**SECURITIES
AND EXCHANGE COMMISISSION**
 **WASHINGTON,
DC 20549**
 
 **FORM
10-QSB**
 _________________________
 
 (Mark
One)
 
 x
    Quarterly
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the quarterly period ended December 31, 2004, oro
    Transition
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the transition period from ____________ to
_____________Commission
      file number 0-49939
 
 _________________________
 
 **DICON
FIBEROPTICS, INC.**
 (Exact
Name of Small Business Issuer as Specified in Its Charter)
 
 **California**
    
    **94-3006185**(State
      or Other Jurisdiction of
    
    (IRS
      EmployerIncorporation
      or Organization)
    
    Identification
      No.)**1689
      Regatta Blvd.****Richmond,
      California**
    
    **94804**(Address
      of Principal Executive Offices)
    
    (Zip
      Code)
 
 **(510)
620-5000**
 (Issuer’s
Telephone Number, Including Area Code)
 _________________________
 
 Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
 
 Yes  x  No  o
 
 The
number of shares outstanding of the issuer’s common stock as of December 31,
2004, was 111,961,199.
 
 Transitional
Small Business Disclosure Format (check one):  Yes  o  No  x
 
 __________________________________________________________________________________________________________
  Table of Contents
  
 **DICON
FIBEROPTICS, INC.**
 
 **Table of Contents**
 **Pages**
 **PART
      I**
    **FINANCIAL INFORMATION****Item
      1.**
    **Financial Statements.**
    **3****Item
      2.**
    **Management’s Discussion and Analysis or Plan of
      Operation.**
    **14****Item
      3.**
    **Controls and Procedures.**
    **23****PART
      II**
    **OTHER INFORMATION****Item
      1.**
    **Legal Proceedings.**
    **24****Item
      2.**
    **Unregistered Sales of Equity Securities and Use of
      Proceeds.**
    **24****Item
      3.**
    **Defaults Upon Senior
    Securities.**
    **24****Item
      4.**
    **Submission of Matters to a Vote of Security
      Holders.**
    **24****Item
      5.**
    **Other Information.**
    **25****Item
      6.**
    **Exhibits.**
    **25****Signatures.**
    **26****Exhibit Index.**
    **27**
 
  2
 Table of Contents
 **PART I**
 
 **FINANCIAL
INFORMATION**
 
 **Item
1. Financial Statements.**
 **DiCon
      Fiberoptics, Inc. and Subsidiary**
      **Unaudited
      Consolidated Balance Sheets**
      **(in
      thousands)****December
      31,**
    
    **March
      31,****2004**
    
    **2004**
      **(1)****Assets**Current
      assets:Cash
      and cash equivalents
    
    $
    1,765
    
    $
    1,359Marketable
      securities
    
    
    14,643
    
    
    20,250Accounts
      receivable, net of allowance for doubtful accounts of $162
      and$78, respectively
    
    
    3,896
    
    
    3,155Inventories
    
    
    4,703
    
    
    4,506Prepaid
      expenses and other current assets
    
    
    233
    
    
    521Income
      tax receivable
    
    
    16
    
    
    16Total
      current assets
    
    
    25,256
    
    
    29,807Property,
      plant and equipment, net
    
    
    51,181
    
    
    58,750Other
      assets
    
    
    41
    
    
    64Total
      assets
    
    $
    76,478
    
    $
    88,621**Liabilities
      and Shareholders' Equity**Current
      liabilities:Accounts
      payable and accrued liabilities
    
    $
    2,290
    
    $
    2,914Advances
      received from customers
    
    
    3,543
    
    
    3,549Mortgage
      and other debt
    
    
    3,443
    
    
    6,059Income
      tax payable
    
    
    281
    
    
    -Deferred
      compensation payable
    
    
    121
    
    
    120Total
      current liabilities
    
    
    9,678
    
    
    12,642Mortgage
      and other debt, net of current portion
    
    
    20,061
    
    
    23,310Total
      liabilities
    
    
    29,739
    
    
    35,952CommitmentsShareholders'
      equity:Common
      stock: no par value; 200,000 shares authorized;111,961and
      111,992 shares issued and outstanding, respectively
    
    
    22,249
    
    
    22,279Additional
      paid-in capital
    
    
    13,375
    
    
    13,217Deferred
      compensation
    
    
    (376
    )
    
    (550
    )Retained
      earnings
    
    
    12,094
    
    
    18,812Accumulated
      other comprehensive loss
    
    
    (603
    )
    
    (1,089
    )Total
      shareholders' equity
    
    
    46,739
    
    
    52,669Total
      liabilities and shareholders' equity
    
    $
    76,478
    
    $
    88,621
 
 The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
 
 (1)
Balances at March 31, 2004 are derived from the audited Financial Statements at
that date.
  3
 Table of Contents
  **DiCon
      Fiberoptics, Inc. and Subsidiary**
      **Unaudited
      Consolidated Statements of Operations and Comprehensive
      Loss**
      **(in
      thousands, except per share data)****For
      the three months ended**
      **December
      31,**
    
    **For
      the nine months ended**
      **December
      31,****2004**
    
    **2003**
    
    **2004**
    
    **2003**Net
      sales
    
    $
    6,699
    
    $
    5,590
    
    $
    17,970
    
    $
    13,066Cost
      of goods sold
    
    
    4,855
    
    
    4,579
    
    
    13,123
    
    
    13,729Gross
      profit/(loss)
    
    
    1,844
    
    
    1,011
    
    
    4,847
    
    
    (663
    )Selling,
      general and administrative expenses
    
    
    1,323
    
    
    1,258
    
    
    4,339
    
    
    4,059Research
      and development expenses
    
    
    1,299
    
    
    1,479
    
    
    4,380
    
    
    4,831Loss
      on disposal of fixed assets
    
    
    1,935
    
    
    386
    
    
    1,953
    
    
    4004,557
    
    
    3,123
    
    
    10,672
    
    
    9,290Loss
      from operations
    
    
    (2,713
    )
    
    (2,112
    )
    
    (5,825
    )
    
    (9,953
    )Other
      (expense) income:Interest
      expense
    
    
    (332
    )
    
    (322
    )
    
    (936
    )
    
    (1,016
    )Other
      income, net
    
    
    107
    
    
    189
    
    
    325
    
    
    425Loss
      before income taxes
    
    
    (2,938
    )
    
    (2,245
    )
    
    (6,436
    )
    
    (10,544
    )Income
      tax (expense) benefit
    
    
    (281
    )
    
    77
    
    
    (282
    )
    
    650Net
      loss
    
    $
    (3,219
    )
    $
    (2,168
    )
    $
    (6,718
    )
    $
    (9,894
    )Other
      Comprehensive loss:Foreign
      currency translation adjustment
    
    
    759
    
    
    (124
    )
    
    503
    
    
    477Unrealized
      holding (losses) gains on marketable securitiesarising
      during the period, net of realized (losses) gains
    
    
    -
    
    
    10
    
    
    (17
    )
    
    (54
    )Comprehensive
      loss
    
    $
    (2,460
    )
    $
    (2,282
    )
    $
    (6,232
    )
    $
    (9,471
    )Net
      loss per share - Basic and diluted
    
    $
    (0.03
    )
    $
    (0.02
    )
    $
    (0.06
    )
    $
    (0.09
    )Average
      shares used in computing net loss per share - basic and
      diluted
    
    
    111,964
    
    
    112,007
    
    
    111,976
    
    
    112,017
 
 The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
 
 4
 Table of Contents
 
 **DiCon
      Fiberoptics, Inc. and Subsidiary**
      **Unaudited
      Consolidated Statement of Cash Flows**
      **(in
      thousands)****Nine
      Months Ended**
      **December
      31,****2004**
    
    **2003****Cash
      flows from operating activities:**Net
      loss
    
    
    
    
    $
    (6,718
    )
    $
    (9,894
    )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Depreciation
    
    
    
    
    
    6,164
    
    
    6,982Deferred
      incomes taxes
    
    
    
    
    
    -
    
    
    (650
    )Write
      down excess and obsolete inventories
    
    
    
    
    
    890
    
    
    343Provision
      for bad debts
    
    
    
    
    
    87
    
    
    32Provision
      for estimated losses due to vacated properties, net of sublease
      income
    
    
    
    
    
    (121
    )
    
    -Loss
      on disposal of property, plant and equipment
    
    
    
    
    
    1,953
    
    
    400Realized
      gain on available-for-sale marketable securities
    
    
    
    
    
    (22
    )
    
    (95
    )Interest
      accretion on deferred compensation liability
    
    
    
    
    
    -
    
    
    8Stock
      compensation expense
    
    
    
    
    
    332
    
    
    387Changes
      in assets and liabilities:Accounts
      receivable
    
    
    
    
    
    (823
    )
    
    (1,080
    )Inventories
    
    
    
    
    
    (972
    )
    
    (750
    )Prepaid
      expenses and other current assets
    
    
    
    
    
    287
    
    
    (68
    )Income
      tax receivable
    
    
    
    
    
    -
    
    
    15,284Other
      assets
    
    
    
    
    
    24
    
    
    32Accounts
      payable and accrued liabilities
    
    
    
    
    
    (434
    )
    
    (697
    )Income
      tax payable
    
    
    
    
    
    281
    
    
    (53
    )Deferred
      compensation payable
    
    
    
    
    
    2
    
    
    365Net
      cash provided by operating activities
    
    
    
    
    
    930
    
    
    10,546**Cash
      flows from investing activities:**Purchases
      of marketable securities
    
    
    
    
    
    (14,068
    )
    
    (14,884
    )Sales
      of marketable securities
    
    
    
    
    
    19,670
    
    
    1,237Sale
      of property, plant and equipment
    
    
    
    
    
    12
    
    
    187Purchases
      of property, plant and equipment
    
    
    
    
    
    (209
    )
    
    (43
    )Net
      cash provided by (used in) investing activities
    
    
    
    
    
    5,405
    
    
    (13,503
    )**Cash
      flows from financing activities:**Borrowings
      under mortgages and other debt
    
    
    
    
    
    2,513
    
    
    3,513Repayment
      of mortgages and other debt
    
    
    
    
    
    (8,469
    )
    
    (3,343
    )Repurchases
      of common stock
    
    
    
    
    
    (30
    )
    
    (41
    )Net
      cash (used in) provided by financing activities
    
    
    
    
    
    (5,986
    )
    
    129Effect
      of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    57
    
    
    2Net
      change in cash and cash equivalents
    
    
    
    
    
    406
    
    
    (2,826
    )Cash
      and cash equivalents, beginning of period
    
    
    
    
    
    1,359
    
    
    3,757Cash
      and cash equivalents, end of period
    
    
    
    
    $
    1,765
    
    $
    931**Supplemental
      disclosures of cash flow information:**Cash
      paid for income taxes
    
    
    
    
    $
    1
    
    $
    53Cash
      paid for interest
    
    
    
    
    $
    871
    
    $
    1,008
 
 The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
  5
 Table of Contents
  **DiCon
Fiberoptics, Inc. and Subsidiary**
 **Notes
to Unaudited Consolidated Financial Statements**
 **(in
thousands)**
 **_________________________________________________________________________________________________________**
 
 **1.**
    **Nature
      of operations**
 
 The
business of DiCon Fiberoptics, Inc. and Subsidiary (“DiCon” or the “Company”) is
developing, manufacturing and marketing optical components, modules, and test
instruments for optical communications markets. DiCon Fiberoptics, Inc. is
incorporated in California. The Company has a domestic manufacturing facility
and headquarters in Richmond, California. The Company, through Global
Fiberoptics Inc. (“Global Fiberoptics”), its wholly owned Taiwanese subsidiary,
formed in December 1999, also operates a manufacturing and sales facility in
Kaohsiung, Taiwan, and conducts manufacturing and Asian marketing and sales
activities there.
 
 **2.**
    **Basis
      of presentation**
 
 The
Company operates and reports based on a fiscal year that ends on March 31st. The
accompanying unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States of
America for interim financial information and on the same basis of presentation
as the audited financial statements included in the Company’s Annual Report on
Form 10-KSB/A-1 as filed with the Securities and Exchange Commission (SEC) on
July 2, 2004 (the “Company’s 10-KSB/A-1”). Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for audited financial statements. In the opinion of the Company’s
management, the interim information includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
for the interim periods. Footnote disclosures related to the interim financial
information included herein are also unaudited. Such financial information
should be read in conjunction with the audited consolidated financial statements
and related notes thereto for the year ended March 31, 2004 included in the
Company’s 10-KSB/A-1.
 
 The
preparation of financial statements in accordance with generally accepted
accounting principles in the United States requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
 
 Certain
prior year balances have been reclassified to conform to the current year
presentation.
 
 **3.**
    **Stock-based
      compensation**
 
 The
Company accounts for stock-based compensation issued to employees using the
intrinsic value method of Accounting Principles Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued to Employees,” and, accordingly, presents
disclosure of pro forma information required under Statement of Financial
Accounting Standard (“SFAS”) No. 123, “Accounting for Stock-Based Compensation”,
as amended by SFAS No. 148, “Accounting for Stock-Based Compensation, Transition
and Disclosure.” Stock and other equity instruments issued to non-employees are
accounted for in accordance with SFAS No. 123 and Emerging Issues Task Force
Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling Goods or Services,”
and recorded at their fair value. Expenses associated with stock-based
compensation are amortized on a straight-line basis over the vesting period of
the individual award.
 
 Had
compensation cost for the Company's stock option plans been determined based on
the fair value of such awards at the grant dates as prescribed by SFAS No. 123,
stock-based compensation costs would have impacted net loss and loss per common
share for the fiscal periods presented, as follows:
  6
 Table of Contents
  
 **DiCon
Fiberoptics, Inc. and Subsidiary**
 **Notes
to Unaudited Consolidated Financial Statements**
 **(in
thousands,**  **except
per share data)**
 **__________________________________________________________________________________________________________**
 
  **For
      the three months ended**,
    
    **For
      the nine months ended****December
      31,**
    
    **December
      31,****2004**
    
    **2003**
    
    **2004**
    
    **2003**Net
      loss, as reported
    
    $
    (3,219
    )
    $
    (2,168
    )
    $
    (6,718
    )
    $
    (9,894
    )Add:
      Stock-based employee compensation expense included in reported net loss,
      net of tax
    
    
    110
    
    
    138
    
    
    332
    
    
    387Deduct:
      Compensation expense based on fair value method, net of
tax
    
    
    (132
    )
    
    (157
    )
    
    (405
    )
    
    (472
    )Pro
      forma net loss
    
    $
    (3,241
    )
    $
    (2,187
    )
    $
    (6,791
    )
    $
    (9,979
    )**Reported
      net loss per share—basic and diluted**
    
    $
    (0.03
    )
    $
    (0.02
    )
    $
    (0.06
    )
    $
    (0.09
    )**Pro
      forma net loss per share—basic and diluted**
    
    $
    (0.03
    )
    $
    (0.02
    )
    $
    (0.06
    )
    $
    (0.09
    )
  **4.**
    **Recent
      accounting pronouncements******
  In
December 2004, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 123(R) ("SFAS No. 123(R)"), "Accounting
for Stock-Based Compensation". SFAS No. 123(R) establishes standards for the
accounting for transactions in which an entity exchanges its equity instruments
for goods or services. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. SFAS No. 123(R) requires that the fair value of such equity
instruments be recognized as expense in the historical financial statements as
services are performed. Prior to SFAS No. 123(R), only certain pro-forma
disclosures of fair value were required. SFAS No. 123(R) shall be effective for
nonpublic companies and small business issuers as of the
beginning of the first annual reporting period that begins after December 15,
2005 . The
Company has historically provided pro forma disclosures reflecting the effects
of such compensation costs on its results of operations and financial condition.
See Note 3, Stock-Based Compensation. The Company is still evaluating the impact
of the adoption of this standard.
 
 In
November 2004, the FASB issued Statement of Financial Accounting Standards No.
151 ("SFAS No. 151"), Inventory Costs, an amendment of ARB No. 43, Chapter 4.
The amendments made by SFAS No. 151 will improve financial reporting by
clarifying those abnormal amounts of idle facility expense, freight, handling
costs, and wasted materials (spoilage) that should be recognized as
current-period charges and by requiring the allocation of fixed production
overheads to inventory based on the normal capacity of the production
facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal
years beginning after June 15, 2005. Earlier application is permitted for
inventory costs incurred during fiscal years beginning after November 24, 2004.
The Company is currently evaluating the impact of adoption of SFAS No. 151 on
its financial position and results of operations.
 
 In
March 2004, the FASB approved the consensus reached on the Emerging Issues
Task Force (EITF) Issue No. 03-1, “The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments” (“EITF 03-1”). The
objective of this Issue is to provide guidance for identifying impaired
investments. EITF 03-1 also provides new disclosure requirements for investments
that are deemed to be temporarily impaired. The accounting provisions of EITF
03-1 are effective for all reporting periods beginning after June 15, 2004,
while the disclosure requirements are effective only for annual periods ending
after June 15, 2004. The adoption of this standard did not have a material
impact on the Company’s consolidated financial position, results of operations
or cash flows.
  7
 Table of Contents
  **DiCon
Fiberoptics, Inc. and Subsidiary**
 **Notes
to Unaudited Consolidated Financial Statements**
 **(in
thousands,**  **except
per share data)**
 **___________________________________________________________________________________________________________** I
 
 In
December 2003, the Financial Accounting Standards Board (“FASB”) issued a
revised Statement of Financial Accounting Standards (“SFAS”) No. 132, or SFAS
132R, “Employers’ Disclosures about Pensions and Other Post-retirement Benefits,
an Amendment of FASB Statements No. 87, 88, and 106, and a Revision of FASB
Statement No. 132.” This statement revises employers’ disclosures about pension
plans and other post-retirement benefit plans. It does not change the
measurement or recognition of those plans required by FASB Statements No. 87,
“Employers’ Accounting for Pensions,” No. 88, “Employers’ Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits” and No. 106, “Employers’ Accounting for Post-retirement
Benefits Other Than Pensions.” The adoption of this standard did not have a
material impact on the Company’s consolidated financial position, results of
operations or cash flows.
 
 In
December 2003, the FASB issued a revised Interpretation No. 46, or FIN 46R,
“Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,”
replacing the original interpretation issued in January 2003. FIN 46R requires
certain entities to be consolidated by enterprises that lack majority voting
interest when equity investors of those entities have insignificant capital at
risk or they lack voting rights, the obligation to absorb expected losses, or
the right to receive expected returns. Entities identified with these
characteristics are called variable interest entities and the interests that
enterprises have in these entities are called variable interests. These
interests can derive from certain guarantees, leases, loans or other
arrangements that result in risks and rewards that are disproportionate to the
voting interests in the entities. The adoption of this standard did not have a
material impact on the Company’s consolidated financial position, results of
operations or cash flows.
 
 **5.**
    **Liquidity**
 
 As of
December 31, 2004, DiCon had cash and cash equivalents of $1.8 million. In
addition, the Company has $14.6 million invested in certificates of deposit and
other marketable securities that in conformity with the requirements of
generally accepted accounting principles were classified as marketable
securities held available for sale.
 
 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 for at least the next 12 months. There remains some possibility
that DiCon may need to raise additional capital. For instance, it might need
additional capital in order to refinance its loans, finance unanticipated growth
or to invest in new technology. There can be no certainty that DiCon would be
successful in raising the required capital or in raising capital at acceptable
rates.
 
 **6.**
    **Basic
      net loss per share**
 
 Basic
loss per share is computed by dividing the net loss (numerator) by the weighted
average number of common shares outstanding (denominator) during the periods
presented, 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**,
    
    **For
      the nine months ended****December
      31,**
    
    **December
      31,****2004**
    
    **2003**
    
    **2004**
    
    **2003**Numerator:Net
      loss
    
    $
    (3,219
    )
    $
    (2,168
    )
    $
    (6,718
    )
    $
    (9,894
    )Denominator:Basic
      and diluted weighted average shares
    
    
    111,964
    
    
    112,007
    
    
    111,976
    
    
    112,017Basicand diluted net loss per share
    
    $
    (0.03
    )
    $
    (0.02
    )
    $
    (0.06
    )
    $
    (0.09
    )
  8
 Table of Contents
  **DiCon
Fiberoptics, Inc. and Subsidiary**
 **Notes
to Unaudited Consolidated Financial Statements**
 **(in
thousands)**
 **__________________________________________________________________________________________________________**
 
 As a
result of the losses incurred by the Company for the three months and the nine
months ended December 31, 2004, weighted average options to purchase 4,499 and
4,640 shares of common stock were anti-dilutive and excluded from the net loss
per share calculations. For the three months and the nine months ended December
31, 2003, weighted average options to purchase 4,910 and 4,760 shares of common
stock were anti-dilutive and excluded from the net loss per share
calculations.
 
 **7.**
    **Marketable
      Securities**
 
 The value
of the Company’s investments by major security type is as follows:
 
 **Cost**
    
    **Unrealized**
    
    **Unrealized**
    
    **Fair****Gain**
    
    **Losses**
    
    **Value****December
      31,****2004**Certificate
      of Deposit
    
    $
    14,643
    
    $
    -
    
    $
    -
    
    $
    14,643**March
      31, 2004**Foreign
      Mutual Fund
    
    $
    833
    
    $
    17
    
    $
    -
    
    $
    850Certificate
      of Deposit
    
    
    19,400
    
    
    -
    
    
    -
    
    
    19,400Total
    
    $
    20,233
    
    $
    17
    
    $
    -
    
    $
    20,250
 
 Debt
securities include certificates of deposit with original maturities of greater
than 90 days .
 
 **8.**
    **Inventories**
 
 Inventories
consist of the following as of December 31, 2004 and March 31,
2004:
  **December
      31****,**
    
    **March
      31,****2004**
    
    **2004**Raw
      materials
    
    $
    1,219
    
    $
    1,813Work-in-process
    
    
    3,484
    
    
    2,693Total
    
    $
    4,703
    
    $
    4,506
 
 During
the nine months period ended December 31, 2004, DiCon wrote off approximately
$0.9 million of obsolete inventory. During the fiscal year ended March 31, 2004,
DiCon wrote off approximately $1.1 million of obsolete inventory and wrote down
to fair value an additional $1.1 million of inventory.
 
 **9.**
    **Property,
      Plant and Equipment, net**
 
 Property,
plant and equipment consist of the following as of December 31, 2004 and March
31, 2004:
 
 **December
      31****,**
    
    **March
      31,****2004**
    
    **2004**Land
    
    $
    10,000
    
    $
    10,000Building
      and improvements
    
    
    36,253
    
    
    37,764Machinery,
      equipment and fixtures
    
    
    45,430
    
    
    47,993Property,
      plant and equipment
    
    
    91,683
    
    
    95,757Less:
      Accumulated depreciation
    
    
    (40,502
    )
    
    (37,007
    )Property,
      plant and equipment, net
    
    $
    51,181
    
    $
    58,750
 
 Depreciation
expense was $6,164 and $9,219 for the nine months ended December 31, 2004 and
for the year ended March 31, 2004, respectively. In the
nine months ended December31, 2004, the Company was in the process of
consolidating its R&D projects to better align its business needs with
existing operations and to provide more efficient use of its facilities. As a
result, certain R&D projects were discontinued and it was
determined that related support equipment had no alternative use within the
Company. Accordingly the equipment was either abandoned or scrapped. The loss on
the disposal of the fixed assets was $1,953 and $670 for the nine months ended
December 31, 2004 and for the year ended March 31, 2004,
respectively.
  9
 Table of Contents
  **DiCon
Fiberoptics, Inc. and Subsidiary**
 **Notes
to Unaudited Consolidated Financial Statements**
 **(in
thousands)** _________________________________________________________________________________________________________
 
 **10.**
    **Accounts
      Payable and Accrued Liabilities**
 
 Accounts
payable and accrued liabilities consist of the following as of December 31, 2004
and March 31, 2004:
 **December
      31****,**
    
    **March
      31,****2004**
    
    **2004**Accounts
      payable
    
    $
    562
    
    $
    1,053Accrued
      payroll
    
    
    470
    
    
    900Accrual
      for vacated properties
    
    
    -
    
    
    250Accrued
      liabilities
    
    
    1,258
    
    
    711$
    2,290
    
    $
    2,914
 
 **11.**
    **Mortgage
      and Other Debt******
 
 The
Company financed, in part, a new corporate campus by obtaining a construction
loan from a bank of $27.0 million on August 24, 2000. In November 2001, the
same bank refinanced the outstanding balance of the construction loan with a
mortgage loan maturing on 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
20 th of each
month (5.0 percent at December 31, 2004). Principal and interest are payable
monthly. During the year ended March 31, 2002, the Chairman, President and Chief
Executive Officer of the institution with which the Company maintains the
mortgage loan was appointed to the Company’s Board of Directors.
 
 On June
28, 2004, the bank agreed to extend the maturity date of the mortgage loan to
October 20, 2007, subject to additional terms and conditions requiring the
Company to make additional principal repayments as follows: $1.5 million 10 days
after the date of execution of the loan extension agreement; $1.0 million on
October 1, 2004; and seven installments each in the amount of $0.5 million on
the first day of each calendar quarter, commencing on January 1, 2005 and ending
on July 1, 2006.
 
 The
Company was in compliance with the additional principal repayments requirement
as of December 31, 2004. In addition, the Company voluntarily prepaid the first
two $0.5 million equal installments during the quarter ended December 31, 2004.
The balance of the mortgage loan as of December 31, 2004 was $21.5 million.
 
 In April
2001, the Company obtained an equipment loan from a bank in the amount of $7.3
million. The loan was secured by specific pieces of equipment. The loan was
voluntarily prepaid in full on October 12, 2004.
 
 Global
Fiberoptics maintained a line of credit in Taiwan backed by commercial paper
issued by Global Fiberoptics for a maximum of 100 million New Taiwan Dollars (or
approximately $3.2 million as of December 31, 2004). The interest rate is based
on a rate set by the bank at the time funds are drawn. The line of credit will
mature on January 28, 2005. Global Fiberoptics is currently negotiating the
renewal of the line of credit. The outstanding balance of any commercial paper
under this line of credit must be fully secured by either a cash deposit or bond
fund certificate. As of December 31, 2004, there was no commercial paper
outstanding.
 
 Global
Fiberoptics maintained its second line of credit of 80 million New Taiwan
Dollars (or  approximately
$2.5 million as of December 31, 2004) from a Taiwan bank. The line of credit
will mature on September 30, 2005. The interest rate is based on a rate set by
the bank at the time funds are drawn. The amount drawn as of December 31, 2004
was 63.0 million New Taiwan Dollars (or approximately $2.0 million as of
December 31, 2004) with an interest rate of 3.35%.
  10
 Table of Contents
  **DiCon
Fiberoptics, Inc. and Subsidiary**
 **Notes
to Unaudited Consolidated Financial Statements**
 **(in
thousands)**
 __________________________________________________________________________________________________________
 
 **12.**
    **Stock
      Plans and Deferred Compensation Liability**
 
 As an
incentive for employees to assist in growing the Company, prior to March 31,
2001 the Company maintained a phantom stock plan (the “Phantom Stock Plan”)
under which it granted eligible employees phantom stock units that entitled the
employees to participate in the current and future value of the Company. In
addition, the Company made contingent commitments to eligible employees to grant
stock units in the future (the “Contingently Promised Stock Units”). The shares
under the plan were valued semiannually, typically in May and December. These
stock units vested 50 percent upon receipt and 50 percent on the first
anniversary of the grant date and had an exercise price of zero. During the
service period of one-year following the date of the grant, the vested units
could be redeemed for cash on a net basis by forfeiting additional units equal
to the number of units redeemed. Thereafter, a maximum of 60 percent of the
units could be redeemed while the holder was still an employee of the Company.
The Company recorded a liability for the value of the unredeemed vested shares
at the current value as of the financial statement date.
 
 On March
31, 2001, the Company offered its employees two new equity incentive plans, an
Employee Stock Option Plan (the “Option Plan”) and an Employee Stock Purchase
Plan (the “Purchase Plan”). Grants under the Phantom Stock Plan have been
discontinued. Under both the Option Plan and the Purchase Plan, the exercise or
purchase price is not to be less than 85 percent of the fair value of Company’s
common stock at the time of grant under the Option Plan or purchase under the
Purchase Plan. New options granted under the Option Plan generally vest over
five years and expire after ten years.
 
 Under the
terms of the Option Plan, employees who were participants in the Phantom Stock
Plan could convert their awarded phantom stock units and their Contingently
Promised Stock Units into (1) options with an exercise price of $4.11 per share
and cash payments of $4.11 per share (paid over four years); (2) additional
options with an exercise price of $4.11; or (3) a combination of both (1) and
(2). The cash payments and the options that were converted from vested stock
units vested immediately. The cash payments and the options that were converted
from Contingently Promised Units will vest in accordance with the original
vesting schedule, but not less than 20 percent per year. At March 31, 2001, all
phantom stock units for current employees under the Phantom Stock Plan were
converted to options or options and cash payments pursuant to one of the
alternatives noted above.
 
 Cash
payments related to the conversion are payable in four annual installments
beginning on March 31, 2002. As of March 31, 2001, the Company
anticipated making four annual payments of $5,930 each commencing March 31,
2002 for those employees who elected to receive a cash payout in lieu of
additional options. The present value of the cash payments related to the
conversion of vested phantom stock units of $15,131 was recorded as a liability
as of March 31, 2001. The cash payments related to the conversion of the
Contingently Promised Units are subject to continuing employment and,
accordingly, the related expense and liability are accrued as earned by the
employees. The first annual installment of $5,812 to those employees electing to
receive cash in lieu of additional options was paid on March 28, 2002.
 
 As of
December 31, 2002, the total remaining undiscounted future cash payments related
to the conversion of the Company’s Phantom Stock Plan to its Option Plan totaled
$7,645, 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. As a result, under the
terms of the early payment program, the Company paid $1,979 on January 10, 2003
and reduced the future liability for Contingently Promised Units by $2,058.
 
 The
second and third annual installments of $416 and $347 to those employees
electing to receive cash in lieu of additional options was paid on March 31,
2003 and 2004.
 
 The
Purchase Plan was available to all eligible employees who meet certain service
requirements. Effective April 1, 2001, employees participating in the Purchase
Plan could elect to deduct up to 10 percent of gross pay to purchase stock in
the Company. Stock transactions pursuant to the Purchase Plan occurred
semiannually on December 31 and March 31. The Company could sell up to
3,230 shares of stock under the Purchase Plan. Employees purchased 70 shares at
a price of $3.85 per share on December 31, 2001 and 174 shares at a price of
$2.10 on March 31, 2002. In May 2002, the Company issued 659 additional shares
of common stock to employees under the Purchase Plan for aggregate cash
consideration of $1,384 at a price of $2.10. In September 2002, the Company
suspended the sale of shares to employees under the Purchase
Plan.
  11
 Table of Contents
  **DiCon
Fiberoptics, Inc. and Subsidiary**
 **Notes
to Unaudited Consolidated Financial Statements**
 **(in
thousands)**
 **___________________________________________________________________________________________________________**
 
 Compensation
expense related to the Company’s stock compensation plans and conversion of the
Contingently Promised Units has been reflected in the Unaudited Consolidated
Statements of Operations and Comprehensive Loss for the three months and nine
months ended December 31, 2004 and 2003 as follows:
 
 **For
      the three months ended**
    
    **For
      the nine months ended****December
      31,**
    
    **December
      31,****2004**
    
    **2003**
    
    **2004**
    
    **2003**Cost
      of goods sold
    
    $
    11
    
    $
    14
    
    $
    33
    
    $
    73Selling,
      general and administrative expenses
    
    
    37
    
    
    48
    
    
    113
    
    
    251Research
      and development expenses
    
    
    78
    
    
    100
    
    
    238
    
    
    531$
    126
    
    $
    162
    
    $
    384
    
    $
    855
 
 **13.**
    **Income
      Taxes**
 
 The
Company had cummulative net operating loss carryforwards and tax credit
carryforwards of approximately $46.0 million as of December 31,
2004.
 
 The
Company’s federal income tax returns for fiscal years ending in 2000 to 2003 are
currently being examined by the Internal Revenue Service. The timing of the
settlement of these examinations is uncertain. The Company recorded a provision
of $281 for the tax assessments that may result. As of December 31, 2004, the
Company's estimated related interest payment of $45 was included in accounts
payable and accrued liabilities in the Unaudited Consolidated Balance Sheets.
The Company believes that adequate amounts have been provided for any final tax
assessment that may result.
 
 The
Company’s investment in its Taiwan subsidiary is essentially permanent in
duration and undistributed foreign earnings on December 31, 2004 amounted to
$7.2 million. The Company was granted a five-year tax holiday in Taiwan, which
will expire in 2006. There is no plan to distribute these earnings to DiCon. If
at some future date all or portions of these foreign earnings are distributed as
dividends to DiCon, substantial additional taxes would be due. On
October 22, 2004, the American Jobs Creation Act of 2004 (the “Act”), was
signed into law. The Act creates a temporary incentive for U.S. companies to
repatriate accumulated foreign earnings by providing a one-time deduction of 85%
for certain dividends from controlled foreign corporations. The deduction is
subject to certain limitations and numerous provisions of the Act contain
uncertainties that require interpretation and evaluation. The Company has not
accrued income taxes on the accumulated undistributed earnings of the Company’s
Taiwan subsidiary, as these earnings are currently expected to be reinvested
indefinitely.
 
 Due to
uncertainty surrounding the realization of the favorable tax attributes in
future tax returns, the Company has recorded a valuation allowance against
certain deferred tax assets at December 31, 2004. Management regularly evaluates
the recoverability of the deferred tax asset and the level of the valuation
allowance. At such time as it is determined that it is more likely than not that
the deferred tax asset will be realizable, the valuation allowance will be
reduced.
 
 **14.**
    **Commitments
      and contingencies**
 
 The
Company provides reserves for the estimated cost of product warranties at the
time revenue is recognized. Estimates of the costs of warranty obligations are
based on the Company’s historical experience of known 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 accrual 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.
  12
 Table of Contents
  **DiCon
Fiberoptics, Inc. and Subsidiary**
 **Notes
to Unaudited Consolidated Financial Statements**
 **(in
thousands)**
 **___________________________________________________________________________________________________________**
 
 Changes
in the Company’s warranty reserve during the nine months ended December 31, 2004
and 2003 were as follows:
 
 **Nine
      months ended December 31,****2004**
    
    **2003**Beginning
      balance
    
    $
    16
    
    $
    56Provision
      for warranty
    
    
    72
    
    
    95Utilization
      of reserve
    
    
    (53
    )
    
    (131
    )Ending
      balance
    
    $
    35
    
    $
    20
 
 The
Company moved to its new facilities in Richmond, California during the 2001
fiscal year. Accordingly, certain of the leased properties , primarily
in the U.S.,  were no
longer used for operating purposes and are available for sublease. The Company
estimated the cost of exiting and terminating the facility leases based on the
contractual terms of the agreements and real estate market conditions. The
mutual settlement agreement and release for  the last
non-cancelable operating lease was executed on November 23, 2004, and the
excessive estimate of the remaining costs of the lease, net of expected sublease
income of $0.1 million, was adjusted as of December 31, 2004. Lease expense net
of sublease income for the nine months ended December 31, 2004 and for the year
ended March 31, 2004 was $97 and $82, respectively.
 
 Global
Fiberoptics owns a condominium interest in the building in Kaohsiung, Taiwan.
This facility is located on a ground lease that extends through 2011. The ground
lease may be renewed indefinitely, and there is no penalty for early
cancellation, except for forfeiture of the owned facility.
  As of
December 31, 2004, DiCon’s future gross commitments under all leases was $0.1
million.
 
 Global
Fiberoptics maintained a line of credit in Taiwan backed by commercial paper
issued by Global Fiberoptics for a maximum of 100 million New Taiwan Dollars (or
approximately $3.2 million as of December 31, 2004). As of December 31, 2004,
there was no commercial paper outstanding. The interest rate is based on a rate
set by the bank at the time funds are drawn. The line of credit will mature on
January 28, 2005. Global Fiberoptics is currently negotiating the renewal of the
line of credit.
 
 Global
Fiberoptics maintained a second line of credit of 80 million New Taiwan Dollars
(or  approximately
$2.5 million) from a Taiwan bank, of which 63.0 million New Taiwan Dollars (or
approximately $2.0 million as of December 31, 2004) were drawn. These letters of
credit primarily support workers’ compensation, merchandise import and payment
obligations. The interest rate is based on a rate set by the bank at the time
funds are drawn. The line of credit will mature on September 30,
2005.
  13
 Table of Contents
  **Item
2. Management’s Discussion and Analysis or Plan of
Operation.**
 
 *Certain
statements contained in this report on Form 10-QSB that are not purely
historical are “forward-looking statements” within the meaning of the federal
securities laws, including, without limitation, statements regarding DiCon’s
expectations, beliefs, anticipations, commitments, intentions and strategies
regarding the future. Actual results could differ from those projected in any
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 Company’s 10-KSB/A-1.*
 **
 **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, attenuate, 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
operates from its owned 200,000 square feet facility in Richmond, California,
which contains all of DiCon’s domestic manufacturing, R&D, sales and
administration operations. DiCon has overseas manufacturing operations at its
88,000 square foot facility in Kaohsiung, Taiwan. Although DiCon owns a
condominium interest in the building, it is located on a ground lease that
extends 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
communications products include Wavelength Division Multiplexers (“WDMs”),
amplifier components, switches and attenuators, MEMS devices and modules. Its
measurement products include variable attenuators, tunable filters, and test
instruments for telecommunication applications. DiCon markets and sells its
products worldwide through its direct sales force, its subsidiary Global 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 fiber
optics industry has gone through 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’s customers are manufacturers of telecommunications equipment. DiCon
believes its customers generally view the purchase of DiCon’s products as a
significant and strategic decision. As a result, customers typically commit
substantial effort in evaluating DiCon’s technology, and testing and qualifying
its products and manufacturing processes. This customer evaluation and
qualification process frequently results in a lengthy initial sales cycle of
nine months or longer.
 
 DiCon’s
cost of goods sold consists primarily of the cost of direct materials, labor and
manufacturing overhead, scrap and rework 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 portions of its costs are fixed and as volumes decrease, these expenses
are difficult to reduce proportionately, if at all. The Company assesses its
inventory position on a monthly and quarterly basis with its then current
forecasts. During the nine months ended December 31, 2004, DiCon wrote off
approximately $0.9 million of obsolete inventory. During the fiscal year ended
March 31, 2004, DiCon wrote off approximately $1.1 million of obsolete inventory
and wrote down to fair value an additional $1.1 million of
inventory.
  14
 Table of Contents
  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 products. DiCon expenses all of its research and
development costs as incurred and does not capitalize any research and
development expenditures except for equipment with a useful life longer than one
year and 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. 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 sustain its market share in
the fiberoptic component manufacturing business.
 
 Other
income (expenses) consists primarily of interest income, offset by interest
expense, plus realized gains or losses on sales of investments and fixed
assets.
 
 DiCon has
invested $0.5 million for a 5.45% minority interest in a private company in
Taiwan engaged in the optical coating business. This investment is held for
investment purposes and is accounted for on the cost basis of accounting. The
investment value has been fully impaired as of March 31, 2004.
 
 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. In September 2002, DiCon suspended the sale
of DiCon shares to employees under the Employee Stock Purchase
Plan.
 
 **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, disclosures of contingent 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 derives its revenue from the sale of fiberoptic networking components.
Revenue from product sales is recognized upon shipment of the product, provided
that persuasive evidence of an arrangement exists, delivery has occurred and no
significant obligations remain, the fee is fixed or determinable and
collectibility is reasonably assured. Sales to distributors do not include the
right to return or exchange products or price protection. A provision for
returns and allowances is recorded at the time revenue is recognized based on
the Company’s historical experience.
 
 *Allowances
for doubtful accounts*
 
 The
Company performs ongoing credit evaluations of its customers. 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 the filing of a 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 allowances
on receivables that are ultimately collected, the Company will reverse such
provisions in future periods based on actual collection
experience.
  15
 Table of Contents
  *Warranty
accrual*
 
 The
Company generally provides warranties for its products for one year. The Company
provides reserves for the estimated cost of product warranties at the time
revenue is recognized. Because the Company’s products are manufactured, in most
cases, to customer 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 and the 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 its original estimates, the Company may be required to
record additional warranty reserves. Alternatively, if the Company provides more
reserves that are in excess of its actual warranty costs, the Company will
reverse a portion of such provisions in future periods.
 
 *Other
long-term investments*
 
 Long-term
investments are accounted for at historical cost and are subject to a periodic
impairment review; however, for non-marketable equity securities classified
under the other long-term investments of the Company, the impairment analysis
requires significant judgment to identify events or circumstances that would
likely have a significant adverse effect on the fair value of the investment.
The indicators the Company uses to identify those events and circumstances
include the investment’s revenue and earnings trends relative to predefined
milestones and overall business prospects; the technological feasibility of the
investment’s products and technologies; the general market conditions in the
investment’s industry; and the investment’s liquidity, debt ratios and the rate
at which the investment is using cash. Investments identified as having an
indicator of impairment are subject to further analysis to determine if the
investment is other than temporarily impaired, in which case the investment is
written down to its impaired value. When an investment is not considered viable
from a financial or technological point of view, the entire investment is
written down, since the estimated fair market value is considered to be nominal.
Impairment of non-marketable equity securities is recorded in impairment of
other long-term investments in the Consolidated Statements of
Operations.
 
 *Fair
value of financial instruments*
 
 The
Company has determined that the amounts reported for cash and cash equivalents,
accounts receivable, short-term borrowings, accounts payable, accrued expenses,
equipment loan and mortgage loan approximate fair value because of their short
maturities and/or variable interest rates. Marketable securities are reported at
their fair market value based on quoted market prices.
 
 *Inventories*
 
 Inventories
are valued at the lower of cost or market using the first-in, first-out (FIFO)
method. Cost is determined using standard cost, which approximates actual cost.
The inventory of the Company is subject to rapid technological changes and
obsolescence that could have an adverse affect on its utilization in future
periods. Accordingly, the Company writes down excess and obsolete inventory
based on the Company’s estimates of inventory to be sold or
consumed.
 
 *Property,
plant and equipment*
 
 The
Company evaluates the recoverability of the net carrying value of its property,
plant and equipment whenever events or changes in circumstances indicate
impairment may exist, by comparing the carrying values to the estimated future
undiscounted cash flows. A deficiency in these cash flows relative to the
carrying values is an indication of the need for a write-down due to impairment.
The impairment write-down would then be the difference between the carrying
values and the fair value of these assets. A loss on impairment would be
recognized by a charge to earnings. 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 its assets.
 
 *Deferred
taxes*
 
 Deferred
income tax assets and liabilities represent the expected future tax consequences
attributable to temporary differences between corresponding amounts stated on
the Unaudited Consolidated Balance Sheets and their respective tax bases.
Deferred tax assets and liabilities are measured using the enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be reversed. Valuation allowances are recognized as
necessary to reduce the deferred tax assets to the amount that is more likely
than not to be realized.
  16
 Table of Contents
  **Financial
Results**
 
 **Three
Months Ended December 31, 2004 Compared with Three Months Ended December 31,
2003**
 
 *Net
Sales*
 
 Net sales
increased by 19.8% to $6.7 million for the quarter ended December 31, 2004 from
$5.6 million for the quarter ended December 31, 2003. The increase was primarily
due to an increase in the demand for fiberoptic components and test equipment by
telecommunications equipment vendors.
 
 In the
quarter ended December 31, 2004 and 2003, the Company recorded no revenue from
cancellations of prior purchase agreements with customers.
 
 The fiber
optic communications industry is characterized by dynamic technological changes.
Specific products may have a relatively short product life, even though basic
product designs may have a substantial life. Generally, customers expect prices
to decline steadily. During the current period of significant excess capacity,
the pressure to reduce average selling prices may even be greater. DiCon seeks
to offset this trend through new product introductions with higher average
selling prices and through aggressive programs to improve manufacturing yields
and cost reductions. There is no certainty that these programs will be
successful in offsetting the pricing pressure from customers in the future.
 
 Sales to
different geographic areas may fluctuate from period to period depending on
various factors such as new system development, purchase cycle and price. Net
sales to customers outside North America represented 42% of total net sales for
the quarter ended December 31, 2004, as compared to 58% for the quarter ended
December 31, 2003.
 
 As of
December 31, 2004 and 2003, the Company experienced the following concentrations
in sales to customers.
 
 **Three
      months ended****December
      31,****2004**
    
    **2003**Percentage
      of revenue for 3 largest customers
    51.7%
    
    49.6%No.
      of customers accounting for over 10% of net sales
    3
    
    3
 
 Sales to
DiCon’s leading customers vary significantly from year to year and DiCon does
not have the ability to predict future sales to these customers.
 
 *Cost
of Goods Sold and Gross Margin*
 
 Cost of
goods sold increased 6.0% to $4.9 million in the quarter ended December 31, 2004
from $4.6 million in the quarter ended December 31, 2003. Gross margin as a
percentage of net sales was 27.5% in the quarter ended December 31, 2004,
compared to 18.1% in the quarter ended December 31, 2003. The improvement in
gross margin in the quarter ended December 31, 2004 is mainly due to expense and
cost reductions. During the quarter ended December 31, 2004, DiCon wrote off a
total of $0.4 million or 5.0% of total net sales as compared to the quarter
ended December 31, 2003 that an approximately $0.2 million write down of
obsolete inventory and inventory impairment, or 4.0% of total net
sales.
 
 Gross
margin can be affected by a number of factors, including product mix, customer
mix, applications mix, product demand, pricing pressures, manufacturing
constraints, higher costs resulting from new production facilities, and product
yield. Considering these factors, gross margin fluctuations are difficult to
predict and there can be no assurance that DiCon will achieve or maintain gross
margin percentages at historical levels in future periods. DiCon anticipates the
slight improvement in gross margin to continue in future periods if market
demand stays at the current level.
  17
 Table of Contents
  *Selling,
General and Administrative Expenses*
 
 Selling,
general and administrative (“SG&A”) expense was $1.3 million in the quarter
ended December 31, 2004 and 2003.
 
 *Research
and Development Expenses*
 
 Research
and development (“R&D”) expense was $1.3 million in the quarter ended
December 31, 2004, compared to $1.5 million in the quarter ended December
31, 2003. DiCon believes that R&D is critical to strategic product
development and expects to continue to devote significant resources to product
R&D. Future expenditures are expected to fluctuate both in absolute dollars
and as a percentage of revenue based on the need to invest in new R&D in
order to remain competitive in this rapidly changing industry.
 
 *Loss
on disposal of fixed assets*
 
 Loss on
disposal of fixed assets was $1.9 million in the quarter ended December 31,
2004, compared to $0.4 million in the quarter ended December 31, 2003. In
the quarter ended December 31, 2004, the Company was in the process of
consolidating its R&D projects to better align its business needs with
existing operations and to provide more efficient use of its facilities. As a
result, certain R&D projects were discontinued and it was
determined that related support equipment had no alternative use within the
Company. Accordingly the equipment was either abandoned or scrapped, and a loss
on the disposal of the fixed assets of $1.9 million was recorded in the third
quarter ended December 31, 2005 in the Unaudited Condensed Consolidated
Statements of Operations.
  *Other
(Expense) Income*
 
 Other
(expense) ** income
for the quarters ended December 31, 2004 and 2003 are as follows:
 
 **Three
      months ended****December
      31,****(in
      thousands)**
    
    **2004**
    
    **2003**Other
      (expense) income:Interest
      expense
    
    $
    (332
    )
    $
    (322
    )Interest
      income
    
    
    89
    
    
    109Gain
      (losses) on currency exchange
    
    
    (41
    )
    
    42Other
      (expense) income, net
    
    
    59
    
    
    38$
    (225
    )
    $
    (133
    )
 
 Interest
expense primarily represents the costs of borrowing by DiCon for its mortgage
loan on the Richmond, California, facility and its equipment loan. For the
quarter ended December 31, 2004, the Company has accrued an interest payment of
$45 for additional tax that may result from the examination of the Company’s
federal income tax returns for fiscal years ending in 2000 to 2003.
 
 *Loss
Before Income Tax*
 
 DiCon
reported a net loss before income tax of $2.9 million for the current quarter
compared to $2.2 million for the same quarter in the prior year. This is
primarily due to the loss on disposal of fixed assets during the quarter ended
December 31, 2004.
 
 *Income
Tax (Expense) Benefit*
 
 The
Company’s federal income tax returns for fiscal years ending in 2000 to 2003 are
currently examined by the Internal Revenue Service. The timing of the settlement
of these examinations is uncertain. The Company recorded a provision of $281 for
the tax assessments that may result. As of December 31, 2004, the Company's
estimated related interest payment of $45 was included in accounts payable and
accrued liabilities in the Unaudited Consolidated Balance Sheets. The Company
believes that adequate amounts have been provided for any tax final assessment
that may result.
  18
 Table of Contents
  Due to
uncertainty surrounding the realization of the favorable tax attributes in
future tax returns, the Company has recorded a valuation allowance against
certain deferred tax assets at December 31, 2004. Management regularly evaluates
the recoverability of the deferred tax asset and the level of the valuation
allowance. At such time as it is determined that it is more likely than not that
the deferred tax asset will be realizable, the valuation allowance will be
reduced.
 
 For the
three months ended December 31, 2004, the effective tax rate was (9.6) %
compared to (3.4)% for the same period in last year. The tax rate for each
period is the result of the consolidation of the tax provisions for 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. For the three months ended December 31, 2004, the Company
recorded a provision for income taxes of $281 for the additional tax assessments
that may result from the examination of federal income tax returns for fiscal
years ending in 2000 to 2003.
 
 **Nine
Months Ended December 31, 2004 Compared with nine Months Ended December 31,
2003**
 
 *Net
Sales*
 
 Net sales
increased by 37.5% to $18.0 million for the nine months ended December 31, 2004
from $13.1 million for the nine months ended December 31, 2003. The increase was
primarily due to an increase in the demand for fiberoptic components and test
equipment by telecommunications equipment vendors.
 
 For the
nine months ended December 31, 2004, the Company recorded $0.15 million revenue
from cancellations of prior purchase agreements with customers. For the nine
months ended December 31, 2003, the Company recorded no revenue from
cancellations of prior purchase agreements with customers.
 
 The fiber
optic communications industry is characterized by dynamic technological changes.
Specific products may have a relatively short product life, even though basic
product designs may have a substantial life. Generally, customers expect prices
to decline steadily. During the current period of significant excess capacity,
the pressure to reduce average selling prices may even be greater. DiCon seeks
to offset this trend through new product introductions with higher average
selling prices and through aggressive programs to improve manufacturing yields
and cost reductions. There is no certainty that these programs will be
successful in offsetting the pricing pressure from customers in the future.
 
 Sales to
different geographic areas may fluctuate from period to period depending on
various factors such as new system development, purchase cycle and price. Net
sales to customers outside North America represented 48% of total net sales for
the nine months ended December 31, 2004, as compared to 53% for the nine months
ended December 31, 2003, respectively.
 
 As of
December 31, 2004 and 2003, the Company experienced the following concentrations
in sales to customers.
 
 **Nine
      months ended****December
      31,****2004**
    
    **2003**Percentage
      of revenue for 3 largest customers
    44.3%
    
    40.4%No.
      of customers accounting for over 10% of net sales
    4
    
    2
 
 Sales to
DiCon’s leading customers vary significantly from year to year and DiCon does
not have the ability to predict future sales to these customers.
 
 *Cost
of Goods Sold and Gross Margin*
 
 Costs of
goods sold declined 4.4% to $13.1 million in the nine months ended December 31,
2004 from $13.7 million in the nine months ended December 31, 2003. Gross margin
as a percentage of net sales was 27.0% in nine months ended December 31, 2004,
compared to a negative 5.1% in the nine months ended December 31, 2003. The
improvement in gross margin in the nine months ended December 31, 2004 is mainly
due to expense and cost reductions. During the nine months ended December 31,
2004, DiCon wrote off a total of $0.9 million or 5.0% of total net sales as
compared to the nine months ended December 31, 2003 that an approximately $1.1
million write down of obsolete inventory and inventory impairment, or 8.4% of
total net sales.
  19
 Table of Contents
  Gross
margin can be affected by a number of factors, including product mix, customer
mix, applications mix, product demand, pricing pressures, manufacturing
constraints, higher costs resulting from new production facilities, and product
yield. Considering these factors, gross margin fluctuations are difficult to
predict and there can be no assurance that DiCon will achieve or maintain gross
margin percentages at historical levels in future periods. DiCon anticipates the
slight improvement in gross margin to continue in future periods if market
demand stays at the current level.
 
 *Operating
Expenses*
 
 *Selling,
General and Administrative Expenses*
 
 SG&A
expense was $4.3 million for the nine months ended December 31, 2004,
compared to $4.1 million for the nine months ended December 31, 2003. The
increase in SG&A expenses primarily reflects unutilized Company surplus
facility resources in Richmond due to increase in production volume in Global
Fiberoptics in Taiwan.
 
 *Research
and Development Expenses*
 
 R&D
expense was $4.4 million for the nine months ended December 31, 2004,
compared to $4.8 million for the nine months ended December 31, 2003. DiCon
believes that R&D is critical to strategic product development and expects
to continue to devote significant resources to product R&D. Future
expenditures are expected to fluctuate both in absolute dollars and as a
percentage of revenue based on the need to invest in new R&D in order to
remain competitive in this rapidly changing industry.
 
 *Loss
on disposal of fixed assets*
 
 Loss on
disposal of fixed assets was $1.9 million for the nine months ended
December 31, 2004, compared to $0.4 million for the nine months ended
December 31, 2003. In the nine months ended December31, 2004, the Company was in
the process of consolidating its R&D projects to better align its business
needs with existing operations and to provide more efficient use of its
facilities. As a result, certain R&D projects were discontinued and it was
determined that related support equipment had no alternative use within the
Company. Accordingly the equipment was either abandoned or scrapped, and a loss
on the disposal of the fixed assets of $1.9 million was recorded in the nine
months ended December 31, 2005 in the Unaudited Condensed Consolidated
Statements of Operations.
 
 *Other
(Expense) Income*
 
 Other
(expense) ** income
for the nine months ended December 31, 2004 and 2003 are as
follows:
 
 **Nine
      months ended****December
      31,****(in
      thousands)**
    
    **2004**
    
    **2003**Other
      (expense) income:Interest
      expense
    
    $
    (936
    )
    $
    (1,016
    )Interest
      income
    
    
    261
    
    
    302Realized
      gain (losses) on sales of marketable securities
    
    
    22
    
    
    95Gain
      (losses) on currency exchange
    
    
    (125
    )
    
    (141
    )Other
      (expense) income, net
    
    
    167
    
    
    169$
    (611
    )
    $
    (591
    )
 
 Interest
expense primarily represents the costs of borrowing by DiCon for its mortgage
loan on the Richmond, California, facility and its equipment loan. For the nine
months ended December 31, 2004, the Company has accrued an interest payment of
$45 for additional tax that may result from the examination of the Company’s
federal income tax returns for fiscal years ending in 2000 to 2003.
 
 *Loss
Before Income Tax*
 
 The
Company reported loss before income tax of $6.4 million for the nine months
ended December 31, 2004 compared to $10.5 million for the same nine months in
the prior year.
  20
 Table of Contents
  
 *Income
Tax (Expense) Benefit*
 
 The
Company’s federal income tax returns for fiscal years ending in 2000 to 2003 are
currently examined by the Internal Revenue Service. The timing of the settlement
of these examinations is uncertain. The Company recorded a provision of $281 for
the tax assessments that may result. As of December 31, 2004, the Company's
estimated related interest payment of $45 was included in accounts payable and
accrued liabilities in the Unaudited Consolidated Balance Sheets. The Company
believes that adequate amounts have been provided for any final tax assessment
that may result.
 
 Due to
uncertainty surrounding the realization of the favorable tax attributes in
future tax returns, the Company has recorded a valuation allowance against
certain deferred tax assets at December 31, 2004. Management regularly evaluates
the recoverability of the deferred tax asset and the level of the valuation
allowance. At such time as it is determined that it is more likely than not that
the deferred tax asset will be realizable, the valuation allowance will be
reduced.
 
 For the
nine months ended December 31, 2004, the effective tax rate was (4.4) % compared
to (6.2)% for the same period in last year. The tax rate for each period is the
result of the consolidation of the tax provisions for 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
For the nine months ended December 31, 2004,the Company recorded a provision for
income taxes of $281 for the additional tax assessments that may result from the
examination of federal income tax returns for fiscal years ending in 2000 to
2003.
 
 **Liquidity
and Capital Resources**
 
 As of
December 31, 2004, DiCon had cash and cash equivalents of $1.8 million. In
addition, the Company has $14.6 million invested in certificates of deposit and
other marketable securities that in conformity with the requirements of
generally accepted accounting principles were classified as marketable
securities.
 
 The net
cash provided by operating activities of $0.9 million for the nine months ended
December 31, 2004 resulted from non-cash adjustments of $9.3 million to the net
loss of $6.7 million for the nine months ended December 31, 2004, a reduction of
prepaid expenses and other current assets of 0.3 million, and an increase in
income tax payable of $0.3 million. This cash inflow is partially offset by an
increase of inventories of $1.0 million and accounts receivables of $0.8 million
due to an increase in sales and a 0.4 million decrease in accounts payable. Net
cash provided by operations for the nine months ended December 31, 2003 was
$10.5 million. It was primarily attributable to an income tax refund of $15.3
million. These amounts were partially offset by an increase of inventories of
$0.8 million and accounts receivables of $1.1 million due to an increase in
sales and by a decrease in accounts payable and accrued liabilities of $0.7
million.
 
 The
increase in cash flows from investing activities for the nine months ended
December 31, 2004 was primarily due to an increase in net proceeds of $5.6
million from the sale and purchase of marketable securities offset by $0.2
million in purchases of properties.
 
 Cash used
in investing activities of $13.5 million for the nine months ended December 31,
2003 was primarily the result of the efforts to increase earnings on working
capital by investing in certificates of deposits with maturities in excess of 90
days and mutual funds of $14.9 million. All certificates mature in one year or
less. Additionally, the Company sold approximately $1.2 million of marketable
securities during the nine months ended December 31, 2003.
 
 Cash used
in financing activities increased to $6.0 million for the nine months ended
December 31, 2004 from $0.1 million in the nine months ended December 31, 2003.
This change is primarily attributable to the net increase of
repayments of mortgages
and other debt .
 
 The
Company financed, in part, a new corporate campus by obtaining a construction
loan from a bank of $27.0 million on August 24, 2000. In November 2001, the
same bank refinanced the outstanding balance of the construction loan with a
mortgage loan maturing on 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
20 th of each
month (5.0 percent at December 31, 2004). Principal and interest are payable
monthly. During the year ended March 31, 2002, the Chairman, President and Chief
Executive Officer of the institution with which the Company maintains the
mortgage loan was appointed to the Company’s Board of
Directors.
  21
 Table of Contents
 
 On June
28, 2004, the bank agreed to extend the maturity date of the mortgage loan to
October 20, 2007, subject to additional terms and conditions requiring the
Company to make additional principal repayments as follows: $1.5 million 10 days
after the date of execution of the loan extension agreement; $1.0 million on
October 1, 2004; and seven installments each in the amount of $0.5 million on
the first day of each calendar quarter, commencing on January 1, 2005 and ending
on July 1, 2006.
 
 The
Company was in compliance with the additional principal repayments requirement
as of December 31, 2004. In addition, the Company voluntarily prepaid the first
two $0.5 million equal installments during the quarter ended December 31, 2004.
The balance of the mortgage loan as of December 31, 2004 was $21.5 million.
 
 In April
2001, the Company obtained an equipment loan from a bank in the amount of $7.3
million. The loan was secured by specific pieces of equipment. The loan was
voluntarily prepaid in full on October 12, 2004.
 
 Global
Fiberoptics maintained a line of credit in Taiwan backed by commercial paper
issued by Global Fiberoptics for a maximum of 100 million New Taiwan Dollars (or
approximately $3.2 million as of December 31, 2004). The line of credit will
mature on January 28, 2005. Global Fiberoptics is currently negotiating the
renewal of the line of credit. The outstanding balance of any commercial paper
under this line of credit must be fully secured by either a cash deposit or bond
fund certificate. As of December 31, 2004, there was no commercial paper
outstanding.
 
 Global
Fiberoptics maintained its second line of credit of 80 million New Taiwan
Dollars (or  approximately
$2.5 million as of December 31, 2004) from a Taiwan bank. The line of credit
will mature on September 30, 2005. The interest rate is based on a rate set by
the bank at the time funds are drawn. The amount drawn as of December 31, 2004
was 63.0 million New Taiwan Dollars (or approximately $2.0 million as of
December 31, 2004) with an interest rate of 3.35%.
 
 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 for at least the next 12 months. There remains some possibility
that DiCon may need to raise additional capital. It might need additional
capital in order to refinance its loans, finance unanticipated growth or to
invest in new technology. There can be no certainty that DiCon would be
successful in raising the required capital or in raising capital at acceptable
rates.
  **Commitments
and Off Balance Sheet Arrangements**
 
 The
Company moved to its new facilities in Richmond, California during the 2001
fiscal year. Accordingly, certain of the leased properties , primarily
in the U.S.,  were no
longer used for operating purposes and are available for sublease. The Company
estimated the cost of exiting and terminating the facility leases based on the
contractual terms of the agreements and real estate market conditions. The
mutual settlement agreement and release for  the last
non-cancelable operating lease was executed on November 23, 2004, and the
excessive estimate of the remaining costs of the lease, net of expected sublease
income of $0.1 million was adjusted as of December 31, 2004. Lease expense net
of sublease income for the nine months ended December 31, 2004 and for the year
ended March 31, 2004 was $97 and $82, respectively.
 
 
 Global
Fiberoptics owns a condominium interest in the building in Kaohsiung, Taiwan.
This facility is located on a ground lease that extends through 2011. The ground
lease may be renewed indefinitely, and there is no penalty for early
cancellation, except for forfeiture of the owned facility.
  As of
December 31, 2004, DiCon’s future gross commitment under all leases was $0.1
million.
 
 Global
Fiberoptics maintained a line of credit in Taiwan backed by commercial paper
issued by Global Fiberoptics for a maximum of 100 million New Taiwan Dollars (or
approximately $3.2 million as of December 31, 2004). As of December 31, 2004,
there was no commercial paper outstanding. The interest rate is based on a rate
set by the bank at the time funds are drawn. The line of credit will mature on
January 28, 2005. Global Fiberoptics is currently negotiating the renewal of the
line of credit.
 
 Global
Fiberoptics maintained a second line of credit of 80 million New Taiwan Dollars
(or  approximately
$2.5 million) from a Taiwan bank, of which 63.0 million New Taiwan Dollars (or
approximately $2.0 million as of December 31, 2004) were drawn. These letters of
credit primarily support workers’ compensation, merchandise import and payment
obligations. The interest rate is based on a rate set by the bank at the time
funds are drawn. The line of credit will mature on September 30,
2005.
  22
 Table of Contents
  **Item
3. Controls and Procedures.**
 
 *(a)*  *Evaluation
of Disclosure Controls and Procedures* . The
undersigned principal executive officer and principal financial officer of DiCon
conclude that DiCon’s disclosure controls and procedures are effective as of
December 31, 2004 based on the evaluation of these controls and procedures
required by paragraph (b) of Exchange Act Rule 13a-15.
 
 *(b)*  *Changes
in Internal Controls.* There
has been no change in DiCon’s internal control over financial reporting
identified in connection with the evaluation required by paragraph (d) of
Exchange Act Rule 13a-15 that occurred during the quarter ended December 31,
2004, that has materially affected, or is reasonably likely to materially
affect, DiCon’s internal control over financial reporting.
  23
 Table of Contents
  **PART II**
 
 **OTHER
INFORMATION**
 
 **Item
1. LegalProceedings.**
 
 DiCon is
not a party to any material pending legal proceedings, other than ordinary
routine litigation incidental to its business.
 
 **Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.**
 
 (a)
    Unregistered
      Sales of Equity Securities by Small Business
Issuer.
 
 None.
 
 (b)
    Purchases
      of Equity Securities by Small Business
Issuer.
 
 **Small
Business Issuer Purchases of Equity Securities**
 
 Period
    
    Total
      Number of Shares Purchased
      (1)
    
    Average
      Price Paid per Share
    
    Total
      Number of Shares Purchased as Part of Publicly Announced Plans or
      Programs
      (2)
    
    Maximum
      Number of Shares that May yet be Purchased Under the Plans or
      Programs
      (2)October
      1, 2004 through October 31, 2004
    
    2,447
    
    $0.96
    
    --
    
    --November
      1, 2004 through November 30, 2004
    
    2,414
    
    $0.96
    
    --
    
    --December
      1, 2004 through December 31, 2004
    
    580
    
    $0.96
    
    --
    
    --Total
    
    5,441
    
    --
    
    --
    
    --
 
 (1)  All of
the shares purchased were issued under the Employee Stock Purchase
Program.
 
 (2)  DiCon
does not have any publicly announced plans or programs for the purchase of
shares.
 
 **Item
3. Defaults Upon Senior Securities.**
 
 None.
 
 **Item
4. Submission of Matters to a Vote of Security
Holders.**
 
 None.
 
  24
 Table of Contents
  
 **Item
5. Other Information.**
 
 None.
 
 **Item
6. Exhibits.**
 
 Exhibit
      No.
    
    Description31.1
    
    Certificate of President and Chief Executive Officer
      pursuant to Section 302 of the Sarbanes - Oxley Act of
      2002.31.2
    
    Certificate of Vice President of Administration pursuant
      to Section 302 of the Sarbanes - Oxley Act of 2002.32.1
    
    Certificate of President and Chief Executive Officer
      pursuant to Section 906 of the Sarbanes - Oxley Act of
      2002.32.2
    
    Certificate of Vice President of Administration pursuant
      to Section 906 of the Sarbanes - Oxley Act of
2002.
 
  25
 Table of Contents
  
 **SIGNATURES**
 
 In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
 DICON
      FIBEROPTICS, INC.(Registrant)Date:
    February
      11, 2005
    By:
    /s/
      Ho-Shang Lee(Signature)Name:
    Ho-Shang
      Lee, Ph.D.Title:
    President
      and Chief Executive Officer
      (principal
      executive officer)Date:
    February
      11, 2005
    By:
    /s/
      Jannett Wang(Signature)Name:
    Jannett
      WangTitle:
    Vice
      President of Administration
      (principal
      financial officer)
  26
 Table of Contents
  
 **Exhibit
Index**
 
 Exhibit
      No.
    
    Description31.1
    
    Certificate of President and Chief Executive Officer
      pursuant to Section 302 of the Sarbanes - Oxley Act of
      2002.31.2
    
    Certificate of Vice President of Administration pursuant
      to Section 302 of the Sarbanes - Oxley Act of 2002.32.1
    
    Certificate of President and Chief Executive Officer
      pursuant to Section 906 of the Sarbanes - Oxley Act of
      2002.32.2
    
    Certificate of Vice President of Administration pursuant
      to Section 906 of the Sarbanes - Oxley Act of
2002.