##### Table of Contents



---

---

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q



---



(Mark One)

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[X]   |  | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
|      |  |                                                                                         
|      |  | For the quarterly period ended September 30, 2002, or                                   
|      |  |                                                                                         
|[   ] |  | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|      |  |                                                                                         
|      |  | For the transition period from __________ to __________                                 

Commission file number 0-49939



---



DICON FIBEROPTICS, INC.
(Exact Name of Registrant as Specified in Its Charter)

|                                                                                 |  |                                             
|-------------------------------------------------------------------------------- |  | --------------------------------------------
|California
(State or Other Jurisdiction of
Incorporation or Organization)        |  | 94-3006185
(IRS Employer
Identification No.)
|                                                                                 |  |                                             
|1689 Regatta Blvd.
Richmond, California
(Address of Principal Executive Offices) |  | 94804
(Zip Code)                            

(510) 620-5000
(Registrants Telephone Number, Including Area Code)



---



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 [   ]



---

---





---

TABLE OF CONTENTS



|                             |                                                                                                |  |  |  |  |  |  | 
|---------------------------- | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION
|                             | Item 1. Financial Statements.                                                                 
|                             | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|                             | Item 3. Quantitative and Qualitative Disclosures About Market Risk.                           
|                             | Item 4. Controls and Procedures.                                                              
|PART II OTHER INFORMATION   
|                             | Item 1. Legal Proceedings.                                                                    
|                             | Item 2. Changes in Securities and Use of Proceeds.                                            
|                             | Item 3. Defaults Upon Senior Securities.                                                      
|                             | Item 4. Submission of Matters to a Vote of Security Holders.                                  
|                             | Item 5. Other Information.                                                                    
|                             | Item 6. Exhibits and Reports on Form 8-K.                                                     
|SIGNATURES                  
|CERTIFICATION               
|Exhibit Index               
|Exhibit 99.1                
|Exhibit 99.2                



---



##### Table of Contents



Table of Contents

|        |  |                                                                                        |  |                 |  |  |  | 
|------- |  | -------------------------------------------------------------------------------------- |  | --------------- |  |  |  | 
|PART I  |  | FINANCIAL INFORMATION                                                                  |  |                 |  | 
|Item 1. |  | Financial Statements.                                                                  |  |                 |  | 
|Item 2. |  | Managements Discussion
and Analysis of Financial Condition and Results of Operations. |  |                 |  | 
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk.                            |  |                 |  | 
|Item 4. |  | Controls and Procedures.                                                               |  |                 |  | 
|       
|PART II |  | OTHER INFORMATION                                                                      |  |                 |  | 
|Item 1. |  | Legal Proceedings.                                                                     |  |                 |  | 
|Item 2. |  | Changes in Securities and Use of Proceeds.                                             |  |                 |  | 
|Item 3. |  | Defaults Upon Senior Securities.                                                       |  |                 |  | 
|Item 4. |  | Submission of Matters to a Vote of Security Holders.                                   |  |                 |  | 
|Item 5. |  | Other Information.                                                                     |  |                 |  | 
|Item 6. |  | Exhibits and Reports on Form 8-K.                                                      |  |                 |  | 
|        |  |                                                                                        |  | Signatures.     |  |  |  | 
|        |  |                                                                                        |  | Certifications. |  |  |  | 
|        |  |                                                                                        |  | Exhibit Index.  |  |  |  | 

-2-



---



##### Table of Contents






PART I

FINANCIAL INFORMATION




Item 1. Financial Statements.

|                                                      |                                                                                                                                    |                                            |        |             |         |  |        |        |         | 
|----------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ----------- | ------- |  | ------ | ------ | ------- | 
|Consolidated Balance Sheet                            |                                                                                                                                    | September 30,                              |        | March 31,  
|(in thousands, except share data)                     |                                                                                                                                    | 2002                                       |        | 2002       
|                                                      |                                                                                                                                    |                                            |        |            
|                                                      |                                                                                                                                    |                                            |        | (unaudited) |         |  |        |       
|Assets                                                |                                                                                                                                    |                                            |        |             |         |  |        |       
|Current assets:                                       |                                                                                                                                    |                                            |        |             |         |  |        |       
|                                                      | Cash and cash equivalents                                                                                                          |                                            | $      | 8,027       |         |  | $      | 10,170 |        
|                                                      | Marketable securities                                                                                                              |                                            |        | 19,814      |         |  |        | 13,756 |        
|                                                      | Accounts receivable, net of allowance of $325 and $634, respectively                                                               |                                            |        | 1,877       |         |  |        | 5,112  |        
|                                                      | Inventories                                                                                                                        |                                            |        | 6,264       |         |  |        | 6,596  |        
|                                                      | Prepaid expenses and other current assets                                                                                          |                                            |        | 933         |         |  |        | 3,988  |        
|                                                      | Federal income tax receivable                                                                                                      |                                            |        | 6,798       |         |  |        | 8,899  |        
|                                                      | Deferred income taxes                                                                                                              |                                            |        | 1,320       |         |  |        | 559    |        
|                                                      |                                                                                                                                    |                                            |        |             |         |  |        |       
|                                                      |                                                                                                                                    | Total current assets                       |        |             | 45,033  |  |        |        | 49,080  | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|Property, plant and equipment, net                    |                                                                                                                                    |                                            | 73,711 |             |         |  | 78,292 |       
|Deferred income taxes                                 |                                                                                                                                    |                                            | 5,443  |             |         |  | 6,733  |       
|Other assets                                          |                                                                                                                                    |                                            | 618    |             |         |  | 204    |       
|                                                      |                                                                                                                                    |                                            |        |             |         |  |        |       
|                                                      |                                                                                                                                    | Total assets                               |        | $           | 124,805 |  |        | $      | 134,309 | 
|                                                      |                                                                                                                                    |                                            |        |             |         |  |        |       
|Liabilities and Shareholders Equity                  |                                                                                                                                    |                                            |        |             |         |  |        |       
|Current liabilities:                                  |                                                                                                                                    |                                            |        |             |         |  |        |       
|                                                      | Accounts payable and accrued liabilities                                                                                           |                                            | $      | 9,127       |         |  | $      | 10,922 |        
|                                                      | Mortgage and other debt                                                                                                            |                                            |        | 3,128       |         |  |        | 3,632  |        
|                                                      | Income taxes payable                                                                                                               |                                            |        | 614         |         |  |        | 1,311  |        
|                                                      | Deferred compensation payable                                                                                                      |                                            |        | 2,335       |         |  |        | 4,139  |        
|                                                      |                                                                                                                                    |                                            |        |             |         |  |        |       
|                                                      |                                                                                                                                    | Total current liabilities                  |        |             | 15,204  |  |        |        | 20,004  | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|Deferred compensation payable, net of current portion |                                                                                                                                    |                                            | 3,452  |             |         |  | 7,382  |       
|Mortgage and other debt, net of current portion       |                                                                                                                                    |                                            | 29,604 |             |         |  | 30,705 |       
|                                                      |                                                                                                                                    |                                            |        |             |         |  |        |       
|                                                      |                                                                                                                                    | Total liabilities                          |        |             | 48,260  |  |        |        | 58,091  | 
|                                                      |                                                                                                                                    |                                            |        |             |         |  |        |       
|Commitments                                           |                                                                                                                                    |                                            |        |             |         |  |        |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|Shareholders equity:                                 |                                                                                                                                    |                                            |        |             |         |  |        |       
|                                                      | Common stock: no par value; 200,000,000 shares authorized;
112,184,242 and 108,841,795 shares issued and outstanding, respectively |                                            |        | 22,612      |         |  |        | 12,786 |        
|                                                      | Additional paid-in capital                                                                                                         |                                            |        | 13,521      |         |  |        | 13,438 |        
|                                                      | Deferred compensation                                                                                                              |                                            |        | (1,438      | )       |  |        | (1,659 | )      
|                                                      | Retained earnings                                                                                                                  |                                            |        | 44,839      |         |  |        | 54,025 |        
|                                                      | Accumulated other comprehensive loss                                                                                               |                                            |        | (2,989      | )       |  |        | (2,372 | )      
|                                                      |                                                                                                                                    |                                            |        |             |         |  |        |       
|                                                      |                                                                                                                                    | Total shareholders equity                 |        |             | 76,545  |  |        |        | 76,218  | 
|                                                      |                                                                                                                                    |                                            |        |             |         |  |        |       
|                                                      |                                                                                                                                    | Total liabilities and shareholders equity |        | $           | 124,805 |  |        | $      | 134,309 | 
|                                                      |                                                                                                                                    |                                            |        |             |         |  |        |       

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

-3-



---



##### Table of Contents



|                                                                                   |                                                                                                                                           |                                  |         |                                |        |             |         |             |        |   |         |        |         |   |         |        |        |  
|---------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------- | ------- | ------------------------------ | ------ | ----------- | ------- | ----------- | ------ | - | ------- | ------ | ------- | - | ------- | ------ | ------ | -
|                                                                                   |                                                                                                                                           | Three Months Ended September 30, |         | Six Months Ended September 30,
|                                                                                   |                                                                                                                                           |                                  |         |                               
|Consolidated Statement of Operations and Comprehensive Loss
        (in thousands) |                                                                                                                                           | 2002                             |         | 2001                           |        | 2002        |         | 2001       
|                                                                                   |                                                                                                                                           |                                  |         |                                |        |             |         |            
|                                                                                   |                                                                                                                                           | (unaudited)                      |         | (unaudited)                    |        | (unaudited) |         | (unaudited)
|Net sales                                                                          |                                                                                                                                           | $                                | 5,368   |                                |        | $           | 14,176  |             |        | $ | 11,947  |        |         | $ | 43,380  |       
|Cost of goods sold                                                                 |                                                                                                                                           |                                  | 5,420   |                                |        |             | 9,485   |             |        |   | 11,947  |        |         |   | 28,907  |       
|                                                                                   |                                                                                                                                           |                                  |         |                                |        |             |         |             |        |   |         |        |         |   |         |       
|Gross profit                                                                       |                                                                                                                                           |                                  | (52     | )                              |        |             | 4,691   |             |        |   |        |        |         |   | 14,473  |       
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Selling, general and administrative expenses                                       |                                                                                                                                           |                                  | 1,836   |                                |        |             | 3,398   |             |        |   | 4,849   |        |         |   | 6,792   |       
|Research and development expenses                                                  |                                                                                                                                           |                                  | 3,425   |                                |        |             | 3,898   |             |        |   | 8,967   |        |         |   | 7,664   |       
|                                                                                   |                                                                                                                                           |                                  |         |                                |        |             |         |             |        |   |         |        |         |   |         |       
|                                                                                   |                                                                                                                                           |                                  | 5,261   |                                |        |             | 7,296   |             |        |   | 13,816  |        |         |   | 14,456  |       
|                                                                                   |                                                                                                                                           |                                  |         |                                |        |             |         |             |        |   |         |        |         |   |         |       
|                                                                                   |                                                                                                                                           | (Loss) income from operations    |         |                                | (5,313 | )           |         |             | (2,605 | ) |         |        | (13,816 | ) |         |        | 17     |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Other income (expense):                                                            |                                                                                                                                           |                                  |         |                                |        |             |         |             |        |   |         |        |         |   |         |       
|                                                                                   | Interest expense, net                                                                                                                     |                                  |         | (1,485                         | )      |             |         | (899        | )      |   |         | (2,138 | )       |   |         | (1,508 | )     
|                                                                                   | Other income (expense), net                                                                                                               |                                  |         | 383                            |        |             |         | (76         | )      |   |         | 245    |         |   |         | (890   | )     
|                                                                                   |                                                                                                                                           |                                  |         |                                |        |             |         |             |        |   |         |        |         |   |         |       
|                                                                                   |                                                                                                                                           | Loss before income tax benefit   |         |                                | (6,415 | )           |         |             | (3,580 | ) |         |        | (15,709 | ) |         |        | (2,381 | )
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Income tax benefit                                                                 |                                                                                                                                           |                                  | 3,485   |                                |        |             | 2,244   |             |        |   | 6,523   |        |         |   | 1,492   |       
|                                                                                   |                                                                                                                                           |                                  |         |                                |        |             |         |             |        |   |         |        |         |   |         |       
|Net loss                                                                           |                                                                                                                                           | $                                | (2,930  | )                              |        | $           | (1,336  | )           |        | $ | (9,186  | )      |         | $ | (889    | )     
|                                                                                   |                                                                                                                                           |                                  |         |                                |        |             |         |             |        |   |         |        |         |   |         |       
|Other comprehensive loss:                                                          |                                                                                                                                           |                                  |         |                                |        |             |         |             |        |   |         |        |         |   |         |       
|                                                                                   | Foreign currency translation adjustment                                                                                                   |                                  |         | (861                           | )      |             |         | (77         | )      |   |         | 56     |         |   |         | (1,214 | )     
|                                                                                   | Unrealized holding gains (losses) on marketable
securities arising during the period, net of
realized gains (losses)
included in net loss |                                  |         | (171                           | )      |             |         | (127        | )      |   |         | (673   | )       |   |         | (62    | )     
|                                                                                   |                                                                                                                                           |                                  |         |                                |        |             |         |             |        |   |         |        |         |   |         |       
|Comprehensive loss                                                                 |                                                                                                                                           | $                                | (3,962  | )                              |        | $           | (1,540  | )           |        | $ | (9,803  | )      |         | $ | (2,165  | )     
|                                                                                   |                                                                                                                                           |                                  |         |                                |        |             |         |             |        |   |         |        |         |   |         |       
|Basic net loss per share                                                           |                                                                                                                                           | $                                | (0.03   | )                              |        | $           | (0.01   | )           |        | $ | (0.08   | )      |         | $ | (0.01   | )     
|                                                                                   |                                                                                                                                           |                                  |         |                                |        |             |         |             |        |   |         |        |         |   |         |       
|Diluted net loss per share                                                         |                                                                                                                                           | $                                | (0.03   | )                              |        | $           | (0.01   | )           |        | $ | (0.08   | )      |         | $ | (0.01   | )     
|                                                                                   |                                                                                                                                           |                                  |         |                                |        |             |         |             |        |   |         |        |         |   |         |       
|Average shares used in computing basic net loss
per share                          |                                                                                                                                           |                                  | 110,422 |                                |        |             | 108,623 |             |        |   | 110,042 |        |         |   | 108,245 |       
|                                                                                   |                                                                                                                                           |                                  |         |                                |        |             |         |             |        |   |         |        |         |   |         |       
|Average shares used in computing diluted net loss
per share                        |                                                                                                                                           |                                  | 110,422 |                                |        |             | 108,623 |             |        |   | 110,042 |        |         |   | 108,245 |       
|                                                                                   |                                                                                                                                           |                                  |         |                                |        |             |         |             |        |   |         |        |         |   |         |       

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

-4-



---



##### Table of Contents



|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |                                |        |             |       |         |         |  
|------------------------------------------------------------ | ----------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ----------------------------------------- | --------------------------------------------------- | ----- | ------------------------------ | ------ | ----------- | ----- | ------- | ------- | -
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       | Six Months Ended September 30,
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |                               
|Consolidated Statement of Cash Flows                         |                                                                                           | 2002                                                                             |                                           | 2001                                               
|(in thousands)                                               |                                                                                           |                                                                                  |                                           |                                                     |      
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       | (unaudited)                    |        | (unaudited)
|                                                            
|Cash flows from operating activities:                        |                                                                                           |                                                                                  |                                           |                                                     |       |                                |        |            
|                                                             | Net loss                                                                                  |                                                                                  | $                                         | (9,186                                              | )     |                                | $      | (889        | )    
|                                                             | Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |                                                                                  |                                           |                                                     |       |                                |        |             |      
|                                                             |                                                                                           | Depreciation                                                                     |                                           |                                                     | 5,225 |                                |        |             | 6,023 |        
|                                                             |                                                                                           | Provision for inventory                                                          |                                           |                                                     | 737   |                                |        |             | 153   |        
|                                                             |                                                                                           | Provision for bad debts                                                          |                                           |                                                     | (294  | )                              |        |             |      |        
|                                                             |                                                                                           | Loss on disposal of fixed assets                                                 |                                           |                                                     | 218   |                                |        |             |      |        
|                                                             |                                                                                           | Provision for estimated losses due to vacated properties, net of sublease income |                                           |                                                     | (563  | )                              |        |             | 1,457 |        
|                                                             |                                                                                           | Realized gain on available-for-sale marketable securities                        |                                           |                                                     | (47   | )                              |        |             |      |        
|                                                             |                                                                                           | Interest accretion on deferred compensation liability                            |                                           |                                                     | 1,316 |                                |        |             | 599   |        
|                                                             |                                                                                           | Stock compensation expense                                                       |                                           |                                                     | 921   |                                |        |             | 962   |        
|                                                             |                                                                                           | Other                                                                            |                                           |                                                     | 12    |                                |        |             | (24   | )      
|                                                             |                                                                                           | Changes in assets and liabilities:                                               |                                           |                                                     |       |                                |        |             |       |        
|                                                             |                                                                                           |                                                                                  | Accounts receivable, net                  |                                                     |       | 3,690                          |        |             |       | 13,077  |        
|                                                             |                                                                                           |                                                                                  | Inventories                               |                                                     |       | (409                           | )      |             |       | 8,440   |        
|                                                             |                                                                                           |                                                                                  | Prepaid expenses and other current assets |                                                     |       | 3,050                          |        |             |       | (1,156  | )      
|                                                             |                                                                                           |                                                                                  | Federal income tax receivable             |                                                     |       | 2,101                          |        |             |       |        |        
|                                                             |                                                                                           |                                                                                  | Deferred income tax                       |                                                     |       | 524                            |        |             |       |        |        
|                                                             |                                                                                           |                                                                                  | Other assets                              |                                                     |       | 132                            |        |             |       | 1,151   |        
|                                                             |                                                                                           |                                                                                  | Accounts payable and accrued liabilities  |                                                     |       | (1,396                         | )      |             |       | (13,299 | )      
|                                                             |                                                                                           |                                                                                  | Income taxes payable                      |                                                     |       | (713                           | )      |             |       | (2,449  | )      
|                                                             |                                                                                           |                                                                                  | Deferred compensation payable             |                                                     |       | (7,667                         | )      |             |       | (276    | )      
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |                                |        |            
|                                                             |                                                                                           |                                                                                  |                                           | Net cash (used in) provided by operating activities |       |                                | (2,349 | )           |       |         | 13,769  |  
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |                                |        |            
|Cash flows from investing activities:                        |                                                                                           |                                                                                  |                                           |                                                     |       |                                |        |            
|                                                             | Purchases of marketable securities                                                        |                                                                                  |                                           | (6,822                                              | )     |                                |        | (14,000     | )    
|                                                             | Long-term investment                                                                      |                                                                                  |                                           | (499                                                | )     |                                |        |            |      
|                                                             | Sales of marketable securities                                                            |                                                                                  |                                           | 123                                                 |       |                                |        |            |      
|                                                             | Sales of property and equipment                                                           |                                                                                  |                                           | 619                                                 |       |                                |        | 548         |      
|                                                             | Purchases of property and equipment                                                       |                                                                                  |                                           | (1,450                                              | )     |                                |        | (9,188      | )    
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |                                |        |            
|                                                             |                                                                                           |                                                                                  |                                           | Net cash used in investing activities               |       |                                | (8,029 | )           |       |         | (22,640 | )
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |                                |        |            
|Cash flows from financing activities:                        |                                                                                           |                                                                                  |                                           |                                                     |       |                                |        |            
|                                                             | Borrowings under mortgages and other debt                                                 |                                                                                  |                                           |                                                    |       |                                |        | 8,820       |      
|                                                             | Repayment of mortgages and other debt                                                     |                                                                                  |                                           | (1,619                                              | )     |                                |        | (1,336      | )    
|                                                             | Proceeds from issuance of common stock, net of repurchases                                |                                                                                  |                                           | 9,826                                               |       |                                |        | 4,527       |      
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |                                |        |            
|                                                             |                                                                                           |                                                                                  |                                           | Net cash provided by financing activities           |       |                                | 8,207  |             |       |         | 12,011  |  
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |                                |        |            
|Effect of exchange rate changes on cash and cash equivalents |                                                                                           |                                                                                  | 28                                        |                                                     |       |                                | (163   | )          
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |                                |        |            
|Net change in cash and cash equivalents                      |                                                                                           |                                                                                  | (2,143                                    | )                                                   |       |                                | 2,977  |            
|Cash and cash equivalents, beginning of period               |                                                                                           |                                                                                  | 10,170                                    |                                                     |       |                                | 14,040 |            
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |                                |        |            
|Cash and cash equivalents, end of period                     |                                                                                           | $                                                                                | 8,027                                     |                                                     |       | $                              | 17,017 |            
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |                                |        |            
|Supplemental disclosures of cash flow information:           |                                                                                           |                                                                                  |                                           |                                                     |       |                                |        |            
|                                                             | Cash paid for interest                                                                    |                                                                                  | $                                         | 823                                                 |       |                                | $      | 1,029       |      
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |                                |        |            
|                                                             | Cash paid for income taxes                                                                |                                                                                  | $                                         | 824                                                 |       |                                | $      | 2           |      
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |                                |        |             |      

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

-5-



---



##### Table of Contents



Notes to the Consolidated Financial Statements
(amounts in thousands, except per share amounts)

---

1. Basis of presentation

The consolidated financial information for DiCon Fiberoptics, Inc.
(DiCon or the Company) at September 30, 2002 and for the three months and
for the six months ended September 30, 2002 and September 30, 2001 is unaudited
but, in the opinion of management, includes all adjustments (consisting of only
normal, recurring adjustments) necessary for a fair presentation of the
financial information set forth herein, in accordance with accounting
principles generally accepted in the United States of America (GAAP) for
interim financial information and with the instructions to Form 10-Q of
Regulation S-X. Accordingly, such information does not include all the
information and footnotes required by GAAP for complete financial statements.
The results of operations for the three months and six months ended September
30, 2002 are not necessarily indicative of the results expected for the full
year. For further information, refer to the Consolidated Financial Statements
for the year ended March 31, 2002 and other information, included in the
Companys Form 10 filing.

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 the amounts reported
in the consolidated financial statements and the related notes to the
consolidated financial statements. Actual results could differ from those
estimates.

The optical communications markets have recently experienced a severe
downturn, resulting in a significant decline in the demand for the optical
components supplied by the Company and its competitors. Management believes it
has the financial resources, and will take the necessary actions, to manage
through this downturn. However, a prolonged downturn in the optical
communications markets, failure by the Company to anticipate or respond to
technological developments in its industry, changes in customer or supplier
requirements or changes in regulatory requirements or industry standards, or
any significant delays in the development or introduction of products, could
have a material adverse effect on the Companys consolidated financial
condition, operating results or cash flows.

2. Recent accounting pronouncements

In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, which
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of, and portions of APB No. 30,
Reporting the Results of Operations-Reporting the Effects of Disposal of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. While SFAS No. 144 carries forward many of the provisions of
SFAS No. 121 and APB No. 30, some of the key differences in the new standard
are that goodwill is excluded from its scope, assets to be abandoned will be
viewed as held for use and amortized over their remaining service period, and
the standard broadens the presentation of discontinued operations. SFAS No.
144 was effective for the Company on April 1, 2002 and its adoption did not
have a significant impact on its consolidated financial position, results of
operations or cash flows.

In July 2002, the Financial Accounting Standards Board issued SFAS No.
146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS
No. 146 requires that a liability for costs associated with an exit or disposal
activity be recognized and measured initially at fair value only when the
liability is incurred. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The adoption of SFAS No.
146 is not expected to have a significant impact on the Companys consolidated
financial position, results of operations, or cash flows.

3. Basic net loss per share

Basic net loss per share is computed by dividing the net loss (numerator)
by the weighted average number of common shares outstanding (denominator)
during the period, excluding the dilutive effect of stock options. Diluted net
loss per share gives effect to all potentially dilutive common stock
equivalents outstanding during the period. In computing diluted net loss per
share, the average stock price for the period is used in determining the number
of shares assumed to be purchased from the proceeds of stock option exercises.

-6-



---



##### Table of Contents



Notes to the Consolidated Financial Statements
(amounts in thousands, except per share amounts)

---

The following is a reconciliation of the numerators and denominators of
the basic and diluted net loss per share computations for the periods presented
below (in thousands, except per share data):

|                    |                                                              |  |                      |         |                          |  |             |         |             |  |   |         |   |  |   |         |  
|------------------- | ------------------------------------------------------------ |  | -------------------- | ------- | ------------------------ |  | ----------- | ------- | ----------- |  | - | ------- | - |  | - | ------- | -
|                    |                                                              |  | For the three months |         | For the six months ended
|                    |                                                              |  | ended September 30,  |         | September 30,           
|                    |                                                              |  |                      |         |                         
|                    |                                                              |  | 2002                 |         | 2001                     |  | 2002        |         | 2001       
|                    |                                                              |  |                      |         |                          |  |             |         |            
|                    |                                                              |  | (unaudited)          |         | (unaudited)              |  | (unaudited) |         | (unaudited)
|Numerator:          |                                                              |  |                      |         |                          |  |             |         |             |  |   |         |   |  |   |        
|                    | Net loss                                                     |  |                      | (2,930  | )                        |  |             | (1,336  | )           |  | $ | (9,186  | ) |  | $ | (889    | )
|Denominator:        |                                                              |  |                      |         |                          |  |             |         |             |  |   |         |   |  |   |        
|                    | Basic weighted average shares                                |  |                      | 110,422 |                          |  |             | 108,623 |             |  |   | 110,042 |   |  |   | 108,245 |  
|                    | Potentially dilutive common stock
equivalents- stock options |  |                      |        |                          |  |             |        |             |  |   |        |   |  |   |        |  
|                    |                                                              |  |                      |         |                          |  |             |         |             |  |   |         |   |  |   |        
|                    | Diluted weighted average shares                              |  |                      | 110,422 |                          |  |             | 108,623 |             |  |   | 110,042 |   |  |   | 108,245 |  
|                    |                                                              |  |                      |         |                          |  |             |         |             |  |   |         |   |  |   |         |  
|Net loss per share: |                                                              |  |                      |         |                          |  |             |         |             |  |   |         |   |  |   |        
|                    | Basic                                                        |  | $                    | (.03    | )                        |  | $           | (.01    | )           |  | $ | (.08    | ) |  | $ | (.01    | )
|                    | Diluted                                                      |  | $                    | (.03    | )                        |  | $           | (.01    | )           |  | $ | (.08    | ) |  | $ | (.01    | )

As a result of the losses incurred by the Company for the three months and
the six months ended September 30, 2002, weighted average options to purchase
10,642 and 10,627 shares of common stock were anti-dilutive and excluded from
the net loss per share calculations. For the three and six months ended
September 30, 2001, weighted average options to purchase 9,911 and 9,808 shares
of common stock were anti-dilutive and excluded from the net loss per share
calculations. As of September 30, 2002 there were options to acquire 6,346
shares outstanding and as of September 30, 2001 there were options to acquire
9,981 shares outstanding.

4. Marketable Securities

Available for sale securities included in the consolidated balance sheets
as of September 30, 2002 and March 31, 2002 are as follows:

|                               |       |   |        |        |       |   |            |   |            |   |      |      |   |   |        |        | 
|------------------------------ | ----- | - | ------ | ------ | ----- | - | ---------- | - | ---------- | - | ---- | ---- | - | - | ------ | ------ | 
|                               |       |   |        |        |       |   | Unrealized |   | Unrealized |   | Fair
|                               |       |   | Cost   |        | Gains |   | Losses     |   | Value     
|                               |       |   |        |        |       |   |            |   |           
|September 30, 2002 (unaudited) |       |   |        |        |       |   |            |   |            |   |      |      |   |   |        |       
|Equity securities              |       | $ | 1,223  |        |       | $ |           |   |            | $ | (737 | )    |   | $ | 486    |       
|Debt securities                |       |   | 19,365 |        |       |   |            |   |            |   | (37  | )    |   |   | 19,328 |       
|                               |       |   |        |        |       |   |            |   |            |   |      |      |   |   |        |       
|                               | Total |   | $      | 20,588 |       |   | $          |  |            |   | $    | (774 | ) |   | $      | 19,814 | 
|                               |       |   |        |        |       |   |            |   |            |   |      |      |   |   |        |       
|March 31, 2002                 |       |   |        |        |       |   |            |   |            |   |      |      |   |   |        |       
|Equity securities              |       | $ | 1,345  |        |       | $ |           |   |            | $ | (90  | )    |   | $ | 1,255  |       
|Debt securities                |       |   | 12,512 |        |       |   |           |   |            |   | (11  | )    |   |   | 12,501 |       
|                               |       |   |        |        |       |   |            |   |            |   |      |      |   |   |        |       
|                               | Total |   | $      | 13,857 |       |   | $          |  |            |   | $    | (101 | ) |   | $      | 13,756 | 
|                               |       |   |        |        |       |   |            |   |            |   |      |      |   |   |        |       

Debt securities include certificates of deposit with original maturities
of greater than 90 days.

Realized gains on the sale of securities were $47 for the six months ended
September 30, 2002, and were $0 for the six months ended September 30, 2001.
Realized gains were $0 for each of the quarters ended September 30, 2002 and
2001. Realized gains have been included in Other Income (expense), net in the
Consolidated Statement of Operations and Comprehensive Loss.

-7-



---



##### Table of Contents



Notes to the Consolidated Financial Statements
(amounts in thousands, except per share amounts)

---

5. Inventories

Inventories consist of the following as of September 30, 2002 and March
31, 2002:

|                                   |       |  |               |       |           |   |        |       | 
|---------------------------------- | ----- |  | ------------- | ----- | --------- | - | ------ | ----- | 
|                                   |       |  | September 30, |       | March 31,
|                                   |       |  | 2002          |       | 2002     
|                                   |       |  |               |       |          
|                                   |       |  | (unaudited)   |       |           |   |       
|Raw materials                      |       |  | 5,133         |       |           | $ | 6,837  |      
|Inventory reserve  raw materials  |       |  | (1,415        | )     |           |   | (1,033 | )    
|Work-in-process and finished goods |       |  | 2,546         |       |           |   | 792    |      
|                                   |       |  |               |       |           |   |        |      
|                                   | Total |  | $             | 6,264 |           |   | $      | 6,596 | 
|                                   |       |  |               |       |           |   |        |      

6. Mortgage and Other Debt

The Company financed, in part, a new corporate campus by borrowing from a
bank a construction loan of $27,000, which the Company entered into on August
24, 2000. In November 2001, the same lender refinanced the outstanding balance
of the construction loan with a mortgage loan maturing November 20, 2004 with
an amortization schedule based on a 25-year loan. Interest on the mortgage loan
is accrued at a variable interest rate based on changes in the lenders prime
rate as of the 20th of each month (4.75 percent at September 30, 2002).
Principal and interest are payable monthly. The balance of the mortgage loan as
of September 30, 2002 was $26,506, and the balance of the loan at maturity is
estimated to be $25,235 at the current interest rate.

In June 2002, Global Fiberoptics renewed its lines of credit of 200,000
New Taiwan Dollars (or approximately $5,724 as of September 30, 2002) from a
Taiwan bank, with interest based on a rate set by the bank at the time funds
are drawn. The line matures on June 30, 2003. The amount drawn as of September
30, 2002, was $1,030. The interest rate as of September 30, 2002 was 3.40
percent and fluctuates based on the lending banks prime rate.

In April 2001, the Company obtained an equipment loan from a bank in the
amount of $7,250. The loan is secured by specific pieces of equipment. The
loan is repayable in equal monthly installments of principal and interest over
60 months beginning May 30, 2001. At September 30, 2002, the loan balance was
$5,196. Effective April 30, 2002 and annually on April 30 of each year,
thereafter, the Company may elect to fix the interest rate on the equipment
loan for a twelve month period at a rate of one-half of one percentage point
(0.5 percent) per annum in excess of the prime. As of September 30, 2002, the
Company had not elected the fixed rate option and the loan bore an interest
rate of prime plus 0.5 percent (5.25 percent at September 30, 2002). At March
31, 2002, the Company was in violation of two of the financial covenants under
this loan agreement. The bank agreed to waive the covenants through March 31,
2003, but added an additional covenant requiring the Company to maintain a
balance of cash and marketable securities (excluding equity securities) of at
least two times the outstanding loan balance. The Company was in compliance
with this additional covenant as of September 30, 2002.

In December 2001, Global Fiberoptics issued commercial paper in the amount
of 20,000 New Taiwan Dollars (or approximately $572 as of September 30, 2002).
Proceeds were used to repay borrowings under the bank line of credit for Global
Fiberoptics. This loan was repaid in June 2002, so as of September 30, 2002
there was no balance outstanding.

-8-



---



##### Table of Contents



Notes to the Consolidated Financial Statements
(amounts in thousands, except per share amounts)

---

7. Stock Plans and Deferred Compensation Liability

In September 2002, an employee resigned who was a participant in the
Companys former phantom stock plan. This employees payments were fully
vested under the terms of the conversion of this plan to the stock option plan.
As a result, under the terms of the plan, the Company paid $7,213 to the
employee following his resignation. The impact on the balance sheet and
statement of operations of this payment is shown in the table below:

|                                                               |               |   |       |       | 
|-------------------------------------------------------------- | ------------- | - | ----- | ----- | 
|Reduction in deferred compensation payable  current liability |               | $ | 2,157 |      
|Reduction in deferred compensation payable  long term         |               |   | 4,287 |      
|Acceleration of imputed interest expense                       |               |   | 769   |      
|                                                               |               |   |       |      
|                                                               | Total payment |   | $     | 7,213 | 
|                                                               |               |   |       |      

The Company also has an Employee Stock Purchase Plan that has been
available to all eligible employees who meet certain service requirements. In
September 2002, DiCon suspended the sale of DiCon shares to employees under the
ESPP due to the reduced level of employee participation.

Non-cash compensation expense related to the Companys stock compensation
plans has been reflected in the Consolidated Statement of Operations and
Comprehensive Loss for the three months and the six months ended September 30,
2002 and 2001 as follows:

|                                             |  |                      |     |                          |  |             |     |             |  |   |     |  |  |   |     | 
|-------------------------------------------- |  | -------------------- | --- | ------------------------ |  | ----------- | --- | ----------- |  | - | --- |  |  | - | --- | 
|                                             |  | For the three months |     | For the six months ended
|                                             |  | ended September 30,  |     | September 30,           
|                                             |  |                      |     |                         
|                                             |  | 2002                 |     | 2001                     |  | 2002        |     | 2001       
|                                             |  |                      |     |                          |  |             |     |            
|                                             |  | (unaudited)          |     | (unaudited)              |  | (unaudited) |     | (unaudited)
|Cost of goods sold                           |  | $                    | 67  |                          |  | $           | 73  |             |  | $ | 140 |  |  | $ | 146 | 
|Selling, general and administrative
expenses |  |                      | 239 |                          |  |             | 268 |             |  |   | 512 |  |  |   | 535 | 
|Research and development expenses            |  |                      | 128 |                          |  |             | 141 |             |  |   | 269 |  |  |   | 281 | 
|                                             |  |                      |     |                          |  |             |     |             |  |   |     |  |  |   |     | 
|                                             |  | $                    | 434 |                          |  | $           | 482 |             |  | $ | 921 |  |  | $ | 962 | 
|                                             |  |                      |     |                          |  |             |     |             |  |   |     |  |  |   |     | 

On September 30, 2002 the Company closed its private placement of common
stock to a small group of accredited investors. The investors invested a total
of $6,245 for 1,784 shares. Proceeds will be used for general working capital
purposes.

-9-



---



##### Table of Contents






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

This Section contains forward-looking statements that involve risks and
uncertainties. Actual results may differ from those indicated in
forward-looking statements. Factors that could contribute to such differences
include, but are not limited to, those specific points discussed under Risk
Factors in the Form 10 Registration Statement filed by DiCon Fiberoptics, Inc.
(DiCon or the Company) on July 23, 2002.

Overview

DiCon designs and manufactures passive optical components, modules and
test instruments for current and next-generation optical communications
markets. DiCon designs and manufactures a broad portfolio of technically
advanced products that filter, split, combine and route light in optical
networks. DiCon also sells products used for testing optical devices and
systems. DiCons products are based on its proprietary technologies, including
thin-film coating, micro-optic design, optical element finishing, Micro
Electro-Mechanical Systems (MEMS), advanced packaging and process automation.
DiCon was founded in 1986 and first became profitable in 1988. It remained
profitable each fiscal year until the fiscal year ended March 31, 2002.

DiCons communications products include Wavelength Division Multiplexers
(WDMs), amplifier components, switches and attenuators, MEMS devices and
modules and its measurement products include variable attenuators, tunable
filters, and test instruments. DiCon markets and sells its products worldwide
through its direct sales force and through selected distributors.

The optical networking industry is rapidly changing and the volume and
timing of orders are difficult to predict. Since the fourth quarter of 2000,
the fiberoptics industry has been in a significant period of consolidation
following a dramatic curtailment of capital spending by most carriers faced
with substantial excess bandwidth capacity and very high levels of corporate
debt. DiCon believes its customers, who typically are manufacturers of
telecommunications equipment, generally view the purchase of DiCons products
as a significant and strategic decision. As a result, customers typically
expend substantial effort in evaluating, testing and qualifying DiCons
products and its manufacturing processes. This customer evaluation and
qualification process frequently results in a lengthy initial sales cycle of
nine months or longer.

Beginning in January 2001, as the industry entered its downturn and
consolidation phase, various customers cancelled existing orders. In some
cases, DiCon was able to recover a portion of its costs through subsequent
transactions with these customers. However, the Company also incurred
substantial costs associated with obsolete inventory and cancelled orders. As
of October 2002, DiCon expects that this major correction of its inventory
levels will not continue at the same levels as in the fiscal years ended March
31, 2002 and 2001. DiCon attempts to mitigate the impact of such corrections by
maintaining close, proactive relationships with its major customers to obtain
as much information about each customers needs as possible.

DiCon is engaged in continuing efforts to manage its manufacturing process
to adjust for the projected changes in demand for its products. Currently, it
performs manufacturing, final assembly, testing, quality assurance,
engineering, documentation control and repairs of its products at its Richmond,
California, facility. This facility consists of approximately 200,000 square
feet of owned facilities and approximately 50,000 square feet of leased
facilities.

In 2001, DiCon relocated its operations from leased facilities in
Berkeley, California, approximately five miles south of Richmond. The Company
had previously occupied approximately 93,000 square feet in Berkeley. Following
the recent downturn in the telecommunications business and DiCons sales, DiCon
closed these facilities. In addition, DiCon vacated an additional 80,000 square
feet of leased facilities in Richmond, California. All of the leases for the
leased facilities expire in one to four years. The remaining lease obligations
for the unutilized facilities of up to four years in duration, net of expected
sublease revenue and expense, have been accrued as a liability in the
consolidated financial statements beginning in the fiscal year ended March 31,
2001. As of March 31, 2002 the reserve for future expenses for the unused
leased premises was $1.8 million. Prior to the end of the quarter ended
September 30, 2002, the Company successfully terminated leases for two of its
leased facilities. As of September 30, 2002, the reserve for future lease
expenses for unused premises is now $210,000, which is 100% of the expected
remaining liability, net of estimated sublease income. The Companys future
commitments on all leases are $1,687 as a results of these lease termination as
of September 30, 2002. At March 31, 2002 it was $6,285.

In January 2000, DiCon began manufacturing operations at its 44,000 square
foot WDM product assembly facility in Kaohsiung, Taiwan. This facility
subsequently has been expanded through the purchase of an additional 44,000
square feet of space adjacent to the original facility. Although DiCon owns a
condominium interest in the building, it is located on a ground lease that
extends through

-10-



---



##### Table of Contents



2011. The ground lease may be renewed indefinitely, and there is no
penalty for early cancellation, except for forfeiture of the owned facility.

DiCons cost of goods sold consists primarily of the cost of direct
materials, labor and manufacturing overhead associated with products sold as
well as production start up costs. As demand changes, DiCon attempts to manage
its manufacturing capacity to meet demand for existing and new products.
However, certain of its costs are fixed and as volumes decrease, these expenses
are difficult to reduce proportionately, if at all.

Research and development expenses consist primarily of salaries and
related personnel expenses, fees paid to consultants and outside service
providers, material and equipment costs, and other expenses related to the
design, development, testing and enhancement of DiCons fiberoptic products.
DiCon expenses all of its research and development costs as incurred and does
not capitalize any research and development expenditures except for equipment
which has a useful life longer than one year and is useful for purposes other
than the current research and development project. DiCon believes that research
and development is critical to strategic product development and expects to
continue to devote substantial resources to product research and development
even in the face of decreased demand for its products. DiCon expects its
research and development expenses to fluctuate both in absolute dollars and as
a percentage of sales based on its perceived need for, and expected return
from, its research and development efforts.

Selling, general and administrative expenses include salaries, benefits,
commissions, product promotion and administrative expenses. DiCon expects
these expenses to continue to be substantial as the Company strives to be an
industry leader in the fiberoptic component manufacturing business.

DiCon maintains an Employee Stock Option Plan and an Employee Stock
Purchase Plan as a means of motivating its employees to make a tangible
contribution towards achieving its corporate objectives. See Note 9 of the
consolidated financial statements included in the Companys Form 10 filing for
more information regarding these plans.

Other income (expense), net consists primarily of interest and dividend
income, offset by interest expense, plus realized gains or losses on
investments.

Critical Accounting Policies

The preparation of the Companys consolidated financial statements in
conformity with accounting principles generally accepted in the United States
requires estimates and judgments that affect the reported amounts of assets and
liabilities, net sales and expenses, and the related disclosures. Estimates are
based on historical experience, knowledge of economic and market factors and
various other assumptions that the Company believes to be reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions. The following critical accounting policies are
affected by significant estimates, assumptions and judgments used in the
preparation of the Companys consolidated financial statements.

Revenue recognition.The Company recognizes revenue upon shipment of the
product provided that persuasive evidence of a final agreement exists, delivery
has occurred, the selling price is fixed or determinable and collectibility is
reasonably assured. Revenue associated with contract-related cancellation
payments from customers is not recognized until a formal agreement is signed or
a purchase order issued by the customer covering such payments and the
collectibility of the cancellation payments is determined to be probable. The
Company records provisions against gross revenue for estimated product returns
and allowances in the period when the related revenue is recorded. Should
actual product returns and allowances exceed the Companys estimates,
additional reductions to revenue would result.

Allowances for doubtful accounts. The Company performs ongoing credit
evaluations of its customers financial condition. Allowances for doubtful
accounts for estimated losses are maintained resulting from the inability or
unwillingness of customers to make required payments. When the Company becomes
aware that a specific customer is unable to meet its financial obligations,
such as bankruptcy or deterioration in the customers operating results or
financial position, the Company records a specific allowance to reflect the
level of credit risk in the customers outstanding receivable balance. The
Company is not able to predict changes in the financial condition of customers,
and if circumstances related to the Companys customers deteriorate, estimates
of the recoverability of trade receivables could be materially affected and the
Company may be required to record additional allowances. Alternatively, if the
Company provides for more allowances than needed, the Company may reverse a
portion of such provisions in future periods based on actual collection
experience.

Warranty accrual. The Company provides reserves for the estimated costs of
product warranties at the time revenue is recognized. Estimates of the costs of
warranty obligations are based on the Companys historical experience of known
product failure

-11-



---



##### Table of Contents



rates, use of materials and service delivery costs incurred in correcting
product failures. In addition, from time to time, specific warranty accruals
may be made if unforeseen technical problems arise. Should the Companys actual
experience relative to these factors differ from estimates, the Company may be
required to record additional warranty reserves. Alternatively, if the Company
provides more reserves than needed, the Company may reverse a portion of such
provisions in future periods.

Inventory Valuation. The Company regularly assesses the valuation of
inventories and writes down those inventories which are obsolete or in excess
of forecasted usage to their estimated realizable value. Estimates of
realizable value are based upon the Companys analyses and assumptions
including, but not limited to, forecasted sales levels by product, expected
product lifecycle, product development plans and future demand requirements. If
market conditions are less favorable than the Companys forecast or actual
demand from customers is lower than the Companys estimates, the Company may be
required to record additional inventory write-downs. If demand is higher than
expected, the Company may sell inventories that had previously been written
down.

Property, plant and equipment.The Company evaluates the carrying value
of property, plant and equipment, whenever certain events or changes in
circumstances indicate that the carrying amount may not be recoverable. Such
events or circumstances include, but are not limited to, a prolonged industry
downturn, a significant decline in the Companys market value, or significant
reductions in projected future cash flows. In assessing the recoverability of
property, plant and equipment, the Company compares the carrying value to the
undiscounted future cash flows the assets are expected to generate. If the
total of the undiscounted future cash flows is less than the carrying amount of
the assets, the Company writes down such assets based on the excess of the
carrying amount over the fair value of the assets. Fair value is generally
determined by calculating the discounted future cash flows using a discount
rate based upon the Companys weighted average cost of capital. Significant
judgments and assumptions are required in the forecast of future operating
results used in the preparation of the estimated future cash flows, including
long-term forecasts of the amounts and timing of overall market growth and the
Companys percentage of that market, groupings of assets, discount rate and
terminal growth rates. Changes in these estimates could have a material adverse
effect on the assessment of property, plant and equipment, thereby requiring
the Company to write down the assets.

Deferred taxes. The Company regularly assesses the likelihood that
deferred tax assets will be recovered from future taxable income. If necessary,
the Company records a valuation allowance to reduce deferred tax assets to the
amount that the Company believes to be realizable. The Company considers
projected future taxable income and ongoing tax planning strategies in
assessing the amount of the valuation allowance. If it is determined that the
Company will not realize all or part of deferred tax assets, an adjustment to
the deferred tax asset will be charged to earnings in the period such
determination is made. As of September 30, 2002, the Company has not recorded
a valuation allowance associated with deferred tax assets.

Financial Results



| |  | Three Months Ended September 30, 2002 Compared with Three Months Ended
September 30, 2001
| |  | -----------------------------------------------------------------------------------------

Net Sales

Net sales declined 62.0% from $14.2 million for the quarter ended
September 30, 2001 to $5.4 million for the quarter ended September 30, 2002.
This decline reflected the overall decline in the demand for fiberoptics
components and test equipment by telecommunications equipment vendors, the
Companys primary customers, as well as increased competition for the remaining
business opportunities. This decline is unprecedented in DiCons history, but
at this point, it still remains unclear when an upturn in demand might occur.
Additional declines from the level of this quarter are anticipated in the near
future.

For the quarter ended September 30, 2002 the Company recorded revenue from
cancellation of prior supply agreements with customers of $1.2 million compared
with no cancellation revenue in the same quarter of the prior year. This
revenue represents actual cash payments received during the quarter.

The industry continues to be in a state of flux, and a consolidation phase
is now beginning. This adds to the instability in the market. In addition, we
continue to experience pressures to lower average selling prices of current
products. New products are gaining acceptance with potential customers, but
there is little or no volume in these new products to offset the declines in
net sales. We believe the long-term recovery of the market for
telecommunications components requires significant restructuring at all levels
of the industry throughout most of the world.

For the quarter ended September 30, 2002, the Company had three customers
who each accounted for more than 10% of sales and that together accounted for
57.0% of net sales. For the quarter ended September 30, 2001, one customer who
accounted for more than 10% of sales together accounted for 17% of sales.

-12-



---



##### Table of Contents



Cost of Goods Sold

Cost of goods sold declined 43.2% from $9.5 million for the quarter ended
September 30, 2001 to $5.4 million for the same quarter in the current fiscal
year, but for the current quarter was 101% of revenue compared to 66.9% of
revenue for the quarter ended September 30, 2001. The absolute decline of $4.1
million reflected the lower volume of business, offset by the higher component
of fixed costs in the current quarter. These higher fixed costs were primarily
due to the higher costs of the new facility in Richmond, California to which
the Company moved in mid-2001 and the fixed costs of the Taiwan subsidiary.
Inventory write-offs for the quarter ended September 30, 2002 totaled $672,000
for materials no longer deemed usable or deemed to be excess. For the quarter
ended September 30, 2001, the inventory write-offs were $0.

Gross Margin

Gross margin for the quarter ended September 30, 2002 was a loss of
$52,000 compared to profit of $4.7 million for the quarter ended September 30,
2001. Gross margin is impacted by a variety of factors including, but not
limited to, absolute sales volumes, gross margins on sales, competitive factors
that determine selling prices, fixed costs vs. variable costs, and product mix
of higher margin products vs. lower margin products. The negative gross margin
for the quarter ended September 30, 2002 was primarily a result of low sales
volume and the Companys fixed manufacturing costs.

The lack of visibility regarding future business that the industry, and
DiCon in particular, is now experiencing makes it difficult to forecast future
levels of gross margin, but the Company expects losses to continue for some
period.

Operating Expenses

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $1.6 million, or
47.1%, to $1.8 million for the quarter ended September 30, 2002 compared to
$3.4 million for the quarter ended September 30, 2001. This decrease was the
result of reductions in personnel and in sales commission.

Research and Development Expenses

Research and development (R&D) expenses decreased from $3.9 million for
the quarter ended September 30, 2001 (27.5% of revenue) to $3.4 million (63.0%
of revenue) for the quarter ended September 30, 2002. R&D represents, in
part, spending to develop advanced photonic components. DiCon is committed to
continue its investments in this critical area as it strives to develop the new
products demanded by its customers and to continue to be a valued, competitive
supplier to the principal telecommunications equipment manufacturers.

Other Income (Expense)

Interest expense increased from $899,000 for the quarter ended September
30, 2001 to $1.5 million for the quarter ended September 30, 2002. This most
recent quarter included $769,000 in accelerated imputed interest expense
required to be recognized upon the resignation of an employee due to payments
made to the employee under the terms of the Companys conversion of its former
phantom stock option plan to its stock option plan. Other income (expense),
net of $383,000 for the quarter ended September 30, 2002 included currency
exchange gains of $276,000 compared to Other income (expense), net of $76,000
for the quarter ended September 30, 2001 which included a loss on currency
exchange of $13,000.

Loss Before Income Tax Benefit

The Company reported a net loss before income tax benefit of $6.4 million
for the current quarter compared to $3.6 million for the same quarter in the
prior year.

Income Tax Benefit

The Company has had sufficient income for federal income tax purposes in
prior years to carryback the anticipated losses from this year, and to receive
a refund. Thus, the Company has accrued an income tax receivable for this
amount. California state income

-13-



---



##### Table of Contents



taxes may not be carried back to prior years. The losses for California
purposes may result in lower taxes paid in the future, depending on the then
current tax laws for California.

For the three months ended September 30, 2002, the effective tax rate was
54.3% compared to 62.7% for the same period in the prior year. The tax rate
for each period is the result of the consolidation of tax provision of the US
operations with that of the Taiwan operations of Global Fiberoptics, and can
vary substantially from period to period depending on the relative performance
of each operation.



| |  | Six Months Ended September 30, 2002 Compared with Six Months Ended
September 30, 2001
| |  | -------------------------------------------------------------------------------------

Net Sales

Net sales declined 72.5% from $43.3 million for the six months ended
September 30, 2001 to $11.9 million for the six months ended September 30,
2002. This decline reflected the overall decline in the demand for fiberoptics
components and test equipment by telecommunications equipment vendors, the
Companys primary customers, as well as increased competition for the remaining
business opportunities. This decline is unprecedented in DiCons history, but
at this point, it still remains unclear when an upturn in demand might occur.
Additional declines from the level of the current six month period are
anticipated in the near future.

For the six months ended September 30, 2002 the Company recorded revenue
from cancellation of prior supply agreements with customers of $1.2 million
compared with no cancellation revenue from this source in the same period of
the prior year. This revenue represents actual cash payments received during
the quarter.

For the six months ended September 30, 2002, the Company had three
customers who each accounted for more than 10% of sales and that together
accounted for 42.9% of net sales. For the six months ended September 30, 2001,
one customer accounted for 19.8% of sales.

Cost of Goods Sold

Cost of goods sold declined 56.7% from $28.9 million for the six months
ended September 30, 2001 to $11.9 million for the same six months in the
current fiscal year, but for the current year were 100% of revenue compared to
66.6% of revenue for the six months ended September 30, 2001. The absolute
decline of $17 million reflected the lower volume of business, offset by the
higher component of fixed costs in the current six months. These higher fixed
costs were primarily due to the higher costs of the new facility in Richmond,
California, to which the Company moved in mid-2001, and the fixed costs of the
Taiwan subsidiary. The Company scrapped $737,000 of materials for the six
months ended September 30, 2002. For the six months ended September 30, 2001,
the Company scrapped $5.3 million of inventory due to program cancellations by
major customers and lower sales.

Gross Margin

Gross margin for the six months ended September 30, 2002 was zero compared
to profit of $14.5 million for the six months ended September 30, 2001. Gross
margin is impacted by a variety of factors including, but not limited to,
absolute sales volumes, gross margins on sales, competitive factors that
determine selling prices, fixed costs vs. variable costs, and product mix of
higher margin products vs. lower margin products. The gross margin for the six
months ended September 30, 2002 was primarily a result of low sales volume and
the Companys fixed manufacturing costs.

Operating Expenses

Selling, General and Administrative Expenses

Selling, general and administrative expenses declined $2.0 million, or
29.4%, to $4.8 million for the six months ended September 30, 2002 compared to
$6.8 million for the six months ended September 30, 2001. While this
percentage decline was not as great as the percentage decline in revenue, it
does reflect the significant efforts by management to reduce the size and costs
of the administrative staff, as well as reduced commissions paid to sales staff
as a result of lower sales.

Research and Development Expenses

-14-



---



##### Table of Contents



Research and development expenses increased from $7.7 million for the six
months ended September 30, 2001 (17.7% of revenue) to $9.0 million (75.6% of
revenue) for the six months ended September 30, 2002. This reflects, in part,
spending to develop advanced photonic components.

Other Income (Expense)

Interest expense increased from $1.5 million for the six months ended
September 30, 2001 to $2.1 million for the six months ended September 30, 2002
reflecting primarily the impact of the $769,000 in accelerated imputed interest
expense associated with the payment to the employee who resigned as discussed
above. Other income (expense), net of $890,000 for the six months ended
September 30, 2001 included gains on currency exchange of $427,000 compared to
Other income (expense), net of $245,000 for the six months ended September 30,
2002, which was due primarily to interest income.

Loss Before Income Tax Benefit

The Company reported a net loss before income tax benefit of $15.7 million
for the six months ended September 30, 2002 compared to $2.4 million for the
same six months in the prior year.

Income Tax Benefit

The Company has had sufficient income for federal income tax purposes in
prior years to carryback the anticipated losses from this year, and to receive
a refund. Thus, the Company has accrued an income tax receivable for this
amount. California state income taxes may not be carried back to prior years.
The losses for California purposes may result in lower taxes paid in the
future, depending on the then current tax laws for California.

For the six months ended September 30, 2002, the effective tax rate was
41.8% compared to 62.7% for the same six months in the prior year. The tax
rate for each period is the result of the consolidation of tax benefits of the
US operations with those of the Taiwan operations of Global Fiberoptics, and
can vary substantially from period to period depending on the relative
performance of each operation.

Liquidity and Capital Resources

Net cash provided by operations declined from $13.7 million for the six
months ended September 30, 2001 to a cash outflow of $2.3 million for the six
months ended September 30, 2002, primarily due to the net loss experienced in
the six months ended September 30, 2002 and to the $7.7 million in deferred
compensation costs incurred upon the resignation of an employee in September
2002. Inventories increased slightly ($409,000) in the current six months as
compared to a decline of $8.4 million in the same six months in the previous
year, primarily due to the lack of significant inventory write-offs in the
current six months. Accounts receivables declined at a much slower rate as
well from a decline of $13.1 million in the prior year to $3.7 million for the
first six months of the current fiscal year. In the prior year, accounts
payable and other accrued liabilities decreased dramatically, requiring nearly
$13.3 million in net cash compared to cash required in the current six months
of $1.4 million.

Net cash from operations may continue to be negative unless the business
climate for the Company improves or the Company is able to substantially reduce
operating costs. If sales remain at current levels or decline further and the
Company is unable to reduce its spending rates substantially, the Company will
continue to use cash for operating expenses and may suffer adverse consequences
at some future date.

Cash used in investing activities reflected new investments in
certificates of deposits with a maturity in excess of 90 days in the current
six months of $6.8 million, primarily the result of efforts to increase
earnings on the working capital by lengthening the maturity of the portfolio.
All certificates mature in one year or less. The Company also made a long-term
investment of $499,000 for a minority interest in a firm in Taiwan. Purchases
of equipment declined from $9.2 million in the six months ended September 30,
2001 to approximately $1.5 million in the same six months this year. The
Company may from time to time continue to purchase certain additional equipment
necessary for new production processes or for replacement.

Cash flows from financing activities declined from $12 million for the six
months ended September 30, 2001 to $8.2 million in the current six months.
These cash flows in the current six months were primarily the result of the
sale of additional common stock for $9.8 million. The cash flows from
financing activities in the same six months in the prior year were primarily
due to the increase in debt to finance the corporate headquarters ($8.8
million) and manufacturing facility in Richmond, California, and to the sale in
that period of additional common stock of $4.5 million.

-15-



---



##### Table of Contents



DiCon is required to comply with various operating and financial covenants
in its various lines and loans. Operating covenants include restrictions on
(i) any change in business activities from those we are presently engaged in,
(ii) certain types of investments, and (iii) the disposal of assets. Financial
covenants include minimum profitability requirements, minimum tangible net
worth requirements, minimum debt service coverage ratios, minimum quick ratios,
and maximum debt to tangible net worth ratios. At March 31, 2002, the Company
was in compliance with all of the covenants except for two covenants in its
equipment-financing loan. The lender agreed to waive the covenants through
March 31, 2003, but added an additional covenant requiring the Company to
maintain a minimum balance of cash and marketable securities (excluding equity
securities) of at least two times the outstanding loan balance. The Company
was in compliance with this additional covenant as of September 30, 2002.

As of September 30, 2002, DiCon had cash and cash equivalents of $8.0
million. In addition, the Company also had $19.8 million invested in
certificates of deposit and other marketable securities.

DiCon believes its current cash and cash equivalents and marketable
securities will be sufficient to meet its anticipated cash needs for working
capital and capital expenditures until at least the end of the fiscal year
ending March 31, 2004. Despite its expectations, DiCon may need to raise
additional capital before that time in order to finance unanticipated growth,
including significant increases in personnel, facilities and computer systems
and to acquire or invest in complementary businesses, technologies, services
and/or products. There can be no certainty that DiCon will be successful in
raising the required capital or raising it at acceptable rates.




Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Sensitivity

DiCon maintains its cash and cash equivalents primarily in money market
funds or other short-term investments. DiCon does not have any derivative
financial instruments. Accordingly, it does not believe that its investments
have material exposure to interest rate risk.

Because its loans are variable rate, DiCon is subject to interest rate
risk for these liabilities. A 1% change in the prime rate would result in a
change in interest expense of up to $350,000 per year at the maximum level of
loan commitments DiCon has secured.

The book value of the Companys debt approximates fair value due to their
short-term maturities and/or variable interest rates.

Market Risk

DiCon has limited investments in marketable equity securities. As of
September 30, 2002, the Company had marketable equity securities with an
original cost of $1.2 million that had an unrealized loss of $0.7 million. As
of March 31, 2002 the Company had marketable equity securities with an original
cost of $1.3 million that had an unrealized loss of $90,000.

The Company invests its funds in excess of short-term working capital in
certificates of deposit and investment funds. It diversifies its investments
in several different financial institutions to minimize market risk. Certain
of these investments are subject to market risks as interest rates change.
Unrealized losses on these investments totaled $37,000 at September 30, 2002
compared to $11,000 as of March 31, 2002.

Exchange Rate Sensitivity

DiCon manufactures products in the United States and in Taiwan, and all
sales to date to customers have been made in U.S. Dollars. Transactions between
DiCons Taiwan subsidiary and its U.S. operations are denominated in U.S.
Dollars as well. However, the functional currency of the Taiwan subsidiary,
Global Fiberoptics, Inc., is the New Taiwan Dollar. Accordingly, DiCon has
material exposure to foreign currency fluctuations between the U.S. Dollar and
the New Taiwan Dollar for (1) sales to its subsidiary; (2) purchases from its
subsidiary and (3) revaluation of monetary assets held by its subsidiary. To
date, DiCon has not engaged in any hedging activities designed to minimize this
exposure. A portion of its international revenues and expenses may be
denominated in other foreign currencies in the future. Accordingly, DiCon could
experience the risks of fluctuating currencies. In the future, DiCon may engage
in currency hedging activities to manage these risks. As of September 30,
2002, the accumulated currency translation loss resulting from the translation
of the financial position of Global Fiberoptics, Inc. was $3.0 million compared
to a loss of $2.3 million as of the end of the previous quarter at March 31,
2002.




Item 4. Controls and Procedures.

-16-



---



##### Table of Contents



(a)  Evaluation of Disclosure Controls and Procedures. The undersigned
principal executive officer and principal financial officer of DiCon concluded
that DiCons disclosure controls and procedures are effective based on their
evaluation of these controls and procedures as of a date within 90 days of the
filing date of this report.

(b)  Changes in Internal Controls.There have been no significant changes
in DiCons internal controls or in other factors that could significantly
affect these controls subsequent to the date of the evaluation of these
controls by the undersigned principal executive officer and principal financial
officer of DiCon.




PART II

OTHER INFORMATION




Item 1. Legal Proceedings.

None.




Item 2. Changes in Securities and Use of Proceeds.

During the period covered by this report, DiCon has sold the following
securities to investors in private placements which were not registered under
the Securities Act of 1933:

|                   |  |        |  |        |           |                          |  |   |              |  |  | 
|------------------ |  | ------ |  | ------ | --------- | ------------------------ |  | - | ------------ |  |  | 
|Date of Sale       |  | Class  |  | Amount |           | Aggregate Offering Price
|                   |  |        |  |        |           |                         
|September 30, 2002 |  | Common |  |        | 1,784,255 |                          |  | $ | 6,244,892.50 | 

The sales of stock were all for cash consideration and were only made to
accredited investors as defined in Rule 501(a) of Regulation D under the
Securities Act of 1933. No underwriting or placement fees or commissions were
paid in connection with the sales. The sales of stock were exempt from the
registration requirements of the Securities Act of 1933 pursuant to Regulation
D, Rule 506.

All of the issued and outstanding shares of common stock are subject to
restrictions on transfer to comply with federal and state securities laws. In
addition, the shares are subject to substantial transfer restrictions imposed
by the Buy-Sell Agreement each investor is required to enter into with DiCon
upon issuance. The Buy-Sell Agreement gives DiCon the right to purchase, or
offer to others for purchase, all or a portion of the shares held by a
shareholder in the event of a proposed transfer of the shares or the occurrence
of other events specified in the agreement. The purchase price paid in such
event is solely as determined by the valuation method set forth in the Buy-Sell
Agreement.




Item 3. Defaults Upon Senior Securities.

None.




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

None.




Item 5. Other Information.

None.

-17-



---



##### Table of Contents






Item 6. Exhibits and Reports on Form 8-K.

(a)  Exhibits.

|        |  |                                                                                                                   |  |  |  | 
|------- |  | ----------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit |  |                                                                                                                   |  |  |  | 
|No.     |  | Description                                                                                                       |  |  |  | 
|        |  |                                                                                                                   |  |  |  | 
|99.1    |  | Certificate of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes
 Oxley Act of
2002.
|       
|99.2    |  | Certificate of Director of Finance pursuant to Section 906 of the Sarbanes  Oxley Act of
2002.                  

(b)  Reports on Form 8-K.

None.

-18-



---



##### Table of Contents






SIGNATURES

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



|                        |  |                                      |                     |                                                                    
|----------------------- |  | ------------------------------------ | ------------------- | -------------------------------------------------------------------
|                        |  | DICON FIBEROPTICS, INC.
(Registrant)
|                       
|Date: November 14, 2002 |  | By:                                  | /s/ Ho-Shang Lee   
|                        |  |                                      |                    
|                        |  |                                      |                     | (Signature)                                                        
|                        |  |                                      |                     |                                                                    
|                        |  | Name:                                |                     | Ho-Shang Lee, Ph.D.                                                
|                        |  | Title:                               |                     | President and Chief Executive Officer
(principal executive officer)
|                        |  |                                      |                     |                                                                    
|Date: November 14, 2002 |  | By:                                  | /s/ Frank W. Tilley
|                        |  |                                      |                    
|                        |  |                                      |                     | (Signature)                                                        
|                        |  |                                      |                     |                                                                    
|                        |  | Name:                                |                     | Frank W. Tilley                                                    
|                        |  | Title:                               |                     | Director of Finance
(principal financial officer)                  

-19-



---



##### Table of Contents






CERTIFICATION

I, Ho-Shang Lee, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of DiCon Fiberoptics,
Inc.;                                                                                                                                                                                                                                                                                                           
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;                                                           
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                                                                              
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                                                                                
|  
|a) |  | Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;                                                                                          
|  
|b) |  | Evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                                                                                                            
|  
|c) |  | Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                                                                                                                  
|  
|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):                                                                                                                                           
|  
|a) |  | All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and                                                                                           
|  
|b) |  | Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                                                                                                                   
|  
|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

Date: November 14, 2002

|       |  |                                                                     | 
|------ |  | ------------------------------------------------------------------- | 
|By:    |  | /s/ Ho-Shang Lee, Ph.D.                                            
|       |  |                                                                    
|       |  | (Signature)                                                        
|       |  |                                                                    
|Name:  |  | Ho-Shang Lee, Ph.D.                                                
|Title: |  | President and Chief
Executive Officer
(principal executive officer)

-20-



---



##### Table of Contents



CERTIFICATION

I, Frank W. Tilley, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of DiCon Fiberoptics,
Inc.;                                                                                                                                                                                                                                                                                                           
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;                                                           
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                                                                              
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                                                                                
|  
|a) |  | Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;                                                                                          
|  
|b) |  | Evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                                                                                                            
|  
|c) |  | Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                                                                                                                  
|  
|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):                                                                                                                                           
|  
|a) |  | All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and                                                                                           
|  
|b) |  | Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                                                                                                                   
|  
|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

Date: November 14, 2002

|       |  |                                                   | 
|------ |  | ------------------------------------------------- | 
|By:    |  | /s/ Frank W. Tilley                              
|       |  |                                                  
|       |  | (Signature)                                      
|       |  |                                                  
|Name:  |  | Frank W. Tilley                                  
|Title: |  | Director of Finance
(principal financial officer)

-21-



---



##### Table of Contents






Exhibit Index

|        |  |                                                                                                                  
|------- |  | -----------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                  
|No.     |  | Description                                                                                                      
|        |  |                                                                                                                  
|99.1    |  | Certificate of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes
 Oxley Act of 2002.
|        |  |                                                                                                                  
|99.2    |  | Certificate of Director of Finance pursuant to Section 906 of the Sarbanes  Oxley Act of
2002.                  

-22-