference.

ITEM 11.  EXECUTIVE COMPENSATION

        The  information  required by this Item is  included  in the  "Executive
Compensation and Related  Information"  section of the our Proxy Statement to be
filed  in  connection  with our  2005  Annual  Meeting  of  Stockholders  and is
incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

        The  information  required  by this Item is  included  in the  "Security
Ownership of Certain Beneficial Owners and Management" and "Equity  Compensation
Plan Information" sections of our Proxy Statement to be filed in connection with
the our 2005  Annual  Meeting  of  Stockholders  and is  incorporated  herein by
reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information  required by this Item is included in the  "Compensation
Committee  Interlocks  and Insider  Participation"  and  "Certain  Transactions"
sections  of our Proxy  Statement  to be filed in  connection  with the our 2005
Annual Meeting of Stockholders and is incorporated herein by reference.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

        The information  required by this Item is included in the  "Ratification
of Appointment of Independent Auditors" section of the our Proxy Statement to be
filed  in  connection  with our  2005  Annual  Meeting  of  Stockholders  and is
incorporated herein by reference.


                                       45
<PAGE>


                                    PART IV.

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

      (a) Documents filed as part of this Report:

          1.   Financial  Statements. The  following  financial  statements  of
Optical Communication  Products, Inc. are included in a separate section of this
Annual Report on Form 10-K commencing on the pages referenced below:


<TABLE>
<CAPTION>

                                                                                                         Page
                                                                                                         ----

Optical Communication Products Financial Statements
---------------------------------------------------
<S>                                                                                                       <C>
Independent Auditors' Report............................................................................. F-2
Balance Sheets at September 30, 2003 and 2004............................................................ F-3
Statements of Operations for each of the three years in the period ended September 30, 2004.............. F-4
Statements of Stockholders' Equity for each of the three years in the period ended September 30, 2004.... F-5
Statements of Cash Flows for each of the three years in the period ended September 30, 2004.............. F-6
Notes to Financial Statements............................................................................ F-7
</TABLE>


        2.     Financial Statement Schedule.  The financial  statement  schedule
of Optical Communication  Products,  Inc. is included below. All other schedules
have  been  omitted  because  they  are not  applicable,  not  required,  or the
information is included in the financial statements or notes thereto.

                 Schedule II- Valuation and Qualifying Accounts
              For the Year Ended September 30, 2002, 2003 and 2004

<TABLE>
<CAPTION>

                                                      Balance at       Additions        (Deductions)               Balance at
                                                     beginning of      charged to        recoveries               end of period
           Description                  Period        period ($)       expense ($)            ($)                      ($)
<S>                                     <C>            <C>               <C>              <C>                         <C>
Allowance for Doubtful Accounts         2002           1,156,000         450,000          (1,479,000)                 127,000
                                        2003             127,000         200,000              132,000                 459,000
                                        2004             459,000          80,000              177,000                 362,000
</TABLE>


                                       46
<PAGE>


          3.   Exhibits.   The  following   Exhibits  are  attached  hereto  and
incorporated herein by reference:


  Exhibit
  Number                                     Exhibit Description
--------------------------------------------------------------------------------
3.1*         Amended and Restated Certificate of Incorporation
3.2*         Bylaws
3.2.1***     Amendment Number One to Bylaws
4.1          See Exhibits 3.1, 3.2 and 3.2.1 for  provisions of the  Certificate
             of Incorporation and Bylaws for the Registrant  defining the rights
             of holders of common stock of the Registrant
4.2*         Specimen Stock Certificate
4.3*         Standstill and Registration  Rights Agreement,  dated as of October
             26, 2000, by and between the Registrant  and The Furukawa  Electric
             Co., Ltd.
10.1*+       2000 Stock Incentive Plan
10.2*+       Employee Stock Purchase Plan
10.3*        Form of Indemnification Agreement
10.5*+       Employment  Agreement,  dated  November 1, 1999, by and between the
             Registrant and Muoi Van Tran, as currently in effect
10.6*+       Employment  Agreement,  dated  November 1, 1999, by and between the
             Registrant and Mohammad Ghorbanali, as currently in effect
10.7*+       Employment  Agreement,  dated  November 1, 1999, by and between the
             Registrant and Susie L. Nemeti, as currently in effect
10.8*+       Form of Stock  Option  Agreement,  dated  August 29,  2000,  by and
             between  the  Registrant  and  each  of  Muoi  Van  Tran,  Mohammad
             Ghorbanali   and  Susie  L.   Nemeti   (including   a  schedule  of
             substantially identical terms)
10.9*+       Form of Stock Option Agreement, dated June 28, 1993, by and between
             the Registrant and each of Muoi Van Tran,  Mohammad  Ghorbanali and
             Susie L. Nemeti  (including a schedule of  substantially  identical
             terms)
10.10**      Master  Purchase  Agreement,  dated October 1, 2003, by and between
             the Registrant and The Furukawa Electric Co., Ltd.
21.1*        List of Subsidiaries of the Registrant
23.1         Consent of Deloitte & Touche LLP
31.1         Certification  of Chief  Executive  Officer  pursuant  to 18 U.S.C.
             Section   1350,   as  adopted   pursuant  to  Section  302  of  the
             Sarbanes-Oxley Act of 2002.
31.2         Certification  of Chief  Financial  Officer  pursuant  to 18 U.S.C.
             Section   1350,   as  adopted   pursuant  to  Section  302  of  the
             Sarbanes-Oxley Act of 2002.
32.1         Certification  of  Chief  Executive  Officer  and  Chief  Financial
             Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to
             Section 906 of the Sarbanes-Oxley Act of 2002.


*    This  exhibit  was  previously   filed  as  an  exhibit  to  the  Company's
     Registration  Statement  on Form S-1  declared  effective  November 2, 2000
     (File No. 333-44862) under the same exhibit number,  and is incorporated by
     reference herein.
+    Management  contract or  compensatory  plan or  arrangement  required to be
     filed as an exhibit pursuant to Item 15(c) of Form 10-K.
**   Portions  of this  document  have been  redacted  pursuant to a Request for
     Confidential Treatment filed with the Securities and Exchange Commission.
***  Filed as an exhibit  to the  Annual  Report on Form 10-K for the year ended
     September  30,  2002 on  December  27,  2002  and  incorporated  herein  by
     reference.


                                       47
<PAGE>


(b) Exhibit Index:

See Exhibit index.

(c) Financial Statement Schedule:

See Financial statement schedule set forth in (a)(2) above


                                       48
<PAGE>


                                   SIGNATURES

        Pursuant to the  requirements  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934,  the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the  undersigned,  thereunto duly authorized,
in the  City of  Woodland  Hills,  State of  California,  on the  28th  day of
December, 2004.

                                            Optical Communication Products, Inc.

                                            By:  /s/ Muoi Van Tran
                                                 -------------------------------
                                                 Name:  Muoi Van Tran
                                                 Title: President and Chief
                                                        Executive Officer

        Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,
this Report has been signed by the following  persons in the  capacities  and on
the dates indicated:

<TABLE>
<CAPTION>

<S>                               <C>                                                   <C>
Signature                          Title                                                Date
---------                          -----                                                ----


----------------------------
/s/ Muoi Van Tran                 Chairman of the Board of Directors, Chief             December 28, 2004
----------------------------      Executive Officer and President (principal
Muoi Van Tran                     executive officer)

----------------------------
/s/ Susie L. Nemeti               Chief Financial Officer (principal                    December  28, 2004
----------------------------      financial and accounting officer)
Susie L. Nemeti


----------------------------
/s/ Masato Sakamoto               Director                                               December  27, 2004
----------------------------
Masato Sakamoto


----------------------------
/s/ Yukimasa Shiga                Director                                               December  27, 2004
----------------------------
Yukimasa Shiga


----------------------------
/s/ Naoomi Tachikawa              Director                                               December  27, 2004
----------------------------
Naoomi Tachikawa


----------------------------
/s/ Stewart D. Personick          Director                                               December  26, 2004
----------------------------
Stewart D. Personick


----------------------------
/s/ Hobart Birmingham             Director                                               December  27, 2004
----------------------------
Hobart Birmingham


----------------------------
/s/ David Warnes                  Director                                               December  27, 2004
----------------------------
David Warnes
</TABLE>


                                       49
<PAGE>


                      OPTICAL COMMUNICATION PRODUCTS, INC.

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                                                                                Page
                                                                                                                ----
<S>                                                                                                              <C>
Independent Auditors' Report..................................................................................   F-2
Balance Sheets at September 30, 2003 and 2004.................................................................   F-3
Statements of Operations for each of the three years in the period ended September 30, 2004...................   F-4
Statements of Stockholders' Equity for each of the three years in the period ended September 30, 2004.........   F-5
Statements of Cash Flows for each of the three years in the period ended September 30, 2004...................   F-6
Notes to Financial Statements.................................................................................   F-7
</TABLE>


                                      F-1
<PAGE>


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors of
Optical Communication Products, Inc.:

        We have audited the accompanying balance sheets of Optical Communication
Products,  Inc.  (the  "Company")  as of  September  30, 2003 and 2004,  and the
related statements of operations,  stockholders' equity, and cash flows for each
of the three  years in the period  ended  September  30,  2004.  Our audits also
included the financial  statement schedule listed in the Index at Item 15. These
financial statements and the financial statement schedule are the responsibility
of the Company's management.  Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.

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

        In  our  opinion,  such  financial  statements  present  fairly,  in all
material  respects,  the  financial  position of the Company as of September 30,
2003 and 2004,  and the results of its operations and its cash flows for each of
the three years in the period ended  September  30,  2004,  in  conformity  with
accounting principles generally accepted in the United States of America.  Also,
in our opinion, the financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.



Deloitte & Touche LLP
Los Angeles, California
December 28, 2004


                                      F-2
<PAGE>


OPTICAL COMMUNICATION PRODUCTS, INC.
OPTICAL COMMUNICATION PRODUCTS, INC.
BALANCE SHEETS
SEPTEMBER 30, 2003 AND 2004 (in thousands, except share and per share amounts)

<TABLE>
<CAPTION>


                                                                                September 30,
                                                                              2003         2004
ASSETS

<S>                                                                      <C>           <C>
CURRENT ASSETS
  Cash and cash equivalents                                              $    64,895   $    75,423
  Marketable securities                                                       65,607        75,131
  Accounts receivable less allowance for doubtful accounts of
    $459 and $362 in 2003 and 2004, respectively                               6,960         8,566
  Income taxes receivable                                                     11,743             0
  Inventories                                                                  5,592         8,649
  Prepaid expenses and other current assets                                      875         1,118
                                                                         -----------   -----------

           Total current assets                                              155,672       168,887

Property, plant and equipment, net                                            36,721        29,278
Marketable securities                                                          5,048             0
Intangible assets, net                                                         2,702         1,802
                                                                         -----------   -----------

TOTAL                                                                    $   200,143   $   199,967
                                                                         ===========   ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of long-term debt                                      $       471   $         0
  Accounts payable                                                             1,169         1,136
  Accounts payable to related parties                                          1,061         3,325
  Accrued bonus                                                                4,433         4,451
  Other accrued expenses                                                       3,159         3,237
  Income taxes payable                                                            26           158
                                                                         -----------   -----------

           Total current liabilities                                          10,319        12,307
                                                                         -----------   -----------

LONG-TERM DEBT, net of current portion                                           864             0
OTHER LONG-TERM LIABILITIES                                                      600           400
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Class A common stock, $0.001 par value; 200,000,000 shares authorized,
    46,297,285 and 46,771,927 shares outstanding at September 30, 2003
    and 2004, respectively                                                        46            47
  Class B common stock $0.001 par value; 66,000,000 shares
    authorized, 66,000,000 shares issued and outstanding at
    September 30, 2003 and 2004, respectively                                     66            66
  Additional paid-in capital                                                 132,712       132,917
  Retained earnings                                                           55,536        54,230
                                                                         -----------   -----------

           Total stockholders' equity                                        188,360       187,260
                                                                         -----------   -----------

TOTAL                                                                    $   200,143   $   199,967
                                                                         ===========   ===========
</TABLE>

    The accompanying notes are an integral part of the financial statements.


                                      F-3
<PAGE>


<TABLE>
<CAPTION>

OPTICAL COMMUNICATION PRODUCTS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 2002, 2003, AND 2004 (In thousands,
except per share amounts)
-----------------------------------------------------------------------------------------------------------------------------

                                                                                      2002             2003            2004
<S>                                                                                <C>               <C>           <C>
REVENUE                                                                            $   37,207        $  38,880     $   57,143

COST OF REVENUE                                                                        26,375           25,048         32,648
                                                                                   ----------        ---------     ----------

GROSS PROFIT                                                                           10,832           13,832         24,495
                                                                                   ----------        ---------     ----------

EXPENSES:
  Research and development                                                              5,261           16,246         17,022
  Selling and marketing                                                                 3,717            4,562          5,021
  General and administrative (including stock compensation expense
    of $86 and $1,292 for years ended September 30, 2002 and 2003,
    respectively)                                                                       4,671            7,011          5,849
                                                                                   ----------        ---------     ----------

           Total expenses                                                              13,649           27,819         27,892
                                                                                   ----------        ---------     ----------

Gain from sale of real property                                                             0                0            942
                                                                                   ----------        ---------     ----------

LOSS FROM OPERATIONS                                                                   (2,817)         (13,987)        (2,455)

OTHER INCOME, Net                                                                       3,391            1,834          1,517
                                                                                   ----------        ---------     ----------

INCOME (LOSS) BEFORE INCOME TAXES                                                         574          (12,153)          (938)

INCOME TAX (BENEFIT) PROVISION                                                           (265)          (1,952)          369
                                                                                   ----------        ---------     ----------

NET INCOME (LOSS)                                                                  $      839        $ (10,201)    $   (1,307)
                                                                                   ==========        =========     ==========
BASIC EARNINGS (LOSS) PER SHARE                                                    $     0.01        $   (0.09)    $    (0.01)

DILUTED EARNINGS (LOSS) PER SHARE                                                  $     0.01        $   (0.09)    $    (0.01)

BASIC SHARES OUTSTANDING                                                              108,391          111,074        112,553

DILUTED SHARES OUTSTANDING                                                            112,578          111,074        112,553
</TABLE>


    The accompanying notes are an integral part of the financial statements.


                                      F-4
<PAGE>


<TABLE>
<CAPTION>

OPTICAL COMMUNICATION PRODUCTS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2002, 2003, AND 2004 (In thousands, except share data)

                                                Preferred Stock             Common Stock
                                             -------------------   -------------------------      Paid-in    Retained
                                              Shares     Amount        Shares         Amount      Capital     Earnings        Total

<S>                                          <C>         <C>         <C>              <C>        <C>         <C>          <C>
BALANCE, OCTOBER  1, 2001                                $ -         108,006,602      $ 108      $ 129,707   $ 64,898     $194,713

  Net income                                                                                                      839          839
  Issuance of common stock for exercise
    of stock options and employee stock
    purchase plan                                                      1,028,508          1            151                     152
  Tax benefit from exercise of
    non-qualified stock options                                                                      1,406                   1,406
  Stock option compensation expense                                                                     86                      86
                                             --------    -------     -----------      -----      ---------   --------     --------
BALANCE, SEPTEMBER 30, 2002                                          109,035,110        109        131,350     65,737       197,196

  Net loss                                                                                                    (10,201)     (10,201)
  Issuance of common stock for exercise
    of stock options and employee stock
    purchase plan                                                      3,262,175          3             78                      81
  Tax benefit from exercise of
    non-qualified stock options                                                                      1,303                   1,303
  Stock option compensation expense                                                                    (19)                    (19)
                                             --------    -------     -----------      -----      ---------   --------     --------

BALANCE, SEPTEMBER 30, 2003                                          112,297,285        112        132,712     55,536      188,360

  Net loss                                                                                                     (1,307)      (1,307)
  Issuance of common stock for exercise
    of stock options and employee stock
    purchase plan                                                        474,642          1            205                     206
                                             --------    -------     -----------      -----      ---------   --------     --------

BALANCE, SEPTEMBER 30, 2004                      -       $ -         112,771,927      $ 113      $ 132,917   $ 54,230     $187,260
                                             ========    =======     ===========      =====      =========   ========     ========
</TABLE>

    The accompanying notes are an integral part of the financial statements.


                                      F-5
<PAGE>


<TABLE>
<CAPTION>


OPTICAL COMMUNICATION PRODUCTS, INC
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2002, 2003, AND 2004 (in thousands)
-------------------------------------------------------------------------------------------------------------------------

                                                                                     2002          2003         2004
<S>                                                                               <C>           <C>          <C>
OPERATING ACTIVITIES:
  Net income (loss)                                                               $       839   $  (10,201)  $    (1,307)
  Adjustments to reconcile net income to net cash provided by
    operating activities:
    Depreciation and amortization                                                       2,433        5,642         5,383
    Amortization of premium on marketable securities                                    2,041        1,543           959
    Gain from sale of real property                                                         -            -          (942)
    Tax benefit from exercise of non-qualified stock options                            1,406        1,303             -
    Stock option compensation expense                                                      86          (19)            -
    Changes in operating assets and liabilities:
      Accounts receivable, net                                                          4,541       (3,497)       (1,606)
      Income taxes receivable                                                          (1,008)     (10,735)       11,743
      Inventories                                                                       8,437        2,123        (3,057)
      Deferred income taxes                                                               101        9,138             -
      Prepaid expense and other assets                                                      6           25          (242)
      Accounts payable                                                                   (742)         546           (33)
      Accounts payable to related parties                                              (1,230)       1,031         2,264
      Accrued bonuses                                                                     402        2,131            18
      Other accrued expenses                                                              (49)         959            78
      Income taxes payable                                                               (310)         (92)          132
      Other long-term liabilities                                                         750         (150)         (200)
                                                                                  -----------   ----------   -----------

           Net cash provided by (used in) operating activities                         17,703         (253)       13,190
                                                                                  -----------   ----------   -----------

INVESTING ACTIVITIES:
  Purchase of marketable securities                                                   (66,713)     (71,424)      (70,435)
  Maturities of marketable securities                                                  75,000       65,000        65,000
  Net proceeds from sale of real property                                                   -            -         5,693
  Purchase of property, plant and equipment                                            (2,773)      (3,441)       (1,791)
   Cash paid for acquisitions                                                                      (10,005)           -
                                                                                  -----------   ----------   -----------

           Net cash provided by (used in) investing activities                          5,514      (19,870)       (1,533)
                                                                                  -----------   ----------   -----------

FINANCING ACTIVITIES:
  Principal payments on long-term debt                                                   (472)        (489)       (1,335)
  Issuance of common stock                                                                152           81           206
                                                                                  -----------   ----------   -----------

           Net cash provided by (used in) financing activities                           (320)        (408)       (1,129)
                                                                                  -----------   ----------   -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                   22,897      (20,531)       10,528

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                           62,529       85,426        64,895
                                                                                  -----------   ----------   -----------

CASH AND CASH EQUIVALENTS, END OF YEAR                                            $    85,426   $   64,895   $    75,423
                                                                                  ===========   ==========   ===========

SUPPLEMENTAL CASH FLOW INFORMATION:

  Cash paid during the year for interest expense                                  $        85   $       54   $        36
  Cash received during the year for income taxes, net                             $      (431)  $   (1,567)  $   (11,522)
</TABLE>


    The accompanying notes are an integral part of the financial statements.


                                      F-6
<PAGE>


OPTICAL COMMUNICATION PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1.   GENERAL INFORMATION

        The accompanying financial statements of Optical Communication Products,
        Inc.,  a Delaware  corporation  (the  "Company"),  includes  its balance
        sheets as of September 30, 2003 and 2004 and reflects the results of its
        operations  for the years ended  September 30, 2002,  2003 and 2004. The
        Company's   operations   are  primarily   located  in  Woodland   Hills,
        California.  The  Company is a  majority-owned  subsidiary  of  Furukawa
        Electric Company, Ltd. of Japan ("Furukawa"). Furukawa beneficially owns
        58.5% of the  Company's  capital  stock at  September  30,  2004,  which
        accounts for 93.4% of the combined  voting power of all of the Company's
        outstanding common stock.

        Operations  - The  Company  operates  in  one  industry  segment,  which
        includes  the design and  manufacture  of fiber  optic  components.  The
        Company's   products   consist  of  optical   transmitters,   receivers,
        transceivers and  transponders,  which convert  electronic  signals into
        optical signals and back to electronic signals.

        The Company sells its products to communication  equipment manufacturers
        or CEMs, their contract  manufacturers or CMs, who incorporate them into
        systems they  assemble for the CEMs and to  distributors.  For financial
        reporting  purposes,  the Company considers its direct sale customers to
        be either CEMs, CMs or  distributors  who place purchase orders with the
        Company  directly.  Revenue  from  the  Company's  largest  direct  sale
        customer  amounted to 11.0% and 11.1% for the years ended  September 30,
        2003 and 2004 respectively.

2.   SIGNIFICANT ACCOUNTING POLICIES

        Use of Estimates in the  Preparation  of the Financial  Statements - The
        preparation  of  financial  statements  in  conformity  with  accounting
        principles  generally  accepted in the United States of America requires
        management  to  make  estimates  and  assumptions  that  affect  amounts
        reported  therein.  Due to the inherent  uncertainty  involved in making
        estimates,  actual  results  reported in future  periods may differ from
        those estimates.

        Cash  and  Cash  Equivalents  -  Cash  and  cash   equivalents   include
        unrestricted deposits and short-term  investments with a maturity at the
        date of purchase of three months or less.

        Marketable  Securities - Marketable  securities  represent United States
        treasury notes and treasury  bonds with an original  maturity of greater
        than three months.  These  securities are classified as held to maturity
        because the Company has the intent and ability to hold the securities to
        maturity.   Gross  unrealized  gains  and  losses  on   held-to-maturity
        marketable securities have historically not been material. Maturities on
        held-to-maturity  marketable debt securities  range from three months to
        two years.

        Investments in marketable securities were as follows:


                                      F-7
<PAGE>


<TABLE>
<CAPTION>

                                                                      Unrealized   Unrealized
                Type of Security            Book/Cost     Fair Value    gains       (losses)
-----------------------------------------------------------------------------------------------
                                                          (in thousands)
<S>                                       <C>           <C>             <C>        <C>
United States Treasury Notes
     2003                                 $     70,655  $     70,689    $    45    $    (11)
     2004                                       75,131        74,959          -        (172)
</TABLE>


        Inventories  -  Inventories  are  stated  at the  lower  of  cost or net
        realizable  value.  Cost is  determined  using the  first-in,  first-out
        method.  The Company  establishes  its  inventory  write-downs  based on
        excess and obsolete inventories determined primarily by historical usage
        and  future  demand  forecasts.   Provisions  for  excess  and  obsolete
        inventory  result  in a new,  lower-cost  basis for that  inventory  and
        subsequent  changes  in facts  and  circumstances  do not  result in the
        restoration or increase in that newly established cost basis.

        Property,  Plant and  Equipment  -  Property,  plant and  equipment  are
        recorded at cost.  Provision for  depreciation  has been made based upon
        the  estimated  useful  lives of the  assets,  which range from three to
        thirty-nine   years,   using  the  straight-line   method.   Significant
        improvements  and  betterments are capitalized if they extend the useful
        life of the asset.  Routine  repairs and  maintenance  are expensed when
        incurred.

        Impairment  of  Long-Lived  Assets - The  Company  evaluates  long-lived
        assets  for  impairment  whenever  events or  changes  in  circumstances
        indicate  that  the  carrying  value  of  an  asset  may  no  longer  be
        recoverable.  If the  estimated  future  cash  flows  (undiscounted  and
        without  interest  charges)  from the use of an asset  are less than the
        carrying  value,  a  write-down  would be recorded to reduce the related
        asset to its estimated  fair value.  For purposes of  estimating  future
        cash flows from impaired assets, the Company groups assets at the lowest
        level for which  there are  identifiable  cash  flows  that are  largely
        independent of the cash flows of other groups of assets. There have been
        no impairment charges recorded by the Company.

        Income Taxes - Income taxes are provided for taxes currently  payable or
        refundable,   and  deferred   income  taxes   arising  from  future  tax
        consequences  of  events  that  have been  recognized  in the  Company's
        financial  statements  or tax  returns.  Deferred  income tax assets and
        liabilities  are  recognized for the estimated  future tax  consequences
        attributable  to differences  between the financial  statement  carrying
        amounts of existing  assets and  liabilities  and their  respective  tax
        basis.  Deferred  income tax assets and  liabilities  are measured using
        enacted tax rates  expected  to apply to taxable  income in the years in
        which  those  temporary  differences  are  expected to be  recovered  or
        settled.  Valuation  allowances are established when necessary to reduce
        deferred income tax assets to the amounts expected to be realized.

        Earnings per Share - Basic  earnings  per share are  computed  using the
        weighted-average  number of common shares outstanding during the period.
        Diluted  earnings  per share  are  computed  using the  weighted-average
        number of common shares and dilutive potential common shares outstanding
        during the period,  using the  as-if-converted  method for the Company's
        preferred shares and the treasury stock method for stock options.

        Revenue  Recognition - The Company recognizes revenue from product sales
        upon   shipment,   as  shipments  are  FOB  shipping   point,   assuming
        collectibility of the resulting receivable is probable.

        Research and Development  Costs - Costs  associated with the development
        of new products are charged to expense when incurred.


                                      F-8
<PAGE>


        Common  Stock - At September  30,  2004,  the Company had two classes of
        common  stock with a par value of $0.001  per share.  Holders of Class A
        common  stock  generally  have  identical  rights to  holders of Class B
        common  stock,  except that holders of Class A common stock are entitled
        to one vote per share while holders of Class B common stock are entitled
        to  ten  votes  per  share  on  matters  submitted  to  a  vote  of  the
        stockholders.  Furukawa  owns all  66,000,000  shares  of the  Company's
        outstanding Class B common stock.

        Fair Value of Financial  Instruments - The recorded values of marketable
        securities,  accounts receivable,  accounts payable and accrued expenses
        approximate  their fair values  based on their  short-term  nature.  The
        recorded value of long-term debt and other liabilities  approximate fair
        value, as interest is variable based on market rates.

        Concentration  of Credit Risk - Financial  instruments  that potentially
        subject the Company to  concentrations  of credit risk consist primarily
        of  cash  and  cash   equivalents,   placed  with  high  credit  quality
        institutions,  and accounts  receivable.  The Company sells products and
        extends  credit  to  customers,  primarily  in the  United  States,  and
        periodically  monitors  its  exposure to credit  losses,  and  maintains
        allowances for  anticipated  losses.  The direct sales customer with the
        largest  accounts   receivable   amounted  to  $2,298,000   (31.0%)  and
        $1,745,000 (19.5%) at September 30, 2003 and 2004, respectively. For the
        fiscal year ended  September 30, 2003 and 2004,  one customer  accounted
        for approximately  11.0% and 11.1%, of our total revenue,  respectively.
        No other  direct  sales  customer  accounted  for more than 10.0% of our
        total revenue for the fiscal years ended September 30, 2004 and 2003.

        Segment Reporting - Statement of Financial Accounting Standards ("SFAS")
        No.  131,  "Disclosures  about  Segments  of an  Enterprise  and Related
        Information,"  establishes  standards  for the  manner  in which  public
        companies  report  information  about  operating  segments in annual and
        interim financial  statements.  SFAS No. 131 also establishes  standards
        for related  disclosures  about products and services,  geographic areas
        and major  customers.  The method for  determining  what  information to
        report is based on the way management  organizes the operating  segments
        within a Company for making operating  decisions and assessing financial
        performance.

        The  Company's  chief  executive  officer  ("CEO")  and chief  financial
        officer ("CFO") are its chief operating  decision makers.  The financial
        information  the CEO and CFO  review  is  identical  to the  information
        presented  in the  accompanying  financial  statements.  The Company has
        determined  that it operates in one reportable  segment,  which includes
        the design and manufacture of fiber optic components.  The Company has a
        subsidiary in England,  which provides  commercial and technical support
        to the Company's  customers in Europe. The Company does not have foreign
        operations.

        Stock Based  Compensation - The Company  accounts for its employee stock
        option plan under the  intrinsic  value method  prescribed by Accounting
        Principles  Board  Opinion  No.  25,  Accounting  for  Stock  Issued  to
        Employees,  and related  interpretations.  The Company has a stock-based
        compensation  plan. The Company's  September 30, 2003 operating  results
        include  compensation  expense  related to the  repurchase of stock from
        certain  executives of the Company.  All options granted had an exercise
        price equal to the quoted market price of the underlying common stock on
        the date of grant.  The following  table  illustrates  the effect on the
        operating  results and per share  amounts if the fair value  recognition
        provisions of SFAS No. 123, Accounting for Stock-Based Compensation,  as
        amended    by    SFAS    No.    148    Accounting    for     Stock-Based
        Compensation--Transition  and  Disclosure an amendment of FASB Statement
        No. 123 had been applied to stock-based employee compensation:


                                      F-9
<PAGE>


<TABLE>
<CAPTION>

                                                                              Year Ended September 30,
                                                                         2002          2003        2004
                                                                     (in thousands, except per share amounts)
<S>                                                                   <C>           <C>          <C>

Net income (loss):
  As reported                                                         $      839    $ (10,201)   $  (1,307)
     Add: The stock-based employee compensation cost, net
     of related tax effects, included in the determination of
     net income as reported                                                               852
     Deduct: Total stock-based employee compensation
     expense determined under fair value based method for
     all awards, net of related tax effects                               (7,539)      (6,972)      (6,118)
                                                                   ------------------------------------------
  Pro forma net loss                                                  $   (6,700)   $ (16,321)   $  (7,425)
                                                                   ==========================================

Basic income (loss) per share
  As reported                                                         $     0.01    $   (0.09)   $   (0.01)
  Pro forma                                                           $    (0.06)   $   (0.15)   $   (0.07)

Diluted income (loss) per share
  As reported                                                         $     0.01    $   (0.09)   $   (0.01)
  Pro forma                                                           $    (0.06)   $   (0.15)   $   (0.07)
</TABLE>


        The fair value of each option grant  estimated on the date of grant used
        to compute pro forma net income  (loss) and pro forma net income  (loss)
        per share is estimated using the Black-Scholes option pricing model. The
        following assumptions were used in completing the model:

                                                 September 30,
                                    -----------------------------------------
                                       2002           2003           2004

        Dividend yield                     0 %          0 %            0 %
        Expected volatility              116 %        104 %           99 %
        Risk-free rate of return        4.94 %       3.67 %         3.98 %
        Expected life (years)            7.2          8.2            8.1


        Recent  Accounting  Pronouncements  - In November  2002, the FASB issued
        FASB  Interpretation  No.  45  (FIN  45),  Guarantor's   Accounting  and
        Disclosure Requirements for Guarantees, Including Indirect Guarantees of
        Indebtedness of Others. FIN 45 requires a guarantor to recognize, at the
        inception  of a  guarantee,  a  liability  for  the  fair  value  of the
        obligation  it has  undertaken  in issuing  the  guarantee.  FIN 45 also
        requires  guarantors to disclose  certain  information  for  guarantees,
        beginning  December  31,  2002.  The  adoption  of FIN 45 did not have a
        material  effect  on  the  Company's  financial  condition,  results  of
        operations or liquidity.

        In January 2003, the FASB issued  Interpretation No. 46,  "Consolidation
        of Variable Interest Entities" ("FIN 46"). This interpretation clarifies
        the application of Accounting  Research  Bulletin No. 51,  "Consolidated
        Financial  Statements," to certain entities in which equity investors do
        not have the  characteristics of a controlling  financial interest or do
        not  have  sufficient  equity  at risk for the  entity  to  finance  its
        activities without additional  subordinated financial support from other
        parties.  FIN 46 also  requires  consolidation  of a  variable  interest
        entity by an  enterprise  that holds  such a  controlling  interest.  In
        December  2003,  the FASB  completed  its  deliberations  regarding  the
        proposed  modification  to FIN 46 and  issued  Interpretation  No.  46R,
        "Consolidation of Variable


                                      F-10
<PAGE>


        Interest  Entities--an  Interpretation  of ARB No. 51" ("FIN 46R").  The
        decisions  reached  included  a  deferral  of  the  effective  date  and
        provisions for additional scope exceptions for certain types of variable
        interests. Application of FIN 46R is required in financial statements of
        public entities that have interests in variable  interest  entities,  or
        potential   variable   interest   entities   commonly   referred  to  as
        special-purpose  entities,  for periods  ending after December 15, 2003.
        Application by public entities  (other than small business  issuers) for
        all other types of entities is  required  in  financial  statements  for
        periods  ending  after March 15,  2004.  The adoption of FIN 46R did not
        have a material effect on the Company's financial condition,  results of
        operations or liquidity.

        In May 2003,  the FASB  issued  SFAS No.  150,  Accounting  for  Certain
        Financial  Instruments  with  Characteristics  of Both  Liabilities  and
        Equity.  The  statement   establishes   standards  for  classifying  and
        measuring  as  liabilities  certain  financial  instruments  that embody
        obligations of the issuer and have  characteristics  of both liabilities
        and  equity.  SFAS No. 150 must be applied  immediately  to  instruments
        created or modified  after May 31, 2003. The adoption of SFAS No. 150 in
        the third  quarter of fiscal 2003 did not have a material  effect on the
        Company's financial condition, results of operations or liquidity.

        In July 2004,  the Emerging  Issues Task Force  ("EITF")  published  its
        consensus  on Issue No.  03-01,  "The  Meaning  of Other  Than-Temporary
        Impairment and Its Application to Certain  Investments."  EITF Issue No.
        03-01 addresses the meaning of  other-than-temporary  impairment and its
        application to debt and equity  securities within the scope of Statement
        of Financial  Accounting  Standards  ("SFAS") No. 115,  certain debt and
        equity  securities  within  the  scope  of  SFAS  No.  124,  and  equity
        securities  that are not  subject  to the scope of SFAS No.  115 and not
        accounted for under the equity method of accounting.  In September 2004,
        the FASB issued FASB Staff Position  ("FSP")  Emerging Issues Task Force
        (EITF) Issue 03-1-1,  Effective  Date of Paragraphs  10-20 of EITF Issue
        No.  03-1,  which  delays the  effective  date for the  recognition  and
        measurement  guidance in EITF Issue No. 03-1. In addition,  the FASB has
        issued a proposed FSP to consider whether further  application  guidance
        is necessary for securities analyzed for impairment under EITF Issue No.
        03-1.  The Company  continues  to assess the  potential  impact that the
        adoption of the proposed FSP could have on its financial statements.

        In November 2004, the FASB issued SFAS 151,  Inventory  Costs.  SFAS 151
        requires that allocation of fixed  production  overheads to the costs of
        conversion be based on the normal capacity of the production  facilities
        and unallocated  overheads are recognized as an expense in the period in
        which they are  incurred.  In  addition,  other  items such as  abnormal
        freight,   handling  costs  and  amounts  of  wasted  materials  require
        treatment  as  current  period  charges  rather  than a  portion  of the
        inventory  cost.  SFAS 151 is effective  for  inventory  costs  incurred
        during periods  beginning  after June 15, 2005. The Company is currently
        assessing the impact of adopting SFAS 151.

        On December 16, 2004, the FASB issued  Statement 123 (revised 2004) that
        will  require   compensation   costs  related  to  share-based   payment
        transactions to be recognized in the financial statements.  With limited
        exceptions,  the amount of  compensation  cost will be measured based on
        the grant-date fair value of the equity or liability instruments issued.
        In addition,  liability awards will be remeasured each reporting period.
        Compensation  cost will be  recognized  over the period that an employee
        provides  service in exchange for the award.  Statement  123(R) replaces
        FASB Statement No. 123,  Accounting for  Stock-Based  Compensation,  and
        supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.
        SFAS 123(R) is  effective  as of the first  interim or annual  reporting
        period  that  begins  after June 15,  2005.  The  Company  is  currently
        assessing the impact of adopting SFAS 123(R).


                                      F-11
<PAGE>


        Reclassifications  -Certain reclassifications have been made to the 2003
        financial statements to conform to the classifications used in 2004.

3.      ACQUISITIONS

        On  October  9,  2002,  the  Company  acquired  certain  assets of Cielo
        Communications,   Inc.,  a  research  and  design  company   located  in
        Broomfield,  Colorado,  focused on creating  VCSEL  technology for fiber
        optic communication  networks for a cash purchase price and direct costs
        of $6.6 million.  The purchase price includes the acquisition of capital
        equipment and intellectual property.

        On January 31, 2003, the Company acquired parallel optical module assets
        and intellectual property from Gore Photonics, an industry leader in the
        research and  development  of VCSEL parallel  optical  modules for fiber
        optic  communication  networks located in Elkton,  Maryland,  for a cash
        purchase  price  of  $3.4  million.  The  purchase  price  includes  the
        acquisition of capital equipment and inventory.

        As a result of the  acquisitions,  the Company  recorded $7.5 million in
        capital  equipment,  $2.2 million of intangible  assets, and $300,000 of
        inventory.

4.      INVENTORIES

        Inventories consist of the following:

                                                        September 30,
                                              -----------------------------
                                                   2003             2004
                                                      (in thousands)

        Raw materials                           $    1,988     $    4,911
        Work-in-process                              3,090          2,927
        Finished goods                                 514            811
                                                ----------     ----------

        Total                                   $    5,592     $    8,649
                                                ==========     ==========

5.   PROPERTY, PLANT AND EQUIPMENT

       Property, plant and equipment consist of the following:


                                      F-12
<PAGE>


                                                September 30,
                                           ---------------------      Useful
                                               2003        2004       Lives
                                                (in thousands)

        Land                                 $   8,074  $   6,729
        Buildings                               17,959     14,949     39 years
        Machinery and equipment                 18,937     19,965      5 years
        Furniture and fixtures                     367        382      5 years
        Computer hardware and software           1,388      1,592      3 years
        Leasehold improvements                     32         181      9 years
                                             ---------  ---------

                                                46,757     43,798
        Less accumulated depreciation          (10,036)   (14,520)
                                             ---------  ---------
        Total                                $  36,721  $  29,278
                                             =========  =========

        Depreciation  and  amortization  expense  for  2002,  2003  and 2004 was
        approximately $2,433,000, $4,652,000 and $4,484,000, respectively.

        On June 8, 2001,  the Company  purchased  land and a 145,720 square foot
        building  in  Woodland  Hills,  California  for the  purchase  price  of
        $18,750,000.  The Company is occupying  an  aggregate  of  approximately
        89,000  square feet and  currently  leases an aggregate of 59,550 square
        feet of this  building to two unrelated  parties under lease  agreements
        expiring  through  February  2006.  Rental  income from these leases was
        $433,000, $398,000 and $473,000 for the fiscal years ended September 30,
        2002,  2003 and 2004,  respectively.  Rental income is included in other
        income in the accompanying financial statements. Future rental income is
        expected to be $451,000 in 2005 and $169,000 in 2006.

        In August,  2003,  the Company  relocated  its  corporate  headquarters,
        manufacturing,  research  and  development  and  sales  operations  from
        Chatsworth, California to the building in Woodland Hills, California.

        On June 30, 2004,  the Company sold the building  located in Chatsworth,
        California which was its former corporate  headquarters and recognized a
        gain  of  $942,000.   The  net  proceeds  from  this   transaction  were
        approximately $5.7 million.

6.      INTANGIBLE ASSETS

        During fiscal year 2001, the Company adopted SFAS No. 142, "Goodwill and
        Other Intangible  Assets." The Company  completed its annual  impairment
        test during the fourth  quarter of fiscal year ended  September 30, 2004
        and no impairment was recorded.  The following sets forth the intangible
        assets by major asset class:


                                      F-13
<PAGE>


                                             2003           2004        Period
                                      -----------------------------------------
                                              (in thousands)            (Years)

        Licensing Fees                 $    2,000    $      2,000         3.5
        Accumulated Amortization           (1,067)         (1,534)

        Patents                               950             950         5.0
        Accumulated Amortization             (174)           (364)

        Acquired Technology                 1,216           1,216         5.0
        Accumulated Amortization             (223)           (466)
                                      ----------------------------
        Total intangible assets        $    2,702    $      1,802
                                            =====           =====



        Aggregate   amortization   expense  related  to  intangible  assets  was
        approximately  $600,000,  $864,000  and  $900,000  for the  years  ended
        September 30, 2002, 2003 and 2004, respectively. There was no impairment
        loss recorded during fiscal years 2003 or 2004.

        Following  is a summary  of future  amortization  expense in each of the
next five fiscal years.

                                            (in thousands)

        fiscal 2005                              $   900
        fiscal 2006                                  433
        fiscal 2007                                  433
        fiscal 2008                                  36
                                                 -------

                                                 $ 1,802
                                                 =======


7.   LONG-TERM DEBT

       Term Loan - The term loan was used to fund the purchase of the  Company's
       land and building located in Chatsworth,  California.  The term loan bore
       interest on the amount outstanding at various time intervals based on the
       Company's election at a per annum rate equal to either (a) the prime rate
       or (b) LIBOR plus  1.80%.  This term loan was fully paid in August,  2004
       and the Company has no other term loans outstanding.


       Long-term debt at September 30, 2003 consists of the following:


                                      F-14
<PAGE>


                                                                       2003
                                                                  (in thousands)
                                                                  --------------

        Term loan due July, 2006 (3.10% at September 30, 2003)     $     1,335
        Less current portion                                               471
                                                                   -----------
        Long-term debt, net of current portion                     $       864
                                                                   ===========


       Revolving Credit Facility - On March 27, 2003, the Company terminated its
       revolving  credit  facility.  The credit  limit of the  revolving  credit
       facility  was $1.0  million.  No amounts  had been  borrowed  against the
       revolving  credit facility  through the termination date of the revolving
       credit facility in 2004.

8.      EARNINGS PER SHARE

       The  following is a calculation  of basic and diluted  earnings per share
("EPS"):

<TABLE>
<CAPTION>

                                                               Year Ended September 30,
                                                       ----------------------------------------
                                                             2002        2003         2004
                                                          (in thousands, except per share data)
<S>                                                      <C>          <C>           <C>
        BASIC EPS COMPUTATION:
        Net income (loss) applicable to common stock     $      839   $  (10,201)   $  (1,307)
                                                         ==========   ==========    =========

        Weighted average common shares outstanding          108,391      111,074      112,553
                                                         ----------   ----------    ---------
        Basic earnings (loss) per share                  $     0.01   $    (0.09)   $   (0.01)
                                                         ==========   ==========    =========
        DILUTED EPS COMPUTATION:
        Net income (loss) applicable to common stock     $      839   $  (10,201)   $  (1,307)
                                                         ==========   ==========    =========
        Weighted average common shares outstanding           108,391     111,074      112,553
        Effect of diluted securities:
             Common stock options                             4,187         -            -
                                                         ----------   ----------    ---------
        Diluted shares outstanding                          112,578      111,074      112,553
                                                         ==========   ==========    =========
        Diluted earnings (loss) per share                $     0.01   $    (0.09)   $   (0.01)
                                                         ==========   ==========    =========
</TABLE>


        The weighted  average diluted common shares  outstanding for years ended
        September  30, 2002,  2003,  and 2004  excludes  the dilutive  effect of
        approximately 5,635,900,  7,893,300 and 7,748,800 options, respectively.
        The options are  excluded  when the  options  have an exercise  price in
        excess of the average market value of the Company's  Common Stock during
        the fiscal year or as a result of the Company's net loss.


                                      F-15
<PAGE>


9.      COMMITMENTS AND CONTINGENCIES

        Operating  Leases  -  The  Company  has  operating  leases  for  certain
        facilities.  Lease payments are made monthly.  The Company's  leases are
        renewable either monthly, semiannually, annually or for five years. Rent
        expense for these leases for the years ended  September 30, 2002,  2003,
        and 2004 was $83,000, $488,000 and $516,000, respectively.


        The  following  is a  summary  of  future  minimum  payments  due  under
        operating  leases that have  initial or  remaining  noncancelable  lease
        terms in excess of one year at September 30, 2004:

        (in thousands)
        Fiscal Year
           2005                                          $      523
           2006                                                 189
           2007                                                  12
                                                        ------------

        Total minimum lease payments                     $      725
                                                        ============

        Legal  Proceedings - On April 12, 2002, the Company  resolved its patent
        infringement  litigation with Stratos Lightwave,  Inc.  ("Stratos").  As
        part of the  settlement,  the Company  entered into a five-year  license
        agreement with Stratos  covering  Stratos'  portfolio of  optoelectronic
        transceiver  patents.  In  consideration of the license  agreement,  the
        Company is required to pay a total of $2 million over the license  term.
        At the  end of the  five-year  term,  the  Company  has  the  option  to
        renegotiate  with  Stratos  for  an  extension  of  the  license.  As of
        September 30, 2004, the remaining  amount the Company is required to pay
        under the settlement is $600,000 which will be payable annually in equal
        installments in the next three years. Accordingly,  $200,000 is included
        in other  accrued  expenses  and the  remaining  outstanding  balance of
        $400,000 is included in the Other Long Term Liabilities the 2004 balance
        sheet.

        Purchase Commitments - As of September 30, 2004, the Company has entered
        into purchase commitments for materials, supplies, equipment and outside
        services  in  aggregate  of  approximately  $3.6  million  of which $3.5
        million and  $100,000 is for fiscal year ending  September  30, 2005 and
        2006,  respectively.  Total  purchase  commitments  to related  party is
        $804,000 for the next two years.

        Warranty Accruals - The Company provides a warranty of its products from
        defects in materials and workmanship.  The warranty is limited to repair
        or replacement,  at the Company's  option, of defective items authorized
        for return  within one year from the date of the sale.  The table  below
        sets forth the activity of the Company's warranty reserve.

<TABLE>
<CAPTION>

                                          Balance at    Additions                  Balance
                                 Fiscal   beginning    charged to                  at end of
                                  year    of period      expense    (Deductions)     period
<S>                               <C>        <C>          <C>          <C>           <C>
           Warranty Reserve       2002      $ 738,000           --     $ (695,000)   $ 43,000
                                  2003       $ 43,000     $ 19,000     $  (16,000)   $ 46,000
                                  2004       $ 46,000     $ 11,000     $  (26,000)   $ 31,000
</TABLE>


                                      F-16
<PAGE>


10.  STOCKHOLDERS' EQUITY

        Initial Public Offering - On November 3, 2000, the Company completed its
        initial  public  offering of  12,075,000  newly issued shares of Class A
        common  stock,   which  included  the  exercise  of  the   underwriters'
        over-allotment  option of  1,575,000  shares,  at an  offering  price of
        $11.00 per share.  Proceeds  from the offering were  $123,572,000,  less
        underwriting discounts and commissions.

        Preferred  and  Common  Stock  -  On  October  27,  2000,   the  Company
        reincorporated  in Delaware  and created two new classes of common stock
        with a par value of $0.001 per share.  All of the Company's  outstanding
        shares of common stock and  convertible  preferred  stock  automatically
        converted into shares of Class A and Class B common stock, respectively.
        Holders  of Class A common  stock  generally  have  identical  rights to
        holders of Class B common  stock,  except that holders of Class A common
        stock are entitled to one vote per share while holders of Class B common
        stock are entitled to ten votes per share on matters submitted to a vote
        of  the  stockholders.  As of  September  30,  2004  Furukawa  owns  all
        66,000,000  shares of the  Company's  outstanding  Class B common stock,
        which  accounts  for 93.4% of the  combined  voting  power of all of the
        Company's outstanding common stock.

        Stock  Options - In September  1992,  the  Company's  Board of Directors
        approved the 1992 Stock Option Plan for the issuance of 6,666,680 shares
        of the Company's common stock to certain key employees.  In August 2000,
        the Company's  Board of Directors  approved the 2000 Stock  Option/Stock
        Issuance  Plan for the  issuance of  1,000,000  shares of the  Company's
        common stock to certain key employees.  These plans provide that options
        may have a term of up to 10 years, and become  exercisable and generally
        vest in annual  increments  of 25 percent per year over four  years.  In
        addition,  key executives were granted 9,670,360 stock options that were
        separate from the Company's stock option plans and are fully vested. All
        options were granted at fair value.

        On August  29,  2000,  the Board of  Directors  approved  the 2000 Stock
        Incentive  Plan. Upon the  effectiveness  of the Company's IPO, the 1992
        Stock  Option Plan and the 2000 Stock  Option/Stock  Issuance  Plan were
        terminated and no further  options grants may be made under these plans.
        All  options  outstanding  from the 1992 Stock  Option Plan and the 2000
        Stock  Option/Stock  Issuance  Plan were  transferred  to the 2000 Stock
        Incentive  Plan. The 2000 Stock Incentive Plan provides that options may
        have a term  of up to 10  years,  and  become  exercisable  and  vest in
        increments.  The normal  vesting is 25 percent  per year.  However,  the
        vesting  period can vary.  All options  were  granted  with the exercise
        price equal to the fair value of the Company's  common stock on the date
        of grant.

        In July 2002,  the Company  granted  stock  options under the 2000 Stock
        Incentive  Plan to a member of the  Board of  Directors  for  consulting
        services to be performed  through January 2004. The options vest ratably
        in  monthly   increments  over  the  term  of  the  services   rendered.
        Compensation  cost  has  been  determined  on the  basis  of fair  value
        pursuant to SFAS No. 123 "Accounting for Stock-Based  Compensation"  and
        EITF 96-18  "Accounting for Equity  Instruments That Are Issued to Other
        Than Employees for  Acquiring,  or  Conjunction  with Selling,  Goods or
        Services."  Compensation  expense  recognized on the vested  options for
        fiscal year ended September 30, 2002 was $85,700. On November 2002, that
        member  of  the  Board  of  Directors  terminated   performance  of  the
        consulting  services.  Compensation  expense  for the fiscal  year ended
        September  30,  2003  was  ($19,500),   representing  an  adjustment  of
        compensation expense previously  recognized due to the early termination
        of the consulting services.


                                      F-17
<PAGE>


        On May 1, 2003,  the Company  purchased in a private sale 829,746 shares
        of its Class A common  stock  from Muoi Van Tran,  the  Company's  Chief
        Executive Officer and President and 536,833 shares of its Class A common
        stock from Mohammad  Ghorbanali,  the Company's Chief Operating  Officer
        and Vice President of Technical  Operations.  In each case, the purchase
        price was $0.96 per share,  representing a 12% discount  relative to the
        closing  price of the  Company's  stock on May 1, 2003,  resulting in an
        aggregate   cash  payment  of   approximately   $1,312,000.   The  stock
        repurchased  by the  Company  resulted  in a new  measurement  date  and
        therefore  compensation  expense of $1,311,000 has been recorded for the
        net cash paid for the shares less the intrinsic  value of the options on
        the original date of grant.

        There  were  6,103,369  shares  available  for  future  grant  under the
        Company's 2000 Stock Incentive Plan at September 30, 2004.  Stock option
        activity,  including  the  options  granted  outside  the  plans,  is as
        follows:

<TABLE>
<CAPTION>

                                                                                                       Weighted
                                                          Number              Exercise Price            Average
                                                        of Options              per Option           Exercise Price

<S>                                                     <C>                   <C>       <C>               <C>
Options outstanding - September 30, 2001                12,459,635            0.0003 to 17.38             5.67
  Options granted                                          867,460             1.04 to 4.55               1.93
  Options exercised                                       (974,250)           0.0003 to 0.39              0.04
  Options canceled                                        (375,795)            0.19 to 17.38              7.95
                                                      ----------------  ------------------------  -------------

Options outstanding - September 30, 2002                11,977,050            0.0003 to 17.38             5.78
  Options granted                                          946,504             0.68 to 2.29               1.02
  Options exercised                                     (3,186,651)           0.0003 to 0.39             0.007
  Options canceled*                                     (1,843,555)           0.0003 to 17.38             1.25
                                                      ----------------  ------------------------  -------------

Options outstanding - September 30, 2003                 7,893,348            0.0562 to 17.38             8.60
  Options granted                                          451,140             1.69 to 4.05               2.98
  Options exercised                                       (370,710)            0.562 to 2.57              0.29
  Options canceled                                        (224,997)            0.68 to 13.38              4.87
                                                      ----------------  ------------------------  -------------

Options outstanding - September 30, 2004                 7,748,781           $0.100 to $17.38           $ 8.78
                                                      ================  ========================  =============
</TABLE>
* Cancelled options include  1,366,579  options  repurchased by the Company from
two executive officers.
These options were granted outside of the Company's stock option plan.


        The following table summarizes information regarding options outstanding
        at September 30, 2004:


                                      F-18
<PAGE>




<TABLE>
<CAPTION>


       Range of              Number         Remaining           Average          Shares              Average
     Exercise Prices      Outstanding    Contractual Life   Exercise Price     Exercisable       Exercise Price

<S>                        <C>                  <C>          <C>                  <C>             <C>
  $0.0000 - $1.7380        1,471,811            6.2          $    0.6636          908,093         $    0.4487
  $1.7381 - $3.4760          978,710            8.2          $    2.5074          311,205         $    2.2775
  $3.4761 - $5.2140           43,000            8.1          $    3.9940           12,250         $    4.2157
  $6.9521 - $8.6900           68,670            6.8          $    8.0500           51,600         $    8.0500
  $8.6901 - $10.4280          15,000            6.8          $    9.7200           11,250         $    9.7200
  $10.4281 - $12.1660      4,099,390            5.9          $   11.0014        3,994,471         $   11.0011
  $12.1661 - $13.9040          6,000            6.6          $   13.3800            4,500         $   13.3800
  $15.6421 - $17.3800      1,066,200            6.3          $   17.3800          799,649         $   17.3800
                           ---------          -----          -----------       ----------         -----------

                           7,748,781            6.4          $    8.7770        6,093,018         $    9.7808
                           =========          =====          ===========       ==========         ===========
</TABLE>


       The weighted  average  estimated  fair value of options  granted in 2002,
       2003, and 2004 was $1.90, $1.00 and $3.00, respectively. The total number
       of shares  exercisable  were  6,093,018,  5,686,086  and  9,479,242 as of
       September 30, 2004, 2003 and 2002, respectively.

11.  PROFIT SHARING PLAN

        The Company has a deferred  cash and profit  sharing  plan  covering all
        employees,  subject to certain  participation and vesting  requirements.
        The plan  provides  that the  Company  will  partially  match  employees
        contributions  or provide  discretionary  contributions  up to a certain
        amount.  Total contributions by the Company were $705,000 and $1,462,000
        for the years  ended  September  30,  2002 and 2003,  respectively.  The
        Company  has  $1,218,000  reserved  for year ended  September  30,  2004
        contributions.

12.  INCOME TAXES

        The components of income tax expense are as follows:


                                      F-19
<PAGE>



<TABLE>
<CAPTION>

                                                                         Year Ended September 30,
                                                              ---------------------------------------------
                                                                   2002             2003            2004
                                                                               (in thousands)
<S>                                                             <C>                <C>              <C>
Current:
   Federal                                                      $ (1,546)          $(12,408)        $ 192
   State                                                            (226)                19           133
   Foreign                                                            -                  26            44
                                                                --------           --------        ------

Total current                                                     (1,772)           (12,363)          369
                                                                --------           --------        ------

Effect of non-qualified stock option exercises
   upon inome taxes currently payable                              1,406              1,273             0

Deferred:
   Federal                                                            64              7,453             0
   State                                                              37              1,685             0
                                                                --------           --------        ------

Total deferred                                                       101              9,138             0
                                                                --------           --------        ------

Provision for income taxes                                      $   (265)          $ (1,952)       $  369
                                                                ========           ========        ======
</TABLE>


        The components of deferred income taxes are as follows:

                                                              September 30,
                                                         -----------------------
                                                            2003        2004

Allowance for doubtful accounts                           $   195      $   247
Uniform capitalization and obsolete inventory               1,542        1,145
State NOL and credits carry-forwards                        1,738        1,742
Federal NOL                                                     0          698
Depreciation                                                 (259)         464
Other                                                         246          194
                                                          -------      -------
Net deferred tax asset                                      3,462        4,490
Valuation allowance                                        (3,462)      (4,490)
                                                          -------      -------
Net deferred tax asset                                    $     -      $   -
                                                          =======      =======


        A reconciliation of the Company's provision for income taxes to the U.S.
        federal statutory rate is as follows (in thousands):


                                      F-20
<PAGE>


<TABLE>
<CAPTION>

                                                            Year Ended September 30,
                                    ------------------------------------------------  ----------------------
                                                 2002                  2003                  2004
                                           Amount      %        Amount         %       Amount       %
                                    -----------------------  -----------------------  ----------------------
<S>                                     <C>         <C>        <C>          <C>       <C>        <C>
Provision for income taxes
   at statutory rate                    $   201      35.0 %    $(4,254)     (35.0)%   $  (328)    (35.0)%
State taxes, net of federal
   benefit                                  123      21.4        1,107        9.1          86       9.2
Federal valuation allowance                                      1,373       11.3         413      44.0
Tax benefit on export sales                (595)   (103.6)
Adjustment of prior year deferred tax                                                     192       205
Other                                         6       1.0         (178)      (1.5)          6       0.6
                                        -------     -----      -------      -----     -------      ----
                                        $  (265)    (46.2)%    $(1,952)     (16.1)%   $   369      39.3 %
                                        =======     =====      =======      =====     =======      ====
</TABLE>

        The   Company  has  federal  net   operating   loss   carryforwards   of
        approximately  $2,115,000,  which expire in 2024 and state net operating
        loss carryforwards of approximately $1,742,000, which expire in 2009.

13.  RELATED PARTY TRANSACTIONS

        The Company is a subsidiary of Furukawa Electric North America, which is
        a wholly owned  subsidiary  of Furukawa.  The  Company's  related  party
        transactions  occur between itself and other Furukawa owned subsidiaries
        and affiliates.

        The Company  sells fiber optic  components  and  purchases raw materials
        from some of these entities in the regular course of business.  Sales of
        fiber  optic  subsystems  and  modules to related  parties  amounted  to
        $399,000,  $481,000 and $218,000 for the years ended September 30, 2002,
        2003,  and 2004,  respectively.  Purchases of raw materials from related
        parties amounted to $5,967,000, $6,690,000 and $13,285,000 for the years
        ended  September  30,  2002,  2003,  and  2004,  respectively.  Accounts
        receivable due from related  parties were $7,000 and $7,000 at September
        30, 2003 and 2004,  respectively.  Accounts  payable to related  parties
        were   $1,061,000  and  $3,325,000  at  September  30,  2003  and  2004,
        respectively.  No  management  fees were paid in the fiscal  years ended
        September 30, 2002, 2003, and 2004.

14.  SEGMENT AND GEOGRAPHIC INFORMATION

        The Company  operates in one  reportable  segment,  which  includes  the
        design and  manufacture  of fiber  optic  subsystems  and  modules.  The
        following  are  summaries  of sales  to  geographic  areas  based on the
        location of the entity  purchasing the Company's  products and sales for
        each of the components within the segment:


                                      F-21
<PAGE>



                                                    September 30,
                                         2002           2003          2004
                                                    (in thousands)

Revenue by Geographical Area:
  United States                         $ 23,587     $ 19,933     $ 26,358
  Canada                                   4,582        3,578        6,004
  Israel                                   1,563        3,129        7,639
  Asia                                     2,932        6,395        9,716
  Europe                                   3,603        5,565        7,148
  Other                                      940          280          278
                                        --------     --------     --------
                                        $ 37,207     $ 38,880     $ 57,143
                                        ========     ========     ========
Revenue by Component:
  Receivers                             $  3,975     $  4,208     $  4,164
  Transceivers                            26,574       28,249       47,601
  Transmitters                             5,241        5,254        5,140
  Other                                    1,417        1,169          238
                                        --------     --------     --------
                                        $ 37,207     $ 38,880     $ 57,143
                                        ========     ========     ========

                                     ******

                                      F-22
<PAGE>


                                INDEX TO EXHIBITS

  Exhibit
  Number                                     Exhibit Description
--------------------------------------------------------------------------------
3.1*         Amended and Restated Certificate of Incorporation
3.2*         Bylaws
3.2.1***     Amendment Number One to Bylaws
4.1          See Exhibits 3.1, 3.2 and 3.2.1 for  provisions of the  Certificate
             of Incorporation and Bylaws for the Registrant  defining the rights
             of holders of common stock of the Registrant
4.2*         Specimen Stock Certificate
4.3*         Standstill and Registration  Rights Agreement,  dated as of October
             26, 2000, by and between the Registrant  and The Furukawa  Electric
             Co., Ltd.
10.1*+       2000 Stock Incentive Plan
10.2*+       Employee Stock Purchase Plan
10.3*        Form of Indemnification Agreement
10.5*+       Employment  Agreement,  dated  November 1, 1999, by and between the
             Registrant and Muoi Van Tran, as currently in effect
10.6*+       Employment  Agreement,  dated  November 1, 1999, by and between the
             Registrant and Mohammad Ghorbanali, as currently in effect
10.7*+       Employment  Agreement,  dated  November 1, 1999, by and between the
             Registrant and Susie L. Nemeti, as currently in effect
10.8*+       Form of Stock  Option  Agreement,  dated  August 29,  2000,  by and
             between  the  Registrant  and  each  of  Muoi  Van  Tran,  Mohammad
             Ghorbanali   and  Susie  L.   Nemeti   (including   a  schedule  of
             substantially identical terms)
10.9*+       Form of Stock Option Agreement, dated June 28, 1993, by and between
             the Registrant and each of Muoi Van Tran,  Mohammad  Ghorbanali and
             Susie L. Nemeti  (including a schedule of  substantially  identical
             terms)
10.10**      Master  Purchase  Agreement,  dated October 1, 2003, by and between
             the Registrant and The Furukawa Electric Co., Ltd.
21.1*        List of Subsidiaries of the Registrant
23.1         Independent Registered Public Accounting Firm Consent
31.1         Certification  of Chief  Executive  Officer  pursuant  to 18 U.S.C.
             Section   1350,   as  adopted   pursuant  to  Section  302  of  the
             Sarbanes-Oxley Act of 2002.
31.2         Certification  of Chief  Financial  Officer  pursuant  to 18 U.S.C.
             Section   1350,   as  adopted   pursuant  to  Section  302  of  the
             Sarbanes-Oxley Act of 2002.
32.1         Certification  of  Chief  Executive  Officer  and  Chief  Financial
             Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to
             Section 906 of the Sarbanes-Oxley Act of 2002.

*    This  exhibit  was  previously   filed  as  an  exhibit  to  the  Company's
     Registration  Statement  on Form S-1  declared  effective  November 2, 2000
     (File No. 333-44862) under the same exhibit number,  and is incorporated by
     reference herein.
+    Management  contract or  compensatory  plan or  arrangement  required to be
     filed as an exhibit pursuant to Item 15(c) of Form 10-K.
**   Portions  of this  document  have been  redacted  pursuant to a Request for
     Confidential Treatment filed with the Securities and Exchange Commission.
***  Filed as an exhibit  to the  Annual  Report on Form 10-K for the year ended
     September  30,  2002 on  December  27,  2002  and  incorporated  herein  by
     reference.