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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, 2003

                                       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, 2003,  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  $17,997,800   (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 substantially 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  Stock are  entitled to ten votes per share on matters
to  be  voted  on  by  stockholders.   As  of  December  23,  2003,  there  were
approximately  47,725,460  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  2004 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, 2003

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                         Page

<S>                                                                                        <C>
PART I......................................................................................1
        ITEM 1.     BUSINESS................................................................1
        ITEM 2.     PROPERTIES.............................................................28
        ITEM 3.     LEGAL PROCEEDINGS......................................................29
        ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................29

PART II....................................................................................30
        ITEM 5.     MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
                    RELATED STOCKHOLDER MATTERS............................................30
        ITEM 6.     SELECTED FINANCIAL DATA................................................31
        ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........................33
        ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............45
        ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................45
        ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH
                    ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                    DISCLOSURE.............................................................46

PART III...................................................................................47
        ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.....................47
        ITEM 11.    EXECUTIVE COMPENSATION.................................................47
        ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                    OWNERS AND MANAGEMENT AND RELATED
                    STOCKHOLDER MATTERS....................................................47
        ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................47
        ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES.................................47

PART IV....................................................................................48
        ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.......48
</TABLE>



<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, or MANs, local area networks, or LANs
and storage area networks,  or 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,  Allied Telesyn,  Canoga Perkins,  CIENA,
Cisco Systems, EXFO Protocol,  Huawei Technologies,  Nortel Networks, and Telrad
Telecommunication and Electronic Industries,  Ltd. some of whom purchase through
contract manufacturers such as Benchmark Electronics, Celestica, Jabil Circuits,
Plexus, 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 communication  networks to expand
capacity,  which greatly reduced transmission costs per bit. This cost


                                       1
<PAGE>



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 optical 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, Fibre Channel (single, double and quad speed) and the recently adopted
10 Gigabit Ethernet protocol.

        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 which 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

        Since early 2001, the  telecommunications  sector, and in particular the
fiber optic networking sector, has suffered a severe downturn.  System providers
have scaled back on deployment and have  dramatically  slowed their purchases of
systems from equipment manufacturers.  As a result, equipment manufacturers have
also slowed  purchases of components and modules from our  competitors  and from
us. Moreover,  as equipment  manufacturers' sales declined,  they have relied on
their excess  component  inventories  to meet  reduced  demand and 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 the  result of our  customers'  declining  business  and the
resulting  adjustment to their inventory levels.  See "Business - Risk Factors -
Unfavorable  current  economic and market  conditions have resulted in decreased
sales and increased difficulty  predicting our future operating results." and "-
General economic factors could negatively impact our growth plan."



                                       4
<PAGE>



        However,  despite the  slowdown  in the  industry,  we believe  that the
future market for optical  components  remains very  promising.  We believe that
voice,  data and Internet  traffic will continue to grow in future years with an
increasingly  large portion of this traffic  expected to include the transfer of
data intensive applications requiring expanded network capacity and transmission
speed, such as fiber to the home  initiatives,  distance  learning,  full motion
video,  multi-channel  high quality audio, video  conferencing,  and movement of
large blocks of stored data across  networks.  We believe that once the industry
recovers   from  its  current   downturn,   service   providers   and  equipment
manufacturers  will focus on relieving the network congestion and limitations in
overall  network  performance at the MAN, LAN, and SAN levels.  Accordingly,  we
believe that specific sectors in the industry,  such as the enterprise  segment,
will experience particularly strong growth when the industry recovers.  However,
given our current lack of visibility,  we cannot provide any assurance as to the
timing or extent of any  industry  recovery or as to any increase in business or
other benefits that we may receive as a result thereof.

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



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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  customers  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,
parallel  optical modules 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.  Parallel  optics and  transceivers
provide  the next  level  of  integration.  Parallel  optics  combines  multiple
receivers or transmitters in a single package for back plane  applications where
enhanced density is a requirement.  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



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<PAGE>



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.

        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,  Fast  Ethernet,  Gigabit  Ethernet  and Fibre  Channel  transmission
standards.

        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.

        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.

        Transponders - Our optical  transponders  combine the functionality of a
transceiver   with   integrated   circuits  for  electronic   multiplexing   and
demultiplexing  in the same package.  We have provided samples of these products
to customers for initial testing.  Multiplexers are paired with



                                       7
<PAGE>



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  (or  622  Mb/s  for  OC-192)  electronic   signals,
multiplexes  them  together  and  provides at the output a single 2,488 Mb/s (or
9.95 Gb/s for OC-192)  optical signal.  The receiver  portion of the transponder
performs the reverse  function,  namely  accepting a single  optical  signal and
providing back sixteen 155 Mb/s (or 622 Mb/s for OC-192) 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.

        Parallel  Transmitters and Receivers - Parallel  transmitters convert an
array of  electronic  digital  input  signals  into an array of  optical  output
signals for transmission  over a fiber ribbon cable.  Parallel  receivers detect
optical  signals  from a fiber  ribbon  cable and convert  them into an array of
electronic  signals  in  standard   digital/logic   format  for  further  signal
processing.  We offer separate transmitter and receiver modules with 12 channels
configuration that operate at 2.7 Gb/s per channel for an aggregate bandwidth of
32.4Gb/s  for  short  reach  applications.  We have  provided  samples  of these
products to customers for initial testing.

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  parallel optical  modules,  the integration of 1310nm VCSELs
into optical modules and to address 10 Gb/s transmission standards.

        Multiplexers  are  integrated  circuits  that combine  signals from many
inputs into a single output,  and  demultiplexers  are integrated  circuits that
accomplish the reverse,  or create many outputs from a single input.  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  transmitters,  receivers and transceivers
using both DWDM and 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.  We also plan to  develop a series of  pluggable  transceivers  for
applications in the different standards.

        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  multi-channel
optical modules.  These parallel array optical modules will offer the advantages
of high optical port density and low power consumption which are required by the
next generation optical networking applications.



                                       8
<PAGE>



        In January  2003 we acquired  the  parallel  optical  module  assets and
intellectual property of Gore Photonics,  the fiber optics business unit of W.L.
Gore & Associates,  Inc., an industry  leader in the research and development of
VCSEL parallel optical modules for fiber optic communication networks.

        We believe that the Gore Photonics  850nm VCSEL parallel  optical module
technology  will allow us to provide our  customers  with an  enabling  building
block for the next  generation  of optical  systems.  The 850nm  optical  module
technology  will allow us to accelerate  the  introduction  of parallel  optical
modules. These parallel array optical modules offer the advantages of high speed
data  transfer  and low  power  consumption,  which  are  required  for the next
generation  of  interconnecting   multiple  equipments.   We  will  continue  to
manufacture  Gore's new parallel fiber optic modules  including the nLIGHTEN(TM)
2300 product, which conforms to the SNAP-12, one of the industry standard for 12
x 2.7 Gb/s modules.

        We believe that some of our competitors are developing  similar products
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 all of the  categories  listed
above.

Customers

        We sell our products to communication equipment manufacturers,  or CEMs,
directly and through  contract  manufacturers  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 Benchmark Electronics, Celestica, Jabil Circuits, Plexus,
and  Solectron.  We typically  do not enter into  long-term  contracts  with our
customers.

        A  small  number  of  customers  have   historically   accounted  for  a
significant  portion of our total revenue.  For the fiscal year ended  September
30, 2003,  our 10 largest  customers  accounted for 61.2% of our total  revenue,
with  Cisco  Systems,  Alcatel,  and  Huawei  (including  sales to each of their
contract manufacturers)  accounting for approximately 12.2%, 11.8%, and 10.0% of
our total revenue, respectively. No other customer accounted for more than 10.0%
of our revenue during the fiscal year ended September 30, 2003.

        For financial  reporting  purposes,  we consider our customers to be the
contract  manufacturers  and CEMs who place purchase orders with us or otherwise
purchase  our  products   directly.   Comstar   Communications   accounted   for
approximately 11.0% of our total revenue for the fiscal year ended September 30,
2003. No other customer  accounted for more than 10.0% of our revenue during the
fiscal year ended September 30, 2003. See "Business - Risk Factors - 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."

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



                                       9
<PAGE>



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  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



                                       10
<PAGE>



               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 2001,  2002, and 2003, our research and  development  expenses
were $3.0 million,  $5.3 million and $16.2 million,  respectively.  Although our
experienced  optics  engineers and the modular nature of our products allowed us
to enjoy  relatively  low  research  and  development  expenses in the past,  we
believe our strategic investment into research and development in the recent and
future periods will allow us to respond to rapid technological changes,  changes
in customer requirements and evolving industry standards. During fiscal 2003, we
continued our investment in our research and  development  capabilities  through
the  addition  of  personnel  on  our  R&D  team,  including  our  October  2002
acquisition  of certain  assets of Cielo  Communications,  a research and design
company   focused  on  creating   1300nm  VCSEL   technology   for  fiber  optic
communication networks and our January 2003 acquisition of the certain assets of
Gore  Photonics,  a research and design company  focused on creating 850nm VCSEL
parallel optical module technology for fiber optic communication networks.

        We plan to continue to provide  resources  to develop new product  lines
and fund  development  contracts  with  universities,  research  institutes  and
companies. 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 as we expand our internal  research and development  capabilities.
We expect



                                       11
<PAGE>



our future research and development  expenses to increase in absolute dollars as
we continue to focus our research and  development  activities  on 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.

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 representatives  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.

    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.



                                       12
<PAGE>



    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, 2003 and  September  30, 2002,  our backlog was
approximately $5.3 million and $3.7 million, respectively. Orders in backlog are
firm, but are subject to cancellation or rescheduling by the customer. We do not
believe that backlog  comparisons  on a year to year or quarter to quarter basis
are 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
    o   Meeting the customer design phase timelines for product qualification


        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



                                       13
<PAGE>



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. See "Business - Risk Factors - 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."

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 30 issued United States  patents and more that 40
pending United States patent applications.  In addition,  there are four pending
Canadian  patent  applications,  and  three  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.  See  "Business  - Risk
Factors  - 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."  From  time-to-time,  third parties may assert patent,
copyright,  trademark and other intellectual property rights to technologies




                                       14
<PAGE>



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

Employees

        As of  September  30,  2003,  we  had  296  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 November  30, 2003  represented
58.8% 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.  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



                                       15
<PAGE>



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. Under this Agreement, we must place orders with Furakawa based
on both our past three  months' usage trends and our material  requirements  for
the following  four weeks.  Each quarter,  we must purchase a minimum  number of
particular products, which minimums may be reduced only with Furukawa's consent.
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.  We believe that our prior business
dealings with Furukawa and its  subsidiaries  and affiliates  were on terms that
were no less favorable  than terms that would be available from unrelated  third
parties for similar transactions.

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.  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 84%, 86% and 91% of our revenue for
the years ended September 30, 2003, 2002 and 2001, respectively.

        The  continuing  downturn in our  industry  have  caused  communications
service  providers to reduce their capital spending on fiber optic equipment and
delayed the deployment of new and build-out of existing fiber optic networks. As
a result,  revenue  decreased  from  $144.0  million  for the fiscal  year ended
September  30, 2001 to $37.2  million and $38.9  million for fiscal  years ended
September 30, 2002 and 2003, respectively.



                                       16
<PAGE>



        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:

        o      uncertainty  regarding  the capital  spending  plans of the major
               telecommunications   carriers,   upon  whom  our  customers  and,
               ultimately we, depend for revenue;

        o      the  telecommunications  carriers'  current limited access to the
               capital required for expansion;

        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 lasers from
Furukawa under a Master  Purchase



                                       17
<PAGE>



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,  price increases and late deliveries.  We
have  experienced  shortages and delays in obtaining key  components in the past
and expect to experience shortages and delays in the future.

        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.  In addition,  our suppliers  could  discontinue the manufacture or
supply of these components at any time.

        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. 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.



                                       18
<PAGE>



        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.

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, and may require us to implement further cost management  procedures in the
future. Our business,  operating results and financial  condition will suffer if
economic  conditions in the United  States  worsen,  the fiber optics  equipment
market continues to slowdown, or if a wider or global economic slowdown occurs.

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  process  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  process 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  process,  we will lose the sales opportunities
with those customers.

        We have  been  registered  under  ISO  9001:1994  in the past and we are
undergoing  a  transition  to be  registered  under  ISO  9001:2000.  If we  are
unsuccessful in obtaining timely registration of the ISO 9001:2000 standards, we
may lose the sales  opportunities with certain customers based on their specific
requirements. We are currently certified under ISO 9001:1994.



                                       19
<PAGE>



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 excess inventory of parts that
increases our inventory carrying costs and periodically causes 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.



                                       20
<PAGE>



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 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.



                                       21
<PAGE>



        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 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
planned  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 expanding  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 the  expansion  of 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



                                       22
<PAGE>



new  products  and  technology  on a  successful  and timely  basis.  We plan to
increase our budget for research and development of new products and technology.
Since these costs are expensed as incurred,  we expect a negative  impact on our
reported  net  income.  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 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 possible
United  States  military  action  against 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



                                       23
<PAGE>



inability  of our officers  and key  employees  to expand,  train and manage our
employee base would 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.

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
experienced  the  following  due to our inability to detect or fix errors in the
past:

        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



                                       24
<PAGE>



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.

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  39.5%,  24.3%  and 17.0% of our  revenue  for the  periods  ended
September  30,  2003,  2002 and 2001,  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.



                                       25
<PAGE>



        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  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



                                       26
<PAGE>



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 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 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,  2004 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 believe that our past
business  dealings with Furukawa and its  subsidiaries  and  affiliates  were on
terms that were no less  favorable than terms that would be available from third
parties  for  similar  transactions.  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.

        Conflicts of interest may arise  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 November 30, 2003  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,



                                       27
<PAGE>



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.

        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  recommended  to us by our financial  advisor and our board;
        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 addition,  we own an  approximately  65,000  square foot
building in Chatsworth,  California  which,  prior to September 2003, housed our
corporate  headquarters,  manufacturing,  research  and  development  and  sales



                                       28
<PAGE>



operations.  This building is currently not occupied.  We purchased the property
in July 1999 with the  proceeds of a $3.3 million term loan that matures in July
2006.  The term loan bears  interest on amounts  outstanding at a per annum rate
equal to LIBOR plus 1.80% and is secured by all of our assets. 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.

        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.



                                       29
<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, 2002:
-------------------------------------
  First Quarter...................................        $ 5.18        $ 2.20
  Second Quarter..................................        $ 4.30        $ 1.80
  Third Quarter...................................        $ 2.82        $ 1.03
  Fourth Quarter..................................        $ 1.60        $ 0.75

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

        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, 2003 and
(ii) December 23, 2003.  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, 2003.....................................        $2.36
      December 23, 2003......................................        $3.10


Holders



                                       30
<PAGE>



        As of  November  30,  2003 there were 104 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, 2003.

<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             4,591,668                 $6.87                6,329,512
plans approved by
security holders
------------------------- ----------------------- ---------------------- -----------------------
Equity compensation             3,301,680                $11.00                        0
plans not approved by
security holders (1)
------------------------- ----------------------- ---------------------- -----------------------
Total                           7,893,348                 $8.60                6,329,512
------------------------- ----------------------- ---------------------- -----------------------
</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  "Management's  Discussion  and  Analysis of
Financial  Condition and Results of Operations."  The selected income  statement
data for the three fiscal years ended  September 30, 2003, 2002 and 2001 and the
selected  balance sheet data as of September 30, 2003 and 2002 are derived from,
and qualified by reference  to, the



                                       31
<PAGE>



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                                  1999              2000              2001              2002              2003
                                                                     (In thousands, except per share data)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>              <C>               <C>                <C>              <C>

Revenue                                            $ 36,036         $ 101,867         $ 144,012          $ 37,207         $   38,880
Cost of revenue                                      20,860            50,326            94,684            26,375             25,048
                                                   --------         ---------         ---------          --------         ----------
Gross profit                                         15,176            51,541            49,328            10,832             13,832

Operating Expenses:
  Research and development                            1,134             2,527             2,958             5,261             16,246
  Sales and marketing                                 1,364             2,943             3,799             3,717              4,562
  General and administrative                          1,065             3,877             4,553             4,671              7,011
                                                   --------         ---------         ---------          --------         ----------
    Total operating expenses                          3,563             9,347            11,310            13,649             27,819
                                                   --------         ---------         ---------          --------         ----------

Income (loss) from operations                        11,613            42,194            38,018           (2,817)           (13,987)

Other income, net                                       116               305             6,081             3,391              1,834
                                                   --------         ---------         ---------          --------         ----------

Income (loss) before income taxes                    11,729            42,499            44,099               574           (12,153)

Income taxes                                          4,693            17,319            17,655             (265)            (1,952)
                                                   --------         ---------         ---------          --------         ----------
Net income (loss)                                  $  7,036         $  25,180         $  26,444          $    839         $ (10,201)
                                                   ========         =========         =========          ========         ==========

Earnings (loss) per share:
  Basic                                          $     0.26       $      0.91       $      0.26        $     0.01         $   (0.09)
  Diluted                                        $     0.07       $      0.25       $      0.24        $     0.01         $   (0.09)
Shares outstanding:
  Basic                                              27,348            27,547           100,263           108,391            111,074
  Diluted                                           101,132           102,500           111,430           112,578            111,074

<CAPTION>

                                                                                             September 30,
                                             ---------------------------------------------------------------------------------------
                                                       1999              2000              2001              2002               2003
                                             ---------------------------------------------------------------------------------------
<S>                                                  <C>               <C>              <C>               <C>                <C>
Balance sheet data                                                                          (In thousands)

Cash and cash equivalents                             2,447             3,202            62,529            85,426             64,895
Working capital                                      11,970            34,078           166,416           167,865            145,820
Total assets                                         26,149            50,426           204,268           205,061            200,143
Long-term portion of debt                             2,750             2,296             1,825             1,353                864
Stockholders' equity                                 15,096            40,373           194,713           197,196            188,360
</TABLE>



                                       32
<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 "Business - Risk Factors" and elsewhere in this Report.

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  the  our  Financial  Statements  describes  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,  inventory  write-downs,  and accrued expenses.
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.

    o   The  allowance for doubtful  accounts is based on our  assessment of the
        collectibility  of  specific  customer  accounts  and the  aging  of the
        accounts  receivable.  If there is a deterioration of a major customer's
        credit  worthiness  or actual  defaults  are higher than our  historical
        experience,  our estimates of the recoverability of amounts due us could
        be adversely affected.
    o   Inventory  purchases  and  commitments  are  based  upon  future  demand
        forecasts.  If there is a sudden or  significant  decrease in demand for
        our products or there is a higher risk of inventory obsolescence because
        of rapidly  changing  technology  and customer  requirements,  we may be
        required  to write  down our  inventory  and our gross  margin  could be
        adversely affected.
    o   We use  estimates  in the  determination  of the  required  accrual  for
        warranty  costs.  This estimate is based upon a detailed  examination of
        past experience and current information. The information available to us
        may change in the future and may require us to revise this accrual.
    o   We have evaluated the available evidence about future taxable income and
        other possible  sources of  realization of deferred tax assets.  We have
        established  a valuation  allowance to reduce  deferred tax assets to an
        amount that represents  management's best estimate of the amount of such
        deferred tax assets that more likely than not will be realized.
    o   We  continually   reassess  our   assumptions  and  judgments  and  make
        adjustments   when   significant   facts  and   circumstances   dictate.
        Historically, actual results have not been materially different than the
        estimates that are described above.

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.



                                       33
<PAGE>



        Furukawa  beneficially owns all of our outstanding Class B common stock,
representing  58.8% 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,  2003.  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.

        We operate in one industry segment,  the design and manufacture of fiber
optic  subsystems  and  modules.  We sell our  products  to  original  equipment
manufacturers or OEMs, their contract manufacturers or CMs, who incorporate them
into systems they assemble for OEMs and to distributors. We define our customers
as OEMs 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  61.2%  and 57.9% of our total
revenue for the fiscal years ended  September  30, 2003 and 2002,  respectively.
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.  Cisco
Systems, Alcatel, and Nortel Networks (including sales to each of their contract
manufacturers) accounted for approximately 13.8%, 12.6% and 10.0%, respectively,
of our total  revenue for the fiscal year ended  September  30,  2002.  No other
customer accounted for more than 10.0% of our total revenue for the fiscal years
ended September 30, 2003 and 2002.

        For financial  reporting  purposes,  we consider our customers to be the
OEMs, CMs and distributors  who place purchase orders with us directly.  For the
fiscal year ended September 30, 2003, Comstar Communications accounted for 11.0%
of our total  revenue.  No other direct sales  customer  accounted for more than
10.0% of our total  revenue for the fiscal  years ended  September  30, 2003 and
2002.  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.  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.  System providers
have scaled back on deployment and have



                                       34
<PAGE>



dramatically reduced their purchases of systems from equipment manufacturers. As
a result,  equipment manufacturers have also reduced purchases of components and
modules  from our  competitors  and from us. The  slowdown  continues  to have a
negative  impact on our business  and our revenue 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
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, we expect that
our research and  development  expenses in absolute dollar amounts will 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 expect these expenses to 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  general  and  administrative  expenses  will  decrease  in the  near  term
primarily due to a decrease in stock compensation. However, we believe that this
decrease  will be  partially  offset by an increase in our legal and  consulting
fees associated with analysis of strategic



                                       35
<PAGE>



alternatives, including future market opportunities that have been undertaken by
our  management  and  board  of  directors.   As  a  result,   our  general  and
administrative expenses in absolute dollars may increase in future periods.






                                       36
<PAGE>



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,
    --------------------------------------------------------------------------
                                             2001        2002         2003
    -------------------------------------------------------------------------

    Revenue..............................   100.0%      100.0%       100.0%
    Cost of revenue......................    65.6        70.9         64.4
    Gross Profit.........................    34.4        29.1         35.6
    Operating Expenses:
           Research and development......     2.1        14.1         41.8
           Sales and marketing...........     2.6        10.0         11.8
           General and administrative....     3.2        12.6         18.0
    Total operating expenses.............     7.9        36.7         71.6
    Income (loss) from operations........    26.5        (7.6)       (36.0)
    Other income ........................     4.2         9.1          4.7
    Income (Loss) before income taxes....    30.7         1.5        (31.3)
    Income taxes.........................    12.3        (0.7)        (5.1)
                       Net income (Loss)     18.4%        2.2%       (26.2)%


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. In
addition,  the selling prices for our existing  products may decline in response
to new product  introductions  by our  competitors  or us, and pressure from our
significant customers for price concessions.  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 have  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 the 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  last 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



                                       37
<PAGE>



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 stock
repurchased by the Company had been recently acquired by the executives  through
the exercise of stock options.  The Company has 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 a 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.

Fiscal years ended September 30, 2002 and 2001

        Revenue  - Revenue  decreased  74.2% to $37.2 million in the fiscal year
ended  September 30, 2002 from $144.0 million in the fiscal year ended September
30, 2001.  This decrease was primarily due to the generally  weaker  economy and
continued downturn in the telecommunications  sector since early 2001, which has
caused system  providers to scale back on deployment of fiber optic networks and
draw down on existing  inventory  levels.  This resulted in a decrease in demand
from our customers and equipment  manufacturers of their purchases of components
and  modules  that we  provide.  Sales  of our  products  for MAN  decreased  to
approximately  86% of revenue for the fiscal year ended  September 30,



                                       38
<PAGE>



2002 from  approximately  91% of revenue for the fiscal year ended September 30,
2001.  We expect our  revenue  to  continue  to be  negatively  affected  by the
economic downturn and its impact on the overall market growth in the foreseeable
future.  In  addition,  the average  selling  prices for  existing  products may
decline in response to product  introductions by competitors or us, and pressure
from our significant customers for price concessions.

        Cost  of Revenue - Cost of revenue  decreased  72.1% to $26.4 million in
the fiscal year ended  September  30, 2002 from $94.7 million in the fiscal year
ended  September 30, 2001.  The decrease in cost of revenue in absolute  dollars
was  primarily  due to the decrease in revenue and a $14.9  million  decrease in
excess  inventory write downs.  The decrease in excess inventory write downs was
primarily  due to a decrease  in overall  inventory  levels and an  increase  in
inventory write downs in the fiscal year ended September 30, 2001 as a result of
the  industry  slowdown  and its impact on the demand  for our  products.  Gross
margin  decreased from 34.4% during the fiscal year ended  September 30, 2001 to
29.1% during the fiscal year ended  September  30,  2002.  The decrease in gross
margin  was  primarily  due to an  increase  of 14.3% in  salaries  and  related
expenses for indirect manufacturing  personnel and 1.8% in direct labor costs as
a  percentage  of revenue,  both of which  decreased  in absolute  dollars.  The
increases in salaries and related expenses for indirect manufacturing  personnel
as a percentage of revenue were due to a decrease in production and the increase
in direct labor costs as a percentage  of revenue was due to a decrease in labor
efficiency.  These increases as a percentage of revenue were partially offset by
decreases as a percentage of revenue of 5.2 % in the cost of materials,  4.0% in
excess inventory write downs and 1.7% in the warranty provision. The decrease in
material cost as a percentage  of revenue was due to inventory  that was used in
production  that was previously  written down by  approximately  $1.9 million as
excess.  The decrease in the warranty  provision as a percentage of revenues was
due to a decrease  in  customer  returns  allowance  required as a result of the
decrease in revenue.

        Research  and Development - Research and development  expenses increased
77.9% to $5.3  million in the fiscal  year ended  September  30,  2002 from $3.0
million in the fiscal year ended September 30, 2001. This increase was primarily
due to an increase in salaries  and other  operating  costs  resulting  from the
hiring of additional engineering personnel. Research and development expenses as
a percentage of revenue increased to 14.1% from 2.1% over this period because of
decreased  revenue.  We expect  research  and  development  expenses to increase
significantly  in absolute dollars and as a percentage of revenue as we continue
to expand our research and development efforts.

        Sales  and Marketing - Sales and marketing  expenses  decreased  2.2% to
$3.7  million in the fiscal year ended  September  30, 2002 from $3.8 million in
the fiscal year ended  September 30, 2001.  This decrease was primarily due to a
decrease  of  $1.6  million  in  commissions   to   independent   manufacturers'
representatives  partially  offset by  increases  of $936,000  in  salaries  and
employee  benefits  resulting from the hiring of additional  sales and marketing
personnel.  We believe that investment in sales and marketing is critical to our
success and expect these expenses to increase in absolute  dollars in the future
as we expand our sales and marketing efforts.

        General  and  Administrative  -  General  and  administrative   expenses
increased 2.6% to $4.7 million in the fiscal year ended  September 30, 2002 from
$4.6  million in the fiscal year ended  September  30, 2001.  This  increase was
primarily due to a $1.2 million  increase in legal expenses and consulting  fees
related to our patent infringement  litigation with Stratos Lightwave,  Inc. and
consulting  services  associated  with an  analysis of  strategic  alternatives,
including future market opportunities, undertaken by our management and board of
directors.  The  increase  was  also due to a  $395,000  increase  in  insurance
expenses  related to an increase in directors and officers  insurance  premiums.
These increases were substantially offset by a decrease in bad debt expense as a
result of the  decrease in revenue and the



                                       39
<PAGE>



decrease  in past due  accounts.  We  expect  the  dollar  level  of  legal  and
consulting  fees to increase as we  continue to explore and  evaluate  strategic
alternatives  and expected  increases in our directors' and officers'  insurance
premiums as a result of market changes for such insurance coverage.

        Income  Taxes - The benefit for income  taxes was $265,000 in the fiscal
year ended September 30, 2002, compared to a provision for income taxes of $17.7
million in the fiscal  year ended  September  30,  2001.  The benefit for income
taxes in the fiscal year ended September 30, 2002 was the result of tax benefits
associated with our extra-territorial elections.

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,
                                        2001        2002        2002        2002        2002         2003         2003        2003
<S>                                 <C>         <C>         <C>         <C>         <C>         <C>          <C>          <C>
                                                                 (In thousands, except per share data)
                                                                 -------------------------------------
Revenue                             $  8,841    $  9,620    $  9,837    $  8,909    $  9,400    $   9,568    $   9,481    $ 10,431
Cost of revenue                        6,707       6,742       7,145       5,781       6,439        6,005        6,120       6,484
                                    --------    --------    --------    --------    --------    ---------    ---------    --------
Gross profit                           2,134       2,878       2,692       3,128       2,961        3,563        3,361       3,947

Operating Expenses:
  Research and development             1,096       1,132       1,424       1,609       3,011        4,232        4,489       4,514
  Sales and marketing                    733       1,147       1,024         813         959        1,103        1,270       1,230
  General and administrative           1,023       1,361       1,499         788       1,309        1,354        2,823       1,525
                                    --------    --------    --------    --------    --------    ---------    ---------    --------
    Total operating expenses           2,852       3,640       3,947       3,210       5,279        6,689        8,582       7,269

Loss from operations                   (718)       (762)     (1,255)        (82)     (2,318)      (3,126)      (5,221)     (3,322)

Other income                           1,023         867         813         688         592          492          411         339
                                    --------    --------    --------    --------    --------    ---------    ---------    --------
Income (loss) before income taxes        305         105       (442)         606     (1,726)      (2,634)      (4,810)     (2,983)

Income tax provision  (benefit)          122          42       (177)       (252)       (587)        (899)          325       (791)
                                    --------    --------    --------    --------    --------    ---------    ---------    --------
Net income (loss)                   $    183    $     63    $  (265)    $    858    $(1,139)    $ (1,735)    $ (5,135)    $(2,192)
                                    ========    ========    ========    ========    ========    =========    =========    ========

Earnings (loss) per share:
  Basic                           $     0.00  $     0.00  $     0.00  $     0.01  $   (0.01)  $    (0.02)  $    (0.05)  $   (0.02)
  Diluted                         $     0.00  $     0.00  $     0.00  $     0.01  $   (0.01)  $    (0.02)  $    (0.05)  $   (0.02)
Shares outstanding:
  Basic                              108,023     108,103     108,460     108,900     109,523      110,720      111,766     112,287
  Diluted                            112,488     112,478     108,460     112,561     109,523      110,720      111,766     112,287

As a percentage of revenue:
Revenue                               100.0%      100.0%      100.0%      100.0%      100.0%       100.0%       100.0%      100.0%
Cost of revenue                         75.9        70.1        72.6        64.9        68.5         62.8         64.6        62.2
                                    --------    --------    --------    --------    --------    ---------    ---------    --------
</TABLE>


                                       40
<PAGE>






<TABLE>
<CAPTION>

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

Gross profit                            24.1        29.9        27.4        35.1        31.5         37.2         35.4        37.8

Operating Expenses:
  Research and development              12.4        11.8        14.5        18.1        32.1         44.2         47.3        43.3
  Sales and marketing                    8.3        11.9        10.4         9.1        10.2         11.5         13.4        11.8
  General and administrative            11.6        14.1        15.2         8.8        13.9         14.2         29.8        14.6
                                      ------     -------    --------     -------     -------      -------      -------     -------
    Total operating expenses            32.3        37.8        40.1        36.0        56.2         69.9         90.5        69.7

Income (loss) from operations          (8.2)       (7.9)      (12.7)       (0.9)      (24.7)       (32.7)       (55.1)      (31.9)

Other income                            11.6         9.0         8.3         7.7         6.3          5.2          4.3         3.3
                                      ------     -------    --------     -------     -------      -------      -------     -------
Income (loss) before income taxes        3.4         1.1       (4.4)         6.8      (18.4)       (27.5)       (50.8)      (28.6)

Income taxes (benefit)                   1.4         0.4       (1.8)       (2.8)       (6.3)        (9.4)          3.4       (7.6)
                                      ------     -------    --------     -------     -------      -------      -------     -------
Net income (loss)                       2.0%        0.7%      (2.6)%        9.6%     (12.1)%      (18.1)%      (54.2)%     (21.0)%
</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,
                                -------------------------------------------
                                         2001          2002           2003
                                -------------------------------------------
            Receivers                   12.1%         10.7%         10.8%

            Transceivers                72.3          71.4          72.7

            Transmitters                10.5          14.1          13.5

            Other                        5.1           3.8           3.0
                                -------------------------------------------
            Revenue                    100.0%        100.0%         100.0%


        Liquidity and Capital Resources

        As of September 30, 2003,  our primary  source of liquidity was our cash
and cash  equivalents  balance of $64.9  million and $65.6 million of marketable
securities, which consist primarily of United States treasury notes and treasury
bonds. At September 30, 2002, we had $85.4 million in cash and cash  equivalents
balance and $65.8  million in marketable  securities.  The total of our cash and
cash equivalents balance and our marketable  securities balance decreased during
the fiscal year primarily due to the $6.6 million cash purchase price and direct
costs associated with the acquisition of certain assets of Cielo Communications,
the $3.4 million cash purchase price  associated with the acquisition of certain
assets of Gore  Photonics,  the $3.4  million in property,  plant and  equipment
purchases and the $1.3 million of stock



                                       41
<PAGE>



compensation paid in cash. The purchase prices for Cielo Communications and Gore
Photonics   include  the  acquisition  of  inventory,   capital   equipment  and
intellectual property.

        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, 2003, our working  capital
was $145.8 million with a current ratio of 15:1 compared to our working  capital
of $167.9  million with a current  ratio of 30:1 as of September  30, 2002.  Our
working  capital  decreased  during the fiscal year  primarily  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 in addition to the
purchases of property,  plant and equipment and the stock  compensation  paid in
cash. Because of our low debt balances, we believe that additional cash could be
borrowed  if  necessary;  however,  cash  flow  from  operations,  cash and cash
equivalents, marketable securities, and existing loan facilities are expected to
be sufficient to fund operations for the next 12 months.

        On March 27, 2003, we  terminated  our  revolving  credit  facility with
Manufacturer's  Bank. 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 2003.

        As of September  30, 2003,  we had a $1.3  million  balance  outstanding
under our term loan.  The term loan bears  interest  on amounts  outstanding  at
various time intervals and the market rates based on our election at a per annum
rate equal to either  (a) the prime  rate or (b) LIBOR plus 1.8%.  The term loan
matures in July 2006,  and the  proceeds  of the term loan were used to purchase
our  former  primary  corporate  and   manufacturing   facility  in  Chatsworth,
California.

     The term loan contains customary  covenants,  including  covenants limiting
indebtedness  and  the  disposition  of  assets.   To  secure  our  payment  and
performance obligations under the term loan we have pledged all of our assets as
collateral. The term loan also requires that we comply with financial covenants,
which  require us to maintain our tangible net worth,  cash position and revenue
at specified  levels.  As of September 30, 2003, we were not in compliance  with
selected  loan  covenants,  however the  Company has  obtained a waiver from the
financial  institution.  Our  need to  comply  with  these  covenants  does  not
materially affect the operation of our business.

        During the fiscal year ended  September  30,  2003,  we used net cash in
operations of $253,000. The cash used in operating activities during this period
was due to the net loss,  which included the $1.3 million of stock  compensation
paid in cash and increases in accounts  receivables and income taxes receivable.
These  were  partially  offset by a decrease  in  deferred  income  taxes and an
increase in accounts payable and accounts  payable to related  parties.  For the
years  ended  September  30,  2002 and  2001,  we  generated  net cash flow from
operations of $17.7 million and $28.1 million,  respectively. The cash generated
by operations in the year ended September 30, 2002 was due to an increase in the
net  income  after  adding  back  adjustments  to  reconcile  net income to cash
provided and decreases in accounts receivable and inventories,  partially offset
by an increases in income taxes receivable and decreases in accounts payable and
accounts  payable to related  parties.  The cash  generated by operations in the
year ended September 30, 2001 was due to an increase in income and a decrease in
accounts  receivable,  partially  offset by increases in income tax benefits and
other current assets and decreases in accounts  payable and accounts  payable to
related parties.

        During the fiscal year ended  September 30, 2003, cash used in investing
activities was $19.9 million  compared to cash provided by investing  activities
of $5.5  million  and cash used in  investing



                                       42
<PAGE>



activities of $90.7  million for fiscal year ended  September 30, 2002 and 2001,
respectively.  The cash used in investing  activities  for 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.  The  increase in cash from  investing
activities  for the fiscal  year  ended  September  30,  2002 was due to an $8.3
million  decrease in  marketable  securities  resulting  from  maturities  being
greater  than our  purchases,  partially  offset by a $2.8  million  increase in
capital  expenditures  for the  purchase of  property,  plant and  equipment  to
upgrade,  expand  and  automate  our  manufacturing  facility.  The cash used in
investing activities for fiscal year ended September 30, 2001 was due to a $67.3
million  increase in marketable  securities  resulting from our purchases  being
greater than the maturities, for the June 2001 purchase of a 145,720 square feet
building in Woodland Hills,  California for $18.8 million and additional capital
expenditures  for the  purchase of property,  plant and  equipment to expand and
automate our manufacturing facility. As of September 30, 2003, we have committed
to make capital expenditures totaling approximately $656,000 during the next six
months,  primarily to purchase additional  equipment to develop new products and
to complete building improvements to our Woodland Hills facility.

        During the fiscal year ended  September 30, 2003, cash used by financing
activities  was $408,000  compared to cash used of $320,000 and cash provided of
$122.0  million  during the fiscal  years  ended  September  30,  2002 and 2001,
respectively. The decrease in cash from financing activities for 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.  The decrease in
cash from financing  activities for the fiscal year ended September 30, 2002 was
due to a $472,000  reduction in  long-term  debt,  partially  offset by $152,000
provided by the  issuance  of common  stock for the  exercise of employee  stock
options and stock plan purchases. The increase in cash from financing activities
for the fiscal year ended  September  30, 2001 was  primarily  the result of the
November 3, 2000 completion of our initial public offering of our Class A Common
Stock.  After  deducting  the  underwriting  discounts and  commissions  and the
offering expenses,  we received net proceeds from the initial public offering of
approximately of $122.1 million.

        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.

        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 April 12, 2002, we resolved our patent  infringement  litigation with
Stratos Lightwave,  Inc. 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 five-year license term.



                                       43
<PAGE>



        On November 3, 2000,  we  completed  an initial  public  offering of our
Class A Common Stock.  All 12,075,000  shares of Class A Common Stock registered
under the Registration Statement were sold at a price of $11.00 per share, which
amount includes exercise of the underwriters' over-allotment option of 1,575,000
shares.  After  deducting the  underwriting  discounts and  commissions  and the
offering expenses,  we received net proceeds from the initial public offering of
approximately $122.1 million.

        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 those now  planned.  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.

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,



                                       44
<PAGE>



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 existing term and
on our  investment  portfolio.  Our  variable  rate debt  consists  of term loan
borrowing of $1.3 million.

        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  $64.9 million  invested in
money market and other interest  bearing  accounts.  In addition,  we have $70.7
million  invested in marketable  securities,  which  represents  investments  in
United States treasury notes and treasury bonds.

        As of September 30, 2003, our investment in marketable  securities had a
weighted-average   time  to  maturity  of  approximately  167  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 expense of  approximately  $13,000 on
our term loan and an annual  increase or  decrease  of  interest  income of $1.4
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.



                                       45
<PAGE>



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


Evaluation of Disclosure Controls and Procedures

Based on their evaluation, as of the end of the period covered by this quarterly
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.



                                       46
<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 2004  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  2004  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 2004  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 2004
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  2004  Annual  Meeting  of  Stockholders  and is
incorporated herein by reference.



                                       47
<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, 2002 and 2003...............................................   F-3
Statements of Operations for each of the three years in the period ended September
   30, 2003.................................................................................   F-4
Statements of Stockholders' Equity for each of the three years in the period ended
   September 30, 2003.......................................................................   F-5
Statements of Cash Flows for each of the three years in the period ended September 30, 2003.   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, 2001, 2002 and 2003

<TABLE>
<CAPTION>

                                                     Balance at       Additions      (Deductions)
                                                    beginning of     charged to       recoveries      Balance at end
              Description                 Period     period ($)      expense ($)          ($)         of period ($)
<S>                                      <C>            <C>              <C>            <C>                 <C>
Allowance for Doubtful Accounts . .      2001           1,777,000        1,200,000      (1,821,000)         1,156,000
                                         2002           1,156,000          450,000      (1,479,000)           127,000
                                         2003             127,000          200,000          132,000           459,000
</TABLE>





                                       48
<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.



                                       49
<PAGE>



        (b) Reports on Form 8-K:

        On July 31,  2003,  the  Company  filed a current  report on Form 8-K to
report that it had issued a press release  announcing  that it had elected Hideo
Sakura to its board of directors to fill the vacancy  created by the resignation
of Kunihiro Matsubara.

        On September 3, 2003,  the Company filed a current report on Form 8-K to
report  that it had issued a press  release  announcing  the  relocation  of its
corporate headquarters to Woodland Hills, California.

        On September 30, 2003, the Company filed a current report on Form 8-K to
report that it had issued a press release  announcing a special committee of its
board of directors is evaluating  strategic  alternatives to enhance shareholder
value and liquidity.


        (c) Exhibit Index:

        See Exhibit index.

        (d) Financial Statement Schedule:

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




                                       50
<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 22nd day of December,
2003.

                                    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>

Signature                          Title                                     Date
---------                          -----                                     ----

<S>                                <C>                                       <C>

-------------------------------
/s/ Muoi Van Tran                  Chairman of the Board of Directors,       December 22, 2003
-------------------------------    Chief Executive Officer and President
Muoi Van Tran                      (principal executive officer)

-------------------------------
/s/ Susie L. Nemeti                Chief Financial Officer (principal        December 22, 2003
-------------------------------    financial and accounting officer)
Susie L. Nemeti


-------------------------------
/s/ Masato Sakamoto                Director                                  December 22, 2003
-------------------------------
Masato Sakamoto


-------------------------------
/s/ Hideo Sakura                   Director                                  December 19, 2003
-------------------------------
Hideo Sakura


-------------------------------
/s/ Naoomi Tachikawa               Director                                  December 19, 2003
-------------------------------
Naoomi Tachikawa


-------------------------------
/s/ Stewart D. Personick           Director                                  December 22, 2003
-------------------------------
Stewart D. Personick


-------------------------------
/s/ Hobart Birmingham              Director                                  December 24, 2003
-------------------------------
Hobart Birmingham


-------------------------------
/s/ David Warnes                   Director                                  December 22, 2003
-------------------------------
David Warnes

</TABLE>


                                       51
<PAGE>



                      OPTICAL COMMUNICATION PRODUCTS, INC.

                          INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                                                                              Page
                                                                                              ----

<S>                                                                                            <C>
Independent Auditors' Report................................................................   F-2
Balance Sheets at September 30, 2002 and 2003...............................................   F-3
Statements of Operations for each of the three years in the period ended
  September 30, 2003........................................................................   F-4
Statements of Stockholders' Equity for each of the three years in the period ended
   September 30, 2003.......................................................................   F-5
Statements of Cash Flows for each of the three years in the period ended September 30, 2003.   F-6
Notes to Financial Statements...............................................................   F-7

</TABLE>






                                       F-1
<PAGE>













INDEPENDENT AUDITORS' REPORT


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, 2002 and 2003,  and the
related statements of operations,  stockholders' equity, and cash flows for each
of the three  years in the period  ended  September  30,  2003.  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 auditing standards  generally
accepted in the United States of America.  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,
2002 and 2003,  and the results of its operations and its cash flows for each of
the three years in the period ended  September  30,  2003,  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 22, 2003




                                      F-2
<PAGE>

<TABLE>
<CAPTION>

BALANCE SHEETS
SEPTEMBER 30, 2002 AND 2003 (in thousands, except share and per share amounts)
---------------------------------------------------------------------------------------------------------------------
                                                                                                 September 30,
                                                                                        -----------------------------
                                                                                             2002              2003
<S>                                                                                     <C>              <C>

ASSETS

CURRENT ASSETS
  Cash and cash equivalents                                                             $     85,426     $     64,895
  Marketable securities                                                                       65,774           65,607
  Accounts receivable less allowance for doubtful accounts of
    $127 and $459 in 2002 and 2003, respectively                                               3,463            6,960
  Income taxes receivable                                                                      1,008           11,743
  Inventories                                                                                  7,415            5,592
  Deferred income taxes                                                                        9,156
  Prepaid expenses and other current assets                                                    1,367            1,342
                                                                                        ------------     ------------

           Total current assets                                                              173,609          156,139

Property, plant and equipment, net                                                            30,519           36,721
Marketable securities                                                                                           5,048
Intangible assets, net                                                                           933            2,235
                                                                                        ------------     ------------

TOTAL                                                                                   $    205,061     $    200,143
                                                                                        ============     ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of long-term debt                                                     $        471     $        471
  Accounts payable                                                                               623            1,169
  Accounts payable to related parties                                                             30            1,061
  Accrued bonus                                                                                2,302            4,433
  Other accrued expenses                                                                       2,200            3,159
  Income taxes payable                                                                           118               26
                                                                                        ------------     ------------

           Total current liabilities                                                           5,744           10,319
                                                                                        ------------     ------------

LONG-TERM DEBT, net of current portion                                                         1,353              864
OTHER LONG-TERM LIABILITIES                                                                      750              600
DEFERRED INCOME TAXES                                                                             18
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Class A common stock, $0.001 par value; 200,000,000 shares authorized,
    43,035,110 and 46,297,285 shares outstanding at September 30, 2002
    and 2003, respectively.                                                                       43               46
  Class B common stock $0.001 par value; 66,000,000 shares
    authorized, 66,000,000 shares issued and outstanding at
    September 30, 2002 and 2003, respectively.                                                    66               66
  Additional paid-in capital                                                                 131,350          132,712
  Retained earnings                                                                           65,737           55,536
                                                                                        ------------     ------------

           Total stockholders' equity                                                        197,196          188,360
                                                                                        ------------     ------------

TOTAL                                                                                   $    205,061     $    200,143
                                                                                        ============     ============
</TABLE>

                        See notes to financial statements.


                                      F-3
<PAGE>

<TABLE>
<CAPTION>

OPTICAL COMMUNICATION PRODUCTS, INC.

STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 2001, 2002, AND 2003 (In thousands,
except per share amounts)
--------------------------------------------------------------------------------------------------------------------------------

                                                                                        2001             2002            2003

<S>                                                                                 <C>              <C>            <C>
REVENUE                                                                             $  144,012       $   37,207     $   38,880

COST OF REVENUE                                                                         94,684           26,375         25,048
                                                                                    ----------       ----------     ----------

GROSS PROFIT                                                                            49,328           10,832         13,832
                                                                                    ----------       ----------     ----------

EXPENSES:
  Research and development                                                               2,958            5,261         16,246
  Selling and marketing                                                                  3,799            3,717          4,562
  General and administrative (including stock compensation expense
    of $86 and $1,292 for years ended September 30, 2002 and 2003,
    respectively)                                                                        4,553            4,671          7,011
                                                                                    ----------       ----------     ----------

           Total expenses                                                               11,310           13,649         27,819
                                                                                    ----------       ----------     ----------

INCOME (LOSS) FROM OPERATIONS                                                           38,018           (2,817)       (13,987)

OTHER INCOME, Net                                                                        6,081            3,391          1,834
                                                                                    ----------       ----------     ----------

INCOME (LOSS) BEFORE INCOME TAXES                                                       44,099              574        (12,153)

INCOME TAX PROVISION (BENEFIT)                                                          17,655             (265)        (1,952)
                                                                                    ----------       ----------     ----------

NET INCOME (LOSS)                                                                   $   26,444       $      839     $  (10,201)
                                                                                    ==========       ==========     ==========

BASIC EARNINGS (LOSS) PER SHARE                                                     $     0.26       $     0.01     $    (0.09)

DILUTED EARNINGS (LOSS) PER SHARE                                                   $     0.24       $     0.01     $    (0.09)

BASIC SHARES OUTSTANDING                                                               100,263          108,391        111,074

DILUTED SHARES OUTSTANDING                                                             111,430          112,578        111,074
</TABLE>




                       See notes to financial statements.


                                      F-4

<PAGE>

<TABLE>
<CAPTION>

OPTICAL COMMUNICATION PRODUCTS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2001, 2002, AND 2003 (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, SEPTEMBER 30, 2000                 66,000,000    $ 1,650      27,871,440      $ 269       $     -     $ 38,454    $ 40,373

  Net income                                                                                                     26,444      26,444
  Issuance of common stock from initial
     public offering                                                   12,075,000         12        122,067                 122,079
  Conversion of preferred stock
    to class B common stock
    with a $0.001 par value                (66,000,000)    (1,650)     66,000,000         66          1,584
  Conversion of common stock with
    no par value to class A common
    stock with $0.001 par value                                                         (241)           241
  Issuance of common stock for exercise
    of stock options and employee stock
    purchase plan                                                       2,060,162          2            348                     350
  Tax benefit from exercise of
    non-qualified stock options                                                                       5,467                   5,467
                                            ----------    -------    ------------      -----       --------    --------    --------

BALANCE, SEPTEMBER 30, 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
                                            ==========    =======    ============      =====       ========    ========    ========
</TABLE>


                       See notes to financial statements.


                                      F-5
<PAGE>

<TABLE>
<CAPTION>

OPTICAL COMMUNICATION PRODUCTS, INC

STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2001, 2002, AND 2003 (in thousands)
---------------------------------------------------------------------------------------------------------
                                                                         2001       2002        2003
<S>                                                                    <C>         <C>         <C>
OPERATING ACTIVITIES:
  Net income (loss)                                                    $  26,444   $     839   $ (10,201)
  Adjustments to reconcile net income to net cash provided by
    operating activities:
    Depreciation and amortization                                          1,429       2,433       5,642
    Amortization of premium on marketable securities                         467       2,041       1,543
    Tax benefit from exercise of non-qualified stock options               5,467       1,406       1,303
    Stock option compensation expense                                                     86         (19)
    Changes in operating assets and liabilities:
      Accounts receivable, net                                            12,027       4,541      (3,497)
      Income taxes receivable                                                         (1,008)    (10,735)
      Inventories                                                            166       8,437       2,123
      Deferred income taxes                                               (7,490)        101       9,138
      Prepaid expense and other assets                                    (1,759)          6          25
      Accounts payable                                                    (2,671)       (742)        546
      Accounts payable to related parties                                 (3,915)     (1,230)      1,031
      Accrued bonuses                                                     (1,142)        402       2,131
      Other accrued expenses                                                 192         (49)        959
      Income taxes payable                                                (1,139)       (310)        (92)
      Other liabilities                                                                  750        (150)
                                                                       ---------   ---------   ---------

           Net cash provided by (used in) operating activities            28,076      17,703        (253)
                                                                       ---------   ---------   ---------

INVESTING ACTIVITIES:
  Purchase of marketable securities                                     (161,789)    (66,713)    (71,424)
  Maturities of marketable securities                                     94,500      75,000      65,000
  Purchase of property, plant and equipment                              (23,418)     (2,773)     (3,441)
   Cash paid for acquisitions                                                                    (10,005)
                                                                       ---------   ---------   ---------

           Net cash provided by (used in) investing activities           (90,707)     5,514      (19,870)
                                                                       ---------   ---------   ---------

FINANCING ACTIVITIES:
  Principal payments on long-term debt                                      (471)       (472)       (489)
  Proceeds from Initial Public Offering                                  122,079
  Issuance of common stock                                                   350         152          81
                                                                       ---------   ---------   ---------

           Net cash provided by (used in) financing activities           121,958        (320)       (408)
                                                                       ---------   ---------   ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                      59,327      22,897     (20,531)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                               3,202      62,529      85,426
                                                                       ---------   ---------   ---------

CASH AND CASH EQUIVALENTS, END OF YEAR                                 $  62,529   $  85,426   $  64,895
                                                                       =========   =========   =========

SUPPLEMENTAL CASH FLOW INFORMATION:

  Cash paid during the year for interest expense                       $     185   $      85   $      54
  Cash paid (received) during the year for income taxes                $  20,803   $    (431)  $  (1,567)

</TABLE>

                       See notes to 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, 2002 and 2003 and reflects the results of its
        operations  for the years ended  September 30, 2001,  2002 and 2003. 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
        58.8% of the  Company's  capital  stock at  September  30,  2003,  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 original  equipment  manufacturers  or
        OEMs,  their contract  manufacturers  or CMs, who incorporate  them into
        systems they  assemble for the OEMs and to  distributors.  For financial
        reporting  purposes,  the Company considers its direct sale customers to
        be either OEMs, CMs or  distributors  who place purchase orders with the
        Company  directly.  Revenue from the Company's  two largest  direct sale
        customers  amounted to 12.7% and 10.5% for the year ended  September 30,
        2001.  No direct  sale  customer  accounted  for more than  10.0% of the
        Company's  revenue for the year ended  September 30, 2002.  Revenue from
        the Company's  largest direct sale  customers  amounted to 11.0% for the
        year ended September 30, 2003.

2.   SIGNIFICANT ACCOUNTING POLICIES

        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>



                                                         Unrealized  Unrealized
         Type of Security        Book/Cost    Fair Value   gains     (losses)
-------------------------------------------------------------------------------
                                                (in thousands)
United States Treasury Notes
     2002                      $    65,774  $    65,966  $    192    $       -
     2003                           70,655       70,689        45          (11)


        Inventories  -  Inventories  are  stated  at the  lower  of  cost or net
        realizable  value.  Cost is  determined  using the  first-in,  first-out
        method.

        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.  Sales returns
        and warranty claims are not material.

        In December 1999, the  Securities and Exchange  Commission  issued Staff
        Accounting   Bulletin  No.  101,   "Revenue   Recognition  in  Financial
        Statements,"  which summarizes views of the Commission staff in applying
        accounting principles generally accepted in the United States of



                                      F-8
<PAGE>



        America to revenue  recognition  in  financial  statements.  The Company
        believes that its current revenue recognition  policies comply with this
        bulletin.

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

        Common  Stock - At September  30,  2003,  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.

        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.

        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 $541,000 (15.1%) and $2,298,000
        (31.0%) at September 30, 2002 and 2003, respectively.

         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




                                      F-9
<PAGE>



        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 Statement
        of  Financial  Accounting  Standards  ("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:

<TABLE>
<CAPTION>

                                                                     Year Ended September 30,
                                                            2001               2002               2003
                                                             (in thousands, except per share amounts)
<S>                                                      <C>                <C>               <C>
Net income (loss):
  As reported                                            $ 26,444           $    839          $ (10,201)
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                 (9,439)            (7,561)            (7,022)
                                                        ------------------------------------------------
  Pro forma                                              $ 17,005           $ (6,722)         $ (16,371)
                                                        ================================================

 Basic income (loss) per share
   As reported                                           $   0.26           $   0.01          $   (0.09)
   Pro forma                                             $   0.17           $  (0.06)         $   (0.15)

 Diluted income (loss) per share
   As reported                                           $   0.24           $   0.01          $   (0.09)
   Pro forma                                             $   0.15           $  (0.06)         $   (0.15)

</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:
<TABLE>
<CAPTION>
                                                                            September 30,
                                                              ------------------------------------------
                                                                   2001           2002         2003
<S>                                                                    <C>          <C>          <C>
Dividend yield                                                         0 %          0 %          0 %
Expected volatility                                                  137 %        157 %        174 %
Risk-free rate of return                                            5.16 %       4.94 %       3.67 %
Expected life (years)                                                7.3          7.2          7.1

</TABLE>

        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,



                                      F-10
<PAGE>



        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 ("FIN  46"),
        Consolidation of Variable  Interest  Entities,  an Interpretation of ARB
        No. 51. FIN 46, which requires certain variable  interest entities to be
        consolidated  by the  primary  beneficiary  of the  entity if the equity
        investors in the entity 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 is effective for all new
        variable  interest  entities created or acquired after January 31, 2003.
        For variable  interest entities created or acquired prior to February 1,
        2003,  the  provision of FIN 46 must be applied for the first interim or
        annual period  beginning after June 15, 2003. The adoption of FIN 46 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.

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:



                                      F-11
<PAGE>

<TABLE>
<CAPTION>
                                                                                 September 30,
                                                                         -----------------------------
                                                                              2002           2003
                                                                                (in thousands)
<S>                                                                        <C>            <C>
Raw materials                                                              $    6,217     $    1,988
Work-in-process                                                                   486          3,090
Finished goods                                                                    712            514
                                                                           -------------------------

Total                                                                      $    7,415     $    5,592
                                                                           ==========     ==========
</TABLE>


        During fiscal year end 2002 and 2003, the Company  recorded  write-downs
        of excess inventory of $3.2 million and $1.6 million, respectively.

5.   PROPERTY, PLANT AND EQUIPMENT

        Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
                                                                       September 30,
                                                              --------------------------------  Useful
                                                                   2002            2003         Lives
                                                                      (in thousands)
<S>                                                                 <C>             <C>        <C>
Land                                                                $   8,074       $  8,074
Buildings                                                              16,227         17,959   39 years
Machinery and equipment                                                10,647         18,937    5 years
Furniture and fixtures                                                    233            367    5 years
Computer hardware and software                                            716          1,388    3 years
Leasehold improvements                                                     6              32    9 years
                                                                    ---------       --------

                                                                       35,903         46,757
(Less) accumulated depreciation                                        (5,384)       (10,036)
                                                                    ---------       --------

Total                                                               $  30,519       $ 36,721
                                                                    =========       ========
</TABLE>



        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
        $147,000, $433,000 and $398,000 for the fiscal years ended September 30,
        2001,  2002 and 2003,  respectively.  Rental income is included in other
        income in the accompanying financial statements.

        In September,  2003, the Company  relocated its corporate  headquarters,
        manufacturing,  research and  development  and sales  operations  to the
        building in Woodland Hills, California.  In addition, the Company owns a
        building of  approximately  65,000  square feet  located in  Chatsworth,
        California   which,   prior  to   September   2003,   housed   corporate
        headquarters,   manufacturing,   research  and   development  and  sales
        operations. The net book value of the land and building at



                                      F-12
<PAGE>



        September  30,  2003  for  the  Chatsworth,   California   facility  was
        $4,845,000. This building is currently not occupied.

6.   INTANGIBLE ASSETS

        Effective May 1, 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, 2003
        and no impairment was recorded.  The following sets forth the intangible
        assets by major asset class:



                                                               Weighted Average
                                         September 30,           Amortization
                                     2002            2003           Period
                                ------------------------------------------------
                                        (in thousands)             (Years)

Licensing Fees                          $ 2,000        $ 2,000       3.5
Accumulated Amortization                   (600)        (1,067)

Patents                                                    950       5.0
Accumulated Amortization                                  (174)

Acquired Technology                                      1,216       5.0
Accumulated Amortization                                  (223)
                                -------------------------------

Total intangible assets                   1,400          2,702
(Less) current portion                     (467)          (467)
                                -------------------------------

                                          $ 933        $ 2,235
                                ===============================

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

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

                                                           (in thousands)

fiscal 2004                                                       $ 900
fiscal 2005                                                         900
fiscal 2006                                                         433
fiscal 2007                                                         433
fiscal 2008                                                          36
                                                           -------------

                                                                $ 2,702
                                                           =============



                                      F-13
<PAGE>



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 bears
        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%.  The term loan is  secured by all of the
        Company's  assets.  The term loan is paid in  monthly  installments  and
        matures on July 15, 2006.  The term loan also requires  compliance  with
        specified  financial  covenants,  including interest coverage ratios and
        indebtedness  to  total  capital  ratios  and  other  covenants.  As  of
        September 30, 2003, the Company was not in compliance with selected loan
        covenants,  however the Company has obtained a waiver from the financial
        institution.

        Long-term debt at September 30, 2002 and 2003 consists of the following:

                                                              ------------------
                                                                2002       2003
                                                                (in thousands)

Term loan due July, 2006 (3.10% at September 30, 2003)         $ 1,824  $ 1,335
Less current portion                                               471      471
                                                               -------  -------
Long-term debt, net of current portion                         $ 1,353  $   864
                                                               =======  =======


        Long-term  debt  maturities  as of  September  30,  2003  consist of the
following:

                                                                  (in thousands)

Fiscal 2004                                                           $   471
Fiscal 2005                                                               471
Fiscal 2006                                                               393
                                                                      -------
                                                                      $ 1,335
                                                                      =======


        Revolving  Credit  Facility - On March 27, 2003, the Company  terminated
        its revolving credit facility with Manufacturer's Bank. 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 2003.

8.   EARNINGS PER SHARE

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



                                      F-14
<PAGE>

<TABLE>
<CAPTION>
                                                                      Year Ended September 30,
                                                            -------------------------------------------
                                                               2001            2002             2003
                                                               (in thousands, except per share data)
<S>                                                          <C>             <C>            <C>
BASIC EPS COMPUTATION:
Net income (loss) applicable to common stock                 $ 26,444        $    839       $ (10,201)
                                                             ========        ========       =========

Weighted average common shares outstanding                    100,263         108,391         111,074
                                                             --------        --------       ---------

Basic earnings (loss) per share                              $   0.26        $   0.01       $   (0.09)
                                                             ========        ========       =========

DILUTED EPS COMPUTATION:
Net income (loss) applicable to common stock                 $ 26,444        $    839       $ (10,201)
                                                             ========        ========       =========

Weighted average common shares outstanding                    100,263         108,391         111,074
Effect of diluted securities:
     Convertible preferred stock                                6,148             -               -
     Common stock options                                       5,019           4,187             -
                                                             --------        --------       ---------

Diluted shares outstanding                                    111,430         112,578        111,074
                                                             ========        ========       =========

Diluted earnings (loss) per share                            $   0.24        $   0.01       $   (0.09)
                                                             ========        ========       =========
</TABLE>


        The weighted  average diluted common shares  outstanding for years ended
        September  30, 2001,  2002,  and 2003  excludes  the dilutive  effect of
        approximately 5,480,800,  5,635,900 and 7,893,300 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 due to a net operating loss.

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, 2001,  2002,
        and 2003 was $38,000, $83,000 and $488,000, respectively.



                                      F-15
<PAGE>





        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, 2003:

(in thousands)
Fiscal Year
     2004                                                    $ 514
     2005                                                      517
     2006                                                      185
                                    2007                        12
                                                     --------------

Total minimum lease payments                               $ 1,228
                                                     ==============

        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.

        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 at
                             Fiscal     beginning of     charged to                         end of
                               year        period          expense      (Deductions)        period
<S>                            <C>         <C>             <C>            <C>               <C>
    Warranty Reserve           2001        $ 407,000       $ 451,000      $ (120,000)       $ 738,000
                               2002        $ 738,000              --      $ (695,000)        $ 43,000
                               2003        $  43,000       $  19,000       $ (16,000)        $ 46,000
</TABLE>


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 of
        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



                                      F-16
<PAGE>



        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,
        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 at fair value.

        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.

        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  6,329,512  shares  available  for  future  grant  under the
        Company's 2000 Stock Incentive Plan at September 30, 2003.  Stock option
        activity,  including  the  options  granted  outside  the  plans,  is as
        follows:



                                      F-17
<PAGE>

<TABLE>
<CAPTION>
                                                                                            Weighted
                                                           Number      Exercise Price        Average
                                                         of Options      per Option       Exercise Price

<S>                                                      <C>          <C>        <C>         <C>
Options outstanding - October 1, 2000                    12,190,360   $0.0003 to $11.00      $ 3.09
  Options granted                                         2,507,535     3.20 to 17.38         14.08
  Options exercised                                      (2,041,700)    0.0003 to 2.88         0.10
  Options canceled                                         (196,560)    2.88 to 17.38         10.26
                                                      --------------  -----------------     -------

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   $ 0.06 to $17.38       $ 8.60
                                                      ==============  =================     =======
</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, 2003.

<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              1,899,323           6.8       $   0.5940        1,062,529         $   0.2770
  $1.7381 - $3.4760                619,670           8.3       $   2.1781          181,180         $   2.3379
  $3.4761 - $5.2140                 38,750           7.9       $   4.5477           14,750         $   4.7315
  $6.9521 - $8.6900                100,820           7.8       $   8.0500           50,560         $   8.0500
  $8.6901 - $10.4280                15,000           7.8       $   9.7200            7,500         $   9.7200
  $10.4281 - $12.1660            4,141,585           6.9       $  11.0017        3,830,467         $  11.0009
  $12.1661 - $13.9040               12,000           7.6       $  13.3800            6,000         $  13.3800
  $15.6421 - $17.3800            1,066,200           7.3       $  17.3800          533,100         $  17.3800
                                ----------    ----------       ----------       ----------         ----------
                                 7,893,348           7.1       $   8.5980        5,686,086         $   9.2774
                                ==========    ==========       ==========        =========         ==========
</TABLE>


       The weighted  average  estimated  fair value of options  granted in 2001,
       2002, and 2003 was $11.33, $1.90, and $1.00, respectively.



                                      F-18
<PAGE>



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 $456,000 and $705,000
        for the years  ended  September  30,  2001 and 2002,  respectively.  The
        Company  has  $1,462,000  reserved  for year ended  September  30,  2003
        contributions.

12.  INCOME TAXES

        The components of income tax expense are as follows:
<TABLE>
<CAPTION>
                                                               Year Ended September 30,
                                                        -------------------------------------
                                                            2001         2002         2003
                                                                   (in thousands)
<S>                                                       <C>          <C>          <C>
Current:
   Federal                                                $ 15,548     $ (1,546)    $(12,408)
   State                                                     4,130         (226)          19
   Foreign                                                       -            -           26
                                                          --------     --------     --------

Total current                                               19,678       (1,772)     (12,363)
                                                          --------     --------     --------

Effect of non-qualified stock option exercises
   upon inome taxes currently payable                        5,467        1,406        1,273

Deferred:
   Federal                                                  (5,915)          64        7,453
   State                                                    (1,575)          37        1,685
                                                          --------     --------     --------

Total deferred                                              (7,490)         101        9,138
                                                          --------     --------     --------

Provision for income taxes                                $ 17,655     $   (265)    $ (1,952)
                                                          ========     ========     ========
</TABLE>



        The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
                                                                  September 30,
                                                             ------------------------
                                                                2002        2003
<S>                                                              <C>          <C>
Allowance for doubtful accounts                                  $    55      $  195
Uniform capitalization and obsolete inventory                      9,170       1,542
State NOL and credits carry-forwards                                   -       1,738
Other                                                                (87)        (13)
                                                                 -------      ------
Net deferred tax asset                                             9,138       3,462
Valuation allowance                                                    -      (3,462)
                                                                 -------      ------
Net deferred tax asset                                           $ 9,138      $    -
                                                                 =======      ======
</TABLE>



                                      F-19
<PAGE>



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

<TABLE>
<CAPTION>
                                                              Year Ended September 30,
                                 ----------------------------------------------------------------------------------
                                            2001                        2002                        2003
                                 --------------------------  --------------------------- --------------------------
                                    Amount          %           Amount          %           Amount          %
<S>                                 <C>             <C>           <C>          <C>           <C>               <C>
Provision for income taxes
   at statutory rate               $ 15,435         35.0 %      $  201        35.0 %       $ (4,254)      (35.0)%
State taxes, net of federal
   benefit                            2,415          5.5           123        21.4            1,107         9.1
Federal valuation allowance                                                                   1,373        11.3
Tax benefit on export sales                                       (595)     (103.6)
Other                                  (195)        (0.5)            6         1.0             (178)       (1.5)
                                   --------       ------        -------     ------         --------     -------
                                   $ 17,655         40.0 %      $ (265)      (46.2)%       $ (1,952)      (16.1)%
                                   ========       ======        ======      ======         ========     =======
</TABLE>


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
        $2,726,000,  $399,000,  and $481,000 for the years ended  September  30,
        2001,  2002,  and 2003,  respectively.  Purchases of raw materials  from
        related parties amounted to $42,063,000,  $5,967,000, and $6,690,000 for
        the years  ended  September  30,  2001,  2002,  and 2003,  respectively.
        Accounts  receivable due from related parties were $51,000 and $7,000 at
        September 30, 2002 and 2003,  respectively.  Accounts payable to related
        parties were  $30,000 and  $1,061,000  at  September  30, 2002 and 2003,
        respectively.  No  management  fees were paid in the fiscal  years ended
        September 30, 2001, 2002, and 2003.

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-20
<PAGE>

<TABLE>
<CAPTION>
                                                                September 30,
                                              ---------------------------------------------------
                                                    2001             2002              2003
                                                                (in thousands)
<S>                                              <C>               <C>               <C>

Revenue by Geographical Area:
  United States                                  $   95,582        $  23,587         $  19,933
  Canada                                             23,942            4,582             3,578
  Israel                                             15,290            1,563             3,129
  Asia                                                2,182            2,932             6,395
  Europe                                              5,272            3,603             5,565
  Other                                               1,744              940               280
                                                 ----------        ---------         ---------
                                                 $  144,012        $  37,207         $  38,880
                                                 ==========        =========         =========

Revenue by Component:
  Receivers                                       $  17,420        $   3,975         $   4,208
  Transceivers                                      104,190           26,574            28,249
  Transmitters                                       15,120            5,241             5,254
  Other                                               7,282            1,417             1,169
                                                 ----------        ---------         ---------
                                                 $  144,012        $  37,207         $  38,880
                                                 ==========        =========         =========
</TABLE>


                                     ******







                                      F-21
<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         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.