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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K



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



(Mark One)



|x                                       |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|--------------------------------------- |  | ----------------------------------------------------------------------------------------
|                                       
|For the fiscal year ended June 30, 2003
|                                       
|or                                     
|                                        | 
| ̈                                       |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                       
|Commission File Number 000-31581       





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OPLINK COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)



|Delaware                                                       |  | No. 77-0411346                      
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



3469 North First
Street, San Jose, CA 95134

(Address of principal executive offices) (Zip Code)



Registrants telephone number, including area code: (408) 433-0606



Securities registered pursuant to Section 12(b) of the
Act:

Not Applicable



Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 Par Value Per Share



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.    Yesx    No ̈



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



Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act).    Yesx    No ̈



The aggregate market value of the voting stock held by
non-affiliates of the Registrant, as of September 19, 2003, was approximately $176,447,001 based upon the closing price for shares of the registrants common stock as reported by the Nasdaq National Market on September 19,
2003. Excludes an aggregate of 73,606,862 shares of common stock held by officers and directors and by each person known by the Registrant to own 5% or more of the outstanding common stock. Exclusion of shares held by any of these persons should not
be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the Registrant, or that such person is controlled by or under common control with the Registrant.



As of September 19, 2003, approximately 143,904,472 shares of
the Registrants common stock, $0.001 par value, were outstanding.



Documents Incorporated by Reference:



The
information called for by Part III is incorporated by reference to specified portions of the Registrants definitive Proxy Statement to be issued in conjunction with the Registrants 2003 Annual Meeting of Stockholders, which is expected
to be filed not later than 120 days after the Registrants fiscal year ended June 30, 2003.



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OPLINK COMMUNICATIONS, INC.

Form 10-K

June 30, 2003



TABLE OF CONTENTS



|PART I   |  |                                                                                       |  |   
|-------- |  | ------------------------------------------------------------------------------------- |  | --
|         |  |                                                                                      
|Item 1   |  | Business                                                                              |  | 1 
|Item 2   |  | Properties                                                                            |  | 28
|Item 3   |  | Legal Proceedings                                                                     |  | 28
|Item 4   |  | Submission of Matters to a Vote of Security Holders                                   |  | 29
|         |  |                                                                                      
|PART II  |  |                                                                                       |  |   
|         |  |                                                                                      
|Item 5   |  | Market for Registrants Common Stock and Related Stockholder Matters                  |  | 30
|Item 6   |  | Selected Consolidated Financial Data                                                  |  | 31
|Item 7   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 33
|Item 7A  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 50
|Item 8   |  | Consolidated Financial Statements and Supplementary Data                              |  | 50
|Item 9   |  | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 50
|Item 9A  |  | Controls and Procedures                                                               |  | 51
|         |  |                                                                                      
|PART III |  |                                                                                       |  |   
|         |  |                                                                                      
|Item 10  |  | Directors and Executive Officers of the Registrant                                    |  | 51
|Item 11  |  | Executive Compensation                                                                |  | 51
|Item 12  |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 51
|Item 13  |  | Certain Relationships and Related Transactions                                        |  | 51
|         |  |                                                                                      
|PART IV  |  |                                                                                       |  |   
|         |  |                                                                                      
|Item 15  |  | Exhibits, Financial Statement Schedules, Reports on Form 8-K                          |  | 52



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Part I



This report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words expect, anticipate,
intend, believe, estimate or assume or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no
obligation to update any such forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth below and
under the captions Risk Factors contained in Item 1 and Managements Discussion and Analysis of Financial Condition and Results of Operations contained in Item 7. We caution you that our business and financial
performance are subject to substantial risks and uncertainties. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.



Item 1.    Business



Overview



We design, manufacture and market
fiber optic subsystems, integrated modules and components that expand optical bandwidth, amplify optical signals, monitor and protect wavelength performance and redirect light signals within an optical network. We offer a broad line of products that
increase the performance of optical networks and enable service providers and optical system manufacturers to provide flexible and scalable bandwidth to support the increase of data traffic on the Internet and other public and private networks. We
also offer an Optical Manufacturing Service (OMS) for the production and packaging of highly integrated optical subsystems and turnkey solutions based upon a customers specific product design and specification. We market our products worldwide
to telecommunications equipment providers. Our bandwidth creation products increase the performance and capacity of fiber optic networks. Our bandwidth management products provide communications service providers with the ability to monitor and
manage optical signals to enhance network performance. We produce fiber optic subsystems, integrated modules, and components for next-generation, all-optical dense wavelength division multiplexing (DWDM), optical amplification, switching and
routing, and monitoring and conditioning applications.



Through
internal research and development we have developed over 120 standard products that are sold or integrated into custom solutions. We provide customers with high quality optical subsystems, integrated modules, and components that are used for
bandwidth creation and management applied to all segments of the fiber optic network infrastructure including access, metro, and long haul.



We build these elements to the exacting requirements of the worlds leading optical networking equipment companies, and we work closely with
customers during the product design and development cycle. This provides us with the ability to respond to the volume production requirements of our customers when their systems are ready for commercial deployment. We support customers volume,
quality, and time-to-market requirements.



By combining
in-house technical expertise with extensive micro-optic packaging and manufacturing capabilities, we are able to produce large volumes of customized and standardized subsystems, integrated modules and component solutions to meet the specific design
needs of customers. Our U.S. headquarters are third-party certified to the ISO 9001 standard in research and manufacturing and our products meet the Telcordia (Bellcore) compliance standards. Our manufacturing operations in Zhuhai and Shanghai,
China are third-party certified to the ISO 9001-2000 standard.



We were incorporated in California in September 1995 and reincorporated in Delaware in September 2000. We began delivering optical networking products to our customers in 1996. Our website is



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http://www.oplink.com. Our website address is given solely for informational purposes; we do not intend, by this reference that our website should be
deemed to be part of this Annual Report on Form 10-K or to incorporate the information available at such internet address into this Annual Report on Form 10-K.



We file electronically with the Securities and Exchange Commission (or SEC) our annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. We make these reports available free of charge through our Internet website as soon as
reasonably practicable after we have electronically filed such material with, or furnished it to, the SEC.



Products and Technologies



We provide a broad line of fiber optic subsystems, integrated modules and components designed to satisfy the needs of communications equipment suppliers. We categorize our products by the functionalities provided within a network, of
bandwidth creation and bandwidth management. Some of our products have attributes that combine both of these functions. Some of our bandwidth creation and bandwidth management products utilize telecommunication interfaces to provide local or remote,
reporting and control to enhance their function in an optical network.



Bandwidth Creation Products



Communications equipment suppliers use our bandwidth creation products to expand the capacity and/ or extend the coverage of their customers networks. Other bandwidth creation products enable optical signals to travel along more
complex network architectures such as mesh networks and metro networks, or enable optical signals to travel greater distances over traditional long haul networks.



Wavelength Expansion Products.    In fiber optic communications, different signals are
transmitted over multiple wavelengths. With increases in the number of wavelengths and data rates, spacing between the wavelengths narrows and it becomes increasingly difficult to separate and direct them. We offer wavelength expansion products that
enable the combination and separation of a particular wavelength in all parts of the network including emerging access and metro networks and traditional long haul networks. Wavelength expansion products include wavelength multiplexing (combining),
de-multiplexing (separating), and wavelength interleaving, which combines light signals from two or more simultaneous sources over a single fiber. We offer the following products to handle these tasks:



| | - | Dense Wavelength Division Multiplexers.    A dense wavelength division multiplexer, or DWDM, is a solution for scalable, reliable, protocol independent
bandwidth creation. A DWDM multiplexer is an integrated optical module or subsystem that combines two or more wavelengths for transmission over a single fiber (multiplexing) or separates these wavelengths (demultiplexing) at the receiving end. Our
DWDM module and subsystem solutions are derived from an array of high performance technologies including thin film filters, arrayed wave guides (AWGs), and Athermal Fiber Bragg Gratings and circulators. Our solutions are available in a variety of
channel spacings.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Coarse Wavelength Division Multiplexers.    A coarse wavelength division multiplexer, or CWDM, is a solution for a cost-effective bandwidth creation in
the access, cable TV and metro environments. A CWDM multiplexer is an integrated optical module or subsystem that combines two or more wavelengths, at a channel spacing that is many times wider than for standard DWDM channel spacing for transmission
over a single fiber (multiplexing) or separates these wavelengths (demultiplexing) at the receiving end.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Band Wavelength Division Multiplexers.    Band wavelength division multiplexer, or BWDM, products help manage multiple International
Telecommunication Union (ITU) channels within Mux/Demux or Optical Add/Drop applications. Our BWDMs pass a band of channels while isolating the channels
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | adjacent to the band of channels sent. BWDM products facilitate the design of flexible (pay as you grow) low loss architectures as well as enable the design
of complex mesh and ring networks. We offer a variety of BWDM products at 50, 100 and 200 GHz spacing.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | DWDM Interleavers.    A DWDM interleaver is an optical component that combines light signals from two simultaneous sources over a single fiber, which
effectively doubles the capacity of the optical network system, or separates a single light source into multiple signals.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Optical Amplification Products.    Optical fiber amplifiers are widely deployed in optical communications networks to enhance
the optical signal power. Optical signals typically lose power and eventually are lost after traveling a long distance along an optical fiber along traditional long haul networks. In emerging access or metro networks, optical signals lose power at
add drop nodes, which are those locations in a network where wavelength channels enter or exit the node. This power loss is referred to as attenuation. Through recent advances in technology, the optical signal can be amplified with Erbium Doped
Fiber Amplifiers, or EDFAs, or with Raman amplifiers, neither of which require opto-electrical conversion. The amplifiers are arranged along fiber cable lines at regular intervals in long haul networks or at selected nodes in access and metro
networks to enable the optical signal to reach its destination clearly. While amplifiers range in complexity, a typical amplifier consists of a fiber and a number of fiber optic components. We offer both the EDFA and Raman amplification products
including EDFA fiber amplifiers and the components used in EDFA and Raman amplifier designs.



| | - | Gain Blocks.    Gain blocks are integrated optical subsystem building blocks consisting of fiber and fiber optic components used in fiber optic amplifiers
to boost the amplitude of an incoming optical signal.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | EDFAs.    Erbium Doped Fiber Amplifiers are optical subsystems that employ gain blocks, advanced electronics, firmware and software to control the optical
gain of an incoming optical signal.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | WDM Pump/Signal Combiners.    Micro-optic WDM pump/signal combiners are components that provide power for the optical amplifier. They are used to
efficiently combine light signals with pump laser sources. Pump lasers are active optical components used in optical amplifiers such as EDFAs to amplify or regenerate light signals that naturally suffer loss while traveling over distance within an
optical network.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Integrated Hybrid Components.    Optical amplifier systems can combine optical components, including isolators, tap couplers and WDM pump/signal
combiners. The main advantage of hybrid components is that they minimize the amplifier package size, increase reliability and reduce manufacturing cost.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | WDM Pump Combiners.    WDM pump combiners are used to increase the power of an optical amplifier by combining multiple pump lasers into one common pump
source for amplification.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Polarization Beam Combiners.    Polarization beam combiners are optical components that combine two of the same or different wavelengths with opposing
polarization to increase the power output of the optical amplifier.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Gain Flattening Filters.    Gain flattening filters are used to ensure signals are amplified by equal amounts. Our thin film filter technology, or the
technology in which layers of thin film separate optical signals, employs multiple layers of optical materials on glass to adjust optical output at different wavelengths to meet the needs of next-generation high power amplifiers.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Isolators.    Isolators are fiber optic devices that transmit light in only one direction, thus preventing a reflected light signal from returning to its
laser source. Reflected light can interfere with a lasers process and create noise, which can impair system performance in optical networks.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Tap Couplers.    Tap couplers transfer optical signals between fibers. They are widely used for system monitoring purposes and have very low insertion
loss, or the power loss incurred when adding additional components to a fiber cable.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Bandwidth Management Products



Communications equipment suppliers use our bandwidth management products to
add intelligence to their systems, which allows communications service providers to monitor the performance, control the direction, and condition the amplitude of light signals throughout the optical network.



Wavelength Performance Monitoring and Protection
Products.    The ability to monitor wavelengths within an optical network enables service providers to maintain quality of service even in the event of an interruption in the signal path, such as a cut in the fiber. It is
significantly more difficult to monitor signal flow in optical systems as compared to electrical systems. Monitoring requires that optical signals be extracted from the fiber without interfering with the optical signal traveling through the same
fiber.



We offer products that enable service providers to
monitor network performance and make necessary decisions for traffic flow and network efficiency.



| | - | Supervisory Channel WDM.    Our supervisory channel WDM is an integrated component that separates the network supervisory channel from the signal channel
that is used in monitoring the network performance.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Integrated WDM Monitor Arrays.    Our integrated WDM monitor arrays convert optical signals into electrical signals for network selective wavelength power
monitoring. This module combines multiple network performance monitoring functions in a single module and integrates WDM filters and third-party photo detectors, a device supplied by other optical component manufacturers that receives a light signal
in an optical network and converts it into an electrical signal. These integrated modules allow communications service providers to monitor whether or not wavelengths are being transmitted properly through the network.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Integrated Tap Monitor Arrays.    Our integrated tap monitor arrays convert optical signals into electrical signals for network signal power monitoring.
This module integrates a tap coupler, a device that splits the light power; and third-party photo detectors, a device supplied by other optical component manufacturers that receives a light signal in an optical network and converts it into an
electrical signal. These integrated modules allow communications service providers to monitor whether or not optical signals are being transmitted properly through the network.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Wavelength Protection Subsystems.    Our multi-channel wavelength protection subsystems are integrated solutions that combine tap couplers, splitters,
switches, electronics, firmware, software and third-party photo detectors. These subsystems integrate network switching protection functions and monitor optical signal quality such as optical power in response to unexpected disruption in the optical
network. They provide redundant path protection with fast routing and switching with network fault management and diagnostic capability.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Optical Switching and Routing Products.    As optical networks become more complex, there is an increasing demand to provide
switching and routing capability to direct optical signals across multiple points in the network. We supply optical fiber switching and routing products that provide all-optical signal switching between fibers with up to eight different end
destinations.



| | - | Switches.    Optical switches are devices that can direct optical signals to different end destinations.
| | - | --------------------------------------------------------------------------------------------------------



| | - | Optical Add/Drop Multiplexers.    Optical add/drop multiplexers, or OADMs, are used when part of the information from an optical signal carried on the
network is demultiplexed, or dropped, at an intermediate point and different information is multiplexed, or added, for subsequent transmission. The remaining traffic passes through the multiplexer without additional processing. The OADM is typically
used for rerouting a number of specific optical wavelengths with different end destinations. OADMs can also include other optical components such as optical conditioning products or optical monitoring products for increased functionality.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | - | Reconfigurable OADMs.    Reconfigurable OADMs combine OADM functionality, optical switching and conditioning products, electronic circuitry, integrated
firmware and software to add remote configuration and provisioning flexibility to the network by allowing the dynamic add/drop of variable optical wavelengths having different amplitudes with different end destinations.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Circulators.    Circulators consist of sophisticated micro-optic components that are used to direct optical signals between different fibers. Circulators
are also used in optical amplifying applications and used in DWDM fiber grating based wavelength expansion products.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Wavelength Conditioning Products.    For reliable fiber optic communication systems, the light signal intensity needs to be
controlled. For example, excess input power can overload the receivers and an optical attenuator is used to reduce the input signal to the level required by the receiver. Wavelength conditioning products are used in optical networks along with DWDM
multiplexers and demultiplexers, optical amplifiers, and re-configurable optical add drop multiplexers to provide the power control functions.



| | - | Variable Optical Attenuators.    Variable optical attenuators, or VOAs, are optical devices that reduce the power of the optical signal in DWDM networks
to ensure that all optical signals within a network have equal power. The amount of power reduction of a particular optical signal can be adjusted to match the power of other optical signals in the network thereby enhancing network performance and
service quality.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Dynamic Band Equalization Products.    Dynamic band equalization products monitor and adjust power levels of multiple bands of ITU channels. These
subsystems separate multiple ITU channels into bands of channels, and then monitor and control the power levels of these bands through standard telecommunication interfaces such as RS232 and then multiplex these multiple bands onto a single fiber.
They are used for power equalization in various parts of the network including metro and long haul.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Customers



We sell our products worldwide to communications equipment suppliers. In certain cases, we sell our products to our competitors or other component
manufacturers for their resale or integration into their own products. During the fiscal year ended June 30, 2003, we sold our products to over 240 companies worldwide.



Our top ten customers, although not the same ten customers for each period, together accounted for 72%, 73% and 83% of our
revenues in the fiscal years ended June 30, 2003, 2002 and 2001, respectively. Nortel Networks Corporation, Adva AG Optical Networking and Marubun Corporation each accounted for greater than 10% of our total revenues for the fiscal year ended June
30, 2003, and Siemens AG and Marubun Corporation each accounted for greater than 10% of our revenues for the fiscal year ended June 30, 2002. Agere Systems, Inc., Lucent Technologies, Nortel Networks Corporation and Sycamore Networks each accounted
for greater than 10% of our revenues for the fiscal year ended June 30, 2001. We expect that the majority of our revenues will continue to depend on sales to a relatively small set of customers, although potentially not the same customers period to
period. In addition, some of our customers are companies with which we presently compete or in the future may compete. See Note 2 Concentration of Credit Risk, of Notes to Consolidated Financial Statements.



Backlog



We define backlog to include orders for which we expect to recognize revenues within the succeeding twelve months.
Historically, through early calendar 2001, a substantial portion of our net revenues in any fiscal period has been derived from orders in backlog. However, due to the downturn in the fiber optics industry, we are substantially dependent upon orders
we receive and fill on a short-term basis. Backlog has significantly declined and as of June 30, 2003, we do not believe that backlog is a reliable indicator of our future revenues for the next year. Sales are made pursuant to purchase orders, which
are frequently subject to revision or cancellation. Because of the possibility of changes in delivery or acceptance schedules, cancellations of orders, returns or price reductions, our backlog, as of any particular date, may not be representative of
actual sales for any succeeding period.



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Marketing, Sales and Customer Support



We market and sell our products through both direct sales and distribution channels, including five domestic and ten
international sales representatives and distributors. Our sales representatives and distributors are independent organizations within North America, Europe and Asia. As of June 30, 2003, we employed 19 people in sales, marketing and customer service
and support in the U.S. and 6 people in sales and marketing in our Zhuhai, China facility, who manage key customer accounts and support our direct sales force, sales representatives and distributors. Our marketing team promotes our products within
the communications industry as well as gathers and analyzes market research. Our marketing professionals help us to identify and define next-generation products by working closely with our customers and our research and development engineers. They
also coordinate our participation in trade shows and design and implement our advertising effort.



Product Development



As
of September 19, 2003, we had 14 engineers, 5 of whom hold Ph.D. degrees, involved in research and development of our products. Our engineering team has extensive design, packaging, processing, electrical, mechanical, firmware and software
experience in the fields of fiber optic components, integrated optic interfaces and systems.



Our primary product development center is located in Zhuhai, China. Our research and development expense, including non-cash compensation expense, was
$8.5 million, $14.8 million and $22.0 million for the fiscal years ended June 30, 2003, 2002 and 2001, respectively. We spend a substantial proportion of our financial resources on our research and development budget and staff to enhance our current
fiber optic subsystems, integrated modules and components and to develop new technologies and products to serve the current and next-generation communication markets.



Manufacturing



We currently manufacture substantially all of our subsystems, integrated modules and components at our manufacturing facilities in China. We maintain a
pilot line at our headquarters in San Jose, California. During the fiscal year ended June 30, 2003, we completed the transfer of manufacturing processes and assembly operations to our facility in Zhuhai, China.



Our facility in Zhuhai maintains complete in-house manufacturing capabilities
including component and module design, integration, production and testing. We plan to continue to invest resources in manufacturing management, engineering and quality control. We also plan to continue to develop automated manufacturing systems to
provide higher throughput, improve yields and reduce manufacturing costs.



We also lease a facility located in Shanghai, China, which is used for administration, manufacturing and research and development. In July 2003, we announced the plan to sell our Shanghai facility and that the results
of our Shanghai operation would be disclosed separately as loss from discontinued operation.



In accordance with our restructuring plans announced on July 2, 2001, our facilities in Beijing, Chengdu and Fuzhou were closed during fiscal 2002. We leased 230,000 square feet of our facilities in the Zhuhai Free
Trade Zone to third parties and will attempt to lease to third parties the remaining facilities that are in excess of our current requirements.



A number of critical raw materials used in manufacturing our products are acquired from single or limited source suppliers. The inability to obtain
sufficient quantities of those materials may result in delays, increased costs and reductions in our product shipments.



We are subject to various federal, state and local laws and regulations relating to the storage, use, discharge and disposal of toxic or otherwise
hazardous or regulated chemicals or materials used in our manufacturing



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processes. To date, such laws and regulations have not materially affected our capital expenditures, earnings and competitive position. We do not anticipate
any material capital expenditures for environmental control facilities for the foreseeable future.



Quality



We have
established a quality management system to assure that the products we provide to our customers meet or exceed industry standards. This system is based on the international standard ISO 9001. Our U.S. headquarters have been third-party certified to
the ISO 9001-1994 standard in research and manufacturing since July 1998. Our manufacturing operations at Zhuhai and Shanghai, China are both third-party certified to the ISO 9001:2000 standard.



Competition



The markets in which we sell our products are highly competitive. Our overall competitive position depends upon a number of
factors, including:



| | - | selling price;
| | - | --------------



| | - | the breadth of our product line;
| | - | --------------------------------



| | - | availability, performance and reliability of our products;
| | - | ----------------------------------------------------------



| | - | our ability to participate in the growth of emerging technologies;
| | - | ------------------------------------------------------------------



| | - | the ability to win designs through prototyping;
| | - | -----------------------------------------------



| | - | the compatibility of our products with existing communications networks;
| | - | ------------------------------------------------------------------------



| | - | the quality of our manufacturing processes; and
| | - | -----------------------------------------------



| | - | manufacturing capacity and capability.
| | - | --------------------------------------



We believe that our principal competitors are the major manufacturers of optical subsystems, integrated modules and components, including both vendors
selling to third parties and business divisions within communications equipment suppliers. Our principal competitors in the fiber optic subsystems, integrated modules and components market include Avanex Corporation (including the photonic
technologies business of Corning Incorporated), DiCon Fiberoptics, Inc., Furukawa Electrical Co., Ltd., FDK Corporation, NEL Hitachi Cable, Santec Corporation, Tyco Electronics and JDS Uniphase Corporation. We believe that we primarily compete with
diversified suppliers, such as JDS Uniphase, Santec and FDK, for the majority of our product line and to a lesser extent with niche players that offer a more limited product line.



Many of these companies have substantially greater financial, engineering and manufacturing resources as well as greater
name recognition and stronger customer relationships. Competitors in any portion of our business may also rapidly become competitors in other portions of our business. In addition, our industry has recently experienced significant consolidation, and
we anticipate that further consolidation will occur. This consolidation has increased, and will likely continue to increase competition.



Intellectual Property



To date, we have been granted 43 issued patents, have 6 allowed applications awaiting issuance and have 27 patent applications pending with the U.S.
Patent and Trademark Office for various technologies and products, including DWDM interleavers, DWDM subsystems, multi-channel optic filter arrays, high reliability fused couplers, circulators, compact optical switches and polarization beam
combiners. The terms of our patents are computed in accordance with United States federal patent statutes. In general, this means that a patent will have a



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term expiring twenty years from its filing date. All issued patents for our core technology will not expire for at least a decade. In addition, we currently
have 28 pending patent applications in the Peoples Republic of China, 14 of which are counterparts to U.S. patents or patent applications.



While we rely on patent, copyright, trade secret and trademark law and restrictions on disclosure to protect our technology, we believe that factors such
as the technological and creative skills of our personnel, new product developments, frequent product enhancements and reliable product maintenance are essential to establishing and maintaining a technology leadership position. We cannot assure you
that others will not develop technologies that are similar or superior to our technology.



Protecting our intellectual property is critical to the success of our business. Despite our efforts to protect our proprietary rights, various unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. Policing unauthorized use of our products is difficult, and there can be no assurance that the steps taken by us will prevent misappropriation of our technology. Moreover, the laws of some foreign countries, including China,
do not protect our proprietary rights as fully as in the United States.



Substantial litigation regarding intellectual property rights exists in the optical communications industry. We expect that fiber optic subsystems, integrated modules and components may be increasingly subject to third-party infringement
claims as the functionality of products in different industry segments overlaps. In addition, we believe that many of our competitors in the optical communications industry have filed or intend to file patent applications covering aspects of their
technology on which they may claim our technology infringes. For example, in June 2000, Chorum Technologies, Inc. filed a lawsuit against us and our wholly-owned subsidiary, Telelight Communication Inc., in the United States District Court for the
Northern District of Texas alleging, among other things, infringement of two U.S. patents allegedly owned by Chorum relating to fiber optic interleaving, based on our manufacture of and offer to sell various fiber optic interleaver products. On
May 7, 2001, we filed a lawsuit in the United States District Court for the District of Delaware, alleging, among other matters, that Chorum infringes one of our patents relating to fiber optic couplers based on Chorums manufacture
of and offer to sell various DWDM products. In October 2001, we reached an agreement with Chorum and its affiliates to dismiss the patent infringement litigation between the companies without prejudice. However, we cannot assure you that Chorum or
Oplink will not in the future elect to refile the prior patent infringement actions or file new patent infringement actions against the other.



We are also currently subject to a lawsuit filed by Oz Optics Limited et al. alleging trade secret misappropriation and other related claims. The
plaintiffs seek actual damages against four individuals, including our former Vice President of Product Line Management, Zeynep Hakimoglu, and three other unrelated individuals, and us in the amounts of approximately $17,550,000 and $1,500,000,
respectively, and enhanced damages, injunctive relief, costs and attorney fees, and other relief. The plaintiffs sought a temporary restraining order in December 2001, which the court denied, and withdrew their preliminary injunction motion against
us. We answered the complaint on January 22, 2002, denying plaintiffs claims. The case is in the early stages of discovery and no trial date has been set. We believe that the claims against us are without merit and we intend to defend
ourselves against such claims vigorously.



We cannot make any
assurances that other third parties will not claim infringement by us with respect to our technology. Any such claims, with or without merit, could be time-consuming to defend, result in costly litigation, divert managements attention and
resources, cause product shipment delays or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us, if at all. A successful claim of product
infringement against us and our failure or inability to license the infringed or similar technology could seriously harm our financial condition.



Employees



As of June 30, 2003, we had 78 full-time employees located in the United States and 598 full-time employees located in China. None of our employees in the
United States are represented by a labor union. All of



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our employees in Zhuhai are represented by a labor union formed on November 6, 2001, pursuant to the requirements of the Chinas Labor Union Law. We
have not experienced any work stoppages and we consider our relations with our employees to be good.



Financial Information About Geographic Areas



The breakdown of sales by geographic customer destination is as follows (in thousands):



|              |  | Years Ended June 30,
|------------- |  | --------------------
|              |  | 2003                
|Sales:        |  |                     
|United States |  | $                   
|Europe        |  |                     
|Asia          |  |                     
|Canada        |  |                     
|              |  |                     
|Totals        |  | $                   
|              |  |                     



The breakdown of
property, plant and equipment, net by geographical location is as follows (in thousands):



|                                    |  | June 30,
|----------------------------------- |  | --------
|                                    |  | 2003    
|Property, plant and equipment, net: |  |         
|United States                       |  | $       
|Peoples Republic of China          |  |         
|                                    |  |         
|Totals                              |  | $       
|                                    |  |         



Executive Officers and Directors



The following table sets forth certain information
regarding our executive officers as of September 10, 2003:



|Name                   |  | Age |  | Position                                       
|---------------------- |  | --- |  | -----------------------------------------------
|Joseph Y. Liu          |  | 52  |  | Chief Executive Officer, President and Director
|Bruce D. Horn          |  | 52  |  | Chief Financial Officer and Treasurer          
|River Gong             |  | 40  |  | Vice President, Sales                          
|Xinglong Wang          |  | 38  |  | Vice President, Operations                     
|Herbert Chang(1)(2)    |  | 41  |  | Chairman of the Board of Directors             
|Chieh Chang(2)(3)      |  | 51  |  | Director                                       
|Allen Hsu(2)(4)        |  | 50  |  | Director                                       
|Jesse W. Jack(1)(3)(4) |  | 67  |  | Director                                       
|Leonard J. LeBlanc(3)  |  | 62  |  | Director                                       

---

|(1) | Member of the Nominating and Corporate Governance Committee.
|--- | ------------------------------------------------------------

|(2) | Member of the Compensation Committee.
|--- | -------------------------------------

|(3) | Member of the Audit Committee.
|--- | ------------------------------

|(4) | Member of the Special Litigation Committee.
|--- | -------------------------------------------



Joseph Y. Liuis one of our founders and has served as our Chief Executive Officer, President and a member of our Board of Directors since October
2002. Previously, Mr. Liu was a board member from August 2002 to October 2002. Mr. Liu was our Chief Executive Officer from September 1999 to November 2001. Mr. Liu was our Chairman of the Board of Directors from November 2001 to
August 2002 and



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since our inception in 1995 through May 2000. From 1994 to 1995, Mr. Liu was the General Partner of Techlink Technology Ventures. Prior to 1994, Mr. Liu
spent ten years as Chairman and Chief Executive Officer of Techlink Semiconductor and Equipment Corp., a semiconductor equipment and technology company. Mr. Liu also serves as a director of InterVideo, Inc., a DVD software provider. Mr. Liu received
his B.S. from Chinese Cultural University, Taiwan and his M.S. from California State University, Chico.



Bruce D. Hornhas served as our Chief Financial Officer and Treasurer since April 2000. Prior to joining Oplink, Mr. Horn was a consultant at The
Brenner Group, a consulting firm, from February 2000 to April 2000. From January 1993 to February 2000, Mr. Horn was the Vice President of Finance and Chief Financial Officer, and from March 1991 to January 1993 he was Director of Finance and Chief
Financial Officer, of Larscom Incorporated, a telecommunications company. Mr. Horn received his B.A. in Accounting from the University of Northern Iowa, and his M.B.A. in Finance from California State University at Hayward.



River Gong has served as our Vice President of Sales since February
2003. From January 2001 to February 2003, Ms. Gong served as our Sr. Director of Sales, from May 1999 to January 2001 she was Director of Sales, and from January 1998 to May 1999 she was Sales Manager. Prior to joining Oplink, Ms. Gong was Division
Manager and Sales Manager of MP Fiber Optics (now Global Opticom), a fiber optics company, from January 1995 to December 1997. Prior to that, she was an architect in China for five years. Ms. Gong received her B.S. in Architecture from Harbin
Institute University.



Xinglong Wanghas served as our
Vice President of Operations since July 2003. From September 2001 to July 2003, Mr. Wang was Director of New Product Introduction Components, and from August 1999 to September 2001 he was Director of Manufacturing Operations, of JDS Uniphase
Corporation, a fiber optics company. From September 1996 to August 1999, Mr. Wang was Manager of Operations of Kaifa Technology (now JDS Uniphase). Mr. Wang received his Ph.D., M.S. and B.S. in Optical Engineering from Tianjin University in
China.



Herbert Chang has been a member of our
Board of Directors since August 1996 and became the chairman of the board in August 2002. Since April 1996, Mr. Chang has been President of InveStar Capital Inc., a technology venture capital management firm based in Taiwan. From 1994 to 1996, Mr.
Chang was Senior Vice President at WK Technology Fund, a venture capital fund. Mr. Chang serves on the board of directors of Marvell Technology Group Ltd., a manufacturer of integrated circuits for communications-related markets, and Vialta, Inc., a
home entertainment and communications products company. Mr. Chang received his B.S. from National Taiwan University and his M.B.A. from National Chiao-Tung University in Taiwan.



Chieh Chang has been a member of our Board of Directors since September 1995. From February 2000 to February 2003,
Mr. Chang has served as Chief Executive Officer of Programmable Microelectronics Company, Inc., a fabless semiconductor design company. From April 1992 to August 1996, Mr. Chang was the Director of Technology at Cirrus Logic, Inc., a semiconductor
company. Mr. Chang received his B.S. in Electrical Engineering from the National Taiwan University and his M.S. in Electrical Engineering from UCLA.



Allen Hsu has been a member of our Board of Directors since September 2002. Since May 1998, Mr. Hsu has served as chairman of Paclink Management
Corporation, a venture capital management firm. Since 1990, Mr. Hsu has been a Deputy Managing Director of Yulon Group, an industrial conglomerate based in Taiwan. Mr. Hsu serves on the boards of directors of Taiwan Mask Corporation, Altek
Corporation, Myson-Century Inc., Programmable Microelectronics (Taiwan) Corporation, Antek Semiconductors Corporation and Anachip Corporation. Mr. Hsu received his B.S. in Management Science from National Chiao-Tung University and an M.B.A.
from National Cheng-Chi University.



Jesse W. Jack has
been a member of our Board of Directors since July 2002. Since January 2003, Mr. Jack has been self-employed as an attorney with The Law Offices of Jesse Jack. He is also the Vice President and General Counsel for I-Bus Corporation, a privately held
company. From 1994 until January 2003, Mr. Jack was a



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partner in the law firm of Jack & Keegan, a California Limited Liability Partnership. Mr. Jack served on the board of directors of The Parkinsons
Institute from 1988 through 2000. Mr. Jack received his B.S. from California State University, San Jose and his J.D. from Hastings College of Law.



Leonard J. LeBlanc has been a member of our Board of Directors since July 2000. Since August 2000, Mr. LeBlanc has been on the Board of
Directors of eBest Inc. and since February 2001 has been Vice President of Corporate Development and Acting Chief Financial Officer of eBest Inc., a private software company providing collaborative business management solutions. Mr. LeBlanc was the
Executive Vice President and Chief Financial Officer of Vantive Corporation, a customer relationship management software and solution company, from August 1998 to January 2000. From March 1996 to July 1997, Mr. LeBlanc was the Executive Vice
President of Finance and Administration and Chief Financial Officer at Infoseek Corporation, an Internet search and navigation company. From September 1993 to December 1994, Mr. LeBlanc served as Senior Vice President, Finance and Administration of
GTECH Corporation, a manufacturer of lottery equipment and systems. From May 1987 to December 1992, Mr. LeBlanc served as Executive Vice President, Finance and Administration and Chief Financial Officer of Cadence Design Systems, Inc., an electronic
design automation software company. Mr. LeBlanc also serves on the board of directors of AXT, Inc., a company involved with the manufacture and sale of high-performance compound semiconductor substrates. Mr. LeBlanc received his B.S. and M.S. from
the College of Holy Cross, and his masters degree in finance from George Washington University.



RISK FACTORS



In
addition to the risks discussed in Business or Managements Discussion of Financial Condition and Results of Operations, our business is subject to the risks set forth below.



RISKS RELATED TO OUR BUSINESS



WE HAVE INCURRED SIGNIFICANT LOSSES, AND OUR FAILURE TO INCREASE OUR REVENUES COULD
PREVENT US FROM ACHIEVING PROFITABILITY.



We have incurred
significant losses since our inception in 1995 and expect to incur losses in the future. We incurred net losses of $36.8 million, $68.4 million and $80.4 million for the fiscal years ended June 30, 2003, 2002 and 2001, respectively. We have not
achieved profitability on a quarterly or annual basis since inception. As of June 30, 2003, we had an accumulated deficit of $218.0 million. We will need to generate significantly greater revenues while containing costs and operating expenses to
achieve profitability. Our revenues may not grow in future quarters, and we may never generate sufficient revenues to achieve profitability.



WE DEPEND UPON A SMALL NUMBER OF CUSTOMERS FOR A SUBSTANTIAL PORTION OF OUR REVENUES, AND ANY DECREASE IN REVENUES FROM, OR LOSS OF, THESE CUSTOMERS WITHOUT A
CORRESPONDING INCREASE IN REVENUES FROM OTHER CUSTOMERS WOULD HARM OUR OPERATING RESULTS.



We depend upon a small number of customers for a substantial portion of our revenues. Our top ten customers, although not the same ten customers for each period, together accounted for 72%, 73% and 83% of our revenues
in the fiscal years ended June 30, 2003, 2002 and 2001, respectively. Nortel Networks Corporation, Adva AG Optical Networking and Marubun Corporation each accounted for greater than 10% of our revenues for the fiscal year ended June 30, 2003, and
Siemens AG and Marubun Corporation each accounted for greater than 10% of our revenues for the fiscal year ended June 30, 2002. Agere Systems, Inc., Lucent Technologies, Nortel Networks Corporation and Sycamore Networks each accounted for greater
than 10% of our revenues for the fiscal year ended June 30, 2001. We expect that we will continue to depend upon a small number of customers, although potentially not the same customers, for a substantial portion of our revenues.



Our revenues generated from these customers, individually or in the
aggregate, may not reach or exceed historic levels in any future period. We may not be the sole source of supply to our customers, and they may



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choose to purchase products from other vendors. Furthermore, the businesses of our existing customers are experiencing a downturn, which is resulting, in
some instances, in significantly decreased sales to these customers and harming our results of operations. Loss or cancellations of orders from, or any further downturn in the business of, any of our customers could harm our business. Our dependence
on a small number of customers may increase if the fiber optic subsystems, integrated modules and components industry and our target markets continue to consolidate.



OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE DIFFICULT TO PREDICT AND MAY CONTINUE TO FLUCTUATE SIGNIFICANTLY FROM QUARTER TO
QUARTER, AND THEREFORE, MAY VARY FROM INVESTORS EXPECTATIONS, WHICH COULD CAUSE OUR STOCK PRICE TO DROP.



It is difficult to forecast our revenues accurately. Moreover, our revenues, expenses and operating results have varied significantly from quarter to
quarter in the past and may continue to fluctuate significantly in the future. The factors, many of which are more fully discussed in other risk factors, that are likely to cause these variations include, among others:



| | - | economic downturn and uncertainty of the fiber optic industry;
| | - | --------------------------------------------------------------



| | - | economic conditions specific to the communications and related industries and the development and size of the markets for our products;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| | - | fluctuations in demand for, and sales of, our products;
| | - | -------------------------------------------------------



| | - | cancellations of orders and shipment rescheduling;
| | - | --------------------------------------------------



| | - | our ability to successfully improve our manufacturing capability in our facilities in China;
| | - | --------------------------------------------------------------------------------------------



| | - | the availability of raw materials used in our products and increases in the price of these raw materials;
| | - | ---------------------------------------------------------------------------------------------------------



| | - | the ability of our manufacturing operations in China to timely produce and deliver products in the quantity and of the quality we require;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



| | - | our ability to achieve acceptable production yields in China;
| | - | -------------------------------------------------------------



| | - | the practice of communication equipment suppliers to sporadically place large orders with short lead times;
| | - | -----------------------------------------------------------------------------------------------------------



| | - | the mix of products and the average selling prices of the products we sell;
| | - | ---------------------------------------------------------------------------



| | - | competitive factors, including introductions of new products, new technologies and product enhancements by competitors, consolidation of competitors in the fiber optic subsystems,
integrated modules and components market and pricing pressures;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | our ability to develop, introduce, manufacture and ship new and enhanced optical networking products in a timely manner without defects; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| | - | costs associated with and the outcomes of any intellectual property or other litigation to which we are, or may become, a party.
| | - | --------------------------------------------------------------------------------------------------------------------------------



Due to the factors noted above and other risks discussed in this section, we
believe that quarter-to-quarter comparisons of our operating results will not be meaningful. Moreover, if we experience difficulties in any of these areas, our operating results could be significantly and adversely affected and our stock price could
decline. Also, it is possible that in some future quarter our operating results may be below the expectations of public market analysts and investors, which could cause our stock price to fall.



WE DEPEND ON THE CONTINUED GROWTH AND SUCCESS OF THE COMMUNICATIONS INDUSTRY, WHICH IS
EXPERIENCING A SIGNIFICANT ECONOMIC DOWNTURN, AS WELL AS RAPID CONSOLIDATION AND REALIGNMENT AND MAY NOT CONTINUE TO DEMAND FIBER OPTIC PRODUCTS AT HISTORICAL RATES, THEREBY REDUCING DEMAND FOR OUR PRODUCTS AND HARMING OUR OPERATING RESULTS.



We depend on the continued growth and success of the
communications industry, including the continued growth of the Internet as a widely-used medium for commerce and communication and the continuing demand



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for increased bandwidth over communications networks. As a result of recent unfavorable economic conditions and reduced capital spending in the
communications industry, our growth rate may be significantly lower than our historical quarterly growth rate.



Furthermore, the rate at which communications service providers and other fiber optic network users have built new fiber optic networks or installed new
systems in their existing fiber optic networks has fluctuated in the past and these fluctuations may continue in the future. These fluctuations may result in reduced demand from historical rates for new or upgraded fiber optic systems that utilize
our products and, therefore, may result in reduced demand for our products.



The communications industry is also experiencing rapid consolidation and realignment, as industry participants seek to capitalize on the rapidly changing competitive landscape developing around the Internet and new
communications technologies such as fiber optic and wireless communications networks. As the communications industry consolidates and realigns to accommodate technological and other developments, our customers may consolidate or align with other
entities in a manner that harms our business.



BECAUSE A HIGH PERCENTAGE OF
OUR EXPENSES IS FIXED IN THE SHORT TERM, OUR OPERATING RESULTS ARE LIKELY TO BE HARMED IF WE DO NOT EXPERIENCE GROWTH IN GENERATING AND RECOGNIZING REVENUES.



A high percentage of our expenses, including those related to manufacturing, engineering, research and development, sales
and marketing and general and administrative functions, is fixed in the short term. As a result, if we do not experience growth in generating and recognizing revenues, our quarterly operating results are likely to be harmed. For example, during the
four quarters ended June 30, 2003, we did not experienced growth as compared to the same period in fiscal 2002. In the first, second, third and fourth quarters of each of fiscal 2002 and fiscal 2003, our net loss was $45.0 million, $6.7 million,
$8.4 million, $8.2 million, $8.7 million, $14.4 million, $3.0 million and $10.7 million, respectively.



New product development and introduction can also result in a mismatching of research and development expenses and sales and marketing expenses that are
incurred in one quarter with revenues that are not recognized, if at all, until a subsequent quarter when the new product is introduced and commercially accepted. If growth in our revenues does not exceed the increase in our expenses, our results of
operations will be harmed.



WE COMPETE IN A HIGHLY COMPETITIVE INDUSTRY, AND
IF WE ARE UNABLE TO COMPETE SUCCESSFULLY OUR REVENUES COULD DECLINE FURTHER, WHICH WOULD HARM OUR OPERATING RESULTS.



The market for fiber optic subsystems, integrated modules and components is intensely competitive. We believe that our principal competitors are the major
manufacturers of optical subsystems, integrated modules and components, including vendors selling to third parties and business divisions within communications equipment suppliers. Our principal competitors in the fiber optic subsystems, integrated
modules and components market include Avanex Corporation (including the photonic technologies business of Corning Incorporated), DiCon Fiberoptics, Inc., Furukawa Electrical Co., Ltd., FDK Corporation, NEL Hitachi Cable,
Santec Corporation, Tyco Electronics and JDS Uniphase Corporation. We believe that we primarily compete with diversified suppliers, such as JDS Uniphase, Santec and FDK, for the majority of our product line and to a lesser extent with
niche players that offer a more limited product line. Competitors in any portion of our business may also rapidly become competitors in other portions of our business. In addition, our industry has recently experienced significant consolidation, and
we anticipate that further consolidation will occur. This consolidation has further increased competition.



Many of our current and potential competitors have significantly greater financial, technical, marketing, purchasing, manufacturing and other resources
than we do. As a result, these competitors may be able to respond more quickly to new or emerging technologies and to changes in customer requirements, to devote greater resources to the development, promotion and sale of products, or to deliver
competitive products at lower prices.



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Several of our existing and potential customers are also current and potential competitors of ours. These
companies may develop or acquire additional competitive products or technologies in the future and thereby reduce or cease their purchases from us. In light of the consolidation in the optical networking industry, we also believe that the size of
the optical component and module suppliers will become increasingly important to our current and potential customers in the future. Current and potential vendors may also consolidate with our competitors and thereby reduce or cease providing
materials and equipment to us. Also, we expect to pursue optical contract manufacturing opportunities in the future. We may not be able to compete successfully with existing or new competitors, and the competitive pressures we face may result in
lower prices for our products, loss of market share, the unavailability of materials and equipment used in our products, or reduced gross margins, any of which could harm our business.



New technologies are emerging due to increased competition and customer demand. The introduction of new products
incorporating new technologies or the emergence of new industry standards could make our existing products noncompetitive. For example, new technologies are being developed in the design of wavelength division multiplexers that compete with the thin
film filters that we incorporate in our products. These technologies include arrayed waveguide grating, or AWG, and planar lightwave circuit, or PLC. Additionally, a new technology being developed in the design of equalization and switching is
microelectro mechanical systems, or MEMs, that compete with bulk micro-optics that we incorporate into our product. If our competitors adopt new technologies before we do, we could lose market share and our business would suffer.



IF WE FAIL TO EFFECTIVELY MANAGE OUR MANUFACTURING CAPABILITY IN CHINA, WE MAY NOT BE ABLE
TO DELIVER SUFFICIENT QUANTITIES OF PRODUCTS TO OUR CUSTOMERS IN A TIMELY MANNER, WHICH WOULD HARM OUR OPERATING RESULTS.



As a result of the closure of other facilities in connection with our recent restructuring efforts, we manufacture substantially all of our products in
our facilities in Zhuhai, China. These restructuring efforts also included transferring expertise and resources relating to manufacturing, such as production control, logistics, planning and management and quality control, from our United States
facilities to our facilities in Zhuhai, China. The quality of our products and our ability to ship products on a timely basis may suffer if we cannot effectively maintain the necessary expertise and resources transferred from the United States to
China. Additional risks associated with improving our manufacturing processes and capability in China include:



| | - | a lack of availability of qualified management and manufacturing personnel;
| | - | ---------------------------------------------------------------------------



| | - | difficulties in achieving adequate yields from new manufacturing lines;
| | - | -----------------------------------------------------------------------



| | - | inability to quickly implement an adequate set of financial controls to track and control levels of inventory; and
| | - | ------------------------------------------------------------------------------------------------------------------



| | - | our inability to procure the necessary raw materials and equipment.
| | - | -------------------------------------------------------------------



Communications equipment suppliers typically require that their vendors commit to provide specified quantities of products over a given period of time. We
could be unable to pursue many large orders if we do not have sufficient manufacturing capability to enable us to commit to provide customers with specified quantities of products. If we are unable to commit to deliver sufficient quantities of our
products to satisfy a customers anticipated needs, we will lose the order and the opportunity for significant sales to that customer for a lengthy period of time. Furthermore, if we fail to fulfill orders to which we have committed, we will
lose revenue opportunities and our customer relationships may be harmed.



IF
WE FAIL TO EFFECTIVELY MANAGE OUR OPERATIONS, INCLUDING ANY REDUCTIONS OR INCREASES IN THE NUMBER OF OUR EMPLOYEES, OUR OPERATING RESULTS COULD BE HARMED.



Primarily as a result of the recent economic downturn and slowdown in capital spending, particularly in the communications industry, we have
implemented, and may continue to implement in the future, a number of



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cost-cutting measures, including reductions in our workforce. The impact of these cost-cutting measures, combined with the challenges of managing our
geographically-dispersed operations, has placed, and will continue to place, a significant strain on our management systems and resources. Reductions in our workforce, including reductions in research and development and manufacturing personnel, may
weaken our research and development efforts or cause us to have difficulty responding to sudden increases in customer orders. Moreover, we cannot assure you that our cost-cutting measures will achieve the benefits we project. In addition, our
ability to effectively manage our operations will be challenged to the extent that we begin expanding our workforce. We expect that we will need to continue to improve our financial and managerial controls, reporting systems and procedures, and will
need to continue to train and manage our workforce worldwide. Any failure to effectively manage our operations could harm our operating results.



IF WE FAIL TO EFFECTIVELY CONTROL OUR INVENTORY LEVELS, OUR OPERATING RESULTS COULD BE HARMED.



Because we experience long lead times for raw materials and are often required to purchase significant amounts of raw
materials far in advance of product shipments, we may not effectively control our inventory levels, which could harm our operating results. If we underestimate our requirements, we may have inadequate inventory, which could result in delays in
shipments and loss of customers. On the other hand, if we purchase raw materials in anticipation of orders that do not materialize, we will have to carry or write off excess inventory and our gross margins will decline. For example, for the fiscal
years ended June 30, 2002 and 2001, our gross margin was negatively impacted by a provision of $10.4 million and $30.6 million, respectively, for excess and obsolete inventory due to the downturn in the fiber optics industry. Conversely, our revenue
was also favorably impacted by the unexpected utilization of fully reserved inventory of $619,000, $469,000, $530,000 and $480,000 in the fourth quarter of fiscal 2003, the third quarter of fiscal 2003, the second quarter of fiscal 2003 and the
fourth quarter of fiscal 2002, respectively. Any difficulty managing our inventory levels may cause us to poorly utilize our manufacturing capacity and further harm our operating efficiency.



We have implemented an automated manufacturing management system to replace
our previous system that tracked most of our data, including some inventory levels, manually. The conversion from our previous systems used in Zhuhai, China occurred in the fourth quarter of fiscal 2001, and the conversion at our Zhuhai Free Trade
Zone facility occurred in the second quarter of fiscal 2003. Failure to effectively and properly utilize the new management systems in China could harm our results and increase the risk that we may fail to effectively manage our inventory.



SUBSTANTIALLY ALL OF OUR MANUFACTURING OPERATIONS ARE LOCATED IN CHINA,
WHICH EXPOSES US TO THE RISK THAT OUR FAILURE TO COMPLY WITH THE LAWS AND REGULATIONS OF CHINA, OR EVENTS IN THAT COUNTRY, WILL DISRUPT OUR OPERATIONS.



Substantially all of our manufacturing operations are located in China and are subject to the laws and regulations of China. Our operations in China may
be adversely affected by changes in the laws and regulations of China, such as those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. Chinas central or local governments
may impose new, stricter regulations or interpretations of existing regulations, which would require additional expenditures. Chinas economy differs from the economies of many countries in terms of structure, government involvement,
specificity and enforcement of governmental regulations, level of development, growth rate, capital reinvestment, allocation of resources, self-sufficiency and rate of inflation, among others. Our results of operations and financial condition may be
harmed by changes in the political, economic or social conditions in China.



In addition, events out of our control in China, such as political unrest, terrorism, war, labor strikes and work stoppages, could disrupt our operations. There is currently political tension between the United States
and North Korea and the United States and China, which could, in either case, result in hostilities or a deterioration in relations that would impact our trade relations with China. There is also significant tension between China and



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Taiwan, which could result in hostilities or lead to a breakdown in trade relations between China and the United States. Additionally, China continues
its condemnation of the United States pledge of military support to Taiwan, which could lead to hostilities. If hostilities or other events cause a disruption in our operations, it would be difficult for us to establish manufacturing
operations at an alternative location on comparable terms.



BECAUSE WE
DEPEND ON THIRD PARTIES TO SUPPLY SOME OF OUR RAW MATERIALS AND EQUIPMENT, WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT QUANTITIES OF THESE MATERIALS AND EQUIPMENT, WHICH COULD LIMIT OUR ABILITY TO FILL CUSTOMER ORDERS AND HARM OUR OPERATING RESULTS.



Difficulties in obtaining raw materials in the future may
limit our product shipments. We depend on third parties to supply the raw materials and equipment we use to manufacture our products. To be competitive, we must obtain from our suppliers, on a timely basis, sufficient quantities of raw materials at
acceptable prices. We obtain most of our critical raw materials from a single or limited number of suppliers and generally do not have long-term supply contracts with them. As a result, our suppliers could terminate the supply of a particular
material at any time without penalty.



Our failure to obtain
these materials or other single or limited-source raw materials could delay or reduce our product shipments, which could result in lost orders, increase our costs, reduce our control over quality and delivery schedules and require us to redesign our
products. Some of our raw material suppliers are single sources, and finding alternative sources may involve significant expense and delay, if these sources can be found at all. For example, all of our GRIN lenses, which are incorporated into
substantially all of our products, are obtained from Nippon Sheet Glass, the dominant supplier worldwide of GRIN lenses. If a significant supplier became unable or unwilling to continue to manufacture or ship materials in required volumes, we would
have to identify and qualify an acceptable replacement. A material delay or reduction in shipments, any need to identify and qualify replacement suppliers or any significant increase in our need for raw materials that cannot be met on acceptable
terms could harm our business. In addition, due to the severe downturn in the optical and communications industries, manufacturers and vendors that we rely upon for raw materials may scale back their operations or cease to do business entirely as a
result of financial hardship or other reasons. Delays in the delivery of raw materials, increases in the cost of the raw materials or the unavailability of the raw materials could harm our operating results.



We also depend on a limited number of manufacturers and vendors that make and
sell the complex equipment we use in our manufacturing process. In periods of high market demand, the lead times from order to delivery of this equipment could be as long as six months. Delays in the delivery of this equipment or increases in the
cost of this equipment could harm our operating results.



DISRUPTION TO
COMMERCIAL ACTIVITIES IN THE UNITED STATES OR IN OTHER COUNTRIES MAY ADVERSELY IMPACT OUR RESULTS OF OPERATIONS, OUR ABILITY TO RAISE CAPITAL OR OUR FUTURE GROWTH.



We derive a substantial portion of our revenues from customers located outside the United States and a substantial portion
of our operations are located in China. Our international operations expose us to a number of additional risks associated with international operations, including, without limitation:



| | - | fluctuations in currency exchange rates, particularly with respect to the U.S. dollar and Chinese Renminbi exchange rate;
| | - | -------------------------------------------------------------------------------------------------------------------------



| | - | disruptions to commercial activities or damage to our facilities as a result of political unrest, war, terrorism, labor strikes and work stoppages;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| | - | difficulties and costs of staffing and managing foreign operations with personnel who have expertise in optical network technology;
| | - | -----------------------------------------------------------------------------------------------------------------------------------



| | - | unexpected changes in regulatory or certification requirements for optical systems or networks;
| | - | -----------------------------------------------------------------------------------------------



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| | - | disruptions in the transportation of our products and other risks related to the infrastructure of foreign countries; and
| | - | -------------------------------------------------------------------------------------------------------------------------



| | - | economic instability.
| | - | ---------------------



To the extent that such disruptions interfere with our commercial activities, our results of operations could be harmed.



The recent outbreak of severe acute respiratory syndrome, or SARS, that began
in China, Hong Kong, Singapore and Vietnam seems to have subsided but may reappear and then may have a negative impact on our operations and financial results. Risks related to the outbreak of SARS, include, but are not limited to, temporary closure
of one or more of our facilities in China which, in turn, would reduce our manufacturing capability; disruption to our research and development efforts located at our China facilities; and loss of product orders from our customers and loss of raw
materials or equipment from our suppliers to the extent that the operations of our customers or suppliers, respectively, are impacted by the outbreak of SARS. The outbreak of SARS has also increased political and social tension which may generally
affect the China economy and the international economy and, as a result, could lead to reduced sales in international retail channels and increased supply chain costs for us.



A significant portion of our operations are conducted in currencies other than the United States dollar, particularly, in
Chinese Renminbi. Our operating results are therefore subject to fluctuations in foreign currency exchange rates. To the extent that the United States dollar weakens relative to other currencies, our sales made in foreign currencies would be
positively impacted although intercompany payments from our China subsidiaries to our parent corporation that are made in United States dollars would be negatively impacted. Conversely, to the extent that the United States dollar strengthens
relative to other currencies, our sales made in foreign currencies would be negatively impacted although intercompany payments from our China subsidiaries to our parent corporation that are made in United States dollars would be positively impacted.
A number of commentators have recently suggested that a strengthening of the Chinese Renminbi relative to the United States dollar is anticipated at some point in the future, however, governmental authorities in China have been noncommittal to date.
To reduce our gains and losses associated with converting foreign currencies into United States dollars, we may elect in the future to enter into foreign exchange forward contracts to hedge our foreign currency exposure. However, we cannot be
certain that any such hedging activities will be effective, or available to us at commercially reasonable rates. As a result, we will continue to experience foreign currency gains and losses.



CURRENCY RESTRICTIONS IN CHINA MAY LIMIT THE ABILITY OF OUR SUBSIDIARIES IN CHINA TO
OBTAIN AND REMIT FOREIGN CURRENCY NECESSARY FOR THE PURCHASE OF IMPORTED COMPONENTS AND MAY LIMIT OUR ABILITY TO OBTAIN AND REMIT FOREIGN CURRENCY IN EXCHANGE FOR RENMINBI EARNINGS.



Chinas government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases,
the remittance of currency out of China. Any shortages in the availability of foreign currency may restrict the ability of our Chinese subsidiaries to obtain and remit sufficient foreign currency to pay dividends to us, or otherwise satisfy their
foreign currency denominated obligations, such as payments to us for components which we export to them and for technology licensing fees. Such shortages may also cause us to experience difficulties in completing the administrative procedures
necessary to obtain and remit needed foreign currency. Under the current foreign exchange control system sufficient foreign currency is presently available for our Chinese subsidiaries to purchase imported components or to repatriate profits to us,
but as demands on Chinas foreign currency reserves increase over time to meet its commitments, sufficient foreign currency may not be available to satisfy Chinas currency needs.



Our business could be negatively impacted if we are unable to convert and
remit our sales received in Renminbi into U.S. dollars. Under existing foreign exchange laws, Renminbi held by our Chinese subsidiaries can be converted into foreign currencies and remitted out of China to pay current account items such as payments
to suppliers for imports, labor services, payment of interest on foreign exchange loans and distributions of



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dividends so long as our subsidiaries have adequate amounts of Renminbi to purchase the foreign currency. Expenses of a capital nature such as the repayment
of bank loans denominated in foreign currencies, however, require approval from appropriate governmental authorities before Renminbi can be used to purchase foreign currency for remittance out of China. This system could be changed at any time by
executive decision of the State Council to impose limits on current account convertibility of the Renminbi or other similar restrictions.



Moreover, even though the Renminbi is intended to be freely convertible on current accounts, the State Administration of Foreign Exchange, which is
responsible for administering Chinas foreign currency market, has a significant degree of administrative discretion in interpreting and implementing foreign exchange control regulations. From time to time, the State Administration of Foreign
Exchange has used this discretion in ways that effectively limit the convertibility of current account payments and restrict remittances out of China. Furthermore, in many circumstances the State Administration of Foreign Exchange must approve
foreign currency conversions and remittances. Under the current foreign exchange control system, sufficient foreign currency may not always be available in the future at a given exchange rate to satisfy our currency demands.



IF TAX BENEFITS AVAILABLE TO OUR SUBSIDIARIES LOCATED IN CHINA ARE REDUCED OR REPEALED,
OUR BUSINESS COULD SUFFER.



Our subsidiaries located in
China enjoy tax benefits in China that are generally available to foreign investment enterprises, including full exemption from national enterprise income tax for two years starting from the first profit-making year and/or a 50% reduction in
national income tax rate for the following three years. If our Chinese subsidiaries are unable to extend their tax benefits, our financial condition and results of operations may be adversely impacted. The tax holiday for one of our subsidiaries
expired December 31, 2001, and we are in the second year of a 50% reduction in the national income tax rate. However, operations in such subsidiary have been substantially moved to our Zhuhai Free Trade Zone facility. In addition, local enterprise
income tax is often waived or reduced during this tax holiday/incentive period. Under current regulations in China, foreign investment enterprises that have been accredited as technologically advanced enterprises are entitled to an additional three
year reduction in national income tax by 50%, with a provision that the income tax rate as so reduced may not be lower than 10%. We have substantially moved all of our manufacturing operations to our Zhuhai Free Trade Zone facility. If such
consolidation causes adverse tax treatment, our financial condition and results of operations may be adversely impacted.



OUR WAVELENGTH EXPANSION PRODUCTS HAVE ACCOUNTED FOR A MAJORITY OF OUR REVENUES, AND OUR REVENUES COULD BE HARMED IF THE PRICE OF, OR DEMAND FOR, THESE PRODUCTS
FURTHER DECLINES OR IF THESE PRODUCTS FAIL TO ACHIEVE BROADER MARKET ACCEPTANCE.



We believe that our future growth and a significant portion of our future revenues will depend on the commercial success of our wavelength expansion products. Customers that have purchased wavelength expansion
products may not continue to purchase these products from us. Although we currently offer a broad spectrum of products, sales of our wavelength expansion products accounted for a majority of our revenues in the fiscal years ended June 30, 2003, 2002
and 2001. These products include, among others, dense wavelength division multiplexers, or DWDMs. These products accounted for 67%, 66% and 57% of our revenues in the fiscal years ended June 30, 2003, 2002 and 2001, respectively. Any decline in the
price of, or demand for, our wavelength expansion products, or their failure to achieve broader market acceptance, could harm our revenues.



THE OPTICAL NETWORKING COMPONENT INDUSTRY IS EXPERIENCING DECLINING AVERAGE SELLING PRICES, WHICH COULD CAUSE OUR GROSS MARGINS TO DECLINE AND HARM OUR OPERATING
RESULTS.



The optical networking component industry is
experiencing declining average selling prices, or ASPs, as a result of increasing competition and declining market demand. We anticipate that ASPs will continue to decrease in the future in response to product and new technology introductions by
competitors, price pressures from



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significant customers and greater manufacturing efficiencies achieved through increased automation in the manufacturing process. These declining ASPs have
contributed and may continue to contribute to a decline in our gross margins, which could harm our results of operations.



OUR FAILURE TO ACHIEVE ACCEPTABLE MANUFACTURING YIELDS IN A COST-EFFECTIVE MANNER COULD DELAY PRODUCT SHIPMENTS TO OUR CUSTOMERS AND HARM OUR OPERATING RESULTS.



Because manufacturing our products involves complex and
precise processes and the majority of our manufacturing costs are relatively fixed, manufacturing yields are critical to our results of operations. Lower than expected manufacturing yields could delay product shipments and harm our operating
results. Factors that affect our manufacturing yields include the quality of raw materials used to make our products, quality of workmanship and our manufacturing processes. Our or our suppliers inadvertent use of defective materials could
significantly reduce our manufacturing yields.



Furthermore,
because of the large labor component in and complexity of the manufacturing process, quality of workmanship is critical to achieving acceptable yields. We cannot assure you that we will be able to hire and train a sufficient number of qualified
personnel to cost-effectively produce our products with the quality and in the quantities required by our customers.



Changes in our manufacturing processes or those of our suppliers could also impact our yields. In some cases, existing manufacturing techniques, which
involve substantial manual labor, may not allow us to cost-effectively meet our manufacturing yield goals so that we maintain acceptable gross margins while meeting the cost targets of our customers. We will need to develop new manufacturing
processes and techniques that will involve higher levels of automation in order to increase our gross margins and help achieve the targeted cost levels of our customers. We may not achieve manufacturing cost levels that will allow us to achieve
acceptable gross margins or fully satisfy customer demands. Additionally, our competitors are automating their manufacturing processes. If we are unable to achieve higher levels of automation and our competitors are successful, it will harm our
gross margins.



OUR PRODUCTS MAY HAVE DEFECTS THAT ARE NOT DETECTED UNTIL
FULL DEPLOYMENT OF A CUSTOMERS EQUIPMENT, WHICH COULD RESULT IN A LOSS OF CUSTOMERS, DAMAGE TO OUR REPUTATION AND SUBSTANTIAL COSTS.



Our products are deployed in large and complex optical networks and must be compatible with other system components. Our products can only be fully tested
for reliability when deployed in networks for long periods of time. Our customers may discover errors, defects or incompatibilities in our products after they have been fully deployed and operated under peak stress conditions. Our products may also
have errors, defects or incompatibilities that are not found until after a system upgrade is installed. Errors, defects, incompatibilities or other problems with our products could result in:



| | - | loss of customers;
| | - | ------------------



| | - | loss of or delay in revenues;
| | - | -----------------------------



| | - | loss of market share;
| | - | ---------------------



| | - | damage to our brand and reputation;
| | - | -----------------------------------



| | - | inability to attract new customers or achieve market acceptance;
| | - | ----------------------------------------------------------------



| | - | diversion of development resources;
| | - | -----------------------------------



| | - | increased service and warranty costs;
| | - | -------------------------------------



| | - | legal actions by our customers; and
| | - | -----------------------------------



| | - | increased insurance costs.
| | - | --------------------------



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If any of these occur, our operating results could be harmed.



IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, OUR ABILITY TO SUCCEED WILL BE
HARMED.



Our ability to compete successfully and achieve
future growth will depend, in part, on our ability to protect our proprietary technology. We rely on a combination of patent, copyright, trademark, and trade secret laws and restrictions on disclosure to protect our intellectual property rights.
However, the steps we have taken may not prevent the misappropriation of our intellectual property, particularly in foreign countries, such as China, where the laws may not protect our proprietary rights as fully as in the United States. To date, we
hold 43 issued patents, have 6 allowed applications awaiting issuance and 27 pending patent applications in the United States. In addition, we currently have 28 pending patent applications in the Peoples Republic of China, 14 of which are
counterparts to U.S. patents or patent applications. We cannot assure you that patents will be issued from pending or future applications or that, if patents are issued, they will not be challenged, invalidated or circumvented. Rights granted under
these patents may not provide us with meaningful protection or any commercial advantage. If we are unable to protect our proprietary technology, our ability to succeed will be harmed. We may in the future initiate claims or litigation against third
parties for infringement of our proprietary rights. These claims could result in costly litigation and the diversion of our technical and management personnel.



WE MAY BE INVOLVED IN INTELLECTUAL PROPERTY DISPUTES IN THE FUTURE, WHICH WILL DIVERT MANAGEMENTS ATTENTION AND COULD CAUSE US TO INCUR SIGNIFICANT COSTS AND
PREVENT US FROM SELLING OR USING THE CHALLENGED TECHNOLOGY.



Participants in the communications and fiber optic subsystems, integrated modules and components markets in which we sell our products have experienced frequent litigation regarding patent and other intellectual property rights. Numerous
patents in these industries are held by others, including our competitors and academic institutions. We have no means of knowing that a patent application has been filed in the United States until the patent is issued. Optical component suppliers
may seek to gain a competitive advantage or other third parties may seek an economic return on their intellectual property portfolios by making infringement claims against us.



From time to time we may be involved in lawsuits as a result of alleged infringement of others intellectual property.
For example, in June 2000, Chorum Technologies, Inc. filed a lawsuit against us and our wholly-owned subsidiary, Telelight Communication Inc., in the United States District Court for the Northern District of Texas alleging, among other things,
infringement of two U.S. patents allegedly owned by Chorum relating to fiber optical interleaving, based on our manufacture of and offer to sell various fiber optic interleaver products. On May 7, 2001, we filed a lawsuit in the United States
District Court for the District of Delaware, alleging, among other matters, that Chorum infringes one of our patents relating to fiber optic couplers based on Chorums manufacture of and offer to sell various DWDM products.



In October 2001, we reached an agreement with Chorum LP and its affiliates to
dismiss the patent infringement litigation between the companies without prejudice. We cannot assure you that Chorum or Oplink will not in the future elect to refile the prior patent infringement actions or file new patent infringement actions
against the other.



We are also currently subject to a lawsuit
filed by Oz Optics Limited et al. alleging trade secret misappropriation and other related claims. The plaintiffs seek actual damages against four individuals, including our former Vice President of Product Line Management, Zeynep Hakimoglu,
and three other unrelated individuals, and us in the amounts of approximately $17,550,000 and $1,500,000, respectively, and enhanced damages, injunctive relief, costs and attorney fees, and other relief. The plaintiffs sought a temporary restraining
order in December 2001, which the court denied, and withdrew their preliminary injunction motion against us. We answered the complaint on January 22, 2002, denying plaintiffs claims. The case is in the early stages of discovery and no trial
date has been set. Although we believe that the claims against us are without merit and we intend to defend ourselves against such claims vigorously, we cannot assure you that this litigation will be



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resolved in our favor or without substantial cost or diversion of the attention of our management and key technical personnel.



Both prosecuting or defending lawsuits involving our intellectual property
may be costly and time consuming and may also divert the efforts and attention of our management and technical personnel. Intellectual property litigation is often highly complex and can extend for a protracted period of time, which can
substantially increase the cost of litigation. Accordingly, the expenses and diversion of resources associated with intellectual property litigation to which we may become a party could seriously harm our business and financial condition. Any
intellectual property litigation also could invalidate our proprietary rights and force us to do one or more of the following:



| | - | obtain from the owner of the infringed intellectual property right a license to sell or use the relevant technology, which license may not be available on reasonable terms, or at
all;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | stop selling, incorporating or using our products that use the challenged intellectual property;
| | - | ------------------------------------------------------------------------------------------------



| | - | pay substantial money damages; or
| | - | ---------------------------------



| | - | redesign the products that use the technology.
| | - | ----------------------------------------------



Any of these actions could result in a substantial reduction in our revenue and could result in losses over an extended period of time.



WE ARE THE TARGET OF A SECURITIES CLASS ACTION COMPLAINT AND ARE AT RISK OF SECURITIES
CLASS ACTION LITIGATION, WHICH WILL LIKELY RESULT IN SUBSTANTIAL COSTS AND DIVERT MANAGEMENT ATTENTION AND RESOURCES.



In November 2001, we and certain of our officers and directors were named as defendants in a class action shareholder complaint filed in the United States
District Court for the Southern District of New York, now captioned, In re Oplink Communications, Inc. Initial Public Offering Securities Litigation, Case No. 01-CV-9904. In the amended complaint, the plaintiffs allege that we, certain of our
officers and directors and the underwriters of our initial public offering, or IPO, violated section 11 of the Securities Act of 1933 based on allegations that our registration statement and prospectus failed to disclose material facts regarding the
compensation to be received by, and the stock allocation practices of, the IPO underwriters. The complaint also contains a claim for violation of section 10(b) of the Securities Exchange Act of 1934 based on allegations that this omission
constituted a deceit on investors. The plaintiffs seek unspecified monetary damages and other relief. Similar complaints were filed by plaintiffs, the Plaintiffs, against hundreds of other public companies, or Issuers, that went public in the late
1990s, the IPO Lawsuits.



On August 8, 2001, the IPO Lawsuits
were consolidated for pretrial purposes before United States Judge Shira Scheindlin of the Southern District of New York. On July 15, 2002, we joined in a global motion to dismiss the IPO Lawsuits filed by all of the Issuers (among others). On
October 9, 2002, the Court entered an order dismissing our named officers and directors from the IPO Lawsuits without prejudice, pursuant to an agreement tolling the statute of limitations with respect to these officers and directors until September
30, 2003. On February 19, 2003, the Court issued a decision denying the motion to dismiss the Section 11 claims against us and almost all of the Issuers, and granting the motion to dismiss the Section 10(b) claim against us. The Section 10(b)
claim was dismissed without leave to amend.



In June 2003,
Issuers and Plaintiffs reached a tentative settlement agreement that would, among other things, result in the dismissal with prejudice of all claims against the Issuers and their officers and directors in the IPO Lawsuits. In addition, the tentative
settlement guarantees that, in the event that the Plaintiffs recover less than $1 billion in settlement or judgment against the Underwriter defendants in the IPO Lawsuits, the Plaintiffs will be entitled to recover the difference between the actual
recovery and $1 billion from the insurers for the Issuers. Although we have approved this settlement proposal in principle, it remains subject to a number of procedural conditions, as well as formal approval by the Court.



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IF WE ARE UNABLE TO DEVELOP NEW PRODUCTS AND PRODUCT ENHANCEMENTS THAT ACHIEVE MARKET ACCEPTANCE, SALES OF OUR
PRODUCTS COULD DECLINE, WHICH WOULD HARM OUR OPERATING RESULTS.



The communications industry is characterized by rapid technological changes, frequent new product introductions, changes in customer requirements and evolving industry standards. As a result, our products could quickly become obsolete as
new technologies are introduced and incorporated into new and improved products. Our future success depends on our ability to anticipate market needs and to develop products that address those needs.



Our failure to predict market needs accurately or to develop new products or
product enhancements in a timely manner will harm market acceptance and sales of our products. In this regard, we are currently developing bandwidth creation products as well as bandwidth management products. If the development of these products or
any other future products takes longer than we anticipate, or if we are unable to develop and introduce these products to market, our revenues could suffer and we may not gain market share. Even if we are able to develop and commercially introduce
these new products, the new products may not achieve widespread market acceptance. Furthermore, we have implemented, and may continue to implement in the future, significant cost-cutting measures such as reductions in our workforce, including
reductions in research and development and manufacturing personnel, that may weaken our research and development efforts or cause us to have difficulty responding to sudden increases in customer orders.



In addition, we recently expanded our operations to include optical contract
manufacturing services. We cannot, however, assure you that we will be able to successfully manage our manufacturing capabilities in a cost-effective manner or gain market acceptance with respect to any optical contract manufacturing service
offerings. In addition, because profit margins with respect to optical contract manufacturing services may be smaller than the margins applicable to our current and past product offerings, our gross margins may decline and our business may be
harmed.



BECAUSE NONE OF OUR CUSTOMERS ARE OBLIGATED TO PURCHASE OUR
PRODUCTS, THEY MAY AND DO CANCEL OR DEFER THEIR PURCHASES ON SHORT NOTICE AND AT ANY TIME, WHICH COULD HARM OUR OPERATING RESULTS.



We do not have contracts with our customers that provide any assurance of future sales, and sales are typically made pursuant to individual purchase
orders, often with extremely short lead times. Accordingly, our customers:



- may and do stop purchasing our products at any time without penalty;



- are free to purchase products from our competitors;



- are not required to make minimum purchases; and



- may and do cancel orders that they place with us.



Sales to any single customer may and do vary significantly from quarter to quarter. Our customers generally do not place purchase orders far in advance.
In addition, our customer purchase orders have varied significantly from quarter to quarter. This means that customers who account for a significant portion of our revenues in one quarter may not and do not place any orders in the succeeding
quarter, which makes it difficult to forecast revenue in future periods. Moreover, our expense levels are based in part on our expectations of future revenue, and we may be unable to adjust costs in a timely manner in response to further revenue
shortfalls. This can result in significant quarterly fluctuations in our operating results.



OUR REVENUES AND RESULTS OF OPERATIONS MAY BE HARMED IF WE FAIL TO INCREASE THE VOLUME OF ORDERS, WHICH WE RECEIVE AND FILL ON A SHORT-TERM BASIS.



Historically, a substantial portion of our net revenues in any fiscal period has been derived from orders in backlog.
Currently, due to the downturn in the fiber optics industry, we are substantially dependent upon orders



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we receive and fill on a short-term basis. Our customers can generally cancel, reschedule or delay orders in backlog without obligation to us. As a result,
we cannot rely on orders in backlog as a reliable and consistent source of future revenue. If any of our customers did in fact cancel or delay these orders, and we were not able to replace them with new orders for product to be supplied on a
short-term basis, our results of operations could be harmed.



OUR LENGTHY
AND VARIABLE QUALIFICATION AND SALES CYCLE MAKES IT DIFFICULT TO PREDICT THE TIMING OF A SALE OR WHETHER A SALE WILL BE MADE, WHICH MAY HARM OUR OPERATING RESULTS.



Our customers typically expend significant efforts in evaluating and qualifying our products and manufacturing process prior
to placing an order. This evaluation and qualification process frequently results in a lengthy sales cycle, typically ranging from nine to twelve months and sometimes longer. While our customers are evaluating our products and before they place an
order with us, we may incur substantial sales, marketing, research and development expenses, expend significant management efforts, increase manufacturing capacity and order long lead-time supplies. Even after this evaluation process, it is possible
that a potential customer will not purchase our products.



In
addition, product purchases are frequently subject to unplanned processing and other delays, particularly with respect to larger customers for which our products represent a very small percentage of their overall purchase activity. Long sales cycles
may cause our revenues and operating results to vary significantly and unexpectedly from quarter to quarter, which could cause volatility in our stock price.



WE DEPEND ON KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY CHANGING MARKET, AND IF WE ARE UNABLE TO RETAIN OUR KEY EMPLOYEES AND HIRE ADDITIONAL
PERSONNEL, OUR ABILITY TO SELL OUR PRODUCTS COULD BE HARMED.



Our future success depends upon the continued services of our executive officers and other key engineering, finance, sales, marketing, manufacturing and support personnel. In addition, we depend substantially upon the continued services of
key management personnel at our Chinese subsidiaries. None of our officers or key employees are bound by an employment agreement for any specific term, and these personnel may terminate their employment at any time. In addition, we do not have
key person life insurance policies covering any of our employees.



Our ability to continue to attract and retain highly-skilled personnel will be a critical factor in determining whether we will be successful in the future. Competition for highly-skilled personnel is intense,
especially in the San Francisco Bay area. We may not be successful in attracting, assimilating or retaining qualified personnel to fulfill our current or future needs. In addition, our management team has experienced significant personnel changes
over the past year and may continue to experience changes in the future. A number of members of our management team, including Frederick R. Fromm, formerly Chief Executive Officer and President, Weiming Li, formerly Vice President and General
Manager, Oplink Zhuhai, Weizhong Li, formerly Chief Technology Officer, Jingyu Xu, formerly Senior Vice President, Engineering, Christian A. Lepiane, formerly Vice President, Worldwide Sales, Zeynep Hakimoglu, formerly Vice President, Product Line
Management, and Linda Reddick, formerly Vice President and Controller, have recently resigned or been terminated in connection with our restructuring efforts. Joseph Y. Liu has recently resumed the position of President and Chief Executive Officer
and several other members of our team have assumed expanded roles. If our management team continues to experience high attrition or does not work effectively together, it could substantially harm our business.



BECAUSE SOME OF OUR THIRD-PARTY SALES REPRESENTATIVES AND DISTRIBUTORS CARRY PRODUCTS OF
ONE OR MORE OF OUR COMPETITORS, THEY MAY NOT RECOMMEND OUR PRODUCTS OVER COMPETITORS PRODUCTS.



A majority of our revenues are derived from sales through our domestic and international sales representatives and distributors. Our sales representatives
and distributors are independent organizations that



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generally have exclusive geographic territories and generally are compensated on a commission basis. We are currently migrating some of our larger customers
to direct sales. We expect that we will continue to rely on our independent sales representatives and distributors to market, sell and support many of our products for a substantial portion of our revenues. Some of our third-party sales
representatives and distributors carry products of one or more of our competitors. As a result, these sales representatives and distributors may not recommend our products over competitors products.



BECAUSE SOME OF OUR OPERATIONS ARE LOCATED IN ACTIVE EARTHQUAKE FAULT ZONES, WE FACE THE
RISK THAT A LARGE EARTHQUAKE COULD HARM OUR OPERATIONS.



Some of our operations are located in San Jose, California, an active earthquake fault zone. This region has experienced large earthquakes in the past and may likely experience them in the future. A large earthquake in the San Jose area
could disrupt our operations for an extended period of time, which would limit our ability to supply our products to our customers in sufficient quantities on a timely basis, harming our customer relationships.



OUR FAILURE TO COMPLY WITH GOVERNMENTAL REGULATIONS COULD SUBJECT US TO LIABILITY.



Our failure to comply with a variety of federal, state
and local laws and regulations in the United States and China could subject us to criminal, civil and administrative penalties. Our products are subject to U.S. export control laws and regulations that regulate the export of products and disclosure
of technical information to foreign countries and citizens. In some instances, these laws and regulations may require licenses for the export of products to, and disclosure of technology in, some countries, including China, and disclosure of
technology to foreign citizens. With the exception of two commodity classifications we obtained from the Department of Commerce in 2001 with respect to some of our current products, we have generally relied on self-classification in determining
whether an export license is required and have determined that export licenses are not required. As we develop and commercialize new products and technologies, the list of products and technologies subject to U.S. export controls changes, or in the
event that the relevant export authorities disagree with the outcome of our self-classification, we may be required to obtain export licenses or other approvals with respect to those products and technologies and may possibly be subject to penalties
under applicable laws. We cannot predict whether these licenses and approvals will be required and, if so, whether they will be granted. The failure to obtain any required license or approval could harm our business.



We ship inventory and other materials to and from our facilities in China
and, as a result, are subject to various Chinese and U.S. customs-related laws. Given the geographic distance and changing regulations and governmental standards, it can be difficult to monitor and enforce compliance with customs laws. In fact,
there has been inventory and other materials shipped to and from our facilities in China for which, upon arrival of the goods, there was not sufficient documentation to demonstrate the items comply with all local customs regulations. The U.S.
Customs Service may also require us to revise product classifications from time to time with respect to various items imported into the United States. In such cases we may be required to pay any increase in customs duty to account for the difference
in duty actually paid by the Company and the duty owed under the amended product classification, and may also be subject to penalties under applicable laws. In addition, from time to time we enter into transfer pricing arrangements with our
subsidiaries to establish sales prices for internal distributions of goods that have the effect of allocating taxes between the parent corporation and our subsidiaries. In general, these transfer prices have not been approved by any governmental
entity and, therefore, may be challenged by the applicable tax authorities.



We employ a number of foreign nationals in our U.S. operations and as a result we are subject to various laws related to the status of those employees with the Bureau of Citizenship and Immigration Services. We also
send our U.S. employees to China from time to time and for varying durations of time to assist with our Chinese operations. Depending on the durations of such arrangements, we may be required to withhold and pay personal income taxes in respect of
the affected U.S. employees directly to the Chinese tax authorities, and the affected



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U.S. employees may be required to register with various Chinese governmental authorities. Our failure to comply with the foregoing laws and regulations or
any other applicable laws and regulations could subject us to liability.



In addition, we are subject to laws relating to the storage, use, discharge and disposal of toxic or otherwise hazardous or regulated chemicals or materials used in our manufacturing processes. While we believe that
we are currently in compliance in all material respects with these laws and regulations, if we fail to store, use, discharge or dispose of hazardous materials appropriately, we could be subject to substantial liability or could be required to
suspend or adversely modify our manufacturing operations. In addition, we could be required to pay for the cleanup of our properties if they are found to be contaminated, even if we are not responsible for the contamination.



BECAUSE THE FIBER OPTIC SUBSYSTEMS, INTEGRATED MODULES AND COMPONENTS INDUSTRY IS CAPITAL
INTENSIVE, OUR BUSINESS MAY BE HARMED IF WE ARE UNABLE TO RAISE ANY NEEDED ADDITIONAL CAPITAL.



The optical subsystems, integrated modules and components industry is capital intensive, and the transition of our manufacturing facilities to China, the
development and marketing of new products and the hiring and retention of personnel have required and will continue to require a significant commitment of resources. Furthermore, we may continue to incur significant operating losses if the market
for optical subsystems, integrated modules and components develops at a slower pace than we anticipate, or if we fail to establish significant market share and achieve a significantly increased level of revenue. If cash from available sources is
insufficient for these purposes, or if additional cash is used for acquisitions or other unanticipated uses, we may need to raise additional capital. Additional capital may not be available on terms favorable to us, or at all. If we are unable to
raise additional capital when we require it, our business could be harmed. In addition, any additional issuance of equity or equity-related securities to raise capital will be dilutive to our stockholders.



BECAUSE THE OPTICAL SUBSYSTEMS, INTEGRATED MODULES AND COMPONENTS INDUSTRY IS EVOLVING
RAPIDLY AND IS HIGHLY COMPETITIVE, OUR STRATEGY INVOLVES ACQUIRING OTHER BUSINESSES AND TECHNOLOGIES TO GROW OUR BUSINESS. IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE ACQUIRED BUSINESSES OR TECHNOLOGIES, OUR OPERATING RESULTS MAY BE HARMED.



The optical subsystems, integrated modules and components
industry is evolving rapidly and is highly competitive. Accordingly, we have pursued and expect to continue to pursue acquisitions of businesses and technologies, or the establishment of joint venture arrangements, that could expand our business.
The negotiation of potential acquisitions or joint ventures, as well as the integration of an acquired or jointly developed business or technology, could cause diversion of managements time and other resources or disrupt our operations. Future
acquisitions could result in:



| | - | additional operating expenses without additional revenues;
| | - | ----------------------------------------------------------



| | - | potential dilutive issuances of equity securities;
| | - | --------------------------------------------------



| | - | the incurrence of debt and contingent liabilities;
| | - | --------------------------------------------------



| | - | amortization of other intangibles;
| | - | ----------------------------------



| | - | research and development write-offs; and
| | - | ----------------------------------------



| | - | other acquisition-related expenses.
| | - | -----------------------------------



Furthermore, we may not be able to successfully integrate acquired businesses or joint ventures with our operations, and we may not receive the intended
benefits of any future acquisition or joint venture.



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RISKS RELATED TO OUR COMMON STOCK



IF WE ARE UNABLE TO MAINTAIN OUR NASDAQ NATIONAL MARKET LISTING, THE LIQUIDITY OF OUR COMMON STOCK WOULD BE SERIOUSLY IMPAIRED AND WE
WOULD BECOME SUBJECT TO VARIOUS STATUTORY REQUIREMENTS, WHICH WOULD LIKELY HARM OUR BUSINESS AND PLACE DOWNWARD PRESSURE ON OUR COMMON STOCK PRICE.



We may be subject to delisting from The Nasdaq National Market from time to time to the extent our stock price falls below the minimum bid price
requirements or we otherwise do not satisfy other requirements for continued listing. For example, on October 17, 2002, we received a determination letter from Nasdaq advising us that our common stock no longer meets the requirements for the
continued listing on The Nasdaq National Market. The notification was based on the failure by us to maintain a minimum bid price of $1.00 as required by Nasdaq listing maintenance standards. In May 2003, Nasdaq confirmed that we had evidenced
compliance with all requirements necessary for continued listing on The Nasdaq National Market and that our common stock would continue to be listed on The Nasdaq National Market. There can be no assurance, however, that Nasdaq will not again
initiate delisting procedures if we cannot maintain compliance with the listing requirements.



In the event that we fail to meet the continued listing standards, our common stock may be delisted from The Nasdaq National Market and trade on the Nasdaq SmallCap Market or, possibly, the over-the-counter bulletin
board, commonly referred to as the pink sheets. Such alternatives are generally considered as less efficient markets and could seriously impair the liquidity of our common stock and limit our potential to raise future capital through the
sale of our common stock, which could materially harm our business. If we are delisted from The Nasdaq National Market, we will also face a variety of legal and other consequences that will likely negatively affect us including, without limitation,
the following:



| | - | the state securities law exemptions available to us would be more limited and, as a result, future issuances of our securities may require time-consuming and costly registration
statements;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | due to the application of different securities law exemptions and provisions, we may be required to amend our stock option and stock purchase plans and comply with time-consuming
and costly administrative procedures;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | the coverage of us by securities analysts may decrease or cease entirely;
| | - | -------------------------------------------------------------------------



| | - | we may lose current or potential investors and customers;
| | - | ---------------------------------------------------------



| | - | we may be unable to regain or maintain compliance with the listing requirements of either The Nasdaq SmallCap Market or The Nasdaq National Market; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | we may lose our exemption from the provisions of Section 2115 of the California Corporations Code which imposes aspects of California corporate law on certain non-California
corporations operating within California. As a result, (i) our Board of Directors would no longer be classified and our stockholders would elect all of our directors at each annual meeting, (ii) our stockholders would be entitled to cumulative
voting, and (iii) we would be subject to more stringent stockholder approval requirements and more stockholder-favorable dissenters rights in connection with certain strategic transactions.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, some companies that face delisting as a result of bid prices
below the Nasdaqs maintenance standards seek to maintain their listings by effecting reverse stock splits. At our annual stockholders meeting in November 2002, our stockholders approved a proposal to permit the Board of Directors to
effect, at its sole discretion, a reverse split of our common stock at any time prior to our next annual stockholders meeting. There is no assurance, however, that effecting a reverse stock split (if our Board of Directors elects to effect a
split) would result in a sustained increase in the share price and, as a result, our stock price may be adversely affected.



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INSIDERS CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER US, WHICH MAY NEGATIVELY AFFECT YOUR INVESTMENT.



Our current executive officers, directors and their affiliates own, in the
aggregate, as of June 30, 2003, approximately 26% of our outstanding shares. As a result, these persons and/or entities acting together will be able to substantially influence the outcome of all matters requiring approval by our stockholders,
including the election of directors and approval of significant corporate transactions. This ability may have the effect of delaying a change in control, which may be favored by our other stockholders.



BECAUSE OF THE EARLY STAGE OF OUR BUSINESS AND THE RAPID CHANGES TAKING PLACE IN THE FIBER
OPTICS INDUSTRY, WE EXPECT TO EXPERIENCE SIGNIFICANT VOLATILITY IN OUR STOCK PRICE, WHICH COULD CAUSE YOU TO LOSE ALL OR PART OF YOUR INVESTMENT.



Because of the early stage of our business and the rapid changes taking place in the fiber optics industry, we expect the market price of our common stock
to fluctuate significantly. For example, the market price of our common stock has fluctuated from a high sales price of $40.81 to a low sales price of $0.53 during the period from October 3, 2000, the date of our initial public offering to June 30,
2003. These fluctuations may occur in response to a number of factors, some of which are beyond our control, including:



| | - | economic downturn in the fiber optics industry;
| | - | -----------------------------------------------



| | - | preannouncement of financial results;
| | - | -------------------------------------



| | - | quarterly variations in our operating results;
| | - | ----------------------------------------------



| | - | changes in financial estimates by securities analysts and our failure to meet estimates;
| | - | ----------------------------------------------------------------------------------------



| | - | changes in market values of comparable companies;
| | - | -------------------------------------------------



| | - | announcements by us or our competitors of new products or of significant acquisitions, strategic partnerships or joint ventures;
| | - | --------------------------------------------------------------------------------------------------------------------------------



| | - | any loss by us of a major customer;
| | - | -----------------------------------



| | - | the outcome of, and costs associated with, any litigation to which we are or may become a party;
| | - | ------------------------------------------------------------------------------------------------



| | - | additions or departures of key management or engineering personnel; and
| | - | -----------------------------------------------------------------------



| | - | future sales of our common stock.
| | - | ---------------------------------



The price of our securities may also be affected by general economic and market conditions, and the cost of operations in our product markets. While we
cannot predict the individual effect that these factors may have on the price or our securities, these factors, either individually or in the aggregate, could result in significant variations in price during any given period of time. There can be no
assurance that these factors will not have an adverse effect on the trading prices of our common stock.



PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY HAVE ANTI-TAKEOVER EFFECTS THAT COULD PREVENT ANY CHANGE IN CONTROL, WHICH COULD NEGATIVELY AFFECT YOUR INVESTMENT.



Provisions of Delaware law and of our certificate of incorporation and
bylaws could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. These provisions permit us to:



| | - | issue preferred stock with rights senior to those of the common stock without any further vote or action by the stockholders;
| | - | -----------------------------------------------------------------------------------------------------------------------------



| | - | provide for a classified board of directors;
| | - | --------------------------------------------



| | - | eliminate the right of the stockholders to call a special meeting of stockholders;
| | - | ----------------------------------------------------------------------------------



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| | - | eliminate the right of stockholders to act by written consent; and
| | - | ------------------------------------------------------------------



| | - | impose various procedural and other requirements, which could make it difficult for stockholders to effect certain corporate actions.
| | - | -------------------------------------------------------------------------------------------------------------------------------------



On March 18, 2002, our Board of Directors adopted a share purchase rights
plan, which has certain additional anti-takeover effects. Specifically, the terms of the plan provide for a dividend distribution of one preferred share purchase right for each outstanding share of common stock. These rights would cause substantial
dilution to a person or group that attempts to acquire us on terms not approved by our Board of Directors.



Any of the foregoing provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock.



Item 2.    Properties



In the United States, we lease a total of approximately 118,000 square feet in three buildings located in San Jose, California. Of the 118,000 square feet:



| | - | we lease a 62,000 square foot manufacturing facility and 43,000 square feet of administrative, sales and marketing space pursuant to a lease that expires in February 2005, which is
partially in excess of our current requirements and the difference between the rent we are contractually obligated to pay for the excess area and sublease rental income, if any, is part of our restructuring costs and other charges;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | we lease a 13,000 square foot facility pursuant to a lease that expires in July 2005 which is in excess of our current requirements and the difference between the rent we are
contractually obligated to pay and sublease rental income, if any, is part of our restructuring costs and other charges.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In China, we own facilities in the Zhuhai Free Trade Zone totaling approximately 667,000 square feet. Our facilities in the Zhuhai Free Trade Zone are
used for administration, manufacturing, research and development and employee living quarters. We currently lease 230,000 square feet of our facilities in the Zhuhai Free Trade Zone to third parties and will attempt to lease the remaining facilities
that are in excess of our current requirements to third parties.



We also lease a total of approximately 45,000 square feet in Shanghai, China. Our Shanghai facility is used for administration, manufacturing and research and development. The lease for this facility expires in July 2005. We are currently
consolidating our manufacturing operations and intend to sell our Shanghai facility as it is no longer strategic to our operations. Additionally, in accordance with our restructuring plans announced on July 2, 2001, our facilities in
Beijing, Chengdu and Fuzhou were closed during fiscal 2002.



Item 3.    Legal Proceedings



In November 2001, we and certain of our officers and directors were named as defendants in a class action shareholder complaint filed in the United States District Court for the Southern District of New York, now
captioned, In re Oplink Communications, Inc. Initial Public Offering Securities Litigation, Case No. 01-CV-9904. In the amended complaint, the plaintiffs allege that we, certain of our officers and directors and the underwriters of our
initial public offering, or IPO, violated section 11 of the Securities Act of 1933 based on allegations that our registration statement and prospectus failed to disclose material facts regarding the compensation to be received by, and the stock
allocation practices of, the IPO underwriters. The complaint also contains a claim for violation of section 10(b) of the Securities Exchange Act of 1934 based on allegations that this omission constituted a deceit on investors. The plaintiffs seek
unspecified monetary damages and other relief. Similar complaints were filed by plaintiffs, the Plaintiffs, against hundreds of other public companies, or Issuers, that went public in the late 1990s, the IPO Lawsuits.



On August 8, 2001, the IPO Lawsuits were consolidated for pretrial purposes
before United States Judge Shira Scheindlin of the Southern District of New York. On July 15, 2002, we joined in a global motion to dismiss



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the IPO Lawsuits filed by all of the Issuers (among others). On October 9, 2002, the Court entered an order dismissing our named officers and directors from
the IPO Lawsuits without prejudice, pursuant to an agreement tolling the statute of limitations with respect to these officers and directors until September 30, 2003. On February 19, 2003, the Court issued a decision denying the motion to dismiss
the Section 11 claims against us and almost all of the Issuers, and granting the motion to dismiss the Section 10(b) claim against us. The Section 10(b) claim was dismissed without leave to amend.



In June 2003, Issuers and Plaintiffs reached a tentative settlement agreement
that would, among other things, result in the dismissal with prejudice of all claims against the Issuers and their officers and directors in the IPO Lawsuits. In addition, the tentative settlement guarantees that, in the event that the Plaintiffs
recover less than $1 billion in settlement or judgment against the Underwriter defendants in the IPO Lawsuits, the Plaintiffs will be entitled to recover the difference between the actual recovery and $1 billion from the insurers for the Issuers.
Although we have approved this settlement proposal in principle, it remains subject to a number of procedural conditions, as well as formal approval by the Court.



On December 17, 2001, OZ Optics Limited, OZ Optics, Inc. and Bitmath, Inc. (collectively, OZ) sued four
individuals and us in California Superior Court for the County of Alameda. One of the four individual defendants is Zeynep Hakimoglu, who joined Oplink on November 1, 2001 as Vice President of Product Line Management. The other three are unrelated
to us. Zeynep Hakimoglus employment with us terminated on December 17, 2002. The complaint alleges trade secret misappropriation and related claims against the four individuals and us concerning OZs alleged polarization mode dispersion
technology. The plaintiffs seek actual damages against the four individuals and us in the amounts of approximately $17,550,000 and $1,500,000, respectively, and enhanced damages, injunctive relief, costs and attorney fees, and other relief. The
plaintiffs sought a temporary restraining order in December 2001, which the court denied, and withdrew their preliminary injunction motion against us. We answered the complaint on January 22, 2002, denying plaintiffs claims. The case is in the
early stages of discovery and no trial date has been set. We believe that the claims against us are without merit and intend to defend ourselves against such claims vigorously.



We are subject to legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of
business. While the outcome of these proceedings and claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on our consolidated financial position,
results of operations or cash flows.



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



No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Report.



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Part II



Item 5.    Market for Registrants Common Stock and Related Stockholder Matters



Market for Registrants Common Equity



(a) Our common stock has been quoted on the Nasdaq National Market under the symbol OPLK since our initial public offering in October 2000.
Prior to that time, there was no public market for our common stock. The following table sets forth the range of high and low prices for our common stock for each period indicated:



|                                      |  | High |       | Low
|------------------------------------- |  | ---- | ----- | ---
|Fiscal 2003:                          |  |      |       |    
|First Quarter                         |  | $    | 1.08  |    
|Second Quarter                        |  | $    | 1.10  |    
|Third Quarter                         |  | $    | 1.05  |    
|Fourth Quarter                        |  | $    | 2.04  |    
|                                      |  |     
|Fiscal 2002:                          |  |      |       |    
|First Quarter                         |  | $    | 3.70  |    
|Second Quarter                        |  | $    | 2.16  |    
|Third Quarter                         |  | $    | 3.00  |    
|Fourth Quarter                        |  | $    | 1.68  |    
|                                      |  |     
|Fiscal 2001:                          |  |      |       |    
|Second Quarter (from October 4, 2000) |  | $    | 40.81 |    
|Third Quarter                         |  | $    | 25.84 |    
|Fourth Quarter                        |  | $    | 5.79  |    



As of September 17,
2003 there were approximately 246 stockholders of record and the price per share of our common stock was $1.89. We have never declared or paid any cash dividends on our capital stock. We currently expect to retain future earnings, if any, for use in
the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.



(b) Use of Proceeds From Sales of Registered Securities



On October 3, 2000, the Securities and Exchange Commission (the SEC) declared effective our Registration Statement on Form S-1 (No.
333-41506). Pursuant to this Registration Statement, we completed an initial public offering of 15,755,000 shares of common stock, including the over-allotment shares, at an initial public offering price of $18.00 per share. We incurred expenses of
approximately $22.6 million, of which $19.9 million represented underwriting discounts and commissions and $2.7 million represented other related expenses. The net offering proceeds to the Company after total expenses were $261.0 million.



As of June 30, 2003, we had $188.1 million in cash, cash
equivalents and short-term investments. All remaining proceeds are invested in cash, cash equivalents, or short-term investments consisting of highly liquid money market funds, commercial paper, government/federal notes and bonds and certificates of
deposit. Consistent with the use of proceeds as discussed in our Registration Statement on Form S-1, we have approved a program to repurchase up to an aggregate of $40.0 million of our common stock. As of June 30, 2003, there were repurchases of
$35.2 million under this program. The use of these proceeds does not represent a material change in the use of proceeds described in our public offering prospectus.



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Item 6.    Selected Consolidated Financial Data



The following selected consolidated financial data should be read in conjunction with, and are qualified by reference to, our consolidated financial
statements and related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations. The selected consolidated statement of operations data for the three fiscal years ended June 30, 2003, 2002 and
2001 and the selected consolidated balance sheet data as of June 30, 2003 and 2002 are derived from, and qualified by reference to, the audited consolidated financial statements included elsewhere in this Form 10-K. The selected consolidated
statement of operations data for the fiscal year ended June 30, 2000 and 1999 and the selected consolidated balance sheet data as of June 30, 2001, 2000 and 1999 are derived from audited financial statements not included in this Form 10-K.



The table below has been restated to account for the Shanghai
operation as a discontinued operation.



|                                                            |  | Years Ended June 30, |        
|----------------------------------------------------------- |  | -------------------- | -------
|                                                            |  | 2003                 |        
|Consolidated Statement of Operations Data:                  |  |                      |        
|Revenues                                                    |  | $                    | 22,637 
|Cost of revenues:                                           |  |                      |        
|Cost of revenues                                            |  |                      | 21,994 
|Non-cash compensation (recovery) expense                    |  |                      | (415   
|                                                            |  |                      |        
|Total cost of revenues                                      |  |                      | 21,579 
|                                                            |  |                      |        
|Gross profit (loss)                                         |  |                      | 1,058  
|                                                            |  |                      |        
|Operating expenses:                                         |  |                      |        
|Research and development:                                   |  |                      |        
|Research and development                                    |  |                      | 8,496  
|Non-cash compensation expense                               |  |                      | 42     
|                                                            |  |                      |        
|Total research and development                              |  |                      | 8,538  
|                                                            |  |                      |        
|Sales and marketing:                                        |  |                      |        
|Sales and marketing                                         |  |                      | 4,183  
|Non-cash compensation expense (recovery)                    |  |                      | 172    
|                                                            |  |                      |        
|Total sales and marketing                                   |  |                      | 4,355  
|                                                            |  |                      |        
|General and administrative:                                 |  |                      |        
|General and administrative                                  |  |                      | 6,902  
|Non-cash compensation expense                               |  |                      | 2,074  
|                                                            |  |                      |        
|Total general and administrative                            |  |                      | 8,976  
|                                                            |  |                      |        
|Restructuring costs and other charges                       |  |                      | 12,167 
|Merger fees                                                 |  |                      | 1,300  
|In-process research and development                         |  |                      |       
|Amortization of goodwill, intangible and other assets       |  |                      | 78     
|                                                            |  |                      |        
|Total other operating expenses                              |  |                      | 13,545 
|                                                            |  |                      |        
|Total operating expenses                                    |  |                      | 35,414 
|                                                            |  |                      |        
|Loss from operations                                        |  |                      | (34,356
|Interest and other income, net                              |  |                      | 4,024  
|(Loss) gain on sale of assets                               |  |                      | (258   
|                                                            |  |                      |        
|Loss from continuing operations                             |  |                      | (30,590
|Loss from discontinued operation                            |  |                      | (6,197 
|                                                            |  |                      |        
|Net loss                                                    |  | $                    | (36,787
|                                                            |  |                      |        
|Basic and diluted net loss per share: Continuing operations |  | $                    | (0.19  
|Discontinued operation                                      |  |                      | (0.04  
|                                                            |  |                      |        
|Total                                                       |  | $                    | (0.23  
|                                                            |  |                      |        
|Basic and diluted weighted average shares outstanding       |  |                      | 158,782
|                                                            |  |                      |        



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|                                                  |  | June 30, |        
|------------------------------------------------- |  | -------- | -------
|                                                  |  | 2003     |        
|Consolidated Balance Sheet Data:                  |  |          |        
|Cash, cash equivalents and short-term investments |  | $        | 188,103
|Working capital                                   |  |          | 187,805
|Total assets                                      |  |          | 233,743
|Long-term liabilities                             |  |          | 1,555  
|Convertible preferred stock                       |  |          |       
|Total stockholders equity (deficit)              |  |          | 218,716



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Item 7.    Managements Discussion and Analysis of Financial Condition and Results of Operations



This report on Form 10-K, including our discussion in this Item 7, Managements Discussion and Analysis of Financial Condition and Results
of Operations, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our
expectations, beliefs, intentions or future strategies that are signified by the words expect, anticipate, intend, believe, estimate or assume or similar language. All
forward-looking statements included herein are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. We caution you that our business and financial performance are subject
to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should also carefully consider the information set forth under the caption
Risk Factors contained in Item 1 in addition to the information contained in this Item 7. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.



The following discussion of our financial condition and
results of operations should be read in conjunction with Item 6. Selected Consolidated Financial Data and our consolidated financial statements and related notes thereto.



Our consolidated financial statements for all periods presented account for the Shanghai operation as a discontinued
operation under generally accepted accounting principles (GAAP) as a result of our decision to sell the business, which we announced in July 2003. Our Consolidated Statements of Operations and of Cash Flows have been reformatted for
all years presented to separate the results of the discontinued operation from the results of our continuing operations. This presentation is required by GAAP and facilitates historical and future trend analysis of our continuing operations. As
discussed in Note 5 of the Notes to Consolidated Financial Statements, all fiscal 2003 and prior periods presented have been restated to reflect results of the Shanghai operation as a discontinued operation. Unless otherwise indicated, the following
discussion relates to our continuing operations.



Overview



We design, manufacture and market fiber optic subsystems, integrated
modules and components that expand optical bandwidth, amplify optical signals, monitor and protect wavelength performance and redirect light signals within an optical network. Our product portfolio includes solutions for next-generation, all-optical
Dense Wavelength Division Multiplexing, or DWDM, optical amplification, switching and routing, and monitoring and conditioning applications. We also offer our customers expert Optical Manufacturing Services (OMS) for the production and
packaging of highly integrated optical subsystems and turnkey solutions based upon a customers specific product design and specification. Our broad line of products and services increases the performance of optical networks and enables optical
system manufacturers to provide flexible and scalable bandwidth to support the increase of data traffic on the Internet and other public and private networks. We market our products and services to telecommunications equipment manufacturers
worldwide.



We generate substantially all of our revenues from
the sale of fiber optic subsystems, integrated modules and components. To date, we have developed over 120 standard products that are sold or integrated into customized solutions for our customers. Our products are generally categorized into the
following major groups: our bandwidth creation products, which include wavelength expansion and optical amplification products; and our bandwidth management products, which include wavelength performance monitoring and protection, and optical
switching products. A majority of our revenues are derived from our bandwidth creation products, which include our wavelength expansion products, in particular, multiplexers.



The fiber optics industry has been in a significant period of consolidation following a dramatic slowdown in capital
spending since late 2001 by carriers faced with substantial excess bandwidth capacity and high levels of



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corporate debt. Beginning in late 2001, as the industry entered its downturn and consolidation phase, various customers canceled existing orders. We incurred
substantial costs associated with excess and obsolete inventory, workforce reduction, canceled orders, excess fixed assets, excess facilities and other charges.



During the fiscal year ended June 30, 2003, we reduced our headcount by 679 people, or 52%, completed the move of our manufacturing operations to
China, transitioned our research and development to China and further reduced our cost structure to respond to the significantly lower revenues than previously anticipated by the Company. In addition, in July 2003, we announced the planned future
sale of our Shanghai facility and reflect the results of our Shanghai operation as a discontinued operation. We expect to continue to implement programs to improve manufacturing yields and reduce costs though the magnitude of the expected benefits
will be smaller than those realized in the prior two fiscal years. There is no certainty that these programs will be successful. Our visibility continues to be limited with respect to telecommunications equipment providers. We will continue to
evaluate our business on an ongoing basis in light of current and future revenue trends and adjust our cost structure accordingly.



During the fiscal year ended June 30, 2002, we reduced our headcount by 1,318 people, or 50%, initiated the move of our manufacturing operations to China
and further reduced our cost structure to respond to the significantly lower revenues than previously anticipated by the Company.



COST OF REVENUES.    Our cost of revenues consists of raw material, salaries and related personnel expense, manufacturing overhead,
and provisions for excess and obsolete inventories and warranties. We expect cost of revenues, as a percentage of revenues, to fluctuate from period to period. Our gross margins will primarily be affected by manufacturing volume, our pricing
policies, production yield, costs incurred in improving manufacturing processes, mix of products sold, provisions for excess and obsolete inventories and mix of products manufactured in China or the United States.



RESEARCH AND DEVELOPMENT EXPENSES.    Our research and
development expenses consist primarily of salaries and related personnel costs, depreciation, non-recurring engineering charges and prototype costs, patent filing costs and fees paid to consultants and outside service providers, all of which relate
to the design, development, testing, pre-manufacturing and significant improvement of our products. We expense our research and development costs as they are incurred.



SALES AND MARKETING EXPENSES.    Our sales and marketing expenses consist primarily of salaries and
related expenses for marketing, sales, customer service and application engineering support personnel, commissions paid to internal and external sales representatives, as well as costs associated with trade shows and other marketing expenses.



GENERAL AND ADMINISTRATIVE
EXPENSES.    Our general and administrative expenses consist primarily of salaries and related expenses for executive, finance, accounting, and human resources personnel, professional fees and other corporate expenses.



NON-CASH COMPENSATION EXPENSE.    Prior to
and after our initial public offering, we granted stock options and issued warrants to employees and consultants at prices below the fair value of the underlying stock on the date of grant or issuance. During the period from July 1, 1998 through
June 30, 2003, we recorded aggregate deferred stock compensation, net of cancellations, of approximately $59.1 million of which $1.9 million, $4.7 million and $26.6 million was expensed during the fiscal years ended June 30, 2003, 2002 and
2001, respectively. While this expense has increased our net loss, it has had no impact on our cash flows. With respect to employee stock-based compensation, we are amortizing the deferred compensation expense over the vesting period, as set forth
in the Financial Accounting Standards Board (FASB) Interpretation No. 28, or FIN 28. Under the FIN 28 method, each vested tranche of options is accounted for as a separate option grant awarded for services. The compensation expenses
are recognized over the period during which the services are



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provided. Accordingly, this method results in higher compensation expenses being recognized in the earlier vesting periods of an option. Non-employee grants
are accounted for in accordance with Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123) and Emerging Issues Task Force 96-18, Accounting for Equity Instruments That
are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services (EITF 96-18) and valued using the Black-Scholes model. The deferred compensation expense related to non-employees stock
option grants are also amortized over the vesting period as set forth in FIN 28. The remaining balance at June 30, 2003 of $1.5 million will be expensed over future remaining vesting periods. We estimate that our future stock compensation expense
from options and shares granted or issued from July 1998 through June 30, 2003 will be $1.3 million, $121,000, $36,000 and $3,000 for the years ending June 30, 2004, 2005, 2006 and 2007, assuming no cancellations or additional stock option grants
with exercise prices below the fair value of our common stock.



In October 2000, we sold 15,755,000 shares of common stock in an underwritten initial public offering, including 2,055,000 shares of common stock issued pursuant to the exercise of the underwriters over-allotment option, resulting in
net proceeds of approximately $263.7 million, before offering expenses of approximately $2.7 million. Simultaneously with the closing of the public offering, 110,103,344 shares of convertible preferred stock were converted to shares of common stock
on a one-for-one-basis. In addition, the note payable to Cisco Systems and the related interest expense was converted into 3,298,773 shares of common stock at a conversion price of $15.30 per share, or 85% of the public offering price of $18.00
per share. The discount feature of this convertible note payable resulted in a charge of $8.8 million, recorded as sales and marketing expense in the quarter ended December 31, 2000.



ACQUISITION OF AURORA. In June 2001, we acquired Aurora Associates and Aurora Photonics, Inc. (Aurora) in a
transaction accounted for as a purchase business combination. Aurora is a developer of acoustic-optic (AO) devices and systems. These advanced AO devices and systems are classified as spatial (AO deflectors and Bragg cells), temporal (AO
modulators and frequency shifters) and spectral (AO tunable filter) modulations. The purchase price comprised $1.0 million cash, 150,000 shares of common stock valued at $448,000, $60,000 of transaction costs and $20,000 in assumed liabilities. The
total purchase price aggregated $1.5 million and was allocated to tangible assets acquired of $68,000, identifiable intangible assets acquired of $499,000, goodwill of $168,000 and in-process research and development of $793,000.



Use of Estimates and Critical Accounting Policies



The preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure. On an ongoing basis, we
evaluate our estimates, including those related to product returns, accounts receivable, inventories, intangible assets, warranty obligations, restructuring, contingencies and litigation. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions. These estimates and judgments are reviewed by management on an ongoing basis, and by the Audit Committee at the end of each
quarter prior to the public release of our financial results. We believe the following critical accounting policies, and our procedures relating to these policies, affect our more significant judgments and estimates used in the preparation of our
consolidated financial statements.



Revenue Recognition
and Product Returns



We recognize revenue using the
guidance from SEC Staff Accounting Bulletin No. 101 Revenue Recognition in Financial Statements and Statement of Financial Accounting Standards (SFAS) No. 48, Revenue Recognition When Right of Return Exists. Under
these guidelines, revenue from product sales is recognized upon shipment of the product or customer acceptance, which ever is later, provided that persuasive



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evidence of an arrangement exists, delivery has occurred and no significant obligations remain, the fee is fixed or determinable and collectibility is
reasonably assured. Revenue associated with contract-related cancellation payments from customers is recognized when a formal agreement is signed or a purchase order is issued by the customer covering such payments and the collectibility of the
cancellation payments is determined to be reasonably assured. In addition, we estimate future product returns based upon actual historical return rates and reduce our revenue by these estimated future returns. If the historical data we use to
calculate these estimates does not properly reflect future returns, future estimates could be revised accordingly.



Warranty Obligations



We provide reserves for the estimated costs of product warranties at the time revenue is recognized based on our historical experience of known product
failure rates and expected material and labor costs to provide warranty services. Additionally, from time to time, specific warranty accruals may be made if unforeseen technical problems arise. Should our actual experience relative to these factors
differ from estimates, we may be required to record additional warranty reserves. Alternatively, if our estimates are determined to be greater than the actual amounts necessary, we may reverse a portion of such provisions in future periods.



Risk Evaluation



Financial instruments that potentially subject us to a concentration of
credit risk consist of cash, cash equivalents, short-term investments and accounts receivable. Substantially all of our cash, cash equivalents and short-term investments are managed or held by three financial institutions. Such deposits are in
excess of the amount of the insurance provided by the federal government on such deposits. To date, we have not experienced any losses on such deposits.



Allowance for Doubtful Accounts



Our accounts receivable are derived from revenue earned from customers located in the United States, Europe, Asia and Canada. We perform ongoing credit
evaluations of our customers financial condition and currently require no collateral from our customers. An allowance for doubtful accounts for estimated losses is maintained in anticipation of the inability or unwillingness of customers to
make required payments. When we become aware that a specific customer is unable to meet its financial obligations, such as the result of bankruptcy or deterioration in the customers operating results or financial position, we record a specific
allowance to reflect the level of credit risk in the customers outstanding receivable balance. We are not able to predict changes in the financial condition of customers, and if the condition or circumstances of our customers deteriorates,
estimates of the recoverability of trade receivables could be materially affected and we may be required to record additional allowances. Alternatively, if our estimates are determined to be greater than the actual amounts necessary, we may reverse
a portion of such allowance in future periods based on actual collection experience.



Excess and Obsolete Inventory



We regularly assess the valuation of inventories and write down those inventories which are obsolete or in excess of forecasted usage to their estimated realizable value. Estimates of realizable value are based upon
our 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 our forecast or actual
demand from customers is lower than our estimates, we may be required to record additional inventory write-downs. If demand is higher than expected, we may sell inventories that had previously been written down as was the case in the years ended
June 30, 2003 and 2002. In recent periods we have recorded significant charges related to excess and obsolete inventory. See Restructuring Costs and Other Charges below.



Property, Plant and Equipment



We evaluate 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,



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but are not limited to, a prolonged industry downturn, a significant decline in our market value, or significant reductions in projected future cash flows.
In assessing the recoverability of property, plant and equipment, we compare 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, we would write down such assets based on the excess of the carrying amount over the fair value of the assets. In the years ended June 30, 2003, 2002 and 2001, we had no such write down. Fair value is generally
determined by calculating the discounted future cash flows using a discount rate based upon our 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 our 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 us to write down the assets. In recent periods we have recorded significant charges related to excess property and equipment and facilities. See
Restructuring Costs and Other Charges below.



Goodwill and Other Identifiable Intangibles



In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, on July 1, 2002 we ceased to amortize goodwill arising from acquisitions completed prior to July 1, 2001. In lieu of amortization, we performed an initial
impairment review of our goodwill in fiscal 2002 and an annual impairment review in fiscal 2003. We did not record any impairment charge due to the adoption of SFAS No. 142 or our annual impairment review.



In addition to the annual impairment review, we assess the impairment of
goodwill and other identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Some factors we consider important which could trigger an impairment review include significant
underperformance relative to expected historical or projected future operating results; significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and significant negative industry or economic
trends.



Prior to the adoption of SFAS No. 142, when we
determined that the carrying value of goodwill and other identified intangibles was not recoverable based upon the existence of one or more of the above indicators of impairment, we measured any impairment based on a projected discounted cash flow
method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model. We recorded a charge of $301,000 during the fiscal year ended June 30, 2003 related to the abandonment of one of our
technologies. Additionally, a $12.4 million charge was recorded based upon an impairment analysis of the carrying amount of the goodwill and purchased intangible assets related to the Telelight acquisition during the fiscal year ended June 30, 2001.



Results of Operations



For Each of the Years Ended June 30, 2003, 2002 and 2001



REVENUES.    Revenues decreased
$15.3 million, or 40%, to $22.6 million for the fiscal year ended June 30, 2003 from $37.9 million for the fiscal year ended June 30, 2002. This decrease was substantially due to decreased shipments of all our products including our wavelength
expansion products, optical amplification products and optical switching products to our customers. The decreases in shipments were primarily due to the continued slowdown in telecommunications equipment spending. Additionally, in fiscal 2003 there
was a minor impact due to decreases in average selling prices of our products over the prior year. Though further declines in average selling prices are anticipated through the fiscal year ending June 30, 2004, shipment volume is expected to
increase to offset the decrease in average selling prices. Included in revenue for the fiscal years ended June 30, 2003 and 2002, is $75,000 and $2.5 million, respectively, for contract cancellation fees. We estimate revenue in the first
quarter of fiscal 2004 to be $6.8 million to $7.0 million and though visibility remains difficult we also anticipate a sequential increase in revenue in the second quarter of fiscal 2004 compared to the first quarter of fiscal 2004.



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Revenues decreased $93.9 million, or 71%, to $37.9 million for the fiscal year ended June 30, 2002 from
$131.8 million for the fiscal year ended June 30, 2001. This decrease was substantially due to decreased shipments of all our products including our wavelength expansion products, optical amplification products and optical switching products to our
customers. The decreases in shipments were primarily due to the slowdown in telecommunications equipment spending. Additionally, in fiscal 2002 there was a minor impact due to decreases in average selling prices of our products over the prior year.
Included in revenue for the fiscal years ended June 30, 2002 and 2001, is $2.5 million and $4.5 million, respectively, for contract cancellation fees from certain customers.



GROSS PROFIT (LOSS).    Gross profit increased $11.4 million, or 110%, to a gross profit of $1.1 million
for the fiscal year ended June 30, 2003 from a gross loss of $10.4 million for the fiscal year ended June 30, 2002. This resulted in an increase in gross margin from (27.3%) for the fiscal year ended June 30, 2002 to 4.7% for the fiscal year ended
June 30, 2003. Our gross margin for the fiscal year ended June 30, 2003 was positively impacted by a non-cash compensation recovery of $415,000 and the unexpected sale of inventory that had been previously fully reserved of $1.6 million. Our gross
margin for the fiscal year ended June 30, 2002, was negatively impacted by the $10.4 million excess inventory charge and $342,000 non-cash compensation expense, partially offset by the $2.5 million in revenues for cancellation fees from significant
customers and the unexpected sale of inventory that had been previously fully reserved of $480,000. In addition, our gross margin increased due to the cost savings associated with the worldwide workforce reduction and the consolidation of excess
facilities and the cost benefits of operating in China offset by higher manufacturing costs relative to our production volume, manufacturing inefficiencies associated with the transfer of our manufacturing capacity to China and lower yields in our
manufacturing facilities in China due to the rapid manufacturing transfer. The excess inventory charge in the fiscal year ended June 30, 2002 reflects the significant downturn in customer demand. In response to this downturn, we focused on
completing the transition of substantially all of our manufacturing to China. We are continuing to implement programs to further improve production yields of our products. We cannot assure you, however, that these programs will be successful in
increasing our gross margin. We anticipate that we will see a slight sequential improvement in gross margin in the first quarter of fiscal 2004 from the fourth quarter of fiscal 2003 and further anticipate we will achieve a slight sequential
improvement in our gross margin in the second quarter of fiscal 2004 compared to the first quarter of fiscal 2004. However, this is dependent on the anticipated increases in revenues, achieving improvements in our production yields and meeting our
cost management initiatives.



Gross profit decreased $16.5
million, or 269%, to a gross loss of $10.4 million for the fiscal year ended June 30, 2002 from a gross profit of $6.1 million for the fiscal year ended June 30, 2001. This resulted in a decrease in gross margin from 4.7% for the fiscal year ended
June 30, 2001 to (27.3%) for the fiscal year ended June 30, 2002. Our gross margin for the fiscal year ended June 30, 2002, was negatively impacted by the $10.4 million excess inventory charge and $342,000 non-cash compensation expense, partially
offset by the $2.5 million in revenues for cancellation fees from significant customers and the unexpected sale of inventory that had been previously fully reserved of $480,000. Our gross margin for the fiscal year ended June 30, 2001, was
negatively impacted by the $30.6 million excess inventory charge and $4.8 million non-cash compensation expense partially offset by the $4.5 million in revenues for cancellation fees from significant customers. The excess inventory charges reflect
the significant downturn in customer demand. In response to this downturn, we focused on the transition of substantially all of our manufacturing to China. Our gross margin also decreased due to higher manufacturing costs relative to our production
volume, manufacturing inefficiencies associated with the transfer of our manufacturing capacity to China and lower yields in our manufacturing facilities in China due to the rapid manufacturing transfer partially offset by cost savings associated
with the worldwide workforce reduction and the consolidation of excess facilities and the cost benefits of operating in China.



RESEARCH AND DEVELOPMENT.    Research and development expenses, including non-cash compensation expense decreased $6.3 million, or
42%, to $8.5 million for the fiscal year ended June 30, 2003 from $14.8 million for the fiscal year ended June 30, 2002. The decrease in research and development expenses was primarily due to cost savings associated with the worldwide workforce
reductions, lower costs as a result of



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transitioning research and development to China, lower non-cash compensation expense, lower depreciation and facility costs due to restructurings and lower
project material costs. Research and development expenses, including non-cash compensation expense, decreased $7.2 million, or 33%, to $14.8 million for the fiscal year ended June 30, 2002 from $22.0 million for the fiscal year ended June 30, 2001.
The decrease in research and development expenses was due primarily to cost savings associated with the worldwide workforce reductions and lower non-cash compensation expense. We believe that developing customer solutions at the prototype stage is
critical to our strategic product development objectives. We further believe that, in order to meet the changing requirements of our customers, we will need to fund investments in several concurrent product development projects. We expect our
quarterly research and development expenses in each of the first two quarters of fiscal 2004 to remain approximately equal to research and development expenses in the fourth quarter of fiscal 2003.



SALES AND MARKETING.    Sales and marketing expenses,
including non-cash compensation recovery, decreased $3.3 million, or 43%, to $4.4 million for the fiscal year ended June 30, 2003 from $7.7 million for the fiscal year ended June 30, 2002. The decrease in sales and marketing expenses for the fiscal
year ended June 30, 2003 as compared to the prior fiscal year was primarily due to lower personnel-related costs and lower commissions earned by our internal and external sales representatives associated with decreased revenues. The
decrease was partially offset by an increase in non-cash compensation expense.



Sales and marketing expenses, including the Cisco Systems $8.8 million conversion charge and non-cash compensation recovery, decreased $14.6 million, or 66%, to $7.7 million for the fiscal year ended June 30, 2002
from $22.3 million for the fiscal year ended June 30, 2001. The decrease in sales and marketing expenses for the fiscal year ended June 30, 2002 as compared to the prior fiscal year was primarily due to the Cisco Systems $8.8 million conversion
charge in the fiscal year ended June 30, 2001 and no such charge in the fiscal year ended June 30, 2002, lower non-cash compensation expense, lower commissions paid to our internal and external sales representatives associated with decreased
revenues and a decrease in tradeshow costs, advertising and other customer-related costs. The decrease was partially offset by an increase in sales and marketing personnel and personnel-related costs and occupancy costs. We expect our quarterly
sales and marketing expenses to increase slightly on a sequential basis from the fourth quarter of fiscal 2003 through the second quarter of fiscal 2004 as a result of anticipated increasing product shipments.



GENERAL AND ADMINISTRATIVE.    General and administrative
expenses, including non-cash compensation expense, decreased $2.0 million, or 18%, to $9.0 million for the fiscal year ended June 30, 2003 from $11.0 million for the fiscal year ended June 30, 2002. The decrease in general and administrative
expenses was primarily due to lower non-cash compensation expense and cost savings associated with the worldwide workforce reduction.



General and administrative expenses, including non-cash compensation expense, decreased $17.6 million, or 62.0%, to $11.0 million for the fiscal year
ended June 30, 2002 from $28.5 million for the fiscal year ended June 30, 2001. The decrease in general and administrative expenses was primarily due to lower non-cash compensation expense, a reduction in our legal fees and cost savings
associated with the worldwide workforce reduction. We anticipate our quarterly general and administrative expenses to increase slightly in the first quarter of fiscal 2004 compared to the fourth quarter of fiscal 2003 and then to decrease in the
second quarter of fiscal 2004 to the approximate level of the fourth quarter of fiscal 2003 general and administrative expenses.



NON-CASH COMPENSATION EXPENSE.    From July 1, 1998 through June 30, 2003, we had recorded an aggregate of $59.1 million in deferred
non-cash compensation, net of cancellations. Non-cash compensation expense decreased $2.8 million, or 60%, to $1.9 million for the fiscal year ended June 30, 2003 from $4.7 million for the fiscal year ended June 30, 2002. The decrease in deferred
non-cash compensation was primarily due to the method under which the deferred non-cash compensation was amortized, as set out in FASB Interpretation No. 28, and stock option cancellations. Non-cash compensation expense decreased $21.9 million,
or 82%, to $4.7 million for the fiscal year ended June 30, 2002 from $26.6 million for the fiscal year ended June 30, 2001.



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RESTRUCTURING COSTS AND OTHER CHARGES.    A summary of the restructuring charges
accrued in fiscal 2001, 2002 and 2003 is as follows (in thousands):



|                                                                  |  | WorkforceReduction |        |   | Excess Propertyand Equipemt |   |         | Consolidationof ExcessFacilities andOtherSpecial Charges |  |   | Impairmentof Goodwilland PurchasedIntangible Assets |   |  | Total |        
|----------------------------------------------------------------- |  | ------------------ | ------ | - | --------------------------- | - | ------- | -------------------------------------------------------- |  | - | --------------------------------------------------- | - |  | ----- | -------
|Initial restructuring charge in the fourth quarter of fiscal 2001 |  | $                  | 250    |   |                             | $ |        |                                                          |  | $ | 5,485                                               |   |  | $     | 12,442 
|Non-cash charge                                                   |  |                    |       |   |                             |   |        |                                                          |  |   |                                                    |   |  |       | (12,442
|Cash payments                                                     |  |                    |       |   |                             |   |        |                                                          |  |   | (1,191                                              | ) |  |       |       
|                                                                  |  |                    |        |   |                             |   |         |                                                          |  |   |                                                     |   |  |       |        
|Balance at June 30, 2001                                          |  |                    | 250    |   |                             |   |        |                                                          |  |   | 4,294                                               |   |  |       |       
|Accrued restructuring costs, current                              |  |                    |        |   |                             |   |         |                                                          |  |   |                                                     |   |  |       |        
|                                                                  |  |                    |        |   |                             |   |         |                                                          |  |   |                                                     |   |  |       |        
|Accrued restructuring costs, non current                          |  |                    |        |   |                             |   |         |                                                          |  |   |                                                     |   |  |       |        
|                                                                  |  |                    |        |   |                             |   |         |                                                          |  |   |                                                     |   |  |       |        
|Additional restructuring charge in fiscal 2002                    |  |                    | 2,899  |   |                             |   | 16,055  |                                                          |  |   | 9,151                                               |   |  |       |       
|Non-cash charge                                                   |  |                    |       |   |                             |   | (15,680 | )                                                        |  |   |                                                    |   |  |       |       
|Cash payments                                                     |  |                    | (2,269 | ) |                             |   | (375    | )                                                        |  |   | (4,646                                              | ) |  |       |       
|                                                                  |  |                    |        |   |                             |   |         |                                                          |  |   |                                                     |   |  |       |        
|Balance at June 30, 2002                                          |  |                    | 880    |   |                             |   |        |                                                          |  |   | 8,799                                               |   |  |       |       
|Accrued restructuring costs, current                              |  |                    |        |   |                             |   |         |                                                          |  |   |                                                     |   |  |       |        
|                                                                  |  |                    |        |   |                             |   |         |                                                          |  |   |                                                     |   |  |       |        
|Accrued restructuring costs, non current                          |  |                    |        |   |                             |   |         |                                                          |  |   |                                                     |   |  |       |        
|                                                                  |  |                    |        |   |                             |   |         |                                                          |  |   |                                                     |   |  |       |        
|Additional restructuring charge in fiscal 2003                    |  |                    | 1,831  |   |                             |   | 8,850   |                                                          |  |   | 1,185                                               |   |  |       | 301    
|Non-cash charge                                                   |  |                    |       |   |                             |   | (8,850  | )                                                        |  |   | 310                                                 |   |  |       | (301   
|Cash payments                                                     |  |                    | (2,535 | ) |                             |   |        |                                                          |  |   | (5,980                                              | ) |  |       |       
|                                                                  |  |                    |        |   |                             |   |         |                                                          |  |   |                                                     |   |  |       |        
|Balance at June 30, 2003                                          |  | $                  | 176    |   |                             | $ |        |                                                          |  | $ | 4,314                                               |   |  | $     |       
|                                                                  |  |                    |        |   |                             |   |         |                                                          |  |   |                                                     |   |  |       |        
|Accrued restructuring costs, current                              |  |                    |        |   |                             |   |         |                                                          |  |   |                                                     |   |  |       |        
|                                                                  |  |                    |        |   |                             |   |         |                                                          |  |   |                                                     |   |  |       |        
|Accrued restructuring costs, non current                          |  |                    |        |   |                             |   |         |                                                          |  |   |                                                     |   |  |       |        
|                                                                  |  |                    |        |   |                             |   |         |                                                          |  |   |                                                     |   |  |       |        



We, like many of our
peers in the telecommunications industry, continue to be affected by the slowdown in telecommunications equipment spending. Our revenues have been generally decreasing in sequential quarters from $43.2 million in the fiscal quarter ended December
31, 2000 to $36.0 million, $20.3 million, $10.0 million, $10.6 million, $9.6 million, $7.7 million, $6.0 million, $5.0 million, $5.6 million and ending with $6.0 million in the fiscal quarter ended June 30, 2003. Due to this decline in business
conditions, we continued to restructure our business and realigned resources to focus on monitoring costs, preserving cash, completing the planned move of manufacturing operations and research and development to China and focused on core
opportunities.



Restructuring costs and other charges incurred during the
year ended June 30, 2003



For the year ended June 30,
2003, $12.2 million of restructuring costs and other charges were recorded as operating expenses for worldwide workforce reduction, consolidation of excess property and equipment and facilities and other charges. The following paragraphs provide
detailed information relating to the restructuring costs and other charges for the year ended June 30, 2003.



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Worldwide workforce reduction



During the year ended June 30, 2003, we recorded a charge of approximately
$1.8 million primarily related to severance and fringe benefits associated with the planned reduction of approximately 460 employees and voluntary termination of our former Chief Executive Officer. Of the $1.8 million charge, approximately $812,000
was severance and fringe benefits associated with the resignation of our former Chief Executive Officer. Of the planned reduction of approximately 460 employees, approximately 360 employees were engaged in manufacturing activities and approximately
110 employees and 350 employees were from sites located in San Jose, California and China, respectively. As of June 30, 2003, the planned worldwide workforce reductions have been substantially completed.



Excess property and equipment, facilities and other charges



We recorded a restructuring charge of $8.9 million
relating to excess property and equipment during the year ended June 30, 2003. Property and equipment disposed of or removed from operations of $5.3 million were related to the manufacture of fiber optic subsystems, integrated modules and
components. The excess property and equipment charge represented the charge required to re-measure such assets at the lower of carrying amount or fair value less cost to sell. The carrying amount of property and equipment to be disposed of was $1.1
million as of June 30, 2003, and has been included in prepaid expenses and other current assets on the Consolidated Balance Sheet. Additionally, property and equipment removed from operations of $3.6 million consisted primarily of leasehold
improvements associated with the consolidation of excess facilities.



In addition, we incurred a charge of $1.5 million for leases, primarily related to excess or closed facilities with planned exit dates. We estimated the cost of the facility leases based on the contractual terms of the agreements and
then-current real estate market conditions. We determined that it would take approximately two years to sublease the various properties that will be vacated, and then subleased at lower values than we are contractually obligated to pay. Amounts
related to the lease expense (net of anticipated sublease proceeds) as well as projected costs to terminate the lease will be paid over the respective lease terms through 2005. The consolidation of excess facilities includes the closure of certain
manufacturing facilities located in San Jose, California and Zhuhai, China. The total number of sites closed under the restructuring plan is three. We also recorded a benefit to restructuring costs and charges of $336,000 relating primarily to
change of estimated amounts due to suppliers and vendors to terminate agreements for the purchase of capital equipment and inventory.



Impairment of goodwill and purchased intangible assets



Due to the decline in current business conditions, we abandoned one of our technologies. As a result, we recorded a charge
of $301,000 during the fiscal year ended June 30, 2003.



Restructuring costs and other charges incurred during the years ended June 30, 2002 and 2001



For the years ended June 30, 2002 and 2001, $28.1 million and $18.2 million, respectively, of restructuring costs and other charges were recorded as
operating expenses. In addition, a $10.4 million and $30.6 million excess and obsolete inventory charge was recorded to cost of sales for the fiscal years ended June 30, 2002 and 2001, respectively. The following paragraphs provide detailed
information relating to the restructuring costs and other charges and excess and obsolete inventory charge during the years ended June 30, 2002 and 2001.



Worldwide workforce reduction



The worldwide workforce reductions in connection with our initial plans of restructuring started in the fourth quarter of fiscal 2001. During the fiscal
years ended June 30, 2002 and 2001, we recorded a charge of approximately $2.9 million and $250,000, respectively, primarily related to severance and fringe benefits associated with the planned reduction of approximately 2,700 employees. Of the
planned reduction of approximately 2,700 employees, approximately 2,400 were engaged in manufacturing activities and



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approximately 800 and 1,900 were from sites located in San Jose, California and China, respectively. As of June 30, 2003, the planned worldwide
workforce reductions in connection with our initial plans have been completed.



Excess property and equipment, facilities and other charges



We recorded a restructuring charge of $16.1 million relating to excess property and equipment during the fiscal year ended June 30, 2002. Property and
equipment disposed of or removed from operations were related to the manufacture of fiber optic subsystems, integrated modules and components. The excess property and equipment charge represented the charge required to re-measure such assets at the
lower of carrying amount or fair value less cost to sell. While the remaining assets removed from operations as of June 30, 2003 are being actively marketed, we expect the period of disposal to be an additional nine months for most of the assets.
The property and equipment disposed of or removed from operations consisted primarily of production and engineering equipment, but also included leasehold improvements, computer equipment, office equipment and furniture and fixtures.



In addition, during the fiscal years ended June 30, 2002 and 2001, we
incurred a charge of $7.5 million and $3.9 million, respectively, for leases primarily related to excess or closed facilities with planned exit dates. We estimated the cost of the facility leases based on the contractual terms of the agreements and
then current real estate market conditions. We determined that it would take approximately two years to sublease the various properties that will be vacated, and then subleased at lower values than we are contractually obligated to pay. Amounts
related to the lease expense (net of anticipated sublease proceeds) will be paid over the respective lease terms through 2005. The consolidation of excess facilities includes the closure of certain manufacturing and research and development
facilities located in San Jose, California and Beijing, Chengdu and Fuzhou, China. The total number of sites closed under the restructuring plan is six. We also recorded other restructuring costs and charges of $1.7 million and $1.6 million relating
primarily to payments due to suppliers and vendors to terminate agreements for the purchase of capital equipment and inventory for the years ended June 30, 2002 and 2001, respectively.



Provision for excess and obsolete inventory



We recorded provisions for excess and obsolete inventory totaling $10.4 million and $30.6 million, which was charged to cost
of sales during the fiscal years ended June 30, 2002 and June 30, 2001, respectively. These excess inventory charges were due to sudden and material declines in backlog and forecasted revenue. There were no inventory provision charges during the
year ended June 30, 2003. We evaluate the need to provide write downs for excess and obsolete inventory on an individual part analysis based on estimated future sales of our products compared to quantities on hand at each balance sheet date. This
analysis is based on specific sales forecasts for each of our products. Information that we would consider in determining the forecast would include contractual obligations to deliver products, purchase orders with delivery dates or
managements knowledge of a specific order that would significantly alter the sales forecast.



Return of property and equipment



As of June 30, 2001, we had $8.6 million of accounts payable associated with the purchase of certain capital equipment from a vendor. In connection with
an evaluation of our manufacturing capacity needs, it was determined that this new capital equipment was excess based on current anticipated production levels. During the fiscal year ended June 30, 2002, we negotiated a settlement with the vendor
whereby the vendor accepted the return of equipment over several quarters totaling $8.6 million for a settlement fee of $500,000. Accordingly, the change in accounts payable and property and equipment is reflected as a non-cash item in the
Consolidated Statement of Cash Flows.



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Impairment of goodwill and purchased intangible assets



For the year ended June 30, 2001, a $12.4 million charge was recorded based
upon an impairment analysis of the carrying amount of the goodwill and purchased intangible assets related to our acquisition of Telelight, which we completed in April 2000.



MERGER FEES.    In connection with the proposed merger between Oplink and Avanex Corporation, which was
not approved on August 15, 2002 at the special meeting of our stockholders, we incurred $1.3 million and $1.8 million in merger fees for the fiscal years ended June 30, 2003 and 2002, respectively.



IN-PROCESS RESEARCH AND DEVELOPMENT (IP
R&D).    In connection with the acquisition of Aurora in June 2001, we recorded a $793,000 charge for IP R&D in the fourth quarter of fiscal 2001 for products that had not reached technological feasibility and had
no alternative future use as of the acquisition date. These products included: an AO variable optical attenuator which will regulate optical signals; a fiber optic bypass switch which will act as a temporary switch and can be used in conjunction
with existing mechanical switches; a PIAO tunable filter which will be the first electronically chargeable filter; a portable optical spectrum analyzer which will view various wavelengths and indicate events on a real-time basis; a dynamic fiber
amplifier equalizer which will balance the signals inside the fiber before transmission to the amplifier; and a reconfigurable optical add-drop multiplexer which will allow the user to electronically change ports, wavelengths and fiber on demand.



The value of the IP R&D products was determined by
estimating the net cash flows from the sale of the products resulting from the completion of this project, reduced by the portion of the net cash flows from the revenue attributable to core technology. The resulting cash flows were then discounted
back to their present value using a discount rate of 40%. At the time of the acquisition, the six products ranged from approximately 14.3% to 33.3% complete. The fair value assigned to the in-process research and development totaled $793,000 and was
charged to expense at the time of the acquisition.



AMORTIZATION OF GOODWILL, INTANGIBLE AND OTHER ASSETS.    Amortization of goodwill, intangible and other assets of approximately $78,000, $168,000 and $3.6 million for the fiscal years ended June 30, 2003, 2002 and 2001,
respectively, represents charges incurred as a result of our acquisition of Aurora in June 2001 and Telelight in April 2000. We ceased to amortize goodwill in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. The
adoption of SFAS No. 142 did not have a material impact on our financial position, results of operations or cash flows.



INTEREST AND OTHER INCOME, NET.    Interest and other income, net decreased $677,000 to $4.0 million for the fiscal year ended
June 30, 2003 from $4.7 million for the fiscal year ended June 30, 2002. Interest and other income, net decreased $5.3 million to $4.7 million for the fiscal year ended June 30, 2002 from $10.0 million for the fiscal year ended June 30, 2001. The
decrease in interest income was primarily due to lower yields on our cash investments, overall decreased cash balances from the use of cash in the fiscal years loss from operations, investing outlays for capital purchases and financing outlays
relating to repurchase of common stock, repayment of line of credit borrowings and repayment of capital lease obligations.



GAIN (LOSS) ON SALE OF ASSETS.    Gain on sale of assets decreased $2.6 million to a loss of $258,000 for the fiscal year ended June
30, 2003 from a gain of $2.4 million for the fiscal year ended June 30, 2002. The decrease was primarily due to the sale of excess fixed assets less than the carrying amount of assets held for sale. Gain on sale of assets increased $3.2 million to
$2.4 million for the fiscal year ended June 30, 2002 from a loss of $813,000 for the fiscal year ended June 30, 2001. The increase was primarily due to the sale of excess fixed assets greater than the carrying amount of assets held for sale.



PROVISION FOR INCOME TAXES.    At June 30,
2003 we had approximately $113.6 million of federal and $46.7 million of state net operating loss carryforwards. Because of certain changes in ownership of the Company in 1999 and 1998, there is an annual limitation of approximately $600,000 on the
use of the net



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operating loss carryforwards pursuant to section 382 of the Internal Revenue Code. We have recorded a gross deferred tax asset of $62.6 million as of June
30, 2003, against which a valuation allowance is recorded that reduces the gross deferred tax asset to zero, an amount that management believes will more likely than not be realized. In assessing the realizability of deferred tax assets, management
recorded a valuation allowance to the extent we do not have a carryback right. Based on our history of losses and uncertainty of generating future taxable income, the realizable portion of the deferred tax assets is equal only to the amount of
income tax expense expected to be paid during fiscal 2004, which is zero, and represents the amount that we believe will more likely than not be realizable based on current available objective evidence.



DISCONTINUED OPERATION.    During fiscal 2003, we
reported a loss from discontinued operation of $6.2 million related to the planned future sale of our Shanghai operation, which we will continue to operate until it is sold. This loss consists of an operating loss of $3.4 million incurred by the
Shanghai operation during fiscal 2003, plus a $2.8 million charge representing the write-down of the net assets of the Shanghai operation to their estimated net realizable value, less estimated costs to sell. Loss from the Shanghai operation in
fiscal 2002 and fiscal 2001 was $1.5 million and $288,000, respectively.



44



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##### Table of Contents

Quarterly Results of Operations



The following table presents our operating results for the last eight quarters. The information for each of these quarters
is unaudited but has been prepared on the same basis as the audited consolidated financial statements. The quarterly results have been adjusted to reflect the Shanghai operation as a discontinued operation. In the opinion of management, all
necessary adjustments, consisting only of normal recurring adjustments, have been included to present fairly the unaudited quarterly results when read in conjunction with the audited consolidated financial statements and the related notes. These
operating results are not necessarily indicative of the results of any future period:



|                                                      |  | Three Months Ended |        
|----------------------------------------------------- |  | ------------------ | -------
|                                                      |  | June 30,2003       |        
|                                                      |  | (Unaudited)        |        
|Revenues                                              |  | $                  | 5,976  
|Cost of revenues:                                     |  |                    |        
|Cost of revenues                                      |  |                    | 4,618  
|Non-cash compensation expense (recovery)              |  |                    | 238    
|                                                      |  |                    |        
|Total cost of revenues                                |  |                    | 4,856  
|                                                      |  |                    |        
|Gross profit (loss)                                   |  |                    | 1,120  
|                                                      |  |                    |        
|Operating expenses:                                   |  |                    |        
|Research and development:                             |  |                    |        
|Research and development                              |  |                    | 1,374  
|Non-cash compensation expense (recovery)              |  |                    | 220    
|                                                      |  |                    |        
|Total research and development                        |  |                    | 1,594  
|                                                      |  |                    |        
|Sales and marketing:                                  |  |                    |        
|Sales and marketing                                   |  |                    | 709    
|Non-cash compensation expense (recovery)              |  |                    | 66     
|                                                      |  |                    |        
|Total sales and marketing                             |  |                    | 775    
|                                                      |  |                    |        
|General and administrative:                           |  |                    |        
|General and administrative                            |  |                    | 1,585  
|Non-cash compensation expense                         |  |                    | 678    
|                                                      |  |                    |        
|Total general and administrative                      |  |                    | 2,263  
|                                                      |  |                    |        
|Restructuring costs and other charges                 |  |                    | 4,843  
|Merger fees                                           |  |                    |       
|Amortization of goodwill, intangible and other assets |  |                    | 15     
|                                                      |  |                    |        
|Total other operating expenses                        |  |                    | 4,858  
|                                                      |  |                    |        
|Total operating expenses                              |  |                    | 9,490  
|                                                      |  |                    |        
|Loss from operations                                  |  |                    | (8,370 
|Interest and other income, net                        |  |                    | 1,051  
|(Loss) gain on sale of assets                         |  |                    | (258   
|                                                      |  |                    |        
|Loss from continuing operations                       |  |                    | (7,577 
|Loss from discontinued operation                      |  |                    | (3,085 
|                                                      |  |                    |        
|Net loss                                              |  | $                  | (10,662
|                                                      |  |                    |        
|Basic and diluted net loss per share:                 |  |                    |        
|Continuing operations                                 |  | $                  | (0.05  
|Discontinued operation                                |  |                    | (0.02  
|                                                      |  |                    |        
|Total                                                 |  | $                  | (0.07  
|Basic and diluted weighted average shares outstanding |  |                    | 149,602
|                                                      |  |                    |        



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|                                                      |  | Three Months Ended |        
|----------------------------------------------------- |  | ------------------ | -------
|                                                      |  | June 30,2002       |        
|                                                      |  | (Unaudited)        |        
|Revenues                                              |  | $                  | 7,703  
|Cost of revenues:                                     |  |                    |        
|Cost of revenues                                      |  |                    | 6,617  
|Non-cash compensation expense (recovery)              |  |                    | 295    
|                                                      |  |                    |        
|Total cost of revenues                                |  |                    | 6,912  
|                                                      |  |                    |        
|Gross profit (loss)                                   |  |                    | 791    
|                                                      |  |                    |        
|Operating expenses:                                   |  |                    |        
|Research and development:                             |  |                    |        
|Research and development                              |  |                    | 3,291  
|Non-cash compensation expense                         |  |                    | 309    
|                                                      |  |                    |        
|Total research and development                        |  |                    | 3,600  
|                                                      |  |                    |        
|Sales and marketing:                                  |  |                    |        
|Sales and marketing                                   |  |                    | 1,652  
|Non-cash compensation expense (recovery)              |  |                    | 171    
|                                                      |  |                    |        
|Total sales and marketing                             |  |                    | 1,823  
|                                                      |  |                    |        
|General and administrative:                           |  |                    |        
|General and administrative                            |  |                    | 1,604  
|Non-cash compensation expense                         |  |                    | 756    
|                                                      |  |                    |        
|Total general and administrative                      |  |                    | 2,360  
|                                                      |  |                    |        
|Restructuring costs and other charges                 |  |                    | 2,462  
|Merger fees                                           |  |                    | 419    
|Amortization of goodwill, intangible and other assets |  |                    | 42     
|                                                      |  |                    |        
|Total other operating expenses                        |  |                    | 2,923  
|                                                      |  |                    |        
|Total operating expenses                              |  |                    | 10,706 
|                                                      |  |                    |        
|Loss from operations                                  |  |                    | (9,915 
|Interest and other income, net                        |  |                    | 1,032  
|Gain on sale of assets                                |  |                    | 1,702  
|                                                      |  |                    |        
|Loss from continuing operations                       |  |                    | (7,181 
|Loss from discontinued operation                      |  |                    | (1,043 
|                                                      |  |                    |        
|Net loss                                              |  | $                  | (8,224 
|                                                      |  |                    |        
|Basic and diluted net loss per share:                 |  |                    |        
|Continuing operations                                 |  | $                  | (0.04  
|Discontinued operation                                |  |                    | (0.01  
|                                                      |  |                    |        
|Total                                                 |  | $                  | (0.05  
|Basic and diluted weighted average shares outstanding |  |                    | 164,588
|                                                      |  |                    |        



Our revenues and
operating results are likely to vary significantly from quarter to quarter. The factors, many of which are more fully discussed in other risk factors, that are likely to cause these variations include, among others:



| | - | economic downturn and uncertainty of the fiber optic industry;
| | - | --------------------------------------------------------------



| | - | economic conditions specific to the communications and related industries and the development and size of the markets for our products;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| | - | fluctuations in demand for, and sales of, our products;
| | - | -------------------------------------------------------



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| | - | cancellations of orders and shipment rescheduling;
| | - | --------------------------------------------------



| | - | our ability to successfully improve our manufacturing capability in our facilities in China;
| | - | --------------------------------------------------------------------------------------------



| | - | the availability of raw materials used in our products and increases in the price of these raw materials;
| | - | ---------------------------------------------------------------------------------------------------------



| | - | the ability of our manufacturing operations in China to timely produce and deliver products and components in the quantity and of the quality we require;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | our ability to achieve acceptable production yields in China;
| | - | -------------------------------------------------------------



| | - | the practice of communication equipment suppliers to sporadically place large orders with short lead times;
| | - | -----------------------------------------------------------------------------------------------------------



| | - | the mix of products and the average selling prices of the products we sell;
| | - | ---------------------------------------------------------------------------



| | - | competitive factors, including introductions of new products, new technologies and product enhancements by competitors, consolidation of competitors in the fiber optic subsystems,
integrated modules and components market and pricing pressures;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | our ability to develop, introduce, manufacture and ship new and enhanced optical networking products in a timely manner without defects; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| | - | costs associated with and the outcomes of any intellectual property or other litigation to which we are, or may become, a party.
| | - | --------------------------------------------------------------------------------------------------------------------------------



Due to the factors noted above and other factors noted under the caption
entitled Risk Factors under Item 1, we believe that quarter-to-quarter comparisons of our operating results will not be meaningful. You should not rely on our results for any one quarter as an indication of our future performance.



Liquidity and Capital Resources



Since our inception, we have financed our operations primarily through
issuances of equity, which totaled approximately $319.4 million in aggregate net proceeds, offset by $28.9 million common stock repurchases, net of proceeds from exercise of stock options, employee stock purchase plan and warrants through June 30,
2003. In August 2000, we received $50.0 million in connection with the issuance to Cisco Systems of a convertible promissory note, which along with the related interest expense automatically converted into 3,298,773 shares of common stock upon the
closing of our initial public offering in October 2000. Our initial public offering resulted in net proceeds of approximately $263.7 million, before offering expenses of approximately $2.7 million. As of June 30, 2003, we had cash, cash equivalents
and short-term investments of $188.1 million and working capital of $187.8 million. We estimate that the sum of our cash, cash equivalents and short-term investments at the end of the first quarter of fiscal 2004 will be approximately the same as
the sum of our cash, cash equivalents and short-term investments at the end of fiscal year 2003.



Our operating activities used cash of $13.4 million in fiscal 2003, $10.9 million in fiscal 2002, and $17.3 million in fiscal 2001. Cash used in
operating activities was primarily attributable to losses from continuing operations incurred during each of the fiscal years ended June 30, 2003, 2002 and 2001 of $30.6 million, $66.9 million and $80.1 million, respectively, as adjusted
for non-cash activity totaling $20.8 million, $40.1 million and $96.5 million, respectively. In fiscal 2003, cash used in operating activities was also attributable to a decrease in accounts payable and accrued liabilities and accrued
restructuring costs of $10.4 million, partially offset by decreases in accounts receivable, inventories and prepaid expenses and other assets of $2.1 million, $3.4 million and $1.4 million, respectively. In fiscal 2002, cash used in operating
activities was also attributable to a decrease in accounts payable of $5.9 million, partially offset by decreases in accounts receivable, inventories and prepaid expenses and other assets of $10.4 million, $5.6 million and $5.7 million,
respectively. In fiscal 2001, cash used in operating activities was attributable to increases in accounts receivable, inventories and prepaid expenses and other assets of $7.1 million, $40.7 million and $4.5 million, respectively, partially offset
by increases in accounts payable and accrued liabilities of $6.2 million and $12.4 million, respectively.



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Our investing activities used cash of $60.6 million in fiscal 2003, $9.0 million in fiscal 2002, and
$70.8 million in fiscal 2001. In the fiscal year ended June 30, 2003, our investing activities reflect the purchases of short-term investments of $189.6 million and property and equipment of $611,000 partially offset by maturities of short-term
investments of $128.7 million and proceeds from sales of assets of $868,000. In the fiscal year ended June 30, 2002, our investing activities reflect the purchases of short-term investments of $70.2 million and property and equipment of $7.1
million partially offset by maturities of short-term investments of $64.9 million and proceeds from sales of assets of $3.4 million. In the fiscal years ended June 30, 2001, our investing activities primarily reflect purchases of property and
equipment. During fiscal 2004, we expect to use approximately $1.0 million for capital expenditures worldwide. We expect to use cash generated from our initial public offering for these expenditures.



Our financing activities used cash of $23.2 million in fiscal 2003 primarily
due to our repurchase of common stock of $33.3 million and repayment of capital lease obligations of $4.3 million partially offset by proceeds from the issuance of common stock of $3.0 million and repayment of notes receivable from our current and
former executive officers of $11.4 million. In fiscal 2002, our financing activities used cash of $5.6 million primarily due to our repurchase of common stock of $1.9 million, repayment of capital lease obligations of $3.9 million and net
repayment of borrowings under our line of credit of $1.1 million, partially offset by proceeds from the issuance of common stock of $1.4 million. In fiscal 2001, our financing activities provided cash of $311.0 million primarily due to the net
proceeds from our initial public offering, proceeds from the convertible promissory note payable to Cisco Systems and issuance of our convertible preferred stock.



On September 26, 2001, our Board of Directors authorized a program to repurchase up to an aggregate of $21.2 million of our
common stock. On September 19, 2002, our Board of Directors approved an increase in our buyback plan to repurchase up to an aggregate of $40.0 million of our common stock. Such repurchases may be made from time to time on the open market at
prevailing market prices, in negotiated transactions off the market or pursuant to a 10b5-1 plan adopted by the Company. In accordance with Rule 10b5-1 under the Securities Exchange Act, we adopted a plan in August 2002 which allows Oplink to
repurchase its shares during specified periods when we are likely to be in possession of material non-public information. As of June 30, 2003, repurchases of $35.2 million have been made under the repurchase program.



Our principal source of liquidity at June 30, 2003 consisted of $188.1
million in cash, cash equivalents and short-term investments. We believe that our current cash, cash equivalent and short-term investment balances will be sufficient to meet our operating and capital requirements for at least the next 12 months. Our
capital expenditures totaled $611,000 in fiscal 2003. We may use cash and cash equivalents from time to time to fund our acquisition of businesses and technologies. We may be required to raise funds through public or private financings, strategic
relationships or other arrangements. We cannot assure you that such funding, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if
available, may involve restrictive covenants. Our failure to raise capital when needed could harm our ability to pursue our business strategy and achieve and maintain profitability.



Contractual Obligations



Our contractual obligations including those related to our discontinued operation as of June 30, 2003 have been summarized below (in thousands):



|                          |  |       |       | Contractual Obligations Due by Period
|------------------------- |  | ----- | ----- | -------------------------------------
|                          |  | Total |       | Less than 1 year                     
|Contractual Obligations   |  |       |       |                                      
|Capital lease obligations |  | $     | 1,613 |                                      
|Operating leases          |  |       | 5,577 |                                      
|Purchase obligations      |  |       | 2,297 |                                      
|                          |  |       |       |                                      
|Total                     |  | $     | 9,487 |                                      
|                          |  |       |       |                                      



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Recent Accounting Pronouncements



In June 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes EITF Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. In addition, SFAS No. 146 establishes that fair value is the objective for initial measurement of the liability. SFAS No. 146 is
effective for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS No. 146 on January 1, 2003 did not have a material impact on our financial position, results of operations or cash flows.



In November 2002, the FASB issued FASB Interpretation No. (FIN) 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair
value of the obligation it assumes under that guarantee. The provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective of a
guarantors year-end. The disclosure requirements of FIN 45 are effective for interim and annual periods ending after December 15, 2002, and are applicable to product warranty liability and other guarantees. The adoption of FIN 45 did not have
a material impact on our financial position, results of operations or cash flows.



In November 2002, the FASB Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21 provides guidance on
how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. We believe that the adoption of this standard will not have a material impact on our financial statements.



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 ending after December 15, 2002. Our financial statements comply with the disclosure
requirements of SFAS No. 148.



In January 2003, the FASB issued
FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity
if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other
parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for
the first interim or annual period beginning after June 15, 2003. We believe that the adoption of this standard will not have a material impact on our financial statements.



In various areas, including revenue recognition and stock option accounting, accounting standards and practices continue to
evolve. Additionally, the SEC and the FASBs Emerging Issues Task Force continue to address revenue and stock option related accounting issues. The management of the Company believes it is in compliance with all of the rules and related
guidance as they currently exist. However, any changes to generally accepted accounting principles in these areas could impact the Companys future accounting for its operations.



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Item 7A.    Quantitative and Qualitative Disclosures About Market Risk



We are exposed to market risk related to fluctuations in interest rates and in foreign currency exchange rates:



Interest Rate Exposure



The primary objective of our investment activities is to preserve principal
while maximizing the income we receive from our investments without significantly increasing risk. Some of the securities that we may invest in may be subject to market risk. To minimize this risk, we maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including commercial paper, money market funds, government and non-government debt securities and certificates of deposit. As of June 30, 2003, all of our investments were in money market funds,
certificates of deposits, municipal bonds or high quality commercial paper with maturities of less than six month from the balance sheet date. Declines in interest rates could have a material impact on interest earnings for our investment portfolio.
The following table summarizes our current investment securities (in thousands, except percentages):



|                                     |  | CarryingValue at June 30, 2003 |         | Average Rateof Return atJune 30, 2003 |     |   | CarryingValue at June 30, 2002 |   | Average Rateof Return atJune 30, 2002 | 
|------------------------------------ |  | ------------------------------ | ------- | ------------------------------------- | --- | - | ------------------------------ | - | ------------------------------------- | 
|                                     |  |                                |         | (Annualized)                          |     |   |                                |   | (Annualized)                          | 
|Investment Securities:               |  |                                |         |                                       |     |   |                                |   |                                       | 
|Cash equivalentsvariable rate       |  | $                              | 54,292  |                                       | 1.2 | % |                                | $ | 215,208                               | 
|Cash equivalentsfixed rate          |  |                                | 64,198  |                                       | 1.2 | % |                                |   |                                      | 
|Short-term investmentsvariable rate |  |                                | 38,927  |                                       | 1.2 | % |                                |   |                                      | 
|Short-term investmentsfixed rate    |  |                                | 27,678  |                                       | 1.2 | % |                                |   | 5,700                                 | 
|                                     |  |                                |         |                                       |     |   |                                |   |                                       | 
|Total                                |  | $                              | 185,095 |                                       |     |   |                                | $ | 220,908                               | 
|                                     |  |                                |         |                                       |     |   |                                |   |                                       | 



Foreign Currency
Exchange Rate Exposure



We operate in the United
States, manufacture in China, and the substantial majority of our sales to date have been made in U.S. dollars. Certain expenses from our China operations are incurred in the Chinese Renminbi. We expect that gains and losses from fluctuations in the
currency exchange rate related to sales which are made in Chinese Renminbi are likely to be substantially offset from fluctuations in the currency exchange rate related to intercompany payments from our subsidiaries in China to our parent
corporation which are made in U.S. dollars. Accordingly, we believe that we currently have no material exposure to foreign currency rate fluctuations.



We expect our international revenues and expenses to be denominated largely in U.S. dollars. We believe that our China operations will likely expand in
the future and account for a larger portion of our worldwide manufacturing and revenue. As a result, we anticipate that we may experience increased exposure to the risks of fluctuating currencies and may choose to engage in currency hedging
activities to reduce these risks. However, we cannot be certain that any such hedging activities will be effective, or available to us at commercially reasonable rates.



Item 8.    Consolidated Financial Statements and Supplementary Data



The financial statements and related notes thereto required by this item are listed and set forth herein beginning on page F-1.



Item 9.    Changes In and Disagreements with Accountants on Accounting and Financial Disclosure



None.



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Item 9A.    Controls and Procedures



Disclosure Controls and Procedures.    Subject to the limitations described below, our management, with the participation of our Chief Executive Officer, Joseph Y. Liu, and our Chief
Financial Officer, Bruce D. Horn, has concluded that our disclosure controls and procedures were effective as of June 30, 2003.



Changes in Internal Control Over Financial Reporting.    There was no change in our internal control over financial reporting
during the quarter ended June 30, 2003 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



Limitations on the Effectiveness of Disclosure Controls and Procedures.    Our management,
including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls and procedures will necessarily prevent all error and all fraud. A control system, no matter how well conceived and operated, can
only provide reasonable, not absolute, assurance that the objectives of the control system are met. Any control system will reflect inevitable limitations, such as resource constraints, a cost-benefit analysis based on the level of benefit of
additional controls relative to their costs, assumptions about the likelihood of future events and human error. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be
detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our principal executive officer and
principal financial officer have concluded, based on their evaluation as of June 30, 2003, that our disclosure controls and procedures were effective to provide reasonable assurance that the objectives of our disclosure controls and procedures were
met.



Part III



Item 10.    Directors and Executive Officers of the Registrant



Incorporated by reference to the section of the Companys 2003 Proxy Statement anticipated to be filed with the SEC within 120 days of June 30, 2003
entitled Proposal 1Election of Directors and the section entitled Section 16(a) Beneficial Ownership Reporting Compliance. Information regarding the identification of Oplinks executive officers and directors may
be found in the section entitled Executive Officers and Directors in Part I of this Annual Report.



Item 11.    Executive Compensation



Incorporated by reference to the section of the Companys 2003 Proxy Statement anticipated to be filed with the SEC within 120 days of June 30, 2003 entitled Executive Compensation.



Item 12.    Security Ownership of Certain Beneficial Owners and Management



Incorporated by reference to the section of the Companys 2003 Proxy Statement anticipated to be filed with the SEC within 120 days of June 30, 2003
entitled Security Ownership of Certain Beneficial Owners and Management.



Item 13.    Certain Relationships and Related Transactions



Incorporated by reference to the section of the Companys 2003 Proxy Statement anticipated to be filed with the SEC within 120 days of June 30, 2003
entitled Certain Transactions.



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Part IV



Item 15.    Exhibits, Financial Statement, Schedules and Reports on Form 8-K.



(a)



|1. | Financial Statements
|-- | --------------------



See Item 8 of this Annual Report.



|2. | Financial Statement Schedules
|-- | -----------------------------



See Item 8 and Schedule II of this Annual Report.



|3. | Exhibits
|-- | --------

|Exhibit No. |  | Description                                                                                                                                                                          
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            | 
|3.1(1)      |  | Amended and Restated Certificate of Incorporation of Oplink.                                                                                                                         
|            | 
|3.2(1)      |  | Bylaws of Oplink.                                                                                                                                                                    
|            | 
|3.3(2)      |  | Certificate of Designation of Series A Junior Participating Preferred Stock                                                                                                          
|            | 
|4.1(1)(2)   |  | Reference is made to Exhibits 3.1, 3.2 and 3.3.                                                                                                                                      
|            | 
|4.2(1)      |  | Third Amended and Restated Rights Agreement, dated as of February 7, 2000 by and among Oplink and the investors listed on Exhibit A attached thereto.                                
|            | 
|4.3(2)      |  | Rights Agreement, dated as of March 18, 2002, between Oplink Communications, Inc. and The Bank of New York.                                                                          
|            | 
|10.1(1)    |  | General Purchase Agreement dated June 18, 2000 by and between Oplink and Cierra Photonics Inc.                                                                                       
|            | 
|10.2(1)     |  | State-owned Land Use Rights Assignment Contract dated May 16, 2000 by and between Oplink Communications Inc. and Zhuhai Bonded Area Management Committee.                            
|            | 
|10.3(1)     |  | Sublease Agreement dated February 29, 2000 by and among Wyse Technology Inc. and Oplink and Wyse Technology Investments Inc.                                                         
|            | 
|10.4(1)     |  | Amended and Restated Lease Agreement dated March 19, 1993 by and between Wyse Technology Investments, Inc. and Wyse Technology, Inc.                                                 
|            | 
|10.5(1)     |  | Amendment No. 1 to Sublease Agreement dated April 14, 2000 and Amendment No. 2 dated September 1, 2000 by and among Oplink, Wyse Technology Inc. and Wyse Technology Investments
Inc.
|            | 
|10.6(1)     |  | Oplinks 2000 Equity Incentive Plan.                                                                                                                                                 
|            | 
|10.7(1)     |  | Oplinks 2000 Employee Stock Purchase Plan.                                                                                                                                          
|            | 
|10.8(1)     |  | Oplinks 1995 Stock Plan.                                                                                                                                                            
|            | 
|10.9(1)     |  | Oplinks 1998 Stock Plan.                                                                                                                                                            
|            | 
|10.10(1)    |  | Oplink Form of Indemnity Agreement.                                                                                                                                                  
|            | 
|10.11(3)    |  | Promissory Note by and between Oplink and Joseph Y. Liu dated April 3, 2001.                                                                                                         
|            | 
|10.12(4)    |  | Amendment to Promissory Notes dated March 18, 2002, between Oplink and Joseph Y. Liu.                                                                                                
|            | 
|10.13(4)    |  | Amendment to Promissory Note dated March 18, 2002, between Oplink and Frederick R. Fromm.                                                                                            
|            | 
|10.14(5)    |  | Form of Stock Option Agreement between Oplink and Chieh Chang, Herbert Chang and Leonard LeBlanc.                                                                                    
|            | 
|10.15(6)    |  | Promissory Note by and between Oplink and Joseph Y. Liu dated November 27, 2001.                                                                                                     



52



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|Exhibit No. |     |  | Description                                                                                                                                                                                                                          
|----------- | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |    
|10.16       | (6) |  | Promissory Note by and between Oplink and Joseph Y. Liu dated November 28, 2001.                                                                                                                                                     
|            |    
|10.17       | (6) |  | Stock Pledge Agreement by and between Oplink and Joseph Y. Liu dated November 27, 2001.                                                                                                                                              
|            |    
|10.18       | (6) |  | Stock Pledge Agreement by and between Oplink and Joseph Y. Liu dated November 28, 2001.                                                                                                                                              
|            |    
|10.19       | (5) |  | Promissory Note by and between Oplink and Joseph Y. Liu dated April 3, 2001.                                                                                                                                                         
|            |    
|10.20       | (5) |  | Form of Stock Pledge Agreement by and between Oplink and Joseph Y. Liu dated April 3, 2001.                                                                                                                                          
|            |    
|10.21       | (7) |  | Separation Letter Agreement Dated October 17, 2002, by and between the Registrant and Frederick Fromm.                                                                                                                               
|            |    
|10.22       | (8) |  | Amended and Restated Executive Corporate Event Agreement, dated February 20, 2003, by and between the Registrant and Bruce Horn.                                                                                                     
|            |    
|10.23       | (8) |  | Executive Corporate Event Agreement, dated February 20, 2003, by and between the Registrant and Yanfeng Yang.                                                                                                                        
|            |    
|10.24       | (8) |  | Executive Corporate Event Agreement, dated February 24, 2003, by and between the Registrant and River Gong.                                                                                                                          
|            |    
|10.25       | (8) |  | Executive Corporate Event Agreement, dated March 21, 2003, by and between the Registrant and Joseph Y. Liu.                                                                                                                          
|            |    
|10.26       |     |  | Separation Letter Agreement dated May 6, 2003 by and between the Registrant and Wei Zhong Li.                                                                                                                                        
|            |    
|10.27       |     |  | Separation Letter Agreement dated May 6, 2003 by and between the Registrant and Jing Yu Xu.                                                                                                                                          
|            |    
|21.1        |     |  | Subsidiaries of Oplink.                                                                                                                                                                                                              
|            |    
|23.1        |     |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                               
|            |    
|24.1        |     |  | Power of Attorney is contained on the Signatures page.                                                                                                                                                                               
|            |    
|31.1        |     |  | Certification of Chief Executive Officer Required under Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.                                                                                         
|            |    
|31.2        |     |  | Certification of Chief Financial Officer Required under Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.                                                                                         
|            |    
|32.1        | *   |  | Certification of Chief Executive Officer Required under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section
1350.                                                             
|            |    
|32.2        | *   |  | Certification of Financial Officer Required under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18
of the United States Code (18 U.S.C. Section 1350).

---

|() | Confidential treatment granted with respect to portions of these exhibits.
|--- | --------------------------------------------------------------------------

|(1) | Previously filed as an Exhibit to the Registrants Registration Statement on Form S-1 No. 333-41506, as amended, filed on September 20, 2000 and incorporated herein by
reference.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Previously filed as an Exhibit to the Registrants Report on Form 8-K filed on March 22, 2002 and incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------------------

|(3) | Previously filed as an Exhibit to the Registrants Annual Report on Form 10-K filed on September 28, 2001 and incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Previously filed as an Exhibit to the Registrants Quarterly Report on Form 10-Q filed on filed on May 15, 2002 and incorporated herein by reference. .
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Previously filed as an Exhibit to the Registrants Annual Report on Form 10-K filed on September 30, 2002 and incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Previously filed as an Exhibit to the Registrants Quarterly Report on Form 10-Q filed on filed on February 13, 2002 and incorporated herein by reference.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Previously filed as an Exhibit to the Registrants Quarterly Report on Form 10-Q filed on filed on November 13, 2002 and incorporated herein by reference.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



53



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|(8) | Previously filed as an Exhibit to the Registrants Quarterly Report on Form 10-Q filed on filed on May 13, 2003 and incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|* | The certifications attached as Exhibits 32.1 and 32.2 accompanies this Annual Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed
filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Reports on Form 8-K.
|--- | --------------------



On April 24, 2003, the Company filed a Form 8-K under Item 9 pursuant to Item 12 announcing results for the quarter ended March 31, 2003.



On June 20, 2003, the Company filed a Form 8-K under Item 5 disclosing the
full payment by Joseph Y. Liu, the Companys president and chief executive officer, of the outstanding amounts of principal and accrued interest on obligations under promissory notes of Mr. Liu issued in connection with his purchase of Oplink
common stock in April and November 2001 and the purchase by the Company of 6,170,325 shares of its common stock from Mr. Liu.



54



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SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) 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, on the 26th day of September, 2003.





OPLINK COMMUNICATIONS, INC.By:

/s/    BRUCE D.
HORNBruce D. HornChief Financial Officer




KNOW ALL PERSONS
BY THESE PRESENTS that each person whose signature appears below constitutes and appoints Joseph Y. Liu and Bruce D. Horn, and each of them, his true and lawful attorneys-in-fact, each with the power of substitution, for him in any and all
capacities, to sign any amendments to this report on Form 10-K, and to file the same, with Exhibits thereto and other documents in connection there with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or substitute or substitutes, may do or cause to be done by virtue hereof.



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|SIGNATURE                                |  | TITLE                                                                |  | DATE              
|---------------------------------------- |  | -------------------------------------------------------------------- |  | ------------------
|                                         |  |                                                                     
|/s/    JOSEPH Y.
LIUJoseph Y. Liu        |  | Chief Executive Officer and
President (Principal Executive Officer)  |  | September 26, 2003
|                                         |  |                                                                     
|/s/ BRUCE D. HORNBruce D. Horn           |  | Chief Financial Officer (Principal Financial
and Accounting Officer) |  | September 26, 2003
|                                         |  |                                                                     
|/s/ HERBERT CHANGHerbert Chang           |  | Chairman of the Board                                                |  | September 26, 2003
|                                         |  |                                                                     
|/s/ CHIEH CHANGChieh Chang               |  | Director                                                             |  | September 26, 2003
|                                         |  |                                                                     
|/s/ ALLEN HSUAllen Hsu                   |  | Director                                                             |  | September 26, 2003
|                                         |  |                                                                     
|/s/ JESSE W. JACKJesse W. Jack           |  | Director                                                             |  | September 26, 2003
|                                         |  |                                                                     
|/s/ LEONARD J. LEBLANCLeonard J. LeBlanc |  | Director                                                             |  | September 26, 2003



55



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Item 8.    Consolidated Financial Statements and Supplementary Data



Oplink Communications, Inc.

Index to Financial Statements



|                                                                                |  | Page
|------------------------------------------------------------------------------- |  | ----
|Report of Independent Auditors                                                  |  | F-2 
|                                                                                | 
|Consolidated Balance Sheets                                                     |  | F-3 
|                                                                                | 
|Consolidated Statements of Operations                                           |  | F-4 
|                                                                                | 
|Consolidated Statements of Convertible Preferred Stock and Stockholders Equity |  | F-5 
|                                                                                | 
|Consolidated Statements of Cash Flows                                           |  | F-7 
|                                                                                | 
|Notes to Consolidated Financial Statements                                      |  | F-9 



F-1



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##### Table of Contents

REPORT OF INDEPENDENT AUDITORS



To the Board of
Directors and Stockholders of

Oplink Communications, Inc.



In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of
convertible preferred stock and stockholders equity and of cash flows present fairly, in all material respects, the financial position of Oplink Communications, Inc. and its subsidiaries (the Company) at June 30, 2003 and 2002, and
the results of their operations and their cash flows for each of the three years in the period ended June 30, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the
responsibility of the Companys management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.



PricewaterhouseCoopers LLP



San Jose, California

July 29, 2003



F-2



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##### Table of Contents

OPLINK COMMUNICATIONS, INC.



CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)



|                                                                                                                                                                    |  | June 30, |         
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | --------
|                                                                                                                                                                    |  | 2003     |         
|ASSETS                                                                                                                                                              |  |          |         
|Current assets:                                                                                                                                                     |  |          |         
|Cash and cash equivalents                                                                                                                                           |  | $        | 121,498 
|Short-term investments                                                                                                                                              |  |          | 66,605  
|Accounts receivable, net                                                                                                                                            |  |          | 4,716   
|Inventories                                                                                                                                                         |  |          | 3,436   
|Prepaid expenses and other assets                                                                                                                                   |  |          | 2,355   
|Net assets of discontinued operation                                                                                                                                |  |          | 2,667   
|                                                                                                                                                                    |  |          |         
|Total current assets                                                                                                                                                |  |          | 201,277 
|Property, plant and equipment, net                                                                                                                                  |  |          | 31,738  
|Intangible assets                                                                                                                                                   |  |          | 120     
|Other assets                                                                                                                                                        |  |          | 608     
|                                                                                                                                                                    |  |          |         
|Total assets                                                                                                                                                        |  | $        | 233,743 
|                                                                                                                                                                    |  |          |         
|                                                                                                                                                                    |  |         
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                |  |          |         
|Current liabilities:                                                                                                                                                |  |          |         
|Accounts payable                                                                                                                                                    |  | $        | 4,587   
|Accrued liabilities                                                                                                                                                 |  |          | 7,407   
|Capital lease obligations, current                                                                                                                                  |  |          | 1,478   
|                                                                                                                                                                    |  |          |         
|Total current liabilities                                                                                                                                           |  |          | 13,472  
|Capital lease obligations, non current                                                                                                                              |  |          | 83      
|Accrued restructuring costs, non current                                                                                                                            |  |          | 1,472   
|                                                                                                                                                                    |  |          |         
|                                                                                                                                                                    |  |          | 15,027  
|                                                                                                                                                                    |  |          |         
|                                                                                                                                                                    |  |         
|Commitments and contingencies (Note 11)                                                                                                                             |  |          |         
|                                                                                                                                                                    |  |         
|Stockholders equity:                                                                                                                                               |  |          |         
|Common stock, $0.001 par value, 400,000,000 shares authorized; 142,088,677 and 164,877,460 shares issued and outstanding as of
June 30, 2003 and 2002, respectively |  |          | 142     
|Additional paid-in capital                                                                                                                                          |  |          | 463,449 
|Treasury stock                                                                                                                                                      |  |          | (25,276 
|Notes receivable from stockholders                                                                                                                                  |  |          | (50     
|Deferred stock compensation                                                                                                                                         |  |          | (1,521  
|Accumulated other comprehensive (loss) income                                                                                                                       |  |          | (29     
|Accumulated deficit                                                                                                                                                 |  |          | (217,999
|                                                                                                                                                                    |  |          |         
|Total stockholders equity                                                                                                                                          |  |          | 218,716 
|                                                                                                                                                                    |  |          |         
|Total liabilities and stockholders equity                                                                                                                          |  | $        | 233,743 
|                                                                                                                                                                    |  |          |         



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



F-3



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##### Table of Contents

OPLINK COMMUNICATIONS, INC.



CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)



|                                                      |  | Years Ended June 30, |        
|----------------------------------------------------- |  | -------------------- | -------
|                                                      |  | 2003                 |        
|Revenues                                              |  | $                    | 22,637 
|Cost of revenues:                                     |  |                      |        
|Cost of revenues                                      |  |                      | 21,994 
|Non-cash compensation (recovery) expense              |  |                      | (415   
|                                                      |  |                      |        
|Total cost of revenues                                |  |                      | 21,579 
|                                                      |  |                      |        
|Gross profit (loss)                                   |  |                      | 1,058  
|                                                      |  |                      |        
|Operating expenses:                                   |  |                      |        
|Research and development:                             |  |                      |        
|Research and development                              |  |                      | 8,496  
|Non-cash compensation expense                         |  |                      | 42     
|                                                      |  |                      |        
|Total research and development                        |  |                      | 8,538  
|                                                      |  |                      |        
|Sales and marketing:                                  |  |                      |        
|Sales and marketing                                   |  |                      | 4,183  
|Non-cash compensation expense (recovery)              |  |                      | 172    
|                                                      |  |                      |        
|Total sales and marketing                             |  |                      | 4,355  
|                                                      |  |                      |        
|General and administrative:                           |  |                      |        
|General and administrative                            |  |                      | 6,902  
|Non-cash compensation expense                         |  |                      | 2,074  
|                                                      |  |                      |        
|Total general and administrative                      |  |                      | 8,976  
|                                                      |  |                      |        
|Restructuring costs and other charges                 |  |                      | 12,167 
|Merger fees                                           |  |                      | 1,300  
|In-process research and development                   |  |                      |       
|Amortization of goodwill, intangible and other assets |  |                      | 78     
|                                                      |  |                      |        
|Total other operating expenses                        |  |                      | 13,545 
|                                                      |  |                      |        
|Total operating expenses                              |  |                      | 35,414 
|                                                      |  |                      |        
|Loss from operations                                  |  |                      | (34,356
|Interest and other income, net                        |  |                      | 4,024  
|(Loss) gain on sale of assets                         |  |                      | (258   
|                                                      |  |                      |        
|Loss from continuing operations                       |  |                      | (30,590
|Loss from discontinued operation                      |  |                      | (6,197 
|                                                      |  |                      |        
|Net loss                                              |  | $                    | (36,787
|                                                      |  |                      |        
|Basic and diluted net loss per share:                 |  |                      |        
|Continuing operations                                 |  | $                    | (0.19  
|Discontinued operation                                |  |                      | (0.04  
|                                                      |  |                      |        
|Total                                                 |  | $                    | (0.23  
|                                                      |  |                      |        
|Basic and diluted weighted average shares outstanding |  |                      | 158,782
|                                                      |  |                      |        



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



F-4



---

##### Table of Contents

OPLINK COMMUNICATIONS, INC.



CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY

(In thousands, except share data)



|                                                                                 |        | Convertible Preferred Stock |   |        | Common Stock |         |        | AdditionalPaid in Capital |             |        | Treasury Stock |   |     | Notes ReceivablefromStockholders |  |   | Deferred Stock Compensation |   |  | Accumulated Other ComprehensiveIncome (Loss) |        |   | Accumulated Deficit |   |         | TotalStockholders Equity | 
|-------------------------------------------------------------------------------- | ------ | --------------------------- | - | ------ | ------------ | ------- | ------ | ------------------------- | ----------- | ------ | -------------- | - | --- | -------------------------------- |  | - | --------------------------- | - |  | -------------------------------------------- | ------ | - | ------------------- | - | ------- | ------------------------- | 
|                                                                                 | Shares |                             |   | Amount |              |         | Shares |                           |             | Amount |                |   |     |                                  |  |   |                             |  
|Balance at June 30, 2000                                                         |        | 110,103,344                 |   |        | $            | 58,373  |        |                           | 24,457,878  |        |                | $ | 24  |                                  |  | $ | 61,253                      |   |  | $                                            |       |   |                     | $ |        |                           | 
|Exercise of stock options                                                        |        |                            |   |        |              |        |        |                           | 4,717,579   |        |                |   | 5   |                                  |  |   | 1,019                       |   |  |                                              |       |   |                     |   |        |                           | 
|Issuance of common stock upon the initial public offering, net of issuance costs |        |                            |   |        |              |        |        |                           | 15,755,000  |        |                |   | 16  |                                  |  |   | 260,981                     |   |  |                                              |       |   |                     |   |        |                           | 
|Issuance of common stock bonus                                                   |        |                            |   |        |              |        |        |                           | 20,000      |        |                |   |    |                                  |  |   | 35                          |   |  |                                              |       |   |                     |   |        |                           | 
|Issuance of common stock from ESPP                                               |        |                            |   |        |              |        |        |                           | 130,757     |        |                |   |    |                                  |  |   | 500                         |   |  |                                              |       |   |                     |   |        |                           | 
|Conversion of convertible preferred stock                                        |        | (110,103,344                | ) |        |              | (58,373 | )      |                           | 110,103,344 |        |                |   | 110 |                                  |  |   | 58,263                      |   |  |                                              |       |   |                     |   |        |                           | 
|Conversion of convertible note payable and related interest to Cisco Systems     |        |                            |   |        |              |        |        |                           | 3,298,773   |        |                |   | 3   |                                  |  |   | 59,292                      |   |  |                                              |       |   |                     |   |        |                           | 
|Note receivable from stockholder to exercise stock options and related interest  |        |                            |   |        |              |        |        |                           | 2,216,666   |        |                |   | 2   |                                  |  |   | 3,656                       |   |  |                                              |       |   |                     |   | (3,889  | )                         | 
|Exercise of common stock warrants                                                |        |                            |   |        |              |        |        |                           | 348,904     |        |                |   | 1   |                                  |  |   | 59                          |   |  |                                              |       |   |                     |   |        |                           | 
|Repurchase of common stock                                                       |        |                            |   |        |              |        |        |                           | (10,789     | )      |                |   | (1  | )                                |  |   |                             |   |  |                                              | (59    | ) |                     |   |        |                           | 
|Stock compensation related to grant of stock options to non-employees            |        |                            |   |        |              |        |        |                           |            |        |                |   |    |                                  |  |   | 350                         |   |  |                                              |       |   |                     |   |        |                           | 
|Deferred stock compensation                                                      |        |                            |   |        |              |        |        |                           |            |        |                |   |    |                                  |  |   | 28,009                      |   |  |                                              |       |   |                     |   |        |                           | 
|Amortization of deferred compensation                                            |        |                            |   |        |              |        |        |                           |            |        |                |   |    |                                  |  |   | (1,803                      | ) |  |                                              |       |   |                     |   |        |                           | 
|Issuance of common stock in connection with acquisition                          |        |                            |   |        |              |        |        |                           | 150,000     |        |                |   | 1   |                                  |  |   | 447                         |   |  |                                              |       |   |                     |   |        |                           | 
|Donation of shares of common stock                                               |        |                            |   |        |              |        |        |                           | 10,000      |        |                |   |    |                                  |  |   | 100                         |   |  |                                              |       |   |                     |   |        |                           | 
|Components of comprehensive loss:                                                |        |                             |   |        |              |         |        |                           |             |        |                |   |     |                                  |  |   |                             |   |  |                                              |        |   |                     |   |         |                           | 
|Net loss                                                                         |        |                            |   |        |              |        |        |                           |            |        |                |   |    |                                  |  |   |                            |   |  |                                              |       |   |                     |   |        |                           | 
|Change in cumulative translation adjustments                                     |        |                            |   |        |              |        |        |                           |            |        |                |   |    |                                  |  |   |                            |   |  |                                              |       |   |                     |   |        |                           | 
|                                                                                 |        |                             |   |        |              |         |        |                           |             |        |                |   |     |                                  |  |   |                             |   |  |                                              |        |   |                     |   |         |                           | 
|Total comprehensive loss                                                         |        |                             |   |        |              |         |        |                           |             |        |                |   |     |                                  |  |   |                             |   |  |                                              |        |   |                     |   |         |                           | 
|                                                                                 |        |                             |   |        |              |         |        |                           |             |        |                |   |     |                                  |  |   |                             |   |  |                                              |        |   |                     |   |         |                           | 
|Balance at June 30, 2001                                                         |        |                            |   |        |              |        |        |                           | 161,198,112 |        |                |   | 161 |                                  |  |   | 472,161                     |   |  |                                              | (59    | ) |                     |   | (3,889  | )                         | 
|Exercise of stock options                                                        |        |                            |   |        |              |        |        |                           | 5,318,528   |        |                |   | 5   |                                  |  |   | 6,849                       |   |  |                                              |       |   |                     |   |        |                           | 
|Issuance of common stock from ESPP                                               |        |                            |   |        |              |        |        |                           | 781,020     |        |                |   |    |                                  |  |   | 856                         |   |  |                                              |       |   |                     |   |        |                           | 
|Note receivable from stockholder to exercise stock options and related interest  |        |                            |   |        |              |        |        |                           |            |        |                |   |    |                                  |  |   |                            |   |  |                                              |       |   |                     |   | (6,947  | )                         | 
|Repayment of note receivable from stockholder                                    |        |                            |   |        |              |        |        |                           |            |        |                |   |    |                                  |  |   |                            |   |  |                                              |       |   |                     |   | 65      |                           | 
|Repurchase of common stock                                                       |        |                            |   |        |              |        |        |                           | (1,620,200  | )      |                |   | (1  | )                                |  |   |                            |   |  |                                              | (1,894 | ) |                     |   |        |                           | 
|Stock-based compensation expense                                                 |        |                            |   |        |              |        |        |                           |            |        |                |   |    |                                  |  |   | 281                         |   |  |                                              |       |   |                     |   |        |                           | 
|Amortization of deferred compensation                                            |        |                            |   |        |              |        |        |                           |            |        |                |   |    |                                  |  |   | (7,696                      | ) |  |                                              |       |   |                     |   |        |                           | 
|Cancellation of common stock in connection with acquisition                      |        |                            |   |        |              |        |        |                           | (800,000    | )      |                |   |    |                                  |  |   |                            |   |  |                                              |       |   |                     |   |        |                           | 
|Components of comprehensive loss:                                                |        |                             |   |        |              |         |        |                           |             |        |                |   |     |                                  |  |   |                             |   |  |                                              |        |   |                     |   |         |                           | 
|Net loss                                                                         |        |                            |   |        |              |        |        |                           |            |        |                |   |    |                                  |  |   |                            |   |  |                                              |       |   |                     |   |        |                           | 
|Change in cumulative translation adjustments                                     |        |                            |   |        |              |        |        |                           |            |        |                |   |    |                                  |  |   |                            |   |  |                                              |       |   |                     |   |        |                           | 
|Unrealized gain on investments                                                   |        |                            |   |        |              |        |        |                           |            |        |                |   |    |                                  |  |   |                            |   |  |                                              |       |   |                     |   |        |                           | 
|                                                                                 |        |                             |   |        |              |         |        |                           |             |        |                |   |     |                                  |  |   |                             |   |  |                                              |        |   |                     |   |         |                           | 
|Total comprehensive loss                                                         |        |                             |   |        |              |         |        |                           |             |        |                |   |     |                                  |  |   |                             |   |  |                                              |        |   |                     |   |         |                           | 
|                                                                                 |        |                             |   |        |              |         |        |                           |             |        |                |   |     |                                  |  |   |                             |   |  |                                              |        |   |                     |   |         |                           | 
|Balance at June 30, 2002                                                         |        |                            |   |        | $            |        |        |                           | 164,877,460 |        |                | $ | 165 |                                  |  | $ | 472,451                     |   |  | $                                            | (1,953 | ) |                     | $ | (10,771 | )                         | 
|                                                                                 |        |                             |   |        |              |         |        |                           |             |        |                |   |     |                                  |  |   |                             |   |  |                                              |        |   |                     |   |         |                           | 



(Continued on next
page)



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



F-5



---

##### Table of Contents

OPLINK COMMUNICATIONS, INC.



CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY

(In thousands, except share data)



(Continued From Previous Page)



|                                                                  |        | Convertible Preferred Stock |        | Common Stock |        |  | AdditionalPaid in Capital |        |  | Treasury Stock |     |   | Notes ReceivablefromStockholders |   |         | Deferred Stock Compensation |  |   | Accumulated Other ComprehensiveIncome (Loss) |   |  | Accumulated Deficit |        |   | TotalStockholders Equity |  
|----------------------------------------------------------------- | ------ | --------------------------- | ------ | ------------ | ------ |  | ------------------------- | ------ |  | -------------- | --- | - | -------------------------------- | - | ------- | --------------------------- |  | - | -------------------------------------------- | - |  | ------------------- | ------ | - | ------------------------- | -
|                                                                  | Shares |                             | Amount |              | Shares |  |                           | Amount |  |                |     |   |                                  |   |         |                            
|Exercise of stock options                                         |        |                            |        | $            |       |  | 5,658,644                 |        |  | $              | 5   |   |                                  | $ | 2,653   |                             |  | $ |                                             |   |  | $                   |       |   |                           | $
|Issuance of common stock from ESPP                                |        |                            |        |              |       |  | 465,498                   |        |  |                |    |   |                                  |   | 312     |                             |  |   |                                             |   |  |                     |       |   |                           |  
|Interest receivable related to notes receivable from stockholders |        |                            |        |              |       |  |                          |        |  |                |    |   |                                  |   |        |                             |  |   |                                             |   |  |                     | (686   | ) |                           |  
|Repayment of note receivable from stockholder                     |        |                            |        |              |       |  |                          |        |  |                |    |   |                                  |   |        |                             |  |   |                                             |   |  |                     | 11,407 |   |                           |  
|Repurchase of common stock                                        |        |                            |        |              |       |  | (28,912,925               | )      |  |                | (28 | ) |                                  |   |        |                             |  |   | (33,259                                      | ) |  |                     |       |   |                           |  
|Retirement of treasury stock                                      |        |                            |        |              |       |  |                          |        |  |                |    |   |                                  |   | (9,936  | )                           |  |   | 9,936                                        |   |  |                     |       |   |                           |  
|Stock-based compensation expense                                  |        |                            |        |              |       |  |                          |        |  |                |    |   |                                  |   | 585     |                             |  |   |                                             |   |  |                     |       |   |                           |  
|Amortization of deferred compensation                             |        |                            |        |              |       |  |                          |        |  |                |    |   |                                  |   | (2,616  | )                           |  |   |                                             |   |  |                     |       |   |                           |  
|Components of comprehensive loss:                                 |        |                             |        |              |        |  |                           |        |  |                |     |   |                                  |   |         |                             |  |   |                                              |   |  |                     |        |   |                           |  
|Net loss                                                          |        |                            |        |              |       |  |                          |        |  |                |    |   |                                  |   |        |                             |  |   |                                             |   |  |                     |       |   |                           |  
|Change in cumulative translation adjustments                      |        |                            |        |              |       |  |                          |        |  |                |    |   |                                  |   |        |                             |  |   |                                             |   |  |                     |       |   |                           |  
|Unrealized gain on investments                                    |        |                            |        |              |       |  |                          |        |  |                |    |   |                                  |   |        |                             |  |   |                                             |   |  |                     |       |   |                           |  
|                                                                  |        |                             |        |              |        |  |                           |        |  |                |     |   |                                  |   |         |                             |  |   |                                              |   |  |                     |        |   |                           |  
|Total comprehensive loss                                          |        |                             |        |              |        |  |                           |        |  |                |     |   |                                  |   |         |                             |  |   |                                              |   |  |                     |        |   |                           |  
|                                                                  |        |                             |        |              |        |  |                           |        |  |                |     |   |                                  |   |         |                             |  |   |                                              |   |  |                     |        |   |                           |  
|Balance at June 30, 2003                                          |        |                            |        | $            |       |  | 142,088,677               |        |  | $              | 142 |   |                                  | $ | 463,449 |                             |  | $ | (25,276                                      | ) |  | $                   | (50    | ) |                           | $
|                                                                  |        |                             |        |              |        |  |                           |        |  |                |     |   |                                  |   |         |                             |  |   |                                              |   |  |                     |        |   |                           |  



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



F-6



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##### Table of Contents

OPLINK COMMUNICATIONS, INC.



CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                                   |  | Years Ended June 30, |         
|-------------------------------------------------------------------------------------------------- |  | -------------------- | --------
|                                                                                                   |  | 2003                 |         
|Cash flows from operating activities:                                                              |  |                      |         
|Loss from continuing operations                                                                    |  | $                    | (30,590 
|Adjustments to reconcile loss from continuing operations to net cash used in operating activities: |  |                      |         
|Non-cash restructuring costs and other charges                                                     |  |                      | 8,841   
|Depreciation and amortization of property and equipment                                            |  |                      | 10,787  
|Amortization of goodwill and intangible assets                                                     |  |                      | 78      
|Amortization of deferred stock compensation                                                        |  |                      | 1,873   
|Amortization of discount/premium on short-term investments                                         |  |                      | (3      
|Provision for excess and obsolete inventory                                                        |  |                      |        
|Loss (gain) on sale or disposal of assets                                                          |  |                      | 258     
|Acquired in-process research and development                                                       |  |                      |        
|Deferred tax assets                                                                                |  |                      |        
|Sales and marketing expense related to the convertible note payable to Cisco Systems               |  |                      |        
|Interest expense related to the convertible note payable to Cisco Systems                          |  |                      |        
|Interest income related to stockholder notes                                                       |  |                      | (686    
|Other                                                                                              |  |                      | (339    
|Change in assets and liabilities:                                                                  |  |                      |         
|Accounts receivable                                                                                |  |                      | 2,099   
|Inventories                                                                                        |  |                      | 3,393   
|Prepaid expenses and other assets                                                                  |  |                      | 700     
|Other assets                                                                                       |  |                      | 652     
|Accounts payable                                                                                   |  |                      | (1,421  
|Accrued liabilities and accrued restructuring costs                                                |  |                      | (9,007  
|                                                                                                   |  |                      |         
|Net cash used in continuing operations                                                             |  |                      | (13,365 
|                                                                                                   |  |                      |         
|Cash flows from investing activities:                                                              |  |                      |         
|Purchases of short-term investments                                                                |  |                      | (189,612
|Maturities of short-term investments                                                               |  |                      | 128,713 
|Proceeds from sales of property and equipment                                                      |  |                      | 868     
|Purchase of property and equipment                                                                 |  |                      | (611    
|Acquisitions                                                                                       |  |                      |        
|                                                                                                   |  |                      |         
|Net cash used in investing activities of continuing operations                                     |  | $                    | (60,642 
|                                                                                                   |  |                      |         



(Continued on next
page)



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



F-7



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##### Table of Contents

OPLINK COMMUNICATIONS, INC.



CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



(Continued from previous page)



|                                                                                                         |  | Years Ended June 30, |        
|-------------------------------------------------------------------------------------------------------- |  | -------------------- | -------
|                                                                                                         |  | 2003                 |        
|Cash flows from financing activities:                                                                    |  |                      |        
|Proceeds from issuance of common stock                                                                   |  | $                    | 2,970  
|Repurchase of common stock                                                                               |  |                      | (33,287
|Repayment of note receivable from stockholders                                                           |  |                      | 11,407 
|Proceeds from issuance of convertible note payable                                                       |  |                      |       
|Proceeds from borrowings under line of credit                                                            |  |                      |       
|Repayment of borrowings under line of credit                                                             |  |                      |       
|Repayment of capital lease obligations                                                                   |  |                      | (4,300 
|                                                                                                         |  |                      |        
|Net cash (used in) provided by financing activities of continuing operations                             |  |                      | (23,210
|                                                                                                         |  |                      |        
|Net cash (used in) provided by continuing operations                                                     |  |                      | (97,217
|Net cash used in discontinued operation                                                                  |  |                      | (318   
|                                                                                                         |  |                      |        
|Net (decrease) increase in cash and cash equivalents                                                     |  |                      | (97,535
|Cash and cash equivalents, beginning of year                                                             |  |                      | 219,033
|                                                                                                         |  |                      |        
|Cash and cash equivalents, end of year                                                                   |  | $                    | 121,498
|                                                                                                         |  |                      |        
|                                                                                                         |  |                      |        
|Supplemental disclosures of cash flow information:                                                       |  |                      |        
|Cash paid during the period for interest expense                                                         |  | $                    | 310    
|                                                                                                         |  |                      |        
|Cash paid during the period for income taxes                                                             |  | $                    |       
|                                                                                                         |  |                      |        
|Supplemental non-cash investing and financing activities:                                                |  |                      |        
|Property and equipment acquired under capital lease                                                      |  | $                    |       
|                                                                                                         |  |                      |        
|Recovery/Return of property and equipment                                                                |  | $                    | (412   
|                                                                                                         |  |                      |        
|Donation of property and equipment                                                                       |  | $                    |       
|                                                                                                         |  |                      |        
|Deferred compensation related to common stock option grants or modifications to employees                |  | $                    | 585    
|                                                                                                         |  |                      |        
|Repurchase of common stock                                                                               |  | $                    |       
|                                                                                                         |  |                      |        
|Common stock bonus                                                                                       |  | $                    |       
|                                                                                                         |  |                      |        
|Conversion of convertible preferred stock                                                                |  | $                    |       
|                                                                                                         |  |                      |        
|Conversion of convertible note payable and related interest to Cisco Systems                             |  | $                    |       
|                                                                                                         |  |                      |        
|Issuance of common stock in connection with acquisitions                                                 |  | $                    |       
|                                                                                                         |  |                      |        
|Issuance of common stock in connection with notes                                                        |  | $                    |       
|                                                                                                         |  |                      |        
|Unrealized (loss) gain on investments                                                                    |  | $                    | (13    
|                                                                                                         |  |                      |        
|Write-down of net assets of discontinued operation to estimated net realizable value, less costs to sell |  | $                    | 2,825  
|                                                                                                         |  |                      |        



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



F-8



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##### Table of Contents

OPLINK COMMUNICATIONS, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1THE
COMPANY:



The Company



Oplink Communications, Inc. (Oplink or the Company)
designs, manufactures and markets fiber optic subsystems, integrated modules and components that expand optical bandwidth, amplify optical signals, monitor and protect wavelength performance and redirect light signals within an optical network. The
Companys product portfolio includes solutions for next-generation, all-optical Dense Wavelength Division Multiplexing, or DWDM, optical amplification, switching and routing, and monitoring and conditioning applications. Oplink also offers its
customers expert Optical Manufacturing Services (OMS) for the production and packaging of highly integrated optical subsystems and turnkey solutions based upon a customers specific product design and specification. The Companys broad
line of products and services increases the performance of optical networks and enables optical system manufacturers to provide flexible and scalable bandwidth to support the increase of data traffic on the Internet and other public and private
networks. The Company markets its products and services to telecommunications equipment manufacturers worldwide.



The Company was incorporated in September 1995, began selling its products in 1996 and established operations in Zhuhai, China in April 1999. The Company
is headquartered in San Jose, California and its primary manufacturing facility and research and development resources are in Zhuhai, China. The Company conducts its business within one business segment and has no organizational structure dictated
by product, service lines, geography or customer type.



Risks and Uncertainties



The optical
communications markets have recently experienced a severe downturn, resulting in a significant decline in the demand for the optical subsystems, integrated modules and 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, any significant delays in the development or introduction of products or the occurrence or non-occurrence of other events could
have a material adverse effect on the Companys financial condition, operating results or cash flows.



Initial Public Offering



In October 2000, the Company sold 15,755,000 shares of common stock in an underwritten initial public offering, including 2,055,000 shares of common stock
issued pursuant to the exercise of the underwriters over-allotment option, resulting in net proceeds to the Company of approximately $263.7 million, before offering expenses of approximately $2.7 million. Simultaneously with the closing of the
public offering, 110,103,344 shares of convertible preferred stock were converted to shares of common stock on a one-for-one-basis. In addition, the note payable to Cisco Systems, Inc. and related interest was converted into
3,298,773 shares of common stock at a conversion price of $15.30 per share, or 85% of the public offering price of $18.00 per share. The discount feature of this convertible note payable resulted in a charge of $8.8 million, recorded as sales
and marketing expense in the quarter ended December 31, 2000.



Merger Termination



On August 16, 2002,
the Company announced the results of its stockholder vote at the special meeting of Oplink stockholders held on August 15, 2002 with respect to the proposed merger between Oplink and Avanex Corporation (Avanex), which was not approved by
the Companys stockholders, and Oplinks termination of the merger agreement with Avanex.



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##### Table of Contents

Stock split



On August 18, 2000, the Board of Directors approved, and the stockholders subsequently approved in September 2000, a
two-for-one stock split. The consolidated financial statements and all references to common stock and preferred stock contained in these consolidated financial statements and notes thereto give retroactive effect to the stock split.



Reincorporation



On July 12, 2000, the Companys Board of Directors authorized the
reincorporation of the Company in the State of Delaware. In September 2000 the stockholders approved the reincorporation and the Company reincorporated in Delaware. The Company is authorized to issue 400,000,000 shares of $0.001 par value common
stock and 20,000,000 shares of $0.001 par value convertible preferred stock, of which 4,000,000 shares have been designated as Series A Junior Participating Preferred Stock. The Board of Directors has the authority to issue the undesignated
convertible preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. The par value and shares of common stock and convertible preferred stock authorized, issued and outstanding at each balance
sheet date presented, and for each period presented in the consolidated statement of stockholders deficit have been retroactively adjusted to reflect the reincorporation.



Fiscal Year



On January 1, 2001, the Company adopted a fiscal year, which ends on the Sunday closest to June 30. Interim fiscal quarters will end on the Sunday closest
to each calendar quarter end. For presentation purposes, the Company will present each fiscal year as if it ended on June 30. Fiscal years 2003, 2002 and 2001 consist of 52 weeks.



Reclassification



Certain items previously reported in prior years financial statements have been reclassified to conform with the current year presentation. Such
reclassifications had no effect on previously reported financial position, results of operations or accumulated deficit.



NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:



Basis of presentation



The consolidated financial statements include the accounts of the Company and its wholly-owned (except as noted below) subsidiaries, Shanghai Oplink
Communications, Inc. (Shanghai), Zhuhai Free Trade Zone Oplink Communications, Inc. (Zhuhai FTZ), Zhuhai Free Trade Zone Oplink Optical Communications, Inc. (Zhuhai), Zhuhai Free Trade Zone Telelight
Communication, Inc. (FTZTCI) and Oplink Macau Commercial Services Company Limited. (Macau). With respect to Macau, the Company and Joseph Liu, the President, Chief Executive Officer and a director of the Company, each hold
one share in Macau pursuant to which the Company holds a voting interest of ninety-eight and three-fourths percent (98.75%) and Joseph Liu holds the remaining one and one-fourth percent (1.25%) voting interest. All significant intercompany accounts
and transactions have been eliminated in consolidation.



Use of estimates



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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



F-10



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##### Table of Contents

Discontinued operation



In June 2003, the Company adopted a plan to sell its Shanghai operation. The sale of the Shanghai operation represents a
disposal of a component of an entity as defined in SFAS No. 144, Accounting for the Impairment or Disposal of Long Lived Assets, (SFAS No. 144). For the periods presented, the Shanghai operation is accounted as a
discontinued operation in the financial statements in accordance with SFAS No. 144. Amounts in the financial statements and related notes for the periods presented, are reclassified to reflect the discontinued operation, as further discussed in Note
5 of the Notes to Consolidated Financial Statements.



Cash and cash equivalents



The Company
considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Companys cash equivalents consist of money market funds, debt, commercial paper and short-term deposits.



Short-term investments



Short-term investments are primarily comprised of money market funds,
government and non-government debt securities and commercial paper. Short-term investments represent securities with original maturity of greater than three months and less than one year. Investments are custodied with major financial institutions.
Realized gains and losses are recorded using the specific identification method. As of June 30, 2003 and 2002, all of the Companys short-term investments were classified as available-for-sale and were recorded on the consolidated balance
sheets at fair value. Unrealized gains and losses on these short-term investments are included as a separate component of accumulated other comprehensive income (loss). The amortized cost of debt securities is adjusted for amortization of premiums
and accretion of discounts to maturity, both of which are included in interest income.



Revenue recognition



The Company derives its revenue from the sale of fiber optic subsystems, integrated modules and components. Revenue from product sales is generally recognized upon shipment of the product or customer acceptance, which ever is later,
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. Revenue associated with contract-related cancellation
payments from customers is recognized when a formal agreement is signed or a purchase order is issued by the customer covering such payments and the collectibility of the cancellation payments is determined to be reasonably assured. Sales to
distributors do not include the right to return or exchange products or price protection. Provisions for returns and allowances are recorded at the time revenue is recognized based on the Companys historical experience.



Foreign currency translations



The functional currency of the Companys foreign subsidiaries is the
local currency. In consolidation, assets and liabilities are translated at year-end currency exchange rates and revenue and expense items are translated at average currency exchange rates prevailing during the period. Gains and losses from foreign
currency translation are accumulated as a separate component of stockholders equity. Realized gains and losses resulting from foreign currency transactions are included in the consolidated statement of operations.



Fair value of financial instruments



The Company has determined that the amounts reported for cash and cash
equivalents, accounts receivable, accounts payable, accrued liabilities and capital lease obligations approximate fair value because of their short maturities and/or variable interest rates. Short-term investments are reported at their fair market
value based on quoted market prices.



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##### Table of Contents

Concentration of credit risk



Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash
equivalents, short-term investments and trade accounts receivable. Substantially all of the Companys cash and cash equivalents, primarily composed of investments in money market funds, are maintained with three high quality financial
institutions. The composition and maturities are regularly monitored by management. Such deposits are in excess of the amount of the insurance provided by the federal government on such deposits. To date, the Company has not experienced any losses
on such deposits.



The Companys accounts receivable are
derived from revenue earned from customers located in the United States, Europe, Asia and Canada. There are a limited number of customers accounting for the majority of purchases in the industry worldwide. The Company performs ongoing credit
evaluations of its customers financial condition and currently requires no collateral from its customers. The Company maintains an allowance for doubtful accounts based upon the expected collection of its outstanding receivable balance.



The following table summarizes the revenues from customers in
excess of 10% of total revenues:



|           |  | Years Ended June 30, |  
|---------- |  | -------------------- | -
|           |  | 2003                 |  
|Customer A |  | 23                   | %
|Customer B |  | 11                   | %
|Customer C |  | 10                   | %
|Customer D |  | *                    |  
|Customer E |  | *                    |  
|Customer F |  | *                    |  
|Customer G |  | *                    |  

---

|* | Less than 10%.
|- | --------------



At June 30, 2003, two customers accounted for 27% and 15% of total accounts receivable, respectively. At June 30, 2002, two customers accounted for 26%
and 10% of total accounts receivable, respectively.



Inventories



Inventories are stated at
the lower of cost or market. Cost is determined using standard cost, which approximates actual cost on a first-in, first-out basis. Inventory is subject to rapid technological changes that could have an adverse affect on its realization in future
periods. 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



Property, plant and equipment are stated at
cost. Depreciation is computed using the straight-line method based upon the useful lives of the assets ranging from three to five years. Leasehold improvements are amortized using the straight-line method based upon the shorter of the estimated
useful lives or the lease term of the respective assets.



Long-lived assets and goodwill



Periodically, the Company evaluates the recoverability of the net carrying value of its property, plant and equipment and its intangible assets by comparing the carrying values to the estimated future undiscounted cash



F-12



---

##### Table of Contents

flows. A deficiency in these cash flows relative to the carrying amounts is an indication of the need for a write-down due to impairment. The impairment
write-down would be the difference between the carrying amounts and the fair value of these assets. A loss on impairment would be recognized by a charge to earnings. If an asset being tested for recoverability was acquired in a business combination,
the goodwill that arose in that business combination is included as part of the asset in determining recoverability.



Goodwill is allocated to the asset being tested for recoverability on a pro rata basis using the relative fair values of the long-lived assets and
identifiable intangible assets acquired. In instances where goodwill is identified with assets that are subject to an impairment loss, the carrying amount of the identified goodwill shall be eliminated before making any reduction in the carrying
amount of impaired long-lived assets and identifiable intangible assets.As discussed in Note 3, during the year ended June 30, 2001 Oplink recorded a charge of $12.4 million for the impairment of goodwill and purchased intangible assets
related to the acquisition of Telelight Communication Inc. (Telelight). This charge is reflected in Restructuring costs and other charges in the Consolidated Statements of Operations.



Income taxes



The Company accounts for income taxes under the liability method, which
recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and their financial statement reported amounts, and for net operating loss and tax
credit carryforwards. The Company records a valuation allowance against deferred tax assets when it is more likely than not that such assets will not be realized.



Research and development costs



Research and development costs are charged to operations as incurred.



Stock-based compensation



On December 31, 2002, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standard (SFAS) No. 148, Accounting for Stock-Based Compensation, Transition and Disclosure, which amends SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 148 required more prominent and frequent disclosures about the effects of stock-based compensation, which the Company has adopted for the year ended June 30, 2003. The Company accounts for its stock-based compensation
issued to employees using the intrinsic value method prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock issued to Employees. SFAS No. 123 establishes accounting and disclosure requirement
using a fair value method of accounting for stock-based employee compensation plan as well as stock and other equity instruments issued to non-employees which are accounted for in accordance with SFAS No. 123 and Emerging Issues Task Force Issue No.
96-18 and valued using the Black-Scholes option-pricing model.



The following table sets forth the pro forma information as if the provisions of SFAS No. 123 had been applied to account for stock-based employee compensation (in thousands, except per share data):



|                                                  |  | Years Ended June 30, |        
|------------------------------------------------- |  | -------------------- | -------
|                                                  |  | 2003                 |        
|Net loss as reported                              |  | $                    | (36,787
|Pro forma stock compensation expense              |  |                      |        
|computed under the fair value method              |  |                      | (6,167 
|                                                  |  |                      |        
|Pro forma net loss                                |  | $                    | (42,954
|                                                  |  |                      |        
|Basic and diluted net loss per share, as reported |  | $                    | (0.23  
|                                                  |  |                      |        
|Pro forma basic and diluted net loss per share    |  | $                    | (0.27  
|                                                  |  |                      |        



F-13



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##### Table of Contents

The Company calculated the fair value of each option grant on the date of grant in accordance with
SFAS No. 123 using the following weighted average assumptions:



|                        |  | Years Ended June 30, |  
|----------------------- |  | -------------------- | -
|                        |  | 2003                 |  
|Risk-free interest rate |  | 2.94                 | %
|Expected life of option |  | 4 years              |  
|Expected dividends      |  | 0                    | %
|Volatility              |  | 70                   | %



The estimated fair
value of purchase rights under the Companys Purchase Plan is determined using the Black-Scholes pricing model with the following assumptions for the years ended June 30, 2003, 2002 and 2001:



|                        |  | Years Ended June 30, |  
|----------------------- |  | -------------------- | -
|                        |  | 2003                 |  
|Risk-free interest rate |  | 1.43                 | %
|Expected average life   |  | 2 years              |  
|Expected dividends      |  | 0                    | %
|Volatility              |  | 70                   | %



The weighted average
per share fair value of purchase rights under the Purchase Plan was $0.37 during fiscal 2003, $0.64 during fiscal 2002 and $6.90 during fiscal 2001.



Such pro forma disclosures may not be representative of future compensation cost because options vest over several years and additional grants are made
each year.



Derivative financial instruments and hedging
activities



SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities requires companies to value derivative financial instruments, including those used for hedging foreign currency exposures, at current market value, with the impact of any change in market value
charged against earnings in the corresponding period or as a component of comprehensive income (loss), depending on the type of hedging relationship that exists. The Company has not entered into any derivative financial instrument contracts.



Comprehensive loss



Comprehensive loss is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances from non-owner sources, including foreign currency translation adjustments and unrealized gains and losses on investments.



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##### Table of Contents

Net loss per common share



The Company computes net loss per share in accordance with SFAS No. 128, Earnings Per Share, and Securities and
Exchange Commission Staff Accounting Bulletin (SAB) No. 98. Under the provisions of SFAS No. 128 and SAB No. 98, basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock
outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of common and common equivalent shares outstanding during the period, if dilutive. Potentially dilutive
common equivalent shares are composed of preference shares, warrants and the incremental common shares issuable upon the exercise of stock options. The following is a reconciliation of the numerators and denominators of the basic and diluted net
loss per share computations for the periods presented (in thousands except share and per share data):



|                                                                                                      |  | Years Ended June 30, |            
|----------------------------------------------------------------------------------------------------- |  | -------------------- | -----------
|                                                                                                      |  | 2003                 |            
|Numerator:                                                                                            |  |                      |            
|Loss from continuing operations                                                                       |  | $                    | (30,590    
|Loss from discontinued operation                                                                      |  |                      | (6,197     
|                                                                                                      |  |                      |            
|Total                                                                                                 |  | $                    | (36,787    
|                                                                                                      |  |                      |            
|Denominator:                                                                                          |  |                      |            
|Weighted average shares outstanding                                                                   |  |                      | 158,781,618
|                                                                                                      |  |                      |            
|Net loss per sharebasic and diluted:                                                                 |  |                      |            
|Continuing operations                                                                                 |  | $                    | (0.19      
|Discontinued operation                                                                                |  |                      | (0.04      
|                                                                                                      |  |                      |            
|Total                                                                                                 |  | $                    | (0.23      
|                                                                                                      |  |                      |            
|Antidilutive securites, including options and warrants, not included n net loss per share calculation |  |                      | 20,460,615 
|                                                                                                      |  |                      |            



Recently issued
accounting standards



In June 2002, the FASB issued
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force
(EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. In addition, SFAS No. 146 establishes that fair value is the objective for initial measurement of
the liability. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. The Company has adopted SFAS No. 146 and it did not have a material impact on its 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 upon issuance of a guarantee, the guarantor must recognize
a liability for the fair value of the obligation it assumes under that guarantee. The provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002,
irrespective of a guarantors year-end. The disclosure requirements of FIN 45 are effective for interim and annual periods ending after December 15, 2002, and are applicable to product warranty liability and other guarantees. The Company has
adopted FIN 45 and it did not have a material impact on its financial position, results of operations or cash flows.



In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21
provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in
fiscal periods beginning after



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##### Table of Contents

June 15, 2003. The Company believes that the adoption of this standard will not have a material impact on its financial position, results of
operations or cash flows.



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 ending after December 15, 2002. These financial statements comply with the disclosure requirements of SFAS No. 148.



In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an Interpretation of
ARB No. 51. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31,
2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company does not expect the adoption of FIN 46 to
materially impact its consolidated financial statements.



In
various areas, including revenue recognition and stock option accounting, accounting standards and practices continue to evolve. Additionally, the SEC and the FASBs Emerging Issues Task Force continue to address revenue and stock option
related accounting issues. The management of the Company believes it is in compliance with all of the rules and related guidance as they currently exist. However, any changes to generally accepted accounting principles in these areas could impact
the Companys future accounting for its operations.



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##### Table of Contents

NOTE 3RESTRUCTURING COSTS AND OTHER CHARGES



Summary of the restructuring charges in fiscal 2001, 2002 and 2003



A summary of the restructuring charges accrued in fiscal 2001, 2002 and 2003
is as follows (in thousands):



|                                                                  |  | WorkforceReduction |        |   | Excess Propertyand Equipemt |   |         | Consolidation ofExcess Facilitiesand OtherSpecial Charges |  |   | Impairmentof Goodwilland PurchasedIntangible Assets |   |  | Total |        
|----------------------------------------------------------------- |  | ------------------ | ------ | - | --------------------------- | - | ------- | --------------------------------------------------------- |  | - | --------------------------------------------------- | - |  | ----- | -------
|Initial restructuring charge in the fourth quarter of fiscal 2001 |  | $                  | 250    |   |                             | $ |        |                                                           |  | $ | 5,485                                               |   |  | $     | 12,442 
|Non-cash charge                                                   |  |                    |       |   |                             |   |        |                                                           |  |   |                                                    |   |  |       | (12,442
|Cash payments                                                     |  |                    |       |   |                             |   |        |                                                           |  |   | (1,191                                              | ) |  |       |       
|                                                                  |  |                    |        |   |                             |   |         |                                                           |  |   |                                                     |   |  |       |        
|Balance at June 30, 2001                                          |  |                    | 250    |   |                             |   |        |                                                           |  |   | 4,294                                               |   |  |       |       
|Accrued restructuring costs, current                              |  |                    |        |   |                             |   |         |                                                           |  |   |                                                     |   |  |       |        
|                                                                  |  |                    |        |   |                             |   |         |                                                           |  |   |                                                     |   |  |       |        
|Accrued restructuring costs, non current                          |  |                    |        |   |                             |   |         |                                                           |  |   |                                                     |   |  |       |        
|                                                                  |  |                    |        |   |                             |   |         |                                                           |  |   |                                                     |   |  |       |        
|Additional restructuring charge in fiscal 2002                    |  |                    | 2,899  |   |                             |   | 16,055  |                                                           |  |   | 9,151                                               |   |  |       |       
|Non-cash charge                                                   |  |                    |       |   |                             |   | (15,680 | )                                                         |  |   |                                                    |   |  |       |       
|Cash payments                                                     |  |                    | (2,269 | ) |                             |   | (375    | )                                                         |  |   | (4,646                                              | ) |  |       |       
|                                                                  |  |                    |        |   |                             |   |         |                                                           |  |   |                                                     |   |  |       |        
|Balance at June 30, 2002                                          |  |                    | 880    |   |                             |   |        |                                                           |  |   | 8,799                                               |   |  |       |       
|Accrued restructuring costs, current                              |  |                    |        |   |                             |   |         |                                                           |  |   |                                                     |   |  |       |        
|                                                                  |  |                    |        |   |                             |   |         |                                                           |  |   |                                                     |   |  |       |        
|Accrued restructuring costs, non current                          |  |                    |        |   |                             |   |         |                                                           |  |   |                                                     |   |  |       |        
|                                                                  |  |                    |        |   |                             |   |         |                                                           |  |   |                                                     |   |  |       |        
|Additional restructuring charge in fiscal 2003                    |  |                    | 1,831  |   |                             |   | 8,850   |                                                           |  |   | 1,185                                               |   |  |       | 301    
|Non-cash charge                                                   |  |                    |       |   |                             |   | (8,850  | )                                                         |  |   | 310                                                 |   |  |       | (301   
|Cash payments                                                     |  |                    | (2,535 | ) |                             |   |        |                                                           |  |   | (5,980                                              | ) |  |       |       
|                                                                  |  |                    |        |   |                             |   |         |                                                           |  |   |                                                     |   |  |       |        
|Balance at June 30, 2003                                          |  | $                  | 176    |   |                             | $ |        |                                                           |  | $ | 4,314                                               |   |  | $     |       
|                                                                  |  |                    |        |   |                             |   |         |                                                           |  |   |                                                     |   |  |       |        
|Accrued restructuring costs, current                              |  |                    |        |   |                             |   |         |                                                           |  |   |                                                     |   |  |       |        
|                                                                  |  |                    |        |   |                             |   |         |                                                           |  |   |                                                     |   |  |       |        
|Accrued restructuring costs, non current                          |  |                    |        |   |                             |   |         |                                                           |  |   |                                                     |   |  |       |        
|                                                                  |  |                    |        |   |                             |   |         |                                                           |  |   |                                                     |   |  |       |        



The amount of accrued
restructuring costs, current, is included as a component of Accrued liabilities on the Consolidated Balance Sheet as disclosed in Note 6 of the Notes to Consolidated Financial Statements.



The Company, like many of its peers in the telecommunications industry,
continues to be affected by the slowdown in telecommunications equipment spending. The Companys revenues have been generally decreasing in sequential quarters from $43.2 million in the fiscal quarter ended December 31, 2000 to $36.0 million,
$20.3 million, $10.0 million, $10.6 million, $9.6 million, $7.7 million, $6.0 million, $5.0 million, $5.6 million and ending with $6.0 million in the fiscal quarter ended June 30, 2003. Due to this decline in business conditions, the Company
continued to restructure its business and realigned resources to focus on monitoring costs, preserving cash, completing the planned move of manufacturing operations and research and development to China and focused on core opportunities.



Restructuring costs and other charges incurred during the year ended
June 30, 2003



For the year ended June 30, 2003, $12.2
million of restructuring costs and other charges were recorded as operating expenses for worldwide workforce reduction, consolidation of excess property and equipment and facilities and other charges. The following paragraphs provide detailed
information relating to the restructuring costs and other charges for the year ended June 30, 2003.



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Worldwide workforce reduction



During the year ended June 30, 2003, a charge of approximately $1.8 million
was recorded relating primarily to severance and fringe benefits associated with the planned reduction of approximately 460 employees and voluntary termination of the Companys former Chief Executive Officer. Of the $1.8 million charge,
approximately $812,000 was severance and fringe benefits associated with the resignation of the Companys former Chief Executive Officer. Of the planned reduction of approximately 460 employees, approximately 360 employees were engaged in
manufacturing activities and approximately 110 employees and 350 employees were from sites located in San Jose, California and China, respectively. As of June 30, 2003, the planned worldwide workforce reductions have been substantially completed.



Excess property and equipment, facilities and other
charges



The Company recorded a restructuring charge
of $8.9 million relating to excess property and equipment during the year ended June 30, 2003. Property and equipment disposed of or removed from operations of $5.3 million were related to the manufacture of fiber optic subsystems, integrated
modules and components. The excess property and equipment charge represented the charge required to re-measure such assets at the lower of carrying amount or fair value less cost to sell. The carrying amount of property and equipment to be disposed
of was $1.1 million as of June 30, 2003, and has been included in prepaid expenses and other current assets on the Consolidated Balance Sheet. Additionally, property and equipment removed from operations of $3.6 million consisted primarily of
leasehold improvements associated with the consolidation of excess facilities.



In addition, the Company incurred a charge of $1.5 million for leases, primarily related to excess or closed facilities with planned exit dates. The Company estimated the cost of the facility leases based on the
contractual terms of the agreements and then-current real estate market conditions. The Company determined that it would take approximately two years to sublease the various properties that will be vacated, and then subleased at lower values than
the Company is contractually obligated to pay. Amounts related to the lease expense (net of anticipated sublease proceeds) as well as projected costs to terminate the lease will be paid over the respective lease terms through 2005. The consolidation
of excess facilities includes the closure of certain manufacturing facilities located in San Jose, California and Zhuhai, China. The total number of sites closed under the restructuring plan is three. The Company also recorded a benefit to
restructuring costs and charges of $336,000 relating primarily to change of estimated amounts due to suppliers and vendors to terminate agreements for the purchase of capital equipment and inventory.



Impairment of goodwill and purchased intangible assets



Due to the decline in current business conditions,
the Company abandoned one of its technologies. As a result, the Company recorded a charge of $301,000 during the fiscal year ended June 30, 2003.



Restructuring costs and other charges incurred during the years ended June 30, 2002 and 2001



For the years ended June 30 2002 and 2001, $28.1 million and $18.2 million,
respectively, of restructuring costs and other charges were recorded as operating expenses. In addition, a $10.4 million and $30.6 million excess and obsolete inventory charge was recorded to cost of sales for the fiscal years ended June 30, 2002
and 2001, respectively. The following paragraphs provide detailed information relating to the restructuring costs and other charges and excess and obsolete inventory charge during the years ended June 30, 2002 and 2001.



Worldwide workforce reduction



The worldwide workforce reductions in connection with the Companys
initial plans of restructuring started in the fourth quarter of fiscal 2001. During the fiscal years ended June 30, 2002 and 2001, the Company recorded a charge of approximately $2.9 million and $250,000, respectively, primarily related to severance
and fringe benefits associated with the planned reduction of approximately 2,700 employees. Of the planned reduction of approximately 2,700 employees, approximately 2,400 were engaged in manufacturing activities and



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##### Table of Contents

approximately 800 and 1,900 were from sites located in San Jose, California and China, respectively. As of June 30, 2003, the planned worldwide workforce
reductions in connection with the Companys initial plans have been completed.



Excess property and equipment, facilities and other charges



The Company recorded a restructuring charge of $16.1 million relating to excess property and equipment during the fiscal year ended June 30, 2002.
Property and equipment disposed of or removed from operations were related to the manufacture of fiber optic subsystems, integrated modules and components. The excess property and equipment charge represented the charge required to re-measure such
assets at the lower of carrying amount or fair value less cost to sell. While the remaining assets removed from operations as of June 30, 2003 are being actively marketed, the Company expects the period of disposal to be an additional nine months
for most of the assets. The property and equipment disposed of or removed from operations consisted primarily of production and engineering equipment, but also included leasehold improvements, computer equipment, office equipment and furniture and
fixtures.



In addition, during the fiscal years ended June 30,
2002 and 2001, the Company incurred a charge of $7.5 million and $3.9 million, respectively, for leases primarily related to excess or closed facilities with planned exit dates. The Company estimated the cost of the facility leases based on the
contractual terms of the agreements and then current real estate market conditions. The Company determined that it would take approximately two years to sublease the various properties that will be vacated, and then subleased at lower values than
the Company is contractually obligated to pay. Amounts related to the lease expense (net of anticipated sublease proceeds) will be paid over the respective lease terms through 2005. The consolidation of excess facilities includes the closure of
certain manufacturing and research and development facilities located in San Jose, California and Beijing, Chengdu and Fuzhou, China. The total number of sites closed under the restructuring plan is six. The Company also recorded other restructuring
costs and charges of $1.7 million and $1.6 million relating primarily to payments due to suppliers and vendors to terminate agreements for the purchase of capital equipment and inventory for the years ended June 30, 2002 and 2001, respectively.



Provision for excess and obsolete inventory



The Company recorded provisions for excess and
obsolete inventory totaling $10.4 million and $30.6 million, which was charged to cost of sales during the fiscal years ended June 30, 2002 and June 30, 2001, respectively. These excess inventory charges were due to sudden and material declines
in backlog and forecasted revenue. There were no inventory provision charges during the year ended June 30, 2003. The Company evaluates the need to provide write downs for excess and obsolete inventory on an individual part analysis based on
estimated future sales of the Companys products compared to quantities on hand at each balance sheet date. This analysis is based on specific sales forecasts for each of the Companys products. Information that the Company would consider
in determining the forecast would include contractual obligations to deliver products, purchase orders with delivery dates or managements knowledge of a specific order that would significantly alter the sales forecast.



Return of property and equipment



As of June 30, 2001, the Company had $8.6 million of accounts payable
associated with the purchase of certain capital equipment from a vendor. In connection with an evaluation of the Companys manufacturing capacity needs, it was determined that this new capital equipment was excess based on current anticipated
production levels. During the fiscal year ended June 30, 2002, the Company negotiated a settlement with the vendor whereby the vendor accepted the return of equipment over several quarters totaling $8.6 million for a settlement fee of $500,000.
Accordingly, the change in accounts payable and property and equipment is reflected as a non-cash item in the Consolidated Statement of Cash Flows.



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##### Table of Contents

Impairment of goodwill and purchased intangible assets



For the year ended June 30, 2001, a $12.4 million charge was recorded based
upon an impairment analysis of the carrying amount of the goodwill and purchased intangible assets related to the Companys acquisition of Telelight, which the Company completed in April 2000.



Note 4ACQUISITIONS



Aurora acquisition



In June 2001, the Company acquired Aurora Associates and Aurora Photonics,
Inc. (collectively Aurora). Aurora is a developer of acoustic-optic (AO) devices and systems. The transaction was accounted for as a purchase, and accordingly, the accompanying financial statements include the results of
operations of Aurora subsequent to the acquisition date. The purchase price comprised $1,000,000 cash, 150,000 shares of common stock valued at $448,000, $60,000 of direct costs and $20,000 assumed liabilities. The total purchase price aggregated
$1,528,000 and was allocated to tangible assets acquired of $68,000, identifiable intangible assets acquired of $499,000, goodwill of $168,000 and in-process research and development (IP R&D) of $793,000. Results of operations for
fiscal 2001 would not have differed materially had the acquisition of Aurora occurred at the beginning of the period.



The IP R&D consisted of an AO variable optical attenuator (VOA) which will regulate optical signals; a fiber optic bypass switch
(FOS) which will act as a temporary switch and can be used in conjunction with existing mechanical switches; a PIAO tunable filter (PIAOTF) which will be the first electronically chargeable filter; a portable optical spectrum
analyzer (POSA) which will view various wavelengths and indicate events on a real-time basis; a dynamic fiber amplifier equalizer (DFAE) which will balance the signals inside the fiber before transmission to the amplifier;
and a reconfigurable optical add-drop multiplexer (OADM) which will allow the user to electronically change ports, wavelengths and fiber on demand. As of the date of acquisition, these products had not yet reached technological
feasibility and had no alternative future use.



The value of
the IP R&D products was determined by estimating the net cash flows from the sale of the products resulting from the completion of this project, reduced by the portion of the net cash flows from the revenue attributable to core technology. The
resulting cash flows were then discounted back to their present value using a discount rate of 40%. At the time of the acquisition, the six products ranged from approximately 14.3% to 33.3% complete. The fair value assigned to the in-process
research and development totaled $793,000 and was charged to expense at the time of the acquisition.



The value of certain patents being assigned to Oplink was determined using the relief from royalty methodology, which assumes that the value of the asset
equals the amount a third party would pay to use the asset and capitalize on the related benefits of the assets. The fair value assigned to patents of $395,000 is being amortized over their expected useful life of four years. Due to the decline in
current business conditions, the Company abandoned one of its technologies related to the Companys acquisition of Aurora. As a result, the Company recorded a charge of $301,000 during the fiscal year ended June 30, 2003.



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##### Table of Contents

NOTE 5DISCONTINUED OPERATION



In June 2003, the Company adopted a plan to sell its Shanghai operation. The sale of the Shanghai operation represents a
disposal of a component of an entity as defined in SFAS No. 144, Accounting for the Impairment or Disposal of Long Lived Assets, (SFAS No. 144). For the periods presented, the Shanghai operation is accounted as a
discontinued operation in the financial statements in accordance with SFAS No. 144. All prior periods presented have been retroactively adjusted to reflect Shanghais financial results as a discontinued operation. Included under the caption of
Loss from discontinued operation in the Consolidated Statements of Operations are (in thousands):



|                                                                                                         |  | Years Ended June 30, |       
|-------------------------------------------------------------------------------------------------------- |  | -------------------- | ------
|                                                                                                         |  | 2003                 |       
|Operating loss of discontinued operation                                                                 |  | $                    | (3,372
|Write-down of net assets of discontinued operation to estimated net realizable value, less costs to sell |  |                      | (2,825
|                                                                                                         |  |                      |       
|Loss from discontinued operation                                                                         |  | $                    | (6,197
|                                                                                                         |  |                      |       



The Company recognized
a loss of $2.8 million on this transaction in the year ended June 30, 2003 to reflect the write down of net assets of the discontinued operation to estimate net realizable value, less costs to sell.



Summarized selected financial information for the discontinued operation is
as follows (in thousands):



|                                 |  | Years Ended June 30, |       
|-------------------------------- |  | -------------------- | ------
|                                 |  | 2003                 |       
|Revenue                          |  | $                    | 105   
|Gross (loss) profit              |  |                      | (980  
|Operating expenses               |  |                      | (2,384
|Loss from discontinued operation |  | $                    | (3,372



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##### Table of Contents

NOTE 6BALANCE SHEET COMPONENTS (IN THOUSANDS)



|                                                 |  | June 30, |        
|------------------------------------------------ |  | -------- | -------
|                                                 |  | 2003     |        
|Accounts receivable                              |  |          |        
|Accounts receivable                              |  | $        | 5,314  
|Less: Allowance for doubtful accounts            |  |          | (598   
|                                                 |  |          |        
|                                                 |  | $        | 4,716  
|                                                 |  |          |        
|Prepaid expenses and other assets                |  |          |        
|Prepaid expenses                                 |  | $        | 1,294  
|Assets held for sale                             |  |          | 1,061  
|                                                 |  |          |        
|                                                 |  | $        | 2,355  
|                                                 |  |          |        
|Inventories:                                     |  |          |        
|Raw materials                                    |  | $        | 12,636 
|Work-in-process                                  |  |          | 5,224  
|Finished goods                                   |  |          | 4,018  
|                                                 |  |          |        
|                                                 |  |          | 21,878 
|Less: Reserves for excess and obsolete inventory |  |          | (18,442
|                                                 |  |          |        
|                                                 |  | $        | 3,436  
|                                                 |  |          |        
|Property, plant and equipment:                   |  |          |        
|Computer equipment and software                  |  | $        | 34,903 
|Building and leasehold improvements              |  |          | 12,685 
|Construction in progress                         |  |          | 975    
|                                                 |  |          |        
|                                                 |  |          | 48,563 
|Less: Accumulated depreciation and amortization  |  |          | (16,825
|                                                 |  |          |        
|                                                 |  | $        | 31,738 
|                                                 |  |          |        



Property, plant and
equipment include $6,299,000 of computer equipment and internal-use software under capital leases at June 30, 2003. Accumulated depreciation of assets under capital leases totaled $3,026,000 at June 30, 2003.



|                             |  | June 30,
|---------------------------- |  | --------
|                             |  | 2003    
|Accrued liabilities:         |  |         
|Payroll and related expenses |  | $       
|Accrued sales commission     |  |         
|Accrued warranty             |  |         
|Accrued restructuring costs  |  |         
|Other                        |  |         
|                             |  |         
|                             |  | $       
|                             |  |         



NOTE 7ACCRUED WARRANTY



The Company provides reserves for the estimated cost of
product warranties at the time revenue is recognized based on historical experience of known product failure rates and expected material and labor costs to provide warranty services. The Company generally provides a one-year warranty on its
products. Additionally, from time to time, specific warranty accruals may be made if unforeseen technical problems arise. Alternatively, if estimates are determined to be greater than the actual amounts necessary, the Company may reverse a portion
of such provisions in future periods.



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##### Table of Contents

Changes in the warranty liability, which is included as a component of Accrued liabilities on
the Consolidated Balance Sheet as disclosed in Note 6, is as follows (in thousands):



|Balance at June 30, 2001                                                                     |  | $ | 2,045  |  
|-------------------------------------------------------------------------------------------- |  | - | ------ | -
|Accruals for warranties issued during the year                                               |  |   | 966    |  
|Accruals related to pre-existing warranties (including changes in estimates) during the year |  |   | (674   | )
|Settlements made (in cash or in kind) during the year                                        |  |   | (1,137 | )
|                                                                                             |  |   |        |  
|Balance at June 30, 2002                                                                     |  | $ | 1,200  |  
|                                                                                             |  |   |        |  
|Accruals for warranties issued during the year                                               |  |   | 659    |  
|Accruals related to pre-existing warranties (including changes in estimates) during the year |  |   | (848   | )
|Settlements made (in cash or in kind) during the year                                        |  |   | (311   | )
|                                                                                             |  |   |        |  
|Balance at June 30, 2003                                                                     |  | $ | 700    |  
|                                                                                             |  |   |        |  



NOTE 8INCOME TAXES



Consolidated loss before income taxes includes non-U.S.
loss of approximately $1,782,000 and $2,130,000 for the years ended June 30, 2003 and 2002, respectively. No current or deferred provision has been provided in the current year due to the Companys current tax loss position.



The components of the provision for income taxes are as follows (in
thousands):



|                      |  | Years Ended June 30, |  
|--------------------- |  | -------------------- | -
|                      |  | 2003                 |  
|Current tax expense:  |  |                      |  
|Federal               |  | $                    | 
|State                 |  |                      | 
|Foreign               |  |                      | 
|                      |  |                      |  
|                      |  |                      | 
|                      |  |                      |  
|Deferred tax benefit: |  |                      |  
|Federal               |  | $                    | 
|State                 |  |                      | 
|Foreign               |  |                      | 
|                      |  |                      |  
|                      |  |                      | 
|                      |  |                      |  
|                      |  | $                    | 
|                      |  |                      |  



Deferred tax assets
(liabilities) consist of the following (in thousands):



|                                              |  | June 30, |        
|--------------------------------------------- |  | -------- | -------
|                                              |  | 2003     |        
|Deferred tax assets:                          |  |          |        
|Accruals and reserves                         |  | $        | 18,327 
|Net operating loss carryforwards              |  |          | 41,354 
|Research and development credit carryforwards |  |          | 2,920  
|                                              |  |          |        
|Gross deferred tax assets                     |  |          | 62,601 
|Valuation allowance                           |  |          | (62,601
|                                              |  |          |        
|Net deferred tax assets                       |  | $        |       
|                                              |  |          |        



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Reconciliation of the statutory federal income tax to the Companys effective tax:



|                                |  | June 30, |   
|------------------------------- |  | -------- | --
|                                |  | 2003     |   
|Tax at federal statutory rate   |  | (34      | )%
|State, net of federal benefit   |  | (2       | ) 
|Research credit carryforward    |  | (1       | ) 
|Stock compensation              |  | 2        |   
|Impairment of intangible assets |  |         |   
|Nondeductible goodwill          |  |         |   
|Increase in valuation allowance |  | 33       |   
|Other                           |  | 2        |   
|                                |  |          |   
|Provision for taxes             |  |         | % 
|                                |  |          |   



Based on available
objective evidence at June 30, 2003, management believes that, based on a number of factors, the available objective evidence created sufficient uncertainty regarding the realizability of the deferred tax assets such that a full valuation allowance
was recorded.



At June 30, 2003, the Company had approximately
$113.6 million of federal and $46.7 million of state net operating loss carryforwards. Because of certain changes in ownership of the Company in 1999 and 1998, there is an annual limitation of approximately $600,000 on the use of the net operating
loss carryforwards pursuant to section 382 of the Internal Revenue Code.



The Companys China subsidiaries have been granted tax holidays beginning in 1999. Benefits under the holiday begin on the first year of profitability by a subsidiary and continues for two additional years, which
thereafter the subsidiary is taxed at a reduced rate for the next three years. Zhuhai Oplinks tax holiday expired on December 31, 2001. No other subsidiary has utilized the tax holidays.



NOTE 9STOCKHOLDERS EQUITY



Authorized shares



The Companys certificate of incorporation, as amended, authorizes the
Company to issue 400,000,000 shares of common stock.



The
Company is authorized to issue 20,000,000 shares of undesignated preferred stock, $0.001 par value per share, of which 4,000,000 shares have been designated as Series A Junior Participating Preferred Stock and no shares were issued and outstanding
as of June 30, 2003 and 2002. Preferred stock may be issued from time to time in one or more series. The Board of Directors is authorized to determine the rights, preferences, privileges and restrictions granted to and imposed upon any wholly
unissued series of preferred stock and to fix the number of shares of any series of preferred stock and the designation of any such series without any vote or action by the Companys stockholders.



Warrants



During March 2001, the holders of warrants to purchase shares of common
stock and series C convertible preferred stock exercised their right to purchase such shares at $0.1488 and $0.25 per share, respectively.



Purchase Rights Plan



On March 18, 2002, the Board of Directors of Oplink approved the adoption of a Share Purchase Rights Plan (the Plan). Terms of the Plan
provide for a dividend distribution of one preferred share purchase right (a



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##### Table of Contents

Right) for each outstanding share of common stock, par value $0.001 per share of Oplink. The dividend was paid on April 3, 2002 (the Record
Date) to the stockholders of record on that date. Each Right entitles the registered holder to purchase from Oplink one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $0.001 per share (the Preferred
Shares), at a price of $16.00 per one one-hundredth of a Preferred Share (the Purchase Price), subject to adjustment. The Rights will be exercisable only after public announcement that a person or group has become the beneficial
owner of 15% or more of Oplinks common stock (a 15% holder) or 10 business days after a person or group commences a tender or exchange offer which would result in the offeror becoming a 15% holder.



If a person or group becomes a 15% holder, then each Right (other than Rights
held by a 15% holder and certain related parties, which will be voided) will be adjusted so that upon exercise the holder will have the right to receive that number of shares of Oplinks common stock having a value of twice the exercise price
of the Right. In addition, if following the public announcement of the existence of a 15% holder Oplink is involved in certain business combination transactions, each Right (other than Rights which have previously been voided) will represent the
right to purchase, at the exercise price, common stock of the acquiring entity having a value of twice the exercise price at the time. The Board of Directors will also have the right, after a person or group becomes a 15% holder, to cause each Right
(other than Rights held by the 15% holder, which will be voided) to be exchanged for one share of Oplinks common stock. The Board of Directors is entitled to redeem the Rights at $.01 per Right at any time prior to the public announcement of
the existence of a 15% holder.



Stock Option Plans



In September 1995, the Board of Directors adopted the
1995 Stock Option Plan (the 1995 Plan). In January 1998, the Board of Directors adopted the 1998 Stock Option Plan (the 1998 Plan). The 1995 Plan and 1998 Plan provide for the issuance of incentive and nonqualified stock
options to employees, directors and consultants of the Company. Under the 1995 Plan and 1998 Plan, options to purchase 6,000,000 and 33,800,000 shares of common stock, respectively, were authorized for grant. These plans were terminated in October
2000 with the adoption of the 2000 Equity Incentive Plan (the 2000 Plan) in July 2000. The 2000 Plan provides for grant of 20,000,000 stock awards to employees, directors and consultants. These stock awards include incentive stock
options to employees, including officers and employee directors, nonstatutory stock options, stock bonuses and stock purchase rights to employees, directors and consultants. Options granted under the 2000 Plan must be granted with exercise prices
not less than 100% and 85% for incentive and nonqualified stock options, respectively, of the fair value of the Companys common stock on the date of grant. Options granted to stockholders who own greater than 10% of the Companys
outstanding stock must be issued with exercise prices not less than 110% of the fair value of the Companys common stock on the date of grant. Options under the 2000 Plan generally become exercisable at a rate of 25% during the first year of
the vesting period and then at a rate of 1/48 per month thereafter. Options will expire, if not exercised, upon the earlier of 10 years from the date of grant or generally 90 days after termination as an employee of the Company. The number of shares
of common stock reserved for issuance will automatically be increased on each January 1 beginning on January 1, 2001 by the greater of the total number of shares of common stock for which stock options, stock bonuses and stock purchase
rights were granted in the preceding calendar year, or 5.0% of the total outstanding common stock on that date on a fully diluted basis; provided, that the Board of Directors may designate a smaller number of shares by which the reserve will
increase on a particular date. Shares of common stock, which are covered by a stock option grant under the 1995 and 1998 Plan without having been exercised will be added to the reserve of the 2000 Plan. Over the ten-year term of the 2000 Plan, no
more than 50,000,000 shares may be reserved for issuance pursuant to the exercise of incentive stock options.



The 2000 Equity Incentive Plan provides for the automatic grant of nonstatutory stock options to purchase shares of common stock to its non-employee
directors. Beginning in 2001, on the day after the Companys annual stockholders meeting, any person who is then a non-employee director and who is elected at such annual meeting will automatically be granted an option to purchase 72,000
shares of common stock. These grants will vest on a monthly basis over a three-year period. Any non-employee director who is elected or appointed to the board during a three-year term will automatically be granted an option to purchase a pro rata
portion of shares based on the number of months remaining in the term.



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##### Table of Contents

During the years ended June 30, 2003, 2002 and 2001, in connection with the granting of stock options to
employees and members of the Board of Directors with exercise prices below fair value, the Company recorded deferred stock compensation aggregating $585,000, $281,000 and $28,009,000 respectively. These amounts are being amortized into expense over
the vesting period of the related options, generally four years, using the method set out in FASB Interpretation No. 28 (FIN 28). Under the FIN 28 method, each vested tranche of options is accounted for as a separate option grant awarded
for past services. Accordingly, the compensation expense is recognized over the period during which the services have been provided. This results in higher compensation expense in the earlier vesting periods of the related options. Amortization
expense associated with deferred stock compensation totaled $1,873,000, $4,714,000 and $26,638,000 for the years ended June 30, 2003, 2002 and 2001, respectively.



Information with respect to 1995, 1998 and 2000 stock option plan activity for the three years ended June 30, 2003 is
set forth below:



|                                      |  | SharesAvailable forGrant |   |  | Number ofOptions |   |  | WeightedAverageExercisePrice
|------------------------------------- |  | ------------------------ | - |  | ---------------- | - |  | ----------------------------
|Balance, June 30, 2000                |  | 2,859,234                |   |  | 24,962,888       |   |  | $                           
|Options authorized during fiscal 2001 |  | 32,169,921               |   |  |                  |   |  |                             
|Options granted                       |  | (15,174,309              | ) |  | 15,174,309       |   |  |                             
|Options exercised                     |  |                          |   |  | (6,954,245       | ) |  |                             
|Options canceled                      |  | 6,361,980                |   |  | (6,361,980       | ) |  |                             
|                                      |  |                          |   |  |                  |   |  |                             
|Balance, June 30, 2001                |  | 26,216,826               |   |  | 26,820,972       |   |  | $                           
|Options authorized during fiscal 2002 |  | 16,969,704               |   |  |                  |   |  |                             
|Options granted                       |  | (13,449,995              | ) |  | 13,449,995       |   |  |                             
|Options exercised                     |  |                          |   |  | (5,318,528       | ) |  |                             
|Options canceled                      |  | 7,595,590                |   |  | (7,595,590       | ) |  |                             
|                                      |  |                          |   |  |                  |   |  |                             
|Balance, June 30, 2002                |  | 37,332,125               |   |  | 27,356,849       |   |  | $                           
|Options granted                       |  | (5,783,000               | ) |  | 5,783,000        |   |  |                             
|Options exercised                     |  |                          |   |  | (5,658,644       | ) |  |                             
|Options canceled                      |  | 7,020,590                |   |  | (7,020,590       | ) |  |                             
|                                      |  |                          |   |  |                  |   |  |                             
|Balance, June 30, 2003                |  | 38,569,715               |   |  | 20,460,615       |   |  | $                           
|                                      |  |                          |   |  |                  |   |  |                             



As of June 30, 2003,
the options outstanding and exercisable under the 1995, 1998 and 2000 Plans are presented below:



|                       |  | Options Outstandingat June 30, 2003 |  | Options Vested and Exercisableat June 30, 2003    
|---------------------- |  | ----------------------------------- |  | --------------------------------------------------
|Range ofExercise Price |  | NumberOutstanding                   |  | WeightedAverageRemainingContractualLife (in Years)
|$0.0000$2.4500        |  | 13,800,303                          |  | 8.1                                               
|$2.4501$4.9000        |  | 3,120,694                           |  | 7.4                                               
|$4.9001$7.3500        |  | 2,996,827                           |  | 7.1                                               
|$7.3501$9.8000        |  | 99,500                              |  | 7.3                                               
|$9.8001$12.250        |  |                                    |  | 0.0                                               
|$12.2501$14.700       |  | 2,000                               |  | 7.6                                               
|$14.7001$17.150       |  | 283,791                             |  | 7.3                                               
|$17.1501$19.600       |  | 130,000                             |  | 7.5                                               
|$19.6001$22.050       |  | 27,500                              |  | 7.6                                               
|                       |  |                                     |  |                                                   
|                       |  | 20,460,615                          |  | 7.8                                               
|                       |  |                                     |  |                                                   



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Notes Receivable



In April and November 2001, an executive officer borrowed from the Company, pursuant to three full recourse promissory
notes, the aggregate principal amount of $10,068,751. The principal amount borrowed was $3,657,500 on April 3, 2001 at an annual interest rate of 8.0%, $828,750 on November 27, 2001 at an annual interest rate of 6.5%, and $5,582,501 on November 28,
2001 at an annual interest rate of 6.5%. Interest income related to these notes of $749,000 and $536,000 were recorded in fiscal 2003 and 2002, respectively. Originally, these promissory notes provided that the outstanding principal amount and any
accrued and unpaid interest would be due and payable on the fifth anniversary of the respective dates of issuance. The promissory notes also provided for acceleration of their maturity dates upon the demand of the Board of Directors or upon the
termination of service to the Company. These promissory notes were amended on March 18, 2002 to provide for the outstanding principal amount and any accrued and unpaid interest to become due and payable in full on March 19, 2007. The notes were
secured each by an escrow comprising all of the shares of the Companys common stock covered by the stock options granted to executive officer. The notes were recorded as a component of stockholders equity. In June 2003, all three
promissory notes and related accrued interests in the total amount of $11,353,398 were repaid in full.



In March 2001, an executive officer borrowed from Oplink, pursuant to a full recourse promissory note, the principal amount of $160,000 at an annual
interest rate of 8.5%. The promissory note, which has a balance of $100,000 as of March 31, 2002, was amended and is now due and payable in four equal installments, one every six months from the date of new employment by the former executive
officer. The note is secured by an escrow comprising all of the shares of the Companys common stock covered by the stock options granted to this former executive officer. The note is recorded as a component of stockholders equity. As of
June 30, 2003, the outstanding balance of note receivable from this former executive officer including accrued interest was $50,138.



Repurchase of Common Stock



On September 26, 2001, the Companys Board of Directors authorized a program to repurchase up to an aggregate of $21.2 million of the Companys
Common Stock. On September 19, 2002, the Companys Board of Directors approved an increase in the buyback plan to repurchase up to an aggregate of $40.0 million of the Companys Common Stock. Such repurchases may be made from time to time
on the open market at prevailing market prices, in negotiated transactions off the market or pursuant to a 10b5-1 plan adopted by the Company. The Company adopted a 10b5-1 plan in August 2002, which allows the Company to repurchase its shares during
a period in which the Company is in possession of material non-public information, provided the Company communicates share repurchase instructions to the broker at a time when the Company was not in possession of such material non-public
information. As of June 30, 2003 repurchases of $35.2 million have been made under the repurchase program.



2000 Employee Stock Purchase Plan



In July 2000, the Board of Directors adopted the 2000 Employee Stock Purchase Plan (the Purchase Plan), which authorizes the issuance of
4,000,000 shares of its common stock pursuant to purchase rights granted to employees or to employees of any of its affiliates. The number of shares reserved for issuance under the Purchase Plan will be increased each January, beginning January 1,
2001, and ending January 1, 2010, by the greater of the total number of shares issued under the plan during the preceding calendar year or 1.5% of the number of shares of common stock outstanding on that date. The Board of Directors has the
authority to designate a smaller number of shares by which the authorized number of shares of common stock will be increased on that date. A maximum of 20,000,000 shares may be issued during the term of the Purchase Plan. The Purchase Plan
authorizes the granting of stock purchase rights to eligible employees during an offering period not more than 27 months with exercise dates approximately every six months. Shares are purchased through employee payroll deductions at purchase
prices equal to 85% of the lesser of the fair market value of the Companys common stock at either the first day of each offering period or the date of purchase. As of June 30, 2003, 1,377,275 shares had been issued under the Purchase Plan at
an average price of $1.213 per share.



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NOTE 10RELATED PARTY TRANSACTIONS



Investor Rights Agreement



The Company has an agreement with the former holders of its preferred stock, including entities with which its directors are
affiliated, that provides these stockholders certain rights relating to the registration of their shares of common stock issued upon conversion of the preferred stock. These rights survived the Companys initial public offering and will
terminate no later than eight years after the closing date.



Indemnification Agreements



The Company
has entered into indemnification agreements with each of its directors and officers. These indemnification agreements and its certificate of incorporation and bylaws require the Company to indemnify its directors and officers to the fullest extent
permitted by Delaware law.



Loan to Officer



In August 2000, an executive officer borrowed from
Oplink, pursuant to a full recourse promissory note, the principal amount of $400,000 at an annual interest rate of 6.5%. Originally, this promissory note provided that the outstanding principal amount and any accrued and unpaid interest would be
due and payable in two equal installments on August 16, 2002 and August 16, 2004. The promissory note also provided for the acceleration of its maturity date upon the termination of the executive officers employment with Oplink. The executive
officer and Oplink subsequently amended the promissory note on March 18, 2002 to provide for the outstanding principal amount and any accrued and unpaid interest to become due and payable in full on June 30, 2007. The note is recorded as a component
of other assets. As of June 30, 2003, the outstanding balance, including accrued interest was $237,603.



Sales to Investors



Beginning from July 1, 1998, the Company sold products to a customer who was also one of the shareholders of the Companys Series D preferred stock,
which converted to common stock simultaneously with the close of the Companys initial public offering. Total revenues from sales to this customer were $326,000, $1,453,000 and $8,280,000 for the years ended June 30, 2003, 2002 and 2001,
respectively.



The Company sold products to Cisco Systems, Inc.
who, in August 2000, provided the Company $50,000,000 cash in exchange for a note payable. Upon the closing of the Companys initial public offering, the note payable was converted into 3,298,773 shares of common stock. Total revenues from
sales to Cisco Systems, Inc. were $87,000, $2,452,000 and $11,485,000 for the years ended June 30, 2003, 2002 and 2001 respectively.



Purchases From Vendors



The Company purchased $91,700 and $228,800 of software and related support in the years ended June 30, 2003 and 2002, respectively, from a vendor whose
board of directors shares with the Companys Board of Directors three common board members. In addition, one of the vendors executive officers is on the Companys Board of Directors.



The Company received $7,500, $14,600 and $1,500 of legal services in fiscal
2003, 2002 and 2001, respectively, from a firm whose partner is a director of the Company. The director ceased to be a partner of the firm since January 2003.



Repurchase of Common Stock



On June 13, 2003, the Company purchased 6,170,325 shares of its common stock from its Chief Executive Officer for a purchase price of $1.84 per share,
which the Board of Directors determined to be the fair market value based on the three-day trailing average of the closing price of the Companys common stock on the Nasdaq National Market System. The closing price of the Companys common
stock on the date of purchase was



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$1.85 per share. The proceeds in the amount of $11,353,398 received by the Companys Chief Executive Officer for the shares were applied against
outstanding promissory notes owed by him to the Company as disclosed in Note 9 of the Notes to Consolidated Financial Statements. The shares were returned to the Company as treasury stock.



NOTE 11COMMITMENTS AND CONTINGENCIES



Line of Credit



In July 2001, the Company entered into a credit agreement, which provides
for borrowings of up to $3,624,000 for working capital purposes. The borrowings bear interest at 5.85% per annum and are secured by certain assets of the Company. The line of credit expired in April 2002.



Operating Leases



The Company leases its facilities under non-cancelable operating leases. The
leases require the Company to pay taxes, maintenance and repair costs. Future minimum lease payments under the Companys non-cancelable operating leases are as follows (in thousands):



|Year Ending June 30, |  |   |      
|-------------------- |  | - | -----
|2004                 |  | $ | 3,147
|2005                 |  |   | 2,313
|2006                 |  |   | 117  
|Thereafter           |  |   |     
|                     |  |   |      
|                     |  | $ | 5,577
|                     |  |   |      



Rent expense for all
operating leases was approximately $1,165,000, $2,758,000 and $4,052,000 in fiscal 2003, 2002 and 2001, respectively.



Capital Leases



During fiscal 2002, the Company entered into six capital leases for equipment in the amount of $1,252,000 with interest accruing at the rate of 8.30% per
annum.



Future minimum lease payments for all capital leases
are as follows (in thousands):



|Year Ending June 30,                         |  |   |       |  
|-------------------------------------------- |  | - | ----- | -
|2004                                         |  | $ | 1,529 |  
|2005                                         |  |   | 84    |  
|                                             |  |   |       |  
|Total minimum lease payments                 |  |   | 1,613 |  
|Less: Amount representing interest           |  |   | (52   | )
|                                             |  |   |       |  
|Present value of capital lease obligations   |  |   | 1,561 |  
|Current portion of capital lease obligations |  |   | 1,478 |  
|                                             |  |   |       |  
|Capital lease obligations, non current       |  | $ | 83    |  
|                                             |  |   |       |  



Litigation



In November 2001, the Company and certain of its
officers and directors were named as defendants in a class action shareholder complaint filed in the United States District Court for the Southern District of New York, now captioned, In re Oplink Communications, Inc. Initial Public Offering
Securities Litigation, Case No. 01-CV-9904. In the amended complaint, the plaintiffs allege that the Company, certain of the Companys officers and directors and the underwriters of the Companys initial public offering, or IPO,
violated section 11



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##### Table of Contents

of the Securities Act of 1933 based on allegations that the Companys registration statement and prospectus failed to disclose material facts regarding
the compensation to be received by, and the stock allocation practices of, the IPO underwriters. The complaint also contains a claim for violation of section 10(b) of the Securities Exchange Act of 1934 based on allegations that this omission
constituted a deceit on investors. The plaintiffs seek unspecified monetary damages and other relief. Similar complaints were filed against hundreds of other public companies, or Issuers, that went public in the late 1990s.



On August 8, 2001, the IPO lawsuits were consolidated for pretrial purposes
before United States Judge Shira Scheindlin of the Southern District of New York. On July 15, 2002, the Company joined in a global motion to dismiss the IPO cases filed by all of the Issuers (among others). On October 9, 2002, the Court entered an
order dismissing the Companys named officers and directors from the IPO lawsuits without prejudice, pursuant to an agreement tolling the statute of limitations with respect to these officers and directors until September 30, 2003. On February
19, 2003, the Court issued a decision denying the motion to dismiss the Section 11 claims against the Company and almost all of the Issuers, and granting the motion to dismiss the Section 10(b) claim against the Company. The Section 10(b) claim was
dismissed without leave to amend.



In June 2003, Issuers and
Plaintiffs reached a tentative settlement agreement that would, among other things, result in the dismissal with prejudice of all claims against the Issuers and their officers and directors in the IPO lawsuits. In addition, the tentative settlement
guarantees that, in the event that the Plaintiffs recover less than $1 billion in settlement or judgment against the Underwriter defendants in the IPO lawsuits, the Plaintiffs will be entitled to recover the difference between the actual recovery
and $1 billion from the insurers for the Issuers. Although the Company has approved this settlement proposal in principle, it remains subject to a number of procedural conditions, as well as formal approval by the Court.



On December 17, 2001, OZ Optics Limited, OZ Optics, Inc. and Bitmath, Inc.
(collectively, OZ) sued four individuals and the Company in California Superior Court for the County of Alameda. One of the four individual defendants is Zeynep Hakimoglu, who joined the Company on November 1, 2001 as Vice President of
Product Line Management. The other three are unrelated to the Company. Zeynep Hakimoglus employment with the Company terminated on December 17,2002. The complaint alleges trade secret misappropriation and related claims against the four
individuals and the Company concerning OZs alleged polarization mode dispersion technology. The plaintiffs seek actual damages against the four individuals and the Company in the amounts of approximately $17,550,000 and $1,500,000,
respectively, and enhanced damages, injunctive relief, costs and attorney fees, and other relief. The plaintiffs sought a temporary restraining order in December 2001, which the court denied, and withdrew their preliminary injunction motion against
the Company. The Company answered the complaint on January 22, 2002, denying plaintiffs claims. The case is in the early stages of discovery and no trial date has been set. The Company believes that this litigation with respect to the Company
is without merit and intends to defend itself vigorously.



The
Company is subject to legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. While the outcome of these proceedings and claims cannot be predicted with certainty, management does not believe that
the outcome of any of these legal matters will have a material adverse effect on the Companys consolidated financial position, results of operations or cash flows.



NOTE 12SEGMENT REPORTING



The Company has determined that it has one reportable segment: fiber optic component and subsystem product sales. This segment consists of organizations
located in the United States and China, which develop, manufacture, and/or market fiber optic networking components.



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The breakdown of sales by geographic customer destination is as follows (in thousands):



|              |  | Years Ended June 30,
|------------- |  | --------------------
|              |  | 2003                
|Sales:        |  |                     
|United States |  | $                   
|Europe        |  |                     
|Asia          |  |                     
|Canada        |  |                     
|              |  |                     
|Totals        |  | $                   
|              |  |                     



The breakdown of
property, plant and equipment, net by geographical location is as follows (in thousands):



|                                    |  | June 30,
|----------------------------------- |  | --------
|                                    |  | 2003    
|Property, plant and equipment, net: |  |         
|United States                       |  | $       
|Peoples Republic of China          |  |         
|                                    |  |         
|Totals                              |  | $       
|                                    |  |         



NOTE 13401(K) PLAN



In 1997, the Company adopted a defined contribution
retirement savings plan under Section 401(k) of the Internal Revenue Code. This plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pretax
basis. All employees are eligible to participate three months after employment. Matching contributions are at the discretion of the Company. The Company made no matching contribution to the plan during the three years ended June 30, 2003.



NOTE 14SUBSEQUENT EVENT



In July 2003, the Company entered into a line of credit agreement, which
provides for borrowings of up to $2,420,000 for working capital purpose. The line of credit will expire in January 2004.



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##### Table of Contents

REPORT OF INDEPENDENT AUDITORS ON

FINANCIAL STATEMENT SCHEDULE



To the Board of Directors and Stockholders of

Oplink Communications, Inc.



Our audits of the consolidated financial statements referred to in our
report dated July 29, 2003, appearing in this Form 10-K also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the related consolidated financial statements.



PricewaterhouseCoopers LLP



San Jose, California

July 29, 2003



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##### Table of Contents

Schedule II



Oplink Communications, Inc.

Valuation and Qualifying Accounts

For the years ended June 30, 2003, 2002 and 2001



(In thousands)



|                                |  | Balance atBeginningof Year |        | Charged toCosts andExpenses |   |        | Deductions (1) |  | Balance atEnd of Year
|------------------------------- |  | -------------------------- | ------ | --------------------------- | - | ------ | -------------- |  | ---------------------
|Allowance for doubtful accounts |  |                            |        |                             |   |        |                |  |                      
|Year Ended June 30, 2003        |  | $                          | 704    |                             | $ | 62     |                |  | $                    
|Year Ended June 30, 2002        |  | $                          | 876    |                             | $ | (69    | )              |  | $                    
|Year Ended June 30, 2001        |  | $                          | 562    |                             | $ | 330    |                |  | $                    
|                                |  |                            |        |                            
|Inventory reserve               |  |                            |        |                             |   |        |                |  |                      
|Year Ended June 30, 2003        |  | $                          | 35,601 |                             | $ |       |                |  | $                    
|Year Ended June 30, 2002        |  | $                          | 27,134 |                             | $ | 10,407 |                |  | $                    
|Year Ended June 30, 2001        |  | $                          | 4,459  |                             | $ | 30,565 |                |  | $                    
|                                |  |                            |        |                            
|Accrued restructuring costs     |  |                            |        |                             |   |        |                |  |                      
|Year Ended June 30, 2003        |  | $                          | 9,679  |                             | $ | 12,167 |                |  | $                    
|Year Ended June 30, 2002        |  | $                          | 4,544  |                             | $ | 28,105 |                |  | $                    
|Year Ended June 30, 2001        |  | $                          |       |                             | $ | 18,177 |                |  | $                    

---

|(1) | Deductions represent costs charged or amounts written off against the reserve or allowance.
|--- | -------------------------------------------------------------------------------------------



F-33