##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-Q



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(Mark One)

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|þ |  | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
|  |  |                                                                                         
|  |  | For the quarterly period ended December 31, 2002, or                                    
|  |  |                                                                                         
|o |  | 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                                                          



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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
þ |  | No o





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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         



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##### 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.                                                                        

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##### Table of Contents






PART I




FINANCIAL INFORMATION




Item 1. Financial Statements.

|                                                      |                                                                                                                                                                               |                                            |        |                |         |  |        |        |         | 
|----------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | -------------- | ------- |  | ------ | ------ | ------- | 
|Consolidated Balance Sheet                            |                                                                                                                                                                               |                                            |        |                |         |  |        |       
|(unaudited, in thousands, except share data)          |                                                                                                                                                                               | December 31, 2002                          |        | March 31, 2002
|                                                      |                                                                                                                                                                               |                                            |        |               
|Assets                                                |                                                                                                                                                                               |                                            |        |                |         |  |        |       
|Current assets:                                       |                                                                                                                                                                               |                                            |        |                |         |  |        |       
|                                                      | Cash and cash equivalents                                                                                                                                                     |                                            | $      | 2,207          |         |  | $      | 10,170 |        
|                                                      | Marketable securities                                                                                                                                                         |                                            |        | 20,323         |         |  |        | 13,756 |        
|                                                      | Accounts receivable, net of allowance of $325 and $634, respectively                                                                                                          |                                            |        | 2,250          |         |  |        | 5,112  |        
|                                                      | Inventories                                                                                                                                                                   |                                            |        | 5,663          |         |  |        | 6,596  |        
|                                                      | Prepaid expenses and other current assets                                                                                                                                     |                                            |        | 1,044          |         |  |        | 3,988  |        
|                                                      | Federal income tax receivable                                                                                                                                                 |                                            |        | 10,311         |         |  |        | 8,899  |        
|                                                      | Deferred income taxes                                                                                                                                                         |                                            |        | 108            |         |  |        | 559    |        
|                                                      |                                                                                                                                                                               |                                            |        |                |         |  |        |       
|                                                      |                                                                                                                                                                               | Total current assets                       |        |                | 41,906  |  |        |        | 49,080  | 
|                                                      |                                                                                                                                                                               |                                            |        |               
|Property, plant and equipment, net                    |                                                                                                                                                                               |                                            | 70,602 |                |         |  | 78,292 |       
|Deferred income taxes                                 |                                                                                                                                                                               |                                            | 6,210  |                |         |  | 6,733  |       
|Other assets                                          |                                                                                                                                                                               |                                            | 616    |                |         |  | 204    |       
|                                                      |                                                                                                                                                                               |                                            |        |                |         |  |        |       
|                                                      |                                                                                                                                                                               | Total assets                               |        | $              | 119,334 |  |        | $      | 134,309 | 
|                                                      |                                                                                                                                                                               |                                            |        |                |         |  |        |       
|Liabilities and Shareholders Equity                  |                                                                                                                                                                               |                                            |        |                |         |  |        |       
|Current liabilities:                                  |                                                                                                                                                                               |                                            |        |                |         |  |        |       
|                                                      | Accounts payable and accrued liabilities                                                                                                                                      |                                            | $      | 7,862          |         |  | $      | 10,922 |        
|                                                      | Mortgage and other debt                                                                                                                                                       |                                            |        | 4,015          |         |  |        | 3,632  |        
|                                                      | Income taxes payable                                                                                                                                                          |                                            |        | 105            |         |  |        | 1,311  |        
|                                                      | Deferred compensation payable                                                                                                                                                 |                                            |        | 2,282          |         |  |        | 4,139  |        
|                                                      |                                                                                                                                                                               |                                            |        |                |         |  |        |       
|                                                      |                                                                                                                                                                               | Total current liabilities                  |        |                | 14,264  |  |        |        | 20,004  | 
|                                                      |                                                                                                                                                                               |                                            |        |               
|Deferred compensation payable, net of current portion |                                                                                                                                                                               |                                            | 2,849  |                |         |  | 7,382  |       
|Mortgage and other debt, net of current portion       |                                                                                                                                                                               |                                            | 29,001 |                |         |  | 30,705 |       
|                                                      |                                                                                                                                                                               |                                            |        |                |         |  |        |       
|                                                      |                                                                                                                                                                               | Total liabilities                          |        |                | 46,114  |  |        |        | 58,091  | 
|                                                      |                                                                                                                                                                               |                                            |        |                |         |  |        |       
|Commitments                                           |                                                                                                                                                                               |                                            |        |                |         |  |        |       
|Shareholders equity:                                 |                                                                                                                                                                               |                                            |        |                |         |  |        |       
|                                                      | Common stock: no par value; 200,000,000 shares authorized;
112,082,978 and 108,841,795 shares issued and outstanding as of
December 31, 2002 and March 31, 2002, respectively |                                            |        | 22,385         |         |  |        | 12,786 |        
|                                                      | Additional paid-in capital                                                                                                                                                    |                                            |        | 13,521         |         |  |        | 13,438 |        
|                                                      | Deferred compensation                                                                                                                                                         |                                            |        | (1,324         | )       |  |        | (1,659 | )      
|                                                      | Retained earnings                                                                                                                                                             |                                            |        | 41,280         |         |  |        | 54,025 |        
|                                                      | Accumulated other comprehensive loss                                                                                                                                          |                                            |        | (2,642         | )       |  |        | (2,372 | )      
|                                                      |                                                                                                                                                                               |                                            |        |                |         |  |        |       
|                                                      |                                                                                                                                                                               | Total shareholders equity                 |        |                | 73,220  |  |        |        | 76,218  | 
|                                                      |                                                                                                                                                                               |                                            |        |                |         |  |        |       
|                                                      |                                                                                                                                                                               | Total liabilities and shareholders equity |        | $              | 119,334 |  |        | $      | 134,309 | 
|                                                      |                                                                                                                                                                               |                                            |        |                |         |  |        |       

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

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|                                                                      |                                                                                                                                           |                                 |         |                                |        |      |         |      |        |   |         |        |         |   |         |        |        |  
|--------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | ------- | ------------------------------ | ------ | ---- | ------- | ---- | ------ | - | ------- | ------ | ------- | - | ------- | ------ | ------ | -
|Consolidated Statement of Operations and                              |                                                                                                                                           | Three Months Ended December 31, |         | Nine Months Ended December 31,
|Comprehensive Loss                                                    |                                                                                                                                           |                                 |         |                               
|(unaudited, in thousands, except per share data)                      |                                                                                                                                           | 2002                            |         | 2001                           |        | 2002 |         | 2001
|                                                                      |                                                                                                                                           |                                 |         |                                |        |      |         |     
|Net sales                                                             |                                                                                                                                           | $                               | 4,245   |                                |        | $    | 13,910  |      |        | $ | 16,192  |        |         | $ | 57,290  |       
|Cost of goods sold                                                    |                                                                                                                                           |                                 | 5,544   |                                |        |      | 8,735   |      |        |   | 17,491  |        |         |   | 37,642  |       
|                                                                      |                                                                                                                                           |                                 |         |                                |        |      |         |      |        |   |         |        |         |   |         |       
|Gross profit                                                          |                                                                                                                                           |                                 | (1,299  | )                              |        |      | 5,175   |      |        |   | (1,299  | )      |         |   | 19,648  |       
|                                                                      |                                                                                                                                           |                                 |         |                               
|Selling, general and administrative expenses                          |                                                                                                                                           |                                 | 1,959   |                                |        |      | 3,581   |      |        |   | 6,808   |        |         |   | 10,373  |       
|Research and development expenses                                     |                                                                                                                                           |                                 | 2,086   |                                |        |      | 3,782   |      |        |   | 11,053  |        |         |   | 11,446  |       
|                                                                      |                                                                                                                                           |                                 |         |                                |        |      |         |      |        |   |         |        |         |   |         |       
|                                                                      |                                                                                                                                           |                                 | 4,045   |                                |        |      | 7,363   |      |        |   | 17,861  |        |         |   | 21,819  |       
|                                                                      |                                                                                                                                           |                                 |         |                                |        |      |         |      |        |   |         |        |         |   |         |       
|                                                                      |                                                                                                                                           | Loss from operations            |         |                                | (5,344 | )    |         |      | (2,188 | ) |         |        | (19,160 | ) |         |        | (2,171 | )
|Other income (expense):                                               |                                                                                                                                           |                                 |         |                                |        |      |         |      |        |   |         |        |         |   |         |       
|                                                                      | Interest expense, net                                                                                                                     |                                 |         | (584                           | )      |      |         | (733 | )      |   |         | (2,722 | )       |   |         | (2,241 | )     
|                                                                      | (Loss) gain on disposal of fixed assets                                                                                                   |                                 |         | (659                           | )      |      |         | 66   |        |   |         | (877   | )       |   |         | 66     |       
|                                                                      | Other income (expense), net                                                                                                               |                                 |         | 62                             |        |      |         | 753  |        |   |         | 525    |         |   |         | (137   | )     
|                                                                      |                                                                                                                                           |                                 |         |                                |        |      |         |      |        |   |         |        |         |   |         |       
|                                                                      |                                                                                                                                           | Loss before income tax benefit  |         |                                | (6,525 | )    |         |      | (2,102 | ) |         |        | (22,234 | ) |         |        | (4,483 | )
|Income tax benefit                                                    |                                                                                                                                           |                                 | 2,966   |                                |        |      | 1,316   |      |        |   | 9,489   |        |         |   | 2,808   |       
|                                                                      |                                                                                                                                           |                                 |         |                                |        |      |         |      |        |   |         |        |         |   |         |       
|Net loss                                                              |                                                                                                                                           | $                               | (3,559  | )                              |        | $    | (786    | )    |        | $ | (12,745 | )      |         | $ | (1,675  | )     
|                                                                      |                                                                                                                                           |                                 |         |                                |        |      |         |      |        |   |         |        |         |   |         |       
|Other comprehensive loss:                                             |                                                                                                                                           |                                 |         |                                |        |      |         |      |        |   |         |        |         |   |         |       
|                                                                      | Foreign currency translation adjustment                                                                                                   |                                 |         | 110                            |        |      |         | (266 | )      |   |         | 166    |         |   |         | (1,480 | )     
|                                                                      | Unrealized holding gains (losses) on marketable securities
arising during the period, net of realized gains
(losses)
included in net loss |                                 |         | 237                            |        |      |         | 75   |        |   |         | (436   | )       |   |         | 13     |       
|                                                                      |                                                                                                                                           |                                 |         |                                |        |      |         |      |        |   |         |        |         |   |         |       
|Comprehensive loss                                                    |                                                                                                                                           | $                               | (3,212  | )                              |        | $    | (977    | )    |        | $ | (13,015 | )      |         | $ | (3,142  | )     
|                                                                      |                                                                                                                                           |                                 |         |                                |        |      |         |      |        |   |         |        |         |   |         |       
|Basic and diluted net loss per share                                  |                                                                                                                                           | $                               | (0.03   | )                              |        | $    | (0.01   | )    |        | $ | (0.12   | )      |         | $ | (0.02   | )     
|                                                                      |                                                                                                                                           |                                 |         |                                |        |      |         |      |        |   |         |        |         |   |         |       
|Average shares used in computing basic and diluted net loss per share |                                                                                                                                           |                                 | 112,130 |                                |        |      | 108,650 |      |        |   | 110,736 |        |         |   | 108,381 |       
|                                                                      |                                                                                                                                           |                                 |         |                                |        |      |         |      |        |   |         |        |         |   |         |       

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

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|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |        |        |         |       |         |         |  
|------------------------------------------------------------ | ----------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ----------------------------------------- | --------------------------------------------------- | ----- | ------ | ------ | ------- | ----- | ------- | ------- | -
|                                                             |                                                                                           | Nine Months Ended December 31,                                                  
|Consolidated Statement of Cash Flows                         |                                                                                           |                                                                                 
|(unaudited, in thousands, except per share data)             |                                                                                           | 2002                                                                             |                                           | 2001                                               
|                                                             |                                                                                           |                                                                                  |                                           |                                                    
|Cash flows from operating activities:                        |                                                                                           |                                                                                  |                                           |                                                     |       |        |        |        
|                                                             | Net loss                                                                                  |                                                                                  | $                                         | (12,745                                             | )     |        | $      | (1,675  | )    
|                                                             | Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |                                                                                  |                                           |                                                     |       |        |        |         |      
|                                                             |                                                                                           | Depreciation                                                                     |                                           |                                                     | 7,787 |        |        |         | 9,126 |        
|                                                             |                                                                                           | Provision for inventory                                                          |                                           |                                                     | 1,771 |        |        |         | 7,196 |        
|                                                             |                                                                                           | Provision for bad debts                                                          |                                           |                                                     | (295  | )      |        |         | 694   |        
|                                                             |                                                                                           | Loss on disposal of fixed assets                                                 |                                           |                                                     | 877   |        |        |         | (23   | )      
|                                                             |                                                                                           | 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                            |                                           |                                                     | 1,511 |        |        |         | 899   |        
|                                                             |                                                                                           | Stock compensation expense                                                       |                                           |                                                     | 1,262 |        |        |         | 1,443 |        
|                                                             |                                                                                           | Other                                                                            |                                           |                                                     | 11    |        |        |         |      |        
|                                                             |                                                                                           | Changes in assets and liabilities:                                               |                                           |                                                     |       |        |        |         |       |        
|                                                             |                                                                                           |                                                                                  | Accounts receivable, net                  |                                                     |       | 3,316  |        |         |       | 16,167  |        
|                                                             |                                                                                           |                                                                                  | Inventories                               |                                                     |       | (836   | )      |         |       | 3,188   |        
|                                                             |                                                                                           |                                                                                  | Prepaid expenses and other current assets |                                                     |       | 2,938  |        |         |       | (1,496  | )      
|                                                             |                                                                                           |                                                                                  | Federal income tax receivable             |                                                     |       | (1,510 | )      |         |       |        |        
|                                                             |                                                                                           |                                                                                  | Deferred income tax                       |                                                     |       | 1,075  |        |         |       |        |        
|                                                             |                                                                                           |                                                                                  | Other assets                              |                                                     |       | 139    |        |         |       | (196    | )      
|                                                             |                                                                                           |                                                                                  | Accounts payable and accrued liabilities  |                                                     |       | (2,639 | )      |         |       | (10,325 | )      
|                                                             |                                                                                           |                                                                                  | Income taxes payable                      |                                                     |       | (1,219 | )      |         |       | (3,761  | )      
|                                                             |                                                                                           |                                                                                  | Deferred compensation payable             |                                                     |       | (8,746 | )      |         |       | (276    | )      
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |        |        |        
|                                                             |                                                                                           |                                                                                  |                                           | Net cash (used in) provided by operating activities |       |        | (7,913 | )       |       |         | 22,418  |  
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |        |        |        
|Cash flows from investing activities:                        |                                                                                           |                                                                                  |                                           |                                                     |       |        |        |        
|                                                             | Purchases of marketable securities                                                        |                                                                                  |                                           | (7,091                                              | )     |        |        | (24,606 | )    
|                                                             | Sales of marketable securities                                                            |                                                                                  |                                           | 123                                                 |       |        |        |        |      
|                                                             | Long-term investment                                                                      |                                                                                  |                                           | (507                                                | )     |        |        |        |      
|                                                             | Sales of property and equipment                                                           |                                                                                  |                                           | 644                                                 |       |        |        | 641     |      
|                                                             | Purchases of property and equipment                                                       |                                                                                  |                                           | (1,514                                              | )     |        |        | (12,930 | )    
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |        |        |        
|                                                             |                                                                                           |                                                                                  |                                           | Net cash used in investing activities               |       |        | (8,345 | )       |       |         | (36,895 | )
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |        |        |        
|Cash flows from financing activities:                        |                                                                                           |                                                                                  |                                           |                                                     |       |        |        |        
|                                                             | Borrowings under mortgages and other debt                                                 |                                                                                  |                                           | 799                                                 |       |        |        | 9,402   |      
|                                                             | Repayment of mortgages and other debt                                                     |                                                                                  |                                           | (2,129                                              | )     |        |        | (2,296  | )    
|                                                             | Proceeds from issuance of common stock, net of repurchases                                |                                                                                  |                                           | 9,598                                               |       |        |        | 4,489   |      
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |        |        |        
|                                                             |                                                                                           |                                                                                  |                                           | Net cash provided by financing activities           |       |        | 8,268  |         |       |         | 11,595  |  
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |        |        |        
|Effect of exchange rate changes on cash and cash equivalents |                                                                                           |                                                                                  | 27                                        |                                                     |       |        | (144   | )      
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |        |        |        
|Net change in cash and cash equivalents                      |                                                                                           |                                                                                  | (7,963                                    | )                                                   |       |        | (3,026 | )      
|Cash and cash equivalents, beginning of period               |                                                                                           |                                                                                  | 10,170                                    |                                                     |       |        | 14,040 |        
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |        |        |        
|Cash and cash equivalents, end of period                     |                                                                                           | $                                                                                | 2,207                                     |                                                     |       | $      | 11,014 |        
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |        |        |        
|Supplemental disclosures of cash flow information:           |                                                                                           |                                                                                  |                                           |                                                     |       |        |        |        
|                                                             | Cash paid for interest                                                                    |                                                                                  | $                                         | 1,208                                               |       |        | $      | 1,339   |      
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |        |        |        
|                                                             | Cash paid for income taxes                                                                |                                                                                  | $                                         | 1,418                                               |       |        | $      | 1,078   |      
|                                                             |                                                                                           |                                                                                  |                                           |                                                     |       |        |        |        

The accompanying notes are an integral part of these consolidated financial

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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 December 31, 2002 and for the three months and
nine months ended December 31, 2002 and December 31, 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 of the information and
footnotes required by GAAP for complete financial statements. The results of
operations for the three months and nine months ended December 31, 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 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 (FASB) issued
Statement of Financial Accounting Standard (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 the Companys consolidated financial position, results of
operations or cash flows.

In July 2002, the FASB 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.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires that a
liability be recorded in the guarantors balance sheet upon issuance of a
guarantee. In addition, FIN 45 requires disclosures about the guarantees that
an entity has issued, including a reconciliation of changes in the entitys
product warranty liabilities. The initial recognition and initial measurement
provisions of FIN 45 are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002. The disclosure requirements of FIN 45 are
effective for financial statements of interim or annual periods ending after
December 15, 2002. The Company believes that the adoption of this standard
will have no material impact on its financial statements. See Note 8.

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation, Transition and Disclosure. SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. SFAS No. 148
also requires that disclosures of the pro forma effect of using the fair value
method of accounting for stock-based employee compensation be displayed more
prominently and in a tabular format. Additionally, SFAS No. 148 requires
disclosure of the pro forma effect in interim financial statements. The
transition and annual disclosure requirements of SFAS No. 148 are effective for
fiscal years ended after December 15, 2002. The interim disclosure
requirements are
effective for interim periods beginning after December 15, 2002. The
Company believes that the adoption of this standard will have no material
impact on its financial statements.

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

3. Basic and diluted 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.

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:

|                                     |                                                              |   |                                         |         |                                        |   |       |         |      |   |       |         |   |   |       |         |  
|------------------------------------ | ------------------------------------------------------------ | - | --------------------------------------- | ------- | -------------------------------------- | - | ----- | ------- | ---- | - | ----- | ------- | - | - | ----- | ------- | -
|                                     |                                                              |   | For the three months ended December 31, |         | For the nine months ended December 31,
|                                     |                                                              |   |                                         |         |                                       
|                                     |                                                              |   | 2002                                    |         | 2001                                   |   | 2002  |         | 2001
|                                     |                                                              |   |                                         |         |                                        |   |       |         |     
|Numerator:                           |                                                              |   |                                         |         |                                        |   |       |         |      |   |       |         |   |   |       |        
|                                     | Net loss                                                     |   | $                                       | (3,559  | )                                      |   | $     | (786    | )    |   | $     | (12,745 | ) |   | $     | (1,675  | )
|                                     |                                                              |   |                                         |         |                                        |   |       |         |      |   |       |         |   |   |       |         |  
|Denominator:                         |                                                              |   |                                         |         |                                        |   |       |         |      |   |       |         |   |   |       |        
|                                     | Basic weighted average shares                                |   |                                         | 112,130 |                                        |   |       | 108,650 |      |   |       | 110,736 |   |   |       | 108,381 |  
|                                     | Potentially dilutive common stock
equivalents- stock options |   |                                         | 0       |                                        |   |       | 0       |      |   |       | 0       |   |   |       | 0       |  
|                                     |                                                              |   |                                         |         |                                        |   |       |         |      |   |       |         |   |   |       |         |  
|                                     | Diluted weighted average shares                              |   |                                         | 112,130 |                                        |   |       | 108,650 |      |   |       | 110,736 |   |   |       | 108,381 |  
|                                     |                                                              |   |                                         |         |                                        |   |       |         |      |   |       |         |   |   |       |         |  
|Basic and diluted net loss per share |                                                              | $ | (0.03                                   | )       |                                        | $ | (0.01 | )       |      | $ | (0.12 | )       |   | $ | (0.02 | )      

As a result of the losses incurred by the Company for the three months and
nine months ended December 31, 2002, weighted average options to purchase 6,117
and 9,103 shares of common stock were anti-dilutive and excluded from the net
loss per share calculations. For the three and nine months ended December 31,
2001, weighted average options to purchase 9,977 and 9,864 shares of common
stock were anti-dilutive and excluded from the net loss per share calculations.
As of December 31, 2002, there were options to acquire 5,656 shares
outstanding and as of December 31, 2001 there were options to acquire 10,140
shares outstanding.

4. Marketable securities

Available for sale securities included in the Consolidated Balance Sheet
as of December 31, 2002 and March 31, 2002 are as follows:

|                  |       |   |        |        |       |   |            |   |            |   |      |      |   |   |        |        | 
|----------------- | ----- | - | ------ | ------ | ----- | - | ---------- | - | ---------- | - | ---- | ---- | - | - | ------ | ------ | 
|                  |       |   |        |        |       |   | Unrealized |   | Unrealized |   | Fair
|                  |       |   | Cost   |        | Gains |   | Losses     |   | Value     
|                  |       |   |        |        |       |   |            |   |           
|December 31, 2002 |       |   |        |        |       |   |            |   |            |   |      |      |   |   |        |       
|Equity securities |       | $ | 1,223  |        |       | $ |           |   |            | $ | (502 | )    |   | $ | 721    |       
|Debt securities   |       |   | 19,637 |        |       |   |           |   |            |   | (35  | )    |   |   | 19,602 |       
|                  |       |   |        |        |       |   |            |   |            |   |      |      |   |   |        |       
|                  | Total |   | $      | 20,860 |       |   | $          |  |            |   | $    | (537 | ) |   | $      | 20,323 | 
|                  |       |   |        |        |       |   |            |   |            |   |      |      |   |   |        |       
|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 nine months
ended December 31, 2002, and were $0 for the nine months ended December 31,
2001. Realized gains were $0 for each of the quarters ended December 31, 2002
and 2001. Realized gains have been included in Other income (expense), net in
the Consolidated Statement of Operations and Comprehensive Loss.

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Notes to the Consolidated Financial Statements

(amounts in thousands, except per share amounts)

5. Inventories

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

|                                   |       |   |              |       |           |   |       |       | 
|---------------------------------- | ----- | - | ------------ | ----- | --------- | - | ----- | ----- | 
|                                   |       |   | December 31, |       | March 31,
|                                   |       |   | 2002         |       | 2002     
|                                   |       |   |              |       |          
|Raw materials, net of reserves     |       | $ | 3,136        |       |           | $ | 5,804 |      
|Work-in-process and finished goods |       |   | 2,527        |       |           |   | 792   |      
|                                   |       |   |              |       |           |   |       |      
|                                   | Total |   | $            | 5,663 |           |   | $     | 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 (4.25 percent at December 31, 2002).
Principal and interest are payable monthly. The balance of the mortgage loan
as of December 31, 2002 was $26,356, and the balance of the loan at maturity is
estimated to be $24,918 at the current interest rate.

In June 2002, Global Fiberoptics Inc., the Companys wholly owned
subsidiary in Taiwan, renewed its lines of credit of 200,000 New Taiwan Dollars
(or approximately $5,755 as of December 31, 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 December 31, 2002, was $1,036.
The interest rate as of December 31, 2002 was 3.30 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 December 31, 2002, the loan balance was
$4,833. 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 December 31, 2002, the
Company had not elected the fixed rate option and the loan bore an interest
rate of prime plus 0.5 percent (4.75 percent at December 31, 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 the covenants, as amended, at December 31, 2002.

In December 2001, Global Fiberoptics issued commercial paper in the amount
of 20,000 New Taiwan Dollars. Proceeds were used to repay borrowings under the
bank line of credit for Global Fiberoptics. This loan was repaid in June 2002.
In December 2002, Global Fiberoptics renewed its commercial paper line for up
to a maximum of 220,000 New Taiwan Dollars (or approximately $6,331 as of
December 31, 2002). The outstanding balance of any commercial paper under this
line must be fully secured. As of December 31, 2002, Global Fiberoptics had
issued commercial paper in the amount of 27,500 New Taiwan Dollars (or
approximately $791 as of December 31, 2002) under this line. The interest rate
at December 31, 2002 was 1.6%.

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 Consolidated Balance
Sheet and the Consolidated Statement of Operations and Comprehensive Loss 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 | 
|                                                               |               |   |       |      

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

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.

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 nine months ended December 31, 2002 and 2001
as follows:

|                                             |  |                                         |     |                                        |  |      |     |      |  |   |       |  |  |   |       | 
|-------------------------------------------- |  | --------------------------------------- | --- | -------------------------------------- |  | ---- | --- | ---- |  | - | ----- |  |  | - | ----- | 
|                                             |  | For the three months ended December 31, |     | For the nine months ended December 31,
|                                             |  |                                         |     |                                       
|                                             |  | 2002                                    |     | 2001                                   |  | 2002 |     | 2001
|                                             |  |                                         |     |                                        |  |      |     |     
|Cost of goods sold                           |  | $                                       | 52  |                                        |  | $    | 73  |      |  | $ | 192   |  |  | $ | 219   | 
|Selling, general and administrative expenses |  |                                         | 189 |                                        |  |      | 267 |      |  |   | 701   |  |  |   | 802   | 
|Research and development expenses            |  |                                         | 100 |                                        |  |      | 141 |      |  |   | 369   |  |  |   | 422   | 
|                                             |  |                                         |     |                                        |  |      |     |      |  |   |       |  |  |   |       | 
|                                             |  | $                                       | 341 |                                        |  | $    | 481 |      |  | $ | 1,262 |  |  | $ | 1,443 | 
|                                             |  |                                         |     |                                        |  |      |     |      |  |   |       |  |  |   |       | 

The compensation expense of $1,262 for the nine months ended December 31,
2002 consists of deferred compensation in the amount of $844 that will
ultimately be settled in cash and $418 that represents non-cash stock
compensation for the nine months ended December 31, 2002.

The compensation expense of $1,443 for the nine months ended December 31,
2001 consists of deferred compensation in the amount of $894 that will
ultimately be settled in cash and $549 that represents non-cash stock
compensation for the nine months ended December 31, 2001.

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 were used for general working capital
purposes.

8. Product Warranties

FASB Interpretation No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, requires effective December 31, 2002 that entities disclose the
accounting policy and methodology used in determining their liability as well
as a tabular reconciliation of the changes in the guarantors product warranty
liability for the reporting periods.

Warranty accrual policy and methodology. The Company normally provides
warranties for its products for one year. The Company provides reserves for
the estimated costs of product warranties at the time revenue is recognized.
Because the Companys products are manufactured, in most cases, to customers
specifications and their acceptance is based on meeting those specifications,
the Company historically has experienced minimal warranty costs. Estimates of
the costs of warranty obligations are based on the Companys historical
experience of known project failure 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 provision in future periods.

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

Current period results. Changes in our warranty liability, which is
included as a component of accrued liabilities on the Consolidated Balance
Sheet, during the period are as follows:

|                                                                              |  |                   |      |  
|----------------------------------------------------------------------------- |  | ----------------- | ---- | -
|                                                                              |  | Nine Months Ended
|                                                                              |  | December 31, 2002
|                                                                              |  |                  
|Balance as of March 31, 2002                                                  |  | $                 | 247  |  
|Accruals for warranties issued during the nine months ended December 31, 2002 |  |                   | 53   |  
|Accruals related to pre-existing warranties (including changes in estimates)  |  |                   | (52  | )
|Settlements made (in cash or in kind) during the period                       |  |                   | (209 | )
|                                                                              |  |                   |      |  
|Balance as of December 31, 2002                                               |  | $                 | 39   |  
|                                                                              |  |                   |      |  

9. Subsequent Event

As of December 31, 2002, the total remaining undiscounted future payments
related to the conversion of the Companys phantom stock plan to its stock
option plan totaled $7,645, which is payable in three equal annual installments
beginning March 31, 2003.

In order to reduce this liability, the Company offered the participants an
opportunity to receive an early payment in January 2003.

After
the cash payments of $1,979 on January 10, 2003, and the reduction
of $2,058 in the future liability due to this early payment plan, the
remaining liability of the Company is $3,608, payable in three equal
annual installments beginning March 31, 2003. This transaction
was recorded in January 2003 when the employees made their final
election to participate in the program.

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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, its
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. For
the nine months ended December 31, 2002, DiCon has written off $1.7 million of
surplus or obsolete inventory as compared to $7.2 million in the comparable
period of the prior year. The Company assesses its inventory position on a
monthly and quarterly basis based on its then current forecasts. 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 income, 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 December 31, 2002, the reserve for future lease
expenses for unused premises is now $143,000, which is 100% of the expected
remaining liability, net of estimated sublease income. At March 31, 2002,
the commitment totaled $6.3 million. As of December 31,
2002, the Companys future commitments on all leases reduced to $1.4 million as a
result of these terminations of scheduled lease payments.

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

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through 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 significant 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. In September 2002, DiCon suspended the
sale of DiCon shares to employees under the Employee Stock Purchase Plan due to
the reduced level of employee participation.

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 and Estimates

The preparation of the Companys consolidated financial statements in
conformity with accounting principles generally accepted in the United States
of America 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.

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Warranty accrual. The Company normally provides warranties for its
products for one year. The Company provides reserves for the estimated costs
of product warranties at the time revenue is recognized. Because the Companys
products are manufactured, in most cases, to customers specifications and their
acceptance is based on meeting those specifications, the Company historically
has experienced minimal warranty costs. Estimates of the costs of warranty
obligations are based on the Companys historical experience of known product
failure 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 December 31, 2002, the Company has not recorded a
valuation allowance associated with deferred tax assets.

Financial Results

Three Months Ended December 31, 2002 Compared with Three Months Ended December 31, 2001

Net Sales

Net sales declined from $13.9 million for the quarter ended December 31,
2001 to $4.2 million for the quarter ended December 31, 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, and at this
point it still remains unclear when an upturn in demand might occur or if
additional declines from the level of this quarter may occur in the future.

In the quarter ended December 31, 2002, the Company recorded no revenue
from cancellation of prior supply agreements with customers compared with $6.1
million in cancellation revenue in the same quarter of the prior year. This
revenue represents actual cash payments received during that 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
the volume in these new products is not enough 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 the world.

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##### Table of Contents



For the quarter ended December 31, 2002, the Company had one customer who
accounted for 12.5% of sales. For the quarter ended December 31, 2001, one
customer accounted for 40.4% of sales.

Cost of Goods Sold

Cost of goods sold declined from $8.7 million for the quarter ended
December 31, 2001 to $5.5 million for the same quarter in the current fiscal
year. The decline of $3.2 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 provisions for the quarter ended
December 31, 2002 totaled $868,000 for materials no longer deemed usable or
deemed to be excess. For the quarter ended December 31, 2001, the inventory
provisions were $2.0 million.

Gross Margin

Gross margin for the quarter ended December 31, 2002 was a loss of $1.3
million compared to profit of $5.2 million for the quarter ended December 31,
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 December 31, 2002 was primarily a result of low sales
volume, the Companys fixed manufacturing costs and the provisions for
inventory of $868,000 discussed above.

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 to $2.0 million for
the quarter ended December 31, 2002 compared to $3.5 million for the quarter
ended December 31, 2001. This decrease was the result of reductions in
personnel and other expenses.

Research and Development Expenses

Research and development (R&D) expenses decreased from $3.8 million for
the quarter ended December 31, 2001 to $2.1 million for the quarter ended
December 31, 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, net decreased from an expense of $733,000 for the
quarter ended December 31, 2001 to an expense of $584,000 for the quarter ended
December 31, 2002, due to lower interest rates and reduced loan amounts. Other
income (expense), net was $62,000 of income for the quarter ended December 31,
2002, which included net currency exchange losses of $68,000, compared to Other
income (expense), net of $753,000 of income for the quarter ended December 31,
2001, which included a gain on currency exchange of $297,000 and interest and
dividend income of $167,000. For the quarter ended December 31, 2002, fixed
assets were sold at a loss of $659,000 compared to income of $66,000 in the
quarter ended December 31, 2001.

Loss Before Income Tax Benefit

The Company reported a net loss before income tax benefit of $6.5 million
for the current quarter compared to $2.1 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

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##### 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 December 31, 2002, the effective tax rate was
45.5% compared to 62.6% 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.

Nine Months Ended December 31, 2002 Compared with Nine Months Ended
December 31, 2001

Net Sales

Net sales declined from $57.3 million for the nine months ended December
31, 2001 to $16.2 million for the nine months ended December 31, 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, and at this
point it still remains unclear when an upturn in demand might occur.

For the nine months ended December 31, 2002, the Company recorded revenue
from cancellation of prior supply agreements with customers of $1.2 million,
compared with $6.1 million in cancellation revenue from this source in the same
period of the prior year. This revenue represents actual cash payments
received during the periods.

For the nine months ended December 31, 2002, the Company had one customer
who accounted for 18.2% of sales. For the nine months ended December 31, 2001,
three customers accounted for 36.4% of sales.

Cost of Goods Sold

Cost of goods sold declined from $37.6 million for the nine months ended
December 31, 2001 to $17.5 million for the same nine months in the current
fiscal year. The decline of $20.1 million reflected the lower volume of
business, partially offset by the higher component of fixed costs in the
current nine 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
recorded inventory provisions of $1.7 million for the nine months ended
December 31, 2002 primarily due to lower sales. For the nine months ended
December 31, 2001, the Company recorded inventory provisions of $7.2 million
due to program cancellations by major customers and lower sales.

Gross Margin

Gross margin for the nine months ended December 31, 2002 was a loss of
$1.3 million compared to profit of $19.6 million for the nine months ended
December 31, 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 nine months ended December 31, 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 to $6.8 million for
the nine months ended December 31, 2002 compared to $10.3 million for the nine
months ended December 31, 2001. This decline reflects the significant efforts
by management to reduce personnel and other expenses.

Research and Development Expenses

Research and development expenses declined from $11.4 million for the nine
months ended December 31, 2001 to $11.1 million for the nine months ended
December 31, 2002. This reflects, in part, spending to develop advanced
photonic components.

Other Income (Expense)

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Interest expense, net increased from $2.2 million for the nine months
ended December 31, 2001 to $2.7 million for the nine months ended December 31,
2002 reflecting primarily the impact of the $1.5 million in imputed interest
expense on the deferred compensation payable compared to $899,000 for the same
period in the prior year. Other income (expense), net of $137,000 in expense
for the nine months ended December 31, 2001 included gains on currency exchange
of $724,000, provisions for estimated losses due to vacated properties, net of
sublease income, of $1,457,000 and interest and dividend income of $541,000.
Other income (expense), net of $525,000 in income for the nine months ended
December 31, 2002 included interest and dividend income of $526,000.

Loss Before Income Tax Benefit

The Company reported a net loss before income tax benefit of $22.2 million
for the nine months ended December 31, 2002 compared to $4.5 million for the
same nine 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 nine months ended December 31, 2002, the effective tax rate was
42.7% compared to 62.6% for the same nine 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 $22.4 million for the nine
months ended December 31, 2001 to a cash outflow of $7.9 million for the nine
months ended December 31, 2002, primarily due to the net loss experienced in
the nine months ended December 31, 2002 and to the $7.2 million in deferred
compensation payments made upon the resignation of an employee in September
2002. Inventories increased $836,000 in the current nine months as compared to
a decline of $3.2 million in the same nine months in the previous year.
Accounts receivables collections declined from $16.2 million in the prior year
to $3.3 million for the first nine months of the current fiscal year. Accounts
payable and other accrued liabilities decreased from nearly $10.3 million in
net cash required in the prior year compared to net cash required in the
current nine months of $2.6 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 maturities in excess of 90 days in the current
nine months of $7.1 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 $507,000 for a minority interest in a firm in Taiwan. Purchases
of equipment declined from $12.9 million in the nine months ended December 31,
2001 to approximately $1.5 million in the same nine 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 $11.6 million for the
nine months ended December 31, 2001 to $8.3 million in the current nine months.
These cash flows in the current nine months were primarily the result of the
sale of additional common stock, net of repurchases, for $9.6 million. The
cash flows from financing activities in the same nine months in the prior year
were primarily due to the increase in debt to finance the corporate
headquarters and manufacturing facility in Richmond, California ($1.6 million),
and to the sale in that period of additional common stock of
$4.5 million, net of repurchases, and
an increase in debt to finance equipment purchases of $7.3 million.

DiCon is required to comply with various operating and financial covenants
in its various borrowings. Operating covenants include restrictions on (i) any
change in business activities from those we are presently engaged in, (ii)
certain types of investments,

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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 fully amortizing
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 all covenants, as amended, as of December 31, 2002. It
has paid all loan payments on or before the due date.

As of December 31, 2002, DiCon had cash and cash equivalents of $2.2
million. In addition, in conformity with the requirements of generally
accepted accounting principles $20.3 million invested in certificates of
deposit and other marketable securities was classified as marketable
securities. The Company invests cash in excess of short term needs in these
investments to attempt to improve yields on its total investable portfolio.

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, 2005. There remains some possibility that DiCon may need to
raise additional capital before that time. For instance, it might need
additional capital in order to finance unanticipated growth (including the
resultant increases in personnel, facilities, computer systems, etc.) or to
acquire or invest in complementary businesses, technologies, services and/or
products. There can be no certainty that DiCon would successful in raising the
required capital or in raising it at acceptable rates.

As of December 31, 2002, the total remaining undiscounted future payments
related to the conversion of the Companys phantom stock plan to its stock
option plan totaled $7,645, which is payable in three equal annual installments
beginning March 31, 2003.

In order to reduce this liability, the Company offered the participants an
opportunity to receive an early payment in January 2003.

After
the cash payments of $1,979 on January 10, 2003, and the
reduction of $2,058 in the future liability due to this early payment
plan, the remaining liability of the Company is $3,608, payable in
three equal annual installments beginning March 31, 2003. This
transaction was recorded in January 2003 when the employees made
their final election to participate in the program.




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
December 31, 2002, the Company had marketable equity securities with an
original cost of $1.2 million that had an unrealized loss of $0.5 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 $35,000 at December 31, 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,

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the functional currency of its 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. 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. DiCon engages in currency hedging activities to manage these
risks. Through December 31, 2002, the impact of these hedging activities has
not been material. As of December 31, 2002, the accumulated currency
translation loss resulting from the translation of the financial position of
Global Fiberoptics Inc. was $2.1 million compared to a loss of $2.3 million as
of the end of the previous year at March 31, 2002.




Item 4. Controls and Procedures.

(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.

None.




Item 3. Defaults Upon Senior Securities.

None.




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

None.




Item 5. Other Information.

None.




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

(a)  Exhibits.

|            |  |                                                                                                                  
|----------- |  | -----------------------------------------------------------------------------------------------------------------
|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 Administration pursuant to Section 906 of the Sarbanes  Oxley Act of
2002.           

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(b)  Reports on Form 8-K.

None.

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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: February 13, 2003 |  | By:                                  |  | /s/ Ho-Shang Lee
      (Signature)                                                     
|                        |  |                                      |  |                                                                                        
|                        |  | Name:
Title:                         |  | Ho-Shang Lee, Ph.D.
President and Chief Executive Officer
(principal executive officer)
|                        |  |                                      |  |                                                                                        
|Date: February 13, 2003 |  | By:                                  |  | /s/ Jannett Wang
      (Signature)                                                     
|                        |  |                                      |  |                                                                                        
|                        |  | Name:
Title:                         |  | Jannett Wang
Director of Administration
(principal financial officer)                  

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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:        |  | February 13, 2003                                                                       |  | 
|             |  |                                                                                         |  | 
|By:          |  | /s/ Ho-Shang Lee, Ph.D.

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

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CERTIFICATION

I, Jannett Wang, 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:        |  | February 13, 2003                                                     |  | 
|             |  |                                                                       |  | 
|By:          |  | /s/ Jannett Wang

     (Signature)                                    |  | 
|             |  |                                                                       |  | 
|Name:
Title: |  | Jannett Wang
Director of Administration
(principal financial officer) |  | 

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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 Administration pursuant to Section 906 of the Sarbanes  Oxley Act of
2002.           

-23-